these days. he is in the middle of achieving the most import reform in our health-care system in a generation while working hard to completely overhaul our regulatory financial system, not to mention his central role in formulating legislation to jump- start our economy and create millions of new jobs. in the interest of giving him a few minutes to sleep and eat, i volunteered to lead this hearing. we appreciate everything he is doing. i want to start by praising the work of secretary lahood and the administrator. they are overseeing transportation when localities have fewer resources to meet this demand. they have proven themselves able and visionary leaders in these trying times. as seen by the proposal they will be discussing today, their leadership on safety has been particularly important. transportation policy, safety

must always be of paramount importance. this past summer, the tragic metro crash claimed lives of nine people, including a retired commanding general of the d.c. national guard and his wife. two working mothers, retired teacher, and a woman who worked with nurses around the world. we must never forget the coming up short unsafety results and tragedies that must be avoided at any cost. as we begin this discussion, there are a few key points i would like to make. the way we currently regulate mass transit safety does not simply make sense to me. there is basically no federal role in transit safety oversight and that is shocking. we have 27 states with a mismatcregulation -- with regul [unintelligible] second, in the past two years there has been a disturbing trend in transit safety.

fatalities, injuries, and derailments seem to be trending upwards and we must act to make sure this trend stops and reverses. it is important to keep in mind that despite the lack of federal oversight and the trends in recent years, mass transit is still the safest mode of transportation there is. much safer than driving or commuter rail which is governed by a robust federal safety system. the last point is no matter how well we regulate transit safety, we cannot expect safe systems if we do not invest in new infrastructure. according to an fda report, it would cost $50 billion just to get the nation's sevent largest transit systems to good repair. i am hopeful that robust real modernization funds will be part of the bill.

rail modernization funds spend quickly. they create jobs and they are an investment in infrastructure that is critical to our economic health. these funds must be part of any effort to make transit safer. i want to think the administration for a well thought out proposal. i look forward to working with them. this issue is of the upmost importance and cannot be held hostage by the reauthorization process. despite the full committee schedule, i certainly hope and expect that we will market safety legislation next year. let me recognize the distinguished ranking member for his comments. >> thank you. i am eager to hear the testimony so i will thank you and the committee for this hearing and welcome secretary will hood and i have had the pleasure of serving with him in the house.

thanks for your continuing service. >> i want to echo the chairman's comments on the importance of transit safety and the fact that it has been an area that has often been overlooked and i have to acknowledge as a former governor, perhaps at the state level, overlooked as well. i want to start by applauding the secretary for his collaborative approach you have taken in trying to see how the federal government can be involved in strengthening these state and local efforts. i look forward to working with the chairman and ranking member and you on making sure we move forward. echoing again what the chairman

said, the recent incidents on metro were more than just an incident to me. this is a network that serves my communities in virginia. we remember the tragic accident in maryland in june. there have been a series of other incidents that have taken place over the last few months. three of them in virginia, one as recently as november 29. this string of incidents really heightens the need for our attention and focus. and showing what the chairman said, we havei am happy to see t the report includes a bill for funding and grants to address safety and maintenance issues.

one of the things all this realize is the metro systems which i can remember that we prided as brand-new is getting up by an age. -- in age. it is 35 or 40 years old at this point. just like any house that gets that age, things start to break down at once. we're seeing that at least on the maintenance side with metro. it is showing its age. i echo the chairman's comments that we need to increase our focus on safety but we have to increase our focus on maintenance. i want to make two final points. i hope we look at this from the standpoint of how we get transit

safety right. there should be an increased federal transit safety rope. perhaps with the exception of california, most states do not do a good job on transit safety. we have gone back to my secretary of transportation, and try to look at what authority we thought we had in virginia to take on transit safety. it has never been high enough on our priority list. there is some uncertainty on what kind of authority at the state level we have. in terms of metro, that is further compounded because of the challenge with the three jurisdictions. i know that the biggest divide talked about in this area is the potomac river between virginia, maryland, and the district and with these three jurisdictions will have to find a way to

strengthen the oversight board and to strengthen local and state abilities to look at safety. since i will not be here for the comments i want to pose a couple questions. we have read that metro has lost a number of its experienced employees in the normal course of retirement. as we have seen, some of these positions particularly in safety oversight maybe are being replaced by younger employees. i want to know what he's doing in emphasizing safety in terms of training employees and ensuring safety is a high priority and how it is measured and how the employees are measured on safety performance. what else can we do to slow further attrition of the experienced workforce? what new safety training programs are you putting in place? has there been any thought to on some short term basis bringing

back some of the recently retired employees who have expertise on how they might help consoles or further train this newer work force? i will not be here to hear the responses but i look forward to getting their responses. thank you. >> thank you. let me introduce secretary lynn hood. 16th

secretary lahood. several of us have had the opportunity to serve with the secretary in the house of representatives. we welcome you are we're ready for your comments. >> thank you for the opportunity to testify on the proposed legislation to reform the department of transportation's role in overseeing the safety of our nation's rail transit systems. with me today is peter rogoff, our transit administrator. travel by rail remain safe but serious accidents do occur. we believe the additional action is needed to make rail transit even safer. rail transit is currently the only mode within the department

that operates without comprehensive federal safety regulations, oversight, or enforcement authority. we must remedy that gap. rail transit systems carry far more passengers lightlthan airl. the d.o.t. is prevented from issuing a national safety regulations for rail transit systems. that antiquated provision was put into law 45 years ago. i ask you to change it now so we can address the safety needs of the more than 14 million americans that use these rail transit systems every day. this is an antiquated law and it needs to be changed. at present, the nation's major metropolitan subway and light

rail systems from seattle and san francisco to chicago, boston, new york, and atlanta, are subject only to the federal transit demonstration safety, a state safety oversight program. this program lacks federal statutory authority to establish meaningful minimal safety thresholds in states where real transit systems -- rail transit systems to operate. each is permitted to determine its own safety practices. it is up to state governments to determine the state of regulatory oversight and enforcement authority granted to each system. this results in a patchwork of 27 separate state oversight programs guided by a regulatory framework of inconsistent practices, ltd. standards, and marginal effectiveness. what is more, most states to vote in sufficient resources to these safety programs. nationwide with one exception,

state agencies employ an average of less than one full-time person per year to do this work. under these conditions, we risk transit safety problems going unidentified and uncorrected. especially as the transit infrastructure gets older and available revenues for transit remain tight. clearly, urging reform is needed now under the leadership of our deputy secretary. our department has developed a legislative proposal that has now been formally transmitted to you on behalf of the president to the speaker of the house and the president of the senate. i ask you to consider or reform proposal seriously and promptly. our legislative proposal would accomplish three goals to strengthen transit safety nationwide. through the fta it would establish standards for rail transit systems that receive

federal transit funding. it would establish the safety certification program that would provide federal assistance to eligible states that elect to carry out federally approved public transportation safety programs and enforce federal regulations. we seek to ensure that states will now have the manpower and training and the enforcement tools to conduct meaningful oversight in states that choose to opt out. -- enforcement tools to conduct meaningful oversight. any state agency would be financially independent from the transit system it overseas. i have informed congress that we would establish a transit rail by azeri committee to develop new recommendations for fta's consideration. the advisory committee will be made up of safeties bands -- specialists, -- safety

specialists. we will encourage agencies to use risk analysis to identify loder billy's and take action. safety remains our highest priority. we have established a safety council that will tackle crosscutting safety issues across all transportation modes. our transit safety legislation proposal was brought before our council and approved through the input of safety experts throughout the entire department. i believe our proposal offers a critical and necessary step to provide a consistent oversight that rail transit industry needs to ensure safety for workers and the traveling public. we look forward to your questions and thank you for your leadership. and allowing us to be here to

testify today. >> thank you for your testimony. let me welcome and call upon the distinguished chair of the full committee. with everything you are doing, we are amazed that you --health- care reforms, job package, we are thrilled to have you here. >> i would not miss ray lahood. let me thank senator menendez for doing this. he has strong interest in the subject matter. and others -- this is a subject in which a great many of us have interest. i am excited about your leadership in this effort.

i appreciate that very much. this is -- is described -- i describe this issue as a win- win. it reduces dependence on foreign oil and protect our environment and connects people with jobs and services. this is an issue that truly demands our ongoing attention. it may have said this already. if i am repeating your remarks i apologize. i was stunned to see the numbers on writer ship. -- ridership, they are the highest numbers since 1956. there were 10.7 billion trips taken last year. we want to work to increase those numbers.

our first priority is security. even though there are problems and we read about them, it is important to note that among the safest mode of transportation are transit. incidents fell by half which is a positive sign despite the notoriety of some of these major problems you are saying. a recent series of accidents have some americans' concern. -- americans concerned. the record overall has been a pretty good one. transit administration has limited authority to implement and enforce national transportation safety standards. we have gone without a proper national safety program. states handled an unfunded mandate, many of the sport's

lack authority and expertise -- these boards lack authority and expertise. this is an ad hoc approach to transit safety. i support you in the efforts. i have taken -- they have taken leadership roles and we're grateful to you for doing so. by improving our oversight structure, we need to address a backlog in infrastructure. metro-north provided 40 million troops in connecticut last year alone has not had a collision in 25 years. we cannot keep running along aging rail lines and decaying tracks and bridges and expect that record of safety to continue. it will not happen. a recent study by the fta of the nine largest transit operators found one-third of the agency's assets are near or have

exceeded their expected life span. and are either marginal or in poor condition. we're running a $50 billion deficit for the needed repairs which can only grow. funding levels for the fixed guardway lag behind it must be addressed in the next transportation bill. we can catch up by funding the capital investment bill. this will create jobs and create a more reliable system. no rider should ever wonder if they are safe. i commend you for what you are doing and i know that senator barbara mikulski is testifying. she has taken a great interest in this since last summer's accident. i would like to thank you in advance and for your testimony as we move forward.

the opportunity for us to take advantage of what people perceive of thean area of interest. there is a growing dependency and an opportunity for expand and leave the country. i think you anank you and bob. >> let me start off. this is a strong proposal that sets us off on the path to re transit system. i have a few questions. -- this is a strong proposal that sets us off on the path to a transit system. i view the fta as a grant making organization. mine understanding -- my

understanding is it has less than three full-time employees. can it ramp up assuming congress passes the legislation and sends it to the president, is that something you envision being able to happen? >> yes, sir. upon enactment and having this bill signed, would ever -- whatever you do, it would take upwards of three years to implement it. during that time, we will be able to staff up and work with the states and develop the best program possible. i will let peter say a word about this. >> we have been working with omb in development of the 2011

budget to make sure there is a meaningful funding increment to hire the necessary staffing both for people to write regulations but also to better finance the state partners in the field so they can build up their expertise and inspection of the training costs. >> which brings me to my second question. some of the details which have to be fleshed out. those details will determine whether the safety regime will be successful or not. when do you envision being able to give us insights as to what type of oversight authority states are going to need to meet federal standards, and how much are we talking about in terms of projected costs, as well as what type of staffing will be

necessary in order to meet these new, more rigorous standards? >> the funding increments, the funding has several components. it is getting necessary folks to do the regulation writing. because the states have stood up the bare minimum in terms of thioversight, we envision the government taking over it. right now, the state agencies with one exception average less than one person per year. we do not think that is anywhere near adequate. we would propose through federal grants to grow that resources to handle the staffing costs and training costs. overall in terms of hard numbers, we're not in a position while the budget is being developed to talk about hard numbers. it will be less than 1% of the fta's budget.

we're fine-tuning those needs now with omb. we expect the safety partners in the states to have in order to enforce federal regulations -- we want them to have the necessary teeth to compel the intention of the transit agencies they oversee. that is something we have not seen. that could include the ability to assess fines. there would have to have access to inspect those systems and access to the agency's documentation. if we found them to be inadequate, we would have federal fta personnel handle that oversight in the state. >> you talked about in your testimony the desire to have performance based measurements when evaluating whether an agency is operating safely or not. what type of performance measurements are we talking

about? are we talking about number of accidents, personnel dedicated to safety, a condition of systems, what are we looking at? >> we have some experience with this through the fra and problem -- pipeline safety program. we would probably look at those standards and issues in relationship to what best practices have been with fra and our pipeline safety and work with the transit organizations to make the highest safety standards and our ability to oversee those in a way that reflects the values that safety is number one. we had a meeting of transit groups from around the country, this was a few months ago, to

explain we felt it was important for the department to step up one safety. and to elicit their ideas on how we could use their expertise, whatever they had, with our expertise to develop these kinds of standards. we're going to take best practices from around the country and from within our own department through the fra which does some of this and our pipeline safety, and try and use best practices to develop these new standards. >> i think it's great to have the stakeholders with you. what was their attitude? >> i will let peter talk about that. the fact that he is here today. he told me before we began, he supports what we're doing and he is giving us a lot of encouragement to move ahead. i think that is a strong signal from one of the largest metro

systems in the country. america's metro system. we appreciate the fact he is here today supporting our efforts. i think that is true. peter was interfacing with these folks more than i was. >> i would say there are a lot of elements of our legislative proposal that have been infused by our meetings with stakeholders. not just -- we had state commissioners at that meeting, senator warner talked about his state commissioner who admitted that he did not know until the issue of the norfolk rail system came to him that he had this responsibility in his agency. two other state commissioners confessed the same thing. we took from that this need to raise the capability and visibility of state partners or replace them with a federal presence to make sure the issues are being attended to.

>> thank you very much. >> we are doing a lot of opting out today in various proposals around congress. whether it is public auctions. i noticed here despite the efforts, you allow the states to opt out here. i am -- given the budgetary restraints that all the statements are facing, -- states are facing, how are you going to encourage the states not to opt out given the pressures they are under? >> we are talking about adopting, taking on the state costs as a federal cost in this instance. we would be covering, if they would grow the inspection presence and grow their authorities to do an adequate job, we would cover salaries,

training, the trouble of the state partners. they could still opt out. there are a couple states, wisconsin might be one that has a very short amount of mileage and arkansas might be another that has less than four miles of rail transit service. . .

>> this is a way to address the backlog. i talked about the $50 billion now, those numbers become exponentially larger with every passing day and week. particularly if router ship its up and more demand there is more stress on the system, all of these contribute to that. we have to think more creatively about how we finance and budget these things. i keep on talking about this infrastructure bank idea for regional and national and for stricter needs of the country. their of their ideas like bonding. we will never do this under the normal preparation process. there are limits. we talk about the magnitude of the problem and the ability to either cut spending or raise taxes, we all know that is impossible. we have to think differently

about how we do this. we did not have a lot of time because the problem is so fundamental and the stresses on the system are larger all of the time. i hope there is a high priority and even though it does not produce the jobs tomorrow that the people would like and i would too, we better start thinking about these longer-term ideas or this is all going to be a bit sticky problem going on. if the system collapses, the deferred maintenance predicts the types of problems you will have. they are blinked. >> if i could just say, i know that you know this but it is worth saying. at the economic summit that president obama hosted at the white house, he sat in on the infrastructure panel that i was a part of. he talked about the infrastructure bank. the president is very keen on this idea. we are very keen on it. there is a lot of momentum groping for the infrastructure

bank for the very reason you are saying -- growing for the infrastructure bank. this is a good way to identify some big things that can be done. i think you will see a lot of interest from this administration from the president down for this idea. >> may i add to two things? >when the secretary took office, we devised a new plan. one of the priorities for the department is the state of good repair of the transportation system. it is not just limited to transit. it covers the pipeline network and all of those things. i think you will see an emphasis on the condition of the existing infrastructure. we recognize that backlog exists and we are not going to move it down. this is essential to that

because it requires people to use safety management systems recognizing that the system may be in poor repair. how we identified the greatest safety risk before the accident happens? that is an elemental part of this proposal. >> senator reid -- reed. >> thank you. to follow that point, if we subsidize these transit systems at the rate we subsidize the road infrastructure, these problems may be self correcting. i think every system wants to do this. this is not something that they did not want to have happen. let me ask a specific question. within the legislation, there is a proposal to expand coverage to bus systems. there are possible -- two and always to do that. one is the bus systems that are

linked to the transit rail systems you are proposing to regulate. the other would be bus systems or not which would be the case in ryeland where we have a state-wide system that has a decent record but we could do better. would you exercise this authority? is this something good to have on the books or is this part of the specific plan with the timetable? >> it is a part of trying to look at this at a rigid in a comprehensive way. as peter indicated, our number one priority is safety in all modes. we know that people ride the trains and buses. there needs to be attention paid to this and we did not want to leave it out and be criticized for what are you not taking care of this mode of transportation? >> the only thing i would add is

it is not in our near-term plans to take on the bus regulatory agenda. we want to walk before we run. the greater focus we think should be on grill. we are prohibited by law to regulate in either area, we thought asking you if that provision be lifted that we address the entire universe and have the option of getting into the bus to read that if necessary. >> i appreciate that. it helps clarify your intentions. i understand that indirectly the national traffic safety administration have authority in this area. is the first step to coordinate their activities? is that something is worth thinking about? >> our emphasis is on the rail area. we wanted to reserve the statutory authority.

if we got to that point, we would have very clear delineations of authority as you correctly point out. they have different regulatory authorities depending on if it is focused on the driver or the vehicle. if we would get into the space, we would focus on the systems. that is not in our near term plans. >> a final question. the thrust of the legislation is to have a transportation system and an independent safety oversight body. i do not know, is that the system today everywhere? to some states and localities have to modify their approach? how do you ensure this independence? that goes to the question that senator dodd race about -- raised about paying for this and not being able to fully satisfy their funding.

>> we would like to follow satisfy their funding by doing it through grants to the state. they would have to change governing structure. and this is one of the deficiencies we want to address. some of these transit oversight agencies actually depend on the transit system they oversee for their budget. it is a conflict of interests we cannot allow anywhere else in test partition safety. we do not allow the airlines to decide how much the faa inspectors are paid. we cannot allow the freight railroads to decide how many inspectors there are and how much they get paid. somehow this current system has evolved into where certain systems have been allowed to either pay their safety oversight entity or not. by taking over the -- at the federal level, we hope to eliminate that conflict of interest and there would have to be some governing restructuring.

>> thank you. >> thank you, senator jack reed. >> we appreciate and looking forward to continuing to work with you. as you depart, let me welcome our distinguished colleague from maryland who has been a vocal advocate for more federal oversight of the transit safety issue and recently introduced a senate bill, the national metro safety act which she will want to talk about today. senator mikulski, thank you for joining us. we look forward to hearing your testimony.

>> thank you, mr. chairman. thank you for those nice words of introduction. i want to thank you for your national leadership of transportation safety in general and also on this transportation safety issue, in particular. you were prompting by responding to my request to take a look at these issues. the washington, md., metro -- maryland and virginia metric systems. we have had terrible accidents in the action has been swift, urgent, and several. if we all work together, the executive and legislative branch, we can really within the next year do something that we can be proud of and that our

constituency can rely on. i feel like it is a new day and there is a freshness and leadership and a commitment to rigorous follow-through. i recognize that transit safety is a national problem. i am here today to speak about the washington metro that serves maryland, virginia, and the district of columbia. i am here to speak for all of the people in the capital region, over 2 million people, who ride the metro, go to school on the metro, keep their doctors' appointments on the metro and use it. the metro also serves the nation. it is america's support. your constituents -- use the metro when they come to washington. they need to be able to rely on it for not only the reliability of timeless and adherence to schedule but also to safety.

i want to commend the day-to- date staff that operate it. they have done a fantastic job. i remind you that on 9/11, they helped evacuate the district of columbia at some considerable risk to their own lives. they also did a setback -- a spectacular job on inauguration day. they are facing serious problems. they need money. they remind us continually. they need a more vigorous and aggressive form of management and they need to know their federal government is on their side in terms of a national framework for public safety. i am calling for a sense of urgency both by metro and ourselves because i want to tell you some shocking things just in the last year. in the last year, there have been 11 deaths on metro. 11 people have died.

in june, a train struck another train during the evening rush hour. eight passengers were killed, including one from maryland and a metro employees. 50 passengers were injured. in august, another metro employees died, of repairman. he was hit by meekness equipment. we have trains owned and operated by a metric that are a cause of the problem. this was not a terrorist or a drunk driver, this was metro equipment that failed the people that were writing it and failed the people that were working on it. -- riding and fill the people that were working on it. a technician was killed after being hit by a train. i wonder what they are doing. all the writers -- riders and

workers are getting lip service to change. my observation of management is that they think having a meeting about the problem is solving it rather than the aggressive work that you do. there is a pattern of passivity and lip service. i would hope that they could now take appropriate actions. i can tell you this, the metro leadership would not even let the inspectors from the three jurisdictions walk to the tracks. we have problems with washington metro itself. i do not want to have more meetings, i want action. we have metro down, too. i asked the secretary to investigate some of the safety practices. it is loud and clear that we have not followed through on the national transit safety board recommendations. i have met with the ntsb and

asked what we have to do. they went over recommendations , to win overin the last year -- to win over the last year and back to 2006. they said the fda has not taken any action -- fta any action on their recommendations. they said that if they have the authority, they do not have money. we need to act. as you can see, i am really hot about this. what i would like you to do is to pass legislation that fixes mentor and deals with the largest issues. my legislation is complementary to what the president is advocating and secretary lahood is discussing. my legislation is focused on the implementation of the national trends safety board's recommendations.

we would implement the prior recommendations, particularly in emergency evacuation standards, crashworthiness data requirements. these are ntsb's most urgent requires rigid requirements. we have federal safety requirements for buses and airplanes but not for subways. one would be on crashworthiness standards. i think you would find it interesting that there is no standard for the safety of these cards. we need to be able to prevent the cars from telescoping upon crashing. people died because they telescoped. the ntsb offered a

recommendation in 2006 and nothing happened. we need to have data event recorders like we have on airplanes. they recommended in 2002, nothing happened. the other was emergency f. -- entry standards. do you know how you can get out of an airplane? you did not know how to get out of these cars. they recommended standards to provide rapid ability to get out and for the first responders to get in. there are no standards in this area. at ntsb, they reported fta has delegated this to the american public transportation association. that is nice but we have a job to do. i respect the american public transportation association but they cannot be the ones to develop the standards. we need to do that. last but not least, the power of services so that train operators

have eight hours of uninterrupted sleep between ships. this is what we regulate for people who drive buses pilots. we need to retire the older cars because they cannot stand the shock. mr. chairman, i want you to know that i am not a novice with metro. working with the congress, the virginia senators and their members, tom davis, many you know, we have worked with them and got them money and revenue. when the omnibus passes over the next 72 hours, we will make the first installment of $150 million. we will have the beginning down payment but we now need fresh

and aggressive management at the metro and we need to have federal standards for not only us but for the nation. we look forward to working with you and the president paused team on this. mr. chairman, that concludes my remarks. >> senator, let me thank you for your dealership in this regard. i cannot think of anybody better to be on our side in terms of making this happen. you will be an important part of this. we thank you very much. i have no questions. >> i just want to thank the senator for her great work and great support not only of transit and the metropolitan area but for all of the country and in rhode island. thank you. thank you, senator jack reed.

you are a leader on national security. as you know, we have moved so much and they need the metro. it is a national security issue. >> and environmental protection. it is a long list. >> thank you. >> senator mikulski -- as she departs, let me call the final panel. john catoe is the general manager for the washington metropolitan transit agency. he served as the authority's general manager since 2007 before joining the authority -- before joining the authority, he was the deputy chief for the los angeles transportation authority. we welcome him today. brian cristy is the director of transportation oversight for the

massachusetts department of public utilities. he has been a director there since 1992. he oversees state safety oversight of the massachusetts bay transportation authority. david wise is the director of the physical infrastructure team at the government accountability office. in that role, he is a team director and leads a team that specializes in assisting the government possible for surface transportation. william millar is the president of fe massive -- of the american public transportation association. he has been before the committee many times and we welcome him again. let me ask each witness to keep your statement to about five minutes. your full written statement will be included in the record without any objection.

with that, so we can have time with questions, let's start with mr. kato. -- catoe. >> let me begin by reiterating the point i made when i testified in august. like many transit agencies, metro needs to expand system capacity to meet future writer should needs. like other agencies who are struggling even to maintain, funding has not kept pace with the capital needs of our aging system. if not addressed, i believe this combination of increasing transit command and infrastructure -- demand and infrastructure will form a perfect storm that will eventually undermine transit success. i reiterate this point because safety and a state of good repair our tow sides of the same

point -- two sides of the same coin. to provide safe and reliable service is dependent upon our ability to keep our systems in good repair. i encourage the subcommittee to keep this in mind as you consider ways to improve safety. before i talk about oversight, let me tell you about some of the things we're doing at metro to improve safety. we continue to respond to the june 22 accident in several ways. we are operating trains manually and developing software to alert us to track circuit problems in a real-time basis. we also have undertaken a number of other safety initiatives. this includes works like inspections, stricter hiring standards and tougher disciplinary action for safety

violations such as cell phone use while operating a vehicle. in addition, we have started and continued and expanded additional training class for all of our employees, particularly those in the operations department. i have also taken a resource within the agency and reassigned as our chief of police 8 long term transit safety professional -- a long-term transit safety professional, to give new guidance to our overall safety program. our internal efforts to ensure metro safety are overseen by the tried-state oversight committee. it is fair to say that the metro and the witnesses here all share the same basic goal. effective oversight that results in a safe environment for transit riders and employees.

to meet that goal, i believe the federal government should take a more active role to ensure consistency and quality of oversight across the country. i believe that effective oversight should include five key elements. first, an oversight agency must have full-time staff and a trained and experienced staff insufficient funding to attract and retain them. i also note that it is equally important for the transit agency itself to have sufficient resources including staffing and training for its internal safety programs. the second element of effective oversight of subsystems like metro is a system safety focused. the oversight agency will not develop standards relating to individual components without considering all of the

components and complications of the system in its entirety. third, i strongly endorse the involvement of transit exports and the development of safety standards. safety professionals no technical requirements in operating conditions best because we operate every day. fourth, effective oversight requires meaningful enforcement authority. i encourage you to consider ways to encourage compliance. finally, i believe the cost -- the use of cost-benefit analysis will stimulate the development of realistic and workable solutions to safety issues. it is important to understand that almost every element of a subsystem has a potential impact -- of a subway system has the potential impact.

thank you again for giving me this opportunity to testify. i look for to answering any questions. >> thank you. i am going to ask senator jack reed to chair. i have to get to the office but i look forward to coming back. >> chairman menendez, and other members of the subcommittee, we appreciate the opportunity to provide testimony at this hearing on the mechanisms in place to oversee the safety of the nation plus rail transit systems. rail transit moves more than 7 million people daily and has been one of the safest forms of

public transportation. as department of transportation secretary noted, rail transit does have the potential for catastrophic accidents with multiple injuries, considerable property damage and heightened public concern. my statement will cover two topics. the results of report we issued in 2006 to the house which focused on state safety oversight program for rail transit. second, our preliminary observations on dot's proposal to change the agency possible in safety oversight. the federal government does not directly regulate the safety of rail transit in the u.s. in 1991, congress required the federal transit authority within dot to issue regulations requiring states to designate an oversight agency to oversee the safety and security of real transit agencies and withhold

federal funds if the state did not comply. the state safety oversight program generally covers real transit systems that are not subject to federal oversight and receive new funds. this includes several different types of rail. -- under the program, state safety agencies oversee transit systems. fta provides oversight of those agencies. we found in 2006 that state oversight and transit agencies generally viewed the program positively. some told us that the safety plans benefited transit agencies and that state safety companies help. funding challenges the state government limited the number of

staff to that level of 14 of the 20 agencies said were insufficient. 11 had staff without expertise in real safety. 19 state agencies had no enforcement authority if standards were violated. 10 state agencies relied on the transit agencies under their purview for a portion of their budgets including reimburses -- reimbursement for oversight expenses. fta had fallen behind their scheduled to perform maintenance every three years. we recommended that fta reinvigorate the program, established any curriculum and provide funds for training. they have acted on these recommendations. regarding dot's proposal, it is likely to address the problems of staffing because it required fta certification and provide

funds to the agencies. by providing fta explicit enforcement authority, the proposal would also address the problem of states having no power to compel safety improvements but transit agencies. finally, a statement by secretary lahood showed that they are intending to be financially independent from the financial system's they oversee. there are several issues for congress to consider in regard to this proposal. this oversight and enforcement better accomplished at the state or federal level? the answer may vary by state and transit agency. what enforcement tools would be appropriate given the transit systems need to serve their riders and their typically funded by affairs and taxes? fares and texas? >> how should this be paid for?

mr. chairman, oversight of transit bill safety is a key function required to ensure a safe system and maintain public trust. this concludes my statement and i am happy to answer any questions. >> thank you. mr. cristy. >> distinguished members of the subcommittee, i think you for the opportunity to discuss the roles and responsibilities -- i thank you for the opportunity to testify. we are over 100 years old and we are the fifth largest transit authority in the u.s.. we provide service to over 1.3 million passengers per day oversight was originally established in 1964 and are pursuant to the enabling

legislation. the department instituted the program in 1995 as mandated a lot. the oversight of the bta includes the ability to promulgate rules and regulations and issue corrective action. in january of 1980, the department mandated service regulations for rail transit operators. in august of this year following an accident in boston, the department became the first transit oversight agency to prohibit all train operators and bus operators from using a cell phone or having a cell phone in his or her position while on duty. the success of the department safety oversight depends upon opening -- maintaining open dialogue and communication on

all safety related issues. this includes around-the-clock access to property, meetings, audits, and investigations. the department has direct access to the general manager and other upper management officials and received automatic notification of any safety-related incident that takes place on the property. the department supports the administration's proposal to give authority over fixed rail systems. this proposal will strengthen the existing program. the proposal would cost the fta to become a safety regulatory partner rather than an adviser. the department, however, respectfully submit that changes preclude -- include the following. >a phase in period to allow us sufficient time to meet new

requirements. a federal kenyon for agents to seek fines for issues of noncompliance and we believe these funds should be imposed by fta. additional training opportunities for the community together with federal requirements that the transit system staff and management participate in transpacific to this program and to the extent possible, required that the transit authority director of safety directly report to the general manager. any additional regulation should take into account the uniqueness of each system. a new stop would not have the same safety issues as a legacy property. finally, most critical to the success of any oversight program is funding. there must be a source of funds identified and provided based on agreed upon criteria. the funding should provide for staff and training, certification, and for flexibility in hiring.

they may want to hire a consultant for a short-term project rather than a full-time staff person. in closing, the department supports a strong role transit authority program with enhancements to allow fta to become a more active participant. the department submits that in order for any proposal to succeed, the local transit authority must be equal partner with full support of the program coming from the top of the transit agency down to the operator-level. thank you for allowing me to testify. >> thank you. >> thank you. it is a pleasure to be back before this committee and a great honor. on behalf of the 1500 members of the american public transportation association, we do appreciate this opportunity. public transportation systems in america are safe and well used. in 2008, americans took a modern record of 10.7 billion

trips on america's public transportation systems. this is 15 times the number of trips that took on the nation's domestic airlines. according to the u.s. department of transportation data, a person is many times safer as a passenger riding on rail transit than as a passenger riding in a motor vehicle. that said, things could always be made safer. we commend the subcommittee, senator mikulski, secretary lahood, and others who are working on this important need and we are certainly looking forward to working with all of you as you develop various ideas. we have worked for decades to improve safety. the enviable record that the industry has is a result of these many decades of work. through our safety activities,

our peer review program, and others, we have developed the expertise to continue to improve real safety in america. we have been briefed on the proposal that secretary lahood outlined this morning and we generally support these efforts and the specific proposal. we do have a number of concerns which i outlined in my written testimony and i would like to describe three key points today. on the issue of standards, we have a highly technical and rigorous standards development process. we have developed more than 170 voluntary consensus standards to ensure safe operations, including 96 rail safety standards. for example, in the last two years, after work with the american society of mechanical engineers, which published standards on crashworthiness for heavy rail and light rail

vehicles to ensure maximum safety in the event of a collision. generally, our standards are performance-based. we would recommend that these standards which had been partially funded by the federal transportation authority should be used in new safety oversight programs. second is the issue of federal pre-emption in the city area. secretary lahood said that a passenger that uses real service in chicago expects the same level of safety when he or she travels to san francisco and boris several transit car there. we agree with that -- and boards a transit car there. we agree with that. we want national performance standards. we believe a national focus is an essential element of applying safety standards. we understand that some state or local authorities may desire to raise the bar on some particular aspect of safety.

to do so would ultimately detract from the overall effort. a standard created in one location would be through the threat of litigation become a defect go -- de facto standard. it would be a disjointed collection of highest bars driven by the courts. there is also a practical reason for this concern. there is a demonstrable need for uniformity of safety requirements for real transit cars. this is a very small market, about 300 have the real cars and about 70 -- 300 heavy rail cars and about 70 light. with a set of wildly adopted consensus performance standards or federally adopted standards.

and allowing states to set differing standards, the manufacturer would have to design, engineer, test and build of various versions of the same model. this is problematic. the redesigning to meet different set the criteria extensively increases the cost of the cars. and these are funded in a large measure with federal taxpayer dollars. this may stifle competition by reducing the number of rail car manufacturers willing and able to bid. bis is important and we need to work carefully on this point. -- this is an important issue and we need to work carefully on this point. it will take significant financial investment to bring public transit systems up to a state of good repair. to increase the training of the men and women who work in our industry and are ultimately

responsible for safe operation and to correct safety issues that may be identified. the safety needs to be taken to the next level and investments must be made. it is not enough to pass laws and issued regulations. we appreciate the opportunity to be here and command you and the subcommittee and all the parties involved and we look forward to looking -- look forward to working together to improving real safety across the country. >> thank you. you have been a great source of advice to this committee. thank you for being with us today. let me take up the point that you concluded with and asked you and mr. weiss, this funding issue is absolutely critical. appropriating is better in some

respects. there is always a competition between those. can you talk about the general consensus of what we need to do and to what extent we need to invest in safety supervision? >> let me start with the very big picture. the american association of state highway and transportation officials and the bottom line report says that we should be investing from all sources over $59 billion per year in public transportation to upgrade eight and meet the increasing demand -- and meet the increasing demand. the system is not kept up-to-

date and is not able to apply the latest in safety technology. this is not as safe as it could be. there is a great deal of focus on technology and on equipment. that is very important when it comes to safety. there is much less focus in my personal opinion on the actual training and development of the expertise of the men and women who work in the industry. while it is commendable f ista wishes to increase -- fta wishes to increase staffing and the state oversight agencies, the fact of the matter is that there are not colleges and universities and technical schools turning out these types of safety experts in public transportation. we have suggested and i am happy to report that the administration has said to send in the paper, which suggested

that some type of joint program, maybe there are community college resources that could be put together with proper curriculum building on the oklahoma city center work, the national cancer institute work, there are a number of basic pieces that can work together to scale them of so that those who regulate the industry have the proper expertise to proceed. it is certainly in the tens of millions of dollars on just that amount of work that needs to be done. >> any sort of notion of these issues of initial cost or privatizing training rebatements or safety supervision? >> we have not studied the overall cost for coming up with a system to address all of these issues.

in 2006, we looked at the training issue. we made a recommendation to fta that they needed to establish a training curriculum. they have done that and there has been a fair amount of activity in that direction towards getting an enhanced training regimen for the state safety officers. that point is something positive. on the other point about the relative importance of the various components, i think there's no question that an integrated approach is required and that as an example, there is a nexus between an aging rail transit system and the issue of safety. as a system gets older, there are parts more prone to break and tracks become aged. as a result, there are safety implications. if there are budgetary pressures and funds removed from capital operating budgets, there is a potential impact on safety.

>> let me follow up quickly. in 2006, it review -- in a review of you did not recommend a federal government takeover as proposed in this legislation. did you consider it? the jury explicitly excluded or did not reach the issue? >> we did consider the issue but in 2006, i would say the environment and safety was a bit different. at that point in time, there really was not any kind of movement in the administration that favored the idea of trying to bring in a very robust federal court oversight. we tried to craft a recommendation to work within the existing system. we felt there were opportunities within the existing structure to improve and monitor the system with more

limited changes modest cost to the federal government. what we are seeing today is a much different -- two things occurred. there have been a number of incidences since 2006 that have heightened awareness towards a. -- towards safety. this administration is more involved in real transit safety. >> thank you. mr. john catoe, you have a challenging job. as the record indicates, this concern has been prompted by several different incidences' throughout the country. -- incidents throughout the country. do you think this would prevent the type of accident you saw?

>> it would be a step in the right direction. as i mentioned, there are many different actions we must take. one is the state oversight for federal oversight to ensure consistency in safety programs throughout the u.s. the other element mentioned is keeping the system in a state of good repair. if we have old infrastructure or an older series of real cars that need to be replaced with no funding to do that, safety issues could still be there from an equipment standpoint. the third issue, and it is a major one, is moving money and operating dollars to additional safety training. we have a program but it is clear that additional training is necessary.

that means shifting of funds that were set aside for operating will go to additional training which impact the levels of operation. a combination of all of those actions will focus on reducing transom incidents here and around the country. >> you indicated one of the steps you have taken is to have manual operation of the trains. that raises in my mind, i am old enough to think that the driver is always driving the train. these computer systems were initially installed because they would have been fail-safe or there would have been much better than the manual operation. ironically, you find that manual operation is a way to deal with a system problem. can you comment on this issue of menu operation? >> -- manual operation?

>> manual operation was instituted after june 22 when we had the accident. the ntsb is conducting an investigation. one of the interim recommendations that they made to us was to increase testing of the signaling system to make sure there is no malfunction. given that we have not reached the absolute cause of that accident, we know it is some type of signaling error that occurred in the automatic control system. that is not finalized. it is prudent to have operators operating in manual mode. at the same time, twice daily tests to determine if there are any signal malfunctions.

we are in the process of testing in a system that will detect any lack of system -- and a lack of signals were in proper signals being sent but that is in the testing stage and we expect to have that system fully tested and ready to implement some time in the next year. manual mode allows us to determine all the correct fixes to the cause of the accident. >> i am not an expert but that seldom stops us from asking questions. i would think that these systems as they are deployed today would have as a major feature an indication that something would be wrong. maybe mr. millar can help. with most systems, if there is

uncertainty about the status of the system, can you switch to manual? >> this is a saying in our business that if you have seen one transit system, you have seen one transit system. each system is unique in their design. some systems, particularly with heavier rail, very highly automated and a very complex software technology that drives the systems. rarely are there to systems that are exactly the same. each system has their own characteristics. no system is perfect. each one has different strengths. they were designed that way for a couple reasons. the point in time where they were developed, the technology was what it was. the unique characteristics that were expected to be faced in that situation.

after the ntsb put out their urgent request and reinforced by fta after the accident, many of the transit systems and the private sector companies that have his expertise have been meeting to try to see how to analyze what can be done with legacy systems but also what to be done with future systems to make them safer. we believe that is the correct approach and were strong support what mr. catoe said until we know for sure what the cause of this accident was, we should not jump to conclusions. there are good operational decisions that can be made and we believe we have made one of those decisions. >> a quick follow-up. i would presume that in the new federal role as proposed that i

did the federal agency or the authority to the state board as a minimum certified the systems as being functional -- would certify these systems as being functional. >> the fta proposal calls for satisfying -- certifying the agency. what standards are made, we expect that certification would move on. >> there is a difference between certifying agency and a system. thank you. there is an issue of regional operations. that is separate from this

program. >> i want to clarify the line that your understanding that the commuter rail is still subject to other jurisdictions and this is not implicated. in general and this goes to the whole panel, i presume there are systems that operate across state lines with transit. how do we do this joint certification or is that something that is in the legislation? >> and the state of massachusetts, the only system impacted by this legislation currently proposed is a real fix that we system. the other 15 regional transit authorities in massachusetts are bus only. the commuter rail is subject to hra jurisdiction and it goes into your state. >> there are several systems that to operate across state lines. we will look forward to working f tota on what is practical and

that -- looking forward to working with fta on what is practical. if they operate in two states, they do not want to be regulated one way in one state and another and the other. >> you have a bus and subway system and commuter rail system. as we talked with the secretary and the minister, there is language which in the future might incorporate the bus system in to this overall. would you think from your perspective as an operator a good approach? how should it be done? >> is the oversight agency in -- as the oversight agency, we have jurisdiction over the bus transit systems. >> the independence -- you have

an independent agency. >> it is the public utility commission. by nature, they are independent regulatory agencies. >> argue self funded? >> we are a separate line item in the budget. we have no relationship to the authority whatsoever. >> in terms of the ability to fund these operations, would you say it is robust or it lags behind other agencies or other responsibilities? >> that is one of the provisions of the proposal that most interests the commonwealth of massachusetts. the possibility of obtaining federal funding would be greatly appreciated. >> if there is an issue that you want to raise, i think you -- i

think you for your testimony. -- i thank you for your testimony. if there are no comments, i want to thank you for your testimony. i want to thank the witness is participating. the record will remain open for one week to allow senators to submit questions in writing and we ask you respond promptly. the meeting will come to a close. thank you, a gentleman. en. ..

>> after that, portions of the house debate of amendments on financial regulations bills. >> on thursday, in oslo, norway, president obama received the nobel peace prize. his extraordinary efforts to diplomacy and cooperation between people. here is his interest to the ceremony.

we'll also hear from the chairman of the nobel committee. this last about one hour 40 minutes. >> welcome to oslo, where president barack obama will receive the nobel peace prize for 2001. the choice of candidates has caused surprise, enthusiasm and criticism around the world. the result is unusually great media [inaudible] about the 1000 guests that gathered to honor barack obama, who arrived in oslo this morning.

they will honor the president obama today. he brought with him about 30 guests to the ceremony and his wife, michelle obama. the laureate is on his way up to the main entrance of the city hall, coming from the palace where they have been meeting with the king, the queen and the crown prince. 50-60 representatives of the american media are also here to cover this event to take place a short time after the announcement that 30,000 more troops will be sent to the afghanistan next year. barack obama is the fourth american president to receive the nobel peace prize. the first was theodore roosevelt

in 19006 -- 1906 and jimmy carter in 2002. al gore, vice president in the clinton had ministration was awarded the prize in 2007. the laureate and mrs. obama are welcomed by the chairman of the nobel political -- the nobel committee. barack obama is going to receive -- there is the question diplomatic solutions in conflicts in afghanistan, iraq and iran and north korea. there is the situation in the middle east and the climate problems. all of this means that there is

extra interest in the nobel lecture that president obama will deliver today. on this side of the hall are the president of the norwegian parliament, the prime minister and the chief judge of the supreme court. almost all of the other cabinet members are also present and so are more members of parliament than usual. for security reasons, the guests had to arrive much earlier than as usual and it were taken to the hall threw another entrance than the usual one. the laureate and diplomats will be using the main entrance today. from the city hall, the bills will come via lauri at -- the bills will come the laureate --

the bills bells welcome the laureate. the decision to award this prize -- there is actor will smith and his wife. they will be presenting the traditional nobel concert tomorrow and they brought their two young children to join tonight. also here is -- some of the

artists will be performing at the concert tomorrow and they are invited to the ceremony today. also, a guest here today is toby keith, who arrived here in his cowboy hat a little while ago. and donna summer and here is the painter that created the peace prize diploma which you will receive today with a gold medal and 10 million swedish kronor.

the flowers today that are decorated the oslo city hall highlight the architecture, and the mural paintings in the hall. more than 10,000 followers have been used for the decorations. they are carnations, lilies, flamenco flowers and orchids as well as apples and oranges.

the american ambassador, barry white, here. a little bit further on, here, and the norwegian prime minister who earlier visited with president obama in his office and they had talks in the prime minister's office. security measures are the most extensive ever in the history of this process. last time security was especially important was 2001 when 20 peace prizewinners can to oslo to celebrate 100 years of peace prize history and in 1994 when the price was shared. -- prize was shared.

and now the royal family are coming up the hill to the city hall. they had a half an hour meeting with the laureate and his wife just a few minutes ago. there will be a traditional dinner tonight with 250 guests. the nobel committee and its choice bashir had emphasized obama's vision of a world without nuclear weapons. president barack obama has created a new climate in international politics. the nobel committee says he has

caught the attention of the world for a better future it is a long tradition that the royal family is present at this ceremony of the nobel peace prize. [points lhorns play] the 2009 peace prize laureate is hailed by a fan fair play by trumpeters from the kings' guard. he is escorted by -- to his seat by the women of the committee. [applause]

[applause] [applause] [trumpeters fanfare] >> again, trumpeters from the kings' guard will come the procession into the hall. the team, the queen and the crown prince and the crown princess. they are escorted in by the

chairman of the nobel committee and the secretary. the artists opened at the event today and he has performed at several opera houses over the world. we shall hear three songs with music by the norwegian composer, accompanied by the -- on the piano the first song is "good morning." [applause]

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the new chairman of the nobel committee will now give his speech to the nobel laureate. >> your majesties, mr. president, your royal highnesses, excellences, ladies and gentleman. on the night of october of this year, the nobel committee announced that the nobel peace prize for 2009 was to be awarded to president barack obama for

his extraordinary efforts to strengthen international diplomacy and cooperation between peoples. the committee has attached special importance to his work for a world free from nuclear weapons. commenting on the award, president obama said that he did not feel that he deserved to be in the company of so many transformative figures that have been honored by this prize. but, he added that he also knew that the nobel peace prize had not just been used to honor specific achievements but also to get momentum to a set of causes.

president obama has understand -- understood this perfectly and we congratulate set -- congratulate him with this year's nobel peace prize. [applause] this year's award must be viewed in the light of the prevailing situation in the world. numerous wars and unresolved conflicts come from many fronts of the world for the there is the imminent danger of the spread of nuclear weapons and global warming.

time magazine recently described the decade that is coming to an end. from the very first moment of his presidency, president obama has been trying to create a cooperative climate which could reverse this trend. he has already lowered the temperature in the world in the words open -- of another former peace prize winner. we are to award the nobel peace prize to the person who, during the preceding year, meaning since the previous award in december of 2008, shall have done the most or the best work

for fraternity between nations, for the abolition or reduction of standing armies and for the holding and promotion of peace. the question was quite simple. who has done most for peace in the past year? if the question was to put in alfred nobel's it had to be u.s. president barack obama. there is one person that does this to the same extent of barack obama. in the short space of time, yet such major changes as he has done.

the question for the committee was whether it would be bold enough to single out the most powerful man in the world with the responsibility and the obligations that come with the office of the president of united states. the committee came to the conclusion that it must still be possible to award the nobel peace prize to a political leader. we cannot get the world on a safer track with our political leadership. time is short. history can tell us a great deal about lost opportunities. it is now, today, we have the opportunity to support his

ideals. this year's pryde is a call to action for all this. the committee knows that many will weigh his ideals against what he really does and that should be welcomed. but if the demand is eager to fulfill your ideals to the letter and that once were to stop having ideals, we are left with a most damaging division between the limits of today's realities and the vision for tomorrow. then, politics becomes pure cynicism. political leaders must be able to think beyond the often narrow confines, only in this way, can

we move the world in the right direction. barack obama has achieved a great deal. diplomacy has regained a central position with an emphasis on the role the united nations and other institutions can play the former secretary general of the united nations said that the un was not created to take humanity to heaven, but to save it from hell. the united states is now paying its bill to the un. it is joining various committees and international standards are respected. torture is forbidden. the president is doing what he can to close guantanamo bay and

human-rights our guiding principles. this is why this year's laureates as new opportunities. nor majesties, mr. president, your royal highnesses, ladies and gentleman, the vision of a world free from nuclear weapons has publicly be stimulated parliament. under his leadership, united nations security council did this -- gave its unanimous support for a world without nuclear weapons. the new administration in washington has considered the deployment in eastern europe.

it is looking at other multilateral options to secure the region. this has contributed to an improved atmosphere. a new agreement between them will, we hope, soon be on the table. we can see how the vision of a world without nuclear weapons is encouraging. we can certainly not prevent the spread of nuclear arms to new countries. that was a clear promise underlying the nonproliferation treaty and is still thought it still applies today.

the conference is being held next year. the nuclear powers will clearly signaled their willingness to disarm or the conference may prove a fiasco. a new arms race. president obama has sent his signal. [applause] >> in today's washington, dialogue and negotiations are the preferred instruments for resolving the most difficult international conflicts. the united states, as the

president put it, but will extend a hand if you are willing to unclench your fist. there is no guarantee that it will always succeed, but in his opinion, the united states is obliged to try. if the outstretched hand continues to meet a clenched fist the global community will then understand more united in its further response. obama has insisted that the united states has to build coalitions and make friends rather than to create enemies. he is pursuing this strategy in afghanistan. the struggle against violent extremism in afghanistan is

supported by many governments. in the long run, the problems in afghanistan can only be done by afghanistan themselves. regarding the part against climate change, we can see the same underlying idea. the united states cannot be indifferent to global challenges while it cannot soul- searching challenges alone. obama has presented proposals. there is a global agreement.

china is steadily moving to the forefront of international politics and the global economy. there has been the sense and america that the greatest challenges can be met with close cooperation with the people's republic of china. for instance, no country has contributed more than the united states and no country will promote -- will pollute more than china in the future. the rise of new and great problems all the leads to war and conflict. there are those in america that fear that history may repeat itself in that respect. the obama administration's cooperation in beijing means that we have little reason to fear such a repetition's diploma

-- such repetition obama's ideal should be -- such repetition. that is how they put it. those earlier american presidents were seen as world leaders outside the united states. fjohn f. kennedy and ronald reagan, america's ideals of the world's ideals. they live, in reagan's words, not only in the hearts and minds of our countrymen, but in the hearts and minds of millions of the world's people and involves a free in and -- oppressed

society. obama's ideals coincide with the ideals that have underpinned those ideals of the bubble committed. to strengthen international institutions as much as possible. to reduce the importance of arms. to promote dialogue and negotiations and to adopt effective measures to meet the climate threat. looking at the history of the nobel peace prize, we can see several examples of awards to persons or institutions that have achieved fundamental

agreements that have stood the test of history. we will find as least as many awards that have tried to bring about fundamental changes in international politics. the results -- [unintelligible] woodrow wilson surprise came in -- after suffering a stroke. he had created the league of nations, but the united states would not join. he was a hero to the world, but not to the united states. the american secretary of state received the award after the establishment of the united nations, but saw that no one

could be sure how secure the united nations would be. many have been awarded the prize for the courage. andrei sakharov and the dalai lama. there was the struggle against apartheid when it was in its infancy. when martin luther king jr. received his reward -- his award, he hoped that poor little children would one day live in a nation where there would not be judged by the color of their

skin, but the content of their character. there is still a long way to go from dream to reality. mr. president, we are so happy to see so much of dr. king's dream that has come true. [applause] >> in the middle east, there have been many wars and many peace prizes have been awarded. why does the nobel committee not wait until peace has been

concluded. nothing is final in history. it always moves on. peace must be built again and again. the nobel committee cannot award the prize when nothing has been achieved. if the principals are important enough and the struggle is vital to the future of the world, the committee cannot wait until we are certain that would make the prize a belated stamp of approval and not an instrument for peace in the world. your majesties, mr. president, your world highnesses, ladies and gentlemen, in both the first and second world war, your great

country came to europe's rescue. we shall never forget. after the first world war, woodrow wilson sought to build of the world on national corporation. his success was limited. during and after the second world war, franklin roosevelt and harry truman took initiatives to create the united nations and other global institutions. the lesson was that nation states could not be unlimited. states must commit themselves to international law and should rise for the year -- for the individuals. today, yet another american

president is trying to reunite internationalism. he affirms that the united states must lead together, with others. walls must be torn down as in berlin i. the wall the walls between races and tribes, makers and immigrants, christians and muslims and jews cannot stand. these are the walls that we must tear down. this must surely be the fraternity between nations. president obama is a political leader who understands that even the mightiest rubble cannot

stand alone. he is a man that believes that the strength of the community be in the local community. obama has the audacity to hope and the tenacity to make these hopes come true. that is what makes him so important, by his own behavior and leadership, he is demanding that we all take a shared responsibility for a global response to global challenges. we congratulate this year's laureates, president barack obama -- laureate, present barack obama. we wish him every possible success in his continued

efforts for a more peaceful world. may you received the help you truly deserve. a thank you, very much -- receive the help you truly deserve. . [applause] ♪

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♪ [applause] >> and now the time has come with corp. -- four barack obama to be presented the award. the award has alfred nobel's portrait on one side. >> and the north -- the nobel peace prize laureate, president obama. please come forward and received the gold medal and diploma. [applause]

[applause] [applause] cather

[applause] by the lure its choice, ms. francis walden. she has played for president obama in the white house. we shall hear "hope."what he

thought of almost gives up holding on. watching this be given to our fear. i almost believed, most believed. ♪ no hope for a bright tomorrow. but i'm not alone to give it up.

i nearly cave in. i almost believed. almost believed. oh, the sorrels will consume me. but together, faith, like so

many souls who won't be drowned by evil in the world. i have faith. -- i have faith in mankind. only hard work, in time, can change men's minds. if we start with small changes, now, we will heal ourselves.

that is true power. i don't expect to ever taste the fruit. my life devoted, but i almost believe when i do believe the road to peace is in los -- endless.

and i'll will give up. i am sure enough, and i won't give up. i am sure enough and i won't give up. ♪ [applause] [applause]

>> and now, mr. president, the floor is yours to do your nobel lecture. [applause] >> your majesties, your royal highnesses, distinguished members of the norwegian nobel committee, citizens of america, and citizens of the world: i receive this honor with deep gratitude and great humility.

it is an award that speaks to our highest aspirations -- that for all the cruelty and hardship of our world, we are not mere prisoners of fate. our actions matter, and can bend history in the direction of justice. and yet i would be remiss if i did not acknowledge the considerable controversy that your generous decision has generated. [laughter.] >> in part, this is because i am at the beginning, and not the end, of my labors on the world stage. compared to some of the giants of history who've received this prize -- schweitzer and king; marshall and mandela -- my accomplishments are slight. and then there are the men and

women around the world who have been jailed and beaten in the pursuit of justice; those who toil in humanitarian organizations to relieve suffering; the unrecognized millions whose quiet acts of courage and compassion inspire even the most hardened cynics. i cannot argue with those who find these men and women -- some known, some obscure to all but those they help -- to be far more deserving of this honor than i. but perhaps the most profound issue surrounding my receipt of this prize is the fact that i am the commander-in-chief of the military of a nation in the midst of two wars. one of these wars is winding down. the other is a conflict that america did not seek; one in which we are joined by 42 other

countries -- including norway -- in an effort to defend ourselves and all nations from further attacks. still, we are at war, and i'm responsible for the deployment of thousands of young americans to battle in a distant land. some will kill, and some will be killed. and so i come here with an acute sense of the costs of armed conflict -- filled with difficult questions about the relationship between war and peace, and our effort to replace one with the other. now these questions are not new. war, in one form or another, appeared with the first man. at the dawn of history, its morality was not questioned; it

was simply a fact, like drought or disease -- the manner in which tribes and then civilizations sought power and settled their differences. and over time, as codes of law sought to control violence within groups, so did philosophers and clerics and statesmen seek to regulate the destructive power of war. the concept of a "just war" emerged, suggesting that war is justified only when certain conditions were met: if it is waged as a last resort or in self-defense; if the force used is proportional; and if, whenever possible, civilians are spared from violence. of course, we know that for most of history, this concept of "just war" was rarely observed. the capacity of human beings to think up new ways to kill one another proved inexhaustible, as did our capacity to exempt

from mercy those who look different or pray to a different god. wars between armies gave way to wars between nations -- total wars in which the distinction between combatant and civilian became blurred. in the span of 30 years, such carnage would twice engulf this continent. and while it's hard to conceive of a cause more just than the defeat of the third reich and the axis powers, world war ii was a conflict in which the total number of civilians who died exceeded the number of soldiers who perished. in the wake of such destruction, and with the advent of the nuclear age, it became clear to victor and vanquished alike that the world needed institutions to prevent another world war. and so, a quarter century after

rejected the league of nations -- an idea for which woodrow wilson received this prize -- america led the world in constructing an architecture to keep the peace: a marshall plan and a united nations, mechanisms to govern the waging of war, treaties to protect human rights, prevent genocide, restrict the most dangerous weapons. in many ways, these efforts succeeded. equality and the rule of law

have haltingly advance. we are the heirs of fortitude and generations past and it is a legacy for which my own country is rightly proud. and yet, a decade into a new century, this old architecture is buckling under the weight of new threats. at the prospect of war between proliferation may increase the risk of catastrophe. terrorism has long been a tactic, but modern technology allows a few small men with innocents on a horrific scale. moreover, wars between nations have increasingly given way to

wars within nations. the resurgence of ethnic or sectarian conflicts, the growth of secessionist movements, insurgencies, and failed states -- all these things have increasingly trapped civilians in unending chaos. in today's wars, many more civilians are killed than soldiers, the seeds of future conflict are sown, economies are wrecked, civil societies torn asunder, refugees amassed, children scarred. i do not bring with me today a definitive solution to the problems of war. what i do know is that meeting these challenges will require the same vision, hard work, and persistence of those men and women who acted so boldly decades ago. and it will require us to think in new ways about the notions

of just war and the imperatives of a just peace. we must begin by acknowledging the hard truth: we will not eradicate violent conflict in our lifetimes. there will be times when nations -- acting individually or in concert -- will find the use of force not only necessary but morally justified. i make this statement mindful of what martin luther king jr. said in this same ceremony years ago: "violence never brings permanent peace. it solves no social problem: it merely creates new and more complicated ones." as someone who stands here as a direct consequence of dr. king's life work, i am living

testimony to the moral force of non-violence. i know there's nothing weak -- nothing passive -- nothing naïve -- in the creed and lives of gandhi and king. but as a head of state sworn to protect and defend my nation, i cannot be guided by their examples alone. i face the world as it is, and cannot stand idle in the face of threats to the american people. for make no mistake: evil does exist in the world. a non-violent movement could not have halted hitler's armies. negotiations cannot convince al qaeda's leaders to lay down their arms. to say that force may sometimes be necessary is not a call to cynicism -- it is a recognition of history, the imperfections of man and the limits of reason.

i raise this point, i begin with this point because in many countries there is a deep ambivalence about military action today, no matter what the cause. and at times, this is joined by a reflexive suspicion of america, the world's sole military superpower. but the world must remember that it was not simply international institutions -- not just treaties and declarations -- that brought stability to a post-world war ii world. whatever mistakes we have made, the plain fact is this: the united states of america has helped underwrite global security for more than six decades with the blood of our citizens and the strength of our arms. the service and sacrifice of our men and women in uniform has promoted peace and prosperity from germany to korea, and enabled democracy to

take hold in places like the balkans. we have borne this burden not because we seek to impose our will. we have done so out of enlightened self-interest -- because we seek a better future for our children and grandchildren, and we believe that their lives will be better if others' children and grandchildren can live in freedom and prosperity. so yes, the instruments of war do have a role to play in preserving the peace. and yet this truth must coexist with another -- that no matter how justified, war promises human tragedy. the soldier's courage and sacrifice is full of glory, expressing devotion to country, to cause, to comrades in arms.

but war itself is never glorious, and we must never trumpet it as such. so part of our challenge is reconciling these two seemingly inreconcilable truths -- that war is sometimes necessary, and war at some level is an expression of human folly. concretely, we must direct our effort to the task that president kennedy called for long ago. "let us focus," he said, "on a more practical, more attainable peace, based not on a sudden revolution in human nature but on a gradual evolution in human institutions." a gradual evolution of human institutions.

what might this evolution look like? what might these practical steps be? to begin with, i believe that all nations -- strong and weak alike -- must adhere to standards that govern the use of force. i -- like any head of state -- reserve the right to act unilaterally if necessary to defend my nation. nevertheless, i am convinced international standards, strengthens those who do, and isolates and weakens those who don't. the world rallied around america after the 9/11 attacks, and continues to support our efforts in afghanistan, because of the principle of self-defense.

likewise, the world recognized the need to confront saddam hussein when he invaded kuwait -- a consensus that sent a clear message to all about the cost of aggression. furthermore, america -- in fact, no nation -- can insist that others follow the rules of the road if we refuse to follow them ourselves. for when we don't, our actions appear arbitrary and undercut the legitimacy of future interventions, no matter how justified. important when the purpose of military action extends beyond self-defense or the defense of one nation against an aggressor. more and more, we all confront difficult questions about how to prevent the slaughter of civilians by their own government, or to stop a civil war whose violence and suffering can engulf an entire

region. i believe that force can be justified on humanitarian grounds, as it was in the balkans, or in other places that have been scarred by war. inaction tears at our conscience and can lead to more costly intervention later. that's why all responsible nations must embrace the role that militaries with a clear mandate can play to keep the peace. america's commitment to global security will never waver. but in a world in which threats are more diffuse, and missions more complex, america cannot act alone. america alone cannot secure the peace. this is true in afghanistan. this is true in failed states like somalia, where terrorism and piracy is joined by famine and human suffering. and sadly, it will continue to

be true in unstable regions for years to come. the leaders and soldiers of nato countries, and other friends and allies, demonstrate this truth through the capacity and courage they've shown in afghanistan. but in many countries, there is a disconnect between the efforts of those who serve and the ambivalence of the broader public. i understand why war is not popular, but i also know this: the belief that peace is desirable is rarely enough to achieve it. peace requires responsibility. peace entails sacrifice. that's why nato continues to be indispensable. that's why we must strengthen u.n. and regional peacekeeping, and not leave the task to a few countries. that's why we honor those who return home from peacekeeping

and training abroad to oslo and rome, to ottawa and sydney, to dhaka and kigali -- we honor them not as makers of war, but of wagers -- but as wagers of peace. let me make one final point about the use of force. even as we make difficult decisions about going to war, we must also think clearly about how we fight it. the nobel committee recognized this truth in awarding its first -- the founder of the red cross, and a driving force behind the geneva conventions. where force is necessary, we have a moral and strategic interest in binding ourselves to certain rules of conduct. and even as we confront a vicious adversary that abides by no rules, i believe the united states of america must remain a

standard bearer in the conduct of war. that is what makes us different from those whom we fight. that is a source of our strength. that is why i prohibited torture. that is why i ordered the prison at guantanamo bay closed. and that is why i have reaffirmed america's commitment to abide by the geneva conventions. we lose ourselves when we compromise the very ideals that we fight to defend. [applause.] >> and we honor -- we honor those ideals by upholding them not when it's easy, but when it is hard. i have spoken at some length to

the question that must weigh on our minds and our hearts as we choose to wage war. but let me now turn to our effort to avoid such tragic choices, and speak of three ways that we can build a just and lasting peace. first, in dealing with those nations that break rules and laws, i believe that we must develop alternatives to violence that are tough enough to actually change behavior -- for if we want a lasting peace, then the words of the international community must mean something. those regimes that break the rules must be held accountable. sanctions must exact a real price. intransigence must be met with increased pressure -- and such pressure exists only when the world stands together as one.

one urgent example is the effort to prevent the spread of nuclear weapons, and to seek a world without them. in the middle of the last century, nations agreed to be bound by a treaty whose bargain is clear: all will have access to peaceful nuclear power, those without nuclear weapons will forsake them, and those with nuclear weapons will work towards disarmament. i am committed to upholding this treaty. it is a centerpiece of my foreign policy. and i'm working with president medvedev to reduce america and russia's nuclear stockpiles. but it is also incumbent upon all of us to insist that nations like iran and north korea do not game the system. those who claim to respect international law cannot avert their eyes when those laws are flouted. those who care for their own

security cannot ignore the danger of an arms race in the middle east or east asia. those who seek peace cannot stand idly by as nations arm themselves for nuclear war. the same principle applies to those who violate international laws by brutalizing their own people. when there is genocide in darfur, systematic rape in congo, repression in burma -- there must be consequences. yes, there will be engagement, yes, there will be diplomacy -- but there must be consequences when those things fail. and the closer we stand together, the less likely we will be faced with the choice between armed intervention and complicity in oppression. this brings me to a second point -- the nature of the peace that

we seek. for peace is not merely the absence of visible conflict. only a just peace based on the inherent rights and dignity of every individual can truly be lasting. it was this insight that drove drafters of the universal declaration of human rights after the second world war. in the wake of devastation, they recognized that if human rights are not protected, peace is a hollow promise. and yet too often, these words are ignored. for some countries, the failure to uphold human rights is excused by the false suggestion that these are somehow western principles, foreign to local cultures or stages of a nation's development. and within america, there has

long been a tension between those who describe themselves as realists or idealists -- a tension that suggests a stark choice between the narrow pursuit of interests or an endless campaign to impose our values around the world. i reject these choices. i believe that peace is unstable where citizens are denied the right to speak freely or worship as they please, choose their own leaders or assemble without fear. pent-up grievances fester, and the suppression of tribal and religious identity can lead to violence. we also know that the opposite is true. only when europe became free did it finally find peace. america has never fought a war against a democracy, and our closest friends are governments that protect the rights of their citizens.

no matter how callously defined, neither america's interests -- nor the world's -- are served by the denial of human aspirations. so even as we respect the unique culture and traditions of different countries, america will always be a voice for those aspirations that are universal. we will bear witness to the quiet dignity of reformers like aung sang suu kyi, to the bravery of zimbabweans who cast their ballots in the face of beatings, to the hundreds of thousands who have marched silently through the streets of iran. it is telling that the leaders of these governments fear the aspirations of their own people more than the power of any other nation. and it is the responsibility of all free people and free nations to make clear that these movements -- these movements of

hope and history -- they have us on their side. let me also say this: the promotion of human rights cannot be about exhortation alone. at times, it must be coupled with painstaking diplomacy. i know that engagement with repressive regimes lacks the satisfying purity of indignation. but i also know that sanctions without outreach -- condemnation without discussion -- can carry forward only a crippling status quo. no repressive regime can move down a new path unless it has the choice of an open door. in light of the cultural

revolution's horrors, nixon's meeting with mao appeared inexcusable -- and yet it surely helped set china on a path where millions of its citizens have been lifted from poverty and connected to open societies. pope john paul's engagement with poland created space not just for the catholic church, but for labor leaders like lech walesa. ronald reagan's efforts on arms control and embrace of perestroika not only improved relations with the soviet union, but empowered dissidents throughout eastern europe. there's no simple formula here. but we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time. third, a just peace includes not only civil and political rights -- it must encompass economic security and opportunity.

for true peace is not just freedom from fear, but freedom from want. it is undoubtedly true that development rarely takes root without security, it is also true that security does not exist where human beings do not have access to enough food, or clean water, or the medicine and shelter they need to survive. it does not exist where children can't aspire to a decent education or a job that supports a family. the absence of hope can rot a society from within. and that's why helping farmers feed their own people -- or nations educate their children and care for the sick -- is not mere charity. it's also why the world must come together to confront climate change. there is little scientific dispute that if we do nothing, we will face more drought, more famine, more mass displacement

-- all of which will fuel more conflict for decades. for this reason, it is not merely scientists and environmental activists who call for swift and forceful action -- it's military leaders in my own country and others who understand our common security hangs in the balance. agreements among nations. strong institutions. support for human rights. investments in development. all these are vital ingredients in bringing about the evolution that president kennedy spoke about. and yet, i do not believe that we will have the will, the determination, the staying power, to complete this work without something more -- and that's the continued expansion

of our moral imagination, an insistence that there's something irreducible that we all share. as the world grows smaller, you might think it would be easier for human beings to recognize how similar we are, to understand that we're all basically seeking the same things, that we all hope for the chance to live out our lives with some measure of happiness and fulfillment for ourselves and our families. and yet somehow, given the dizzying pace of globalization, the cultural leveling of modernity, it perhaps comes as no surprise that people fear the loss of what they cherish in their particular identities -- their race, their tribe, and perhaps most powerfully their religion. in some places, this fear has led to conflict. at times, it even feels like

we're moving backwards. we see it in the middle east, as the conflict between arabs and jews seems to harden. we see it in nations that are torn asunder by tribal lines. and most dangerously, we see it in the way that religion is used to justify the murder of innocents by those who have distorted and defiled the great religion of islam, and who attacked my country from afghanistan. these extremists are not the first to kill in the name of god, the cruelties of the crusades are amply recorded. but they remind us that no holy war can ever be a just war. for if you truly believe that you are carrying out divine will, then there is no need for restraint -- no need to spare the pregnant mother, or the medic, or the red cross worker,

or even a person of one's own faith. such a warped view of religion is not just incompatible with the concept of peace, but i believe it's incompatible with the very purpose of faith -- for the one rule that lies at the heart of every major religion is that we do unto others as we would have them do unto us. adhering to this law of love has always been the core struggle of human nature. for we are fallible. we make mistakes, and fall victim to the temptations of pride, and power, and sometimes evil. even those of us with the best of intentions will at times fail to right the wrongs before us. but we do not have to think

that human nature is perfect for us to still believe that the human condition can be perfected. we do not have to live in an idealized world to still reach for those ideals that will make it a better place. the non-violence practiced by men like gandhi and king may not have been practical or possible in every circumstance, but the love that they preached -- their fundamental faith in human progress -- that must always be the north star that guides us on our journey. for if we lose that faith -- if we dismiss it as silly or naïve, if we divorce it from the decisions that we make on issues of war and peace -- then we lose what's best about humanity. we lose our sense of possibility. we lose our moral compass.

like generations have before us, we must reject that future. as dr. king said at this occasion so many years ago, "i refuse to accept despair as the final response to the ambiguities of history. i refuse to accept the idea that the 'isness' of man's present condition makes him morally incapable of reaching up for the eternal 'oughtness' that forever confronts him." let us reach for the world that ought to be -- that spark of the divine that still stirs within each of our souls. [applause.]

>> somewhere today, in the here and now, in the world as it is, a soldier sees he's outgunned, but stands firm to keep the peace. somewhere today, in this world, a young protestor awaits the brutality of her government, but has the courage to march on. somewhere today, a mother facing punishing poverty still takes the time to teach her child, scrapes together what few coins she has to send that child to school -- because she believes that a cruel world still has a place for that child's dreams. let us live by their example. we can acknowledge that oppression will always be with us, and still strive for justice. we can admit the intractability

of depravation, and still strive for dignity. clear-eyed, we can understand that there will be war, and still strive for peace. we can do that -- for that is the story of human progress, world, and at this moment of challenge, that must be our work here on earth. thank you very much. [applause]

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>> we shall hear the pianist playing franz liszt's "lie bestraum". ♪

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>> the peace prize ceremony is coming to an end. the royal family will congratulate the laureates and mrs. obama. [inaudible conversations] >> the laureate and chairman of the nobel committee.

[applause] the royal family leaves a ho fit the halthe hall first with trums playing. ♪ [applause]

[no audio] >> next, a house hearing on

though merrill lynch bank of america merger. portions of the house for debate on amendments to the financial regulations bill. then the withdrawal of u.s. troops from iraq, a discussion. >> tomorrow, "reason" magazine editor matt welch. then trita parsi talks about the anti-government protests in iran. stewart baker will talk about the online posting of parts of the transportation authorities manual. and then keith harper details the settlement of a lawsuit.

live at 7:00 a.m. eastern on c- span. this weekend, a look at climate change with former vice- president al gore on reducing the effects of greenhouse gases and lawrence solomon on the scientists who question the validity of global warming. then a bio of antonin scalia and how google became a media giant. this weekend on c-span2. >> the role of federal financial assistance and government officials in the deal. discussing some of the litigation against bank of

america. this is two hours. >> >> the committee will come to order. good morning and thank you for being here. the committee's investigation into bank of america's acquisition of merrill lynch has resulted in an unprecedented look behind the scenes of one of the biggest bailout in american history. did the federal government force bank of america is to go through with the merger? every senior executive involved has told the committee that the government did not force them to go through with it. they told us they decided to go through with it because they thought it was in the best interest of bank of america and its shareholders. ken lewis testified that no one

in the government did anything improper doing this transaction. if there is still people who want to say the government forced bank of america to go through with the deal, they are turning a blind eye to the facts we have before us. over the course of this eight month investigation, the committee has held five hearings, received extensive testimony from top executives at bank of america, and senior government officials conducted numerous interviews issued -- and issued two subpoenas for federal records and reviewed nearly half a million documents. public scrutiny and oversight by this committee has produced tangible results. two days ago, bank of america paid back its entire $45 billion

loan plus interest. under pressure from the committee, bank of america agreed in september to pay $425 million to the treasury department in compensation for toxic accident insurance the bank received but never paid for. somour investigatorinvestigatiod in the taxpayer receiving $475 billion. every member of this committee should be proud of our efforts and i take the time to salute you for your hard work that has been great to get to this point. we have thoroughly examined all these issues involved in this case. i agreed to grant the ranking members a quest for one more

hearing -- request for one more hearing. this will close the committee's successful investigation of bank of america and merrill lynch merger. on that note, i think you and i yield to the ranking member of the -- i thank you and i yield to the ranking member. >> thank you for holding this hearing. i have told the chairwoman that i do believe she is the bookend of this investigation. tim geithner has never appeared before us. there never really was much there there. bank of america is regulated bank. monies were made available on an extraordinary basis and have been paid back. today, in the short time we will take with the chairwoman, we in the minority will ask, where do

we go from here? the security of our banks, fdic insured banks, the future of banks conveniently becoming banks when times are troubled and perhaps not being banks in other times. these are important questions that this committee should ask not because we're the financial services committee, but because we are the watchdog of the american dollar and the american process and the laws that are passed at the executive branch and its affiliates must adhere to. i am deeply concerned that in your opening statement, you understandably said the american people were paid back 47 -- $45 billion with interest. i must caution you the american people did not get a penny. that money has not come back to the american people. it has been put back into the slush fund that was created under a republican president with tim geithner and hank paulson's assistance and not a

penny has been paid back to the american people. that money has been recycled into do good causes or whatever the president and this administration would like to do. i look forward to is getting the american people's money back as it was promised. we were told that in fact we would be paid back all our money and probably with the -- with interest. unless that money comes back immediately, when you look at chrysler, general motors, and $31 billion to aig that tim geithner has said we will not get back, it is clear that all the monies given to various organizations throughout process of buying preferred that, if that is paid back with interest, the opposite of the money we now know we will lose would barely make this whole without considering interest as anything but principal payback.

this is the book and. we have a few questions for our esteemed witness. this is not the and of protecting the american people's money. not the end of this committee's jurisdiction of ensuring that the intent of law becomes a fact in law. i yield back. statement, and that maybe what we can do is that with some of this 47.5 billion, that is use it to create job and job opportunities. maybe that's a good way to use it. >> mr. chairman, i would certainly appreciate a bill authorizing that and i look forward to working with you on such a piece of legislation, which is our constitutional sporchlts thank you very much. appreciate it gentleman and look forward to working with you. mr. chairman, would the ranking member yield? >> i see -- >> if the chair certainly could -- >> would the chairman ain lew me to just respond to something

that ranking member said? >> very quickly. >> very quickly. i just want the ranking nobody know there are members on this side of the aisle who share his view about the need to address the deficit and that the first obligation of the repayment of t.a.r.p. money or the use of unused t.a.r.p. money ought to be that. >> thank you very much. this hearing is being countried by the domestic policy subcommittee, of course, and they have done a superb job in working with us on this issue, and i now would like to yield five minutes to the gentleman from cleveland, ohio, mr. kucinich, the chair of that subcommittee. >> thank you very much, mr. chairman. mr. rice. members of the committee. on december 5, 2008 the shareholders of bank of america voted to approve a merger with merrill lynch. only 12 days later ken lewis, ceo of bank of america, made a call to then secretary of treasury hank paulson initiating a process that led to addses 20

billion bailout of the merge are and a promise of government insurance for losses up to $118 billion. the chronology of events strained belief. was it true that the financial situation at merrill lynch shifted so dramatically in that short amount of time as ken lewis said? or did top management know or should they have known about the deteriorating situation at merrill lynch much earlier? did they fail to make necessary disclosures to shareholders? bank of america would be in legal jeopardy if it failed to disclose information to shareholders about large losses at merrill lynch known or knowable before the shareholder vote bp the subcommittee investigation found evidence of possible security laws violations at bank of america. bank of america unreasonably and negligently relied on internal fourth quarter '08 forecast created by merrill lynch that

omitted any forecast of how the cdo, cds and other toxic assets would perform during the quarter. the former merrill cfo admitted that this forecast was not in fact a valid forecast. bank of america knew at the time that the forecast was oflidity. however, bank of america did not do any actual financial analysis to make up for the merrill omissions. instead, bank of america merely pull add number out of thin air, which was recorded on a forecast as the gut feeling of neil cotty, bank of america chief accounting officer. bank of america simply created and assumption that merrill lynch's ill liquid assets would almost break even for november thereby spreading october's bad results that were too much. the attorneys add bank of america and at lipton did not

question this information. they advised bank of america not make further disclosures to its shareholders based on the official forecast and the gut feeling. with weeks reality crowded out wishful thinking. merrill lynch's exotic investments continued to lose large amounts of money causing merrill to lose over $21 billion in just the fourth quarter. bank of america went running to the u.s. government for rescue. when i asked ken lewis about this at our first hearing he told us that he relied on advice of counsel. protecting shareholders is often in the final instance the responsibility of corporate general counsels and their outside counsel. the subcommittee's investigated findings demand a question. where were the lawyers? where were the lawyers? the glaring omissions and inaccurate financial data and the critical november 12th forecasts so obvious that they should have been, should have alerted the attorneys to the necessity of reasonable

investigation before making a decision of bank of america's legal duties to disclose. the apparent fact they did not mounts such an investigation makes the decision not to disclose merrill's loss and the shareholders and egregious violation of securities laws. the stage for these violations set by former sec chairman christopher cox. at exactly the time that cdos and cdss pro liferrated in other markets, the chairman discouraged formal investigations are and security fraudsters. bank of america's country was the corporate reaction to years of weakening enforcement at the sec under chairman cox. chairman shapiro made efforts to turn the policy around. i applaud the sec for enforcing the law in the case of the nondisclosure of 9 merrill, failure to disclose accelerated

losses at merrill lynch before the shareholder vote is more significant. indeed. those undisclosed losses dwarf the amount of undisclosed bonuses. the reliance on counsel defense asserted by ken lewis raises the broader question, will the securities and exchange commission allow corporate management to rely on the advice of counsel defense and then allow the counsel to avoid liability for their advice? the investing public, and now this congressman wants to know, where is the sec? as of yet, we don't know. thank you. >> thank you, gentleman for your state. i yield five minutes to the ranking member of the domestic policy subcommittee mr. jorden from the state of ohio. >> thank you, mr. chairman and thank you for holding today's hearing. i look forward to exploring the

role between bank of america and merrill lynch, this committee's investigation "veals important abuse of power. as i've said before, while the access of government officials took place in a time of significant economic challenges and, you know, certainty there must be limits to government action even in a time of crisis and those limits must be respected. also keep in mind the action of government officials in this merger occurred after many of the nation's banks were forced to accept taxpayer money through the t.a.r.p. program. we know in october 2008, from testimony ken lewis gave at first hearing on this issue, that october 2008 meaning mr. paulsen and mr. bernanke and geithner and ms. bair brought the ceos to treasury don't demanding they accept in exchange for money of the government's choosing. look forward to learning about mrs. bair's role in that meeting. this investigation occurred to, continued to reveal the unintended consequences and negative implications of the government's intervention in the

private sector and hope the congress will apply these lessons as we debate the appropriate framework for our financial system as we move forward. with that, mr. chairman i thank you and yield back. >> thank you very much. we now move to our witness. we have with us today the chair of the federal deposit insurance corporation. madam chair, longstanding tradition with swear all of our witnesses in. if you would stand and raise your right hand. do you solemnly swear to tell the truth, the whole truth and nothing but the truth if so answer in affirmative. >> i do. >> letted record reflect, you may be seated. let the record reflect the witness answered in the affirmative. you may begin with your testimony. >> chairman towns, chairman kucinich, ranking members issa and jordan and members of the committee, as requested by the committee, my testimony today will focus on the fdic's role

and the decision to -- >> madam chair, do you want to pull the mike down just a little bit there. >> sure. as requested by the committee -- >> and closer, i think, too. >> as requested by committee my testimony today will focus on the fdic's role and the decision to provide assistance to bank of america. let me note at the outset that bank of america is an open institution and the fdic is very sensitive about any discussion of the condition of open and operating insured depository institutions. in midst of december 2008 in the wake of layman's failure, biva announced it would acquire merrill link. it was approved by the federal reserve on november 26, 2008, and was to be finalized in early 2009. however, on or very shortly before december 21, 2008, the fdic was told by the federal reserve and treasury that b of a expressed reservations about

completing the acquisition of merrill lynch. over the course of time it was clear officials from the federal reserve and treasury believed that systemic risk would exist ab sent and agreement by the government provide assistance to b of a. on january 14, 2009, the fdic received from the federal reserve a draft term sheet describes an assistance package, the principle elements of which were capital infusion in a transaction where the fdic treasury and federal reserve would share in a guarantee against certain losses. otherwise known as "ring fence" transaction. the fdic continued to analyze where and how much the exposures were and how that specifically impacted the fdic. the fdic's board ultimately was in a cost effective manner. this also limited risk to the small exposures, recognizing the

exposures to resided in the investment bank and not the insured institution. january 16, 2009, the infusion and fdic transaction were announced. . . moving forward we have work continuously with congress the treasury and the financial regulators towards creating a more resilient, transparent and better regulated financial system. one that combines stronger and more effective regulation with market discipline. one of the lesson swres learned over the past few years is that regulation alone is not enough. we need to establish an effective and credible effective and credible resolution mechanism t ensure that market players will actively monitor and keep a firm handle on risktaking. we commend you and your colleagues in the progress you've made in moving towards providing the regulators with the tools to effectively deal with future crises.

thank you and i will be pleased to take any of your questions. >> thank you@@@@m@ @ @ @ >> we want to respect that and try to move forward. that me ask one quick question. are there steps you think congress can take to avoid future bailouts of banks, of the banking industry? >> i think we have put a very high priority on a robust mechanism. we have that for depository institutions, and when smaller institutions start to fail, they are put into a very secure resolution mechanism that requires unsecured creditors to take loss. the resolution there --

resolution authority does not apply. we think something similar, is very important. we think the house bill that is on the floor now moves very well in that direction. we think should be very clear and that the resolution authority should and assistance for individual institutions going forward. i believe that is also in the house bill. individual institution going forward and i believe that is sass in the house bill. >> i now yield to the gentleman from california, ranking member congressman issa. >> i ask that -- go first. >> the gentleman from arizona. he nields to the gentleman from arizona. >> i yield. >> gentleman from california. >> okay. >> the gentleman's yeeding to me to be expeditious. madam chair, i want to be brief also and i've got just a series of short questions. first of all, from the standpoint of the fdic, looking

back now, wasn't, forgetting about whether the merger was a good merger, all the other things that this committee worked on, wasn't the underpinning of the additional money, preferred stock as a form of loan, wasn't that, in fact, the most appropriate thing for the fdic to approve of so that the capital worth of bank of america would be undeniable? >> well, i think it's always hard in hindsight, to answer questions like that. >> actually i normally find it easier in hindsight. i'd hate to have -- >> it may be easier in hindsight. i guess it's easier to re-evaluate decisions that were made. i think -- the distinction needs to be made between the insured depository ins sthugs had a strong capital position with other activities going on in the bank holding company. and so i think if you're looking just to the insured depository

institution with exposure there's a question whether additional capital was needed. i do think that -- >> i'm not saying whether it was needed. it's clear that in hindsight, it's clear they didn't need it, because they've paid it back to you essentially without it being from actual new money in any large amount. they passed the stress test and they passed the stress test and said they could pay it back. so i know that part of hindsight is clear. >> right. >> but the real benefit of the $45 billion of loan, and i repeat, it was not -- it's not -- we didn't bail them out. we didn't give them anything. we bought stock. we bought the worth of the company, and we got interest guarantee and the ability to get our money out ahead of everyone else. preferred stock is not all bad. >> right. >> but the effectiveness of it was to, if you will, over-capitalize the company in hindsight, but wasn't that essential lay good thing in that

if there was no other benefit to t.a.r.p., the confidence of knowing that these companies, these particular banks were extremely well capitalized, not as to the stockholders but as to -- the depositors, wasn't that effectively the good thing that came out of this arrangement? >> well i think, yes. the capital investment certainly created a fortress balance sheet. that was the original intention of all of these capital investments under t.a.r.p. again we not, the only role we have is on the ring -- not the treasury. it was a treasury decision. absolutely going to have a stabilizing affect, yes. >> the next question is the harder one. many banks and -- many non-banks decided to become banks conveniently in this crisis. >> right. >> many entities in fact fled to the fdic and the fdic finds itself with its funds, funds which are designed to ensure that we never have to actually put in taxpayer dollars, those

funds are stressed right now. going forward, do you believe that in fact in the future people should be able to run to the fdic, run to being a bank, when it suits them, even if they hadn't been when it didn't suit them? >> no, i don't think they should be able to do that. absolutely not. >> is that -- a reform that you presently see on the horizon that would give you that ability next time to say, you better be there early or not come at all? >> well i think two things. i think we need a robust resolution mechanism so when entities get themselves in trouble, they don't get government assistance. they get put into receivership. i think entities asking for assistance maybe won't ask for assistance so much, if they know that that is the reaper cushion. in terms of entities becoming bank holding companies and having insured depository, not just for that or fed lending facilities, there needs a systemic risk council that would

decide and have the power to say to an entity that became a bank holding company perhaps later doesn't want all the reg tlags entails they still need to subject themselves and be subject to pro verbal supervision. they can't become a bank holding company when it suits them and escape it when it's not suiting them. >> thank you. i yield back. >> i yield back. >> thank you very much. i now recognize the ranking member -- i'm sorry. chairman of the policy committee. yes, mr. kucinich from ohio. >> chairman bair, do you have any concerns that america may face yet another bank collapse? >> no, i don't, but i think there's a lot of work that needs to be done to continue the stabilization and the cleanup, and i think the regulatory reform efforts going on right now in kongs are absolutely crucial to that.

>> do you think banks that are too bill to fail or too big to exist ought to be broken up? >> well i think there -- the problem with too big to fail is the same problem you had with fannie and freddie. an implied government backstop which feeds into risktaking. if shareholders and creditors think they have the up site and the got the couldn't down side that is going to contribute to this. we think that's the major crisis, hate to pound sound bike a johnny one know, congress needs to establish a robust and severe resolution. he niche that says they will take losses if these institutions go down. right now they're happily you know, feeding extending credit and making equity investments and i fear they're not really doing their own due diligence in terms looking what's going on in the large institutions. do they understand the risks? do they understand, is plgt on top of those risks? i don't think we have market discipline now and we need that. >> do you have any kwern concerns banks may be over --

derivative markets? >> absolutely. financial institutions, i absolutely have that concern, yes. >> what can you tell the american people about the security of their bank deposits? >> they are very secure. that is one thing we have done very early on with a public information campaign. the resolutions smoothed. everyone's deposits completely protected as they always have been. there is no question the fdic has resources to deal with whatever may come. >> would you tell us what those meet resources are to secure security of deposits? >> we are full faith in credit and have a treasury line and congressional commitment to back insured deposits. that's in effect for 75 years. right now we have required pre-pavement of assessments that's going to bring in another $45 billion at the end of the year which will bring our crash position probably in the first quarter around $60 billion, given what we already have and additional monies we're going to bring in. so i think it's a very strong

cash position. we can borrow up to $a 500 billn if we need to do that from the treasury department. i don't see a reason that would be necessary. >> thank you. yield back. >> now yield to the ranking member of the full committee. >> thank you. i'll be equally brief this time. madam chair, you on january 9th determined it is clear that -- i'll quote it. it was clear that officials from the federal reserve and treasury believed this systemic risk would exist absence agreement by the government provide assistance to b of a. that's the point which you came in. in is true the deal was already done prior to that time to give them the money? isn't that what we've discovered? >> well i will tell you i know conversations that already occurred between the treasury and fed and mr. lewis prior to the time we contacted. i wasn't privy to those conversations, so i don't -- >> i realize we've been unfair

to you on the tail end of everything and only if something was bank or about to become a bank holding company. >> right. >> let me follow-up with this question. specifically in your role at fdic chair, if you had a choice and you were told what would you like to do? when b of a said we're going evoke the mac or give us more money. it doesn't matter who stead but that occurred, wouldn't the fdic's position in the future be, go to congress, or go to the t.a.r.p. and bail out merrill lynch directly. this, if they don't want it and there's money needed, and obviously there wasn't new management or consolidation in the merger at all, wasn't it really, go bail out merrill lynch, do whatever you're going to do with mer many lynch, they're not a bank and why should be be with me? isn't that see leshly you and future chairs position that you would prefer? >> well, we think it's important to act as one government. yes, but i have -- my first job

and foremost job, present insured depositors and i can't with that, that time, about as 50 billion, bail out the entie economy and everybody else with the resources we have and i have to make sure we have credibility for depositors first and foremost. yes, investment banks are not secured financial institutions wound have been nices to have other mechanisms available, absolutely. >> as we're monday morning quarterbacking up here, if there is anything, and since we determined that chrysler and general motors qualified for t.a.r.p. money, if there's any mistake made, it was this very lucrative merger that b of a is now happy about and touting, to be honest, when faced with the dilemma it was a merrill lynch decision, treasury paulsen, geithner, they should have made a merrill lynch decision relative to instead what they do, pushed it on to a bank holding company and a bank holding company then had a

systemic risk problem, which fell to your doorstep and $45 billion of taxpayer money, albeit paid back, in fact, was put in play? >> well, yes. b of a was already a bank holding company. the situation where merrill lynch was not. through the acquisition got folded into the bank holding company structure and yes, significant benefits that accrued because of that, yes. >> on a lighter note. >> okay. >> yesterday this committee on a bipartisan basis moved for a common searchable platform, although not xprl, which you use, we mandate add common uniform platform with rigorous structure so that there could be transparency either to those cleared or in the case of assets, or information available normally to the public, directly to the public. what is your experience and what would you guide us with in your case xprl and that kind of capability that it gives you to

look down, and if possible even allow others to look down? >> right. i choose not my forte. we have been leaders in this area, i think we've had a good experience and i was certainly offer the people to give you a more detailed briefing on that, if you would like. >> last follow-up question and i'll yeed back. do you believe that this committee is on the right track when we insist that databases be common, robust searchable and interactive so that, in fact, when appropriate the american people can have transparency is? >> right. you may get me in trouble with other agency if i can follow that a positive experience and i encourage others and this facility to this. >> thank you. i yield back. >> thank you. i now yield to the gentleman from maryland, congressman cummings. >> thank you very much. thank you for doing such a superb job. >> thank you. >> i recognize that the fdic's role in the bank of america bailout was different than that of your fellow regulators at

treasury, and the federal reserve, but nonetheless, we have a responsibility to explore all aspects of this tainted transaction.@@@@$g@ @ @ @ @ @ @"

do you have any reason to believe that ken lewis had >> we were not privy to any of those discussions, and the fdic had not made any decision on how we would participate and whether we would. >> based on your testimony, the government regulators were still reviewing the bank of america positions and working on whether a deal would occur well into the new year. ng on whether a deal would occur well into the new year. certainly it doesn't sound like it was a done deal. does it? >> no. and, again, i can't -- we only a

small piece of this. from the fdic's perspective, we committed to continue talking with the fed and treasury and examine the facts and analyze to what extent assistance would be appropriate. we had not made any decisions during that time period, no. >> this is not you saying. this is me saying this. one could read this as mr. lewis pulling a fast one on his board and, to get them to approve the deal. unless you want to comment, i will yield back. >> i think i'll stay away from that. thank you. >> thank you very much. thank you, mr. chairman and i yield back. >> thank you very much. thank you for those questions. now i yield to the ranking member of the committee. mr. jordan. >> thank you, mr. chairman. chairman bair, let me, i've looked at your record and regulatory policy and very impressive. i'm just curious on a, in a

broad context, are you, like i am, a bit troubled, frankly for me it's more than a bit, troubled by this, what i've called unprecedented involvement by the government in the private sector? whether we're talking president of the united states deciding who gets to be ceo of general motors. whether we're talking about the fact that we now have in the united states of america something i thought i would never see, but a federal government pay czar telling private american citizens how much money they can make, and bailouts and t.a.r.p. and second stimulus coming in on and on it goes. so just as a, an accomplished professional individual, i mean, are you nervous about this general direction? again, this unprecedented involvement of the government in the private marketplace? >> absolutely. and we think better tools are needed for the government to deal with this in different ways going forward. we're very much opposed to, i believe the house bill does this, prohibits capital

investments in banks, in financial institutions going forward. i think government ownership and financial institutions have created not only a lot of public outcry and cynicism, but also very difficult issues about what should be private entities and private sector decisions based obviously on some prudential regulatory standards but government ownership has created a whole list of problems and we would like to end that going forward. >> that being said, let me take you back. this, again, pointed out in the my opening statement was brout out when we had ken lou kniss front of this committee several months ago. the meeting that took place in washington, d.c. ten days after the t.a.r.p. legislation was passed. it was passed, designed to go in, get the credit off the books straighten up the balance sheets et cetera. ten days later the nine biggest banks were brought to the nation's capital. according to mr. lewis'

testimony, mr. paulsen, mr. brn band you were in that meeting and mr. lewis indicated he had no idea what the meeting was about, that they, that the meeting went with a piece of paper slid across the paper to the banks telling them how much money they were now going to take from the t.a.r.p. program whether they asked for it or not. and that they had to sign a statement saying they were in agreement to that. >> uh-huh. >> is his recollection of that meeting accurate is that in fact what took place? again, not ten days after we were told, the congress of united states was cold, that the t.a.r.p. program, the money that was made available be used for something entirely different? >> right. we -- i was invited to attend that meeting. i was not involved in decisions about who should come to that meeting and who is going to get what. my role was confined to explaining the temporary, debt guarantee program and that was the only remarks i made to

explain that program. and i did not opine or comment at all on the capital invechlgts piece. we were not involved in the decision-making and remained silent during that discussion, but, yes, these banks was strongly encouraged to take this money. >> going back to your answer to my first question, were you troubled that day about what you saw taking place in that meeting? in light of the fact you just said that you -- two statements already today. troubled by this unprecedented involvement of the government and in response to mr. issa's question, the government should act as one. were you troubled by what took place in that meeting ten day afrs it had been passed for an entirely different purpose? >> yes. these decisions were made in the fog of war. these decisions had to be made very quickly and the situation was becoming more and more destabilizing and also there had been an international agreement to use a combination of liquidity guarantees, we were

involved in capital investments to stabilize the system. i frankly, the idea of it took my breath away, and it was quite unprecedented in terms of the private sector system that we have, and so i was concerned and i have said -- >> was that the first time -- did you know what was taking place in that meeting or did you come into that meeting like ken lewis -- >> we were told in advance who was going to come and they would be asked or enkwurged to tame capital investments. absolutely told that in advance. i did not weigh in one way or the other. i confined my troel explaining the debt guarantee program. i said in retrospect i wish we had. on troubled asset relief, we still need a program and would like to see perhaps congress authorize that going forward. that still needs to be done. >> if i could, real quick bp i appreciate what you said, chairwoman. this has been very helpful.

if i could say one other question, mr. chairman. the talk this week is about using t.a.r.p. dollars for stimulus for something else out of the scope. >> right. >> again, i think it was done already. but i totally disagree with this. your thoughts if you would, on the idea of using t.a.r.p. money for second stimulus. >> well, i think you're asking me something beyond my pay grade, because i like to confine my public comments to areas i think appropriate fall with my sphere as chairman of the fdic. i do think there needs to be more focus in terms of troubled asset relief. we still have toxic assets on the books of banks particularly the smaller banks really did not benefit from the capital investments. the smaller banks are a large share small business lending but there need to continue to work out and reserve against these legacy loans they have, it's

inhibiting their ability to engage in new lending. we think it would be appropriate and consistent with the troubled asset relief program to try to deal with that problem. but beyond that i would not want to opine about other uses others might want to make of the t.a.r.p. money. >> gentleman's time expired. >> thank you, i yield to the jae from virginia. >> congressman connolly, i thank the chairman and welcome chairwoman bair and would ask you to move your mike closer. i cannot hear you because of the acoustics in this room. i'm listening to my friend from ohio and he loves to use the phrase, this unprecedented federal intervention, and the financial sector as if we didn't have the worst meltdown in 70 years a year ago september. let me ask you were wearing your fdic hat, as somebody with an interest in insuring deposits,

depository, deposits in depository institutions regulated by the federal government. what if we hadn't had that federal intervention by a republican administration, by the way? what would have happened to the banking secretarier in america, wearing your fdic hat? >> i think it wasn't pretty it wasn't perfect. in retrospect and hindsight always has additional wisdom. >> should we not have done anything? >> no. we had to do something. >> i'm sorry. >> we had to do something and it did stabilize the system. i absolutely agreed with that 7 something need to be done a decision that immediated to be made and it did stabilize the system t. was necessary? >> absolutely necessary, yes it was. >> the intervention designed came from a pointy headed liberal ak democrat africa some ivy league college? right? it didn't come from a republican secretary of state and a republican administration did it? >> i'm sorry. what are you referring to? >> who proposed the idea of the t.a.r.p.? >> the tarp was proposed by, yes, by the treasury of the fed. >> oh.

not a pointy headed liberal. by a republican businessman who was the republican pointed secretary of the treasurerly in a republican administration. is that correct? >> yes, that's my recollection. >> ah. >> if the gentleman would yield. >> no, i'm not going to yield. let me ask awe question. in your testimony, you say that you've got wearing your fdic hat a direct interest in both bank of america and merrill link, because they are depository institutions. is that correct? >> that's right. >> what -- >> merrill lynch is not. >> i'm sorry? >> bank of america. the bank is a insured depository, merrill lynch an investment bank. >> i'm reading from your testimony. >> right. >> you assert fdic has a continuing stake in the financial well-being of those insured depository institutions. >> right. >> okay. so what was the view ever the fdic at the time the bank of america proposed to acquire

merrill lynch? was that a good business decision? was that a risky business decision? >> right. >> were you aware of the fact that they had unprecedented losses, by the way, without unprecedented federal regulatory intervention? >> well a couple of things. we are not the holding company regulator. the fed is. we do not approve mergers answers acquisitions. the fed does. we're also not the primary regulator for bank of america. we insure them vshgts backup supervisory authority. in terms of the more intimate knowledge of that situation would come from the fe and the occ. as backup supervisor frankly we must rely on the primary regulator. if there starts to be troubles we move in, but without red flags. and, no. as with those caveats i was not aware until we got these phone calls and started looking into it that the merrill lynch had such significant losses in the fourth quarter. they were quite profound. >> uh-huh. let me ask you, we have a bill

that's pending before the floor of the house of representatives today that would constitute a major overhaul of regulation, and for the first time finally allow some oversight of the risky derivatives market, for example, and would in effect extend some federal oversite regulation of investment banking by any other name, not many left, that none of which existed previously. in retrospect, just given your financial expertise, do you think we made a mistake to explicitly exempt derivatives of multi-trillion dollar market from any federal regulation? >> oh, absolutely. that was a mistake. absolutely. >> again, this unprecedented federal intervention in the financial markets in the case of derivatives since there is no such unprecedented federal intervention at the moment maybe in retrospect we should have had

some? >> we absolutely should have had nor regulation in areas particularly in derivatives. no question in my mind about that. >> thank you. my final question, does the fdic had a point of view with respect to the extension of fdic that's contained in the bill that's pending before the house today? is that a good idea? to extend the fdic and finance that extension by having the big banks have an extra fee rather than taxpayers do it? >> yes. we do support -- we have said that for banks and bank holding companies that have insured depository institution wes would like to be the resolution authority. nor non-banks we'll let congress decide that. and i think they decided they would like one entity doing it all, and, yes, we think that this should be a very robust resolution mechanism that provides no open bank that is a process that works. we think the working capital needs for this fund should be provided through a risk basis

assessment on the larger financial entities, and again, this could be another tool to discourage excessive risk taking. >> i yield to the gentleman from missouri. >> madame chairwoman, thank you for being here this morning. i am just kind of curious, now that we have some nonbanks that our banks, and lehman brothers has been absorbed by bank of america, have you been in to examine the bank itself, like goldman sachs and those folks at all, since this all took place? >> i cannot comment on specific institutions. right now we have backup authority only for insured depository institutions. even though they might be part of a broader holding company structure, we have no authority there.

>> goldman sachs is now a bank, is it not? >> no, because the insured depository institution is only a subsidiary of the larger bank holding structure. this has been a problem for us. another positive thing we think it does -- it is only over the peace that has the deposit insurance, which is not the whole thing. >> the thinker -- neon >> what are your plans to do that? >> fortunately, the accounts have done a lot of it already. it basically requires that the off-balance sheet exposures now be found on balance sheets. we will be finalizing rules next week to make clear that we need to hold capital in reserve from the regulatory capital, that we will treat those as nine balance sheet assets. tal that we will treat those as on balance

sheet assets. on the derivatives area, the otc derivatives area i think congress needs to act on that, because of the commodity futures modernization act there is little authority. to provide product or market reg lace and we've been bork wek working with the sec to strengthen that and are generally supportive of that. >> you mentioned our banks are in great shape yet this last year or two we've had a record number of bank failures in a short period of time. >> right. i don't know that i said -- >> how many mo failures do you anticipate over the next year or two years? >> i think most banks continue to be profitable, and, but there are clearly some under disstre and we do not publicly release or famed bank projections but it will go up and we think it will peak next year. >> your comment earlier also with regards to a lot of small banks have be to absorb some of these, they're a part of the ripple effect of some of the big guys here and are certainly

under stress at this point. do you have any plans for forbearance for those folks to allow them to be able to withstand this and to outlive some of these problems that they're not going to be closed as a result of some of the actions of some of the big guys and while we had forbearance with the big foiks and helped them we don't have t.a.r.p. funds available for the small guys and forbearance for those folks the ones that will to suffer disproportionately to the other folks. it may not be a big deal to those folks, it will certainly impact a lot of small districts around this country. >> well, congressman, by statute, if a bank becomes insolvent or can no longer meet liquidity demands it needs to be closed. there's a very well defined prompt corrective action procedure in the statute. we cannot provide open bank assistance unless there's a systemic risk, and then only if

the fed and the treasury and the president agree. by statute -- >> with all respect, my question is are you going to have forebearance on the folks because of the unusual circumstance they find themselves in through no fault of their own. they don't have the opportunity like you just said for the t.a.r.p. funds, things like this. is there willingness on your part to look at these situations on a case-by-case situation and say the rest of the bank has been profitable. we're going to deal with this and work with them on this and not close them down as a result of that. >> we have done that already. we released and were able to get an inner agency agreement on guidelines recent ly to allow banks to do loans. only if you have a credit worthy borrower. we tried to do that already.

once the institution no longer becomes viable, there is no flexibility for forebarence. sometimes if it just denies the problem that exists and delays the closing it be end up costing the government more none. which is what happened during the snl days. for the healthier institutions that can make it, we are trying to give them flexibility to work these loans out. >> your time has expired. i now yield five minutes to the gentleman from louisiana. >> thank you very much, there chairman. i would like to continue questioning concerning community banks. in louisiana many of the banking systems are community-based banks. and they are impacted tremendously by the financial overhaul that we are looking at.

ma dad chair, can you provide me with the number of banks that have failed in louisiana. >> i do not know that off the top of my head. i can get that to you this afternoon when i get back to the office. >> probably it's either none or extremely few. >> i would really need to check. i'm sorry. but we'll have about 140 failures. it's difficult to know state-by state. i will get that information back to you very quickly. >> the community bank in louisiana they did not involve themselves in the subprime mortgage mess. as much many of them were profitable in the past years while some of the big banks have failed. my question to you here is why are we making these small community banks who were

successful, who operated within the boundaries of the traditional loan iing criteria, they followed the rules. why are we making them pay for the fault of the big banks through this tremendous overhaul process. >> i think two things. i think you're right. they didn't make these high risk mortgages. they did engage in commercial real estate lending. some of that was not prudent. some of it was. because of the economy they're going bad now. as the economic problems continue, more and more of the failures are driven by that. but again banks mold hold certain levels of capital against their loans.

if they can't immediate liquidity demands. if they can't have enough cash to do that, then they need to be resolved. and that is -- again, there's a well defined procedure in our statute to do that. i think this is right for smaller banks to provide assistance for continued need for troubled asset relief for the smaller institutions. we would be strongly supportive. our statute does not allow us to provide open bank institutions to large or small institutions. >> it seems to me the small banks are being penalized for the action of the bigger banks. >> i am greatly troubled. i have spoken out about of the long time of the different treatments between large and small. the very large get the t.a.r.p. money get the support and the small ones get closed.

going forward i would like to close the big ones, too. if we're going to have a free market system going forward, i think resolution regime needs to be able to work for small and large institutions. right now it can only work for the smaller ones. we need to make t.a.r.p. work better for the smaller institutions. with troubled asset relief not so much capital investments, that's a problem. troubled asset relief, providing support there, we're very supportive of that. >> i agree with you that the big banks, with need to have a better mechanism of overseeing the their operations. but can you explain to me how regulating these smaller

community banks that are already regulated by state law, how would that improve our country's financial health when they have been profitable, when they have been following the traditional method of loaning. they would not involve or did not contribute to this mess. how would it improve our financial health? >> there are no failures in your state. i think we provide supervision obviously of small and large banks because they have deposit insurance. we always protect to insured depositors. with that comes prudential supervision. that's been the case for over 75 years. moving forward my concern from a

sup supervisory perspective -- and community banks have been relegated to commercial real estate lending and small business lending. they provide good support for their communities in those two areas. they don't have much diversification. going forward i would like to see if they can change that to help them diversify their sheet. >> we have three minutes left on the vote. of course, we will return ten minutes after the last vote. i understand there's three votes. madame chair, let me thank you

for coming this morning. we will now recess until ten minutes after the last vote. committee in recess. exchange commission. committee chair is about to take his seat. we're continuing to bring you live conch coverage on c-span 3. >> our second witness is the director of the division of enforcement at the securities and exchange commission. it is committee policies that all witnesses are sworn in. if you would stand and raise your right hand. do you solemnly swear to tell

the truth, the whole truth and nothing but the truth. if so, answer the affirmative. >> i do. >> you may be seated. let the record reflect that the witness answered in the affirmative. i am director of the division of enforcement at the securities and exchange commission. i became director on march 29th of this year. thank you for the opportunity to testify on behalf of bank of america's acquisition of merrill lynch. the committee's invitation asks about the litigation against bank of america. because the enforcement action is ongoing, discussion of certain aspects pose a risk of negatively affecting our case. i'm happy to discuss elements of our publicly filed court papers.

the complaint in our case concerns a november 2008 joint proxy statement that bank of america and merrill lynch sent to shareholders soliciting approval. it contains material faults and misleading statements. merrill lynch agreed not to pay yearend performance bonuses to executives prior to the closing of the merger without bank of america's consent. they already consented to merrill lynch's payment of up to $5 billion and other at the time we filed our complaint, the commission submitted a consent judgment for the court's consideration under

which bank of america agreed to sell on terms that include payment of $33 million and the entry of an injunction prohibiting it from further proxy solicitation by leeson. the judge declined to approve the settlement, and the litigation is thus i am going. the judgment has not affected our underlying case which is set for trial in march next year. we stand by our charges and have used the additional discovery available in the litigation to further pursue the facts and to determine whether or not additional claims are appropriate. in determining how to proceed, we will as always be guided by what the facts warrant and the law provides. with regard to the proposed settlement, we believe it was reasonable, corporate, and in the public interest, and also probably balance the relative factors that must be considered. where a corporate issuer fails to meet its statutory obligations, the need for deterrence is paramount.

meet statutory obligations, the need is paramount. the proposed penalties which would have been the second largest ever imposed would have sent a clear message that proxy solicitations must include the substance of separate, nonpublic documents. when the failure to do so resulted in emission. it clearly communicated to shareholders and the public that management had failed to keep the company in compliance with security laws and undercut the positi position. these octoberives would be would have been in a way that did not place a burden on shareholders. although the penalty is a cig amount. it's not likely to have an impact on individual, innocent shareholde shareholders. you have also asked why our

complaint did not charge individuals. the securities provision that governed statements are directed to those who solicit proxies or in whose names proxies are solicited. as such bank of america had a legal obligation that we allege it failed to meet to establish that individuals aided and abetted in proxy violation or committed fraud under securities laws it is necessary to prove we did not believe we could insert it properly under the applicable legal standards. we have followed and will continue to follow any additional evidence developed wherever it leez.

they will also continue to vigorously pursue penalties from individuals including corporate executives. in fact, as outlined in my written testimony the commission recently file ad number of enforcement actions against corporate executives charges violations of the federal securities laws and seeking extensive remedies. i look forward to answering your questions. what does the sec believe bank of america did wrong?

what do you think happened here that was wrong? >> mr. chairman, in our complaint we alleged that the proxy material that were sent to shareholders, which was the basis upon which they would decide as to whether or not to vote to approve the merger stated they could not pay bonuses without the consent of the bank of america. there was already an agreement that bank of america would allow him to pay up to $5.8 million in exactly those kinds of bonuses. the proxy was misleading because it suggested that no consent had been given and no such bonuses would be paid without such consent when in fact the consent had already been given. >> i know you're a serious prosecutor.

that's what we need in this day and age. what can we expect going guard in terms of aggressive enforcement against corporate wrongdoers? what can we expect from this point on? we're talking about a lot of money here. >> in the mortgage fraud area alone we have charged ceos, cfos, or other senior executives in new century, countrywide, american home mortgage, brook street securities, we charged hank greenburg and another official at aig. just in the recent past we have gone vigorously after those individuals who we believe were heading in company that engaged in one form or another of fraud or wrong doing particularly with respect to mortgage and mortgage related products.

we're working on streamlining the processes and making ourselves more responsive. but we are reinvigorated and rededicated to that effort. >> but you do feel that you have the tools to be able to do the job that needs to be done? no legislation or anything is required in order to be able to move forward with this aggressive approach that -- you know, the word around here is robust approach. >> robust, yes. well, we have a number of legislative proposals that we have presented, particularly involving hedge fund registration, the creation of essential clearing party for derivatives transactions. more and better information on exactly the kind of trading and activity that goes on in some of these over the counter and opaque markets. in addition we've sought legislation regarding nationwide service a process and some other

things to help make our job easier. we have sbties we're responsible for. credit rating agencies, that's before we get the hedge fund registration and despite those numbers, enforcement staff is 1,100 total. i think that additional funding would also go a long way towards helping us complete our mission. >> all right. thank you very much. thank you for your testimony. i now yield to the gentleman from california. ranking member. >> thank you, mr. chairman. i know you were not on board on december 18th of last year. but are you familiar with the document dated december 10th, which was delivered to the fed on that date, which is called the fourth quarter '08 walkdown,

so-called walkdown document? >> i do not believe i've seen that, congressman. >> mr. chairman i ask you now these be place on the record at this time. it's already in our information. >> without objection. >> december 17th, i believe it was delivered. it would not probably surprise you to know that it actually on page six it lays out those bonuses. mr. bernanke, mr. paulson had that on those days in december. had you been in the room when this was delivered, in other words, you, the sec, would you have then been aware of the failure of the proxy in time to at least begin action at that point in december? >> well, you would would have

to know exactly what was said in the proxy and then compare that to the information that was then available. >> but you knew that? you have compliance people. you are hand and hand and you get paid to make sure that the public is protected throughout the process of a merger. so let me ask you the real question, we're the government oversight committee and it is a double entaund ra because we oversee the government, we're also the government entity that oversees things that are outside of the government. in this case, the federal reserve, the treasury and the s.e.c., as i understand it through testimony again and again, the s.e.c. was locked out of this process during that time and did not get into the process until january, isn't that correct? you were not -- your agency was not informed of what the fed was doing or the treasury was doing and you were not at these meetings. you were conspike wacuous in yo absen absence, right? >> yes. >> the respect the treasury and

the fed should share in the future, shouldn't you be at the table if tens of billions of dollars of taxpayer's money are being thrown in to complete a merger and at the moment that a -- an executive, a party says i'm looking at the mac clause, i'm looking at breaking up this because things have changed or things were not disclosed or we have learned something, wouldn't that, in your opinion, be an absolute mandate for the security exchange commission to be in the room from that time forward? >> well, congressman, i think if it was a matter that impacted on the s.e.c.'s jurisdictional responsibilities with respect to shareholder disclosure, regulation of securities markets, the answer is yes. >> now i'm going to ask you a hypothetical but not much of a hypothetical. if you had been in the room on december 17th, 18th, 19th, if you had been in the room when they said this is not going to go forward because there have been material adverse effects and on top of that, you were

aware of misstatements in the proxy, would you have interjected at least your oversight, your opinion, and your demand that compliance to law be adhered to which it wasn't? >> well, i'm not sure i would have commented on whether or not a mac clause was properly invoked or not. >> but we already had testimony that if they invoked the mac, they have to go back to the stockholders. >> right. >> and the federal government came in with $20 billion. and there is some debate about whether it was forced on b of a or if b of a demanded it. regardless of which one that is, at that point when there is new money, a mac clause or money in lieu of and on top of that material misinformation in the proxy, shouldn't you be in the room? and more importantly, if you are in the room, wouldn't you have acted to at least advise --

let's assuming you're willing to take on the fed chairman and the secretary of the treasury -- that in fact they're crossing lines at that point that should not be crossed, they're failing to disclose to the very stock holders, the public that you protect? >> well, if those events triggered a disclosure obligation we would certainly communicate that. >> for christ sake, we had five, six hearings. mr. kucinich has dedicated a whole wall of his library to this very question. and you're saying if? let's go back again. they failed to disclose these bonuses. it became -- the fed and the treasury became aware of that. they also became aware that these losses were mounting and through a negotiation behind closed doors in which you were locked out, they negotiated additional money, now repaid, but additional money to make b of a go through this deal or to encourage or on their demand to have them go through. so all of that occurred with

your agency locked out of the room. are you going to tell me today if there was something to be reported, are you going to say like sheila bair that was here earlier, yes, i would like to have been in the room and if i had been in the room or when i was in the room i wish i had said or done more? which is it? are you going to say the s.e.c. should darn well be in the room and be protecting stockholders, or are you going to say if, if, if today? which one is it? >> no, i'm sorry. perhaps i didn't make myself clear. >> i think i did. >> yes, you did, congressman, very clear. my only point was that we would certainly like to be in the room anytime there are discussions that go on that affect shareholders and the entities and individuals that we regulate and protect. my only point was the more modest one, whether or not discussions about invoking a mac clause necessarily trigger disclosure obligations under the federal securities laws. >> thank you. thank you, mr. chairman, for your indulgence. we made the point that mr. kucinich and i have been wanting to make and look forward to, and

we continue to follow up on it. i yield back. >> at this time i yield to the chair of the domestics policy subcommittee, the gentleman from ohio, mr. kucinich. >> at the outset of my friend from california, there is a distinction between what you're discussing and what our subcommittee has been doing. and that is that you're talking about disclosure events that occurred after the shareholder vote. our focus, in this subcommittee, has been about disclosure events before the shareholder vote. now, mr. khuzami, my subcommittee investigation has found that bank of america relied on the november 12th forecast for fourth quarter 2008 created by merrill lynch, that omitted any forecast of how collateralized debt obligations, the former merrill cfo admitted that the forecast was not a va