living quarters for the troops that would be associated with the present. -- the prison. let me get back to you for the record. >> i would like that. i will also have another area of questioning for the record. let me ask you another one. during the last session, congress passed this overseas base in commission -- basing commission. looking at the contributions of the host countries, they determined we could do better training and have more control when there are training facilities in the united states, as compared to those overseas. my time has expired. i asked you about that -- i will

ask you about that in writing. i am very concerned about the previous administration's decision to move 70,000 troops back from germany and korea, as well as the congressional act that created this atmosphere is being changed. i want to know more of the thinking about it. i will ask you that for the record as well. >> thank you. senator? >> thank you, senator burr chairman -- thank you, mr. chairman. secretary gates, let me start with you. .

>> an important part of this and it gets to the civil-military campaign, was the preparation weeks in advance of the military operation to have civilians, from the afghan government and from our government and our coalition partners, ready to go into marjah and provide development and governments. that is the same approach we will taken kandahar.

>> secretary clinton, if we make that transition, do you have the funds you need within your department to adequately staff for the transition? >> thank you, senator. >> that will be in the supplemental. >> as we evaluate the progress that was made with the marjah operation and the necessity for our civilian presence to move quickly, we want to be prepared. we are ramping up our planning and implementation. as secretary gates said, it is likely that in operation around kandahar will be the next mission our military undertakes, which requires us to have a greater capacity to partner with the afghans, both on local level and on the national level. so i am very convinced that what we are asking for is necessary

and will give us what your question implies we need. >> secretary gates, i will be submitting a question about the transition for men and women as they see me home into the v.a., and making sure we have accurate data, and increasingly -- increasing number of casualties, both physical and mental. we need to make sure that we are keeping up connections. i want to ask to get off the record. i want to ask you about the issue about the military career advancement accounts. it was a great program put out there for spouses, about 136,000 military spouses have enrolled in order to get training and classes answer to get training. a number of them were frozen out of the program over management issues. i wrote you about this several weeks ago. i know you know about this, but

i am deeply concerned about the number of spouses out there who have been left out, and the importance of getting this back on track and what did your commitment to work with me to make sure we get that moving correctly for per >> i am very familiar, since i lunched with the secretary of labor couple years ago. this is one -- i launched it with the secretary of labor. we had a program that ramped up slowly and exploded in popularity. part of the problem is we have $61 million in the budget for this program for 2010. we have only asked for $65 million for fiscal year 2011 and the budget we have. the applications for the program, -- you are correct and there are 135,000 spouses that signed up -- the management of the program shut it down entirely in mid february because

of the incredible demand. this was probably, in my view, a mistake. all those who were still in the program, we should have kept them in the program. we should have put the applications on hold. the program was reopened in mid march, to those who had already been enrolled. we are looking at the way ahead to see how we might accommodate this extraordinary demand. the demand we are looking out, potentially, could end up with this program costing $1 billion at 2 $2 billion. it is a measure of the popularity -- >> i think it is the measure of the significance of the program in terms of readiness for these families to have given so much. if it is a matter of requesting money, we now have a situation where spouses have gotten the money and the training and living right across from the street from somebody who is not. it has created an unfair

situation. it is an important benefit. we want to work with you to make sure we get it moving forward again. thank you, mr. chairman. >> thank you very much. >> to what, mr. chairman. secretary gates, as we review the year 2010 supplemental request, there is an additional $72.60 million in there for the system and in eight minutes of trading of zero russian helicopters. this is -- for training of russian helicopters. the committee is still awaiting the report required from the 2010 defense appropriations bill detailing the current and anticipated demand for mi-17's that should have been delivered to 60 days after the enactment.

i know you are busy. that was 97 days ago. instead, we have received fy2011 request that includes the procurement of 10 more mi017'- 17's, $18 million per air frame, triple the price that we paid in 2006. what is the status of the report and what is going on? >> i am aware of the requirement for the report. i was not aware it had not been delivered. i will find out. >> will you get back to us on that? >> yes, sir. >> i go to uav's. it has been reported that by 2015, predator uav's will have so many simultaneous patrols of afghanistan that the creditor

may exceed -- exceed the bandwidth to carry data -- the predator may exceed the bandwidth to carry data. it might be insufficient and that information collected is being saved on computer disk before it can be reviewed. we could be retreating actionable data in real time and saving lives or more fighters. can you discuss this issue and what the department is doing to address this? >> a live can tell you is that bandwidth in both iraq -- all i can tell you is that bandwidth in both iraq and afghanistan is a continuing concern. i have not heard from general mcchrystal or anyone else, frankly, until today, that is a current concern or that they are not expanding the bandwidth to take advantage of the

additional capabilities we are putting in there. i can assure you, i would not be asking for the extraordinary uplift and the number of uav's if i did not think the intelligence could be made available almost in real time. >> the command and control for the amanda systems. one -- the unmanned systems. the army's ability to continue to use the s on amanda systems. -- these unmanned systems. a lot of our success depends on this. some would like to see the army lose that. what is your opinion? it is an interim service deal. >> -- inter-service deal. >> what we have seen with the

reconnaissance capabilities we have deployed in iraq and afghanistan in ever-growing numbers is a unique fusion of intelligence and operations in the history of warfare. has to be responsive to the commander on the ground. whatever mechanism is required to do that is the way it should be handled. just as we need a band with so that the intelligence itself can be transmitted to the ground in real time, we need the capability for those systems to be responsive to the commanders on the ground. >> thank you. >> senator feinstein? >> thank you, very much, mr. chairman. welcome, madam secretary and secretary gates. secretary gates, let me follow up on senator shelby's questions. i have concern about uav

technology. it is getting better. they can fly higher, stay in the air longer. they can carry heavier payloads, a mix of guided and on guided munitions, and many of these advances are being made by foreign countries, which may or may not support our international objectives. with technical modifications, even uav's that do not currently carry weapons can, in fact, be modified to carry cable, armed platforms. they are poor for reading all over the world. so i have asked -- they are poor africaroliferating all over the world. i have three specific questions. and let me ask the three of them and you can choose your answer. what is your policy regarding

the sale or transfer of uav's to foreign countries? what is your view on limiting the export of the united states uav technology, capable of being employed as a combat platform? and what is it deep papartment o doing to ensure uav's are not used against american troops? >> first of all, our policy toward the sale of uav technology, i would differentiate between armed and on time. -- unarmed. our policy is guided by the missile technology control regime. at this point, to the best of my knowledge, we have only sold uav's to italy and the united kingdom, to nato allies.

there are other countries that are interested in this capability, and frankly, it is in my view, in our interest to see what we can do to accommodate them. but i share your concern about the possibility of the transfer of technology or about these capabilities in getting into the hands of those who are our adversaries. the reality is, that countries like iraq and are developing their own and already have uav capability. with respect to export, as i suggested, there are specific cases where we have allies with whom we have a formal treaty alliance is to have expressed interest in these capabilities. and we have told them we are limited in what we can do by the mtcr. i think it is something we need to pursue with them. the reality is, so far, we have

been in situations where the technology cannot be used or has not been used against our troops anywhere. are referred to the fact that iran has uav's, and that is a concern, because it is one of those areas where, i suppose if they chose to in iraq and afghanistan, they could create difficulties. by the same token, uav's are relatively slow flyers, and we have a very capable air force. so i actually think that our ability to protect our troops from these things, particularly in a combat theater, is quite good. my worry would be capabilities like this in getting into the hands of no-state actors who could use them for terrorist purposes. >> thank you very much. the drug caucus of the senate,

which i happen to chair, has been looking into the narcotics picture in afghanistan. this raises, and let me be quick with this, this raises the question standing by and letting these opium poppies grow. at the same time, the taliban is emerging into a major drug cartel. it is a problem. the dea tells me it is a problem people who have made the boss in iraq and tell me it is a problem. -- the busts in iran tell me it is a problem. i would be interested in your response. >> about two years ago, the coalition in afghanistan received it changed the rules of engagement that allowed them to go after drug lords and labs. and we have been a fairly aggressive in doing debt. 90 -- in doing that.

98% of the poppies grown are in 7 provinces, where we are most engaged in significant combat. until we have measures in place and can establish a security environment that allows us to go forward with economic development and provide alternative means of -- alternative crops for these individual farmers, i have believed that if you eradicate a man's crop without giving him a substitute income, you have just recruited as significant number of taliban. we have to weigh aggressive efforts to go after the lords and labs with the time required to provide security, where you

have the environment that we can go in with the civilian capabilities and provide these people alternative means of supporting their families. so they do not pick up a gun and start shooting our shoulders. >> thank you. >> senator landrew? >> thank you. many of the questions i had on afghanistan have been addressed. i wanted to bring up -- it is the subject tof this hearing, te haiti supplemental. i know you are both aware and the committee has been focused on the tragedy in haiti. i am particularly close to that because we went through a ticket -- a similar situation in itself louisiana and mississippi. it is important for us to focus,

despite the challenges of our military and other parts of the world, to focus that 220,000 individuals lost their lives in this disaster, compared to 2000 on the gulf coast, to put it in scale. 1.3 million people are living in temporary shelters. that is a stretch of the imagination, because it is a piece of plastic. there are 105,000 homes that have been destroyed; 200,000 damaged, 50 health care centers collapsed and schools have been destroyed. madam secretary, my question might be with the documents before us which were just received last night, looking at the situation for haiti. i am concerned that i am only able to find about $5 million

stuffed down in the budget for usaid to complete the repair these families, which will be difficult since i understand that most children in haiti do not have a birth certificate. this is going to be a long, hard road to climb, trying to sustain these families with just the basics, help with our international partners to get housing built quickly for them, but also, trying to get the wherewithal to create some sort of civil registry with our international partners to just get the basic birth certificates so we can start actually finding families and for children, getting them families and their families have been lost. could you comment on some of your ideas along these lines? >> senator, thank you as always

for your deep concern about children, and particularly children who are in the foster care system or who are orphaned. your voice has been very strong on that. as you know so well, children within the context of the complex humanitarian emergency, such as we saw in haiti, are among the most vulnerable children in the world. i want to assure you that the united states government recognizes the protection and caring for these children has to be one of our highest priorities. we have been working to support children on our own and, in partnership with united nations, other international organizations, ngo's and faith- based organizations. we continue to focus on meeting children's emergency need for medical care, shelter, food, water. we are also supporting an effort led by unicef and the government

of haiti to find separated children and ensure they are in a safe place. until we can determine whether they have any family at all they can be reunited with. or that alternatives, permanent care provisions can be made. we are also expanding child safe and child friendly spaces within the facilities that we are supporting in hating. iti. that includes a health, nutrition, nutrition, psychosocial support. health professionals are asking for assistance in understanding on how to deal psychologically with children who happen traumatized. we are supporting the government of haiti and unicef to assess the orphanages in the earth quake-affected zone. and all of these efforts, we are

coordinating closely with the un protection cluster and the government of haiti, which is very strong feelings about being in charge of their children. i understand that. and we are trying to provide the support they need in order to meet their obligations are. but we will continue to work closely with you and keep you closely informed, because this is our highest priority and we are trying to do it in cooperation with the many other organizations that are as concerned as we are. >> my time is expired. but there are many members of mott -- this committee i have had discussions with. their support for laying a foundation for a new, more vibrant 8haiti, focuses on providing every child, serving them to families, not independently, not in an orphanage, but through families. i thank you for your longstanding commitment to this

issue. >> senator voinovich? >> [inaudible] our foreign relations people came in and said we need [inaudible] my question is this. i met with ambassador holbrooke in october. and i talked about securing the environment there. [inaudible] the question i have, is how much is that costing us? and how long are read going to have to be there [inaudible] -- in terms of how long it is going to be? next, is how much help are we getting from our nato and other allies in terms of this nation

building. that is on your side of the coin. secretary gates, on your side, i would love to have the information, how much how are you getting out from our nato allies with boots on the ground? we have people there, but they have unpaid debts. i have gone to countries, and they say, i am sorry, we cannot have our people involved in military activity, but we can train these individuals. how much help are we getting from them? you are asking for $2.60 billion it to build up the afghanistan army. the question i have a, is anybody else pitching in to help pay for the afghan army? we know we will probably have to spend it twice that in the future for a long period of time in order to maintain the

security that you talked about in terms of dealing with the drug problem and so forth. could you both comment on what i have raised? >> thank you very much, senator. first let me say that our request is aimed at our diplomatic and development efforts. we view these and not as nation- building for afghanistan but in the core security interests of the united states. without additional resources, we cannot create that environment that our troops need as the date -- >> i understand the real issue is, how much is that costing us? how long will that continue to the point where we can say we have done our think, five years, 10 years? >> i do not know if i can answer it that way, but i can answer this way.

we believe that our efforts, which are coordinated closely with our military, and will transform into a regular diplomatic and development relationship. we provide development aid it to a lot of countries where we do not have troops because we think it is in our interests. as we are in this intense phase that will be several years, i do not know that any of us could put a timeline on it, what we are trying to do simultaneously is clear territory from the taliban, to be able to work closely with the afghan army by helping to build them up with our allies. we are getting support there. and at the same time, cray more capacity. >> can you outline the help you are getting? >> sure. we can give you that in detail. -- create more capacity. our troops will be out of iraq

in 2011. we will have and relationship with iraq. we will continue to fulfil the requests that the iraqis made to us, most particularly high level police training. we will continue to have relationships. that will go on for the foreseeable future, just like in mexico, tuesday, we are putting money into mexico because there is a lot of challenges in our interests. it will be a different relationship, but it will be one of priority for the united states. >> senator, we have at this point, close to 45,000 non-u.s. troops in afghanistan. there are several thousand more that have been pledged. so that by the time the pledges and we see are fulfilled, there will be close to 50 -- 50,000 non-u.s. troops. that is up from 17,000 in 2007.

i would say that for the last year, year and a half, especially since the nato summit last spring, we have seen a number of allies reduce or eliminate their caveats. the number of situations we face now, where caveats have prevented effective operations, have dropped dramatically. so i think we have really good cooperation from our non- -- our nato and other partner nations. they have stepped up to the plate. despite considerable domestic opposition. >> senator? >> thank you, mr. chairman.

thank you, secretary gates, secretary clinton for being here. we appreciate very much your candor. secretary gates, the materials submitted with the fy a supplemental request highlights you are requesting an additional $1.30 billion for the military to enhance u.s. intelligence capabilities and operations, which includes isr. i would like to talk about the department's efforts to coordinate investments and enhance isr. we have heard from the services that combatant commanders have a large appetite for isr. my concern is that the focus has been on uav's, and how quickly we can get more, but in that effort, hopefully we are not overlooking the critical aspects of expanding isr, like how the

services plan to train the analysts that will be required to process the expanding of volumes of data and what infrastructure will be required to move data and shared with those that need it. in a sense, the hard part is exploiting and using the intelligence and that we are able to get from it. a report issued last week states that within central command, less than half the electronic signals collected by a predator are exploited. the report also identifies a shortage in analytical step process isr, and limited and with to step -- disseminate intelligence -- limited bandwidth. i asked questions of general schwartz.

he says the current manningham situation is -- manning situation is unsustainable. how we manage our capability with the ability to access it? and also coordination within the services. >> there are two aspects. when you say the commanders' appetite is large, i would say that is one of the great understatement of all time. in satiable is more like it. two things, first of all, i understand very much that when we talk about isr, it is not just the platform. it is the analysts, the linguist, the ground stations. one of the problems we had two years ago when we began pushing this capability to the field,

and a significantly added numbers, was the shortage of ground stations. another problem that has been remedied by the air force and the army was also a shortage of crews to run these uav's. we are addressing these issues. we have linguists-- a real challenge, as well as analysts. there are two bureaucratic vehicles for coordinating this effort on behalf of the department. the first and most institutional is the undersecretary of defense for intelligence, who has a complete overview of this and watches the full package, not just the platforms. and the other has and the special task force that i established on isr two years ago that has been focused on how

we can get this capability to the field and using, not only on pirated -- unpiloted vehicles, but we are putting it to the equivalent of mc-12's, liberty aircraft, but all of these capabilities, we are mindful of the need for the full package. if we cannot get the stuff to the commanders in the field, it is not worth the investment. >> and getting it adequately analyzed would be a significant portion of getting it to them in the field. appreciate your answer. >> i would tell you, i went to a counter-ied facility. and i took the canadian defense minister. i had no idea -- we talk about the commanders in the field, but with today's electronics i walk into a room that has 60 analysts and it from all over the intelligence community sitting

here in the washington area with real time links to the uav's and other capabilities in the theater and providing information on ied networks to the theater. they do not have to do all the analysis. a lot of that could be done back here with today's electronics. we have these capabilities. there is a lot of capability here, but as we try and wrap this up, there are going to be imbalances 1/2 we have to fix. >> thank you. >> i would like to announce that a vote just started. so if some of you wish to go, be my guest. [laughter] senator mikulski. >> i do not think i will go yet. how about that? thank you so much. good to see both of you again.

so many of us have had an opportunity to travel to afghanistan and recognize the challenges, the difficulty, that we face over there, that the men and women face every day. we were in a situation, we were in helmand province, and were able to walk through the market and felt very comfortable, given the situation. left five days later, and eight people died as a result of a suicide bomb. but we recognize the volatility. one term we heard it used was the deficit of trust, that remains there. i think, secretary gates, the u.s. said that successfully accomplishing the training message -- our training

represents our long-term strategy in afghanistan. going back to this deficit of trust, it was very clear that the people there appreciate there is a clear choice -- you can side with the americans who will someday leave, or side with the taliban who will likely be there indefinitely. while an exit strategy is a necessary, what assurance are we able to give to the afghan tribal leaders to ensure that they do remain on our side? that they believe is more worthwhile in the long term to stay on our side of the fight? >> the thing to remember his starkly and culturally about

many afghans is that they have been a war for 30 years -- historically and culturally about many afghans is they have been at war for 30 years. it will only come down on the side when they spotted who will win. that is part of our endeavors. when i spoke to general mcchrystal sukkot first objective being to reverse -- general mcchrystal's first objective being to change the psychology about who will win the struggle. i think the thing to keep in mind it is that the taliban may be vicious, but they are unpopular in afghanistan. every reliable poll i have seen over the past couple of years shows taliban his support at around 10% or less in

afghanistan. these people are not fond of them, they are just intimidated by them. and the key here is, when we begin the process of transitioning security control to the afghans, province or district by district area, that we have degraded the capabilities of the taliban to wear local security forces in the national army and police units can sustain the security of the people. so is not that the afghan army or police will ever achieve the skill level of american forces. nobody in the world will ever do that, with all due respect, even to our allies. but can we degrade the capabilities into the numbers of the taliban to the point where tel local security forces can keep them under control and provide the local security for

people that is required. the way this works is if you get the population on your side, and saw this in anbar, that is a self-reinforcing. it is the local population in anbar, once they felt they could defeat al qaeda in iraq, that they began telling us where the ied's were being planted. we are seeing that in places in afghanistan, where the local population is figuring maybe this is going to go the way of the afghan government and the coalition. they're beginning to cooperate. secretary clinton talked about this as a complex business, but having a population, not necessarily trust us, but have confidence that their security will be protected is a mix of our capabilities over the next number of years, capabilities of our allies and the capabilities

of the afghan forces, and not just the national forces, but i would say local security forces. >> thank you. >> thank you very much. >> i will try to keep my to four minutes or less. i know we have a vote. secretary clinton, let me start with you. i know you have been a champion for women's rights for a long time. in afghanistan, as i understand it, girls and women are doing three things we take for granted in this country. they are going to school, getting jobs, and participating in the government. i would like to hear your thoughts on where that stands and if you think that is a long- term change in afghanistan, or if that is still in ascendancy and could go away at any time? >> thank you for asking. it is important we use that as one of the markers for the kind

of success we are hoping to achieve. you're absolutely right. there has been a great deal of change in the opportunities available to women and girls. when you look at the increase in the number of young women going to school, it is dramatic precauti. but there is a long way to go. there are obstacles that are deeply cultural. what we are looking out is not that we can mandate of change in culture and history, but to keep that door of opportunity opened. and not let anything slam it shut. we are particular concerned about their reintegration, reconciliation plans the karzai government has undertaken. they have made it clear they are expecting people with whom they

reconciled to abide by the laws and constitution of afghanistan, which doesn't -- does provide protection for women's rights. thank you for raising it, because it is a high priority . >> i think it is a great p olicy. the united nations office of drugs and crime estimates that corruption comprises 25% of afghanistan's gdp. when i see that number, it is shocking. it makes me realize that we need to be very careful in how we are spending u.s. tax dollars in afghanistan. when it comes to accountability for our foreign aid, could you give us a status report of the things your department is doing to make sure there is sufficient accountability? >> senator, there are three things our support for inspectors general. we are adding more auditors in

order to keep track of funding. we are certifying any afghan government entity that would receive any of our funding to be clear that it is managing those funds and away we find acceptable. we are working to put people into those agencies. so we are taking a lot of prophylactic steps. as you point out, corruption is a deeply ingrained problem. we have to be vigilant about making sure we are not caught up and it. >> thank you, madame secretary. mr. chairman. >> senator specter? >> thank you, mr. chairman. [inaudible] i propose to raise a number of questions. there is hardly time for questions and answers within

four minutes. i understand limitations we have. first, it relates to a report and "the washington post" yesterday, where general petraeus is quoted as saying that the conflict -- referring to the israeli-palestinian conflict -- a conflict promotes anti-americanism due to a perception of the u.s. favoritism towards israel. it suggested that the u.s. military officials were embracing the idea that -- the inability to resolve the conflict has begun to pampero -- imperil the war action. what evidence is there of

this? [inaudible] i have corresponded with you about this before and talked about it. that is, and expensive war and afghanistan. the question of success in afghanistan is very much open. i think it is going very well and i commend what is going on at the present time. i was recently there with other colleagues. but the question on my mind, when al qaeda could organize some or else, yemen or somalia, new york fight in afghanistan where it is so costly? -- why fight in afghanistan where it is so costly, where soviets, the brits, going back

to alexander the great have not had success? the third question is what is happening with pakistan? there have been some suggestions that there could be a cooling of the tension, which might relieve a number of pakistani military -- lead the pakistani military to assist the united states in fighting the taliban. when we met with the indian prime minister, we raised this directly, and the prime minister was explicit saying that he would like to see a lessening of tensions, soldiers released, but there would have to be in control of the terrorists by the pakistani government. he was asked if there was realistic. he said very emphatically, yes.

they are their creation. if there is a real prospect here that there may be more pakistani soldiers to help us, and they are showing more inclination to do so, that would impact that picture very decisively. the area of sanctions is a very difficult one against iran. we have been discussing that for a long time. i know there is no simplistic answer. but the question i get consistently involves where are we going, military options on the table? everybody says it is unacceptable for iran to have a nuclear weapon. president obama through alignment -- drew a line in the sand last december.

hard to be specific about lines in the sand, but that was my sense of that. so the question is, what is going to take? is it possibly of moving position it by china? i do not envy you dealing with china, or for that matter, dealing with russia. we congratulate you on what appears to be a really big -- on nuclear weapons. there was talk about gasoline. -- if we get tough on financial matters. what are looking at tax i could go on indefinitely. -- i could go on indefinitely. you have a question? >> i do. >> i have posed those areas of

concern, and my request would be that you respond on the record as opposed to asking a question and then having the four minutes. thank you for your service. thank you for taking the job, secretary clinton thank you, secretary gates, for agreeing to stay. -- a graduate of the great school in wichita, kansas, that i attended, doing so well in the top washington climate. dole and i are from russell, which is a smaller town. gates's experience is limited to wichita, big city. thank you. >> to another kansan here. >> kansas everywhere. not in kansas anymore. >> we will make the rest of the

country kansas. secretary gates was kansan of the year this year. his mother was at the ceremony, who was proud of her son. and we all were. it was a very touching moment. you give a beautiful speech at it as well. a couple of things i wanted to raise with you. secretary gates in particular. one is, this is the old one you are familiar with on the tanker contract. what i have been reading is that the airbus is asking for an extension of your rfp time period for them to make another bid at this. i have been reading throughout the european press that sarkozy and others are concerned, and think this is terrible that they have not been able to bid with

northrop. i would hope we would stick with the timeline, this 10-year project is hopefully getting close to conclusion and not be extended on the time for a bid to be put forward by eads. have you made a decision? the last press accounts are recorded the scene was that you were reviewing it. >> that is correct. as i am out today, we have had some informal questions from eads. and i think there were going to do a letter to us. i have not seen that letter. i do not know if it has been received in the department. we will look at it. as i told the house appropriations committee, defense subcommittee yesterday, we will not change the requirements.

we are buying the best plane for the air force . and to meet air force needs. and so we will look at this letter, believe me, no one is more eager to get on with this than i am. >> but no decision has been made to extend the time deadline? >> no. >> i would urge you to stay with the current deadline. this thing has gone on far long enough, and it's time to move on. you have seen that the wto rules in the u.s.'s favor that the airframe that eads proposed was in it illegally subsidized airframe. >> a senator, i'd have been -- i have been handed a note. we have received the letter requesting the extension. we will look at it and see what it has to say.

>> my vote is no. that we not extend it, and certainly off of president sarkozy's concerning things, because the very thing they walt bid with is the very plain maybe our brains with -- they will build -- bid with is the plane, they have driven down our share of the commercial market space with. now they want to take it on the military air from space. i see no reason to can see this to the europeans, particularly since they have been cheating on subsidizing this aircraft and stealing commercial market share on this. i hope he will look at that. yesterday, you are saying that whether or not the current dod law prohibits you from addressing the illegal use subsidy issue, you said you

are not required and there is no basis to include it. if i can get a final point ont that. do you understand that current law prohibits the dod from addressing the subsidy issue or are you saying that no provision requires you to account for illegal subsidies? >> i think we are prohibited, but let me give you an accurate answer for the record. >> finally, general caldwell at levinworth -- standing up afghan forces. do you have any idea on time frames on when you think you'll have sufficient afghan forces stood up for us to be able to pull down? >> it will be a gradual process, much as we saw in iraq. when the marines first went into

the south last summer, the partnering with the afghans was about nine americans to every afghan. no, in the marjah operation, it is three americans for every two afghans. as the train up, those ratios and capabilities will grow. in some ways, the way to look at the process we will use is similar to that we use in iraq. it is better described as a transition, a transfer. and some of these places, we are in the lead and the afghans are with us. at a certain point, we will partner, then they will be in the lead. then we will withdraw to a technical watch and a strategic watch. this multi phase approach is the way we did province by province in iraq, and it worked well. i think general mcchrystal has

the same model in mind in afghanistan. we do not need the afghan army to be fully trained up everywhere and the country at the same time. we will do it on a province by province basis carr. he is optimistic he can make this work. >> over a two 25-year time period? >> as the president made clear -- >> -- over a two to five -year time period? >> we will begin the first transfer in july, 2011, but then it will be decided based on the conditions on the ground. i expect that to take some period of time. >> senator collins? >> thank you, mr. chairman. while i was out of the room briefly, i had this shining moment when i might be in your position.

it was a wonderful feeling, however, fleetingly, it passed. secretary gates, i have read press reports recently that describes our marines as extremely frustrated with their afghan counterparts. i must say, i have been surprised at that, because i've always had an image of the afghans is being very good fighters and very effective fighters. but there have been two major stories that suggest the marin es are so concerned that the shortcomings of the afghans could undermine our joint efforts in the region. could you give me your assessments of whether these reports are valid and whether

the afghans themselves and have the desire and the skills to succeed in the fight? >> just in terms of answering the last questions, this is actually one of the principal reasons why i came around to the view that it was important to set a time when we would begin a transition to afghan security control. they need to know this is their fight and they are going to have to assume responsibility for it. and not at some distant, unknown date, but beginning next year. between that and pay raises and we saw last november, we have seen a significant increase in recruitment in afghanistan for both the afghan army and police. retention has improved significantly in the army. it is still a problem in the

police. but they need to know that this is going to be their fight. and i think they are taking that on board. the feedback i have gotten -- i have not heard complaints from general mcchrystal or the commander in rc south, general carter, about the quality of the afghan troops. as i mentioned in my opening statement, i went to camp black course outside of kabul a couple of weeks ago, where the afghan army is being trained, and the americans i talked to work pretty impressed with them. -- i talked to were pretty impressed. when i talk to our troops, some of them say they are good partners and are very impressed. that was certainly the case where i toured a marketplace.

security is a lot better there, but i had no illusions as to the security that was around because i was there. on the other hand, others are not as impressed. so i think it's a mixed picture, but in terms of the views of the commanders to have a few of the entire battle space, i think they are impressed with the quality of the afghan national army and believe it is making good progress. >> thank you. . .

>> we have roughly quadruple the number of civilians in one year and they are both in kabul, working with the government of afghanistan and they are in the country, in effect imbedded with paramilitary said the move with our military. they are working closely to leverage their presence. we do not have civilians. it is a much smaller number in comparison to our military forces. but each one leverages on

average about 10 other civilians. ngo's, partnering with civilians from other countries who are there as part of a government commitment, partnering with the united nations, partner in with hiring afghans. one of the examples i was going to give, as senator bond had asked, on agriculture, this gives you a taste -- as soon as marines secured marja, civilians began to go out. they have a program called afghanistan for -- [unintelligible] they have distributed 7000 vouchers for fertilizers, new seeds, trellises for grapes, and it is that kind of intensive work on the ground at does not take a lot of civilians, but it

takes the right kind of civilians. we have u.s. day at -- we have usda agriculture at, we have national guard units to expertise in agriculture. we are leveraging the presence of our civilians and we will probably add more but we want to make sure where we add them is critical to the mission. >> thank you. >> thank you very much. madam secretary, secretary, this afternoon, we have focused our attention on afghanistan and iraq. we focus our resources there also. however, we have been receiving disturbing news of deteriorating conditions in somalia and that somalia is becoming a safe haven for al qaeda. my question is, do we have

sufficient resources to counter the issue in somalia? is that becoming an issue to us? >> we probably both ought to answer on this one. go ahead. >> we are working very hard in our civilian-military cooperation with the aim of trying to bolster the transitional federal government in somalia, which does not have a lot of scope of authority. it is basically confined to a part of mogadishu. our main source of support is

the african union troops, primarily from you gonna -- primarily from uganda, providing the back of support that they need. it is a threat and a very clear one and we see, unfortunately, it is morphing into a kind of al qaeda junior partner over the last year. but there is a growing sense that many people in somalia are no longer willing to be intimidated by or give in to them. they have been extremely brutal in their treatment of people. a lot of amputations and other very barbaric punishment. they have stolen and diverted food aid, preventing it from getting to people.

there is a gradual growth of opposition internally and clearly our support for the african union commission and the additional help our military is providing in terms of trading -- in terms of training, is critical to the survival of the nascent government there and gain more ground by supporting it. >> mr. chairman, i would like to think our witnesses for being here and helping us fully understand what we need the funding for. i have been impressed with the testimony and their leadership in their departments. >> i wish you luck with that also. the committee stands in recess subject to the call of the chair.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> tea party activists held a white -- how rally in nevada on saturday. among the speakers was former alaska governor, sarah palin. we'll show that at 6:30 -- at 6:30 on c-span. >> said the renovation of the pentagon has made it more difficult for a reporter to walk around because now more spaces are behind doors where i cannot go. >> tonight, cbs news national security correspondent, david martin, on covering the military in the u.s. in iraq and afghanistan. that's tonight at 8:00. >> a look now at some of the

foreign policy challenges facing the united states. you will hear remarks from a former state department spokesman and a former homeland security adviser. this is about 90 minutes. thank you for joining me in this 13th annual panetta institute lecture series. as you know, this year, we are exploring the second decade, 2010-2020 and we are asking what is next for america?

earlier this month, we heard candid analysis about the state of our economy. our speakers told us the road to recovery was going to be a bumpy one and that everyone from the government to banks to all of us need to make more responsible decisions about how we spend and how we save. tonight, we turned our attention to foreign policy and national security. both are challenging areas for america. here in monterey, our community is particularly into to the need of global perspective. leon and i are both proud of the institutions we have here, like the defense language institute, the naval post graduate school, and the monterey institute for international cities. we have always thought awareness of the international community is essential to the

success of our nation. as you know, leon is right in the middle of national security issues as director of the cia. both of us believe global awareness, language training, and informed diplomacy and strong national security are essential to america's leadership in the world. today, with multinational corporations, shared currencies, and the tremendous rise of technology, we do live in a global world. as new powers emerge, how can we balance economic, political, and humanitarian concerns? as our financial institutions become more and more lead, how can we protect ourselves and still promote global stability? as we work to bring a successful conclusion to wars in iraq and afghanistan, are we being

mindful of the possibility of other threats to our safety like failed states in africa? like other terrorist states and emerging nuclear powers? what should america's role be in the new world order? in the years to come, who will lead the world? we will ask these questions of to foreign policy experts tonight. from diplomacy to national security, our guests tonight have firsthand knowledge on the complexity, and the current global issues, on the challenges facing america in today's world. our first guest serve as assistant secretary of state and chief spokesman for the state department during the clinton administration. he was a top policy adviser to secretary of state madeleine albright and a special negotiator during the kosovo war. he is a member of the council on

foreign relations and an adjunct professor at the school of international and public affairs. please join me in welcoming james rubin. [applause] our second guest served as special assistant to president george w. bush for a homeland security and counterterrorism and is chair of the homeland security council from 2004-2008. she spent 13 years at the u.s. department justice, focusing on international law enforcement. she is a contributor for cnn and appears regularly on network and cable television as a counterterrorism, national and homeland security expert. please welcome francis townsend. [applause]

lastly, guiding the discussion is an emmy award winning journalist who has covered major domestic and international events ranging from watergate to 9/11. he is currently serving as the anchor of the pbs documentary series "wide angle" and is the walter cronkite prof. of journalism at arizona state university. please join me in welcoming our moderator, aaron brown. [applause] >> thank you. it is great to be here. i wish the weather had been of little better today. [laughter]

i think in a time when public discourse in the country is too often about heat and hot light, about the loudest voices, not necessarily the smartest voices, the work of the institute is putting that notion on its head. it is especially nice for all of us here to be a part of this, to be with you. thank you for your participation and support and your presence. those are all of the nice things i'm going to say. let's go to work. [laughter] are you ready? i'm going to begin with a question -- looking out 10 years, who will lead the world? it seems to me that governments, all that, operate in their own self interests. the chinese do with sudan and darfur. the israelis do, they built

settlements, announcing it when the vice president was there, for reasons up to them. this nation of leading -- this notion of leading the world is like herding cats. a lot of energy expended, but not much gain. >> i don't think so. the united states is going through a debate, a discussion right now, i think on one side are people who think it is time to look to our own infrastructure and education, to our own economy and our own problems. and beside the extreme focus on the rest of the world that occurred, as evidenced by the wars in iraq and afghanistan. on the other side, i would argue, there are some who still believe the united states, being the world's largest military power, can make decisions by itself and force them on others. i tend to be in the middle of those obvious. i think there is an

international system, i think we need to rebuild our own economy and infrastructure, but i also think when things need to be done in the world, whether it is making sure afghanistan will never again be at home for a terrorist organization, whether it is resolving the problem of the slaughter of bosnians in sarajevo, there is only one country that is indispensable, and that is the united states, without which, these things would not get done. it does not mean we have to ram things down other's throats, but as the only truly global power, we have an interest in an international system functioning, it will-based international system. the hard part is in forcing diesels in difficult cases. in those cases, countries like china, brazil, others step aside and let somebody else take care of it and worry about their own

narrow interests. we have global interests. we have been a country that has helped create global institutions because we were smart enough to realize if they work well, we will drive more in an international system that functions. it doesn't mean it always functioned, but it means international covenants on human rights, free trade, the promotion of democratic government, those are good things for the united states and that is why we are unique. we have an interest in that system across the world. as strong as china may become economically, i do not believe they will ever have a global role militarily or politically. >> i want to come back to china that pushed the question again. what does it mean in this post- cold war time to leave the world? >> to pick up on a phrase -- he

said we are indispensable -- i think it's important we don't believe our own press in that sense. >> i will take umbrage at that. >> i do not disagree, the problem is if we believe and we act in a way that demonstrates we believe we are indispensable, we cannot put in the critical work that we, which are partnerships. i learned everything i needed to know from diplomacy in the third grade. remember when you learned in third grade math, then diagram, the overlapping circles. every country acts in its own self interest. i was task in the white house to give to saudi arabia in a very difficult time in our bilateral relationship. there was a bombing in 2003 of a compound on saudi soil. i had gone after i joined the

white house to talk to them and you can well imagine i was a little reticent, having never been to the country, being a woman, with this very important task. what you realize is, i was not going there to ask them to take this issue seriously because it was important to us. the trick was to understand how to convince them it was the word to them and to act in their own self interest. -- that it was important to them and to ask in their own self interest. you need to find the shade parts, but your elbows on each side and pushed out. that's the point of diplomacy in terms of leading the world in those partnerships, finding that space where self-interest align and growing that space. >> i don't want to spend much time -- but i can't promise i will spend -- once been any time looking backwards -- everyone wants to look forward here.

how successful do you pay the administration you last served was in -- how successful do you think the last administration was in explaining to people it is in your self-interest? were you successful at that? >> there are a number of addresses -- a number of interest where we were. saudi arabia was one and yemen was another. yemen has been inconsistent -- has been inconsistent, but we were able to convince them to act in the counter-terrorism area. afghanistan may be the best area. look at all the nations represented there, whether they are supported -- supported by military assets or economic assistance, that is an international effort, about, but we needed to national partnership and was begun in the prior administration. >> you talked about afghanistan briefly and said somebody has to go in and make sure al qaeda

does not blossom. would we be there for not attacked on 9/11? >> absolutely not. unfortunately, after the time with me afghan muslim mujahadeen forced the soviet union now, we ignored afghanistan and frankly that was a mistake. it turned out to be a bigger mistake anyone imagined. but i think it is fair to say that most, if not all of the major terrorist acts we've seen in the western world over the last several years, some way or another can be brought back to that area where pakistan and. -- where pakistan and afghanistan meet. there of that tax in east africa, in madrid and london --

there have been that tax in east africa, madrid and london. i cannot completely let this note. fran did not mention iraq, and there's a good reason. when i listed the three groups, i was talking politely, but i guess i don't have to do that anymore. i was talking about the bush administration. by think when the united states declared its right to attack other countries preemptively, when the united states removed itself from participation in any number of trees, refused to engage on climate change around the world -- participation in any number of treaties, refuse to engage and climate change, alienated countries in europe to the point where our closest ally -- and this is something i would never forget -- the prime minister of spain said if we are

going to get support around world, we need more power and less room smelled. -- less rumsfeld. the new administration came into office and this is an objective fact -- at a time when the reputation of the eye is states for finding partnerships was at an all-time low, now we have a new administration and all i am saying is we can be partners, we have to be partners, we have to return to partnership, but let's not get to the point where we don't remember the united states is unique in having global interests economically, politically, in asia and europe, the middle east -- so yes, we will be partners, but the fact is at the end of the day, there is one partner that what ever you want to call it, senior partner, leading partner, first among equals, whenever it is, it

comes back to us and i hope we don't forget that as we switch from ramming everything down everybody's throat to being partners. >> we now have to wars on the table which is one more than i can handle at any given time, so let's stay with afghanistan and come back to iraq. what is the best we can hope for? if the idea is 10 years out, where will be -- where will we be? what is the best we can hope for where afghanistan is concerned? >> a government that can secure its people and control of territory. when i say that, protect its people, not only from its enemies externally, but internally. remember where we started in terms of women's rights and under the taliban -- it has to be a government that can deliver

services and is competent and not corrupt. what that is transparent. it has to be a functioning government for both its people internally and to protect itself from external enemies. that is a tall order. first and foremost, i think the president, president obama, rightly articulating our first and most important objective in terms of our interest in afghanistan. that is to ensure that territory is not used to launch attacks against the united states. when you say 10 years out, what should be the goal in terms of what we leave behind? a country that can protect itself and, but that the government of people. >> the country has been at war now since 9/11, coming up on 10 years. do you think the country can sustain -- not can, the country

will sustain the kind of cost that the afghanistan that you see would lead to? >> it is a tall order. the current government of afghanistan, it would be hard to recognize my vision -- let's be honest -- that said the general has put the emphasis on the counterinsurgency and that is building the core strength of afghanistan in its people from the bottom up. from village to village, that is why he spends so much time in the field. i think it is possible and it takes an investment, but we have to be careful not to become the victims of our own success. it will be nearly 10 years without an attack on u.s. sorel. so it's easy to -- u.s. soil. so it's easy to imagine

completing a week began there, but the importance cannot be lost, when you think of losing 3000 americans, the cost is so devastating, if we lose our will, i think the balance, the american people will maintain their will. >> feel free to disagree, but you are talking about two different solutions. there's a near-term solution, which is take out al qaeda as best you can, take out the taliban or at least draw them into the government or something so they're not telling people. then there is this other step which is a functioning, terrific government that respects everybody and is not dealing drugs and all the rest. that seems almost too serious to me but crazier things have happened in the world. what is the best you think we

can expect for afghanistan? >> expect is one of those words that can be used to ways. we can have expectations in the realm of hope or we can have expect in terms of what we would predict. i think there are different types. i think fran is right to say having invested thousands of soldiers and hundreds of billions of dollars by the time of few more years takes place in afghanistan, having the support of the world, we should have high for the kind of leadership the afghan government should provide to its people. we should expect the to not be corrupt, expect to not have brothers to operate in the opium trade, and to expect them at a minimum to never but there was not -- ever but their women in their society of the horror of

the taliban did a few short years ago. but we have to be realistic and remember the democratic government we want them to develop needs infrastructure and they do not have an infrastructure. they have not had one for decades because long before we were involved in the war, they were fighting others, themselves, and they have been engaged in this for roughly 30 or 40 years. but we should set high standards and high expectations. it is important if you're going to participate and get nato countries to participate, to say we don't want to see the government that is left of using the human rights of its citizens or half its population of wearing a burka and never going to school. but the actual decision making from the president on down has

to be burying these principles with pragmatism. how long will the american people tolerate american forces in afghanistan? i don't think either of us know. but i think both of us wanted to be a little longer than the current polling data would suggest the american people will tolerate. that will require reminding the world and at the united states and the american people of why we're there. it will require big time leadership for our president, our congress, to remind people. we have short memories in this society with a 24-hour news media. we have already forgotten about the earthquake in haiti. it's going to require a major, persistent educational task to remind people otherwise we will probably leave quicker than we should ban perhaps leave --

quicker than we should, and perhaps leave before we could provide something we could be more proud of. >> i do not disagree that we have a short national attention span, but i'm not so sure i do agree that it is fair to put the attack of 9/11 in the same sentence. haiti is a tragedy, 9/11 is an act of war. are you really concerned people have forgotten what happened that day, the loss of life, everything that has led to that day or is that a fear speaking? >> i do not believe people have forgotten that day, but here is my concern -- to the extent we

have convinced ourselves so many years since 9/11 without an attack in this country that the threat is no longer present, that it is not a real threat to our homeland security and national security, that is not the case. we have had this conversation and that the day i think lives in the memories -- people remember where they are like pearl harbor. it happened to us as a nation and we all suffer that wound. it is not that i think people have forgotten the day, but to the extent they think the threat is less because of the passage of time concerns me because that is not what intelligence and national security of it is not what we know from disruptions be

of seen in the last year in this country. we have ties to this region between afghanistan and pakistan, and it is true we saw of the disruptions in the bush administration. we cannot underestimate the seriousness this region poses to the threat of our national security. >> the director of the cia, mr. panetta -- where have i heard that name before? i gave to interviews last weekend in one of them he said, we have al qaeda on the run. at the risk of sounding both i'm grateful for my presence here and unduly cenacle, i thought of a president that stood on an aircraft carrier with "mission

accomplished" behind him. are the drawn attacks which have clearly been stepped up, has that been -- has that been a game changer in that region? >> absolutely. i think they have been a game changer and i absolutely believe they have weakened and denigrated al qaeda's central leadership. that is different than saying you can denigrate the central leadership and have pockets of the affiliate's of those who are inspired by them that pose a threat. the latter is what you see in terms of this country, but those drawn attacks have been incredibly effective in degrading their central core leadership. >> is there a downside we're not considering, which -- let me start there -- what to go to pakistan. is there a downside? >> there is. the upside has been clearly

stated it let me assure the upside. but i think the downside is the ease, the lack of sacrifice associated with what is essentially a war fighting tool. a drone is a war fighting tool. there is a congressman i will not mention who tended to take what i regarded over the years as the easiest position on every issue. we are talking -- >> will you whisper his name? >> no. we were talking during afghanistan and he thought maybe we could solve afghanistan with drones and would not need a large increase in ground forces that the general wanted to see. somehow the drones could do it in afghanistan itself. the risk from drones is this kind of sacrifice-free warfare

where the united states thinks that because we are not putting lives on the ground, that it is easy to do, when it is really just a tool. you have to know who the target is and you don't usually find it hard it from the air. you have to have people on the ground. i worry that when people make policy, when they're choosing the easy tool, it gets me a little nervous. that's what i would say the down side is. >> i like the let's not downplay -- >> -- >> i hope that's not what people hurt. i'm talking about when we were in a debate on afghanistan and there was discussion that we could solve the problem in afghanistan with drones, george

will suggested all of our troops should be off shore and we could just use drones to attack the taliban and afghanistan. i'm suggesting that would not have been sufficient. obviously i am not saying it's a good thing when americans died, and even joke about it is not funny. but what i am saying is if we are going to choose to make war in the world, it should be a solemn decision, a decision where we all understand the consequences, and sometimes, when people talk about drums, they talk about as of -- as if it is a less than serious effort and they think they can use automated machinery and all of the realities go away. on the ground, where decisions are made, or targets are

selected, drones are very real thing. >> he's absolutely right. there is no version of this where you used drums is that of people, human beings on the ground, collecting intelligence required to do the targeting. by the way, i think i can say, having been there, it is by no means an easy tool to use when you have to make the decision whether or not to take a shot. we saw director panetta talk about that. >> it is not an easy decision because it does not actually killed one person. innocents will die. >> that's right. there are burdensome decisions where we are asking very senior government officials to make life-and-death decisions that are not always clear and not always easy because intelligence is imperfect. >> pakistan is central to the

work you did and confounding in many ways, diplomatically. it always seems are three pakistan's. there is the government, which depending on the day of the week is reliable or not. there's the military which we feel more comfortable with, and then there is the intelligence service which makes me really nervous. but this week seems to be good. bear with us this week, but next week, who knows? they could be with the taliban. are we making progress? we cannot win this thing without pakistan, correct? >> i think that is right. you were talking about let's look at the movie rather than a snapshot. if we go back 18 months or two years and think about what was going on in that part of the

world, there was a major offensive generated by islamic extremists, pakistani taliban. inside pakistan, there were of enormous amounts of the tax, the pakistani military was attacked, and that seems to have gotten their attention. in the last 18 months, the direction in general has been positive. the civilian government, one piece of the three you mentioned, was elected on the premise that -- benazir bhutto's husband ran on the idea that they needed to lead the fight against terrorism. that gave a political power to the pakistani military that had not existed. the military itself had been under attack and they responded. as far as the intelligence and -- intelligence service is

concerned, i don't think it is one of you in that intelligence service because it is a complex organization with different people from different times. the result is 2.3 out of three moving in the right direction. we have seen progress in the last 18 months and i think the new administration made a point of saying if we're going to commit tens of thousands of new forces, we should not do so without realizing pakistan is a big part of the equation and we have to get that right so that the region is thought of as a whole and perhaps we can get to a point that when we leave, it does not fall back into the old pattern. things are definitely better than they were. >> let's move to iraq. i was talking to a week ago to an old friend who has been a

reporter at has been covering iraq since before the war, during the days of saddam hussein. i asked him to give me a sense of what is like there among iraqis. she said most iraqis i talked to feel like one group of thugs has been replaced by another. a lot of blood has been shed, and lot of money has been spent. a lot of upheaval has been created. i trust her journalism. if that's an accurate view -- is that a view he would share? >> iraq has gone through times of extraordinary violence and brief respites followed by or extraordinary violence.

one of the cornerstones of democracy is the peaceful transfer of power. they're going to their second election, and we do not understand fully the results of that. part of what we see in terms of our frustration over time with their civilian bureaucracy and civilian government, has been that iraq has become a proxy battle field for regional neighbors. there is no question there is a shia-city struggle that goes in -- that goes on inside the borders. -- she had-a sunni struggle that goes on inside the border. >> we will leave this form now to go live to afghanistan where president obama has made a surprise visit to the country. he has met with the afghan president and his cabinet. right now, the president is at the airforce base addressing u.s. troops. this is a live coverage on c-

span. ["pomp and circumstance" playing] ♪ ♪ [applause] [applause] [applause] [applause]

>> how is it going? [applause] it turns out that the american people, they let me use this airplane called air force one. i thought i would come over and say hello. [applause] a couple of people i want to thank in addition to the sergeant major for the outstanding introduction and is great service. i would like to think the major general, thank you for your great work as commanding general. i want to thank the senior civilian representative for regional command east for her

outstanding work and the brigadier general, -- [applause] commander of the 455th expeditionary wing. give them a big round of applause. [applause] thank you for the unbelievable welcome. i know this was on a little bit of short notice. no worries. [laughter] it is great to be here and great to see all of the services -- air force, army -- [applause] navy -- we have some marines in the house. and we have a lot of civilians

here to who are making an outstanding contribution to this effort. i am honored to be joined by america's outstanding civilian- military leadership here in afghanistan. the ambassador is doing the outstanding work and the commander of our 43 nation coalition, the two of them together have paired up to do an extraordinarily difficult task, but they are doing it extraordinarily well, and we are proud of them. please give your outstanding team a big round of applause. they've got my full confidence and full support. [applause] we are also joined by troops from some of our coalition partners. because this is not simply an american mission or even just a nato mission, al qaeda and their extremist allies are a threat to

the people of afghanistan and a threat to the people of america, but there are also a threat to people all around the world and that is why we are proud to have our coalition partners here with us. thank you for the great work you do. we salute you and honor you and you are a true friend of the united states of america. thank you very much. [applause] we also salute the members of the afghan national army who are fighting alongside all of you. they are risking their lives to protect their country and, as i told president karzai today, at the united states is a partner, but our intent is to make sure afghans have the capacity to provide for their own security. that is court to our mission and we are proud of the work they're doing and the continued increase capacity we're seeing out of the afghan national security forces. thank you for what you're doing

to take responsibility for security in your own country. to the afghan people, i want to say i am honored to be a guest in our country. the afghans have suffered for decades -- decades of war, but we are here to help afghans forge a hard-one piece. while realizing the extraordinary potential of the afghan people, afghanistan's sons and daughters, the soldiers and police, the farmers and young students, we want to build a lasting partnership founded upon mutual interests and respect, and i am looking forward to returning to afghanistan and times in the years to come. i know that for most of you, you did not get a lot of notice i was coming, but i want you to understand there is no visit i consider more important than this business i am making here right now because i have no

greater honor than serving as your commander in chief. it is a privilege to look out and see the extraordinary efforts of america's sons and daughters here in afghanistan. my main job here today is to say thank you on behalf of the entire american people. [applause] you are a part of the finest military in the history of the world. we are proud of you. i want you to know that everybody back home is proud of you. everybody back home is grateful and everybody understands the sacrifices that you have made and your families have made to keep america safe and keep america secure in this vital mission. i know is not easy.

you are far away from home and you miss your kids, you miss your spouses and your family and friends. some of you, this is your second, third, for the tour of duty. i will tell you right now the same thing i said at west point last december -- if i thought for a minute that america pause by a interests were not served, were not at stake here in afghanistan, i would order all of you home right away. i want you to know i want every american servant -- every american serving in afghanistan, military and civilian to know, whether you are working the flight line or patrolling a bid -- a village, whether you are standing watch at a ford operating base for training our afghan partners, or working with the afghan government, your services are absolutely necessary. absolutely essential to

america's safety and security. those folks back home are relying on you. we cannot forget white we are here. we did not choose this war. this was not an act of america wanting to expand its influence, of us wanting to meddle in someone else's business. we were attacked viciously on 9/11. thousands of our fellow countrymen and women were killed. this is a region where the perpetrators of that crime, al qaeda, still based their leadership. plot against our homeland, plots against our allies, plots against the afghan people and pakistani people are taking place right here. if this region goes backwards and the taliban retakes this country, that al qaeda can

operate with impunity and more american lives will be at stake. the afghan people will lose their chance at progress and prosperity. the world will be significantly less secure. as long as i am your commander- in-chief, i'm not going to let that happen. that is why you are here. i have made a promise to all of you who served that i will never send you into harm's way unless it is absolutely necessary. by anguish in thinking about the sacrifices that so many of you make. that is why i promise i will never send you out unless it is necessary, but that is only part of the promise. the other part of the promise is, when it is absolutely necessary, you will be backed up by a clear mission and the right strategy. you will have the support to finish the job and get the job

done. i am confident all of you will get the job done right here in afghanistan. i am confident in that. [applause] that is why i ordered more troops and civilians into afghanistan shortly after taking office. that is why we took a hard luck and forged a new strategy and committed more resources in december. that is why we pushed our friends and allies and partners to pony up more resources themselves, more commitment of aid and additional forces and trainers. our broad mission is clear. we're going to disrupt and dismantle coming to seek and destroy al qaeda and its extremist allies. that is our mission. to accomplish that goal, our

objective in afghanistan is clear. we will deny al qaeda safe havens and the worst -- and reverse the taliban's momentum and security afghan forces and government so they can begin taking responsibility and gain the confidence of the afghan people. our strategy to include a military effort that takes a fight to the taliban while creating the conditions for greater security and transition for the afghans, but also a civilian effort that improves the daily lives of the afghan people. it combat corruption. and a partnership with pakistan and its people because we cannot up route extremists and advance security and opportunity unless we succeed on both sides of the border. most of you understand that. many of the troops i ordered to afghanistan have begun to arrive. more are on the way. we will continue to work with congress to make sure you have

the equipment that you need, particularly as we complete our drawdown in iraq. we are providing more helicopters, more intelligence and reconnaissance capabilities, more special operations forces, more armored vehicles that can save lives, and here in afghanistan, you have gone on the offensive. the american people back home are noticing. we have seen a huge increase in support stateside because people understand the kinds of sacrifices you guys are making and the clarity of mission you are bringing to bear. together, with our coalition of afghan partners, our troops have pushed the taliban out of their strongholds, we have changed the way we interact with the afghan people, we see afghans reclaiming their communities and new partnerships that will help them to build their own future and increase their security. across the border, pakistan is

mounting major offensives. we have seen violent extremists pushed out of their sanctuaries. we struck major blows against al qaeda leadership as well as the taliban. they are hundred down and worried about their own safety. it is harder for them to move, to train, and to plot and attack. all that makes america a safer and we will keep them on the run because that is what is going to be required in order to ensure our families back home have the security that they need. that is the work you are doing. thanks to you, there has been progress these last several months. but we know there will be difficult days ahead. there will be setbacks. we face a determined enemy. but we also know this -- the united states of america does not quit once it starts on something. [applause] you do not quit. the american armed services does not quit, we keep at, we

persevere, and together, with our partners, we will prevail. i am absolutely confident of that period of -- i am absolutely confident of that. as you are doing our duty here, we will do right by you back home. we will help take care of your family's and that is why the first lady visited with military families to make sure their needs are met. that is why she stays after me once she gets home, when i'm at the white house. we will make sure we are keeping to improve your pay and benefits, but also things like child care and support that ensure that you have a little bit of security, knowing that your family is being looked after back home. we will be there for you when you come home. that is why we are improving care for our wounded warriors.

especially those with posttraumatic stress syndrome and dramatic brain injuries. we are moving for with a post- 9/11 g i bill so you're families can pursue your dreams. we made the biggest increase in the va budget in 30 years because we're going to keep our sacred trust with all those who serve. you have been there for us, tore after tor, year after year, and at a time when too many american institutions have led us down, when too many institutions have put a short-term gain in front of a commitment to duty and a commitment to what is right, you have met your responsibilities. you have done your duty. not just when it is easy, but when it is hard. that is why you have inspired your fellow americans and that is why you inspire me. that is why you ever earned your

place next to the very greatest of american generations. all of you represent the virtues and values that america so desperately needs right now. sacrifice and selflessness, honor, decency that is what i see here today and that is what you represent. i see your sense of purpose. .

i was proud to present him with our nation's highest honor -- the medal of honor. i have seen your tenacity. [applause] i have seen your tenacity and determination. i have seen our wounded warriors at walter reed. americans who are fighting against -- who are fighting to stand and walk again and to get back with their units. incredible dedication and an incredible focus, incredible pride. i have been humbled by your sacrifice and the solemn homecomings of flag-draped caskets and at arlington where

the fallen rest alongside a fellow heroes of american history. -- the fellow heroes of american history. you are part of an unbroken line of service members who sacrificed for over 2 per centuries. you protect your fellow citizens from danger. you served alongside old allies in new friends. you bring hope and opportunity to a people who have known a lot of pain and suffering. i know that, sometimes when you watch tv, the politics back home may look messy with people yelling and shouting, democrats of this, republicans that. i want you to understand this -- there is no daylight when it comes to supporting all of you -- our troops. it brings us together.

we are all incredibly proud. we all honor what you do. your show america what is possible when people come together, -- you show america what is possible when the book comes together, not based on race, creed, station- but that you bleed together as one people -- as americans. make no mistake, this matters to us into our allies, -- this matters to us and to our allies, the afghanistan people. you all want to build, not destroyed. that is essential. they have no respect for human life. uc dignity in every human being. that is part of what we value as americans. you want to bring people together and see the world move

forward together. they offer fear and you offer hope. that is what is so important that you know that the entire country stands behind you. that is why you put on that uniform. in an uncertain world, the united states of america will always stand up for the security of nations and the dignity of human beings. that is who we are. that is what we do. much has happened to our country and to the world since 9/11, but i am confident that so long as brave men and women like you, serving selflessly, half a world away, on behalf of their fellow citizens and the dreams of people they have never met -- so long as there are folks like you, i am confident that our nation will endure and that topol overcome fear. i am confident that better days

-- that hope will overcome fear. i am confident that better days are ahead. god bless the united states of america. [applause] [band playing "stars and stripes forever"] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

♪ ♪ ♪

♪ >> president obama is with troops at an airbase in afghanistan. he flew in overnight last night. this is his second visit to afghanistan. his first was in 2008 as a presidential candidate. according to the white house, president karzai is scheduled to come to washington on may 12. we return now to a forum on foreign policy challenges facing the united states with remarks from the former state department spokesman and the former white house homeland security adviser.

>> the financial dependence we have on china and its impact on our foreign policy -- do we exaggerate it? >> i think we do. there is too much of an assumption that because china owns so much american debt that they can somehow control us or dictate to us or somehow use that debt as a lover when it comes to other issues. i do not believe that -- debt as a lever when it comes to other issues. i do not believe that. i have used the analogy of a big banker and a small banker. if you all a bank a small amount of money, you are in trouble, because if you do not pay, they will take your house. if you are a large corporation, a wing the bank hundreds of millions of dollars, they give you more money to succeed so they can hopefully get their money back. [laughter] that is how they work. the chinese want america's

economy to succeed. they want the dollar to 60. -- succeed. otherwise, the billions they have spent will not be worth as much. were there are -- where they owned our indebtedness has an impact. when we want to get them to do things to be responsible members of the international community, whether you heard earlier about playing a responsible role on sedan or international peacekeeping, or supporting the appropriate sanction on i ran for violating its restrictions -- piranha for violating its restrictions. are talking points get -- on iran for violating its restrictions. our talking points get screwed up. in terms of them having some control over what we do in iraq

or afghanistan or our relationship with israel, our partnership and alliance with south korea and japan, or with any nato countries, i do not think china can deploy that leverage. if we ever want china to be a responsible member of the international community, we are going to need to develop a better financial footing, so that we can harangue them with full force. we need to be able to do so. one of the great things people do not talk about with china -- but are not of responsible member of the international community -- today are not a responsible -- tsa -- they are not a bad and responsible members of the international community. -- a responsible member of the

international community. the chinese in the u.n. security council -- my experience is they abstain from those issues or go along with the majority after the decision has been taken. they did not have an affirmative foreign policy. >> you did not find them helpful on human rights issues? >> or how about the freedom of the internet? [laughter] >> can diplomacy work with countries that the u.s. considers to be terrorist countries? more specifically, can we diplomatically work our way out of this mess with iran? >> there has been no indication based on iranian behavior that that is possible. i recently traveled with

secretary jim baker who makes the point -- you can not resolve anything if you do not talk to the people you disagree with. the problem is that iran has not done anything to events -- evince a willingness to engage substantively with us in a meaningful and honest way. where does that leave you? not any place good. our history on sanctions is not very -- they have not been effective. that is where we are headed now. the military options are not good. the current administration is not inclined in that direction. let me hasten to add that the prior administration was not either. israel may or may not use at some will vote, in their self interest to act -- at some point, in their self-interest

, to act. given our current understanding, there are delay tactics -- obstruction. if you're not going to destroy their capability, you are delaying ultimate acquisition of weapons capabilities. we do not have a choice but to try and create an international coalition that will continue to put pressure on iran. >> is there something missing? are there one or two things that come out if we could only convinced the czechs or somebody to get in the game, we could deal with it? [laughter] >> let us be honest -- our allies in russia have not been supportive.

they're acting in their own self-interest, as opposed to the interest of the international community. we need to be clear that they are not -- and to the extent that engagement in diplomacy sanctions are not working, our allies in china and russia bear some responsibility there. >> let me ask you a parallel question. should the doctrine of preemptive military action remain on the table when it comes to iran? >> preemptive, military doctrine came into the public discussion in 2002 when it was made the national security strategy document of the united states to say openly what has always been true, that country's reserve the right to act in their own self-interest if a are about to be attacked.

this wording and use of -- if they are about to be attacked. this wording and use of that is why it has been so hard. it was seen as the first test of a new thing. we could do it iraq, then is wrong, then -- we could do iraq, iran, syria -- it has been always true that we could act preemptively if we thought it would be in our national self- defense. the issue was not actually pre- emption. it was another word called " prevention." pre-emption means the other person is about to attack and you attack first. iran is not now or for the foreseeable future going to have the ability to launch a missile

with a nuclear weapon to attack the united states. the question is -- the one that fran raised -- is knowing that they may soon have a nuclear weapons capability, do we act before we get to that point? that would be preventive war. here, i think we are going to end up in a very similar situation to the way things were in the cold war. there was a phrase when arms control was first invented called "adequate verification." it was invented by the nixon administration. what it meant was that we can have an agreement with the soviet union, we know are lying, cheating, stealing russians --

>> it is not like they can help it. it is something they were born with. [laughter] >> we can do it because there is time to respond -- military significant cheating in time to respond. i think that is where we will end up with iran. we will develop some analogous phrase -- >> so let them have it? >> they will have enriched, nuclear material and we will be able to detect that in time to make a decision as to whether to use military force. that idea, not to wake up one morning and prevent iran from ever having this capability, but rather to get into a diplomatic discussion

with other countries, that if they were about to brandish an actual weapon, and put the final pieces together, or throw the inspectors out who currently monitor this material, that would yield a different response. that is where this whole debate is going to go. >> can i just -- >> i feel like a lowly college professor. if we're going to blow them up, why do we not do it now? >> i wish i had confidence that could work in this context. here is what worries me. i do not think that soviet construct disney comfort in this context. -- gives me comfort in this context. russia was not a state sponsor of terror. the notion that we will know that they have cheated and be able to take time to make a decision to act, or that we will

be able to track adequately in quickly enough the material, i do not think is realistic. in the context of the potential for, not just a nuclear weapon, but for the movement of materials and the use of those nuclear materials in improvised nuclear devices by a terrorist organization -- we did not have the same asymmetric. russia was a state-on-state threat. >> i do not disagree. the alternatives have already been dismissed -- to use military force. i am not talking about preferences, but where we are likely to end up. the reason why president bush did not choose to attack iran and president obama seems disinclined to attack is because one, the attack would not fully achieve the objective of preventing them from ever getting nuclear weapons, and it

would have all these costs. having gone through a recent push back -- the terrorist disability would be used against our allies in israel, shipping in the gulf, american embassies all over the world, americans ourselves. we would be launching -- initiating a major war in the middle east for a gain that has been described as questionable. that is why president bush did not do it and why, presumably, president obama is reluctant to do it. we are left with the real world where our preferred option is a preventing iranian nuclear give ability cannot be achieved at and it is that double costs. what do you do? >> you are saying we have no good cost -- option. >> right. >> the military option for

delaying it is a better alternative than to accept them acquiring nuclear weapons. >> we are not there yet. >> we may find ourselves there. certainly, our israeli allies make and sell their -- may find themselves there. >> why are americans so despised by so many around the world? [laughter] >> when does not have to accept the premise, just to respond -- one does not have to accept the premise, just to respond. >> i do not think it is true. there was a lot of anger and frustration at the united states. the french foreign minister said

we were the "hyper-power." european countries did not like to be told what to do on sanctions. we were criticized for be telling the secretary general of the un. -- for vetoing the secretary general of the un. president bush took that to a whole new level. even after president obama has fixed the major differences on the major issues of climate change and changing the practices with respect to the treatment of prisoners, supporting international arms control agreements rather than unsigning them -- we did something no one had ever heard of before. i guess they had any research -- an eraser and they unsigned it.

having gotten rid of the most unpopular policies, we still have problems getting the rest of the world to live up to the difficult challenges of our rules-based international system. too often, other countries are willing to put their head in the sand and hope the problem will go away, or live in the knowledge that somebody else will take care of it, whether it is the united states or the israelis. if it is a good example. you can of the countries who are relatively -- it is a good example. you can talk to countries to our relatively moderate. you get a moment where the admit they would like the israelis to blow up the iranian nuclear reactor. >> they do not say that outloud. >> no, it is in private. when they say it out loud, we will know the middle east has changed. when israel attacked hezbollah

in lebanon, because they had attacked the israelis in the north, you had, for the first time ever, egypt, jordan, saudi arabia, essentially making a statement blaming hezbollah for the war. you have dishonesty in the system. america is, despite all the difficulties we go through, the strongest, military power in the world. we have a system that is, despite its failure to make good decisions recently, it is still a system that is admired. americans ourselves are admired, perhaps less than we ought to be if we were to fix fixable problems like our immigration officers being mean to foreigners. i am sure you heard a lot about that in your time in government. it is hard to come to this country if you are not american now. it is tough to go through immigration.

it is not anybody's fault. it is just the way it is. >> i had an immigration agent -- i was coming from canada he asked -- i was coming from canada. he asked what i did for a living. i said i make speeches. he said, that is not our real job. [laughter] i said, that is what my mother says. >> we are not despised, but we could do things to be more admired than we are. >> did the administration more rain, -- did the in ministration worry -- did the administration worried that these problems were dangerous to us? >> one of the things -- when you read the question, my first reaction was, there is a difference between this agreement by -- disagreements

reverses americans being despised. i have travelled throughout the persian gulf, including to saudi arabia. i have never had the experience where anyone in any part of the world, including the arab world, hated americans. they may have disagreed with policy and have been vocally disagreeable with foreign policy, but they did not despise americans. one thing -- when condoleezza rice went to become secretary of state, we talked about this issue. we had met with a group in the white house of american university presidents who were very concerned about the drop in student visas from around the world. as we were clamping down and issuing fewer student visas,

our allies were easing the restrictions on students and attracting them. they were saying to us -- the university officials -- once we lose them, there is a percentage we will never get back. we put a tremendous emphasis on trying to recalibrate, if you will, the visa system. we try to teach customs and immigration officials at airports how to behave in a way that does not unduly ofend -- offend people visiting this country. i was at the consulate in saudi arabia. his son was admitted to harvard business school. he said his wife would not let him go. i turned to him at this reception and said, i will meet him at boston's airport if you will send him. he said his wife still would not let him go, because you will not be there every time.

there was a level of fear and unpredictability about our immigration system. it is by no means perfect, though it is better. i have met with this group of residents who said, by and large, we have gotten many foreign students back to the country. we will never see the bill lulls -- see the levels we saw pre-9/11. people admire the ingenuity, creativity, and capability in this country, and they still want to come here. we need to get past the government-to-government relations and recapture the people and let them come here and be comfortable and take advantage of many blessings that we have in this country. we worked very hard. that was one thing we thought we could do. we thought that could ease some of that disagreement. >> we are running out of time a

little bit. a questioner asks what would you change in the obama administration foreign policy? have them take your advice. >> i would change one thing. during the course of the first year, now 16 months or so, in the effort to adjust what president obama thought was necessary to develop greater partnerships with countries around the world to improve america's standing, i think we have lost, as a result of a number of pragmatic decisions, the moniker of fighting as hard as we could for democratic

values around the world. i think the decision not to see the dalai lama before the president went to china, the decision to downplay human rights in our relationship with china, the decision to put aside some of the democracy programs in countries like egypt and elsewhere -- each one of these decisions on the merritt had a good practical -- on the merit had a good practical value and rationale. the net effect -- it is a shame that democracy promotion -- the idea that the rest of the world should have more infrastructure of democracy and ultimately democratic government -- became

hyper-partisan, the day that bush gave a speech to the state of the union and every republican legislator put purple ink on their finger. whenever iraq was discussed, they waved their fingers to make the democrats in the room feel like, because they have legitimate questions about the iraq war, they were not for democracy, as if those two were the same. unfortunately, the result is that the democratic party, during those years, began to associated the promotion of democracy with the iraq war and president bush's doctrine. remember the day when they were -- there was an attempt made to embarrass them. the democratic party has stepped back from being as much of a promoter of democratic and values around the world, despite president kennedy, president

carter, president clinton but all historical support for democracy. -- president clinton's historical support for democracy. >> and nobody seems very happy with the president. do you think he is handling it ok? >> i think the president -- it is interesting, i was -- you look at the press coverage. with been in the midst of this health care -- we have a bin in the midst of this health-care debate -- we have been in the midst of this health care debate, and it leaves open the ability for partisans to criticize him. there is no question that we will be attacked again. we can quibble on whether it is enhanced interrogation attacks

or guantanamo or military commissions, they are all legitimate public policy debates. regrettably, this has become -- a denigrates int a whole partisan -- it is hard to have -- it denigrates into a whole partisan -- it is hard to have it. my concern at the moment is that the president must find his voice on this issue. i fear, given the christmas day attempt, and his concern that the system did not work as it should have, that we failed to detect it before the threat manifested itself, he has gone remarkably quiet on this issue. i do not think that serves him or the country well. we need to talk about the issue. we need to be honest about the threat we face. we need to be honest about the challenges. there is no good that comes from not talking about it. i speak from personal experience.

your national security officials, every day they are in office, must strike a balance between security versus privacy and civil liberties. they do it on your behalf. just because they do not talk about it does not mean they did not do it. i think public officials make better decisions when there is an informed public debate on the issue. you may ultimately not agree with the decisions that they make, but i can assure you they will make better decisions by virtue of the public debate. >> that is a great place to end this. thank you. thank you to all of you for being with us. good night. [applause]

>> tea party activists held a rally in search like, nevada on saturday. sarah palin was one of the speakers. we'll show you that at 6:30 and 9:30 here on c-span. >> the renovation of the pentagon has made it much harder for reporter to just walk around. more spaces are behind doors where i cannot go without an escort. >> tonight, david martin discusses covering the military here in the u.s. and in iraq and afghanistan. that is at 8:00 eastern and pacific on c-span but don't you make will -- s-span's "q &a." -- "q & a."

>> the president >> the president is signing the health care bill today. i would have considered postponing the hearing, but it has already been postponed once. we are about to go to recess. we have a crowded hearing scheduled. we have scheduled hearings on lehman brothers, greece, and other issues. therefore, i did not want to postpone this hearing. we're going to go ahead. i will proceed. members will get a chance to ask questions, if and when they come.

that is why we are somewhat thin, particularly on the democratic side. i also want to announce that we are close to some agreement -- the gentleman from west virginia and california have been working on the fha reforms. there has been a lot of majority cooperation. we are on track to have a markup on thursday, but we will not have it on thursday. we will probably not be here. we will schedule the mark up as soon as we come back. i think we will have an agreement on an fha bill to come to the floor. we are going to go ahead on thursday with the hearing on the federal reserve's need to deal with the liquidity that they have provided and what they will ultimately do. we have had postponements.

that hearing -- the hearing on the federal reserve will go forward on thursday. the market will not happen, since we will almost certainly not be here. with that, i recognize for the first opening statement -- we have eight minutes of opening statements under our agreement on each side -- the chairman of the subcommittee on financial institutions which has jurisdiction under our rules. the gentleman from pennsylvania. >> thank you very much, mr. chairman. last june, we held the first hearing in housing finance been 100 and -- in the 111th congress to discuss the future of fannie mae and freddie mac. we continue with what will undoubtedly be a long-term negotiation about the prospective configuration of our nation's housing finance system. because of the significant stress on our economy and the

need to maintain access to affordable mortgages, secretary paulson placed any mae and freddie mac in conservatorship in 2008. -- placed been teammate and freddie mac in conservatorship in 2008. -- fannie mae and freddie mac in conservatorship in 2008. these actions have helped keep housing credit available for america's middle class and prevented a complete collapse of our housing markets. lawmakers must now begin to grapple with what type of housing finance system we should construct for the future. we have no shortage of ideas. while we must give thoughtful consideration to each proposal, we must keep in mind the importance of why we created housing-government sponsored organizations in the first place -- to increase liquidity improve

the distribution of capital -- to increase liquidity and improve the distribution of capital. my goals are stable, long-term sources for americans to purchase houses. i want to ensure the system continues to support community bank and credit union lending. the task before us is not all that different from the one that engineers and policy makers faced in preparing for the big dig, which significantly impacted how traffic flows through boston. we must figure out what pieces work and keep those. we need to determine what parts of the infrastructure needs to be eliminated. we need to ensure access to affordable mortgages in the interim, judicially working to keep capital moving through the financial pipelines during our legislative debates. finally, we must figure out how

to pay for this enormous undertaking. as we begin this year's deliberations, the treasury secretary has joined us. in the near future we will hear from the secretary of housing and urban development. after the completion of these initial proceedings by the full committee, the capital markets subcommittee will renew its examination of these matters by exploring more detailed and technical questions related to government-sponsored enterprises and our nation's housing finance system. in sum, i appreciate your efforts in convening this hearing as we received testimony regarding what functions a new housing finance system should be able to perform. we have to work to do no harm to those parts of the system that have worked well and we need to protect taxpayers from future losses. >> i will read from the republican list.

the gentleman is recognized for one minute. >> thank you for holding this important and long overdue hearing. it is unacceptable that more than 18 months after the gsc's replacement does -- that the treasury department still does not have a plan for fannie and freddie. outperform, the american economy will not recover. -- without reform, the american economy will not recover. it has cost the american dollars -- it has cost the american taxpayer billions of dollars. the answer is simple -- protect taxpayers from further losses and bailouts, in order to build a stable housing finance system, based on private capital, while the administration and congressional democrats have remained silent, republicans

have introduced legislative measures to immediately address the fears -- i yield myself an additional 20 seconds? >> the gentleman is recognized. >> to immediately address the fears and put forth real solutions. i hope today is the beginning of open dialogue. i hope we can phase out federal credit privileges and guarantee fannie and freddie. >> the gentleman from california is recognized for a minute and a half. >> thank you. we are all well aware of the damage caused by the mortgage giants. because they were perceived to be government-backed there were isolated from market forces that would otherwise have presented -- prevented the excessive risk- taking. they wiped out competition. they formed a duopoly over the

market. between homeowners and flippers, you had over 10 million individual loans outstanding in 2008, held or guaranteed by fannie or freddie. junk loans were at the heart of the house and bubble -- housing bubble. going forward, these requirements should be repealed as should any other mandate on financial firms that put at risk the safety and soundness of the institution for a broader goal. there were over leveraged. i carried legislation that would have allowed the deleveraging of these institutions. we should never allow that kind

of arthritis and over- leveraging of institutions like this -- barbarized -- arbitrized and over-leveraging of institutions like this. thank you, mr. chairman. >> the gentleman from illinois is recognized for one minute. >> thank you, mr. chairman. since entering into conservatorship in the fall, 2008, fannie mae and freddie mac have lost $174 billion and billions more in losses are anticipated. we are liable for over $5 trillion in outstanding mortgage applications. fannie mae and freddie mac guaranteed over 3/4 of new, single-family home mortgages in 2009. taxpayers deserve to know where

their money is going and what risk they're being exposed to, as well as how these institutions are being managed. republicans have proposed reforms that will impose some common sense and accountability. we will take immediate steps to wind down the immense risks posed to the long-term stability of our housing market. reform is critical. i yield back. >> the german from california, mr. miller, for one minute -- the gentleman from california, mr. miller, for one minute. >> i must disagree with anyone who suggests that they were the cause of the crisis and must be abolished immediately. in california, very serious the lynn woolsey rate is -- their serious delinquency rate is low. i have yet to see a viable

alternative from this administration or congress to return them to profitability and recoup our investment and ensure that there is a viable secondary mortgage market. i look forward to hearing your testimony. i yield back. >> i recognize myself for the remaining four minutes and 40 seconds on our side. i very much agree that this is a subject that must be addressed, which is why i initiated the scheduling of this hearing. i regret the fact that constituency commitments of mine made us hold off for a couple of weeks. i believe this should be seen as a hearing and a legislative task, not simply about fannie mae and freddie mac, but about housing finance. we have a very complex housing

finance system. there is the fha. excuse me. there are these two federal debt agencies -- federal agencies. fannie mae and freddie mac -- hybrid organizations. there were given directions which came into conflict with their private mandates. there are the federal homeowner banks which should not be left out,. we will have to go hearings. we have a large number of private sector witnesses. many of them will be in agreement with what we heard from the gentleman from california.

we of two jobs. we need to figure out the best way -- we have to good jobs. we need a bigger out the best way to wind down fannie mae and freddie mac. we need to decide what goes in their place. much of that will be purely private. it will not the government mandated. we need to figure out the interaction of these. who provides liquidity? is there a place for subsidy? i believe it is a mistake to heavily subsidize home ownership. we're better off trying to subsidize rental housing. you do not then confront the problems we have seen from people. there are claims to be made for helping some working people get into homes. that may be partly the fha or some other mode as well. yes, it is important to put into

place a way to wind down fannie mae and freddie mac. i believe the overwhelming consensus from people concerned about the economy and the role of housing in the economy -- home builders, mortgage bankers, advocates for various groups, minority groups, low-income people -- they all agree that simply abolishing any make and freddie mac -- fannie mae and freddie mac would not be enough. we also need to decide what replaces it. many of those entities will be purely private. there was a piece in the republicans' bill that said any state or federal government can do this. they already can. we would expect that. those who are going to be doing the purely private aspect have the right to know what the role of fannie mae and freddie mac

will be. we will sign his stint -- we will simultaneously be figuring out to wind down fannie mae and freddie mac and making sure that, before that is completed, we are ready to replace the functions they're performing in the economy, without leaving a great vacancy. it is the old story that says you cannot tear down the old jail until you build the new one. that is probably where we are with regard to this effort. we have important functions to perform. it is important to deal with the replacement of fannie mae and freddie mac, knowing that there will be a new set of institutions that will deal with housing and the economy. that is one of the things that we get from all of the participants in the economy who are coming forward. the goal of the committee is dcome out with -- is to come out

with legislation that helps a, -- that helped accomplish both of those jobs. the gentleman from west virginia is recognized for one minute. >> thank you, mr. speaker. thank you for this hearing today. it does need of immediate attention. our nation's housing finance system is slowly recovering. the system is dominated by the gsc's and we need to work to restore a strong private presence. i am pleased that secretary donovan in commissioner stevens are taking a proactive approach to seek bipartisan support. we are working through the process. the same commitment to reach a consensus could not be said for the administration's approach. despite the complete collapse of 2008, the administration barely mentioned the reform of these entities in their budget this

year. the time for action is now. the federal government should not be playing this large a role in the nation's housing finance system. we need to determine what the appropriate role is. i look forward to the hearing and the testimony of the witnesses. thank you. >> next, for one minute and 10 seconds, mr. hensarling. >> of all the dumb regulation and legislation that caused our economic crisis, none was dumber than that. the federal government told them, we will make you -- we will let you monopolize the market as long as you securitized and insure mortgages for people who cannot afford to pay them. regardless of the good motives, it is ultimately one of enriched executives, cookbooks, political bullying, a massively insulated housing bubble, on

foreclosures, a shattered economy, and the mother of all taxpayer bailouts. the answer from the administration to all of this -- page 352 of the budget -- the administration continues to monitor the situation. it is unacceptable to protect the structural status quo, to announce multimillion-dollar bonuses for executives, and announced on limited taxpayer exposure. republicans are attempting to lead. i am attending to be one of them by introducing a jar -- hr 4889, which would present these to innovative and competitive market places without taxpayer bailouts. i encourage the members to consider. >> you're recognized for one minute. >> thank you, mr. secretary. it has been three months as they lifted the $400 billion cap on fannie and freddie. they paid out millions to executives who people are saying

simply lost the taxpayers' money. this is our first hearing on the topic, which i think it's unbelievable. as a letter immediately after that asking for a hearing on this -- i sent a letter immediately after that asking for a hearing on this. it has been three months. now we are having a very important during based on the cbo estimates. it is uncomfortable to discuss the issue because some of us played a supporting role in the demise of the gse's. i know you said in the papers that if we rush, there is a risk it would not get consensus on this. >> the gentleman's time has expired. the minority can divide his time as it wishes. if you have one minute, you can

talk for one minute. the secretary of the treasury is now recognized for his statement. >> chairman frank, ranking member, members of the committee, thank you for allowing me to come before you again. the process requires a broad look at the full range of government institutions and housing market. is a complicated question -- it is a complicated question. we can now build consensus on reform. fannie mae and freddie mac played a significant role in the financial crisis, allowed to dagon a significant risk with adequate capital and inadequate oversight. their potential collapse posed a threat to the entire american financial system. the operated with the perception of chairman backing, which allow them to take on significant leverage and build up portfolios to a size that the

market would not have allowed. the government did not move quickly enough to put on restraints that would have protected the system from failure. this committee understands, these voters were not unique to fannie and freddie -- you moved to pass comprehensive financial reform. these were some dramatic failures -- symptomatic failures. it took on tremendous amount of risk, with the damaging erosion in underwriting standards. private companies, mortgage brokers, and large, financial institutions would no government backstop in support or also becoming over leveraged. there were offering credit that too many americans could not afford in did not understand. underlying all of this would be unrealistic assumption that housing prices would continue to

go up. these failures brought america to the edge of financial collapse. over the past year, we have made important comprehensive -- important progress toward comprehensive reform. this conversation is the next stage in evaluating how to bring reform to the housing finance system. over the coming months, we will consult broadly across the public and private sectors, both sides of the aisle, working closely with this committee and your counterparts in the senate, to take a fresh, cold, hard look at the problems in our system. we will consider a full range of options and hmodels to determine what role the government will play in promoting a stable, housing finance system. we believe reform should meet the following objectives -- ensure broad and reliable access to mortgage credit, provide financing for affordable rental housing and ownership for americans, protect consumers and

safeguard the stability of our financial system. effective reform has to end a system in which the benefits of governments support or captured by shareholders rather than taxpayers, leaving the taxpayers with substantial losses. we need to facilitate a smooth transition to any new system. treasury is committed to supporting the continuing activities in conservatorship. we will continue to make sure they have sufficient capital, necessary to perform under any guarantees now issued, or in the future, and to meet their debt obligations. we will be careful not to pursue policies that would threaten or disrupt the function or liquidity of the securities they have issued or their ability to honor their obligations. thank you, mr. chairman. i look forward to your questions. >> thank you, mr. secretary. i want to address some of the issues. the gentleman from new jersey

raised some questions. he said we are waiting three months for the hearings. as you know, three weeks of that was because i had a hearing scheduled -- i had to postpone it and this was the first day we could get. the desire to make public is out of balance. -- make points is out of bounds. .

most of the republicans supported it. some of them called it too weak. it was a republican bill in the republican house. the notion on this side -- that we somehow captured his mind, i am not sure what the matter is, but it is true, mr. garrett offered an amendment and he did get some support. 2005, under republican control, they got 53 republican votes. those voting against included my friend here, mr. bacchus, the

speaker, the minority leader, mr. kantor. we are all apparently tools. we do not know how good we are, that i can get all of these people to undermine this valiant effort. mr. royce did a little better with 70, we got only 53. the same people voted against them. this notion that it was the democrats -- by the way -- >> will the gentleman yield? >> i will, additional 40 seconds? yes. >> i think that my words were that some members of this committee were uncomfortable in discussing this issue. looking at my notes, i never

mentioned democrats once at all. i think that the chairman protests a bit too much. >> in fact what he was referring to, mr. speaker, mr. miller, i except my correction. i appreciate his making sure that he was criticizing them and not just some of us. mr. royce got some of the republican votes. the bill that the republican house passed was denounced by the republican presidents. some will remember that famously being said if he had not got the one finger salute from the white house. what happened was the republican senate and the republican house had a fight and no bill was passed. 2006, they asked for permission

to negotiate with congress. they got the president, over the objection of many others in the white house, negotiating with me and with that the democrats in that next election. that is when they got the majority. he pushes out any vote that we honor the agreements that we have made and that we passed a bill that he called fall from perfect -- far from perfect but better than the republican bill. i apologize to the gentleman from new jersey. he was instead talking about democrats and the republican leadership. i do remember this, when they said the republicans tried to fix the bill but that they were outvoted. in fact, the records are all here.

no amendment either in committee or on no amendment on the floor or in committee that received the majority of votes past. the bill on the floor or in committee, neither was supported -- in no case did a majority of republicans get overwritten because the minority of republicans were with the democrats. that is history, and we have to go forward. i believe that in regard to the current situation, there is agreement that we need to replace fannie and freddie. there may be disagreement about whether doing that is enough, and whether or not we need to also figure out if we need to restructure the federal homeowner banks. and do we need to provide any more authority in terms of the liquidity of the secondary mortgage market? in some ways, they are harder intellectually.

the gentleman from alabama. >> there is a question in there someplace. [laughter] >> this will not come out of the gentleman's time. each member has five minutes. >> secretary geithner, how can you say that regulatory reform bill in the senate is comprehensive? . .

if you look over the past decade, many of these men were wrong. the system worked well for a period of time, but things started to change at the beginning of the decade. fannie and freddie chose to use a lot of risk in their portfolios, providing guarantees that resulted in more credit risks. both of those mistakes were central to the problem. >> i have to disagree. in 1997 they started making loans without down payments to people with questionable credit. i think it was a disaster waiting that happened.

i will say that several of us spoke on the house floor at the time, resisting the clinton administration's efforts to relax those standards. in these debates for that period of these debates for that period of ti >> i was not a part of that debate at that time, but there were a large pit -- there were a number of people trying to bring strong oversight, as many of you as many of you have said, those efforts were not successful, and that was a failure. >> several alternatives have been suggested to reform them. one was simply to naltize them and make the government -- nationalize them and make the government have a line of credit with the treasury and be exempt from state and local taxes. another is to create morekyñ g.s.e.'s to compete against each

other. this is the government competing against itself. still, with the government subsidy and guaranteees, isn't a better alternative to do what we republicans are suggesting, and that is phase out the government subsidy and guaranteey and duopoly over time, transition to a market-based environment, and implement withdrawal of all federal government support? >> i agree with you, congressman. i do not think either of the two options you began with looked particularly appealing at this stage. >> which two? >> full nationalization or creating a full new class of g.s.e.'s to compete with each other, those do not look like appealing options to me. i have not had an opportunity to look in detail at your proposals, but i will. i any you ended by saying a

transition to a world in which you phase out all government support in any form? is that what you said? >> particularly a g.s.e. that has a line of credit with the treasury or ability to borrow from the fed or state and local government? >> i personally think we need to end a system in which you have this awkward combination of private$cñ shareholders with a broad sense of implicit support. i think that system was a terrible mistake. those mistakes were very cons consequential. as we work together to create a new situation to create our current room we should at least agree we should not recreate that fatal mix of public and private shareholders in the same institution. >> you know, i think as long as you have a government entity competing with the private market, you subsidize them in anyway, it is unfair competition, and i think it crowds out the private market. i think we have seen the result of that. >> i think, again, at the heart of this debate would be to think

about what is the appropriate role for the government in providing some form of guaranteees in providing some stable form of government finance and what role should the government have. that's the prime question we face. we should take a fresh look at that. that will be critical to reach consensus on before we determine what that transition pass should be to that new regime. >> the gentleman from pennsylvania. >> thank you very much. welcome back, mr. secretary. it seems you have been remis. you haven't been here at least a >> i have had the privilege of being with this committee many times and i look forward to being here many more times. >> very good. it seems we had seft yesterday from sharme bernanke and former -- former chairman bernanke and

former chairman volker. he was calling the committee's attention to the difficulty in getting the regulators to regulate according to their authority. to a large extent i listened to the banter back and forth. we are still attacking each other as to who is at fault, why are they at fault. i think you are taking the correct perspective here. that's history. now we have to go forward and do something. now we have to address and answer some serious questions. i happen to agree with you. with all the errors that may have occurred at sometime with fanny and freddie, the reality is for a period of 20 and 30 years, we had a relatively stable real estate market that x very well at poor times, so that we didn't have stops and starts as we have had in prior decades. the question, i guess, that comes to my mind, is what are we

going to be able to do about when this congress passes authorization for someone like the federal reserve to create and control mortgages and how they are made and who is allowed to get them and they don't exercise that influence? and regardless whether the republicans were in power for the 10 years that that failure occurred or whether the democrats were in power we can see that at some time in the future one party will be in power and we are not getting the anticipated results from regular lateors that at least in policy we pass here as a matter of law. should we start with that proposition and see -- because it really doesn't matter combha we do here if it is not implemented. what plans can you make or are you intending to make for better you intending to make for better implement asian for -- implement we have to start to make sure

that the entity responsible for risk taking over these institutions has the authority and ability to put those constraints in place. the authority to constrain risk taking the capital requirements protected from those entities. that is the most important thing. holding those oversight bodies accountable overtime. constraining risk can posed systemic damage to the financial system as a whole. >> are the independent regulators to independent in terms? of >> there is much challenge of

regulators for the following situations. they were held to quite high standards for consumer regulation, but there were areas that had no effective oversight or enforcement in place. when you do that, risk tends to migrate from where it is con strained to where it is unconstrained. it tends to move to where the situation is more compliant or the regulator less experienced. a central part would be to make sure you have clear standards enforced evenly across institutions doing similar activities. if you do that, you make the job of a supervisor much easier. if you make it;fx easy for firmo evade those protections, you make their jobs more difficult. when you look at fannie may and freddie mac you find

underwritingc/y business migrat from those institutions to parts of the system that were engaged in a competitive race to the bottom in underwriting standards in consumer protection. the most important thing we have to do in financial reform, and this will be true as we move to housing finance is to make sure there are clear standards with clear accountability for enforcing those standards. >> thank you, mr. secretary. my time has expired. >> the gentleman from delaware. >> thank you, mr. chairman. i have three questions here. i am going to try to put them together. it may get complicated. last month i asked federal reserve chairman bernanke whether fannie may and freddie mac are serving their purpose or whether we should look at different ways to finance mortgages, and he responded the fed has been vocal on this issue for years. he said we need to be cautious about returning to the existing model with conflicts between

private shareholders and public objectives. he suggested that public utility approach. my first question is, would you agree or could you comment on that assessment? my second question is, using the federal home loan bank model, is that something you could actually substitute for all this in terms of what we're doing or not doing as far as the future is concerned? they don't seem to have had the problems that the other g.s.e.'s have had? and my other point is how about eliminating all these systems which is a system whereby institutions making loans have to make their own loans based on what they are doing? i am not necessarily advocating that or saying you do, but i am interested in your opinion. >> i amany interested in your quote from paul volker about what i think -- what he think happened. i think he's right there.

i think your options are something we should take a careful look at. i think the federal home loan bank system is not without challenge today. i think as the chairman said at the beginning, when you look at the housing finance sectors, you have to look at the l.b. finance as well to make sure it can play the role it is designed to play, again, without leaving us without too much risk in the future that the government will have to come in and underwrite those losses. you asked if it is possible for the government to play no role in providing for the mortgage finance plarkt through explicit guaranteees, subsidies, support for liquidity. i think there is a -- there is certainly a pure theoretical option in which that may make sense, but my own view is this will probably be a good economic case for some continued provision of a carefully

designed guaranteee by the public sector going forward. housing markets are so critical to overall economic activities, they played such a large role in people's wealth, the perception they are very vulnerable to volatility. when you experience broader financial markets, shocks to the financial system. because of that inequal housing markets play, i think there is likely to be a good economic case that is likely both conservatives and liberals could agree on for the design of a carefully calibrated guaranteee appropriately priced that would continue in some form. >> what do you think the time table on all this is? we have had a lot of discussion, some hearings now and that kind of thing. is this something you feel needs to be addressed in the next two or three months or within a year, or do you have any thoughts about the time-table and how quickly congress and the administration should move on these issues?

>> i think realistically it will take several months to do a careful exploration and shape legislation that could command consensus. i think we're at the point we can start that process in ernest. i think we should try to get it writhe right. i don't know why this should take years. i think wreel really we're at the moment where there is a huge compelling need where we design this successor system, and it is hard for anybody to argue that we can live with the system as it now is indefinitely in the future. i know people are worried we are not going to take advantage of this moment forever and put it in place at this moment because many people tried in the past and failed to get consensus. i don't think we face that risk because no one can look at the model we have today and say we can afford to live with that model going forward. i would suspect will you find broad support for reform. the challenge will be to design something we think will work better in the future. >> i would agree with you that

it is goingw to take time to pu it together, but i#lá would hope could work on it together as rapidly as possible. there are a lot of dollars out there and a lot of reflection. thank you, mr. secretary. i yield back. >> the gentleman from california. >> thank you very much. fa you, mr. secretary for being here to discuss fanny and freddie, g.s.e.'s that we depended on for many years to provide mortgage support. mortgage financing for low and moderate income homes. with the missteps about fannie may and freddie mac and to the sub-prime mortgage market during the past several years and the resulting conservorships they were given little credit, they developed a fixed-rate 30-year mortgage that made mortgage credit=yñ ownership available to millions of

americans families. these were the good aspects. i won't run away from that. i know that since they have been in trouble and some of us have been accused having given them so much support that people are sometimes hesitant to say that. i believe they dove into uncharted waters when they followed private firms into the subprime market in an attempt to increase market earnings. this effort, to me, earnings targets may have been the fatal flaw in their structure. if they had not been so focused on quarterly earnings reports, they may have weathered that storm. having said that, we continue to have a great need for low and moderate income housing in this country. this committee, led by chairman and strongly supported by members of this committee particularly on this side of the aisle, are supporting a $1 billion housing trust fund, national housing trust fund.

that's important to us right now. we were, we thought, going to get resources from fanny, freddie, and that's not possible at this time. do you have anyway -- any way or do you have any ideas how we can support this housing trust fund? i would like to hear about that. >> i think what you said at the beginning is important for people to understand. our housing finance system did work remarkably well over a period of many, many decades. it was in many ways the envy of the world. things started to change in the late 1990's and in the last decade. you saw a dramatic increase in risk on their balance sheets and a substantial erosion in underwriting more broadly. as we know, those mistakes caused a huge amount of damage. i agree with you that it is important as we think about the future to make sure we retain what was good about this system.

i don't think it will be 10able to recreate the system as it exists in the future. in the future, we will have to do things -- we will have to do fundamental change if we are going to achieve the objective you laid out at the beginning. we are, of course, preparedeáé work with people in the committee to find ways to provide continued support for the housing trust fund. i'm not in a position to describe in precise detail how we can do that, but we do have some suggestions. >> i freeshate that vemp. -- i appreciate that very much. we look forward to working with you on that. as i wrap this up, i would just like to be clear about whether or not we are talking about fanny and freddie formulated perhaps in different ways to continue the mission without the risk or are we talking about getting rid of it all together? what are we talking about here? >> well, i think as many of your colleagues have already said, i

don't think there is a credible argument that we can polish, put out of existence these institutions today. that would not be responsible. one could not defend that. i think we need to be careful as we work together to design the future of the american housing finance system. we preserve what was good, but we end what was too risky. >> that makes good sense. in the interim, i appreciate your reputation that you will help -- your representation that you will help us do something. we need something while we are trying to reorganize those g.s.e.'s. thank you. >> i want to stress again the administration was committed to work with us on this. we are talking primarily about rental housing. we are not wooing out home ownership. but many of us believe we did too much in terms of rental

housing and the right finance in terms of rental housing avoids the other problems we have had in the past. the gentleman from california, mr. roice. >> mr. geithner, i want to thank you, and i also want to thank you for the period of time when you were at the fed. i went back to my notes. i counted 15 times when the fed came before congress and warned us about the moral hazard with respect to the g.s.e.'s. i admit we were in the minority. those of us, i think there were about 70 of us, who listened to the fed about this argument, about the over-leveraging. my amendment on the house floor was not actually written by me, it was actually written by the fed, just as over on the senate side. chuck hagele's amendment was about the ash trauge going -- arbitra gesm -- arbitrage going forward. >> will the gentleman yield?

>> if you will yield me additional time. >> chris dodd was not even the ranking democrat. the republicans were in control at that point in time in 2005, so chris dodd was the second ranking democrat in the minority. >> yes, and he objected to the bill on the house floor going forward. the point i'm making is that the fed recognized the problem created in the housing market. but there is another aspect about this that economists have talked to me about. we have also seen over the last 10 or 15 years the huge increase in the derivatives market. this is where i'm going with this with respect to the g.s.e.'s, how much of that was tied to the g.s.e.'s?v[ especially since they trade in the derivatives market the same way they did in the housing market, and i was going to ask you, mr. secretary, have you looked at this issue where g.s.e.'s were a large driver in the growth of derivatives market

and in the non-risk-adjusted trading that went on? the point i'm trying to make is that these entities is that because of the presumption, because of the moral hazard, the same argument you were making to us, just like investors in their debt believed they were triple a the counterparties here believed they were triple a. but here it had additional significance. so they played a big role, i think, in the growth of the derivatives market. how do we mitigate that going forward? >> g.s.e.'s take on two types of risk. a lot of the mortgages are guaranteeing their 30-year fixed rate mortgages. they need the capacity to hedge those risks. they need derivatives markets to hedge the risks on their books. i think what they did there was necessary. again, the central failure of oversight of the g.s.e.'s was not to force them t

oversight was not to force them to hold enough capital to back their commitments. they took on more risk than capital to support. this committee has passed a sweeping set of reforms to pass oversight on the derivatives market. those would make sure that you could force institutions onto a standard clearing houses, where you could regulate and supervise the margin, giving the fcc the ability to bring broad transparency and disclosure to trading in those important markets. we think that those ruffled -- those reforms are necessary to or central to reduce substantial risk that comes from the growth in those markets. putting those reforms in place we will have a better bet of changes available.

>> i understand, but first -- you still have a moral hazard problem because of the resumption of backyard guarantee. second, they are not homegrown. you and the treasury come forward and say we've got to make sure they don't over-leverage. they were over-leveraged at 101. they were involved in arbitrage big time, and all the fed was asking was the ability to delargee this portfolio arguing that if we slowly did that, we would avoid the bust in the market, we would avoid the systemic risk that would otherwise hit us. that risk did hit us. the fed turned out to be right about this. how do we overcome the fact that when we create a government-sponsored enterprise it becomes so powerful it leans on the very institution that was supposed to regulate it? >> even without the many failures in the g.s.e.'s, what happened in the derivatives

market posed significant danger to the market. we would have to impose standards over the derivatives markets themselves. you are right to emphasize, the heart of all financial crisis when you have too much leverage and not enough financial capital to back commitments. that was pervasive across financial systems, not just in the g.s.e.'s. >> i have a few more questions for the record, and if you wouldn't mind getting back to me in writing, i would appreciate it. >> thank you, gentleman. and i recognize the gentleman from new york, but i ask for 20 seconds, if you would yield to me just to say that, yes, the fed was complaining about fanny and freddie buying up mortgages, but the fed at the time was refusing to use the authority congress gave it in 1974 to stop the madagascar bad mortgages from being made in the first place. they were worried about the secondary markets when they were worried about their opportunity to correct the primary markets. if the fed had used the

authority that mr. greep now acknowledges you could have used, you wouldn't have had those bad loans in the first place for fanny and freddie to buy up. >> thank you, mr. chairman. in 2007 both fanny and freddie invest in to a very successful affordable housing project in the district i monitor -- i am honored to represent. over 225,000 live in this affordable stabilized risk housing. fanny and freddie were the senior debt holders in a $22 billion mortgage-backed securities deal that included the peter cooper debt. it was well known in the press and by economists and people looking at the "deal" deal, they knew at the time that the rental income on the sky town property would not be sufficient to meet

the owner's debt service obstacle gages. the owners knew they would have turn over or convert affordable housing in order to increase the rate of turnover. hundreds and hundreds of my constituents, the tenants were dragged into court to defend their homes on frivolous lawsuits. knowing this, fanny and freddie, still invested in this debt. i would like to ask you, secretary geithner, what can be done to prevent g.s.e.'s from investing in properties that can only be profittable if you convert housing to market rate by forcing out certain tenants? certainly working against the mission of fanny and freddie to build or provide a base for affordable housing? i am working on legislation with the chairman and others to ensure that enterprises cannot receive affordable housing goals credits for investments like the one they made in the sky town debt, and do you believe they

should receive housing goal credit for this type of investment that they know cannot continue to provide affordable housing? >> congressman, i don't know, but i would be happen to spend time talking to you and your staff about that particular problem and how we can prevent this kind of thing from happening again. i can't tell you now what is possible in that dwrare. i understand your concerns, and i'm happy to work with you on that. >> thank you. on this vain, new york city has a growing problem of over-leveraged multi-family properties, including this project. what incentives can we put in place to encourage g.s.e.'s and community banks to work with local housing authorities to ensure affordable multi-family buildings are sold to buyers who are in the business of preserving affordable housing? we're working hard to build affordable housing, yet when it is sold, it is sold in an

umbrella that absolutely makes it impossible to continue as affordable housing. >> my colleagues at the treasury have spent a lot of time working on those issues, and i would be happy to have them come with you and talk through the issues we think would manner in order to prevent tenants from a simultaneous with us foreclosure -- from a tumultuous foreclosure process? what are your ideas in that area? >> again, i would be happy to spend time talking to you about that. in the market we created for housing and finance, we have made it much more complicated in many ways to work out economically sensible restructuring of loans backed by real estate that may have been possible in a more simple system in the past. you are citing one example of

that. there are thousands of examples across the country of that. i think the reforms that this committee has put forward to try to improve the way that securitization works in that area would be helpful, but they will take time coming, and they will not provide immediate relief to the problems you are facing, but we will spend time looking at how to address the specific problems you referred to in new york. >> thank you. my time has expired. >> the gentleman from illinois. >> thank you, mr. chairman. mr. second, it -- mr. secretary, it seems the g.s.e. have bifurcated consumer regulation from safety and soundness oversight when h.u.d. oversaw freddie and fanny's affordable

housing mission and as its safety and soundness regulator was $227 billion bill for the american people. do you think that we're -- the administration is poised right now to make the same mistake by creating a consumer financial protection agency even if it is in the federal reserve and it has been some places have talked about it being a separate agency. can you explain how the financial institution supervision would be -- do you think it would be more effective if there was one regulator to focus on consumer protection and safety and soundness? >> congressman, it is an important question. we are now living with the consequences of this system which for many, many decades gave bank supervisors the responsibility to write and

enforce rules for consumer protection. that system did a terrible job for the country. it did a terrible job of protecting consumers, and it did not do an adequate job of protecting safety and soundness of the banks in our country. there areápk failures in both te two areas, and our judgment is, you are going to get better outcomes in consumer protection and better outcomes in safety and soundness if you separate those functions. we proposed that. i don't know if this helps the argument, but secretary paulson in his financial blueprint, 2008 maybe, proposed exactly the same model which is to separate sun protection from safety and soundness provision with the baidoa basic judgment that that would produceuóñ better safety soundness regulation and better consumer protection. >> so you would really advocate for separating it? >> absolutely. and i don't believe -- i've heard this argument a lot from bankers and supervisors, and i don't believe that there is -- i

don't believe it is a strong argument. again, look at what that system produced. a colossal devastating failure. again, if you -- let me try one simple example. why should there be any conflict between rules designed to give consumers adequate disclosures so they could make choices what type of mortgage product to take and rules designed to enforce sound underwriting standards for consumers? i do not see the basic for conflict. in the bill this committee passed, in recognition of that concern, there are a careful set and checks and balances against the consumer agency would somehow write rules that could imperil point basic financial system. i think those jobs are better separated. president bush and secretary paulson had the same view in their proposal. i think the record of the current view has that judgment. >> the federal reserve was really responsible for writing the rules and regulations.

>> i think that's the point. i think that you want bank supervisorers worrying about liquidity. you want them focused on those core things. you don't want them having spent a bunch of time having worried about consumer protection in that job can be better done by a -- an independent consumer agency. >> i guess i see it gively as with the g.s.e.'s and the bank industries, the consumer regulations and the other regulators was separated and it didn't work. >> again, i respect that view. but in fact, the g.s.e.'s played a generally quite responsible role in what they do did3f in establishing standardized mortgage products and generally they held to better underwriting standards than was true of the

private market. so i don't see the failure and success of the g.s.e.'s has undermining the argument from safety and soundness supervision in banks. >> does it create a duplication with g.s.e.'s or with the banking industry that it's something that one way they propose that this will protect the consumers and then the regulator with safety and soundness and they are in conflict? >> again, if there is any risk of conflict, you can deal with that risk by making sure you have a body that looks at conflict and can pass judgment of conflict. it is unlikely there would be any conflict. >> the gentleman from california, mr. sherman. >> thank you. mr. secretary, our husing market is to some extent broken.

thank god the g.s.e.'s and f.h.a.'s are providing all the financing outside of beverly hills. the definition of median home price is distorted because you may have a few arms length sales home in good condition, and thez you have 10's of thousands of sales in foreclosure, homes in terrible repair, deeds in lieu. now focusing onvoc high-cost ar including los angeles and the 10 largest or most expensive metropolitan areas, what would happen if at the end of the year, the maximum home limits not only declined from 739.750 but to the fact that the government resets the loan to the current median price. in los angeles this means the f.h.a. limit drops from $729,000

to $376,000. the g.s.e. limit, fanny and freddie, drop from that $72829 to $417. i don't expect by the end of this year we're going to have a robust middle class home finance market independent of the g.s.e.'s. what happens if you have that sudden inability to buy and sell a home anywhere in some of our country's largest areas, what happens to the national economy? could it cause a second dip in this recession? >> congressman that's a very particular question. i don't have a judgment now about what congress should do with those temporary increase in with those temporary increase in the conforming lim appropriate that congress extended them.

i do not have the judgment yet. i will say the following, it is very important for people to understand that the basic mistake that most governments make in dealing with financial crises is that they pretend -- tend to prematurely declare victory. they tend to walk back support too quickly, not too slowly. it is important to recognize that this financial crisis has caused a huge amount of damage and it will take quite a long time for us to repair that damage. >> are we ready by the end of this year to see the limit drop in half by an america's most important and largest cities without damaging the economy of the country? >> as i said, i am judgment yesterday -- judgment

yet. i want to underscore, i think your basic point is you have to be careful that we are doing carefully designed sensible things to help facilitate this repair process and recovery. >> this is just for the record, because i don't want to get you in trouble with the senate. but a year ago today, the president nominated an under-secretary for international affairs. still on hold in the senate after a year. domestic finance and assistant tax policy on hold. so the question for the record is do holds, filibusters, and the senate practice of not allowing a nominee to work as an acting temporary basis until the confirmation, do those senate practices lead to higher unemployment to companies not

being able to find out what the tax regulations are because you don't have an assistant secretary for tax policy? are there hundreds of thousands or tens of thousands of americans unemployed today because of the perqs and progress tiffs of the other body? don't answer that one, for the record. >> can i just thank you for raising that concern and for pointing out that these three senior positions of the treasury remain unoccupied today. it has now been 15 months since the president took office, and we have a -- an amazingly talented hard-working group of people at the treasury doing a lot of important things for the country, but we need to get those people in place. >> finally, we disagreed on whether the executive branch should have permanent bailout

ability to make sure the people on wall street can get bailed out only on the executive branch. congratulations on getting the senate to give -- givingp you that permanent authority. >> actually, we agree on more than you think. as i have said in the past, i would not support, and neither your bill nor the senate bill gives the executive branch the authority you describe. what it does do, if that management in the future gets to the edge of the abyss where it can no longer survive, then the government should have no other support but to put that into a form of receivership so it can be dismantled overtime. >> we're going to move on. tag the gentleman from texas.

>> good to see you again. given the unprecedented support that the federal government, both the federal reserve and the treasury has propped up the securitization market for housing in this country, one of the things that concerns me is that the longer we keep this government presence is the longer that the private sector sits on the sidelines because quite honestly, we do know that there is some activity pending out there. not to the level that we have had in the past. so what do we do? as i hear you saying, congressman, i'm not really ready to do anything right now. but i'm very concerned that the longer -- it is like a muscle. the doctors tell you, the longer that you don't use a muscle and you keep your arm in a sling, which is where we got the housing finance market today,

the harder it is to rehabilitate that arm once you take it out of the sling. how are we going to do that and what is your blueprint to do that? >> congressman, i worry a lot about that risk, and i think you are right to highlight it. i think the main risk we face today, is we have an economy that's only been growing, we have unemployment that's at 10%, higher in many parts of the country. housing market still overwhelming dependent on the government because there is no private will to provide financing for residential real estate, and it is going to take us a while to get through this and be confident that we have got a recovery from place led by the private sector that could be self-sustaining overtime. the main risk we face today is there enormous damage caused by this crisis. you see it conspicuously in housing across the country. now, if you look at what we have done in the rest of the financial system, you can see we have been very, very careful to unwind, to walk back, to terminate scompend the emergency

programs that we no longer need to put in to put in place. we have ended the money market guaranteee fund. the fdic is no longer providing guaranteees for the debt of bank holding companies. we have replaced the overwhelming majority of public investment in banking systems with private capital. we are undoing those emergency programs for the risks you pointed out. he with do not want these markets dependent excessively on government support in the future and we want to see private markets come back as quickly as we can. housing, though, still has been undamaged. that process -- if you look at what we've done in those other areas, you can see we have been willing, careful, and effective at walking back and unwinding the things that no longer play a useful and effective role in supporting recovery. >> i hear what you are saying, and i agree with that, as well, but one of the big problems here is that we really do not

incentivize people to get into the securitization on the private eakt sector -- private sector because we made borrowing very inexpensive. they can borrow very inexpensively. they can go out and borrow the freddie and franny products and there is not a lot of incentives to go out and look for private demand in those markets. >> i agree with that risk. i think if you look, you will have a chance to talk to secretary donvan about that. but if you talk to him and ed dmarco they have put in place a variety of changes in underwriting standards and how they price their guaranteees. it is designed to help promote the private sector coming back and replacing them as things start to heal, but that process is going to take some time. i think you are right to underscore its importance. i would be happy to support that effort. >> p.m.i. was an important part

of the private securitization market, but with the -- what the p.m.i. companies tell me is they can't compete with the federal rates. so sometimes we have to bring a level playing field here so that there is a yield difference there that people are willing to say, i have the higher yield here so i will move outside the current parameters and move into the private securitization. >> it is a question of how we do it. i want to underscore that even though the economy is growing now and we have brought a measure of substantial measureability to the financial system and interest rates are lower than they were, there is a lot of challenge ahead in the housing financial market, and we can be careful that we're still helping to facilitate this process of recovery. as we transition to a new and better system. >> chairman bernanke is wrapping up his purchase program of mortgages, what do you think that does to the market?

>> i would leave that to the chairman to describe, but again, as the fed does the careful responsible thing of winding down its emergency actions, we want to make sure, again, the full complement of government policies is helping facilitate this process of repair. it is getting better. we are making progress, but there is still a lot of damage still out there. >> i want to ask unanimous consent to the national association of credit unions they ask to be put into the record. g.s.e.'s allow credit unions to allow necessary liquidity to create new mortgages. it remains an important tool for credit unions. they are a valuable resource for low and moderate-income members. has congress considered ways of conforming the current system that we believe safeguards are in place to create a smooth stransigs -- transition and that

fannie may and freddie mac not be compromised. that's from the national association of credit unions. the gentleman from massachusetts is recognized for five minutes. >> thank you, mr. secretary. mr. secretary, there have been a lot of big things talked about z very simplistically. i'm not sure i know the exact number. do you know the general percentage of home ownership in this country prior to the existence of fanny and freddie? am i right to think it is in the 30% and 40% range? >> you mean going pack to the 1930's? >> yes. >> i don't know. >> today it is around 70%, give or take? >> it is about 2/3. >> i look at home ownership. maybe i'm wrong, but i think it is probably the main financial aspect of this country that helped create and maintain the middle class.

i come fromjv a neighborhood whe their way into the middle class was the purchase of a simple homezob%ei-i look at fan -- fan freddie mac as symbolic if not responsible for that. prior to fanny and freddie how did people get mortgages? private market alone? there was no government involvement? >> that's right. >> for me, that's what this is all about. i guess i understand that fannie may and freddie mac like everything else needs to be retooled, but as far as the current economic crisis, did fanny and freddie create the derivatives market? >> no. >> did they participate in any worse or differently than a mill other private event -- entities? >> differently, but i wouldn't say worse. >> so they did some bad things but no worse than any other private entities in this country around the world? >> i would say they were better than most private entities in these markets. >> and that is my problem.

i'm not going to suggest that they don't need toob retooled. i'm not going to suggest we don't need to revisit them, or that they don't need to be overseen or destroyed and made up in a different fashion. i came today to listen to give ideas. i will tell you that for me, subjecting potential home owners to nothing but the private market has been tried in this country for 150 years and failed to create a middle class. since government got involved through fanny and freddie, we created the middle class and we sustained the middle class and when we are done with this, for me, that is the goal.=jç the only goal. as a matter of fact, for me, anything short of that, my emowings might overcome me and i

might be tempted to scream out that someone or some thing or some group of people might be a home ownership killer if they got rid of fanny and freddie, and i hope that thank you, mr. secretary. >> the gentleman from texas -- before, the secretary has asked i think reasonably to leave at 12:30. all the members here will be able to question him. i would say another member, if you are planning to come over here at 12:15 and talk to the secretary,mtc have lunch and t talk to the second panel. >> thank you, mr. secretary. i note it was about 18 months ago that the president was elected. i think it was 13 months ago to double taxpayer liability for the g.s.e.'s. nine months ago -- >> not to double liability? >> under the original preferred

stock agreements? >> under the law that the congress passed, you gave my predecessor unlimited authority to make sure fanny and freddie could meet their obligations. at this point, they made sure they had whatever capital was necessary to meet those obligations. [captions copyright national cable satellite corp. 2009] [captioning performed by the national captioning institute]

forth a plan that would provide substantial regulation for one sector of our economy on health care work, extending control over broker-dealers, investment banks, credit card communities, hedge funds, pawnshops, automobile companies, with still no plan for the gse's except seemingly unlimited taxpayer exposure. one man's opinion, mr. secretary, with respect to the timing, i would call it unacceptable. let's talk about the taxpayer exposure. clearly you are familiar with the numbers. cbo estimates $6.7 billion, with trillions more in exposure there.

i see that treasury continues to monitor the situation but my greater concern is -- is there a de facto plan? perhaps not by design, but even by accident? . . . policy instrumentsíúu of the government. charles halderman said, quote, we are making decisions on loan modifications without being guided=ñ solely by profittabili. daniel mu fsm dd said, the government is running fanny and freddie as an instrument of national economic policy not as a business. it appears to many of us, and i'll give you an opportunity to disabuse me of the notion or accept the premise that what we now have are the g.s.e.'s an

instrument at of the administration to fund taxpayer funds into frankly a failed foreclosure plitgation plan with foreclosure plitgation plan with nothing else in sight. i'll yield to you, mr. secretary. >> our strategy is to fix this damaged housing finance market, to make sure this country recovers from the trauma caused by the recession. we're going to do that as carefully and as quickly as we can. as part of that process we will work with this committee to lay out a comprehensive set of reforms to the housing and finance system including the g.s.e.'s. but our obligation now and our priority now is to try to make sure, again, we heal what is broken in this housing finance system and we help this economy dig out of this terrible mess. >> there is still no time-table for that, is there? >> as to what, the recovery? >> for a plan dealing with the g.s.e.'s? >> again, we're looking forward

to having this debate about reform. you are not going to care more about this than i am. i am the one who has 0 to preside over a broad assessment of commitments -- >> it is a simple question. is there a timetable or not a timetable? >> we will spend time digging out of that mess and making sure we work with you to leave our cut country in a better situation. >> is there any, in your mind or the administration's mind, is there any reason that inherently we must have a government sponsored entity to securize mortgages in order to have a stable home ownership in america because i know many other nages do not have g.s.e.'s? >> this is the central question as you contemplatevb reform. as i said yesterday, i think there is a quite strong economic

or public policy quaste case for preserving designing some sort of guaranteey by the government to help facilitate a stable housing financial mark. it can't be the one we have today or we've lived with over the last decade, but we are likely to conclude, as our predecessors have that there will be some rules. >> thank you, mr. secretary. the gentleman from texas. >> thank you, mr. chairman. >> i also want to say welcome to our secretary.[, as you know, most of us and most of my colleagues are aware, april is national financial literacy month. throughout that month special attention will be focused on efforts to increase the awareness of financial education and work ong personal finances, increasing personal savings and hopefully reducing personal debt in the united states.

i work forward to -- look forward to work on financial capability issues with you as well as with michelle green your deputy assistant secretary of the financial office of education. i have listened carefully to many of your responses, and i agree agree with you that the system for protecting consumers in the mortgage market was and remains fundamentally flawed. and consumers should have the information they need about the costs, terms, conditions of their norts. we should be incorporated into legislation reforming the house finance system. i'm sick and tired of listening to some of the folks who signed contracts and showing me the 20 or 25 items that were listed on fees. something very different than what it was years ago. i am pleased that the truth in lending and real estate settlement procedures will be

placed under one roof in the consumer protection act. we should address my many concerns regarding the implement tation of both of these acts. mr. secretary, do you intend to provide housing counseling in languages other than english? >> did you say acounseling? >> yes. >> i believe that it is true today that the substantial support congress is authorized to give in support of counseling agencies across the country includes many nonprofits who provide those services in languages other than english, but i would have to check that for the record. >> i was pleased when i visited the federal reserve banks in dallas that they are!zy supporting these financial literacy programs and have it in eight languages in texas, and it is not uncommon to have school districts that have 40 or 50 languages spoken by some of the

limbedps÷ english profishent students, so this is something very important, and i know there are some of my colleagues in congress that don't want anything but english in materials used by some of our federal agencies, so i degree with that. i think this is such a big investment that it is important to me that this concern be addressed. fannie may and freddie mac as government-sponsored entities are responsible for helping many middle class families in our district in buying a home. so it is important to me that they survive through these difficult times. what actions will treasury take to ensure that they survive? >> congressman, as i said, we will do everything we can to make sure they can not just meet their obstacle gages, but they can continue to play an important role in supporting

housing financing markets as we work on the design of a better, stronger, more effective housing finance system in the future. we are completely committed to doing everything necessary to make sure we allow them to play the very important role they now play in providing a stable source of housing finance for this country as we try to dig out of repair what's broken in our fenl system. -- in our financial system. >> i have been a strong proponent of community banks because my district is one that has a very, very large number of community banks, and that is one of the sources of borrowing. some of them bought stock from fannie may and freddie mac and took a huge loss. is anything being considered to help them so that their balance sheets can look a little better because of the losses they took?

>> congressman, we have propose8 legislation to the congress that would establish what we call a small business lending facility and this facility would make capital available to small community banks so that they have more financial resources to support lending to their customers as wej]k come out of s legislation. and this legislation would establish a $38 billion lending facility. it involves very, very modest costs rvings and we:÷ think thi is one of the most important things we can do to help small community banks continue to get through. >> what is the time table to make that happen. >> the leadership of both are considering taking up a bill which includes a set of tax provisions other senate mechanisms like the one i just described. >> thank you, mr. chairman. in your testimony you briefly talked about an tern fifth to

securitization. he -- paul kanjorski and i wrote a bill. i wondered if you looked at it yet? >> i haven't looked at it yet. i know you have been a long supporter of covered bonds. we have a covered bonds system in the fhlb. anyway, happy to work with you on that. i think looking at the covered bond issue will be important in looking at in the agenda. >> would that be helpful to get done sooner rather than later this year? >> i don't know. my basic problem when we are looking at financial reform of the private financial system in the united states, you want to look at comprehensively the full compliment of interests tuitions, but, again, happy to work with you on that part of reform. >> a couple weeks ago, the talking about, we had the budget

hearing, i chose an amendment that went down party lines which would put the g.s.e.'s on budget. back then i asked -- chairman bernanke and i asked him his opinion of this. i also asked him another question, and i'll ask you the same question. is the debt of the g.s.e.'s sovereign debt? >> congressman, you know this is a very technical question. the appropriate accounting treatment of fannie may and freddie mac and there are obligations. >> let me give you two opinions -- >> yes and no? [laughing] >> g.a.o. agrees with the judgment we have made. it does not think it is appropriate for us to consolidate. we follow that basic model. on your second querks let me

repathe peat again what i said in my written and oral statement. we will do everything necessary to make sure these institutions have the capital they need to meet their commitments. >> i understand that from reading your statements. i am not a chairman of the fed. and the chairman also recognizes and understands the difference because in his statement he says "i have noted the fanny and freddie debt did not have legal standing as treasury debt" so he recognizes there is a distinction between sovereign debt and g.s.e. debt. >> they are different. i want to emphasize in saying that they are different i want to make sure you understand that again we will make sure they have the financial resources necessary to meet their obligations. >> and i undp. and the chairman says the same thing. although the chairman did say, i believe, thout the debate we

will make sure there is no implicit guarantees, hints, suggestions, winks or nods. we will make sure it is explicit. with the debt we are incurring, is that on the same standard of the existing debt that is out there? >> by the g.s.e.? >> yes. >> yes. >> whether he says we should have no implications we are nodding and winking -- >> no, we are not doing any nodding and winking. we are saying very clearly, we will make sure using the authority coong gave us that these institutions have the ability to meet their obstacle gages present and future. >> so the chairman is incorrect when he states there is a distinction between the debt they have and sovereign debt? >> no, i don't think so. you know the answer to this question. they are different types of obligations.

but i want to make it clear that you understand we will use the authority congress gave us to make sure they complete their agreements. >> it is not sovereign debts, but it is debt we will stand behind. >> i will try to answer it the same way i already said it. >> is it sovereign debt? >> no. not in that sense. >> well, that's good. >> i want to make sure -- >> it is debt we are going to stand behind. >> we are going to make sure these institutions have the resources they need to mee meet their obligations past and future. >> and i understand that. it is not sovereign debt, but it is debt we are going to stand behind because congress has given you authority to stand behind that debt. >> for very good reasons, yes. >> i still have 30 seconds left? >> three seconds left. we'll make it 10 more now.

>> do you have any comment on the fact that bloomberg is saying that the bond market is >> i would set up falling. it is very important that the congress work together to make sure that we put in place over time a set of policies that will bring down our fiscal deficit to a more sustainable level. that is them -- that is very important for the strength of this recovery and the growth of this economy, and we were -- and we look for to working with both sides of the aisle to bring those deficits down to a sustainable level. >> the gentleman's time is expired. the gentleman from new york. >> thank you and welcome again mr. secretary. listening to the debate, i cannot help but wonder -- a lot of years ago i bought my first

home, a single woman starting out in nursing -- which, by the way, back then they did not make much money. y. so every door was closed to me as far as buying a home. it was my parents home. i was a good risk. it was through the g.s.e.'s i was able to get a loan. never missed a payment. paid it off. so there are a lot of us out there that certainly took advantage of it. statistics, the majority of middle income families will do everything they can to make sure they always pay their mortgage so they have a roof over their head. that's their dream. that was my dream. so i was just curious, when we started going into this spiral downfall, and with the g.s.e.'s and also with the subprime lending crisis that we saw rblingt -- saw, who actually had the worst record? i know in new york city, we had -- i was reading someone's

testimony that 13-20,000 loans defaulted. that came through a housing agency. so we need to look at things, how to change things. but i agree with my colleague that financial literacy is going to be an importantj> very good question. the program that we have put in place to make it possible for homeowners to restructure and modify their loans is now reaching more than one million americans and what this means is that for more than -- for one million americans they have substantially lower payments which on average are providing $500 to $600 a month more in the pockets of those families than they had before those mod fantastics and we are trying to make sure that as many of those as possible are translated into permanent modifications, and we're going to keep working to

make sure this program reaches as many people as they have so people do not have to leave their homes and can stay in their homes mple >> i just -- just one other question, too.57qi u)u$ obviouss and they have the backing of the federal government on that, there are going to be a lot of homes that probably will not be -- they are foreclosed now, they are sitting there. what are the chances of turning some of those homes over into rental properties where people are getting back on their feet again? >> i think there are substantial opportunities for doing that. again, i would be happy to ask my colleagues at faha or h.u.d. what they can do in those areas. >> the gentlelady from west virginia. >> thank you, mr. secretary. i would like to talk about this a little more simplistically and

maybe a little more globally. i got the report this morning that existing home sales are down again for the third straight month. unploifment, as you mentioned, remains too high. we have witness after witness particularly from the financial institutions asking why they are not lending or why people aren' borrowing, lack of confidence, uncertainty. my question is, in this is the lack of a certain plan forward with fanny and freddie leading to the uncertainty as well? i will just give you a for instance. speaking with a community banker several weeks ago asking him why you are not getting into the mortgage market because the f.h.a. is taking up so much more of the mortgage area, and he said, maybe if you would give me a loan guarantee, maybe i would get into that a little more.

are we, because of this, all of the government involvement with with fannie may and freddie mac and dollars and just what you said that we will back up the debt of fanny and freddie, could that be part of -- i know we need to do it slowly, would could it be part of maybe putting it in some mud and making it go slower? the confidence is not rebounding the way we need it to in order to get out of this flood that we're in? >> i don't think so. let me give you my sense of this. if you talk as we do, and we all do, with community bankers across the country and we ask them what'smk happening on the lending "seven on your side," generally they say loan demand is low. they say supervisors are being very tough on us. to some extent they say they want to know what the rules of the -- they would like to know a little more -- with more

certainty what the rules are going to be going forward. i think those are the principle factors of the conditions affecting small lending institutions. i think we can do something about those. the chairman of the deped and the chairman of the f.d.i.c. can make sure their examiners are not over-doing it. we can make sure that we provide capital to small community banks so they have an ability to get through this. if we pass financial reform that will bring clarity to the rules of the game that will be helpful. but i don't believe that what fanny and freddie are doing now, i think it is overwhelmingly constructive to the process of repair of housing and finance. >> but it is the base of -- but is the base of a -- but if the base of a good solid recovery is going to bezv housing market bouncing back. would you agree with that? >> it will. it is hard to tell the timing

now. part of recovery will be more durable housing financing crisis and you will see the housing market come back and take back of the business of housing finance that is now dominated by fanny and freddie and some of the f.h.a.'s. >> on a different topic, and we talked about this a little bit. is that where we have done the $1 billion million modification? is this affecting the bottom line of fanny and freddie at ale? are you concerned about the redefault rates on some of these modifications in terms of the ones held by fanny and freddie? >> no. the way this bram works for both a private lender for fanny and fend freddie, they do the mod fantastics if the economic value being modified than it would be in foreclosure. these modifications do, they put fanny and freddie in a better

position, not a worse position than if noñ"m were happening. >> we are still having redefault rates in those. >> given how high unemployment efforts are across the country, you will stilliéu see redefault rates happen. it is inevitible. we want to make sure we help people who lose their jobs and face the risk of losing their homes, but you will see some risk of redefault rates. >> thank you, mr. secretary. >> thank you, mr. chairman. welcome, mr. secretary. i think one of the major weaknesses in our housing finance system is the securitization process. i was happy to see that you called that out in page five of your testimony and devoted a section to that. there was an article, i'm not sure if you saw it in this past sunday's "new york times" by gretchen morganson where she

points out much of the difficulty with the mortgage-backed security part of our crisis was rooted in the opacity of these products. part of the problem, obviously, was the ratings and valuations that were assigned to these mortgage-backed securities were completely wrong, but because of the complexity and the opacity, folks were induced to rely on just the rating. that was a real problem. as ms. morganson points out, the bank of england has just issued an advisory, i think they call it a consultive report, and the bank of england risk-manú: division has recommended that -- and they face the same problem. because in england, the collateral is being posted using these mortgage-backed securities.

j to what we doing here. and what their solution is, what they are recommending is that there be more useful information, additional information, supplied by those, the issuers who are creating what these mortgage-backed securities, so that individual parties, the market, the banks, will be able to look through and actually vet them themselves rather than relying on triple-a. i think in our own situation with the feds doing what they are doing, you know, i think especially --kuy you know, theye posting collateral in much the same way. is this something that -- i mean, this is so important. this is such a critical part of credit formation here in this country, it is a greatop thing the securitization if it is properlyly used. it this something we need to

look to in trms of getting more information to the market to they can determine this object a -- on a rolling basis, not just a static rating when the issue comes out, but ongoing? >> i agree with you. i think you said it well. bringing more transparency to those structures so investors can look through them, understand true risk in them is very important. it is also very important, as many of your colleagues know, that to bring more transparency to the rating process themselves. we would like to see rating agencies he -- compelled to disclose more to underpin those ratings and we want to make sure that in the regulatory system that supervisors preside over they are not creating assurances in alliances of ratings. we think that would make a big difference. >> let me ask you about that. in your report it is a little vague about the reform of the rating agency. you do mention it.

but can you drill down on that a little bit? >> the reforms that this committee has embraced and which were at the center of our proposals had two pieces. one was to give the s.e.c. the authority to police conflict of you don't want the judgment skewed by model these fimples have been operating -- firms have been operating with. you don't want their economic interest and the issuer assigning excessively favorable ratings. that's very important. the second was to bring more transparency to the rating process. make sure they have to disclose more information about the implications. that way the investors can bring an independent assessment about whether ratings make any sense. again, the big mistake to underpin everything that happened in the housing markets was that everyone made a judgment. almost everyone made a judgment that house prices would not fall

in the future. the ratings were too favorable because of that. there was too little capital because of that. it was a systematic failure across the g.s.e.'s and transparency will help in that area, but we also have to make sure we put in place stronger capital requirements so we aren't vulnerable to those in the future. >> thank you, mr. secretary. i yield back the balance of my time. >> thank you, mr. chairman. mr. secretary, my questions have to do with the projected losses that are the existing losses that are in fannie may and freddie mac. are you fairly confident -- do you have any confidence that the loans are being originated today and have been originated in the last year are high will have quality loans and are not of the same quality of the loans that were originated in the previous

three years? >> congressman, my sense is that the underwriting standards today are much stronger than they were. and i think the people who have looked at this question carefully say if you look at what they are doing today in terms of new guaranteees and how they are pricing them for those guarantees means that the business is in a more stable footing today than it was. >> with respect to the ability in the long term of having fanny or freddie or a successor agency repaying or earning back the losses over a long-time horizon, do you see that as a possibility? .

they are hard to judge what those scale of losses are. many organizations to or rolling estimate of those, but they will be very substantial. >> i would like to explore the bridge -- i call the bridge loan, it is the loan that you are making from the printer -- from the treasury to fannie and freddie every month to meet their obligations. and now like to explore if in fact the government or the treasury at some point is going to have to take some kind of loss, or eventually some kind of loss, on this exposure. what would you call charging fannie and freddie such a high

rate on the loan that it is making to fannie and freddie, if in fact that only adds to that long-term debt and in fact may exacerbate -- is acerbate -- exacerbate that long-term debt? lower-cost facility? is this money coming out of tarp? >> those are very good questions. this is under the hera authority, not the tarp. i have been carrying out those responsibilities. what we're doing is making a careful judgment of how best to minimize the extent of losses that taxpayers will bear, max amass promoting a recovery in

the housing markets, and we're going to do the best job we can to make sure that we've reduced the risk of future loss of these institutions, and we will look at the broader terms of our engagements. >> you see where -- >> i can see where it would not make sense to charge a punitive raid if we are charging ourselves that. >> a small bank can learn you the money to make the car loan, you have a $14,000 car loan and i don't know what would have been accomplished here. >> i understand the point that you're making. we reconstructed some of the dead in concerns -- in part due to those concerns. but we want to reduce the risk of all the ones. >> thank you.

>> the gentleman from indiana. >> thank you mr. chairman. thank you, mr. secretary, for being here. i think one of the things that has caused continued housing problems is obviously the on in "-- the unemployment rate, that people cannot afford to move into homes or purchase homes. a huge portion of the unemployment difficulties, at least in my area of the country , and it continues to be so, and i have a business after business after business to in trying to -- they have had their lines of credit cut, not because they missed the pavement, but because the their sales were down 4 1/4. -- for a quarter.

they had spent a eight year getting down to the lower line of credit, selling equipment, laying off employees, and telling me they could be adding employs if they were not in this situation. we have jobs bill after jobs bill across the street. the real jobs bill, the folks in the shop tell me, is having a normal credit situation. where are we going to be as we move forward on this? >> you're absolutely right. many businesses are suffering from this environment, even those who have very good payment history. you're absolutely right. we have a small business package of incentives and assistance, with three important components. one is a series of tax measures for small businesses, zero capital rates on small businesses, or payable expenses

appreciation, which we think will be very helpful. the second includes expanded authority for the f bm, and we propose a $30 billion small- business lending facility that would make capital available for small banks so that they could do loans to their customers. we think giving capital to small banks is one of the most effective things we can do. it can happen very quickly if congress gives the the -- gives us the authority. without that capital, it's hard to raise capital and the private man -- markets. we think the tax incentives, that support, and the lending facility will make a big difference. >> here is the other conundrum. i get e-mails from my friends

who are in businesses that said the banks will not lend us any thing. the banks command to the office and they say, we have money to land and we're looking to make good loans. so you tell me -- how do we put these two sides together? the lawyers what typically happens is that you have a bank that may have been are well-run bank overtime but may have been very exposed to commercial real estate, it has customers it is working with for 30 years, and they find themselves because of judgment and commercial real estate having to reduce exposure to the customer. in explaining that to their customer, they often say it is the supervisor not letting us land. as i said earlier, part of what is happening is that supervisors are being tougher than they were. that is making these problems worse. part of the solution is to make

sure chairman barron and chairman bernanke and their colleagues and supervisors are sending a more balanced message. >> that is the message that i would like to give you those. we want to make good loans, not bad loans, but at the same time we want to have supervisors who are understanding the entire economic picture here, that there are good loans that do not have to be extraordinary loans. it is really choking the lifeblood out of a number of jobs that are available. when we get these jobs back, people will be buying homes again. >> i agree. businesses will see a growing demand for their products again, and they cannot meet that demand because they cannot get credit to add more equipment and apparel. it is a critical problem but congress has a chance to do something about it now. that would be alongside what

the supervisors are trying to do. >> i would suggest that the message is that the best jobs program of all, because they are jobs that can come back, but they cannot do it without capital. >> the highest return on the dollar of tax payer money. >> that is our small business guys making it happen. thank you, mr. chairman. >> will now hear from the gentleman from california. >> mr. geithner, good to have you here today. a lot of people in this country do not realize that fannie and freddie did not hold their loans, which is interesting. 92% of the loans in this country are made by ready and 80 and the fha to date. -- fannie and freddie and the

fha today. i am not here to defend them but i am looking at the reality. freddie and fannie mae and some tremendous mistakes. i am looking at the serious delinquency rate in this country, and annie has about 5.3%, freddie is out 3.7%, but in the private sector, jumbo's art 9.6%. in my congressional district, they are performing better. in l.a. county, the jumbo market is at 10.1%. in orange county, fannie and freddie are 2.1% delinquent, jumbo is 8.9%, fha is 1.4%. in san benito county, 7.8% which is alarming, but the jumbo market is 20.4%.

we need to allow the private sector to come lately control the secondary marketplace and get fannie and freddie out of it, but i am concerned that if there was a viable alternative to a gse, where was it in 2006 and 2007? it was not there. at the same time in the mortgage-backed security market, the booming part of the market was the group that sold terrible bundles to the private sector. many of fannie and freddie's losses were because when they sold the securities, when they take that nonperforming loans out, and replace it with a performing loan, nothing country wider anyone did matches that. the way that they bought the securities, when the investors lost them, they invested in the

market and they bought ads were asleep mortgage-backed securities -- actually worth less mortgage backed securities. i would appreciate an answer to that. >> i think you're exactly right. you look at the record of what happened, the most apology -- the appalling damage happened outside of fannie and freddie and happened and thrifts, mortgage finance companies, specialized finance companies. fannie and freddie's prime portfolio today has better quality day than the average across the market. i think you're right in the basic emphasis, and right now you are right to emphasize that the only game in town are fannie and freddie and the fha, and it is very important and that they in this transition period -- and it will not going -- you will not go on indefinitely, but they

need to continue to provide mortgage finance if we're going to deal with the damage across the country, including california. i have not seen an ideal model yet on what to replace this current system with. i think that we will have to take a careful look at how to design a better form of guarantee and support. >> and i am open to that. i am not assuming we have to have freddie and fannie, but what we do if we do not have them. in fact, nine years ago, we talked about opposing that. i am one who had the amendment adopted in high-cost areas. and i assume that my colleagues disagreed with me. but as i understand it, fha and fannie and freddie, the best performing loans they are making are in high-cost areas, is that true? >> i do not know but i would be happy to check on that.

>> the question is, what are the key structural improvements necessary to prevent governments from distorting the marketplace, because some of said they had shorted the secondary market in places. what can we do to resolve that? >> this is an unfair -- much more complicated problem then my answer suggests, but there two things that happened that we can prevent should prevent. we should not allow them to operate with the expectation of government support to build up a huge portfolio with a lot of risk in it. >> i agree. >> and although economists disagree on this, fannie and freddie overtime did provide guarantees for lower quality mortgages without charging appropriately for that guarantee. the first was a greater mistake,

but whatever we do redesigning the system, we need to avoid those errors. >> and the only time that fannie and freddie ever lost money was the year of 1985. other than that, there were profitable, and maybe congress did things to distort their mission and get them headed in different directions, and we need to go back to a time when that mission was not distorted, when they were making troupe performing loans that met the criteria that they specified. i yield back the balance of my time. >> will now hear from the gentleman from florida. >> thank you very much, mr. chairman. mr. during this committee's last meeting, we heard breaking news that fannie and freddie

executives received millions of dollars in bonuses, all the while this meltdown was continuing. i just wondered if you had any part in signing off on those bonuses on december 24, 2009? >> i think the fha is responsible as -- for approving these compensation. they reach that in connection with someone i appointed. >> is that a yes or no? >> i was not involved. >> i do not have much time so i will ask the questions, and if you do not have time to enter them, unless the chairman to get these answers and writing.

i am wondering why we are never able to get an answer on a comprehensive recovery plan. we have testimony. hear their same old rehashing. we never had any real plan, comprehensive plan for recovery. number three, i wonder how much longer we're going have to wait for a plan. what information anyone could still be waiting on to come for with the plan -- fourth with a plan. seriously -- the administration has serious credibility problems. the abrupt fade on taxes, not to take over personal property -- you know the stimulus has failed to do -- >> i do not agree with that. >> your words were that it would not exceed 8% employment and now it is 10% ample -- unemployment. there so many fair and

legitimate questions that we can i get answered. when and fannie and freddie maze, conservatorship been? this is how we're going to go there. i don't think those questions are out of bounds at all. and number five, our creditors are worried about the failures of fannie and freddie, and of course i think it has been as before -- how do we prevent too big to fail fannie and freddie going forward? these are questions congress passed to know. we cannot wait forever to find out. the board you do not have to wait forever. >> you do not have to wait forever. we are finding out today what you would like restructure the

financial system. this is an enormously complicated question. we look forward to working with you to fix what a croaking in the system. >> what about the last year, what did they do? [unintelligible] >> if you worry that we have been idle, let me point out that we inherited the worst financial crisis in 75 years, since the great depression. >> who inherited it? >> this administration and this congress did. >> this congress has been run by the same majority for three years. i am sick and tired of hearing that we inherited it. i am looking for some answers. >> we look for it to working with d on how to read formed the tse's -- working with you on how to reform it gse's. >> but no answers. >> we have laid out a detailed

system of principles, what was broken and what caused this crisis, and that is a good foundation on which to build. if we do not agree on what was broken, we cannot begin the process. we're going to go through a process with this committee to consult with people in the private sector, and the academic, among republicans and democrats and figure out the best way forward. >> so you still do not have a plan. >> congressman, again, and you're asking us to design in the midst of the worst financial crisis in a generation -- >> every business in this country is suffering right now and they are working on a plan for recovery and they are doing it in a crisis. >> and we have done extraordinary things and this economy is growing dim. when we came into office, when this congress came in, the economy was shrinking at a rate of 6% a year.

today, because we actually acted as a country, the economy is now growing. things are dramatically better than when we took office 15 months ago because of the actions that we to. this house of representatives has passed the most sweeping set up financial regulations contemplate a new that -- since the great depression. we are on the birds and today we have a chance to begin a conversation about how to reapportion the -- reform the gse's. we will take the best ideas on both sides and propose some and if the reforms. >> the gentleman from texas. >> thank you, mr. chairman. today we're talking about reforms and the house and financial markets which i think it's crucial and very important.

my concern is that it has not been a full explanation on understanding how we got into the mess. so far what i hear is that we will deal with the problems with more technical solutions and more regulatory solutions rather than looking at the fundamental causes. to me the fundamental causes are well understood by the austrian free-market economists because they predicted early on is exactly what was going to happen, and it did. and i put the blame on three things -- big sink interest rates too low for too long, and also the line of credit with the federal reserve, something that congress did, even though it was $2 billion, a created moral hazard because even greenspan admitted there was a $14 billion in direct subsidy to fannie mae and freddie mac, which also encouraged the distortion, and on the books, it was legal for

the federal reserve to buy more -- mortgage debt. of course there note -- there were no restrictions because it was done in secret how much credit was created. because my concern and understanding of what was happening in july 2002, i was convinced that we were working on the financial bubble, and i introduced into days -- introduced legislation that would of remove the line of credit from the treasury as well as prohibited the fed from buying mortgage debt, which most people would object to. this was an emergency! but that is what caused the moral hazard. and that was for the benefit of the selling debt overseas, encouraging foreigners to buy it, knowing the treasuries stand behind it and the federal reserve stands behind it. when i introduced that legislation back in 2002, by

transferring their risk of widespread mortgage default, but government encouraged the risk of a painful crash and the housing market. the system could have staved off the risk by pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market. postponing the necessary but painful market corrections will only deepen the inevitable. that is not too much -- my statement coming out with that of my own, but i endorsed free- market and austrian economics, and i do not see any understanding of that coming from our leadership in the congress or the treasury. i take it is so crucial that there is this understanding. so my question is -- are you familiar with the explanation of the austrian economist of the

business cycle, how bubbles or form, and what we should do it? you shake your head yes. if you understand that, which part of it you not like and why don't we look more carefully at those economists? they were right 10 years ago, i believe they are right now -- why are they not consulted? >> congressman, i agree with much of what you have said. i think you're right to point out that a long period of low interest rates put it -- played a major role in this financial crisis. you are also right that moral hazard played an important role. most dangerously and fannie and freddie. those institutions were allowed to grow to enormous size, take on enormous risk without capital to support those limits because of the expectation that government would come in and protect them. i completely agree with you. >> i wonder if i can get one answer.

my bill -- would that be a proper thing to do now to make sure that line of credit and its inevitable purchase of this kind of debt from the fed, we should restrict that or remove it? would you agree with that? >> as i sat in my statement, when we think about what system should replace our current system, a critical part is to make sure you do not have institutions tied to shareholders taking advantage of a subsidy from the government that leads to taxpayer exposure to these risks. a centerpiece of the reform will be dealing with the moral hazard in the current framework. >> doesn't the monetary system bring this in? but that is designed to be the lender of last resort. they are there to be there to pick up the pieces. >> you said it was different. because there was a credit line and expectation that the government would be there.

>> the concerns were born out because that is what happened. the government picked up the pieces and now we are in a bigger mess. >> the gentleman from illinois. >> thank you, mr. chairman. mr. secretary, hank paulson, the former treasury secretary, wrote in his book that in september 2008, the treasury issued -- on page 10 of your testimony, the purchase agreement. encouraging banks to purchase these.

this was done at the same time to help satisfy the chinese government, which on billions of dollars of fannie and freddie bonds, which were paid off in their entirety. now we have these banks that were intentionally misled, potentially deceived to by fannie and freddie preferred holdings, and then after the government said by these, the government just defaulted and stock all those banks. -- and stuck all those banks. big time. at the same time you're considering a capital program for small community banks. my question for you is, when i look at the objectives are reform -- of reform, and this is

the guideline, i do not see anything in there that addresses whether or not these community banks should be treated the same as the chinese. that would be made whole when they were intentionally misled by the u.s. government to buy these bonds that turned out to be worthless. >> congressman, i cannot speak adequately to the judgment my predecessor made. >> i understand. i am asking you if you have a solution for these banks that guy stuck? >> one of the most powerful things that we could do to get through the challenges ahead is to put in place at capital facility ability to come to the treasury and apply for capital for small business lending. i think that would make a big difference. >> but getting back to the preferred stock purchases, and getting back the money they paid in the first place and not worry

about another exotic program from the federal government. >> i understand those concerns, but small banks across the country face a lot, -- challenges, not just those that hold fannie and freddie preferred stock. that is why small businesses are having a hard time getting credit. >> bat and the fact that the regulators have really -- matt and the fact that the regulators have relate tightened up, the regulator said that they have not come up with the peace -- but they are making what credit is available even tighter. we have a situation where my question is, the treasury is part of a default program, are they willing to treat the community banks the same manner in which they treated the chinese in making sure that they were in indemnified on their bonds? >> i would be happy to spend time with you and look at this in more detail. .