there were some things that could have been done to make of the less -- make the situation less catastrophic to the economy. there was desire to sell half to a chinese bank. there were apparently discussions about selling the assets and management unit, that never happened. what do we have to do to impress upon co's and boards of directors that they will not be allowed to fail and they will not be rescued? . .

. beige book bu we did not need a capital bailout. we needed a liquidity bridge so we could consummate the sale to a potential buyer. that is what we needed. or we needed a window to be extended to us as it was to the

other investment banks that sunday night. to be even more clear, when we heard that the bank was being opened, that the federal reserve a window was being opened, that sunday night, we all said we are fine. we will get this done. we then heard it was not being opened it to us specifically. >> mr., that was not at all responded to my question. what can we do to convey to boards of directors and ceo's there will be allowed to fail, that there is no safety net? that they will be taken into receivership, that a colorado's, top executives will lose of a thing, creditors will not be paid, and taxpayers will not be on the hook. what do we need to do to convince you that that is what the future holds?

>> frankly, i was convinced at the time. do not misinterpret my statement. i was a say nothing we could have avoided a lot of disruption by putting into place now what they said they do not have. i have wondered, some of these actions they took with others would have gotten us to a much softer landing. i'm not talking about a bailout. i thought right up to the end after the flak had been received by the fed and treasury after bear stearns that would be highly unlikely they would want to do that again. >> the chair recognizes you, sir. >> thank you.

good afternoon. to follow in your remarks, there you believe there were corporate government failures at lehman? >> no, i do not. i think our governance procedures were really very good. i have stated in my statement that i believe the major problems with lehman were just what i said. basically, if you'll remember in 2006 we have had years of a very profitable real estate operations in this country. and at the market was going up. we have had record earnings.

the business decision was made to expand our proprietary investments. part of that was going into real estate. i think it ended up with real estate as one of our major problems -- obviously. the other thing was, an investment bank cannot continue to exist once confidence is lost and there is a run on the banks. you can hardly have enough capital for that. that occurred for a lot of reasons, some of which [inaudible] >> but it is your opinion that you did not think he would be billed out some good because there had been of bailout earlier regarding another entity? >> i would certainly not have counted on that. >> thank you. mr. lee, in your opinion with

lehman brothers executives hiding the true nature of the firms global balance sheet from either sheetsec, or federal reserve, or or---- from either the sec or ? >> based on disclosure, yes. >> could you elaborate? >> i am not an expert, but on the knowledge i have gained, i think the public were misled as to the true leverage of lehman brothers, at least during fiscal year 2008. >> and professor black, but secretary geithner and chairman ben bernanke have excused the failure of the fed and the federal reserve bank in new york to require lehman to protect its material misstatements on the

grounds they were not lehman brothers' regulators. the you think that is convincing as a reason, and is it ever pretended to ignore wrong doing on the grounds it is not acting in a regulatory capacity? >> it never is correct. you have the responsibility. if the fed does not have rules mandating its employees make referrals to the sec and justice department, they should change that today. there is still a little time to do that. you'll find have guidelines in place that require this kind the referrals. unfortunately, it was it with complete indifference. this is the quotation from the report from the federal bank reserve official -- how lehman reports liquidity is between lehman, the sec, and the world -- we have no responsibility to do with the violation of law that we found."

>> thank you. you indicate to mr., that they conducted regular daily oversight of lehman's activities. you have answered questions from others regarding this, but the thing that management at lehman was given a false sense of security that the government might ultimately bail you out? >> i do not believe that to be the case. >> thank you. >> thank you, i yield back the balance of my time. >> i do believe that fraud is important. i think the american public would like to know if fraud was committed. mr. black, you have indicated you think fraud was committed. is this with reference to the repo 105? >> of that is one of them. >> that is what i would like to focus on.

explain how you contend fraud was connected to the repo 105. >> the look this report shows in several things were reported in this hearing that the purpose of the transactions was to produce an artificially deflated idea of the exposure, the leverage of the corporation. that is important, material to securities investors. so if you deliberately create a deceptive representation that is material to investors, that is securities fraud -- it is actually a felony. >> are you of the opinion that this was committed by lehman's? >> repeatedly. >> i will return to u.s. time permits.

mr. lee, you said you hand- carried a codified message, but did not say exactly what it was. are you indicating to us you were trying to tell the auditors that something improper was taking place? >> i'm sorry. i delivered my may 16 letter by hand. i never gave anything to auditors. i verbalized was in an e-mail. >> let's talk for a moment about the content. were you tried to indicate something impropriety us was taking place? >> in my mind, yes. >> were you trying to indicate that this act could be harmful to investors a? >> that was the underlying it, yes. >> did you ever have an opportunity to communicate this? >> what does "this" mean the?

>> something improper taking place that may be harmful to investors with regard to repo 105? >> all my knowledge with regard to repo 105 was well-known in the firm, as were other factors. >> i would like to know how they became well-known. did you tell some specific person, or give it to someone in writing that these repo 105's were in some way improper and may harm investors at some point the? >> at only one stage to put it in writing, but for years -- >> is your answer yes that you did convey this to? >> yes, i did. >> to the audit committee is? >> i have never attended any audit committee. quiz to an auditor at? >> i did. two two auditors. >> did you receive response with regard to what you

conveyed to? >> and they come i did not. >> there was nothing said to you after you pass this on? >> and there was acknowledgment that they knew about the issue, but i don't think they knew the amount. >> you heard mr. black has used the term fraud. are you of the opinion there was fraud? >> i'm not a lawyer and cannot comment. >> i will accept your answer. >> mr. black, i have enough time to return to you. in your opinion, based on what you have said, it seems to think there was not only fraud in a civil sense, but also fraud in a penal since. is this a correct statement? >> yes, the elements are the same. they're simply a higher burden of proof of establishing those elements. if there is civil fraud, there is in fact criminal fraud as well. >> have you conveyed what you are sharing with us, and perhaps other information to some authority that has the authority

to investigate fraud? >> if you are familiar with may writings, i do this weekly. >> we have a record we are trying to establish. >> is in my prepared testimony. yes. >> have you received a response with reference to what you call to the attention of these authorities? >> >sec has never contacted me about any of the things i have attempted to alert them about. >> my final question will be simply this, name the authority that you took evidence of fraud to the? >> i took it public, not simply in some secret letter to them -- and i write same the following things are fraud and need to be prosecuted. >> if you just write and publish it in the newspaper, how are you to assume that the proper authorities will no? i'm sure everyone reads your writing, but maybe someone might

miss it who is in a position to do something? >> the sec i can guarantee is aware of the fact that i have been writing these things. this is something i have been doing for several decades. >> i will have to relinquish my time now. >> the chair recognizes mr. wilson for five minutes. >> thank you. my questions, gentleman, are to mr. and to mr. cruikshank. the report finds a made a deliberate, decisive move to embark on an aggressive growth strategy, to take on even greater risk. and when the strategy seemed to slow instead of pulling back, you made a conscious decision to double down. is that correct? >> no, sir, it was not. >> with their models of risk you had that you were to go by?

and above them on numerous occasions you were above them most of the time the? >> the model of risk for us, or model of growth was more about a wallet share of clients. it was a client-focused business. it was not about taking on more risk. the second part of your question, if i heard it correctly, there were risk levels that we ignored. >> my understanding was you had bottles of risk that you were to go by and you were consistently above the amount those models called for. >> those were internal guides that we set. i had this conversation with the examiner.

i thought that i explain it. i said that i thought we would look to these levels and understand why we tripped above a certain trigger. some may have been volatility, some because the hitch did not work, some because change of diversification. one of the biggest moves in the true risk appetite was our changing, our own diversification benefit. we took exactly the same portfolio, gave a lower waiting to the diversification benefit which moved our risk appetite -- i forget specific numbers, but for example let's say from of $3.60 billion up to $4 billion. that is all we were doing. it was not as if we had bought something.

in fairness, given the market the way it was, you could have the same position from one day to the next, and because of volatility and triggers and interaction of hedges, that in itself, exactly the same position, could change your risk appetite. and in response to that, we reacted in a very strong, aggressive way, and brought down as vulnerable securities. >> a lot of risk and increasing campbell. do you gamble, mr. fuld the? >> not the way that you are asking, no. >> because someone said the behavior that went on at lehman was more that of a gambler than an executive on wall street. >> i think those who do not have the information and the accurate information might say that.

>> you feel that with the information that you have provided that it would not look like as much of a gamble. is that correct? >> the information i have provided today is a tiny microcosm of who we were. please understand, and i hesitate to say this because you will -- what ever. we were risk averse. commercial real estate -- and i know, i know. walter then to that one. commercial real estate was an area where over the last seven to eight years -- terrific team, very talented, smart decisions. i will tell you that the decisions we made on the properties we bought in the commercial real-estate -- strong management teams, strong properties, strong locations -- i will look at you though, and

tell you terrible timing. bad timing. terrible timing. >> i have a couple of other questions. secretary paulson, chairman ben bernanke told us the financial system could handle the collapse of lehman. it is clear that was not true. from this report it appears to me that the company did that. why? do you agree with the? >> i'm sorry, you said the company meaning the? >> lehman. >> we told secretary paulson on that fateful weekend, because we had been mandated -- we did not choose, we had been mandated by

the fed to declare bankruptcy. we told secretary paulson, if you do that, there can be no orderly wind down. there will be massive repercussions in the swaps and derivatives market that you will not be able to control, and this will be a disaster. >> the believe there were people inside the lehman organization fighting for government help, beside your conversations you had with paulson? >> not that i am aware of, sir. >> the gentleman's time has expired. >> thank you, to you both. >> mr. lee, at the end of every quarter, the transactions were temporarily removed from the balance sheet. when will they put back on?

>> they peaked at the end of the reporting period, so if you read the examiner's report, it is like a 10-day stretch. there's not a set number of days. there was always a level base of repo 105 that was on all month long. >> so, mr. fuld when you're talking about any given day, there were a number of sales transactions. is it fair to say at the end of the quarter with repo 105 it was completely different than the rest of the quarter? >> i would say the examiner's report had an interesting chart. >> do you know why it spiked on the quarter's? >> i should say on the quarter's end. again, i should say was not there for the structure or creation of these.

i will say that these transactions were not created by lehman brothers. they were created and modeled after fas 140. i do not believe that fas 140 created this rule to give firms the ability to create a gimmick, mislead -- >> do think that the use of repo 105 transactions -- do you think when use those if fairly reflected the condition of lehman brothers? >> i do because there was in fact -- and this was a piece said before, which i did not have a chance to respond to -- given what i said of our ability to sell not monthly or weekly,

the daily $50 billion -- if i may, please -- >> i'm just trying to save time. >> i'm usually pretty quick. we really could have sold $50 billion per day and we did. the reason we took these back, there had to have been a business purpose. the examiner himself talks about a business purpose because even in the sale transaction there was an implied spread. the examiner talked about it himself. there would have been no other reason to buy these securities back. they could have sold 50, 50, and another 50. >> did the risk officer, the chief officer, or the head of product control -- did any of those folks tell you about the existence of repo 105? >> as i said before, not to my

recollection. >> mr. cruikshank, when did you find out the? >> and during the examiner's investigation. >> ok, and mr. fuld, in talking about risk averse, at 30-1, did you think that was risk averse? was there any leverage figure that crossed your risk averse concern? >> i believe the 30-1 is a misconception. 50% of our balance sheet was a match book -- not to get technical. it was a series of short-term financings where we would sells securities to clients, buy them back and finance them. they were a series of three, five, seven-day transactions with a limited tail and very little, if any risk. i looked at our balance sheet.

>> if you feel like those 30-1, 40-1 reference were not fair? >> that is right, sir. >> do you think that those are solid products? did it make sense to be involved with them the? >> i can only tell you that at the time when we made those loans or more importantly that we bought as a conduit that our investors -- we've never created a package thinking our investors would lose money. that is not what our firm was about. >> the document loans, interest- only loans in some of those in means that you look and go, how could they ever repay? was anybody in the firm aware of

the fact that each step of this made it much more likely that these bonds or loans could never pay off? >> when we operated our own origination platforms we stepped in and changed management where we thought a predicament changed underwriting standards where we thought they were lax, discontinued certain products where we thought there was vulnerability. i believe that we did take a very solid and prudent approach. our goal was not to sell securities that were going to hurt clans, or to hurt those people that were taking mortgages. we did not want to be in the repossession business. >> let me ask you one last question. going back to your initial remarks about there was not a

capital hold, but lehman still underway. was it a loss of confidence, if the capital was there in the $26 billion was there, why did we know we got to see lambing gone? >> why did we wake-up? >> y of the $26 billion is there and you have your board of directors working hard, how do go down finally? was it a loss of confidence? everyone calling in on you at once? >> a loss of confidence. i think people have heard me talk long enough about naked torsos. i do not want to do it again. i think we could not convince the world that -- could not convince the world about the position we were in, that we have collateral, capital, a solid plan, and we did in fact

have a solid plan. we could not convince the world. s &p came out with a report a week to 10 days later and asked why lehman was single a? they talked about our strong franchise, have been raised capital, ability to earn money, liquidity. they talk about those things. we lost $25 billion of liquidity in two days. >> thank you very much. >> thank you. mr. fuld, tens of thousands of people in my district are out of work, have lost the opportunity to build classrooms because they invested in the investment-grade

lehman brothers stocks and bonds. they have lost it all. i have no consolation in the fact that you may have to live with that every day. that is not good enough. why is it you sold your home in florida to your wife for $100? >> that was -- that was misrepresented. long before lehman had any problems -- it is a little personal, but you have passed. >> it is public information. >> kathy decided to sell some of her art, and so we had equal assets it was her art in her

name, so i put the house and let her name to rebalance the. very plain, simple, decided long before lehman went down. blown way out of proportion. >> it took place in october, after lehman had fallen. >> i had made the decision back in may, june. these things do not get done overnight. >> you have answered the question. you have said in your testimony you feel vindicated by the results in the report. yet the person clearly states in the report that there are claims that can be made against lehman for misrepresenting the 10k and sk document.

he says of. billions of lehman shares traded on misinformation -- he says "billions of lehman shares are traded on misinformation." there's plenty to suggest that neither the sec will the fed did their jobs, but you in fact misrepresented lehman's status. you said you knew nothing about repo 105, but according to an having looked at 5 million in mills says there is every reason to know that you did. having said that, you have to be concerned as the ceo with the rating agency's rating of lehman. correct? >> yes. >> that has to be number one on your priority list, to make sure they continue to rate your company and products as investment-grade, correct surceas?

>> yes, but not number one. my number one concern was protection of capital and shareholder equity. >> and that has everything to do with whether or not of the rating agencies are gritting your products as investment grade. >> that it's a very interesting question. the rating agencies reacted more to address stock price than they did to our timeliness -- the rating agency focus on debt is the timely ability to pay back debt. they reacted more to our stock price where they heard the rumors about the hole in the balance sheet and thought we could not raise equity.

one of the real shortfalls' was our ability when i said we could not convince the world. there were some any rumors about lehman's condition the people that we would not be able to raise equity. >> excuse me, let me ask one more question. have you ever shorted securities you were selling to the public the? >> i myself? >> your company. >> not that i am aware of. >> thank you. >> ms. kilroy. >> thank you, mr. chairman. there have been several things

you have answered today, or answered to the bankruptcy examiner, not that you are aware of, or not you recall. did you review any documents in preparation for today's hearing? >> yes, ma'am, i did. >> what were those? >> [silence] i do not even know how to begin to answer that. >> did you practice your answers for today's hearing? >> i'm sorry the? >> did you rehearse, go over practice questions the? >> i rode over and says myself, thought about them. quiz did you engage in a murder board where others ask questions? >> a mortar board? " you have not heard that term before at? >> i don't leave that hanging.

is what they call in the administration when they prepare a potential nominee facing confirmation to appear before the said committee and the attacked. >> no, i actually wrote that a number of questions myself. >> did you consider that we might ask about the warnings mr. paulson gave to lehman about the state of their balance sheet? did you review that? >> and they come i did not. >> you do not recall the warning from mr. paulson the? >> to read his book. -- i read his book. >> the recall the warnings to move to a more conservative place regarding the balance sheet of? >> tim geithner and i had a

number of conversations regarding liquidity, potential capital raise. i do not recall a warning from him. >> do you recall a warning from the office of thrift supervisors that you were materially over-exposed? >> i do not. >> do you recall the concerns of matalin or michael or matthew with respect to the risk management, or risk levels of lehman, or off-balance sheet accounting? >> let's begin backcourts. i saw on matthew lee today. he reminded me that he and i had met at a social event. so, i was not familiar with him.

michael, a longtime member of the firm -- i will only tell you that the day after he left the firm, the senior officer that took his place came to see me, told me we were overexpose, in leveraged loans. i asked how bad it was. he took me through it. i asked for his recommendation, and he told me to bring it to an executive committee, but would like to bring it down. i reaffirmed to him to do that today. from that point we did down something like from $45 billion down to $7 billion.

>> in any of these discussions about lowering exposure, leverage, they include a lowering leverage specifically for quarterly reports to investors filed with the sec? specific targets for lowering your leverage for quarterly reports the? >> are you asking me if i said a specific target? no. >> that is right. you continue to say you do not recall engaging in any decision- making or even hearing about these repo 105's with respect to the quarterly reports and moving them on or off balance sheet to affect their appearance to investors? >> i recall no such conversation and recall seeing the document. >> do you recall an individual by the name of david einhorn?

>> i know his name. >> were you concerned with what short-sellers were saying about your company? >> yes, i was. >> was the one of those short- sellers? >> i believe he was. >> were you aware of the speech he gave to a high-level group of investors in which he criticized your first quarterly report and question the numbers in your first quarterly report compared to your 10q filene's? >> i do not have all the pieces of that, but i was very much aware that he was climbing a week misrepresented. claiming that the cdo's and clo's were all mortgages. they were not. they were corporate loans. we tried to tell them that. he ignored that. he continued to talk about lehman.

i will be kind, and just say he talked about lehman in an unflattering way. books did you look at where the discrepancies were, the use of repo 105? did that, that all the? >> and not at all. >> i am over time. >> yes. >> the chair this think all witnesses for their testimony today. some members may have additional questions for this panel. they may wish to submit them in writing. without objection the hearing record will remain for 30 days open -- [reading] this hearing is adjourned. [gavel]

>> now we will begin opening statements. >> thank you. we meet again today to look at another massive corporate failure. we have heard the sad song of corporate greed and breakdowns one to many times in recent years, and in some sense suggests enron, madoff fraud, and the massive problems of aig. the problems at lehman brothers add another burst to the troubling refrain. in the lehman brothers tune it deeply troubles me that we must explore this taking advantage of an incentive by cinders on main street. i am also disappointed at those authorities to philip to uncover

these. the american people, those who invest their hard-earned savings and retirement savings deserve answers. and also the enactment of real solutions. >> mr. chairman, should the witnesses not be present for the opening statement the? >> if the gentleman wants them to be, that is fine with me. are the witnesses here? >> waiting on secretary geiger? >> the statements are intended for witnesses. -- waiting on secretary geithner? >> i've understand. i believe there will hear what has been said. we have a large committee, lots of questions to ask. are the witnesses here, let's get them all hear.

let's wait until they come out. >> i do hope that secretary tim geithner is here by the time asking questions. >> i will say the secretary has been very diligent responding to requests. he has never ducked us, and was told there would be statements from the members first. so, any inference -- none should be drawn about the secretary's willingness. he has been very cooperative. the gentleman from pennsylvania will now proceed. >> to reiterate, i am deeply disappointed in the performance of auditors and regulators the fifth to uncover wrongdoing, mismanagement, capital sure

falls, even as they fiddled in the offices of women. americans who invested their hard-earned money in the markets deserve not only answers, but also the enactment of real solutions designed to reform. the lucas report also reveals that wall street executives continue to embellish the truth, and hide behind their power. the former managers of lehman brothers claim not to recall transactions, or to have not spent meaningful time examining those important to investors. i find the excuses difficult to believe. especially in the wake of reforms mandated by sarbanes oxley. moreover, some of those things to illustrate what the senate needs to quickly pass and the congress needs to swiftly finalize the wall street reform bill. the bill already passed by the house would force major

participants in the markets to hold more capital and leveraged less. additionally, the house passed legislation in the pending senate bill to include provisions to end the era of too big to fail by breaking up financial firms that have become too risky, too big. the report for the highlights the importance of whistle-blower reforms. moreover, his report proves the need to fundamentally change the way the u.s. sec operates. the house bill doubles the review. hopefully, this hearing will be one of the last areas of this gloomy opera.

the proverbial that lady has begun to sing and we must now complete our work. >> the gentleman from alabama is recognized for four minutes. >> in response to reading the accounts of revolutions of the accounting manipulations by the lehman brothers' bankruptcy examiner last month, i called on chairman frank to hold this hearing and want to thank him for his prompt response. one must ask, was lehman too big or interconnected to blow the whistle on? the court-appointed bankruptcy examiner has provided us with an exhaustive report on their actions and regulators failures. as we consider how to reform our system, his report serves as

both a case study and cautionary tale of what can only be described as a gross of failure. the regulations and powers needed to address the misconduct were in place. they simply were not utilized. when mr. valukas released his report, he unveiled a troubling narrative many had suspected, but did not know. the report found that lehman brothers engaged in a "materially misleading accounting and balance sheet manipulation." had there not been a bankruptcy, and a report not connected as a result, the acquiescence of the new york fed, sec, and lehman brothers actions would have been swept under the rug and the public kept in the dark. far more disturbing, with the actions or lack of actions of regulators.

the new york federal reserve bank and the sec for on site at lehman brothers and had every opportunity and responsibility to observe the actions painstakingly described in the report -- the report shows at best the regulators failed to catch an accounting manipulations that allowed the firm to give and misrepresenting picture to several parties. as a result, which would have been bad, a failure of one of the nation's large investment banks was made far worse by the fed's failure to plan and coordinate the response to lehman's and clubs. they failed to share information about the firm's deteriorating liquidity position, and bill to force them to a report that there were less liquid than they showed themselves to.

lehman brothers killed all three stress test. this is concrete evidence of the complicity of the fed and material misrepresentation. the regulators did not require lehman to do anything in response. more importantly, they filled to disclose these to the financial markets. in conclusion, the regulatory proposals offered by this administration are now being considered by congress the same regulators are still with us. lehman brothers is gone, but the failures of the agencies are still with us and should not be rewarded with new regulatory powers. i yield back the balance of my time. >> the gentlewoman from california is recognized.

she also represents areas affected by the failure. >> thank you. more than 18 months have passed since the collapse, but the repercussions continue. as detailed by my colleagues on the first panel, governments across the country who invested taxpayer dollars in supposedly safe investments in lehman have had to cancel important projects, lay off employees, and a drastic service cuts. they lost, but others profited handsomely from these reckless actions. the ceo is here today. he profited handsomely, making almost $500 billion since 2000. you know that i did not say earned. he publicly stated that he felt terrible about the failure of lehman brothers. i say it is not enough. i say to give it back.

it is time for those whose greed, arrogance, and fraud that cost the crisis be held responsible. the bankruptcy examiner makes a compelling case that fraud took place and mr. fuld is lying about his role in it. i guess that is to be expected since he is trying to avoid liability. it is funny, repo 105 is more like criminal procedure 101. enron executives were held liable, as were their accountants. the same should be demanded here for lehman and all others on wall street who were brought into the culture of greed and profit for themselves no matter the cost to others. government regulators bear a large share of responsibility. mr. fuld argues that lehman brothers could have survived had been favored by the fed and treasury.

instead the government chose to let lehman fail. i will submit the rest of my testimony for the record. >> let me ask if we can get consent for our colleague, a leader in the effort to deal with the fallout, to sit with the committee. is there an objection? hearing none, she will be welcome to sit with us. the gentleman from california is recognized for two minutes, 10 seconds. >> thank you. as the fed's cohen put it out, the question was not whether lehman brothers would fail, but when and how. since the crisis we have heard from advocates of the reform package that the regulators only had two options with lehman brothers. either bailout or bust. hence the need for resolution

authority. this is a false choice. as the lehman brothers' bankruptcy examiner puts it, what is clear is that the government, headed acted sooner, the government could have handled this. the markets might have been spare the turmoil of the abrupt failure. the regulators were not fully engaged, he said. they did not direct the firm to alter the conduct that we note in retrospect lead the firm to ruin. the government did not act soon enough. the regulators were not fully engaged. while regulatory consolidation and updating is necessary, evidence shows they have the sufficient tools. they just failed to act to mitigate the impact of the failure. we are now on the brink of doubling down on this flawed approach with the dog/frank regulatory reform. and we're on the verge of

authorizing bailouts in the future of which will create more moral hazard. instead of moving away from the government-provided safety net, the dog/frank approach expands the size and scope of the net, thereby compounding more has a problem. instead of a strong commitment from the government to never again should creditors in counterparties, this approach in this legislation does just the opposite. it authorizes bailouts. it will lead to the erosion of market discipline, the cornerstone of a well- functioning market. >> the gentlewoman from ohio was

the first to ask for a hearing on the subject. >> mr. chairman? >> my letter preceded her letter by one day. >> i'm sorry. she was the first one that came to my attention. while i am at it i just want to say, because i want to give the gentleman's feelings full vent, mr. secretary tim geithner in your absence there were some opening statements which i hope that you will read. members should not have made the statements you did not hear. you will not be tested on them, but we do ask you to read them. i trust i have taken care of everyone's feelings. the gentlewoman from ohio is not recognized. >> thank you. i am more than happy to share credit for the letters and for calling for this hearing.

today we're looking at the practices of lehman brothers in the policy following the report of the court-appointed examiner of the bankruptcy. the report describes how lehman brothers frequently ignore the warning of their own risk management system to pursue even greater risk and discuss their position by using an accounting practice known as repo 105 to bolster balance sheet and quarterly reports. it was described as planning, but i describe it as compulsive gambling. the subsequent fallout and its effect on main street were simply extraordinary. we heard from colorado and california. i asked the state treasurer of ohio for public records regarding the ohio state pension funds who had sophisticated advisers about their investments. i wanted to understand the

impact on hard-working citizens ohio whose pensions often represent their life savings. the long-term nature of these investments and ongoing bankruptcy proceedings make it difficult to exactly calculate the amount of damage. the losses are substantial. for the last quarter of 2007 until september 2008, the pension fund declined in value a staggering $480 million. that is only ohio. there are millions of hard- working americans nationwide who watched their savings lost by the reckless behavior on mostar. i doubt this would happen if these firms have been regulated as ohio banks are. i yield back. >> the gentleman of new jersey. >> thanks, mr. chairman.

a chance to read the summaries of the report, and reading testimony of some witnesses, and thinking back on some exchanges we have had in the committee, it seems as though a pattern is emerging. that same pattern emerges as through other quesadillas concerning the crisis. we have regulators put into place to protect investors, depositors, and the system itself. they seem to be either unwilling or unable to do their jobs. during the current debate you hear lots of calls for transparency of institutions. many times regulators seem to be having trouble living up to the same standards. ." . .

>> like a lot of americans, i do not have confidence in the regulatory regime we've have a ve -- we have. more people should have been

listening to a hedge fund investors figured out what lehman brothers was doing, and the regulators that a supposedly watching out for investors on main street. that is a lesson, unfortunately, that keeps coming through as we have these hearings and as we study events leading up to the financial crisis. >> i will recognize myself. i believe i have one minute remaining. before i do that, before that it starts, i want to ask john's consent to insert into the record the testimony of former sec chairman, chris cox, and former secretary of the treasury paulson, and a member of the financial accounting standards board. i will now recognize myself to say i am disappointed in the partisan tone.

this has less relation to reality than the norm. we never said there was only a choice throughout this between bankruptcy and a bailout. what we have said, and we quote secretary paulson on this, once the failure comes, you have to pay all or nothing as to the notion of the the regulation having enough power -- christopher cox, the sec and henry paulson both said, and no, we did not have enough authority. i want to address the false the comet -- dichotomy between did they have enough authority and should we give them any more? yes, everybody worked perfectly, they could not or did we could have avoided this. but people do not work perfectly.

tim geithner, and the testimony. >> thank you, chairman frank. on september 15, 2008, lehman brothers became the largest bankruptcy in american history. in the days of falls, it puts our financial system to the brink of collapse -- in the days that followed. it illustrates many of the fundamental flaws in our financial system. these problems are exposed with great care and force in the report. tell the story of the ways in which our system of large institutions to take on excessive risk without constraints. in particular, the system allow the emergence of apparel financial system, what many of called a shadow banking system -- a parallel financial system. it operated alongside and grew to be almost as big as the regulated banking system, but it lacked basic protections necessary to protect the

economy. imagine building a national highway system with two sets of drivers. the first group has to abide by the speed limit, the second group can drive as fast as they choose, with no safety features and without any fear of getting pulled over by the police. imagine both groups are driving on the same road. that system would inevitably cause serious collisions and drivers following the rules of the game would be hit by drivers who were not. a system like that makes no sense. we would never allow it on the roads. so why do we allow it in our economy? our financial system allowed risk to move towards areas where regulations were most lenient. when there is a lot of money to be made by avoiding regulation, there will be a lot of activity and risk moving to where the constraints are weak. we star break down in the basic, most fundamental checks and

balances in the system. credit rating agencies failed to do an adequate job of assessing risks and disclosing their ratings methodology. boards of directors failed to exercise critical judgment. accounting and disclosure receivers and did not adequately inform investors of material risks in a timely fashion. executive compensation packages rewarded short-term gains. the derivatives markets, operating largely in the dark, grew to enormous scale with firms able to write hundreds of billions of dollars of commitments without the capital. when we saw firms manage themselves to the edge of failure, the government had exceptionally limited authority to step in and protect the economy. we did not have any ability, as we do with banks, to step in and in a safe way wind down a major investment banks like lehman

brothers or major insurance companies like aig. failure is inevitable. the challenge for government is to design a system in which the families of private firms cannot 1

>> when a conservative president is asked to -- asking the government to -- to lend billions of dollars to two of our largest automakers, when a conservative republican president is forced to do all that, and he was right to do

it, it is undeniable the system is broken. the question we face is not whether to fix it but how best to fix the system. any strategy that relies on market discipline to compensate for weak regulation and use it to the government to clean up the mess is a strategy for disaster. the best strategy is to force the financial system to operate with more transparency, clear rules on leverage and risks of the taxpayers never have to come in and protect the economy by saving firms from their mistakes. this is the strategy behind the performance proposed last june by the president. it was passed in december by the house, and reforms are occurring under debate in the senate. thank you very much. >> chairman bernanke . >> i appreciate the opportunity to testify about the failure of lehman brothers and the lessons of that failure. in his opening remarks, i will address several key issues. the federal reserve was not

lehman brother's supervisor. it was exempt from supervisorin. the core subsidiaries were securities broker-dealer is under the jurisdiction of the sec, which also supervised the lehman brothers' parent company. importantly, the program was voluntary. it was established by the sec an agreement with a supervised firms without the benefits of statutory authorization. although the federal reserve had no supervisory responsibilities or authority with respect to lehman brothers, it began monitoring the financial condition during the period of financial stress that led to the failure of their stearns and j.p. morgan chase. in march, two dozen a, responding to escalating pressures, the federal reserve -- in march 2008, responding to

the escalating pressures, it established a primary dealer credit facility as sources of backstop liquidity for those firms. to monitor the ability of firms to repaid, the fed in its role as a creditor, required all participants in this program to provide financial information about their companies on an ongoing basis. two federal reserve employees replaced -- were placed on site at lehman brothers. beyond gathering information, these employees had no authority to regulate their disclosures, capital, risk-management or other activities. during this period, federal reserve employees were in contact with their counterparts at the sec. in july, 2008, chairman cox and i negotiated an agreement that formalize procedures for information sharing. corporation between the fed and the sec was generally quite good, especially considering the stress of the period. in particular, the fed, with

the sec's participation, developed several stress tests of a liquidity position of lehman brothers during the spring and summer of 2008. the result of the stress tests were presented jointly to the management of lehman brothers and other firms. lehman brothers prosit results showed a significant efficiencies and available liquidity. -- deficiencies in available liquidity. we were not aware of repo 105's. lehman brothers' staff did not report these transactions even to the company's board. knowledge of the accounting for these transactions would not have altered the federal reserve's view of the condition of the firm. the information we obtained a suggested the liquidity of the firms were deficient. reconveyed to this to the company and it was shared by the sec and the treasury department. lehman raised about $6 billion

in june, 2008, took steps to improve its liquidity position in july, and was attempting to raise additional capital in the weeks leading up to its failure. its efforts proved inadequate. during august and early some timber, to designate, increasingly panicked markets. lehman brothers and other firms under severe pressure. -- put lehman brothers and other firms under severale pressure. we brought together leaders of the lehman brothers firm from september 13 to september 15. a solution cannot be crafted. an acquisition by another company could not be arranged. with no other option, lehman brothers declared bankruptcy the fed fully understood the failure of lehman brothers would shake the financial system and the economy. the only tool available to the fed to address the situation

was the stability of providing short-term liquidity against adequate collateral. lehman brothers already had access to our emergency credit facilities. it was clearly meant brothers need substantial capital and an open-ended guarantee of its obligation to open for business on monday, september 15. neither the fed or any other organization had the ability to prevent the failure. it provides to draw lessons. first, we must eliminate the gaps in our financial regulatory framework that allows large, complex, interconnected firms to operate without robust consolidated supervision. and the timber, to desi-- september, 2008, no one had the opportunity to help. to choose between bailing out a firm or allowing it to banks -- to go bankrupt, we need a new

resolution regime analogous to that for failing banks. such a regime would protect our economy and improve market discipline by ensuring failing firms to take losses in its management is replaced. thank you, and i would be glad to respond to your questions. >> chairman? >> thank you. i appreciate their virginity to testify regarding the lehman brothers examiner's report. i want to thin-- the sec superve lehman brothers through an end to the program which was designed to fill a gap in the regulatory structure that was left when the legislation failed to require investment bank holding companies to be regulated. this program, well staffed with

dedicated and hard-working professionals, was flawed in its design and never adequately resources to meet the challenges of prudential supervision of some of the world's largest financial institutions. it reflected a profoundly different approach to oversight and supervision for the commission, and move away from our traditional oversight of broker-dealers to a potential model of consolidated supervision involving a vastly expanded a ray of entities and financial products. participation in this program by firms was voluntary. the program was on the resources, understaffed, and under manage. -- and underresourced. the sccsc program was discontinued by christopher cox. the examiner's report raises serious questions about the oversight of lehman's liquidity paul and its risk related internal structure.

in certain instances, it appeared there was insufficient follow on issues that should of raised concerns. in addition, the examiner's report identified their use of repo 105 transactions as a means to reduce leverage. the lehman board was unaware of these transactions. it raises critical questions about the use of these transactions to manage a balance sheet and also raises questions as to how widespread this practice may be. we have requested detailed information from multiple large financial institutions about their use of repurchase agreements. we will take appropriate action when necessary. while the csc program no longer exists, we are taking steps to

bolster our oversight of larger broker-dealers through improvements to broker dealer reporting and monitoring, establishing of cross divisional teams, anenhancements to our examination program, changes to the capital rules to reduce reliance on value at risk models, and consideration of increased capital requirements and explicit leverage requirements. the failure of lehman brothers demonstrates the need for important legislative changes and the supervisory and regulations structures for a large financial entities. the bills passed in the house and being considered in the senate are designed to address key issues raised by the financial crisis and illustrated by the failure of lehman brothers. the move towards a central clearing and transparency of over-the-counter derivatives could have ennis' -- substantial impact. the creation of a systemic risk council could be a force to

improve standards. the establishment of a credible resolution regime is a vital. in light of the failure and examiner's report, the sec is determined to become a more effective regulator. increasing meaningful, functional regulation, active enforcement and transparent markets. it is not clear that any action by the sec could have saved lehman brothers, but we are determined to use the lessons of that experience to be more affected. more vigorous oversight and a new approach are essential. i look forward to continue working with you as you consider ways to strengthen our financial system. thank you for the opportunity to testify today. i look forward to answering your question. >> thank you very much. let me take my five minutes while the chairman is out of the room.

i want to publicly announce that the george orwell lives. i have listened to my colleagues on the republican side. i cannot believe -- there are two conclusions i can see me to. you failed to read the bill we passed in this committee and in house or you are purposely attempting to mislead the american people as to the real content of the bill. when you say that we do not have protections in there that never existed before, you are dead wrong. i call your attention to the amendment i offered, the too big to fail amendment. it is part of the house bill that will prevent in the future and give authority to these regulators and others, the ability to stop institutions from growing so large they will systemically challenge the american system. that is the first time in history. yet, everyone on this side of the aisle seems, not only the members present at this committee, i was listening to

the talking heads. i listened to some of the senators this morning. we have got to get everybody together to accept the fact or we are in trouble. along with that, i will direct my questions, mr. secretary. we need a system. but we need a system -- and i listened to your testimony very closely. i listened to ben bernanke very closely. and i did not hear you mentioning that too big to fail men and where we have authorized the program regulators to move in -- the two big to fail amendment or we have authorized the program regulators to move in and challenge the risks or system or force them to break up, and capital or take other actions that would reduce their risk. is there reason i am hearing you not mention this at this testimony? >> mr. chairman, you are exactly right. critical to any effective reform, and at the center of

the bill, are a set of authorities to regulate risk taking. you proposed in the committee embraced a provision to get explicit authority to the federal reserve to limit risks ahead of the crisis. i agreed that the best way to deal with too big to fail, the necessary part of reforms is to make sure you have people equipped with authority to put effective constraints on risk- taking and head of the crisis. >> the question raised by mr. volcker. have we been too nice? or should we mandate the use of that authority? >> as you know, in the bill that senator dodd proposed in the senate, he takes an approach to building on the model you laid out which does impose actual limits and requires the federal reserve to design regulations that would apply to those limits.

adam delegate

>> are you in favor of the law that authorized the regulators to break up the regulators if a company is too large to fail? >> i think it is something that would be constructive. as a regular, i am willing to work within its dictates.

>> madam chairman? >> thank you. i would agree that having that authority for regulators is critical. i would point the to -- to the example of the program to illustrate that. it was a program that left a statutory basis, and despite its many other flaws, there was no authority on the part of the regulators based in statute to take dramatic or substantive action with respect to imposing requirements upon the investment bank holding companies. i think that was a huge block of the program. >>-- a huge flaw of the program. >> the gentleman from alabama. >> let me state before i returned to the questions that were we disagree is injecting capital into those companies -- is where we disagree. the house passed a $150 billion

it, what i would call a bailout fund. i note secretary geithner has called for that to be removed. in a failing business like lehman brothers, we do not think it is appropriate to put additional capital, particularly by governmental entities. that is where there is serious disagreement, not that you do not need more resolution authority as they go into bankruptcy or bankruptcy like proceedings. there is no disagreement there. i think we are getting closer together. let me ask you this, secretary geithner. the examiner's report is replete with examples of a new york federal reserve, the sec missing red flags that were presented lehman brothers implosion from being as devastating as the markets -- to the markets and economy as it

ultimately was third had the government -- had the government acted sooner, there would have been more or gratuities for a soft landing. markets might have been speared the turmoil of lehman brothers abrupt failure. as harsh as that criticism is, for me, it raises another question, and that is, why did not the government act? why didn't the regulators require lehman to do something to prevent billions of dollars of additional investment into lehman brothers by investment based on misinformation? i am wondering at the answer might be hinted in your explanation to the examiner that you feared the markets would figure out that lehman brothers had "air in its -- erred in its marks," and that it was tearing assets on its books on -- in much inflated terms.

>> cannot begin with your first point? -- can i begin with your first point? it does not begin with the executive branch of the united states to put capital into failed institutions. you may be right that we may agree on the core provisions, but it does not do that. if a firm manages itself to the edge of the abyss, the only thing the government can do is put into receivership so it could be broken off, sold off, without causing catastrophic risk to the economy and without the taxpayer being exposed to risk of loss. >> there is mr. kanjorski that mentioned putting capital into the firm. i know you wish to have that right. i think that is where we disagree. >> will the gentleman yield?

i want the record to be correct. >> you never mentioned capital? >> all right. i thought you said, mr. chairman, that you did not have the right to put additional capital into lehman brothers, not that you would have appeared >> we just had no tools. that would have been one possibility. >> you did say that you did not have the tools to put capital in. to me, that is an indication that you would at least like to put capital in. maybe i misread that. >> no, sir, i do not. >> you would agree with us that putting capital in is not a proper it appeared . i want to be able to sell off pieces much like we do with banks today. >> absolutely. we have proposed an enhanced bankruptcy for that. i think giving you additional powers in that regard as

appropriate. would you respond to the charge by the examiner that you could have avoided some of the harshness, and we could have had a softer landing had you acted sooner? your at the new york said . >> i was president of the new york fed at the time. at that point, beginning in march, 2008, two things were clear -- one is we had -- we were on the edge of the financial crisis of enormous force, something we had not seen in decades. there were a series of institutions that had gotten themselves to the point where they were uniquely exposed to those risks. they were going to be terribly vulnerable to that gathering storm. after bear stearns got itself into that mess, we moved very quickly, the fed, the secretary of the treasury, and the sec moved quickly to put in place a set of arrangements.

it was a patchwork. it was not all small -- up the mall, to encourage the investment banks to take action we worked very closely together -- >> the gentleman's time is expired. with 30 seconds over, already. >> let me ask of -- a yes or no. >> the gentleman can make the concluding statement, but we have a lot of member ye here. >> the fed of the york was aware that lehman brothers was overstating its liquidity. is that a fair statement? >> i am not sure that is a fair statement. there is nothing that did anything but confirmed our judgment that lehman brothers was a vulnerable to this gathering storm, both in terms of how much leverage it had and

how it was finding itself. we were deeply concerned about. >> the gentleman -- >> i do not understand until a month from alabama's approach. you had plenty of time. -- i do not understand the gentleman from alabama's approach. we give you plenty of time. we cannot run the committee with people talking when everett -- whenever they want without regard to time. i will recognize myself to five minutes to add to my procedural dismay. i am disappointed at the partisan tone here. let's be very clear -- the premier response ability was in the securities and exchange commission. we believe it was clear that the sec was lehman brothers private regulator. mr. cox was a republican member of this committee, appointed by the president to head the sec,

because he thought that his predecessor was too interventionist. this effort to put it all on the fed and diminished the role of the sec is a transparent partisan effort. we are here to make sure this does not happen again. that is our major role. the other thing i have to respond to it is a blatant as characterization that we are trying to put capital into these companies. the gentleman from alabama began by saying he disagrees with us, the democrats, because we want to put capital in the companies. he imputed that statement to the gentleman of pennsylvania who made it clear he never said. he then said, the chairman said, that was a tool we might have had. the chairman does not speak for the democrats, nor we for him. the bill that we have is a very explicit. no money can be spent in these cases until the institution is out of business. the notion we inject capital into the institutions is flatly

wrong, contradicted by the text of the bill. the point is that we put money in at the suggestion of the head of the fdic, another republican appointee, who says her experience is that when you. r -- putting an institution out of business, you need somebody to do that in a way that does not cause systemic problem and minimize the cost to the government. that is what the money is there for. whether before or after, it does not seem very important. none of that money can be spent to help the institution. none of it goes -- a suggestion that there is an effort to inject capital into the institutions is simply, flatly, and clearly wrong. the other point i want to make is this. we have been told, we had the authority. i believe there were a couple of decisions made by the sec, under chairman cox, whose stated we

put in the record, and they both contradict my republican colleagues, those two appointees said they did not have enough authority. is support efforts to get more authority. -- they support efforts to get more authority. let me ask chairwoman shapiro, the sec made a couple of decisions. one to increase the amount of leverage. and to give them a voluntary regulatory approach. would it be fair to say that that contributed to the context in which this happened? >> mr. chairman, and consolidate supervise entity program had to be voluntary because there was no authority for the sec to bring in investment bank holding companies under the regulatory umbrella. when the directive required consolidates a provision for these institutions, the sec felt it was stepping up to the plate

to offer consolidated supervisor said they would be regulated. >> what with the pending legislation to in regard to that? >> the current legislation would give a systemic risk regulator the tools to see it all of the entities and affiliated entities across the institution, which i think is very important. in return for coming into this voluntary program and submitting it to holding company regulation by the sec, the commission permitted the broker- dealers of these institutions to calculate their net capital and a different way, utilizing the alternative net capital rule, which took away the prescribed haircuts and allow the firms to use a value at risk model. >> with the new authority you would get if the bill passed, would that still be allowed? >> those rules would still be allowed.

there would be subject to the systemic risk regulator and the oversight of the council. the alternative net capital rules do still exist. they have been cut back rather dramatically. it is a question we are debating right now within the agency to eliminate them in their entirety. the effect they had in 2004 was to allow firms to support larger and larger position against the same capital base they had. they were required to hold a $5 billion in early warning net capital and to have a liquidity pool sufficient to cover their cost for a year if unsecured lending were unavailable. there were trade-offs and balances. the agency felt it was bringing the holding companies into the regulatory sphere, but at the same time, it loses some of the ties on firm. >> -- loosens some of the ties

on firms. >> [inaudible] >> thank you. >i am going to raise a couple of issues. not to point fingers on the regulators, but because congress is on the brink of passing legislation that will fundamentally change our financial sector, and it is not just members on this side of the aisle that are saying this. over the weekend, i listened to our democratic colleagues say that the dodd bill would lead to permit a bailout of 30. and it -- so there is that concern. -- lead to a permanent bailout of our system. so there is that concern. regulators are going to always know what to do to mitigate the next system it shock. -- systemic shock.

the case of lehman brothers proves this is a shaky president upon which we are facing the future health of our capital markets. i remember an argument that secretary geithner made that i thought was profound. you said at the top three things to get done our capital, capital, capital. the fact we allow these institutions to over leverage -- i agree with that. alan greenspan said the reason the capital issue is so often raise is that it solves every problem. i remember volcker saying the same thing, or essentially that. that is where the reform efforts should be centered. the wider presence of the dodd bill, which a lot of economists are raising issues with this concept of a permanent bailout authority. let's go over the regulatory experience. there is an expectation of

regulatory competence in the market, counterparties, creditors, investors, they expect regulators to have a firm understanding of the solvency of an institution and whether or not that institution is basically, accurately protecting their -- projecting their liquidity. are there is revenues really what they are supposed to be? -- are those revenues really what they are supposed to be? the sec deferred to the fed bank of new york, we mentioned stress test. you did three stress test. you were chairman at the time, mr. tim geithner, of the federal reserve board at the time. he were president of the bank. lehman brothers failed all three. in the words of the bankruptcy examiner, it does not appear that any agency required any action of lehman brothers in response to the results of the stress testing.

and the new york fed presumably have the authority to require lehman brothers to take corrective action. maybe you feel otherwise, but the bottom line seems to be that the fed could have tightened the terms and raised here cuts on collateral -- hair cuts on collateral. that is the moral hazard problem i have. i want to see more market discipline in this equation. let me let you respond. a signal to market participants that a firm that the fed probably need to be failing should be treated as just another counterparty. that is my concern. could i have your observations? let's get back to the capital, capital, statement you made earlier. >> i agree with where you started. we cannot design a system that relies on this -- was some of regulators to act preemptively

and a few pockets of risk in the system. that may be possible. we will do our best. you cannot build a system that rests on requiring that pre- emptive level of foresight. it is not possible. the only way i am aware of to design a more stable system is to use capital requirements to enforce constraints and leverage on institutions that can pose a catastrophic stress on firms. that is the essential, necessary reform that we all have to support. it is not sufficient, but it is necessary. you have to make sure that that system can manage those failures without collateral damage to the innocent. that is what the bill does. >> under the dodd bill, the

creditors of any company that is resolved under the dodd bill will have a chance to be bailed out. if the creditors are not to take most of the losses, as they did in lehman brothers, a fund is not necessary. it is counterintuitive. >> the gentleman's time is expired. the gentleman from california. >> thank you. i was listening carefully to mr. kanjorski. i join with him and talking about the importance of his amendment. i think we should go further and not just allow but require regulators to break up firms that have reached a certain size mr. kanjorski put forward the idea that our republican friends failed to read the house bill or were deliberately mischaracterizing it in an . let me put forward a third possibility and that is that the republican friends have read the senate bill, which is much closer to their

characterization's then is the house bill. as for reading bills, i know the secretary of the treasury has stated that under the bill under consideration in the senate, there is the taxpayer -- the taxpayer will not be exposed to any risk of loss. i defer the secretary dissections 210 and 1155 in which the taxpayer takes enormous risks, and that is the same risk they would take under section 1204 of the legislative proposal he made last year. under that legislative proposal, it is true that taxpayers did not take risks to bail out a failing institution for the benefit of its shareholders and management, but the taxpayers take tens of billions, perhaps hundreds of billions of risk for purpose of taking care of the counterparties and the general

creditors of these failed firms. mr. bachus shares my passion for avoiding bailouts, but he says the way to do that is to strip from the bennett -- the senate bill the $50 billion fund or the $150 billion fund that the house makes available to provide for the creditors of result institution. the amount available under the senate or house bill for taking care of creditors and counterparties is not just the $50 billion, it is that plus borrowings from the treasury. if you eliminate those funds, but you allow the borrowings, then the barings start with the dollar one. -- the borrowings starts

with dollar one. i think the ultimate victory would be to tell wall street they do not have to pay in at the present time but they are available for the fdic to borrow money and bail out their creditors and counterparties. >> if the gentleman would respond -- if i can respond briefly. in bankruptcy, the taxpayers would not be exposed at all. >> i am reclaiming my time. i am more concerned with senator mcconnell's remarks were he seems to take aim at the $50 billion in and leave the borrowing capacity. secretary geithner, we are here to discuss lehman brothers. we are doing an autopsy to learn how to treat for their patients. one of the possible treatments is the house or senate buill. let me take you back to it september, 2008. it is too late to save lehman

brothers. it is not too late for an orderly resolution. the purpose of this bill is to give you tools for an orderly wreck -- early resolution. how much money would you need from outside of lehman brothers to take care, in an orderly way, of the counterparties, say, the county of san mateo, which put money in, seems relatively blameless? would you tell them, we will sell off the assets and help to give you a few assets on the dollar -- 2 cents on the dollar? or would you use the tools of these bills to go into the borrower of funds in order to provide more to the general creditors than the carcass of lehman brothers would provide? >> yhuri throughtful credit. i respect your views. let me describe it -- you are a

throughtful critic. the idea is to take a model that existed for more than three decades for small banks. we have a lot of experience with that model over many recessions, many financial crises. that model allows the government to comment. >> i have limited time. could you answer my question of what you would do with lehman brothers? >> i want to get your question. with this authority we are proposing, the government would have been able to come in, but lehman brothers into receivership, replace management and the board, and manage that institutions on winding that maximize return to the taxpayer and minimize risk to the system. >> how much money would you have needed? >> it is in on as unquestioned. you cannot know in advance. -- an unanswerable question. >> the gentlewoman from

illinois. >> thank you for being here. i wish we had the report. i think really is a document that is very important to our work in this committee. it is getting kind of -- i do not want is a political, but there are a lot of arguments here that i think if we had this before, we would have had a better discussion. i know the questions i have always had our about the regulators and how -- did they do the right thing? and now we are talking about did you have the authority. one of the reasons, and i have

asked secretary geithner about having a council rather than having the federal reserve. the reason for that is, in it seems apparent to me year, is the fact that the regulators, and the report, said they did not really discussed -- may be at an early time were more actions could have been taken -- the regulators could meet and talk about it. i would imagine there was such a crisis coming up, that it would come to the committee, to the financial services committee and say, we have a problem. we do not think we have the authority. what can we do? how can this be solved? and that did not happen. we are looking back on a really serious issue. now we are talking about -- we have to take care of the risk, take care of a bank that maybe

will fail before the crisis. we have got to have the working together of ever would resulryoe this problem. i do not want to see it going to back and forth. if we had the council, and i was thinking -- we wanted to bring all of the agencies together. we did that with hurricane katrina and found out there was a lot of duplication within agencies. what we need is the authority for the regulators. if we had a council, and that was to discuss, and somebody comes up with an issue and somebody in another area has another -- the same thing, we would know ahead of time, without so much government intrusion into these areas. i look at this as saying, we have the big banks.

we will tell them that they will fail. yet, is the next up going to be companies we will tell them to fail? i think we are walking a fine line here. i hope there is more discussion on this, that we can find some answers. what is the difference between a bankruptcy for lehman brothers and then having other ones that we will tell them they will fail, but they do not go into bankruptcy? what about a small company? we have seen small businesses going out of business every single day because they cannot operate within the barriers that the state or the government has put up. i think we have a much bigger problem. i think that this, the examiner has done a good job to highlight these. i hope all of you that have worked on this -- and i know jim

shapiro, you have worked a lot on this. you came in at a time where it was very difficult -- chairman shapiro. we really have to come up with the right answers. i will not ask any questions. thank you. >> the gentleman from new york. >> thank you, mr. chairman. let me, i guess i want to direct my question is first to secretary geithner. i cannot resist the comment of saying this question about power that was had. the other side, all they're were talking about is we had too much regulation. we needed to deregulate. now we have this problem, i hear some other things going on. there needs it -- there need to be some changes. they need to be read it -- they seem to be resisting those changes that are so important to me.

let me ask the secretary geithner. my colleague had an amendment that passed this committee to require all systemically significant firms to run a quarterly stress tests according to standards established by the fed and to make the results of these stress tests public. it requires the fed to run similar stress test every six months and to make the results public, also. if a firm bridges -- reaches a critically undercapitalized requirements, it must prepare and make a public and credible restructuring or dissolution plan which meets standards set by the fed. if this had been required as early as 2000, we believe red flags would have been raised about lehman brothers well before it failed. with the capital markets -- would they have limited the firms' additional growth and exposure of the firm. therefore, if this was in

place, though likely that an impact of an eventual failure -- i would like to get your opinion. >> i completely agree. i think requiring systematic stress testing on a regular basis, posting results, is a necessary thing. it would provide the benefits you described. it would allow the market to make a better assessment of who is strong. it would give the regulators to walls of force -- tools to force firms to raise capital. >> unfortunately it is not in the senate bill now. i know there are senators that will make that amendment. any help to get that in the senate bill would be deeply appreciated. let me go to chairman shapiro. in recent reports, they indicate that large financial institutions are in gains -- engaged in the repo process.

over the last five quarters, leverage ratios are up 42% lower than at their peak for several financial institutions. banks are tempering boring risks when they have to report results and leveraging up right after. my question is -- is that still being done today -- in reference to what took place with lehman brothers? >> that is a good question. we demanded information from the largest financial institutions to explain exactly how they use repos. whether they have changed their accounting models over the last three years. and what is in their average debt balances over the period, so we do not have them dress up the balance sheet for quarter end, and have a dramatic

increases during the course of the quarter. we are collecting that information. it was due to the agency last week. we are analyzing it. we will make those comments public. and on a parallel track, we are considering whether, under sec rules, that we need new rules to prevent them asking of debt or liquidity at quarter end, as we saw lehman brothers do. >> let me ask you, because your expertise, you are great securities lawyer. would you say that the failure to disclose leverage ratios over the course of the quarter constituted intent to defraud investors? or is it a failure to disclose material information? what would you say would be? >> we have an ongoing review of the specifics in the lehman brothers area, current rules require disclosure of of balance sheet financing and material trends in liquidity, and

disclosure would be required if transactions are engaged and to present a better liquidity or leverage picture as of the reporting date. we think the disclosure requirements are quite robust. the question for us is whether lehman brothers complied. >> the gentleman from new jersey. >> i thank the chair. let me assisted myself with some of the words of chairman shapiro as far as -- let me associate myself with some of the words of chairman shapiro. i associate also, i think you referred to the csc situation. the inspector general pointed out there were problems with that program. that is right on the mark. secretary geithner, you said something -- we cannot rely on regulation to preemptively

dispel -- >> on the wisdom and foresight of regulators to act preemptively. >> i agree with that assertion. the question comes up with this, that the market does -- it should be able to rely upon the proper and adequate execution by the regulators so they can make their investments appropriately. i know you have been one of has been calling for change in the system and supporting more transparency and disclosure, in the senate bill and the light, which characterizes the changes in the derivatives markets and putting things on the exchange, but i have to say that, after looking at the report and the other testimony, it seems you are in a hard place to make that pitch for adequate transparency, in light of the new york fed's lack of disclosure during the period of time in question. it is almost like that old movie

line "you want the truth. you cannot handle the truth." the new york fed decided we would not disclose all the truth going along. the reason we are hearing this, getting this project -- this pushback, is because we are hearing is not the fed's responsibility to disclose the information. i will remind you. you have the memorandum of understanding between the board and commission that reflects the boards and commissions intend to collaborate and share information in areas of comment regulatory and supervisory interest to oversee financial services firms. that tells me that back during this period of time and going back earlier than that, when i think the new york fed put out a pamphlet that talked about who is responsible for all this as far as oversight, they explained that the condition of obtaining

access to the facilities, the credit facility, investment banks were subject to supervision by the federal reserve since march, to designate. stand-alone investment banks were supervised exclusively by the sec have now come under the regulatory authority of the federal reserve as well. so the responsibility for the overall regulation and supervision was with the the new york fed. was it being done, is what the market should assume.

>> we did not have that authority, so we established a limited presence with a limited purpose. we want to be in a better position to assess the risk we might be exposed to any event that the lehman brothers took advantage of the credit facility. we were careful to make it clear that we had no supervisory authority, no authority as a regulator. there was an important distinction. >> chairman shapiro, the same question. do you have a comment? >> yes.

i think the issue for the consolidated supervisory program was that it was never adequately staffed. there were no more than 24 people at the peak in the press responsible for the five largest investment bank holding companies. it is different than our historical approach to broker- dealer regulation. it is one in which the legislation is critically important. the holding companies are systemically important institutions. the sec was trying to restrict

itself into the program. . .

>> perhaps people would not be confused about the ultimate purpose of those funds. perhaps those funds were designed to ensure that no taxpayer funds were used. unfortunately, some of the people who designed them or the very same people that told us that fannie mae and freddie mac would never have a taxpayer bailout. we have seen what has happened there. i understand many of your criticisms of the consolidated supervision entity, but i guess my question goes to, what did the sec have the authority to do and not do? as i read the language, it would appear that, number one, i am reading from title 17 of part 240, that the commission can impose additional conditions on a brokered dealers, including on

a product specific, category specific or general basis to increase the brokered dealer's net capital, and if they find it appropriate, they can oppose -- impose additional conditions. i know that chairman cox had previously testified before the banking committee that the fet -- the sec had responsibility that might place regulated entities at risk. i think that the general counsel has said similar words, as did the deputy director of the division of market regulation of the sec in testimony before this committee. is it not true that under this

program that the sec did have the authority to have caused lehman brothers to add additional capital? >> congressman, my understanding, and i was not there at the time the program was in effect, the program related to the regulation and supervision of the company. the sec had broad, comprehensive authority. >> i am not sure if that answered the question. under this voluntary program, could the sec have required lehman to propose additional capital? >> i believe they could have. with respect to deposing property, and do not have the answer. i believe we could have pushed

the limits of this program what -- pushed the limits of this program much more than we did. we have more leverage over these firms then perhaps the staff thought they were free to exercise. >> that is an important point. as a practical matter, what would have happened had lehman had chosen to pick up their toys and go home? ultimately that sends a very strong signal to the market. as you put it, in all probability, the european union would have provided a regulator for them. you say that you could have required more capital at the dealer/broker level. how about the disclosure as far as what was posted in to their liquidity pool and what was actually there, and at what point does the sec not just have the authority to direct lehman

to properly disclose? >> my understanding is that with respect to the liquidity pool, the staff knew of some, it did not know of others. with respect to the ones they knew about, they directed lehman to move some of them from the equity pools for purposes of the financial oversight program. there was not communication to lehman that they needed to recalculate or provide new disclosure with respect to the public of what their liquidity pool assets were, and whether the number had been changed. >> is the same true of [unintelligible] >> i do not think members should be able to start a new conversation. gentleman from massachusetts. >> thank you, mr. chairman.

i want to thank the witnesses for helping us to do this work. i do think that lehman's example in their participation in the derivatives market could be instructive going forward. secretary geitner, you actually laid out very very clearly in your testimony. you said that lehman was a major participation in the over-the- counter derivatives market. as of august 2008, lehman held over 9000 derivatives positions worldwide. there bankruptcy was in large part attributable to the uncertainty surrounding their derivatives counterparties. you also note correctly bet -- correctly that the derivatives markets lost trillions.

we're trying to get this in the house and senate bills by requiring a couple of things. one is a clearing of derivatives trades. we are also talking about reporting. secretary geitner, you and i have had this conversation before. i am concerned on two levels. one, right now in the united states, at 97% of the clearing house ownership is in just five banks. i am worried about the concentration of ownership in the clearing house community. secondly, and maybe chairman of shapiro you could address this, the fact that we are requiring reporting may not be enough. it depends what they are required to report. many of the failings that we had in the miss-investment of cbo's stems from the fact that

you could not find out what was inside a cdo. there was a lot of difficulty for investors to do that. mr. secretary geitner, maybe you could talk about the clearing house problem, and then chairman shapiro, you could talk about the reporting problem. >> but we talk about what these bills try to do. we believed the -- we believe the major participants of these markets have to be subjected to oversight and we need to have more authority for regulators to police fraud. >> just to be clear though, we have an exemption there for very complex derivatives to be traded by laterally, and that compounds

the problem. >> we have to be able to force people to hold enough capital margin and then use that exception. when you concentrate risk in a clearing house, you are concentrating risk. it is very important that the clearing house be run in a way where there is a significant financial cushion against the risk of default. we will have a strong interest in making sure that the clearing houses are managed very conservatively so that we are effectively managing a system where we are going to concentrate their risk in the clearing houses. >> i would agree that the utilization of clearing houses can make an enormous difference in this marketplace and the reduction of risk. coupled with that are high levels of transparency both to regulators into the public. with respect to the assets and

asset-backed securities, the sec has recently proposed very extensive rules that require detailed loan level experts kosher -- detailed loan level expects -- exposure. that we can determine what the quality of assets are in asset- backed securities. we would also hopefully better align the issue of acid that security to hold higher quality assets in -- asset-backed securities to hold higher quality assets. >> i am word about derivatives that are bi-lateral. how do let investors know what are behind these? they are extremely complex. >> ultimately, we would provide

investors with all of that information in the public markets as a condition of using shelf registration. we propose to allow the same kind of disclosure in the private market. >> press is. -- thank you. >> madam chairman, i have a question for you. i want to follow up on a small detail. it is my understanding that the accounting standard that governs the repo one of five transactions when the men was -- that governed the repo 105 transactions when lehman brothers was still around has recently been updated to 166.

i understand it changed the disclosure so that a transaction that accounted for the sale would be required to be disclosed under the new standard. is that correct? >> the standard sets out particular criteria for what can be accounted for as a financing purses as a sale -- verses as a sale. it goes to the true heart of what is a sales of that assets can be held off the balance sheet. >> it would take effect for reports that are just now coming out. >> i believe it took effect in january of this year. we have been watching very closely to see the effects of this standard while we continue to look at the data i mentioned earlier that is coming in from the 19 financial institutions on all of their repo account in and disclosure. i think it is important for the

committee to have an understanding of how these standards have changed. >> it would be useful if all of those were submitted for the record as part of the testimony. >> we have not seen a lot of media coverage on those standards and when they took effect, so i would appreciate that. >> let's make sure that we have all of the new standards in the record. the next gentlemen. >> can i pass and come back? >> next. >> i do not think we can overstate the value of confidence in our system going forward. we want to make sure that we have confidence in our system at all times, and that our system

functions as well as a has under the fbi system -- under the fdic system. confidence is a cornerstone of the system. as we move forward, the question is not really whether a large institution that poses systemic risk should be allowed to fail if it is not properly managed, the question is how you allow that to happen and not create systemic risk? have you allowed to happen and not have public confidence -- how do you allow it to happen and not have public confidence become a part of the crisis? the public response to banks is demanding the deposits. when that happens, whether it is

known as a run, we find at the institutions themselves become at risk. there is a broader problem that we are trying to resolve, not the institution that is failing, but more of, how does that happen without causing other institutions to become a part of the failure that is developing pipit i would like to start with mr. geitner. -- that is developing. i would like to start with mr. kageitner. this plan to keep institutions from being too big to fail, if it were in place, how would it have impacted a facility, an institution like lehman brothers? >> if this had been in place, the government would have had the ability to step in early and

put lehman brothers or aig into a form of bankruptcy and manage the unwinding sale dismemberment of the firm with less risk spreading to healthy institutions. what you said is exactly right. we want the system to be designed to essentially draw a circle around a failing institution to make sure that the buyer cannot jump the firebreak. -- the fire cannot jump the firebreak. >> the secretary put it very well. in this case you would want to isolate the brokered deal that remains healthy. you would want to unwind the derivatives positions. you would want to -- a lot of discussion here has been about why didn't the sec and the fed insist on lehman doing this that and the other thing.

we were very consistent. we talked about raising capital and raising liquidity, but our stick was not very good. with a bank, you can see it and break it apart. in the case of lehman, we only had the nuclear option of essentially letting it failed. with that tulip's -- with that tool, we would have been able to forced lehman to take other precautions and then with guidance over time force them to use other tools. i do not think it would have completely insulated the system from the impact of the failure, but it would have reduced the impact on many parts of the economy. >> i agree with my colleagues. as the non-banker of the group,

we believe in building confidence a little bit differently. we create confidence through transparency and honest disclosure and a belief on the part of investors that they can rely on the information contained in the financial statement of the company whose stock they want to buy. that is the fundamental underpinning of the confidence in securities markets. we also do it through tough rules that level the playing field so that institutions and retail investors have the same opportunities in the marketplace. we do it through hands-on supervision. we have to do it through enforcement when rules are violated. i think those are all components of the confidence in our securities markets. >> i yield back my time. >> the gentleman from illinois. no, but i am iran. -- i am longa.

wrong. the gentleman from colorado. >> one of the things i spoke about earlier in my testimony was for an indirect investor in lehman brothers. the sec took very strong action in a number of lawsuits that had been filed in new york against the primary fund and the reserve fund and lehman brothers. as a consequence, at that fund that had lots of money from different liquidities in colorado has received most of its money back. i just want to say thank you on that. i do want to compare how the sec is being handled now verses how it was handled in the bush

administration under chairman cox. i will use some of the language that you used mr. bernanke, in your interview with mr. lucas. first there was an interview of the various staff. they said the primary weakness of the program was sbc understaffing and a lack of higher level skills sets. that -- was sec understaffing and a lack of higher level skills sets. mr. bernanke observed that the fed had skepticism and concern about the sec's capacity going back to bear stearns, where they were blindsided to a significant extent there as well. you were careful not to assign

blame or fault, but observed that the sec was "in over its head." mr. chairman, sitting here, having listened to lots of testimony from you and other folks as we went through this hurricane in the fall of 2008, what appears from this testimony and this report, and what i saw i believe firsthand, was the sec being an observer and not a regulator. they were watching, monitoring. then entities like those that i represent in my area of colorado, the school districts, the hospital districts, the fire protection district, got clobbered. so, you describe the relationship and communication

in the testimony as "tricky" between the sec and the federal reserve. describe what was going on between the federal reserve and the sec in debt last year -- in that last year with respect to lehman brothers and trying to get it under control. >> like chairman shapiro, i have no doubts about the competence of the sec staff. i believe the sec is now an enforcement culture as opposed to an observation culture. contrary to those reports, i believe that communication between the sec and the fed was actually quite good. when lehman brothers and failed, we worked together to design liquidity stress tests.

we have multiple calls a day. >> so, you would disagree with the statement by the examiner that although the sec and the federal reserve had access to the same personnel, you did not share your conclusions and analyses with each other because of what you described as "tricky issues." you became involved in the negotiation of a formal memo to resolve the communication issues. >> we came to a very amicable agreement in july. that was not an issue. throughout the process, information exchange was good. >> one last point, mr. geitner.

>> quickly. >> i still have -- i'll pass. >> please do not ever tell the committee of jurisdiction that there are legal issues that we do not want to get into. we will decide that. >> i apologize. >> chairman shapiro, you said a moment ago that the accounting rules have now changed and that the transactions the lehman brothers used to avoid reporting their liabilities, the repo 105 transactions and the hedge fund investments -- there were press reports at the time of the bankruptcy findings that suggest that other financial institutions may have used the same transactions for the same purposes. have you determined of other institutions did that?

>> first of all, we are scrutinizing very carefully in the lehman context whether characterizing in their repos as sales was a proper given the very strict criteria around that. we are also looking around the truthfulness of the disclosure that was in their public documents. we have sent a letter to the cfo's of the 19th largest financial institutions and asked them to provide us with very detailed information. we are currently reviewing their 10-k's. we are reviewing that information right now. it has been coming in over the last two weeks. we expected to be quite detailed. it will cover accounting as well as disclosure of any changes made to their accounting in the

last several years, and we will make that information public. >> one of the findings of the lehman bankruptcy examiner was that it would have been better for an institution that has to fail to do it sooner rather than later. it becomes more expensive and disruptive to the economy if it waits. i introduced an amendment in the financial reform bill that sheila bair first recommended that would have a limited -- or would limit the priority preference that repo transaction get upon resolution. you could make the same argument in regards to derivatives. when a firm is in a death spiral, given what we know about

lehman and the collateral grab they are in at aig, and the liquidity run that that created, would it not impose a more market discipline -- useful market discipline -- to limit the preference that repo transactions get or that the collateral provided for derivative transactions gets? do you have an opinion on that? >> i have not been involved and i do not have a deeply held opinion, but i do think it would impose useful market discipline. >> secretary geitner? >> i would not want to alter the claims to bankruptcy without enormous care and thought. you are exactly right that the

risks of the accumulated in repo and derivatives were hugely consequential. i think the best way to limit those risks is to make sure that those markets are run with much tighter constraints to marginal requirements and capital requirements. i think that is the best way to be ahead of the storm to limit the risks you see in those markets as well. i think you're exactly right about respites -- about the risks. i would do it through margin and capital. >> one thing i would like to determine out of this is that the same rules apply to everyone. repo transactions to get a very different treatment in bankruptcy. given what we saw with lehman brothers, and i think the injustice to other creditors who were in a position to demand collateral, do you really think

that the different treatment is justified? >> again, i believe it is. i think there should be a difference, but i completely agree with you by the risk posed but -- risk posed in a system that allows people to take these kind of risks. the way to avoid this in the future is to set a marginal capital requirements ahead of the boom. >> we can finish up on our side here. our dance card is fall. >> chairwoman shapiro, you said

you have looked to see who else has repo 105 type transactions? >> yes, i said that earlier. you may not have been in the room. we sent out a letter to major financial institutions asking how they are accounting for them and how they are disclosing amps -- how they are in disclosing them. we are in the process of reviewing those and will make that information public. >> secretary geitner, a year ago i talked about naked credit defaults swaps. i mentioned that the only difference between that and a bet on my chicago bears was that if one side did not pay up, everybody just left town.

when you look at lehman brothers and the exposure that they already have, and then you put the cdo's created throughout the other companies, it was like pouring additional gasoline on the fire. they were made up of bonds from other bonds, and so in effect, created out of whole cloth. one thing that was mentioned at that time was that these products helped mitigate risk. looking back, it seems to me that all that these allcdo's -- all that these synthetic cdo's did was increased risk and prove that the game is rigged. what possible value to instruments like this have?

>> is a very good question. it is the heart of the dilemma we face in creating reforms. there will always be products that some people like that have been deemed innovative. they have proven some years. our challenge is to make sure that the system is strong enough to withstand the risks that might come when those innovations go astray. again, the best way to protect the system in the future is to make sure that we are bringing derivatives market out of the dark, forcing people to hold margin and capital against their commitments. that is the best way to do it. we will never know soon enough in the future what particular innovation might pose a catastrophic risk. the best thing we can do is make sure the system has the kind of shock absorbers that will allow

it to withstand those kind of innovations. >> unless i am looking at these wrong, these were basically fake instruments. they were made up from other products. it was not really that these were the original mortgage bonds. these were selectively pick, like putting a team together with no players. when you look at this, you know, i do not understand laying off obligations for people on one side. but these were created out of whole cloth to become betting instruments. how do they have any value? >> these were derivatives on derivatives on the derivatives. they were designed to enable people to take huge leveraged bets on particular outcomes. in this particular case, they were bets on a world in which

people assumed that house prices would rise indefinitely. they were complicated products with fancy names, but the underlying this judgment, this calculation, at all of this was the idea that house prices would always rise in the future. people were not prepared for anything like the scale of what we saw. >> these transactions had nothing to do with mitigating risk. what they did was, in effect, that the casino one side against the other, and the american people were the losers. >> i do believe the derivatives come with enormous risk. we have learned that. but they do provide a useful economic function. our job is to make sure that we can get the benefits of hedging without exposing the taxpayer and the american economy. >> your time is up. the gentleman from illinois. >> thank you.

the line of questioning i would like to pursue has to do with contingent capital requirements and how they would have been useful when the lehman crisis hit, and how they might have prevented the situation in the first place. i was the author of the amendment that passed through this committee and the house that authorized the incorporation of contingent capital into the capital structure of systemically important firms. i was glad to see that a panel of experts recommended better capital requirements including contingent capital. the senate proposal also has included contingent capital. how would a contingent capital requirement have played out during the crisis, both to limit systemic risk and panic, and

also to keep taxpayers off the hook, to provide the shock absorber you just referred to? >> the benefit of continued capital is that it provides a tool that can be used in crisis to, in effect, create more capital, right when burns need it. if designed appropriately and put in place well, it could play a stabilizing role as firms and financial institutions shopping -- financial institutions slipped toward the edge of a crisis. >> there are some design issues. for example, what would trigger the conversion is a very important issue that we are thinking about. there are some other ways to approach the issue. one is a resolution regime. if there was a requirement that all capital instruments had to take losses, that would

effectively make subordinating debt contingent capital. there are different ways to do it, but i think it would have helped considerably during the crisis. >> do you have anything to add? my second question is, how would contingent capital requirements have discouraged lehman-like situations from coming up in the first place? it seems it would provide a strong market-based signal as to which firms the market viewed as shaky. >> i agree with you. if designed appropriately, it could provide a useful market signal early on of a firm that is facing the risk of losses. again, the virtue of capital is that it provides a cushion to absorb losses. we need more earlier to constrained leverage, and you need to mobilize it as firms

slipped towards financial distress. >> is critical to make clear that whatever is the instrument is, it will not be protected under any circumstances so that there is no black market. the pricing, the requirement that you have to go out and sell that instrument is a very useful form of discipline. >> pipit forces firms to carry -- it forces firms to carry insurance. hopefully, ceos would drive to work every day more worried that they would fail the stress test rather than face insolvency. or, they could worry that the last time they had an auction for their convertible debt it got a bad price so the market views them as shaky.

to me, it has a very powerful benefit of warning firms away from the cliff before they actually approach it. one last thing. is there a baseline implementation you have or would be willing to give us just in terms of your thinking for what the contingent capital would look like? >> we are still looking at it in the fed. the basel committee is looking at it. >> could i just add one thing to that? the time frame that the basel committee is working with is to reach broad agreement around the world on a new global capital standard by the end of this year. part of this will not be just new ratios, but deciding what forms of capital are most appropriate in that context. that is the time frame we are working on. >> gentleman from california.

>> dresses. we have -- thank you. we have been discussing today the failure of lehman's. there is no question in this report that the sec was in charge of regulating lehman's. the report says the sec did not learn of all of the precise facts until september, but months earlier had learned critical information that put it on notice. the sec did not act on its knowledge. it simply acquiesced. it took no action to require a lehman to have more capital in its liquidity pool. the sec knew that lehman's internal stress test excluded real estate. they acquiesced. it goes on and on and on. would you just admitted -- just

admit -- it was not under your watch, but would you admit that the sec failed to do its job regarding lehman? >> the sec did not have the staff, resources, or quite honestly, the mine said to be a regulator of the largest financial institutions of the world. the staff was never given the resources. this program peaked at 24 people for the entire universe of the five largest investment banking firms in the world. they did not have the technology to support them. they did not have the management leadership, in my view, to support them to do a good job. was it a success story? i do not think any of us would claim that the oversight of lehman was a success. but this is also an agency that

has learned and is learning from all of these mistakes, and understands the importance of doing this right going forward. >> let me ask you this question. we are all talking about transparency. to protect the investor, this has to be a transparent process. how can any of us sit here and suggest that repo 105's should be allowed to be operational in this country at any time? isn't it time to ban them? >> it is not clear whether what lehman was doing satisfied any of the then-current disclosure requirements. if there is an accounting loophole here, if there is no reason to ever allow a sale where there is a repurchase in the future, we will look very clearly and carefully at that.

if there are limited circumstances, those can be accounted for. but i agree with you. >> mr. bernanke. >> if they are not a true sale, they should be treated as a true sale pipi. recognizing the concerned about window dressing and so on, the federal reserve report quarterly averages to the public, which i think should help in this regard. >> we are looking at the possibility of requiring the kind of quarterly average disclosures by public companies

that will give the public a much better view -- >> i am about to be out of time. secretary geitner, you have been in conversation for months about lehman's failure. we now have ample information that the regulators did not act. why not now use your authority to try to make these things hopes -- make these things whole? >> municipalities across the country suffered enormous damage from this crisis. there has been deep damage to critical services we all agree on -- we all depend on. that is why in the recovery act we put so much money into support for state governments. i do not believe i have the authority -- >> we are leaving this hearing

now to go live to west virginia. president barack obama is scheduled to speak at a memorial service for the 29 call miners who died in an explosion earlier this month. we also expect some remarks from a vice president biden and the governor of west virginia. this is live coverage on c-span. >> please be seated.

jason matthew atkins.

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jason matthew adkins. [applause]

carl "pee-wee" acorn [applause]

james eddie moony [applause]

joshua scott naper [applause]

>> jimmy davis. [applause]

>> benny r. willingham. [applause]

>> gregory stephen baracbrock. [applause]

>> corey thomas davis. [applause]

>> stephen j. "smiling" harrah. [applause]

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deward allen scott. [applause]

>> grover dale sceend. [applause]

>> william "griff" griffith. [applause]

>> mike lee "cuz" elswick. [applause]

>> howard daniels "boon" dane, kr. -- jr. [applause]

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>> @ eminem keith morgan -- adam keith morgan. [applause]

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>> ret lane mullens. [applause]

>> thank you. now i would ask you to please remain standing for the posting of the tellers and the singing of our national anthem.

♪oh say can use the by the dawn's early light, ♪ what so proudly we hail at the twilights cleaning? ♪ whose broad stripes and bright stars, through the perilous

fight, ♪ or the ramparts we watch, were so gallantly streaming? ♪ and the rockets' red glare, the bombs bursting in air ♪ the proof through the land that our flag was still there. ♪ oh say, does that star spangled banner yet wave ♪ orlando the free and the home of the brave? [cheers and applause]

[applause] >> we ask that you remain standing for prayer. we noticed that, when the dignitaries came in, everyone stood. when the families came in, everyone stood appropriately. but there is another presence in the building here today. and that sweet, sweet presence is the presence of the lord. [applause] today, appropriately, it is the lord's day. many of you have come from the

lord's house, where she knew -- were shipping him in spirit and in truth. you can be a blessing for someone here today. somebody can say, "amen." somebody can say, "thank you lord." they sang together, they prayed together, they thanked god together, they held out hope together. nothing would make them happier today. [applause] and if we lift him up, of the king of glory will come in, with healing in his wings. this is not only hope and help, but it is a healing service. this was known as the raleigh armory. now it is known as the

convention center. why do we not have the convention today? a healing convicted? -- a healing convention? a party convention? we need to do it, by god, va.wet virginia, hallelujah. we are god praising people and we need to show it. the eyes of the world are upon us. and we want to glorify our god from whom all blessings flow. lettuce pray. our father, we come this day, thank you for your divine presence, which throughout this entire tragedy has been real. these families have shown how to

go through tragedy and trials, tragedies and disbelieves and wondering about their loved ones. the show the world, father, how they even go through the felly of the shadow of death, you are with them. they told the world that they were still holding onto the bed -- and holding onto god's unchanging ahead. they were not blaming god, but were clean to him. we know from whom our blessing close. father, god, as we look to you here today, this is not a political convention. this is not the umw convention. this is a healing convention. we believe that you are here. you're here to bless, to lift up our hearts, to heal broken

spirits. these families need something to be able just smile about, lord. they need something to be able to laugh about. i believe that you're here today to provide that. and you have already done that. all of those who will come and the be all this program, we pray that he will bless them and we pray that that will the be the end of our prayers. it will not be the end of their concerns. it will not be the end of our loving them and helping them. but today is that beginning of the healing process. we're going to say, "thank you, jesus." thank you jesus. thank you, jesus. thank you, lord. you are worthy. you are worthy. we ask, father, that these family is like to know that we've been lindor through the

night ended many nights. but joy can and will come in the morning. our hopeful note these loved ones is that, one of these old days when the lord himself shall appear, we shall be caught up together in the air and see them in that number. john said that no man could number coming up before the throne of god almighty. we pray, father, and as for your blessing for each and everyone of us. help us as we labor together, love together, and pray together. when we leave from this place, lord, we believe we will be able to said that the good have been in the house in the presence of god almighty use its high and low and we will never ceased to think you weren't praise you or honor you. in the number of -- in the

wonderful name of our lord, forever and ever, jesus christ, a mamen. and all the church can say amen. god bless you. you may be seated. please be seated. >> good afternoon. i want to welcome everyone and thank you for joining us today. families of our fallen minors, the mining rescue team, fellow miners, first responders, our clergy, our volunteers, our friends, first lady dealgale manchun. mr. president, mr. bush as an,

thank you so much. albert einstein said, "learn from yesterday. live today and hope for tomorrow." we are here to one of the 29 brave men that we lost and the two who were injured during that devastating blast in montcoal, west virginia. today, we're here together as a state and speak about the strength of our miners, the strength of their families, and the strength of west virginians. this is also the day for our state, with the nation joining us, to begin the healing process that allows us to move forward when we have been so badly wounded. i want to thank everyone around the nation and throughout the world for their purse and wishes -- for their prayers and wishes during this last week.

we feel your sympathy and your love hear it in the mountain state. my main goal, since i learned of the explosion, is to make sure that our miners were represented honorably and that their families had the support and protection that they needed during this difficult time. i have personally been through this type of a tragedy. i lost my ankle and a lot of my classmates in 1968 in the farmington, west virginia mining explosion. it is important to me for those who do not know it was virginia mining family to come to know the character and substance of these wonderful people who play such an important part in this great state and in this great nation of ours. as i listen to our first lady read each of our 29 miners

names and as the families can afford to place a helmet in the honor of their loved ones, i was inspired all of you. amid the pain, i see courage. it is the same courage i saw it in the face of these wives, the mothers, the fathers, the brothers, the sisters, the suns, and the daughters, those long nights as we all waited for more news. each of you exhibit a will and a spirit that we all admire. in the service today, it is a dour expression of love and hope for comfort in your families. these were strong men. there were strong in stature.

there were strong in character. they were strong in their love for you. they were strong in their courage. they were strong in their communities. and they were strong in their commitment to every family member. and they were so strong in their faith in god. today is our chance to be strong in their honor. these were hardworking and brave men. i know you all know that it takes brave men to work beneath the surface. today is our chance to be brave also in their honor. mining was the job they chose and it was the job they loved. and they were very skilled. there were very good at what they did. i believe that each of those 29 miners, like every miner working today, as well as many of their

fathers and grandfathers that worked before them, had not only strong commitment to provide a good living for their families, but a deep patriotic pride that the work they did and the energy they produced made america strong and free. [applause] my wishes this, that every american takes time to say a prayer for every coal miner working today that keeps our nation vibrant and safe, to not only thing them, but to honor them for their work and the patriotism. [applause] i also want to take a moment to

recognize our rescue teams were with us here tonight. [cheers and applause] >> they are seated on the floor among our miner's family members. they stood side by side with all of us through the disaster and put to their own lives at risk to fall -- to find their fallen brothers. and when we ultimately learn that we have lost them all, our rescuers, those rescuers,

switched their cap lights back on and went back into the mines to bring their friend's home in the most honorable way. god bless you. [cheers and applause] we all thank you. we are honored that you were with us this evening. i want to thank president obama and want to thank vice-president biden who have come today to make this journey of honor with us. thank you so much. [cheers and applause] and i hope that everyone here today and everyone watching around the nation has discovered, during this time of tragedy, what is so special about our miners and our mining

family. after today, we turn our focus on their legacy. i do not have the answers about why this has happened. but i promise you we will find the answers. [applause] i pledge that each and everyone of you in these wonderful families that your loved ones did not die in vain. weho it to you and we owed to them. -- we owe it to you and we owe it to them. i know that he will never lose as precious memories that belong to about these wonderful men, our miners. a chinese proverb goes something like this. to get through the hardest journey, we need to take only

one step at a time. but we must keep on stepping. our journey through grief is lonely. but our healing has begun and we are all stepping forward. thank you ended may god bless each and everyone of you. [applause] >> in a more a.m., we have gathered to remember the 29 call miners whose lives were given unto these mountains of west virginia some 20 days hence.

and now are gathering today, we lift up the memories of all the miners who sacrificed for generations gone by and to provide energy for the people of this nation and the world. and now , this past thursday, another miner, a 28-year-old john came from blend daniel died in a separate mining accident in a separate -- any separate mining accidents. we hold the king family and our prayers. as we turned to the news on this

morning, we saw devastation from a tornado affecting the lives of families in mississippi and we raise them up in your purse. i stand before you bringing greetings from the people of this state, the nation, and the world who are united in the shared grief and the bond of love for you, the family's present here today -- the families present here today, for you, of the mothers, the widow, the sons and daughters, and your immediate and some families, for friends and co-workers, rescue teams and neighbors of those we honor and remember this day.

school children from across this land have sent their love. brooklyn from west virginia sent a card, "god loves you, minors. miners, we will pray for you." in hudson, a student says this, "texas sends its love. hundreds have sent contributions to the montcoal mining find and they send expressions of their thoughts and prayers. while the rain seems to threaten to fall around us today with a sense of the heavens weeping, spring mountain flowers are spreading as a message of hope

with prayers of healing and peace offered throughout all the faith communities of this land in support of the miners. in their behalf, i bring you greetings. greetings to you in the name of the church of jesus christ in all its expressions who are represented here today by so many pastors and church leaders from this community and beyond. many of these church leaders sit at the council of churches unity table. three of them are thought faith community did not -- who recall bishops and we honor them and welcome them today. others are leaders in the face community -- in the faith community i.

i agree to on their behalf as well as all the church leaders who prey in unity in the name of christ. we have to give a special thank you to gov. joe mansichin and to all of the delegation for their heartfelt compassion it in the past week as we also greet our dignitaries. [applause] and especially our presidents, president obama, and vice president biden. [cheers and applause] readings to all with the words

-- greetings to all with the words from the biblical prophet, "the mountains and the hills before you shell burst into song. and the trees of the field shall clasped their hands. and it shall be to the lord immoral, a sign of hope, healing, and eternal life of god. amen." [applause] ♪

♪ ♪ ♪

♪ ♪

♪ [applause] >> we'll have gained strength and courage in these west virginia hills understand it the world'words of the islamistpsal. my strength comes from the lord who made heaven and earth.

he knew keeps you will not slumber. he who keeps israel will need their slumber nor sleep. the lord is your keeper. him the lord is your shade at your right hand, that sunchon not strike you by day -- that of god. [applause]

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> mr. president, mr. vice president, all were year, we come here as a community to grieve and to mourn our lost minors. your the families. you must endure this terrible loss and suffering. please know that you have the love and profound gratitude and respect of not all of us here only, but of all the world. that has been made possible by the enormity of the tragedy. these past weeks, the entire country has been living with west virginia and the families of our miners.

they have witnessed our strength and they have shared our pain and our sadness. but still, for years, too many people beyond these hills have underestimated what it means to be a coal miner. to many people do not understand our miners dedication to their families and fellow miners, their work cuethic, ther faith, their inner toughness, and their enormous pride. .

the keep the lights on in america. [cheers and applause] but for the families, that means waiting each day, every day, for the sound of your loved ones footsteps on the front porch.

it means waiting anxiously to hear that they have returned safely of, every day. and the 29 families who when they never heard the footsteps knew what that terrible silence meant. it is almost too much to bear. so we ask why, why does this happen yet again? as the governor said, we will find out, we will learn exactly what happened, we will get answers, and we will meet the requirements of those answers, and we will do it for you, the miners of west virginia and america. [applause]

all of west virginia is in pain. and not without some anger. [applause] but we will find a car solace and bind together as a community -- we will find our solace and bind together as a community, because that is what we in west virginia duke. we will find a way to go one by finding strength in each other. god bless you.

>> west virginians know all too well how hard ship and sarraute make for strong and lasting ties. such a connection did so many in this room today. i can spend a lifetime in and around the cold the fields of our state, and like you i am proud to be able to say that. one man relies upon another, aboveground as well as an underground, like intersex life, dreams interstate dreams, and today grief intersects brief --

grief. i'll never forget the painful days that followed the explosion on upper big branch on april 5. i'll never forget the gentle sobbing of a grandfather who sat in his car all week, and gently sobbing, waiting for word about his grandson. i will be haunted knowing the war, the generosity of family sharing and hope and joined in despair, heart wrenching, heart warming. on that spring day, west virginia and the nation lost 29 good man, loving husbands, adoring sons, generous neighbors, who worked hard to earn an honest wage. these men, our man, have joined

their ranks of too many miners before them anticipating the loving embrace of mothers and children at wives -- at day's end, but who emerged instead to the outstretched arm of their heavenly father. our loss is surely heaven's gain. a flock of fisherman, a host of hunters, faithful christian, a courteous, quiet football player, a practical joker, a tractor driving pawpaw. our fall on minors. nascar fans, gardeners, and proud veterans. a country music lover, a

teacher, a baseball fan, a mountaineer. i young and while died father. -- a young and wide-eyed father. these were our fall on minors -- fallen miners. i think st. peter has a new nickname and the pearly gates have been nearly detailed. the scent of barbecue is wafted across the clouds and someone is picking at the double bed. the bible tells us in romans, none of us lives to himself and no one dies to himself. if we live, we live in the lord and if we die, we die and the lord. therefore whether we live or

die, we are the lords. for this and christ died and that the lord would be the lord of the dead and living. it seems some true good will come from this unspeakable loss to see us through the tomorrows to come. on behalf of my colleagues, representative mall hand and representative capito, may his strength abide with them always. caught bless our rescuers. -- god bless our rescuers. [applause] >> at this time we will sing " amazing grace," and let stand

together as we sing. ♪ amazing grace house suite the sound -- how sweet the sound that saved a wretch like me i once was lost but now i am found was blind, but now i see when we've been there 10,000 years bright shining as the sun

we've no less sdays to sing god's praise than when we'd first begun amazing grace how sweet the sound that saved a wretch like me i once was lost but now i am found was blind, but now i see ♪

>> amen. [applause] >> our reading from the holy gospel according to john. jesus said to his disciples, do not let your hearts be trouble. you have faith in god. have faith also in maine. in my father's house there are many dwelling places. if there were not, what i have told you i am going to prepare a place for you? and if i go to prepare a place for you, i will come back again and take you to myself, so that where i am, you also may be. where i am going, you know the

way. thomas said to him, master, we do not know where you are going. how can we know the way? jesus said to him, i am the way and the truth and the life. no one comes to the father except through me. the gospel of the lord. [applause] >> good afternoon. it is indeed an honor to stand before the family members today.

of our 29 miners who were tragically taken from us 20 days ago, you are without a doubt some of the most wonderful people that i have been blessed to meet, and i am thankful to call you my friends. i also stand here today in honor of the 29 miners themselves who i feel i know through each and every one of you, through the hundreds of hours that we spend together at the family site, and the precious viewings and funerals i was privileged to attend. he shared with me the stories of your loved ones. these were stories that illustrate that the solid character, sense of humor, love for god and country, family, and franz, and love for life itself , and the essence of all west

virginia coal miner, things like courage, the strains, the brotherhood, selflessness. it is in their memory, it is for your support, and it is in your honor that i stand here today. monday, april 5, in the evening hours i arrived at the family center and started talking to each of you that were present. i did see the anticipation on your face and hear the eagerness in your voice, longing to know the status of your loved one. seven families were informed that very evening of their loss, and 22 others hoped that the four unaccounted for were their loved one. as you remember very well, that monday night was full of tremendous grief and pain.

after the net -- after the governor addressed as, something happened that changed the rest of that week. we all joined hands and prayed to our heavenly father for what he alone could provide, things like peace in the midst of perplexity, things like calmness in the midst of calamity, and strength in the midst of suffering. and win amen was spoken, many of the repeated with the rest sounding -- resounding amen and amen. many of you shared your personal faith in the lord jesus, and you look forward to the times that we would spend together in prayer. i understand how we are comforted when we pray to the lord, because we know and remember what the scripture teaches us about him. in the gospel of matthew, the scripture says he was moved with

compassion for them for they were weary and scattered, like sheep had been no shepherd. in the gospel of luke, it says that a dead person was being carried out. the only son of a mother, and she was a widow. and when the lord saw her, his heart went out to her and he said, don't cry. and let us not forget the compassion demonstrated in the book of romans, when god demonstrated his love toward us in that while we were yet centers, christ died for us. -- sinner, christ died for us. he is a compassionate god. 10 years ago this fall, i lost my father to cancer. he was my father, my counselor, and my friend. about a month before his death,

he asked me to take him for writing in the truck. upon our return, i looked over and said, dad, what are you thinking about? he replied, son, everything changes. nothing ever stays the same forever. and in the temporal sense, my father was correct. in an internal sense -- eternal sense, almighty god never changes and fails and he has never defeated and has never succumbed to any thing. [applause] amen. i drew strength from that very truth and i still miss him very much, as you will. but the lord has given grace and

strength to survive. my friends, i leave you this fall from the gospel of john, chapter 14. when the disciples were grieving over their separation from jesus, he told them, let not your heart be trouble. you know he understood that they were grieving and he did not criticize the grief but he gave them a remedy for the grief. first of all he said, he told them to have faith. you believe in god, believe also in me. he told them that he was their friend. he said that in my father's house there are many dwelling places. if it were not so, i would have told you so. our lord jesus never tells us alive. he always tells us the truth. he is the way and the truth in the -- and a life. he told them to remember he was their future. he said, i go to prepare a place

for you and i will come to you and receive you and to myself that where i am, there you may be also. those who believe in jesus believe that this is not the end. oh, no, this is only the beginning. this the commencement. [applause] and in the words of an african- american pastors from san diego, and a sermon that he preached, he stated these words -- mike king is the only one whom there are no means of measures that can define his love. is this -- he is the sinner's savior. he is the only one that can supply our needs simultaneously. he sympathizes and he saves.

he feels the sick and cleanses the lepers. he discharges that debtors and defends the feeble. he blesses the young. he serves the unfortunate. he rewards the diligent. his mercy is everlasting and his love never changes. his word is enough. his grace is sufficient. his reign is righteous. his yoke is easy and as burden is light. you cannot get him off of your hands. you cannot live with them and you cannot live without him. the grave could not hold them. [applause] amen. and the people here today said -- >> amen.

amen. amen. >> may god bless our miners and each and every one of you. thank you. [applause] >> governor -- families and the minors that we lost, the families that had the pleasure to meet. i learned about the courage and valor and gumption of miners,

sitting around my father's table in scranton, pa., and heard the stories, as the stories of the men that they knew. but i actually learn more from roberts and bird -- robert byrd, who i serve with so many years. [applause] his incredible pride in his state and his iners is only matched by his loyalty. the man we remember today went into the darkness so that we could have liked. they embraced the life of hard work and a career pool of peril. it was dangerous work and they

knew it. but they never flinched. what amazed me is how they squeeze stand side by side for a journey into the heart of darkness. many of them loved it, some of them dreaded it, but all of them approached it with dignity, resolve, and strength. they went into the mines not all like to provide for themselves and their families but in a very direct way for all of us. and though this work to find them, it did not describe them. their fathers, grandfathers, sons, nephews, husbands -- they love hunting, fishing, riding horses and four-wheelers, they

hated the way that rodriguez left west virginia for michigan. [applause] they loved cars and motorcycles and the practice random acts of kindness. they had their given names, and as we all learn today, some had -- some had been mining for decades. some four months. one was planning a wedding, one was planning for retirement. as individuals these men were strong, they were proud, they were providers. collectively they represent what i believe is the heart and soul and the spine of this nation, and ladies and gentleman -- [applause]

the nation mourns them. to every member of every family that has been touched by this tragedy, i can say that i know what it is like to lose a spouse and child, and i also know that when the tributes are done and the flags are flying once again at all staff, once the miners you see today go back to work, that is when it will be hardest for you all, when life has moved on around you but has yet to stir up with a new -- to stir within you. that is when you're going to need each other. for the lucky ones, like it's to go on. but as a community and as a nation, we would compound

tragedy if we left life fo on -- go on on change. certainly no one should have to sacrifice their lives for their livelihood. [applause] but as the governor and senator rockefeller said, we will have that conversation later. but the rest of us bear responsibility as well. and that responsibility is to be aware of, to recognize, and to honor those who risked their lives so that we can live out worse. those who will continue to do this hard and dangerous work. so often when we are met with this kind of sorrow and pain, as the clergy can tell you, we search for meaning and for

purpose and there seems to be none. we look for answers to questions that are literally hard to ask, and even when answered, they provide little relief. to paraphrase -- i have a wish for all of you, all of your families. now he raise you up on the eagles' wings and bear you on the breath of don and make the sun to shine upon you. and until you are reunited with those you lost, may god hold you in the poem of his hand -- palm of his hand, where these 29 are sitting at the right hand of the lord to day, and they are wondering, is all that fuss

about me? [applause] you know, folks, there is a famous headstone in an irish cemetery. it says, death leaves of heartache no one can heal. love leads a memory no one can steal. i can tell you from my own personal experience that eventually that heartache you feel will be replaced by that joyful memory of the ones you love so dearly. my prayer for you is that that day will come sooner than later. may god bless you all and may god protect all miners. [applause]

[cheers and applause] >> to all the families who loved so deeply gun miners we lost. to all the call them friends and work alongside them in the minds or greeted them as neighbors, and the coal river valley and crossroads, va. -- let me begin by saying that we have been morning with you throughout these difficult days.

our hearts have been aching with you. we keep our thoughts on those resting at recovery and homes, we're thankful for the rescue teams, but our hearts ache alongside you. we're here to memorialize 29 americans. christopher bell, gregory brought, kenneth chapman, robert clark, charles davis, cory davis, michael l. ridge william griffith, stephen hara, edward d. jones, richard lane, williams

lynch, choate markum, james mooney, adam morgan, joshua napeier, a jolt price, benny willingham. nothing i or the vice president for the governor, none of the speakers here today, nothing we say can fill told a lead in your hearts -- the wwhole they

leave in your hearts. if there is any comfort, it can be found by seeking faith in god who quiets our troubled minds, of god to man our broken hearts, -- a god who mends our broken hearts. we also remember 29 lives lived. up at 4:30, 5:00 in the morning at the latest, they began their day as they worked, in darkness. and coveralls and boots, a hard hat over their heads, they sit quietly for their hour-long journey, 5 miles into amount. the only light, the lamps on their caps. day after day, they would burrow

into the coal, the fruits of their labor, something we take for granted. the electricity that lights up convention centers, that lights up our churches and our homes, our schools and our offices, the energy that powers our country and powers the world. [applause] and most days that would emerge from the dark-squinting at the light, sweaty and dirty and dusty from the coal. most days they would come home. but not that day. these men -- these husbands, fathers, grandfathers, grandson's, on goals, nephews

-- they did not take on their job on aware of the peril. some of them had already been injured. some of them had seen a friend get hurt. so they understood there were risks. the families did, too. they knew their kids would say a prayer at night before they left. they knew their wives would wait for a call saying that everything was ok. they knew their parents felt a pang of fear every time a breaking news alert came on. but they left for the minds anyway. some waiting all of their lives to be miners, longing to follow in the footsteps of their fathers and grandfathers, and yet none of them did it for themselves alone. all the hard work, all that hard

ship, all that time spent underground was for the families, it was all for you. that car in the driveway, the roof over their heads, a chance to give their kids opportunities that they would never know, enjoying retirement with their spouses -- it was all in the hope of something better. and so the miners lived as they died, in pursuit of the american dream. there in the mines, they became a family themselves. watching mountain near football or basketball together, spending days off together hunting and fishing. they may not have always loved what they did but they loved doing it together. they love doing it as a family.

they love doing it as a community. that is a spirit that is reflected in a song that almost every american knows, but most people would actually be surprised that was written by coal miner's son about the people west virginia, the song, "lean on me." also an anthem of community and coming together. that community was revealed for all to see in the minutes and hours and days have to the explosion. [no audio] --hoping against hope that they might find your survivor. kids keeping nightly vigils,

hanging up homemade signs saying pray for our miners and their families. neighbors supporting each other, leaning on one another. and i have seen it, the strength of that community, and the days that followed that disaster, e- mails and letters poured into the white house, from different places across the country. i am proud to be from a family of miners. i am the son of a coal miner. i am proud to be a coal miner's daughter. [applause] there are always proud -- they were always proud and they asked me to keep miners in my thoughts and prayers. never forget americans miners keep american lights on.

[applause] and in these letters, they made a plea -- don't let this happen again. [cheers and applause] don't let this happen again. how can we fail them? how can a nation that rely on miners not do everything in their power to protect them? how can we let anyone but their lives at risk by simply showing up to work by not offering them the american dream? they are with the lord now. our task here on earth is to save lives from being lost in another such tragedy. to do what we must do

individually and collectively to ensure safe conditions under brown, to treat a miners like they treat each other, like the family, because we are all family and we are all americans. and we have to lean on one another and look up to one another and love one another. and pray for one another. psalthere is a psalm that comes to mind today -- even though i walk to the valley of the shadow of death, i fear no evil, because you are with me, your rod in your staff, they comfort me. god bless ourminers. god bless their families. god bless west virginia, and god bless the united states of america. [cheers and applause]

♪

♪ only you can know the pain you were not afraid

you were no stranger to the rain so go rest high on that mountain your work on earth is done go to heaven shouting love for the father and son oh, how we try

wish i could see the angels faces when they hear your sweet voice sing go rest hight on that mountain son, your work on earth is done go to heaven shouting love for the father and son ♪

♪ ♪ go rest high on that mountain

son, your work on earth is done and go to heaven shouting love for the father and son go to heaven shouting love for the father and the son ♪

[applause] >> let me say on behalf of the great state of west virginia, i want to thank each and every person the participated today. i want to thank all of you that came out to honor our miners, those that have worked so long and so hard for all of you. to the families, i want to say this. i hope that we gave you some comfort today to start the healing process. you know that we love you and we will be with you to the very end. but people have to go back to their jobs and wherever that they came from, we will be with you and i think you know that. i'm the luckiest person in the world to be able to represent you. and i'm so blessed to get to know you the way that i have. i wish it was not under these

conditions but we grew very close over five days, and i can still see so many of the mothers and wives and sisters. once you go home and get some rest, i had to go ahead and say it anyway. if you recall, we met about every three hours. i went through personal tragedy as so many of you have, too. some time our same light a day when you're waiting to hear something. the odds were against that and we all knew that we had faith and hope and we were praying so much. and we come together, chaplain, i thank you so much. [applause] we would in with the prayer. well over five days, we had a

lot of prayers. we came together, and mr. president, and mr. vice president, about wednesday how was being handed these prayers, miner's prayer. and we would end with the miner prayer. 8:30 in the evening was the last prayer that we had, alas a briefing before we knew the state of all of our beloved to miner. i thought it would only be fitting to read that career that we ended with that nine. bright light lamp light the way. down in the minds, the coal we see. trained to live beneath the soil, in dark and damp. to rests the minerals from the land.

courage is a must they say to work as the miner day-by-day so far removed from child and liked and face the rigors of miner's life and now high above in the light of son, a child at play enjoys his fund. that the mines will claim his dad so dear. and as they worked beneath the clay, what head by adapt -- bowed down, these miners pray that god will hear them up above and send them safely to the ones they love. if this cannot come to pass and he must pay the price at last, keep my child safe above the land. in front of the stage there 29

miners' hats symbolizing the man that we lost. on each had there is a light, symbolizing life. while they are gone, there are many memories that will shine on forever. these men will not be forgotten. these are the lights that like the world light -- that light the world. [applause] ♪ this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine

this little light of mine i'm going to let it shine let it shine let it shine let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine ♪ this little light of mine i'm going to let it shine

this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine is the light of mine -- this will light of mine -- this little light of mine i'm going to let it shine

let it shine let it shine let it shine ♪ [applause] ♪ this little light of mine i'm going to let it shine

this little light of mine i'm going to let it shine the light of mind -- this little light of mine i'm going to let it shine let it shine let it shine let it shine everywhere i go i'm going to let it shine everywhere i go i'm going to let it shine everywhere i go i'm going to let it shine let it shine let it shine let it shine all down the road

i'm going to let it shine all down the road i'm going to let it shine all down the road i'm going to let it shine let it shine let it shine let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine everywhere i go

i'm going to let it shine everywhere i go i'm going to let it shine everywhere i go i'm going to let it shine let it shine let it shine let it shine jesus gave me the light i'm going to let it shine jesus gave me the light i'm going to let it shine jesus gave me the light i'm going to let it shine let it shine let it shine let it shine this little light of mine i'm going to let it shine

this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine all down the road i'm going to let it shine all the road -- all down the road i'm going to let it shine all down the road i'm going to let it shine let it shine let it shine let it shine this little light of mine

i'm going to let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine i'm going to let it shine i'm going to let it shine i'm going to let it shine i'm going to let it shine i'm going to let it shine on going to let it shine let it shine let it shine let it shine ♪

♪ this will light of mine -- little light of mine i'm going to let it shine this little light of mine i'm going to let it shine this little light of mine i'm going to let it shine let it shine let it shine let it shine th