i had the opportunity to visit new orleans. the images acquired for our animated to give a sense >> it is almost surgical compared to the export tarry drilling that we have seen over the past century. it gives a confidence that a well can be targeted and explored with limited impact to surrounding areas. i think this is just one example of the ways technology is able to provide a more reassuring answer to questions about whether or not the world is ready for increased activity in the arctic. another good example is a project that we call the liberty project. some of you might be familiar.

it is an extended reach drill rig which parker drilling helped develop to access an oil field directionally 8 miles away. it is not quite there yet. i am hoping and betting on a good news from the north slope and how far we can continue to reach. this brings me to a point. technology is advancing because oil and natural gas are still the most economically viable energy sources in the world. the term easy oil is being slowly redefined. i predict we will see measured, but certain expansion into arctic land and waters. this is significant. the first people of the arctic have a right to benefit from all of their resources, not just

their energy resources, but the fisheries, the marine mammals, and i am encouraged by an increasing level of engagement, rather than opposition. 30 years ago, in alaska, when we were first developed in our north slope fields, we were able to establish production from the largest oil field by involved in the native people in almost every aspect of this new and very substantial change to their land and life style. there was an ancient, and oftentimes it was very contentious and difficult. it was on multiple levels, including the operational and personal levels. the result has benefited all alaskans and our national

security in ways beyond we could've predicted. it is not just arctic energy that is drawing increased activity. the impact of an ice-been the best -- diminished slope have already seen two vessels complete a mission. two multi-purpose heavy-lift carriers transitive during august of september last year. the route is now open for a short time in the late summer, but cuts off about 4000 nautical miles from the traditional journey to the suez canal. we now have reports that a russian stripping -- shrink -- shipping farm -- firm will

travel. this could be proved -- proof. while the arctic marine shipping assessment predicts it will still be decades before these routes are open for many months of the year, i think we have to consider this is only the beginning. if it proves economical, it will happen. we know there are national security and sovereign interests. the u.s. navy has a new road map for the arctic and they are studying the feasibility of a deep-water port. in support of their efforts, i have introduced legislation that directs the department of defense and home life -- homeland security to study the need for a port. i think we will find from the study whether it is in the strategic interest of the

country to build a port and where it would be located. it would not only served our military and coast guard needs, but as we develop and seymour shipping, a deep-water port could provide valuable support. the coast guard has also embarked on a high-lead to a study to determine what and the structure they might need to be prepared for a ice-diminished arctic. it is finally determine what the needs are and actively work to provide those resources. i have stated, and i know many of you in the room have heard this, i think we are at a critical time. there seems to be a couple of paths we can take in regards to international relations. one is a pack of competition and

conflict, and the other is of cooperation and diplomacy. the decision on which path we take will require dynamic leadership. one of the first areas we need that leadership is in the united states and the senate ratification of the convention of the law of the sea treaty. i think it is crucial for the united states to be party to this treaty, and be a player in the process, rather than an outsider hoping our interests are protected. access to the convention would give current and future administrations and has credibility and leverage. given the support for the treaty by arctic nations, and then try to develop natural resources, the treaty will also provide the environmental framework to develop these resources while minimizing the environmental

impact. the united states is the only arctic state that is not a party to the law of the sea convention. we have not exceeded to it yet. both canada and denmark joined the treaty. there are some of that do not see the point in joining the rest of the world in ratifying the treaty. they say the u.s. already enjoys the benefits of the treaty, even though we are not a member. by not becoming, a party to the treaty, we can somehow choose which action to abide by. i disagree. i believe strongly that the united states must ratify the treaty. we are at a stalemate. the white house is looking to the senate. the senate is waiting for stronger support from the administration. in part, perhaps the senate

calendar is to blame. it is anticipated that should it be moved to the senate floor, it would consume some time. considering we have less then 40 legislative days before the august recess, it is highly uncertain that such time will be carved out, unless it becomes a priority for the administration. given that the president hotel focus onpresident's the dance in the start treaty, i see less of no activity this year. i will not say it is impossible, but i will say it is unlikely. failure to ratify continues to keep the united states at a disadvantage without a seat at the table. until the united states exceeds to the treaty, it cannot summon that data.

without a committee recommendation regarding this data, the legal foundation is much less certain than if we were in a party to the treaty. according to the u.s. arctic research commission, is to u.s. were to become a part of the treaty, we could lay claim to an area in the arctic about four hard 50,000 square kilometers, approximately the size of california. while the united states has not ratified the treaty, which continue to map our extended continental shelves. we have been working cooperatively with canada. we are scheduled to work again this coming summer. the ice-breaker completed the second summer of joint mapping with the canadian 40-breaker.

each ship has its own equipment. combining the efforts provides better debt and covers more area. canada is expected to make a submission to the commission in december of 2013, so as to meet its deadline under the law of the sea green united states will not be able to submit its claim, until we ratified. -- sea. the united states will not be able to submit its claim until we are gratified.3 be waking up to the fact that we are an arctic nation with responsibilities and obligations. i am confident that with growing leadership in the congress, reit administration, and the arctic community at large, we can continue to highlight the

strategic importance of the arctic for the united states paired with that, i thank you for your attention. [applause] >> senator, thank you for joining us. it really is, no pun intended a breath of fresh air to hear your he is on this issue. -- to hear your views on this issue. with talk about national security, financial security, and the varied interests that as a citizen i have for our country. you are a strong voice as a proponent for ratification of the street. what do you feel would be the most persuasive messages to get

to senate so that this treaty can be confirmed? >> there are several messages that i think need to be conveyed. i am not point to tell you anything new. -- i am not going to tell you anything new. i will repeat the strength of what we have in this argument. when it comes to being a participant, when we talk about our ability as an arctic nation to allow for an extension to our area in the outer continental shelf -- the only way we can do it is by being participants. one we are talking about environmental issues, we need to recognize that the treaty that will govern the arctic nations is that of the law of the sea. that was set forth a couple of

years ago. there is no need for an additional treaty. when we are talking about the additional, stopped-up activity in the arctic, i think it is an imperative. what i am speaking from an arctic position. from my national security perspective, there are many reasons. from the arctic perspective, we're talking about and fireman's, the safety of maritime activity, the bad element of resources and really being able to define -- and the development of resources, and be able to define where they are, i think it is imperative that we step forward with ratification. i have a purchase many of you to not let down in your advocacy on this issue. i know it can be somewhat

discouraging when you do not see it being considered on the floor. we are obviously dealing with many issues right now in the senate. i think it is important that members of the senate realize that this issue does not go away, and, in fact, it becomes more imperative as we see an area in the arctic that is ever expanding and truly evil in at this time. keep up the advocacy. -- that is truly expanding at this time. keep up the advocacy. >> anything else? >> one of the challenges of having this brought -- what are the challenges of having this brought to the floor in a lame- duck session after the november election? >> i do not know. i wish i had a crystal ball. anything is possible, but i will

tell you that it will take a really firm commitment from the administration, saying this is a priority for us. at this point in time, i sent -- as i said, there is a stalemate. neither side is prepared to take the first step yet. it is not for lack of commitment in the senate from the chairmen and ranking member on the foreign relations committee chairman john kerry and ranking member dick lugar are both very committed in their efforts on this issue. i do not mean to speak for them. my conversations, they have been strong advocates. it really does come down to making it a priority within the

administration, and we, in the senate, then, finding and making that time on the senate calendar for the debate that will ensue. over in the corner? >> senator, we appreciate your eloquence and your strong advocacy for the arctic issues and for the law of the sea convention. i work for the coast guard. we have an appreciative for college you have done. i have a question in terms of the practicality in terms of dealing with the negativity. what do you say to someone who writes to you and says this is giving the united nations the ability to control 70% of the world's surface or that it will permit the united nations to attack u.s. companies?

obviously, it is completely false, but there are police that are held by some. i know former governor sarah palin has supported the convention, but i know there must be people in alaska that say you are giving away the store. >> there are those, and they're not just in alaska. there is a group of folks, a whole lot of people who have their objections to the ratification of the convention of the law of the sea. what i remind people is that i realize they are operating awful old information. old information from ronald reagan days. it is important that they fully understand what it is we will have in front of us. the issue of taxation by the u.n., we realize that is not

correct. the mass need to be dispelled, and the old history needs to be updated. i think that is very important. again, i think we need to remind individuals that have opposition that the arctic that we are seeing the ball today is different -- that we are seeing evolves today is different than it was during the reagan years. commandants allen has stated many times that we have more ocean out there that he is in charge of. that is a fact. as we put it in those terms, we recognize we are an arctic nation with obligations and responsibilities, and i think it is important that we convey the

full, current, updated facts as it relates to what exactly we are talking about with ratification to the law of the sea, and, again, dealing with an area that was only dreamed about being explored. the thought that we would have cruise ships steaming through the community is something that i never thought i would see in my lifetime. we are there now. so much of it is updating what, unfortunately, is old information. >> back to oil exploration, how, if at all, to you think the current fiasco in the gulf of mexico effects the enthusiasm of a drilling on the north slope? i used to deal with the eskimos.

my concern is with the pact goes system -- with the ecosystem. how do you think what as happened in the gulf of mexico will affect prospects going forward for to and on the north side -- the north slope? >> i believe what we are seeing in the gulf and pacts not only drilling activity in the gulf of mexico, close in and deepwater, but i think it impacts the opportunity for offshore throughout the country. i think it will have an impact on development of our energy policy. i would like to thank, and i think i stated clearly, i would like to think that as a consequence of this tragedy that we are seeing unfold in the

golf, we will learn what has happened, but we will be thoughtful and considerate yen how we go forward, in doing so in a manner that does not reactionary. there is a lot of emotion that is attached to this disaster. 11 lives were lost. the environmental damage that we anticipate is on known. -- is not known. there is a great deal of uncertainty and anxiety out there. as an alaskan that has lived through a great tragedy with the exxon valdez oil spill, we know it all too well. i do believe, bell, -- though, that we recognize that with exploration and activity there will be risks. how can we work to minimize the risk?

right now there is an impulse, i will not save him pause. i think it is more considered and that. it was a pro. the secretary put on cause -- i think it is appropriate that the secretary put on pause. i am hopeful that the secretary and the president will look at the differences that you have when you are exploring 5,000 feet below the water's surface. surface aser's opposed to what we would be doing in the arctic. we are looking, in the chukchi sea, an area that is about 200 feet. the areas are entirely

different. when i compared the oil spill in the gulf to the exxon valdez, buy list called it is more comparable to apollo 13. -- if i was told it is more comparable to apollo 13. for us to understand what is going on, we may has well have been on the moon. where we will be operating is in shallow enough waters that you can send a man down there to deal with, to check out, to inspect. i think it is appropriate to note that after the spill, shell, in their efforts to gain final approval to proceed up in the chukchi went beyond a

critical plan that they proposed. they went beyond what was proposed in their apartment and have put in place additional measures that they have identified in light of what they are seeing go on in the gulf of mexico. they have well-control enhancements. they are evaluating the risks and benefits of additional rams. you have a greater redundancy. a system called a remote hot- stamp system. redundancies' yen all aspects of the -- redundancies' in all aspects, having a copper dome, they have looked at what is going on and said okay we are

going to be operating in an area that is remote. we are a long way from the assets that you see more readily deployable in the gulf. how can we be prepared? if we were in the situation, how would we respond? they have gone ahead and put in place these measures. as i mentioned, there is probably not a permit under way for exploration drilling offshore it in this nation that has met with more rigorous scrutiny over years. shell has been under way with this project for about three years now, and have gone through as many courts as you and i would ever want to.

the environmental reviews that have preceded it, in terms of level of scrutiny, one of the big issues is was enough attention being paid? was there technological failure and failure on the enforcement end of it? we need to know for sure that we are not opening the doors were something like that in alaska. as an alaskan, and someone who believes we can develop our resources, but demands it can be done in a way that is accountable, we will not accept a level of risk that is not tolerable. hopefully there will be lessons learned and done so in a positive way. i do believe that the tragedy we are seeing in the gulf of mexico will infect our energy policies

going forward. -- will develop our energy policies going forward. [unintelligible] >> he was a representative of the administration put the task force that did all of the work, the background, and the negotiation of the treaty. we have a legacy of an alaskan, who did a job in the background of this treaty. thank you very much. >> i look forward to working with all of you. thank you very much. [applause]

[captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> we will hit back live to the press club for the final panel on this discussion. senator murkowski spoke of a law of the sea convention. the next panel said u.s.

interest in that upcoming treaty. that is set to get underway shortly. in the meantime, part of this morning's ""washington journal"." a rocket launch. -- rocky large.

we want to hear from you now on rand paul. linda, democrat. hi. caller: my opinion on mr. paul is a bad -- that for about 18 months we had to watch the tea rty come out. as a military mom, when this first part of happening in august i would talk to my daughter in afghanistan and then i would watch the news with tea party years with a racist signs and disrespect. for me as a military mom -- i'm a person of color. we have had slavery for 400 years and now to have the t -- tea partieers saying they are not racist, i could smell the

stench. mr. paul is deeply imbedded in the so-called movement. host: detroit, independent line. caller: yes. rand paul, it is ironic that his first name is rand like ayn rand, the noted libertarian. the political small in our ciety is -- smog is racism and the tea party is just an offshoot of the republican rty that over the years has been a racist party. number one, when of ronald reagan ranor president he opened up down south when there was a major racial incident in the 1960's. when they speak of small government they are speaking of cutting out the advantages

government has given to the majority ofhe society but when it becomes available to the minorities and then the government is too big. and they had nothing to say when the republicans was i office and led to the major problems we are facing now on wall street, namely the bill that they wrote during t end of bill clinton's administration when they allowed all of this securities types of activities going on. host: terry, weill and your comments there. we appreciate it. back to the political article.

next call is lake geneva, washington, tom on our republican line. what you think iran paul's,? caller: why are you going after ran the ball this morning and not mr. blumen bought of connecticut -- whitey going after rand hall this morning and not mr. blumenthal? why is it what you are on you always attack republics? are you that much in the back of the obama administration? what is your story? tell our audience, your audience, why you are so anti republican? whenever you host the show you bring the top backs up against republicans and you ner bring them up against democrats. why is that? host: manhattan, gregg, a democrat. what do you think abouthe grand -- rand paul remarks. caller: it goes back to his

father who i sort of had an interest in. i'm a person of color, also a native american. but goinback to his fatr who aligns himself with the idea of older goldwater. rand paul stands up and tells the count he has no current -- problem with a private business telling you whether you are jewish, italian, male female, that i am not serving you. it has nothing to do with black people in genel. when we talk about civil rights, it is not just a black folks but of every american in this country. so, as c-span and other media stands up and endorses and publicizes the tea party for the past three months, which is ok, because they are part of the country, too, we have to have a fair and balanced attitude

toward -- to the fellow who says that c-span picks and chooses to get going to be up based on the host, it is not true. we all can complain about them. the idea is, how we discuss the topics and comes up with the conclusion that is best for the country? host: this is from "roll call." rnd paul and civil rights, milwaukee, myron, independent line. caller: i would like to say that his true colors are coming out and apple does not fall too far. i agree with the last caller, rolling back what has been a

historic monumental movement through civil rights and as a private businesses can discriminate, what is left other than taking economics a sit -- sanctis against the businesses and then it creates a fireball that this country should not go through. i believe that rand paul basically put his foot in his mouth and it will be something that sticks with him. host: do you think people should be allowed to privately and freely associate with whom they want? callerthis country was built on free speech. we may not agree with that but it was built on free speech. so, i have a choice that if someone is going to discriminate against me than my decision is to take economic sanctions and not spend my money or patronage that business. host: what did you do in milwaukee? caller: i am a personal trainer, also of african-erican descent but i also work with a broad variety of culture is. host: thank you for calling in did charlie on the republican line from fort wayne, indiana.

caller: this is all just a little bit more smoke street -- smoke screen to try to dirty up a republican. you have obama, since he has hit rough water, wilpull out the race card. it is inevitable. he sat there and said he will bring the country together and the only thing he has done is to or it apart and poured gas on the fire. host: since you are from fort wayne, can you ask -- i ask about your congressman? caller: disgraceful. he knew it before the primaries and should have bowed out and let the people in the primaries fight for that seat. it is a disgrace. host: did you vote for him in the primary? caller: know, mike pence is my congressman, sir. host: all right, thanks. texas, lela, democrat, what do you think about rand paul? caller: first all, good morning, thank you for c-span

and i watch you all the time did definitely i think the republicans would >> where to lead this recorded segment and take you back to the discussion on oceans law and policy from the national press club. the discussion is just resuming. >> hi will spare you the onerous burden -- i will spare you the onerous burden. i am delighted to be here, and very, very delighted that we have two excellent representatives to deal with this problem. steven groves is a fellow at the heritage foundation where he focuses on international law. before that, he was senior counsel on investigations and he played a lead role in the oil- for-food scandal. i am in -- i am delighted he is

here today and not engaged in that job because i have some history on that issue neither steven nor his staff found the time to interview me. a very short conversation. john norton moore is very known to you as well. he represented the national security council committee on the subject. he has maintained a very strong interest on the law of the sea treaty, and has been one of the primary progenitors of early ratification. your success is not measured in timeliness, but in persistence, if i can say it that way. we will hear from each of them for all little over 20 minutes. then, they will respond for a little over eight minutes. i will keep the watch.

yours truly will have a chance to ask a question or two. then, we will open the floor to you to ask questions. thank you for being here. i look forward to what we will hear today. the strength and the importance of this debate, as we all look ahead in great anticipation to this question coming before the senate once again. thank you very much. >> ambassador thomas pickering, steven groves, and ladies and gentlemen, my opening remarks will be in three parts. first, the background and the importance of the law of the sea convention for the united states. second, while the arguments of the opponents, though well- meaning, are simply misinformed.

third, something about the very real, ongoing costs for the failure to move forward to that here promptly to the law of the sea convention. background and the importance of the convention, the united states, and early -- during the early 1960's, was a party to four geneva conntions. during the next few years, we began a process of trying to modernize the law of the sea as a result of a number of critical problems facing the united states and the world. the first of those was a threat to navigational freedom, including warship mobility, and the mobility of commercial ships around the world as a result of illegal, unilateral coastal plains in the world's oceans.

the second, related to have the over-fishing by foreign fleets, attacking the fish stocks off of the coast of the united states, and severely harm in those stocks. in addition to that, we now understood that we needed for the first time a serious set of provisions dealing with protection of the marina environment. in addition to that, the united states had understood, as have other nations, that there were now resources in the deep ocean floor that were attractive copper, nickel, cobalt, and manganese, and we needed stabbe property rights for the u.s. industry to go out and mind those sites. a site is something about the size of the state of rhode island.

beyond this -- since this is beyond areas of national jurisdiction, you have a problem trying to create property rights without trying to inhibit the navigational freedom or other freedoms in the world's oceans. that resulted in a decade-long effort and negotiation that was very successful on the part of the united states and other countries, leading to the 1982 convention on the law of the sea. that was extremely favorable to all of the interests that we have just talked about, with one exception at that time, which was the issue of be-sea mining. at that time, the result was not acceptable to the united states. as one who have prepared the instructions for the u.s. in these negotiations, but was then outside of the government, i sent a letter to president

reagan saying that i think there are a series of changes that need to be made before the united states should go forward. i am delighted to say that ronald reagan did a thorough review and came out of that review of agreeing exactly as i did, that there were six changes that needed to be made in the deep sea bed mining area, but only in that area, and the rest of the treaty was in the interest of the united states of america. president reagan put out a press statement indicating that there were six changes that needed to be made. happily, over a period of some years, although it only took until 1994, there was a successful negotiation that resulted in achieving all of the ronald reagan additions and some other excellent things we have not thought about at that time.

the result, this convention, as it was renegotiated in 1994, became an extremely important interest to the united states of america, and it included very favorable provisions. first, is included a 200 mile exclusive economic zone that we would have control over the economic activities, predictive of fisheries of that area, and it included control over the extent continental shelf of the united states, in areas, for example, off of alaska, that probably got off into 600 nautical miles. that indeed was the largest economic zone and extend the continental shelf given to any nation in the world. you would think that from that alone, the united states would

be the first to be adhering to this convention. in addition to that, we achieved all of the defense goals of the united states. i've worked very closely with the office of the chairman of the joint chiefs of staff. we met all of our very important-tourists -- interests for the nation. in addition, we got the four best mining sites for deep sea bed mining. we had an excellent environmentaa chapter that really reflected many of the environmental laws already put in place by the united states for the oceans at that time. we increased the protection for critical infrastructure and we had a powerful precedent for international organizations, in

which the united states of america was singled out to be given a permanent seat on the international council of authority that would deal with mining and create property rights, and we would have a veto over a number of issues. in addition, there is no united states oceans, foreign policy, or security interest that is better off without the treaty then it is with the treaty. that is something highly unusual. usually, there are trade-offs. in this case, there were no trade-offs of the united states'interests. all are served by the convention. not surprisingly, there is a powerful base of support to move forward. it includes all presidents of

the united states of both parties since the renegotiation of 1994. it includes all living chiefs of naval operations, all living commandants of the naval guard, all living secretaries of state of the united states, green states chamber of commerce, the secretary of homeland security, the ocean industries association, the oil and gas industry, the environmental , unanimously supported by the united states oceans policy commission, a bipartisan group appointed by congress and the president to look at u.s. oceans policy, and, i am delighted to say, a very fine letter from the then-and governor sarah palin on the letterhead of the national governors' association supported

the treaty on behalf of the national governors' association. u.s., then why has the treating not been approved -- you ask, then, why has the tree not been approved one there is overwhelming support? i am sorry to say that there has been a handful of, i think, well-meeting, but nevertheless misinformed critics of the convention. let me give you someone else to bellevue. this is -- else's is you. this is a statement from president bush's head of the homeland security department. he says "let me briefly of knowledge that there is a small group of strident opponents that have raised a number of badly flawed criticisms of the

conventions." i believe he was right. let me give you examples there not just wrong, they are upside- down. my opponent, steven groves, argues that it will undermine united states sovereignty. false. there is not an ounce of american sovereignty lost by this convention. not an ounce. to the contrary, there is the largest expansion of resource jurisdiction in the history of the nation. it is larger than the louisiana purchase and the acquisition of alaska combined. in addition to that, we secured very strong support for the protectioo of sovereignty for united states were ships and vessels on the high seas.

in addition to that, my opponent and those that make this argument ought to go back and look at the united states foreign relations law and understand that under classic supreme court precedent, a treaty can never removed an ounce of sovereignty of the united states of america, and you can never violate the constitution or remove the ability of the commerce of the united states to override or have a new policy. we do not use an ounce of sovereignty, while massively gaining this huge additional area. my opponent argues that the convention will create "a new international bureaucracy with the power to govern the oceans. it awards effective control of 70% of earth and those services

to international treaty organization." wrong. the only authority that is created it is the new international seabed authority, which has a very small area of jurisdiction. it solely deals with property rights and the mining of resources from the deep ocean floor beyond natural jurisdiction, beyond the expanded areas of coastal state jurisdiction. there is no other jurisdiction, no other issue dealt with by this authority. they are strongly in the interest of the united states. we needed stable property rights -- a very conservative concept -- in order to go out there and have the resources necessary to move forward and develop one of these sites.

in addition to that, this is a very ordinary sized operation. we are a party to many different international organizations. this one is comparable to the great lakes fishery commission between the united states and canada that engages in another functional, small operation. after 25 years of operation, it has a staff of 40, including the secretaries and drivers, and a tiny budget of about $6 million for the entire agency. i do not believe, steven groves, that this is about to take over planet earth. an interesting contrast might be with the heritage foundation in itself, which you are from. it turns out that the heritage foundation has a number of employees that are approximately 10 times larger than the authority, and a budget

that is approximately 10 times larger. mr. steven groves argues that ronald reagan would have opposed the treaty even as it was renegotiated. again, wronged. i participated very closely watching this operation. one of my students chaired the task force for ronald reagan. he had a thorough review and came out saying we needed only the six changes. all of those six and more were achieved in these fundamental reagan amendments. in addition to that, in 1983, ronald reagan later issued a very important order that we are still falling, the navy still follows, and the rest of the united states government, that all of the other traditional, that is the non-seabed aspects of this treaty, were things the that states would comply with

and move forward. that is our living indication of some one objecting. do not take my word for it. let's look at the secretary of state for ronald reagan. here is what he has to say. o call it surprises me to learn that opponents of the treaty are invoking president reagan's name, arguing that he would have opposed. during his administration, with full support from president reagan, we made it clear that we would support ratification if our positions on the seaboard issues were accepted." my opponent argues that "american participation will undermine the united states military operations." here, ladies and gentlemen, one might ask some questions about

mr. steven groves military credentials. as he stands on this position, and opposition to all living former chiefs, all of the four commandants of the coast guard, the head of homeland security, virtually all of the secretaries of state, and many secretaries of defense and heads of the cia. i think you have quite an explanation, mr. steven groves, indicate why you are right and that collective group is all wrong. further, let me give you one of the specifics of the kinds of arguments that i believe i can probably you -- probably use the term on informed. he argues that "u.s. submarines will be required to transit on

the surface and show their flags while in the territorial sea caracol the problem with that -- si." the problem with that, is that this has already been binding on the united states and has been since 1958. in addition to that, i think steven groves fails to understand that all law of the sea operates reciprocally, and we are not eager to see no. 3 and or iranian -- no. 3 in the or iranian ships off of the ghost -- off of the coast of san diego. finally, one of the reasons for the convention was to make sure that issue was done away with. we were quite successful in doing that.

sadly, these kinds of misinformed arguments, and there are many others, have not been just of academic interest, but they have done a real damage to the national security of the united states of america, and every day that we do not move forward is continuing that damage to our national security and economic interests. however well-meaning these opponents are, and i believe they are, many are my very good friends, they are absolutely wrong on the national security, and they are harming this nation, and this is an important security and economic issue. what are the specifics? first, they basically, by keeping us out side of the treaty, the army nations such as iran and syria to be able to make arguments opposed to the legality of u.s. actions that are critical, such as going

through the strait of four months. .. . >> to have these thrown at us is extremely harmful. there is a potential for using our seabed sides of would not move forward. we've already lost one that has been given away to the germans. we have been placed in a setting in which we are about ready to have a very substantial delay in moving forward on the limitation of our extended continental shelf, something that senator rakowski was just talking to the group about. -- senator murkowski was just talking to the group about. we have not participated, except as an observer, in the meeting of parties every year.

we do not have the united states national and representative -- nunited states national representative on any of those tribunals. that has had significant cost. let me give you one. by not having a partisan bent on the continental shelf commission, we have never had -- a participant on the continental shelf commission, we have never had the ability to block, for example, some kind of effort to transfer funds to the national liberation groups. if we were on the council, we would have a veto in that setting. let me conclude on this by way of summarizing some of the harm to the united states if one were to support my opponent's position.

supporting my opponent's position is something you should do if you favor a gradual loss of united states sovereign rights over naval and commercial navigation on the world's oceans. you should support my opponent's position if you believe the united states should substitute the lives of servicemen and service women for the stability of rule all. you should support my opponent's position if, at the time of high oil prices, you want to delay development of the oil and gas on the continental margin beyond 200 miles with its associated jobs in the united states. you should support my opponent's position if you want to kill the united states seabed mining industries, lose u.s. mining sites stay out as the best in the world, and prevent the development of seabed mining jobs in the united states. you should support my opponent's position if you do not want united states to participate in

assessing continental margin claims, such as that of russia in the arctic ocean. you should support my opponent's position if you believe that it is wrong for the commission to confirm for the united states or the convention the most extensive economic zone and extended continental shelf in the world. you should support my opponent's position if you oppose stable expectations and the rule of law in the world's oceans. should support my opponent's position if you believe that the united states should have a diminished voice in protecting our oceans interests worldwide. finally, you should protect -- to support my opponent's position if you believe that advice from non-experts on ocean security and military issues are more reliable than that from the joint chiefs of staff, the navy navy,ent's -- the presidents of both parties, and

other commissions that have been established on this policy. thank you. [applause] >> thank you. >> thank you. thank you, ambassador, for inviting me to this debate today. congratulations on putting together another successful and informative conference. i have enjoyed it very much. it is ed pastor -- it is admittedly daunting, after listening to two days of panel's about the reasons to favor accession to the treaty, to come in and make arguments in opposition to it. it is this -- it is especially daunting to debate you about this. i would try to come up with and it and now to that would encapsulate that burden.

debating you about law of the sea treaty is like debating somebody about the meaning of the bible who was at the council of nicaea. [laughter] let me make a concession straightaway. if i have sufficiently lowered expectations. [laughter] i do not have a problem, and i do not believe conservatives have a problem with the provisions that the navy is in favor of. it has come as no surprise that the heritage foundation rarely disagrees with the military or the navy. when it says repeatedly and forcefully that it needs something to better its operations. in the particular provisions that the navy favors, they are unobjectionable. those are the important provisions relating to freedom of navigation, transit rights, transit rights through straits an arch of melodic -- and are to allo -- aad are a lot go -- and

archipelagic waters. if there were a way to support these, i think we should do that. to me, the freedom of navigation provisions are the proverbial baby in the bath water. if the u.s. senate could somehow managed to save that baby while tossing out some of the bathwater, i think there would be a way to ratify or accede to this treaty. before i go into one of those bathwater provisions, i would like to first note that the argument in favor of the freedom of navigation provisions is not airtight. that is to say, while the navy contends that its operations would be greatly aided if the u.s. exceeded, there is evidence that when push comes to shove on the high seas, figuratively and literally, those conflicts are ultimately settled not by signing a pretty -- signing a

treaty provisions. there settled by naval power -- they are settled by naval power or bilateral moves. this gets me to my first point. there is no guarantee that u.s. interest will be advanced by acceding to the treaty. that is because of the unreliability of the prospective partners. the united states is faced with a situation where part of its calculus as to whether it should accede to the treaty is concerned about the reliability of its prospective treaty partners. like every treaty, the u.s. must consider whether its treaty partners are going to hold off -- hold up their end of the bargain. the unreliability of them is common as well, and other agreements pierluisi get all of the time. this is only one of a dozen or more treaties that i am responsible for. -- to the unreliability of treaty partners as common as

well, and we see it all of the time. in the case of the new s.t.a.r.t. treaty that we recently signed with russia, where they are going to claim that they have a great deal of say over our missile defense programs. when you have unreliable partners, you do not really have a treaty. when the ratified a treaty, but have no intention of adhering to it, you have a big problem, just like when you enter a contract with someone who does not intend it to perform their end of the deal. that is the case, in my opinion, with this treaty, unfortunately. we see this not your argument or panel discussions, but with the evidence that we see on the high seas with are unreliable treaty partners -- unreliable prospective treaty partners, i should say. after all, if the members strictly followed the terms of the treaty, the navy would have no need to prosecute its freedom

of navigation program, which has come up a couple of times over the past couple of days. the program was established in 1979, but is still utilized today, in order to protest excessive coastal plains through diplomatic channels and to exercise navigation rights in disputed areas. in the fiscal year 2007 alone, the u.s. conducted freedom of navigation challenges -- i think they were called "fun challenges" -- against china, indonesia, the maldives, the philippines -- all of whom are party to this treaty. since it was brought into force, the u.s. has conducted hundreds of these freedom of navigation operations against scores of nations that are parties to the treaty. in short, a significant number of current treaty members assert

claims that already violate the treaty's terms. you have to internalize this as part of your top u.s. of whether a treeuld come into where the members who have ratified it as part of their law, they already do not and never intended to when the signed or ratified the treaty today are not doing it now appeared to have to ask your -- they're not doing it now. you have to ask yourself if you want to be part of that treaty. violation of their treaty. others make excessive claims regarding the breath of their territorial waters. -- the bread to -- the breadth of their territorial waters. it is bad enough that the navy has to regularly conduct these freedom of navigation operations

for the purpose of disputing these excessive claims. it is even more problematic that when navy vessels are confronted with hostility on the high seas, in the name of this treaty. i speak in reference to china, which last year in cited more than one confrontation with the u.s. in international waters. -- which last year in cited -- incited more than one confrontation with the u.s. in international waters. this is not one of the navy's standards freedom of navigation operations. this is the navy conducting military surveillance against china. they are the rising military power in the east. they have a growing navy and a growing submarine fleet, including nuclear subs. our ships were in the south china sea to monitor the comings

and goings of these subs from their new base. the ships were not right off the coast of china or in china's territorial sea. it was fully 75 miles off of china's territorial area. the other one was a well outside of china's territorial waters as well. prior to the existence of this treaty, these actions would have been called what they are -- naked aggression against unarmed, u.s. navy ships operattng in international waters. now, those waters have been muddied. the chinese use those provisions as diplomatic cover for their aggression. they are behaving in the same way towards our close allies, japan, in the east china sea. the treaty has been touted as the treaty that will draw the lines in the ocean and define

the rights of coastal states. it will be used to resolve these disputes on the high seas. but the treaty, as i have said, is only as good as its membership. that must go into your population about whether the u.s. should accede. for better or worse, naval power will prevailed. it will not be a treaty on language. the best offense is that after the incident with the impeccable, the uss -- another u.s. destroyer was dispatched to serve as an escort for the surveillance mission. it is legitimate to question, in my opinion, whether the existence of this treaty, or u.s. membership in it, would really simplify things for our navy. the ambassador is correct. i am not an admiral. but i have a brain. logic dictates that you enter

into a treaty with other countries who intend to live and to -- live up to its terms. i do not think that is too much to ask, especially when it is black and white. yet china has no intention of doing so. all of these countries that we do these freedom of navigation flights against, they do not intend to and they never did. the u.s. meets its treaty obligations, for the most part, better than most countries in the world. the parties in a room where going to ensconce ourselves -- the parties with whom we're going to ensconce ourselves do not have the same respect for the treaty. you have to assess the actual blowback from that. we cannot argue this treaty in a vacuum. this has been fun, but the reality of what happens out on the high seas is different from what it says in the basic terms of the treaty. i want to give at roles in the navy operations -- i want to

give the admirals in the navy operations support, but i'm not sure this does it. i like to address one of the bath water provisions. my favorite one is article 82. more than one panelist yesterday -- and a couple of people today -- spoke pretty derisively or dismissively about the concept of sovereignty. i heard something along the lines of, i am tired of hearing about that issue. you are entitled to your opinion, of course. but if your goal is to convince skeptical conservative senators about the benefits of this treaty, i submit that is not the best way to do it. conservatives and conservative senators, and a lot of average americans, care about the idea of sovereignty. it is important to them. you even hear of the tea party talking about sovereignty.

the bath water provision i would like to touch on remains -- the bathwater provision i would like to touch on is article 82. this is problematic. i am not saying it is fatal. i am not saying that this would be the end of the world if we ratified a treaty with this provision. but as proponents and fans of the treaty, you have to have a better answer to this. if you want to convince conservatives, you better come up with something better than you are wearing tinfoil hats and flying around in black helicopters. that is not going to cut it. this article is problematic because it changes the status quo. -- the status quo regarding the continental shelf. it is up to the proponents of the treaty to convince people that article 82 improves the status quo. the burden is on you. the status quo exists and it is your job to convince senators or conservatives that this

benefits the united states and its interests. that is your burden, not mine. article 82 is problematic because, currently, the united states has full and unqualified sovereign rights and exclusive jurisdiction over its own continental shelf. most importantly for the purpose of exploiting its natural resources, including crucial commodities such as oil and natural gas. which should not sign a treaty and be part of an international -- we should not sign a treaty and be part of an international treaty. president truman signed a proclamation 2667 exercising jurisdiction and control over the natural resources of the continental shelf. that was later codified by congress and signed into law. this is the traditional manner in which the government exerts

sovereignty over its land and property. they declared that the united states continental shelf and all of its resources belonged to the united states, without qualification and without exception. that is how a sovereign nation should behave. this is our property, not yours. it is not a united nations commission who will have final say about the extent of our continental shelf, or whether any revenues that are generated from our continental shelf are going to be distributed. our president, congress, and the american people are aware sovereignty resides. accession to the treaty will change the status quo. it would place conditions as to how the u.s. may use its own continental shelf. it places certain commercial conditions -- conditions on surge in commercial activities on the shelf beyond the 200- nautical mile mark.

specifically, it would require the united states to make royalty payments for the exploitation of mineral resources on the ecs -- up to 7% of the value of the production of resources would be paid by the united states to the international seabed authority, which would then redistribute the funds to other members of the treaty, particularly to developing countries and landlocked nations. landlocked nations have a great deal to say about how the oceans should be regulated. the united states is transferring a portion of its wealth on its own continental shelf, in the form of royalty payments, to an international body and giving them the power to redevelop -- redistribute it to the developing world. who is paying these royalties? some of the oil and gas people here have thought about this question. as it is written, the treaty places the responsibility for payment of these royalties

squarely on the state parties. "the coastal states shall make payments." what is a coastal state? it is all of us and the rest of the american taxpayers that will be required to pay up to 7% of the total value of production on our own continental shelf. i'm not talking about the deep seabed. this is our continental shelf beyond the 200-nautical mile mark. for everyone dollars billion of oil or natural gas recovered on the ecs, american taxpayers will be responsible for st. -- for .aying up to $7 million to t you saw on the brochure -- those areas are our extended continental shelf. it is twice the size of

california. that is quite a bit of land. -- subsea land, and there could be quite a bit of oil and natural gas on that land. it may be even larger than that according to the state department website on the ecs. we could be talking about real money here. up to $70 million for every $1 billion for american taxpayers. how will that money be spent? to which developing or landlocked nations will it be transferred? would the u.s. seat on the finance committee guarantee that the u.s. will be able to direct all of the royalty payments as it sees fit? these are legitimate questions. you should be asking yourself this if you are going to convince me and other conservatives that this is in our best interests. who is to say that royalties will not be transferred to counties -- to countries that

are hostile to united states? for example, cuba, which is considered a state sponsor of terror, and sedan, which is the genocidal regime -- and sudan, which is considered a genocidal regime. these are both developing nations. will the money be spent with transparency and accountability? for better or worse, many parties to this treaty have a long history of corruption and misuse of developing funds. it is all too common. you need only look at particular problems like in north korea, gambia, thailand, and burma, four recent examples. gambia and burma are both parties to the treaty. there are some of the most corrupt nations in the planet -- on the planet, including chad, somalia, and others who are at the bottom of transparency

international's annual index. this article poses a problem for proponents. not to explain to average americans and averaged senators, for that -- you have to explain to average americans and senators whyr's -- we should pay others for the activity occurring on our own continental shelf. in some treaties, you can keep the baby and throw out the bathwater. but with the law of the sea, i do not believe that the u.s. would be able to enter the reservations necessary to keep just the baby, without violating the object and purpose of the treaty. just like any other treaty that we assess, we need to do a cost- benefit analysis. does accession advance u.s. national interest? if so, at what cost?

the ambassador maintains that the cost-benefit analysis weighs heavily and irrefutably in favor of a session -- of accession. i think that is why we are debating here today. thank you. i look forward to raising some other points during my rebuttal. [applause] >> thank you, steven. >> thank you. thank you for coming here. i have offered to return this to any group of his choosing that he would like me to go and address. i would be eager to take the message of the right answer to this issue to that group. [laughter] i was very pleased that you said the navigational and defense issues -- that the navy believes are extremely critical to united states -- for good -- were good,

and you wish there was an easy way to get that. but there is. on this, i would like to start with a classic story about the importance of not overlooking the obvious. i am afraid you are overlooking the obvious here. that was a story with sherlock holmes and dr. watson, who went camping in a tent one evening under the stars. in the middle of the night, hol mes nudges watson. look at those stars. what do you deduce? watson -- there are millions of stars. there must be life on other planets. holmes -- watson, you idiot. someone stole our tent. [laughter] by the way, very briefly, you

did not make any kind of case as to what your argument about article 82 offsets, even if we accepted all that, which i do not, but if we expected that, why that offsets everything else and all the important security and economic interests of the united states of america. let me turn to article 82. the second argument -- you have only made two arguments. one is that there are bad members who are in violation. let's start with article 82. the problem with your starting premise is that you assume that united states had the continental shelf in that area. it did not. under the 1958 conventions, it goes out to the 200-mark, and then there is a very vague standard. the question in the international negotiations was, what is going to be the outer limit for the united states? we knew we had an extremely

broad continental margin, so we wanted to do something that would give us the maximum support for those sovereign rights. we believe in sovereignty. sovereignty is important. this treaty serves sovereignty. why did we do this? this was a small price to pay. 2% to 14% -- 2% to 4% over the life of the well is the final payment, not 7%. that was a small payment in order to get an additional area of the continental shelf and its resources for the united states of america dramatically expanded. we would have areas that were probably the size of two states of california. this is the same kind of bargain as the acquisition of alaska.

it is probably a lot better than that. secondly, you have a question of where do the funds go. maybe they can be given to corrupt nations. i'm so glad you raised that question. that is precisely the point of getting united states on the council of the international seabed authority, where we clearly have a veto over where all of these funds would go. if we do not join the convention and take our seat on the council, the council, when there are such funds, will perhaps be able to send them to some corrupt regimes, but not, emphatically not come if the united states is a member of the council, where it will exercise a clear veto over the question of whether those funds would go. look at this wonderful way to assist the additional aid budget of things that we really believe in and helping developing

countries around the world. not just the 2% to 4% of that would go to it, but the same amount from everybody else's extended continental shelf. we would have the veto in relation to where those funds go. that is only if the united states of america is a part of the treaty. i might also add that this provision -- the industry does pay that. it developed that formula. they are very pleased with that. though you oppose it, the oil and gas industry, which lives under its and is the group that developed it for our delegation, is quite happy with that provision. let's go to the member argument. this is actually a little more extraordinary. there are 159 other members, including the european union, that our party to this treaty at this point.

-- that our party to this treaty at this point. -- that are party to this treaty at this point. because there are some bad actors out there, we should not join this treaty, but he said. that is an argument that the united states should never be able to enter into any international agreements -- because there might be in any kind of multilateral agreement some bad party out there. that is the kind of crippling and isolationist policy that will not be very appealing. in addition, i think it dramatically understates the under -- the importance of the role of law in a treaty like this and understates the effect of this treaty, in which we have seen a pattern of nations that have previously been taking the wrong position now adopting and following the convention precisely because of the

authority of the role of law itself. i might also add that the problems you list, including this very sad example with china, is a very good example of precisely why the navy particularly wants this. that provides an additional argument for the united states. we are correct in that interpretation. in order to go the other way, you have to be assuming that china is correct in their tradition and they are not. i am surprised at the heritage foundation would be taking the position of china in that debate with the united states. this is one in which the majority of the international community is very clear. there is full freedom of intelligence gathering generally in the economic zone. that is an issue, by the way, that is also in the long-term interests of china. through time, china itself will adopt that position, which as been the affected most of the

convention through time. finally, -- which has been the affect of most of the convention through time. finally, the role of law in general -- are we going to say that in any setting in which there are violators, that somehow we should not seek a rule of law? i would like to suggest that, with all due respect, that is a fundamental reason why the rule of law is even more important. thank you. [applause] >> steven groves for eight minutes. >> all right. we covered quite a bit of territory. let me see if i can catch up. first, on article 82. you mentioned the 1958 convention. you accurately portrayed it, but

that convention post-dates the proclamation 2667 and the outer continental shelf lands act. it was vague about the continental margin, as you know. it was not based on measuring the actual end of the continental margin, but of vague and poorly defined definition for the end of the continental margin based on accessibility. while that definition was bad, the controlling definition is the one set by truman and by congress. they made it quite clear. i anticipated your argument. from the truman proclamation, this is how things used to be done to attack the government of the united states regards the natural resources of the subsoil and seabed of the convent a shelf and the high seas contiguous coasted united states as appertaining to the united states, subject to its

jurisdiction and control." thank you, president truman. congress acted a couple of years later to define the continental shelf. "all submerged lands lying c. ward and outside of the area of land beneath navigable waters as defined in section 13 01, in which the subsoil and seabed appertain to the united states and are subject to its your -- to its jurisdiction and control." i do not find the 1958 convention argument persuasive. it was weak as a definition. more importantly, the provisions that are in the treaty about the continental margin, while interesting, are not the final say over where our continental margin begins and where it ends and who draws those lines and accept them. the best that can be said about

it is that our ought -- are outer continental margin -- our outer continental margin would only allow recognition by the international community. it is not a standard that i am particularly happy with. i think it is up to a navy -- the navy, the congress, the president, and the american people who put them into office, to decide where our continental margins. we do not need to seek the approval of an international organization. we do not need to sign a treaty with chad and somalia and france and denmark. not to have our own continental margin defined. that is up to us. we decided that. it is our continental margin predicted no more define that for us than they could -- it is our continental margin. they could no more define that

for stand they could the boundaries on the moon. -- they could no more define that for us than they could the boundaries on the moon. they could not call the moon or mars the common heritage of all mankind. if we suddenly found a way to get to mars and they have some great new minerals that we could bring back, worth trillions of dollars, would we have to redistribute those funds through some international organization? after all, mars does not belong to the united states. is it not the common heritage of all mankind? it is just as accessible as the deep seabed right now. we have to set up a new international space of 42 distribute these funds from mars to countries that do not have a space program -- set up a new international space of 40 -- -- authority to distribute these

funds from mars to countries that do not have a space program. that is that things that -- those are the types of arguments that you need to bring to conservatives, not that -- we do not have a seat on this international commission, so we cannot define our own continental margin. we do not buy that. senator dan -- senator demint and senator inhofe are not going to buy that. we decide where our land ends and begins. that is up to us. in terms of who pays the article 82 royalty payments, i do hope that there is ultimately an answer tt this. i found out that there were two technical bulletins about this. i went last night to peruse them, hoping to get an ice executive summary or something. each of these technical bulletins is about 85 to 150 pages long.

this is on a single article of the treaty that has over 400 articles. this one article has got two bulletins that you could prop your table up with. they did not shed much light on it, from what i understood. i will tell you what the evidence shows. the treaty says that the state party's will pay these royalties. that is you and me. when president clinton transferred the treaty to the senate for ratification, it also noted an implied that it would be the united states that would be responsible for making the payments, because the administration justified the revenue sharing as modest and part of a package that established with legal certainty the control of the coastal states over the full extent of the geological continental margins. nowhere in that document does

its state or imply that any other entity -- does it state or imply that any other entity is responsible for the royalty payments. some said that will be up to the industry to pay that. is paul here? i sat next to him at lunch. thank you. he testified in 2004 that our understanding is that this royalty should not result in any additional cost to industry. i agree. i do not think is to be an additional cost to the industry or american taxpayers, either. i do not think these royalties should ever be paid, because it is our continental shelf. i am out of time. thank you very much. [applause] >> thank you very much, steve and groves -- steven groves. i will not ask questions of the

panelists before we -- i will now ask questions of the panelists before we open it up to the audience. you have spoken about your support for those provisions of the treaty which affect naval activities. you'll have spoken about your objections to article 82. you have spoken about -- you have spoken about your objections to article 82. what else would you -- this is a debate on the whole agreement. what else would you single out as areas of significant concern to you in the treaty regime? but aside from those that i have talked about, right? -- >> aside from those that i have talked about, right? >> yes. >> personally, i should have noted at the beginning, i do not speak on behalf of the heritage

foundation. these are my personal views. i came to the foundation in 2007 aad inherited this issue, along with all of the papers that had been written about it before i arrived. [laughter] enough said. not a necessarily disagree with anything in the papers, but i have a different approach to this treaty. i think it is very debatable whether the 1994 agreement made improvements -- or made all of the fixes or fix it to the point where conservatives would be satisfied. my approach is more systematic. i made this my primary argument. the treaty can be great. we hold treaties -- the united states holds treaty and there -- treaties and their language to be sacrosanct, like our own law.

we believe in those words and we try to follow them. we're not perfect and nobody is. when we sign onto a tree, we short heck are going up -- from the sign on to a treaty, we are sure as heck going to do our best to live up to it. i'm not just talking about this treaty. there are many other kinds of treeaties. our treaty partners are for the most part on -- when national interests come in line, they are not as ryle liable as we would like them to be. -- they're not as reliable as we would like them to be. so what if we are party to the international commission on civil and political rights. other countries were party to that do not adhere to it. that does not come at any cost to us.

although we are not in favor of how they treat their people, what does that do to the american people or to the american navy? nothing. to become party to this treaty, it is fair to say -- this is something that i challenge anyone to argue with me on this -- it is fair to say that when you enter into a treaty, you should be able to rely on the good faith of your treaty partners. they are big boys and girls. they signed on with their eyes open. they have signed on with no intention of following the treaty. how does that give you any certainty that we are going to be able to rely on these treaty provisions? if we were parties to this, would we not have sent that this story to the south china sea? what would we have done? -- dissent that destroyer -- would we not have sent that

destroyer to the south china sea? what would we have done? it is ridiculous. it comes to the reliability of our treaty partners. it is not there, you have no treaty and no contract. >> thank you very much. i have another question and it is a little bit different. may not be kosher. -- it may not be closer. if you were arguing this issue from the other from-- it maty no -- it may not be kosher. if you were arguing this issue from the other side, what will -- what would be your approach? >> there are none. >> that is not the approach that will win over conservative. >> we have heard from a conservative, and i count myself as conservative as well. we have heard from one particular viewpoint of a

conservative on a series of issues. i will respond to those issues. one of the problems i have with the opposition here, and i think it is sad, because i have great respect for the people making these arguments. today are very well meaning. sadly, they do not know a lot of all of the sea -- of the law of the sea. whether you start with the rebel -- the rebuttal, the language uses -- the language used is about control. what is the area of the united states jurisdiction and control? he also ignores the regulations issued under the proclamation which go out to the 100-fathom curve. we're talking about the area beyond 200 nautical miles. this was a major win for the united states to get this. it was hugely beyond anything they had contemplated at at

point. i would suggest it was an extraordinary bargain to get that area for nothing more than 2% to signs 4% of oil revenues. -- 2% to 4% of oil revenues. the commission has no ability to decide on the outer edges of the margin for the united states or any other country. it is the mechanism in which to submit in order to try to keep the various submissions honest. it is an initiative of the united states because we did not want out-of-control unilateralism in the world's oceans on this. it can only send things back to you, as they have done with the russians and the first arctic one. you have to get to the point

where you basically accepted the issue, except -- you have to get to the point where you basically accept the issue. you are preferred -- your preferred option of simply unilateral claims -- that the united states should be free to unilaterally decide whenever it wants, why not claim an article labelle -- archipelago? why not claim everything for the united states? the law of the sea is reciprocal. it works the other way around. one of our concerns in protecting all of this is to make sure there is a rule of law -- a reasonable rule of law. not only is it reasonable, but the united states of america has the largest area of any nation in the world. we really came out like

gangbusters in this. it seems to me that your last argument is nothing more than a too broad argument against the rule of law itself. there is going to be -- there are going to be violators and bad guys. one of the mechanisms you use to try to control that is the rule of law. >> i'm going to ask the audience to participate. please wait for the microphone. we are on television. i cannot tell you whether it is life or the opposite. but we are on. in any event, please identify yourself by name and association or affiliation. please succinctly state your question. each of the panelists will have a chance to respond, but you may direct your question to one panelist for the first response. mr. williams? >> right here. >> raise your hand so that the

microphone can find your. >> thank you. let me make a comment. i think that you cannot dismiss the claim that there is no sovereignty. every tree is a concession of sovereignty. the question is how -- every treaty is a concession of sovereignty. the question is the quality of that deal. the fact that isa is currently a small bureaucracy, or the fact that the royalties on drilling are not large, is not the issue. the question goes not to the quantity, but the quality. i think you have a couple of things that i fundamentally disagree with. you overlook the fact that it is much better to take diplomatic

and even military action with th e law on your side. it is much better to go to court with the law on your side. what you attribute as intentions to not abide by the law, it is just much better to argue that the offending party is violating the agreement then to face up to the fact that they may be changing customary international law which you have been relying on. my question is, in the article 82 debate, do you know of any companies who are prepared to make an investment in that area on the basis of the truman declaration and the congressional action and the

1958 convention? >> the question was directed to mr. rhodes. -- mr. groves. >> thank you. yes, i agree that it is best to go into something with the law on your side. the problem is that china does not obey the law and has no intention to, despite the fact that they signed onto it. they are the ones who are party to it, not us. when we were not conducting economic activities or doing marine scientific research, but surely surveillance activities, trying to find a clear submarines -- an important mission -- they are the ones who attacked our ships with their fishing boats and with other chinese naval vessels. it is great to go into court with the law on your side, but not if they are the ones who are

not going to obey the law. they're not even in the courthouse. what if it did go to an arbitral panel? what if china decided that it was going to prosecute this case or the u.s. decided that it was foolish enough to try to go into one of these are to panels or the international tribunal on the law of the sea? no offense to anyone who is here from there. we have not fare well in these tribunals in the past. the decisions about the nicaraguan mining case. the decision that led to that case down in texas. we have not faired well. i do not want to resolve this in the courthouse, even with the law on our side. >> [inaudible]

>> i was just extending your analogy. >> i am simply saying it is better to have the law on your side vathan not. >> that is indisputable. we know what the law is, but the chinese are not following it. i do not know of any companies who are willing to go out on theecs based on the -- the ecs based on those proclamations. it is the government's problem. if the u.s. wants those companies out there, give them the assurances that they need. we're still the u.s. government pitt is still our extended continental shelf. -- we're still views -- we're still the u.s. government. it is still our extended continental shelf. >> what else can we do?

>> if the law needs to be more specific, write the law. get it signed. we are debating between us now. you are saying the u.s. government does not have the ability or power to write something or do a regulation that will give assurances to u.s. companies who want to go out on the ecs? come on. >> let's pluralize this a little bit. >> very clearly, there are no firms that are prepared to do that at this point, based on the "truman proclamation." there is legislation that recognizes the ecs revenue- sharing provision. there is already, at least some congressional action dealing with that, going very much counter to your argument.

>> i would like to fight on that one. >> let me talk to your global particularly. i'm reluctant to take on it -- let me talk to your point particularly. i'm reluctant to take on one of my former senior partners. i take sovereignty very importantly. i think you're wrong with the notion that all treaties due in part of the sovereignty of any country that enters into them, specifically -- enters into them. specifically, you can never violate the constitution. you can never deal with a setting in which congress would not have the ability to override the treaty obligations. what you are assuming, as any international lawyer who works in this area of international and national law in the space understands, is that you have a

setting of an international legal obligation that is important. it is not sovereignty. the only way the united states of america could lose sovereignty would be to alter the constitution. you can lose sovereignty if you are a member of the european community in relation to certain kinds of things. you do not lose sovereignty in relation to entering into a treaty. we always retained the ability to violate the treaty as a matter of domestic law. that is what sovereignty is. >> back here. >> i am a judge and vice- president of a tribunal for the law of the seas. i will not speak in my capacity as a judge, only in my capacity as a simple citizen of a landlocked country.

[laughter] let me pull out -- point @ out -- let me point out that it is not the geographically disadvantaged countries that have benefited most from the law of the sea. there is a revolutionary concept. it does not develop -- it does not benefit developing countries the most. and please ask your final question. >> -- >> please ask your final question. >> the u.s. is a country with the most to gain as far as resources are concerned and as far as transit rights are

concerned. if we were to renegotiate these provisions, he would not get them in the same manner -- you would not get them in the same manner. if the law of the sea is left adrift, it is up to you if you wish such a development. >> would you like to comment? >> i could not agree more. i think it would be an enormous risk. we have a huge achievement in this convention. we would not be able to negotiate a treaty that will today for the united states of america. it is astounding that the country in the world that is given the largest expansion of resources jurisdiction would, in fact, not have signed on to the convention 15 the years later. -- 15 year s later.

we got everything we asked for in the renegotiation peewit -- renegotiation. to not accept the treaty will dramatically undermined our ability to be taken seriously in negotiations. we have said make reagan's changes and amendments. a conservative who said that is all he needed and he got those. we have not move forward on the agreement. there is a mythology surrounding all of this that i hear over and over about the rhetoric of the common heritage or the new international economic order. we had that in the early 1970's. .

>> steven? >> two things. first, on the freedom of navigation provisions, i will accept for the sake of this debate they could not have been negotiated better than that. fine. it was their mistake not to end it there, to have a treaty on the navigation -- that is something that is separate and divorced from the deep seabed mining, from royalty payments on continental shelves, from a

dispute resolutions. why did they not have a treaty about the navigation provisions? i am glad they got the provisions they did, but they felt it would so much bathwater, we are not able to have that baby. we have a separate debate about international law. since reagan has been brought up for the second time, i wish i had anticipated this -- in his biography, they quoted his diary. he said "just had nsc meeting. it still would not push for ratification or support ratification, regardless of the deep seabed provisions." i do not believe that the treaty should rise or fall on what reagan thought. since john brought him up for a second time, i will assure you

in his diary he said he would not support them, regardless of that -- of those six changes to the harvey levin. that is the fact. >> please do not hand the microphone around. thank you. please. gentleman? otherwise you can become chairman. >> i am not sure, stephen if you were in here yesterday when -- steven, if you were in here yesterday when we talk about the importance of international cables. my question -- those of us who enforce maritime boundaries, what recourse do we have to help us negotiate disputes or coastal states? are there any greater rights into the ez's that limit our

rights around cables? we have no recourse except for a seat at the table, if you will, to pressure these coastal states to abide by what they have signed up for. i could not agree with you more. many states are not abiding with them, but the only way we can push back is to have a seat at the table. what other recourse do we have? >> steven, looks like it is for you. >> i will do my best. i was at the first two panels yesterday, but i went home after the second panel to work on this debate. [laughter] i am glad i did. i needed every bit of it to model my way through. unfortunately, i am not fully up to speed on what your presentation was. my first reaction is that -- i assume there have been

underwater cables laid to date and those were negotiated through some form of bilateral or multilateral arrangements? i assume also that the destination where the cable is going, that you have a starting point and and ending point for your cable. so you have two companies interested in making it successfully. are we talking about cables that are transferred through noncompliant parties? >> i would say transit, not land. for example, the red sea. many of those cables do not land. we're in a situation now where permits are required for ships. >> fight that. are you telling me there are partners who are not following their turns? well, shucks.

i tell you -- there are some corrupt countries out there. you are a u.s. company. of the chamber, the government. this is important enough to the u.s. and its bilateral relations with these lawbreaking countries making express -- excessive claims. that is a tough nut to crack. i guess we have to rely on our government to help ease those easements. >> i think your question is very good because it is partly a response to stevens question of why not simply navigation alone? the answer is the united states as many other interests other than navigation alone. we have an interest in protecting fish docks and the

marine environment in relation to getting the secure property rights on seabed mining and extending the sovereign rights of the united states over the largest intercontinental shelf recognized anywhere in the world. you're absolutely right. we needed this. the convention is good for you and you need the rule of law. it supports the treaty. >> i am going to take one more question since we are running over time, and then allow each of the panel members a couple of minutes for summing up. thank you for your friendliness in continuing to stay with us. i will take this question right here. >> thank you, john. speaking as of former staff member of the senate, i know -- i guess there are two questions. one is very quick. since you represent the u.n. development program, i would ask you where is the report for the subcommittee investigation used to serve the report about the

program in north korea. did money go for anything other than legitimate development purposes in north korea? my main question has to do with the logic you use in advising your current colleagues at heritage or the senators who might be asked to vote on this treaty. how did you way or decide what the correct calculus is in -- weigh or decide what the correct calculus is? is it your intention that if you find it to be adverse to the united states, or a single provision -- if that logical, article 82, which i do not think it does -- if there is any single problem or set of problems that you can find, that you would advise your senators not to approve the treaty, which otherwise he would conclude is

overwhelmingly in the interest of the united states? >> i do not say -- i do not say this frivolously at all. it would appear that is the assumption of some are making, that there is something they can find that is wrong with this treaty and the whole thing should go down. that is not your calculus, how do you weigh the overall interests of the united states and in this picture? >> thank you. i will have to refer you to mark and ian blatten, my successors on the permanent subcommittee. i was not there for the beginning, middle, or end on the investigation into the epr case. i do not know what the answer is to that question. on the treaty itself -- different senators have different concerns.

we are often, before we go brief a senator, their staff informed us "we want to hear what the treaty does for this. we want to hear what the tree does for that." some have environmental concerns, military concerns, sovereignty concerns. it is kind of up to the senator. believe me -- if there is one little thing that bugs them and that is enough for them to oppose it, they can do that, regardless of whether you or i find that to be a logical approach. some of the senators are inclined to disagree with the treaty and looking for the right reason. others feel -- they see a legitimate set of issues or even a single issue they oppose, and that is enough to outweigh any of the beneficial parts of the treaty, including the freedom of navigation provisions. in terms of what i personally brief on, it is difficult to

say, because we have a very lengthy treaty and a complex 1994 agreement, and we have the behavior of the member states themselves, and i use a hypothetical, but only if i can back them up with fact or law. i just think that right now my personal beliefs, and i do not know if this extends to members of the senate, in the grand scheme of things, i wish there was a way we could give the navy the tools it needs on the freedom of navigation provisions, but the rest of the provisions outweigh those. >> john? >> i am so delighted steven raised the question of the argument based on "the reagan diary." i have been looking for opportunity to drive a stake through the heart of this one for some time. >> oh! [laughter]

>> first we take an obscure diary provision where we do not know what he is talking about, and we say that is going to trump the statement from his secretary of state emphatically to the opposite. it will emphatically trust all of his official statements that he made, it will trump the conclusions of the task force that reviewed this carefully and, with an official review. i revere ronald reagan. maybe because i have four presidential appointments from ronald reagan. i revere this man. i think it is important that we not ascribe used to reagan that would be very harmful to the national interest of the united states, and i am confident from the review he undertook that his view was if we met the six reagan conditions, and what a wonderful impact he had on the world -- we met them and got the treaty and were able to move forward.

finally, let me indicate what i suspect the actual meaning of that provision was, because if you look at the time line in terms of when that was actually a decision being made by reagan that he is writing about, the decision is different from what steve is talking about. it is a decision as to whether the united states might go forward with a reservation on the deep seabed mining, but accept the rest of the treaty. that was seriously being considered internally by the united states government at that time. it was advised directly by the state department otherwise that it was in complete violation of the treaty. but more important, it was going to totally open a pandora's box counter to the interests of the u.s. and permit every other country in the world to be asserting a variety of reservations to issues the united states had won.

including the important navigational issues. steven, i think that argument actually ought to be put aside. >> closing. -- we began the discussion with non-tradition. i will give stephen the opportunity to decide whether he has the first or last closing argument. [laughter] >> i am a gentleman and i will defer to my host. >> a couple minutes each, please. >> i do not need to take that long. i think you know my views at this point. i think it is very important move forward. -- we move forward. this is an enormously important, as attested by the fact that the cno and the deputy cno and others in the navy have been

seeking to move this forward for some time. this is powerfully in the interests of the united states economically, politically -- in terms of rejoining the community and restoring united states leadership in the oceans. it is too long that we have had to sit on the sidelines and not take the u.s. leadership role that we have had strongly throughout the course of these negotiations. so i would urge the united states and its and the administration -- and the administration -- i would urge the united states senate and the administration to support it. secretary clinton made a wonderful statement. she's absolutely right. i know president obama supports this, as has every u.s. president, and i am hopeful we will move forward in this congress and not wait for the next congress. >> stephen, please. >> i would like to thank

ambassador morgan for inviting me to this debate. thank you for sitting here this whole time. i thought it was a very spirited debate. i had fun. i hope you did, too. i will end by giving some advice. which is if you want the united states to ultimately exceed to this treaty, it you have to -- i seem to this treaty reducingaccede to this treaty, -- accede to the street, you have to point out is weaknesses. if you think it is as pure as the driven snow, that causes senators and staff to raise eyebrows. i would be more realistic. talk about some of these ports -- warts. find how you can extinguish or excise them to reservation or understanding and declaration.

take on the issue directly about treaty partners who are not going to be reliable with their excessive claims. or do not take my advice and continue what has been going on for the past couple of decades. which is coming forward, saying the treaty is awesome, there is no problem, reagan is in favor even though he is dead. [laughter] point out the warts. get some composition for them, and make your best case to the senators. that is your best chance. thank you very much for entertaining us again. i have a lot of fun. thank you, ambassador pickering. >> thank you. thank you, all. [applause] i want to join you in thanking our two panelists.

it was an interesting and trenchant debate. i appreciate it. please express our thanks to the participants with your applause. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> president obama today said he will continue to work with congress on efforts to pass an energy and climate change bill this year. those remarks came during this event where the president signed a memorandum in forcing higher fuel efficiency standards for medium-sized and heavy-duty trucks. >> ray lahood -- and carol

branner. [applause] >> good morning, everybody. good morning. everybody, please have a seat. it is wonderful to have you all here. welcome to the white house. i want to introduce some of the folks on stage who have been in trouble in making today possible. you have already heard about the wonderful team at the white house, carol branner, ray lahood, and we said jackson. in addition, we of a number of people who were critical. martin dell, the ceo of dimer, mr. hodges, chairman of the

board the american trucking association, the chairman of the uaw, the chairman of volvo, daniel eusteen, ceo of navistar. please give them a big round of applause. we also have with us some legislative leaders who have legislative leaders who have been champions. not only of the auto industry, but the environmental movement. i want to thank them. one of the deans of the house of representatives. representative john boehner. give him a round of applause.

representative ed markey is here. rep kris van holland. and rep henry waxman. it was one year ago today that i stood here in the rose garden on the similarly beautiful day with some of the same folks to announce an historic agreement, to help break our dependence on oil, to protect the planet that we will be to our children, and to spur jobs and growth in the industry of the future. it was an agreement, the first of its kind, to raise the fuel efficiency and reduce the greenhouse pollution for cars and light trucks sold in the united states of america. a lot of people thought such an agreement was impossible. after all, for decades we have made little headway in improving the fuel efficiency of our cars. we have a lot of talk in

washington when oil prices go up. then we see politicians rushed to the local gas stations. i remember going to the gas station. holding press conferences, announcing new legislation. but the eagerness for action would fade when gas prices started to go down. meanwhile, progress was mired in old arguments. left versus right, management left versus right, management vs. labor, business leaders verses' environmental advocates. -- verusus environmental advocates. we brought together all the stakeholders, including former adversaries to create a plan that would benefit consumers, workers, and the auto industry while protecting the planet. one year later, we will see -- you're beginning to see results. auto manufacturers are engaged in a race to meet standards. we expect fuel efficiency

standards in cars and light trucks to reach 45 miles per gallon. the typical driver will sought -- save $3,000 over the life of the vehicle. we will reduce our dependence on oil by 8 billion barrels and cut greenhouse gas emissions. this is the equivalent of taking 50 million cars of the road the 50 million cars of the road the -- off the road while making our economy more secure. and by setting a single standard in place, but the companies will have the clear incentive to develop more efficient vehicles. this will foster innovation, growth, and a host of new industries. that is what we set in motion one year ago. today, we are going even further, proposing the development of a national center for -- national standard for medium and heavy-duty trucks.

in a few moments, i will sign of presidential memorandum correspondent -- coordinated by my energy correspondent. we will develop a standard to improve fuel efficiency and reduce harmful emissions from trucks starting with model year 2014. this is the first time we will have such a standard. we are joined by eight representatives from more than a dozen car and truck -- by representatives from more than a dozen car and truck manufacturers, as well as labor leaders, environmental groups, officials from california and other states. this is going to bring down the cost of transportation -- for transportation -- transporting goods. it will reduce pollution. freight vehicles produced roughly one-fifth of the greenhouse gas emissions related to transportation.

the estimate, for example, that we can increase fuel economy by as much as 25% in tractor- trailer's using technology that already exist today, and just like the rule concerning cars, the standard will spur growth in the clean energy sector. we know how important that is. we know our dependence on foreign oil endangers our security and economy. we know climate change poses a threat to our way of life. we are already seeing some of the profound and costly impacts. the disaster in the gulf only underscores that even as we pursue domestic production, our long-term security depends on the development of alternative sources of fuel and a new transportation technologies. we also know that our economic future depends on the leadership in the industries of the future. the oil countries are seeking an advantage in the global marketplace by investing in new

ways of saving energy. from china to germany, these countries recognize the nation that leads in the clean energy economy will lead the global economy. i want america to be that nation. that is why with the recovery act, we will get our economy moving again and have a clean energy. we're supporting the development of the best battery technologies, doubling the capacity to generate renewable electricity, building stronger, smarter electorate -- electric grid. it is estimated we will create or save more than 700,000 jobs. these investments will help develop new technologies vehicle makers can use to meet higher fuel efficiency standards. in addition, the standard we set last year for cars and light trucks and runs through 2016.

i propose we start developing right now a new and higher standard for 2017, so we can make more progress in the years to come. [applause] through the directive in signing, we will work with public and private sectors to develop the advanced infrastructure that will been necessary for electric vehicles and plug and hybrids. we will work to diversify our fuel mix, including natural gas and other cleaner sources of energy. i believe it is possible in the next 20 years for vehicles to use half the fuel and produce half the pollution they do today. that isn't going to happen if we're willing to do what is necessary for the sake -- unless we are willing to do what is necessary for the sake of our economy and environment. this is not a substitute for other steps to ensure our leadership in a nuclear energy

economy. i am heartened by the good work done by senator kerry and senator lieberman on the energy and climate bill to reduce our dependence on foreign oil, to prevent the worst consequences of climate change, and sponsor of the millions of new jobs that are possible if we rise to the challenge. this involves getting complex legislation through the house last june. i intend to work with members of both parties to pass a bill this year. in the meantime, i am going to take every -- [applause] in the meantime, i am going to take every sensible, responsible action i can take using my authority as president to move our country in the right direction. that is what we have done today. that is but we're going to continue to do -- that is what we're going to continue to do in the months ahead. thank you for being here. i am going to sign this

memorandum. [applause] >> there you go. all right. [applause] thank you. good work. thank you. [unintelligible] good job. [applause] >> ladies and gentlemen, please remain in your seats until the president has left the rose

garden. [unintelligible] ♪ >> thank you. all right. we are making progress. we have dug quite a hole. [laughter] [unintelligible] >> what about the solar panels for the white house? >> i think it is a great idea.

>> when is it going to happen, mr. president? thank you, everybody. [applause] -- >> thank you, everybody. [applause] >> with senate approval last night of the financial regulatory overhaul bill, house financial services chairman barney frank says house and senate negotiators should have the final version ready for president obama's signature before the july 4 recess. chris dodd joins him just after a meeting with the president. this is just under 15 minutes. >> i am very grateful to my colleague, for his support for

this landmark legislation to come -- to complement work he has done in the house of representatives last december. it is time to take these two bills. this is a wonderful sense of history. this is a rare occasion where the two bills are close to each other. there is not a great deal of difference. we will take the best parts of both bills and marry them together and present to both chambers with our final product. we believe the public is correct in insisting we do not lead them through exactly the same kind of problems they witnessed over the last several years. too big to fail. too many jobs lost. to many homes lost. home values declining by 30% or more. to give this country the sense of confidence and optimism about their financial institutions and the financial sectors of our

country. we need to harmonize these ideas with the recognition that we no longer live in an isolated place. small countries in the caribbean can have a huge impact on our economy. we must harmonize rules as well. it is a strong day for americans. this is not a battle about democrats beating republicans. i am very grateful to olympia snowe, scott brown, chuck grassley. we hope there will be more support when we get done with the final bill. i am grateful to barney frank, the chairman of the house financial services committee. he has done a great job. it is a strong bill. a good bill. >> i very much agree with the senator. i cannot remember ever seeing the glove major pieces of legislation -- two major pieces

of legislation come out of the house so cozy. we have been working on this in the house since 2008. much of this you can see foreshadowed in the speech that hank paulson made in 2008. there was a bipartisan tradition here. unfortunately, it did not always carried through. senator dodd thanked the four republicans who voted for this in the senate. i would think the republicans in the house if there were any. i know they are intimidating -- a 10 -- intimidated from voting the way they want to vote. no agreements reached, no compromises -- which are being

discussed -- will be made without being publicly presented and voted on and discussed. i understand the urgency for the financial stability of the country. stability, knowing what is going on, is important. it is hard for me to think this is going to take as more than a month. i believe the president will sign this bill before we leave. one more thing i want to address before the july 4 recess, one thing i want to address is suggesting, well, what about the future? we are well aware of this. this does deal with -- part of what we have to deal with is the recurring thing that comes up in our economy, the new phenomena that have not been dealt with. we deal with securitization here. we regulate credit defaults swaps for the first time. but we do not simply look at what is what. we know we have an industry that

will try to get around some of these things. so in addition to putting those in place for what we have seen, we have empowered the regulators going forward -- we have instructed the regulators going forward -- so that they will be able to deal with new phenomena. this is not a static bill. this is a framework that allows for a procreant innovative regulation going forward that will be made for innovative financial activity. >> [unintelligible] the provision for them in the conference? >> it would basically take a lot of investment advice from those banks. >> what did the president say to you? >> he congratulated senator dodd for getting the bill through the senate. getting things through the senate is a little more difficult. i want to address the cynical

view of american politics, which you quoted directly from. the big banks do it. last year, when the house debated the bill, health care was taking most of the attention. so the bill was almost an inside game. health care of having been done, this year the senate conducted its bill in full public light and you saw that. the big banks did not win anything they should have won. they did not block anything they should have. anyone who was looking for a demonstration that when the public is engaged, the markets work well, look at this bill. there were a couple votes on the floor of the house last year with derivatives. i believe we would be on the winning side if we had them today. the old assumption that the big money gets whatever they want -- it is hard to see how anyone can look at the process in the senate and not realize how informed public opinion with the

senate leadership that senate -- senator dodd and others provided prevail. >> [inaudible] >> i believe we will, yes. >> have you tell the president that? >> yes. >> there'll be a conference. obviously, there are a lot of issues. >> look, senator dodd and i are two members of a committee. this is an open process. >> that is exactly what i was going to said. [laughter] >> [inaudible] >> we are going to have conference. we cannot pre-conference it. we're dealing with a whole bunch of things that are interrelated. we do not want to get into the provisions of the process when we are all going to be talking about it. these things will all be

discussed. i will guarantee you this. whenever the final resolution of any of these things are made, it will be publicly presented and subject to vote. >> i want to mention the majority leader read -- i know we want to focus on the details of the bill. that is the most important thing. the senate did something it has not done for a long time. that is something that has dominated the last 30 or 40 legislative days, to watch the senate over a four-week period. there were six bills on the floor of the senate, half of which were adopted. there were 51 votes that were defeated. that had not been done in a long time. there were members who said to me, if this is a fair and open process, that will mean a lot. this bill contains a lot of ideas that were offered by republicans as well as democrats. it was a long process.

in fact, many months. it is important public understand that not just in a conference people can see what happened, but on the floor the senate, there was a full debate of ideas. there were decisions about accepting or rejecting those ideas. to me, that is terribly important, that the institution of the congress can conduct that kind of open debate and these are the kind of results we can get. >> again, a good news sometimes gets taken for granted. when there are procedural issues, they become major. this was a very open process. the senate -- this was a very open process in the senate and a very open process in the house. again, we have a lot of amendments, republican amendments, adopted. this was exactly the way the legislative process as opposed to work at its most open. i do think that has contributed to our being able to get it through. >> when you pass a bill in the

house, the obama administration has not yet over ruled -- do you think the house will be comfortable with people parol -- volcker rule? >> senator dodd is going to interrupt me now. we are not going to talk peace by piece about things that will be in the conference. it is an open process. we will discuss this. there is no point -- it would not be appropriate to dictate to the conference now before we have it. we want to have our process. >> is your sense of the house that the house would be comfortable with something like what senator dodd -- >> if i am not going to speak for me, i sure as hell and not going to speak for the house. -- i sure as hell am not going to speak for the house. it is going to be open. you are going to get those

answers. there will be a lot of other members, house and senate, republican and democrat. that is the way it is supposed to work. >> [inaudible] what would you say to that? >> if i could arrange a tour for them to say that in eight places in my district, i would be grateful. >> a lot of institutions either did to or did not do -- 7 million homes have been lost because of what they did or did not do. not to mention the loss of wealth in this country. that is a rather arrogant statement about the implications of this bill may be considering what the cost us with what they did or did not do. >> i remember in 2006, ilate in the year, there was a forum i spoke at.

they were pressing for further deregulation. the argument in the chamber was if you over-regulate the economy, everybody will go to england to get the light touch in the financial services authority. -- from the financial services accord. they have been wrong on this. >> thank you. >> [inaudible] >> it is going to be available on c-span. it is a publicly open. the conference will be conducted under the rules that govern -- >> [inaudible] >> after the break.

i would say the first week back. the first session. there will be the stupid opening statements. >> press secretary robert gibbs refuse to give details on the resignation of the national intelligence director, saying only president obama thought it was "time for a change." topics included the federal government role in the oil spill response. this is about an hour.

>> my apologies for the delay and the quick entry. >> how can you be delayed -- how can you be late and early? >> [laughter] >> [inaudible] >> i already apologized for being both late and early. let me start with the week ahead. tomorrow, the president will deliver the commencement address at the united states military academy at west point in west point, n.y.. obviously, he will log the undergraduates for -- the graduates for their service, the wars in iraq and afghanistan, and a lime broad principles of will be in his national security -- and alkaline broad principles that will be in his national

security strategy. -- outline broad principles. monday, he will visit with the president of lebanon at the white house. this will be his first official visit to washington during his premiership. he will explore consulting with the prime minister on a broad range of mutual goals concerning 119's sovereignty and mutual peace and security -- 11 on -- lebanon's sovereignty and neutrals peace -- peace and security. he will discuss the important role played in our economy. also, president obama will welcome the president of italy to the white house. the white house regards italy as a strong ally. there are strong bilateral relations.

he looks for to continuing his consultations with the present following up on the july 8 meeting from last year in rome. later on tuesday, the president will travel to san francisco, california to headline events on behalf of senator barbara boxer. on wednesday, the president will visit the cylindra facility where he will tour the 300,000- square-foot high-tech facility. he will make remarks regarding the economy. he will return to washington, d.c. after his remarks. on thursday, president obama -- this is hard for an nc state's graduates to say -- welcome the duke blue devils to the white house. reggie will be in rare form.

the president and first lady will host a reception in honor of jewish-american heritage month. we will have more details on friday it through the weekend, later on. >> the 11 non -- lebanon -- could we ask if you have questions -- >> i do not know with the coverages. >> there are questions for most of these events that you do not usually have. >> i will check. some of the will be very scuttled. >> i am asking that it be more of a tradition that he used to be. >> i understand. you and i should go through the schedule. >> it is an extra five minutes. >> i am happy to talk about

this offline. i have yet to be a one of these that lasted only five minutes. i do not think i have been at one of those in years. i appreciated. >> the president referred to the disaster in the gulf today. i wonder if you can explain why the federal government is not treating it like it would in normal disaster, where it would come in and take charge? i know you have the expertise at bp, but why has the government not taken charge? >> i believe we have gone over this. this goes back to 1990. in 1990, the liability for cleanup was put with the company, rather than the taxpayers. >> that is financial backing -- >> >> it is a management question.

they are responsible for the cleanup. they have to pay for. there are not two separate questions. >> is there a way to separate it out and say -- >> i have tried to explain this many times. they are responsible for it, and we are overseeing the response. that includes, as i discussed yesterday, many different departments and agencies being involved here. the department of the interior in what used to be middle management service is in charge of regulation. noa deals with a series of issues including water sampling, protection of oil inside the water, the department -- and said the water. the department of homeland security is where resources are house.

after the original explosion, the head of the coast guard is the incident coordinator. the environmental protection agency does air and water quality test. once oil hits land, they have purview over that. >> i understand what you're saying. but legally, you're not allowed to take control -- >> again, jennifer, they are responsible for and we are overseeing the recovery response. i would add that sba is also in the area dealing with disasters for fishermen because noa has closed 19% of the gulf for fishing. sba is providing low-interest loans for people who live had economic damages as a result of that disaster. jennifer, i think i have said on a number of occasions, the

technical expertise to clean up and deal with the equipment that is 5,000 feet below the surface of the sea -- that is equipment that bp and other oil companies have. that is not based on equipment the federal government has in storage. >> that is that really the question i was asking. it is whether you are specifically -- i am asking what you do not take control of the whole operation -- white you do not take control of the whole operation -- why you do not to control the whole operation? >> again, maybe i am not being clear. they have the legal responsibility and the technical expertise to plug the hole. obviously secretary salazar, secretary napolitano, secretary chu have been involved in efforts with other scientists,

both government and non- governmental scientists, in conjunction with british petroleum, which has been working in conjunction with other corporations and oil companies. i am happy to try to sift through the questions. they are responsible. we are overseeing. to ensure they are doing what needs to be done. >> is the government just going to hope for the best? >> the federal government has never just stood there and hope for the best. the premise of your question the is not match any single -- let me finish this. it does not match any single action that our government has undertaken since the call came in that this rate had -- rig had exploded in the gulf. your question does not match

anything that is happening on behalf of the government in the gulf of mexico. >> every piece of information has turned out not to be true when it comes to the amount of oil that was billing, and everything. you guys are having to rely -- and i understand you're saying they're legally responsible -- >> we -- >> and i have the technical expertise. i understand. but do they have the credibility to say "we are running this thing." >> chip, we are overseeing the response. we are working every day. the department of energy -- it sounds technical. the department of energy does not have an oil drill. that is not in their governmental sphere. secretary chu has been down there working through a hole -- whole host of ideas, including

satellite imaging to look 5,000 feet below the water. we've taken every step. we have pushed bp to do what is necessary to contain what is leaking, to deal with both the environmental and economic impacts of what, as the president said today, it is unquestionably a disaster. remember -- this is not something -- you may be confused about the notion of a disaster declaration -- >> i am wondering if there is something analogous. >> the oil pollution act of 1990 is what governs how we respond to and who pays for -- >> i realize you are legally not able to take actual control. you said no. >> i guess i am confused. what are you asking? >> what is the federal government come in and take over

-- why does the federal government not come in and take over and get the job done? >> let me address dick's question. bp is working, and i would refer you to them on the actual efforts they will undertake over the course of this weekend, different ideas on how to stop the leak, which they have done with the insertion to, as well as what is going on with the riser. i would say we've asked them to provide more public data on air- water quality. we asked them 10 days ago. we reiterated yesterday. we ask them to provide video footage of what is happening 5,000 feet below the state. >> is there a record? >> you cannot do that to a private company. first of all, the -- >> [inaudible]

>> the pardon -- pardon? >> you took over aig. >> the company is largely in receivership. this is a proprietary video that was in the joint information center that was working through -- the command had the video in order to see, for the response efforts we were doing in conjunction with them. a video is now public. [all talking at once] >> thank you. i would like to ask about -- can you talk about the process? >> first of all, the director will resign as he said next friday. the deputy director at cni will

become the acting director. the president has talked to a number of well qualified candidates and will make an announcement on who the next permanently -- permanentlydni -- permanent dni will be soon. i am not going to name names or time lines. my guess is -- you'll probably -- there is probably no harder job in washington besides being president than being director of national intelligence. coordination across many different intelligence agencies. he is -- and given the fact that this job was just created only a few years ago, it means that director blare -- blair had to

bring some clarity to the challenges that dni have. he has done that. the president is thankful for his continued service to the country. the act of setting this up put off some of the more difficult questions, legislatively, for the dni to have to go through. . .

we have coordination issues we need to work serve. the president believed it was time to transition to a different director of national intelligence. we will have an announcement on the replacement soon. >> so you cannot talk more of to what came to the decision? >> i think i outlined basically what the president's thinking is. >> basically there was an affirmative that the obama administration can take a non- citizen and hold them beyond the process of the court. i am wondering how that goes in line with the dean language the

president used. >> i will get to that as soon as i get out of here. >> yesterday you were asked about comments about building up the more moderate elements of -- >> i have asked john for that. >> does the president have any concerns at all about president calderon criticizing american laws as congress? >> i was asked to that yesterday. i know that president of the run has strong feelings -- i know president calderon has strong feelings. i believe we should have strong, comprehensive immigration reformers. the president shares his concerns on those. i would point you to the mexicans.

the president has similar concerns. >> on bp, officials have said they expect the league will be plugged sometimes as early as next week. how much confidence that the white house had in that time line? >> they are going to undergo -- and they can explain the technical nature of this better. the process of trying to claw the -- clog the leak with heavy mud injecting it into the system beginning this weekend, i would point you to them in terms of the degree they think it will be successful. we continue to work with them on ideas for how to both plug and contain the leak as bp begins to drill and a longer-term solution.

>> obviously if they are telling you this is what we think will work. what is the confidence level of the white house stocks >> we are certainly hopeful, yes. >> it does there come a point where the white house has to say we need to take charge of this, not just from an oversight, but we are going to step in and bring in -- >> agencies throughout the government have been working on the ground since right after this explosion in the gulf of mexico. we have been doing all that we can to plug the leak, to contain what was leaking, to deal with what happens in the events, and as that we have seen, that the oil gets to land, and has started to get into the loop current. we are sampling water quality and how we deal with both

surface and sub-sea dispersant. we have been there every day of this crisis. we will stay there until this whole is plugged. until we deal with what is in the water or on the surface, the impact of this environmentally and economically, which will probably take quite some time to sift through. >> hang on. you will still be an essentially assisting in any way possible as many times as they went to keep trying something that does not work. >> we are focused on -- >> you are born to wait and see. >> this notion that the government is simply waiting and seeing. if you have an idea how to plug this hole, i am happy to put you in touch with the secretary or someone at the joint information

command. everything that can be done is being done. that is why we have scientists here and brought the administration working on trying to make this happen. >> after the "underwear bombing," the president talked about the failures in coordination issues and he dropped about pushing for solutions -- and he also talked about pushing for solutions. what is the thought on intelligence sharing and analysis of intelligence. what does the white house feel the various agencies are sharing information or analyzing it? >> the president took responsibility for the lack of coordination of information sharing on christmas day. >> has yet gotten better? >> the improvements and the

problems that were identified have improve the system. the president has asked every member of the intelligence community and his national security team to evaluate the process is every day to see if there's anything that can possibly be done better. that is when the national security teams do every day. we strive to get it as good as it can be. >> is the president satisfied with bp's response. >> he is not satisfied that this whole is linking thousands of barrels of oil per day. >> is he satisfied with bp? >> we are continuing to push them to do everything they can. >> so no yes or no?

>> again, we are asking bp to take the steps we believe are necessary. jeff? >> i have another question. you sent out that tweet about 10 days between the 10 days you ask for the video and when you received it. but it sound like you are asking without any kind of power behind it at all. it sounds like they are wearing of the boot. there is this growing perception that the government is somewhat powerless to make bp do what it wants them to do if they cannot get them to but a video of for 10 days. >> we have pushed them to make things more public. there are laws that govern the proprietary information of companies. we cannot change each and every

one of those laws, cit. -- laws, chip. we work every day to make sure bp can do everything we think they can do, everything we think they should do. we asked yesterday that they make more transparent their air and water quality samples and that they update their website on a daily basis, that they provide daily video footage of what is happening on the floor of the ocean by thousand feet below the surface. we will continue to push. the president and the team will continue to push the government to get this right. we are facing a disaster of the magnitude of which will likely have never seen before in terms of a blowout in the gulf of mexico. we are doing everything humanly possible, and a technologically possible, to deal with that. >> on financial regulation, --

>> let me give someone else a try. >> about the air and water quality, why -- >> no, no, no. the epa does air and water quality testing. they also do testing. we are asking them to make public their samples of the testing. >> into the epa recheck the tests? -- do the epa reject the tests? >> it is on the web site. >> secretary napolitano is overall in charge. >> the commander has been thad allen. i am apparently not being clear. thad allen has postponed his retirement from the coast guard to stay on. and you, and don will be put in

-- a new commandant will be put in as allen focuses as is required by law. >> are you confident that secretary the paula tonneau is not being taking away -- secretary napolitano is not being taken away from her job? >> napolitano as equities in this. secretary salazar has equities in this. the department of the crown -- the department of commerce is where noa sits. the environmental protection agency has equities in this. >> is there concern that she should be taken away based on the enormous time she has to stand here? is she being taking away from any of her duties? >> i have not heard anyone say that. >> is there any talking about

restructuring the job. -- is there any talking about restructuring the job? >> i have not heard any discussion about greater intelligence reform. >> are you confident the structure -- >> i think the government continues to work through the challenges that the law and the position have always presented to the government. the coordination of many different agencies and departments in intelligence functions they represent, as i have said, this is an extremely difficult job for any person to do. we think that admiral blared did a great job. -- admirable of blair did a great job. >> are they being asked to look of the structure of this? could they be making recommendations about how to dni

should be structured? >> there has been asked and they did. >> is there anything to go to converse with? >> i read a report last night, and i do not think that that is the case. >> let me get around. >> has the time come for this to be a serious problem? >> you have heard the president on a number of occasions, certainly this week, with president called the run here reiterate his commitment to comprehensive immigration reform -- but president calderon here to reiterate his commitment. this cannot be implemented by simply one party. those who have traditionally supported immigration reform are

going to have to do so again. we will not be able to create a solution without the bipartisan help of members of the house and senate who have work done this before. >> where the freedom of the press is concerned, more than half of the countries are not free o. press is really involved with the people. what do you think -- >> i would say that i think this was a fitting week to sign a bill that adds freedom of the press the state department's study of human rights. >> it was auctioned -- what options does the us have to

punish north -- u.s. have4 t to punish korea? >> we continue to consult with the koreans. i know they have had summer emergency meetings last night. yesterday they were based on the report that came back providing responsibility for what happened to the north koreans. >> will of the administration push to have the agency stand alone as barney frank watts? -- barney frank wants? >> the president met with senator dodd and congressman frank today. he meant to congratulate them for their effort -- he met to

congratulate them for their effort. many people might have believed that the beginning of the year and certainly by the end of february that getting furniture reform done this year was not possible. certainly having a strong consumer protection portion of this, having the volcker rule limiting the size and scope that banks can be involved in, and limiting derivatives was not something -- we would be lucky to get one of this and we were likely to get none of those in a final peace to pass the senate. the legislation has gotten stronger throughout the process. in terms of consumer's -- in terms of consumers, the bill is strong in the senate. they will go to the provisions together. they will make some of those decisions. we think it is important that there is less address and more importance on the consumer

protection agency in having its own leadership and a budget. as i said yesterday, many families in this country, their interaction with our financial system is through the many things that this area would regulate whether that is getting a loan for a car, getting a loan for a house, getting a credit card. it is the varityper protection that the american people need the most. -- it is the very type of protection the american people need. >> what about timing? >> both members and the president believe we can get something done by the fourth of july. >> for you suggesting to us that he solved the problem is that necessarily come with that position because of the lot? will the next dni still face the statutory limitations?

>> they will deal with some of the vegas incident -- vagueness and complexities. i do not think anyone here and i do not recall the president's remarks after the attempted bombing on christmas day that we do not have improvements that we continually have to make in our intelligence system. >> does the president believe this is an unwieldy process having a cia director, a counter-terrorism director, a dni that inevitably there will be a turf models? tur -- turf battles? >> the principal intelligence director is the head of national intelligence. their departure reduces each day the president's daily briefing. he begins each day of, both within that briefing and with the director of national intelligence, or employees of

the director, in order to go through the president's daily briefing. there is no ambiguity as to the principle intelligence adviser to the president of the united states. >> did the president asked leon panetta? >> i will not get into replacement. >> yesterday they voted to move forward the confirmation bill. it denies all funding for guantanamo bay detainee's. >> if i am not mistaken, the committee asked for a report on and some ideas on exactly how a facility might be structured. that report and details will be

going on to congress. i will say that i can check anytime table. i will say that we have always maintained that we need increased prison facilities. i think the law prevents the department of defense, but not the department of justice, from purchasing such facilities. >> is there anything that in the process of dealing with this you have found in the 1990 law that limits the federal government's authority in which you wish it did not? >> not that i am aware of. we sent up structures to change liability. that was in order to ensure a disaster of this magnitude -- the economic damages that are

going to be in, that our citizens will suffer through are adequately compensated even if they are beyond the $75 million threshold the law currently has. >> with the law does not agree limitations -- >> i will look through it and see if there is anything in there. >> we have talked a lot about the structure of the dni job. is the problem the job or the person who fills a? >> i will say this. i think the drive is very challenging. i think the director took on a number of his challenges that the law and the job presented. i think director and blair -- director blair the questar

government on counter-terrorism and radicalization. -- director blair focused our government on counter-terrorism. he focus on afghanistan and southeast asia and in pursuing terrorists that seek to and our country harm. the president believes that at this point a transition is best for the country. >> you say you think admirable blair did a great job. why is it time for a transition? >> some of the challenges that we continue to have to take gone, the president believes it is time to make a change. >> do you give it any collaboration on why -- any collaboration on why? you just think it is time for change. >> the president simply

believes that where we are and what we have to do moving forward that it is time to make a change. >> people have said he has lost confidence. >> the president decided to make the change. i will let that speak for itself. i do not have a number in front of me. i do not know the answer to that. >> a number people have said that this is a sign that the government is in disarray. >> who said that? >> an op-ed piece. i don't have a list. >> you can see it is conspicuously absent. i was asking what the taejon

then something broader than criticism. report that i changed the premise of your question based on -- there are a series of laws have structures in this country that provide for a very robust intelligence efforts a by the federal government. i do not think that in any way we like any sort of capacity. i think if you look at -- look. there is no question that we are facing different challenges based on, in many ways, some of the things we're doing overseas without getting more specific. i think if you look at with the intelligence community has been able to do in tracking and identifying terrorists that

there is a whole host of things that the intelligence community does each and every day that are not discussed in the newspapers. >> the congressman's assertion that admiral blair is me -- is being made a scapegoat -- >> i do not know -- >> i do not know. he to direct responsibility with the failures in coordination and information sharing that we saw around the christmas day attempted bombing. i think the notion that anyone has shirked that responsibility clearly has not been paying attention. they have not been paying attention to the intelligence community has had to say as a result of what happened christmas day. >> a follow up on the calderon

question. i am just wondering how much longer does the department of justice need in order to decide whether or not they will file based on the confidentiality of the law? koch lager will president calderon need to wait on president obama? >> that is better directed to the department of justice which is working on that report. >> who runs the joint command center down in the gulf? it is -- is if the government? >> the joint information center and the command center, obviously, -- no, bp is in houston. i get beat up because i only take the first two rows. >> the house armed services committee voted to ban funding for modification and construction for each services

-- for facilities on u.s. soil. could you just say if they should be proceeding with this plan still? >> the question has been asked and answered. >> back to the oil spill. as the federal government exerting as much control as legally possible in their oversight -- >> yes. >> i can say yes to the first part. >> are there any powers the government has held off on using that you feel would be sending the wrong message about government interference? >> meaning what? >> are there any levels of control and oversight you could do but you are not doing that? >> in terms of your question that the government is not doing anything that is humanly possible -- >> i am not reading that in a

political fashion. not trying to be in -- your and your question is that you are asking whether or not we think -- there is something we could be doing that we are not. >> that you are not doing for a good reason. so the government does come at this with everything in the playbook. i am asking if i do not -- because i do not know the answer. are there powers your choosing not to use? you choose not to exercise them yet because they would be unwise but there's something in your back pocket. >> no. again, we are doing everything humanly and technologically possible. obviously, we followed the law. that is inherent, or at least if it is not i would like to make it overt. we are following the law. >> thank you, robert. i am following up on your question -- on my question about

contracts. i read the preliminary reports. >> i am not held up my end of the bargain. i will hold up my end of the bargain. i only have the partial story then. can i ask you on monday? >> yes, let's do this on monday. [laughter] >> this gives pause to the wave of what is in place and what could challenge. >> give me the second part of. >> the conversation about race right now. ever since this president has come onto the national stage with his effort of running for office in becoming the first black president, what is being said about that around here?

>> was passed in 1964 and 1965 -- laws passed in 1964 and 1965, but we continue to improve race relations, there are debates that have been widely incorrectly settled many decades -- widely and correctly settled many decades ago. they were debating whether or not if all of our citizens ought to enjoy equal opportunity which is something i believe people felt was resettled in 1965. that has no place or should not have any place in our debate right now. those were very difficult times. we dealt with them. we settled many of those issues

in landmark legislation's that continue to serve this country and its people well. >> do you think we were here -- we are having this conversation because of race and politics? >> i think we are having this conversation because in the 2010 you had someone who called into question whether or not it was appropriate a private company to discriminate against a group of citizens in this country. in 1964 and 1965 and the preceding years we settle those issues. that is why we're having the current conversation. >> are all federal options on the table? are you going to take more of an

aggressive role in oversight? >> there is nothing that we think can and should be done that is not being done. nothing. absolutely nothing. >> will there be any efforts to try and change that. many people have been talking about the comment from the epa who said she was asked what the relationship was between a bp and the federal government. if you have to verify there is no trust. >> this is with companies around the world and not just those who do business in the gulf. i will not get into explanations about historical trust and verify. again, we have -- bp has the obligation anders possibility

-- the obligation and responsibility to respond to the oil that has leaked out with our oversight. we will continue to exercise that. >> coming back to bp, there is a response from the get go. one of the first things they tried to did was to try and buy them off. >> alabama as well as -- we communicated through this a demonstration that trying to hire people and fishermen and could not fish anymore because know what clothes to part of them -- because noa closed part

of them was not the right thing to do. >> that was the first thing they did. in general, they provided information -- >> which is why we have asked them to be more transparent about air and water quality samples and video footage of what is happening 5,000 feet below the surface. >> the video on cbs the overnight and kosovar officials on that ship -- cbs the other night and coast guard officials went into arrears journalists for merely taking pictures. >> was that on "60 minutes"? i did not see that. >> at why would they arrest a cbs crew for taking pictures? >> who was threatening to arrest?

>> there were two agents. >> why is the coastguard helping a bp officials and one in to arrest cbs crew? >> i would have to look at what cbs reported. i have not seen that story. >> in the spirit of peter baker and homework over the weekend, i ask you about the land mine treaty. >> i will get something on that. >> 60 senators have asked the president to sign -- >> on monday. or later today. >> you guys were very perspective in the latter days of the financial regulatory reform negotiation in the senate. you waited on amendments. do you intend to play that kind of intervention during committee and where did you stand on these

various competing derivatives proposals? >> i do not think that level of detail has been gotten into today between the president and the two chairs. they talked about the strength of the bills. i'm sure as we go through and as congress goes through to compare provisions that we will have an opportunity to weigh in. i will not get ahead of that process. >> do you buy the 20% number? >> i do not know with the bases is for that number. the proposal the president put forward in the white paper of last year called for pulling the types of activities out of the

dark and into the light, regulating the exchange's, the volcker rule which met resistance and which have -- which would have met resistance on wall street. the president felt that was important as it related to the scope of what activities they can take part in. i think as they get through the process of appointing who will deal with these issues, we will have a chance to go through and compare the provisions. >> one more on admiral blair. he give us save -- us an idea of when he began to think that? >> i will not get into timing. if he decided to make a change to have people ready. >> in speaking with a.g.

blumenthal, where does the white house stand? >> i have not heard anything from a political side that would make me believe anything other than our continued support. >> as a candidate, obama said he would like to see fuel economy standards doubled to 50 miles per hour by 2027. is the president committed to that goal? >> let me see what progress we have made and where we are on than gold. -- on that goal as it relates to the improvements being made on cars and trucks and the announcement today of larger trucks and worked vehicles. that me talk -- let me talk with carol brown and others.

>> have you heard anything on the eve -- what is it? [laughter] >> i would send -- i was say based on the picture, the president did not see this yesterday. i was telling him about it today. brady said, "field mouse." based on the size of the photograph based on the diameter of -- i think reggie has lived in houses with field mice. i would say -- [laughter] judging the size of the animal,

based on the diameter of the seal, i have to tell you that is a rat. where i am from, that is a rat. [laughter] >> a mole? >> eroded about that size. -- a road and about that size. >> a boll. >> if we did not have some of people on the gulf orking on this -- [laughter] >> what does the president won done about it? >> that he did not get into. i guess it lives in the rose garden. we have a pretty good rose garden. it definitely is not a mouse. they are not nearly that big. now i'm going to go google "boll" and see if john holdren

is around. thank you. [laughter] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we look behind the institution of the u.s. senate sunday on c-span's programming. >> weeks after the british election which produced a new prime minister and a coalition government, queen elizabeth's ii with announcer government's legislative agenda for the new session. we travel to buckingham palace for one of britain's's mass celebrated celebrations, the state opening of parliament. that will be on c-span [applause] . -- c-span and2.

>> has financial-services committee chairman barney frank thinks the bill will be passed into law before the july 4th resources. this is one hour and 40 minutes. >> this hearing of the said committee on capital markets insurance and government sponsored enterprises will come to order. % to committee rules, each side of the 15 men's for opening statements. -- pursuant to committee rules come each side will have 15 minutes for opening statements. i yield to myself five minutes. good morning. since the start of the financial crisis we have done much work understanding the root causes and passed robust reform legislation, in this early in the house, and yesterday in the senate -- initially in the house and yesterday in the senate. this will implement a broad

array of sorely needed measures that will better protect innocent main street investors from unscrupulous wall street operators. in debating these measures, auditing issues have surfaced more than once. the house passed it lost reform bill which requires more reforms and that responding to the madoff fraud by better regulating the auditors were broker-dealers. this legislation also contains five provisions designed to enhance the security authorities to coordinate foreign and domestic investigations and to improve the availability of the the public accounting oversight board to collect from and cher intermission with foreign entities. the bill includes a provision by congressman lee of new york providing for an annual accounting and transparency hearing like the one we are having today. if further increase its provision to create a financial

reporting form for regulators. finally, congressman adler and a ranking member garrett, both of new jersey, amended the bill to exempt small public companies from the sarbanes of slang -- sarbanes-oxley. we will examine these matters as well as the pending supreme court case on the process for appointing members of the public accounting public oversight board. we will continue to explore whether or not accounting standards helped to contribute to the financial crisis. decisions to move problematic assets off of their balance sheets allow some companies to hide the real nature of their financial health. moreover, the recent court supported examiners report of the lehman brothers bankruptcy highlighted practice that some

companies may use to embellish their viability of and inaccurately portray leverage. these practices, motivated by short-term self-interest, are not literary works to be admired. rather they are fictional stories based on half truths that have no place in our capital markets. accounting standards and those that apply them ought to portray a company proxy manager condition candidly in a way that investors can readily -- a company's condition in a way that investors can readily understand. we will further examine how to improve accounting transparency to my decrease regulatory burdens, and address auditor concentration and converge accounting rules. the financial crisis demonstrated just how

interconnected it our economic fortunes are. capital now moves across international borders at lightening speed as investors diversify their portfolios and take advantage of opportunities both here and abroad. investors, therefore, need to have access to timely, accurate financial information that allows them to make apples to apples instead of apples on to oranges comparisons with similar companies around the world. while we have moved quickly on converging global accounting standards, we must also proceed carefully to ensure these rules for his high quality results for investors. american's markets and its financial reporting free market are among the most developed in the world because of the independence of standard setting and enforcement. to instill investor trust, we

must instill that every new international institution and here's to the principles of transparency and accuracy. in closing, i look forward to hearing from today's hearings on the state of on the deregulation, the progress they have each made in improving standards and enforcement, their priorities, there coordination efforts, and the challenges and they now or may soon face. i think each of them for coming. i look forward to their testimony. i now recognize the gentleman from new jersey, ranking member mr. garrett for five minutes. >> thank you, chairman, for this important oversight meeting today. thank you to the witnesses who are coming here today without the changes occurring in our regulatory structure. i the forward to your testimony. accountants do play a crucial role in our markets insuring that investors have the reliable information. i've been like to begin my comments by mentioning the case

before the supreme court to determine the constitutionality of the pcob. i believe the pcob is currently unconstitutional. i believe it is a direct violation. when the ruling is delivered, maybe as early as next week, that they will agree with me on this point. ral congresses ago i started a caucus in the house called the constitution caucus, and one of the goals of that caucus is to educate other members of congress about the constitutional limitations on congressional actions and legislation. because too many times members of this body similarly abdicate their responsibility to examine each law and determine whether it adheres to the constitution on the. you know, our founding fathers expresley stated that it is incumbent on all three branches of government to examine and determine the constitutionality of each law before them.

so no member of congress should ever pass a legislation and say, we'll just let the courts decide if this is constitutional or not. each member must look at each law and determine for themselves if the legislation is within the confines of the constitution. maybe if more members had done this, for example, with the health care bill, we wouldn't have passed a basically unconstitutional monstrosity like the house and senate did. so partly in response to my concerns on the constitutionality of pcob, i introduced legislation three years ago. we called it the amend misinterpeted excessive regulation in corporate america act which basically came out to be the america act. and one provision in the america act just simply attempted to fix the appointment clause at the heart of he current case, the court case by requiring that the pcob, the board be appointed directly by the president and confirmed by t senate. if you think about it, had more of my colleagues focused on this issue then, erhaps we would not

have had to engage in this very long and drawn out and als costly legal battle that's going on across the street. and when you consider the constitutionality of the p cob, i'm not sure wy we are giving this same body additional powers and authorities until this is determined. you know, w marked up legislation affecting the pcob in november of 2009, and less than just a month later the supreme court was hearing arguments of whether the entity should even exist or not. i believe it is prudent before congress gives different entities more powers that we make sure they're operating in a manner and accord with the constitution. another issue from the sarbanes-oxley law currently being debated is whether to permanently exempt small businesses from the costly independent order adaptation of management and internal controls. i know my good friend here, chairman kanjorski, and i differ on this topic, but during this economic downturn where

thousands of small businesses across the country are struggling to make payroll, i don't see how adding one more costly, burdensome regulation which at best has dubious benefits will hlp improve the economy. so i will repeat my comments from yesterday by stating this is one of numerous ways we can help small businesses without throwing in another $30 billion of deficit spending. in regards to financial accounting standards board, i look frward to hearing how the changes and additional guidance you have provided to fair accounting so far have worked. i would also like to explore in greater detail with both fasb and regulation ab and the potential impact those new rules when you combine them and couple them with the new proposals will basically have on the availability of the cost of credit. i'm also interested in learning further on the progress as we

talked about, international convergence of accounting standards. i believe this is a critical long-term goal for international competitiveness and want to make sure we're moving forward as i think we'll probably hear on this expeditiously. again, i want to thank the chairman for holding this oversight hearing. general oversight hearings with government regulatorse informative, they allow us to discuss a wide range of issues, and we're going to do another one later next week and again in june. i do look forward to those and once again thank the members of the panel before us. >> thank you very much, mr. garrett. and we'll now recognize the getleman from california, mr. sherman, for 5 minutes. >> i thank the chairman for holding these hearings. due to flight schedule, i may not be here until the very end, but i recognize the importance of these hearings. the chairman comments on the action taken by the senate. i've been informed that the senate passed the bill without

passing the manager's amendment. if that's true, then section 210n10 remains a phony limit on the amount that the fdic can borrow of taxpayer funds in order to help the creditors of a defunct financial institution. i am confident that anyone who voted for the bill in the senate really intended the manager's amendment to be part of it and confident that those limits which are so important to the bailout versus nonbailout question will be dealt with. these hearings are on auditing standards and accounting principles. i'll leave to others a discussion of the auditing standards and the discussion of section 404. because accounting principles are so important. corporations dedicate teir focus to showing higher earnings per share. he who controls the rules controls the behavior of corporate america. the fasb, therefore, has the

highest ratio of anonymity to power of any entity in the business world. i've been one of the loudest voices in congress for the independence of the fasb not because i was convinced they were doing a great job, but because i thought ey would do better, and i wan't so sure that congress would be helpl. and i was also told again and again, don't worry. international standards are on the way, and they'll solve all the problems. mr. herz, we'll get the international standards when you and i get here. the -- and so we do have to take a look at whether the accounting standards make any sense from an accounting theory standpoint. accounting theory would tell you that two companies should be comparable and that two companies that are virtuay

identical should have identical results notwithstanding superficial differences. and yet we still allow one company to choose lifo and another to choose fifo. why? because accounting theory isn't as important as just keeping everody happy. let the business world do what they want, investors figure it out on your on. we dealt with some nonoptional quirements with stk options, and i think that may have been a step in the right direction. as to mark-to-market, these much ballyhooed rules don't give you capability because if one bank invests in $100 million loan on a shopping center which they hold for their own portfolio, they made the loan the old-fashioned way and another invests in $100 million worth of the collateralized debts, collateralized shopping centers, perhaps identical shopping centers, the two would be

treated differently under this rule. and yeall the shopping centers are down in value, not just the ones where the debt happened to be securitized. but the biggest problem the fasb has is the desire to go with the verifiable rather than the relevant. the desire to make it easy on the auditor rather than useful for the investor. and the best example of this and by far the most harmful act that nobody ever talks about is fasb number 2 which requires the writeoff of all expenses, penalizes those companies that choose to do research while we in congress are providing large benefits to those same companies and the success of amrica depends upon theresearch done in the private sector. this isn't good accounting. good accounting says you're supposed to capitalize research expenditures that provide useful

results. why do we have fasb number 2? because good accounting theory would require accountants to distinguish between useful and useless research projects. that's difficult. that's like eliminating the strike zone in baseball and saying every pitch is a strike because the umpires don't want to be second guessed as to their ball and strike calls. the fact is for us to be penalizing those corporations that engage in research making them write off the money they spend, providing higher earnings per share to those companies that choose not to do research, and to do this not only in the high-tech sector where i think investors may be savvy enough to adjust for it, but in the rest of our may is the most harmful change that's been done to our economy that nobody knows about. so i look forward to going back to good accounting when it comes to research instead of adopting

a system that is easy for the umpire and terrible for everyone in the allpark. i yield back. >> thank you very much, mr. sherman. now recognize e gentleman from calornia, mr. campbell, for 3 minutes. >> thank you, mr. chairman. you know, i am one of the two cpas on the committee here along with my california colleague mr. sherman, and i remember when iwas first getting my certficate and, you know, accounting was a very nice, steady thing, boring. one of the three of your organizations didn't even exist. we uld have probably never d this hearing because nobody would have cared and nobody would have come. but, unfortunately, i guess that is not the case anymore. and accounting, as my colleague mr. sherman pointed out, for many entities and many things are now under a great deal of scrutiny and under the spotlight. the one thing we do not, any of us, want this to yield is that

we up here in congress start to dictate accounting standards. that is the worst possible result we could ever get to. because wewill politicize them. and we will, we will not make a judgment on the basis of proper accounting, good accounting, any kind of reasonable judgment. we will mak them on the basis of what groups here are powerful and what ones are not and have different accounting standards for the same companies that are of different sizes or in different states or with different treatments. and we don't want to go there, and we don't want to be there. so, but because of the focus on accounting, itens that fasb and other organizations are, will need to be more responsive, and, i think quicker in response to things that have happened out there. one thing we do deal with, though, are reporting standards for public companies. and also banking reulations. and a couple things i'll mention in my short timeere that hopefully will come out over

time is i am, for example, supportive of going to every six months financial statements and other things we might do in colleague, mr. garrett, mentioned harmization with international accounting standards. i'd like to hear what you all think is happening on that because we shouldn't be aving situations where two international companies based in different countries have completely different accounting reporting on the same fundamental results. what's going to happen if the banking sector is far from being out of the woods and far from being outof the problems of 2008? what's going to happen if banking regulations start diverging from accounting regulations? if some of the hings that we do and are looking at in terms of reserves and so forth diverge from accounting? and then, also, i wondered about financial statements and financial reporting in general.

it hasn't changed a whole lot since when i took the exam some years ago, decades ago. but yet markets today are using a whole lot of other measures and metrics to evaluate the performance of cmpanies than the traditional three financial statements that we have been putting out for decades and decades. now, much of that information may be derived from audited results, and i understand that, but should we be taking a look at what we are auditing and what we are reporting given the realities of the market today, and i yield back. thank you, mr. chairman. >> thank you very much, mr. campbell. we'll now recognize mr. sherman for -- >> five seconds. >> five seconds. >> i misspoke in a way when i said the manager's amendment had not been adopted, they adopted the first manager's amendment, they failed to adopt the second manager's amendment, and we can breathe a little easier. >> only an accontant -- [laughter]

>> it's an occupational hazard, mr. chairman. >> now recognize the gentleman from colorado for 2 minutes. >> thank you, and it'll be much shorter than that. just appreciate you all being here today. we tangled a little bit the last time you all were here. and i just want o say thank you to wrking with various people, various parties, various industries in helping us move through a very difficult time for this country financially. and i would say to my friend, mr. campbell, i agree for the st part the accounting profession, there's a lot of objective kinds of things. two plus wo equals four. we've come through a time, though, where there was some subctive analysis that had to be involved, and i just appreciate he willingness of the board, of the different agencies for looking at bigger

picture. and, quite frankly, helping us get through a very difficult period. so i look forward to your testimony, appreciate you being here today. thank you. with that, i yield back. >> thank you, mr. perlmutter. now recognize the gentleman from illinois for 3 minutes. >> thank you, mr. chairman. the wake of the financial crisis that we went through and the destruction, largest destruction of wealth in human history, approximately $7 and a half trillion of household net wort in the last 18 months of the previous administration, a lot of attention is focused on the pro-cyclical versus countercyclical effects of accounting standards. and much of the attention has focused on providing relief after the bubble has burst. and i think it is more important to adopt countercyclical accounting standards that actually suck is energy out of the bubble on the way up. and it seems to me that the key principle there is to treat keptically the value of

recently-preciated value assets. and we're going to have a workshop next month at the american enterprise institute which will include two frequent witnesses in front of this coittee on preventing the next real estate bubble whh i think is the single most important thing we have to do, and e're going to look specifically at proposals to calculate the loan to value for mortgages using not simply the current market price, but the current market price deflated by the amount tha real estate h gone up regionally in the last several years. and if that had been in place, i think it's very clear that that would have just sucked all the energy out of these enormous real estate housing bubbles that we've gone through and have been the big dog in destroyng net worth. and so that's one of the specific things i'd like to hear your reactions on. secondly, the pcob, i found, to be a very interesting model as the possible way forward for the oversight of the rating agencies. you know, i think, frankly, that

there is no satisfactory solution to the conflict of interests in the rating agency models. the pcob was an attempt to deal with similar conflicts of interest on the, in the counting business, and i'd be very interested in the people's general reaction as to how effective that approach has been. because, to my mind, you know, the best stand at that, and i was partly successful in getting amendments into the regulatory reform bill. and the third issue has to do with the high frequency accounting standards for firms, especially large firms where things can fluctuate on a day-to-day,hour to our or even minute to minute basis. and you're not going to be able to publish reports that continuously update, b we're going to need to have some mechanism of looking over the shoulder of these large firms with high volatility to understand -- and give investor confidence that there ar at least systems in place so there are good realtime monitoring of

these, and that's different than just publishing a report every six months o year. anyway, so those are what i see the big issues here, and i look forward to your testimony. >> thank you very much, mr. foster. are there any other members that desire time? if not, we'll move to our panel. first, thank you for appearing today before the subcommittee, and without objection your written statements will be made part of the record. you will each be recognized for a 5-minute summary of your testimony, and first we have mr. james kroeker, chief accountant u.s. securies and exchange commission. mr. kroeker? >> chairman kanjorski, ranking member garrett and members of the subcommittee, i'm jim kroeker, chief to the ant which advices the commission on auditing matters, and i'm pleased to testify on behalf of the comission. one of the lessons from the

financial crisis is that nancial reporting plays a critical role in establishing, maintaining and rebuilding investor confidence. the objective is to provide useful information for capital allocation. market participants must be confident that the information they receive is neutral, it is reliable, and it portrays the economic results in an accurate and faithul manner. as the agency in power to be the investor's advocate, the commission is responsible for this reporting. to further insure the integrity of this reporting, the federal securities laws mandate that an independent udit by qualified professionals be performed. as more fully described in my written tstimony, in discharging our responsibilities we oversee the work of the fasb and the pcaob, and we do that to monitor existing standards for potential improvement and to increase consistency in the application of those standards. let me just outline from my written testimony some of the

pending proposals and eerging issues in these areas. let me turn, first, to what is often referred to off-balance sheet accounting. last year the fasb issued standards relating to accounting and relat disclosure with respect to what are often referred to as special purpose vehicles which include many securitization structures. the new standard should enhance financial reporting by better portrayi a company's risk exposure. of course, we will continue to review the reporting practices to determine if companies are complyingith their requirements, and we will continue to see whether further improvement is warranted. we're also focused on the commission's ongoing consideration of global accounting standards and the con convergence of u.s. gap and ifrs. the commission has engaged signifant efforts toward the development of a single set of high quality globally-accepted standards. these efforts are reaching a critical stage, and in february

the commission directed my office to excute a work plan to evaluate the areas relevant to rther incorporting ifrs into the u.s. financial reporting system. we will begin providing public progress reports on our work no later than october of this year. another critical component to our consideration is convergence between the fasb and the isb which is further covered in my written testimony. turning to auditing, pcob oversight of the auditing profession has provided clear benefits to financial reporting quality and to investor protection. as you may know, the pcob is currently facing a constitutional challenge before the supreme court, and we are hopeful that the pcob's constitutionality will be upheld, so it's important work can continue uninterpreted. if not, the commission stands ready to issue necessary guidance toprovide continuity. if congressional action is needed, we will promptly provide

technical assistance so changes can be considered as quickly as possible. another challenge facing the pcob is the inspection of overseas awd doors whose -- auditors whose reports are filed with the commission. access to these firms has been hampered by the cob's inability share information with their foign counterparts. i would like to thank chairman kanjorski and this subcommittee for their leadership in including a provision to address this issue in the house regulatory reform bill. i would also like to thank the chairman and this subcommittee for another provision in the bill to address the important issue of pcob oversight of auditors of brokered dealers. clarifying the pcob's authority will impove audit quality and strengthen both investor protecon and broker dealer compliance. in closing, a significant lesson from the recent crisis is the same one underlying the commitment to securities regulation over 75 years ago.

that is transparent financial reporting is critical when pressures are highest and investor confidence may be shaken by uncertainty. thank you for the opportunity to appear today, and i'm happy to answer any questions that you may have. >> thank you very much, mr. kroeker. xt we have mr. robe herz, chairman financial accounting standards board. mr. herz? >> chairman kanjorski, ranking member garrett and members of the subcommittee, thank you for inviting me to participate in today's hearing. the fasb is an indpendent private sector organization whose mission is to establish standards of financi accounting and reporting for u.s. nongovernmental entities. those standards are recognized as authoritative, generally-accepted accounting principles or gaap by the sec and by the american institut of cerfied public accountants for other entities. gaap is essential to the functioning of the u.s. economy because investors, creditors, donors and other users of

financial reports rely heavily on credible transparent, comparable and unbiased financial information to make their resource allocation decisions. an independent standard-setting procesis the best means of insuring high quality accounting standards since it relies on the collective judgment of exerts informed by the input of all interested parties through a thorough, open cliptive process. however, we are also fully appreciate that the fasb does not operate in this a vacuum. they are accountable in two important ways, first by engaging in robust due process and setting standards including consultation with stakeholders and second, by being subect to oversight in the public interest by both the accounting foundation's board of trustees and by the sec. our very extensive process involves public meetings, public round tables, visits to interested parties and, of course, the exposure of our proposals for public comment.

we mee regularly on both a formal and informal basis with the sec and pcob and their staffs and with bank regulators. fasb and faf also regularly brief members of congress and their staffs on developments. indeed, a number of faf trustees and fasb board members will be meeting with members of congress next week. over the past year, the fasb has acted vigorously to improve u.s. gaap highlighted by the financial crisis. the standards we issued in 2008 and 2009 made improvements to u.s. gaap in a number of areas including the valuation of financial assets, especially in the inactive markets, securitizations and other involvements with special-purpose entities, accounting and disclosures for impairments, credit default swaps and other derivatives and for financial guarantee insurance. in these and other standards we have issued in recent years, we

have focused on communicating clear objectives and principles supported by a sufficient level of implementation guidance. the fasb has also reduced complexity in the u.s. financial reporting system through the launch last july of the accounting standards codification. the codification will benefit everyone in the financial reporting system by replacing the previous myriad of separate accounting pronouncements with an easily-accessible, topically-organized online research system which also links in the u.s. gaap reporting tax. during the past year we have made good progress working with the international accounting standards board on projects aimed at improving both u.s. gaap and international financial reporting standards and achieving convergence between those standards. many of these projects are nearing their exposure draft stage. on some of the projects, i believe the boards are on track to both make the desired improvements to u.s. gaap and

ifrs and achieve convergence while on other projects achieving substantial convergence is proving to be quite a challenge. let me be clear, we are committed to and re aking every effort to foster convergence between u.s. gaap and ifrs, but consistent with our mandate under sarbanes-oxley, we must also insure that the resulting standards represent improvements that are in the best interests of u.s. investors and other users of u.s. gaap information. my written testimony also details ou extensive efforts regarding the private company and not-for-profit sectors. i've also been asked to comment on financial arrangements the companies may employ to manage their financial position near the end of a reporting period, presumably including arrangements such as the so-called repo 105 transactions engaged in by lehman brothers. as i explained last month, the fasb does not have regulatory or enforcement powers, but we do work closely with the sec and stand ready to take any additional standard-settng

actions that may be appropriate as they obtain further information concerning the practices of financial institutions. in conclusion, the demands on accounting standard setters tat stemmed from the financial crisis together with the goals of continuing to improve u.s. gaap and achieving convergence have made tis past year one of the more challenging i the fasb's 37-year history, and i expect the coming year will be equallas challenging. thank you again,and i'd be pleased to respond to any questions. >> thank you very much, mr. herz. and now, finally, we'll hear from mr. daniel gelzer, acting chairman, u.s. public company accounting oversight board. mr. goelzer. >> thank you. chairn kanjorski, ranking member garrett, members of the subcommittee, i appreciate the opportunity to appear before you today on behalf of the public company accounting oversight board. congress created the board in 2002 to provide rigorous,

independent oversight of public company auditors. i would like to summarize how we discharge our responsibilities and how the board has responded to issues raised by the financial crisis. i also wan to mention some challenges we currently face. the board has four basic functions. first, no accounting firm may prepare or substantially contribute to an audit report for a company that files financial statements with the securities and exchange commission without first registeng with the pcaob. there are currently about 2,500 board-registered accounting firms in 87 countries. second, the board conducts a continuing program of inspections of registered firms' public company auditing including reviews of individual engagements and evaluations that affirm systems of quality control. since 2003 the board has

performed more than 1300 such inspections and reviewed aspects of over 6,000 public company audits including 173 non-u.s. inspections. third, the board has broad authority to sanction firms and associated persons that violate applicable laws. the pcaob has announced the resolution of 31 enforcement proceedings. these cases do not, however, fully reflect the board's enforcement activity since they do not include ongoing investigations and contested disciplinary proceedings which are by statute nonpublic. fourth, the board sets the professional standards for public company auditing. the board has an active program to update and strengthen the auditing standards. our standard-setting agenda is appended to my written testimony. i want to turn next to the financial crisis. the financial crisis affected

our work in three basic ways. first, our inspection program is designed to focus on difficult audit issues. we're currently reviewing the results of the recent inspection cycles and intend to prepare a report on findings from those inspections related to the impact of the financial crisis on auditing. second, this inspection experience hasalso informed several ngoing standard-setting projects including risk assessment, use of specialists and auditor communications with audit committees. in addition, the board's chief auditor has issued a series of practice orders on crisis-related audit issues. third, the enforcement staff has open several investigations related to audits of public companies involved in the financial crisis. as i've noted, these matters are nonpublic. before closing, i want to mention three challenges we currently face. first, we are not at present able to conduct inspections in

the european union, switzerland china. significant audit work on which investors and sec reporting companies rely occurs in these countries. one of the obstacles, particularly in the e.u., has been the board's inability to share confidential inspections and investigation information with foreign audit oversight authorities. sections 7602 of the wall street reform act passed by the house last year would correct this problem. the senate finaial services bill contains a similar provision. hopefully, enactment of the information-sharing provisis will allow e.u. inspections to go forward. the second challenge relates to overseeing auditors of securities broker dealers. while such auditors must register with the pcob, we currently lack any autority over their work. both the reform act and the senate financial services bill would extend board inspections,

enforcement and standard-setting authority to audits of broker dealers. both bills would close the deal between broker dealer auditor rebel station and board authority over these firms. finally, there's a pending challenge to the board's constitutionality. that litigation now before the u.s. supreme court deals principally with the way in which board members are appointed and the ircumstances under which we could be removed. i expect the court to issue its decision within the next few weeks. the pcob won in the district court and in the court of appeals, and we hope the supreme court will reach the same result. if the pcob does not prevail and the decision requires a legislative change, i would urge congress to act quickly to fix whatever structural problems the court identifies. the need for investor protection through independent oversight of the auditing profession is as great today as in 2002 when the board was created.

my written statement covers these topics in greater detail, and i would ask that it be made part of the record, certainly happy to answer any questions. thank you. >> thank you very much, mr. goelzer. i thank the panel for their testimony, and i suspect we have some questions here from our panel. not to be facetious, mr. kroeker, i'm going to ask the question why do i get the feeling sometimes that we are playing a game of cops and robbers, waiting always behind the fact to find out what happened? and then to close, quote, loopholes or take positions? the repo 105 problem. wasn't that observed, and wasn't that evaluated at some point to be an attempt to avoid transparency? and if that were the case,

doesn't thesec have the authority in conjunction with these other entities to propound rules t prevent that from happening, or if you don't have that authority, why wasn't that requested of the congress for additional authority? this question is predicated on the fact that when i talk to my constituents, they're not nearly as sophisticated as you all are, but they don't understand why we're always catching up, playing the game of catch-up as opposed to why we don'have a system that prevents some of this abuse. maybe you can give me -- >> i suspect in in some respects it goes back to the issue of are we going to continually be playing cops and robbers. it goes back to human nature and that when a standard is put in place, there are very ingenious

people who workto design around that. one of the things that the sc did coming out of the post-enron reforms was to do a study on accounting standards thmselves recommending that the proper balances to come up with and objectives-based standard. that is, we shouldn't lean too heavily on only principles by which you can circumvent the principle or ry to circumvent the principle by creative structuring, but if you lean too heavily on a rules-based system, we've seen the outcome of people saying, well, the rule didn't catch me, if you will. and suggesting an optim balance, in our view, of sufficient specificity of the object i of the standard -- objective of the standard coupled with guidance that would help you operationalize that in practice. a number of the fasb's recent standards i would characterize in that vein. their standard on business combinations, their relook at

off-balance sheet accounting in statements 166 and 167 that dealt with off-balance sheet and securitization accounting providing a clear objective of the standard. so i suspect that in some form it will be human nature for some small minority to try and escape that. but the second iece of that question, then, is do we have the authority, and, yes, we do have the authority. and important in my mind or my way of thinking, an important element of insuring that the conduct doesn't continue is enforcing standards where standards are already in place as opposed to suggesting that the standard itself should change if the standard is clear. >> well, in enforcing those standards are we remiss in giving you certain authorities? i mean, let's say an accounting firm purposely concentrates on avoidance for the purpose of

changing leverage or giving a false impression of a company's financial condition. and that's quite apparent from what went on. i mean, nothing is 100%, but the high probability is up in the 90th percentile. do you have a power to say, look, if you persist in that type of operation, we're not only going to put some conditions on the company or potentially fines or what can be levied, but we're going to bar you from practicing, that you're just not going to be allowed for a given number of years or we're going to fine you individually as an accounting firm? i mean, i just seems to me we're constantly chasing. i use the term cops and robbers. to a level of real frustration. i'm trying to think of the operation down there in the south, the guys putting the accounts offshore.

[inaudible conversations] >> what? stanford financial. i mean, that was observed for a number of years, what he was doing, and that it was putting in jeopardy investors and citizens, and whn i've talked to those groups, they just thought it was clearly something that goernment regulation had addressed and would not allow it to happen. now, that wasn't under the sec, that was under bank regulators and others that would have the authority there. but it just seems to me people just said, well, it's not a clear case for us to get involved, we're not going to get involved in it. i guess the question i'm asking you, is there somethinge can put in this reform bill now that makes it so clear that we're just not goin to take it anymore for not just creative accounting, but for fraudulent accounting, for aavoidance of truth and to injury for the

average investor? something we can do here? >> one, we do have authority including authority of barring accountants from appearing and practicing. we've used that authority with respect to firms, i believe, since the 2002 era 66 times against firs and multiple of that against individual accountants. but i can certainly think more fully and get back to ou if the there are more specifics. >> i'd appreciate it. i'm going to take one more minute even though i'm over time. it violates what i call the bastard rule. i want to believe with that because it sounds as if be i'm assuming that all accountants don't do their job. the fact is most accountants and most business executives do the right thing, want to do the right thing, want to engage in fairness in their businesses, but if you've got an element of 3 or 5% -- those are my bastard violaters -- you almost get forced into doing the same thing they did or you're going to be

at a decided disadvantage after a while. and we've got to fi a way of getting them out of the system. >> i agree. >> so join me in my bastard hunt, if you will. >> i agree. >> the gentleman from new jersey. >> thank you. and thank the panel again. excuse me, sir. you may have heard if you were listening to the hearing we had the other day i gave an example of a company in my district that mafactures proucts for troops overseas. it's a $3.5 million market camp, they have 30 employees, the ceo and the cfo all work basically in the same room, if you will, and they told me weeks or a month ago if they don't receive a permanent exemption from the 404b requirements that they will have to pay upwards to $100,000 by the end of the second quarter to get things up and working to

be in compliance. so that's only four, fie, six, six weeks away. so, you know, in light of where the economy is right now, i guess the short question is, you know, what do i go back to tell them that it's better that they spend about 100 grand to be in compliance with a little tiny company with them with 404b as opposed to using the $100,000 to hire another employee or two or make sure their stuff is up to snuff with regar to that they're sending overseas to our troops? >> the objective of the auditors opining on or giving an opinion with respect to 404 wasn't to put in place a costly or nonbeneficial requirement, and investors that i speak to almost man mousily -- man mousily both with respect to individual companies but as well as the

financial system as a whole indicate that they receive significant benefit from knowing that there's increased quality to financial reporting, and it goes back to the 1977 foreign corrupt practices act where it's an integral part of strengtheningfinancial reporti is strong internal controls. that doesn't mean that the cost should be disproportionate. the sec working with the pcob has taken a number of steps to reform the cost going back to the outset of 404 and what we heard -- >> you've got to admit $100,000 when you're dealing with a tiny little company is a lot of money. and so i just don't know where when you're talking about the transparency that you're trying to get with a little company like this, does the cost really meet the benefits? isn't there some level that maybe the cost exceeds the benefits when you're getting down to this size? that's not talking about when

you're talking about the gms of the world or who knows whether gm, i guess we have a whole different situation with gm. we see how well it worked with them, right? >> yeah. the confidence that the individual investor has wh they put that money at stake in a company that size, we hear from them that it takes tremendous confidence not just from the gaap financials, but from the process. and i appreciate that, obviously, there is balancing that trade-off between what are the costs and what are those benefits. >> well, how -- someone just mentioned to me with regard to the sec itself, with regard to their own internal control requirements that the gao required certain -- gao has certain internal audit requirements. is it a case that the sec has not met their own requirements or set those audits? >> so we do have the gao does -- effectively the equialent of 404b, the auditor opinion -- >> so how'd you do?

how'd the sec do? sh. >> we did have a weakness. and the process by which we looked at our own controls and the gao looking at that has actually caused an increase in our internal focus on financial reporting. >> yeah, so we're asking this littlecompany to try to meet some standards that the sec can't meet. now, of course, the difference is the sec gets all the ney they need, basically, to do so, and this little company here is just i don't want to say they're holding on, that'd make them sou they're not doing well. i think they are doing okay. so you can see how the ceo of a company like this might say, hey, that doesn't seem right. the sec can't even meet its standards, and yet they're coming and saying we're supposed to meet a standard that thy can't even meet. can you see the problem that i have in discussions with folks like that? >> yeah. the standard, i guess, itself is an opinion on controls same as the opinion -- taking a

self-look at cotrols the sec internally reported a material weakness as the gao agreed, so it's the same assessment that we're asking companies to do. >> but you just can't do it. okay. joust in the time that -- just in the time that i have left, so we had this discussion with regard to trying to make look at companies with regard to maybe one of the areas we had problems with in the past where the companies actually had controls in the past and say that they should all be on their own balance sheet, right? and that's a good thing? one word answer is -- and, yes, you're nodding yes. so if that's a good thing, if we want to have transparency and openness and what have you, shouldn't we be doing the same thing for the federal government? don't we have an entity with fannie mae and freddie mac where you basically have an inti where the cbo says if we were to treat the gses like we were trying

to treat all these public companies, wouldn't they have to bring th gses onto our budget? if you apply your rules to how we run our system? >> i've not done that exact analysis, but the criteria are, essentiallyn layman's term, if you're running the show and you've got significant skin in the game, then it's on your books. >> yeah. i mean, we control it, we fund it, we decide who's in tharnlg tharnlg -- charge of it, and there's one other criteria. >> under our standards, that's the approach. >> i see my red light's on, but thanks for the nod. >> thank you, mr. garrett. now we'll hear from mr. perlmutter for his 5 minutes. .p.m.

>> i think pretty much every industry and stressed to the max. i want to congratulate the board as a whole. this has been an incredible time for this recovery. as americans do, and several up their sleeves, the move forward and deal with the problem, and do the best they can. i want to start with that. you and i may not agree from time to time. we often do not agree. but we do agree on the point that he was making about his company. >> the burden of some of the the burden of some of the accounting measures to some

smaller companies can sometimes be too much. consider that. i would ask that you three do. now, mr. goelzer, my question to you is made off, okay? who is watching -- coming, u're going to have lots of people, looking over everybody shoulder and goes on and on and on and on. but in that instance, what repercsions, who is the policemen for the accountants who apparently said, okay, year after year, the statements that were coming out of the madoff organization? >> mr. madoff's auditor was not registered with the pcob and was not required to be registered with pcob. because at that time the sec had exempted broker-dealer auditors from pcob registration. so we had no contact whatsoever with them. my understanding is they should

have been subject to peer review. that is, their review under industry run system by another fim, but they misled as to whether theyere conducting audits or they weren't subject to. >> use it at that time. is there now a newegulation in place? is that kind of accounting still accept? >> yes. the sec's exemption that caused auditors of broker-dealers not to be registered with us, expire at the end of 2008, shortly after the madoff events became public. as a result of that, we picked up on other probably 550 firms, registered with us, all auditors of broker-dealers are now required to be registered. the pcob. the difficulty is we have no other authority over them. we can't inspect their work. we can't write standards for how the work is performed.

peraps most important we couldn't bring an enforcement action, anti-madoff repeated today, mr. madoff firm would be registered with us but we wouldn't be able to take any action. >> so ow that th are registered, and you're basically telling me you can't do anything? >> i am telling you exactly that. however, fortunately, from our perspective financial services legislation that the house passed, thanks to this mmittee, includes an amendment that would give us authority, inspections, enforcement, and standard-setting authority over the auditors of the now registered with these broker-dealer auditors. >> do you know if the senate version has that? i don't know him. >> yes, a slightly somewhat different version of the. but from a big picture stempler, s, it does. this is very important to us beuse we're concerned about the fact that the public might perceive that we have some

responsibility now for these firms, particularly in light of the madoff situation when, in fact, we currently lack the capacity to do anything with it. >> mr. chairman, i yield bak. >> thank you very much. the gentleman from california, mr. campbell. >> thank you, mr. chairman. i wanted to focus on rules versus principles-based accounting would just ask on a moment ago. we've increasingly moved to old-based accounting, in part, i believe, because of litigation risk. and because of the desire of accounting firms to have, in the accounting industry to have the safe harbor place they know they can go, and not have litigation. but that's resultedn some very, very, very complex fasb pronouncements and so forth. i have one i should have

brought, and i've kpmg summary of the stock-option. which is about this thick. and i actually took a seminar on that, eight hours on that. and it was the beginning seminar. there were like three more days on that, if you wanted to do the rest of it. what do each of you feel about rules versus principles-based accounting, and should we be moving in one direction or the other, and how do we get there? start with you. >> my reaction would be we need to start a balance between the two. we should have a system that has a clear objective of the standard, but it goes to your opening remarks, and what are the objectives of finance report is have some degree of consistency as well. and so part of the reason, i think, that the accounting profession seeks bright lines is to ensure some degree that the

objective of the standard is prepared, or the funds are prepared with a relative degree of consistency so that companies that are engaging in similar activities can be compared on a coarable basis. >>mr. herz? >> i wholeheartedly agree with jim's comments, and i believe we have been fighting our standards without focus in mind in recent years. i worked for some time in the profession in the u.k., and also as a chartered accountant. and that was one extreme, the consolidation stand. principles-based, but to the point where some believe almost anything goes. on the other hand, youknow, we in the past have had standards with lots and lots of facts, and lots and lots of, i don't know

if you call them rules, butvery detailed implementation, guidance. i think about this summer in between, starting with the articulation of clear objectives and principles. >> so wuld you say that right now you're too far towards the ule-based and we need to come back? >> well, we are currently doing a lot of our major projects together with the international boards. we are writing cmmon standards. and when you're writing common standards, essentially for good, major parts of the world, not just the united states or europe, but other parts of the world, that use isf or companies, a lot companies, for example, japan uses u.s. gaap. you had to find that kind of balance across those burying societies and economies and the like. >> mr.goelzer, would you like to comment? >> sure. we don't have responsibility for the accounting standards so i will answer to the auditing

standards, although i think the answer would be about the same. we try to take what i would call an objective-based approach wn we sit auditing standards, and each of our standard that includes the beginning, a statement of what the objective is. we are charged with enforcing the standards also, so i think it's important, important to us that they be written in a cear and precise enough way that when we do an inspection or bring an enforcement case, we can make a determination about whether -- >> my time is going to run out. as we harmoze with ifrs and so forth, if we're to move to more of a balance, the risk is that our litigation system is very different from that in the u.k. and other countries. are we putting -- we cannot go to a big three, okay, with sarbanes-oxley, we physically cannot exist if we go to the bg

three. are we putting our accounting firms risk with our current litigation system if we move t more principles-based of which i agree with you because i think we should, and other changes we should make in our ltigation system to enable this to happen and harmonize with the international accounting standard, but to make the litigation risk not so great if the accounting firms comply with what we ask them to do? whoever wants to comment. >> i agree with the sentiment that going im for 23 would not be a good idea, would not be a good thing. in terms of thelitigation system itself, a recommendation now of the committee on improvement to financial reporting, and acc advisory committee. recommended guidan on how firms and how the sec might look at judgment in a system that has less prescriptive guidance. and i'm a big supporter of the

idea that if a firm exercises a company or an audit firm exercises reasonable judgment, documents, that thinks about that in the context of what would be useful information that would go a long way for them and then depending in any context, the subsequent result of that judgment. >> thank you. yield back. >> thank you very much, mr. campbell. and now the gentleman from illinois, mr. foster. >> thank you. i would like to start by thanking the ranking member for his concern over the liabilities of the gses and, of course, had to recognize all of those liabilities at the time that they were taken over by the previous administration, people would've realized our financial situation in here to buy the current administration was in fact far worse than what's recognized. but what i'd like to ask first, perhaps of mr. goelzer, is the state of play of countercyclic countercyclical, countercyclical concerns in the definition of

accounting practices. how services is that being incorporated in the next generations? >> i really think i would have to defer to my colleagues on that, since we have no jurisdiction over the accounting disclosure edibles or enforcement your. >> you know, the accounting standards involves measurement and reporting the underlying economic situation, including the financial condition of the reporting companies. and, therefore, the goal is to report economic reality, not to adjust it through policy. now i believe that good accounting can be countercyclical, in that it gives evidence of an early warning of additional risk, additional leverage. those kinds of things.

but i thinkit's then up to regulators and policymakers to take that information and do what they need to do in order to manage the economy and the markets. >> okay. so you're not seeing big changes in accounting standards that it's not regulate and corporate as one of the desired aspects of any -- >> we're trying to tell like it is, rather than, you know, take numbers and adjust them for policy matters. but other people can do that and take the right policy. i think they need to start with the right nubers. >> i would agree with the chairman's remarks that the objective of financial reporting be netral, unbiased, unvarnished reporting on the economic circumstances. they are as a group of standards

for the ifrs and fasb, for example, look at loan-loss provisn and whether or not the forward-lking, if you will, on the credit cycle would be useful information, would that be unbiased and useful information to new investors and part of that project. the objective is an outcome space in that it would be less procyclical, but what investors have that information if they were unaware earlier in the credit cycle of loan losses. >> i guess the next thing i would like to bring up is, a lot of the uncertainty that surrounds the violation of structured financial products and securities, things like that. andas you're probably aware, there isn't sec initiative to encouge our mandate to publication of key underlying information of these, including in the case of mortgage-backed securities you mortgage-backed securities utah zip codes credit scores, unit, the income history and all this sort of thing. as well as the water code that specifies the behavior of the tranches and so one.

and this in principle will ake things much more transparent. i was wondering, do you view that as something hat is realistically going to be incorporated into the whole accounting and valuation game in a much more transparen way? are you optimistic that that was going to lead to a sort of a more objective analyses of the thighs of different tranches of these? do you view that as an experiment that might or might not work or fundamental game changer in the violation of the complex financial products? >> right now it's a proposal by the sec, so we will be informed by the feedback. but i hope that it is a significant improvement in terms of discovery. so that would flow through all of them. >> yeah, i have been fairly strong and vocal on the subject. accounting and reporting by

companies with significant challenge during the crisis, essentially because we had markets for which there were not the necessary infrastructures. and that included the markets for a certain pass back cities. it's very hard to properly value something or provide for anticipated credit losses when there's no prices when the effect of the waterfall and the condition of the collateral is not, you know, so it took people with great sophistication and a lot of flavor intensity to be able to parse through a lot of the structures in order to then better understand what they had and to value them. >> i am a big supporter of trying to put in what the necessary infrastructure in order to just for myself, but the whole system to be able to do the better rporting.

>> thank you. i guess my red light is on so i yield back. >> thank you, mr. foster. and now we'll hear from the gentleman from california. >> thank you. i'm going to ask mr. herz the question, and he goes to an issue in which irs stands, international standards, frankly would've handled the layman situations a lot different than we did. under ifrs, lehman's leverage ratios would have shown up as much, much higher. it would've been harder for them to continue the overleveraging, asi understand it, as they did under the u.s. standards. and the amended apects of disclosure related to the classification of assets under fas 140 requiring an institutn to disclose all of its continuing involvement with

transferred financial assets. these amendmens were related to lehman brothers use of repo 105's to take assets off the books at the end of the reporting period, and thereby of course disguised the true lerage that was a foot. lehman officials even refer to these transactions as balanced sheet window dressing. you wrote a letter to the committee on april 19, and you mentioned that the accounting guidance for repose has not changed since 1997. and i guess my question is, should fasb consider a mini the standards governing the use of repo transactions in light of the use of repo 105 by lehman and other financial institutions? and at the end of the ay i guess to what extent would moving towards ifrs address this

problem, but to the europeans see something, that we just go to mess in terms of our accounting of it? >> a couple of points. we're not an enforcement or regulatory agency, but in that letter i did indicate some points as to whether or not the repo 105 transactions act so qualified as sale under u.s. standards. and again, without all the facts i cannot tell. but the sec has been doing an extensive information gathering process of the practices of major financial institutions with regard to repo's and secured lending and the like. nd o the extent that those reveal practices like that, we stand very ready to change the

standards. >> just to get back to the bottom line, to what extent would moving toward ifrs address this problem? >> it's not too -- were to me whether under ifrs it would have appeared as financing or sales either. we have a joint project with the international board on subject of the recognition which includes these kinds of items. and the goal has been to harmonize our standards there. there are many other current differences in the way financial institutions, balance sheets, are reported as between u.s. cap and ifrs, including issues as to whether agreements are sufficient to net derivatives, and various other things, which we're also exploring,

harmonizing. >> i appreciate that. let me ask mr. kroeker a question as well, and this goes to the testimony that we had from mr. markopolos here, who noted that, for a numb of years, he tried to warn individuals from within the sec about the madoff ponzi scheme. and he found an ally in the oston branch with instry express in the sec, but his problem was that he could never get beyond the new york office, i guess, because as he says, folk in washington simply couldn't comprehend the case, certainly the people in new york could and probably handed. and he offered noted the over lawyering at the sec. i know ms. schapiro is attempting to address this feather, but i'm concerned that this won't be enough, that the basic, if you look back over the years, the focus of the sec, the way it has been overboard by

those who, for me, who didn't have e technal knowledge about the markets in the sec, to really uncover thing like the ponzi schemes that are out there. has always been a problem, institutionally. could you comment on that? >> look, let me comment on my perspective on accounting and auditing. our office is approximately 50 people. the vast majority are folks who were practicing either in accounts or as auditors. from that perspective our office, again, the vast majority are auditors, but to the heart of whether we can be more forward-looking, what market practices are out there, i think we have taken significant steps just as one example, we are hiring the deputy within the office of chief accountant whose job it will be to monitor market practices, to look at new

standards that have been put in lace. >> just very quickly. the sec official in boston who did understand it had been a portfolio manager, he had been a traitor, he had that experience in the market. and i think it's that kind of hiring at some point that has to be addressed. i understand the british had the same problem so i just raise it again. thank you very much. mr. chairman. >> thank you very much, mr. royce. does the gentleman have any further questions? do you want to take additional time? okay. if i could, in your opening, you are remarks, you referred to the section 760 to fix that we have put in to allow transmittal information, investigate findings between foreign entities and the american entities. and you indicated that that fix

is the e.u. problem, but you caution that it doesn't fix the china problem. and while we are now going from house and the senate to conference, i'm curious whether or not you have structured in your own mind what would fix the china problem so that we could included in the act when it comes back, orhat you would do. we anticipate there will be a problem, whether there is potential bomb and we haven't done anything about, what do you suggest we do? >> i appreciate the question because it's a very difficult issue. i don't think i have an answer as to what congress could do to fix the problem with china. but let me say, as to the e.u., the ability to share information would let us essentially resume the negotiations with them, and i'm hopeful it would open the door to inspections. they haveaised other issues

with us that will also have to be resolved. with respect to china, i think the best hope we have at the moment is that as we bring all of the rest of the world into our inspection system, china will not want to be an outlier and feel the incentive to negotiate with us and open the doors they're also. i can certainly assure you that if we see any kind of legislative action that would help us with china, i will let you know. but at the moment, i don't see anything that would address this situation. >> welcome if we don address it, and are you suggesting it would require some treaty arrangement? >> i don't believe that any of these foreign auditor access issues we have should require treaties. i think it's simply a matte of negotiation and understanding between ourselves and the audit oversight audit or her governmental authorities in each

country. >> aren't we one step away from a china disaster, china meltdown, if we don't do something? >> i think it's a very service problem. i think it's unknown to us about the quality of financial reporting in china, and quality of auditing in china. and there are an increasing number of chinese-based companies that are in our markets. and yes, i think it is a substantial risk to u.s. investors. >> does anne else have anything else? mr. herz? mr. kroeker? >> as it relates to -- >> there's a provision in the reform regulations that are pending that allow, where was disallowed before fr investigative information between the united states and foreign, we're not an issue that. mr. goelzer is that taste of our palm with e.u. budget he

indicates it doesn't take care the problem with china. do you recognize there may be a problem for china and you have any helpful hints? >> yes. for one agree, and a second provision that could be helpful is a provisionthat is in the house regulatory reform bill on section 106, sarbanes-oxley that would give us a greater ability to subpoena workpapers form foreign ditors. that would be of assistance as well as. >> what actly does it allow you to be she and if they don't respond to our subpoenas? >> it allows greater access, as i understand it, in serving a subpoena, and then enforng a subpoena for more, access to foreign papers. >> very good. >> if i can make one brief additional point. i do want to be clear that we do have existing authority to be register foreign firms, or any firm that doesn't cooperate in an inspection.

with us. and i don't want to take that off the table as a solution. obviously, would have significant ramifications if theye in a foreign country where no auditor in essence was registered in the united states, but in terms of our existing authority that is the ultimate step that w can take. >> thank you, mr. goelzer. the german from new jersey. >> okay. so what i hear, and other places of will from you folks is the accounting standard study folks are all about the transparency and disclosure and making sure the information is o there, right? and that it's the regulators job to deal with it, to reoncile the applications of it. and that's the regulators job to deal with. so we have the financial service reform bill that is going through right now, and as a risk retention element to it. mandates 5% on eh loan or bond issue, be held on.

and so some folks look at that and say hey, you can put that 5% risk retentionssets on it, that will tighten down credit availability even further than where the markets are today. so with that whole issue out there living right now, is it even more important than ever before that you have, i think your words, a decoupling of the accounting rules from what the regulators are putting in place? the regulars are putting in place if you want to make sure that we still have some availability of credit availability going forward? >> as i understand it, there already is that flexibility to decouple supervision and the measures used by bank supervisors from accounting -- accounting as set by the fasb as a starting point to have the

flexibility to be couple, so as i understand that already exist. but i do think that it calls for continuing coordination between the fasb, sec, prudential supervisors as we do already. we know less than a quarterly basis at th senior staff level with the bank supervisors and my staff is talking to their staff on a real-time continuous asis. . . but it occurred to a certain degree. for example, the bank regulators have traditionally chosen to not factor in unrealized gains and losses on debt securities into their

competitions of regulatory capital, even though, for gap reporting it does affect the amount of stockholders' equity that is reported. there were changes under statements 166 and 167. we did involve them and keep them very well-apprised as we were going along in the development of those. they did factor them into the stress tests last year. they followed up late last year with some guidance on the impact that those new standards would have. they did provide a transition for the regulated institutions to build their initial capital. >> ok. as long as you are still

talking, with regard to the whole convergence issues, which u.s. and other people talked about, the g-20 has recommended that there are new accounting standards to work together with the bank regulators. procyclical. the ifad has been working at one point we haven't hit today is on me one michio of market to market and they said they don't want mark-to-market. you will take a contrary view i guess you put it. , kenny lay that out is why were taken a contrary view to where the g. tony, the banking regulators and investors are on this issue? >> my understanding, the g20 what the group under the g20 common financial stability board which actuly i think would periodically as well, you know,

obviously been a financial stability board their first interest is an instability of the overall system, you know, our job i'm totally for stability. their jobs more transparent for investors like the capital allocation process. so, work very closely with the banking regulators to try to understand their point of view. we work closely with investors to understand their points of view. we get t point of view of the companies and we really try to square the circle in terms of meeting all those different name and waves. and a lot of investors would've liked to see more and imation on current values of the financial assets of institutions. >> so it's clearly iicult in some of those. okay, thanks.

>> thank you, mr. kerry. mr. campbell. >> thank you, mr. chairman. i would like to follow up on standard 166 and 167. if there's a risk retention requirement you got to keep a percent banks off into securitization. you've got to keep 5%. under 166 and 167, that pincus to keep the whole loan unfair, no? i am wrong. tatsumi. >> it really depends on what the 5% are present. if he represents the first loss, yes. if it affects like the equity purchaseint in me transaction is their first love. it is more of a pro rata 5% retentn, i would not be deemed significant. >> ok, if it is the first loss, then they do you have to keep the entire loan on their

books, rate? >> yet. >> right, okay. and this is the kind of place where we do these prescriptive, very prescriptive accounting standards, this is the sort of thing when you do that you probably weren't anticipating this sort of thing and there ay be some other actions in the future where we've got a lot of thanks with a lot of debt that there may be various ways that that can be moved to other places, but where they're going to have to keep a lice of it somewhere in order to make the whole transaction word. our change and make some of these things a little more solvent in the future. and this is where i think you can see that divergence between substance baking regulation in order to make this thing work out. and also look at standard 166 and 17 and say as fr as te audited balance sheet, this bank is going to not improve it at

all. not a problem and i'm curious for any of you, in that specific instance, not a problem, you guys can look at it and respond quickly or what? >> in that instance, it is a problem if you saidyou havegniff you will. a significant risk and you have control you need to consolidate. if it was 5% -- you've got to have the majority of, let's say it's high-quality assets. you might actually have most of the risk of those assets. and so i think that the principle of standards. if youhave most of the risk of those, maybe there are to be on your books. not a problem in terms of being able to respond. >> if you've are $3 million loan, you can lose $3 million in

theory and method in your and so forth. if that will go somewhere else and it's sometimes a bit ofhis first loss, but gives you maximm $200,000 plus wishes to, is that a different situation? >> think of it in these terms. if you had a company and had some risk in it and you were the equity investor and the rest of the capital is sort of provided by othe people in a form det financing, but, you also ran the show. i think you'd agree under long-standing account, you would consolidate that entity. and so that's the basic analogy they are. >> but i guess, does it bother if you if you have divergence between the financial accounting standard and the way the banking regulators will treat the transaction?

>> you know, in an ideal world we would have the same reporting for financial reporting, for regulatory reporting, for tax reporting. but because the all-star from different objectives, sometimes that's not possible. >> okay. >> in the instance of 166 and 167, as i understand it and regulators have looked at those standds and indicate it will help them to a better assessment of risk. in fact, a process like that went rough or was included in the stress test, effectively taking fasb's nuke finance and saying would we get a better identification of risk for these two standards? >> a question for mr. goelzer. i mentioned before about the markets using different data than the traditional three elements of the financial statement.

are there things that we ought to -- a lot of that comes from audited data, but does it all and are there things we got to be auditing, numbers that are to be audited for public companies that are currently being audited? >> because the markets are using them. >> this is a hard question to answer. i think from our perspective the important thing would be th the scope of the auditor's responsibilities are clear and that if we are going to bring in additional information, in fact, currently pa of the financial statements that information is audited at all, not so dependent on judgments or management that an auditor can develop evidence and supporting an opinion on if we have a chance to read a standard. i mean, as to what some of the content wuld eat at additional information brought under the auditing, you think you have to think about that a little. >> thank you, mr. chairman.

thank you. >> the gentleman from califoria. >> thank you, mr. chairman. i'm going to follow up by mr. garrett and mr. campbell's line of estioning here because last week we had fasb's cabins across submit testimony here that in many waysrecognized or admit a certain dichotomy here or a certain problem when it comes to the impact or effect on this decision. he said -- he said that keeping assets on the books will better reflect financial institutions exposures to risk, but may also, in his words, affects their ability to comply with the regulatory capital requirements and therefore affct the liquidity available to real estate in the u.s. to commercial

real estate specifically. and one of the debates that we have had about the vicious circle that we've got ourselves caught in is the fact that in many cases you have performing loans, but banks aren't allowed to be banks right now. you know, if the appraiser -- the appraisal comes back and the value, you know, isn't what necessary, there regardless the fact it's a performing mound and in the past maybe you keep it on the books and you have to make that tough decision because the regulator is breathing down your neck. and at that hearing, u.s. up a witness is involved in the commercial real estate industry expressed their grave concerns over tis treatment. and i guess we're just getting back to what is fasb's response engaged and acknowledged by, you

know, your technical advisor there by kevin in that hearing last week. you know, and someone at some point in time to give the banks the ability to work out some of these problems using their best judgment? caot also just ask, you know, the sec's perspective as well because he'll have to deal it -- this will affect, you know, companies that she will oversee as to become more and more rigid in terms of the ways in which we define and control the ability of thinkers to use their judgment. ultimately, you oversee those firms. you might have a comment on this, so go ahead and th please. mr. herz. >> the goal of financial reporting this to underline the economic reality as best we can

with the tools availableand often requiring necessary judgment of the companies and auditors involved. we believe the new standards strike t right balance in that area, in fact, regulators seem to agree that for their purposes it does as well. i mean, you know, arguably some of the problems that caused the crisis work, you know, too much free reign, too much liquidity, too much thanks that were improperly on the balance sheets. >> mr. herz, i cringe about that. somehow when you get to the point when you have performing loans, which no longer make the test, you're in something of unchartered waters here when you notice that it became to have

this domino effect in communities and it's almost a self-fulfilling prophecy in that sense. i mean, if you don't roll over these performing loans because you don't make -- the reality is they're performing loans at least for here and now. and that sort of the dichotomy i think we're in, right-click >> i'm not sure those are alan and of 166 or 167. >> no, but the further crimp on liquidity for commercial real estate compounds thisproblem, where we are to have this lack of liquidity and titan occurs on them. and at the end of the day, there is in the capital they are. and so the decision is made not to roll over the performing loan. >> and a capital requirements of things that the bank regulators

determine if they've given some forbearance or a transition period related to her new standard, but they concluded that the new standard provides a better basis for them to make d. terminations. >> let me ask the sec very quickly and then i'm finished. >> i don't think banks should have greater flexibility in terms of keeping risk balance sheet. and that's probably a better reception for bank regulators, as i understand it, they have the flexibility in terms ohow they'llrespond. >> the flexibility hasn't been used to our abili to discern it, but thank you very much. >> thank you very much. it isn't surprising and this action was an interesting commentary when i started out i suggested that we who are not accounted good for the deaths. but quite frankly i've really

enjoyed the witness' testimony. i want to thank them and they want to send this message to within the next several weeks or weak willed will convene a conference on the senate and the house bill. and obviously our need to reconcile some differences and potentially at some parts of the bill that they may be missing. and all three witnesses are in a peculiar and favorite position to be able to help committee as we put the final bill together, that if you see something lacking, i can assure you on one telephone call away and i'm sure mr. garrett is one telephone call away. we're looking for the best expert help in structuring the finest enforcement bill we can put together to make sure though we hear this all the time, that this will never happen again.

i for one can see something is going to happen again so we shouldn't use that terminology, but we could creamy great deal from the crisis and put a iece of legislation in place that will force all of that kind of activity for occurring again for many, many decades. and toward that end, i solicit your assistance and help. in any of my staff that don't take your calls, you let a know it will have new stuff in place, but i know they will only want to encourage you to take advantage of that invitation. so with that, the chairman of some members may may have additional questions for this panel which they may wish to submit in writing. without objection, the hearing cord will remain open for 30 days for member to submit written questions to these witnesses and to place their responses in the record here without objection is so ordered. before we turn, thefollowing materials will be made part of the record of this hearing. a letter of may 20 from the independent community bankers of

america. without objection, it is so ordered. but the panel is dismissed and this hearing is adjourned. >> both houses of the chairman parliament approved a their contribution to the aid package. the 750 billion -- the $750 billion euro package is designed to aid struggling european economies. of the 27 countries in the european union, germany is the largest contributor. we now have a news update on the economic situation. this is 10 minutes.

>> the chairman parliament has approved the loan ok'ing the contribution to the european package for certain countries. chancellor merkel calls it a signal towards security. sure remains under fire for her handling of the crisis. -- she remains under fire for her handling of the crisis and her initial refusal to support the legislation. >> lawmakers approve today a package. opposition parliamentarians said that the chancellor's erratic course to the crisis was starting germany in europe. >> you have no policy, noble, and you do not know where this country or europe should be going. that is the result after seven months of your government in

this country. [applause] this is not the time for you to tell us that america is terrible or you are terrible. the issue we are debating is whether you believe europe should stand or fall. [applause] >> the government wanted a quick look bang, but the opposition tried foul because, it had not seen the full text.. a motion to postpone it failed and the finance minister made a final plea for a broad majority. >> we depend on a strong and effective europe. we stand for the stability of our common european currency and we're ready to take responsibility for it. that should apply, not only to the coalition, but also to everyone in this house who cares about europe. thank you. [applause] >> the appeal went unheeded. she got her majority anyway. she criticized the opposition's

stance. >> it is disappointing that opposition party failed to live up to their european obligations. therefore, it was all the more important that the government sent a clear signal to europe. >> hours later, the bill was also approved in the second chamber of parliament. >> that came as the new european economic task force held its first meeting in brussels. they discussed how to tighten rules to prevent this kind of greek debt crisis from happening anywhere else. the chairman finance ministers -- the finance ministers did their best to provide a unified front in the face of nervous markets. the criticism of germany's decision to ban they get short selling without consulting their partners is now water under the bridge. >> what do you think of the terms?

>> [inaudible] >> they did talk about ways to reform the europe. the president of the european union heard statements from various statements -- heard statements from various members. >> we must do what we can do very soon and very fast. we should do it as fast as possible. >> the task force also recommended harsher penalties for deficit offenders. the mother was a broad consensus of having financial sanctions -- >> there was a broad consensus of having financial sanctions. that -- >> that might include the loss of voting rights. >> the british prime minister says that a strong and stable

europe zone is also in the uk's interest. cameron was speaking on his first official visit to germany where he told -- where he held talks with chancellor merkel. >> this was his first visit to berlin as prime minister. it was anything but a courtesy call. they have a frank exchange of it views, agreeing on the importance of stabilizing the bureau. sharp differences remain on market -- market regulations, especially her intention to impose curbs on the hedge funds. >> we do have our concerns. we do not think hedge funds were the cause of the problems in our financial markets and in our economy. we except the need for regulation, but it needs to be fair and proportionate. >> he says that europe must tackle the real causes of the crisis. merkel is facing a tough road

for fiscal policies. >> we need world wide regulations that include all markets and not a grab bag of policies. >> they also discussed military strategy in afghanistan and possible sanctions against iran over its disputed nuclear program. despite general agreement on those issues, britain's new government is distancing itself from germany in europe. >> it looks like we are flying right into trouble. >> trouble behind and trouble ahead. they had losses of just over 600 billion year rose. the result for 2009 was slightly better than analysts had expected. they are making progress on a cost-savings program. management and cabin crew remain in disagreement on savings plans. they are facing 15 days of they are facing 15 days of strike