i hope that we will be getting a report in a timely manner? >> that is unquestioned, sir. . .

was required to deal with and i hope that also applies to this particular situation. we have heard today there have been a lot of questions that have been asked. it may be that the department does not yet have the answers to share with us but when those answers are there we hope we can get them in a timely manner and then we can decide how to go forward in the future and what was and what was not the occasion in the gulf. thank you for your time. >> i didn't use the word unintended consequence at all. >> i yield back. >> the gentleman from oklahoma is recognized. >> i appreciate you having the hearing today. also secretary hayes for being here and also the secretary for being here earlier. a come of points. i'm kind of like mr. besh on. i've been critical of the department on a number of issues.

mainly about access. i'm one of those rare democrats that does support drilling but at the same time i think we need to be thoughtful about it. i think it is the time for us to pause and to be very careful. i want to say to you and to the secretary, i've watched your response and i know that you all kind of have the weight of the world on your shoulders now and you don't need somebody else to be piling on so i'm not going to do that today and i just want to thank you for your service to this country. a couple of questions i do have and this was something that congressman holtz brought up. it was something about independent oil and gas companies and whether or not they should be drilling in the offshore and because of the liability issue. and you mentioned opa 90 a couple of times. we have this found, you know there is a $75 million cap but then you have this fund over $1

billion that is sitting there that is used for these cleanups. would it be better instead of just having an unlimited cap, would it be better because then as was mentioned by other members you would only have a few companies that would be able to drill including like the chinese and folks that are not necessarily friendly to the united states. would it be better to solve the problem, to increase -- to increase -- and all of our problems -- to increase the fee on the oil and gas industry, to raise that fund level to $4 billion, $5 billion, $10 billion, whatever the imagine eck number is and i don't know what that is is -- magic nom and i don't know what that is so when there is a big disaster we can clean up the pollution and we can solve the problem that we both have while still allowing independents to produce a vast

majority of the oil and gas that is out there. we have a lot of partnerships. for instance, we have a company in oklahoma, they have since sold their offshore devin industry partnered with chevron and found a really big discovery. we want that kind of technology-sharing. we want those kind of people, oklahomans and others creating those jobs to be out there. my first question is can't we accomplish the end goal of cleaning up the mess and having the money there without necessarilying all the folks out? that's my first question and my second question is about the more or the yum. i've had a lot of the shallow water drillers in my office. the noolings drill anywhere from 4,500 to 5,000 feet. i think they are vastly different than what you have in the offshore. they complete wells in a short amount of time.

there could be thousand s of people laid off if the morer to yum goes through. i understand you have to go in and do the inspections and i also want to applaud you all for looking at breaking up m.m.s. i think it is a positive step forward. again, i'm not here to talk about the clinton administration or the bush administration or sorry, mr. bishop or whatever, the obama administration. there is a lot of blame to go around and all that. i just want to find the best solution. i hear your thought about opa 90 and the issue that i hope we can work out and also about the drilling. i would loove for you to say 28th we're going to say we can start drilling again. >> congressman, on the first point, the administration is absolutely open to working with the congress on this suite of issues, i think we have a shared

interest in making sure that companies that operate in the offshore have the wherewithal to respond to any problem that arises. we have that shared view. i could only speak to that issue of the cap. but there may well be other ways to skin the kapp cat, so to speak. >> let me just say real quickly. i'm just worried in this political environment someone is going to attach this to a must-pass bill and all of a sudden we're going to have the chinese drilling on our offshore. >> i understand in terms of the shallow water issue moratorium is associated with a report that will soon be delivered to president and then decisions will be made. that's about all i can say about that.

>> thank you for your service. >> thank you, mr. chairman. madam swrare. -- secretary. we heard secretary salazar talk about wanting to help us and wanting to get the answers but we also heard the ranking member talk about requests that were made eight months ago for which we have not got answers. that really needs to be responded to. i don't care who is in the majority. there ought to be respect enough for this body and this body's oversight that we get answers within eight months and not only that, there ought to be enough respect for congress within congress that when congress can't get answers we demand them and don't reward an agency until they comply so i'm hoping that maybe it is a little bit pollyanna but i'm hoping for the future we'll have a little bit of respect for the department ofer intoier and get answer to

the questions. also looking at the a.p. article. they didn't get any respect from d.o.i.. theyiested information so they could put together stories and indicate they got information from d.o.i. that deep water horizon was inspected after 2001 when it went into the gulffbut more recently, the numbers keep being amended by m.m.s. as to how many times it was seen, went from 26 to 48 times reported for the 64 months since january of 2005 and the freedom of information request by the a.p. indicates m.m.s. only release copies of three inspection reports. i know you said you're looking forward to getting the reports and finding out what happened? why couldn't we just see the

record? we can read those. as a judge i frequently had to review evidence myself. you get people that come in and know what they are talking about hopefully and to give you their assessment but why captain we just say here's the -- can't we just say here's the report. here the is the blow outtesting that was done and the record that wasn't done. then we would know and wouldn't have to wait for somebody with m.m.s. or d.o.i. to tell us what happened? can't we ggt those reports without an investigation waiting for that? >> congressman, with all due respect, we are being inundated with requests for information at the same time that we are devoting an incredible effort at addressing -- >> i can understand when you wait eighth months to respond to questions we ask it must build up pretty significantly over time but if we could just get the copies of what has happened,

it doesn't do you any good to come in and say we got all of these requests building up when you keep letting them build up over months. one of the problems is only having five minutes. let me get to this. we heard secretary salazar mention a prior administration when industry was running the show. he said the relationship between m.m.s. and big oil is arms length and now we know we have had neargs this hearings in this room and got down to two people who knew about that prior administration that was run things in 19788 and 19999 and they -- 1988 and 1999. they cost our federal treasury millions and millions of dollars. when i asked the inspector general, i said why didn't you talk to these he said there was

nothing i could do. i can't believe he didn't try to call them and see if they could voluntarily respond and they didn't. it turns out one of those went from the clipton administration to become -- for north america and then she was promoted to director of the emergency response for british petroleum and then she became general manager for strategic partnerships at british petroleum and then last summer secretary salazar said she understands the value of partnership so he's now put her with management in the department of interior. and so i hope that you'll look closely into that cozy relationship the president has talked about wanting to end and i'm very concerned that if minerals and management is overseeing british petroleum just how cozy that this has gotten. i realize my time expired but

i'm just asking please look into this, the inspector general refused and we have to really on you to help because congress is not adequately looking into it. thank you. >> just for the record, sylvia balk has been completely recruised from this malter because of her employment with b.p. >> is that leading up to the blowout failing to work properly? >> she has not been involved in offshore energy issues. >> gentleman's time is expired. gentleman from wisconsin. >> thank you. deputy secretary thank you for being here along with the secretary and i do appreciate what the administration with the department of interior has been trying to do in light of this accident and if my recollection is correct, since coming to office with the department of interior has eliminated the

scandal-plagued program. that has already taken place. established new ethics standards, within the department and -- m.m.s. mission to include renewable energy production. slowed down the new mission that has taken place. moved in the direction of more science-based determination as far as lease approval within the agency and obviously the secretary announced the division of m.m.s. now so that there is more focused attention on what needs to be done. all necessary steps but i know the people in western wisconsin are wondering why this happened and what steps can be taken to avoid it from occurring in the future. how much will the department be taking into consideration what other countries have required especially in the area of deep water drilling as far as improvements that we need to be making to ensure that any future

prompt or current project that is taking place now meets the optimal measurements of safety and science-based determination to keep this from happening in the future. if i recall, i think canada already requires a secondary pipe to be drilled at the same time the primary one is in any of their deep water drilling. am i correct in that? >> i don't know the details of that special point but to your more general points we are very interested in having world class standards and that means benchmarking against other countries and taking the best that they have to offer in fact, in the report that we're preparing for the president we started that function. there already is a lot of international discussion along these lines and -- but we take your point. we want to be -- have the best

standards in the world. >> be part of the commission's purview as well moving forward? the practices in the industry? >> absolutely. absolutely. yes. >> and also i think taking a look at the opportunity for sbdry safety valves to be established in case we get a blowout of this order so there is a second and third alternative in order to shut something like that off quick sflip >> yes. >> the inspector general is going to be testifying briefly before us too. we know we have a problem at m.m.s. in her report she indicated very, very clearly that a lot of this is human nature just plague out. first of all i think we have a terrible problem with the revolving door, those in the industry, to conduct oversight. also vice versa. those going to the private industry knowing how the play the game. i don't know what we can do really to get at that other than some brighter lying rules in order to prevents what appears

to be very cozy relationship and a lot of transition from public and private sector work that has been going on for a very long time. have you guys been thinking about this and coming up with some recommendations for us to consider as far as the revolving door problem that i think i and others -- >> absolutely have, in fact. as the inspector general, he may testify as soon as we have received the draft report. we're looking internally at some new rules that we might consider and we were in a dialogue with the inspector general about some new retirements that we would have on the revolving door theory. so we're absolutely attuned to that. >> now is it maybe ethically but is it prohibited by law or by criminal penalties from accepting gifts or kickback or things of that nature from the industry that you're supposed to

be overseeing? >> there are some very bright lines in interpretors what can be accepted as -- in terms of what can be accepted as gifts. their lines are much clearer and the ability to take disciplinary action is much more clear. the issue that mary kendall has raised appropriately is the cultural question of the friendships and the close relationships, etc. that's a harder nut to crack and we look forward to working with the inspector general. i will say that we have really enjoyed a very good professional relationship with the acting inspector general and we, in fact, she is working with us on a special safety oversight committee function moving forward for precisely this reason. it is very instructive to get reports to the inspector general's office. it is even i think more helpful

to get the input and experience to the inspector general as we look going forward, doing things we can do to avoid the problems so that we don't have the response. >> i appreciate that response. when you get comments that were all oil industry, it is very troubling. that is not the way this is supposed to work. but we'll look forward to you as we move forward. >> gentleman from new mexico is recognized recognize you as a new member prior to your arrival >> i look forward to working with you and all the members of the staff as well to really make a difference here, mr. chairman . deputy secretary, following the 199 exxon valdizz spill we heard -- wa that did to shift responsibility to these companies putting the federal government on a back step if you will as far as having that

direct involvement. learning from that, how can we eninsure the future that the federal government will take care of cleanup efforts whether it is establishing technical expertise from the private sector to drive this home and make sure we're doing the things we need to be doing right off the bat? >> congressman, i think that will be part of our debrief after this incident has been controlled. i think a lot of the confusion is -- is more in terms of the relative roles. i mean, the oil pollution act, you're collect, did make it scleer that the companies have -- clear that the companies have responsibility, b.p. in this case along with some other parties have to open their checkbooks and have to make it happen but the reality is that

the federal government the primary role of telling them what they have to pay for and that's what we're doing but like everything else associated with this incident, we will look forward to looking back and seeing whether it would be useful to clarify the law or clarify responsibilities. deputy secretary, i know that there has been a lot said by this, mr. dudley from b.p. talking about some of these attempts that failed attempts to stop the leak. that it has never been done before. there is no certainty at these kinds of depths. why didn't b.p. move forward trying to kill the well to begin with? it looks like all of these attempts were to keep the flow alive opposed to just shutting it off?

>> this was a catastrophic failure. if there had been a technical way to kill the well earlier, you can be assured they would have done it and we would have required them to do it. what happened was essentially the entire infrastructure sews crated with -- associated with killing the well was lost with the explosion so it has been happening over the last couple of weeks in particular has been a reconstruction effort to enable what is scheduled for today, the top kill, which requires under pressure, a very large volume of drilling fluids to be injected in the well and at 5,000 feet without delivery mechanisms, those mechanisms had on the constructed and it has been a 24/7 operation to get to this point today. >> i think there is a loot of concern there because in some recent -- lot of concern there

because in recent articles coming out of the "washington post" yesterday, it sites that lawmakers have faulted b.p. for not paying enough attention to the speak level in the drill pipe or plugging the well, both of which could have been addressed. instead they substituted seawater for drilling mud in plarings for closing the well and moving the exploreation rig off the site. it goes on the say that time worries were not the problem of b.p. they wrote about how to save time by leaving test valves in place. a halliburton official spoke about how to get cement to set faster and in a conference call last august we continued to hear about what that means to saving costses. leaving these test valves in there or turning them or there could bb other ways to shut

these off and i hope now with what is being done with the restructuring of m.m.s. that we're able to tard concern that was issued that m.m.s. dating back to 2002 that retirement was lifted from most wells in the gulf of mexico to have some of these contingency plans as well. i hope that we can learn that agencies can work close with one another as you have done to bring experts necessary here to address these issues. we have seen this that absolutely is not the case. they are still saying that they know it is not working. with that, mr. chairman, i appreciate it very much and yield back my time. >> the gentleman from oregon. thank you, mr. chairman . is there not a moratorium?

there are press accounts saying that perms have been issued. statements that the secretary put forward saying you're required to issue these permits within 30 days, within 30 days for approval or disapproval. are you under a moratorium or not on permitting? >> we have not approved any new applications for drilling in the deep water since april 20. and we are -- we put a full stop on all -- after may 6, all new applications to permit to drill, period, shallow water and deep water. the confusion, congressman, has been that there are revisions to permits so-called side tracks, bypasses. those appear on the m.m.s. websites as if they are new permits. they are ongoing operations.

drilling is already occurring. they hit a safety problem. they need to do a bypass or move around the problem. we are allowing those to go forward. those are not new applications for drilling and also the important thing also congressman is that this was in place until the president gets the report, which looks like will be tomorrow and then decisions will be made about the future. >> ok. now on the case of the test wells in the arctic. do they have to have a catastrophic plan for catastrophic failure before they drill a test well? >> we have not received yet the a.p.d. request from shell for those proposed exploratory wells. they also have to submit an a.p.d., an application for a permit to drill. so that what -- they have an

exploreation plan but the next step is for them to send us so-called a.p.d.'s which are the final step for he view. at that point we review the entire situation and decide whether to allow the exploreation activity to go forward. >> the activity does require a catastrophic plan? area yes, they do. i mean, you can envision the concern about you know, even fraction of this magnitude in the difficult conditions in the arctic. >> yes. >> i would assume that there is going to be extraordinary scrutiny applied to what they allege they have in place to deal with a catastrophic event. >> that is an appropriate assumption, congressman. in a hear last week it came out there is a lot about the blowout preventor having been modified and bhornt it had a hydraulic

leak. there was one thing even more disturb that long that beyond potential for malfunction or actual mall function is that it turns out that these blowout preventors cannot severe the pipe sever the pipe where it is joined. these preventers are not designed to go with. how can we continue to go forward with blowout preventers that can't do the job, even if they work. >> that is a very serious issue. there are two issues there. really the pipe rating matches the amente ability to have the sheers to cut through it and then the second issue is where the pipes are put tot. you have thicker material and -- together and you have thicker material and the likely failure of those sheers. we're going to need to look into this. my understanding is i've been told in this case, the sheer had

the capability of cutting through this quality of pipe but that obviously is going to be a factual question for this matter and will be part of the more general review. m.m.m. has done studies through the years on this question and tightened up the regulation but we're going to look today whether they have been tightened up more. >> there was a study done by m.m.s., a subsequent study in 2007 that b.p. engineered that most or many blowout preventers were not capable of cutting pipe of this thickness. so that is a very serious concern. we don't want to have blowout preventers as a feel-good device. i don't feel too good about this right now. that is something i really think you need to be looking at. with that, mr. chairman, thank

you. >> thanks to the gentleman for yeeling. you had a very important point here. what we have demonstrated is that if the oil is out of the pipe we have no means to control it when it comes to the surface. we have no ability to do this. we can try the manage it and all that. we're back now to relying on these blowout devices and until such time, you can have all of these plans you want but the only thing that stands between us and the catastrophic event is that blowout device because we now know, i don't care what they file about how many ships they are deponing to have in place and all the rest of it, you can't deal with it once it is in the water. this is kind of the fail safe point for the moment unless technology changes. just raised a critical point here, the idea of going forward,

relying on sheers. that may not -- we don't even know on other existing wells whether they are sufficient. >> the gentleman yields for one last question? >> yes, i yield. >> what about the possibility of a secondary pipe also goge in at the same time as the primary pipe? would that be another alternative to avoiding something like this? >> i'm not yet a petroleum engineer congressman. i seem to be heading that way. >> we all seem to be and that's what's scary. >> right. thank you. time is expired. gentleman from maryland. >> thank you, mr. chairman . mr. deputy secretary, first of all, thank you for being here for your service in what clearly must be a very, very difficult and stressful situation. you know, oftentimes when we have these kinds of events the first reaction is obviously to go after someone and figure out who is to blame. it seems to me the first issue

as you correctly pointed out is figuring out how do we stop the leak? in that regard, asouping today what wure trying to do today doesn't work then what? >> there is a backup plan that the secretary alluded to briefly that the scraff choo and destructors of the national labs have been working on with b.p. that would contain all of the flow and that would swing into action. i'm sure that if the top kill fails there will be a lot more discussion of that backup plan but again, i am probably not the best person to speak to the pmp's and qump's of it. -- pmp's and q's of it. >> obviously there has been a lot on the issue of the blowout. it is my understanding that back in 2001, m.m.s. issued a safety

alert recommending that all of these o.c.s. operators include a secondry activation system. and still there is no regulation requirement. correct? >> the -- there is a -- there is a requirement for redundancey in the m.m.s. regulations for -- is that what you're referring to? there is a lot of confusion about this. i know one of your witnesses, i would recommend that you go through that with her. in interprets of the -- in terms of the exploration plans willing required to have a blowout scenario that explains how they respond, why have those been in is ens sense waived? >> the primary reason for the

category exclusion operation for exploreation plans is only 30 days is allowed trpped lands act so there is no way to do a certainly a complete environmental analysis and it is something that the administration has requested that congress address so that's the primary reason. and as i mentioned before, in response to congressman hinrich's question we're doing a thorough top to bottom review of the application under the act. >> the difference between these deep water wells and the nondeep water wells is there any distinction? i combaffer there isn't -- i gather there isn't any distinction within the fund as it relates to making a distinction between deep water and non-deep water. do you think there should be? >> i have not thought about that question. >> ok.

one of the areas, switching to a more local area. one of the areas they are talking about drilling is off the coast of virginia. and obviously certain areas have been determined to be too environmentally sensitive. can you give me an idea of why an area that is very, very close to the chesapeake bay wouldn't qualify similarly to some of the other areas that are determined to be too environmentally sensitive? >> it might. decision was to go forward with an environmental impact analysis to see whether a sale should go sfured that environmental impact analysis has not been done. >> ok. there are other issues relled to that specific location as you may know related to the navy and nasa. >> right. wlar kind of coordination is done when that decision is done to open up an area like that with other agencies and entities

that may be affected by it. >> we work very closely with the department of defense. inform, the department of defense has recently gone public with an evaluation of expressing concern about most of that proposed area being needed for training purposes. >> why not do that before making the decision to explore opening that up? >> again, the decision is contingent upon bringing in all sorts of evidence. the next step would be a scoping process to get this kind of information. the sale was put on the existing five-year plan by the previous administration. it was something that was already presented to us. >> gentleman from new jersey? >> thank you mr. chairman. mr. secretary. in all fairness i should probably preface my questions by saying i personally was very

dispined in the administration's decision to expand leasing to the atlantic and you know, beyond what had been the area prior to when we had a moratorium in congress. i've been here 20 years. most of the time we have had presidents who through executive order or through the appropriations process they supported a moratorium on any leasing and i was disappointed that this administration broke that and started expanding the leasing to include parts of the atlantic and other areas that were deep water and i suspected that we would have another spill, catastrophic spill like this because you're going into deep water and the technology is not there to prevents a spill or cap a spill after it occurs. my hope is that the administration has learned its lesson after this and would go back to the moratorium we had before either with tth issues an executive order that had been

infect under bush and clinton and others or we adopt another moratorium as we have in the past. i guess my questions relate to that. i haven't seen any indication that the president is willing to change his position. in order, we is saying he is setting up this commission. there is going to be investigation. on several occasions since this bill he has made it quite clear. i think that his intention is when this is over and when the so-called technology is available that we will now expand and he's not reconsidering. can i just ask you three questions relative to that, though? is there any reason to believe that the president's willingness to sign an executive order that would prohibit any further lease sales, e.i.s.'s or areas that are now open to leasing sthroor what was in effect under the first bush, clinton and most of the time under the second president bush? any reason to believe that he would sign that executive order?

>> i certainly captain speak to that, congressman. -- can't speak to that, congressman. the president is focused as are we on on unfolding the crys is. >> any reason to believe he would support a legislative moratorium similar to what we had for 20 years? >> we are focused on the unfolding disaster. >> is management in any way considering revisiting the five-year plan, which continues to open up the atlantic coast and other potential and environmental devastation areas? is there any suggestion that they would reconsider tr decision to expand pursuant to your five-year plan? >> that decision was a draft. there is no new five-year plan yet in effect. it will not go into effect until 2012. the decision that was made was to begin an evaluation of

potential editions. >> is there any suggestion that that might be reconsidered in light of this bill? >> we are putting all of our attention on this spill right now, congressman. >> what about the -- so i mean, i take it since you're not responding i should atomb that there really not any changes being suggest? >> i don't think that is fair to make any assumption based on my response. >> onk, well, i would just ask again that all of those things be reconsidered. i listened to the secretary's remarks. he was sort of trying to separate himselfs from the previous policies of management but it seems to me that in many ways you're continuing them. as long as we say we're going to continue open up these areas to more leasing and more exploreation and more e.i.s.'s that essentially continues the policy and -- of the previous administration and that's very disappointing to me. >> i will just make comments

here that i think as the secretary pointed out, the approach that we have taken is a very cautious approach. we -- we were asked, we were required by court action to rereview decisions that the prior administration had made in the arctic with regard to oil and gas lease. as a result of that opportunity we canceled five lease sales scheduled. we canceled lease sales associated with crystal bay and in fact the president withdrew it. our approach here has been and will continue to be a prudent approach. >> i would just ask that you revisit the approach. we really don't want to see any drilling in the atlantic and we think this oil spill shows that it can't be done without a

catastrophic spill. thank you. >> thank you. >> thank you, mr. chairman . how are you, sir? i have several questions and i will rattle them off because i may not have time to get them all answered at the same time but this is the second hearing that i've attend. one was in transportation in regard to the spill. there are some of the questions that remain are how many deep wells does b.p. have and how many do other oil companies have? in the same -- depth as this particular one? and does any ore company have the same record or -- other company have the same record or i would say disregard for the government regulations and the workers' safety? this is not only hurting our country, it is also giving the industry a bad name.

one of the recommendations that has come to my attention is that maybe we might have congress pass a bill to force b.p. to divest all of its u.s. interests which would send a strong message to all of the u.s. companies considering trying to get away with that kind of action. secondly, do we have adequate baseline information or maps of the shorelines of the barrier islands and the wetlands to be able to quantify the impact the oil spill is having on these valuable reresources? if not, i know you're utilizing the information so you can accurately assess the damages that b.p. can be held accountable for. referring to the exxon valdez, that was 4 is years ago i believe. they are still having impact. i know b.p. professes at least in the last hearing that they

will be responsible for paying any and all claims. well, that may be well and good but can they replace lives? how about those people that were killed? what about in the third -- at issue is mental health services that some of the families and some of the people that are being affected by this spill in that whole area will have need of because there were some suicide if i remember correctly from some of the other accidents that happened and then are you considering any guidelines for employees in entering such a statement as to there will be federal prosecution for those that have been playing patsy with the industry? and my understanding of course is that we also have that same kind of issue with water. now you can apply. >> thank you, congresswoman. and it is a pleasure to work

with you on water issues. this is a different kind of water issue than we have been working on. just to take you questions in order. i will defer to liz burnbalm in terms of the b.p. wells in terms of the numbers. i will say that there are in the gulf of mexico 1,988 deep water wells currently and 35,000 shallow water wells. so this is a -- this is a -- there has been a significant amount of drilling activity here over the last several years. in terms of your second question, do we have good maps? are we doing a careful job of evaluating the potential impacts on coastal resources? it has actually been a very important initiative we have had in the recent weeks. we have had national park service, fish and wildlife service and other and noah and

e.p.a. folks but particularly our research agency folks doing a baseline analysis before the oil hits so that we will be able to quantify the damage and that the fact that the spill stayed offshore for the first couple of weeks provide us with that opportunity to do that. >> before you go on. you did not fully answer the first question because i was asking the number of b.p. wells. deep wells. >> yes, i will have to defer to the director of m.m.s. i do not know the answer to that unfortunately. >> fufment >> -- thank you. >> in terms of mental health assistance, i assume that that is available and it should be available. we'll be happy to pass along that concern to pat allen who runs the national incident command and finally, we have

provided guidelines to employees and made it leer that employees who have ethical -- clear that employees who have ethical issues will be prosecuted. the answer is yes. just yesterday morning in connection with the release of the inspector general's report the secretary made clear if there were violations of ethical concerns folks would be fired. he immediately put the individuals identified in the inspector general's report on administrative leave for that purpose and that follows the same approach he took upon coming into office in january 2009 in connection with the colorado concerns that had been raised by the inspector general. >> right. but i just want to be sure that not knowledge this particular agency but other agencies in the department of interior. >> yes. >> simply because thblingd happen again and it is probable.

bureaucracy maintained. and unless we take steps to ensure that they are aware that they are dilly-dallying, that they all will be possible to the full extent of the law. >> yes, we have really worked hard to promote a new sensitivity to ethics in the department. it is one of secretary's highest priorities and we will remain vigilant throughout the department. >> thank you very much. you have been a great pleasure to work with, sir. thank you, mr. chairman . >> thank you, mr. deputy secretary. we understand you have a meeting at the white house in 20 minutes. we will allow you to leave at this point. >> thank you very much 3789 appreciate the chance to be with you and i'm impressed with your ability to avoid lunch and bathroom breaks and your commitment to public service in all of that regard. >> i'm the only one that has been able to last.

will deputy secretary, i join with many of my colleagues that have expressed deep appreciation to you for the tremendous number of hours that you have spent on this tragedy, tremendous sacrifice to yourself and to your family and we really appreciate it. thank you for your service. our next -- our next witness is mismary kindle. who has been with us all morning. duo appreciate your patience. and you may proceed as you desire. >> thank you mr. chairman . mr. chairman and members of the committee, i thank you for the opportunity to testify today about the recent office of

inspector general report that addresses a number of issues concerning the mineral management service at the department of interior. as you well know we have previously identified problematic weaknesses and some egregious misconduct within m.m.s. the latter of which received considerable coverage by the press and scrutiny by this committee as well as others. in the reports released this week we found more of the same. although the misconduct is date. ing orbly less egregious and considerably less sal anxious than that in our -- salacious. as a result we issued our most recent investigative report according to our routine protocol providing a copy to the department and requiring a response within 90 days. at which point we would provide copies of the report and post it to our website.

this report had become anything but routine m we expedited its release. i neither condone nor exdeuce behavior chronicled in this, for the most part the improper conduct of the employees at the lake charles district office proceeded the termination to have regional supervisor in 2007 for his gift acceptance. ands as the report indicates this behavior appears to have drastically declined. as such, i am for concerned about the environment in this ch these inspectors operate and the ease of which may move between industry and government. i'm also concerned about the conduct of industry representatives. something we also identified in our 2008 report. that they should think it permissible to frat erpize and provide federal government employees with gifts after all the media coverage of this

practice is hard to fathom but may be informed by the environment as well. while not included in our report, we discovered that the individuals involved in the fraternizeation and gift exchange, both government and industry have often known one another since childhood. their relationships were formed well before they joined either industry or government. m.m.s. relies on the ability to hire employees with industry experience and in my very brief but intense experience in this arena the past month or so, the m.m.s. employees that i have met that have come from industry are highly professional, extremely knowledgeable and passionate about the job they do. as you know, all of the reports related to m.m.s. have made headlines. some more sensational than others. this report has done the same. headlines, however, are not our goal.

rather, our goal has always been and is today, to effect positive change. to this end, i must credit the department for the serious with which it has taken the findings contained in this report and for taking swift action in response to the misconduct and the challenges inherent to the industry government dilemma. as you also know, secretary salazar has announced that m.m.s. will be split boo into two distinct bureaus. and a third independent office for the collection of royalties under the steapt secretary for policy -- assistant secretary for policy and budget. as this administration progresses i am hopeful that the department will heed our recommendations for improvement. this must be bolstered to include control and strong oversight. we are pleased with secretary

salazar's continued emphasis on ethics and m.m.s.'s preliminary response to our most recent report indicating that it will among other things enhance ethics training, specifically for its inspectors and establish controls like a two-year waiting period to further ensure ethical compliance. the time element is strong scrover sight. in the fall of 2008, inspector general testified before this committee describing what was then a fledgling office now called our royalty initiatives group. since that time we have also established an investigative unit dedicated to energy issues and expanded our oversight coverage. until recently, these two offices had been dedicated to the royalties-related oversight and improve identicals. since the events of april 20, it

has become increasingly clear that we must expand their scope to providing oversight for safety inspection and enforcement aspects on energy production. we have begun a multipronged toast address these issues as quickly and thoroughly as possible. including an inquire into whether or not the ethics issues in m.m.s. have, in fact, ceased. we also are conducting an investigation into the actions of m.m.s. officials concerning the approval and inspection of the operations on deep water horizon. beyond these efforts, which are clearly spurred by the immediate urgency of the matter at hand, we will focus on billing our oversight capacity beyond roilts into the areas of safety and oversight of drilling operations both off and onshore. this includes my prepared testimony today.

i would be happy to answer any questions. >> thank you very much for your testimony. and the work obviously by this office and it certainly -- the testimony early on and the investigations done pointed out all of the problems that we have discussed here today and i think they are obviously very important and i appreciate your talking to the committee that you believe that there has been a very serious response by the -- by the secretary and the assistant secretary and the director of m.m.s. with regard to these because i know that's how this committee and certainly the chairman that has led the way on these investigations, we take this very, very seriously. it is the environment, it is a lot of very serious issues. but i would like to move, if i can, to on your last page, i'm

chair of education and labor committee and deal with osha and worker safety and the chairman and myself just returned from a hearing on the coal mine safety and the accident that took place at the big branch mine and i know you're apparently now going to be part of a committee that is going to be reviewing safety. is that correct? very yes, it is the -- >> re-re-are we talking about safety in interprets of the rigs and the environment or the safety of the tragic loss of life of the 11 workers? >> it covers both. >> it covers both? >> yes. >> because i think this is a very hazardous industry. as we see when things go wrong, they can go wrong in a very big way. that's not to say -- i think there has been a great reduction in injuries in the rest of that. we'll find that out but we have a number of industries that wr that doesn't tell you what can

happen when things go wrong and there are processes in place in other areas, not because -- not in the mineral management service at the time but where we change the burden of proof when you're engaged in activities or changes within the chemical industry and other places. in this case they were going to engage in capping this well, i believe the exploration was done. you're going to get this rig off and bring in a production facility sometime in future and i don't know but i really would be trg interested in knowing whether then there is a checklist that people go through about where people are going to be engaged in this process. how is this going to be handled and whether the -- i know the coast guard, i don't think does these rigs. they do ships and vessels and i think that is the hybrid, neither fish nor fowl. in any district, if you were going to shut down a refinery you would go down a checklist of

what was going to take place. i would just hope that you would look at this in terms of events that take place on these rigs where you may want people to stop and think about how is this transaction going to take pleas and it as -- place and it could be as small as loading and unloading cargo and whether or not you're going to cap a well. am i making any sense to you? >> yes, you are. >> wouldn't be the first time someone looked at me like i wasn't making any sense. i think it is a very serious concern. put on our other hats. we lost 11 people on this rig and we're starting to get some information about what took place and it is not what you would like to be the regular order given the transaction that they were going through in swap ought this well. >> absolutely. part of the responsibility of this oversight board is to be

informed by what it learns from the investigation. i think we have learned a great deal. the next question becomes what needs to be done in terms of improvements in the process and m.m.s.'s oversight. and the like. the -- what identified as our next task, which is to send out inspector general teams to really dive into knees areas and bring back information -- into these areas and bring back information reviewed by experts since we do not have that expertise in our office but we have the capability to go out and collect information quickly and make a quick analysis and present it through the safety oversight board to the secretary who then will probably employ a series of experts from the national academy of engineering

or from the president's commission to review this information.

mr. cao: thank you, mr. speaker. i yield myself such time as i may consume. the speaker pro tempore: the gentleman is recognized. mr. cao: thank you, mr. speaker. mr. speaker, i rise today in support of house resolution 1347. this resolution honors the workers who perished on the deepwater horizon offshore oil platform off the coast of louisiana and extends our sincerest condolees to those families. it also recognizes the valiant efforts of emergency response workers and volunteers at the disaster site. i commend my colleague and friend, congressman melancon, for bringing this important piece of legislation before the house. and i extend my appreciation to him and to the rest of my colleagues in the louisiana

congressional delegation for working together to address this disaster. mr. speaker, i have come to the house floor a number of times since april 20 speaking of the ongoing impact of this tragedy on the gulf coast. today, i want to focus on those lives who were lost that day and those who continue to respond to the crisis. as i listened to my colleagues support this resolution, my heart is heavy. as with their family and friends, i mourn the loss of those who died aboard the platform. on that tragic day, the 11 men, jason, aaron, donald, steven, roy, carl, gordon, blair, dewie, shane andadam were on the rig doing what they do best. the demand of working the rig

is great. it is physically demanding work and it takes loved ones away from their families for long stretches of time. our coastline is a working coastline because we are blessed with abundant resources in the gulf of mexico. from fishermen to those working the rig, each day you can find thousands the water laboring to produce these resources and to contribute to the industry and economy of this nation. on april 20, the 11 men were working to provide the energy that has driven this nation for centuries and that continues to be a force in the economy of my home state of louisiana. this is dangerous work and it is our responsibility to ensure that safety precautions are taken and that procedures are strictly followed.

the explosion is being investigated by congressional committees, and it is our responsility to ensure the findings are swiftly addressed with new policies to strengthen safety procedures forhose workinin dangerous conditions. you have my word this will be done. this nation has come togeth as one and this is especially the case for those along the coast. i wish to recognize the extraordinary work of the thousands of volunteers and the emergency personnel, from the red cross to the u.s. cot guard whose unhesitating response to the call of need thus represents the compassion and dedication of this great nation. to the families of the 11 who perished, i know there is nothing my colleagues or i can say will return your sons, husband, brothers home to you, but it is my hope that the

gratitude we express on behalf of the citizens of this great tion will provide some comfort to you while you grieve your loss. in closing, mr. speaker, i ask my colleagues to support house resolution 1347. thank you, and i reserve the balance of my time. the speaker pro tempore: the gentleman from louisiana reserves the balance of his time. the gentlelady from california. ms. speier: mr. speaker, i now yield to the gentleman from and great leaderrom louisiana, mr. melancon, as much time as he may consume. the speaker pro tempore: the gentleman from louisianas recognized for as much time as he m consume. mr. melancon: thank you, mr. speaker. thank you, representative speier. i rise today with a heavyeart to remember the 11 men that died in the offshore ri deepwater horizon. those men and thousands of them like them, women included, travel to offshore rigs every day to work hardnd provide opportunities for us to make a ving. as a crisis in the gulf of mexico continues to grow, we see shortlines, fisheries and

other -- shorelines, fisheries and other economies threatened. this has the entire gulf coast ancountry watching to see how soon we can end this. setting aside the present crisis for a moment, i am proud to stand with members of this congress to remember those men who represent a very human face to this tragedy. i'd also like to take a moment to recognize the families of those 11 people. those men were doing what so many other men and women do in louisiana every day. they were working to provide a better life for their families while braving difficult and sometimes dangerous conditions to provide domestic energy needed to drive our nation and our economy. our thoughts are with these families, and i pray that their grief is not forgotten by the rest of us. and as we should also recognize, the courage, work of the emergency responders who fought the blaze and saved lives that night. the loss of those loving workers is a high cost to their families, and so i ask everyone

to please remember the personal side to this tragedy as we move forward. please keep them in your thoughts and particularlkeep them in your prayers. i thank you, mr. speaker, and i yield back. the speaker pro mpore: the gentleman yiel back the balance of his time. the gentlelady from california reserves thealance of her time. the gentleman from louisiana. mr. cao: thank you, mr. speaker. and i would like to yield to my distinguished colleague and friend from louisiana, mr. alexander, for two minutes. the speaker pro tempore: the gentleman from louisiana is recognized for two minutes. mr. alexander: i thank the gentleman for yielding. all those along the gulf coast there are communities, many communities, hundreds of miles from the edge of the water, communities that are filled with families that for generation after generation have produced the workers that are required to produce gas and oil in the gulf region. some of those workers leave home for a period of seven days, 14 days, perhaps 21 days

before coming home. sadly, some never return home. families can't be prepared for long those loved ones. and for th our hearts and prayers go out. and i yield back. the speaker pro tempore: the gentleman from louisiana yields back the balance of his time. the gentleman from louisiana reserves the balance of his time. the gentlelady from california. ms. speier: mr. speaker, i continue to reserve the balance of my time. the speaker pro tempore: the gentlelady from california reserves the balance of her time. the gentleman from louisiana. mr. cao: mr. speaker, i yield three minutes to my distinguished colleague from the state of louisiana, mr. scalise. the speaker pro tempore: the gentleman from louisiana is recognized for three minutes. . scalise: thank you, mr. speaker. i thank my colleague from new orleans. this is a sad time for those of us from south louisiana. it's a sad time, especially as we look at what's happening ery day as more oil gushes

into our marchland, our valuable, fragile ecosystem. but if there's anything that eclipses the sadness that we're experiencing on the coast, it's the loss of those 11 lives, the 11 brave men who died on that horizon rig and the families that they left behind. so many of those young men left behind young children and wives who now have to cope with the loss and somehow find way -- find a way to move on. our prayers go out to those who lost their lives and those families who are continuing to experience the tragedy that we're all so sorry for experiencing othe gulf coast. so it's a sad time for all of us on the gulf coast, but we want to give a special pause for those families who lost lives and the young children

business. the presiding officer: without objection. mr. nelson: mr. president, yesterday the inspector general for the department of interior came out with their report, this investigative report, of which it followed another inspector general report just a month ago. two inspector general reports talking about what's wrong in the mineral management service, recent of which is quite disturbing and on the heels of the one a month ago

where they found that a culture where the acceptance of gifts om oil and gas companies were widespread throughout the office of the lake charles district mineral management service in louisiana. that, of course, came on the heels of what we discovered years ago in reports about the incestuous cozy relionship between the oil industry and the regulators that are supposed to see that the oil industry is doing its job and doing it safely and collecting all of the revenues from the oilities that the oil industry is supposed to pay, having drilled on federal lands which is the sea bottom of the gulf of mexico. well, this latest investigative

report points out -- and i will quote -- "of greatest concern is the environment in which these inspectors operate, particularly in the case with which they move between the industry and the government. that's called -- and the government." that's called the revolving door. that's somebody in the industry comes in to the government as a regulator and then the revolving door turns and they go back into the industry. now, how in the world can you have a regulator that is coming from the industry into regulation of that industry and turn inhe revolving door and go right back into that industry? well, that's the problem.

and that's what we have got to fix. and so my office is talking with senator mendez' office and it is my intention that we will file today a bill that will do a number of things. it wl stop this revolving door by requiring the same thing that we require for ourselves here in the senate, that when you leave the senate, you can't go in to somebody that had lobbied you as a business that lobbied the senate for a period of two years. that the minimum that we should expect. and that this legislation will also insist on things that are common sense.

that the regulators can't accept guests from the industry that they are regulating, and that they have got to have financial disclosure that would show what the regulator owns if they are in any way compromised with the very industry that they are trying to regulate, and that if they have any outside interest -- for example, stock in oil companies that they are regulating, that they would have to divest from that, and furthermore that in the egregious case, that they would also be partially employed by that outside industry that they are regulating, that clearly that could be prohibited. now, these a just commonsense things. why isn't this in the law? senator menendez and i offered

this law two years ago when all of these revelations came out in that inspector general's report back then. but of course there was enormous pushback on the legislation. well, sadly it has come to this great tragedy of thousands and thousands of barrels of oil gushing into the gulf of mexico to bring us to this point that we ought to have a willing recipient in this united states senate to this legislation that we are filing that will stop this cozy incestuous relationship between the oil industry and the regulators. i know that secretary salazar is trying to clean itp, and he's

doing what he should do, but what we want to do is to etch it into the statutes so that there is no question about what is the requirement, not just for today but forever. mr. president, yield the floor

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[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] there is a price target of $6 and this was considered somewhat controversial. however, we have the conclusion that there was on a lot of common equity value. and this has become somewhat self-evident. these are the main realities of the company. the evidence of this is in the first quarter. there was access to the government credit lines. this was around $28.9 billion. this went from 5.3% to 7.3%. when we tried to the valuation

of the company, it was hard to come up with a positive. i think investors need to understand a few key points. there was a great franchise beneath this company, and the insurance operations have a great global footprint. trying to stem the loss of the tough clients, and they're dealing with what is obviously a difficult situation. there are some things that you have to be aware of. this is not the average book- value operation. the debt-equity ratio is 7-1. no other company could operate at this, with the normal price for the creditors.

the only reason that this happens is because of the u.s. government. the earnings to not go to the common shareholder, because there is a preferred stockholder. this dividend has not been paid, but when the financials are able to pay this, i know where the money is going to go. and there are a number of book- value concerns. if we were to have a public offering i think that the investors would want to have a discount because of the concerns from the insurance companies and the leasing business. and the property-casualty life insurance companies, some of them have reluctant capital

conditions. but they are all trading below the book value. and many of them would trade at a discount. and finally, i think the treatment of aig is likely to change. i think that ever since september of 2008, the taxpayer has had to take some losses, and the debt has been restructured, in a non-cumulative form. and they have done whenever would need to be done to keep the company going. and you have to believe that as the rest is fading away, things like that may happen. and this would result in money going back to the shareholders. and during that process, you'll

not find a lot of value left in the common stock. this all comes down to the question, there is the view that there is value in the company, but there is the idea of the taxpayer taking losses. and in my point of view, this indicates that the initial assessment is right. how can there really be of value that is here? >> this is very helpful. >> let me see if i can figure out what is going on. we have the assessment about whether there are likely to need more government. >> the debt has been coming to us the route this year, there is

something like $10 billion that is due in 2010. and it is not equal back the debt markets, -- >> do you have any issue projected out, and when they will not be called upon to continue the support for aig? without going into the answers we already have. >> this is a question i cannot really answer. this is one indication of the systemic risk that is posed, and i think that -- the insurance panelists have discussed today, they want for this to be stable and sound, and it seems to me that the systemic risk seems to be valid from that.

>> what are the conditions that need to be brought forward? we can talk about how the government will be unwinding the position. we have two sales by aig that are pending. >> this is a major step. you start to get into the wallet of the taxpayer. i think that the ability to access the debt market -- >> this is a very good sign, when you can see them in the market? >> the expectation is that they will be able to internally generated the funding. and that is what we would expect to see over the next year. >> in the written testimony, you

said that the current structure is unable to be sustained and that there must be some kind of fix to this. >> the government does not want to be the common investor, and you have to assume that the government is going to want to get out. >> thank you very much. >> thank you. the congressional budget office had $36 billion on aig, with $50 billion. do you know if these numbers are close to being accurate? >> this is a very difficult question to answer. the current number is something

like $79 billion. i think that my assessment of the earnings power is about $8 billion per year, and you have the operations that are going to be sold. and this is short of what you will need to cut the loss. i still believe that this will be difficult for the taxpayer. >> how would you be restructuring aig if this was your job? >> it is beyond me to answer this. i would say that the first up, i believe that there needs to be a test on the common stock. the government does have a 80% ownership, and the public offering of some of the ownership -- what does the market really believe that this

company is worth? and there is the starting place and you'll be able to go from there. >> do you believe that they are simply getting along on the government guarantee? >> i think the government guarantee is in transit to their ability to conduct business on a daily basis. >> so it is possible -- i do not want to put words in your mouth, it is possible that they will not be solvent? >> if the government took away their support, they would not be in a position to conduct business. >> in your testimony, in some interviews you said that aig has the potential -- the government may be embarrassed by them. what do you mean by this? >> i was referencing that this

is a high-profile name and there have been other high-profile issues. he did not want to have the risk of that out there. >> i will ask about your current outlook on aig? >> we are telling clients not to purchase the stock. >> this is because 80% is owned by the government with 20% outstanding, and what is out there may be crushed? >> we believe that as the government exits' their position, there is not going to be a lot left for the common shareholder. >> thank you. mr. silver's? >> in a way, i want to revisit

his questioning in a different way. you are a writer of analyst reports in aig equity, in particular. they are junior to the government. this is the investor that we represent. from what you were saying, it seems to me that there is not enough earnings power, or cash flow power. to support not only the stock prices of the day, and the astounding gap between what it is, but perhaps not enough to support repaying the government. and by reading this back correctly? aig is currently drawing on the government, on the federal line

of credit. if you put these together, that may suggest that from the perspective of the government, not as a senior equity broker, as the continuing source of funding, the government should be demanding a hair cut from the other investors to get the company to function properly. what is there a way to get growth out of this in earnings or cash flow? is that the expectation, that the market would use the underlying assets in the future? i am particularly interested in your perspective of aig has the global firm, given what is happening in the global environment. >> in terms of the ability for the companies to keep up the

cash flow, this is a difficult time right now. the global economy is not very sound, and the insurance businesses also sing the pricing going down. and this is the view that we have on the profit outlook. the backdrop is not very good. and the aig -- they are under- earning what they once did. the potential is to recapture some of the lost value. and they will be moving towards that as they try to stem the flow of losses. i did not see the chance of another round. this is a very difficult road. >> you do not see -- >> in terms of generating

earnings power. >> you do not see the way to generate additional earnings power. this is unfair -- but you have a radically pessimistic view. does this make you a maverick? i just find this extraordinary, the difference between the current market price and your view of sex. >> -- six. >> i hear this question often. this is a complicated situation and the balance sheet of aig is not typical. this may be 37 or $36. and there is the underlying value of the company.

this is a great, global franchise. and from the people watching the company in 2008 -- they saw the earnings that were very strong, and then the stock was at 0. there has been a series of good headlines. the management has and a good job in getting these over the last year. >> you see that too many people are claiming the cash flow to support the stock price or the government getting paid back? >> this is ultimately correct. >> the government cannot really give this firm any more money until they all take the hair cut? >> and what other choice do we have? >> i will connected to the question about the stock price.

i think that through the exiting, the government is going to try to exit their position. this may mean walking away with interest or giving away parts of the loans. this is a private conversation. >> did they talk to their fellow citizens? do they know what would happen if we gave out public money to private investors? >> this is the argument. the government has been generous to them already. taking the debt with the interest payment, that should be part of the preferred status. the interest rates have been changed for the company, and the government debt has been moved from the balance sheet to off the balance sheet vehicle, which has lowered the debt that they

imposed. and this actually ended up in the wallet of the taxpayer. and the investors say that this will possibly continue. >> professor? >> this does not bother me. by want to follow up and i will try to be very straightforward and clear. you basically say that there are many people out there who are making this money. and if you own this right now, if someone was the owner of this, he would invite them to sell this? and so -- i guess that you have elaborated on where this mistake is coming from. you believe it is hard to understand what the company is

worth. the market says one thing, you say something else. >> and this is a thesis for the government. >> thank you. you mentioned that the subsidiaries were solid. if i can remove them from the structure, and make them independent, what would they be worth? is this something equivalent -- this is coming from the heat -- the implicit value, -- >> there is significant value in that. the earnings power of the domestic company, and the ongoing operations maybe 40 or $50 billion, as this is move

from the parent company. >> and is there a way to actually do this, and we can just remove them from that from what it's producing value for the market. they are a valuable company. you can always sell the operation. >> why don't we do this? >> i believe if you want to try to pay back the amount of the loan, you need assets to pay this back. you have to move all the earnings-generators. >> thank you very much.

thank you for being here today. robert is the president and chief executive officer of aig. he became ceo august of 2009. 2009. mr. benmosche, when you are read you have five minutes for the opening statement. >> i appreciate being here with all of you. i thank you for helping to stabilize the company. okay. preserving and growing the value of our businesses, reducing our risks and repaying the taxpayers. i joined, as you said, in august of a line with the prior goal of stabilizing the company and boosting employee morale as a high priority. throughout my years in the insurance industry i restricted aig as a company and as a competitor. and injust nine months of the company i can see substantial

progress in redefining our strategy in restoring credibility and confidence in aig. of course were it not for the commitment of the u.s. government at a time of great uncertainty, aig woldn't be on the path it is today. i want to thank the government and the american taxpayer. since receiving support, aig has worked in close coordination with the federal reserve and u.s. teasury. we appreciate the constructive role that they have played. today aig remains a significant contributor to the u.s. economy and a critical provider of financial security to countless communities and individuals across the country. aig has over 40,000 hard-working and dedicated employees across the nation. tens of millions of americans are employees by entities protected by the commercial insurance. aig is also one of the largest holders of municipal bonds, providing a much-needed source of capital for municipalities to build new schools and better

roads. charter's our property groups have gross written premiums of more than $40,000,000,000.2009. serving more than 40 million customers around the world. american financial groups are likened the time services business is one of the organization's in the u.s. served more than 16 million customers in 2009. the company has a fleet of approximately 1,000 aircraft and has purchased more boeing aircraft than any other airline or leasing company. at aig we take seriously the responsibility that comes with being so heavily integrated with the u.s. economy. and we are well on our way to making aig into a more streamlined focused company with sound well-managed businesses. a transparent and consistent government system and stable risk profile and capital structure prior to my arrival aig focused on repealing the tax payers by moving quickly to the certain parts of the

organization. all i was concern that the course of action might not enable aig to repay the eight, the company had received so i immediately set about to change the approach to secure greater value for the taxpayers. the strategy is beginning to pay off. we recently announced the sales of approximately $51 billion. nearly 30 million in cash, and approximately $21 billion in securities. aia and alco are a success of our strategy to maximize the value of our assets. once closed the will and aig can repay the fedel reserve bank of new york with cash and sells securities overtime to further repaid the government. our success are now being reflected in the marketplace. the report operating profit of $879 million compared to the 710 million-dollar profit the year before. a 24% increase.

some american financial group recorded first quarter operating income of $1.1 billion compared to an operating loss of 116 million in the first quarter of 2009. and this kind market confidence we have raised approximately $4 billion from private markets and i might add parenthetically that is with secured and unsecured both. aig financial products continues to make substantial progress its portfio from the height of over $2 trillion. at the end of 2008 the $755 billion as of march 31st, 2010. these accomplishments are enabled byedicated efforts of tens of thousands of aig employees. at aig it is critical we strike the right balance between paying competitively and injuring the levels are appropriate in light of the government support. we are implementing new programs

to create a consistent performance management culture. one that aligns our employees day-to-day activities with the interest of our stakeholders and this approach we are retaining talent as well as attracting new talent to help manage our businesses. members of he panel, i am confident that aig is now in the clear path to repay the taxpayers. i thank do for the opportunity to bring you up-to-date and look forward to your questions. >> thank you very much, mr. benmosche. we appreciate you being here today. do i anticipate ig baala need any more tax money? taxpayers' money i should say? >> right now we don't anticipate that. we are looking at where we are at. we are still dealing with minor cash flow issues but if you look at the success that we had keep in mind we were able to raise some sales of assets dustin kuran secure market as well as renegotiating the bank lines

after a lot of work with the banks examining the success. that is almost an 8 billion-dollar improvement. we are also able to raise in the market the securitized financing $3.5 billion to support american general finance, so as far as we continue to operate the country strongly, profitably we should we have retained people retaining business of showing sales all of the thin you want with strong companies we are beginning to see we get more access to financing. so we would hpe not. >> we all hope not. what we are trying to do is hand down more o that when mr. gallant doesn't say he thinks you will be about to make it through the year without having to call on taxpayer nds, you are seeing you think the combinaon of sales with major assets renegotiations of me of the outstanding debt and raising more money in debt markets will be enough to meet your cash needs as they go forward? i just want to make sure i am

getting the strategy right. >> at this stage of the game we have a credit line with federal reserve and so we see that as going up and going down so you will see based upon the activities of cash flow it may come down a little bit and it may go back up a little bit so we see that as a line of credit we are using and have available until 2013. we also will go through certain activities like we went to the treasury in order to strengthen the insurance company keep in mind that for aig our insurance companies are strong. we want to make them stronger and that is important because our clients look to us for our promise and guarantees. so therfore when the state of pennsylvania says they are concerned about charters to ensure they have stock in and they say they are concerned about that being in the capitol they would like us to remove it, than if it strengthens the insurance company which allows this to be ble to compete in the marketplace we did in fact ask for money to be able to do

the shift from the casualty companies and aia and aig holdif there is some of the financing going on but it's only to make sure that we maintain solid strength in all of our companies and i don't see a huge amount of demand to o that between now and the end of the year. >> so you think that you both have the cash to meet your needs for the ones coming due for payments that are coming to and that the only time they will be joined on the government on this will be in order to strengthen the capitol position to individual insurance subsidiaries is that right? >> that's correct. so for example we are planning once the market settles down these are on stable markets as we can all read and see we would like to repay the fed the $4 billion. we believe that we can take some of the collateral they had told against the 4 billion we can go to the marketplace and raise the additional money to pay down billion t the federal reserve.

now, we may decide it's paid down and we may need 500 million later on so let me sum tt up and down but we see major activities now between now and the end of the year beginning to reduce the amount of money that we owe the federal reserve. >> i know mr. gallant is complementary of the way that you have managed the company since you have taken over but what i would like to hear if you have the strategy mapped out what is the biggest challenge to the strategy what are the risks? where are the places that you might run into trouble and see problems? >> to me the greatest risk is in the day-to-day operations of the insurance company in particular. we have ner had a problem to the entire crisis with the insurance companies. they are well regulated, very well regulated by the states and by the countries we do business with and so they have de sure all of the things we do are protected for the policyholders so we have to make sure we run

the businesses successfully and make sure that we have the right capital in the businesses and we have the right risk-based capital ratio is expected in the business is and that we can retain and attract people but we can be able to retain our current customers' and grow new customers. there is a vibnt strong operating unit that is a successful company. that is our highest priority and that is what we are focused on. the second priority is to show that we can accept the support of the u.s. government in a way that we're left with an investment company that people will continue to feel confident and support in. >> what me just focus you though mr. benmosche i understand thee articles. my question was the place is that you see the most rest not meeting those goals. >> by talking about not be able to achieve good operational results. >> that is what i need to get thank you, sir. >> mr. mcwatters. >> thank you and thank you for

attending the hearing today. it appears that you will not need additional t.a.r.p. funds. at least that is what you just said. today what is an aig salting into the? >> absolutely. >> great, great. duals as it in your opening statement you intended to pay back the ax payers. you didn't say i'm going to pay back everything but he $5 billion or $50 billion. it sounded like the intent is to pay back everything. >> i believe that we will pay back all that we owe to the u.s. government and i believe that the end of the day the u.s. government will make an appropriate profit. >> the ceo says we, meaning that taxpayers, will lose $36 billion the omb since delete clauses 50 billions there's a spread. can you help me close the gap to understand and how you can pay back evrything and no one says

to the contrary. >> i would love to be the to buy back everything we go and investors can take a 50 billion-dollar loss. i would be able to if there would be tomorrow and nobody would because we are a strong vibrant company with a lot of money. i can't tell how they do the analysis but i'm confident you'll get your money plus a profit. >> and specifically what is the exit strategy? when you come up one of you have to write a one-page exit strategy to pay back the taxpayers what would it be? >> the first goal was make sure we pay back the federal reserve's so we are working hard to monetize the assets we have and we continue to look at other strategies and different points of modernization so the keys to pay back the $52 billion. once that is paid back an the fed is covered keep in mind we are doing that as quickly as we can knowing that we of the 2013 we still would like to get it done this year or next year if all possible the sales give a

tremendous shot at getting that done and we continue to modernize the commoditized then it begins to talk to the u.s. treasury h to deal with the preachers. >> how about the return to profitability? it is one thing to sell a subsidiary take the cash and pulled on the debt, but how do you return aig systemically to profitable company? >> if you look at the fourth quarter with a reported a huge loss if you look what was the component of the loss we made a profit and so i believe we are looking at a company that once we sell-off the company's talked-about or whose assets we talked about i don't think we are to get a company that could earn in 2011 without extraordinary charges and criminal charges and all these other things. i believe we have aconlict between six to $8 billion after taxes. so it is a substantial durham. ..

>> are you making money or are you losing mon? >> if you look at her numbers right now i think basically we are holding our own, breaking sort of even. keep in mind that one of the variables that occs is that we have a lot of debt against the business, and it is one of the anomalies of our counting-- accounting system. as people ecome more concerned about aig, it actually improves the profitability of financial products sewer spreads widen and therefore we can take in

earnings which is unfortunate. we shouldn't do that, but we do. that is how we comports on bad times we live better and didn't good times we look were so i will tell you if y take all that accounting out of the noise you will see risking. the team is done an absolutely outstanding job. we are fortunate they are still there. even though they were vilified and appropriately they are working as hard as they can to de-risk this book, and do it in a breakeven to dislike off at. >> when they close down a credit default swap and are they currently closing-- are attempting to negotiate this down? >> we negotiate what we can negotiate in a marketplace from the position of strength so i don't have the analysis. somebody would have to give you what level but i will tell you when we did the market value and what the anticipated market values could be and where we think is a good optimal position where we are getting a good price and getting out and dealing with an effect de-risking the company from where we have collateral potential and so on i think they

are doing an excellent job of getting good prices. they were not getting good prices a year ago. we were getting hammered a year ago in the marketplace. >> do change because of the personnel within the financial part-- products? >> the market realize we were going to change her approach, that we are not going to liquidate this company and therefore the street realize they want to negotiate with us from the position of strength. >> let us know in general terms if you are able to negotiate discounts. that would be helpful. >> i think it is more about trading and selling and doing things that i think i have to go back and have the people give you an exact answer. i don't have that. >> okay, fair enough. >> mr. silvers. >> mr. benmosche i am interested in the contradiction in the contrast is between your testimony, mr. gallant's testimony and mr. clark's.

can you a explained to make your understanding of the difference between your estimation of the company's earnings power going forward, after your asset sales and mr. gallant's andcan you explain to me your general, how your general characterization of your comny's financi position is consistent with smp's view that outs and government support are >> i can't comment on mr. gallant. i i know what i'm running, i know the company i'm running and i have confidence in this company and i ow what i'm talking about so you up to see whether he understands the company as well as i do. >> m benmosche that is not an acceptable answer. we represent your majority stockholder or at least the kind of do. are trying to look out for your majority stockholder. i am frankly fightened by what mr. gallant said on behalf of the american public and i would

like you to explain specifically with reference to numbers why he is ron. >> i have not looked at his report that i would be glad to have the people studied and do a de-by-side. we did that when we had a report at said we had an 11 billion-dollar hold in the reserves that was written by ernst dean and we did not have $11 billion. we went through that report, show them why they were wrong and they still went forward with it. i am happy to do that for him as well. >> explained to me how you get from today's operating results to the type of cash flows you were just describing, the six to 8 billion-dollar range in 20? >> in the first quarter? we made $879 billion. with casualty losses and chile, if you look at what we did in our son america we have a strong sult of almos$1 billion. if we continue to operate all the other companies that a posive and just deal with those two companies alone, you get close to the number.

so i would say to you that if you look at our results fourt quarter without extraordinary charges, if you look at where we were in the first quarter. >> mr. benmosche i missing something. your tal operating income in the first quarter this year is $800 million. >> multiply that times for. >> i don't know what number you are referring to. >> we made a pfit of 1.4 billion in in the first-quarter. >> i'm talking about your upbringing, which i think is more relevant to what we are talking about. >> you have to look at all the pluses and minuses, all the accounting charges. for example we have to take the charge of the fee that is assumed by the government taking 80% ownership of $23 billion. we take charges of between five an$800 million a quarter to advertise the 23 billion-dollar fee which reprents the price we pay for the line of credit from the federal reserve so in fact we pay $23 billion a point for an 85 billion-dollar.

>> if you are double b. credit without support from the government aren't you going to have to replace that with comparable expense. >> i don't know how expensive it will be. as we begin to achieve our plans we will be in best by the end of the air. >> you can imagine i think are our concern about just the gap between different assessments here. i would very much welcome and i'm sure the other panel members would welcome a more detailed explanation of how you think you are going to not d.a. double b without government support which seems to me to be critical to the question of whether or not your representation about the likely outcome here for the public being paid back in full with a respectable profit are realistic and can be realized. i think you know, we have heard, i think in general, a great deal of support and a number of

compliments for the way you manage your company so far. but, you know i think we need to see some support for where, for what the light of-- likely outcomes are and why we don't have a structural problem not susceptible to managerial skill. if i might turn and ask you a different question. some have suggested, including professor toske suggesting we had to be selling more quickly. i know that is not in your review. can you explain, and i am sympathetic to your position. i think there is a certain way to realize losses but i would appreciate to hear from you and your own words what yu have taken that view and with the benefit has been for the public as an investor in aig? >> i think so far you have seen prices improved. i think at one point they were thinking of selling-- for the

high teens and so we have got a very aggressive price and other properties that are out there you are finding people willing to come to the table and talk to us about more value. yocannot buy a business that is in trouble number one and number two copyleft to sell when the time is right. we have to make sure we move as quickly as we can but so far even for example and financial products we probably would woule been down an additional five early in every the sales to try to de-risk that business to quickly, so now that we are taking a risk out, you are going to see the fact that we have the money here. sometimes it is not obvious that we made it but wedidn't lose it so can only tell you as we move quickly, we are finding more people coming to the table, more people willing to invest with us. i think you will see more options open up. we just met with boeing as you know. we are large customer bowling and our goal is to ntinue to buy boeing aircraft. lowing is going to work with

with vestibule to get sources of capital to continuallinfesting continually strengthen our business over time. that will provide good opering sts. at all levels we are looking at ways to improve our position strengthen our position and find appropriate wires and i think we will do that as quickly as we can. we are not just sitting here saying let's wait for the 2013 but you have to do it when the market is ripe four. >> and i appreciate your offer to provide the numbers and we would like to have those numbers for the record on the analysis, why do you have a different analysis on the profit projections, where those are coming from and on the credit rating. >> i just heard her say that and i'm watching the tv and i'll bet they are offering our ready. i am sure they are running it right now. >> we will hold the record open so we will be able to get those numbers. >> i'm sure they are working on a. >> that sounds good. professor toske.

>> i don't want to ask you to comment on a report that you didn't write or mabe haven't even read, but the previous witness said his guess was $6. do you have a guess as to what you think the share price for aig shld be in your own opinion? >> fully inappropriate to even comment. >> okay, that is fine. you seem to suggest the you can operate, you are borrowing money and insecure credit and opating in the debt market. is that what i heard you say? the previous witness said that you couldn't borrow money and your account is you can? >> i borrowed 1.7 billion unsecured. without a guarantee from aig. >> so, can you give me i guess some more background? exactly when you say you are-- exactly as you are removing the

risk from aig, said part of a long-tersolution for the company? do you view aig is continuing to be a part of aig in the long run? >> i do not irk us be okay so can you describe to me a little how you are going to move from where you are today to a company that looks a little different? >> i think what is important now as we focus on the core businesses of aig which is the insurance companies. what you have is a lot opublic companies created outside that entity which you heard a lot about her co-i think we should minimize all of those, which were basically trading in the aaa of the insurance company and being able to bar when the market is short and begin to do things when the assets are long so those kinds of trade kinds of businesses we need to stop. we should be in a solid business that talks about we provide protection in various forms whether it is property casualty, life annuities and though should be the primary businesses that will run and run them in a way

that they are not overleveraged. >> essentially that is your vision of what your company is going to look like at the end of the day when you are out of all of this, focus primarily on the core insurance? >> we will be the worlds largest property and casualty insurer with a strong life and annuity business in the united states and other selected businesses that will enhance that nucus and core. >> okay, thank you. >> mr. benmosche, i have been struck as i have read through the documentation on aig about the inedible number of inter-corporate guarantees and loans among the various, particularly among the insurance subsidries, and i see that as once the parents got into trouble as everyone likes to point out, aig sp was one tny part of aig, and a police

threatens the entire rest of the company in part because of this incredible interconnection so i would like to know how you are managing that going forward? is this a company that will still be run as one that has lots of cross guarantees and intracompany loas and inter-subsidiary loves? >> the answer is no. i think it was created out of a lot of complexity over a lot of time. we are a company that has over 500 general ledger senate today. the dgree of complexity to run the business every day is huge which is why the people are so important to this company and so i will tell you that they are working daily looking at ways to de-lever, to change removes a part of what you will see, we need capital put into the insurance company. you just don't take something out of the insurance company without the approval of the pledges-- whether it is in korea or in tennessee.

as well as new york and pennsylvania so you have to make sure as we do this we do it in an appropriate way that the leg -- regulators are satisfied that at the end the day we want to scrape businesses we can see what they are, see their financials and therefore we can go to the capital markets for that insurance cpany and for example deal with raising debt, bonds and so on which is what makes them even stronger from a ratings agency point of view because they have access to the market so we have got to have them understood, clear and plain. it is not easy to do. you can't accelerate se of the sales because it it is too intertwined, to complex. >> would it be fair than to say that you are striving for a simpler, and more transparent business then you have had in the past? >> we will achieve, that is a simpler organization. we will do that because you have to do that to have your exit from the government and you have to be able to do that to get the rating agencies to give us very good ratings for insurance

companies. >> would you be able to demonstrate some progress along that line say from a year ago? >> you don't have to do it off the top of your head four we can hold the record open. >> the who rating agency feedback from smp in particular exhibit talks about the progress we are making and i think at the end of the day when we have rating upgrades in our insurance companies. >> you would forgive us if we weren't entirely reliant on rating agencies at this time? >> i won't cmment at this time. >> thank you, but it would be lpful, want to stress this because i think it is very important, if you could give us as a supplement to your testimony, some examples o the work that has already been done to make this a more transparent company and a company, let's describe it as one with a simpler chart of how it works. >> i'm happy to have the team t together things we have done since on america to pull things

apart so we don't have to deal with all the cost collateral station agreements. >> thank you her co-mr. mcwatters. >> thank you her co-i will followp on professor warren's comment and i will put it in this way. it still seems to me that aig is too big to fail, that if for whatever reason you ran out of cash, liquidity crunch again, chances are the taxpays would have to come to your rescue. let's stipulate that for a second. what has your firm done to negate that status? are you drawing back from the too big to fail situation, where a year from now, two, three years from now we are not going to have to worry about aig being too big to fail. if you fail you can be sold, broken up or whatever. and afterwards you have a will living will. are you developing a plan? >> i think to say we are too big to fail comes from the fact we have a lot of assets.

my personal belief that the reason you might think we are too big to fail as we owe you a lot of money and therefore we can't fail until we pay you back i think that is the issue. you have got to make sure we do this in a way that clearly pays back the taxpayer 100 cents on the dollar or pre-profit and the extent we do that to remain a company than what congress decides is too big to fail i don't believe aig once we pay back the government and we ask it as an investment-grade company, i believe that we are no longer too big to fail. >> so there will be no financial products? you ere out of that business? >> i can only tell you wat i will do. i hope that somehow we find the appropriate regulations that say in the future that any company that decides to get in business

and put at risk some of the businesses we had in the insurance or banking is preventive. i can't tell whether my success -- successor will find a clever way but i will tell you well i'm here i want to make sure that is not part of what this company is because that is not what we should be doing. >> specifically are you adopting risk management and internal control provisions that will simply prevent, prohibit smp from coming back? >> you cannot create policies that will prevent people from making bad management decisions. at the end of the day the ceo have to take responsibility for the activities in their company. at the end of the day i am very confident we have all of the processes in place in risk management but at the end of the day if i don't lead the company in the right way i can get the company in trouble and the board of directors will do their best to oversee me. they will make sure they have the checks and balances but at the end of the day if we don't listen to what we hear, we can

get in trouble and i believe are boarded aig today is very strong and would not let that happen. overtime we hope new board members and ceos will make sure that doe't happen. >> is it fair to say you are developing a culture that is anti-afp? >> we are developing a culture that is anti-taking inordinate risks that would jeopardize the quality of our businesses when the businesses we are and make guarantees to people, sometimes for their lifetime. >> in doing that are you making any effort to separate risk from reward, so if you have an employee who com up with a brilliant idea like someone did at s.b. and credit default swaps, where they are paid a huge bonus let's say in year one for doing the deal, the deal blows up four years later? is that still possible? >> it was impossible before either. i think i need to clear up someing. when you look at aig in the

people at aig the 10 people that reported to me when i got there, those 10 peoe plus $168 million of their prior pay because of what happened at that fp. they lost 168 million. five senior people at fp, those five people lost $88 million of their prior pay. their pay has always been at riskor a five-year pure mac of time through stock and cash plan so you have got to have something other than pay. you have to reward pay. you have to have risk in the pay process. you have to have controls but at the end of the day the real challenge is to make sure you have good risk management and good management of the company and not rely on the compensation system either way. we have to run the company the right way so i can tell you what fp that was never the case of getting rewarded in one year. >> never the case? >> never the case. >> doesn't seem from what i've read a least in the press that 2:45 in the afternoon there were

some guys in the 14th hole hitting off because they made a lot of money at that fp and then left. but they left the damage behind. >> there are people who work there and i will tell you in the last five years, most of their compensation was wiped out. in fact he would bonuses, 40% goes to the deferred comp plan which is so negative it will never see the light of daso people today are still losing pay for what happened in the past. unfortunately there are people that cause the problems that aren't there. my point is that it's a shame we pick of the people trying to get the job done so i can only tell you the people that are less, even the person that ran it lost almost 70 million of his prior pay but he got a lot of money from prior years, no question about it. at the end the day my concern is, it is not about their pay. is about the fact we should have strong risk management in a company that doesn't overleveraged itself and to allows the company to leverage a

aaa--. >> okay, thank you. >> mr. silvers. >> i would like to come back to this question and look at it a different way. last fall, the federal reserve system promulgated a set of principles around pay and indicated that they, the fed was going to be looking at pay and financial institutions they regulated, basically lookin at two issues, risk and time horizons. what processes do you have in place as an entity, a unique relationship with the federal reserve system, what processes do you have in place and what if anything is the fed doing to overe them in relation to those policies? >> i believe that the fed is overseeing not only are compensation policies but i will tell you first and foremost that they are in every aspect of our

business, rightfully so because we all get a lot of money. i will also te you i believe the working relationship with them is extremely professional and very effective. they have been terrific. they watch everything we are doing and everything we are working through. >> tell me exactly what that means in relation to compensation policy. how was that oversight manifested >> first of all we can start with ken feinberg. ken feinberg deals with the way we are paying the top 100 people. >> yes but i'm talking about the fed in the fed's relationship, implementation of their policy. >> they are aware for compensation plans. we share within the long-term the long-term incentive plans. we talk about devasting, we talk about how we are doing it. all of our plans are presented to them and they are aware of the this we are doing. >> to pick up on my colleagues question about this sort of downside exposure. you described that some individuals made money at aig

during the boom period, and then lost it during the bust. i don't doubt that at is true. if you look at it though from the beginning of the progress-- process, the moment people make decisions as executives in taking risks, off again is the upside. you don't seem to describe any kind of tual downside. so my question is, going forward, how do you build real downside against, round risk for your senior employees, d how do y do avoid this asymmetry where everything that is all about how much you gain and the comp plan can't really embody the notion of a loss that investors in your company are ultimately the public and peers will bear? >> i think it is a question of how you design your goals and

you design things so for example if you have part of the company where they are incentive to create operating earnings and that is all they are asked to do then they will do that. they may also make that par of of the business insolvent. they also may not choose to clean out the inventory of some antiquated product and therefore they areot taking losses that they should take so you have to decide near compensation program that takes risks into account, sets parameters of what those risks are and you have to manage it. you get out what the compensation program drive results and that is why for example in the securities industry i've always been against just revenue compensation because they think they don't talk about risk and they don't talk about bottom line. >> how do you do true downside? >> where would you like downside to be? from an investor perspective downside is downside. i put up money and if i lose, i lose. if you think about it