mr. paul: mr. speaker, i ask unanimous consent that today following legislative business and any special orders levert entered into, the following members may be permitted to address the house revise and extend their remarks and include extraneous material, thompson and fortenberry today for five minutes. the speaker pro tempore: without objection. for what purpose does the gentleman from pennsylvania rise? >> mr. speaker, i ask unanimous consent that today following legislative business and any special orders heretofore entered into, the following members may be permit todd address the house for five minutes, revise and stepped their remarks and include extraneous material, ms. woolsey, ms. kaptur and ms. jackson lee for five minutes, mr. defazio, mr. schiff. the speaker pro tempore: without objection..

for what purpose does the gentleman from vermont rise? mr. welch: i rise to request permission to put in the record that on h.r. 433, i mistakenly recorded my vote as a no, i meant to record my vote as a yes, i'd like to appear in the record that my intention was to vote yes on the mcgovern-obey amendment. the speaker pro tempore: without objection, the gentleman's statement will appear in the record. under the speaker's announced spoil of january 6, 2009 and under a previoused orer of the house, the following members are recognized for five minutes each. mr. critz of pennsylvania. the gentleman is recognized. mr. critz: i rise today to recognize this july 4 as the 234th anniversary of our great country and the 50th

anniversary the stars and stripes that fly above our capitol and across the nation today. on july 4, 1960, the red, white, and blue flag rose above our nation as an emblem of our national pride and freedom, representing the now-50 states that came together to form a more perfect union. old glory originally came to be by an act of the second continental congress on june 14, 1777. it is marked in the journal of the continental congress that the flag of the united states be made of 13 stripes, that the union be 13 stars, white in a blue field representing a new constellation. from this day forward, the symbol of our great nation was form the flag itself was not produced until lea the late 18th century, characterize bird the famous circumstancele of 13 stars representing the 13 original colonies of dwharke commonwealth of pennsylvania, new jersey, georgia, connecticut, massachusetts, maryland, south carolina, new hampshire, virginia, new york, north carolina, and rhode island.

although not enounsuated by any act of congress, the colors of the flag have come to have a special meaning. in a report written by the secretary of the continental congress, charles thompson, the colors of the seal of the united states are defined as white, signifying purity and innocence, red signifying hardiness and valor, and blue signifying perseverance and justice. through the centuries of its existence, the flag has undergone a number of changes. the first went into effect after the signing of the flag act of 1794 by president george washington. this act of congress changed the number of stars in the flag to 15 to accommodate for kentucky and vermont the newly admitted state into the union. it also called for 15 stripes to go on the floog. the only official flag not to possess 13 stripes. the flag act of 1818 signed into law by president james monroe, the last founding father to serve as president, set the common standards for

today's flag. it pronounced that all official united states flags murf 13 stripes to represent the original 13 colonies and one star to represent each state in the union. the final change to our nation's great emblem of freedom came by an executive order issued in 1959 by president dwight d. eisenhower. it announced the addition of hawaii into the union and also prescribed the orangement of the stars in nine rows staggered horizontally and 11 rows staggered vertically. more than 1,500 designs for the new flag were submitted to the white house. it was a 50-star flag created by for a class project by a young man named robert heff that would become the official flag of the country. he originally received a b-minus for the project. our nation received the new symbol of her freedom. as stated by law, on july 4 of the following year, the flag

was hoisted up and stands as the great emblem of our nation. it is with purity in our hearts that every american, especially our valiant service member here's and abroad, look to the red, white, and blue for perseverance, vigilance and justice. as we all celebrate our nation's birth this fourth of july, i would like to reflect upon our independence, our values and what it means to be an american as a fitting tribute to the 50th anniversary of the current flag of the united states of america and i yield back. the speaker pro tempore: for what purpose does the gentleman from louisiana rise? >> thank you, mr. speaker. ski unanimous consent to have my name removed as co-sponsor from the bill h.r. 5585. the speaker pro tempore: without objection. mr. poe of texas. for what purpose does the gentleman from texas rise? mr. paul: i ask to claim my five minutes at this time. the speaker pro tempore: without objection. mr. paul: mr. speaker, in

january, 1991, we went to war in the middle east against saddam hussein. iraq's dictator who was our ally during the iran-iraq war. a border dispute between kuwait and iraq broke out after our state department gave a green light to hussein's invasion. after iraq's successful invasion of kuwait we reacted with gusto and have been militarily involved in the entire region 6,000 miles from our shore ever since. this has included iraq, afghanistan, pakistan, yemen and somalia. after 20 years of killing and a couple of trillion dollars wasted, not only does the fighting continue with no end in sight but the leaders threat ton spread our balms of benevolence on iran. for most americans, we are at war. at war against a tactic called % terrorism. not a country. this allows our military to go

any place in the world with without limits as to time or place. but how can we be at war? congress has not declared war as required by the constitution. that is true. but our presidents have and congress and the people have not objected. congress obediently provides all the money requested for the war. people are dying. bombs are dropped. our soldiers are shot at and killed. our soldiers wear uniform, our enemies do not. they are not part of any government. they have no planes, no tanks, no ships, no missiles, and no modern technology. what kind of war is this, anyway? if it really is one. if it were a real war, we would have won it by now. our stated goal since 9/11 has been to destroy al qaeda. was al qaeda in iraq? not under saddam hussein. our leaders lied us into invading iraq and deceived us

into occupying afghanistan. there's still really no al qaeda in iraq and only 100 or so in afghanistan. yet, there is no end in sight to the war. could there have been other reasons for this war? that not -- for this war that is not a war? military victory in afghanistan is elouis live. does anyone know who we are fighting and why? why has the war not ended? nine years and it continues to spread. some claim it is to keep america safe. that our soldiers are fighting and dying for our freedom. defending our constitution. are we being lied to in order to keep us in this spreading war just as we were lied to in the 1960's to keep us in vietnam? we yone the iraq -- we own the iraq government as we do afghanistan. in afghanistan, we are fighting

the taliban, those people with guns defending their homeland. once they were called the mujahideen, our allies along with iraq against the soviets. we defended jihad against the soviets. what gratitude. those same people now resebt our benevolent occupation with a little violence thrown in. the resistance to our presence grows as our perseverance wanes. our people are waking up but our officials refuse to recognize the longer we stay, the greater is the support for those dedicated to the principle that afghanistan is for afghans who resent all foreign occupation. the harder we fight a war that is not a war, the weak we are et get and the stronger become our -- becomes our enemy. when an enemy without weapons can resist an army of great strength, the most powerful of

all history, one should ask, who has the moral high ground. military failure in afghanistan is to be our destiny. changing generals without changing our policies or our policymakers per pitch waits our agony and delays the inevitable. this is not a war that our generals have been trained for. nation building, police work, social engineering is never a job for foreign occupiers and never an appropriate job for soldiers trained to win wars. a military victory is no longer even a stated goal of our military leaders or our politicians as they know that type of victory is impossible. the sad story is, this war is against ourselves, our values, our constitution, our financial well being, and common sense. at the rate we're going, it's going to end badly. what we need are honest leaders

with character and a new foreign policy. i yield back the balance of my time. the speaker pro tempore: the gentleman's time has expired. ms. woolsey of california. for what purpose does -- >> request unanimous condition sent to address the house for five minutes and revise and extend my remarks. the speaker pro tempore: without objection, the gentlelady is recognized. ms. jackson lee: thank you, mr. speaker. among the many challenges of this nation is the ongoing oil spillage in the gulf a region that i come from. i also happen to come from the city of houston and represent a numb of our large energy companies along with wind and solar and natural gas. we truly need a seamless energy policy, but our consuming responsible is -- responsibility is to stop the oil spillage and stop it now. i believe it is important that we do it with an understanding

of a long range strategy to address this crisis. right now, as i speak, hurricane alex has made its way along the gulf and during this hurricane season, we don't know how many other hurricanes will come and disrupt the cleanup actions going on. so today, i have introduced 5676, the right to equitable means of ensuring damages for, the remedies act. i rise today to introduce this to address the many issues created by the recent disaster in the gulf of mexico. for over two month the blown out wellhead beneath the deepwater horizon platform has spewed tens of thousands of barrels of crude oil into the gulf of mexico and the gulf coast communities on a daily basis. the initial explosion killed 11 people, seriously injured 17

others and destroyed a multimillion dollar platform but the extent of the damage done is far, far greater. the disaster and its aftermath wrecked local industries and polluted or destroyed precious natural resources and people are unable to work and earn the money to pay for food, mortgages and other basic expenses. in my visits to the gulf region, these people were unattended to. oystermen, fishermen, shrimpers, restaurants, not having any way to access a quick and immediate response. oh, yes, you see now a claims system in place. you see that there is now an established $20 billion fund that i am grateful to our president for establishing but look how long it took because there was no structure in place. it is obvious that the existing body of law is antiquated and therefore inadequate to cope with the current situation the liability cap under the current law will allow responsible parties to pay a mere fraction of the damages they have inflicted on the people of the gulf.

legislation enacted in the early part of the last century does not properly cover all the workers in a contemporary industry and b.p. and other oil industry entities need to address this question my bill would establish a tyred liability system so we -- a tiered liability system so we would provide a structure for coverage and protect the smaller independent operators. it will make some needed changes to 1920-era law such as the jones act and the depth on the high seas act to ensure that family members can recover such as mothers an sisters, brothers and wives, which is not the case at this point. the language suggests it would be a personal representative. in addition, my bill would cause the end of lax permitting of the minerals management service and the department of interior and would require if you had fife safety violations, you would immediately put a moratorium and shut down of the deepwater krilling. my bill would also increase the oil spill liability trust fund

from $1.6 billion to $10 billion. the money would be standing there now. in addition, the federal water pollution act would be amended, as i said earlier, permitting -- requiring that any permit would require you to establish a vetted recovery plan so that if your b.o.p. did not work, you had a backup plan that had been vetted and assessed as workable. in addition, as i mentioned, if you had any violations as these companies have been known to have, but in particular this company, you would immediately be shut down. when i asked one of the new members of the m.m.s. why b.p. wasn't shut down with the enormous list of violations it had, the question was not to the fault of the person who answered the question, but it was, we haven't looked at that now. my amendment or my legislation will call for the secretary of homeland security to establish a separate claims process under their jurisdiction. this legislation will ask the

president to establish an emergency spill coordination team led by the common daunt of the coast guard along with the e.p.a., the secretary of energy. my amendment would also establish a research and development [captioning made possible by the national captioning institute, inc., in cooperation with the united states house of representatives. ed by the industry up to $1 billion to be able to design the most sophisticated technology for recovery research and remediation in an oil spill, and my amendment would require immediate post-traumatic stress disorder counseling for all the people who we're not even addressing the pain of the mental distress that is being caused. i ask my leagues to review h.r. 5676, the redis act so we can move forward and establish a pathway to solve this problem and not have it happen again. i yield back. . the speaker pro tempore: the gentlewoman from north carolina. for what purpose does the gentleman from pennsylvania rise? mr. thompson: request my five-minute time. the speaker pro tempore: without objection.

mr. thompson: thank you,. mr. speaker, the people that need across this nation are jobs. yet, the yous export-import bank made a decision that kills 1,000 new jobs. the recent export hime import bank denial to buy coal mining machinery exposing the hypocrisy of the obama administration. according to the mission statement, quote, the export-import bank of the united states is the official export credit agency of the united states with the mission to assist in financing the export of u.s. goods and services, at least that's what it states. the mine coal in india that the u.s.-manufactured machinery would be used in a new plant.

a subsidiary was to use the loan guarantee to buy $600 million of wisconsin international mining machinery which represents 1,000 u.s. jobs. in a party-line vote, the loan guarantee was turned down not for economic reasons, but because it was contrary to the new white house policy of funding, quote, projects with heavy carbon emissions, end quote. in this case, a coal-fired power plant. one of the democratic members said he was following president obama's commitment to clean energy future and voted against the loan because of project's adverse environmental impact. if the two democrats denied the loan were interest nd the environmental impact, they would have voted for the loan. likewise for the president, who should overturn this denial. the decision will not help the

environment. in fact, it damages the environment and contributes to poverty and instead of creating jobs, destroys at least 1,000 of united states jobs. 40% of india's 1.15 billion people have knock access. that is 1 1/2 times the population of the united states. without access to electricity, 70% of which is provided by coal, the challenge of daily life for 460 million of india's poor will remain stagnant and will have no choice but to continue to burn wood and dong. as president of liberty university of delhi university of india quoted, burning these renewable fuels is immense. women spend each hours each day

to squat in mud to collect dry and stored manure rather than attending school or engaging in an economic activity. the refrigerators, televisions, computers that environmentalists take for granted are not to be seen here. they note the environmentalists ignore the real risks that poor people face today including indoor pollution. quoting the world health organization, more than half of the world's population rely on waste to meet their basic energy needs. heating with solid fuels is on open steeves. exposure to high children who spend most of the time next to the heart hmp. indoor air pollution is

responsible for one death every 0 seconds. the use of polluting fuels that poses a major burden on the health of poor families, their agendaens is the result of poverty as poor families don't have the resources to obtain cleaner fuels and appliances. reliance on these can compromise health and hold back. according to the 2004 assessment of the international energy agency, people relying on this will continue to rise especially if the obama administration continues. if they are serious about cleaning up the environment, the u.s. export import bank to approve. the plant will be built. but u.s. manufacturing mining

machinery won't be used thanks to the president and its followers at the congressesally u.s. job-killing u.s. export-import bank. the speaker pro tempore: the gentleman's time has expired. mr. mchenry from north carolina. for what purpose does the gentleman from -- gentleman rise. without objection. mr. schiff: the recent vote to impose a new round of tougher economic sanctions on iran was a success for the united states and part of president obama's broader push to reduce the threat of nuclear terrorism. for years, there has been a broad consensus that a terrorist attack is the gravest threat. during the 2004 presidential debates, they pointed to such an attack as the ultimate nightmare scenario.

the prior administration failed to make nonproliferation a priority and blocked any progress at the 2005 nuclear nonproliferation review conference putting the regime at risk. president obama came into office pledging to make nuclear nonproliferation a priority and has delivered on multiple fronts by increasing international pressure on iran and second by working with russia and others to reduce both countries' stockpiles of nuclear weapons and material. the iran resolution, the important to emerge in years is a triumph for american diplomacy. when the president took office, the united states was isolated and unwilling to engage in the hard work of diplomacy that would pressure iran to engage. but that has now changed. the u.n. resolution increases the pressure to iran by expanding the list of

organizations and individuals subject to financial restrictions and travel bans and significantly it also prevents and prohibits most conventional arms sales to iran a major step that considering russia and china have been iran's major suppliers for years. while iran has remained defiant in the wake of the june 9 resolution, the resolution was followed by a fresh wound of sanctions and by our passage of the iran sanctions accountability investment act which was signed into law by president obama. these new sanctions have had an immediate effect. just days after congress passed the legislation, the last major western energy company dealing with iran announced it would stop providing refined petroleum to tehran and another company canceled a gas project in iran. the stakes are clear.

if tehran's nuclear program were to bear fruit, elements of the regime could develop a weapon under its control, perhaps hamas and hezbollah. it could trigger an arms race. this cannot be allowed to happen and president obama and this congress are determined that it shall not happen. the last two years have seen a revite lization of our efforts to exert our leadership. president obama was a leader in the senate on nuclear terrorism and nonproliferation issues. i had the privilege of working with them to strengthen the international atomic agency policies. and the president signed legislation that i authored to develop our nuclear forensic capability. the president has promed budgets that increase investment in nonproliferation efforts in technologies. we can't face this threat alone. there are 50 tons of unsecured

nuclear material around the world and to bring it under lock and key we must convince this is a security risk for all. the president led an extraordinary meeting of the security council to bring nuclear security and this april he hosted the largest summit meeting to convince world leaders that this is an urgent problem. it will secure nuclear materials within four years, a plan the administration and congress are now implementing. on april 8, president obama signed a treaty to cut nuclear weapons by 30%. this is a scrurebl step forward. by working with russians to reduce their arsenals and ours we remove weapons from high alert and demonstrate that building nuclear weapons is not a sign of world power. there is much work to be done.

president obama and the leadership in congress have returned the issue of nonproliferation to the center of the policy debate where it be longs. i yield back, mr. speaker. the speaker pro tempore: the gentleman yields back the balance of his time. ms. kaptur of ohio. mr. burton of indiana. defazio, oregon. moran, kansas. fortenberry, nebraska. under the speaker's announced policy of january 6, twibe 2009, mr. johnson, is recognized for one half of the time remaining before midnight as the designee of the majority leader.

mr. johnson: thank you, mr. speaker. ladies and gentlemen out there in tv land, i could not go to sleep tonight until i got off my heart what has been on it, particularly over the last few days. and what's on my heart is such pain and empathy for the people of this country who want to work

, but can't find a job, people who have worked all of their lives only to be caught victimized by the financial meltdown that took place in october of 2008, the biggest downturn since the great depression. eight million jobs lost. those are real jocks affecting real people, affecting their children, affecting their parents and grandparents.

people who had been accustomed of being apart of the middle class and now they find themselves out of a job, out of work for an extended period of time. and by the way, i must tell you that this portion of today's proceedings is a special order of the progressive caucus. and so, these eight million jobs were caused or the loss of these 8,000 jobs were caused by the shennigans on wall street. what must have seemed like an endless party for the wall

street crowd. . stocks, bonds, dividends, they couldn't be happy just with those profits. they had to come up with other ways of making money. it came -- they came up with these hedge funds that enabled someone to sit at a computer without producing anything and make money just by buying and telling various security instruments. and those security -- those secured instruments, instruments of security, or securities, were largely the

product of these eight million people who lost these jobs, largely the -- those securities were generated on the backs of the middle class people. who had used their money, used their earnings, used their savings to buy a home. and they bought a home, oftentimes they were steered into what we call a predatory loan which is nothing more than a high-cost loan, a loan with exorbitant costs. and these loans were primarily directed to minority communities and once those

targeted communities had been saturated with those predatory high-cost loans, then that industry turned its attention to another vast market, untapped. it was middle class america, all over america. and all of these high-cost loans were packaged together and sold as securities on wall street. these loans featured such attributes as no money down or low down payment, sometimes no documents required, or no-doc loans. they had adjustable rates, adjustable mortgage rates, they

had other features like clauses that prevented you from refinancing without suffering a penalty. these high-cost loans, once they -- once the requisite amount of time had gone by, then the loans would be adjusted upwards and when that adjustment was made, the people found out that they were unable to meet those new monthly payments. and so therefore, they would simply refinance, pay another premium, stripping equity from their property, giving it to the mortgage broker in return for placing them in another

predatory loan. and everything was going fine, these high-priced loans packaged as securities being sold on wall street or being sold by wall street to entities and people throughout the world , and it was all based on the rising home values that everyone just assumed would continue to go up. but at some point, people start defaulting on those high-cost predatory loans. all across this nation. and when that happened, the people who had purchased the securities that were backed by those now unperforming loans realized that they had worthless paper in their hands so they wanted to -- they -- it

became a run on the bank. now, keep in mind, these people and entities that had bought or purchased these securities had also purchased insurance from a.i.g. to make sure that if the mortgage -- if the security ended up becoming useless, then a.i.g., like an insurer should repay them for that loss. and so, a.i.g. was put in a perilous situation, and so what happened there, then it became a bailout situation. are you going to let a.i.g. fail along with all these other investment banks which were steeped heavily with these

toxic securities? so, along came the bush plan to restabilize the economy through the wall street, the notorious wall street bailout. $7 hurnings billion. -- $700 billion. and you would think the banks would have used that money to lend to smaller banks the wall street would have used that -- the wall street banks would have used that money to lend money to the smaller banks and those smaller banks then could use that money to lend to small businesses and to large businesses as well. but -- and in that way, we

would have had more job creation to try to put a dent in this eight million jobs lost. but, no, they did not do that. what did those wall street banks do? they didn't loan money to small businesses to expand and hire new workers. and in fact, in 2009, total lending by u.s. banks fell 7.4%. the steepest drop since 1942. keep in mind, just got $700 billion, october of 2008.

2009, total lending fell 7.4%. the steepest drop since 1942. and the 22 firms that received the most bailout money cut small business loans by $12 billion. $12 billion. in 2009. meanwhile, the top 38 largest financial firms gave out $145 billion in record pay to their employees -- in taxpayer money -- in record pay to their employees, this is in 2009, an 18% increase from -- an 18% increase in pay for their employees over 2008. in the first three months of 2010, four of the leading financial firms, including goldman sachs, reported profits

of $14 billion. and it's time for that money, ladies and gentlemen, to be returned to main street. what wall street has done is they've taken that money that should have been invested in main street to create jobs for the american people and instead, they took that bailout money and they gave record pay to their employees, $145 billion in the year 2009, and that -- nobody's crying about that. everybody's crying out about the deficit. nobody is talking about job creation.

are you a job creator? or are you a deficit reducer? what's most important, what would be most important to you if you're sitting on your couch, listening to what i have to say, and you've heard all of the stories about deficit and spending has to be cut and you know, government is driving us into the ground with deficit spending, and then you're sitting there without a job. what's more important to you, deficit reduction or job creation? and i submit to you that if you are not a job creator, then you're barking up the wrong tree as far as what can be done

to ease the deficit and to eliminate it eventually. you won't do it unless you have jobs. you won't do it unless you have an economy based on jobs. based on middle class people. based on people going to work every day, spending their money , purchasing cars, purchasing homes, purchasing consumer goods. that's how the economy starts thriving again. it's not trickle down, the old ronald reagan trickle down theory, which later was called voodoo economics, and which has been in force all the way up through this wall street meltdown. that is -- that trickle down

economics is what actually caused this right here. and so, we've got to build our economy, ladies and gentlemen, from the ground up. not from the top down. this $700 billion which should have gone to help create more jobs from the ashes of that economic -- of that failed economic policy, instead ended up going where? right into the pockets of the folks on wall street. and so, ladies and gentlemen, i'm here tonight to talk about job creation. i'm here to try to ease your mind a little bit about the deficit because what's really

important is for americans to come back to work. now, i am joined here by one of the most con shea en, legislators and thoughtful legislators here in the congress. the speaker pro tempore: the gentleman's time has expired. mr. johnson: my time has expired. the speaker pro tempore: without objection, the gentleman from south carolina, mr. spratt, is recognized for five minutes to revise and extend his remarks and insert extraneous material. under the speaker's announced spoil of january 6, 2009, the gentleman from texas, mr. gohmert is recognized for the remaining time before midnight, approximately 17 minutes, as the designee of the minority leader. mr. gohmert: thank you mr. speaker. i appreciate my friend from georgia's comments.

he's right. that bailout of wall street was a disaster -- disastrous mistake. i heard from my colleagues on both sides of the isle that voted for -- aisle that voted for it, leaders on both sides of the aisle that pushed for that the good news if you're a big fan of goldman sachs is they made more profit than they've made in their history since the new administration took over. they had their best year ever last year. and it's tragic that the american people have not done as well as the people that ran their own cart off in a ditch and then had their neighbors involuntarily pull it out for them and now they've used that car to run over the rest of america, rather tragic. it continues and my friends have pointed out the injustice on wall street, since they donate four to one to democrats over republicans they did in the last election, have

traditionally, but hopefully our friends across the aisle will call upon their big donors on wall street, four to one to democrats over republicans, despite what americans think they can check the facts, hopefully they'll get with their big donors and help them realize that they need to quit taking from america and repeed -- we need to get a level playing field. .t-i rise, mr. speaker, tonight not to get into the partisan politics, this is the last 15 minutes before we adjourn minutes before we adjourn for the 4th of july. what an incredible day, july 4, 1776 was. that document, as referred to by the late senator robert byrd in a speech he gave june 27, 1962 on the occasion of the supreme

court losing their collective mind and saying that the constitution that would not have been created were it not for the plea in the form of a motion by benjamin franklin that would begin every day by player seconded by mr. sherman, unanimously adopted. and the supreme court turned around in 1962 and said we shouldn't have prayer in schools. and in response to that, senator robert bird -- bivered, who -- biffered gave this incredible speech and i want to pick up where i left. senator byrd, june 27, 1962 says additional proof that the american national life comes from this congress

insubscription, quote, the light shines in the darkness and the darkness come prends not. john scripture, in the east hall of the library of congress, an insubscription ensures that americans do not work alone for a web begun, qun quote. one of the most hallowed documents in the nation's capital is the declaration of independence, i add that will be honored this weekend. that is robert byrd's speech. it contains the basic philosophy of our government according to witch god is the source of our rights. the original document can be seen by americans visiting in washington from throughout the 50 states of the union.

one of the most impressive and beautiful states in the capital city is the washington monument rising above the city. when it built, citizens were permitted to donate blocks of stone naming insubscriptions and appropriate quotations. starting from the top of the monument, one may read three quotations on the 24th landing. one donated by the methodist church reads, the memory of the just is blessed. the sunday day school children of methodist church of philadelphia contributed a stone quote, and when he is old he will not depart from it, pro verbs, 22. 6. words of christ, suffer the little children that come unto me.

twice in the words, quote, holyness to the lord. and among many similar expressions throughout the monument we find this one from the city of richmond, virginia on the 18th landing [quoting latin [we are thy monument. the city of boston placed a stone slab on which the words, quote, [speaking latin [battle's contribution at the 12th level reads quote may heaven to this union --

contributed a stone in the sixth landing which reads, quote, in god we trust, unquote. the united sons of america provided an insubscription, quote, god and nature's land, unquote. near the washington monument is the lincoln monument. this massive shrine pays whomage to the greatness of a simple man whose life was offered on the altar of liberty, gentleness, power power of lincoln comes to us chiseled by the granite. we can hear him speak the words which are cut into the wall. quote, that this nation under god shall have a new birth of freedom and a government of the people, by the people and for the people shall not perish from the earth, unquote.

and in his second inaugural address, the great president made use of the words, god, bible, prayer, providence, almighty and divine at try beauties and it continues, quote, as was said 3,000 years ago, still it must be said, the judgments of the lord are true and righteous altogether with malice toward none with charity toward all with firmness in the right, let us strive on to finish the work we are in to bind up the nation's wounds to care for him who borne the brunt of the battle and for his widow and/or fan and lasting peace among ourselves and with all nations, unquote. on the walls of the jefferson memorial which stands at the

south end of the tidal basin are inscribed, quote, i have sworn about the alt arch r of god, eternal hostility against every form of tyranny over the mind of man, unquote. we find in jefferson's words, a forceful and explicit warning that remove god from this country will destroy it. here, he, jefferson says, quote, god who gave us life, gave us liberty. can the liberties of the nation be secure when we have removed a conviction that these liberties are the gift of god. in thee i tremble for our country when i reflect that god is just that justice cannot sleep for forever. commerce between master and

slave is despotism. these people are to be free. establish the law for educating the common people. this is is the business of the state to affect and on general plan. jefferson foresaw that time would change conditions in this country, but he believed in the unchanging truth which would purchase cyst through any change. he held that the dignity came from god. his memorial in our nation's capital is a constant reminder that respect for man is based upon his close relationship with god. and let me remind these are the words from the speech given by robert byrd, senator, in 1962. i continue with robert byrd's words. let us reflect on the moment

that washington, jefferson, lincoln, the giants of america had this in common. they all paid repeated public tribute to this nation's dependence upon god. benjamin franklin stood to his beat one day, the oldest man in that gathering and addressed the chair which sat general george washington. franklin said, quote, sir i have lived a long time and the longer i live and the convincing proofs i see of this truth. god governance in the affairs of men. and if a sparrow cannot fall to the ground without his notice, is it possible that an empire can rise without his aide? wife been assured in the say credit writings that accept the lord they build the house they labor in vein, unquote.

franklin moved that a member of the clergy participate in the meetings from that day. today, that they might invoke the wisdom and guidance of the father of lights, quote, we shall succeed no better than did the builders of babel, unquote. here was a real man, inventor, a philosopher, a man who served his country, a man with faith and higher power who had the courage to express that faith. our country's great men and i need not name them all, these fill ars of strength and structure of american

ready >> the measure awaits action in the senate following the july 4th recess. members voted to bar lobbiests

from foreign nations accused of being state sponsors of terrorism. the house approved the fiscal year 2010 supplemental bill to fund wars in iraq an afghanistan and other projects.. live cover rooj of the u.s. house when members return always here on c-span. >> the body of longest serving senator, robert byrd laid in repose he died this week. that's coming up next. >> c-span, our public affairs content is available on television and on line. you can connect with us on

twitter, facebook and see more at c-span.org. >> members of the public paid their respects to the senator robert byrd. the west virginia democrat died on monday at the age of 92. he was the longest serving senator in u.s. history.

>> to my left. face. five side steps. march.

forward. march. forward. march.

>> forward.

march. >> halt and face. forward. march. forward.

march. ready. up. forward. march. >> the casket then taken to the senate chamber and laid in repossess for severallhours. then taken to andrews air force

base and floeb to west virginia. a service will take place tomorrow morning at 11:30 eastern. we'll have live coverage on c-span 2. tonight, the casket will stay in the west virginia capitol where it is available to the public all night. >> president obama said major immigration legislation would not pass unless both parties joined together on the issue. in a speech, the president described his efforts and talks about the current state of the debate in the country.

>> ladies and gentlemen, to introduce the president, please welcome pastor bill. >> a recurring triad in the christian scriptures is the mandate from god to show concern for the widows, orphans and aliens. our current laws leave millions

of people with no practical way to come out of the darkness. our current laws leave our border states and cities in a condition of chaos an uncertainty. many families in our country live with overwhelming weight of fear, every single day. they wonder if they'll be did he ported and separated from their families forever. they must be shown a way to enter the mainstream of american life so they can becomefully integrated members of society. our church started a spanish ministry a few years ago. it has become a joy at willow creek. we began to learn that many were undocumented and began to ask

why. we heard about their daily dilemma. today is a day of hope. today, an earnest bipartisan conversation begins that those of us in the faith community has taken part in for many years. we ask to you act with a spirit of urgency and unit to chart a tough path for the millions of people who entered our great nation with the same kind of dream my grandparents did a century ago. mr. president, thank you for your initiative. it's my pleasure to introduce to

you, president barack obama. [applause] >> thank you. thank you. please have a seat. thank you very much. let me thank pastor from near my home town in chicago who took time off his vacation to be here today. we are blessed to have him. i want to thank president neil and our hosts here at the american university. i want to acknowledge my outstanding secretary and members of my administration. all the members of congress. they all discern a applause.

members of the faith community and advocates here today. thank you for your presence. thank you to the american university for welcoming me to the campus once again. some may recall, last time i was here, i was joined by a dear friend, senator edward kennedy. [applause] teddy is not here now but his leg acy is still with us. i was a candidate that day. some argue that our country had reached a tipping point.

for years we had deferred our most pressing problems. we now face a choice. we can squarely confront our challenges with honesty and determination or confine our children to a future less prosperous and less secure. i believed it then and i believe it now. that's why even when we tackle the most severe economic crisis since the depression, we wind down the war in iraq and focus our efforts in afghanistan, we have refused to ignore these

immigration problems. we have finally delivered on the promise of health reform that will bring greater security for every american and bring in the sky rocketing cost to families. we are on the verge of forming a governoring set of rules on wall street and the financial speculation that led to this severe recession. we are accelerating the clean economy and raising the fuel standards of cars and trucks and doubling the use of renewable energy like wind and solar power. step that's have the potential to create whole new industries and inspire jobs in america.

despite the frequent pettiness of our politics, we are confronting the great challenges of our times. while this work isn't easy, the changes we seek won't always happen overnight, what we have made clear is that this administration will not just kick the can down the road. immigration reform is no exception. in resent days, the issue of immigration has become once more a source of fresh contention in our country with the passage of a controversial law in arizona and the heated reactions we've seen across america. some have rallied behind this new policy. others have protested and launched boycotts of the state.

the tensions around immigration are not new. on the one hand, we've always defined ourself as a nation of immigrants. a nation that welcomes those willing to embrace america's precepts. it is this constant floef immigrants that helps to make america what it is. the breakthroughs of einstein. all possible because of immigrants. then there are the countless names and quiet acts that never made the history books but were in less important in building this country. the generations that braved

hardship and great risk to reach our shores in search for a better life for themselves and their families. millions of people who believed that there was a place where they could be at long last free to work and worship and live their lives in peace. this steady stream of hard working and talented people the end of the global economy and beacon of hope around the world. and allowed us to thrive in a society of change. we reap rewards because we remain a magnet for the best and brightest from across the world. folks travel here to be a part

of our strengthened and enriched culture. we have a younger work force because of immigration and a faster growing economy than many of our competors. in an increasingly interconnected world, the diversity of our country is a powerful advantage. just a few weeks ago, we had an event of small business owners at the white house. one business owner is a woman who came this country and became a citizen and opened up a successful technology services company. when she started, she had one employee. today, she employees more than 100 people. this past april, we held a

naturalization ceremony at the white house for members of the armed forces. they were not yet citizens but hadden listed. one was a woman that came from mexico, she came shortly after 9/11. she said, i take pride in the flag and the history we write day by day. these women and men and women across this country like them remind us that i am grants helped us to build and defend this country and that being an american is not a matter of blood or birth. it's a matter of faith. it is fidelity of the shared

values. that's what makes us strong. anybody can help us write the next great chapter in our history. we can't forget that this process of innovation and eventual inclusion has often been painful. each new wave of immigrants drop a seed of fear. the ink on our constitution was barely dry when against conflict, the forgein allegiance

act was passed. its politics of who is and who is not allowed to enter this country and on what terms has always been contentious. that remains true today. it's made worse by a failure of those of us in washington to fix a broken immigration system. our borders have been porus for

decades. the result is an estimated 11 million undocumented immigrants in the united states. the overwhelming majority are simply seeking a better life fo themselves and their children. many settle in low wage sectors of their economy. they work hard and save and stay out of trulg. because they live in the shadows, they are vulnerable to businesses that pay them less or vie late safety rules. crimes go unreported. witnesses fear coming forward. this makes it harder for police

to catch criminals and keep people safe. billions are lost each year because many are paid under the table. >> the president evens of so much illegal immigrants makes a mockery of all those going through the process of iment grating legally. after years of patch work fixes, the legal immigration system is as broken as the borders. backlog and beurocracy makes the process take years. husbands and wives may be forced to spend many years a part. high fees and the lead for lawyers may clued worthy

applicants. we provide students from around the world vis a's to come and again engineering degrees, specialized degrees. they are then prohibited from starting businesses here. we are training for other countries. and the sentiment in washington that tackling such an issue is bad politics. just a few years ago when i was a senator, we forged a coalition in favor of reform under the

leadership of senator kennedy and senator john mccain. we worked across the aisle to help pass the bill through the senate. that effort he au eventually ca apart. many of the 11 narts has now backed away from the end of the report. states like arizona have decided to take matters into their own hand. it is also ill conceived.

the argument is framed in moral terms. why should we punish people who are just trying to earn a living. i recognize the sense of compassion that drive this is argument. but i believe such an approach would be unwise and unfair. it would suggest to those thinking of coming here illeg illegally that this is a wise decision. it would also ignore the millions of people waiting in line to come here legally.

ultimately, our nation, like all nations, have the right and obligation to control its borders and set laws for residence den si and citizenship. no matter how decent they are, no matter their reasons, the 11 million who broke these laws should be held accountable. the majority of americans are supportive and realize it is impossible to round up and deport 11 million. they know it is not possible.

immigrants here illegally are woven into the fabric. many have children. some are children themselves brought up here as children. only to realize their status when they apply for college or a job. migrant workers, mostly here illegally, have been the labor force for farmers for generations. even if it was possible, most americans would find these ways intolerable. once we get past the the two poles of our debate, it reflects

our heritage and values. it demands account ability from everybody. government has a responsibility to secure our borders. that's why i directed my secretary of homeland security to improve enforcement policy without having to wait for a new law. today, we have more boots on the ground near the southwest border than at any time in our history. let me repeat that. we have more boots on the ground on the southwest borders than at any time in history. we doubled the personnel assigned. we tripled the number of

intelligence analysts along the border. we began screening 100% of south bound rail ships. we are seizing more illegal guns and cash than in years past. crime along the border is down. in statistics collected, it reflects significant reduction in the number of people trying to cross the border illegally. the south border is more secure today than at any time in the past five years. we have to do that work. it's important that we acknowledge the facts. even as we are committed to do what is necessary to secure our

borders. even with passage of our new law, there are those who argue that we should not move forward with any other elements of reform until we havefully saled our borders. but our borders are just too vast for us to be able to solve the problem only with fences and border patrols. it won't work. our borders are not secure to stopping gangs and potential terrorists but to those who cross the border each year strictly to find work. that's why businesses must be held accountable when they break the law and deliberately hire

illegals. we are implementing a system for employers to var fie that their employees are here legally. >> we cannot turn a blind eye. it breds abuse and bad practices. if the demand for uncomed workers familiars and the initiative for people to come here legally declines as well. we have to demand sfonsibility for people who live here had he should be required to regular

strer, pay their stshg this is how we demonstrate what being an american means. it comes not only with writes but certain foundment al spon this goes hand in hand with our

former system of we have stemed the increases in naturalization fees. but we need to do more. we should make it easier for the best and brightest to come and start businesses and develop product and create jobs our laws should benefit families and those living the rules. we need to provide farms to hire the workers they rely on.

we should stop punishing young people because of the mistakes of their parents. the dream act would do this. that's why i continue to support it as president. these are the elements of the immigration repa immigration reform. we must pass a bill through congress to finally get it done. >> i held a

>> i've met with the caucus and token with represent i have met with leaders of america's religious communities. different faiths and believe. fixing the system is not just an

economic you we cannot solve this problem. reform that brings account ability to our i am grags system cannot past yes, this is an

emotional question and one that lends itself to issues that try to defame and demonize people. the natural impulse to to turn away and defer this question for another day or tleer and another

add. i believe we can put politics aside and finally have an immigration system. i believe we can appeal not to people's fears but to their that's what has lead people toen

occur untold hardships to reach this place called america many made their hoaxes in a teaming and bustling sowing lo they will

help pay for the construction of a new statue. the ou owe of bib ert she

imagined the point of a giant ma'amable that was in term. they offered them a place to refuge and opportunity and freedom. here at our sun grefrjed a mighty woman with her torch that glows with world-wide welcome. keep ancient lands. give me your tired, poor and pud theed passes.

send the homeless to me. i lift my lamp beside the golden door. let us remember these words for it falls on each generation to ensure that that lamp, that beacon continues to shine as a source of hope around the world and a source of our prosperity at home. thank you. god bless you, may god bless the united states of america. thank you. [applause]

>> next, the final crisis

inquiry commission continues the investigation at the financial market swing that's took place in 2008. this second day of testimony luke at the role of derivatives. former california treasurer serves as chairman. this panel is about 2:45 minutes.

>> please stand and raise your hand. >> do you sol onlily swaer or affirm that your testimony is truth, the whole truth and nothing but the truth, so help you god? >> you may be familiar with the devices in front of you. at one minute, the light will go on. the red light will go on when your time is up. what i'd like to do is started with you. we'll go left to right and ask each of you to make your opening statements and go to questions from commissioners.

also, i should have said, please turn on your microphone. >> thank you. thank you, vice chairman thomas for inviting me to testify. i was insurance super intend enter in new york state. this testimony was prepared with the assistance of the incident of the new york state, however the opinions expressed are my own. i would like to use the oral testimony to make a few broad statements about what this has already taught us. the problem with aig was the

products division. the country parties thought that the aig holding companied to trading thought that they were safe but it was based on the insurance companies largely available. perhaps, the most important financial products was able to make such bets with little backing up its promise to pay thanks to deregulation in general and three specific points. first allowing the institutional their own regulator. aig was able to select as the primary leg lator, which would have been 1/1,000th of its

balance sheet. had aig fp been a stand alone company, i don't think anybody would have done the business with it. there were no requirements behind the promise to pay as there are with insurance deposits. this changes 100 years of known capital requirements and lead to centuries version of shadow banking. these changes permitted other institutions to sell under capitolized other core financial

product that's previously had well-known capital requirements. i would note at a time when the firm s were in trouble because of insufficientishent capitol derivatives avoid century old rules about reserves is in fact bad. i strongly skam inthe changes

and the changes to understand what went wrong the system. dating back, there are strong earnings. we have learned a lot can see a direct cause and effect on the impact of the requirements and regime and eventual financial crisis. i'm excited and honored to be here and hope to help you in any way possible.

>> thank you >> thank you for inviting me here to spoke today. i'd like to thank the former chair for her leadership in commission most recently that she's joined the advisory panel sorting through the issues. my written testimony suggests the reason why these were not regulated in the united states but also in europe and asia. we have had this international instance. this was five reasons in the past to exempt derivatives from

regulation it was preserved in these markets that they would discipline themselves the contracts were customized. generally not sustain septemberable. fifth, the old saw was that if we regulated it here, it would go somewhere else stashgly causing these to question each reason. in terms of financial system. i will focus the role starting in the most specific role

played. the derivative $dealer. needy say more. the default swaps written on asset and mort backed securities. whether it was other similar cds providers these products basically, insurance along with weak underwriting practices in the mort market and waek rating agency practice all work together in terms of promoting and facilitating or am fieing a housing bubble. when the value of housing went the earth way, they had an effect on the institutional that's had written them.

they had to pay the piper the swaps were also used to lower bank regular la tory capitol. these were done in europe. the swap book was used to help lower defaults to lower elsewhere. fourth. the financial system was far too inner connected. you had a wonderful chart i want tofulliment you on. it was for one large financial firm you had testifying here. that web really puts everything at risk when in the future of federal reserve chair or treasury secretary can't let something fail. in the middle of 2008, we saw

that for sure. often they were not affiliates of banks the former insurance commissioner said, they weren't really effectively regulated. i've heard some people debate whether this was really anything to do with the crisis. i believe this did make the financial system more vulnerable lead us not think of toxic assets. the derivatives related were also transparent. clearing houses also need pricing where are we today? legislation reported and voted

out of the house on wednesday is strong comprehensive and historic. i hope it gets to the president's desk it will have mandatory clearing and trading. with that, i am glad to answer any questions. i respect the important work the commission is doing. during my 17 years of public service, i serve on capitol hill including quite a few hours in this very room.

i'm appearing at urine viation and in my capacity as a private citizen. i do appreciate the opportunity to pro vied any insight i can offer. from early 2006 until march 2008, i was managing director at ots. during that time, i had super vision over aig. i was serving as super advising manager, my group was asked to write a program. in addition to developing a program, my group performed targeted reviews under our purr view. ots's examinations were performed on site at the firms

themselves. their hourt existed. the reports were assessments of the overall enterprises and directed to the top tier of board of directors. ots skamed the reforms by the holding programs. those being capitol, organization al structure. relationship with the thrift institutional later changed to risk management and earnings. they did not perform well under the stresses brought on by the deterioration. the subprime residential real estate stresses a default from the 2003-2005 time period.

this is a key focus of our skamation work from 2006-2008. nor were they suggest to any standardized regular la torry framework. this has been observed by my colleagues this afternoon as affected. in the 2006-2008 time frame, sheing criticism of the risk management. including criticisms of the over sight of the subsidiary aig-fp. these brought on the holding and the enforcement letter which i signed in hafrp of 2008. aig failed because it could not meet obligations continue country parties. they relied on faulty a sumthss from the markets and the firm's

insurance operations. this was either not available or non-exist ant. shortly following the lieutenanter you saw earlier, my involvement with this case ended at that time. clearly, there are many lessons you can learn from the collapse of this company. many of those have been addressed this morning. i would like to make under score for the commission a couple of recommendations first. regulators when given a responsibility must have the procedures tofully meet these responsibilities. it sounds simple but rarely that way in reality. i would hike to under score that the regulation is a key national goal in many of the concerns that i had about this program

have been addressed and many contained in the legislation pending before congress. i'll close there and welcome your questions. >> thank you, mr. lee. we will begin the questioning. i'd like to make one offense before we start. mr. lee, thank you for coming here at our request. we had requested mr. rich, who is the former director of ots be with us today. we were unable to get a response we were unable to serve a speena because mr. rich is serving overseas. we have previously interviewed mr. rich but we want to follow up with him. thank you for accepting the invitation on behalf of that organization. i normally begin the questioning

today. i am going to defer my questioning and turn this over right now to the vice chairman. i'll take just a minute so that the commissioners can have the initial questioning. thank you, you are the center of whatever storm it was. we have not had the ability to quiz the state of new york and its legal structure in dealing with it. we keep looking at the larger picture from a washington perspective. this is going to be valuable. i was going to ask you if you felt comfortable giving us some idea of what you thought some of the problems were and i was going to see if you would be willing to comment on the legislation. having spoken with you before, i

really pressure willingness to come out front. it is a very difficult job especially sometimes when we are talking to some of the private entities to get an answer that you can do anything with. we are going to be able to do anything with this. mr. lee, i want to ask you. my initial question would be what did you knownd when did you know it but i would rather have asked that of someone else. we don't have the ability to do so. my only question to you would be what were we thinking? for someone who wasn't involved and you run down your list and you look at some of your changes.

how come they seem so obvious. people in the center and you yourself happen to think it's a positive thing to move from the private sector to the government. i'm concerned when you go back in especially if it's in the same area where you were governing. everyone we've talked to said we didn't see it or realize. we didn't know. prices were going to go up. from your perspective, private sector until now, how come we didn't see it? >> i think there's two thing that's could be in that question about what we could see. one is the regular la torry side, the other is this thing building up.

i'm more interested in the private sector folk who 30 times, multiples. >> let me address the second one. i think we had imbalances in our sphere. low saveings rates, this housing bubble in part by the swaps but not alone by that. we had very weak rating agency practices and underwriting practices. that housing bubble where it seems like everything is going up. when it started to turn and come another way, then the excess

leverage in the system both at institutions, it was not th at isolated to investment banks or commercial banks, even though the 30 to 1 numbers you're talking about were investment banks or more, all of a sudden everybody got cut very hard. there was very little room for mistake, very little capital in the system. i think derivatives contributed to that, for sure. not just because of the credit default swaps. i think overall, derivatives allowed greater leverage in the system. >> let me then retain my time at this time, mr. chairman, and allow the other commissioners to comment. >> we will start with ms. born. >> thank you very much. thank you all for being here.

i particularly welcome one of my successors in office, commissioner chairman gensler of the cftc. regulation of the over the counter derivatives market was virtually eliminated in 2000 with the enactment of the commodity futures modernization act, and since that time, no federal regulator, including mr. gensler, currently, has regulatory authority over that market or oversight of that market. moreover, states, as mr. dinallo points out in his testimony, have been prohibited from enforcing their antigaming and antibucket shop laws with respect to derivatives.

by june 2008, less than eight years after deregulation, this market grew to more than $680 trillion and played i think a major role in derailing our financial system and . . ps ps both state and federal had their hands tied in trying to control the market because of the erroneous decision that no regulation was needed to protect the public. i have hope today for meaningful regulation of this market to provide significant protection to us all, if the financial reform bill that's currently pending before congress becomes law. and let me with that turn to mr. gensler. you've said that in 2008, the

financial system failed and the financial regulatory system failed. in your view, you've said also that there have been failures with respect to the over the counter derivatives market. how did that market fail? >> well, i think that derivatives which were initially meant to lower and mitigate risk and are really a very important hedging tool for thousands of companies and municipalities also concentrated and heightened risk. they concentrated and heightened risk at aig for sure, but elsewhere as well. secondly, beyond concentrating and heightening that risk, there's that interconnectedness, that wonderful graphic that this commission has, on just one entity, limits the flexibility of the government to let something fail. so things not only became too big to fail, but too

interconnected to fail. or to be allowed to fail. and thirdly, i think specifically to the crisis -- there's this wonderful graphic. >> and that, i might add, is only 49 of the counterparties of goldman sachs and they've testified they have more than 10,000. >> right. so imagine if a treasury secretary or head of the federal reserve was contemplating letting that institution fail, and then they have to think of those 49 others, and as we know in aig, of the first $90 billion that went in to aid aig, $60 billion of it went straight through aig to another party. this whole question of did they get paid 100 cents on the dollar. the same thing would happen probably here without reform and new laws, that that pressure, so it heightened and concentrated risk on these financial institutions. secondly, the

interconnectedness, we can't escape that without real reform, these clearing house reforms that we so desperately need. but then thirdly, the credit default swap narrative is a very -- it was an insurance product and when the housing bubble burst, many institutions, not just aig, then were going to come down asunder. >> let's look at aig first, because it was a colossal failure. do you see that -- aig's failure as related to its over the counter derivatives trading and most particularly, the credit default swaps? >> oh, absolutely. though they had many other lines of business, the concentrated risk was in aig financial products, lightly regulated london and connecticut business, $2.7 trillion derivative book but it was concentrated in the credit default swap business.

>> you've said, i think, that we learned in the financial crisis that the failure of one large institution can bring others down as well or at least has that potential. do you think that aig, if it had been allowed by the government to fail, would have had systemic risk implications? >> commissioner born, absolutely. i think if aig would have failed, we would have seen a series of other failures. i think that the financial system itself was as close to the brink in the critical weeks in september of 2008, i don't think any financial institution, even the strongest if they were large and interconnected like this, was really -- they were all vulnerable.

>> you might explain for the commission how these counterparty credit risks that build up in the derivatives markets with millions of contracts, would be handled differently if there were central clearing and how you might explain how that risk is diminished. >> central clearing was an innovation of the 1890s, and actually came in the wheat and corn markets. it was so that a contract that was for the future delivery of corn or wheat, somebody would stand in the middle, that that farmer didn't have to rely on some jobber or money person from chicago or new york to really stand there on the other end. so a clearinghouse stands as a middleman and on every day, values the contract. every day says is it up or down. so how it would work in this

circumstance, all those lines, all those intricate spider's web, the clearinghouse would be in the middle, legally novating the contract, taking money on a daily basis so that if one party failed, they would stand to complete the contract. aig had to get tens of billions of dollars immediately because they didn't have a clearinghouse mechanism in between. >> well, wouldn't they have been posted margin on a daily basis so that there would not have been this enormous exposure built up? >> that's right. a clearinghouse mandates that there's daily valuation and daily posting of margin which is a performance bond in case one party fails, and fortunately, the new legislation includes that and i know the cftc, we would vigorously enforce it if it becomes law. >> do you feel that the

interconnectedness of derivatives counterparties poses a systemic risk to the financial system on an ongoing basis? >> it absolutely does. i think that the new legislation significantly addresses that, because as is the testimony in front of this commission in january, a ceo from wall street said 75% to 80% of derivatives could be standard enough to be brought into clearinghouses and that would really be a significant enhancement and lowering of risk. >> let's look a little bit now at credit default swaps and synthetic cdos which are essentially a package of credit default swaps, apart from the impact on aig. you said that you thought that that played a role in the

housing bubble and mortgage securitization bubble. is that right? >> that's correct. i think it lowered some of the underwriting standards of wall street but it also amplified the risks in the system. i mean, one homeowner's mortgage could actually be in numerous different contracts and numerous credit default swaps, i think very much a part of the ride up the roller coaster and the unfortunate calamity down the roller coaster. >> what role do you think lack of transparency played in the financial crisis with respect to derivatives? >> i think it played a real role. this is legitimately quite a debate and through this legislative process, many people have taken the other side of this debate. but i personally think that it makes the system more vulnerable, lack of transparency, and the securities

and futures markets, president roosevelt came to congress in the '30s and asked for regulation of those markets, in part to promote transparency. then everybody gets to price off of that transparency. derivatives is really a dealer-controlled club in a sense, where one party doing a transaction, a corporation doesn't know what another party's hedging at. in the crisis itself, we had things called toxic assets. though those weren't technically over the counter derivatives, i think those assets would have been -- have better pricing if they had reference and particularly the cds marketplace. >> let me just ask you a question about the panic that occurred in september of '08 when lehman brothers failed, aig then had to be rescued, other things were happening in the markets. do you think, and essentially

there was a run on the shadow banking system, a run on investment banks, actually a run on banks, not through their deposits but through their shadow banking. do you think the derivatives were part of that run, that is, did uncertainties about counterparties' creditworthiness in derivatives cause anxiety, were people trying to close out derivatives positions or get collateral or take other actions? >> i think there were, though i was a private citizen and not on wall street or a regulator at the time. i do think you're right, there was a run on the bank. the old bank movie george bailey and his bank, that wonderful movie, the run was in money markets, the run was in prime brokerage, the run was in

investment banking elsewhere. the risk premium wide and lehman failed, there was still some question as to how their derivatives book would be transferred. as it turned out, much of lehman's interest rate book was in central clearing and with 27 trades, a group out of london actually did move that book, successfully, but there were days people didn't know how it would be moved and there was the customer side of the business that didn't move as successfully. >> just to wrap up on this concentration of risk in the hands of some large institutions, let's take the over the counter derivatives dealers as really big concentrations of derivatives risk, do you think that makes those institutions too big to fail? >> well -- >> or plays a role, at least?

>> there's six institutions in the u.s. that have well over 95%. there's another six to ten overseas. so these 15 or 20 -- >> by the way, would you agree that goldman sachs has a derivatives business? >> well, i left there 13 years ago, which if i might say, was a bar mitzvah ago. but i believe that it does have -- it's a swap dealer. it has a sweep dealing desk. >> thank you. just an aside. >> to your question, your earlier question was -- can you just remind me? i'm sorry. >> my earlier questions was whether or not interconnections through the derivatives on the part of the, for example, the big six derivatives dealers make them in effect too interconnected to fail? >> i think unless we have strong

regulation to the president, i'm hopeful as you are that we will, we will have left these institutions too interconnected for government to realistically let them fail. but if we can take that 75% to 80% that might be able to get into clearinghouses, move them off the books of the banks into clearinghouses, force the daily valuation, the daily posting of margin and all the risk mitigation, i think that we have a shot at this thing. there's still going to be a risk. these things are highly concentrated financial institutions. >> thank you. mr. dinallo, some people have suggested that the real problem at aig related to its securities lending program and that its exposure to aig financial

products through that company's credit default swap business was a mere secondary problem that it had. do you agree with that? >> by the way, five minutes? >> please. >> i'm sorry. oh, i'm given five to answer the question? oh, it was five minutes for the commissioner. >> you should make your answers as succinct and pithy as possible. >> i will try. >> a new york minute. >> i don't know, i don't believe that's true. at least the calls that i received and the reason that we all ended up at the fed and working at aig throughout that week was the problems with financial products division % whose issues i think dwarf the securities lending issues. the securities lending issue was an issue and it certainly exacerbated the situation, although i will point out that no other insurance companies had a securities lending issue and

we examined them all under new york state law and the new york state insurance department was fairly ahead of the curve on this, helping wind down or directing aig to wind down its securities lending business away from asset backed securities, so for a year leading up, we had wound it down by 25%. even though we were only about 7% of the exposure as a regulator. what i think did happen, and there was a toxic synergy here which goes to whether you should ever permit sort of a bolted-on derivatives business, is the counterparties certainly seeing that there were collateral issues at aig, then went and started to demand their securities back so there was in a sense, i don't mean this in a legal sense, but there was in a sense inside information about the demand for the cash back on the securities lending business which was not seen anywhere else, to anything of the same

extent. i do think that a pooled securities lending business is not a wise idea on reflection, because i think it leads to sort of regulatory assignment questions. so it was pooled at the holding company level and that meant that several states were all somewhat responsible for it. i think that when you have operating companies, insurance operating companies, there really ought to be just one regulator over that operating company and this i think created some kind of regulatory gap although people disagree about this. certainly we were on top of it when i was there, although there was a long leadup that i think permitted them to go to a concentration in rmbs that i don't think was particularly wise, although it was all aaa-rated and you know all the positions about that. so i don't think in any way, shape or form it was the driver. in fact, when i testified in this room last time, the life insurors were fully solvent and they were certainly not the reason that there was any bailout or any reason that we were called to help with the issues on financial products

division. >> so in a way, what may have happened was concern that came from what was happening at aig fp with its credit default swaps portfolio may have caused a type of run on the securities lending, on the part of the securities lending counterparties. >> i think it was that and the general financial crisis, where everyone was reaching for cash. >> wanted money. right. >> by the way, parenthetically as my written testimony says, this is the one area where all of a sudden in some way that's a little bit attenuated but true, that all of a sudden the holding company could be reached into for cash into the operating companies because they had lifted this business into essentially a holding company structure and you would not otherwise permit that. >> right. >> can i just add it was also the nature of the securities that aig decided to take,

residential mortgage backed securities so they were sort of doubling down more on the housing market. >> yes indeed. let me -- >> just another thing. i think it's very interesting to think about statutory accounting versus mark to market accounting. insurance companies do statutory accounting and we can debate the wisdom but it does permit you to take a long dated risk and match it to an asset and basically manage yourself out of some poor decisions because you really only have to make sure that when the person god forbid passes away, so to speak, dies, you have the asset to match against that liability. there's a big debate, i believe, whether securities lending should be permitted for insurance companies because in a sense, it exposes their statutory accounting to the mark to market accounting of investment banks. which is clearly what started to happen. that's like for another day but i do think that there's an argument, that there's a regulatory moat around the insurance company that should

not permit for any drawbridges whatsoever or you get exposures like with fp or with the pooled securities lending business. >> well, when aig fp did have these tremendous collateral calls on its credit default swaps and got to the point where it wasn't able to meet its obligations, the federal reserve bank of new york stepped in and the federal government then stepped in more generally and has made commitments of over $180 billion to it. do you think that that was necessary in order to save -- in order to prevent systemic harm? >> well, i agree with the chairman's views that i thought it was necessary. i was there and people seemed

genuinely concerned and shocked and believing that, you know, there was some chance the commercial paper at major institutions was not going to roll over. these were sophisticated thinkers and speakers that atms might kind of grind to a halt that week. i think it was necessary because also, i thought that the possibility that the american public or the world would somehow start to have doubt in insurance products which of course was not the reason for the crisis and didn't have anything really to do with aig's issues, would be one step too far and you would end up having potentially runs on insurance companies, which you could argue doesn't actually happen but people stop buying it, you essentially have a long-term run. i thought it was very, very important. what i always wished could have happened was -- and i don't know whether this could have been done in an emergency way. maybe this is the kind of thing that should be put in a statute. is i would have liked to have seen the u.s. government just substitute its guarantee and rating for fp's obligations

instead of just pouring in the cash, because essentially, that would have taken off a lot of the issues and i think that it wouldn't have looked quite like a bailout and there would have been essentially the same outcome to a large extent. now, i don't think t.a.r.p. or whatever it was called then permitted that, but maybe they could have gotten some kind of emergency measure. i think that would have been helped a lot because that essentially was the issue, was this belief whether they were going to be able to pay. because i'm sure you've heard before from yesterday, et cetera, that really it was a liquidity problem, not a risk problem in that the actual vintages of the cdos weren't, you know, the most modern ones. so with the right long-term guarantees, you might have -- ppand you will see, you'll work down to a number that's not nearly $200 billion. >> yes. thank you. my time is up. >> i apologize for falling down on my chairman duties, mr. vice

chairman. >> that's okay. because you recognized me. mr. wallison, i want you to join in on this for just a minute. we've got this multiple chart up again. chairman gensler, i want you to expand on your comment because we've heard opposing views that derivatives helped to inflate the housing bubble and this is where you have an example where through synthetic and partially synthetic cdos, you can multiply the number without having to multiply the actual mortgage packages, and i believe commissioner wallison says that that's not necessarily a bad thing because they would have just gotten worse if they had to go out and multiply them. is that accurate? >> yes. the argument is that there was demand for exposure to subprime

mortgages in the united states, demand around the world. now, it could be satisfied by making more subprime mortgages in the united states or it could be satisfied through synthetic cdos which replicated the potential risks and rewards such as they might have been in subprime mortgages. so the argument is that by allowing synthetic cdos, it made it possible for this demand for that exposure to be satisfied without actually having to make the mortgages. that's the argument. do you want to respond to that? >> well, i want to add an option or elaboration and get your reaction to it because arguably, cdos were dependent on cds to exist, and so as more cdos over time had a synthetic component, maybe you needed the synthetics to keep the cash market going.

>> i think that -- you're calling them synthetic or derivatives in this marketplace and the cash had an interplay just as in the oil market, a future and the actual oil can have an interplay. but what i was saying earlier and firmly believe is that credit default swaps allowed for the mortgage underwriting practice to be lowered, the actual due diligence and everything. somebody else was the gate keeper. somebody else was bearing the risk. aig or mbia or somebody else. and a lot of investors were investing in collateralized debt obligations because there was what we used to call when i was earlier in the financial industry, called bond wraps. they were done by insurance companies, not by derivatives people.

those bond wraps and cds usually meant that investors would invest more. it's in that way that i think in 2004 to 2007, contributed. it was not the only cause of the housing bubble at all. but i think it helped contribute -- >> we're talking i think about two different things here, if i can -- >> go ahead. >> i think we're talking about two different things. >> we may be. >> a synthetic cdo doesn't have anything to do with an actual loan. it just replicates the risks associated with a cdo that includes the actual loans. so it doesn't add -- it doesn't make those original cdos that include actual loans any more or less risky. now, you could buy a cds on an actual cdo with real mortgages in it, and that might respond to

the point you are making. i would add, though, that of course, we've had insurance of all kinds of risks over time and to say that insurance makes people more willing to take risk is well known, but the insuror, as mr. dinallo will tell you, has to understand the risks that the insuror's taking on. but let's just go back to the issue of the synthetic cdo and my point was simply that when you have a synthetic cdo and it allows you to take the same exposure, then the subprime mortgages don't actually have to be made. >> and the purpose of my intervention and then we'll get back to the regular round, was that i wanted you to amplify on the statement that you said that derivatives helped to inflate the housing bubble. then at some point, if it seems appropriate, if you could mention the rating agencies and their involvement in direction

and substance of how it inflated, in your opinion. >> i thiik commissioner wallison was helpful. it's two, though related, separate points. my overall point was not about synthetic cdos, even though i know that's a much debated topic. mine was just around the credit derivatives and somewhat because of their newness. they didn't really exist to any extent 10, 11, 12 years ago. but in this period of time, contrasted to other forms of insurance, are a very new product, very ineffectively regulated insuror, so to speak, aig financial products and others, so i think that they did replace otherwise, you know, good judgment on underwriting factors of this. synthetic collateralized debt obligations and just general collateralized debt obligations have very similar features, in many regards, and to that, i share your view. those are separate points, though related.

>> and then just -- >> rating agency. >> rating agencies, aaa, aa -- >> i think though it's outside the lane i swim in, i'm supposed to swim in the derivatives lane -- >> i understand. you've been in the pool a long time. >> the rating agencies contributed and the weaknesses in the rating agencies particularly related to asset securitization product, whether that was because of conflicts of interest, whether that was other reasons, i'm sure you'll investigate. but i think they definitely contributed to rating agencies, credit default swaps, poor underwriting standards, the housing bubble, you know, is a little bit of a cycle, then it became a bigger cycle, peaked and the kay-schiller numbers, and collapsed. >> insurance sometimes comes close to being in the same lane. >> thank you, mr. chairman.

mr. vice chairman. >> boy, it has been a long journey. >> i'm going to take a few minutes now before we move on to mr. wallison and mr. hennessey -- oh, hennessey's first. i keep looking right. and actually just take some of my time for a minute right now. i want to actually ask mr. dinallo, i want to ask you a couple of questions. you made an interesting observation that aig's ability to sell credit default swaps was based on the aaa rating of the holding company. which was based on the insurance subsidiaries whose assets were not available to backstop the activities of aig fp. so how on earth did that rating essentially get ascribed to instruments being written by an entity not backed by the assets that gave rise to the aaa? is that a failure of the rating agency to make the distinction or is that a complete failure of

the people buying the product to understand what assets were available? >> i think that it is both -- it is i think the most profound miss i've seen out of this. >> that's a pretty darned big one. >> it's profound and i think it's extremely important, and i don't mean to disagree with chairman gensler but there is one core distinction you have to make. the difference between mbia and ambac and the difference between fp is a really important distinction. i just want to take a minute and explain this because i think it explains so much of what went on. in the early '80s, the -- >> excuse me, mr. dinallo. if you're going to explain it, there are actually people watching who have no idea what those letters you just rattled off meant. >> thank you. what we're talking about are financial guarantee companies,

companies that take their capital, their rating, and they guarantee the obligations of others, whether it's an issuer of bonds or eventually structured cdos. and when we started to see this happen in the department of law, i mean in the department of insurance, it was early on that aig back in the early '80s and citigroup and others started to do this, they started to quote, monetize their rating, and the department demanded that these be set alone and called monolines and they could only do this one business, they had to be standing alone, they had no access to the guarantee funds to government bailout, and they were highly regulated with very high capital requirements and a low return to equity. they weren't going to be, you know, leveraged businesses. and the belief was that if they went, you didn't want them to take down the government through the guarantee funds or an otherwise stable insuror. is this starting to sound

familiar? okay? there's a good argument that i told your staff that what aig did and the ceos there and executives, was they figured out after the cfma that they could basically bolt on a severely undercapitalized monoline, get the aaa rating of the holding company, and sell guarantee insurance without the capital set aside that it would have otherwise required under new york state insurance law. that is why i believe it was so profitable for so many years, because it was doing a business that otherwise you would call on wall street dumb money. but instead, they could get huge returns because they could sell insurance, as chairman gensler said, without the same capital set aside. that's like a miracle. when you get to do that, you make tons of money. you pay eventually. so i do think that essentially, the rating agencies and the counterparties missed this and they believe that in the

trillion dollar balance sheet of aig -- >> somewhere, somehow -- >> like it would in a monoline. there's tons of money in a monoline and it comes up to meet the obligations. >> so the aaa rating was accorded to the holding company or was it also accorded specifically as an -- with respect to -- >> i think it's a little confusing. i'm not perfectly knowledgeable on this. each operating company does have its own rating for insurance purposes and i don't know, i presume that fp -- my understanding was fp was guaranteed by the holding company, which is essentially them saying we have a aa or aaa rating and we're monetizing that. >> you didn't have pure portability of the funds. all right. this is one of those cases of it's too good to be true. >> also add on to it that normally when you have a monoline, you don't do collateral in events of default and margins to the

counterparty -- >> it's only on an event of real default. mr. thomas, you wanted to ask something? >> yeah. i want to try to jump from mr. dinallo, what you were saying to the fact that ots is at the table as a regulator. and dealt with aig as a regulator. only because of an acquisition, and that their ability to regulate would be nowhere near what you would think the degree of regulation would be, given what they were doing in aig fp. can you just flesh that out a little bit? and obviously, mr. lee, i want to bring you in on this because i think that's the other thing that you need to talk about. the explanation was terrific. >> i just want to add that, so after -- my understanding is after bearings went down, there

was a series of regulatory requirements that each company doing business in london would have to show who its supervisor was and roll up all risk. this is part of the basil 2 requirements. so then in order to do business in london, you had to demonstrate this. now, the fsa would accept other regulators than itself so all of the investment banks and others had to go out and get a group supervisor. and aig's, i would have thought, would have been one of the insurance supervisors or maybe someone else, but they did acquire this very small thrift, 1/1000 of its balance sheet and i think '99 or 2000, thereby by a trick of arbitrary arbitrage was able to designate the ots as its holding company supervisor. that was permitted. in fact, when i was at morgan stanley, i came after the fact, there was an argument that morgan stanley could have done the same because it owned discover and some small banks in utah. they chose the sec. so that is i think one of the

other lessons is there ought to be some common sense, nondiscretionary choices about who your regulator is. it should not be dating. it should be a married relationship that you're sort of stuck with. i think that that has led to lots of switches in charters in the federal and state banking situations where if one regulator's too tough, they just flip over to the other regulator. that should just be prohibited. it's unbelievable that we permit it. >> all right. just picking up very quickly, then i actually want to pick up on what the vice chair was asking about ots but i want to finish with you quickly and then i want to swing to you, mr. lee. that is that in 2007-08, based on interviews with our staff, it appears that the state insurance regulators did begin to address security lending challenges they saw at aig, but one of the things that struck me was you mentioned in the interviews and it's in the materials given to

us that you essentially had control over 7% of the assets, and the investments were being run out of the holding company which you really said was a matter of regulatory arbitrage in another respect, correct? >> well -- >> could you have stopped that? could you have said pull these back to the insurance subsidiaries? >> yes. i don't know if new york standing alone could have, but i guess each -- >> you could have said to the insurance subsidiary we're not going to allow aig investments to invest your assets? >> yes. >> so in a sense the state insurance regulators, looking back on this, should have done that? >> let me -- i think it's a more subtle answer and the reason is, there's a good -- i believe when they first were proposed this, they thought that it was a good risk mitigation. >> sure. because you have a larger pool. >> correct. >> as treasurer of the state of california, i ran both the state investment pool and the local agency investment fund. you get efficiencies, you get diversification.

i assume that was the assumption. >> but i think what i would have done -- if i had been there, i would have either not permitted it or i would have said that there needed to be one sort of one regulator who was deemed to be responsible for watching the concentrations. now, there's also, we've produced these documents, there's also a large lag in when the mix of securities invested comes into the regulator, and that is something that i think needs to be fixed, and then once the recognition occurred of how concentrated it got, they started, they meaning the insurance department and other state regulators, started to walk them back, which i think they were doing successfully. >> what was the lag again? >> well, there are these regulatory filings that i'm not perfectly familiar with, and i would refer to the insurance department. but there was an argument and they sort of go back and forth that on a risk based capital calculation there was an argument they were too concentrated and also, i just happen to recall as i'm sitting

here now that there was sort of a not a real-time reporting on the investments of the securities lending, i believe. which is sort of normal when you think about it. but you could go very long something and by the time the regulator sees it, the decision's already been made. >> i think it's fair and you only had control over 7%. >> my recollection is that the state of new york's life insurance companies that participated in this was about 7%. >> so very quickly, because i do want to move on and i only have a limited amount of time, so i just want to ask you, in that regard, if you only had 7% control, how would you effectuate control? >> well, new york became the head -- in part because of the expertise of the department, it became head of a multistate task force to work with aig to wind back the securities lending program which i think it was doing successfully. >> it seems, i want to move on to the ots now, it does seem in the big picture here that aig either our regulatory system was

so fractured, so dysfunctional or that aig was extraordinarily adept at weaving its way through the gaps in the system, because if you look at both securities lending and you look at credit default swaps, these two very large positions which ultimately resulted in $40 billion of loss in credit default swaps, $55 billion in securities lending, and essentially went through the sieve of regulation -- >> i just want to say, i have said before that as with kindergarten, everything you ever want to know about the financial crisis, you can learn from aig, across the board. >> all right. let's move to the ots. i want to just say starting this off, mr. lee, i'm a big believer in the ultimate responsibility of leaders and mr. rich isn't here. so anything i say here should be taken as observations about the organization as a whole. you've come to the chair today and in fairness to you, i don't

want to you the personal brunt of this except to say it does appear that aig also -- there was a race to the weakest here. aig did decide to pick its regulator based on what met its needs and not larger public interest which makes sense from their perspective. i just want to put things in the record so that for the benefit of the public, which is starting off with the appropriateness of ots as a regulator, mr. rich who is not with us today in the interview with our staff said, we as an agency were like a fly on an elephant. he said we did not have the capability to supervise a company like aig. it was not reasonable to expect a small agency like ots to supervise a complex agency like aig. he does observe when the federal government had to bailout, mr. geithner was none too pleased

with the performance of ots. just starting out, did ots not have the capacity to regulate this? >> i think that's a great question. resources are clearly we didn't have resources to bring to bear that other regulators brought to similarly situated holding companies. that's a fair question to ask. i lived for two years regulating this company with the fear that there would be unanticipated event that would occur out of a subsidiary we hadn't been at or in relation to a product or business we didn't have knowledge of. i don't think the record supports that in this case. ots did assemble a team of people in a regulator plan that not only picked up risks at aig in particular but also at the parent company and brought those risks to the attention of the

parent company board well in advance of the problems in september of 2008. not only did we bring those issues to the attention of the board, but we followed up with ratings downgrades and supervisory enforcement actions that i think bear record that notwithstanding the limitations that we had from resources perspective that we did a good job of identifying the key issues that confronted this company in 2008 and we elevated those issues to the highest level in the company. >> i think i'll disagree with you based on the documents i have seen and perhaps you can provide us more with respect to critical time period of 2006 and 2007 and what i would like to do right now is -- here's my understanding. between 2001 and 2008 ots conducted 27 regular limited or targeted investigations. 21 of the 27 were limited or targeted. and none of the six regular