10% reduction in service con tracks for the next three years. and my question is, 10% of what? what is everything being considered for the cut? historically, since i've been here, civilian personal have led to increased contracting out by huge numbers. what mechanism is being put into place to ensure that contractors will not simply be substituted for civilians? and i believe in contracting out. when it makes sense. when in many instances it doesn't make sense and i would like to hear what your overall plan is to include operational energy as part of your broader review of efficiencies and also to hear what steps dod is taking now to get cutting edge

technologys for the theater that changed the culture and to reduce our demand for this. i know i've given you three questions but any one that would like to tackle these questions. >> i'm going to ask doctor carter to address your operational energy question. there's quite a lot we're doing in his office but before i do that, let me answer your question on consultant. secretary gates had the same perspective you had. often when we freeze si vel yen personnel as in the past, it caused growth in what we caller is vice support contracts. contracts that are basically providing staff augmentation to government workers. i'm not meaning people that do depo maintenance or functional responsibilities related to war fighting. these are staff augments and they have grown by a factor of three in the last five years.

secretary gates thinks that was largely uncontrolled. at least not centrally directed. the reductions he's directing the 10% per year is intended to reign that back in to try and get some more sense of balance between government workers and service support contractors and we certainly need both. we cannot operate without contractors but we think we've gotten out of balance over the last 10-year and so we're work together restore that balance as we go forward and as we look to reduce overhead in the depth. >> thank you. very important energy question and i'm delighted to say that finally, our director of operational energy, sharon burg was confirmed a few months ago. she's the seat now. very important role and - i give you a few examples of the kind

of problems she's looking at. few weeks ago i was at bag ram er base at the fuel depo where fuel trucks come in and we basically buy at the gate paying $4 and 28 a gallon. not bad for fuel. much of which is trucked in from central asia through mountain passes and so forth. great example of a logistics effort to decrease operational energy at the operational end. down in the con da har area. we're doing insulation of tint or te tenta ge there. we l have learned a lot and shes

pushing that forward. congressman or tez talked about cutting edge technology to the theater if you read my directive to the acquisition workforce that issued a few weeks ago that i would put in the record. it says achieving these efficiency subscribe supply and demand your second highest priority. your first highest priority is to support the on-going wars. that is my charge to the acquisition workforce and you see inisr and everything we do making sure it's not just about buying. tomorrow's weapon system that's efficiently and effectively and high end. but also about sporting conflict that's on-going. i wanted to make that point because i feel very strongly about it. >> thank you.

>> doctor parkinson noted as british navy became smaller and smaller. the ad mirlty grew larger and larger. he also noted that an organization consumes with internal communication and the larger the bureaucracy grows the more of the energies consumed with . . t point for different organizations, they become so large eventually all are done as communication and nothing gets done outside. our defense establishment has notest scraped these inherent but rock razzies. it's very important to take a look and thank you for doing that. the question is, is the current suggest of doing away with joint forces command.

problem could be solved by other means which we might need to discuss. is it possible to say this suggested cure might be worse than the disease? because this district is so impacted i would like to yield a balance of my time to randy forbes. >> i thank my friend from maryland and general, i thank you for being here, but i'm not going to ask you questions for two reasons. the first one is because we've basically seen hat this administration does to people in uniform that disagree with them and secondly. he was not completely forthcoming saying department was soliciting ideas about the issues. what wasn't disclose supply and demand you put a gag order on the people doing this in the joint forces command where anybody that disgreece can't talk to congress or be here to talk about these issues. and mr. secretary, i ask you this question this morning. who do you serve?

who do you work for? if that's the case, then you made the comment that president barack obama and secretary gates were supportive of these reforms, is it your testimony that president barack obama has signed off on the reform proposal to shut down the joint forces command? so then you misspoke when you said that the president and secretary gates. secretary gates proposal. the second thing i ask you is this. you said to the ranking member that it was a fair question to get the analysis before you judge it. if that's the case. did the secretary get the analysis and if he got the analysis. why in the world won't you give it to this committee to look at it. let me go back and say this. this should be a debate as my

friend from maryland said. whether or not we should shut down the forces command. we can't have that debate because you refuse to give us information. some of us may disagree. my friend from south carolina, texas, they all might disagree and think it should be shut down or not, but we can't have that debate because you refuse to give us evidence. the pentagon has woven a tapestry of silence that's deaf energy together the sounds of liberty itself. the end doesn't justify the means. you've had 11 years of testimony out in the public and written analysis to look at for joint forces and joibt forces command, and you've had 90 days of back room and when you talk about meetings it could be two people talking with each other and talk about the 30 meetings but you refuse to give us one bit of the evidence and when you come in

here and your blending apples and oranges and say it us no business case it was the business board we all first heard about the closure so that's making military policy. not business decisions and then on the first briefings that you came in you said you didn't know what the cost savings were. shouldn't you have at least looked at those before you made the announcement. we all know that sometimes you guys skom in and tell us all the money you'll save and it ends up costing us more money rather than saying and you say it's a philosophical decision but it's not to the folks losing homes right now in virginia. to the 250 million dollar deal that didn't chose- last week because of your decision to the restaurants and businesses shutting up because you didn't make that decision. my time is up and i'll look forward to asking more questions when i get my own time. >> mr. chairman, i need to respond to a couple of those

points. >> go ahead. >> first, mr. forces the recommendation the celebritying rer tear made and you correctly described it's a recommendation to the president. he's had extensive discussions with the president about that and all the recommendations he's made but with the regard to the establishment command the president has not yet made a decision. secretaries recommendation was not based on the defense business board. independent parallel activity that came to the same conclusion. the secretaries recommendation was primarily with the military advisors were not meetings with one or two people in the room or meetings with the chairman, vice chairman. chief's and senior civilian advisors and with the commanders both incoming and outgoing of the joint forces command.

with regard to the rational, this is a two part exercise. rational to recommend disestablishment was based not on the economics but military rational and i've gone into that in some detail and won't we pete it. i know your have another chance for questions and we'll do that then. the savings. there's a billion dollars and i'm sure we'll save a substantial part of that billion dollars and that's the business case and we'll provide that to the committee when we have it. we have provided the military rational for the recommendation for closure. as a bot bottom line point it's particularly tough for the area around norfolk. we'll work hard to help that. >> mr. lynn, you have not done that. if you're going to work hard

with them you could have at least taken their calls and given them information and you still stone wall us today but i'll ask in a moment. >> i met with the governor as well as yourself yesterday morning and will continue to do that. >> mr. taylor, please? >> with your permission i'll yield my time and claim his time when it's his turn. >> thank you. mr. taylor for yielding and thank you, chairman for holding this set of hearings. secretary lip you said this is not a civilian decision. i disagree. i agree with colleague forbes that said if the end boils down to a decision made by a president on a recommendation by the secretary. just talking about the military side of things. i want to read quickly a quote

from former commander at jif con that said i disagreed with the secretary of defense and jointness of military has been achieved and the job is done. abandoning a long defense and chairmans of the joint chief's of staff to ensure maximum effectiveness. side from hearing from general cart write yesterday morning. this is the only other military expert we've been able to hear this thoughts on the issue. i think it's fair to say, that there is some disagreement or different points of view on the military side here. we understand at some point we have to come to a decision. i accept that. i strongly share chairman cell on the and ranking members secret nature of the discussions in the defense department on this issue. particularly on something that that is kind of impact that

potentially disaccomplishing a four star command could have. i potentially get the feeling the department doesn't believe there's a role for congress in this decision given the fact the recommendation has been announced. i'll concede the point today - i think we're moving the forward actually. you have said that you agree an analysis needs to be done and that's, i'm talking about what disestablishment over command or any other route would cost or save. what this specific effects would be on the military and how we would ensure to carry out the important functions that even the secretary said he knows jif con does. there's important functions that need to be carried out. what i'm concerned about is the fact that the secretary has made the recommendation before the analysis done that even you have said to today is where to go today. what i want to ska you, is if

you'll committee to including us, not just as a committee, but the virginia delegation and the governor has made many efforts do that if you will make a commitment to arrange that meeting to allow the input in the analysis you describe before implementation would go with this proposal. >> thank you. as we discussed yesterday morning directly with the governor and yourself and other members of the delegation, we will, indeed ensure that the governor and elected members of the virginia delegation have an opportunity to meet with the secretary some time this fall before final decisions are made on implementation and we'll solicit your views in open and make sure we have a channel that the information that you think needs to be before the department, before we made that decision indeed is before the department. >> well, i appreciate you

saying that and i appreciate your recognition that we should have a role in the process. i have to say i'm unhappy with the performance in terms office involving us in that discussion. i will say, i'm happy to note now you have offered to include us more rigorously in the analytics before any decision is implemented and i thank you for that. i want to close by saying, and reminding the other members of the committee and i think you've had an opportunity to far to beat a flavor where the committee is on the decision-making process here. reminding the proposed closure of joint forces command presents based an number given by the department previously. only one quarter of one percent of the secretaries plan to rean a hundred billion in defense priorities and as we provide oversight for the secretaries demand we'll demand cost-benefit analysis of those decisions

because it's our job to provide that and it's also our job to our constituents back home to ensure a large brush doesn't sweep away thousands of jobs without proper justification and rational. with that, i yield back. >> thank the gentleman. let me, let me say mr. secretary that i am deeply concerned that the years of creating the joint culture - and enforcement there of - can go down the river. and be lost. as long as i'm chairman i'm going to do my best to make sure that culture stays and it's enforced. it's coming too much effort, not

just by congressman but by so many outstanding leaders who wear the uniform. they've made it happen and i don't want to see that slip away. and if i have any message for you, mr. secretary, i hope you understand that. >> i do understand it and share the objective mr. chairman as we discussed we're not sure that's the right conduit was appreciate that there may be differences about that. >> first of all, i'd like to request. unanimous approval to submit to the governor of virginia. statement by the city of suffolk also questions that we have requested to be asked by the department. >> without objection. >> mr. chairman, also have enormous respect for you and one of the things that fright energies me about secretary lynn's testimony. he doesn't believe there's a risk to going back to the pre

fold water issue. might not be concerned with the cost of the common wealth of virginia. i don't expect members here to be concerned but number one news story on the day. announced in the communism chinese press. was the closure and how it would help them. they're number one weakness with the russians working is jointness. secondly. it's coming to a theater with you if they can do this process here and not have any opennes they'll do it anywhere across the country. third, we sent a message out to all of our partner as cross america, you better be careful when you deal two department of defense because don't count on them being open and having a process if they just decide to close something they'll make that decision and get the analysis later. i wanted to go back to what i was talking about mr. secretary with this cloud of lack of transparency that you guys have pull down the drapes in the

pentagon. last year and i understand why. we haven't really as a committee held you accountable to that. last year you issued a gag order that prohibited individuals at the department of defense from talking to members of congress about the ramification of some of your cut. we had hearings cancelled because people couldn't come here and testify and what did we do about? it this committee did nothing. when you refused the requirement you have by law to give a shipbuilding plant to know what you were doing and asked you in every way we could and you refused to do it? we didn't do anything. required by law to give us an aif yous plan and we ask you and ask you and you just failed, we didn't do anything about it. you've had 11 years of testimony and now you make 90 day of [back room meetings? what do we do about that? you wouldn't respond to members of con grechts senate and

republicans and democrats and my friend, congressman scott has been right with us, asking on this having same problems we've had. governor of virginia went 7 weeks and wouldn't even return this telephone calls to say hat you're doing and how. yesterday at the meeting with us, you wouldn't let the press come in. we ask you to and you took our telephone as way and there wasn't any classified information or anything that had executive privileges was you don't want the pub rick to know some of this information. you issued a gag order of refusing to let them talk if they have a counter opinion to yours. one of the questions i a have for you today is will you give the chairman a rankinging copy of the order you made them sign. nondisclosure agreement today. at some point in time. mr. chairman. enough is enough. we need the analysis and we need effects. i think this the time. mr. chairman and mr. ranking

member, we so respect both of you but today we'll send you a letter signed by democrats and republicans. and not just people from virginia, requesting that we have backed up. drawn a line in the sand and said please give us this information and you've refused. we've backed up again and you've refused. we backed up again and you refuse and mr. chairman, mr. ranking member, we're going to request if they keep pushing us against this wall the committee issue a subpoena requiring this information be fwin to us because i think it's right for the american people and mr. lynn i'll close by saying this. you may work for the president and maybe for the secretary of defense but you work for the american people. they pay your bills and send their sons and daughters to fight our wars and they have a right to know this information and we ought to be able to give the analysis and put it in on

the table. we can't afford to go back and we need to not come with our hat in an and pleading for crumbs of information. we out to be able to come and you give us analysis and information so we can do the due ginls we can to have an over site function to protect the greatest military the world has ever known with. that i yield back the balance of my time. >> thank the gentlemen, doctor snyder. just a couple of things. thank you mr. snyder. mr. forces the one thing we're greed on. i do work for the mesh people. what i said in response to your answer and i hope you weren't implying i said something else. just on a couple of the factual points we have provided the committee with that and the aviation plan.

i know the committee would have liked it in the first month or two of the administration stravenlths we didn't have people confirm and provide it when we built it. there was no plan when we or you requested it and we provide it now to the committee. >> mr. chairman. i like to hear what mr. chris a had to say. i'd like to balance the yield of time to mr. chris. >> thank you mr. chairman. i obviously had questions but after listening to mr. forbes testimony, you know i go back to the briefing we received saying dod indicates some analysis was done leading up to the decision to eliminate the plan. the plan will be developed over the upcoming year and it's frustrating because if your working together in good decisions being made, certainly

we'll agree obstacle them but i think i can understand the frustration is if we're not included any decisions but we're in the authorizing committee it gets die see as to what we support and don't. are we working together for the american people? but, quickly. my question would be, you know going back to 1993 when president clinton and vice president gore came in they re-invented in government and a lot of pentagon employees were eliminated over that time and most of that was sucked up into contractors but during that time. the o and m budget stayed consistent with inflation. it's been the last 10-years though that it's been pretty extensive how it's grown. so my question to you is that when you're looking at the shrinking of the defense department, are we shrinking on o and m or procurement?

what's the split on how that's going to be addressed? >> the focus of the secretary's initiative is on what he's described as overhead. now much of the overhead is in the, o and m account but not all of it. so, we've asked the services and all the defense agencies to put forward proposals to develop 100 billion in overhead cuts. and to shift those resources into the war fighting accounts. that will probably lead to some restraint in the growth of the, o and m accounts but how much i couldn't tell you right now. >> there reasonably no general idea that 90% of it is coming out of o and m and 10% out of procurement. there's really no idea? >> focused on over head. we'll evaluate the specific proposals and it'll fall in the budget. >> so when you're looking forward to cut your budget. where does the future combat

system fall in this debate? >> the future combat system is an army modernization for the fleet of vehicles. the secretary restructured that last year feeling that it was not focused sufficiently on the lessons that we'd learned coming out of combat in afghanistan and iraq mrafrly with respect toiuds. the lead slaement ground combat vehicle probably the first element out and mr. carter can go into more detail on that if you like. >> we just saw the ground combat vehicle, there's going to be a rebiddings. that part of the savings we're looking for going forward or what is the plan here? >> with respect to the ground bomb combat vehicle. one of the elements the rfp. the army issued several months

ago. we have pulled back because it did not contain the right acquisition strategy. i think that the intersection of, ground combat vehicle and the efficiencies that initiative lie in the area that idea scribed earlier at particularly the affordability as a requirement idea. so as we look at the ground combat vehicle just like the navy has done as army looks at the ground combat vehicle we're looking at each element of the design. all the drivers of the design. internal power. the number of troops that the vehicle can carry. the hardness of the vehicle. a gunnery and so forth. and looking at the way in which each of the requirements drives cost and making sure that we're making the right trade-off.

that is, at the point at which we're getting a diminishing return of military capability for continuing investment that we cap the requirement at that point. doing that for each of the design perimeters on the vehicle and there by getting well-rounded overall design. so that the vehicle that we put out in rfp-4 for the technology development phase is the one the army can actually afford when it comes time to buy it. 7 years to first production vehicle and an appear i don't haved o production. look out and say what else will they be doing? they'll be doing light vehicles. heavy vehicles in addition to this armored vehicle they have other investments to make and we want to make sure we're building one that's affordable while having military cape biment they want. the savings on that will be you

can think of in two categories. one is that it may be that the resulting design is one that allows us to spend less over the next five years than we originally had planned in which case that's savings that can be part of the 100 billion but i think for that particular project the body of the savings will be in the out years when it comes time to design or to procure a vehicle that's better designed for affordability than would have been the case if we followed it four months ago. >> chair organizers gentlemen from texas? five minutes. >> thanks for being here this morning. talk about something besides joint forces command. the - my antenna went up when i heard secretary from august ninth that secretary gates is

scheme was to cut overhead and back off this and those kind of things in order to an adjust the numbers and the business transformation agency and,ni as well. explicably worthless and on the chopping block for this 100 billion dollar nut. couple of questions. did you come up with a 101 billion as a goal or did you build one from the bottom up and got to the hundred billion? how does eliminating all of that back off asbta and others have you look me in the eye with a straight face and tell me you're just as committed to getting audible or audit financial information as you were before this happened. looks like you've take ten team on the field to do that and said, they were not going to get

there. my question is that to the issue is one, do you think telling the american people. the confidence of the taxpayers. you mentioned earlier is helped or hurt by the department of defense having audited financial statements. is the department able to say your money is being spent the way we think it should or just trust us? we don't need audits. we're the single largest entity on the face of the earth from a spending standpoint and they're not needed. trust us we'll spend this money. how do you defend the law that none of you are be here when it happens in 2017 that's required to be for the department of defense to be audited, none of you will be here so we won't have any kind of accountability for you. the passive aggressive. we'll just - yeah we're going to get there but it's somebody else's job is frustrate together me and to have you say, we don't need thebta or to focus on

getting the financial statements audited, can you help me how your going to keep it's a priority for the department to get audited financial statements and not committee resources to getting that done? >> mike? >> yeah. couple of questions embedded there if i can take the first one. you asked where the hundred billion came from. discuss that with mr. keen. that's what it takes to get our war fighting a counts to two to 3% real growth. >> actually give you that math. i'm not following. >> i'll provide you with the math. the calculation but that's where the hundred billion dollars came from. it wasn't totalling of proposals but a target based on what we thought we needed to get war fighting constituted 3% which is what history tell use, you need

to continue upgrades and training and personnel. the bulk of your question was on audited financial statements. >> and sustainable systems. >> that's where i was going actually. the most important piece is not an audit in my mind. the most important piece is management information systems that the audit provides just a test of. we're committed that. it is as i'm sure you well understand given your background. somewhat different than the private sector. the goal here is not providing information to investors but ensuring the tax pairs money is well spent. for that reason we have focused our upgrading management systems doing with budget resources. we're trying focus on the most important information. as you indicated, this is a monmom

mammoth job. >> we had this conversation. focus on the data you use and it's not getting there. you're not getting there. but go ahead. >> well, if we're not getting there we probably ought to have a discuss because that's what we're trying and as you indicated mr. hail had the lead for this. business transformation agency plays the role in terms of the business systems and the secretaries conclusion, not that it would hinder audited financial statements but that thebta became an added layer when congress added the deputy chief manager office to which thebta reports that there was no long another need for the under secretary level of official and the defense agency. we'll fold the responsibilities underneath the,dc m o and we

think we'll get over head savings by the combining. that's the conclusion. not a rolling back to audit financial statements. >> chair recognizes the lieutenant from new jersey. >> good morning. thanks for your testimony. i think that what secretary gates has to say is characteristicicallyness, correct and i want to be a supporter of his efforts to bring some rationality to this exploding budget so. appreciate the work on his behalf and his position. >> unsolicited advice. as you have heard from mr. nice and mr. forbes and we'll from the mr. scott. - any time we make some kind of reduction or change in this budget, it's very difficult to do. your living that every tom davis. i think it's especially important to do so in a way that prose seed rally conceivable in

every respect. the concern i would express having heard about the joint forces command is you know, a decision announced august ninth. given the cycle of when congress considered appropriations bills and authorization bills is unfortunate. when you're going to make decisions you should follow traction. doing it in the budget presentation so the normal process can work it's course or you should call for another bracket and as perfect as that it. it's gained credibility. the hard decisions you have ahead i think will become more achievable if you follow some regular order. second. my friend from texas said, the legislation he and i worked on together that the committee unanimously approved the floor. which hopefully, will be enacted as part of the authorization bill does place great emphasis

on the financial audits. i think you'll gain credibility with the public and congress when the audits are done. i think it will permit us to discover areas where we can in fact achieve efficiency without risks the security of the country. i wanted to ask you. your opinion on the following question. any of the three of you would be fine. the waste the nature weapons bill the president signed may of 2009 was predicated on the premise of the,ja o report that we have over spent by nearly 300 million and 17 major weapons systems. what do you think a plausible goal is in terms of reducing out lays in future major weapons systems in other words if we could unscram tbl egg from the theory. it would have saved about 300 billion dollars.

what to you think we'll gain in terms of avoiding cost over runs if we properly implement the law and the present stein in 2009. it's - gentlemen, just hold up. you'll get your remaining time. they've just announced a vote on a motion adjourn, i'm going to pause it's the chairs intention to continue the hearing so those that need to make that vote, go do so. thank you very much. we'll give you back that half a minute or so. >> of course, mr. chairman. it's hard to set a target. i hate to set a tar the get to fail by so much. i think under doctor carters leadership and with the committees legislative stance i think we've put in place things that allow us to do that.

we're putting far more contracts under fixed price in tentives than cost terms which give a convergence of the incentives of both contractor and the government now to bring it in at the price that was originally quoted. be as we're now sharing the risk. if we go over. doctor carter is introduced things that are making schedule a key performance perimeter because indeed it's loss of schedule that's one of the most common causes for cost over runnel. we want schedule, not just performance to be over run. happy for doctor carter to expand on those. the target is to bring it to no cost overruns. i'm not nieve. that's ambitious but that is the goal. >> doctor carter? would you like to comment? >> just to echo what the deputy

said. it's an ed fuss we build brick by brick. joint strike fighter program. an example. which we had to tell you last fall was an aircraft that in 2002 we told you would be 50 million dollars per aircraft in 2002 dollars and our current estimate which was a credible estimate of so-called will cost was 92,000,000 per aircraft and deputy celebritying rer day lynn and gates said, we should know, we're not going to pay that let's see what we can to to get that number down. we're working with the performers of the work to do that. we're making some progress in that regard and just in that regard as a result of that progress, i think that the services have been able to reallocate for money they that they thought might have to spend

on joint strike fighter over the next five years. some 580 million dollars. which is a contribution to the hundred billion dollars. another example. the multi-year on a six billion dollar contract. now about 5 point 3 billion dollars because you allowed us to procure those on a multi-year basis. 600 million over those that will not have to be spent but can be reallocated from that. essentially the overhead that make the fae team as a consequence of them not being able to plan on a multi-year basis. that can be plowed, exactly the principal that secretary lynn has been talking about. >> mr. whitman? from virginia. >> thanks for joining us. i want to jump in since my time

is limited and talk about the decision-making between the recommendation to close joint forces command. first of all, i think there's a tremendous lack of transparency there. took us over 7 weeks to get a response back from recognize see tear. ranking member forbes and mckee on and myself requested that. when we got the letter back it re-reinstateed the initial decision and had justification why this didn't fall under braecht. and i noted that the parsing of terms. seems as we look at the process, first of all, we were told, well this is an efficiency effort. we'll look to where we can obtain efficiencies but we're told there's no analysis or cost analysis about closing jif come. that's yet to come and then we said, well really it was anticipate business decision but a military decision.

when we ask, tell us strategic analysis behind that we're told we're in the process of doing it. we have operational opportunities out there. but strategically we have not figured out how it'll be done. none of those details have been tut together. let us understand about the process. we had over 30 meetings and we said, well it'll be nice to know what happened those 30 meetings and amazing how 30 can take place at the pentagon. there nose at single note or proceedings about those that you can divulge to us. i'd love to know more an about how they take place and how you can have no proceedings and nothing to get our hands on to understand what's doing on there. you can understand why we're a little bit frustrateed by the lack of transparency. the lack of understanding about a decision of this magnitudes as the chairman point the - the

effort to providing a framework for jointness and a decision of this magnitude without the transparency and this body understanding and secretary lynn you lectured on a responsibility office a leader and yours is to pro stride information so we as congress can do our duty to make sure we understand the decisions and the implications to the nature of those decisions i appreciate the lecture but the responsibility cuts both ways and the pen the two has a responsibility to die velg back to us clearly how the decision was made and the underlying part there. my question boils down to this. it seems this process is wrought with inconsistencies and lack of information disclosed to us. even at one point when a meeting was had, kristen fox said this was a philosophical decision.

so it's efficiency, no, it's military decision, no. philosophical decision and without transparency. my question is i want to know historically about how the decisions are made. can you tell me other instances where decisions are made of this magnitude. when you do the analysis afterwards and a post-decision analysis instead of a pre decision analysis. can you tell me when that focus has been in the past, on saying, we'll do the analysis after we make a decision or recommendation? >> mr. whitman, i appreciate the fact that you and other members of the delegation feel we should have gotten you more information and got energy it to you faster. so i discussed with congressman nighe going forward, we met with the governor.

yesterday morning with the self and other members. we will ensure as i discussed that the governor in those same members get the opportunity to meet directly with the secretary. we'll seek your input. >> chairman, with all due respect, that's know that the question i asked. i asked, can you tell me when in the past decisions have been made like this with the lack of analysis prior to the decision and without that being able to be divulged? >> i was addressing some of the pre amble. the secretary made his decision with enormous input from the military and the civilian advisers that he's had. as we discussed. reasons here is on what's the the military purpose for this command and is it still valid today? the conclusion he came to based

on the advice was know the purpose had been sved some cases and could be come established by other organizations and was due implicative in cases such as force provisioning and the joint forces command wasn't needed in that role. so for those reasons and he received a lot of input to that decision from his advicers in the meetings you correctly summarized, he made his decision. as we discussed with other members of the committee. once he's made that the question is how much of the billion dollars would be saved and that's decision about what would be retained and what would not. we'll not eliminate every component of the joint forces plan or keep. we'll go through a thorough analysis that we will share with you as i dis discussed. we'll have the complete case you

desire. >> gentle woman from california? five minutes? >> thank you very much, mr. chairman. i appreciate you are all here. this is very difficult and i certainly understand the concerns of my colleagues. i wanted to shift for a second, in the more personal health care area. we're talking about jointn ses on the one hasn't and in the house defense authorize psychs there's establishing a unified medical command. given that an center for analysis predicts such a move would save approximately 29 $4,000,000 a year. we were surprised that the department opposed strongly that section of the bill and it's also true, of course that i don't think any of the political a pointe decisions have been filled political affair. what objection the unified

medical command you have and that you've encountered. what - what is the - i think considerable push back to reject the house proposal we think would save significant saving? >> the - this is - as congressman knows this is a long running debate over a command verses an agency how we treat our health care. i actually think that we ought to, as secretary indicated a completely open mind. that second track i indicated was outside input. i think we should consider all possibilities. as we look it at overhead savings though we've had questions in the past i would assert that we should take a look in the new fiscal circumstances we face and we should look at that proposal. >> is there a sense or idea of

what kind of management structure in fact you might be thinking about? what - that would be quite different from today? >> we don't have - i don't have any proposals in terms of changing the military. the medical management structure for the department at this point. >> okay. i think that a lot of issues have been raised about either commands or other installations that might be, you might be thinking about closing. is there anything else you might share with us about other commands at this point? >> i mean, i think the secretary has said as part of his direction to the services if he thinks there needs to be changes, they should have put that in submissions. we've not got ebb to that input so we're not to the point of looking to closing bases or

installations at this point. >> thank you. let me turn to important personnel issue and effects the men and women across our country and certain lay cross the globe and recognizing the strides that have been made and certainly in family support assistance. as we look to efficiencies. how would you articulate the efficiencies in family policy that are being envisioned right now and how are these efficiency studies going to impact our policies as it relates to the men and women and their families serving to day? >> i think the secretary would be interested in any proposals where we could deliver the same services to our military families in a more efficient way. i do not think he would be

looking favorable on proposals that would reduce the support to families at this point. not quite part of the direct war fighting but i think the secretary believes it's equally important and that would not be the avenue the secretary is looking to go down. he's more interesting in the things frankly, we've discussed. reducing bureaucracy. as benefits for military families, that's not the direction he's looking to in shifts in resources. >> i appreciate that. as you know we're in unchartered territories as our men and women return and i don't think we've got our heads quite around what that will mean and very quickly. the people have raised issues of in sources and outsourcing and i think one of the things i'm hearing now in the sandy a go community is concern from businesses that a number of

their positions and their people, highly qualified people, they use the word poaching. that the military is essentially, you know, finding them, it's not that hard to find them and bring them understand they think that you know this could create an imbalance down the road. i want to express that to you that, that is being heard and wonder if you have a comment? >> gentlemen from colorado? i guess not. >> ten second? we do hear reports from field that we need to follow up and make sure that all of the steps that are taken are appropriate and that the government isn't doing anything inappropriate in seeking new goals of getting more expertise into the government. that's certainly not the objective of the in sourcing program. >> gentlemen from colorado. >> mr. lynn, secretary carter

and general cart write thanks so much for. this. i certainly respect the comments of randy forbes, congress man from virginia in terms of the process and maybe it wasn't the best process you used arriving at your conclusion, but i want to say this as someone that served in the united states army and marine corp. in the first gulf war and iraq war. that the 15 intervening years between 1990 and 2005 between my service and the first war and the iraq war, there's been anquan tum leap in term of jointness in our military the and think it's something that today is energy grained the military culture. i think you're right to evaluate. whether or not we still need the joint forces command in light of the extraordinary changes and progress that are, our military

has made. let me go to a few other issues. on the in sources and outsourcing issue. seems republican administrations want to outside and democrats want to in source. let me say, maybe there's a compromise and that's effectively managing contracts and i think we need to can a better job before we make a decision is about in sources and effectively managing the contracts we have. couple more quick issues and love your response. i think one area that we could actually derive a savings and increase effectiveness in military and it is not certainly subject of our discussions today. our personnel in terms of promotion is too rapid and i think our members of the military are not getting enough experience in the respective time and i think we would improve our war fighting skills

in saving the operating budget if we would slow this promotion process down. with that, i would defer to any of you for the comments. >> let me, on the issue of managing service contracts we in fact agree and a significant part of the initiative was improvements in that regard. let me ask him to describe those for you. >> there's a number of those that have to do with improving our trade craft. getting a better deal, value for the 200 billion we spend on services but specifically to the in sourcing question raised. couple of points. the first is, yes it has gone back and forth from time-to-time. the important thing to bear in mind is not one size fits all. some things it's beneficial to outsourcing. mowing the at the base. why should the base commander

try and figure that out. there's people that are koik that for a living that are much more efficient. when it comes to con tracking officers and systems command you really want in the government, people that have those skills. and - what lay mind the secretary defense for the acquisition workforce that's obstacle going and which he's indicated not being curtailed because of the efficiencies initiative was left to save money, though on average it can be the case that a government employee fully-loaded costs less than a con tracker. the point was to get within our walls on our side of the table the talent that we need responsibly to spend 400 billion in contracting goods and services we do every year. are we poaching? i mean, we do go to the open

market and ask people to come and join the ranks of government. they come from some other job and i'm delighted when they do come. i tell you, i talk to these people and what we have on our side when we recruit is the mission. we don't have money and don't pay a lot. our buildings are not steel and glass but we have the mission and that polarisly for young people gets them hooked is the ideal they'll contribute. >> let me enter at this point. you also have a personnel system that rewards mediocrity. that definitely needs to be reformed. >> i agree with you. in fact that's something celebritying rer tcel secretary gates addresses all

the time. >> the gentlemen from connecticut. mr. courtney. five minutes. >> thank you, mr. chairman. thank the witnesses for their testimony today. doctor carter and your testimony, i think you sort of frameed the fact that just setting a side all these percentage numbers, increase, decrease the fact is we still have to deal with the challenge of the alternative broken programs or ones that work. i think really, that really should be the outcome that we're all trying achieve together in the short time i've been here, seeing the president helicopter and the destroyer program sort of collapse under their own weight is not a rhetorical point you're making. in your testimony. you know, the - program that we've been keeping an eye on over the last year or so, the

fsbn program that you point out has been endorseed by in the nuclear repostering program. there's no question that the price tag which the navy was, you know, assuming was one that was going to potentially challenge the surface of our navy and again, it appears from your testimony that already in the last few months there's been some progress made in terms of the milestone, a class reduction. you know, i guess the question is, you know, that reduction has nothing to do with the fact that this administration is still committed moving forward with this one that appreciated if you can address that point and secondly, the capability that's been identified in terms of that program and our national security need for a deterrent also is not being compromised.

it's about not trying end up with another program ten or 20 years down the road is going to unsustainable and really effect our ability to defend ourselves as a nation. wondering you can address that point. >> it's more of a question of how than where. if you don't get the how right, you can get the whether wrong. the helicopter is an example of that. we don't want to be in a situation where we design a submarine we know we can't afford. and the navy has done - i think, an excellent job in the last several months of going through all the design drivers and looking at where the change in one of the design features or the requirements that drives the design features can be changed in such a way that the cost of

the submarine is reduced without sacrificing any way military capabilities. this kind of disciplined system really does work. they have managed to reduce the estimated cost of that submarine by 16% already and very plausible that they'll get gown down to the 27 percent if you consider this is a property that will cost hundreds of billions of dollars over the next 20 years if you're talking 16%. 27 billion dollars in cost you won't have to pay, that's significant engineering achievement and will bring the submarine in at a price the country can afford and won't be a collapsing program. >> in the timing of that milestone, given the fact that design work is sort of commencing at this point, i

mean, really consistent with all the acquisition reform models this committee enforces is not to not get in a position of design build and wasting money. again, i think what you've described is something that fits well in the schedule that your budget is embarking on and as you said. long-term. that's going to create some relief for the budget or defense budget without sacrificing any of our countries deterrence. which again is something that i think has been embraced by this administration. there's no compromise being made as far as this initiative regarding those goals that were set forth. that's - just want to under score that. >> absolutely is consistent with both and very much with the intent of the work of this

committee in the area of acquisition reform. particularly at the beginning of the program life-cycle. >> thank you. i yield back. >> gentlemen from utah. mr. bishop? five minutes. >> thank you, mr. chairman. gentlemen, this is an important issue which is why many of us are staying longer. i want to go into another areas of weeds for a moment. general cart write thanks for being here and - mr. carter, if i can talk to you specifically about it. i've been appreciative in the past of your understanding of industrial base issues and solid rocket mos or the when other agencies outside the department of the defense were clueless about the entire one.

the small turbine energys the weapon of choice is basically the tomorrow a hawk air launch cruise missiles. we have those because industrial base produces them at a low cost with a high efficient turban commission. one of the things to produce it on the super sonic cruise missile put that's private sector in danger of maintaining that industrial base and losing the expertise to keep them functional. the three questions i do have. specifically for you is small defense turbo than. something your office has specifically identified as a defense, industrial base concern. second lishgs what can we expect to see from your offers in ways of specific actions to a that concern if it's identified as such? and finally with the announcing that they're jointly doing a

super sonic missile is it wise for this administration to pull back r&d at this time and is that a specific point of discussion in making decisions on that super sonic cruise missile as well as procurements and cut back missiles for tomorrow a hawahawk.

if you could write the actions and get to us. was that action part of the consideration? did you discuss that before making this decision? >> yes. not those specific programs, but the global situation and the other and investments that we will need to make and stand off weapons. we know we need to make them. they're being considered as part of the long range strike family of systems work that's going on. they may well result in other kinds of new stan off weapons programs and it's for that reason. to protect that option that the industrial base is so important so if we do choose that option we'll have the industrial capability to produce the engines. >> too many people have the

naive notion these can be turned on and off like a spic et. thanks. i yield back. >> gentleman, we recently had a classified briefing on the roller situation in afghanistan and the need to deploy them in an expedient manner. one testify things that came to life and i'm trying stay in the confine of the classified nature of that was that the sparks two roller is made overseas and that the date for all of them being delivered is several months off. one of the things that is delaying the a rival of all of them is that, we in the purchase of this we did not get the technical data package. i would hope one of the revision that your organization is looking into making is that any

time our nation pays to develop a weapon, that is apart of that contract, that we'll own the technical data packet for the project. if we feel like a supplier is taking too long to deliver that product. then we as a nation will have the right to take that technical data package to another supplier if need be in order to beat that program delivered in a more timely manner. i don't think as a citizen, any citizen of this country wants to see a single soldier sailor or airman or marine, who's lost life or limb niece lesley because someone has that information takes too long to deliver it. i would welcome any of the secretaries or general's thoughts on that but i want to hear reassurance going forward.

any time we spend the nation's money to develop a product that we'll tone technical data to that product we'll have paid to get delivered. secretary carter? >> if i may, very aware of the sparks roller issue. they are being destroyed at a rate larger than we had anticipated. >> for the sake of the public. when the roller is destroyed vehicle behind sit not. exactly right, but the bad news is now we have to get another one in, in a hurry. >> that's exactly right. i agree about technical data. you and i have discussed that in the combat ship competition and i'll just note new jersey the spirit of amen to what you said, that in the document that iraqi sued two weeks ago that of the

23 items in that one, specifically is to improve our - the way that we acquire technical data packets. we need to learn rights in that regard and also how to value them so that they can be - we can carry out the transaction. appropriate transaction with industry. i agree completely. >> with that. the chair recognize z chair from virginia. >> i want to follow up with a couple of thoughts and questions. celebritying rer tear lynn you heard from a number of committee members today. the notion that this process is hard.

>> now what i wanted to ask you was - and i know that the secretary has said most of the decision-making he intends to be done during that process. i think you back that up today. i'm sure curious to know if you can shed light on why secretary gates decided august ninth was the right time to pre announce a certain segment of those and not to noting the fact that we've had discussion about the fact that an analysis of joint forces command for example of how this could and would be done and what the options are being has yet to be done. why not wait and do this as part of the regular process? >> i think secretary gates felt a strong need to jump start the process to establish this is an aggressive process and a process he's going to be involved in

personally and that he wanted to start by establishing - what he's called culture of savings and in particular, he focused on the areas of headquarters of staffing and general officers. senior executives and redundancy and extra lairs and wanted to take more management steps he could take to establish the path ahead. so that's we go forward with the budget, the rest of the building would follow on and be an equally aggressive. >> again i wanted to encourage you in the strongest possible terms to do this process in the regular established order. i think you'll find your ability to work with congress on it will be greatly enhanceed if we have an opportunity to be part of that. i want to recognize that you've said you intend to include us in the analysis before any

decisions are implemented. thank you for that. i want to note. general cart write said during that analysis. at this point all options are on the table and essentially the status quo is one possible option for that analysis. one possible option. we may reach another conclusion but that's on the table still and i appreciate that we're allowed to be involved in the process going forward. one last thing in terms of comments and i want to follow up on something mr. whitman asked, he said can you give us an example of when a decision was made without an analysis that we agree needs to be done. the cart before the horse thing. i can think of one and thats with the recommendation to build a fifth home court and without the analysis done to support that decision. i say this just to say, for the

record. given the fact that we're going through a difficult decision on how to save money and cut down overhead and reallocate. i will be very surprised and displayed if during this butt process we have coming up, that the defense department again having stated we have to find savings in overhead especially things that are redundant and due implicative asks for money to build a department that's that by it's very nature. i wanted to state that for the record. this is a tough process and i recognize nigh you have difficult work to do here and i appreciate that you recognize that today. i think it was late incoming but i'm happy to note you agree we should be part of the that process doing forward. i look forward to working on that with you to take a very good business case if you want to use that

word. military look. but in an analysis of the best decision-making we can make going forward on the contract joint forces command and all issues we have to solve together. mr. chair, i yield back. >> gentlemen yield? you have a few seconds left. 18 to be exact. i just want to clarify what the gentlemen is pro - indicated in his statement and earlier statement to reiterate or confirm what i hear him saying, is that you've committed involve the congress in the decision to disband or to eliminate jif come or you agree - or you made the decision and the secretary will make the decision, president will make the decision and then you will include us on how to

carry out the decision? >> the secretary has made his recommendation to the president on dis- establishing joint forces command. the president has not yet made his decision and i've committed here with congress man nooi and others as we move forward on the implementation of that decision should the president a firm it. we'll work with the committee and congress in going or making those imply men tax decisions. >> sounds like i hear you saying that. thank you. >> for the benefit of the

committee. they have just called vote on the adjournment resolution. so it is the chair's intention to keep this going for another ten minutes and that'll be followed by two five minute votes making mere hearing 2:45. so having that said, ten minutes the chair recognizes mr. wilson of south carolina. >> thank you mr. chair and thanks for being here today. i share the concerns of congressman forbes. your testimony is that the joint forces command decision was made for several odd hock among senior dod officials. i know they have reviewed documents that outline their military rational for the decision, knowing that there's been documentation, considered, i request those print and electronic used as basis for the military decisions to be

provided to the committee. additionally my question is to secretary carter. the national guard and reserve. forces have been instrumental on the global war of terrorism. i know how successful and capable guard and reserve are. i served both for 38 years and have four soonns. but guard reserve faces still shortages of proper equipment for use in theater. how are the proposed acquisition reforms going to e foekt the guard and reserve? >> it will effect the procurement of equipment in respective of the customer, but i think the burden of your

question is better answers by general cart write than by mwri. >> our intention is is to get the force standing in order to go support either the global war on terrorism or any other activities that might be identified on the federal side of the state side. the question is, can we afford through the sufficiencys to get sufficient equipment to outfit everybody with the capabilities best that we have or are there going to be short ages we have to manage and so, how? the idea is to generate the resources not to have the shortages. >> great and you personally i want to thank the marine corporaticorpo.

at this time i yield my time to congressman from virginia. >> would you agree to provide to the chair and the ranking member the copy of the nondisclosure you provided people at joint forces command to sign? >> i'm not directly familiar with those nondisclosure agreements but i'll explore whether or not there is one and report my findings to the chairman and ranking member. >> if there is one, will you give them a copy. can you tell us, is it your testimony that you provided to this committee all of the written analysis given to the secretary of defense to make his decision to close to joint forces command? >> we have provided the committee - yes or no? all the written information? if you have, yes, if you have not, no. >> we've provided all the

rational any - have you provided all the written analysis given to the secretary of defense if you haven't it's okay, i just need to know. >> you're going to have to let me answer. >> we have provided the committee a body of material that supports what the secretary - that's not my question mr. secretary. i'm asking have you provided this committee with all of the written analysis provided to the secretary of defense to make the decision to close the joint forces command? yes or no? pretty simple. >> we've provided the committee with the material that supports the decision that the secretary made. >> i'm asking if you provided the written material given to the secretary, all the material that was given to the secretary for the secretary to make his decision? >> i've answered the question. >> no, you haven't.

you said analysis. that could be back filled. have we got ebb all the written documentation provided to the secretary? >> the secretary has provided you the material that - that he thinks we should have? >> that supports his decision. i'll go back and see if there's more material we can provide you. >> what you're saying is you don't know whether there was more information given to him or not? >> i'm saying i'll explore if there's more material - do you know if there's more material as you sit there testifying? >> sorry? >> do you know if there was more material given that was provided to the amendment? >> i'm saying we provided a body of material. >> you're not going to answer the question and just like you

haven't given the information. i yield the chair back. >> secretary carter and general cartwright, let me divert from the topic slightly and bring up concerns about the military build up in guam and there's issues of cost efficiencys if we get the build up done right. the record of decision was sign by consistent secretary and why the delays of final decision on the location of a firing range it state as preference to acquire land on the east side of the island above the historical cultural site. i remain extremely skeptical such a land acquisition deal can be struck with the land of guam. can you outline what steps the department is taking in regards to meet marine corp. training requirements has the department

considered ten ion is land or other land that could be used. i'm skeptical that a deal can be struck and i would not feel it prudent for the department to spend billions of dollars without a deal secured for the training range. so can you please comment and can i get your commitment to seriously explore alternatives for the marine corp. firing range? >> yes. thank you for the question. appreciate the questions as you know i recently viced guam and saw for myself the plans and the issues that we face. the training ranges is a critical issue. i agree. to have the marines move to graham and maintain the level office training that we would expect out of a marine unit. we do need to find some resolution of this issue. i think you correctly described it. that location in there is a

preferred location. after analyzing government land and some other options. ten yen is probably appropriate for some training but not close enough for the small arms training we're talking of here. we're much more interesting in a training range on guam. we're continuing to understand the cultural concerns and the site that's there. we're continuing to work, work those issues and we're hoping that we can find a resolution that allows the marines to conduct their training on guam without compromising the cultural site and we're going to continue to work with you on that and i agree it's a critical issue going forward. >> that ca i want it on the re that you're seriously looking at alternatives. general cartwright, i guess i'm

following up on congressman wilson's question. i - the recommendation put forth are a good start on some of these to a maximum efficiencies, but as i reviewed the recommendations i'm perplexed as to high the department is not tackled personnel costs and what further frustrates me is i don't see anywhere, where the national guard plays a role in the solutions. this is frustrating to me from the regard of guam. the guard can retain quality soldiers and airmen at a significant savings over the active duty personnel. can i get a commitment to add quality review this efficiency? >> i think your reference here is the more frequent use of the guard in active force in ensuring they're actively

equipped? >> and there will be savings. >> the guard in itself will generate savings to e request quip the guard and keep it trained at the levels we have become accustomed to that's substantially higher than anything in the past. so our commitment here is to again trait savings to put it back into that tooth that we consider the guard to be. how much we get here and our work with congress will determine the amount of money available to do that i knowledge there's are savings we read from utilizing the guard that we don't necessarily receive utilizing active forces but there's trades we make there as well. operationally. >> thank you. i yield back. >> thanks to the gentle women. the chair recognizes the again from virginia for, if you can keep it brief, we have only three minutes remaining on the vote across the street.

>> thank you. on theqdr there's no recommendation to close jeff come, correct? >> right. >> there's no recommendation to close jeff-com and the decision was made not to close it? is that right? >> yes. >> and it was mentioned in braukt jurisdiction and in reference - and your answer to my colleague from virginia mr. forbes you said you have given information to support the decision. that invites the inquiry whether or not there's documents that did not support the decision that are floating around. are such documents exist? >> not to my knowledge. >> no document exists that either evaluations that suggested that maybe it shouldn't be closeed? there was no written debate about this?

>> mr. scott? >> i hate to do this to you but we're at the two minute mark. could i ask you to please submit the remainder of the questions? >> could i just get a quick answer to that and then, thank you very much mr. chairman for the opportunity to just get in the couple of questions. >> if you would, the gentlemen will submit the remainder of the questions for the record. >> general cartwright and general or chairman sk

>> i appreciate the systemic approach. but in just looking back it seems to me that the approach of looking at the risk assessment and evaluating it and seeling that they were doing what they said they were doing didn't seem to be particularly helpful. if that's the approach you choose to take, it very well may be ineffect tull going forward. if these major institutions are going to have, under this exemption, proprietaryry operations, i guess i would say don't you need to know a lot more than just their risk policies and whether they're doing what they say they're doing? >> we certainly do need to test what they're doing and to evaluate their positions. but realistically, we can't duplicate their entire operation. we're going to have to assess based on sampling and based on spot chebs and the like --

checks and the like. >> i think the chairman has a comment. >> i was going to add since we have to define market making and underwriting activities that are permissible under the volker rule, one of the thing that is we'll be looking to is the new large trade reporting system that bee proposed in the consolidated daut trail that should help provide us information about trading activity that is we could then share with fellow regulators to make a determination whether market making has been exaggerated and goes beyond what's permitted under the rule and has become speculative or proprietary trading. so we are intent on working very closely with our colleagues on that. >> let me just say that the comments this morning reflect a collaboration and cooperation that is the recent but is very commendable. and just specifically i know chairman, you're going to

propose a rule tomorrow or in the next few days about clearing platforms. can you both comment about the collaboration that you've entered into in terms of making sure that this rule is truly reflective of both your equities in the business of clearing derivatives? >> the three things we're taking up tomorrow and all that we're taking up through december we're sharing not only drafts but preliminary term sheets and try to collaborate. on the governance rule tomorrow i think chairman shaprio can talk they're about ten days behind us. we couldn't quite get our schedules lined up. as of now i think they're nearly eye deptcal, the actual text. ten days may change some things. but our goal is on each one of these is to be if not identical nearly will. and i think mary and i have such a future relationship.

future chairs might not but we've been benefited and we want to use that. >> i would agree completely. the cooperation has been nothing i've seen in government. even where we have slightly different approaches, we are committed to ask questions about each other's approaches and our proposals so that we can, even if we don't propose exactly, bring them as back together as close as we can at final. >> mr. mall sh. >> just on this thought on risk management systems. the recent experience showed in some cases that large complex institutions thought they were managing particularly portfolios and risks in lines of business in an effective way but didn't capture all exposures and all risks across lines of business and activities. and incomb proving their internal mis is part of that

effective risk management that chairman bernanke was refering to. and that's an emphasis going forward. i think we've made progress but the -- my sense was, and not specific to one regulator, is that there were these elaborate risk procedures, and that you reviewed them and if they made sense they're ok. and if you occasionally spot checked them that was great. but as you indicated it didn't seem to work. and i don't have a magic answer but i think there has to be more more text tullgrallar approach eevepble periodically. otherwise we'll find ourselves back where we were. and that would be unfortunate. >> thanks very much, jack. and i appreciate chairman againstler you talked about how the two of you can't speak for future people sitting in these chairs. all the more reason why you need to institution lies all of this so it doesn't become two

people at this particular moment in time have that relationship. it will be very important in years to come that that relationship with a continuation of what you're doing. so anything you can do to institution lies that so people don't drift away, will be very, very helpful as well. and let me mention, jack, it's finished but i didn't say earlier. i'm very grateful to all the members of the committee. even though we didn't end up with the votes on this, an awful lot of this bill reflects an awful lot of work. so i wouldn't want the moment to pass. that whole title 1 and title 2 that you worked on in large part is your effort and mark's. so i thank you for it. >> i appreciate the way you've condubblingted this committee for -- conducted this committee for the entire time identify been on it. thank you very much. and i appreciate each of you

coming today and nice to hear everybody is playing well with each other at the moment. secretary, the cfpb, the issue of consumer protechtion, i think there has been some discrepancy about whether it has rule making authority between now and july of 2011. you seem to indicate you think there is limited rule making ability. i wonder if you would expand upon that because i think a lot of us think that during this transition there absolutely is no rule making authority until it's actually transitioned. >> thank you, senator. i think the secretary has by statute a series of authorities to stand this bureau up. and i think that those include, of course, working with the other regulators that are transferring both authorities and people as well as getting

the bureau ready to undertake its role making and its supervision and enforcement authorities as of the transfer date next july. i think it is -- i think the rule-making authority is sir cum scribed but i think the secretary does have the capacity to do the things that i just talked about, getting these authorities and people transferred over. >> but not real rules across the financial industry. >> i think that's right. >> so let me make sure i understand so there's some abilities to stand the organization up, but i think what you're stating today is there's absolutely zero ability to make rules as it relates to consumer protection that relate to the financial system. >> well, again, senator, absolutely zero. i think the secretary on behalf of the bureau in this transition phase has the capacity to do the sorts of things we did last week, to get

on top of the issues, hear from people about what they think and so forth. i think the authority to actually issue a rule that would bind private parties, for example, in the morning area, is a tough one until such time as there is a confirmed director. >> tough one. that's a vague word. what i would like for you to, if you would -- i know we've had a good relationship. if you ever think that you have the ability to actually make a rule, would you make sure we all are aware of that. >> absolutely. >> at present it's my understanding as i leave here today that you do not have that authority until the organization is stood up in july of 2011. >> before doing any such thing or -- >> before even thinking about doing such thing, i hope that you will talk with us. >> fair enough. >> because i assume we'd have a senate confirmed type of person in that position before you started making rules.

>> the president obviously intends to nominate someone. she reviewing candidates for that role right now, i think commited to making sure he gets the best candidate he can. and i believe that he hopes to be in a position to make a nomination on this role soon. and as i said, i think the rule-making authority insofar as you're talking about it, i think, senator, depends on that process moving forward. >> and being complete. >> and being completed. >> ok. i understand that the treasury is going to be presenting a gse proposal around january 1, and just -- because i think like a lot of things we did over this last year, many of us will start working together on both sides of the aisle to try to figure out the most pragmatic way of doing that. do you still plan on having something that is very tangible on january 1? >> the statute requires it in

january and we intend to certainly meet the terms of the statute. we are hard at work on this topic as i think you know, senator, and we will come forward with an approach before that time. >> and i assume you're involving other banking agencies and entities in that process? >> we are, senator. we are consulting broadly within the government and without. >> let me make a suggestion to, as well to you. you're talking about people up here, and i think in this process of conversing about it my recommendation to someone won't be here, there's a lot of people interested, would be well advised to invite people to be part of that discussion. just a thought. and i appreciate you intervening there. i think that would be a good idea. i actually think there are a number of people on both sides of the aisle that want to solve the problem and i think it would be good to have a little bit of discussion along the way. i know we're spending a lot of time in our office and i know

others are, too. so it's an issue that we all together have got to figure out a way to deal with. i know, i can't imagine anybody likes it the way that it is today. and so i would hope you would do that. and i thank you. do you have any idea about the criteria that the fsoc, i guess as we're calling it now, is going to use to define a systemically important entity? i know there are a lot of companies around the country that are wondering if they're going to be in the sites or not. do you have any indications what that criteria might be? >> let me go back if i could on the gse. we had a fantastic relationship with you and all the senators on this committee on the dodd-frank relationship, we intend to have a similar working relationship on the gse. we look forward to working with you and across congress on what

is a critical issue. on the matter of fsoc designations, i should say in the first instances this is a question for the fsoc collectively to work through. i expect that tomorrow at the first meeting that the members will consider proposal to seek public commebts on what those designation criteria ought to be so that we have again a robust conversation about that before the fsoc lands. but i think not for me to make a judgment ultimately before the full range of the fsoc membership on the basis of whatever input it receives and its own analysis to make judgments about what those criteria ought to look like. >> chairman, it's good to see you again. it's been a long time since you were medling in all our affairs. i'm just kidding you, of

course. the interagency working group was going to set up, i guess, the risk retention standards and i know you sort of jumped out in advance of everybody in that regard. i'm just wondering if you've had any input prom the other agencies. i know the occ opposed that and i wonder if you might just expand a little bit on that. and i really appreciate your input. >> well, if i could, if i could review the history of that. this is something where a number of members of the industry came to us late last year in anticipatetion of the new accounting rules. that changed the accounting treatment for securitized assets and made it much tougher to get what we call true saling accounting. since we have had a safe harbor that determined whether we would try to claw assets back

that have been securitized if the bank fails and we had relied on achieving true sale accounting to provide for that safe harbor. the concern was that securitizations no longer meet the true sales standards under the new accounting rule, so we provided some temporary safe harbor relief provided for everybody going back. but going forward, we thought given all the problems, the incentives for lax funding, the losseses that had been created for banks, the problems we're seeing with resolution activity with failed banks, that we should impose some conditions on the safe harbor going forward. and one of those pieces, it wasn't just risk retention. we worked closely with the fcc and one-level disclosure. this is something we heard from the investment community they wanted very much. we tackled servicing issues, too. the restrictions in pooling and servicing agreements.

so we addressed what we thought were key issues in the conditions. went out for two sets of comments on this. so this has been going on for nearly a year. and 5% risk retention is part of the rule for mortgages. that is consistent again with the proposal. the requirements are synched up. we decided to go ahead, the safe harbor that was expiring, i think it's important for people to understand, we had to do something. so we think what we did was prudent. we put an auto conform provision in our bill so that once the agencies do get together and define what a qrm is, the 5% risk retention will no longer apply and we are very eager to engage in that process. we hope to some extent this will be an action forcing event so that those rules can be done in a timely basis.

it is a 270 day time frime that is provided by d.o.d.-frank. >> that's the time frank to actually doe fine a qualified residential morning. >> that's right. but we don't have underwriting standards now and frankly we don't have a securitization market right now. nothing is happening i think investors don't have confidence to start it up again. >> why did the occ object to the rule? a fairly straightforward thought that we have had held the position since this was in a notice of proposed rule making that it would be preferable to have a single policy on securitization across all markets and we didn't see any great downside to just extending the safe harbor for the 270 days and then having a set of rules in each venue that conformed to one another. so it's a fairly straight forward point.

>> if i could just say -- >> mr. chairman, i sense a slightly less playing well than appeared and i think these are going to take more oversight down the road. >> thank you. the 5% risk retention is the law. unless the mornings comply with these new underwriting standards that would be developed by the agency. so we think we were quite consistent with the clear language and what the law is now. and we hope this happens in 270 days. my experience with interagency rule-making, sometimes those deadlines are missed. it required that we do have rules to register originators. it's another example where the agencies overshot the statutory deadlines by a significant amount. so we think it's only prudent to have 5% in place until these

underwriting standards are developed. and if this can help facilitate a timely process we welcome that. we think that's very consistent with what's in the letter of the law now. >> mr. chairman, thank you for letting me go a minute and 40 over. and i want to thank each of you for your testimony. this whole issue was one that i think we were all trying to understand how this 5% retention would work and i do look forward to talking to each of us, obviously especially in the commercial side there's nothing happening right now. >> it doesn't apply to commercial. >> i understand that. but as it relates to the securitization business in general, i mean, there are a lot of problems there and i do look forward to working with each of you to try to deal with that. and one more thing. >> the one securitization i'm aware of did have a risk retention, a 5% vertical and horzontle. so the one that ended does have this feature in it. >> there's a wealth of knowledge sitting at the table

there and we certainly look forward to working with you over the next couple of years. thank you. >> thank you very much. senator bennett. >> thank you, mr. chairman. thank you for having this hearing and thanks to all of you for coming together. it's fun to have you in one place. i'd like to start with you, chairman bernanke and chairman baer, if you've got thoughts about this, too. among ending the tarp and basl 3 and the setting up the infrastructure for the resolution authority, i wonder if you could tell the committee what actual changes your agencies have been able to discern in behavior at the largest, most interconnected financial institutions. less leverage, those kinds of things. what are you actually see sng and chairman, i was always curious, on the quantitative surveillance, you talked about whether you can describe that. is that something that's up

now? how are you going to use it? what are the inputs going to be? so those are my first two questions. >> well, we're certainly seeing the movement in the right direction in our banking system. capital has been increased significantly. one of the results of our stress test was to not only increase capital but the quality of capital, have more common equity. all of the banking agencies are pushing the banking organizations to improve their management information, the risk management systems. some of the banks were not as able as they should have been or we should have insisted they've been to identify risks on an enterprise wide basis, running into the crisis. so progress is being made on those lines as well. obviously this is a period where given that we've just

come through a crisis, banks are not, generally speaking, taking excessive risks. many portfolios are quite conservative. we'll have to see how things evolves but i do think things are moving in the right direction. we are at the fed, moving towards a more, as i said, macro provencial and more disciplinary approach. we are in the process of establishing a staff office of financial stability which will draw on staff resources from a wide range of disciplines, comics, finance, payment systems, financialing et cetera which in turn will provide inputs and analysis to other parts of our operations. so in particular, for example, we vamped our supervisery organization to take a more

multidisciplinary approach and, for example, to do stress tested which are based on alternative scenarios. this office is responsible for generating the scenarios and implications into that stress test analysis. so we are linking together these different parts of our expertise. as you mentioned, we have a quantitative evaluation. >> let me stop you there before you do that. had what you're describing been in place pre-crisis, what are the things that unching the macro economic trends you think you might have picked up that weren't picked up by the fed? >> well, i think we would have identified some of the broad-based risks that were occurring. the broad-based leverage. our office of financial stability, besides providing inputs into bank supervigse, is

going to provide general monitoring functions looking across a range of markets and institutions and funding markets and the like trying to support our membership in the fsoc and in our collaboration with other agencies. so we plan to take a much more holes stick viewpoint. i don't think people appreciate how much that prior to the crisis agencies were very focused narrowly on individual markets institutions and there were very significant gaps. and i think it's important for all of us to work together to make sure those gaps are identified. and this is our intellectual framework for approaching that. >> and i'm sorry, before i interrupted you were about to talk about the quantitative. >> yes. so we are combining with our traditional bank supervision which goes and looks at the books of individual banks sort of off site analysis which looks, for example, at real estate trends and housing

trends and house price, morning delinquency trends and the like and tries to make broader assessments based on market variables and on macro variables what some of the risks might be to the banking system and the interaction between those kinds of analyses and the supervisery i think was in very -- was very helpful and was helpful to the stress test we did that we were able to supplement the banks' assessment with a model analysis that drew on information about individual housing markets and the relationship of house prices to macro economic developments and the like. >> that sounds like a big step in the right direction. i'm wondering how you're planning on sharing the results with the public. or are you? >> we are considering how best to do that. obviously, the first step is to make sure that our supervisery process is comprehensive and

macro proden shl. and that's what this is all about. but i think that we ought to think collectively, the people at this table as part of the financial stability oversight council about what kinds of reports we would like to provide. i think dodd-frank requires a report and one natural thing would be for our analysis to be part of the input to include the stability of the financial system. >> thank you. do you have anything you want to add to the first part? >> well, i think we are engaged in parallel efforts and as a backup supervisor and ensure that we rely primarily on the regulators, we were given new authorities. we focused a lot though, as had the fed, on the liquidity marketing and profile on an ongoing basis, including having

consistent reporting and be able to do horizontal analysis to be able to identify outliars. i think a your original question what has changed really i think the good news is underwriting standards have gotten a lot better. and i think i would like for the supervisors to take credit. i think that's as much to do with the market and all of this coming home to rest but that has gotten significantly better. and i do think large financial institutions at least ensure depositories in their holding companies are in much better shape and are much more stable. i think the, with the increased capital at that time, served us well. so i think this is giving us more time to put these new systems in place. but there's a lot of work to do. i think we just went too far in the other direction and assuming that the market would always correct without providing more vigorous oversight. but there's a lot of work to be done. >> i know it's not the subject

of this hearing but just for the record, we're still in places like colorado facing incredible challenges with small businesses access to credit. and i don't think all that is loan demand. >> well, i wouldn't disagree with you on that. i thinks there a particular problem with small business credit. and i think we've tried to take a very supervisery approach telling our banks we want them to lend, and the smaller banks are stronger than they are for the larger institutions. part of the problem is a lot of the small business loan went through home equity lines and those values have gone significantly. the collateral isn't there any more. that's a key part of the problem, i think. >> i think unleashing that again is obviously so critical to our economic recovery. and both anecdotally and also just in the broader trends that i'm seeing we're still not there. i wanted to come back, chairman shaprio, to something that was a lot of interest to me when we

were doing this bill which you talked about earlier with the ranking member about what we're doing to minimize the conflicts of interest that the rating agencies. and there was one provision in particular that had to do with the composition of the board of directors of those agencies and having independent directors. and i wasn't sure in your answer to the ranking member whether that was happening or they complying with that? is that -- are we on track there? >> we are monitoring very closely. right after the bill was signed we sent a let tore all the credit rating agencies informing them that all the provisions in the law that took effect in the enactment, and that is one of them. so we're checking in on them on a regular basis. we would be happy to provide more speffings information where they are. >> i would appreciate that. and the last question, and i am the last person who wants any unhappiness to break out of here. but i wanted to ask you, chairman againstler and you chairman shaprio, about one

particular rule that you are going to be writing which is to determine what types of entities are considered major swap participants. how are you working together? what processes is that going to look like to get to a result? because part of also what i'm hearing out there and just a as a general matter, not just related to wall street reform, just a sense of lack of predictability about things. what are the rules of the road? we need to understand that. by the way, i think that's a sensitivity that everybody ought to have as you think about publishing the rules and the notices and the meetings that there are a lot of people out there that are feeling like they've got a complete lack of clarity about what the future is going to bring, which is important for us to hear and attend to. but in the specific case, what is the process going to look like? >> i think you've raised two very good points trying to lower regular uncertainty so that businesses out there can

understand where we are. we're going to put out proposed joint rules on definitions like major swap parts pant. i think our current hope is to do that in the middle of november right before thanks giving. we're human, we may slip. but i think congress really spoke to this. this category of major swap parts pant in the statute should be very small. why is that? because it's smk who is not a wap dealer but has some systemic relevance. i think there were three prongs to it but all three really speak that it has to have some -- if it fell apart or defaulted had to have some systemwide effect on the economy or financial system. i would even say the vast majority of end users i would envision, again, it's ten commissioners between our two commissions, will have to comment on this. but i would envision it would be a very small set of companies because congress really has f has spoken to this in that way.

>> i would agree with that. i think the three criteria make it clear that this is not intended to be an enormous category of market participants. the other thing we've done, though, because we recognize this is such enormous interest, we put out an advanced notice of rule making to solicit comment how should we define a number of things including in this particular area. so i think that will help guide us as well. and it's important as well because there are a whole regulatory regime that attach to it. and that will be new for many market participants. so this is an area i would expect we get an enormous amount of comment and we will listen to it very carefully. >> thank you very much. thank you all for being here. thank you, mr. chairman. >> thank you, senator. you have been very helpful. at the end of that table down there. but you've been very, very supportive and helpful in this process sess and i want to help you. >> i appreciate your work. >> thank you, mr. chairman. let me just say before i get

started here, it's been a pleasure working with you. i think you've handled your chairmanship in working with majority and minority in just a very, very fair way and i want to say that publicly and tell you how much i appreciate it as one of the new people here. let me, if i might, turn to the best people to ask this would would be chairman shaprio and ginsler. as you know, there was discussion about rerpt activity relative to derivatives in contracts that had already been entered into. i want to make sure that the record is clear in this hearing. do you see any part of this legislation at all applying retro actively to derivative contracts that were entered into before the effective date of the legislation?

>> senator, i think it's a very good question. i can only speak for myself because, again, five commissioners, five commissioners and other regulators also at the federal reserve and others have a very big role setting capital and margin. but i think where this has come up the most and people have raised it in public and private meetings with me is whether, for instance, contracts that existed before the act stand and i think the act is very clear they do. but also, some people have raised what about clearin requirement or margin requirements, so forth. and i'm just sharing one commissioner's view. i think that we should look that that should be prospective, not retro spective in that regard. and i know that's something that a lot of people have raised. but there's a whole rule-writing process and a lot of commissioners and fellow regulators. >> i would really agree with that. we have had the issue whether margins should not apply. we also appreciate, though,

that legal certainty is absolutely critical in this area. so while my commission hasn't dealt with this issue specifically, i think we would be hard-pressed to suggest that there ought to be retro active margin. but there's an issue we will discuss extense illinois and also continue to take public comment on. >> anyone else want to weigh in on that? let me now go in maybe a bit of a different direction for each of you, actually. having served as a cabinet member and attended meetings like this where you have a complex piece of legislation that involves a lot of various areas, i have to tell you that, quite honsly, i see conflict as somewhat of a positive thing. i'll just give you an example.

sheila baer, if we wanted your boss to be tim geithner, we could do that. but we don't want that. we like a certain amount of independence. the same way with ben bernanke. if we wanted your boss to be tim geithner, we could do that, also. i mean, the words do exist in the english language to make that occur. if you can find the votes. but the decision has been made that you operate independently and that independence is important to the functioning of our financial system and your regulatory reresponsibilities, et cetera. so i appreciate the spirit in which you come here, which is to try to say, well, we're getting along. like say -- i've sat through those meetings and i didn't want the e.p.a. running the usda. so if they wanted to, i pushed back.

so i need to know, because i think this is very important for our oversight responsibility. i want to know very specifically the areas of conflict that have arisen and the areas of conflict that you anticipate arising as you implement this legislation. i'll start at this end mr. secretary. >> senator, i think that just to sort of say generally the independence of the regulators point is obviously a critical one that i've mentioned already. having said that, at least in this financial stability oversight council, having a cooperative spirit establishing a rhythm to accomplish the collective responsibility is also important. and i suspect that in that context there will be plenty of good debates with people, as you say, as they should, taking different perspectives and

offering different views. i think the important thing is that it be done in a way in which information is shared and that the group understands that the ultimate role of that council is distinct from the individual independent responsibility as regulators, is something that is also important. the council hasn't had its first meeting yet, so i think too early to tell, really, how that all is going to work out. it's in early days. i think that as we at treasury feel that we've tried to convene representatives of all the members of the fsoc in creating a governance structure and a set of bylaws by which the council can govern its affairs, it's been a conversation that has been very helpful. people have approached it in a cooperative spirit. >> what are you not agreeing upon? you know, we might want to

weigh in here. and we have a responsibility to provide oversight. we want this implemented right. even though i didn't support it, i want it implemented right. >> i don't think, senator, there are disagreements as such. i think on the question of what should be the appropriate transparency policy of the council, what should be the structure by which votes are taken. people have different views. and they express those views. but i don't think i'm in a position to say there's been controversies or fault lines. it's been a good cooperative effort in that respect. and, you know, that may change. the council is in its naceance and we will see how it does at its first meeting tomorrow. but i think from this point, from the point of enactment to the cusp of the first meeting it's been quite collegial and people have been approaching it as they've said at this table,

and there are other members not at this table, in a very helpful way. >> chairman bernanke. >> i won't take time agreeing with you about independence, i think it's important for a lot of reasons. one of the strategic decisions in the bill is to have a lot of shared responsibilities. so for supervision, oversight of utilities, of banks, of large complex institutions and the like, in many cases there are multiple regulators who have responsibilities shared and the like. i think that was the right decision. because these are complex entities and different viewpoints, multiple sets of eyes are good. but i think inevitably there will be some disagreements or frictions at some point. but i have to tell you, honsly, and i'm not just trying to put a happy face here. in terms of the substance of

the rule writings that we have so far addressed, i don't see any deep or principled controversies at this point. just issue here and -- you know, on the margins. so the federal reserve in particular is working with everybody at this table. and we found it to be very productive. i'd say there is some pressure arising from the fact that there is so much to do so quickly. and so it sometimes is a challenge to make sure that everybody has been appropriately consulted and all the input has been taken and still meet all the deadlines. so there are some challenges here. so at this point i don't see any deep conflicts or differences in point of view that are going to threaten the implementation of this act. >> chairman bear? >> well, i think there are a lot of different perspectives in a lot of areas. and i think that's not an

unhealthy thing. you come together and try to find the right solution based on different perspectives so -- and i would echo what chairman dodd said at the beginning. i think we should come together collegially. so, yes, there are -- i will name them. in just about all the major areas we bring different perspectives to the table. i don't think it's a bad thing. i don't see anything that would rise to the level where it would need a legislative fix. we're honored that you gave us so much flexibility and authority and defer to our hopefully good expertise and wise judgment in writing these rules and implementing this law. and so i think we all are commited fully to doing that. but there will be differences and we will need to overcome them but i don't think that's really an unhealthy thing. >> chairman. >> i think, needless to say, i believe deeply in the

independence of the sec. but you shouldn't take the fact that we're here in agreement as a sign that we haven't had lots of rigorous debate behind the scenes about very specific issues. and where we can resolve those issues among us, we want to do that. where we can't, we'll sometimes present the public through the comment process with options and alternatives for ways to address issues where we're not all perhaps entirely synched up to see where the experts and public think might be the right answers on a particular issue. so there is lots of debate and discussion. there are very different perspectives being brought to bear on each shi. but there is also tremendous commitment to get to the right answer for the american people in every single thing that we do. and where we can't, we might have some differences, and agencies will have to go forward doing what they believe is the right thing under their statutory mandates. but i think so far it's

actually working the way you would want with that healthy tension yet a spirit of collaboration. >> i would echo the thoughts about independence, which are very important. i think it's what the american people expects of us. i think with nearly 10% unemployment they expect it more. and this was the worst financial crisis where the regulatory system failed as well. it wasn't just the financial system that failed. you asked where there's been disagreements. i will say in the clearing area, one area that we're supposed to oversee, and it might be sort of selfish. we want to have clearing standards that are rigorous enough that the federal reserve and the bank regulators think they can withstand the test of time but also that international regulators will find our clearing houses equivalent and they'll stamp them that the international regulators will allow the u.s. clearing houses.

so there's also a selfish goal in the sense for american commerce that these things have that. we did have a little bit of an arm's race on transparency. these four agencies and now maybe treasury, we all -- how we could be voluntarily, not do more than the law, on transparency and the rule writing, i think that was healthy. i do foresee some debates in the future on how the sec and cftc take on this swap thing because futures regulations and securities regulation is not always aligned. and we're trying, and mary and i have been commited to avoid regulatory ash tradge but does that mean this should be more in line with securities regulation or futures regulation or somewhere in the middle? so that's where we'll have healthy debate, no doubt. >> i have some colleagues that i've gone over my time and so i hate to cut it off here and maybe there will be an opportunity for you to offer your thoughts. but, mr. chairman, again thanks

for your leadership on this. it's been a pleasure being on this committee with you. >> a big question to ask mike on this, because for years in fact it was the independence and sort of the stove pipe approach that created it seemed to almost, not only enshrined independence, which we want, but also seem to enshine conflict without the ability to sit together and come to some common answers where you could. so the very idea of this oversight council is designed to perpttwut the independence but also to take, as chairman bernanke pointed out, the collaborative multiple sets of eyes to look at a situation that one set of eyes or one perspective might not see as clearly. so this is obviously going to be an experiment. nothing like it before and it's going to require a lot of hard work. so i was very pleased to hear that so many of the principals intend to stay involved in this process.

because what could happen is if it gets rellgate and then fracture and fall apart and doesn't succeed with that goal. so it's a great question. it goes to the heart of whether or not it's going to work. you and i can't legislate that. >> i too want to add my thanks to you for your hard work here on this dodd-frank wall street reform and consumer protection act. and i want to thank the committee, too, for all the hard work to ensure that the act makes a strong and clear commitment to the protection and education and empowerment of our investors and consumers. now that we have enacted this historic legislation, i'm

commited to ensuring that the provisions in the act will provide tangible assistance and protection to hard-working americans soundly implemented. i worked to develop many of the act's provisions to increase financial literacy and empower hard-working americans and promote financial decision making. so i want to go to that ladder and work on one part of it. secretary waleden, title 12 of the dodd-frank act would help unbanked and underbanked families by increasing access to bank and credit union accounts. it will also establish programs to develop small dollar loan alternatives to high cost and predatory financial products.

these provisions are particularly important to me personally because i grew up in an unbanked family. what is being planned? to increase access to main stream financial institutions? >> thank you. and thank you for your leadership on this extremely important set of issues. we are very focused on implementing title 12 and to continuing our work on the unbanked. as you know, i think we are staffering up in this area at the treasury. we have been working to really survey the landscape. we've had some pilot projects, i think you know, focusing on the unbanked and providing opportunities to access working with private sector entities. there's been a lot of excellent

work that's been going on in the states and among pretty wide range of cities. so we are gearing up. we are of course looking forward to being funded in this area, which is important for us to really take advantage fully of the important opportunities that title 12 presents. we're very excited to work on this set of issues because we believe that it is critical to the engagement of a wide range of americans in our economy and allowing them to do the kinds of things that they need and want to do to meet their own aspirations. so we are hard at work. we will continue to be hard at work, and we very much look forward to continuing to work with you as we move forward. >> well, thank you. chairman bernanke, consumers that send portions of their earnings to family members abroad can experience serious problems in these remittance

transactions. the serious -- the dodd-frank act requires meaningful disclosures of remittance transactions costs and establishes an error resolution process to protect consumers. the act also instructs the federal reserve and treasury to expand the use of ach, automated clearinghouse system for remittance transfers to foreign countries. my question to you is, why is it important to provide these remittances protections and make greater use of the ach system? well, senator, this has been an area of interest for me personally and for the federal reserve for a long time. remittances are an important

contact point between many unbanked particularly immigrant families and the financial system, and it's often an entry into the normal mainstream financial system so we want to make that as safe and inviting as possible. the federal reserve as part of its payment system's responsibilities has been involved for a long time in the transmission of remittances, for example, agreements we've done with mexico and other countries, and we will continue of course to look for ways to reduce the cost and increase the efficiency of remittances via ach as required by the bill. i would like to say a word in particular about disclosures and error corrections, as you mentioned. because of language and other issues, people who use remittances are particularly vulnerable to disclosure problems. and so it's very important that they understand what services

that they're receiving and what the terms of that service are. so we are already undertaking, already hard at work implementing the disclosure requirements of dodd-frank, and one thing in particular that we are doing, which we have used a lot in our consumer protection efforts in the last few years, is using consumer testing. that is, we actually either directly or engage an outside organization to try different disclosures on real life consumers and see -- and then see how much, how well they understand how much they get the information, how accurately they understand what the disclosure is trying to provide. and we found this to be very successful in the past and i'm hopeful that the new bureau will adopt these consumer testing practices because we think they're very

constructive. so we are doing that now. and we are looking forward to developing proposed rules along the schedule that the act requires. >> thank you for what you are doing on that. chairman bear, i commended fdic for working to improve financial literacy. develop a federal financial products, and improve access to main stream financial institutions. i know that these issues are important to you and i respect your perspective on them. what must be done to ensure that the dodd-frank acts's economic empowerment activities are implemented in a meaningful way? >> well, i think there's some number of new important tools that are provided in title 12. and some build off of some of the programs we have already especially in the small loan

area. we initiated a pilot a few years ago to try to get some brave banks to come wup an economically viable loan environment. and it was quite successful and were very pleased and are trying to get other banks to offer that type of product. we also have various crick lats and we have the high school version as well used quite extensively and we set up our own command inclusion that when i became chairman that was one of the first things i did. we have a lot of good minds from the banking sector, from the community sector to try to bring more people in and products and services that are appropriate for them and not ones that can end up costing a lot of money. so i think these new tools will be very important and certainly the new consumer bureau will also put an added focus on this area. and i am happy to see that --

i'm hoping that one of the outgrowths of this crisis is that we will get back to more traditional banking services and there is an article in the papers today about more banks are now offering small dollar loans, seeing it as an economically alternative because it's clear to understand the credit cards and perhaps a one-shot deal and easier for folks to manage. so there may be some positive thinks coming out of this in terms of banks coming back to base 86 and consumers need to have their eyes open. i think this has all been very helpful. >> thank you very much. chairman shaprio. i am pleased that the dodd-frank act will significantly improve investor problems. the act establishes the office of investor advocate within the commission.

it provides the commission with authority to require more meaningful pre-sale disclosures . the commission will also conduct studies on investor financial literacy and on our obligations of brokers dealers and investment advisers. can you please update the committee on the commission's work to implement these provisions? and explain how they can improve investor protection. >> i'd be happy to. and you and i have had many conversations over the years. i will say we're benefited in all these initiatives that were undertaken by the fact that we have really revitalized our office of investor education and advocacy. as an example, for the first time we brought a large group of high school teachers to the s.e.c. this summer to train them in how to impart on education about financial

matters throughout their coursework and also in specialized courses. and it's a program that was enormously successful and we will continue. we do have the investor literacy study that you mentioned that we're in the project planning stage right now. lit focus on the current levels of literacy in this country, how to increase particularly as you mentioned transparency of fees and expenses so investors can understand what they're paying for the product that they're buying and can compare products in a simpler way because they'll understand the fees and expenses. also what has been the most successful efforts so that we can model our own s.e.c. literacy efforts on ones that have been successful. and we're looking at investing goals and behaviors as part of this study as well. we'll report to congress within a 24-month period. we're also in the process of standing up the obvious and

will have a role throughout the agency in ensuring that while we believe that we always have investors in the forefront of everything dwow, particularly in the rule-making process, this will be a focal point to help ensure that the retail investor voice is heard as we engage in many of our dodd-frank and other rule-makings going forward. >> thank you very much for your responses to my questions. my time has expired, mr. chairman. i want to wish you well and thank you for your work as chairman of this committee. >> let me say thank you as well for your insistance over the years on financial literacy. speaking to the economic club of washington last evening and i talked about the financial literacy and the importance of it beginning at thrmtry school level, getting people familiar with just basic math techniques and balancing a checkbook. and no one has done more consistently over the years to advocate on that than the senator from hawaii. we all owe you a debt of

gratitude. thank you. we'll be leaving together in january. and i thank you for your friendship and support on this committee. you've been a great member of this committee and a great member of the senate. thank you. >> well, thank you mr. chairman. all 12 years i've been privileged to serve in this body we've served on this committee. have you thought about establishing an alumni group? i would like to thank our witnesses today for your contributions. it occurred to me, mr. chairman, that while those of us on this side may have been the architects, these men and women will be the builders who will be responsible for taking abstract concepts and turning them into reality that will deliver for the american people. so i want to thank you for your dedication to making that process successful. chairman, i was really heartened to hear about the tension about more