c-span, washington your way, a public service created by america's cable companies. >> general petraeus was on capitol hill for the first time since taking over in afghanistan. he laid out his assessment of progress in that country as the u.s. begins to withdraw forces this summer. after that, tim geithner talk about changes to the mortgage finance system. today the house passed a spending measure while cutting $6 billion in spending. we will have that debate later. >> in the 21st century, it is not enough to leave no child behind, we need to help every child get ahead.

>> president obama has called on congress to overhaul and no child left behind education law. follow its law from the start in the bush administration, its opponents and detractors, and where it stands on line. that search, watch, clip, and share. it is washington your way. >> the general also talked about the obama administration's drawdown of u.s. trip and afghanistan started this summer. this is chaired by a michigan democrat, levin.

>> good morning everybody. i am going to ask them to consider 200 military nominations. first i would ask the committee to consider the nominations. they have been before the committee, these nominations,

the required length of time. is there a motion and a second? all say "aye." i would ask them to consider a list of 252 military nominations including in this list. the nomination of dempsy to be chief of staff. all the nominations have been before the committee again the required length of time. is there a motion? is there a second. all in favor say "aye." the motion carries. today the committee receives testimony from the secretary of defense for policy of general petraeus, and commander of u.s. forces in afghanistan. we thank you both for your years of service to the nation. and the sacrifices made by both you and your families. we also -- excuse me.

we also cannot express enough our gratitude and adam operation for the men and women and uniform. there are doing a phenomenal job, the morale is high, our troops are truly on inspiring, please pass ford. it has been a little over a year since the obama talked about his strategy for afghanistan. that included two key elements. the setting of a date 18 months from then or july of 2011 for when troops would begin to come home. the setting of that july date also laid down a marker for when the government of afghanistan would assume more and more responsibility for the nation's security. during his visit to afghanistan last week, secretary gates

determined that "we will be well positioned for increasing security responsibility to afghanistan and beginning to draw down u.s. forces in july of. this of" the president is expected it to study first phase throughout afghanistan that would transition to an afghan lead for providing security to the afghan people. we have heard that two messages in recent months relative to the july of 2011 date when u.s. troop numbers in afghanistan will begin to be reduced. message #1. secretary gates before this committee recently said the july date was needed as a way of telling the afghan leadership " to take ownership of the war" and to bring a sense of urgency to them."

message #2, "there is too much talk about leaving and not enough talk about getting the job done right." now some may dismiss those messages as inconsistent. or that secretary gates is speaking to two different audiences. i disagree. secretary gates well knows that with modern global instantaneous communications, the world is the audience for every utterance. the unifying thread is in two messages is that both are needed for the success of the mission. success requires afghans taking the lead and afghan ownership of the mission. all of which in turn depend upon their confidence in our continuing support.

both messages and the thread that unifies them are part and parcel i believe of the general petraeus is counterinsurgency strategy which is so instrumental in turning the tide in afghanistan. the success of the mission depends on afghan security forces holding the ground which they are helping to clear of caliban. -- taliban. that is what undercuts the enemy's directive when they say that we are there to occupy afghanistan. control of territory by those forces is robbing the caliban of their propaganda target and bringing us closer to the success of the mission. that is why i have pushed so hard to grow the size of the

afghan security forces and the key metric on how many are partnered with us and being mentored by us and how many afghan units are in the lead in joint operation. that is why a number of us are pushing so hard including the president himself for approval of the pending proposal of up to 70,000 additional afghan troops and police. nato training command in afghanistan has done an extraordinary job. not only building the numbers of the afghan security forces, but including their quality as well, focusing on marksmanship, turning, leadership, and literacy. this success in training troops reflects the desires of the afghan people to provide for their own security. that success is why telegrams suicide bombers attacked recruiting centers. the young men signing up represent the taliban's worst

nightmare. during our visit in january, senator reid and i saw how the afghan have growing confidence and forces to provide security, former caliban -- taliban. the afghan people are starting to rebuild their lives, joint operations are increasingly afghan lead, and they are planning and execution. afghan confidence in the army and police grows. the number of tips from locals increased significantly, enabling afghan and coalition forces to find and clear a much greater number of disciplines -- explosive devices.

the support of the afghan people is also allowed partnered coalition special operation forces and afghan commandos to targets large numbers of insurgent leaders in the past few months. the vast majority of them have been captured without a shot being fired. the growing support to the afghan people for their security forces will make a transition to a afghan security lead more achievable and sustainable over time. certainly challenges lie ahead, general petraeus said there will be a taliban spring offensive and secretary gates said this fighting season will be the test as the taliban tries to take back the terrain lost. afghan leaders need to bring a sense of urgency in approving --

improving governance. if they are to earn the support of the people for the afghan government, additional steps must be taken to end the safe havens that insurgents use in pakistan the impact security. finally general petraeus at the meeting in brussels last week, i hope he will address the outcomes of that meeting including whether any further commitments from our nato partners were forthcoming to address the continuing shortfall and the trainers of afghan troops. also of interest would be the status of any discussions on a longer-term relationship between the united states, nato, and afghanistan beyond 2014. again, thanks to our witnesses on behalf of our nation and for their devotion to the men and women who defend us, senator mccain. >> thank you, chairman.

i would like to thank them for their service to our nation. i want to say a special note of thanks to general petraeus. the truest test is whether he is worthy of the sacrifice of those he leads. whether the young men and women who we call upon day in and day out risk their lives for us to some degree of devotion as they do, we are fortunate that general petraeus is such a commander. it is congress's highest priority to be just as worthy of the sacrifices made of the men and women of our armed forces and to provide them with everything they need to succeed in their mission of defending our nation. so let me take this opportunity to say again that we urgently need to pass a full year of appropriations bill on defense for the remainder fiscal year 2011 as the secretary of defense has repeatedly called for.

it is irresponsible to continue funding our fellow americans fighting two wars through piecemeal resolutions that do not meet their full needs. perhaps the greatest need right now is winning the war in afghanistan which is the subject of this hearing. the cost of our commitment to this conflict remain substantial, especially precious lives that we have lost. according to one a new poll reporting on into de's the majoritypost," of americans did not support the war. nato forces will surely face a renewed taliban offensive this spring to retake the territory and the momentum they have lost on the battlefield. those losses have been considerable. u.s. nato and afghan forces have dealt a crushing blow to the

middle leave it -- level leadership to al qaeda and its allies. we are capturing the momentum in key areas. afghan security forces are going in quantity and improving in quality, even faster than planned. the afghan a local police initiative is empowering communities across the country to provide their own security from the bottom of. the a cumulative effect of these security operations is that we are turning around the war in afghanistan. as general petraeus will say and emphasize, this process remains fragile and reversible. the sustainability of our games will be tested during the fighting season a head. we should all be very clear about the fact that violence will go up in the months ahead and we will surely encounter setbacks in some places. as a result, we need to be

increasingly cautious about withdrawal of forces in july as the president has called for. we should be mindful that perhaps the wisest course of action in july maybe to reinvest troops from more secure to less secure parts of afghanistan where additional forces could have a device -- a decisive impact. we should not rush to sell your, which it cultivates strategic patience. this patients will be as we wrestle with two other key challenges. the first is governance and corruption. american taxpayers want to know that the vast resources they are committing to this war effort are not being wasted, stolen, or misused by afghan officials. we must not allow this demanded defeat us about our objectives.

some are alarmed that the afghan government is at times a week partner. that is the norm in any counterinsurgency. after all, if our local partners provide a good governance, there would not be an insurgency in the first place. the goal of any counter insurgency is to create the conditions that enable our local partners to provide better, more effective, and more just governments for their people. that does not mean that we are trying to make afghanistan like us. rather more like afghanistan used to be prior to the past two decades of civil war. the country enjoyed a half a century of relative peace and rising standards of living. the second key challenge stems from pakistan. the growing instability of the country, the insurgents safe- haven that remain there, the ties to terrorists that still exist among the pakistan's

military, and the deterioration of our relationship amid the tension of a u.s. official. rajmond davis. we have sought every means to compel afghanistan to reorient its strategic caucasus short of cutting off u.s. assistance which we did it once before to know positive affect. to assure pakistan deserves praise, but what we must increasingly recognized is that perhaps the most effective way to impact pakistan's support for terrorist groups that started our partners and personnel in the region is to succeed in afghanistan. ultimately, only when the afghan's security forces capable of neutralizing the terrorist

groups that those tax -- pakistan leaders will come to see that a strategy of hedging their bets in this conflict will only leave them less secure and more isolated. we have made a great deal of progress in afghanistan since the last hearing of this committee on the subject just over a half year ago. or the momentum was then still with the insurgency, our forces have now plummeted in many places and reversed it from key places of the fight. it is now possible to envision a process of trance -- transition to afghan security for security based on conditions on the ground with 2014 being a reachable target date. for that transition to be truly an for it to lead to a strategic partnership, our country and especially this congress must remain committed to this fight

and of those americans waging it. thank you, mr. chairman. >> thank you, senator mccain. >> thank you very much for inviting us here today to update you on our efforts in afghanistan. nearly 10 years ago, after -- al qaeda operatives carry out attacks that killed thousands of americans. as we all know, these attacks emanated from a safe haven in taliban control of afghanistan. in response to the september 11 attacks, the united states supported by a vital international partners entered afghanistan by force in order to remove totaliban regime and to prevent further attacks by al qaeda and associates. our mission was just, fully supported by the international community, and initially, it was quite successful. in the years that followed, we

lost focus on afghanistan. while our attention was turned away, al qaeda, the taliban, and other extremist groups retook their positions. as a result, we risk the return upon taliban lead afghanistan that would likely once again provide a safe haven for terrorists who could plan and execute attacks against the united states. when president obama took office, he immediately order a thorough review of our strategy in afghanistan and pakistan and reaffirmed our mission to defeat al qaeda and afghanistan appeared in the course of that review, we found a distortion in afghanistan was even worse than we thought. we found that they had momentum on the ground. in the course of 2009 and 2010, the president committed tens of

thousands of additional forces to reverse the momentum. last december we conducted a follow-up review, in the course of that review, we reaffirm our core goal. a civilian campaign to build afghans capacity to govern the country, and an increased diplomatic effort to bring a favorable and a durable outcome to the conflict. over the last year, we have made significant progress. urge, we nowops search have over troops in afghanistan and securing more of the afghan population. that surge has been matched by a surge in the numbers, quality, of the afghan security forces. during the past years, the isaf

has increased, and we have been able to improve their quality substantially by developing afghan noncommissioned officers, trainers, expanding the turning curriculum, adding literacy programs, increasing retention rates. as general petraeus will describe in detail, u.s. and isaf forces fighting side-by- side with increasingly capable units the route to the country . -- wrestled th we have turned up the pressure on al qaeda and its affiliates. degrading but not defeating their ability to plan and conduct operations. one contributor to this positive momentum is the afghan police

initiative, a village program that is already disrupted insurgent activities, denied uncertain influence in key areas, and it generated serious concern among the talent and leadership. at the same time, we have ramped up our civilian efforts to improve afghan governments and the developments. thanks to the civilian search, there are more than 1100 civilian experts from nine different u.s. agencies helping to build afghan governments and capacity. at work that is absolutely vital to the ultimate success of our overall mission in afghanistan. nevertheless, the significant gains we have made in the last year are still reversible. there is tough fighting ahead, and major challenges remain. most notably, we must continue our efforts in pakistan to eliminate safe havens. we seek to build an effective

partnership that advances both u.s. and pakistani interests including the denial of safe havens to all violent extremist organizations. to do so, we must demonstrate to our pakistani partners that we will remain a strong supporter of their security and prosperity, both now and in the years to come. even as we ask them to do even more to defeat terrorism. in addition, we must work with the afghan government to tackle corruption, especially for the tour corruption that deals -- we must upgrade the conditions necessary among the afghan people. this includes reconciling those insurgents who are willing to renounce al qaeda, forsake violence, and adhere to the afghan constitution. this july we will begin a responsible conditions based a drawdown of our search forces in afghanistan. we will also begin the process

of transitioning provinces to afghan for security, and by the end of 2014 be expect that afghans will be in the lead for security nationwide. this transition is a process, not an event. the process will unfold village by village, district by district, province by province. the determination of when it will not occur and where it will occur will be based on a bottomless assessments of local conditions. this process is beginning now, and we do expect president cars like to announce the first rounds for transition on march 21. as this process gets under way, and as afghan security force capabilities continue to develop, we and our isaf partners will send out forces as conditions allow and gradually shift to more of a mentor and role with aisaf. some of the isaf forces will be

reinvested in other areas or in the training efforts in order to advance the transition process. the objective here is to ensure that the transition is irreversible. we have no intention of coming back to finish the job later. we would much rather stick to a gradual approach making sure that an area is truly ready for transition before sending out the isaf forces there. this is the surest path to lasting success. let me be clear, the transition that will take place between now and 2014 and no way signals our abandonment of afghanistan. president obama and karzi have agreed that the nazis in afghanistan will have a enduring strategic partnership between 2014. we are working with the afghans on the detail of that partnership. finally, i would like to

acknowledge the very real cost of this war. many of you have a expressed concern about the costs, especially in light of our battlefield casualties and fiscal pressures at home. but the afghan pakistan border lands have served as a crucible for the most terrorist actions of the past decade. the outcome we seek is the defeat of al qaeda and the denial of the region as a century for terrorists. this objective is the reason why our brave men and women in service have sacrificed so very much. we are determined to bring this war to a successful conclusion for the sake of our own security but also for the sake of the security of the people of afghanistan, pakistan, and the region who have suffered so much and you had so much to gain from a secure and lasting peace. members of this committee, i want to thank you for providing us this opportunity today.

i also look forward to your continued and bible support for the programs that are critical to our success in afghanistan -- and voluble support for the programs are critical to our success in afghanistan. >> mr. chairman, it is a privilege to be here today to report on the i live like to do offer my sincere condolences to the people of japan as they recover from one of the first national disasters in their history. japan has been a stalwart partner in afghanistan, an important contributor to the nation there. >> if i could interrupt you for a minute.

thank you for doing that. >> thank you. it is the assessment that the momentum achieved by the taller than it since 2005 has been arrested and much of the country and reversed in a number of areas. it is also fragile and reversible. it is clear that much difficult work lies ahead with our partners to solidify and expand our games in the spring offensive. the achievements in 2013 -- in 2010 have allowed the joint nato -- the achievements are

also very important. i've prepared to provide recommendations to president obama for commencement of the drawdown of the u.s. search forces in july. it has put us on the right path. afghan forces are in the lead by the end of 2014. bin smmit. the achievements of 2010 and early 2011 have been enabled by a determined effort to get the inputs right united states and the 47 other troop-contributing countries, isaf has focused enormous attention and resources in the past two years on building the organization's needed to conduct a comprehensive, civil military

counter insurgency campaign. on developing in close coordinaon with afghan partners the recognize wis it concepts and plans and developing the forces and funding needed. indeed, more than 87,000 additional nato isaf troopers and 1,000 additional civilians have been added to t effort in afghanistan since the beginning of 2009. in afghanistan, security forces have grown by over 122,000 in that time as well. getting the inputs right has enabled our forces, together with afghan forces, to conduct the comprehensive campaign necessary to achieve our goals in afghanistan. our core objective is, of course, ensuring that afghanistan does not once again become a sanctuary for al qaeda. achieving that objective requires that we help afghanistan develop sufficient capabilities to secure and

govern itself. and that effort requires execution of the comprehensive civil, military effort on which we are now embarked. over the past year in particular, isaf elements together with international partners have increased all the activities of our come prehence i have campaign substantially. we have, for example, stepped up the temple of precise, intelligence driven operations to capture or kill insurgent leaders. in a typical 90 day period, precision operations by special units and afghan partners alone kill or capture some 360 targeted insurgent leaders. moreover, they are coordinated with the senior afghan ministries, and virtually all include highly trained afghan soldiers or police with some afghan elements now in the lead

on these operations. we have also expanded considerably joint isaf afghan operations to clearhe taliban from important long held safe havens, and then to hold and build in them. isaf and afghantroopers have, for example, cleared such critical areas as the districts west of kandahar city that were the birthplace of the taliban movement, as well as important districts of helmand province, areas of the security bubble and locations in the nor where the taliban increased presence in recent years. one result of such operations has been a four-fold increase in recent months in the number of weapons and explosive cashes turned in and found. another the gradual development of local governance in local revival of the growing security bubbles. marge a, one time hub of the

drug industry held election for community council march 1st, during which 75% of registered voters cast a ballot. and as a result of improvements in the security situation there, markets that once sold weapons, explosives, illegal narcotics, feature over 1500 shops selling food, clothes, and household goods. we have positioned more forces as well to in ter dikt the flow of fighters and explosives from insurgent places in pakistan, and we will do further work with afghan partners to establish as much of a dense in depth as is possible to disrupt in filtration of taliban and hakani members. meanwhile, we are coordinating re closely than ever with the pakistani army to conduct isaf operations that will provide the anvil on the afghan side of the line in which pakistani taliban

elements can be driven in the border areas. with your support, we have also devoted substantial additional resources to development of afghan security forces. this effort is, of course, another very important component of our comprehensive approach. it is arguably the most critical element in our effort to help afghan develop the capability to secure itself. we have seen significant progress in this arena in the past year, and we have had to contend with innumerable challenges. our afghan partners are the first to note that the quality of some elements is ill uneven. the training mission is, in fact, a huge undertaking, and there is nothing easy about it. however, the past year alone has seen afghan forces grow by over one-third, adding some 70,000 soldiers and police. notably, those forces have grown in quality, not just in

quantity. investments in lear development, literacy, marks manship and institutions have yielded significant dividends. in the hard fighting west of kandahar in late 2010, afghan forces comprised some 60% of the overall force, and they fought with skill and courage. president karzai's afghan local police initiative has been also important to the overall campaign. it is in essence a community watch with ak-47s, under the local district chief of police with nominees represented by a council, vented by in tell service and trained by and partners with afghan police and u.s. special forces elements. the initiative does more than just allow the arming of local forces and conduct of limited defensive missions. through the way each unit is established, this program mobilizes communities in self defense against those who would

undermine security in their areas. for that reason, the growth of these elements is of particular concern to the taliban, whose ability to intimidate the population is limited considerably by it. there are currently 70 districts identified for alp elements with each district's authorization averaging some 300 alp members. 27 of the district alp elements have been validated for full operations, while the other 43 are in various stages being established. this program has emerged as so important that i have put a conventional u.s. iantry battalion under operational control of our special operations command in afghanistan to augment our special forces and increase our ability to support the program's expansion. we have increased as well our efforts to enable the afghan government's work, and that of international community civilians to improve governance,

economic development and provision of basic services. these are essential elements of the effort to shift delivery of basic services from provincial reconstruction teams and international organizations to afghan governmental elements, thereby addressing president karzai's understandable concerns about parallel institutions, and we have provided assistance for new afghan government-led initiatives and reintegration, supporting recently established afghan high peace council and provincial peace and reintegration councils. we recognize that we and our afghan partners cannot just kill or capture our way out of the insurgency in afghanistan. in fact, some 700 former taliban have now officially reintegrated with afghan authorities in recent months, and some 2,000 more are in various stages of

reintegrationprocess. all of these efforts are part of our economy hence i've proech, and we worked hard to coordinate with international organizations and diplomatic missions in afghanistan as well as with our afghan partners. we have also sought to ensure that we minimize loss of innocent civilian life in the course of our operations, even as we also eure protection of our forces in our afghan partners. of note, a recently released un study observed civilian casualties decreased by over 20% in 2010, even as our total forces increased by over 100,000, and significant offensive operations were launched. our progress in this area notwithstanding, however, in view of several tragic incidents in recent weeks, i ordered review of our tactical direct i

have on use of force by all levels of chain of command and with air crews of attack helicopters. i also reemphasized instructions on reducing damage to infrastructure and property to an absolute minimum. counter insurgents cannot succeed if theyarm the people they are striving to protect. as i noted at the outset, the joint nato afghan inched oh call or transition board represented to karzai's commencement of transition in select provinces in the next few months. president karzai will announce these locations in a speech next week. in keeping with the principles adopted by the north atlantic council to guide transition, the shifting of responsibility from isaf to afghan forces will be conducted as a pace determined by conditions on the ground, with assessments provided from the bottom up so that those at

operational command level in afghanistan can plan the resulting battlefield geometry adjustments with our afghan partners. according to nato principles, we will see the forces thinning out, not just handing off, with reinvestment of some of the forces freed up by transition in contiguous areas or in training missions where more work is needed. similar processes are also taking place as we commence transition of certain training and institutional functions from isaf trainers to their afghan counterparts. as we embark on the process of transition, wehould keep in mind the imperative of ensuring the transition actions we take will be irreversible. as ambassadors of several isaf countries emphasized at one recent nato meeting, we'll get one shot at transition, and we need to get it right. as a number of isaf national leaders have noted in recent

months, especially since lisben, we need to focus not just on the year ahead, but increasingly on the goal agreed at lisben of having afghan forces in the lead in afghanistan by end of 2014. indeed, we need to ensure we take a sufficiently long view to ensure our actions in the months ahead enable long-term achievement in the years ahead. we have refined our campaign plan to do just that. and we are also now beginning to look beyond 2014 as undersecrery flournoy noted, as the united states in afghanistan and nato discuss strategic partnerships. all of this is enormously reassuring to our afghan partners and oconsiderable concern to the taliban. with respect to the taliban, appreciation that there will be an enduring commitment of some form by the international community to afghanistan is

important to the insurgents's recognition that reconciliation, rather than continued fighting, should be their goal. before concluding, there are four additional issues i would like to highlight to the committee. first, i am concerned that levels of funding for our state department and usaid partners will not sufficiently enable them to build on the hard-fought security achievements of our men and women in uniform. inadeqte resourcing of our civilian partners could, in fact, jeopardize accomplishment of the overall mission. i offer that assessment, noting that we have just completed a joint civil military campaign plan between u.s. forces in afghanistan and the u.s. embassy in kabul, which emphasizes the critical integration of civilian and military efforts in endeavors such as thatn afghanistan. second, i want to express my deep appreciation for your

support of vital capabilities for our troopers. the funding you have provided has, for example, enabled the rapid deployment of a substantial increase in the intelligence, surveillance and reconnaissance assets supporting our forces. to take one example, we have increased the number of various types of persistent surveillance systems, towers with optics, from 114 this past august to 184 at the present, with plans for continued increases throughout this year. your support has also enabled rapid procurement and deployment of the all terrain vehicle version of the mine resistant ambush protected family of vehicles, with 6700 fielded since i took command some eight and a half months ago. and your support has continued to provide our commanders with another critical element of our strategy, the commander's emergency response program

funding that has once again proven absolutely invaluable as a way of capitalizing rapidly on hard-won gains on the ground. indeed, funding the establishment of the afghan infrastructure fund and the specific authorization for the reintegration program have been instmental in enabling key components of our overall effort. third, i should at this poin also highlight critical work of the world bank and the asian development bank. these institutions are the largest donors to afghanistan after the united states, and they have been critical to the success of important projects such as the ring road and use beck afghan railroad. we need these institutions and further u.s. support for them will ensure they are able to continue to contribute as significantlas they have in the past. fourth, i want to tnk you for

substantial funding for the development of the afghan national security forces. the continued growth of afghan forces in quantity, quality and capability is needless to say essential to the process of transition of security tasks from saf forces to afghan forces, and the resources you have provided for this component of our effort have been the critical enabler o it. in closing, the past eight months have seemed important, but hard fought progress in afghanistan. key insurgent safe havens have been taken fm the taliban. numerous insurgent leaders killed or captured, and hundreds of reconcilable mid level leaders and fighters have been reintegrated into afghan society. meanwhile, afghan forces have grown in number and capability. local security solutions have been instituted and security improvements in key areas like kabul, kandahar, helmand

provinces enabled progress in the areas of governance and development. none of this has been easy. the progress achieved has entailed hard fighting and considerable sacrifice. there have been tough losses along the way, and there have been set backs as well as successes. indeed, the experience has been akin to that of a roller coaster ride. the trajectory has generally been upwards since last summer, but there certainly have been significant bus and difficult reverses at various poin. nonetheless, although the insurgents are already striving to regain lost momentum and lost safe havens as we enter the spring fighting season, we believe that we will be able to build on the momentum achieved in 2010, though that clearly will entail additional tough fighting. as many of you have noted in the past, our objectives in

afghanistan and in the region are of vital importance, and we must do all we can to achieve those objectives. those of us on the ground believe that the strategy on which we are now embarked prides the best approach for doing just that, noting as dialogue with president karzai has reminded us at various junctures that we must constantly refine our activities in respoe to changes in the circumstances on the ground. needless to say, we will continue to make such adjustments in close consultation with afghan and international counterparts as the situation evolves. finally, i want to thank each of you for your continued support for our country's men and women in afghanistan and their families. as i have noted to you before, nothing means more to them than knowing that what they are doing is important and knowing that their sacrifices are appreciated

by their leaders and their fellow citizens back home. each of you has sought to convey that sense to them and we are very grateful to you for doing so. thank you very much. >> thank you very much, general, thank you both for your testimony please leave if you're going to make any comments in public like that. just please leave. general, let me start by asking you about the july, 2011 date which you have made reference to in your statement as a date about which you recommend to president obama commencement of e draw down of some of our forces. have you decided on the level of reductions that you're going to be recommending yet? >> i have not, m. chairman.

>> do you continue to support the beginning of reductions of u.s. forces from afghanistan in july? >> i do, mr. chairman, and i will provide options to the chain of command and the president to do that. >> and why do you support the beginning of reductions this july? >> if i could come back phaps to your opening statement, mr. chairman, i think it is logical to talk both about getting the job done as secretary gates did with his nato counterparts and beginning transition and responsible to use president obama's term reductions in forces at a pace determined by conditions on the ground. as my good friend and ship mate, general jim d us noted, it undercuts the narrative of the taliban that we will be there forever, that we are determined to maintain a presence forever, and it does, indeed, as i have

told this committee before send that message of urgency that president obama sought to transmit on the first of december at west point in 2009 when he also transmitted a message of enormous additional commitment in the form of 30,000 additional u.s. forces, more funding for afghan forces and additional civilians. >> thank you. now, rlative to the pending request to increase the size of afghan security forces by up to an additional 70,000 personnel i believe you have made that request, is that correct? >> i have, mr. chairman, and my understanding is that the secretary has forwarded that. this was made in consultion with ministers of interior and defense in afghanistan who also gained president karzai's support for it. keeping in mind that it reasonable degree of medical certainty a floor of 352,000, and then if there are certain reforms carried through, which

are already very much entrained by ministry counterparts in afghanistan in terms of additional commitment to leader development, recruiting, retention, and attritionissues, at the growth would be to 378 total. >> is that a floor of 352, that is approximately 45,000 more than the goal for october, 2011 as i understand it. >> that's correct, mr. chairman, and the afghan forces are on track it appears to reach that goal probably even early as is the case this past year. >> secretary flournoy, are you recommending that increase? >> the secretary has forwarded the increase over to the white house for the president's consideration. weo expect a decision on that soon. >> are you able to say that you support it or the secretary supports? >> yes, i think the secretary does support the range that general petraeus suggested between 352 and 378.

>> you both -- thank you. you both made reference to pakistan and the safe havens which exist there with the pakistan government basical looking the other way in two key areas, that's north i'm sorry ear stan and down in kwet a where they know where the people are who are crossing the border, and terrorizing afghan citizens, attacking us, attacking afghan forces, coalition forces. now, pakistan may be looking the other way in that regard, but i don't think we can look the other way about what they are not doing in those areas. so i would ask you both what, if anything, more can we do to persuade the pakistanis to be the hammer which i think you made indirect reference to, general petraeus, so when those forces cross the border, we can be the anvil?

>> mr. chairman, rst, if i could, i think it is always important to note what pakistan has done over the course of the last two years, and that is very impressive and very challenging counter insurgents operation toss clear swat valley and a number of agencies in the tribal areas of rugged border regions. and then to note the enormous sacrifices they have made, their military as well as their civilian populous, which has also suffered terrible losses at the hands of internal extremists. there is indeed as a result of a number of recent visits and coordination efforts in recent months, unprecedented cooperation, coordination between pakistani, afghan and isaf forces to coordinate in operations that will complement the other's forces on the

border, say for example where the pakistanis go the border and we are poised indeed to be the andville on which they are driven. the fact is that the pakistanis are the first to note more needs to be done. there is, i think, a growing recognition that you cannot allow poisonous snakes to have a nest in your backyard, even if they just bite the neighbor's kids because sooner or later they're going to turn around and cause problems in your backyard, and i think that sadly has proven to be the case. having said that, there is, of course, considerable pressure on al qaeda and on the hakani network in north wi seer stan. the campaign there disrupted significantly the activities of those groups, and then of course on the afghan side of the border, there has as i noted in my opening statement been an enormous effort to establish a defense in depth to make it

difficult for in filtration. again, we conducted a great deal of coordination with afghan partners and ultimately as senator mccain noted that the way to influence pakistan is to show that there can be a certain outcome in afghanistan that means that there should be every effort to help their afghan neighbors and indeed to ensure that they do that on their side of the border as well. >> mr. chairman, if i could just add from a strategic level, i think what's needed is continued investment in the strategic partnership that we've been developi with pakistan, and very candid engagement with them on these issues to influence their will to go after the full range of groups that threaten both of us. it means continued efforts to build their capacity, things like the pakistani counter

insurgcy fund, but not only efforts to build their military capacity but also their capacity for governance and development in areas like the fatah and other parts of afghanistan to meet basic needs of their people. we can't walk away from this problem, and we believe a strategy of engagement, investing in the partnership is the best way forward. >> well, i think that's all well and good, but it is actually factually true, i am afraid that simply investing in their capacity is not what we need at the moment in north wi seer stan and in kwet a with the taliban. ose folks using those areas are attackingur people, and the pakistanis basically resisted going after them in those areas. they have done that for their own internal reasons, and on t other hand, we've got to continue to find ways to impress upon them that their backyard is a backyard where snakes are

you say simply increase their capacity, i am not willing to simply increase their capacity without some kind of an understanding that that capacity is going to be used to end these safe havens which are deadly to our people. so i'll simply say that. if you want to comment you can. >> i should have announced we have a seven minute round, i probably used mine already. in any event, i will end my round there, unless you want to add a comment. >> if i could just add, we are having extremely candid conversations about our expectations of what we would like to see our pakistani partners do. we are continuing to apply as much pressure as we can from the afghan side of the border and also in terms of pressure on al qaeda senior leadership in the border region. >> thank you, mr. chairman.

>> and i thank the witnesses again. >> general petraeus, i have been a member of this committee for a long time, and i've sat through hundreds of hearings and one that stands out in my memory was in september of 2007 when you and ambassador crocker came and testified when the majority of americans and the majority of members of the committee and majority of the senate wanted to have an immediate pullout from iraq, which obviously was -- and that the surge could not succeed and would fail, obviously that turned out not to be true, that the surge did succeed, and i have a bit of a feeling of déjà vu here because this morning, i am sure you may have seen "the washington post" indicates, the headline is on the front page, quote, most in u.s. say afghan war isn't worth fighting. nearly two-thirds of americans now say the war in afghanistan

is no longer worth fighting. the highest proportion yet opposed to the conflict, according to a new washington post, abc news poll. could you respond to that poll and maybe have a few words for the american people about this conflict? >> well -- thanks, senator. up front, i can understand the frustration. we have been at this for ten years. we have spent an enormous amount of money. we have sustained very tough losses and difficult life changing wounds. i was at walter reed yesterday, seeing some of our troopers whose lives have been changed forever by their service in our country's uniform in a tough fight. but i think it is important to remember why we are there at

such a time. it is important to remember that that is where 9-11 began, that's where the plan was made. that's where the initial training of the attackers took place before they went to germany and u.s. flight schools. that is where al qaeda had its most important sanctuary in the world, and it had it under the taliban. at that time, of course, the taliban controlled kabul and the vast majority of the country. and indeed, we see al qaeda looking for sanctuaries all the time, frankly. they are as i mentioned earlier under considerable pressure in the north, and there is a search for other locations. and afghanistan would be an attractive location were the taliban to control large swathes of it once again. indeed, there is a small presence of al qaeda in afghanistan, some probably less

than 100. we killed the number three leader of al qaeda in afghanistan several months ago, and have detained another very important individual there as well. and we do see the exploration, if you will, of certain possible sanctuaries. the other thing to remember is statement. the one i made in my opening that is it is only recently we have gotten inputs right in afghanistan. as undersecretary flournoy explained, there were a number of years where our focus was elsewhere, where afghanistan an economy of force effort to use the military terminology, and it is only since late 2008, early 2009 that we have focused back on afghanistan and have deployed the military, civilian and financial resources necessary, adjusted our campaign plans and concepts, staffed the

organizations properly, and so forth, so that we could indeed say that we actually had the inputs right. we judged that that was roughly last fall. that is what has enabled us to make the progress that we have made. i do believe that we can build on that progress as difficult as that will be. and i believe it is imperative we do so, because again, i think this is as president obama has said a vital national security interest that again al qaeda not be allowed to reestablish sanctuaries in afghanistan. >> let me then ask you to respond to a los angeles times story this morning which says national intelligence director james clapper told congress last week, i think the issue the concern the intelligence community has is after that and the ability of the afghan government to pick up their responsibility for governance. general ronald burgess, head of defense intelligence agency

offered a sobering view, one that is shared by the cia. officials say it contrasted sharply with the optimism expressed in recent days by petraeus. quote from general burgess. the taliban in the south has shown resilience, still influences much of the population, particularly outside urban areas. burgess said u.s. led coalition has been killing taliban militants by the hundreds he said, but there have been no apparent reductions in their capacity to fight. would you respond to general burgess's statements? >> first of all, with respect, i have tried to avoid what might be labeled optimism or pessimism and have tried to provide realism. and i think that the opening statement speaks for itself in terms of expressing what we believe is reality on the ground, with a very significant ahead.

of the challenges that lie there is no question that governmental capacity is an area of in a sense strategic risk as we identify it. in the slides we provided along with the statement, you will see the so-called cloud slides, and i think there's a double thunder bolt coming out of that particular cloud. the reason is that indeed it is very difficult to transition tasks that are currently performed by international organizations or isaf provincial reconstruction teams to afghan institutions if that capacity is not present. i had a long conversation with minister of finance in kabul, and then president karzai the day before leaving and discussed the imperative of increased efforts to expand this governmental capacity, particularly in the arena of budget execution. now, that may sound like an odd item for a military commander

to be engaged in, but with our civilian partners, we absolutely have to help afghan partners increase their ability to spend the money they're provided, to speed the very bureaucratic processes they have instituted to enable them to take money that's provided in through the top and gets down to the province and district to replace again service provision by international organizations and provincial reconstruction teams. they are seized with that. they realize that the trend that is currently in afghanistan has to be changed and that indeed budget execution has to increase substantially again to enable president karzai's goal of doing away with parallel institutions to be achieved. as you saw i think press

reports, senator mccain, a shipment from the force through a known taliban facilitator. this was intercepted, three of the individuals were killed. 48 122 millimeter rockets were intercepted with various components. this is a significant increase in more than double in range over the 107 millimeter rockets we have typically seen, more than double in terms of bursting radius. we do see certainly iranian activity to use both soft power in the way they shut off the fuel going into afghanistan a couple of months ago and also certainly to influence the political process there as well in ways similar to what we saw in iraq.

>> thanks, mr. chairman, thanks secretary flournoy and general petraeus for your service and testimony. general petraeus i don't think we can thank you enough for this service and leadership you've given our country, particularly in this case you had gone from remarkable leadership in iraq, helping with a lot of help from state department and our troops turning that situation around, then the central command. suddenly with general mcchrystal's departure from afghanistan, you are called to the oval office. the president asks you to go to afghanistan. you could have found a lot of reasons not to. you just didn't hesitate. you said yes, sir, and you've been there with a lot of support from the administration and others, and we're turning it around now in afghanistan, without any illusions about the difficulties we face. i just think the country owes you a tremendous expression of

gratitude. you set by your example the standard for everyone who serves under you in afghanistan and frankly for any of us who have the privilege of serving our country in whatever capacity, and i thank you for that. the public opinion polls are on our minds today. i think we all know from experience you can't make decisions about war and peace based on public opinion. once you commit to a cause as we did after 9-11 to the cause of a different and new afghanistan and you commit troops to it, you can't be affected by waves of public opinion. we know from recent history, when wars are succeeding, when wars are failing, seem to be failing, public opinion is negative. when wars seem to be

succeeding, public opinion turns more positive. in this case, we are succeeding in afghanistan today and therefore i think the downward turn in the public opinion here in the united states has more to do with the understandable preoccupation of the american people with the economy, with jobs, with the deficit. in that sense, i think we have to come back and remind the american people of why we are in afghanistan, why it is worth it, and that we are now succeeding. and i think secretary flournoy and general petraeus you have done that most effectively in your testimony. >> secretary flournoy, i want to quote from you. you said just right to the point, the threat to our national security, and the security of our friends and allies that emanates from the border land of afghanistan and pakistan is not hypothetical. there is simply no other place

in the world that contains such a concentration of al qaeda senior leaders and operational commanders. this remote region has served as a crew's bell for the most catastrophic terrorist actions of the past decade as we learned at great cost after abandoning the region in 1989, staying engaged over the long term is critical to achieving lasting peace and stability in this region and securing our national interests. i don't think we can say it better and have to keep saying it about why we're there. second, general petraeus, i think your presentation today tells us, again, nobody is under any illusions that this is turning around. i can tell you that i've been going to afghanistan since january, february of 2002, after our initial victory there, overthrowing the taliban, going back at least once a

year, usually twice a year. and for a period of years just to validate what you said about us turning our attention away, every time we went, if we looked at the map, every year the taliban was in control of more of the territory of afghanistan until the last year, until 2010. and i don't think this is an accident, because as you both said in some sense we only fully engaged in afghanistan for the last year. president obama made the decision to commit the surge troops. in fact, since the president has been our commander in chief, we have increased our troop presence not just 30,000 but 87,000, when one considers the previous commitment made. so we're there for a reason, we're making progress. i can't thank you both enough for all of that. i want to just get to a couple

of questions briefly. safe talked about the havens in pakistan, but what strikes me as really significant and i think underappreciated is that as of two years ago, there were large taliban safe havens inside pakistan, such as marja, and one of the things that happened in the past two years, our coalition has taken the safe havens away from the enemy, and shut them down. i wonder, general, if you would comment on that. >> these were significant safe havens in the case of kandahar city, the well spring of the taliban movement and right on the doorstep of the second largest city in afghanistan. indeed, there was a period in early 2009, i remember the

intelligence analysts came in and told me they thought kabul was being encircled once again in the same way it was during the civil war. so these are very important accomplishments and the increase of afghan security forces and the advent of the afghan local police program now also enable us to prevent other safe havens and much less populated areas from springing up as well. and that is certainly one of our objectives. >> i appreciate that answer. let me go to another important matter that you both talked about. we're on a path now to transition control of security to the afghan security forces by the end of 2014, but both of you have testified today about the importance of the signaling and enduring commitment to the security of afghanistan and i

couldn't agree more. i wonder if both of you would describe, i know there were some discussions going on now seriously between the u.s. and afghan government. what kinds of long-term commitment you might contemplate, and i wonder if you would comment on the possibility of some continuing base presence, perhaps jointly operated system of bases in afghanistan between us and the afghans? >> senator, thank you. when the president first announced the strategy at west point, he was very clear that we were making an enduring, long term commitment to afghanistan and the region. having made the mistake historically of walking away, then paid a very dear price for that. so that's been clear from the beginning. it's an important message to emphasize as we begin this transition process.

we just had a team in kabul this we can starting to discuss the outlines of a strategic partnership with our afghan partners, being clear about the kinds -- our expectations of that partnership and the kinds of commitments we would be willing to make. the president has also been very clear from the beginning that we do not seek any permanent bases in afghanistan, that we don't seek to have a presence that any other country in the region would see as a threat. that said, we are committed to the success of the afghans to continuing to build their capacity, and so we do envision if the afghans invite us to stay the use of joint facilities to continue training, advising, assisting the afghan national joint counter terrorism security forces, conducting operations and so forth. so we are in the process of discussing what kind of parameters should outline our

partnership. i should also add, it goes far beyond the military domain to look at how we can support further development of governance, economic development and so forth. >> well, again, i think it's very important to stay engaged in a region in which we have such vital interests, and i think the concept of joint basing, concept of providing enablers for afghan operations and so forth frankly similar to what we have done in iraq since the mission changed there would also be appropriate in afghanistan, again, depending on the circumstances, noting we have nearly four years to go until that time. >> i thank you both. i think the important points you made, obviously we will only stay in afghanistan after 2014 to the extent we are invited to do so by the afghan government,

and we determine we are able and want to do so, but i think, general, you point out very correctly that we have -- that we would do this not just for the afghans, but we also have security interests in the stability of afghanistan and in the region more generally. i thank you both very much. >> thank you, mr. chairman. let me identify with the remarks of senator lieberman about your service, general petraeus. i might also add that in the 17 years i've been on this committee, i don't recall a better opening statement, more comprehensive. >> i appreciate that very much. >> one thing hasn't been talked about, i thought you might have a comment to make briefly about what's happening now with the budget and about the crs, how that is affecting the military. >> well, thanks, senator. the fact is that the services

will do everything in their power to make sure that those on the frontlines are provided everything that is required, and they will do that even as they start to inflict pain on themselves. we've been through this before. i remember this, i think one of the years i was commander in iraq, the services did some very serious belt tightening, but they continued to provide the support to us out there. now, there does come a point, however, at which some of that pain has to be passed on where you just can't continue. and our assessment, again, strictly from an afghan perspective, not from the perspective of those here in the pentagon, but we sense somewhere in the june time frame, probably with that there would start to be a limiting factor. and that obviously would cause us enormous concern because the last thing that we want to have

to do is to halt our progress in an area that is so important to the ultimate transition of tasks. >> if i could add a comment on that, while we're on this topic, though, senator, that does have to do with the growth of the afghan national security forces. again, my job, of course, is to state requirements. i'm a battlefield commander, every level above me has a broader purview and broader considerations. of course the challenge with the growth of the afghan national security forces, the concern, is the issue of sustainability. so while it is clearly desirable from the perspective of the ministry of interior, defense, isaf and afghan leaders, there is an understandable concern about the sustainability of that over time and you all had quite a bit of dialogue with secretary gates on that. i think that's the discussion that has taken place here in washington with respect to that growth decision.

>> i appreciate that very much. >> i notice you made a request for additional $150 million in the sert program and that's been one of my favorite programs. you've spoken very favorably about it. i notice, though, when the special inspector general for iraq reconstruction, they had a report of it where they were somewhat critical. i would like your response to that. >> again, there was -- there were in some areas grounds to be critical about it. we have taken quite considerable steps to improve our oversight of this and a number of other programs, frankly. we have increased personnel who are in the business of tracking our contracting, overseeing the implementation of the various construction efforts and so on, and also monitoring sert. i established new procedures.

we have done more training of the sert individuals. we have, indeed, structured the program so now the average of these is entirely what i think the committee's intent was all along, roughly $17 million on average, this particular year. we have already done more projects this year than we did in the last fiscal year because, of course, of the increase of our troopers now on the ground, deployed, and they have gains that they want to solidify and build on with the help of this program. so that additional $150 million that we requested over the $400 million in regular sert is very important to us and that would be something that would cause a significant halt in some of the programs that we seek to capitalize on the very hard fought and costly gains of our troopers on the ground. we talked about this back during the iraqi thing, we went through the same thing. and, you know, i look at this, perhaps they're the same safe

guards in there, but there is so much more that can come by the immediate decisions to carry them through and those figures still stand. let me just mention on a much larger scale, we talk about train and equip, our figures have gone up from fiscal 10 to 12, 9, 11.8, $12.8 billion. i would say -- both of you have been very complimentary about the changes in this and the changes taking place with afghanistan. i was over there, spent new year's eve with the kids over there and took a long time at the kabul training center. and i was just really in shock at the attitude -- well, first of all, being on new year's eve, the attitude of our kids over there, just the spirits are high, they are -- they know what their mission is, they're dedicated, excited about it but in terms of watching the military train, it isn't all

that different from the training that takes place here. we have done a great job over there and i think that -- we should make comments about the successes we had in the training of the afghans. >> well, this is another area, senator, in which, again, it is only recently that we got the inputs right. key input in this regard was lieutenant general bill caldwell, commander out of ft. leavenworth, before taking this command, and he has guided this effort very impressively. the fact is that we have increased very substantially in every single area of the mission. the funding has, indeed, gone up because we're in the stages of building the infrastructure to allow the additional forces. buying the equipment for them. and we still do have fairly substantial numbers of contract trainers, but we're starting to bring those down as we replace

them both with nato, isaf trainers and increasingly afghan trainers because we have an afghan train the trainer program among all the other efforts. one of the most significant steps forward in this regard is in the literacy arena. and we have actually already had some 50 to 60,000 afghans go through literacy training and we have even more than that number in literacy training now. now, you may say that's a strange pursuit for a train and equip mission, but the fact is that one of the major challenges in afghanistan is human capacity because of the more than 80% illiteracy rate. and if a soldier can't read a serial number off a weapon, a policeman can't read a license plate on a car, needless to say that is mission limiting. and so we bit the bullet and decided that as part of basic training for the army and for the police that we would introduce basic literacy training along with it, without having to extend the courses, night program.

interestingly the afghans have really taken to this. not surprisingly many of them were quietly ashamed of not being able to read and write, they now get themselves to a first grade level, a functional level, and then we build on that in the subsequent noncommissioned officer training courses for the soldiers and police as well. this is a huge investment in afghanistan at large and a major investment in the afghan national security forces. but the same is true of a number of different areas. there are now 11 branch schools. the institutional side of this, building the leader development side, is beginning to take off. and we're starting now to build the so-called enabler forces. for a long time, we were basically training and equipping infantry battalions. but, of course, a force of infantry battalion is only as good as the military intelligence, the logistic support, the transportation, the maintenance and all these other, again, enablers, and so

that has been a key area of focus in the past year. >> we were able to randomly select some people and get their take on this thing. i understand the issue. thank you very much, mr. chairman. >> madam secretary, general petraeus, thank you very much. not only for your appearance today, but your extraordinary service to the nation. thank you very much. general petraeus, we are counterplaying a serious issue in terms of the budget, the department of defense budget. many have suggested that we have to move forward regardless of other aspects.

but integrated within your plan is a strong state department presence in afghanistan. and the state department request for funding, $2.2 billion, civilian personnel, economic activities, aid work, et cetera, how central and critical is this funding to your overall strategy it is not a military only campaign. as i noted, we have recently revamped the u.s. civil military campaign plan. this is a to that is the ability of a i to capt. lies on the hard

but the gains. -- to capitalize on the hard- fought gains. it is and not enough to clear and cold. it includes a local governments and economic revival. it includes improvements on basic services said that the afghan people see there is a better future by supporting the afghan government. it has to be seen as legitimate. legitimate government, and it has to be seen as legitimate, rather than a return to the repressive days of the taliban. and there are various areas in which the taliban can actually compete, conflict resolution is one of them, by the way. so, again, if the afghan government can't or doesn't provide thos basic services, then there will be a reversion to the taliban. however little the people have regard for the and they remember what it was like under the brutal rule of

the taliban. so this is very, very central to what it is that we're trying to do. >> thank you very much. and i'll ask both of you to comment on, we hear various comments emanating from kabul, the civilian leadership of the afghan government, from our nato allies about the strategy, the long-term commitments, et cetera. but what struck me along with senator levin is that the local level there seems to be much more traction with respect to local afghani leadersh and also there seems to be continuous improvement in the afghan security forces that gives a different perspective than listening to the announcements of the president or some of our allies. i wonder if both of you might comment on that and i'll just --

to what extent is one overwhelmed by the other to what extent one is a better sign of the reality on the ground than the other. and general petraeus and then secretary flournoy. >> local government has been growing and developing as has the development in other areas of basic service delivery. as ioted earlier, there is no question and president karzai and his minister of finance are the first to recognize it that at the budget level, execution has to be involved and they're determined to do that and they have plans to do that so that more money can be put on budget rather than being injected through what prident karzai understandably is concerned with, this term of parael institutions. certainly some things are said in kabul at times for domestic political reasons. i know that that never takes place in washington. >> never. >> but occasionally in kabul

that does take place. and beyond that, though, i think secretary gates made a good point the other day. i think before this committee, that sometimes we don't listen well enough to president karzai. we have -- he was understandably concerned for years about private security contractors, which he sees as the ultimate parallel institution under the control and in some cases former warlords or members of what he and we, by the way, have agreed to call criminal patronage networks, which he's very concerned about. and we had a long conversation just again the day before i left with general h.r. mcmast, speer focus the right attention on this very, very challenging element that can erode the very institutions to which we need to transition if, again, these are criminals, they're breaking the law, they have political protection in some respects, and they're not just acting as individuals. they are part of networks.

and president karzai sees these and he wants to deal with them. when he heard that evidence and his sueon general, for example, he fired him on the spot. in a subsequent previous briefing betwe an afghan parter and general mcmaster. he did the same with the afghan national military hospital, when he heard what they were doing and how derelict in their duty and frankly immoral in failing their moral obligation to their soldiers. so, again, i think at times we have to listen better. what he says is understandable about civilian casualties. we cannot harm the people that we are there to help protect. and we have to protect them fom all civilian casualties, not just those at our hands or those of our afghan partners, but those of the insurgents as well. so i think that's how you do have to look at this. and i do think that periodically we have got to think about walking a kilometer in his shoes and understanding the dynamics with which he has to deal.

the political foundation that he has to maintain because it is not -- though the executive has enormous power in that system, there are also significant checks and balances on it that may not be as apparent to individuals who haven't lived this the way some of us have there in kabul. >> madam secretary? >> senator, i would just add secretary gates also said this is a case where the closer you are to what's happening on the ground in afghanistan, the more positive you are about the ulmate outcome. because when you go to -- at the district level, very small changes can have huge impact. if you combine some basic secuty with a decent district police chief, a decent district governor, shura that is representative of the local population, you start to see the basis of transformation at the local level. and that is what we are seeing in many, many villages and

districts across particularly the south. and, youknow, i think -- i would totally agree with general petraeus' comments about president karzai. but i would also expand to say, look, we work with many, many afghan partners. and many extremely competent ministers who are committed to ghting corruption, who are committed to afghanistan's success. i'll just cite for you the new minister of interior, minister amadi, he has personally gone district by district. he's removed 66 corrupt police leaders. 2,00 officers, personally rooting out corruptionhere he finds it, holding leadership accountable. those -- each of those changes can have a pfound effect on the population in that locality and so ase see our afghan partners stepping up to take on

that accountability, the anti-corruption, the transparency, we are seeing -- starting to get real traction at the local level. >> thank you very much. thank you, mr. chairman. >> thank you, senator reed. we'll take a five-minute break. [captioning performed by

national captioning institute] [captions copyright national cable satellite corp. 2011] >> today timothy geithner talked about scaling back the role of government. it is next here on c-span. today the house passed a measure that would fund while cutting 600 ballots $7. tomorrow we will look at u.s. preparedness for a natural or man-made disaster. we will talk to lauretta sanchez who serves on the homeland security committee. then steve keen on the current budget debate in the temporary spending measure passed by the house. later, sharon of the center for international studies will give an update on japan's nuclear plants and discuss nuclear safety. "washington journal" each morning at 7:00 a.m. eastern.

live coverage of 9:30 a.m. eastern. this weekend on american history television, the organization of historians meeting. careless talk abut the rise and fall of leaders and energy. the deaths of 146 people, mostly young women in the safety and labor. the panel reflect on the terrorist attacks. for the complete we can schedule go to c-span.org/history.

>> government sponsored fannie mae reported $21.7 billion in losses for 2010. the obama administration unveiled a plan earlier to dissolve of fannie mae and freddie mac. they testified about the plan at the senate banking committee. this hearing is an hour and 55 minutes. >> call this hearing to other. i like to think you for coming before the committee to discuss this is ministrations paper. a -- administration's paper. i am -- issued an agenda that stated finance reform would be one of my top priorities. today's hearing provides us an

opportunity to start a long-term discussion with top administration officials about the future of housing policy. we are here today to get them to work on how our system should function. i want to emphasize that the purpose of this hearing is not about the housing crisis. nor do we visited every boat taken on this committee during the crisis. and we pushed them themselves.

they all contributed to the formation of the housing bubble. spite some persistent talking points. it included the views. they concluded that fannie mae and freddie mac did not cause the crisis by themselves. it was on wall street. the cuts they provide -- because they provided a backdrop, mortgages continued to be available. this is one of the most

important in the recession. today we account for more than 90% of the mortgages there. it is just one of the questions before the committee. it is one that we need to feed -- field. as we consider our options, do we want to preserve the availability? will a new structure provide

equal access to all qualified borrowers? should we have stable markets. it protects current homeowners and preserves the option of responsible homeownership. it is a variable starting point for this discussion. i like to recommend the staff for the work put into it. i look forward to your testimony.

>> thank you. last month the treasury department presented a report for ending the conservatorship of fannie mae and freddie mac and improving our housing finance his. during the debate -- debate, republicans insisted on dealing with the failed enterprises. the democrats confused -- refused to discuss it. they included a reporting requirement so that they cannot be accused of ignoring the issue. it is that report that we will be discussing here today. the joint report contained several positive items. it recognizes many of the failures of existing shropshires.

they were undercapitalized, poorly regulated, and took on excessive risks to maximize profits. they deny there is anything wrong. i'm pleased to see that the administration is beginning this debate. this is the place to start. it also concludes that it must be reformed. this is a goal i believe we must all embrace.

the report is not without it. given the vast resources, i believe the american people deserve a more thorough one. the report represents three options for long-term reform. subsequent statements suggest that the administration really only sees a third option which resembles the status quo as a viable path forward. it would have been helpful which items they believe should be included in a reform bill. should there be any reform of housing goals? should there be a minimum down payments? it is impossible to tell what

the priorities are at the moment. the report is focused on reforming them. each year, they spend billions of dollars on insuring that every one has access. they usually receive little scrutiny. this is an important part of this. i would think urge them to set

forth such a plan that provides for a comprehensive examination. they have a very difficult task. they provide the housing and interest groups means that real reform will face an uphill battle. millions were spent a lot bacon's reform. for far too long our housing system has been guarded. hopefully the collapse means that congress has an opportunity to enact reforms that will correct our past mistakes.

>> thank you. >> would other members like to make a very brief opening statement? >> yes. just a very brief statement. the dissenting he need to restructure. everyone has an equity and this issue of getting it right. a lot of the issues that you are dealing with you seen before.

there is no mechanism. today fannie mae and freddie mac did the entire market. we would have more serious consequences in the financial markets. we are wrestling with an issue that has come up repeatedly. how do we provide support for the housing market without risking taxpayers and the stability of the financial system? that is not an easy challenge. that is one must accept. looking back, it is many aspects of that bill. >> does anyone lie -- would

anyone else like to make a very brief statement? yes.s we have to walk before we can run. this crisis must be in our priorities. thank you for acknowledging debt problem in your testimony. policy matters. in 15as the bears' time years that we have not had more foreclosures than the year before. we have increased the number of foreclosures every year for 14 years. you know what that does to neighborhoods.

many suspended their foreclosure filings. 400,000 ohio once and still under water. you know what that means. i disagree with some of my colleagues to bring this on fair lending laws. unlike other states, the causes were not limited to subprime loans. they lost jobs because of washington policies. that includes trade agreements, a financial crisis problems. frankly, it is a biased one in support of the manufacturing. that is why senator reid fixes

the servicing model. it means funding for closure consequently -- continuously. these are high reward investments. it means providing constructive suggestions and not to improve the program. i have done this with advocates. to eliminate it is not the answer. all these things we need to look at. thank you. would anyone else like to make a brief statement? >> yes. only one will have the record statement. >> i will remind you that we will keep the record open for

additional statements and questions. >> neither one of the two witnesses have any sort of extensive introduction. we have the secretary of the treasury we have shaun donovan. you may proceed. >> thank you for giving us a chance to come. last month, they released a report outlining the proposed

reforms for the finance market. our plan was to create a system in which the government's role is limited to robust oversize in consumer protection. it is carefully designed for market stability in crisis response. private markets would be the primary source of mortgage credit and bear the borden -- burden for losses. they will be required to hold more capital to withstand future recessions end to adhere to more conservative underwriting standards. homeowners will hold more equity in their homes. the security markets will play a major role in housing finance the subjects to risk retention.

we propose a three part plan. we propose to wind it down fannie mae and freddie. as you know, private capital retreated and is not yet returned, leaving the government to lead nine out of 10 new mortgages today. that has been essential in helping bring the measures to the housing market and help ensure that the americans have continued access. it is not a long-term solution. we recommend using a combination of tools to wind it down over time. we also support a continued one down of investment portfolios. it to shrink the government's footprint. we are not going to get private capital to come back. unless we fix the remaining problems in the private mortgage

market. we will make the necessary reforms to provide better once fort them. this means helping consumers make informed decisions and providing them better protection. it reminds the securitization change. it means requiring banks to hold more capital including high-risk mortgages. there any better chance to stand this. it means addressing the chronic problems we see. our third objective is to be affordable rental housing options. it puts forward a number of

limited options. each to produce a market with a private sector role in providing mortgage credit. each has unique advantages that congress must consider. it to be financed by lenders and investors. this would limit the government's role and initiatives at the federal agency. the second option would be with the crisis to help provide it. in the third option, the government will provide this

backed by high quality mortgages. they will be guaranteed by regulated companies. private investors take the first lost. we considered alternative models. we do not recommend a complete privatization of the mortgage market with no role for providing access to affordable housing. no do we recommend the full nationalization option. the alternatives are between them there are a number of criteria you must use.

we encourage you to carefully used this. it provides mortgages to american families and communities limiting the risk of taxpayers. whenever pat you choose or require some tough decisions. although it will take time, we cannot put this off indefinitely believe there too much -- and leave too much uncertainty. two will make it hard to get private capital to return. each of the options would require legislation from the congress. we have to proceed with care at all of the know.

we have to add to the many burdens on the markets. thank you. >> thank you. >> i would like to focus on the administration's commitment to housing affordability. and how the administration must work together to make sure housing advances this. the obama administration has acted to help stabilize and provide critical support.

with help divert a deeper economic collapse and a more severe housing crisis. it provided access at the moment they are threatening to seize up. there is a the 18th 1 billion. they have received modifications since april 2009. that is more than twice the number of foreclosures completed. looking forward, the president believes an integral part of reforming it must be ensuring that americans have access to quality housing. we are committing to promoting predicated on state mortgages. it is significant strengthened under the law. every american with the desire to own a home should have the opportunity to take that step.

the contain support development and impunity developments. the question is how we provide those options pit the administration lays out four key principles. it will form the foundation. reforming and strengthening the fha. it remains an important participant in the market. that is why we will continue to ensure the income borrowers have access. as we have done, we will do so in a way that is held fully for the long-term finances. because of the reforms, thanks

to the committee's work, they received additional authority to raise premiums. we afford to looking with both chambers of congress to enact broader reforms. the bowlers the maximum loan. in considering any changes, there will balance the need to balance the need to the taxpayer. right now half of renters are more rigid spent more than 1/3 of their income on housing.

they prefer to invest and- development. they were able to assist this market segment without the losses that occurred. as we move forward, we must ensure that the capacity they built remains. one capacity -- one option could be to share risk with private lenders to support lending to the multifamily market. we could develop a dedicated programs but smaller properties in rural areas. they commit us to help ensure that capital is available to credit worried borrowers. there are characteristics of a

long. a key lesson we have drawn that the decision very clear the dress lending practices in the primary market. it is very real. the administration is fully committed to exploring other measures to make sure they are providing capital to all communities in ways that reflect activity in the private market consistent with their obligations of safety and soundness. support remained consistent and transparent funding. that was the goal of the trust fund that was authorized by congress in 2008. they will work with congress on developing a new dedicated financing mechanism to support affordable home ownership.

as we consider these options, one highlights affordability. this is the question. they allow them to build it. we should carefully consider the implications for pricing of the mortgages. it injured americans have access to credit for those in a position for sustainable home ownership, rental options, assistance for those who feel the strain of housing costs and choices and housing that makes sense for them. the more the american people can participate to expand, it will

provide every american. quite there have been reports that a large financial institutions are in underserved communities. how would each of the options would continue for americans in rural and underserved errol's and that small community banks and credit unions would have access to? >> that is a very important question. it is one of the elements that we highlight.

we have seen with the effects of the crisis is in the became consolidation to the point where the top five lenders today account for about 60% of all new mortgages. they consider it the community lenders to be able to continue to originate. they continue to provide that option. it is important to recognize that there is the potential for the lack of any guarantee va toe of fha and t hhe further increase consolidation in the market because of the requirement for substantially more capital.

this is an important element we should consider. >> it states that the need to have a plan to address mortgage finance. a dozen of provide much detail. what are your recommendations for a photo financing? >> there are forgotten aspects of this crisis. we have not seen multifamily

finance contribute substantially to their failure. in fact, they have continued to originate multifamily mortgages profitably. it first point to the need to look carefully. there is the broader mix of housing types and communities. there is the need for standardization. having a targeted guarantee as

we do in multifamily housing has been a significant contributor to improving the provision in the building a multi-family housing and the affordability of that housing over time. there are a number of ways we ought to keep that strong commitment to multifamily housing. one lesson we have learned is that we should be looking at risk sharing or other forms of insurance that would put more private capital in front of the guarantee that we provide. that is an option we suggest and if we look forward to. >> they agreed. they define it.

it appears to be the most challenging issue, the agency's take sufficient kind -- what the agencies take sufficient time. >> one of the great thing about our system is that they will put out a draft so that all parties will have a chance to provide it buys directly.

deep -- how do you get the incentives between the mortgages and servicers? that is just a draft. >> thank you. there on the mortgage settlement. have you been involved in establishing a settlement figure which has been reported as high as $30 billion? >> that is because they have a significant stake in the

performance of servicing by the lenders that originated. >> as elizabeth warren been participating in these discussions? >> who is the letter from? >> it is funny. >> make the latter part of the record? but absolutely. >> under the reform act, the consumer financial protection bureau does not currently have the authority to administer penalties and will therefore

not a party to any formal settlement. under that same law, it will obtain significant authority to set standards for the servicing industry on july 21, 2011, a date when the protections transferred to the bureau. for this reason, they have been invited to advise the other agencies that are part of this process and how to design standards for the mortgage servicing industry. >> she has been appalled in the process? >> -- involved in this process? >> yes, she has appeared she is in helping to design it. >> the draft one of service the

settlement. i believe it would be there. do you believe it is appropriate for the doral -- for federal regulators to outsource it to third-party? this is raise any safety and soundness concerns? >> that is an excellent question. they have been in that trap. we are trying to get all parties together and all the federal agencies to come together and bring about to help improve what is still broken.

all parties have a strong interest. we can bring more certainty to the mortgage market. we make sure that people who were so horrible get some assistance. >> with respect to the housing finance reform, what role do you believe third parties and such as community activist groups? >> i expect you want to hear from people who spend their days trying to help people caught up in this mess.

how likely to clarify your position. there are mortgage-backed securities. should they seas are be modified by it? >> in the report, the three options is suggested they focus on all involve some form of government guarantee. it is either just three the usda or three potential one of two other options. one is only available in the crisis for a limited guarantee. guarantees are perilous. government and not good at doing them. there are huge losses.

we are committed to avoiding that. with them very careful to say that any of these options were there. he can keep the politics out of the design. >> the packages at non this as well. it is not as the implicit or explicit nature of the guarantee. it is the pricing of the guarantee that is critical.

one of the key elements is that the guarantees at fannie mae and freddie mac because they were implicit were not set the race -- the right pricing level. that contributed to their lack of adequate reserves. in the case of fha, we have remained able to operate through the crisis without our reserves dropping below zero. they have dropped significantly. we have inexpressible a pay for a guarantee.

>> to believe the loan limit should be reduced beyond error levels? what figure and time frame would you target? >> we believe they should be allowed to a bird as current law would suggest. it can reduce the government regulation. >> if you have any confidence that the european bank stress test will provide any meaningful results? am i have a credibility problem.

>> it is very important that these things work. they have to come the clear commitment. it is not close enough to know if it will meet that. the markets did not always get the -- these things right. >> the context of this discussion about the global settlement -- and i think should come to the appropriate conclusion, there is the potential for numerous suits by

attorney general's in 25 and 30 states. there is the potential of bondholders with billions of dollars of value at risk. this would have a very big effect on the market place. is that accurate? >> it is very important. it would help resolve the process. it should give this a better chance to move less beyond this.

it is very important that we try to bring this as quickly as we can. they have a strong stake in doing that. >> many of these allegations will take several cases about liability. it could have a very significant impact on the market. they can more robustly contribute to it. >> that is right. it will help provide police a measure of certainty with respect to the government.

one of the ones that would result as well, we have made clear insuring that we have cleared consistent standards is an important element of our recommendation. one reason we ended up in this crisis is that there were no strong consistent standards. it will be of standards from individuals with various state or agencies. haveany homeowners waiting not been offered the options they had and that ended in foreclosure, they were not

contacted as they were required by requirements. we of not only hurt them billing and potentially the foreclosure process. a significant part of what we are aiming for is to speed up the process and make it better. when a home or -- when a homeowner has to do this, it is good for no one in the process. it is important that the standards that established in a single concerted way rather than in a fragmented way. >> one of the inside in looking back, it could be more obvious as a i think the regulators were upsets with homeownership in

terms of that is the primary housing policy. the multifamily was sort of a second part. this report says they really have to have a balance. the the best form of housing for them as affordable, decent rental housing. our goal should be providing people the option so they can perform the best housing for their family, their proximity to work, their lifestyle. i am glad you commented on this, the trust fund. it is devoted to trying to build and construct affordable housing for relatively low and, americans. -- low income americans. i was wondering if you could comment on this aspect of the

report. >> in terms of what has happened, we have seen rents come down. on the lower end of the market, even some moderate income renters, it has actually increased. we saw the single greatest increase in housing needs. affordable housing has not been strong enough to meet those needs.

a much more targeted, transparent way of meeting those needs we think it would be -- protecting against some of the negative impacts that the goals had. >> thank you, mr. chairman. thank you both for being here. know that the administration has laid out three options. i am one of those folks that believes in that the administration works best when we lay out something clear. over the last several years, 535 folks have tried to craft something on their island with no supervision. -- own with no supervision.

which of the 3 d like the most? >> i will disappoint you in not answering that correct -- directly. it is likely we will do this, but we have to consult with the colleagues. after further exploration of these options, i think it makes sense for us to tell you what makes sense. what is the best mix and what is the best alternative. >> i expect we will take that step. >> people comment on it. you keep three programs from low to moderate targeting as you

talk about it. if we can price risk effectively, is there any need for government involvement in this kind of self predicting -- if you can price risk for option two and three appropriately, there would never need to be involvement in the first place. >> the two classic arguments people make our first the affordable access argument, and second, in terms of how the economy can best weather recessions. they are slightly different arguments. we are suggesting that the government limits its role. even in that option, you can have them and dramatically expand what it does in a crisis, providing some

protection against a deep recession. you're going to be left with a lot of exposure to risk. they provide some guarantees with mortgages. i guess my suggestion, senator, look very carefully at the impact you have on concentration in the industry, and think about what the ultimate exposure to the taxpayer is. how much subsidy you have to protect the economy but you might see in the future crisis. look at the moral hazard risk, and remember that in any guarantee, you make sure you separate it from political influence and other people, however noble their objectives are, so you can design in. -- it. >> if you have the ability to price risk appropriately.

wheat belt, because you don't know when that issue is going to occur, you don't need the federal government in the first place. let me go to fannie and freddie. all of the options say that fannie and freddie and. right now, they are under conservatorship. what caused them to -- cause them to end? who owns them today? >> the fhha owns those responsibilities and judgments. they said they would be recreated in a somewhat different form, recapitalized and privatize. we don't believe is an essential pass for the government to take path for an essential

the government to take. >> what time frame will it end? >> it depends, but i think that our sense is that a realistic expectation is that this is a five-seven year period of time. >> how do we benefit from the numbers of databases and other kinds of things that have value? there are legacy loans that have value. how do we make sure that the federal government benefits from that value? >> there are a lot of systems and a lot of intellectual property. there are a variety of ways to make sure that the government recognizes the benefits. a very important question. >> i notice my time is up, and i

might ask one more question. on the debt issue, this is off- subject. we have had a number of regulators talking about how it was such a narrow situation. it really didn't price of the interchange rate appropriately. >> you did not give me the authority under the law to resolve this. i know that the fed has a lot of advice and they are looking carefully at how to deal with. but it is not my authority. >> where they sit at 20%, is that something you support? >> and there is a draft working its way through the system now. i believe that there is a very strong case as we build this new system, most homeowners hold

more equity against the value of their house and we should look at a way to achieve that in a careful and balanced way. >> what is the timeframe that we should pass reform for housing? >> the objective should be in the next two years. it will be hard for people to come and take risks in the interim. >> i will try to do it in the next two years. >> thank you, mr. chairman. i did not make a brief opening statement. there are some people that try to lay the entire blame of the financial crisis at fannie and freddie's feet. it is ideological as opposed to looking at the facts. it is hard to pin exclusively or

even predominantly the blame on fannie and freddie. there are facts that can't be explained away by fannie and freddie. first, the housing bubble was international. it was in ireland, there are no fanny or freddies there. they were losing market share to private label securitization. there was a bubble and bust of the commercial real estate as well as residential. no fannie and freddie loans and commercial. it is ideologically driven. i will leave it at that.

we have to get capital backed housing finance and sooner rather than later. the have not caught on in the west. there is a bill i am considering introducing in the senate and by representatives garrett and bologna. -- maloney. you are willing to work with congress. what do you think of the legislation that garrett and maloney have put in? it could put the deposit insurance fund at some increased risk.

and so, do cover bonds put the taxpayer at risk. >> we have a financial structure that is basically the functional equivalent. the questions that you raise about the fbi c r a omaha -- fdic are legitimate concerns. it is something we can work through. >> it depends how the law defines it.

>> that is why i want to get involved. >> to add to secretary geithner's point, it is important that we create that point in the system. it is important to point out as well, given that the obligations are the second-largest securities market in the world. there is no precedent for cover the bonds has broad and deep. as some have suggested, is not a silver bullet for what ever replacement. >> you think we ought to explore it. >> final question for secretary geithner. it is about japan.

they are the second-largest creditor after china. you think there is any risk that in order to respond to the disaster and report -- that they will have to reserve to selling some of their treasury holdings to raise cash? does this have any impact on treasury prices in u.s. interest rates? >> we should all extend our thoughts and concerns. it is an extraordinary challenge for them. it is a very high savings rates. there is not only the humanitarian challenge, but the construction challenges. >> thank you for joining us today.

short of overall reform, what steps could you take today short of the two-year. -- two-year period. >> there are things that we can do to help gradually phase out the government's role. the way, there is clarity. better disclosure requirements, things like that. those conditions are very important. we think we can begin the process right now. >> that would be an administrative action compared to a congressional action? >> there are several reforms we have laid out to winding down the government's role.

most of those things we can do with the authority that the congress has already given the executive branch. >> a number of letters that we have already begun to take action on as well, fha has grown from 10% to 15% to close to 30% to over 50%. with the authorities, we announced an increase in the premiums that in addition to helping rebuild our reserves, we can help begin to step back our role. i will also talk about the conversations we had about what

limits we might want to pursue. those are a number of other steps we have begun to take. >> and they continue to talk to me about the regulatory environment in which they operate. particularly, and small community banks. they say they are no longer making real-estate loans as a result of the concern over the regulatory and examination environment. it is a very sad day for america in general when your home town banker is not willing or capable of making home loans. are both of you aware of those concerns? are there steps to dissuade the bankers from having that concern or to reduce the reasons they do have the concern? >> we hear this from banks across the country. part of this, in some sense, the natural consequence of the natural response of regulators

who are, in some sense, a little too -- how should i say -- loose in the boom. they overcorrect. banks report a lot of concern. the supervisors in the country, and they have an issue of guidance with examiners and clarifications about treatment of real estate loans. i know that chairman bernanke and john walsh are aware of this. they're looking for ways to make sure that the examiner is bringing the appropriate degree of balance. >> another point i would make, one of the consequences we have seen it through this crisis has been an increasing concentration of lending.

the top five banks account for 60% of all origination. i have heard very directly from fha approved directors that fha's presence along with va and usda is absolutely critical to make sure they can continue to be a source of safe and affordable home loans. one of the points that we make in the report, option one would be that we have more concentration in less availability to be able to continue lending. >> let me ask a broader question. as you all are aware, the topic of conversation in the discussion, the point that the congress and the administration is in deals with the fiscal

house of the united states. in my view, we are bankrupt or nearly bankrupt and physically. there is a tendency to see this as a typical republican versus democrat, liberal versus conservative. in my view, there are significant consequences to the standard of living, interest rates, and if we continue to have a goal of home ownership, there is a significant consequence to the failure of congress with rising interest rates. i would like your reaction to tell americans, the outcome of the debate in the votes that occured in the house and senate have direct consequences on our countries and the citizen's ability to enjoy a higher standard of living enjoyed homeownership.

am i missing something in the magnitude of what we face today? >> it is a bipartisan imperative to put in place long-term reforms. we have to do that in a way that doesn't hurt the recovery or that are critical to our capacity to grow as a country. they will be in jeopardy, short- term and long-term if we can't find a way to lock in reforms, not least because of the potential risk qc of higher interest rates in the future. generally not just making home ownership more expensive. >> within the direct area of housing finance, the important steps have been taken to improve their lending. it has begun not only to improve the housing crisis more

broadly, but also to allow them to make good on their commitments to repave the american taxpayer through the agreements we have with treasury? and we will continue with the taxpayer this year because of the improvements that we made in risk-management. these are critical areas where we can get our own fiscal house in order by responsibly managing again on a bipartisan basis. he has consistently said that we have to improve the performance of government. that is an important part of getting our fiscal house in order. >> [inaudible]

[inaudible] >> could you turn on your microphone? >> of the government says the mortgages will be viewed for purposes of capital standards. how would you expect mortgages and mortgage related security to be viewed for adequacy standards in the administration's report?

>> my own view is that you require banks to hold against risk, i would not alter them based on the options that congress ultimately comes to. because of the simple proposition that when mortgage rates fall, they are required to hold more capital against those risks. this standard should apply regardless of what the congress chooses. >> of what you believe the comparative costs to consumers will be under these plans? >> under any of these plans, it is important to recognize that the cost of mortgages will rise, moderately i believe. any reasonable person looking at those options will conclude --

it will be higher in option one , less high in three. >> it will be critical here. how we set those standards, secretary geithner said qrm will be a critical part of how we set those standards. we should continue to have that discussion of how we set the standards to ensure adequate capital. it would put fixed rate financing out of reach for most consumers. >> not what will the impact be for those that hold a mortgage related securities? would the banks be required to

hold comparatively. >> there will be a level playing field across in the institutions. the design of these standards, the objective is to make sure that banks in the united states are required to hold the same level against risk. you want there to be a level playing field. and that is a challenge to achieve in practice, but it is important that we try to do that. >> we have been talking about there have been calls for a down payment as much as 20%, middle- class families are not able to satisfy that down payment requirement. single-family homes cost $170,000.

it was approximately $55,000. it would seem that under such circumstances, if the family earned the income, it would take them a great deal of time to put towards a home. when you consider emphasis where the family has and reimbursed medical expenses, several children, how do we help ensure that families that fit this middle class definition and this profile could ultimately obtain a home? >> first of all, as a bedrock principle, this is one of the reasons we focused on having fha and moderate income borrowers. that is important to make sure that that continues.

a clear commitment through a dedicated transparent stream of funding that would allow us to continue to support downpayment assistance, when they can achieve, ship to be able to buy a home that they can afford to remain a homeowner in a sustainable way. there are implications beyond those principles that we lay out in any of the options, we need to look at the differences particularly around the availability and the pricing of the 30-year mortgage in those different options. there clearly would be less availability on a fixed rate of 30-year mortgage. >> i agree with what the secretary said. it is not just the impact on the homeowner. thousands of small businesses

started because people were able to borrow against the value of their home. we don't know where the right balance is. it is important to recognize that whatever we do, it is important that we get the incentive is better for people to hold more equity in their house over time. for the bulk of the mortgage market, you want the system to rely on equity pushing. not just banks, but homeowners. we have lots of ways, we tried a make sure that we give other people some help to buy that first come. i think we can get a better balance than we have in the current system. >> the financial structure, the interest rate costs, it impacts that greatly. that greatly.