bureaucracy in washington, d.c. you could save billions if you would do it. now, where would these functions go? education works best with choice and competition. and that comes from the states. so you could have congress in your budget, have a certain amount of money that would flow to the states to encourage choice and competition like charter schools, public charter schools. we -- but you wouldn't need a department of education to do that. . i need an energy policy. my speech when i'm sworn into office as president would include the statement that we will be energy independent by the end of this decade. i remember john kennedy talking early in his term about by the end of this decade sending a man to the moon and back again safely. i can remember how that made me

feel. but yet with all due respect every president since richard nixon has been talking about being energy independent. they have all tried. they all failed where do you succeed? guest: will i have a plan. i tell you right now what it includes. right now we take -- it includes three points again t includes mexico and canada as part -- i call it domestic energy. we don't have to ship oil a long way. it's right next door. so that north american plate will be our domestic base. number two, we import about 15% of our oil and energy needs from the middle east and similar nations. i would ratchet that down using tariffs to make it priced out-of-sight and produce that amount of energy domestically. it would include nuclear under the new technology, japan was 37

years old and 39 years old. we have to be careful. but i see nuclear as 20% to 25%. it's right at 20% now. i see it as high as 25%. i see natural gas going from 20% where it is now, a little bit less than that, to about 40%. we have plenty of natural gas in this country. i see drilling for oil with the new technology, the gulf of mexico, we got one accident in 70 years. we have learned a lot from it. we need to let the states chime in. and if they give us the chance to drill, let's drill on and offshore there. we need alternative energy. my key is shting -- shutting out the foreign oil. we are addicted to middle eastern oil, steve. it kills our foreign policy. it costs us money. we send marines on oil duty. we need an energy policy, and i plan to propose an exact energy policy that when combined with

canada and mexico will leave us energy free by the end of this decade and no president, democrat, republican, have ever proposed that before. host: the issue of money. you supported presidents reagan, bush, and bush. they placed on the supreme court jstisses who supported in a 5-4 decision the citizens united decision which is critics would say it opens a floodgates of money. supporters saying free speech. with that case in this election and your effort to try to raise money in $100 increments, you are going to be facing a lot of competition from outside forces who may be against you. guest: it doesn't bother me. big money never wins. in the long run big money does not win because the american people are not dumb. the american people know that when you want to get something in a tax bill, you have to pay money. the average company or person does not have the money to match

the big boys. we got to change the system. i'm not running against a man early on, i'm running against the system. long before the supreme court ruling 5-4, steve, this place was in trouble. you know what congress does with half their time? they raise money. there are fundraisers, it has to be a monday. i'm in washington for a few hours. i guarantee i can go to a fundraiser if i wanted to. and by the next day, senior citizens, congressmen, who want to retire, are hiring out as lobbyists. this place is bought and sold. the game is fixed. the game is rigged. that's why g.e. can get their special code in the tax code. that's why when president reagan proposed a research and development tax credit back in 1981-1982 and it was great idea, we boll weevil supported it, and the democrats were reluctant, tip o'neill told me, buddy, how

do you know it works? we came up with a suggestion. let's try it for two or three years. and if you like -- if we show that it works, that it creates jobs and makes america more competitive, then we'll make it permanent. ok. the democrats let it pass. it was wonderful. it's still on the books, by the way, you know it's never made permanent. do you know, steve, it's one and two years at a time. you know why? they raise money with it. they go back to corporate america and they say, well, you know, this r&d credit is a good idea. it's helped america. but we need to pass it again. please give to my campaign. and, steve, they don't give $2,500. that's what you think the law s they give a heck of a lot more. they give speaker fees, they used to, for large amounts of money. they get p.a.c. money where there is no limit on giving. they give to the party,

$100,000, $50,000. this town is bought and sold and i'm not pointing at just my party, the republican party, i'll start there. it's the democratic party writ large. president obama ran for the presidency with a lot of people giving him hope, because you know what he ran against? the special interest money. john mccain, one of the finest men i have known, and impinge his -- impugn his integrity talking about being in washington too long and being part of a corrupt system. well, guess what, president obama, you're the same way. writ large. you have talkin more money as president -- taken more money as president than the history of anybody that's ever held the office. you did health care without tort reform. you did health care without pharmaceutical reform. you did health care without insurance companies. i bet you didn't even know,

steve, that insurance companies are not under the sherman antitrust act. they don't even have to compete. who wrote that? washington, d.c. because that's where they get their money. look, there's a lot right with america. and i love it. but the money has it by the throat. and even men who wanted change can't do it. i figured the whole shot i have, steve, is to limit it to $100. and get one out of 100 americans to join me. we can do this. raise $300 million of clean, simple, small gifts and turn this system around. i would start with the congress after i'm elected. i would meet with their leaders and say, this can be done. look at what i did. let's change the law. let's make it actually correct. but let's have some definition of how we are going to run elections and the money. our forefathers never thought it

would be this way. we need to take it back again. >> yet every presidential candidate runs on change. let me give you one example. george bush talking about changing the tone of washington in 2000. we sat down with him before he left office and said, we failed in that area. how do you succeed in changing the tone in washington where past presidents have admitted it didn't work out? >> you're right. but no one's ever run on the money. since theodore roosevelt, 100 years ago, who asked this question, is the republican party going to be the party of plain people or the party of privilege? 1911. 100 years. i'm running on the money. all these other problems need to be addressed. energy independence, spending that's out of control, taxes that need reform, small business that need to be put first on our

list. global trade that is unfair. and needs to be changed. i'm into it. but you can't do it unless you separate yourself from the money. and it makes people uncomfortable, steve t. makes people say, well, i wonder if buddy's serious. i'm deadly serious. if you don't change the money, steve, you'll end up being like george w. bush, a good man but who didn't get it done. you'll end up bike barack obama, pretty speeches but nothing changes. i'm going to start with the one thing that will change everything. the money in politics. watch it happen. >> who is buddy roemer, how did you get interested in politics, and why did you first run for congress? >> i claim my father for everything. i grew up on a farm. my dad and mom are still alive. they are 88, 89. where do they live? >> they live in north louisiana, about 10 miles from bosier city,

where i went to high school. graduated in 1960 with great group of classmen, about 250 people in my high school class. most are still buddies of mine today and i won't mention jerry payne or frank or all the guys, but i grew up on that cotton farm. i worked. my mother and father taught me the value of work. i have worked hard all my life. i went off to college at 16. came back to the farm and helped run it. went back to college at 19 and 20, and then came back and started forming banks and other companies that i do. i got interested in politics which is what your question was at an early age. my mother and father taught us that no politician had all the answers. my mother and father taught us that no politician was perfect. my mother and father taught us that the only safeguard we have

in this representative democracy is to keep checking on our politicians. so they urged us to get involved. i volunteered working for political school board and other things. i never ran for office for a long time. i ran for the convention, we rewrote the state constitution. the delegates were elected, 105 of them. i was one of the few not lawyers. then i ran for congress in 1978, lost. our incumbent congressman had retired. about 15 people ran. i had never run for office on a big scale like that. i finished third. i ran again two years later and i was lucky enough to beat the guy who had beaten me. i was the only democrat to beat a democrat in the general election in 1980. louisiana has open laws where everybody runs together regardless of their party. so that's what got me interested in politics.

kind of a family interest. we were conservative in our money. we were fairly liberal in our civil rights. we -- in the deep south we were rare like that, quite frankly, with my father receiving some cross burnings and turmoil in his life. but our family believes that people should be judged by their character. i ran for office that way. as a conservative. i hold those views today. i was proud to change parties. i think i was the only governor to ever change parties while he served in office. and although it ended up in a train wreck for me, i was glad to do it. i thought it was the right thing to do. i like politics. i don't want my absence from politics to be mistaken. it wasn't that i didn't care. i pay my taxes every year, proud to do it. i help others who run for

office. but this time it seemed different to me. this time i was most disappointed in president obama. this time i felt the country was like a tsunami had hit washington. and 80% of the people didn't -- 8% of the people didn't have work. and another 3% or 4% quit looking. and another 10%, 15% were working at half pay. there were no new jobs being created. i said this is time for a businessman. this is time for somebody with a plan. but most important i thought this was time for somebody who either had the courage or the stupidity to stand against the big money. who i went to school with. i went to harvard undergraduate. i went to the harvard business school. i know these guys. they are not evil people. they are just looking after them selves. -- themselves. and they control washington.

they laugh about it, steve. they laugh about it. well, i'm going to ask them to quit laughing. i'm going to ask them to be americans. and support me or somebody better than me. if you can find somebody who has a plan and will get these things done and treat the lowest man as a valuable resource, then vote for him. if you can't, vote for me. >> i'm not sure if you saw this but politico in describing your candidacy, said that huey long needs jerry brown. >> i don't know what that means. it's political could he. these guys are -- it's politico, it's rough. i did know jerry brown. i didn't know huey long. i'm a small business man. i'm an american. i believe in america. i am -- i have gotten to be this way until my fear of and disdain

for the system. the system takes good women and men and it doesn't let them do their job. they have to be raising money. it takes good men and women and it won't let them lead because they get knocked down. i have within whipped a few times myself by special interest money. i have seen it. there was a guy in my state as you probably know if you have done your research who spent a couple million of his money because i had shut his business down fair and square. because it was polluting the air and water bigtime. he's taken his life's mission to beat me any time i try to do something. that happens. i want my politicians to be unafraid of that.

it's time to rebuild the nation, steve. so that's why at the age of 67 retired from politics, successful in business, alive and well, i have decided to try to make this a race not for the presidency but for rebuilding america. changing the corrupt part of our system. let me use the word corrupt, i have been careful not to use it much because people think i'm talking about a person. i'm not. although there are a few corrupt people. i'm talking about a system, a system where we don't have the lowest tax rate on earth. a system where people of fabulous wealth don't have to pay their part. a system where the middle class of which i'm a member are going to end up paying much larger

taxes if we keep on what we are doing now. and have all their spirit killed. this country used to produce two million and three million and four million jobs a year. in the last 12 years it's produced zero. and it's the system that does it. it's the system that makes things too complicated and makes the real goings on in washington, steve, something that c-span can't cover. you're never invited into the caucus. not one time. you're never invited where the boys do the deals. i have been there. i'm the only guy running for president who's been a congressman eight years and a governor full-time just like mitt romney, four. and build my own company. i know this game. and it's not worth playing. we need to change it.

>> a couple of personal questions. are you religious? >> i am a religious guy, more than i used to be. you'll find as you get older, steve, you begin to settle down. i got married at 19 and divorced 10 years later. i got married a couple years after that. divorced 16 years later. i have had my ups and downs. but my parents were always people of faith. methodist. and i have over the last 10, 15 years become a regular church goer. with my faith in the lord. i'm still fiercely independent soul and i'm a center, i'm sure. but i have a deep religious feeling. >> what were those experiences of divorces like for you personally? >> painful. it probably takes two to have a divorce. but i hold myself responsible.

i lost my focus. there was no scandal involved. but i was involved. i have been lucky with my three children, two from my first marriage, one from my second. we are very close. i helped raise them. and their mother did, too. we made that an agreement in our divorce. and my two former wives have honored, they are wonderful people. i got remarried about 10 years ago. i never thought i would. because it crushed me. my second divorce particularly. i mean a first divorce is bad enough. but a second one. i mean i was governor when it happened. i mean i cried like a baby. i was like the speaker of the house and i say that with a smile on, but it crushed me. and i had to rebuild my life. it took me almost a dozen years

before i met the piano player in my church, she has two degrees from l.s.u. in piano performance. she's also a registered nurse. so she makes a living in the family while i'm out running for president. she's my best friend. we have been married 10 years. i'm very fortunate. we have no children as i said. we have a couple of dogs and three parakeets and a goldfish died in december. that's the only bad news in my family. two of my three children live in baton rouge as do i. one of them works for me in the bank. he's his own man. private banker. his name is dakota. my oldest son is name chazz. he's elected to the state board of education. and my daughter i'm most proud of, her name is caroline, she's in her mid 40's now, she's going to hate me for saying that, she's just had a son two years

ago. owen, my third grandson. she lives in new orleans. and she runs the private organization, the executive committee for charter schools, public charter schools in louisiana. they have about 80 or 90 or 100 charter schools. one of the biggest in the country. my daughter caroline runs that. given all my train wrecks of marriage, i've learned. i'm trying it again. 10 years. i'm not a short hitter on these things, but i love my wife and she is so generous with me. she lets me be buddy. but expects me to be there when it's important. and we have worked that out. >> how did you get buddy? >> anybody named charles elson roemer iii and you ride the school bus 14 miles to high school, better have another name

than charles elson roemer iii. so it was butch. of course here i was this skinny 80-pound junior in high school named butch. and some girl, who shall go nameless, thought that was not a dignified name for me and i ought to have a much more dignified game. i said what's that? they said buddy. so i became buddy roamer in high school. >> what do your kids think about this potential bid? what about your wife? >> scarlett is afraid. she's honest in her fear. but she thinks america needs a dose of me. that we need to deal with our subject matter. honestly and openly and give people the impression that they won't be left behind. i went to iowa with the other candidates, i think c-span covered part of it. and i was the only one there that said ethanol subsidies need

to be removed. as do all subsidies. oil's at $180 a barrel and we need subsidies? give me a break. scarlett likes that about me. but she has trepidation. she's never run for office. you have never interviewed her yet. she's scared to death of that. get her behind a piano and you'll love it. that's all she wants to say. but she is encouraged to me to take a look. my kids are -- have been through politics before. they live with me when i was governor after my divorce and afterwards, even. they have seen me in politics and their fear is that i won't relax and have fun. they don't want to lose their daddy. that's their fear if i can say it that way. but they like the issues. they say they would be proud to have me as president and would

testify on my behalf if it came to that. >> let's take the money aside because you have talked about that. how do you win this thing? what's your strategy? i'm going to concentrate on the iowa, new hampshire, south carolina trio in some form. i leave this interview and go to new hampshire for a week on the ground. i just finished a week in something sfpblgt ail run like i'm running for governor of new hampshire. no fear, i'm not running for governor, but small cities, city clubs, personal friends, guy i went to college with, community bankers, republicans who share my views, tea partiers who would like to take it to the next step, independents who think we

need to pull together. i'll do that in new hampshire. i'll do that in south carolina. and i'll do that in iowa. my expiration is two or three things. one, can i learn to ride the bicycle again? it's been 20 years. politics is much faster now. in fact, the speed of politics is what enables me to think about doing this. the internet is my friend. growing my bank to 2/3 of a billion in five years. we have really used the internet -- i'm doing the same thing in my campaign. as i told you after a couple of weeks of my $100 limit, i have contributions from 37 different states. and i have only been to three. so my words go much further than they used to. so the heart of my political strategy is to emphasize the

money with the phrase, free to lead a rising nation. use the internet, those who believe as i do and come together with a critical mass. it will take a while. i won't lead any polls. in fact the first poll i show up on will be victory. that's the way i ran nor governor. i was -- for governor. i was 6th place for one year. i went from 1% to 6% and i knew i was going to win at 6%. i've got to reach a critical mass here. don't judge roemer by the mitt romney for newt gingrich or other standards. they all have p.a.c.'s and planes and big staff and big payroll, no. that's what's wrong with the government. and i don't think you can be a president running one way and then surfing another.

>> you need a staff to run a campaign. >> you do. and right now i have two barely paid staffers and about six volume staff members who are helping me organization this. i have good minds. i'm not ready to give you my laundry list but it's very good. i go too college campuses. i recruit young people. i go to business communities. i'll recruit executives who are nonwall street but know how to grow jobs. i go particularly to small businesses. i'm a small business guy. i'll tell you a fact. two out of every three new jobs created in america the last 35 years were from small businesses. the white house had a big economic summit a couple months ago, there wasn't a small business man invited. the "wall street journal" has their andual c.e.o., there is

not a small business man there. no wonder when he don't know what's happening in the world. i'm getting small businesspeople, mom and pop businesses involved in my campaign. that's the way i'm going to build it. >> you talk about the compace of the campaign. how's your health? you have had a couple of issues including heart surgery. >> let me tell you my health. i'm 67. i weigh 151 pounds. i'm in good shape. i'm an exerciser. i'm a pushup guy. try to do my age, that's 67. oh, lord, somebody in new hampshire something -- is going to ask me to do it. i had open heart surgery 5 1/2 years ago. i don't remember the date. june 21, 2005. right before katrina. i'm a diabetic. and after 40 years of diabetes, open heart surgery's often required, hi five valve replacements -- i had five valve replacements, atery

replacements. before i announced my exploratory committee for the first time i went for a full battery of tests with my doctors in baton rouge. we did a nuclear stress it's. i never had that -- stress test. i never had that done before. he said perfect. he said perfect running order. he said i don't know about your mind, but your body's in good shape. that's what i wanted my doctor to tell me. i was not a teenager when i became a diabetic, but i was in my 20's. it was then called juvenile diabetes, anything before 30. they have changed some of the language now. but i'm an insulin dependent diabetic. i'm wearing an insulin pump which allows me to run for president. i thought about this for 20 years. making money has gotten worse and worse so my thoughts have gotten angrier an angrier but i couldn't run before because i didn't have a diabetic pump. governor was ok although i had moments of high and low blood

sugar, but i'm here to tell every diabetic, smile. you are looking at me. i'm doing this thing. and the pump, the new technology is making it possible. >> last question, do you size up this republican, you mentioned some of the names, mitt romney and newt gingrich, what are your thoughts? how do you size up your potential competitors? >> good people. i like them. but nobody's taking on the real issue. the president can't balance the budget. he can lead. the president can't rewrite the tax code. he can lead. you need a president free to do those things. the issue is the money. the issue is we have taken the greatest nation on earth, a representative democracy, and i have a question for you, who are they representing?

washington's boomtown and the tax code is burdened with special gifts for a few. we'll take our country back. and that means from a corrupt political system. and when we do, i make a prediction, i won't get my way on everything as our leader for four years, but we'll change so many things, steve, that you'll have an interview with me in about two years and say, wow. it is possible. you can't change it the old way because we'll have to match them dollar for dollar. bad idea for bad idea. but the new way, plain people with a number of small, clean contributions, america's best days are coming. >> buddy roemer, thank you for your time. >> thank you.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> the u.s. house gets down to business today in about a half-hour. legislative work includes two bills, including one extending the commission that's planning the ronl reagan centennial celebration. federal spending and budget debate later this week. as a matter of fact the news is that votes on those -- that legislation for 2011 likely on thursday. we'll have live house coverage here at 2:00 p.m. today on c-span. >> a new months ago i was able to sign a tax cut for american families because both parties worked through their differences and found common ground. now the same cooperation has made it possible for us to move forward with the biggest annual spending cut in history. >> watch all the event from the current spending debate and the debate about next year's budget as well from capitol hill and the house and senate floor to the house and around washington.

online with the c-span video library. search, watch, clip, and share with everything we have covered since 1987. it's what you want when you want. >> this afternoon e.p.a. administrator lisa jackson testifies before the senate environment and public works committee on lessons the u.s. can learn from the japanese nuclear plant crisis. one month after the earthquake and subsequent tsunami. she's joined by the chairman of the u.s. nuclear regulatory commission. that hearing's live today at 2:45 on c-span3. tonight live coverage after debate between canadian conservative party leader, steven harper, and threat other major party leaders. the first debate of the campaign with poyland -- polling day in that country set for may 2. a no confidence vote was passed by the opposition party. you can see that debate live from ottawa today, 7:00 p.m. eastern. that's also on c-span3. house republican leaders are delaying a vote on the fiscal

2011 bill by a day to allow members to read the legislation. this morning we talked about the 2011 budget deal, also the 2012 budget and president obama's upcoming deficit cutting plan speech which is set for tomorrow. earl blumenauer of oregon joined us on this morning's "washington journal." what are your thoughts moving -- garding the budget? guest: people are peeling away the layers of the onion. what was once a bold revolutionary idea -- is will have a larger deficit in 10 years and if congress just went

home and did not do anything. there is nothing rolutionary or bold about little money for poor people. now it is a voucher for health care to the insurance companies instead of the insured. a voucher none the same. it will raise health-care costs in this country. the most fascinating piece is after a hearing, republicans campaigned against slashes to medicare. they take all of those savings to pay for the tax cuts. they go far beyond anything here fortuitous 30 americans -- for millions of americans.

i hope people will see what is inside of it. host: how do they treat entitlement? guest: the main entitlement that has been changed deals with the entitlement for senior citizens to be guaranteed health care in old age. now they are not entitled to the benefits that they have in medicare, unless they are already within the 55 or older -- t younger people will not have an entitlement. the private insurance market did not want to ensure both people, because they were not employable in most cases. they were older and sicker. now they rely on the private market to care for older americans. they admit tt they will reduce the value of this culture overtime. it shatters that entitlement. the partnership that the federal

government has had -- elderly, disabled -- by eliminating that partnership and turning it into a block grant that will be ratcheted down. the states are basically on their own. when they look at what is happening in the states around the country, the elderly, poor, disabled, will soon be their own. host: what will the president proposed this week on his thoughts of how to handle the budget? guest: he has made clear that his approach would be more balanced like the deficit reduction committee and virtually all independent experts. he agrees that it needs toe a balance of revenue and reductions and some spending. his administration has proposed some cuts in defense. they have been open to change

agricultural programs. bear in mind that the president and the democrats in the last congress already engineered a massive change in reducing entitlement costs with the affordable care act, which is going to have savings in excess of $1 trillion. both parties in congress, if they have the courage to accelerate real reforms embedded in the bill, w can save far more. host: this is what one person has to say.

guest: that is nonsense. the ryan budget is. to reduce revenues dramatically , cutting taxes for the most well off. independent analysts agree any way you of one to slap it, it will shift taxes on to middle class americans. the notion somehow that given what we have done already to deal with the reform of health care and now the republicans are complaining about, because they are not generous enough for special interests. they cnot have it both ways.

we are still in a situation where there are opportunities for us. i come from a low cost high value state. they spend about half on medicare. that is people in miami. there are ways that we can bend the curve and improve the quality of health care. adjusting revenue, continuing these efforts. lots of money can be taken out of the department of defense. not moving away from reforming agriculture. we are shiing $147 million a year to brazil and coffee farmers, because we are not willing treform our own coffee farming facilities. that is silly. host: the first call is on the republican line from georgia.

caller: you guys were in charge. you had the president, the senate. you were in charge and you did not get rid of all of those things. 1% of americans have a perfect credit score. i know how to handle money. no even following simple eighth grade math. you are only pulling in enough money to feed a gopher. guest: bear in mind that what we saw in the last congress was a complete collapse of an irresponsible legislation from our republican friends in the

senate. they did everything to have a super majority of 60 votes. we had over 300 bills that passed through the house that stopped in the senate. there are more things that could of been done in health care in defense and a whole range of things. people were not willing, whether it was simple judicial confirmations or dealing with moving forward of environmental protection, did not want to do it. this is unprecedented in terms of grinding the senate to a halt. unlike what my republican friends said on april fool's day in the house, it still takes both chambers. we would have liked to pass one thing from the house to the other.

article one section 7 still applies. there is a dynamic beer. there is not anybody who is pretending that we should be maki some changes. we will advance the budget out of ever budget committee that will be something that could be enacted into law that will not strip away health care from our elderly and most vulnerable and move in directions that i think the american people want to. it does not have to be that hard. we will probablhave it this wednesday. it will be available online. i think it will be the website of the house democratic budget committee. host: pa., thanks for waiting.

caller: this thing about the deficit, any business cannot stay in business unless there is enough revenue. and non-profit cannot remain without having enough revenue. the tax cut from president reagan was going from 70% down to 35% at the tim now president obama wants to take it back uwhere it was before. to do that would ing in 8 million over 10 years the top two% when reagan did what he did, to 1000 for couples the top 2% put $14 trillion into

their pockets. 14 trillion. all he is asking for is to go up 800 billion. that is not enough. guest: the caller makes an important pot. historically, tax breaks have been higher than what today are now. they are just puing back to what the tax rates were for eight years under bill clinton. that is where we created something like 17 million jobs. with the reduced tax rate under george bush, we had a net loss of private-sector jobs. there is an opportunity without being punite to be able to restore some revenue that comes into the federal government.

there are other areas that republicans turn their backs on. a federal aviation has passed twice. there re some 80which sounds li, with their plans, you are able to look throh the roof because the top of the airplane has ripped open. these are things that are acceptable to the industry, would take billions of dollars to do with airline safety and necessary improvements to the system, turning their back on it. these are things that are not rocket science, are not going to bring the economy to a halt. we have been there before and a lot of people and that we should be there now.

host: we have heard reference to the bowls-simpson commission. most of those reckitt -- recommendation were ignored. guest: that is not my approach. they lay out a reasonable path. the numbers add up. my point,t that juncture, was, let's move on the things that we agree on and debate where we are not. instead, we are having a very unrealistic effort. it is not going to pass the senate, and would fundamentally change the partnership that amicans have relied upon, and would increase health care costs for all americans while reducing what the federal government vests. and we know who is going to pick up the tab for that. host: end on the independent

line. pennsylvania. -- ed on the independent line. caller: there is a myth that the rich are creating all sorts of jobs in this country. they are creating jobs in china. when bush introduced the tax cuts, where were they building? they were tripping over themselves to start building in china. ronald reagan would be rolled over in his grave today. as far as feeding the beast, we are making the debt so big by giving tax cuts to the rich. defense spending, most of the money goes to the industry. maybe the workers should get some. bush tax cuts, $2 trillion.

two wars where most of the money went to defense and private contractors. prescription drugs. almost $1 trillion went to the prescription drug companies. people do not realize that with the bush tax cuts, they put off -- they cut off blions of dollars to the states. guest: your caller has a very important point. we are seeing record profits and corporate america, a few trillion dollars, at last check, that people are sitting on. and they have been able to achieve those profits actually with employment being down. they have delayed hiring. and we are seeing, just because of the bizarre set of circumstances we have now, in some cases, corporations farm

borrowing money to pa dividends. there is another stealth tax that is being inflicted on middle america, particularly, the elderly americans. record low interest rates. when someone gets $0.10 for every $1,000 in thr savings account, people who relied on that, are being decimated. this is a tax that falls disproportionately on the elderly, middle america. i would hope that we have a more comprehensive approach, going forward, and we t put the burden on folks who have really t done anything wrong. they have played by the rules all their lives, save, and have been dealt, i think, an

unfortunate hand. host: what do you make of the continuing resolution? what were you surprised with most? guest: it is depressing that we focus on things like -- i expected it republicans to go after public broadcasting even though it is widely acceptable by most americans. i expected them to go after the epa as well. but cutting money for the pregnant women with infants child program -- that was surprising. going into the agricultural system, which has lots of opportunities for savings, but instead, cuts the conservation payments that goes to farmers which provide the environmental

benefits for everyone. that was extremely shortsighted. these are commitments we have made to local communities to give back a small amount of the oil will tay's -- royalties, but instead, we are seeing people having to shut down state parks. frankly, if the public really knew about these things, they would be unpopular. host: do you expect back -- passage on the vote? guest: the issue is no longer the money. that is clear when the negotiators, more than a week ago, were a couple billion apart. actually, democrats have been willing to give republicans what they originally wanted. but is this really about

ideology? they are imposing their will on the residentof the district of columbia, treating it like a colony, on things that have no impact on the federal deficit at all the bottom line here is, if the ideologu want to push for more, anything can happen, but it is clearly something we are going to see with the debt ceiling, which is a much more consequential discussion. host: should it be raised? guest: it will be. americans will be paying their debt. right now, despite the loose talk about america becoming , actually, invtors are

investing tens of billions of dollars every week in the united states. our interest rates are the lowest they have been since 1971. people messed around with the debt ceiling, even hinting that we may not go good on our obligations, it will strangle the economic recovery and add to the deficit for more than they are talking about extracting through some of these unfortunate budget cuts. host: should a decision on the debt limit the kaptur itself, or tied to spending reforms? guest: i will support a clean increase in the debt ceiling, even though i am in the minority. historically, you try to put the onus on the people in charge. but this is looking at the delicate balance of our recovery, because there is uncertainty and run the world.

there is arm wrestling going on about the future of the budget. i make clear, even though i am in the minority, i will vote for a clear debt ceiling increase because america will pay its debts, and we need to retain that confidence. host: charles from bella vista, arkansas. caller: you are just proving to me that you would say and do anything for a vote. we borrow $0.40 on every dollar that we spend. $16 trillion in debt. out of that, we owe $400 billion in interest alone. you people were upset about trying to save $37 billion. 1% pace 44% of the taxes.

10% pay 9%. 40% of people pay no taxes. we are almost to the point where theimme-gimmes exceed the people that do not pay a tax. it is going to be worse than greece. earl, there is no way we get out of this debt, unless we do it immediately and soon. guest: iis interesting, i hope the caller takes a hd look at paul ryan's budget. this is taking away the guarantee for seniors for medicare. it slashes all sorts of programs, but because it is not a balanced approach, because it slashes taxes further, it does

not come into balce until 2040. as i said at the beginning of the show, will actually have more of a deficit that ife did nothing. it is not true that the majority of americans do not share in supporting government programs. as a practical matter, a typical american household actually pays more than hedge fund managers on wall street. it is true that some people do not have a federal tax liability but they are paying huge amounts in social security and medicare tax. 70% of the people that i represent a more for social

security and medicare than they do for income tax. but as a percentage of their income, to say middle americans e not paying their fair share is a mistake. kovach in time and look at the money that was -- go back in time and look at the money that was paid by corporation 30 years ago. the percentage was much higher. now it is down to about 6%. i welcome a conversation about what america's revenues system should look like. i think this is one area where there is bipartisan interest. host: tax code? guest: diving into the tax code. all sorts of provisions that no longer make sense or are unfair. the "alternative minimum t" that was a tax on millionaires

who did not pay their taxes, has now morphed into a tax on millions of arican families because they pay property taxes, income taxes, they do with retirement. no billionaire pays the alternative minimum tax because capital gains, a carried interest, is not covered. your caller raises an intert that i want to explore. the tax code is unfair, counterproductive, it leaks money, and it is expensive to administer. host: it makes money how? guest: what are called tax expenditures whether it is for special interests or the deduction that some of us get for our homes. credits, deductions, exemptions in the tax code now cost over $1 trillion a year, and they are

going up. one of the things that was mentioned in the bowles-simpson reports included tax expenditures. including defense, medicare, ta >> all of that conversation available on our video library at c-span.org. "washington journal" live every day at 7:00 a.m. eastern. u.s. house is gaveling in momentarily for legislative business. two bills today, including extending the commission that's planning the ronald reagan centennial celebration. we expect the house to come in briefly and then gavel out and return later on in the afternoon. our plans here on c-span are to bring you the senate banking committee hearing. looking at derivatives hearing. next we'll take you live to the house floor here on c-span. . .

the speaker pro tempore: the house will be will come to order. the prayer will be offered by our chaplain, father coughlin. coge cog together, let us take the words of daniel webster which hang high over the speaker's chair and make them our own prayer today. lord god, let our age be the age of improvement. in a day of peace let us advance the arts of peace and works of peace. let us develop the resources of

our land, call forth its powers, build up its institutions, promote all its great interests, and see whether we also in our day and our generation may not perform something to be remembered. let us cultivate a true spirit of union and harmony. let our conception be charged and enlarged to the circle of our duties. let us extend our ideas over the whole of the vast field in which we are called to act. let our object be our country, our whole country, and nothing but our country. by your blessing, almighty god, may the country itself become a vast and splendid monument not of oppression and terror, but of wisdom, of peace, and of

liberty upon which the world may gaze with admiration forever. amen. the speaker pro tempore: the chair has examined the jurem of the last day's proceedings and announces to the house his approval thereof. pursuant to clause 1 of rule 1, the journal stands approved. >> mr. speaker. the speaker pro tempore: for what purpose does the gentleman from arkansas rise? >> mr. speaker, pursuant to clause 1, rule 1, i demand a vote on agreeing to the speaker's approval of the journal. the speaker pro tempore: the question is on agreeing to the speaker's approval of the journal. so many as are in favor say aye. those opposed, no. the ayes have it. the journal stands approved. mr. womack: mr. speaker, -- the speaker pro tempore: for what purpose does the gentleman from arkansas seek recognition? mr. womack: request the yeas and nays. the speaker pro tempore: the yeas and nays are requested. those favoring a vote on the yeas and nays will please rise. a sufficient number having arisen, the yeas and nays are

ordered. pursuant to clause 8 of rule 20 , further proceedings on this question are postponed. the pledge of allegiance will be led by the gentleman from arkansas, mr. womack. mr. womack: those in the gallery please join us as we recite the pledge. i pledge allegiance to the flag of the united states of america and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the speaker pro tempore: for what purpose does the gentleman from iowa rise? >> thank you, mr. speaker, unanimous consent request to remove the name of the gentleman from california, mr. hunter, from h.r. 1093. it was added inadvertently due to a clerical error. the speaker pro tempore: without objection, so ordered. the chair will entertain

requests for one-minute speeches. for what purpose does the gentleman from south carolina rise? mr. wilson: i ask permission to address the house for one minute. revise and extend my remarks. the speaker pro tempore: without objection. the gentleman from south carolina is recognized for one minute. mr. wilson: mr. speaker, remarkably the reliably democratic "washington post" in a lead editorial last week quoted senator barack obama in 2006 saying, quote, the fact we are here today to debate america's debt limit is a sign of leadership failure. washington is shifting the burden of bad choices today on to the backs of our children and grandchildren. end of quote. today president obama is warning that the debt limit must be passed or there would be economic armageddon. sadly it is more clear than ever that reckless government borrowing is out of control with the president proposing a nightmare of endless borrowing. for a debt limit increase there should be real reforms to end

out-of-control spending. former senator phil gramm of texas pointed out republicans agree that families and nations should always honor their debts, in so doing they should also make sure they don't pile up new debt. for a congress it means passing budget reforms that impose hard and enforceable limits on new spending and debt. republicans and democrats who work together truly to protect senior citizens, younger generations, and create jobs. specific reforms are needed to protect american families. in conclusion, god bless our troops and we will never forget spench and the global war on terrorism. -- september 11 and the global war on terrorism. the speaker pro tempore: for what purpose does the gentleman from connecticut rise? >> to address the house for one minute. the speaker pro tempore: without objection, the gentleman from connecticut is recognized for one minute. mr. courtney: yesterday goldman sachs, the investment firm, came out with an amazing statement which is that $27 per barrel of oil today is the result of excessive speculation and has no connection to supply and demand. what that means is a motorist in the state of connecticut who is now paying $4 a gallon for

gas should be paying only $3 a gallon. but all the speculation which oil delivery guys and gas station owners have been screaming about for the last three months is the factor that's driving up the price of gas. the commodities trading commission last year in the dodd-franks wall street reform bill was given the authority to limit the amount of outside speculators participation in the energy futures trading markets. they have not implemented those rules. it is time for them to act. i would ask, mr. speaker, to enter a letter from one of the commissioners saying that the blistering pace of speculation is the cost of the rising gas prices. it is time for the cftc to issue these new rules and protect america's consumers and small businesses. i yield back. the speaker pro tempore: the gentleman's time has expired. for what purpose does the gentleman from texas rise? mr. burgess: i ask permission to address the house for one minute. revise and extend. the speaker pro tempore: without objection, the gentleman from texas is recognized for one minute. mr. burgess: i thank the speaker for the recognition. mr. speaker, today

congressional health caucus was joined by governor haley barbour of mississippi as part of our thought leaders series. his leadership in health care in his home state of mississippi is an example how states can take a more prominent role and in doing so bend the cost curve in the correct direction. in the last fiscal year medicaid, which is a joint federal and state program, cost our country more than $400 billion. and the price is only expected to increase in the years to come. governor barbour has been a leader in transforming medicaid in his home state. he's made commonsense decisions to reduce rising drug costs, to ensure people enrolled in the program are indeed eligible for the program. coordinated care, increased compliance, all have led to improved outcomes of the the patient protection affordable care act will only compound the financial problems that states are facing. in 2014 states will see their medicaid enrollment grow substantially when all people below 138% of the federal poverty level will be covered.

it's essential we examine this and other parts of the affordable care act to ensure that our states are not pushed into an even deeper budgetary crisis. i yield back. the speaker pro tempore: the gentleman's time has expired. for what purpose does the gentlelady from north carolina rise? ms. foxx: permission to address the house for one minute. the speaker pro tempore: the gentlelady is recognized for one minute. ms. foxx: thank you, mr. speaker. $14.4 trillion. that's the approximate size of our nation's economy. $14.2 trillion, that's the size of our nation's debt. a record high and growing. soon our debt will surpass our economy. let's be clear. no nation that deep in the red can lead as it must or go on living as it wishes for very much longer. our spending driven debt crisis is adding serious uncertainty to our economy which is preventing businesses from expanding, innovating, and creating jobs. admiral mike mullen, the chairman of the joint chiefs of staff, has rightly called our

debt, quote, the greatest single threat to our national security, end quote. if we want to bring confidence back to our economy, jobs back to our citizens, and hope back to our children's future, we have to stop spending money that we don't have. it's time for the senate democrats to stand up and join this fight. i yield back, mr. speaker. the speaker pro tempore: the gentlelady yields back her time. pursuant to clause 12-a of rule 1, the chair declares the house in recess until host: our guest is a member of

the oversight and government reform committee. ann marie buerkle it is from the 25th district in new york. regarding the debate on the 2012 budget, we heard from our previous guest, concerns about the way that it lays out the map. how would you respond to those concerns? guest: the budget is an excellent effort in terms of what we need to do to get back onto fiscal sanity course. we need to stop spending. the last congress did not pass a budget so we are in this cr situation, which is untenable for the american people. we need a fiscally responsible plan. i believe paul ryan has put that fourth and i am looking forward to the debate. host: where do you get the most optimism, in terms of specifics? guest: the amount of money it will save the country, the fiscal responsibility of the

plan. he will save the nation, over a 10-year period, trillions. it is what we need to do when we are staring at a $14 trillion debt. host: there is a column in "the washington post" about this. guest: obviously, i disagree. i think the nation has gone off course. we have gotten involved in giving money to agencies, getting involved in things that do not make sense for this nation. right now this nation is borrowing $0.42 on every dollar

it spends. it is time to rethink the way we're doing business. paul ryan's budget changes the paradigm somewhat from a large central government to giving more rides back to the state and reducing spending. he has had the courage and has worked extremely hard to get this budget in place. we are at a crossroads right now. if we do not do something about controlling the spending, we are going to lose this nation. i have six kids, all of and grand kids. my parents were first-generation americans. my grandparents came here from italy because of the opportunity that the united states of america has always offered. work hard and you will be successful. if we do not do something about this deficit, we are going to lose the nation, we are going to lose the american dream.

paul ryan's budget is the responsible thing to do. host: if you have questions for our guest you can call, republicans, 202-737-0001. democrats, 202-737-0002. independents, 202-628-0205. journal@c-span.org is our e- mail. twitter.com/cspanwj, if you want thisnd us a tweet morning. the president will be speaking on budget issues. as far as what he could say, could it work alongside republicans, regarding results in the 2012 budget? guest: i hope he listens to his own debt commission, i hope he realizes the urgency of the situation. unfortunatly, -- unfortunately, the budget that he released increased spending.

this cr, this debate that we are coming through now, has changed the debate. we have gone from not getting any spending to cutting $35 billion. host: is that good enough for you? guest: as a matter of fact, it was just released this morning, so we are only going on here say. i am a little bit disappointed, but i think john boehner did a fabulous job negotiating. we are only one piece of three. he worked very hard to get a good deal for the american people. i am proud of the republicans and what they put forth and what they did to get to this point. host: where are republicans in voting for this legislation? guest: time will tell. because the legislation was not released until after 11:00, we will not vote on it until

there's day, the role that was imposed on us by the speaker. -- thursday, the rule that was imposed on us by the speaker. host: are you concerned about any efforts to slow down, hinder the process, as far as getting cr passed? guest: in 2010, our discretionary spending increased. this year, it is going to decrease. that is a huge difference. just in this small piece, we are changing the tone of the debate. we are going to decrease spending, stop spending, we are going to get on a course of fiscal responsibility. we have accomplished a lot in this cr. yes, we all would have liked

more, speaker john boehner would have liked more, but in order to prevent the government from shutting down, to make sure that our military got paid, we had to compromise. that is part of good governing. host: jane on the democrat's line. good morning. caller: i really want to talk about medicare, cuts to medicare. i go to the doctor now. i am lucky that he takes medicare. medicare pays $49 for the visit. most doctors do not take medicare in our area because it pays so little. my father died at 83. we could not get insurance for my mother. since he never paid social security, she had to pay full price for medicare, and then get a supplemental, and then she still went broke at 89 with the

large drug costs. the ceo of united healthcare common two years ago, got $1.2 billion -- a package. there was a discrepancy in the paperwork. he got $800 million for a retirement package. how do you justify that and my rates keep on going up? tell me how you can justify that. if i spent $200 for my supplemental insurance, medicare should be insolvent. guest: thank you for the question. it is very important to let seniors know -- first of all, the current health care bill that the president passed in the last congress.

that bill is why your decisions -- and i have heard from my constituents, doctors do not want to take medicare. there is nothing in health care bill that injures our doctors will be paid a good rate so that they can take medicare. the issue with my united healthcare is paying their executives, i agree, is outrageous, but we do not have control over that. we have to make sure our seniors get what they need, make sure medicare is a viable option, that physicians are paid a good rate, so that they will take medicare patients. paul ryan's budget for tax and preserves medicare, which is what we owe to our seniors. seniors should know that paul ryan's budget does not touch any of your benefits. it only addresses those who are

55 and younger. those about to receive medicare, you are good. we need to address the dr.'s reimbursement for medicare. unfortunately, as a result, many doctors do not want to take medicare people. host: "the wall street journal" takes a look at the president's budget. what do you think about the approach? guest: it is an approach that we have to figure out. how are we going to preserve medicare, social security? many folks in those programs. some do not. if not, they should be able to opt out. for folks who have planned on social security and medicare, it is incumbent upon us to preserve that so that they get what they need.

host: when talking about medicaid, some have suggested block grants? why is that an important provision? guest: because it gives back to the states. let the states control their programs, what benefits their patients, subscribers can get through medicaid. it eliminates this a big federal government, all of this spending that goes to administrative costs. let the states decide what is best. host: dann in ohio. independent line. caller: with all due respect, ma'am, you are not being honest. the ryan plan does cut medicare. we know how we got in this mess, it is called republicans. two wars, you expanded homeland security, you messed up prescription drugs, and now you want to preserve medicare?

i do not believe you. you want to get it back by cutting planned parenthood. women and children want juice and milk. why not go after the real money? you are just not being honest, ma'am. guest: i agree with you, the republicans are just as much to blame as the democrats, that george bush, with all due respect to george bush, he spent money, increased the department of education. 9/11 was outside of his control, but the discussion of the wars -- we are now involved in three arenas where we have military deployed. i agree, the spending did not begin in this administration. both parties are guilty of it. this administration, the stimulus plan, $1 trillion, the health care plan, t.a.r.p., the bailout, the amount of spending

increase dramatically. but we, as a nation, not democrats and republicans, have to figure out what we are going to do. paul ryan put forth this plan. it is not the final plan, but it is a place for us to start having a discussion. host: ollie, pennsylvania. the beat on the democrat's line. caller: hello, grandma. i am a friend, -- grandma, too. i finally made $100,000 in one year, but they are going to tax me, and they are not going to stretch it out over three years. so i will be screwed that way. you said something that i want to respond to.

you said you want to give everything to the states with medicare. the states are broke, so that is going to work out fine. why did the insurance companies raise their rates right before this obama's health care comes in? my daughter and her family are struggling. they have to pay $115 a month for insurance. how can you live when you only make -- it is stupid. there is real money to be had. we are talking about ceo compensation and you say that you cannot control it. well, maybe that is true, but you could tax them. you are sure taxing me. everything else, the security, at the airport, all of these wars are over done. and people are not mentioning

all of these young people that are going from crafty high schools right to jail. guest: thank you for the call. many legitimate concerns, things that need to be looked at. the one point that you mentioned about insurance rates. i think insurance companies have raised their rates in answer to, in preparation for the new health care bill. the increased taxes, all of the additional expenses, because of this health care bill, they have begun to raise their rates. the fact there is no tort reform -- also, they are factoring in their risks, preconditions. that is why the american people -- and your complaint is a legitimate one. why are my rates going up? in washington, we have to do something about health care. i agree with you.

thank you for your call. host: on twitter -- guest: when we first began the discussion on the cr, the debate was we are not going to cut anything. now we have to consider $30 billion. it is a place to begin the discussion. everything is on the table. paul ryan deserves the credit. he has taken the heat for medicare, social security, the positions for how he handles the issue. but if we do not debate how we can handle what he provided us, it will be dead in the water. i have kudos for him. host: our guest serves the 25th district. what does that cover? guest: basically from syracuse to rochester. a beautiful part of the country. host: our next phone call is

from syracuse. randy on the republican line. go ahead. caller: good morning, representative buerkle, how are you? i live in your congressional district, i voted you. you have convinced me with every vote you have taken that i voted correctly. as a friend of mine said recently, you have reinforced our belief in the american form of government. at a recent town hall meeting, you were talking about the deficit. you said that you were not quite there yet. i wonder what your thoughts are and if you are there yet. guest: the debt ceiling will be an informed discussion. as the american people know, we are about to reach the debt ceiling. so the question becomes, do we raise it? unless we get significant

statutory reform, unless we make some real changes so that we do not get into this situation again, i am reluctant to raise it. it sends the wrong message. it is like giving an awful hall like a bottle of whiskey and then saying, we will deal with your drinking problem tomorrow. this nation has $14 trillion, a deficit of 1.6 trillion. . now is the time. this is a good time for us to have that discussion and make changes that we need to make, so that we preserve the united states of america. host: as far as people who know about the speech say about the president's cr discussion -- what would you say to those?

guest: i have a problem taxing the rich because they make a certain amount of money. they need to pay their fair share of taxes, and they do, in most cases. the extremely wealthy maneuver through the system. we heard from david camp this morning. he is going to simplify the tax code. that is important, so that everyone pays their fair share. but it is the wrong approach if we are going to tax the wealthy or the successful. that is not the american way. the reason the american dream exists, you work hard, you are successful, we are not going to penalize you. we want you to succeed. the message that there is going to be class warfare, that we are going to tax the wealthy and punish them for success, i do not agree with that. the answer is to stop spending. our country does not have a taxing problem, we have a spending problem. host: you talked about the well

is maneuvering through the system. could you talk about that? guest: when you talk about the estate tax and all of that, they have the wherewithal, the attorneys, accountants, and they know how to avoid these things. it is the people affected in the middle, that are affected by this tax rate, they do not have the wherewithal as the rest in the world, the donald trump and warren buffett's of the world. they have figured out the system. i just think class warfare is not the right way to go for this country. host: the defense spending? guest: i agree with the defense spending. we always must give the military what they need. we have them engaged in three fronts, and several others as well. when we deploy them, when we make that decision as a nation,

we have an obligation to give them what they need. having said that, the department of defense is fat. there are places where they could be cut. we know that most government agencies, there is room to trim, including dod. host: programs, people? guest: we have always talked about the procurement issue. staffing. it would require a good close look, but we have to. whether it is dod, department of education, epa. it is time to pull in our belts. host: the president addresses the deficit to march in a speech tomorrow. largo, florida. caller: i would like to talk about taxation and health care. as far as taxation, the

republicans are for taxes -- zero for the rich. they fought over the christmas shutdown over a tax break for the rich the turn around and raise taxes on the poor. how did they do that? by taking the $800 per couple tax break that president obama had put in, and replaced it with a 2% payroll tax. if you make $9 an hour, you just got a tax increase of about $30 a year. so that is a tax increase, whether you would like to admit it or not. and the rich people got more money. as far as taxation, the constitution says that you can make money, you can spend the money. there is no reason to have a deficit other than republicans

refusing to tax, which is what the constitution says we should do to pay our bills. we should not have a deficit. we should pay as we go. guest: i agree, we should pay as we go. unfortunately, several administrations, this one and before, did not do that. we had a surplus, then george bush came into office. not only did he spend that surplus, but he created deficit. that increased the debt and we are where we are today. i agree with you. we should only spend what we have, just like you do in your family. host: on twitter -- guest: great point, donna. i think cutting spending is stepped number one. all the things we talked but with the debt ceiling, entitlement reform -- but beyond that, we need a pro-growth

economic plan. we need to send a message to businesses, the government is going to get out of the way so that you can be successful. we need to reduce regulations. i sit on the committee of oversight and reform. the regulations we put on businesses, to the point where we had a hearing last week -- there were several people on the panel from business. when they were asked, would you do this again? they answered no. the onus on business owners is too much. we have the second highest corporate tax rate, second to japan. we do not send a message to businesses, we want you to be successful. small businesses are the backbone of this country. our message to them if you wanted to succeed. they are the job creators. the federal torgovernment cannot

create jobs. if we had a pro-growth business plan, we will see the nation's economy get back on track. host: should there be an evaluation of dodd-frank? guest: i believe so. one of the things that thecr accomplishes -- that the cr accomplishes, it allows oversight of elisabeth warren's committee. there was concern over her being approved. she is going to have a lot of regulatory control with dodd- frank. that is one of the things that the cr does, oversight of her committee. host: caller: and legislators are serious, should do not all be in favor in programs that would cut 15% as well as a closing 1000

basis we have around the world and stop paying for other countries national defence like ron paul suggested? guest: i agree with you, sir. i am also on the foreign affairs committee. i want to tell you that we have had several hearings as to how the american people are spending their money, eight we are giving to home, and how they're spending that money. that will absolutely be on the table to discuss. as i mentioned earlier, it does not make sense for us to be giving money to countries and we are baring 42 cents on every $1 give them. we can no longer afford to operate every have -- as we have done in the past. we need to do what is right for the american people into the priorities of the united states first. host: austin, texas, on the democratic line. caller: my aunt lives in

syracuse and either should be interested to see ron program -- you on the program. what got us in this was the derivatives program when we were creating products based on covering of student loans, crating baskets of securities that were supposed to spread around the risk and therefore be a wonderful thing. at the height of the derivatives crisis, the value of all derivatives was about $700 trillion. when those things collapsed and the people all over the world were holding paper on products that were worthless. i have a worthless piece of paper. you have the money. that is money. it is like the lottery. it does not disappear. and has simply followed from people all over the world into the hands of people right here in america that legally it

stolen. you say we cannot go after the people from the health insurance company that makes $800 million bonus? we cannot go after the people from mostar that have stolen this from the economy? that is what you are sent to washington to do, not to be making money on small business owners and on the backs of a $500 million from planned parenthood. please. that is not the problem. guest: i have three children live in austin, texas. it is a great city. to your point, i think that is what dodd-frank is trying to address, the derivatives issue. it will be a good balance between doing the oversight it needs to do but also not in beating the market and protecting, as you say, to keep derivatives and the market safe. host: next to perry, fla., but

on the republican line. -- bud. caller: my concern is congressional deadlines on the budget. i am a past federal budget officer. we have deadlines to get the budget completed. and it seems to me that congress and the elected officials do not worry about the countries than they did their political careers. they need to do the job for our country and quit arguing. compromise is the name of the game and it needs to be done in a timely fashion. thank you. guest: thank you for your call. i agree. it was irresponsible for the last congress to not pass a budget. and is why we are where we have with this continuing resolution. this is not the way for this country to operate. it creates uncertainty and put

their military in a position where they worry if the government will shut down. i can assure you that speaker boehner, paul ryan, and republicans want to get a budget passed by september 1st, our fiscal year. host: when it comes to non- security discretionary spending, this calls for getting the levels below 2008 and freezing those for five years. how do you achieve that? guest: by doing what we have achieved and hopefully will vote for in this cr. as we put budgets forth from here on in in, the budget should not have an automatic increase and we keep it at the spending level for that year and we were calling that rather than an automatic increase, which is what we have done in the past. host: gainesville, fla., on our

independent line. caller: think year. good morning, ma'am. you agree with everyone who calls in, but i wonder if you will agree with me that the $55 billion that we give the corporations for orioles drilling should be removed -- for oil drilling should be removed. i have worked in my life and i see the removal of the amount of money for social security and medicare. with my age, i felt that have paid into the system and i deserve what i paid for. if you want to privatize it, i want my money back. thank you for taking my call. guest: you say that i agree with the callers, but that is because

callers on both sides of the aisle have good points. while i may not agree with the solution, i agree that they are identifying a problem. you say you have paid into medicare and you deserve to expect medicare coverage. that is exactly right, sir. you have worked hard and you should not have to worry about your medicare. that is what paul ryan's budget is about, preserving medicare as we go forward. again, i want to repeat that his plan does not affect anyone 55 or older. if you are already receiving medicare or will in the next 10 years, it does not affected at all. that is something very important for the american people to understand so that we do not have this fear. it was the same with the budget shot down. the american people deserve better whether it is the seniors with the military. they deserve certainty from their washington -- from their government. host: if it is wrong to

dismantle medicare for those over 55, why is a right to do suffer under a 55? medicare's overhead is 3%. private insurance is a 20%-30% over the top. guest: medicare as it exists right now is unsustainable. we have to take the steps to make its sustainable. one of the steps taken is that if you can afford to pay more and you can afford not to rely on the government, then so be it. you have a choice to opt out. that preserves the system for those, like the gentleman who just called, of so they do not have to worry about it being gone. if we continue on the course we are on right now, medicare is unsustainable and we will not have medicare in 10 years. the paradigm has to be changed in the 1960's and 1970's, a

large central government was the way to go. given the population shift and the baby boomers to know we have to change the way we think. if we do not, we will not have medicare or social security. host: louisville, ky. caller: i love the fear tactics again like we had during the bush administration. i think the republicans have scared the population so greatly when it is not that dire. how you can sit and look people in the eye saying that this will not destroy medicare is unbelievable. also, i would like to know that if you are so concerned about the budget, why did you and every republican in congress give a $40 billion tax cuts to the oil companies? it is just unbelievable what you are doing by striking this year

when we all know that it should not be there. guest: thank you for your call. i agree in terms of a fear. this should not be about fear, but i do disagree whether or not the situation is dire. this situation is dire. the nation faces a $1.60 trillion deficit this year, a $14.50 trillion debt. we are spending billions of dollars every day just to pay the interest on that debt and it is unsustainable. this is dire. we need to change the way we do business for the american people. host: from indiana, david on the independent line. caller: good morning. guest: good morning, david. thank you for your call. caller: i am 54 and i remember the social security law change.

i will be 55 in july. it is a curious thing to me that my taxes were raised from 1983 to cover for my retirement and social security, and now due to the current financial system or situation, that was not caused by mean that by people that we have bailed out, and lack of lending standards, you know, it seems odd that you and others in the republican party can make the rest of us pay it when i have been paying all along. the current budget right now, maybe i am not exactly accurate, but the 2011 budget, the one you continue the resolution was obama's first budget. 2010 was bush's budget with his

last congress. do you remember that? review in congress? can you define what was in the 2005 budget? i do. my son was going to go to college that year. my son and i both have student loans and now medicare has changed. host: we will leave it there. guest: i was not in the congress. this was my first term. i discarded in january. 2010 was president -- it was a lack of budget and congress failed to pass the budget. i do not think the issue is about blaming but solutions. how will we solve these problems for the american people? that is what we need to be focused on. it does not do us any good to be partisan.

it does not do us any good to be fighting. we need to figure out what is best for the american people and best for this country. host: pa., mike on the republican line. caller: i imagine that your head is a swimming being a freshman. i do not what the politically correct answer, i just want your opinion. how do you think the founding fathers would think about these officials making decisions about all of our lives? guest: this nation has gotten so far from the constitution that it is not funny. i mentioned earlier about the crossroads. when i ran, one reason was to not only protect the american dream for my kids but to get this country back on course to our constitutional principles. so many of the agencies, the functions common -- their

functions and czars. if we get back to what the role of the federal government should be, we will find many of these problems will be solved. host: from syracuse, add on the democratic line. go ahead with representative merkel. -- buerkle. caller: he made a statement earlier that the private sector has to create jobs. -- you made a statement earlier that the private sector needs to create jobs. there are too many jobs in the government sector and that is one of the problems that we have. paying pensions, these high wages. more states have more government employees than you do it in the private sector. the private sector is not creating jobs. banks are not lending money. i just feel that is what the major problems right there.

i will listen to your answer. guest: thank you for your call, ed. you are right on that the government has grown to the point where, again, it will become unsustainable with the tensions and the health care plans. it is the private sector. until the government creates uncertainty for the private sector, uncertainty whether it is from the health-care bill, cap and trade, uncertainty for businesses have them hunkered down. they do not know what taxes are regulation will be put on them next. they will not hire, buy more equipment, grow their business. the best thing this government can do is to get out of the way and let these businesses have a freedom and let them understand we will not tax them to death. we will not regulate them, change the regulations in place, give them certainty so that banks will lend the money.

banks and businesses are sitting on a lot of money because they are uncertain as to what will happen next. that is the first thing that this congress can do is to give certainty to businesses so that they will grow, higher, and expand because they know they will not be regulated or overtaxed. >> watch this conversation online at c-span.org. we're going to leave the last few minutes and take you live to the senate banking committee on capitol hill. we'll be looking into government regulation of derivatives. they are financial products for trading commodities such as oil. the law known as dodd-frank contains a provision aimed at limiting commodity speculation through derivatives. senate backing committee will hear from the heads two of agencies writing the derivatives rules. mar j schapiro and the chairman of the commodity futures trading commission among other witnesses, just about to get under way live here on c-span.

>> i'd like to call the hearing to order. due to the length of this afternoon's hearing, we will limit opening statements today to myself and ranking member shelly and ask the other members of the committee to please submit their opening statements for the record. today we will review the implementation of the new

regulatory framework for the o.t.c. market required by with the dodd-frank act. this is our committee's first oversight hearing on this issue since the passage of dodd-frank. while i know there are many other issues that senators may like to raise with those before us today, we should focus our questions on the subject of this hearing. the dodd-frank act brings needed transparency and accountability toward the market and it addresses problems that greatly exacerbated the 2008 financial crisis. i commend all of the legislators today and their staffs for their extraordinary work and long hours they have dedicated to these important reforms. quoting a new framework to

regulate the past $600 trillion swaps in this age of instantaneous global capital movement is in a recently complicated task that demands close corporation with international regulators. we must create new rules of the road to ensure that our financial markets remain the envy of the world. our regulators should follow congressle -- congressional intent to craft rules that are based on relevant data that reflect the unique structure of the swaps market while avoiding political expediency. and i ask the chairmen and other regulators to work carefully to do what is necessary to get this right. this effort will require strong coordination both within and

among regulators to review the full set of final rules before they are finalized. the regulators must also integrate meaningful public input into this review. i urge our regulators to work together to craft a streamline set of workable rules that protect the ability to hedge risks and -- in a cost effective manner and minimize unintended consequences that could send american jobs overseas. >> thank you, mr. chairman. today the committee will examine the implementation of the dodd-frank act's new derivatives regulatory scheme. there's particular need for oversight in this area because dodd-frank has needlessly, i believe, created widespread uncertainty about the

regulation of derivatives and threatens to impose huge costs on main street businesses as well as on our overall committee. the irony is that the proponents of dodd-frank told us that the new law would bring certainty to the market and stimulate economic growth. instead, dodd-frank -- has set in motion a massive regulatory rulemaking process that is on an unrealistic timetable. predictably the result has been regulatory confusion and market uncertainty. regulators are hastily proposing rules to meet the extremely short deadlines without fully considering either their economic impact or how they interact with the rules proposed by other regulators. meanwhile market participants are scrambling to understand how the numerous and complicated rules will impact their businesses. in fact, they have filed thousands of comments on the

proposed rules. the comments reveal the gravity of their concerns as well as their confusion about how the rules will work in practice. this process is a direct result on the poorly conceived regulatory structure created by the dodd-frank legislation. although numerous studies have recommended consolidating our financial regulators, dodd-frank actually disbursed authority for derivatives regulation. unfortunately the danger of having multiple regulators involved in a process is a -- involved is a process marked by disorder and confusion. for example, although regulators have proposed numerous new rules for derivatives, the cftc and the s.e.c. have still not proposed rules that clarify the definition of a swap. this omission alone has had serious ramifications for our markets and the implementation proelse is.

after all, if regulators do not know what the definition of a swap is, how can they finalize their own rules governing swap dealers or major swap participants? since it's unclear exactly who is covered by these rules. and if market participants do not know if they will be classified as a swap dealer or a major swap participant, how can they be expected to know when to submit comments? this is just one example of how dodd-frank has created a confused derivatives rule making process that is not proceeding in a logical order and creates significant uncertainty in our markets. the regulatory process is further hampered by the fact that the dodd-frank act was so poorly drafted. here's just one example. simple exact that illustrates my point. one of the first dodd-frank rules promulgated was an

interim final rule for, quote, reporting pre-enactment swap transactions. the purpose of the rule is to reconcile two conflicting dodd-frank provisions, sank 723 and 729. the cftc rule proposal specifically states, and i'm quote, the inconsistences between these two reporting provisions must be reconciled in order to eliminate uncertainty with respect to the actual reporting requirements for preenactment swaps. in other words, our regulators have been forced to undertake additional rule making in an effort to correct the inconsistencies and errors in the dodd-frank act. and although i'm not sure how rules can alter statutory requirements, it's clear that

dodd-frank has some fundamental flaws and should be revisited. today i look forward to hearing how the regulators plan to improve this broken regulatory process, particularly how they will consider and incorporate comments from the public. make no mistake, the unprecedented scale and scope of agency rule makings mandated by the dodd-frank derivatives title make it impossible for regulators to engage in deliberative and rational rule making and still meet the unrealistic deadlines imposed by the act. i'm also concerned that the regulators are not fully considering the cost and benefits of their rules and the affect that these rules could have on our markets and job creation in the country. as the american economy continues to struggle, i think that will be the most important factor of the regulatory process. i think it must not be overlooked. thank you, mr. chairman. >> i'd like to welcome and introduce witnesses on our first panel.

chairman of the u.s. securities and exchange commission. previously she was commissioner of the s.e.c. from 1988 to 1994. and chairman of the commodity futures trading commission from 1994 to 1996. the honorable gary densler is chairman of the commodity futures trading commission. he served as undersecretary of finance and financial markets. he served as senior advisor to chairman paul sarbanes. prior to daniel's appointment to the board, he was a professor at the georgetown

university law center. he served as secretary of state of economic affairs and assistant to -- mayor miller is the assistant secretary for financial markets and the department of the treasury. in that role she advises the treasury secretary related to finance, markets and other important policy matters. previously, mrs. miller worked as director of the income division for t. roe price group and served as the research associate for the -- t. rowe price group and served as the research associate.

>> ms. shapiro, you may proceed. >> thank you for inviting me to testify today on behalf of the securities and exchange commission regarding the implementation of title 7 and title 8 of the dodd-frank act involving a regulatory framework for derivatives. as you know title seven and eight will bring greater transparency to the derivatives market and with that to increase the stability of our financial markets. while implementing these acts, it is a tough act. we recognize the importance of this task and we are very committed to getting it right. these rules are intended to bring transparency to security-based swaps, reduce systemic risk, protect investors by increasing

disclosure and establish a framework to allow derivatives markets to develop in a transparent, competitive manner. since passage of the legislation we have been very engaged in a fair and transparent implementation process seeking input on the various rules, even before issuing various rules proposal. our staff has sought meetings with the broad cross-section of interested parties. we joined with the cftc to hold public round tables and hearings and we've been meeting regularly to ensure consistent and comparable definitions and requirements across the rulemaking lavend escape. today, the s.e.c. already has proposed a number of security-based swap-related rules. among them are rules that would address potential conflicts of interest and swap execution facilities. rules that would specify who

must report security-based swap transactions, what information must be reported and where and when it must be reported. rules to register with the s.e.c., rules that would define security based swap execution facilities and establish requirements for their registration and ongoing regulations. rules clearing agencies would provide for the s.e.c. in order for us to determine if the swaps must be cleared and specific the requirements. and rules that establish the operation and governance of clearing agencies. in addition with the crfings, we proposed rules regarding the definitions of several of the key terms within the dodd-frank act. our staff also is working with the federal reserve board and the cftc to supervising financial market activities,

such as clearing agencies, which are defined by the oversight council as systemically important. in the coming months we expect to propose rules to establish registration procedures for security based swap dealers and swap participants. and rules for dealers and major security-based swap participants. we will propose joint rules governing the definition of swap and security-based swap as well as the regulation of mixed swaps. we recognize the magnitude and the interconnectedness to the derivatives martz so we look forward to continue to thoughtfully consider issues before proposing and adopting specific rules and working closely with our domestic counterparts and international regulators. the dodd-frank provides the

fulfillment to maintain fair, orderly markets and ensure capital formation. as we proceed with implementation, we look forward to continuing to work closely with congress, all the regulators and members of the financial community and investor public. thank you for inviting us to share with you this and i look forward to answer your questions. >> thank you, chairman shapiro. chairman gensler, you may proceed. >> thank you. i thank my fellow commissioners and all of the staff of the cftc for their hard work and commitment in implementing the dodd-frank act. i'm pleased to testify along with my fellow regulators, chairman shapiro and governor tarullo and i was announced by then president-elected obama 2 1/2 years ago.

so we get to be together. and assistant secretary mary miller, who we've known each other now for 15 years so it's great to be here today. the crfings is working very closely with the s.e.c., the federal reserve and other regulators in the u.s. and overseas. we're coordinating and consulting with international regulators to harmonize oversight of the swaps markets. we received thousands of comments today before we made proposals and after we made proposals. at this point in the process, the cftc proposed rules in the dodd-frank act required us to do so, including proposing rules this morning on margin which, of course, as well the federal reserve and other credential regulators took off. consistent with what congress did in excessing nonfinancial end users from clearing the proposed rule would not require margin to be paid or collected on transactions involving nonfinancial end users hedging

or mitigating commercial risk. over the next several weeks it's our goal to largely commeet the mosaic of proposed rules by proposing rules relating to capital as well as the joint product definition rule along with the s.e.c. and segregation for cleared sbaps. it is our goal to try -- swaps. it is our goal to try to complete that in the next several weeks. one thing we asked is phasing of implementation. we have not moved to any final rules yet. the whole mosaic will be out but implementation is very important. the s.e.c. and the cftc actually earlier today jointly announced that we would ask the public more on this. we've asked on every one of our rules but we want to do it in a coordinated way so early in may we're going to hold two days of public roundtable to hear about effective dates and implementation schedules which a compliance should come later which may be earlier, how it should be phased, whether by

asset class, market participants, other characteristics. we put a dedicated comment file up on our website today so people can comment on this very important issue. we'll be considering final rule only when staff can analyze, comments if the commissioners can provide feedback and after we consult with other regulators, not only here but around the globe. before i conclude, i just want to briefly talk about resources. i appreciate any and all that this committee did that now that we're going to move forward and get some breathing room and certainty in 2011 funding. but the cftc is a good investment and it's been asked to take on a much more significant role than just overseeing the futures marketplace. the futures marketplace is about $40 trillion. maybe about $2.50 to $3 in futures for every dollar in

futures. but the commodities is $300 trillion. $20 of swaps for every dollar in the economy. we share that role with the s.e.c. but clearly it's seven times the futures marketplace. we're good investment. even with what is just looks like congress will be recommending this week, $202 million. it's dwarfed by the size the financial industry itself which is measured in the hundreds of billions of dollars in revenues. so the president has put forward a plan for us at $308 million next year. i look forward to working with this committee, the appropriators on both sides of the aisle and both houses to see how we can ensure we have the resources to fulfill the mission. thank you. >> thank you, chairman gensler. governor tarullo, please proceed. >> thank you. senator shelby and members of the committee, thank you for the opportunity to provide the federal reserve board's views on implementation of title 7 of

dodd-frank. the board's responsibilities fall into three broad areas. the first relates to coordination and consultation with other authorities, both domestic and foreign. as the domestic consultation, dodd-frank requires that the cftc and the s.e.c. consult with the board on rules to implement title 7. in providing comments to the two market regulators we're trying to bring to bear our experience from supervising dealers and market infrastructures and our familiarity with market and data sources. there are also very important international coordination activity related to derivatives. most prominently, the group of 20 or g-20 leaders sometime ago established commitments relating to reform of the o.t.c. derivatives market that would form a broadly consistent international regulatory approach. as the -- in an effort to implement the various portions of that commitment, the committee on payment and

settlement systems is working with the international organization of securities commissions to update international standards for systemically important clearing systems. including central counterparties that clear derivative instruments and trade repossers to. even before the g-20 leaders initiative, the banking commission had established capital standards for derivatives. more recently, the committee has strengthened those standards and has created leverage and liquidity standards which would be applicable to them. the goal of all of these efforts should be a level playing field that will promote both financial stability and fair competitive conditions to the fullest extent possible. and i think for all of the agencies represented today the pursuit of this end will remain a priority for sometime. the second task given to the federal reserve under title 7 relates to the strengthening of infrastructure.

several counterparties are given an expanded role in swap securities and swap-based transactions. if properly designed, managed and overseen, central counterparties offer an important tool from managing counterparty credit risk and thus reducing risk to market participants and to the financial system. title 7 of the act compliment complements the role by heightening supervisory of systemically important financial market utilities. this heightened oversight is important because financial market utilities such as central counterparties concentrate risk and thus has the potential to transmit shocks through financial markets. as part of title 8, the board was given new authority to provide emergency collateralized circumstances to financial market utilities. we are at present carefully considering how to implement this provision in a manner that

protects taxpayers and limits the rise in moral hazard. the third task committed to the board by dodd-frank is that of supervision. capital and margin requirements are central to the credential regulation of financial institutions active in derivatives markets as well as to the internal risk management processies of those firms. the major rulemaking responsibility of the board and the undercredential regulators is to adopt capital and margin regulations for the noncleared swaps of banks and other credentially regulated entities that are swapped dealers or major swap participants. the board and the other u.s. banking agencies play an active role in developing the enhanced capital and leveraged liquidity scheme that i mentioned before. this will strengthen the o.t.c. derivatives by increasing risk-based requirements and requiring banking firms to hold

an additional buffer of high-quality liquid assets to address potential liquidity needs from their port foal yoles. it requires the regulators to adopt rules imposing margins on noncleared swaps to which swapped dealers or major swap participants that they supervise are part of. the statute directs that these margin requirements be risk-based. in accordance with the statutory instruction, the board and other credential regulators propose to implement the provisions in a way that recognizes the low systemic risk posed by most end users. the proposed rule would not specify a minimum margin requirement. rather, it would allow a banking organization that is a dealer or major participant to establish a threshold based on a credit exposure limit that is approved and monitored as part of the normal credit approval process, below which the end user would not have to pose margin.

finally, i would note that the proposed legislation requires that the margin requirement should be applied only to contracts and after the new requirement becomes effective. thank you for your attention. >> thank you, governor tarullo. assistant secretary miller, please proceed. >> thank you for inviting me to testify today. thank you. about treasury's role in implementing dodd-frank's derivatives provisions. as you know, the president signed the dodd-frank act into law almost nine months ago. the act established a framework for the country to protect consumers and investors and tax -- end taxpayer bailout and improve the transparency, efficiency of the u.s. markets. the administration strongly supports them. dodd-frank's derivatives provisions would shed light on a market that previously operated in the shadows.

central clearing, trade execution, reporting requirements and conduct measurements will provide substantial benefits. the work that the administration is undertaking with our colleagues at the cftc, s.e.c. and federal reserve board is vital in preventing the harmful buildup of risk that contributed so greatly to the financial crisis in wait. as other treasury officials have previously testified, several broad principles guide our implementation efforts. first, we are moving quickly to meet the statute's deadlines. but we are also moving carefully to make sure as we implement the act we get it right. second, we are bringing transparency to the process so that as many stake holders as possible have a seat at the table the american people know who is at that table and anyone who wants to provide input on request for comment and proposed rule makings can do so. we are creating a more coordinated regulatory process.

the financial stability oversight council is playing a key role by bringing tooth the financial regulatory agencies to help develop consistent and comparable regulations and supervisory regimes. fourth, we are building a level playing field by setting high standards in the united states and working diligently with our international counterparts to follow our lead. fifth, we are crafting roles of the -- rules of the road that will provide u.s. investors and institutions the conditions they need to invest capital, develop innovative product and compete globally. finally, we are committed at regularly keeping congress informed about our progress. the treasury secretary has specific specifics statutory responsibilities with respect to derivatives implementation and also has other responsibilities in his capacity as chairman of the ftoc. starting with the specific, congress gave the secretary the authority to determine whether foreign exchange, swaps and

forwards should be exempt from the definition of swap in the commodity exchange act. the secretary must consider the statutory factors set forth by the dodd-frank act, including the impact regulating swaps and forwards as swaps under the c.e.a. would have on systemic risk and financial stability, the existing regulatory regime and supervision of f.x. swap and foreign participants and whether it could lead to an invasion of other regulatory requirements. we published a comment list. we received several comments and response and treasury staff has also conducted an independent analysis, including extensive discussions with a range of interested parties. we know that market participants, other stakeholders and the committee are closely following this issue. regardless of the decision, the secretary makes, market participants need to be able to prepare for it.

while we intend to move expeditiously, it's also critical that we take enough time to make the right decision for the safety and soundness of the markets. the secretary also has responsibilities as chairman. a notice of proposed rulemaking regarding systemically important financial market utility. it supports the transfer, clearing and settlement of financial transactions and they form a critical part of the nation's financial infrastructure. the notice was published on march 28 and will be open for comments for 60 days. one final area i would like to touch on is the importance of comparable international standards including derivatives oversight, the united states will set high standards but today's financial system is highly interconnected, mobile and global. we must work not only to protect the competitiveness of

u.s. financial markets but also to ensure that the reform as we we implement here is not undermined by lacked standards else where he. we'll continue to work hard to develop a framework for derivatives that will make our market safer and sounder and a platform which we can fuel economic growth. thank you. >> thank you, assistant secretary miller. i will remind my colleagues that we will keep the record open for statements, questions and any other material you would like to submit. as we begin questioning the witnesses, i'll give five minutes on the clock for each member's questions. chairman shapiro and chairman againstler, how do you plan to

reconcile the -- gensler, how do you plan to reconcile the s.e.c. and the cftc proposed rulemaking regarding swap execution facilities, real-time reporting, fradse and other infrastructure consistent with dodd-frank's requirement to ensure regulatory skinsy -- consistency and compared policy and similar products and entities in a similar manner? >> mr. chairman, i'd be happy to start. we're very, very focused, obviously, on the issues regarding it in any number of areas. and you just articulated some of them. we have different rules between the s.e.c. and the cftc. some of those differences may be necessitated by the fact that the markets, while they're both derivative markets, the products may have different trades, and some may be

appropriate in order to continue to foster the development of these markets. but we've asked for commevent on whether our -- comment on whether that understanding is correct. we're going to the proposing -- we're very committed to continuing to work through those differences. if they're not grounded in a very good market structure reasons because of the nature of the products trying to get them as consistent as we possibly can. where we have proposed after the cftc i would just add on some rules we've actually sought exclusively to get comment on their approach to see if that might have been a better way to go forward. i believe because we are at the

adopting stage we will work through many of those differences and, of course, through implementation it may be necessary for us to engage in some interpretation of our rules in order to ease implementation and make them consistent. >> i'll keep it brief. i agree with what chairman schapiro said. it's in the context of there are some differences between the futures marketplace and the securities marketplace that have either existed in statute or in rules or just in market practice for decades. and so we're trying to be as close as we can between swaps and securities-based swaps while not creating some arbitrage and cut a futures marketplace that's worked with a great deal of transparency and low risk to the public and not cut that through some differences as well. i suspect the same issues on your side.

>> it's important to us as well because swaps-based can be critical to equity -- what we're trying to sync up with the swaps market between the securities-based swaps and swaps market, that we're not creating distance between the swaps markets and the equity markets as well. >> assistant secretary miller and governor tarullo, how are treasury and the fed working to harmonize international regulations through the g-20 and the financial stability board? especially given the different international time frame for moving on new rules. how are your efforts in this area being coordinated with the cftc and the s.e.c. to be sure that our rules are both appropriate and consistent?

>> well, we're following this very closely because we're very interested in having good harmonization globally on these rules. so in many settings, treasury staff are engaging with their counterparts in different international groups. there are a number of working groups on derivatives that are occurring through financial stability board in europe. we're also interested in things that are going on in asia. so we're following closely both the rulemaking process in the u.s. and engaging regularly with our counterparts in other countries. >> so, mr. chairman, let me add a couple of thoughts there as you can tell from the testimony today, the other rulemakings that the s.e.c. and the cftc have ongoing, dealing with the international equivalence of title 7 and title 8 it's going to complicate authorities in other jurisdictions. so i think what was looked for by the g-20 was a framework of

agreement or commitment on a set of goals that will then be pursued in various appropriate international bodies. what we've got now i think is a good bit of work and very productive work on efforts that get agreement on counterparties, on transparency , on risk management standards. i think that's done for a lot of cooperation on agencies but in particular the fed and the s.e.c. because we have a reserve bank president and a commissioner of the s.e.c. who are chairing the key international committees on this important, that -- on capital, the boswell committee has on banking supervision have

-- capital -- internationally recognized capital standards. they are already agreed among the boswell committee members, which constitutes not just the g-20 members but countries beyond the g-20. i think the one area where we probably need some more work now is on margins for non cleared derivatives, noncleared swaps. i think they're moving through a different process to have a clear, coherent and unified position internationally to try to move along some other countries which are actively in some cases not so actively putting some of these requirements in place. with respect to coordination, i think it's been very good.

as you look at my recitation of different committees, we need to have different people involved because we need different expertise here. from the comments i get from my staff and talking to principals at other agencies, i think this is one where the cooperation among u.s. agencies have been quite good. >> senator shelby. >> thank you, mr. chairman. assistant secretary miller, on our second panel today we'll hear from the treasurer from a large manufacturing company in the u.s. who has grave concerns about the excessive regulations mandated by dodd-frank. his testimony indicates that these regulations will increase operating costs making it more difficult for his company to create jobs and manage risk. do you believe that f.n.c. manufacturing company end user is the type of company that should be regulated under

dodd-frank? and does treasury have any concerns about the potential consequences of dodd-frank derivatives regulation on job creation? have you done any work on this area? >> thank you for the question. we've heard a great deal from end users nonfinancial and financial and the markets i think there is a way to work with a company like f.n.c. >> in other words, a company that's an end user that's managing risk but not end fewer financial separation, is that right? >> yes -- speculation, is that right? >> yes. and we have not got any information on the specific information under this title. >> will you do some research? has treasury done some work in that area?

because it could have ramifications for creating jobs, could it not? >> there were many studies mandated by dodd-frank and we're diligently delivering the work that's been delivered under the statute so we've put up quite a bit on the financial market ramifications. >> foreign exchange swaps and another area. treasuries charged with determining whether foreign exchange swaps and forward shall be subject to extensive government regulation. in your testimony today you stated that, and quote, we want to move expeditiously with respect to making a determination that the treatment of foreign exchange -- about the treatment of foreign exchange and swaps. when will treasury make its determination in your judgment? >> so i regret i don't have that decision for you for the hearing. i think we're close. >> will you furnish that for the record and other committee members when you get it? >> we'll absolutely will and we'll brief you on our decision

in either way. >> are you or treasury aware of any market failure in the foreign exchange market that would justify further regulation? >> there are many parts of the foreign exchange market. the f.x. swaps and forwards -- the part that you mentioned, is part of the market. >> are you aware of any failures in that area that would justify further regulation? >> i think there are many parts of that market that were under severe stress during the financial market and some of those would be subject to dodd-frank regulation. >> to your knowledge, were there any areas in derivatives where you're managing risk and an end user under stress? i don't know of any. >> i would be happy to reply to that question with further research. >> will you do that for the record? >> uh-huh. sure. >> ok. governor tarullo, central

clearing-house. last week chairman bernanke gave a speech about the importance of properly regulating cleerning houses. he noted that one of the reasons that clearing-houses had no trouble to date is, "good luck." we can't always count on good luck, as you know. beyond relying on luck, what steps can we take or can you take to ensure that taxpayers are never called upon to bail out clearing-houses because that was a concern of a lot of us when we were debating the dodd-frank legislation, as you'll recall. >> i do recall your question on that topic, senator, a year or two ago. so with respect to the central clearing parties that is designated as systemically important, there will be oversight by the appropriate market regulator but federal reserve has a role to play

there as well. we have a consultation role. we hope to be involved in the examines bringing to bear, if i could put it this way, a soup risery or prudential soup risery -- on these expectations. so we will hope they will all be subject to strong credential requirements for credit risk, strong -- >> hope -- you said you hope. >> the mechanism here -- the primary regulators are the marketplace. >> i know. >> we have a consultative role. >> oversight role. >> we have an oversight role, that is correct, and in that capacity i think we will hope to contribute to the perspective on the supervision of these organizations. i'd suspect that there will be convergence among the agencies on the kind of standards that are important and, as i said, i think we're going to draw on our experience, not just with

market entities, which we do have, but also supervising from a credential point of view, looking for safety and soundness and not market operations. >> in the same type area, the united kingdom financial services authority wrote a comment letter in response to a rule proposed by the cftc on risk management requirements for clearing-houses. the f.s.a., united kingdom financial services authority, warned the s.e.c. that lax eligibility requirements could create new risk to the financial service. do you agree with f.s.a.'s comments? are you concerned about that too? >> senator, i haven't seen the f.s.a. commept on the proposed cftc rule. i would say that an effective member qualification in default set of standard is very important to the integrity of any central clearing party. >> shouldn't you or we,

altogether, shouldn't we do everything we possibly can to ensure that there is no bailout of a clearing-house? >> absolutely, senator. i think that everybody up there, everybody in the table here share an interest in having rigorous and effectively -- >> let's get chairman gensler's comments on that because that's in his area. >> it's a big yes. i think that central clearing-houses need robust oversight. i view as a partnership with the federal reserve. the s.e.c. has their clearing-houses as well. i think they should not have central bank liquidity. though dodd-frank did allow for in emergency exowe gent circumstances when the secretary and board of governors decide that.

i think that should be an absolute rare occurrence. clearing-houses haven't failed in this country. we survived two world wars and survived great crises. i think the clearing-houses have to have collection of marmingin. they have to have it on a dailing basis. they have to have proper -- daily basis. they have to have proper management. >> they have to make sure that everything clears, don't they? >> they have to make sure that everything clears and that which clears have available pricing, available liquidity and i think, also, with regard to the comment letter that you referred from the -- >> from the u.k. >> i think it's very important that these clearing-houses have open membership, that the access to the clearing-house is not just so narrow. clearing-houses have greater risk if it's only narrow membership. if it's broadened out, markets work best when they're open an competitive. >> shouldn't, since there are

international implications to derivatives and the trading and everything, shouldn't we listen to our counterparts in europe like the ue nitted -- united kingdom and f.s.a. and others that have similar concerns? >> absolutely. we're listening, we're consulting, we're sharing all our draft sheets, our memos, not just with the f.s.a. but the european commission and the like. their comments are very helpful but we also believe that membership should be opened up but the smaller members can only scale into that membership and and not be the low members. they have an exclusive club deal and i think congress spoke to that in the statute saying they're supposed to be open access. >> yes. exclusive clubs are a dangerous thing sometimes. >> that's what occurs in swaps clearing today, not in futures clearing. futures clearing is much more

open. securities clearing is much more open. swaps clearing today has been more exclusive but dodd-frank said it had to be more open and competitive. >> thank you. senator reed. >> let me begin to associate myself with the comments that senator shelby said about the dissipating of the risk of the bilateral transaction but the inherent danger of not well regulated. i know that everyone at this table is acutely focused to that and i urge you to keep your focus on that issue. but secretary miller, following up on another line of questioning senator shelby said about contracts. were these part of the lehman bankruptcy, i.e., were there losses incurred because they could not fulfill contracts and would those losses have been avoided if those contracts were traded or cleared?

>> there were open contracts with lehman brothers when they failed. those contracts were settled so were able to be settled. >> and settled how? >> large number of them moved through a payment versus payment settlement system. i can't give you the precise percentage that were settled that way, but it is my understanding that all of the open contracts through lehman brothers were settled. >> governor tarullo, do the board of governors support the markets in the late months of 2008? >> well, senator, it wasn't support for the foreign exchange market as such, senator. there was liquidity provided in form of dollar liquidity both through the discount window, directly to institutions operating in the united states and to central banks in some other countries. these were not in pursuit of settling foreign exchange

swaps. this was as a byproduct of the general liquidity squeeze -- >> part of their exposure was the foshe foreign exchange contracts? >> i think it was much more a funding problem, a dollar funding problem. it's not a matter of failing on a contract but not having access to funding in dollars when you had obligations in dollars. >> but there is a possibility if these contracts are exempt there could be another situation where a liquidity freeze -- not a question of settling but couldn't get the question to settle and the failure to prepare -- supporting these this second? >> so, senator, under dodd-frank we are not permitted to offer institutions specific assistance except, obviously, the discount window or through the f.m.u. provisions here. i think -- and secretary miller alluded to this -- i think most

people think that the problems in the foreign exchange market have larmingly concentrated on settlement. -- largely concentrated on settlement. as you may know, the -- all the international work on foreign exchange transactions began after the 1974 failure of hersch bank. so i think most of the attention has been focused. and today there are -- i would not say perfect or all-comprehensive mechanisms for making sure that foreign exchange transactions settle but there's been a substantial amount of improvement over the last 36 years. >> i have about a minute and a half. governor tarullo, you can explain to me the interaction of a rule for companies that have derivative activities and three and the general prudential guidelines for

capital that you're developing for financial security and the clock is ticking. >> what are the three areas again? >> under frank, the requirements have some specialized language with respect to companies which -- financial companies trading derivatives. there's also the basel three requirements had a talk about derivatives and then there's just a general prowdention safeguard with capital which can go on a case-by-case basis. in your mind are these separate categories or does it blend into a gut feeling of how much capital a company should have? >> it's not going to be a gut feeling because there will be an an lytic backdrop for it -- analytic backdrop for it and i think it is. we've tried to improve the market risk part of the general capital standards. and derivatives were one of our

focuses for attention, including important upgrades to central -- to counterparty risk evaluation and capital setasides and also to making sure that you stressed the potential exposure as opposed to just random market environment. i think with respect to any capital authority that we have our aim will be to have a set of rules backdropped by specific supervisory oversight which ensure that those activities are not creating risk to the institution, that -- institution that does not have an adequate setaside. that is what was in the precrisis. it was a setaside taken by firms. i think there was inattention to party risk. those are the kind of changes

that need to be in place and those are the kind of changes that was in the rule under bossle three but with an eye to the specifics of a firm not just to sort of a gut feeling about that firm. >> thank you, governor. thank you, mr. chairman. >> senator croker. >> thank you, mr. chairman and thank you for being here. i think the notion of a clearing-house was something that -- or focus on clearing trades was very bipartisan in nature. it ends up being a difference, especially on the end user piece. but for what it's worth among market participants, as you are talking to many. among those on the buy side and the sell side. those who supported dodd-frank and those who obviously oppose it, i think there's a concern about the repetitive of these rules being put in place and even more on their prescriptive nature and just being overly

prescriptive. mr. gensler, i want to focus a few things. i know that people need to have five quotes, for instance. even a large institutional trader that might have a relationship with one institution has to have five quotes. i'm wondering, who is it that you're trying to hem or save or what is the -- help or save or what is the point behind that? >> senator, i think you're referring to the swap execution -- >> that's right. that's right. >> in that regard congress said those transactions that are cleared and made available for trading would be brought to swap execution facilities. that's a mandate. and it's transparency. congress and the statute said it would be to promote free trade transparency. these are trades that are not large blocks. the blocks are accepted. so it might be a $5 million or $10 million trade, not a $500 million frayed. it's unanimous. there's no credit risk.

on those trades what congress suggested we do and what we think we're doing in the rule is promoting transparency when multiple participants have the ability to execute against other multiple participants. in the futures marketplace when a request for quote gos out it goes to the whole marketplace. it goes to a broader group in the marketplace. and the quotes that come back in are seen by the marketplace. so there's far more liquidity. what we're proposing is actually far more transparency, less transparency than the futures marketplace. >> so on the large block trade they're excluded? >> yes. >> do you think that was wise? >> yes. >> the real-time reporting, i noticed you've come up with a 15-minute time frame. i'm just curious about what was magic about that. i know numbers of people think that's not long enough, especially in larger transactions. >> i'm glad you asked. congress said that real-time

reporting after the trade should be as soon aztec knowlogically practical -- as son as technologically practical. and then we could have a delay. we look at what delay we have in the marketplace. it's about five minutes now. we proposed 15 minutes if it's on a swap execution facility. if it's bilateral, we asked a lot of questions and so i comment. in the securities world, sharme schapiro can speak -- chairman schapiro can speak better, but we think it's about 10 times the securities world. we are going to get comment. the change will be made when we -- >> so the larger trade, it may be end of day? >> the larger trades that are on a swap execution facility, we propose 15 minutes. if it's a bilateral we do not propose a specific. we just ask a lot of questions. >> is it your vision -- a lot of people think that it is.

i'll give you that editorial comment. do you think the derivatives markets and equity markets should be similar when you finish all of these activities? >> i think that markets work best when they're transparent, open and competitive. and those three core factors, whether it be futures or securities, i think ultimately and derivatives help end users, investors. i think it helps the economy grow. it does shift some of the information advantage to the tens of thousands of users away from the most sophisticated. >> so that's a yes? >> i think it's a yes. i think there are a lot of concerns because people view the two instruments as being very different. >> i think there's some concern out there that is your vision and it's not taking into account the differences between the instrument. >> senator. i think you asked about equity and derivatives. we regulate futures. i think markets work best.

whether they're futures, he can wifts or swaps -- equities or swaps. when people get a contrast to a closed or dark market. >> if derivatives are moving out to electronic platforms, is there any concern about a growth of high frequency trading taking place in that area? >> it is something that captivates our commission every day in the futures marketplace when 85% to 90% of the marketplace is now electronic. it is something that we think is very much on our mind as we think about regulation in the swaps marketplace. >> we look forward to having you in your office and sorry we haven't. if i could ask your more question. mr. tarullo or mrs. miller, either one, we've had either discussion -- i remember in the hearing room when volcker talked about the volcker rule. it ended up being part of dodd-frank. and i'm out, as i know all of

you are, and certainly my colleagues, we talk with these -- with banks throughout our country. small community banks and others about the examiner charge and the examiner charge that comes into their institution, basically their attitude, their understanding about whatever regulator they're working with changes pretty dramatically how their bank's status is interpreted. the examiner in charge is basically king. as you look at the volcker room, again, mr. volcker, whom i respect greatly, couldn't really describe to us what prop trading is. you just know it when you see it. how will you institutionalize the volcker rule when you have these people that have judgment? i don't know how you do that properly. i'd love to have any help with understanding that.

>> so i think -- there are a couple of things. first, when you're talking about 7,000 financial institutions that you are with some of the very basic standards the balance is always as between allowing for the local number of the examiner of the -- knowledge of the examiner in charge because he or she can understand the institution better than anybody on the one hand. on the other hand, ensuring consistency and treatment across the united states because people deserve that. when it comes to something like the volcker rule or any of the number provisions that we're talking about, you're almost surely dealing with a smaller subset of institutions. and i think there the kind of horizontal approach to regulation and supervision that we've been taking with respect to larger institutions is going to be particularly important. so once we the credential

regulators come up with the regulations to implement the volcker rule. we are going to have a coordinated and unified approach to implementing and overseeing the implementation of that rule. i think as we've already done with some of our activities of the last couple of years, beginning with the stress test in the early of 2009, we will have a process internally to make sure that these things are being implemented consistently, that their cftc teams, the leads of the teams that are in place in the large institutions have common framework of knowledge and training and that we are making sure that the regalatees can come to us, the board, and say we're uncertain about what's going on here or

we're not being treated the same way. do i think it will be a task? yes. will it be more difficult i think than a lot of the supervisory tasks we have now? i don't think so. that's not to understate the attention it's going to require but once we have the rules in place i think we have a mechanism for making sure they're applied in a consistent fashion, that people have recourse to cut into the board to ask about the interpretation of a rule. >> senator brown. >> thank you, mr. chairman. thank you all four of you for your work on dodd-frank and getting the legislation passed. passing this bill last july in so many ways is only the beginning of the effort to oppose transparency and accountability in unregulated derivatives markets. it's pretty clear in newspaper reports that the opponents of transparency and the opponents of oversight lost their first fight but they're working on budget issues to try to

restrict a lot of things that you're trying to do and trying to handcuff your efforts. in just listening to your testimony today and looking at the magnitude of the regulatory effort that you're undertaking i think really illustrates the importance of that. thank you. chairman gensler, my questions are directed at you. i sent a letter to you back in january about gas price speculation and the importance of the cftc's position limits rule in curbing excessive speculation. i'm concerned that excessive speculation can once again perhaps seriously hurt our economy every time there's a pipeline outage or refinery fire or trouble in the middle east it seems that one reaction of that as speculators and oil companies move in to spike prices up, using that as a technical excuse for that happening. the commodity markets oversight coalition, a group of

commercial end users, pointed to 57 studies conducted in the last five years showing the rate -- showing the role of speculation in driving up asset and commodity prices. in the 1990's, speculative interest and commodities was about 15% to 30%, typically. today is it's one half to 2/3 of the company. financial markets account for 50% of crude oil futures, an increase of 5% within the last month. we know what it means to our economy potentially. we know what it means to individual motorists, companies operating on small margins, to truckers, to so many others. we've seen what speculation can do. similar price increases in commodity markets. last week c.e.o. of starbucks said that financial speculators have drove those prices up to historic levels. as a result of that, the consumer's suffering. chairman gensler, talk to us about financial speculation, its effect on prices and then answer this question, if you

would -- what authority under dodd-frank do you have now to combat speculation, what do you need from us in terms of additional tools to carry that out? >> hedgers meet speculators in the marketplace from the earliest days of the derivatives marketplace, a farmer planting corn or wheat or soy wanted to hedge a price and lock in that price at harvest time. it was generally a speculator on the other side to assure that price. when our agency's predecessors were formed, it was to make sure that markets were transparenty. 100% of the market had to come to -- were transparent. 100% of the market had to come to the marketplace. this is why transparency is so important. that's why we have the tools, legal and other tools to combat fraud and other manipulation. and position limits was part of that tool kit that was given in the 1930's. in crank that was expanded -- in dodd-frank it was expanded

not just in futures but for economically equivalent swaps. we are not a price-setting agency but our agency is to ensure that markets have a certain basic integrity. you can have confidence in them and they're not so concentrated. you're accurate that the speculators, if you might say, somebody who's not in the physical marketing channel, somebody who's not producing or using the oil or natural gas or the corn or wheat, are in large part part of the marketplace. they're well over half of the marketplace in other parts and the statistics will show. we put these statistics out every friday. they're public. so what we need to do i believe is complete a rollup -- position limits. position limits have been in place of the agriculture area for decades and were in the energy products in the 1980's and 1990's. we have a rule out, the comment period is closed. i misstated in my written

testimony. we had 11,000 comments on the rule, in the agriculture comment. so we're going to need to sort through that. we'll take a number of months. many of them are repetitive. so your question is, we also need to promote transparency in this marketplace. i think the more transparent, the more market participants can see the aggregate as well as the pricing, that's a very important thing. this small agency i think is a good investment to ensure the integrity of these markets. >> thank you, mr. chairman. and thank you very much, to all of you for testifying. i just can't help but make one brief observation which is, gosh, it's just amazing to me. i have here in my hand the cftc

rule on position limits for derivatives. looks like it's about a four-point font. it's 25 pages long and according to c.r.s., dodd-frank calls for 330 rules. it's not a criticism of this particular rule, but it strikes me as an incredible cost to the financial institutions that have to understand these, digest these, hire the man power to then comply with these and it strikes me as something that could approach a miracle if they're all perfectly consistent and compatible and operate exactly as intended with no unintended consequences. this is really a very, very difficult undertaking it seems to me, an enormous cost to the financial institutions to comply with. i suppose the very large ones will be able to afford it, smaller ones i'm not so sure.

i'd like to follow up with a question on the position limits , mr. chairman, if i could. one is my understanding of dodd frank which passed before i got here, but my understanding is that the bill does provide some flexibility in terms of how you go about with imposing position limits. and my further understanding is that thus far the european regulators have not promulgated any rules whatsoever regarding position limits. is there a danger that if we go ahead and impose position limits and they don't that we simply have a migration of business to other venues? are you concerned about that at all? >> we are working closely with the european and asian regulators. i think capital and risk do not know any geographic boundary, so whether it be position limits or other roles, senator, that is something that we're very conscious of. on position limits i think after numerous hearings starting probably in 2007 with and 2008 in the house and the

senate our authorities were not only broadened to include economically equivalent swaps but also something very important, the exclusion from the position limits called bona fide hedging was narrowed a bit. so we take congressional direction on this as well. >> i understand that. but are you concerned that in the absence of comparable european regulation that we have the opportunity for regulatory ash tragedy across borders? >> i would have to say that yes but not just with with regard -- with regard to position limits, that's why we've been so active to try to harmonize where we can. but in terms of position limits, what we're looking at in the proposal is about futures and options on futures where we set them for decades in agriculture, we did in energy in the 1980's and 1990's along with the exchanges and the exchanges took the lead and it's looking to reimpose those and we're benefited because, as

i said, we have 11,000 public comments in the funnel right now. so this is one that the public is very engaged in. >> well, i'm concerned about this apparent developing disparity between the regulatory regimes and a quick question, if i could, on the realtime reporting. we had a little discussion earlier about with speculators and the fact that speculators, i completely agree with your observation, they provide a great deal of liquidity. it's often the case that speculators also need to have a certain amount of anonymity and while transparency has many virtues and can be very important, sometimes anonymity is important, too. my understanding is and maybe you could correct me if i'm mistaken that the cftc's 15 minutes disclosure requirement is different than the s.e.c. which has the longer period of time before a comparable transaction has to be disclosed is there a difference between the two?

>> there is, senator, a difference with respect to block transactions. the larger transactions which are the ones that would give rise to concern about whether or not too much information was being revealed, it might ask someone to run ahead of the hedge on the block. we haven't proposed yet standards for how we'll define a block transaction and then we'll propose some specific standard. but we have said that while we would remedy sem nating the price of the transaction in realtime, the size of the transaction wouldn't be disseminated for as long as eight to 26 hours after the transaction. >> ok. and would your goal be to have -- [inaudible] with respect to the s.e.c.'s approach? >> we're working very closely together not just on the realtime reporting but to try to bring them together as much as we can. of course there is differences in the underlying markets. there's differences between futures and securities and the

interest rate market which is a vast and large market is different than the credit thought swap market which is largely over at the s.e.c. so there will still be some differences. but whether it be on the block rule, the realtime reporting role, the swap execution role, we're trying to get as close as we can but also respect that there are some gaps between the underlying futures and securities markets. >> well, thank you very much. i see my time's expired. thank you, mr. chairman. >> senator moran. >> mr. chairman, thank you very much. chairman beginsler, i'd like to discuss the core principle issue with you. first of all, i would say just generally the complaints i get from the futures industry is that the cftc is working at such a furious pace, difficult to keep up with your rule making. i think there are 60 rule making procedures ongoing, difficult to conduct business

and continue to comment on the things that are happening at the cftc. but more troublesome to me is the implementation of a provision in dodd-frank that seems unnecessary to me. and that is that the cftc has operated under a core principle's regime and i think most observers would say, survive the disaster of several years ago in a very solid way, in a sound way. and yet as i recall you asked the house agriculture committee that you have the authority to abandon the core principles and move to a more f -- cftc-type environment for the futures industry. and i would just question you as to why you believe that the core principles' method of

regulating the futures industry which at least in my view or the view of observers that i read and hear worked well and were moving in an entirely different direction, i recall this conversation in the house agriculture committee with chairman peterson in which we were assured that this is a back stop if it becomes necessary, the cftc doesn't intend to go down this path of changing the nature of its regulatory environment and the futures industry, but that's certainly not the way it has turned out to be. where would you characterize my understanding as wrong? >> i would never like to do that with a senator. but i appreciate that attitude. >> i know you would be thinking it if you didn't say it. >> now i just want to do a little clarification. the cftc as part of the commodities futures modernization act got a core principles for two areas but it was not in all of the areas, it was for clearing and for trading platforms.

we do not have it on intermediate yares, the futures commission merchants and the like. there are many rules there. what -- you're absolutely correct. dodd-frank gave us a little bit greater ability on the clearing and the trading and particularly on clearing because now there's a mandate to move what maybe $200 trillion to $300 trillion of derivatives into these clearing houses, that it was thought and i still believe it is thought that this is a place that needs robust risk management. and that we can't as americans just rely solely on the good risk management standards of the clearing houses themselves but that regulators and the whole financial stability oversight council has a role and the federal reserve has an important role to play. advising us and joining in those examinations. so i think in clearing very much so. i could say, senator, though congress also said -- set a

one-year time limit to put out the rules, we have proposed rules to actually 40 as of this morning, but we've proposed rules, we've not finalized any, we're going to get the rest of the proposals out hopefully in the next handful of weeks, the home mow sake will be out there -- mosaic will be out there though some comment files have closed, we have discretion to continue to take comments and using that discretion we do continue to take comments. and we're only going to move forward on final roles when we can sufficiently summarize it, get commissioner feedback, get regulatory feedback, we're not going to make the july deadline. i know that. many people in the markets are probably pleased to hear that. we're only going to do this according to when we are ready to move over the spring, summer and well into the fall on the timing issue. >> chairman, in response to just -- i have two responses to your comments. one, do you have examples of

where the regulatory environment, cftc, operated, failed in regard to the circumstances that we found our economy in that cause you to have that sense and then secondly just generally, your comment about the mosaic. would it be your plan for the industry and for congress to be able to see the whole mosaic before any of the rules are individually approved and implemented? >> i think to your second question, yes. as the mosaic, we're hopeful to complete, as i said, in the next three to five weeks, working with the s.e.c. on one very important joint rule and capital rules and so forth. >> we can see the big picture before we get any rule taking? >> that's right and we're also doing some joint meet thags we a announced today with the feck on -- s.e.c. on implementation phasing. we have an open comment file that we've put up on that phasing as well.

i think in terms of your other question, i think that we didn't regulate as a nation, we didn't regulate the swaps marketplace, contributed to the crisis that we had in 2008. it wasn't the only reason but all we need to do is think about credit default swaps and a.i.g. and the interconnectedness of the financial system. so part of the cost and the senator referred to the cost the financial industry is take on, part that have cost is so that the takes payers don't have to bear as great a risk to bail out financial institutions in the future. >> thank you, mr. chairman. thank you, mr. chairman. >> thank you all. thank you all of our witnesses on the first panel. i may ask those on our second panel to take your place at the witness table. while you get seated, i would like to welcome in and introduce the witnesses on our second panel.

vice president and treasurer of the f.m.c. corporation, a company focused on ag, industrial and specialty areas. mr. deeds has served in this position since 2001 in insurance, risk management and other company functions. lee is chief executive officer of trent web markets. a provider of online trading services for derivatives. prior to working for trade web, lee was the c.e.o. and funder of broker tech and an alternate brokerage platform and also worked to credit -- [inaudible] in a variety of positions.

an executive chairman of the c.m.e. group which operates several major features in derivatives exchanges and online trading platforms. he has served in his current position since 2006 and has been a member of c.m.a.'s board since 1995. ian acts as chief executive of a group. which is an independent clearing house group serving exchanges platforms and -- [inaudible] . he previously served as global head of operations for barclays capital. jennifer is chief investment officer of the public employees retirement association. she has helped -- held this position since 2003.

she oversees the investment process for public pension fund that provides benefits to employees of the colorado state government, colorado municipalities, public schools, universities and colleges and other public entities. before we begin to testimony, i recognize senator toomey for some brief remarks. >> excuse me, thank you very much, mr. chairman, for giving me the opportunity in particular to welcome the guests. mr. december is the vice president and treasurer of fmc -- f.m.c. corporation. it's one of the world's foremost diversified democratcal companies with leading positions in agriculture, in industrial and consumer markets. mr. december has served as vice president and treasurer of f.m.c. since twoufpblet he has responsibilities for -- responsibilities for worldwide

treasury function, pension investments and funding and insurance and risk management, brings over 20 years of experience in this field and i've had the pleasure of having a number of discussions with mr. dees, especially about the end user issue as it applies to derivative use and i just wanted to welcome you tonight and thank you very much for coming to testify. >> thank you, senator. >> mr. dees, you may proceed. >> thank you, mr. chairman. good afternoon and -- to you and to ranking member shelby and members of the committee. i in addition to my role in f.m.c. corporation, i'm also president of the national association for -- of corporate treasuries. f.m.c. and nact are together members of the coalition for derivative end users representing thousands of companies across the country that employ derivatives to manage day to day business risk. i'd like to express my gratitude to you, mr. chairman, and to ranking member shelby for your bipartisan efforts on

behalf of derivative end users and particularly to chairman johnson for your work last week with the other committee chairmen in support of end user margin exemption. we also appreciate senator johan's effort to extend the statutory effective date for the proposed regulations and i thank you, senator toomey, and senate ranking member shelby for your kind words about f.m.c. corporation and your care and interest for manufacturing companies of which we're a proud one. in fact, f.m.c. corporation was founded almost 130 years ago to provide spray equipment to farmers. today in addition to making agricultural chemicals that farms supply to protect their crops our 5,000 employees have worked hard to make f.m.c. a leading manufacturer and marketer of a whole range of agricultural, specialty and industrial chemicals. we've achieved this longevity by continually responding to

our customers' needs with the right chemistry delivered at the right price. this year marks our 80th anniversary of listening on the new york stock exchange. i had the valuable experience on a newer financial market, one that we've been discussing today. i had the opportunity to negotiate and execute some of the very first derivatives, currency swaps, going back to 1984. i have seen the derivatives market grow from its inception in the mid 1980's to its current size by adapting and responding to market participants' needs. we support this committee's efforts to address the problems with derivatives experienced during the financial crisis of 2008 but i want to assure you that f.m.c. and other end users were not and are not engaging in risky, speck lative -- specktive derivative transactions. we use over the counter d derivatives to offset risk, we

are not creating new once. f.m.c. is the world's largest producer of the input in glass manufacturing and we're one of the largest employers in the state of wyoming. we can mine and refine soda ash products in southwestern wyoming, ship them to south asia and deliver them. we've achieved this export success in part because of the derivatives we enter into to hedge natural gas prices. these derivatives are done with several banks, all of which are also supporting f.m.c. through their provision of almost $1 billion of committed credit. our banks do not require f.m.c. to post cash margin to take -- but they take this risk into account as they price the transaction with us. this structure gives us certainty so we never have to post cash margin while the derivative is outstanding. but the current system where

end users and their counterparties decide delabtively whether and how margins should apply is change. today the fdic proposed a rule that could in the future subject end users to margin requirementless. while we're still reviewing the details it appears regular latesters, not market participants, will now determine how margin will be set. regulators will have the final say over how much cash and end -- an end user will have to divert to a margin account where it will sit unavailable for productive uses. in our world of finite limits and financial constraints, posting cash margin would be a direct dollar for dollar sub traction from funds that would we -- we would otherwise use to expand our plans, build inventory to support higher sales, conduct research and development and ultimately sustain and grow jobs. in fact, a coalition survey of

derivative end users extrapolated the affects of margin requirements across the s&p 500 of which f.m.c. is also a member to predict the consequent loss of 100,000 to 120,000 jobs, depending on these proposed thresholds. the affect on the many thousands of end users beyond the s&p 500 would be proportionally greater. although i've focused here on margin, end users are also concerned about the more than 100 new rules that will determine whether we can continue to manage business risk through derivatives. we've heard also about capital requirements that our counterparties would be required to hold and we've heard through the publication of rules today that uncleared, over-the-counter derivatives, the kind that we employ to hedge our business risk, are singled out as high risk transactions which will attract additional capital we're concerned could be almost

punitive and could end that ability of end users like f.m.c. to hedge their business risks with them. thank you very much for your attention. i'd be happy to answer your questions. >> thank you, mr. deas. please proceed. >> mr. chairman and ranking member shelby and members of the committee, good afternoon and thank you very much for inviting me to participate in this hearing. my name is lee, i'm the chief executive officer and founder of trade web and i appreciate the opportunity to testify today about the regulatory framework for implementation of title seven of dodd-frank. for the last 15 years, trade web has been at the forefront of building regulated electronic markets, for the trading of o.t.c. fixed incomes securities and derivatives. the core competency surrounds leveraging technology to create more efficient electronic markets that provide a valuable service to the constitutional banks that are our clients. before electronic markets like trade web were established in

fixed income, constitutional clients picked up the phone and spoke to different dealers to obtain prices and trade u.s. government bonds. this phone-based trading model is how the o.t.c. derivatives market largely functions today. in the late 1990's due to technological advances, we saw an opportunity to provide clients with greater pretrade price transparency and execution efficiency in the u.s. government bond market. in 1997 we established tradeweb and created the first multibank electronic request for quote marketplace for u.s. treasury securities. our model gave clients the ability to run an electronic auction among banks to get the best price and automate a manual trading process. tradeweb's are key marketplace helped transform a phone-based and largely opaque government bond market into a more transparent and competitive and efficient market with the added

benefit of reducing operational risk. as a result of this evolution, institutional clients such as asset managers and pension funds now have access to regulated tradingsomes -- systems that provide more transparency and efficient execution. today on the platform for government bonds we trade on average $40 billion each day with 1,000 constitutional clients located in every financial center around the world. among all of our platforms and products the daily volume is in excess of $300 billion perdy. we support the goals of dodd-frank which we believe to be enhanced transparency and reduction of systemic risk. however, it is vitally important to understand and give due consideration to the needs of market participants and promulgating rules for implementing title seven. the aim must be to achieve the goals of the act without disrupting the market and the liquidity is provides to end users. market participants need confidence to participate in

these markets and if careful consideration is not given to what the rules say, we fear that this confidence could be maturely shaken. the key for achieving the policy objectives for success is to provide for flexibility in the way market participants can interact and trade swaps. creating arbitrary or artificially precipitationed limitations on the matter in which participants interact and trade could result in liquidity drying up, increased cost to trade swaps and market participants seeking other less efficient ways to manage their risk. finally there's been a great deal of discussion recent by how best to implement the proposed rules. there is no doubt that an overly hasty timetable for implementation could directly impact the health of the derivatives market, given the flexity of the system -- complexity of the system. phasing in the rules is a very sensible approach. however market participants need clear guidance on when the rules will be effective. this is particularly true for

firms such as tradeweb that commit capital to build technology to support these markets. we believe it is very important for the s.e.c. and cftc to set clear time frames for when rules will be effective as soon as practical and we commend chairman gensler for take the initiative to discuss this and take public comment on the time frames. furthermore, any difference in rules between the feck and kp of cftc should be elimb aid in should be eliminated. if there are differences between the two regulators' rules, the cost for compliance and building technology will go up considerably. by ensuring that the f.c.c. and the cftc rules obtain flexibility, complinalts can trade in a man that are suits their trading strategies and risk profiles. some institutions may want to transaction on live, other mace want to use a disclosed model and others may want to trade

anonymously. regulators should not mandate the clients or platforms, pick one model or offer all models. flexibility that allows for innovate -- innovation among technology providers are critical to attract the capital necessary to fund the investments in these technologies. in conclusion we support the goals to reform the drivetibs market and we provide the very -- derivatives market but we are concerned that the commissions may be overly precipitationive and create unintended consequences for market participants and the marketplace as whole. we hope our experience in the electronic markets can be helpful and constructive as congress and the regulators take on the great challenge of implementing title seven of dodd-frank. thank you. >> thank you. >> chairman johnson, ranking member shelby, members of the committee, thank you for the opportunity to testify on the implementation of the dodd-frank wall street reform and consumer protection act. i'm the executive chairman of

c.m.e. group which includes our clearing house and four exchanges. in 2000 congress adoopt commodity few tiers modernization act. this leveled the playing field with our foreign competitors and permitted us to recapture our position as the world's most innovative and successful regulated exchange and clearing house. as a result we remain an engine of economic growth in chicago, new york and the nation. in 2008 the financial crisis focused attention on overleverage, underregulated banks and financial firms. in contrast regulated futures markets and futures clearing houses operated flawlessly before during and after the crisis. congress responded to the financial crisis by reining in the o.t.c. market, to reduce systemic risk, through central clearing and exchange trading of derivatives, to increase data transparency and price discovery and to prevent fraud and market manipulation. we support these goals. but we are concerned that the cftc has launched an initiative to undo modern regulations.

we are not alone. most careful observers and some commissionsers -- some commissioners have concluded that many of the regulations roll back regulation and unnecessarily expand the commissions a mandate. the cftc is attempting to change its role. it is an oversight agency whose purpose has been to assure compliance with sound principles. now it appears as if it is trying to become a frontline decision-maker, empowered to impose its business judgment on every operational aspect of derivatives trading and clearing. this role reversal is inconsistent with dodd-frank. it will require doubling of the commission staff and budget, it will impose cost on the industry and the end users of driven -- derivatives. it includes numerous examples of rule making that will have costly adverse consequences on customers, intermediate yares, exchanges and -- intermediaries, exchanges and the economy. it will have andirect impact on business and employment in the united states. of legal concern, the creation of international regulatory

disparities will drive business overseas. we recognize that the cftc has been working to induce international regulators to be equally precipitationive. however that effort seems to be failing. as our jurisdictions capture business that the cftc is driving offshore. the threat of prescriptive limits and hedging in the united states are already driving business overseas and into unregulated markets. the threat that margin control will be used to influence prices of commodityities will eith be -- even be more disastrous. broad, undefined prohibitions on disruptive trading practices and strarges will not only drive liquidity from the markets but impair. we support sufficient funding to modernize this technology. however we strongly object to the expansion of commission theft to enforce regulations that are uncalled for by dodd-frank or that duplicate the duties now being performed by s.r.o.'s which are

self-regulatory organizations. this comes at no cost to the government. chairman said it earlier about the size of the market. the commission just fice its budget demands by pointing to the growth of the notional value of the contracts that oversees our regulated futures markets and the notional value of the swaps market that it will be responsible for under dodd-frank. but there is no valid relationship between the notional value and the regulatory burden. the swaps market involves only 4,000 to 5,000 transactions per day and the parties are all sophisticated investors. the futures market has grown to millions of transactions to date but has come -- but has become a highly sophisticated electronic marketplace with high-tech enforcement rules. the cftc's budget should reflect the positive impact of technology and the necessary regulatory obligations imposed by dodd-frank. congress should encourage a full and fair cost and benefit analysis for every proposal. it also should extend dodd-frank's effective date to

permit a realistic opportunity to comment. otherwise we believe that the well regulated futures industry will be burdened by overly prescriptive regulations. this is inconsistent with the sound practices. first more -- furthermore it will make it more difficult to reach the goal of increasing transparency and limiting risk. i thank you for your time and look forward to your questions. >> thank you, mr. duffy. >> thank you. [inaudible] i want to thank the committee for asking me here today. if i may, let me briefly introduce our he can -- company. we operate two of europe's leading clearing houses and a fast expanding office in new york. we are 83% owned by members and 17% owned by exchanges such as euronex. we clear interest rate, credit

default and energy swaps, bonds and repos, equities, metals and listed derivatives. we've been clearing commodities for 10 years. and pioneered the development of swap clearing in 1999. this operates under d.c.o. license and has been subject to cftc regulations since 2001. swap clear clears over 60% of the global interest rate swap market with over $276 trillion in standing and last year it cleared over 10,000 swaps, trades with a national value of $64 trillion. we recently extended our swap service to include a client clearing service for u.s. and customers. 12 members have since joined up and provided the service to u.s. end users and cleared swaps through them. we have u.s. members and

committees which meet monthly to discuss the development of our swap service. it includes major u.s. asset managers and hedge fund ininvestors. our group played a visit kl -- critical role following the lehman brothers' collapse, following the world's largest ever clearing member default. on its default, the firm had $12 trillion in portfolio risk including a $9 trillion swap book. this was liquidated without loss or impact on surviving members. on completion we returned $850 million of margin to u.s. bank administrators. we are strong supporters of the dodd-frank act goals and believe that the legislation will improve stability in the marketplace and greatly reduce systemic risk. in particular we welcome the strong risk management and heightened financial service standards for clearing houses. a great level of supervision for clearing houses and mandatory clearing obligations.

we have followed the cftc and f.c.c. rule making process closely and applaud the thoughtfulness of the agency and the task. we particularly participated in round tables, attended open meetings and responded to the proposals of rule makings and met with our commissioners. it is key that the legislation and rules emerging from the u.s. and europe are as closely aligned as possible. it will reduce -- [inaudible] and control risk standards internationally and make sure that the g-20 commitments are met. a lack of harmonization may impact the economy, jobs and the recovery. i would say the three greatest areas of concern are regards to the difference between the u.s. and europe and -- [inaudible] firstly, ownership and governance. we believe that congress correctly rejected aggregate ownership and voting caps for clearing houses during pass and .

aggregate restrictions on clearing house ownership or governance may limit innovation, reduce competition and increase costs. secondly, risk management and access rules for clearing house. the cftc risk management provision at present are aligned to the futures clearing business, swaps need to be reviewed as having different risk management techniques and purposes. we expect futures and swaps to converge over time but it's inappropriate now to impose future clearing criteria on swaps. we also believe access criteria for swap clearing members must be proportion to the risk introduced and continue on default management and risk underwriting participation such that the clearing house is nondefaulting members and their clients are fully protected. and thirdly customer protection. security is key. customers clearing swaps, main of -- many of them pension funds and other long-term

saving institutions, must be protected from further customer risk. the introduction of customer safeguards that deliver such security would ensure that the u.s. clients have the same protection as clients in european. and in conclusion, we believe that the commission's final rules should afford individual customers the option of legal segregation, further any final rules on clearing house ownership or governance should be applied at an individual level and finally access requirements should do nothing to compromise the integrity of clearing houses. we look forward to extending our safeguards deeper into the u.s. marketplace and to further growing our u.s. staff and operations in support of the act. thank you for inviting me here today, i'm happy to take any questions. >> thank you, mr. axe. >> thank you for holding this important hearing. i'm jennifer, chief investment officer of colorado para. i would like to share with you a school teacher's interest in derivatives and share some

concerns on proposed rule making. a colorado teacher told me years ago about a problem she had in her classroom with a first grade boy. she required all the students to read allowed in front of the class and this little boy was very shy and could not do it. she allowed the student to sit in a chair with his back to the class and whisper to the blackboard instead and over the course of the year she took the chair and moved it inch by inch so that by the end of the year it faced the class. the chair was empty at the end of the year and instead the boy was standing in front of the class reading allowed with great pride. and when she told me the story, it struck me how much i had in common with her. the care that she took was -- with every student in her class is the same care that we give to every single investment that we oversee for her remember he -- retirement plan she would not know how to invest a $39 billion institutional portfolio, but i and my investment demretion denver, we know how to do that on her behalf. she would not know how to

execute a total return swap to mitigate risk but we know how to do that. we know how to employ futures to mitigate risswhk we are doing portfolio transitions. the investment vehicles that we use matter to all of our members. it is why i have come here for the honor of just a few minutes before you. derivatives are tools we use for mitigating risk. while derivatives are home a modest portion of our total market value, they are very useful. you will find in my written testimony we have concerns about how public plans may be affected by cftc proposed rules. cftc-proposed rules include public pension plans as a special entity. in order for us to enter into a swap the swap dealer would need to have a reasonable basis to believe we have a representative that meets certain requirements. we are concerned that there's a conflict of interest for one party in a transaction to also be responsible for determining who is qualified to represent

the other side of the transaction. we are also uncomfortable with how this could potentially impair negotiations with the dealer, we fear higher costs for executing transactions and are concerned that strong counterparties may not want to do business with us for reasons including potential liability. colorado pera and a number of public pension funds when whose assets total over $700 billion have suggested a voluntary alternative approach be created. i have included a let heir in my written testimony signed by these pension funds which describes the approach. it would allow us to voluntarily undergo a certification process to meet the independent representative requirement. this would include passing a proficiency exam. i think it supports the intent of protecting investors while asloiding some potential conflicts and unintended consequences. i have the utmost respect for

the time and care you and others are extending -- expending on these matters. we would like to continue to access the swaps markets for the same portfolio reasons we have used them effectful for years. on behalf of almost half a million current and former employees, public employees of colorado pera, i ask that you and all those involved in this process consider our concerns. i owe it to all of our colorado pera members and to that particular teacher i told you about to advocate on this issue. that little boy who was afraid to speak, who is not so little anymore, i see every day. and he is my reminder to speak on issues that matter to the investors that are our members. thank you for your time. >> thank you. i will start off with a few questions.

thank you for your testimony. i will remind my colleagues that we will keep the record open for statements, questions and any other material would you like to submit. i begin questioning the witnesses, i will put five minutes on the clock for each members' questions. mr. olasky, how would the proposed cftc rule on swap execution facilities requiring five requests for quotes impact market liquidity and potential -- [inaudible] . what would be the impact on your company if the cftc and f.c.c. proposed rules for chefs are not reconciled? >> thank you. currently tradeweb trades

interest rate swaps in the u.s. and europe and we've processed and had about 75,000 interest rate swap transactions over the last several years. one of our concerns is that as the rules have been proposed by the cftc in this r.f.q. process which is an auction that customers would run in order to get the best price, that the clients would be forced to sent send out an inquiry to at least five different dealers. that's not the way the market operates today. in fact, that's not the way the u.s. government bond market operates today. in our u.s. government bond franchise, the average inquiry goes out to just three banks. and there's some very good reasons for this. clients need to assess how they're going to get the best possible price in the marketplace and at times that means going to just one or two dealers, not five. so that's an example of a rule that's been proposed that's not mindful of the way the market operates today and would

require a change. i'm not sure what that change would be but we as a company that provides services to our clients are advocates for our clients which are the large biside firms, public pungs funds, institutions that want to be age to access liquidity which makes the most sense to them. >> mr. duffy and mr. axe, how would applying the title seven clearing requirements to transactions with foreign counterparties impact the competitiveness of the u.s. markets? >> i'd be happy to start things. one of the ways, mr. chairman, that it would impact us is if the c.m.e. had a client that was in europe and they wanted to do a counterparty transaction with a party in the u.s. we would have to make sure that the c.m.e. clearing house was registered in the u.k. or

in any other jurisdiction that the trade was coming from. this is a very long burdensome process throughout the u.k. and the u.s. it takes about six months to get approved to become a clearing member. so this is absolutely a very difficult thing for us to do going forward. so that's one of the big competitive issues that we have and i'll let ian make a comment. >> yeah. thank you. we currently do clear trades both in the u.s. and in europe. and to refer to my oral testimony, i think the fear we would have in terms of arbitrage is to make sure we do have consistent standards, appreciating thed a sfration to be able to actually achieve your license stat us is one thing. but actually having different

systems and different regulatory systems across the different geographies would create inconsistencies and it wouldn't be advisable in the ideology of harmonization. >> mr. deas, from your perspective, how would the proposed definition of swap dealers impact end users? >> chairman johnson, the definition for swap dealers, if it's not done properly, could pick up larger companies who are still engaged in hedging underlying business activities and there is a fundamental difference between a financial institution acting as a swap dealer and a large u.s.-based company that's doing that. end users are always hedging underlying business activity. the derivative when valued twoth that underlying business exposure creates a neutral

position. swap dealers are maintaining an open position, they're market makers. we believe it's appropriate for them to centrally clear and margin their trades, but because end users are always balanced if you impose margin on them because you've defined them through this definition to be a swap dealer then you take a balanced pair of transactions that create a neutral position and you ookt actually impose a new and unwelcome risk at least for treasurers, that risk of having to fund periodic margin payments. with all the attended uncertainty of that. >> senator she'll bill. >> thank you, mr. chairman. mr. deas, in your testimony today, you warned that regulators could impose cost on companies that would inhibit their ability to produce goods and hire workers in the united states. the chairman has begrudgingly, i would say, agreed to make

some accommodations for companies that use derivatives to hedge their business risk like yourself. but he also argues that doing so, and i quote, only benefits wall street and doesn't benefit main street or the corporation that provides service to america. do you you a he -- agree with the chairman's assessment here? >> no, sir. i don't. as i've indicated in my testimony, we are manufacturing the goods that were consumed in the u.s. and we've been able to export them successfully overseas and we do that -- >> helps you compete, doesn't it? >> yes, sir, it does. and it helps us offset risks that we can't otherwise control. >> and the consequences, i think you alluded to it earlier, what would be the consequences of imposing unnecessary regulatory burdens on companies like yourself? the ability to hedge your

unique business risssnk a lot of these risks are technical, are they not? >> yes, sir. one of the problems is, for instance, i talked about our ability to export. if, as was the question of the assistant secretary of the treasury, if the secretary of the treasury declares that foreign exchange transactions are swept up in this new mechanism, then it could force exporting companies like f.m.c. to incur higher costs and one unfortunate way to lower those costs would be for u.s.-based exporters to move their managing facilities offshore, to the countries where their customers are, to achieve in that way a better match between their currency, their costs and the currencies in which their customers are paying them. i'd hate to see that happen to u.s.-based manufacturers. >> would requiring companies to use standardized clear products or forcing them to post margin

as we've talked about here increase risk in the financial system? or decrease it? wouldn't it increase risk for you because it costs more? >> senator, it would increase risk and -- in two ways. first of all, as i've described , the over-the-counter derivatives market became -- grew to the size it is today because of its ability to respond and to provide custmyization. the fact that these hedges are effective -- >> you're tailoring your risk, are you not? >> yes, sir, and the fact that we're able to achieve that customization means we've offset the business risk. failure to make it match up exactly, if we were to force to use a standardized derivative, would mean there would be residual risk, we would retain, that could come home to manifest itself in higher costs for us. >> mr. duffy, the governor, you were here, he explained the

central clearing houses concentrate risk and thus have the potential to transmit shops throughout the financial markets. would what would happen, for example, if c.m.e., we hope it never would, or another clearing house failed? what type of contingency plans halings the c.m.e. prepared to make sure that if it were to fail, that one or more of its members does not threaten the entire financial system? >> that's a great question and one of the things we can go off to start with is our record in the 156 years the c.m.e. has never had a customer -- [inaudible] to the clearing du default. the second thing is the way we do things, we do twice a day market to market. if the market runs away from a customer, we take them out of the market if the money is not coming forward. that's one of the things. we have the ability to do that on an hourly basis. we hold over $100 billion of our customersa capital to make sure that these transactions are protected.

we have many safeguards. risk management is something we spent a lot of our time on and i think it's what's made us what we are today. >> that's good. i want to pronounce your name right, i guess. is it paquett snembings how do you say it? -- paquette? how do you say it? >> paquette. >> you noted that however well intentioned the goal of, quote, protecting vulnerable or gullible parties in the swap market might be, the cftc's proposed business conduct standards may be so onerous that pension plans are, quote, left to deal with less desirable counterparties, if they can find any at all. if the cftc's proposal were adopted in its current form, would it make it harder to manage the nearly $40 billion of retirement money for which you are responsible to manage?

>> thank you, ranking member shelby. if the proposed rules were -- >> were adopted in its current form. >> adopted in their current form, we think it would be more challenging for us to manage our -- >> by challenging, it would be more difficult. >> it would be more difficult in certain areas of our portfolio, yes. >> thank you. thank you, mr. chairman. >> senator moran. >> mr. chairman, thank you. mr. duffy, earlier i asked chairman questions about why he felt it was necessary to impose prescriptive rules that override core principle regimes that we've had at cftc previously or currently. and the chairman said it was because the instruments like swaps and that's why d.c.o.'s needed prescriptive rules. however, to my knowledge there were no swap d.c.o.'s, the only clearing organization's

pre-dodd-frank were regulated ex changes. clearing organizations seemed to have performed well in 2008 and furthermore it seemed that the precipitationive -- previptive -- prescriptive regulations have gone beyond d.c.'s and are impacting the exchanges as well. you can characterize more specifically how the cftc is dismantled the core principle regime and how it would -- let me be more unbiased thourks would impact -- unbiased, how it would impact clearing organizations and also did any of the d.c.o.'s fail in 2008 that would warrant the chairman's concerns that have led him to override core principles for d.c.o.'s? >> no, sir. none of them did fail prior to 2008 and 2007, c.m.e. cleared $1.32 quadrillion. the way the chairman is trying to roll back some of the

modernization act of 2000, for example, would be on product. if we want to launch a new product we have the ability to self-certify that product, we innovate it, we should have the ability to self-certify it so it within first to market. some of these new rules would call for the cftc to have days, weeks, months to put this out for public comment again and give everybody an opportunity to look at what c.m.e.'s trying innovate, while there would be no incentive to inowevate new products. another example of that would be products that we've now currently made trade in a block trade or an o.t.c. fact because there are very few participant notice transaction so we list it on a facility just for a hand offul of participants and we essentially clear it. he's saying that if you don't have 85% of that trade done, the volume done, you have to delist the product or put it on a order book. that would kill the product.

we listed that. if we went by the prescriptive rules back then that they have in place today, we would not have a contract for folks to manage their interest rate risks like they do to today. that's just a couple of examples why i think the chairman's -- [inaudible] . >> c.m.e. is a significant financial institution. you also may have heard my raising the concern that i've heard about the difficulties that futures industry is having in keeping up with the ongoing proposed regulations, running their business and responding. my guess is that it may be easier for the c.m.e. to meet the challenge than it is the smaller exchanges. am i missing something there? i don't want -- i don't expect to you say it's easy for you, but i would worry also about, in my case, kansas city, for example. the ability just to keep up with the volume of activity at the cftc right now, toually make intelligent decisions about responses to proposed rules.

>> we have a very large outside law firm, we have a very large inside law firm. we cannot keep up with the common periods that are coming forward with all the new rules and do it in a very thoughtful way. i've talked to the chairman, the c.e.o. of the kansas city board of trade, i know they're having similar issues and they're a much smaller institution. we do do business with them so obviously we have an interest in what their thoughts are and this sals almost impossible to keep up. when the cftc is proposing these rules, trying to do them in a very short period of time and for us to digest and see what the consequences are with major outside law firms and a larger inside law firm is a very large institution and we can't keep up with it. >> your response to my question about innovation, new product. would that then create a disadvantage to being a member of the united states company while other countries exchanges be better capable of innovating than the united states? >> they can self-certify product throughout the world

and we don't get a first look at it like they get a first look at our product. you put the united states right down the drabe. -- drain. >> thank you very much. >> thank you. as the rule making process moves forward, this committee will continue to provide robust oversight of the reforms to the o.t.c. derivatives market. striking the right balance for how best to regulate derivatives should not be a partisan issue and i urge urge senators on both sides of the aisle to continue working with our regulators to build a stronger foundation for our financial markets. we did not reach a quorum today to vote on pending nominations as was scheduled. we are going to look for a time within the next two days to

hope this -- hold to vote off the senate floor after a roll call vote. my staff will send a notice when we find an appropriate time. thank you again to all my colleagues and our panelists for being here today. this hear something adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]