what have you learned from this? first and foremost for me, i have been stunned by the number of people who come up to me, no matter where i am. basketball games, supermarkets, walking down the street, at airports. they feel like they cannot engage in honest discussion in this country. you cannot tell people what is on your mind for fear that someone is going to call you a bigot. you cannot tell people what is going on because there is a fear that you might be fired. given the fact that we as americans are going through so much change, it strikes me that we would try to silence debate and silence people who were trying to contribute to a better understanding of who we are in service to the idea of solving trying to contribute to a better understanding of who we are in service to the idea of solving problems and making it a better nation.

what most surprised you during this? right after i got that late afternoon phone call, i bit my tongue, i was so worried. i did not talk to anybody. it was npr that leaked this as a story. it started the national attention.

there was the worry that, i can see where people who are conservative might decide that they want to support me. they are most familiar with this idea that if you said the wrong thing, you might be subjected to the charge of bigotry, racism, etc. i wondered how the left of the country might react. would this be an opportunity to jump on me? it was a big surprise to me when people like whoopie goldberg, sarah palin, agreed that what had taken place was out of bounds. since this controversy broke, people everywhere say to me, i understand what it is to feel like you cannot speak in this country today. they tell me that they feel like there is too much political correctness and is being enforced by the political

parties, and enforced by lobbying groups, by advocacy groups, political correctness that is used to enforce identity in this country. it is used to raise money. it is used by advertisers. therefore, people in the middle -- most americans do not identify as conservative or liberal. they identify as people in the middle. they have thoughts that vary about different issues. to be in the middle is often to feel as if you have no voice. you are not allowed to express reservations, concerns, worry that you have misunderstood an issue or that you are being misunderstood. they worry that the people who do get to speak in this country are most often the provocateurs,

the people who will say the most extreme things. they say the most out of line things and everybody pays attention. and then we go back to our politically correct speech code in which so much goes on. this inflexibility is a defining feature of our national discourse at this moment and it's tragic. as the talk-show host, when the do you think this started? you go back to the 1960's and there was a lot of effort to try to change the way americans spoke as part of fighting

barriers of inequality, racial and gender stereotypes back then. it was clearly of good intent that we want to try to eliminate bias in the way that we speak because that is evident in the way that we think. i think we have come to the moment of this inflexible debate. let me offer you some examples. i think that when the obama administration refuses to call terrorists "terrorists," i do not understand it. no one wants to say that it was a terrorist act. think about a political cartoonist being in hiding to this day because she proposed to have a day in which political cartoonists lampooned mohammed. again, this is terrorism.

the administration is reluctant to call it such. the president has the guts to go into pakistan to get osama bin laden, but avoids speaking frankly about the source of these talks. as a talk-show host, let me say, that is one example. do you have other examples? it extends to current argument that we see in today's papers about budgets and entitlements. paul ryan, the congressman from wisconsin, was brave to put forward an idea. i might not agree with the specifics of its, but here was an idea put forward. every commission or group that

has looked at this nation's budget agree that there has to be a mix of spending cuts and tax increases if we're serious about deficit reduction. but the other side is that the republicans will not allow discussion of tax increases or even elimination of subsidies. and then cite the iconic president ronald reagan for refusing to raise taxes even though if you check the record, president reagan raised taxes. even when politicians try to break out of this pattern of republicans are allowed to say this and democrats are allowed to say this, they find that there are other people to hammer them into adopting the official line, the official line and message of the day.

the result is, paralysis for us as a nation in terms of -- here is another example. taking on major issues like immigration. think back to president george w. bush, senator mccain, all tried to take on this issue. what happened to them? they were absolutely muzzled by the provocateurs, talk radio. there were suggestions that we really did not have so much of a problem with illegal immigrants as much as the possibility of terrorists crossing the border. it was unbelievable. it shut down the real debate, the real discussion on a major issue in american life.

as a result, nothing has been done on immigration issue. how do we get out of this box? day in and day out, as someone who covers american politics, i do not see an easy out. i see our political leaders modeling just this kind of muzzling behavior. he called his opponent "taliban dan." and ran misleading signs about his opponent. sharon angle in nevada opposing the second amendment remedy. that kind of rhetoric is not only offensive, but suggests that your opponents are not

worthy of being heard. they have to be shut down. you'll remember joe wilson yelling, "you lied" at the president in the middle of an address to the joint session of congress. i think we all know about democrats in wisconsin fleeing the state to avoid a vote. what about the senator recently saying that 90% of what planned parenthood does in this country is abortion? when he was confronted with the facts, he said that he did not mean it as a fact. how do you have a discussion when you cannot express the facts? do we need to get back to the facts?

it is that one possible way to get out of this? to that question, i would have to say, the facts are important. you can argue opinion, but not facts. it seems to me that there is more room for solution born of common ground than provocateurs and some politicians would want you to believe. americans are trustworthy people. i do not believe that we are bigots. i think we can have a sincere conversation. our greatest skepticism should be for people to who refuse to listen, to discuss, people who refuse to entertain any views but their own. a willingness to engage in discussion and debate.

when you hear about death panels and obama is a muslim, it just contributes to the polarized and distorted political reality that we live with today. too often people are being rewarded with political victories and money for maintaining this dysfunctional status quo. it was gabrielle giffords who said that a politician who tries to be reasonable, who tries to find ways to compromise, is not rewarded in this environment. that is why i think that we see something that all of us hold so dear. niche journalism is being rewarded.

so many people express a hunger in america for honest, frank discussion. i understand what you are talking about, tell me more. people who would not simply involuntarily revert to a rigid orthodoxy, political correctness. that is why what happened to me became such a large issue. it was never about me. it was always about our nation's ability to have debate and for people to feel as if we need are talking to each other, telling each other what we are feeling and what we're trying to express in service to the larger goal of solving problems and ending the politics of polarization. that is why as i am gathered here with you this afternoon, and we can stop this imaginary

talk show, i would hope that all of u.s. practicing journalists, all of you to understand the importance of this profession to our democracy, would pick up this mantle of trying to get away from simply repeating one more time this is the official message coming from the left or right on x issue and perpetuating the idea that anybody who disagrees is not a good conservative or a good liberal. therefore deserves to be shunned, silent, or fired. it is essential to our future as an american people. thank you very much. [applause]

>> he is not going away. here comes the talk-show host. seven months since making those comments, you have not had a lot of second thoughts. would you not have done anything differently at all? >> no. i was asked when i got that phone call, the suggestion was made, do you have any remorse? that is generally what i feel. it was not that i offered some analysis that was embracing the idea that people should feel this way or act this way. i was simply telling you how i felt.

that was not meant to be provocative, it was not trying to stir an audience. it was in service to a larger conversation. i understand where you are coming from when you say, i associate muslim and terrorism in this society. building on that as part of a logical progression to achieve some understanding between two points of view. i never had a second thought about that. >> someone said not one of the muslims that you mentioned were dressed as muslims. with respect to your comment, does that hold up if you reflect on that alone? >> it was not the specific of the dress. it is not the case. i would not know. even if i did know, the question would be, would i leap

to that feeling? that reaction? when i saw someone dressed in that way, it triggered a response in me. if you read the papers every few weeks, you will come across a story about a situation where people were praying before a flight or engaging in what some people might regard as suspicious behavior, and those people have that reaction. i do not think it is exactly a strange feeling. i do not. >> any thoughts that might be different as a result of what has happened with the arab spring?

>> i do not see how those two would relate. the focus in my mind, all of us who lived through 9/11, and subsequent terror alerts and concerns and attacks in spain and indonesia and the rest, i think that is the context that prompted this feeling for my mind of seeing a pattern. >> it is an interesting intersection. about what is going on in the media and the ability to express one's feelings. let's draw that out a little bit about what is appropriate on air and what contributes to a civil debate. you are going on the air and you are in a wonderful position. you are paid to express your opinion.

how do you decide what to filter when you are on the air? >> this is an interesting question for me because i worked at fox news before i was hired by npr. i was working at the "washington post" when i was first hired by cnn and fox. would you have said that on npr? >> and i said, of course. it is the way i feel. i do not change from one set of opinions to another based on the audience that i am addressing. i think that is part of the value of -- that was

acknowledged by npr and fox in both hiring me to perform functions for their audiences. he is speaking his truth. i was paid in both roles as a political commentator. i was asked to express opinions, feelings, to try to bring people the larger picture to give them an understanding of how political events and ideas are being driven in this society. i think that there is a line. if you are paid to hold the story in a straightforward manner, that is what you should do. i do not think total objectivity is always possible, but we can strive for that goal. if you are paid to be a political analyst and commentator, i think if you start playing games like that,

the audience realizes that you are not authentic. you know what is going on, but you are not saying it. you are saying it in such a way as to speak to one audience that wants to have its pre- existing views confirmed. they're tuning in for that. that is not just who i am. i think that is why i strive for a higher level of trust with the audience. i trust you to tell me your truth. that is a very high goal for all journalists. >> it just so happens that the npr -- she had written in her blog. williams tends to speak one way on npr and another on fox. what do you think about that? >> not true. she is wrong. trying to understand her and

trying to understand why -- what she might be talking about? i do not think so. there are different formats. cable has a much higher value put on time, much more of a debate format, much more confrontation. you are on camera, so the way that you look has value. on radio, typically, my role was as a veteran washington journalist, someone who knows people, has good sources. i was being asked specific questions by a host.

when the formal interview type format would break down, it was pretty much back and forth. sometimes pointedly, sometimes humorously. that was less frequent on npr than on fox. these are different formats. that is to be separated from content. it was never the case that the content that i was delivering in one format would vary depending on the audience. i just do not play that game. >> were those dismissals warranted? >> it is not my call to make. clearly, i felt mistreated and traumatized.

i do not think it was a service to the institution of npr. which i value greatly. npr is an important journalistic institution. when you are engaged in a kind of practice that would silence people, or punish people, for speaking, i do not think that is healthy. again, what you have to do is make sure you are being fair with your employees and the audience. it is not about catering to anyone slice of the audience. we are going to tell people what they want to hear, not introduce different points of view or different stories.

i did not think that she was serving the institution very well. i think it opened up a lot of discussion that was debilitating to what was an outstanding brand. >> this is a chicken and an egg question. it is clear that the political debate has become much more negative. it just so happens that it is reflected in radio talk shows, on cable tv, in a way that was not present on cnn. now there is more time devoted to argument. do you see cable as setting a tone for the political debate in our country? is it merely reflecting it? what is the appropriate role for those media?

>> i want to remind you that i was a substitute host on "crossfire" on cnn. it was the progenitor of many of those shows. i am not sure that i would agree with the premise. the idea of vigorous debate should not be limited to the extremes. sometimes i used to think that the producers -- we are having a discussion about race in america tonight. what kind of discussion is that? it would get big ratings. there would be a lot of nasty words cent.

but i do not think it would be illuminating. i think it is important to have debates, to your contrasting point of view. i really do put a high premium on having reasonable people engaged in the debate and people do have some sense of respect and trust for each other as opposed to people who delight in finger-pointing. >> as a liberal, how do the rationalize going to work for one of the most conservative networks? it seems fairly obvious that the conservative pundits exploit you. do they not? >> after i was fired, the "washington post" wrote that i was the most conservative voice on npr. that was a surprise to me. maybe so. it just tells you that everything is relative in this

world. i might to been the most conservative voice on npr, the most liberal voice on fox. this question about being exploited by fox would suggest that it might be better if i was not willing to engage in debate with people who do advertise themselves as conservatives. i think, again, that is an important fact in terms of saying, here is a different point of view. no one is telling me what to say. i am allowed to challenge the debate. i get the worst lighting and the worst seat. but the debate is there for all to see. that is one of the benefits. you can hear the debate, you can hear both sides. the idea but i am a foil for some of the leading personalities, that is before matched.

people tune in and to prime time personality-driven programs. people are looking for that strong authoritative voice. for someone to come in and challenge the host, that is thoroughly legitimate. that is not a matter of being exploited. i think it is evidence of a legitimate debate for all americans. i think that is what we should be seeking out. >> you were talking earlier about the funding debate for public broadcasting. you have said that the funding should be cut off by the congress.

can you explain that? >> it is not born of any type of vindictive streak. that is not my character. in the midst of all of this, you'll recall that there was a tape, it was secretly recorded treat -- recorded. we would prefer not to have government funding. that is apparently their genuine funding, but it is not expressed publicly. it is a very small percentage of overall npr funding coming from the government. it might impact some small markets, some stations might have to shut down. you would see a lot of stations join hands. you would see more consolidation of markets. it would not result in anybody losing access to national

public radio. but the point that i feel the most strongly it is this. i think journalists should not have to look over their shoulder as to whether or not politicians think that they are doing a good job. if you look at the debate that was taking place at the time over in d.r. funding, there were fund-raising letters being sent out -- over npr funding, there were fund-raising letters being sent out said they respond to rush limbaugh, etc., and then the democrats are going to challenge funding? i think this is a bad game for anyone who wants to do journalism. let the politicians play their games, and let the journalists to do their jobs. >> how are journalists

during? >> i do not have statistics on may, but i think my sense is -- do not have statistics on me, but i think my sense is diversity with women is great. until recently you had katie couric and i am so year as news anchors, and in terms of young people -- and diane sawyer, and in terms of young people, when men are far out doing young men, which is w-- women are far out- doing the gunmen. -- out-doing young men. when it comes to racial diversity, i find myself

sometimes shaking my head, because racial diversity has not improved, even as you look ethnographic sin -- demographics in the country and they are now a third of the population. more young people of color than that number might indicate. it is approaching 40%. it would seem there would have been of a breakthrough in terms of representation of racial minorities in those highly competitive media jobs, but i think with the cutbacks we have been seen in newspapers and with tv and radio, it has not acted in a beneficial way for racial diversity in american media. >> is it true donald trump sent you a note after you sign on to

his website as a way of the drafting as a presidential candidate, and if so, what were you thinking, and is it racism that targeted some of his comments about president obama? >> i did not know you allowed drinking at these events. that is the wildest fabrication i have heard. >> you said earlier this month that ron paul could win the gop nomination. why did you believe that, and how will the gop ticket fare in the next election? >> we are living in a cage of ron paul. -- the age of ron paul. you think of the debates we are

having over entitlements. ron paul has been at the forefront of so many of these conversations, and it seems to me we are living in the age of ron paul. it is stunning see me. ron paul suggested we have been in afghanistan to long. you have the former governor of new mexico buying into his argument coming from republicans to regard -- from republicans. that is not a party line. i think ron paul has become an

-- many people do not know him, and he is still able to raise a tremendous amount of money, but ron paul is a power player in a way that often goes below the screen. people do not take it up in terms of his true power. i would be surprised if he won the nomination. >> we're almost out of time. i would like to remind you about upcoming luncheon speakers. on june 13, we will discuss how innovative method of farmers and scientists are essential to feeding the global population. the former national security adviser under president ford will speak at our annual gerald ford journalism awards. and the oscar-nominated actor will announce a foundation dedicated to raising charity supporting the military.

and then the national press club will host the beat the deadline ce, and secondly, i would like to present our guest with the traditional npc coffee mug as a token of being here today. >> thank you for a much. >> you worked as a newspaperman. you have been on the radio and now television. i assume you are better paid now than before, but if it was not about to pay and just about the work, which platform would be at your favorite and why? >> we were talking about this, and i said, if you wake me in the middle of the night, i still think of myself as a newspaper guy, because i came up as a newspaper writer. i must tell you people do not generally agreed bylines.

-- read violence. on tv they see you more than they hear you, and they have an emotional response, and they will offer comments on your ties and all their rest, and on the radio, it is such an intimate i would find people were writing letters saying you are the other adults in the car when i am taking my kids to school or you are my friend in the middle of the day, and they would send pictures. they were sketches, not actual pictures, but people who would suggest, here is what i think you look like. i ended up being bald. in some dangerous i would have a goatee. i would be of -- in some

pictures are would have a goatee. in some pictures are would be white, black, hispanic. it was a function of their imaginations, so i think you get more into the imagination in a radio than the other media, but i will say that tv release spreads. i think tv is the medium of our time. -- tv relate spreads. -- reallly spreads. four in-depth reported, there is nothing in my mind that these are really great newspaper -- deadbeats are really great newspaper. >> how about a round -- that beats the really great newspaper. >> how about a round of applause for our speaker? [applause] we are adjourns.

-- adjourned. great job. thanks for coming. >> of pleasure. thank you for having me. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> up next, the head of the federal deposit insurance corp., sheila bair, and testifies about financial regulations and the banking system, and then general james amos on u.s. strategy in afghanistan, and after that, on the patriot act. on tomorrow's " the washington journal, we will discuss the u.s. supreme court decision

requiring california to reduce its present population. then the republican senator will talk about the house gop proposal to make changes to medicare. after that, historian and author douglas brinkley joins us for a celebration of the world war ii memorial, and in the afternoon, a member of the palestinian council will discuss the recent unrest and the arab world and what it means for the peace process. that is live at the carnegie endowment for national peace. >> you are watching c-span, bringing you politics and public affairs. every morning it is "washington journal," connecting you with journalists, and weeknights, congressional hearings and

policy forums. also common on the one -- also, on the weekends you can see our signature programs and saturday, ."he communicator's you can also watch our programming any time as c- span.org, and it is all searchable on our video library. sees them, a service created by america's cable and -- sees them, a service created by american cause cable -- cspan, a service created by america's cable companies. and we talk about the foreign policy of ronald reagan, and we will visit virginia to talk about the old guard and its role in military and presidential materials. if the complete weekend schedule at c-span.org/history, or get if

he mailed to you. >> ahead of the federal insurance corp. sheila bair is urging an increase of the federal debt ceiling. she stepped down in july when her five-year term ends. this subcommittee hearing is two hours. >> i want to apologize for the delay. we are having an organizational difficulty. i would like to thank the chairman for coming today. it sounds like we will have our

first series of votes around noon or 12:30, and we will hopefully have this concluded by then, because we are going to be in a lengthy series of votes. we are joined by the chairman, sheila bair. she will be leaving in july of this year. i would like to thank the chairman for her dedicated service. you have had a lot of activity, and i thank you for your service to your country. this will provide a better understanding of the role of the fdic and the financial crisis. the current state of -- the recent passage of a dog-franc enhances the role -- dodd-frank enhances the role in the structure, and they will provide the orderly liquidation of authority. i am interested to hear about

the fdic possibility to balance these new powers with the traditional role of a credential regulator. an unfortunate effect of the financial crisis has been an increase in bank failures. the rate has increased dramatically in the lastew years which won a good 40 added 57 -- 157 in 2010. the fdic requires banks to prepaid premiums for the years 2010 through 2012. the deposit and insurance fund has significant challenges. i look forward to hearing from chairman bair about this. although i understand the need to replenish the fund, i think this could have an instant --

unintended consequence of not having enough funds for lending. we need to find a balance and to ensure we have a safe and sound deposit fund with -- without ceasing lending. i am interested in hearing what the agencies are doing. we need to ensure that new regulations provide enough flexibility for small institutions to meet the needs of their customers and not be encumbered by a one-size-fits- all regulation geared to the largest institutions in our nation. a diverse nancial institution is good for all market participants. i am interested to hear how the fdic will work with the consumer protection bureau. finally, i would like to touch on the liquidation of authority granted to the fdic by the dog-

franc act. i know the chairman sincerely believes that these powers -- that these institutions are too big to fail. but i would prefer to see a different form of resolution where there is no taxpayer exposure. let's work together to make sure the mark -- the message is clear to market participants -- there will be no more government bailouts. i would like to introduce the gentle lady from new york. >> i just want to join you, madam chair, in welcoming our outstanding chairwoman. i noticed -- note that this is her last appearance before our committee and ianted to express my deep appreciation to our service, especially during the most recent financial crisis and your attention to communities, to details, to members of congress. i truly believe you had done an outstanding job.

thank you. the fdic was forced to take a significant mease during the crisis and continues to act in the wake of the crisis to ensure the health of our banking system. your involvement and leadership was critical during this difficult time. we can now s that we are recovering from a crisis, not a depression. i think you played a meaningful and significant role in our being able to say that. this heari is very timely because it is happening during your last few weeks i in your tenure at the fdic, but also because it is happening during a period of recovery when we had the benefit of hindsight. during this most recent crisis, we sought 8.5 million jobs lost and over $15 trillion in household wealth mosque in america. although we are trending up in terms of job creation, it is

lower than any of us would like. this crisis highlighted how important it is to have a sound financial system in terms of the functioning of our ovell economy. we know the fear that can set in on main street and institutions of wall street are challenged and, in some cases, fail. over leverage, overcapitized financial institutions to contribute to the problem. structured finance products that were unregulated r rampant, and you, the regulators, it did not have the tools you need to bring this in. congress change that with the enactment of dodd-frank this year. it gives th institutions the authority to wind down failing stitutions and more power to regulate institutions. we made significant changes that

directly affect fdic insured institutions. for example, we may be $250,000 deposit insurance limit permanent. you played a meaningful role in making that happen. we changed the formula for deposit insurance assessment so larger institutions engaged in riskier activities will pay more than smaller institutions that pose less of a potential threat to the fdic. we increased the minimum level required in the d.i.f. to provide a better cushion in troubled economic times so smaller banks are protected from having to foot the bill that there is a need to raise additional funds. all these actions we took were meant to help both prevent another economic crisis and to help soften the blow when unanticipated things happen.

i am looking forward to hearing from chairwoman bair because i know there are a number of new requirements on regulators. what do you see as challenges going forward? i want to hear any words of wisdom you have to leave with us before you leave your position. i just want to underscore, again, how much i appreciate your service. i am looking for to the next chapter. i know you'll continue to make meaningful contributions to our country. thank you for your leadership and your service. >> i would like to recognize mr. royce or 1.5 minutes for an opening statement. >> thank you, madame chair. i would like to welcome you and thank you for your years of service. i have enjoyed our conversations. as you know, i am is still concerned that dodd-frank has

not ended too big to fail, but has left us with a number of massive institutions that will continue to expand at the expense of their creditors because they're baring costs or lower. there is a 70% advantage according to studies you have done. at the end of the day, it is a system that enables the usef government funds in resolving an institution and it relies on the prudence of regulators during a crisis to avoid overpayment to creditors and counterparties. i think the fact we get the lower cost of capital shows it is human nature that we have created a moral hazard in the equation. while i hope this committee works to eliminate the orderly liquidation of party and move to a more objective, and hast

bankruptcy, i believe we can take steps in the near term to minimize some of the unintended and some intended consequences of this legislation. i appreciate your efforts and pause today, espially on this particular team. thank you very much. >> i would like to recognize mr. lew meyer for 1.5 minutes for an opening statement. >> years ago when i was a bank examin, we worked with institutions to make sure they understood the regulations to which they are subjected. instead of a partnership, i hear time and time again that relationships between financial institutions and regulators are more like a game of gotcha. i have hrd stories of overzealous examiners. one bank was put on the problem

list. it was noted to me that the examiner had been scolded the previous day for not doing a good enough job for predicting another bank be put on the li. that bank, since then, has had no problems. we need regulators to do their job to promote sound financial practices -- no more, no less. we dnot need overzealous examiners to have no regard for upper management and refuse to recognize what is going on in the field or the economy. i urge the fdic to take a look at the examiner staff to work with institutions so we to work to get our economy moving again. i look forward to the discussion.

i yield back. >> i would like to recognize the gentleman from texas for one minute for the purpose of an opening statement. >> thank you, madame chair, for holding this meeting. hearingis that today's addresses very important question -- did the dodd-frank at institutionalize too big to fail or did it level the playing field as some politicians and regulators have argued? i am concern that recent developments, including market data showing marketing costs, are currently march -- much lower at big banks, and the continuing questions concerning the fdic's new authority to lead us to believe that too big to fail is still very much alive and taxpayers could be asked to bail them out in the future. i look forward hearing from chairwoman bair on this

important an ongoing issue. thank you. >> i would like to recognize our newest member, mr. kantor from tennessee, for one minute for the purpose of an opening statement. -- mr. fincher from tennessee, for one minute for the purpose of an opening statement. >> as the newest member of the financial services committee, we are pleased to have the opportunity to deal with, hopefully, what will be the things that are going to fix the problems in the future. i was not in congress in 2008 when the financial crisis and war across the committees of our district. as a small-business owner, i felt it's a fax first hand as the bottom dropped o of our economy. one major principle i did take away from those days was the asset to credit is of vital in helping our small businesses of

gen. until our financial institutions are allowed to responsibly do their jobs again and own money to qualified borrowers, we are not going to seek business is creating new jobs. again, thank you for your service. i look forward to hearing what you have to say today, but too many times washington is not the answer, it is the problem. i yield back. >> i would like to recognize the gentleman from georgia for two minutes. >> thank you, mrs. chairman. i think this is a very important heing. before i begin my questions or continue the comment, i would like to fill out some numbers for chairman bair. 63 is the number of banks that have failed in georgia since 2008. 12 -- the number of bank failures in georgia since 2011. 10 -- the numberf banks headquartered in my district that have failed since 2008,

including this past friday. this number is mh larger if you factor the banks that only have branches in the district. these numbers or unacceptable. therefore, i will be introducing a bill directing the inspector general to inspect fdic long share agreements, the lack of an ability to modify or work out loans, and the application of the fdic policy by examiners in the field. this study is not only vital forces -- for surviving banks, but said the fdic can learn from the problems. it is my hope the fdic and my colleagues will support this bill so we can have an honest assessment of the fdic's handling of this bank crisis. georgia is in a vicious cycle right now, going the wrong way.

i have borrowed a lot of money from banks in my business career and i know there will be more failures in georgia this year, but i am here to say that when a georgia bank fails, my office will be searching for answers and holding the appropriate regulators accountable. with that, i yield back. >> that concludes our opening statements. i would like to now introduce bair.sses. sheila thank you for coming today. >> chairman capito, thank you for the opportunity to stify today on the state of the banking industry and the federal deposit insurance corporation, and on future challenges to economic and financial stability. much has been written and said about the events associated with

the recent financial crisis and the factors that led up to it. my written testimony summarizes four factors are considered the most important excessive reliance on debt financing, incentives and finance, regulatory arbitrage, and an inadequate resolutions framework that allows some companies to beme too big to fail. the fdic was created in response to the most serious financial crisis by american history i 1933. our mission then and now is to promote financial stability through bank supervision, deposit insurance, and the orderly resolution of failed banking institutions. shortly after taking the oath as fdic chairman almost five years ago, i came to realize that we would face significant challenges in a number of areas. although the fdic was still in the mit of a two-and-a-half year period without a failed institution, the longest such period in our history, there were signs that not all was well with the banking industry. predatory lending practices and unsuitable mortgage products, which were already an area of focus for me at the treasury department when i served as assistant secretary for financial institutions in 2001 and 2002, became even more prevalent as the decade progressed. rising concentration in the banking industry was leading to

the emergence of large, complex organizations that encompassed bank subsidiaries, special- purpose vehicles, and nonbank affiliates, while a greater share of financial activity was migrating to nonbank financial companies. i am proud of all the fdic has accomplished in the past five years. my greatest satisfaction lies in the knowledge that we get pace with the depositors we were established to protect. we have maintained a 78 year record of no loss without borrowing a penny from taxpayers. we still have important work to do. oufirst task must be to follow through on the reforms that will and too big to fail. at the height of the crisis, we lacked the necessary tools to resolve companies in a water leak matter and had to ahorize government bailouts. too big to fail represents state capitalism. unless reversed, the result is likely to be more concentration and complexity at the expense of the public. the dodd-frank act as the cycle

of government bailouts under too big to fail. they will be resolvable only at the regulators can exercise their authorities under theaw. the success of this framework will depend on the ability to collect information and to determine whether they are resolvable under bankruptcy. it will also require the willingness of the fdic and the federal reserve board to use their ability to require structural changes. a less organizations are rationalized and simplified in advance, there is a danger there complexity could make resolutions more costly and difficult than they need to be. these authorities are being shaped now and agencies will make them process. it properly implemented, they can make our financial system more stable.

if we fail to follow through on these measures when market conditions are relatively calm, we will not be able to prevent bailouts in the next crisis. my testimony looks at the role for bank and non-bank financi companies. strong capital standards are of fundamental importance in maintaining a banking system that supports economic growth. supervise the processes will always a lot of innovation to some extent and restrictions on some activities can be difficult to define and enforce. capital standards, all the other hand, are easier for supervisors to enforce and provide an additional cushion. skeptics argue that requiring banks to hold more capital will raise the cost of credit and impair economic performance. the crisis shows that the social costs are extremely high and that the lack of an act -- and adequate capital cushion makes

the crisis reciprocal. loans and lse held by fdic insurednstitutions oloans have declined by nearly $750 billion from peak levels while and used loan commitments have declined by $2.50 trillion. trade and more were lost. i would also like to highlight the urgent need for progress and the administration to address the rapid growth in debt. financial stability critically depends on public, and that's which should never be tak for granted. there is no greater threat to our future economic security and financial stability than an inability to control the size of the u.s. government debt. i feel just as strongly that a technical default on government obligations could be calamitous. any signal policy makers may not

make good on these obligations will destroy the trust that investors have placed in our nation for more than two centuries. urge congress to commit to the irresponsible increase in the debt ceiling. i would like to share with you one lesson i have drawn from my experience as fdic chairman. it is the most important attribut of effective legislation is the courage to stand firm in the good times. it is during a period of prosperity that the seeds of crisis or sound. overwhelming pressure is placed on regulators to relax -- relaxed capital standards and to allow higher concentrations. the history of the crisis shows many examples when they failed use of parties they already have or fail to ask for the authorities they need to fulfill their mission. many in the regulatory

community -- regulators are never going to be popular or glamorous with the they act in a timely manner or failed to act and allow it to take place. the best they can hope to achieve is the knowledge of the exercise statutory authority and act in good faith in the intere of financial stability in the broader ecomy crosses very much. i will be happy to answer your questions. >> thank you. we will now begin a poron of the hearing for questioning. i will begin my five minutes of questioning. we have had ongoing discussions with you and your staff concerning the relationship of th fdic and the cfpb. the fdic just announced a new consumer division within the corporation. how will that work in relation to thefpb?

do you envision a consumer protection within the fdic that takes the regulations that come from the cfpb and modify them for the other institutions? what kind of -- are we creating a two-tier system here? >> i think under the statute the supervision enforcement remains with the primary banking regulators. the ititutions will stay with us in terms of the examination. we have never had authority for the consumer role. >we had never had the ability to write the rules. the fed rice the rules. we have coordinated with them.

i think the cfpb director will be on the fdic board. that will help assure coordination. i am i hope that this will help increase the understanding about broader regulatorissues. in terms of creating a new division, i want to emphasize the examination staff reported structures in the region that this was an organizational change. there was additional administrative staff to support the organization that -- or his racial separation. it -- organizatnal separation. the focus is far more effective

consumer regulation. i have concerns about community banks -- banks that i had expressed. there is more focused they should be on violations. reporting violations or what have you. we have tried to refocus the examination force. i think that has been a good outcome of the policy level focus of the fdic on consumers. i think this will be a way for us to have a better focus on consumer protection. coordinating with the new consumer agency will have an advantage. >> i want to go to another question quickly. it sounds like the structure is

being enacted while these institutions are under $10 billion or exempted. it sounds as if they are not going to be expted, which is thereea-- not their fear, fear of the unknown. it would be coordinated through your institution. >> with regards to examination reports, it does not really exemptions. it is what we have always done. the primary banking regulator will buy sure they comply with consumer rules. the consumer agency has rules for all institutions. whatever rules state right, they will apply to all institutions. i have spoken in favor of a future regulatory structures of taking certain areas that are appropriate i think we will be able to engage with the consumer agency. that person will be on our board as well. >> over the last several years

there has been increasing consolidation of the banking industry. we talked about the advantages larger institutions have with -- that smaller banks. smaller banks are concerned about being able to staff the regulatory issues, the legal issues they see in front of them because of dodd-frank. how do you see this playing out? is it concern for you? i think it is a concern for main street america. >> it is a concern. we have the community advisory committee. we talk with them a lot about this. on the positive side, the dodd- frank did some important reforms for consumer banks. it will help them address funding disparities by having a higher deposit insurance limit. it will save them about $4 billion.

i think there were some positive things in dodd-frank. we are trying very hard to make sure laws are implemented to insute committee of banks from reforms that were targeted towards a larger institutions. we are very concerned about the differential in funding costs as well. we will talk about the implementation of more later. >> thank you. mrs. maloney? >> thank you. thank you for holding this hearing and giving us this opportunity to see sheila bair one last time.

i will ask you to respond to what critics have claimed it -- the liquidation of party promotes bailouts because it allows the fdic to pay creditors 100 cents on the dollar. is it true that this is erroneous in light of the fact that the law requires the fdic to assure that predators take care of their -- creditors take care of their losses. the fdic pays creditors more than they receive in liquidation bankruptcy ivery limited. it is subject to their losses. yo comments, please. >> i think it is important. we clearly have a job ahead of us in terms of educating folks about are processed and assuring them it is every bit as harsh as bankruptcy. it has the same credit priority

you see in bankruptcy. this is consistent with our powers under our traditional receivership powers. basically, it is a two situations. continus operations -- keeping services going, paying your service people and employees -- that is also recognized in bankruptcy. or whether it is to maximize value. that is simply a mathematical determination. we see this in by resolutions of frequently -- they will pay us a premium to cover all insured and uninsured deposits. it actually makes more money for us and maximizes our recovery to cover the deposits.

we are making more money with the premium that the acquirer pays. that is an example we maximize value by differentiating. again, it is a mathematical formula. to emphasize it more, we have said that we do not think there would be a situation where a longer-term creditor pace longer than a year would either maximize value. for uninsured creditors in the short term, they will take losses as well. we have tried very hard to assure people that the losses imposed on creditors will be every bit of ours -- every bit as harsh as it would be in bankruptcy. the 97 cents on the dollar that comes from a report our staff did on the lehman bankruptcy.

the recovery will be driven by the losses and the amount of equity. as a matter of market discipline, the senior debt holders want to protect themselves -- they should look at the equity capitalization levels. >> to put it in a framework that is helpful to us, could you explain the extent to which ving the orderly liquidation of 40 during the financial crisis cou have prevented bailouts and the mitigated effects? >> there were lots -- the was lots of time that limits. there were many alarms before

the institution finally failed. all systemic entities under dodd-frank will have to have resolution plans on file with us. ere will have to be a blueprint well before they get into trouble. the payment bankruptcy -- lehman bankruptcy as help to resolve the larger financial institutions. anticipate having an ongoing presence with the larger bank holding companies. the fact that there was a resolution process -- that would have been a strong incentive for the leadership to write their own ship and go out and sell themselves at a reasonab price. we see this all the time with banks. they know that if they fail and

go into a process -- it is a powerful incentive to take care of it yourself. about 25% of banks have gone out and recapitalize. they are very motivated. i think that would be an important factor we did not catch during the crisis. itlso provides us a sense against blackmail. during the crisis, a lot of institutions were saying,if we get down, there will be all these problems." the was no or early process. now we have an emergency situation. we can provide temporary liquidity support, but their shareholders and creditors are bject to law and their boards -- are subject to loss, and their boards are not. >> there are a lot of tools that we have.

>> t gentleman from ohio. >> thank you, et madame chairwoman. thank you for being here. i want to focus today on the composition of your board of directors. the new composition under dodd- frank, which includes the director of the cfpb -- coming from the private sector and serving many boards, i have always been concerned. there is a concern about direct or indirect cost rates of interest. knowing you have to work on a regular basis of what one of the individuals, which would be the director of the cfpb, i am considered that there is a conflict of interest to a lot especially when it comes to your seat on the financial fsok.

it takes two-thirds to do that. i know my colleague, mr. duffy, introduced some legislation to try to talk a little bit about this. when you have to work with somebody on a regular basis and then you go over to -- and then you go over and have a vote and it takes seven o of 10 to block eight rule by the director who sits on your board and that person also has a vote added the 10, you limit the ability to really have oversight by easing the financial oversight council. my concern is, when you have that kind of conflict of interest, is a good policy or a

good procedure -- i will introduce a bill next week that will simply replace the director of the cfpb with the chairman of the fed. i believe we need to focus on safety and soundness, yet a perceived conflict of interest -- get any perceived conflict of interest of the way. i would like your thoughts on the potential conflict of interest. >> i think it is aood question. a lot of people said the fed was one option. i liked the rappers -- reciprocity. i think that would be helpful. i think the advantage support putting the consumer bureau head of the fdic board might help sensitize that person to sell the safety and soundness issues associated with deposit insurance. frankly, there is a close

connection. to the extent people were worried about the consumer bureau had not been in the budget context of bank regulation. it may help educate that person. i think that is the argument for it. if you get to the structure for the cfpb, that might be a nice thing to have as well. we are find with this. we would have liked some rappers -- and reciprocity in the structure. in terms of the conflict, have sought actually as the ability to intercede with pretty much any of the regulators. if they think a regulator is doing something that is not appropriately adjusting systemic risk.

these are difficult questions. i think we can work with what is the law right now. >> it is interesting. you brought in the safety and soundness aspect. i read the mission statement yesterday and out of 754 words, there is no talk about safety or sadness in their mission. >> a safe and sound bank is the best bang for customers. similarly, consumer abuses as we saw with mortgages -- there needs to be a lot of cross- communication. >> in regards to the orderly liquidation of parties, there had been a number of examples.

bank of clark county washington -- $440 million in assets. citigroup -- $1.90 trillion in assets. the time, the energy, the staff that is needed -- i know i am running out of time. i would like to find out how you believe the manpower time and strain -- how would you be able to exercise authority over much larger institutis? i yield. >> we will give you lots of time to think about that. mr. bock is from california for 10 minutes. >> i understand the fdic has issued an internal financial report to implement an orderly liquidation of 40. could you briefly discuss these rules, particularly to the extent to which they wld

align an orderly liquidation process with bankruptcy is or failed bank resolutions and ensure creditors their losses the institution itself does not survive? >> the statute is clear. it ends bailouts. to the extent the governor -- government would be to provide liquidity keep the bank going -- it is a process that is every bit as harsh as bankruptcy. i think we need to reassure focus on that. the purpose was not to reinforce the bill. we have engaged with rating agencies on this. some have decided to continue.

we say to them, "read the statute." they say, "we think congress will do it." they believe the congress will step in. i know you do notant to face the secretary of the treasury or the chairman of the fed asking for $700 billion. i think the tools are there to require a credible resolution plan. there should be structural changes. if they cannot come up with a plant, it shows a cannot be result in an orderly way. >> who would enforce that? >> the fed and the fdic. a supermajority vote can require a divestiture if necessary. >> some underestimate the living

will requirement which the defense and the fdic are in the process of implementing. could you discussed the importance of the living will as a ongoing regulatory tool that will mitigate against failure of large, complex financial institutions as a tool that will make this orderly resolution most likely a rare if that at large? >> it is a divestiture requirement. they must have plans in place that will show the order resolution process. for several restitutions this is going to require some structural changes. there are thousands of legal entities that they never bothered to rationalize.

getting their business operations in line with their legal structure, there is a strategy to break them u into marketable size pieces. i think international operations, there may be some levels that are required to separate themselves in certain foreign distribution -- in certain foreign areas. some already operate with this model quite profitably. i think it is the kind of thing we need to look at ander may -- we need to look at. >> thank you. i yield back the balancef my time. >> thank you. recently the fdic completed a

pilot program of small dollar loans and had a couple of different programs, one under $1,000.10 under $2,500 -- $2500. >> we were very pleased. it was very successful. the bankruptcy rates were a little bit higher than they are for other forms of lending, but the rates were very much in line. i think the banks that participated were pleased. they gave us the information which we in turn made more broadly available to banks in general. there is a particular need for small dollar credit right now. i think having a proven model was important to us. we were veryleased. >> what interest rate did you see on these small dollar loans

work? >> these were consumer loans. they were all below 36%, which is pretty high. we will actually give c.r.a. credit. >> do they think they could make any money? >> they did make money. most of them were significantly lower than 36%. >> four two years the fdic right was not profitable. debt is what my envelope says. >> there was no interest te cap. there was a guy that's that

said -- that was a voluntary program. those were profitable. they were below 36%. >> we will work that out. thank you. with regard to the insurance fund, house of what are we right now? >> we are still in negative territory, but we should be in positive territory by the end of the second quarter. 2009 -- it is improving. the banking industry is improving. that represents our equity position, not our cash posion. we should be in positive territory by the end of the second quarter. >> do expect to make up the difference? >> we had an increase scheduled

that we did not get becse the industry is recovering. >> with regards to enter change its fees, the other day we had chairman bernanke in front of us we asked him that whenever the regulators take a look at the bank and shop all 13% of their income, will you forget about that loss of incomer are there to make that up? he had no answer to that. we certainly want to see them continue to be capitalized. his regulations is going to have a dramatic impact on the bottom line for a lot of institutions. what is your thought on that? >> they are doing it as they see consistent with the statute. we are very concerned about it. the community bank impact, they

are not supposed to be subject to ts cap. can you really protect them, particularly if the network provider is not required to take the higher fee? we think the 12 cents is too low. the letter that i am happy to share with you, we think they should take a broad measures into account. we think they should do more to take the incremental cost of small banks for debit card age. it will get the large institutions and the incremental costs are less. i dunno how we're going to come out with that, but it will take some more time with this. we hope they can find a legal justification.

>> my dad told me that a long time ago, he wanted to explain why it was a good thing. thank you very much. >> tnk you very much. i wanted to start off by thinking you for the excellent service you have done as chairman of the fdic. and especially for responding for each time i call your office. you help us handle her. my state of georgia has a plethora of problems. led the nation and bank closures go. a number of banks, community banks in my state of georgia are under regulatory orders from the fdic.

and i understand they are driven by the loan portfolios and capital levels. the often require a bank to reduce their concentration to some artificial level. is forcing them to not renew, even perfoing loans to some borrowers. it seems to hurt everyone. they are so centered on real estate. it is difficult in these economic times while the bank loses a performing loan. surely, there is a better way to enforce rules and regulations so that they don't hurt the very consumers that are designed to protect and the bank that are designed to oversee. what might be a better way?

our policies are not consistent with what you are being told. again, i will say this. if there are specific examples where you feel the policy is not being applied, i personally want to know about it. i cannot tell you how focused i personally have been on this. it is hestly performing. if you have to keep making payments on that loan, it doesn't matter. it is a fine loan. even if the collateral has gone down, you have a credit worthy borrower, you don't have to wre down the loan. if you're extending new credit or new money, the bank needs to go naked of risible. that is a basic tenet of

banking. if a borrower is creditworthy, you don't have to do a write down. ellen through this again yesterday. i hear this and it is very frustrating to me. if he has specific examples, i want to know about it. >> what should my banks do. that is not the way it should be? >> it is a confidential process, we can do it on a confidential basis. her name is sandra thompson, the head of our division. there are any number of avenues to bring this to our attention d we do want to know about it. i have found a couple of cases where the policy has been apied and we collected it very quickly.

we really did have some problems. it made a different perception ofhat the credit worthy borrower is. we will review every single one. >> just last week, home to more banks failed in my home state of georgia. this brings the number of banks the close this year to 10, by far the most in any other state. this is not unusual moves as banks in georgia continued to struggle. can you tell me what makes a small banks untenable the closure? there were failures of banks agreed to fast and have taken brokered deposits. they particularly have made a lot of out of area lending, that

as something does not good unless you have reached that exposure. as we have progressed more to the economic troubled times, you're seeing more become. there is risk management there. there succumbing to economic conditions as well appear in is the losses are mounting in the capital has been sufficient, if it can't raise additional capital, and as a not we can do about it. it is fairly rigid. >> are there specific things you can say right now that the fdic can do to assist them? >> > we don't have a different role than they do.

they need to understand what is going on in the bank. they need to listen to management. they must exercise their own independent judgment. it should be robust conversation with management. currently anything we can do to help them recapitalize is in our interests. but don't want these banks to fail, it costs us money. if they can't reach new capital, if you delay for a long time, the losses will go even higher. that is why we follow ed. >> thank you for your generosity in time. >> in a meeting i had two weeks ago with your staff, they informed me that it is unlikely that the ftse will wind down the

use of sharing agreements in georgia. setting aside my strenuous objection to this, i have serious concerns about the agreements that will begin to mature in a couple of years. as the sought date approaches, i have serious concerns that the banks will begin to rapidly sell off assets to take advantage of the agreement. this could lead to yet another downturn in real estate and make it harder for people to obtain loans. what is the plan for these maturiti? >> i am not sure we've got this figure. they coincide with the maturities of alone. their estimates about whathey wi expire. there is no cut off point where we think there is no longerny share that is going to be done

in the market. that is not how it works. we think that it prevented a lot of property going into the market because it has the deposits and the access to another depositary institution. it pro we would not taken the assets. the extreme liquidation discounts or hold ourselves and management which is efficient. it has helped keep a lot of assets in the hands of better capitalized and stronger depository institutions i want to emphasize that we have very stringent rules about loss negation. if it will have more than a foreclosure, we ought at that.

>> you might to send the folks out of the regulators that i should go out and do work in th field, see were the disconnect is. >> again, if you have specific examples we would love to hear them. >> these banks are afraid to death of retaliation. we would be glad to give you examples, but trying to get some of these guys going forward, i have tried for a long time. i'm serious, they are afraid of retaliation. if you think the loss of share agreements are helping, the could be the problem. off, don't want to cut you but i do want to ask you another question. despite the occasional live service that some of these regulators give, talking about the community banks to provide

services or for a small business, the examiners continue to second-guess bank management policies based not on the current status of the loan, but based on a scenario where there is no economic recovery. it is a significant downgrades. if the ftse is serious, are they being second guessed on even the best documented loans. bankingunderstand how get that on a report card and then six months later, do everything but called a board member crux. >> is hard to respond without knowing what it would be in the individual case.

i was said that we do not, as a said before, if it is performing, it is a good loan. even if the collateral has gone down, i want to know about them and i will personally ensure the banker that there will not be any retribution by bringing this to our attention. i know what else can say. the need to understand their reasoning. there have been some big mistakes. hopefully we're through this. but early in the crisis, we had a very dramatic downgrades. they went to troubled status, and for that reason, we're putting more of an emphasis on the forward looking -- that is just from a risk management perspective, if the economy

tanks unexpectedly, have the startled and more capital, >> i appreciate those comments, but i really hope that some of you senior management or whatever can go into some of these banks and as my colleagues from georgian mansion, we have a tremendous amount that is either under a consent order or cease and desist. it is still to come out of these communities. the agreement and the media write down is doing a reverse the situation on the global economies. we need some help. >> if i could just indulgent the chair, i'll go you one further. i'm happy to meet with the group of bankers personally if that will help.

>> thank you for being here today. i like at my voice to those that expressed concern about banks' being told that they have to do away with performg loans and not credit worthy. or worse not getting access to that. i like to take you up on your offer to entertain those kinds of referrals and those kinds of discussions. i have heard it from a number of borrowers. i won a follow up on a couple of questions. you address the issue of bailouts of banks and what tools are that you have today the did not have. are you better position today? are the regulators better positioned to prevent a government bailout of a troubled financial restitution?

if you could highlight some of the things of how the incentives have changed and how the tools have sengthened? >> we can resolve the entire financial institution before it were only lead to the insurance bank. there is a list to put them into receership and to the process. if that would avoid a systemic consequences. the process is very rigorous. >> temporary liquidity support the might be provided will be paid off of the top. all unsecured creditors are exposed to a loss pinheaded tt has to be assessed against the industry. as no way the taxpayers -- there are bells and whistles and this thing. we push for that. we want to the assessment to

actually provide the liquidity. we really didn't have the bar from the treasury. we did not get that. even if there is a temporary borrowing, it gets paid off of the top. in the unlikely event, the be assessed against the industry. >> the management has resigned, too. >> these are really strong. >> the is the potential for a why iar claack that's again, i think a lot of benefit is prophylactic as well the managers going into this process have the option of going into a bailout. it will give them a strong incente to raise capital.

>> thsecond question is to follow up on my friend's question about the conflict between the safety regulators. what is your view on that as it relates as well to the governing bodies you discussed with my colleague from the other side? >> that will require a lot of collaboration there is the consumer agency consulting with the bank regulators. that it will be there will help further that sensitivity and knowledge and awareness. i think it can rk. early on when congress is considering this, we were sympathetic to a board approach. even though it is more difficult

for me, i am not a dictator. the chairman of the committee has to do that. it is a good process, so either way, you have this model and the financial and regulatory sphere. i would say that i have reservations, their arguments for either approach. it is one that we support and one that we think we can work with. >> of the kinds of things they might be doing a round consumer protections, they see a big conflict with these issues? >> particularly with regard to the board, one of the things that puts pressure and led to a lot of that lending was by competitive pressure to have a

lot of nonbank mortgage originators and had no regulations whatsoever. they were selling these loans in the secutization trust. they weren't really driving down lending standards. having it for the nonbanks will actually help level a competitive playing field to mention that we don't have competitive pressure. >> thank you for your service, i appreciate it. >> of like to recognize him from texas for five minutes. >> the fdic report about the possible order liquidation, who they said had the resolution authority granted to them have been in place, the estimated losseso the creditors may have only been 3 cents of every dollar. officials at the federal reserve including chairman bernanke have

stated that one of the primary reasons that the fed did not step in to save lehman was because the estimated losses were so large. and they did not have sufficient collateral to post. chairman bernanke stated in his testimony that there was not merely of collateral to provide enough liquidity to meet a run on laymen. the company would fail anyway at the federal reserve would be left holding the very large amount of collateral. the fdic seems to think that there was significant value in lehman while the federal reserve thought the risk was too large to lend to it. how could the federal reserve, such different conclusions? >> 97 cents on the dollar is a senior is not all the creditors

the residue of bankruptcy, you work your way with equity at the bottom. because of significant equity, we think the bond holders with a taken very small hair cuts based on a very aggressive assumption about what t loss rates would have been. i think there is a difference between what is available for collateral panel was available to lend as well as legal constraints against the lending institutions that really drove his comments. the value of unsecured collateral shouldn't be confused with a broader franchise value of the institution have the ability of a significant losses. which thecould not rely on because there is no resolution process that we have now. >> the difference of

conclusions, was this discussed with the proposed rules for living wills? >> and and think there really is a difference. it was talking about equality, the very high standards for collateral. that was well over a billion dollars into the broker a deal. because the counterparties temple of their collateral out, it meant a lot already and was a very destructive pross. items think we are inconsistent with what we are saying. it is a joint proposal. >> they called the past experience with an orderly wind down instructive. they argue that the fdic is readily equipped to handle the authority a quick because from

1995 through 20 07, he agency was responsible for the wind out of 56 financial institutions in hotbed questions as to just how readily they are to handle the new responsibilities. according to data from the web site, the total assets of those 56 financial institutions wound down to 2007 was about $12.23 billion or an average $218 million per banks. most were smaller than that. at lehman brothers had $639 billion of assets. this is the largest bankruptcy in american history and it was 50 times greater than all of the combined assets of the banks that the fdic shutdown over the 12-year high time.

what makes them wind down such a large institution? >> it may better attempt the failed bank assets over the past 2.5 years. washington mutual was over 300 billion and was resolved over a weekend, a process that was not a similar. we ensure these banks and we understand them. and i get this question sometimes, people try to paint it. we ensure these big banks. regrettably participated in the bailout of some very large bank. unclear quite prepared. and complex financial structures, with a very smart

people that do this for a living. we're the only agency and the world that has the experience of financial institutions, and others look to us. others look to us for expertise. >> my time is up, but i hope that the fdic has changed its own personnel and operating structure for the benefit of our financial system >> we are designed to expand and contract very quickly. we have reservoirs' of contractor helped because our work is cyclical. this is a challenge for us. and certainly compared to the expertise process, i think this is a good approach. how to prove to you that can work. >> gentlewoman for 5 mines.

>> last congress, this committee held a hearing to examine community bankers' concerns that regulators were being overly restrictive, as the ftse address this concern to work with banks to increase small-business lending? i am concerned with the ranking member of the house. we held a joint hearing in this committee to address a lack of access to affordable capital. i would like for you to comment on this. i think this is been a major impediment and certainly your expertise with the small business stor, you know that much better than i. and then there are a variety of reasons. i think risk aversion is part of

it. our demand is driven by a couple of different factors. what is the uncertainty of how robust the economic recovery is. that is another downturn a year from now. that is a problem with the borrowed commands. because so much small band in regent small lending has dropped substantially, they don't have the collateral any more to borrow against. we encourage it and focus on it. i was very disappointed that balances were down in the first quarter. small-business lending was down. we want our banks to lend. with special want them to lend to small businesses and i think they obviously need to find

creditworthy borrowers. they're still standing on the sidelines. >> they recently implemented in and day to expand the deposit insurance assessment which will result in community banks pay a 30% less in premiums while large banks pay more. what effect on small business lending will the new system have? >> i think it will help them. it will ease the assessment burden. is quite consistent with the lo exposure with larger institutions. it will help them and to the extent of the small banks to about 40% of the small business lending done by the depository institution. >> under the proposed rules for qualified residentl

mortgages, home buyers will have to put down 20% of the purchase price. we' very much concerned about this. because it will have a significant potential impact in high-cost areas like new york city. should requirement to be based on local market conditions? >> i think they are meant to be exceptions to the general that if you're issuing a securitization, you need to maintain 5% of the growth. i think that they should not have skin in the game with these loans by and large. it led to a lot of underwriting and abuses that we saw in the mortgage market. it should be the rule. it is meant to be in their own

part of the market, and with a not very broad standard. if you maintain the risk or all of the, have broad flexibility. the only applies to what i think will be a small slice >> have you looked at any other alternatives to a down payment? it will reduce the number of defaults in the future. >> the staff of all of the agencies, it is a significant driver on whether a loan defaults. i will say that we are out for comment on exec to the question among others and i anticipate this is a huge issue that we get a lot of comment on it. that indicates the 20 percent down payment was a really strong indicator. >> you understand my point? >> i understand the point. this is a huge issue.

what is a meaningful down payment for a low-income person could be very different for a meaningful down payment r those with other means. >> how do wmeet those needs. and with the risk retenti, you have a robust market and will have more flexible underwriting standards to me that's what and a continuation of the program. i would like t recognize the man for questioning. >> i tnk a lot of my colleagu here have been pretty impressed overtime with the straightforward way the responded to questions is not always the rule around here. let me say i have laid out for you the arguments that i think are made via the studies. that if there is this

advantage, this resumption that a that is their systemically speaking, the show the same relative magnitude. to go back to the markup or the conference committee, i've put forward several amendments to try to overco this tendency. one particular required the fdic to estimate at the outset of the resolution process what creditors would have received in bankruptcy and a limit payments to bankruptcy a hair cut at 20%. it would act as a sort of insurance mechanism against future write-downs. if following the resolution process under that scheme there were additional funds, the fdic would have the authority to pay

back all or part of the 20% premium. that it sold the market this presumptions. we did not carry this argument, but i think it still holds true. especially for the most interconnected and largest firms. now the resolution process. we're talking here about short- term creditors. those creditors are going to be considered essential under the fdic proposed rule. lending to these large complex financial firms, subject to resolution authority is close to

that. if these firms fail, creditors are going to be made whole or close to hold. these are going to be able to borrow more cheaply end of the will grow even larger and they will become even more significant, systemically significant. there is a second problem also that arises. to go back to again, it is the clawback provision. it is going to be very difficult to recover, and that is why you see this basis point difference. bankruptcy verses resolution authority for the large is not hard to see a situation for a recently built up creditors strongly argues that handing a over the sums may jeopardize their unstable firm this is an argument that regulators having just bailed out these creditors to name a financial sbility

may find very difficult to resist. additionally, there is no guarantee that a given predator will be able to pay back the difference between the advances and what they would have received under the bankruptcy code. and under this mandate. to the president richard fisher that recently said this about these arguments that i have made in the past. incredible big bank resolution processes will be difficult to enforce, especially when regulators are explicitly directed to mitigate disruptions to the financial system. as they are in the bill. i understand you believed regulators need a broad authority to handle a crisis. the unintended consequences here have got to be considered. if we were to look at tightening the language while working

within the resolution authority mechanism, are the steps we can take to minimize the potential for abuse down the road? and the amendment i made earlier, is a hold water with you? is our way to get at that? a couple of things, we're all for tighteng as much as we can. we want markets to come back. there is obviously a moral hazard. we need to market discipline to complement the regulatory process as a weapon against excessive risk-taking. remember, we will work with you. we're trying to allow this through regulation. please do not interpret that to mean that you're going to get it, because they are very much subject to loss absorption. one of the things with

liquidity is a commercial paper. even though you lose the funding, you replace it with government funding. the present and f the short term should be that they are taking losses, too. and i find that for instance with the derivatives, maybe they don't want to, if there are counterparties under secured or under collateralized, to find an hour with uninsured deposits, it will be a mathematical determation, however well maximize recoveries, that is what we will do. we think of the statute does have limitations. we are trying to tighten those even more. i am happy to look at language and talked to you. there is nobody that wants to

and this and more than you. >> i will thank the chair, her, and thank you for being here, i echois comments. i appreciate your forthrightness. yet testified many times and we thank you for your service. all wanted to ask you, based on something you had in a written statement, he said that if properly implemented, it will not only reduce the likelihood of the future crisesut will provide tools without resorting to taxpayer supported bailout are damaging the financial system? >> will lead to believe that we don't have future taxpayer bailouts. is to leave the door open. >> and that is his point, but we look at the breakneck pace of

rulemaking, and you see regulators in many respects overwhelmed with the volume and the pace. you have concerns about the quality of the rulemaking? >> we are comfortable with it. we did not have the huge number of the way that they do. so i think we see that we are proceeding at a reasonable pace. for anything major, we're giving 60-day comments. at least from their perspective, we are comfortable with the implementation so far. i understand especially if the market regulation issues, there is a lot being thrown. a special with derivative oversight. the rule making these to continue. it might have some merit.

a think it is important to continue to proceed, and a think the market needs to understand that these rules are being aced in the need that to adapt as well. once they know what the rules are, the financial sector is pretty good at complying with them and figuring out how to do it. some sequencing might well have some errands. >> with the harmonization? thus even on the international front, and the you hear different things from some. this is getting his sea legs, but it is forcing us all to get together have the staff talks regularly. having thus been a good deal of harmonization that includes the international front. they are really -- in addition to resolution authority, we have strong capital buffers. i think there has been the work of harmonization.

and we should continue to focus on that. another is concerned about the treatment of derivatives rules, and we're talking with each other. that may be that sometimes you want some differentiation. wante probably going to more finish with the banks and then was completely outside the safety net. there may be reasons for differentiation. >> and his international harmonization, and they are shrinking from an international level and a level playing field. you mentioned capital standards. i understand, there is a balance here, i want to measure the width of safety and fairness, also want to make sure that we of lending and economic recovery. are yourestlingith that?

the way that when you're going through this process? >> the primary focus has to be with the capital requirement, hitting that sector to be leveraged about the french roll it is more expensive than equity. a double hull not only provide a better buffer, it will help differentiate funding costs of the capital discussions have been targeted primarily at the larger institutions. have been larger institutions holding companies regarding the quality of capital. the companies have something called trust's preferred securities that ended up having that is only capital issue. >> my time is short, but i want to ask you about the trm.

to insure the lower down payment, it will be part of the qrm. >> that is out f comment. there is a private sector mortgage insurer. i think those are the things early to think about. and mortgage insurance can be a good product, but do it was demand for it driven by markets or regulations giving them an extra penny? i know you feel about the markets the way i do and that maybe e trade off that we think hard about. >> was it you who said that you

thought that consumer protection and safety and soundness or two issues on the same side of the coin? >> general abuses will end up costing banks money. but just banks. mogages are a prime example. more of it was on the side of banks that consumers could not afford. the defaulted and a lot of losses incurred. >> when he sees going together, we want to make sure that the consumers are protected and treated fairly clear in will also want to have banks in the profitable, make sure that they are not going under? do you have a concern when we

separate consumer protection from safety and soundness? the commented on the mission statement that there was no reference to safety and soundness. does that give you some pause or some concern? are you ok with the oversight that comes from outside? >> we support the consumer agency. there are different iterations earlyn, but i support the final outcome. we think it is a posite thing that they will be on the board because they will pride an interaction to make sure that they are considered together. >> they don't have that consideration. reciprocity,for but given that, i think that again, we're fine with how it

came out. it is important to understand how it has always been separate from the enforcement process. >> he talked about reciprocity, and you don't really have its except to review what is coming. the standard is so high, you need seven out of 10 votes to overturn the rule and the director is one of the members. it is incredibly high, a he risked their, we're talking about playing russian roulette with the economy. i introduced a bill that will reduce the requirement to just a simple majority of some pretty significant folks. we talked about reducing the

standard. but if the rule wa inconsistent. it could be overturned. the thing that is reasonable that we have a different standard of how we can coordinate consumer protection with safety and soundness? >> there are a lot of things that all of us would have written differently. at the end of the day it was a coromise. we can support the final product. if it can work. >> can we improve upon it? >> if you're going to draw me into a situation where -- and thank you. >> i am from a more rural district with zero community banks, credit unions we don't have b wall street banks in our district and i hear this nonstop from my local bankers. we're talking about how they are crushed by some many rules and

some any regulations. the impact that it has on them, we don't have the ability to diversify the cost. you may hire a lawyer or a compliance officer in the costs go up. that makes it difficult for us to compete with bigger banks. sometimes we can't even stand the market anymore. it is the lifeblood of the economy. and this is not stopped coming from them and i don't know if you're hearing the same thing or trying to figure out how we can still be safe. but still have rules that allow the local bankers and don't have anything to do with the financial crisis to do business. >> i think they have a point. every time you have a new safety requirements, the incremental cost of doing that will be significantly higher and we should do a better job of taking that into account.

of all the problems, we have had a lot of them. this is a problem of scale that affects a very large service. if they're going to be a lot of new rules on servicing, and see a basis for and where in all of that on the smaller banks as well. the smaller banks have really been relegated. and we want them to diversify their balance sheets. the regulatory barriers, holding back into those lin of business may be an impediment. of like them to do more mortgages again. i think that we should look ver hard at the structure. the issues are completely different. >> that is something you are taking a look at. >> and we have an adviser on community banking. there are a number of the ideas

for making regulations more effective. at the very top we say it applies to community banks shot. we ought to the community bank impact and why it will apply the community banks. we're looking at more automation. recall the fdic can act where every year kid is going to update. >> i appreciatthat because we hear that from the community banks. i appreciate your looking at that. i yield back. >> and the chairman has consented to go to a second round of questioning. and we're still going to be calling for votes in the next 15 or 20 minutes. i will go ahead and start the

second round. i appreciate you spending time with that. we also had a discussion in the markup for the bills. on the differences or the interchange ability or not of safety and soundness and profitability for banks, one witness said that safety and soundness is used as a code word by the institutions as profitability. by trying to reshape or reform this, using safety and soundness, we are being accused of protecting the profits of an institution. and i think while a safe and sound bank may realize a profit, that is a good thing. a profitable bank is not necessarily safe or sound. could you comment on the surgeon and the interchange ability of that?

often they are two sides of the same coin. a product does not serve consumers or the customer's long term benefits and it will be a product that loses money for you and can result in litigation exposure as well. we're seeing that with the relaxed lending on mortgages and the litigation on overdraft protection. having ssitivity from goods and business practices from the outside are eventually going to lose money. there will probably default or that could result in litigation exposure. on the other hand, i think you need to have -- need to have a full analysis of changes for the safety and soundness of how it is going to impact the financial health of the institution.

and i think those factors need to be waived. you need to consult with the bank regulators. there are ways built and now. >> safe and sound consumer products will, and the long run, in your opinion, bringbout profitability for the institution? >> yes. >> and while there is a distinction between safety and soundness and profitability, the un safe product or the one that takes it too far is eventually going to be a non profitabl an instrument for the institution. >> my final question, we'll talk a little bit about commission and the one to draw you into a political arment on that, but

in looking at your own commission, or corporation, the service the chair, have the vice chair. , it is going to be grandfathered out or however in july. it is a chair that we don't have. it is not such in the imagination to say that it will have to be senate confirmed. we have the independent director that also has an expired term. ande losing your expertise the longevity and history. another you're not really going far. in all fairness to you and to the corporation, this means to live on for me, it is a

political statement. these appointments out and get the senate confirmed. let's have stability here or we will end up in a situation where there is an ever-changing transitional situation where i causes me concern. >> i have profound concerns and i am frustrated that there is not greater urgency. i am very worried about my agency. it could go down to the board members after i leave. the names are not up yet, and there are still vacancies. i think this is very urgent. [unintelligible]

there are still reforms to be implemented in a comprehensive and effective way. having a two-member or three- member board making these decisions is not a good thing. >> having a director in place on july 21, this is a great concern for me also. 44 senators have signed a letter saying that they will not confirm anyone. other policy positions that they want such as losing the funding to the political appropriations process, it may make it more difficult for them to do their jobs.

i think this is a tremendous abuse of the confirmation process basically holding the entire congress hostage, that you have to look -- we have to write legislation. ve or six major editorial boards. the good government groups will remove it from politics or the democratic or republican perspective that these have gotten dismantled, disrupted, and destroyed for the consumer financial agency they will have to gut the entire agency and make it basically a non- performing situation. of leave the have a role to play in protecting consumers -- there

is a degree of profitability that they will end up on the stre and the overall finances were greater. you can go out and buy a house. it was so easy to get a mortgage. it became clogged and the system and helped bring down the financial crisis. there is a basic disagreement between the republican party and the democratic party. the democratic party supportscfpb. supports the cfpb. you have republican senators

saying that they will not confirm anyone unless you do exactly what we want. using it, taking hostage the entire legislative process to get what they want. they have forced the president really with no other choice since he supports it and the overwhelming majority, they would like someone to look at their loans, their credit cards, their student loans and making sure that they are fair. making sure there is a fair playing field that consumers can understand what the terms are. that they are printing for everyone out there to understand. we have a basic disagreement between the parties. i do want to address my questions to our distinguished guest in the areas in which she

has played such a fundamental role. i want to go back to the too big to fail, which is a big issue. i know it is the closest of the hearings we will be having. some have argued repeatedly that the financial reform law, particularly the orderly backwardation authority, perpetuates rather than eliminates too big to fail. i would like to ask you what is your assessment of the allegations that the authority perpetuates too big to fail. >> i do not believe it is in any way a perpetuation. two big to fail was with us before the crisis. it was reinforced by the bailout. we need to end it. dodd frank gives us the tools --.-frank gives us the tools. i think it is there. the clear legislative intent is there. as i indicated in my testimony, implemented effectively, it will and too big to fail.

>> my time is running out. which part of the financial reform law did you think is the most critical to ending too big to fail? >> i think titles one and two. title to brings us the orderly liquidation authority powers for non-banks. we already have it for banks. the little one holds higher standards of -- title one hold higher standards of capital requirements. and they must demonstrate they are resolvable. >> i thank you for your testimony today. i think you for your stinguished servicto our country. i think you for your non partisan response to -- i tha you for your non partisan response to questions and policies. i think you have done a wonderful job for our country. >> chairwoman bair, i think you

for being here, for your testimony and your service to our country. the one question i asked before several other people already asked. so i am going to move to another topic. it regards the orderly liquidation authority. i know several times in your testimony today, you talked about you believe -- or at least the impression i got was you believe the fdic have authority over liquidation is better than bankruptcy. >> for financial institutions. >> for financial institutions. there are a number of people in the bankruptcy community that believe that if bankruptcy laws changed that bankruptcy would be better. i know a lot of it deals with derivatives. can you give me some ideas of thoughts where you might believe that bankruptcy would be better? one of the issues with bankruptcy is that we are loing out for the creditors as we wind things down.

i would like to hear your thoughts on some things that could be changed in the bankruptcy code that would actually make bankruptcy better. >> i think you are right. how derivatis are traded is very important. we would love to work with this committee andhe judiciary. we deal a lot with bankruptcy court. banks we resolve are frequently restructured and go into bankruptcy. we are quite familiar with the strengths and weaknesses of the process. how bankruptcy treats derivatives is a big problem. having the ability to require counter parties to continue to perform on their derivative contracts, versus now, where they have the abilityo terminate the contract and clinical lateral, is quite disruptive and was a major problem. -- ternate the contract and claim their collateral, is quite disruptive and was a major problem. we were opposed to the kind of bailouts under cig.

they went into bankruptcy process and were fine. the commercial paper was fine. bankruptcy worked just fine. i think there are ways to make bankruptcy work even better. for the larger entities, i think there will be a couple of things we can do that banks will never be able to do. first is we will be able to have a continuing on-si presence. we will have ongoing access to information about the counterparty exposure and concentration of overseas operations. with the bankruptcy board, we will be able to do that. milarly, we will be able to plan and work with the international regulatory community as an institution becomes more troubled, to find and identify any options for resolving our domestic entity if they have foreign operations. we do that now. we have resolved banks that are

national -- international operations. one of our banks had a subsidiaryn china and hong kong. we identified what we needed to do to make sure that work within our receirship process. we were able to keep the subsidiary in asia open. they got the regulatory authority to do that. it is hard to see how bankruptcy court could involved in that kind of international coordination in the event of a failure, or be involved in pre- planning. finally, we can be involved in the "support to maintain franchise value. -- in that liquidity support to maintain franchise of you. -- value. >> i am going to take the question. when you say you can provide immediate liquidity support, is

that from the ability to go to the treasury? >> yes, for banks. we have the deposit insurance for banks, but for non-banks, we have the ability to withdraw from the treasury. >> that is where the root is of the perception. if you are going to the treasury, you are going to the taxpayer. >> we wanted to pre-fund a reserve. that did not pass the senate. i think it is a very important to emphasize that any funds that are provided through that treasury line have priority over everything ee. they are paid off the top. i can't believe there have ever been any losses on that. you are not guaranteeing any liabilities for the non-banking institution. whatever assets are sold, that goes to treasury first. in the unlikely event there would be losses, it would be

assessed on the industry, the way we assess now for deposit insurance. right now, there is no reason for fares of taxpayer exposure on this. that in turn, the fact that the industry would have to pay f any losses that would occur, in and of itself will create pressure against creditor differentiation. they will know that the receiver -- we would do this anyway, but if the receivetries to show favoritism, the loss will go against the industry. >> thank you, madam chair. happy to yield any time you might need. i have really been enjoying this hearing this morning. i want to reiterate the comments my colleagues have made on both sides of the aisle about your candor and straightforward answers. we do not always get that and i think it has a positive effect on the members and the qstions they ask. you sa before you thought the

financial system was healing but not out of the woods. could you expand on this? >> yes. i think they are still wking through some trouble spots. loan volume is down. i think there may be too much risk aversion with some banks. there is also a lack of a borrower demand and banks need to make loans to make money. that is what they are supposed to be doing with their funds and equity to make money. longer term, as i said in my testimy d in an op-ed last december, i am worried abo the pressure from the low interest rate environment on bankalance sheets. obviously, banks are heavily exposed to interest-rate volatility. specifically, their liabilities are shorter than their assets. anything we would do to undermine confidence in this, in the fiscal drink of the united

states government, could have an adverse impact on financial industries. we hope these discussions can produce a long-term deficit reduction plan. thmortgage market, i think, as i mentioned in testimony, are exposed. >> that was my next line of questioning. you said we need to get mortgage lending going again. what are the barriers there? i hear, as i said a minute ago, from bankers and borrowers that regulators are tightening down and not allowing them to make those loans. >> i think i would put more of a priority on small-business lending. certainly, mortgages in housing is an important part of r economy, but we need to aept going forward it will be a smaller part of our economy. it got bloated and overheated. i do think we need ultimately --

there needs to be an exit strategy. we know that model does not work. >> do you have any idea what model might work? >> it is really outside my portfolio to recommend. i will say this. i think go one way or the other. i think this hybrid model where you have a for-profit entity with a backstop of providing non-profit support was a bad model. going forward, i would say if you are going to continue to have government support, making exclusive. charge for it up front. make sure that is where we stand in terms of what being is -- what is being charged for the credit support. make that explicit. >> explicit and narrower? >> explicit the way the fdic charges insurance premiums for

default insurance, they charged that has the government charged a guarantee fee that accurately reflects theeed. or get out. one or the other. >> there was some back and forth about lending standards. 20% is huge. i don't see how that works. >> that is the exception, not the rule. i think there are mortgages out there with 20% down payments, but that is meant to be an exception to the general rule. if you are going to securitized mortgages, you need to retain 5% of the risk. if you retain 5% rise, you have a lot of flexibility on the underwring side. >> what sounds reasonable to you in terms of the down payment? >> i think it is a combination of factors. clearly, a borrower with a strong credit history and a low debt to income ratio -- there

may be other flexibility is that you can provide. we provide them with banks now. but you need to have some down payment. >> let me speak one more question. liquidity, as you mentioned -- do you have a view of what we should be doing there? >> one thing we are doing is getting rid of credit ratings in our regulations. that is required by dodd-frank. we had already started telling banks they need to do their own independent evaluation of the creditworthiness of investments and cannot rely on ratings. we used to use ratings for our assessments and we have gotten rid of that. i think that has been in process for some time. like anything, if you are not using credit ratings, what are

you going to replace them with? that is really a hard question. >> thanks very much. >> thank you. this concludes our panel. some members may have additional questions they may wish to submit in writing. without objection, the hearing record will remain open for 30 days for members to submit additional written questions and these people to submit their responses to the record. thank you for a very productive hearing. we appreciate your great service for our country. this hearing is adjourned. [captioning perfmed by national captioning institute] [captions copyright national cablsatellite corp. 2011]

[captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] goes through the second or third or fourth deployment. i personally feel the strain on the families more thain do the marines. >> let me follow up on one issue

regarding this. i know that the drawdown is a sensitive topic where discussions are ongoing but i want to make sure that i'm hearing you right. a different generation of chiefs was concerned about iraq and wasn't sure that the force could sustain it. that was ongoing discussion about general petraeus. if i hear you right, you're saying, yes, there are multiple considerations that go into drawing down or the state of the marine corps is not one of them. in other words, the marines can do whatever we ask them to do. >> absolutely. no doubt in my mind about it. i think you saw this by some of the questions that came up. when we met with the marines, we always opened it up for

questions. we got the questions about general, how are we? are we going to be able to complete what we started here? that was the typical question that came out of the youngsters and some of the oldsters out there. are we going to be able to ensure that the afghan army is now trained and in position along with the afghan national police or the afghan police to be able to sustain the area, keep the taliban out and allow the culture in that little community to kind of seek a sense of normalcy again. that's their concern. it is not a matter of can we sustain it, the answer is yes. i'm really not worried about that. >> before i turn to the budget, which is the other main area i wanted to discuss with you prior to opening things up to the

crowd, i did want to ask about libya. you have experience in italy and in nato and we went through naples on our trip and got some briefings. you also have the experience with the nation kosovo in which we tried to use airpower to achieve that effect on the battlefield. it reminds us of the long-term horizons that can be involved in these things. he still nice airplanes extremely well. from personal experience i was able to see that first hand. but you also know what airpower can and maybe can't do. i wonder if you have any guidelines for us how we should think about the libya campaign now. is this the sort of thing where you feel fairly good about it, where you think we're going to have to as the united states do more to help our allies?

where really patience is the most important virtue and if we stick with it, we'll be ok. >> when this thing was first -- when the world's attention had changed from tunisia to egypt and in between libya, different pockets rose up and wanted to move quick. wanted to move very, very quick. other folks wanted to be cautious and move very, very low. -- slow. i think we got it right. one of the things we talk about when we talk to our young lieutenant colonels that are in graduate schools is when you're dealing in the national -- with the national diplomacy level, things are not always crystal clear like they are in if you're in a classroom. a classroom, you have a problem

and the professor pretty much knows what -- at least the two or three best solutions are. when you're dealing on the national stage, it is not always clear with the next best move is. my sense is i think the united states handled this just about right. i think nato, we are a member of nato. a teammate of them. i think nato stepped up and even though everybody -- i i think if you step back and look at it, we probably handled it just about right. >> i want to ask a couple of questions on the budget. i know it is an ongoing discussion. i don't think it is a secret when i say we spent a 14-hour day going from base to base and listening to the concerns to have marines, we had to get up at 1:00 a.m. to do a video

conference with back home. i admired your hardiness and strength and i'm sure it is not over so you probably can't tell us everything we want to know. what can you tell us about the nature of the ongoing exercise? it is $400 billion number. is that set in stone or is that a number that you -- really subject to reconsideration as the chief and others have a chance to weigh in on what that number would mean for the size and strength of our military. >> i can't talk about whether the $400 sbl locked in concrete. i don't know. but i think the greatest signal was to the department was ok, our nation is working its way through some fiscal, some real serious fiscal struggles right

now. everybody has to be part of the solution. you know, our secretary has been pretty striden't, a year ago we worked through about $100 billion worth of efficiencies. in our case, we found a significant amount and actually applied them. some of the near-term expenses in 12 and 13 and 14. we present that money pretty efficiently. i don't know where this is headed. the department has the message. we just received -- it understands that we're team players in this. where we are now, there is no numbers within the department. there is no marine corps. this is your piece of this. none of that has happened yet. rather at this point, you know,

the secretary -- just typical -- the wise way he does business, he says let's take a look at the strategy first. in other words, if our nation is going to begin to draw down its military and take -- reduce the department of defense's part of the federal budget then let us just put that on pause momentarily while we take a look at strategy. what is it the united states of america needs of its military is the department of defense. i think all the service chiefs are relying on that . what is it that america wants? i think we had a good run on that in qdr 1010. it was being -- 2010. it was being birthed 2 1/2 years ago. if you take a look at what it is that the nation needs, the

department of defense. not what the marine corps does. but our nation, what does it need its depts of defense to do? and you start there? based on that, i have all of these things i would like you to do. i would like you to have presence around the world. i would like you to be able to do this, this and this. you come up with your list of a dozen major things that the military should do for our nation or has to do and then you say ok, you play the the budget. this is kind overp where i am right now. i'm sitting it is a commandant. i'm looking at what is going on in the world, afghanistan, helping our japanese brothers up in northern senda, being off the coast of libya, helping out with the humanitarian -- the disaster

that took place in pakistan when the floods came. i have this kind of -- this necks us of budget reality. they are all kind of coming together. where they cross, we are paying very, very close attention because i don't think we're going to be able to do everything that everybody wants in the future. so the issue now is back to the strategy. what does our nation want of its military and then who can provide it? what services can provide that. what is inherent. what have we already paid for? what is it we can't do because we can't afford it? i think this is the really -- it is all important. this is a very important part just because if we say that this is important to our nation and we want the department of defense to do this, these things on this degree, and then we lay that on top of fiscal reality,

and we a-ok, we can only do this much and these things we can't. that becomes risk. whenever we're doing the real operations around the world, there is always risk in every single thing that happens. every war plan, every operation that any of us have ever been involved in. it eventually comes down there are pieces of risk. so then you have to ask yourself a question. how do i -- i can reert ignore that risk, sor there a way i can mitigate that risk. in other words, is there a hedge? is there something that i can do , that i'm going to be ok because i've mitigated it with this capability. you asked the commandant to come here to speak so i'll put my joint chief's hat back on.

i think that is what we do. i mean that is what the marine corps does for our nation. we are our nation's insurance policy. risk that we may not be able to have everything we want or be able to do everything we would like to do. but those elements of risk, is there a way we can mitigate it? i think that is kind of where we fit in. >> i would like to ask you in a minute about the main modernizeation efforts of the marine corps. of course we know these are an ongoing major concern for you. one of your first acts as commandant that gained big headlines was to cancel the fighting vehicle and you also have now got a big burden in shepherding the f 35 b. this crowd you have an even mix of people who know a lot about it and people who are more generalist.

if you could explain how that airplane fits into your strategy and then there was the us a pri. i -- auspry. aim correct in asking about these three in a sense that not the only important marine corps modernizeation items but in many ways what gives the marine corps its unique capabilities and characteristics and three systems really at the center of your concern as command and how do you see these three, especially the f 35 before, these three programs going forward. >> if you go back to the mission to have marine corps, to be that -- deployed. always ready for us. a couple of things are implied in that. number one is that you are ready to respond today.

to today's crisis. you don't have to -- not to back up. i'll be there in 30 or 40 days. just give me enough time to get my stuff together. i'll put it on ships or planes or drive it there. so everything we have talked about, these three programs fit with that nature of the marine corps. truly the ability to be america's crisis response force, to respond with today's crisis with today's force today. b-22.

you know, i was in the pentagon in 2000, 2001 when it was struggling. we used to talk -- we told folks because it was really a vision then. it was a program, airplanes were flying but it was struggling. and we would say look. this will give us a ability to carry three times as much. excuse me, twice as much, three times as far and fly 2 1/2 times as fast. it certainly has proven to be that way. the b-22 right now is on its ninth deployment. its sixth combat deployment. and you and i flew around. i suspect that a 15-e pilot that was running from the libyans that night was very thankful he didn't have to wait another two hours on the ground for a traditional rotary wing airplane

to come and get him because from the time the ship was notified of his going down in libya, to the time they launched, found him, pulled him out off the ground and brought him back, it was 90 minutes instead of four hours or 4 1/2 hours. the b-22 allows us a longer range, a greater payload and you flew in it, you could fit 24 combat-loaded marines with all of their stuff very comfortably. you could get them in and out of landing zones very safely. the truth of the as a matter right now it is safest airplane we have in the marine corps inventory. just passed 100,000 flight hours. we can take forces and

self-deploy employ that plane around the world. anywhere. it just became too expensive. i've watched it for 26 months, i was assistant commandant. i watched it for 24 months i was the head of requirements. we just couldn't afford it. it doesn't mean we don't need the capability, so back to the expeditionry nature. america needs the capability to be offshore. an offshore option and be able to come from the air and b-22's and helicopters and be able to come on the surface with marines. people talk about forcible entry and kind of get stuck on that and they go i don't know whether -- whether we'll ever do forcible entry operations again.

let me give you a sense of magnitude. when the marines surrounded the town of fallujah in iraq, we had five infantry battalions on the edge of that town before the marines entered and fallujah is a different place today and you know that. is there anybody hear that can tell me the last time you saw the name fallujah in the newspaper? five battalions. what we're really talking about is having our nation, a super power have the ability to put six battalions of marines in amphibious vehicles. it is a pretty modest investment for a nation that is has global reach and international spobalts. we need a vehicle -- responsibilities. we need a vehicle that can come out of the ship, swim ashore and

then operate on land as a fighting kind of a vehicle. you kind of get a two-fer there. you get the sea born transportation and be able to maneuver on the sea. so we need that. the last thing is the f-35. our nation has 22 capital ships. what am i talking about? i'm talking about 11 carriers. if we don't have the -- right now we're flying -- if that -- those run out of service life around 2022, 2024. if zwropet the ability to put a fifth generation airplane on those -- then when it is all said and done, our nation will have 11 capital ships to send

around the world to do the nation's bidding instead of 22. i think it is important to the united states of america to have a fifth generation capability on 22 capital ships instead of 11. >> you feel that program is starting to do a bit better? >> i do. i think you know, i guess around january, i have been watching it. this is it. we're reclaiming ownership of the program. i think i used the public statement. nobody beat me up for it. i said you're looking at the program manager of the fmp-35 b. no, i'm not. i understand the rules but aim i'm a player coach. i'm like bill russell of the celtics. there is nothing that happens on that program for that model that i don't see, i've got a set of metrix i'm watching every single day. you can't put a pound of weight

on that airplane that i don't know about it. we're trading, making business decisions. one last pointen on this thing. congress doesn't give them money. congress gives the united states marine corps the money. when the plane is doing well, it is ahead of schedule now. it is about 40% ahead of all the scheduled test flights, landing vertical landings. the engineering fixes for the three or four major things have been designed and they are putting them in over the next couple of months. i'm optimistic. >> two more quick questions on the and then we'll go to the crowd. it was interesting when secretary gates said on tuesday at a.i. which he billed as his last major policy speech, he didn't give us some speech for

the history books about where we stand against the rise of china, islamic extremism. he came down to pay and pensions and tricare. maybe that's the most he could say about where we are in the budget review now. the main thing that he was coping with on his last days in the building. it was sort of striking that he basically said we're going to have to rethink to some extent the military retirement system. the military t rinchcare system, the premium structure. i think most americans would believer and support the idea that the military compensation should be very robust, especially at a time of war and especially for those deployed. would you echo -- if we are going to begin to approach $400

billion in savings, we are going to have to rethink some fundamental ways our compensation and personnel policy. >> absolutely. these are different times. i've been in the marine corps 51 years. i am probably more concerned now than i ever have been before. i think that is probably the -- the service chiefs, all of us, this is this has caught our attention. it probably is exacerbated because we are at war. we have 20,000 marines on the ground in afghanistan and 12,000 deployed in ships around the world. the army significantly more and the navy has a bunch and the air force. we have this friction that is building. we are currently fairly heavily engaged in some pretty important parts of the world.

and division, though, is the budget is going to go down. so it has caught our attention and so it doesn't surprised anyway the secretary's last public address or major speech, we talked about that. we're looking now among ourselves how can we be more efficient and frugele. we're returning the marine corps back to its frugal roots. part of that, show, you can't just come from programs. in other words you can't just say ok, we're just going to cancel all of these programs because five years from now or 10 years from now, we will be at the next part of the world history, we'll be dealing with, you know, decades-old equipment that are outdated and worn out. it can't just come from programs. we're paying about 60% of the

marine corps budget. for manpower. another 25% goes to operations and maintenance. if you do the math, i'm down to a small, below 20% to buy new equipment and to put money up for research and development. is so how do we -- i think the personnel piece that has to become, has to be reduced, it is a sensitive topic. and here is another point of friction. we're doing that while we have these forces engaged and we're asking a lot of them and it is an all volunteer force. so i think there is a balance there. we don't know where this is -- we are just kind of new into this taking a look at the entitlements piece. but i think we ought to look at it.

get into the let's -- what did i sign up for? what was it when i joined? you know, you enter that arena. but i do think it is time for healthy look at what -- where all this money is going because it is increasing. the entitle y789's piece is increasing and our personnel piece is increasing. i remember we testified, the service chief testified in march or april. we supported the idea of just adding a $5 a month tricare addition to your costs. it was not for active duty and it wasn't for retirees truly retired. it was for retirees who spent 20 years in marine corps and you went out and were working.

all we asked was just raise the t rinchcare by $5. it hasn't happened yet. i would say that is modest since we haven't addressed it since the 1990's. i'm sensitive to that. i think we ought to look it a. >> one lest question and then we'll go to the crowd. this might be the hardest one to answer. is there a range of marine corps and strength numbers that you now decided have to be considered as options? in other words i know you a plan for what the marine corps should look like once we get through this period of intensive engagement in afghanistan and i know you worked hard on that and hoped that that would be the

plan we would stick with but in the course of this $400 billion drill, is there a range of numbers that you can tell us that is under active consideration for marine corps active duty and strength? >> we spent all last fall when secretary gates in september told the marine corps and i was the -- just about to become a commandant. really he told the commandant then that he gave it to me. he said you shepherd this. we -- he said build a force that was post afghanistan -- build a force that understands -- we withdrew the marine corps in 2006 and 2007 to help ease some of the dwell and the turnaround times. think about when you come out of afghanistan and build a force now that meets the department of

defense's demands and all of these requirements that we talked about earlier. he said i want you to be able to -- i want you to build a force that focuses on what we call the center of the range of military operations, those day-to-day response stuff. i'm not just talking about in and out m. rembings'. -- mre's. and take risk, what he said was on the high end. don't build a force that is designed purely for that. build a force designed for this but have the capability to do that. we did that and spent four months at it. we put our best minds to this and there is a lot of analysis and rigor behind that to build a force that is going to come down to 186,000. it is a better marine corps than we have today.

it is a more capable marine corps in many ways eeb though it is a smaller number. there is a host of things and i won't go into them but i'm very comfortable that the rigor has been put in that number, mike. we haven't started dialing a forcedown yet because secretary gates said don't do it until we come out of afghanistan, but we have the plan and we are continuing to refresh that plan. it would be pretty premature to take the marine corps and say ok, that was then. this is now. give me another plan. truth of the matter is we put a lot of effort in this thing and can show just about anybody what the value-add of this force is. i'm not prepared to fall off that yet. we need to start down that path and then see where we go and adjust from there. >> thank you.

let's open it up, please, wait for a microphone. start with peter here in the front. >> thank you for joining us. i wanted to go back to that question mike asked about the fmp-35. you talked about the experience of watching the e.s.e. essentially go through a death spiral and then you concluded it got too expensive to meet the needs. what are the lessons that you drew from that experience and ho are you applying those lessons to the currents f-35 program and then to the potential replacement? what did you draw from that and how are we applying them? are there some that can be applied and others that we learned a lesson but it doesn't apply in terms of a different set of programs?

>> i will fell you what. i've been in this job, i think i'm in my eighth month now. time has gone by pretty fast. i've learned a lot of lessons but, i'll tell you what, the acquisition piece of the major programs is a lesson, i've learned that lesson now. i'm not saying i'm done learning, but it is in here. quickly, here is my sense of this thing. i think, you know, as we -- and i'll just pick on the acquisition. there is probably acquisition folks out here who are going to take me to task. but we have over the years as we have taken our acquisition cycle and we have trained folks and we have them certified and then we lay out programs and lay out a milestone chart and change that a couple of times since i was a young brigadier general. we put more scrutiny on it. what has happened is, in my view, the acquisition cycle has

been pushed out. it has been extended to mitigate risk. in other words, we're not -- we do a lot of things se quenchly in the acquisition cycle. i anticipate this has to be done and then i can gets start offend this sooner now to arrive at a point where we have a product that is acceptable at a point in space and we can move on. my personal sense is we made the acquisition process way too hard. the second piece, lesson learn on this is i think the services having a gated their responsibility to the acquisition community as it rells to bringing new equipment in. what do i mean by that? i said congress doesn't give the f-35 b program manager, he doesn't give them the money. he gives it to the service

chiefs. congress expects the service chiefs to be good stewards of that money. we turn around and go i'm not worthy or qualified to manage this thing. you take this money, acquisition community and professionals and then you come back and tell me how i'm doing. meanwhile we go off and focus on other things like iraq and afghanistan and all the things around the world. bawl of a sudden we turn back and we go it is now at $4.3 billion. how did that happen? and then we're entering our second and a half decade and now the program is $18 million per vehicle and the program grew from $13 billion. how did that happen? i think the service chiefs need to reclaim ownership of these major programs, these really expensive ones. we need to have oversight.

that is the best where i am on the f-45 b. coming into it a little bit late. if you talk to folks that really understand development programs, they will tell you the very best thing the services can do early on in the concept development phase and when you're really kind of developing this thing is to be engaged because there are tradeoffs that the service who was going to use this vehicle and buy this capability will need to trade off as they -- as costs become reality. engineering challenges, if you want this vehicle to go 15 knots in the water, it is going to cost you this much more but if you're willing to visit go 12 knots, you can save a significant amount.

back to the amphibious combat vehicle. i made a really systematic approach. we know how much it is going to cost, if you want to go an extra three knots, we can tell you how big the motor is going to have to be in that thing. we can tell you precisely how, you know, how much the gun is going to cost if you want a different caliber. so what we're doing right now is defining the retirement today. working very faithfully on this thing. in fact, we are probably within about 60 days of having this thing really -- and guess who is making those decisions? it is the senior leadership of the marine corps. i mean, the very senior leadership of the marine corps.

sitting across the table with engineers and the systems engineers folks taking lessons learned from the e.f.e. and going ok, what are the trades so that we know we can actually build a vehicle. we've got some idea reasonably well how quick and how much it is going to cost. the other thing i would say is that we have to accelerate production. of these test articles and get -- you know how long it took the s.r.-71 blackbird from the time it was being drawn on graph paper, the time it first flew, i think it was 18 months. 18 months. that was in the 1960's. this is 2011. you're going to tell me here is what the acquisition guys said when we were going to cancel the e.s.v., they came to one of my

premiere star rs and they said ok, we're going to go for an alternative vehicle. he said it will be 2024 before it will do initial operational capability. i am not making that up. i wanted to pick the heaviest thing up in my office and throw it at him. think about that. so what are the lessons learned? how are they going to fly? let's do retirements trades so we can have an idea what this thing is going to cost and let's gets the acquisition cycle maybe not quite as aggressive as the amrap was. it saved lyes. untold amount of lives but maybe not -- it was a pretty rude metropolitanry thing. -- rudimentary thing. this is going to be a little bit

more sophisticated than that. you can take the lessons learned to the amrap, to push forward faster so we can come out on the other end with a product that is affordable. the longer it takes, the more expensive becomes. that's a lesson learned. in 1989, 1999 i was in the pentagon when it was all powerpoint. we're farther you are -- down the road on that. we're looking at it right now. i think early engagements, lesson learned. you can accelerate the time on an acquisition. service chiefs need to reclaim ownership of those major productions, those major programs. i really think we can do a whole lot better.

ok? >> let's starts working back a little bit. about six rows back. on the aisle. >> hi. general amos, do you have any reaction to merge the station and the air force base in okinawa? >> you know, the -- i do have a couple of reactions to it and i think they are favorable. first of all, i think they have got a good plan that our nation and the japanese -- agreed to this 2005 and 2006. i've flown in and out of the air station many times and i have flaun -- lived on okinawa for a portion of my life as a marine. i'm reasonably familiar with that. i think in good faith, the

marine corps needs to find another location for the airplanes. the marine aircraft group 36. rotary wing airplanes. and the reason for that, for those of you that are not familiar with it is it is a great air station. it is wonderful to fly out of and it satisfies all of our needs. but some of the airfields around the united states of america have been encroached. the building and everything, the construction and pardon mings and schools and businesses have encroached. i think it is in the best interest of the marine corps and of our nation and the nation in japan to find another location for it and we completely support that. another thing you didn't ask about it, but there is a significant amount of land south of there. you have to get to the center of

the island. the agreement of course is to give that land back. we have some facilities there and some areas in the port. the plan is to give that back to the people of okinawa as soon as we reasonably can. so i think the plan is sound. i support the movement of the airfield. i think it is in the best interest of all of us to be able to do that. where does that capable go? that's what our nations are working on now at the very senior level. >> further back. >> good morning, gentlemen. i'm here -- >> put the microphone up.

>> on the wake of osama bin laden's death, i find it interesting many media outlets reported that a strike was what killed him. i was wondering where you see the role of marine aviation going specifically and with u.a.v.'s and the new marine corps shadow tactical system coming into play in both afghanistan and other conflicts? >> i want to be sure i got your question right. where do i see the role of marine aviation in the future? is that the just of your question? >> yes. the shadow tactical system. >> what was the last part of that? >> shadow tactical system. >> u.a.v.'s. >> i think it is interesting. when we crossed the boarder in 2003, i was the wing commander on the ground and we had about 345 airplanes.

probably about 60 of those were the forerunner of shadow, which was the pioneer. i quickly fell in love with them. we were able to use these things and i think all of us -- even our nation has come to understand that the real value of the unmanned system, i think the pioneer was replaced with a shadow, which is an army program so we're all in cahoots with the army on this. we had two squadrons of u.a.v.'s. we now have built almost four squadron s of these things with this four-structure review. we are doubling the size of the unmanned -- i think it has got a future. i can see down the road where

these capabilities on the unmanned aerial systems are growing. the ability to move information around the battlefield, the to see things and will able to relay that information realtime down through forces on the ground and the ability to deliver precision munitions. i see a time in the future where we'll probably do some medevacs. i'm a big fan over the cargo u.a.v.. it is now called the cargo u.a.s. where we can deliver logistic supplies around the battlefield, especially at 2:00 this morning when it is dark and scary and piles get nervous. u.a.v. doesn't care. it just launches and flies out and delivers ammunition and water and that -- food. i'm a big fan. i think there is a huge future

in it for all the services. i'm not threatened by it at all. there is always going to be a retirement to have somebody with a brain making decision on things on the ground but i'm a big fan and i hope that answered your question. >> if i could follow up quickly on that, general, is it -- this is not meant to be a critique to have f-35 program. we have seen it stay at about 2,500 airplanes through a period where u.a.b.'s and u.a.s.'s have become more general. is it possible in this budget drill that the service can realistically and reasonably be asked to rethink the 2025 number without going to the f-35 b specifically. is there a case we're building more tactical-manned airplanes

even though we're doing more with unmanned systems? >> i don't think there is a question, we are doing more with unmanned systems. there is a piece in the future that the unmanned system owns but i can't tell you right now how much, mike. i can't tell you there is a 2,500 minus 300 systems? is it 2,500-plus unmanned systems? we're just right now we have got four airplanes delivered to us. we're about to take our fifth one here towards the end of this month. the navy has one and the air force has four or five. we need to get the airplane in production and see how it is going to do and also technology is going to advance. i think that is a decision that doesn't need to be made right now. i think that could be a decision that could be delayed out there 10 years as much. when you think about how long it takes to produce 2,500 airplanes, it takes a long time. we're going to be building airplanes out until 2030.

i don't think it is the decision we need to make right now because capabilities are going to increase significantly between now and then. i think we ought to stay where we are and just get the airplane built an see where we go with technology in the future. >> next question, please? here in about the seventh row. young lady. >> hi. i'm clara at the university of southern california. you talked about the reasons for optimism earlier such as increase this infrastructure, government leadership and increase in education. i was wondering if you could shed some light on the potential challenges that we're still facing in afghanistan and more importantly why these reasons for optimism that you listed earlier might or might not have a sort of snowballing effect or how they might spill over to offset these issues? >> first of all, i think the

education piece -- i want to make sure i answer your question for you. i think the education piece is critical, especially in a country like afghanistan, which as i recall has an 85% ill literacy rate. it is critical for security. it is critical for any maturing organization like us or any maturing country like afghanistan. so i'm very optimistic. i'm very hopeful that the education -- i think education is key to what is going on. i know there is an effort underway in afghanistan right now to train the 85%, a large percentage which are policeman, soldiers, mechanics, teach them the language up to the first grade. i am very optimistic about that.

i think it is an important part of the future of that country. but since i'm not answering your question -- did i miss -- >> do you want any clarification or has he answered it pretty well? >> i guess if you could talk about the potential challenges that we're still facing in afghanistan and maybe why education or other important things like that would offset those challenges, i guess. >> i'll tell you what. here -- we are just going to go to fundamental counterinsurgency in helping good people reclaim their country. this is kind of fundamental blocking. first of all there has to be the will of the people that it is not a matter of a will for change but a will if they would like to have peace and some of the most fundamental things that

we take for granted when you drive around dupont circle or drive around washington, d.c. freedom of movement. i'm not going to be threatened. in that country, you know, some of the most basic freedoms of being able to take your good out of your small guard than you grow and put them in the market and sell them, i mean, that is significant. can you imagine that in the united states of america things that we take so much for granted, that's what what they want. they would like the ability to put their children in school. so the key to all of this is a -- is strong leadership. remember, it is a tribal system. so it is not like -- we can't view it the way we view ourselfs in the united states of america. it is a strong tribal system. the tribal chiefs have a lot to say. the elders. and it is even different than it was in iraq with the sheikhs. the elders have a lot to say

about what is important to that town, that village. and i'll tell you, while we were there, one of the -- one of the tribal chiefs said -- and i'm not going to tell you where it is. and this is not unanimous across afghanistan so i don't want anybody to walk out of here and go well, this doesn't count anymore in afghanistan. one of the tribal elders in a very rural area of afghanistan at a part that is in the marine zone in the hehelmon province. i would like to be able to take stuff to the market that we grow and sell it. now that is pretty significant. that is pretty visceral. so i think back to your issue, back to your question, i think a strong local government with responsible leaders and an

ability to provide security, and what is that? that is the police force, a credible police force. that is honest, that has the best interests of the local community at heart. and a credible military that should something happen that they will step in and reinforce the police or they will step in and do the bidding of the nation. that's pretty simple. to me that is the fundamental basics of counterinsurgency. it is not nation building. that's what is important for afghanistan and i'll tell you why, from what i saw, what i think, michael can speak for himself. there are those leaders that are there. there are the villages -- they are in the villages and imagine that. you know, a year ago, marja was

on the lips of everybody in this room and now, for the most part, unless you're visiting with us and we were in marja and unless you're visiting with us, you probably can't remember the last headline you saw in the newspaper anywhere in washington, d.c. that marjah on it. it was on the tips of our tongue. marjah has got governors and police chiefs. they are doing an incredible job. if they can do that at that fundamental level, we can help train them to do that, the united states can ease out. which is exactly the plan. we can help them build schools and dig wells and that kind of stuff. one last point. this is key to the -- what is it

that they really want? one of the governors, district governors i was with at christmas time. he is a great, great courageous man. and he said i would like to have my market opened again. i would like to have fresh water. now we're in the middle of this little village and here is this -- we what we might call pretty nasty looking shallow creek flowing through it with water probably no one in this room could drink out of. he said i would like to have fresh water and some kind of medical care. i don't necessarily have to have an ob/gyn or a pediatrician or a surgeon but i would like to have some medical care because i just put two of minimum women in the back of a pickup truck that were about eight months and 29 days pregnant and they were having problems in their pregnancy, put

them in the back of the pickup truck to drive them and they died enroute. he would just like to have a nurse. pretty visceral. that is a success. that is what those little villages want. do you care to comment on what you saw? >> you told it very well. in terms of what is still to be done. two encouraging little factoids or statistics that some people may be interested to hear. governance at the civilian level in afghanistan has been a challenge and serge in the south, but i was encouraged to see in the last 12-15 months, the number of afghans populating the district has doubled. that is not by any means adequate and that doesn't mean that everyone in the 61% is competent.

another thing that was encouraging. the governors in afghanistan are now able to travel by road to meetings. previously they never would. they would go by helicopter because they would be afraid of encounter a roadside bomb or be manned by taliban checkpoints. that is one indication of headway. obviously still a long ways to go. let's go over here and then we'll go to the back of the room. jason will be after this gentleman here. >> hi, general, my name is andy gordon. i'm with the office of richard j. lugar. the human capital is outweighing the interest if the vital need in afghanistan. how is the marine corps vital to securing the interests for those needs? >> you know, truly i'm not

qualified to answer the cost in human capital -- has the cost human capital and money outweighed -- i can't answer that question. that is for the very most senior leadership of our country to answer. i'll just tell you that -- there has been a fairly healthy price paid. we paid a fairly healthy price. if you use iraq as a model, we lost 851 marines killed in action in iraq, just about 9,000 wounded. various kinds of wounds. that is a pretty healthy price. but if you look at iraq right now and you look at the anbar province and you look -- i keep going back. i said when was the last time anybody saw anything in the paper about fallujah or rammed ai or any -- ramadi or any of

these places? we asked the question was it worth it? haven't lost my marines, haven't put a lot of -- just heart felt time in there, the answer for me is yes. absolutely, it is yes. so i transition that to afghanistan. if i take that same concept. that's where i look and say i'm very encouraged. i am. you look in the eyes of these young marines and they want to finish the job. and i don't mean finish the job like in a bad way, like a vengeance way. i mean in a good way. when you have young 19-year-old marine and he's excited because a guy just opened up the bakery in marjah and is serving that wonderful afghan flat bread and by the way that, that goy had gotten run out two years early gotten run out two years early early by