they plane message the to take to voters. >> connect with c-span on line with the latest updates on twitter, continuing conversations on facebook, political places in washington and beyond with four square, and leon panetta said he supports withdrawal of troops but said conditions on the ground would shape that decision. he made the remarks during his confirmation hearing. president obama nominated him to replace robert gates, who is retiring after five years in office and also served in that position in the george w. bush of ministers and. mr. panetta was appointed the cia director in 2009 and was president clinton's chief of

staff and budget director. he also served in the u.s. house and was the house budget committee chairman. this is two hours and 45 minutes. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> good morning, everybody. -- overmittee meets to so the course of this long and distinguished career in public- service, we welcome you to the committee today and we thank you, mr. panetta for your decades of dedicated service to our nation and your willingness to enter the call once again. we know your wife is not able to be here with you today. she has made her own sacrifices over the last 50 years,

supported your efforts in the public and private sectors. i know that i speak for the committee when i say that we love to think her in person for the sacrifices that she has made. please let your wife know of the committees gratitude for her support and your sacrifice. if confirmed, director panetta will replace secretary robert gates at the helm of the department of defense. he was asked to stay on. it provided a welcome continuity in our defense leadership. director panetta's nomination represent change and brings an impressive level of continuity as well. the next secretary of defense will face a complex set of demands on our armed forces. for most of the ongoing war in afghanistan and iraq.

we continue to have approximately 150,000 troops deployed. in addition, even after the extraordinary raid that killed osama bin laden, terrorist threats against our homeland did seem to emanate from pakistan, yemen, somalia, and elsewhere. the risk of a terrorist organization getting their hands on and detonating an improvised nuclear device or other weapon of mass destruction remains one of the gravest threats to the united states. the defense department is working with the departments of state, energy, of insecurity, and other u.s. government agencies to prevent the proliferation of nuclear weapons and dangerous technologies. a number of key national security decision will have to be made in the coming weeks and

months, even as the drama of some kind ofaq -- continuing u.s. military presence beyond the december 31 which role does not agree to by president bush and prime minister maliki in the security agreement between our countries. another key decision point is looming in afghanistan. regarding reductions in u.s. forces starting in july. president obama said the other day that, "it is now time to recognize that we have accomplished a big chunk of our mission and that it is time for afghans to take more responsibility." the president has also said that the reductions starting in july to will besignificant -- will be "significant and i just a

token gesture -- and not just a token gesture." to assume security responsible for all of afghanistan. i support the so-called transition strategy, which calls for afghan security forces to take more and more of the lead in providing for their countries security. the more that afghan security forces do that, the better the chances of success, because the taliban's biggest nightmare is a large effective afghan army, an enormous party perspective of the afghan people and control of afghanistan security. having security forces in the lead would deprive the taliban of the biggest propaganda target, the claim that foreign

troops are occupiers of afghanistan. there is nothing inconsistent between transitioning security responsibility to afghan security forces and long term strategic relationship with afghanistan, which is also important to sustain a successful outcome. another major issue facing the department is the stress on our armed forces after 10 years of nonstop war. the repeated applause of four military has resulted in many of our service men and women being away from their families and homes for two, three, or four torours. military families are also stress. our men and women in uniform can t to answer the call. the next secretary of defense

will be required to juggle the competing demands on our forces while washington struggles with an extremely challenging physical environment. the defense budget will not and should not be exempt from cuts. this will require congress working with the next secretary of defense to scrub every program and expenditure in the defense budget and to make tough choices and trade-offs between the requirements of art were fighters today in preparation for the threats of tomorrow. the administration in february submitted a defense budget for fiscal year 2012 which included some efficiency savings. in april, president obama announced he wanted to reduce security spending by foreign billion dollars over 12 years -- by $400 billion over the next 12

years. including the departments of state and homeland security. we have asked the a ministration what parts of the $400 billion reduction to the recommend the pentagon cuts and how many of those for fy 2012? so far we've done no answer. hopefully say we'll get mr. panetta's understanding on that matter. his service is invaluable because he understands the into workings of the budget process and because he shaped the decision that helped achieve the budget surpluses of the late 1990's. fort lee, director panetta brings a compelling record of achievement and experience as well suited to the demands of the position for which he has

been nominated. leon panetta has repeatedly demonstrated an ability to work across party lines. since entering public service, he worked on the staff for the republican whip in the u.s. senate, headed the office of civil rights in the nixon administration. he served eight terms and became chairman of the house budget committee. leon panetta has been indicted by a clear compass. he has said, "in politics, there has to be a line beyond which you do not go. too often people don't know where the line is. my family, how was arrays, my education all reinforce my being able to see that line." leon panetta has been involved in the most pressing national

security issues of our time during his tenure as president obama's director of the cia. this includes overseeing the manhunt for osama bin laden and the impressive operation that brought an end to al qaeda's murderous leader. this operation epitomizes the way in which the cia and the defense department are finally working together to support each other in the counterterrorism operations. the assault on bin laden's hideout is the first significant instance, i believe, of an operation that could have been conducted under defense department authorities, but that was instead executed under the authorities of title 50, with the director of the cia exercising operational control over our elite military force. then the conclude by expressing

on behalf of this committee our gratitude and are a deep admiration for the man whose shoes director panetta's has been nominated to fill, secretary robert gates. service to thes' country has been extraordinary. he worked under the administration of eight presidents. he filed a long career in government and served his country again in the critical post of president bush's secretary of defense a difficult time in our history. to route his tenure, -- throughout his tenure, his leadership and kantor have earned him the trust and respect of all who have worked with them. secretary gates has combine business with the toughest and cleric and courageous, a firm decision making. secretary gates is devils a

direct and open relationship with congress -- secretary gates developed a direct and open relationship with congress. his time has been exceptional. senator mccain. >> let me welcome director panetta. i am grateful for its remarkable career of public service and is a lotus to serve in this new and important capacity. i am appreciative of your family and the support they have given to you. i also welcome my colleague from california who was wrote underscore your important qualifications to assume the position of secretary of defense. your successor as director of the cia over the past two years, and have been many, or credit to you at the men and women of the intelligence committee.

you and i know the director would be the first to limit that he has big shoes to fill if confirmed in a person of robert gates. i have seen many secretaries of defense and i believe history will long remember secretary gates as one of america's finest, most effective and most impact all secretaries of defense. one of the key criteria that we should be looking for in the next secretary of defense is continuity. the county was of the wise decision making that characterized secretary gates' leadership at the department of defense. things to is -- thanks to the good work of this team, the next secretary of defense will take all this with a good deal of positive momentum. many challenges remain. our countries faces decisions that will echo for decades to come, this is a double determine

whether it would remain the world's leading global military power able to meet our many commitments worldwide, or what we will begin abandoning that role. will have perhaps the most impact on this outcome is the stated goal of cutting $400 billion in defense spending on top of the $178 billion in reductions that secretary gates already announced. this cuts into the muscle of our military capabilities. defense spending is not what is sinking this country into a fiscal crisis. if the congress and president akbar that flawed assumption, they will create a situation that is truly an affordable, the

decline of the u.s. military power. i know there will be cuts to defense spending and some reductions are no doubt necessary to improve the efficiency of the department of defense. but also remember -- more rubber when the former chief of staff of the army warned in 1980 after cuts were made and testify before this committee that we have had a hollow army. that is not an experience that we should repeat in the years to come. we must learn the lessons of history. how the proposal could be implemented. another major decision involving how we achieve our objectives in the three conflicts in which u.s. forces are now engaged -- iraq, afghanistan, libya. in iraq, the key question is whether forces will remain in

iraq beyond the end of this year to support their continued need in our in our national interests. i believe such a presence is necessary, as secretary gates has argued. in afghanistan, the main question is the size and scope of the drawdown. i would agree with secretary gates that any drawdown should be modest celesta maximize our ability to lock in the gains of our troops during the next fighting season. in libya, there are signs that muammar gaddafi may be starting to crack. the odds of a stop remained far too high. i believe u.s. treasury to be to reduce those odds as much as possible and quickly force muammar gaddafi to leave power. another significant challenge department defense pa

-- secretary gates has made some courageous decisions to get major weapons to kermit project's contractor is similar focus is brought to of the defense department chooses to buy billions of dollars in services to maintain the highest degree of readiness. as best in this budget a farmer, it will be important to continue to limit weapons programs that are over cost, behind schedule, and not providing improvements in combat power and capability. we must continue to eliminate every dollar and wasteful spending that siphons reserves away from our most vital need, enabling our trooped to succeed in combat. director panetta, you are nominated to lead our armed forces. this has placed a major strain on our armed forces and our

families. our military is performing better today than at anytime in our history. this is things to the thousands of brave young americans in uniform who are writing a new chapter in history of our great country. they have shown themselves to be the equals of the greatest generations before them. a: all + + enter is to be equal and for ever faithful to the sacrifices of these amazing americans. we have a quick 10 second comment. >> thank you. i have an unavoidable conflict. i have served with mr. panetta and i consider him to be a close friend. but for to support his confirmation and serve it with him in is the capacitor think you for the opportunity. >> thank you, senator mccain.

our two colleagues from california are here to introduce mr. panetta. it is a treat the you're with us. senator feinstein, the chair of the intelligence committee. she has a lot of direct experience long before then with director panetta. >> thank you, mr. chairman and members of the committee. it is distinct pleasure for me to introduce the director of the central intelligence agency and distinguish california, leon panetta, who was nominated by president obama on april 28 to be the 23rd secretary of defense. as members of this committee will know, it is 47 years of public service, director panetta has held positions of congressman, chairman of the house budget committee, director of the office of management and

budget, chief of staff to the white house, co-director with his wife of the leon and sylvia panetta institute for public policy, which i've had the pleasure of speaking before, a member of the iraq study group, a secondof the caia, and first lt. as an intelligence officer. trusted adviser to the president and respected member of his national security team. in the course of two years, he has mastered the intelligence field, led the cia three very tumultuous time, restored badly damaged relationships with congress, and with the director of national intelligence, and carry out president obama's personal instruction to him to find osama bin laden. i have no doubt that his past

experience and is capabilities prepared leon panetta to meet the major challenges before the department of defense. with knowledge of cia operations and analysis, he will come to the pentagon with a thorough understanding of the situation in afghanistan as well as the aggravating factors of our relationship with pakistan. through cia analysis, he has also well aware of the other contingencies around the globe, where the united states military may be called to deploy. director panetta is also well positioned to guide the department to the constrained budget environment which the chairman spoke of along with the rest of government. he possesses the credentials and experience to make cuts are needed and were prudent. i am confident that he will do so in a way that keeps the

military strong and capable, and in a way that maintains the cohesion of the department's and its services. finally, let me recognize the there many officials in government with the intellect and management skills to do this job. leon brings something more. he has an interesting leadership style, with a deft personal touch that matters to the people in his charge and that really benefits the oversight responsibilities that we in congress have. then give you an example. it was early in his tenure at the cia in 2009 when director panetta requested an urgent meeting with the intelligence committee to brief us on a program he had just learned of and that he had learned had never before been briefed to congress. he found that unacceptable and

we very much appreciated his position. in the two years since, he has never declined to answer a question or provided with this -- or provide us with this candid views. i believe center chambliss can testify to this -- i believe senator chambliss can testify to this. let me conclude -- a national public group into the last week with secretary gates noted that the health care budget of the department of defense was bigger than the entire budget of the cia and that no other position could fully prepare someone to be secretary of defense. i have great respect for secretary gates and praise him for a service to this country beyond all reasonable expectations. he has been in debt stemming

secretary of defense. but i would suggest to you that leon panetta, who has served honorably and successfully in congress, at omb, at the white house, and of the ca, is prepared and uniquely qualified to be another outstanding secretary of defense in this very challenging time. i think the committee. -- i thank the committee. >> senator boxer. >> i appreciate every word my colleagues about my friend, leon panetta. i will try to add more of a personal side because i've known this man and work with them since 1982. he became one of my mentors. eventually, i served on the budget committee or he was the chairman, and i watched him very carefully reach out across every

kind of line that would divide us. republican, democratic liberal, conservative, moderate. we were facing a lot of new, complex issues. one was the eighth crisis -- one was the aids crisis. i remember saying there was a new disease and we have not done anything about it. he said, what do you hold some hearings and bring in the republicans, and we did. we were able to get the first funding for aids research. was ready to listen. he gets it. we have seen that in every single job that he has fulfilled. this is a man who has dedicated himself to public service, and

we're so grateful to him. i won't go through every job he has held. it would take too much time. senator feinstein highlighted anye many of those -- so mn of those. to be someone who could be such a trusted advisor that two presidents have chosen him. i could go on the about leon. let me say what is meant to the people of california. he has recognized the importance of our resources in our sta te, namely our coast and our ocean. he said it this is an economic issue for us. he preserved the coast. he is a visionary.

we saw the move into the cia and the work he did and the latest issue and he can talk about does not do that much in terms of making sure that osama bin laden was finally taken out. this was a brave mission by our military. leon panetta was a part of the decision making. i think at this time were york in gazed around the world and so many difficult conflicts, so many difficult conflicts, he is bringing out the intelligence perspective to the job. i would ask unanimous consent that my formal -- i want to turn to leon as a senator from california and say thanks so much for everything you have done throughout your career for this country. i know your origins. i know how proud your family is. i think we'll sure that pride in

nyou. good luck and help the committee does as quickly -- good luck and i hope the committee does this quickly. to stay.e both welcomed tuesda >> we have a bill on the floor. i will be going to the floor. >> you never miss a point to point.ur linda colorado mr. panetta -- let me call on mr. panetta. thank you again for your service to correct thinking, chairman -- think you for your service.

>> thank you. i am deeply honored and humbled e as the e at new-paragraph hers president's nominee. i thank my fellow californians who are dear friends and it dear colleagues for the role of secretary of defense, without question, it involves a very large responsibility in size alone. still, in a very basic way, it is the similar to the role of the cia director in that our first and foremost mission is to protect the country. if confirmed, my number one job

will be to insure that america continues to have the best trained, the best equipped, and the strongest military and the world. in order to make sure that we protect our country. as many of you know, i had devoted my career to public service. it began a long time ago when i served as an intelligence officer in the united states army. i was proud to wear the uniform of our country. my respect and admiration for our nation's armed forces has only grown the decade cents. my youngest son, jim, served in afghanistan and received the bronze star. i have personally -- i personally witnessed the tradition of service and sacrifice that drives each

generation to fulfil a fundamental duty to our country. in addition to respecting that great tradition of duty, i have done a number of things to try and prepare for this very difficult and challenging job. first, in the weeks since my nomination, i spent a number of hours with bob gates. he is a dear friend. when he and i first got to know each other as we were building our careers in public service, we also served together, as you know, on the iraq study group. we continued to serve together as members of the president's national security team. we share a common belief that the national security of this country is the responsibility of all americans regardless of party.

i, too, believe he will be remembered as one of the greatest secretaries of the defense and our nation's history for the way he led the department during a time of war and for the crucial reforms he has tried to put in place in the way the pentagon does business. those are reforms that i intend to carry on. second, i talked with our service secretaries and a service chiefs. i believe it is important to have a candid, open line of communication between the secretary and all the service chiefs. they are the ones who are out there leading each of one of their services. i need to know what they're thinking. i need to know what is important in terms of serving the interests of the troops that they directly lead. one of those chiefs told me --

for our troops, there has been no shortage of war. indeed, we are a nation at war. our volunteer force has been stretched by combat that has lasted nearly a decade. we owe it to them. oh to their families to insure that they have the best leadership, the best training, the best equipment, the best benefits, the best health care that we can give them. i pledge to them and i pledge to you that every deployment decision that i make will be mindful of the stresses on our men and women in uniform and on their families. third, i have reached out to former secretaries of defense both democrat and republican. i ask for their advice. to a person, they impressed upon

me how important it was to stay focused on the management of the pentagon. this is the biggest enterprise in our government. it requires focus and hands-on management. which is the only way i know how to do business. fourth, i sat down with many of you and have known many of you throughout my career. because i really do believe that congress has to be a partner in this role in the protection of our country, i am a creature of the congress. i believe that the pentagon is made stronger by your oversight and buy your guidance. as a young legislative assistant a long time ago here in the senate, i had the honor of seeing firsthand the bipartisanship of leaders like dick russell and henry jackson

and barry goldwater. as a member of the congress, i saw that tradition carried on by other great leaders. i believe deeply in the tradition of strong, bipartisan national security leadership. you, mr. chairman, and you senator mccain, have carried on that tradition and i thank you for that. this is a time of historic change. unlike the cold war, when we had one main adversary, we face a multitude of challenges. al qaeda and other global terrorist networks, in places like yemen, somalia, north africa, not just fataa in pakistan. dangerous enemy spread out across the world. we face insurgents and militants who cross borders to conduct attacks.

we placed the proliferation of dangerous weapons in the hands of terrorists and in the hands of rogue nations. we face cyber attackers, a whole new arena of warfare that can take last not only now but in the future. that is something we have to pay attention to. we face the challenge of rising and changing powers, in nations in turmoil particularly in the middle east undergoing enormous political transformation. we are no longer in the cold war. this is more like a blizzard war. it is a blizzard of challenges that draws speed and intensity from terrorism, from rapidly developing technologies and the rising number of powers in the world stage. despite the times we live in, there is reason to be confident.

the operation that killed osama bin laden, in my view, has not only made clear to the world that we will do what we have to do but it is also -- it has also given us the greatest chance cents 9/11 to disrupt, dismantle, and to defeat al qaeda. to do that, to be able to finish the job, we have got to keep our pressure up. if confirmed, my first task at dod will to ensure that we prevail in the conflicts we're engaged in. in afghanistan, we must continue to degrade the taliban. we got to trade security forces. we've got to help the government

take ownership of their country so that they can govern and protect their country. in iraq, we must assure that iraqi military and security forces are prepared to safeguard their nation. so that it can become a stable democracy in a very important region of the world. as we do that, i am very aware that we must be highly disciplined in how we spend the taxpayers' precious resources. this committee well knows that the days of large growth, on limited defense budgets are over. our challenge will be to design budgets that eliminate wasteful and duplicative spending. while protecting the core elements that we absolutely need for our nation's defense. i do not believe, based on my

long experience in government and working with budgets, that we have to choose between strong fiscal discipline and a strong national defense. i don't deny that there will be tough decisions that have to be made and tough choices that have to be made. we owe to our citizens to provide both strong fiscal discipline and a strong national defense. finally and most importantly, it is the job of secretary of defense to be a tireless advocate for our troops and for their families. it is their sacrifice and their dedication that have earned the respect of a grateful nation and inspired a new generation to volunteer to wear the uniform of our country. they put their lives on the line to fight for america.

i will just as surely fight for them and for the families that support and sustain them. as director of the cia, i had no more solemn duty than sending young people into harm's way with their lives on the line. after we lost seven of our colleagues in afghanistan in december of 2009, i had to do what my colleagues in the military do all too often -- visit the wounded at bethesda, attend the ramp ceremony at dover, offer a prayer at the site of an arlington cemetery graveside. a patriot who left this world to yawn. not one day will pass where i don't think of the brave souls who have fought and died and those who fight today for our

freedom. as secretary gates emphasized in his last trip to the troops, there will always be, in my thoughts, and prayer. if confirmed, i pledge to you that i will always keep our troops for must in my mind and i will be a careful and accountable steward of our nation's precious resources and that we will have the strongest national defense in the world and that you will always have my best and most candid advice and that i will always, always seek yours. as you know, i am the son of italian immigrants. my father used to say to me -- i -- that to be free, we have to be secure. that is the pledge that i make to you. i will do everything i can to keep america secure so that it can be free.

i will do that if i am confirmed as secretary of defense. thank you. >> thank you so much. thank you for a powerful, moving, and straightforward statement. we have standard questions which we ask of nominees. before we take turns asking our own questions, i will put those questions to you now. have you adhere to applicable laws and conflicts of interest? >> yes i have. >> when asked to give your personal use even of those views differ from the administration in power? >> yes i will. >> had assumed any duties are actions which would appear to present the outcome of the confirmation process? >> no, i have not. >> way we ensure that your staff composite deadlines established for requested communications including questions for the records in hearings.

>> yes i will. >> will you providing cooperating with witnesses. >> yes i will. >> will these witnesses be protected from their reprisal? >> yes they will. >> when you testified -- lee testified before this committee? >> yes i will. >> will you provide documents including copies of electronic forms of communication in a timely manner when requested by a duly constituted committee or to consult with the committee regarding the basis for any good faith delay or denial in providing such documents? >> yes, i will. >> thank you. we will be here all morning. we will then have a break for lunch and we will go into a classified session for this afternoon. minutestart with a seven- first round for questions.

director panetta, you said that you support the july, 2011 date set by president obama for the beginning of a process of transferring increasing responsibility for afghanistan security to the afghan security forces and drawing down u.s. forces from afghanistan. president obama recently said that the size of u.s. troop reductions from afghanistan will be significant. director panetta, do you agree that the u.s. reductions from afghanistan beginning in july should be significant? >> i agree with the president. there are approximately 100,000 more afghan police than the work in 2009. the nato training mission in afghanistan is ahead of schedule in meeting the target of 305,000 afghan security forces by this fall. in addition, a new target of 352,000 afghan security forces

by 2012 has been set to ensure that these forces have the specialized skills needed to sustain these units are the long term. i very much support that decision. do you agree that training and part offering with the afghan army and police in getting those forces as a lead and operations is key to the success of our counter insurgency strategy and afghanistan? >> yes, i do. >> pakistani leaders deny being aware of the presence of osama bin laden bin abbottabad. it is counterintuitive to believe that none of their leaders know it but nonetheless that is not my question. the pakistan leaders are well aware and acknowledge their awareness of the sanctuaries in pakistan by the hikani network and the afghan taliban it quetta.

they are attacking our troops across the border in afghanistan and they go back to their sanctuaries its pakistan. a recent defense depart report called the extremist network the most significant threat in eastern afghanistan. yet, the ikanis continue to enjoy open six border cross the border in pakistan. i think this is totally unacceptable. i'm wondering if you agree and which should be done. >> senator, i share your concern with regards to the safe haven in pakistan. , particularly as it relates to groups like the akanis./ i strongly urge those in pakistan to take steps to do whatever they can to prevent

these kind of cross border attacks and to prevent the safe havens that exist on the pakistani side of the border. this is a difficult challenge, the relationship with pakistan is that the same time one of the most critical and yet one of the most complicated and frustrating relationships we have. it is extremely critical in that we're conducting a war against our primary enemy in their country. it is critical because of vital supply lines go through their country. it is critical because they are a nuclear power. there is the danger that those nukes could wind up in the wrong hands. at the same time, it is very complicated by the fact that they maintain relationships with

certain terrorist groups, that they continue not to take aggressive action with regards to these safe havens, and they are concerned about the sovereignty results and criticisms of the united states when in fact my view is that the terrorists in their country are probably the greatest threat to their sovereignty. having said all that, we have to maintain the relationship to do everything we can to try to spread -- strengthen their relationships so that both of us can work to defend both of our countries. >> director panetta, the president has called for $400 billion in reductions to national security spending over the next 12 years. do you have any understanding or a proposed breakdown of that

$400 billion as to how much he is proposing for reductions in pentagon spending? how much of that is intelligence spending? how much is he proposing to reduce in the home less security department? >> no, i do not. >> can you try to find that out for us? if you give us an estimate for the record -- >> i will certainly ask whether or not that decision has been made. >> do you know whether we will receive a budget amendment for the fiscal 2012 dod budget? >> i don't know the answer to that ban on the question of torture, and your answers to the committee said the following -- i will insure that all interrogations' conducted by the department of defense personnel are conducted consistent with the army field manual and in accord with the geneva conventions.

is water boarding consistent with the army field manual? >> i have taken the same position as president of united states. i think water board crossed the line with regards to interrogations'. the president outlawed the use of that plus other enhanced interrogation techniques. in an executive order he issued when he first came to the presidency. >> recently, i don't want to switch gears to much because time requires that we do that -- as senator web and i recently went to zero canal, guam, and center web was in korea before that, senator mccain and senator web and i -- centre mccarren obviously has a great personal experience in this area -- we

proposed changes to basing plants on okinawa and guam. we issued a review of the plants in korea because we believe that the current plans are unrealistic, unworkable, and affordable. independently, the gao concluded the cost of these military realignments were higher than expected. in many cases, there were largely unknown. in a highly critical gao report of this direction that we are currently moving. i am wondering whether you are familiar with this issue and it confirmed in any of and whether you are familiar with these issues are not whether you will agree to review this matter and work with us to find a solution

that helps advance our strategic objectives in the reason. we had strategic objectives and the reason and if they are currently on affordable, they are unknown in terms of cost and whether you be willing to review this matter and work with us? >> yes, i will. you discussed this with me when i -- when i met with you and also center web discussed his concerns about that area. i agree with you that is a very important strategic area for the united states. we have to maintain a presence there. there are many issues that have to be resolved and worked on. i look forward to working with you, senator mccain, centre wave -- center web and others to find out what the most cost-effective approach would be. >> thank you. >> thank you very much. what is your assessment of the

battlefield situation in afghanistan cents we inaugurated the surge? >> the assessment is that we have made progress with regards to security in that country. it is fragile and reversible. i nevertheless believe that progress has been made to try to advance security. we also have made good progress in training the forces there in afghanistan both police and military force. i think the area we are -- where greater progress means to be made as a government side. we want to make sure they improve our government so they can ultimately take responsibility for the country. >> and so, would you agree -- when you point out is fragile

and reversible, i think that is absolutely accurate. would you agree with secretary gates repeated a strict statements that the withdrawal should be modest? >> i agree they should be conditions-based variable live up to secretary dates and general petraeus and president to provide with that number should be. >> if you or the secretary of defense when that decision is made, obviously, you will have significant influence. he just came from a position where you have a good assessment of the military situation. i think it is not inappropriate for you to answer when asked if you agree with secretary gates and his assessment that the withdrawal should be modest. >> senator, if i am confirmed, i will have to obviously arrived at a decision myself. i will have to ultimately present that to the president and i am not position -- in that position now and that decision rests with general petraeus and

secretary gates and the president. obviously, i have tremendous admiration for secretary gates. i pretty much what the and and and and these issues. with regards to specific numbers, >> i wasn't asking for specific numbers. on the subject of iraq, if the afghan government and all its elements agree there should be a residual u.s. military presence in iraq particularly in three areas, air defenses, intelligence capability, and security in the areas around kirkuk in iraq where there have been significant tensions, do you agree that would be wise thing for us to do? >> i believe the prime minister

of maliki and the iraqi government request that we maintain a presence there that that should be to seriously considered by the president. >> do you think it would be in our interest to do that? >> there are 1000 al qaeda that are still in iraq. we saw the attack was made the other day. it, too, continues to be fragile situation. i believe we should take whatever steps are necessary to make sure that we protect whatever progress we have made their. >> do you know of anyone authority or in the congress or the administration who believes we should send ground troops into libya? >> i have not met anybody at who supports that. >> i have not either. i think all of us -- would be a

great mistake. do believe is the proper role congress to restrict the powers of the president of united states to act? we were around when there is a vote of cut off of funds. right or wrong, that was the appropriate role of congress. does it worry you if the congress begins to tell the commander in chief as to exactly what he can and cannot do? >> i believe very strongly that the president has the constitutional power as commander in chief to take steps he believes are necessary to protect this country and protect our national interests. obviously, i think it is important for presidents to consult and have the abies of congress but in the end, i believe he has the

constitutional power to do what he has to do to protect this country. >> i agree. in 2007, the last time we went through a very serious crisis that was concerning whether we should withdraw from iraq or not, i see some parallels. we're getting it rising war weariness in american people. and one thing we did at that time was set up some benchmarks that we expected to be met by both the iraqis and the united states which i recall, there were 13 or a number of those. over time, most of those benchmarks were met. do you think it would be appropriate for us to do the same thing as far as afghanistan is concerned? we can measure progress by certain metrics.

i think it would be important in order to gain or keep the confidence of the american people that we should set up some benchmarks for progress both in afghanistan and as far as pakistan is concerned since we're sending billions of dollars of taxpayer money to pakistan. >> i think we all know what the fundamental goal is here which is to develop a stable enough afghanistan that will never again become a safe haven for al-qaeda or -- >> my specific question the ---. >> working with the president and establishing some of those areas where we need to make progress

i know you will make this one of your highest priorities.

it is not affordable for us to continue business as usual in the way we acquire weapons today. thank you, senator. are entireks for ira committee. thank you 3 much, senator mccain. senator lieberman -- thank you very much, senator mccain. senator lieberman. >> i have the greatest confidence in your ability and your principles. i love this quote from your father. our fathers must have come out of the same cloth. it is -- without security, there

is no freedom. i cannot think of anything i would rather hear from a nominee for secretary of defense. i want to begin with a few quick questions. do you agree that it is islamic republic is working hard to develop nuclear weapons capability? >> are concerned with iran -- our concern with iran is that they continue to try to develop some kind of nuclear capability. as to whether or not they have made certain decisions as to how far they should go, those are questions that i would probably have to address in another forum. there is no question that they continue to work to try to develop some sort of nuclear capability. >> also, to the best of your knowledge, it is the is wrong

-- is the islamic republic of iran working under bozic missile system -- ballistic missiles system? >> that is correct. >> as i am sure you know, there have been diplomatic and economic sanctions -- work being done to attempt to discourage iran's nuclear ambitionsa nd really -- ambitions and really to end them. as president obama has said, all options have to remain on the table. i want ask you whether, as secretary of dissent, you consider to be one of your responsibilities -- of defense, you will consider it to be one of your responsibilities to strike and destroy iran's nuclear capabilities if the president, as commander in chief, decides that it is necessary. >> i think in line with the

president's statement that we should keep all options on the table, that would obviously require corporate planning. >> thank you -- appropriate planning. >> thank you. let me go to afghanistan. correct andade a courageous decision in 2009 in deciding to raise the number of our forces in afghanistan by 30,000 +, a so-called afghanistan surge. at the time, a statement was made that we would begin to draw those troops down around july of this year, 2011. there was a lot of anxiety in the region, particularly in afghanistan and pakistan about whether that was the beginning of a kind of early withdrawal and a retreat from the region.

discussions were had particular between us and the afghans and present obama settles with president karzai on a plan that will begin the transition around july of this year but the goal is to remove affectively all of our forces unless there is a mutual agreement to the contrary before then by the end of 2014. u.s. said today and in your prepared answers that you thought we were making measurable progress in afghanistan. but that the progress was reversible. rather than asking you to adopt an adjective that smaltz has put sayhat, is it fair to sai that the standard you apply to

the drawdown of american forces that would begin of july this year, that it not be so great as to risk the gains we have made which you have said are reversible? >> there is no question that we should not take any steps that risk the gains that have been made. i have great confidence that general petraeus and secretary gates and the president will make the right decision in a transition that will take place going towards 2014. >> is it fair to say that if you are confirmed that the goal here that you see is to turn responsibility for security of afghanistan over to the afghans at the end of 2014 and not to jeopardize our capacity to do that before then? >> that is absolutely correct. at the lisbon conference, 48

nations plus president karzai made the decision that there would be a transition going toward 2014. it would be then that hopefully we would be able to transfer responsibility. we should do nothing that jefferson -- jeopardize is that pat. >> i appreciate that the love me brief you -- but let me read do something from secretary gates. "once you have committed, the success of the mission to override everything else because the most colleges -- cost a thing of all would be to fail." did you agree with that? >> absolutely. >> i appreciate your answers to those questions. let me move to another part of the world. at the end of the last century, if you ask most people up here and the defense and state department and cia would be our focus in this century, they probably would have said that

the asia-pacific region would be the strategic center of gravity of the 21st century. we were necessarily distracted by the attack on us on 9/11 and i think we responded with remarkable courage and effectiveness. i think that the asia-pacific remains the strategic center of gravity for the 21st century. we have found that there is an anxiety among our friends from asia about china's growing military capabilities and america's staying power and commitment to the region. i wanted to give you an opportunity to speak to that anxiety, that if confirmed as

secretary of defense, not withstanding the budget pressures on the u.s. government, would our strategic involvement in the asia-pacific region in your opinion continue to be a national security priority? >> absolutely, i think that region is very important to us from a strategic point of view. we have to maintain a presence in the pacific are a breed that and i think in line with that, we have to maintain a relationship with china. we want to build that kind of relationship for the 21st century. i think it is extremely important. there are concerns about some of the things they are doing in modernizing their military. at the same time, i think we have to be able to work with them in terms of scale and transparency so that we are working together and not in opposition to one another in

order to make sure that we protect the security of that region. >> on your watch as secretary of defense, you don't anticipate any withdrawal or retreat of america's commitment to the asia-pacific? >> not at all. >> thank you very much. >> centre chambliss. >> thank you for your willingness to continue to exhibit great public service. you and i have had the privilege of working together for many years since i was a freshman member of the house. you were a member of the clinton administration and i don't need to talk to you about how many years that has been. i respect your service and value our friendship. i would say that i know you will be the first to credit the many hard-working, very professional men and women in the intelligence and military community that led to the successful takedown of osama bin laden and you would be right to do that.

without strong leadership at the top, that mission would not have been successful and i get a lot of that credit of that mission to you and it is well deserved. you and i had the opportunity to talk about the issue of rising health-care costs in the department of defense budget when we visited a couple of weeks ago. i notice you had several questions on the issue in your policy questions and i appreciate your responses. i don't have a question on this but as the chairman said earlier, you will have a very difficult job when it comes to trying to find savings and become more efficient at the department of defense. there is no bigger expense, at least from the standpoint of increasing annual late, the health-care costs. i want to reemphasize the fact that this an extremely important issue and we need to get our arms around it and i look forward to working with you. i encourage you to think

creatively. i want to go back to the line that senator mccain was addressing on afghanistan. regarding the troop withdrawals, i think it is clear that any operational perspective that the withdrawal makes no sense. it may make sense from a domestic political perspective. may make some level of sense in terms of waking up the afghans. the fact that we will not be there forever and that that they have to set up to the plight but i am concerned that a significant withdrawal of u.s. forces will reverse the progress that we made in afghanistan and that the afghans have made. i am glad to see you say you support a response will conditions-based withdrawal. however, i would prefer their to be no withdrawal until it is

clear that the gains we have made will not be reversed. my question for you is as we withdraw troops from afghanistan, if it becomes clear from an operational perspective that the withdrawal is negatively affecting progress and stability, will you advise the president that the withdrawal should be stopped and, if necessary, additional u.s. forces be sent back to afghanistan? said and as the president has said and the secretary has emphasize, this has to be a conditions test based withdraw. that means you look at the conditions on the ground. we need to do everything we can to try to call police stay on target with regard to the 2014 date. it is conditions based and based on what changes take place, the president and secretary would have to make adjustments.

>> i would hope for my conditions-based standpoint, leon, that you would give strong consideration to the safety and security of our soldiers. i know they are of #one importance to you. if withdrawal of troops puts our men and women in gridder harm's way, -- in greater arms way, i would hope that we would cease the withdrawal. i hope that would be your recommendation to the president. >another issue i want to bring up that we have discussed is the issue of tactical aircraft and this generation fighters. -- and fifth generation fighters. secretary gates argued that f-35 made the airplane of the future. however, at a recent hearing,

last month, the secretary indicated that dod has taken money out of that program to buy fourth generation fighters. not only are these fourth generation fighters costing billions of dollars but they will be in the inventory for probably 20-30 years. we will be paying to maintain and even at a greater cost. there utility is greatly limited against any kind of modern threat. in my view, this is not a very good way to spend taxpayer dollars. what is your perspective on this issue? if confirmed, will you be committed to preserving u.s. supremacy in air dominance and ensuring our resources are spent most wisely toward that end? >> obviously, i want to make sure that we have the very best in terms of our fighter planes. 35 is being35he f-

developed as the next-generation fighter but there are substantial costs associated with that. i think we have to watch it very carefully. i want to assure you that one of my responsibilities in line with what senator mccain said is to take a very hard look at all weapon systems to make sure they are cost-effective and they are providing the very best equipment our forces need. >> what concerns me about where we are with that program is exactly what senator mccain alluded to and that is that we just seem to be out of control. we keep moving the goalposts with contractors and blaming contractors for an increase in costs when frankly part of it is due to our inefficient management of the system. if we are going to spend the kind of money that we are committed to spend on that fifth

generation fighter because -- that is where we are headed. we all know that. we've got to have that airplane in the inventory. the decisions that will have to be made by u.s. secretary of defense relative to procurement, to acquisition, as well as the testing of that airplane will be critical. you bring a wealth of knowledge from that perspective from your years at omb and where you are today. again, we look forward to dialogue with you and this committee on that issue as well as our other acquisition issues that are going to be before you. let me ask you one other matter relative to libya. i notice that you agree that the

gaddafi regime must go. how're we going to do that? >> as the president has said, that is the objective. it has to be done by a number of means. number one, we are bringing strong economic sanctions against them. we are also bring strong diplomatic pressure against them. we have implemented embargo and more importantly, the work that nato is doing pursuant to the un resolution and the nato forces that are there. are bring tremendous pressure, i believe, on them not only fighting to protect civilians but to implement the no-fly zone and in addition to that, target the command and control elements of the regime. i think all those factors have

to continue in order to put pressure on gaddafi. frankly, i think there are games that have been made. we have seen the regime weaken significantly. we have seen the opposition make gains both in the east and west. i think there are some signs that if we continue the pressure and stick with it that ultimately that gaddafi will step down. >> thank you for this service and i look forward to continue to working with you. >> senator reid. >> thank you for your extraordinary public service and particularly in the last few months, you're decisive and courageous advice to the president was led to the successful raid against osama bin laden. it would not have been a successful or affected without your participation. thank you personally for your friendship over many years. let me return to the topic of afghanistan.

we're looking at a decision shortly that will be based on conditions on the ground but strikes me and implicit in what you say it your testimony, those conditions on the ground might be more relevant according to pakistan and afghanistan. as long as the government of pakistan at least appears to see some of these groups, these terrorist groups and their soil as strategic assets and liabilities, our operations in afghanistan are going to be very, very difficult. going to the real conditions on the ground, your comment on whether those conditions are really more about pakistan, our focus has to be there as much as afghanistan. i would include in this context some type of regional dialogue including pakistan, afghanistan,

and india. what are your comments? >> i would agree with that. it is pretty clear that we cannot succeed in afghanistan if we are not succeeding in pakistan in terms of controlling the safe havens and the cross border operations. we've got to work at both in order to ensure that we are able to stay on path with what we would like to achieve in afghanistan. in addition to that, i agree that this is a regional issue and to the extent that the countries in the region can work together and relate to each other instead of being suspicious of each other, creating the kind of dynamic that frankly has not been very helpful. i think it would be in the interest of peace in that region if we could get all three to continue to work together to advance the same goals. >> one of the points i believe your predecessor made and we

are recommending an for example reservists -- one of the challenges you have is following an extraordinarily talented, successful, and decent human being. you have a challenge. secretary gates pointed out that -- how important non- dod agricultural operations are. we're also getting into the spectrum of these violent climate episodes throughout the globe. there is a real danger here that those budgets might suffer. in afghanistan, my colleagues in the foreign affairs committee has released a report criticizing the bill stage of the operation. can you comment upon that

partnership and how critical it is? when we look at the conditions on the ground, we could be successful interdicting terrorist groups, seizing caches of weapons and even interdicting transmission from pakistan. if there is no political capacity or governmental capacity on health care education or anything, we will still have a population that is disgruntled and probably destructive towards us. >> i agree with what you said. it has to be the whole government approach. as we deal with these issues. the state department place an important role in providing assistance to individuals to insure that an area remains secure. aid, the education area, the justice department provides assistance.

the area of agriculture also provides some important assistance. i know the department of defense is our primary military weapon in terms of securing areas. if we do not follow it up with these other important assets, we will never be able to fully secure these countries. >> let me change topics for a moment. it strikes me that -- this is not particularly a great insight -- i am old enough to remember when there were three dimensions of conflict, air, land, and say. see. there's a whole new dimension, cyber. i don't think we know enough yet to be fully converse of what can you comment briefly on the strategy that you will try to develop? i assume that strategy will

provide some deterrence. i assume it will do pre-emption, offense/defense and as was just indicated, the policy within the context of the rules of war, what would constitute some type of attack. you are stepping in at a critical moment where we are just beginning to develop a strategy for new -- for a new dimension of warfare that we have not confronted yet and your leadership will be critical. >> there is no question that the whole arena of cyber attacks, developing technologies, in the information area, represents a potential battle front for the future. i have often said that there's a strong likelihood that the next pearl harbor that we confront could very well be a cyber attack that cripples our power

system or our great, perhaps our security systems, our financial systems, our governmental systems. this is a real possibility in today's world. as a result, i think we have to aggressively be able to counter that. it will take both defensive measures as well as aggressive measures. most importantly, there has to be a comprehensive approach in government to make sure that those attacks don't take place. i have a huge responsibility of being confirmed in his new position in dealing with the cyber area. my goal would be to work closely with them and others to develop not only the capabilities but also the law but i think we need to have in order to determine how we approach this challenge in the future? >> just one final topic -- there

is an acquisition bywave coming as he recapitalize. that has been pushed off a bit and that is -- it has been deferred a bit but it is coming. one aspect is that it is not simply the sheer number of systems that we have to buy, land, sea, and air and others, is the price tag on each of these systems. i know secretary carter has been working hard to make affordability part of the design. all those efforts will be necessary because there will be no room with even -- within even a generous budget that has to do everything we have done. what your comments again? >> in the briefings that i have

had, it is obvious that this is an area we have to pay a lot of attention to. \ because of the efficiencies and competition and the nature of expanding contracts that have taken place there. we have seen these weapons systems grow in cost. it takes an extraordinary amount of time from the beginning of moving the kind of weapon system to the time is finally developed, finally deployed, it almost becomes outdated. we've got to improve the process. i know congress has taken steps in that arena. i look forward to working with you and the members of this committee to take greater steps in order to insure that we are looking at every possible efficiency in the procurement to read that in order not only to save dollars but make sure that we are getting better and

equipment. >> senator brown. >> thank you. good to see you again sir. i look forward to voting to confirm you. thank you for holding this hearing, mr. chairman. i echo lot of the same thoughts my colleagues do regarding the cross border operation -- cross border operations. the tremendous amount of aid we give to pakistan which is over $4 billion, gives me deep concern that if we try to move forward with completing our mission and bringing our men and women home in afghanistan, that we're having these areas where you have the safe havens yet we are giving them billions of dollars in aid. are you with us or not? what is your position with regard to carrying the message

to people like me and others in people like me in congress are getting frustrated with that complicity. >> secretary clinton, chairman mike mullen and myself, my deputy, who was just here, have all made the same point. we need to have their cooperation. we need to have their partnership in confronting what is a common enemy. terrorism is not just our problem. it is their problem. they are the subject of attacks every day from terrorist. s. it is in their interest to take action to control terrorism within their borders. in a relationship and a

partnership, we expect a two-way street. it has to be two ways to protect both of our countries. >> the fact that bin laden was there -- if they did not know he was there, i do not believe it. i am hopeful that message can continue. when i went over there, i conveyed that same message as well. when you are walking down a hallway and a media group grabs you and says, what is the mission in afghanistan? what should i convey to the people in massachusetts now that we have made progress there? what should i can they? what do you can they in your everyday conversations? what is the mission in afghanistan right now? >> the fundamental mission in afghanistan is to provide

stability so that that country does not become a safe haven for al qaeda. >> your plan for achieving that mission by setting benchmarks that will hopefully be attained so we can set back and bring our men and women home -- let me ask you that first. >> the president has made clear that there are goals that we are continuing to work on. we need to weaken the taliban. we need to develop the structure in afghanistan and in the army so they can assume these responsibilities. we can develop the government so they can provide greater stability for the future. each of these areas need to be focused on so that we can arrive at our goal. >> is it your opinion that there are people in the government to

do that? can they be self-sufficient? >> i think there is. in the discussions i have had, i think they want their country to succeed. it is not always easy. this is a tribal society. >> there is very little interaction with the central government. >> it is difficult. they understand that, ultimately, this is their country. they are going to have to provide the security. >> i am also deeply concerned. i keep hearing reports that money we are providing is going out to terrorists. is that something you have a comment on? >> we have to continually over see that to make sure that does

not happen. i do not deny that there has been corruption in that country. we have to ensure that one of their responsibilities as a government is to make sure that does not happen. >> just to shift giears a shift-- gear a little bits. . people are hopeful they can share in the privileges that people in our country have. there is deep concern about what is left after these transitional periods. we have given billions of dollars in military equipment. in egypt, they will have upcoming elections. depending on who is in power, they are still receiving a bang. -- aid. i am concerned about israel and

their safety and security. i am concerned about that region. what are your thoughts on our relationship with israel and the transition going on in the middle east? >> we will and have to continue to maintain a strong relationship with israel and that part of the world. we have to reach out to other nations in that part of the world if we are going to preserve peace in that region. this is an area that is in great turmoil. a lot of countries are going through turmoil -- tunisia, egypt, bahrain, yemen. there are a number of countries that are dealing with uncertainty. the united states has to work with each of these countries to ensure that they reduced violence, to ensure that they are recognizing some degree of

human universal rights, and that they are implementing economic reforms. it is not easy. there are tremendous changes going on. we have to play a role in what is developing in the so-called arab spring. as the spoke to that. if we do not, there are other countries in that region like iran that will try to influence what will happen. we cannot afford to let that happen. >> thank you senator brown. senator akaka. >> thank you, mr. chairman. i would like to say aloha and welcome to director panetta, who is a dear friend and a former colleague. there are so many things we can talk about. i want to tell you that i was impressed with your opening statement. what else can i say as we

consider a person who was nominated by the president to be secretary of defense, who would be a tireless advocate of our military, and who will bring about support and sustain them. ? this will be in your thoughts and prayers. having a free country, a country that is skilled and you will continue to bring strong discipline and national defence for our country. with all of this, i want to wish you well. you certainly have my support. you will face significant challenges if confirmed.

the men and women of the armed forces are involved in two major conflicts that are taking a tremendous toll on our armed forces. we must do all we can to care for them. fulfilling our sacred obligation is dependent on department of defense cooperation. you stated in your response that you would ensure that the department of defense continues to work closely with the veterans administration to support members of their family. we talked about working on the collaboration between the department of defense and the veterans administration. as we carry on into the position

of secretary, you certainly have my support. if confirmed, what will be your top priorities as you look to care for men and women in uniform and their families? >> senator, my first and foremost priority is to protect this country. i cannot do it unless we have good fighting men and women who are willing to put their lives on the line in order to defend this country. i think we owe it to them as a result of that, and we owe it to their families, to make sure we are doing everything possible to meet their needs. providing the kind of health care, the benefits, the counseling that is necessary,

particularly for wounded warriors, making sure they can transition to the veteran's administration in a seamless way -- these are areas i have to pay attention to. i have seen it firsthand. these kids are out there and they are putting their lives on the line. we have asked them to go their time and time again. we have got to make sure they know they are fully supported in this effort. it is going to be my job if confirmed as secretary of defense to ensure we are providing those benefits. i want to work with people like yourself who have been working with this for a long time to make sure we are covering all of the bases. >> i am impressed.

you told us by steps of what you are planning to do. social reforms. i thought it was unique what you wanted to achieve. the secretaries who work together and share their concerns as well -- you want to work on a pentagon establishment. this is important to regard congress as a partner and to deal with the challenges of nations that are rising and changing, as you mentioned. the chief financial officers act of 1990 required the department of defense to prepare financial statements, which were found to

be ultimately unreliable. in 2010, the department was required to provide auditable financial statements by 2017. i believe in accountability. we want to complete and accurate financial information from the pentagon. this would allow the pentagon leaders to make better informed a limitedin environment. if confirmed, what will you do to insure the department meets these requirements? >> senator, i was concerned in finding out that the department would not be able to achieve full auditability until 2017.

i understand how areas of the budget develop. the american people should know that there is auditing that does go on in each of these areas. as a department, we should be able to audit that department. if i am confirmed, one of the first things i will do is to see if we cannot take steps to improve on that timetable so that we can say to the american taxpayer that what we are spending on national defense is being fully audited. >> d.o.d. is one of the few departments that has recognized the importance of maintaining its language and cultural awareness capability.

they lead the national language service corps and have activities with other federal agencies. what are your thoughts on the importance of cultural and foreign language capabilities within the department of defense? >> i am a big believer in language training and in getting our people equipped with the ability, not only to speak the language, but to understand the culture of the countries we are dealing with. it is good for each individual to have that capability. it is important to our national defense to have that capability. at the cia, i have developed a requirement for analysts and operations officers to have language capabilities. it makes them better individuals and better intelligence officers to have that capability. at the defense department, we

need to also encourage greater language training so that they understand the language and the culture of the countries they are involved with. having that capability makes us much better at doing our job. >> thank you. >> thank you senator akaka. >> thank you, mr. panetta, for your leadership and service to our country. cutpresident's proposal to $400 billion, do you agree with that proposal? is it a realistic number in terms of our national security, preserving our national security? >> obviously, i agree with the commitment of the president to try to take action to reduce the deficits. . i do want to say that there is a

comprehensive review that is going on that the president himself stated would take place. that comprehensive review is looking at a number of issues related to the defense department in order to determine what are the right areas, what is the right transition in order to achieve that savings. i look forward to the results of that comprehensive review. >> as a follow-up, you expressed your admiration for secretary gates. i share that admiration for his service to our country. you made recent statements expressing concern over the $400 billion proposal. you said it cut into the meat in terms of the muscle up our defense. do you disagree with him on that front? >> no.

i share his concerns about the possibility of calling out our forces -- hollowing out our forces and implementing some kind of formulaic approach in cutting defense. we have to look at each area to determine where we will achieve savings. obviously, i share those concerns. i want to look at that comprehensive review to make sure none of the concerns secretary gates has raised or that i am concerned about take place in seeking those reductions. >> in conducting that review when you get into the position of secretary of defense, if you disagree that $400 billion is a reasonable number and could jeopardize our national security, would you express your opposition to the president on that?

>> if the end result of that comprehensive review were to come to that conclusion, i would share those concerns. i do not think it will. if there were something that indicated that our national defense would be impacted, i would share that with the president. >> i wanted to ask you about the cia and interrogation. does the cia currently conduct interrogations' of high-value targets -- interrogations of high-value targets? >> when a high-value target is captured, there is a high value interrogation team that comes together that involves the army, the fbi, and the cia working together as 18. they will go -- working as a

team. they will go and do the interrogation as a team. >> does the cia do the interrogations themselves? as i understand, while the dissipating in the haight, they have not been doing -- while participating in the hague, they have not been doing the interrogations. >> they will share with each other what questions should be asked. it could be the fbi or the cia. everyone's in a while, the cia asks questions. >> is there anything keeping the cia from conducting interrogations? >> if intelligence is the

primary objective, the cia individual becomes central to the questions being asked. that is the way it works now. if there is an emphasis on that, that is one case. if it is a military case or an individual that could involve follow on the military, they would take the lead. they work as a team and they do it on a case by case basis. >> nothing prohibits the cia from being the lead in conducting investigations? to your knowledge, does it happen now? i understand it is a team. >> it is not the direct

interrogation that used to take place early on in this decade. it is much more of a team approach. that is the way it works. >> i wanted to follow up with respect to the detainee treatment act. do you agree with all of the provisions of the detainee treatment act, including the provisions to provide legal authority for interrogations'? -- interrogations? >> i honestly, i agree with the law. >> you talked about your view on waterboarding. do you think all enhance interrogation techniques crossed the line? >> i do not have the same you with regard to all of the other enhanced techniques, but i do with regard to waterboarding.

>> right now, under the president's executive order, interrogations is limited -- are limited to the army field manual. there are some interrogation techniques that do not cross the line and are not involved in the manual. >> it is primarily the army field manual that is the primary diet to interrogations. >> to the extent that some of those techniques may be permitted, would you necessarily disagree with the law contained in the detainee treatment at? >> it is permitted under the army field manual, i would support that. >> my time is up. i appreciate you answering my

questions. >> thank you, senator a lot -- senatorsayotte. -- senator ayotte. >> mr. panetta, you will inherit two wars. you will be passed -- tasked with reshaping the department of defense and taking care of military families. with respect to afghanistan, there has been quite a bit of discussion about the need for benchmarks to do assessments for where we are in the transition to the afghanistan capability

of defending itself so that it can govern itself going forward. i have been a prime supporter of the benchmarks with regard to iraq and with respect to afghanistan as well. i am introducing legislation today that will require benchmarks to evaluate progress being made toward the transition, security responsibilities to the government of afghanistan. the bill would call for benchmarks on transition to be included as part of the already established provisions for afghanistan. i think it was being -- was the 1230 and 1231 reports. i am impressed with your support

of evaluation methods so that we are not in a gray area with regard to whether we are winning or losing. this is an opportunity to describe what level of progress we have made. i am encouraged by many of my colleagues on both sides of the aisle talking about the benchmarks as well. if we intend to transfer security responsibility to the afghan government by 2014, it is important to mark our progress. do you have any preliminary thoughts as to the kinds of things you might look as as part of benchmarking to help you evaluate conditions on the ground as to whether we are making satisfactory progress to say we are 25% there, 50% there or whether we have 50% left to

go? >> to establish any metrics or guideposts, it is important that general petraeus and our diplomatic leaders and the administration participate in trying to line did the five those areas that are important. clearly, levels of violence is an important area to look at. a district assessment that looks at each district and tries to determine disability in each of those areas, -- determine the stability in each of those areas, developing the afghan army and police and how they are performing. that is an important element. obviously, the government responsibilities within afghanistan. those are all key elements that need to be evaluated.

>> in your view -- it is a unique view as the director of cia -- can you give us some idea of the impact the death of osama bin laden might have on the campaign going forward in afghanistan and keeping it from a safe haven for future al qaeda operations? >> with regard to specific intelligence on that, it is probably appropriate in another forum. it is enough to say that the death of osama bin laden -- there is no question it impacted al qaeda. he was their leader and it impacted their capability. obviously, there are a number of operations that were impacted under their control and command operations.

having said that, they still remain dangerous. they are dangerous with regard to the efforts they continue to work at in pakistan. one of the concerns i will share with you is that i think we have to pay attention to these notes that are developing. al qaeda has moved some of its operations to places like yemen, somalia, north africa. those are areas we have to continue to focus on. yes, it has had an impact. it has weakened them. they still remain dangerous and we have to go after them. >> i agree with you and i appreciate that view. we have had a touchy situation developing with respect to pakistan in terms of what level of support osama bin laden may have had from anyone involved in

the pakistani government. it is a complicated relationship. we understand. the american people are quite concerned about double-dealing. you cannot have your friend be your enemy at the same time and have your friend working against you. do you think the relationship with pakistan is transparent enough at the present time? is there something we can do so that the american public can make a better determination of that relationship that we share with the government of pakistan? >> we have to continually work at that. we have to work at developing a relationship of trust with the pakistanis. i do not know if we are totally

there yet. there are areas where we have good discussions and good communications. there are a number of areas where we do not have that level of trust or communication capability. we have to work at that. we have to develop it. it is in the interest of both countries to have a trusting relationship. terrorism is an enemy not just of the united states. it is an enemy for pakistan. >> do you think an internal investigation with some level of transparency within their government to try to determine responsibility for anyone who may have had involvement in trying to protect the presence of bin laden in their country -- that that will be fruitful? if it is through the fall, that it will be looked at as credible by our government and by the american people?

>> at this point, we do not have any intelligence to indicate there was any relationship here. having said that, i do believe that the pakistanis are conducting several investigations at different levels to try to investigate what took place. it would be important to see what the results of those investigations are. >> thank you. good luck in your new position, which you are about to achieve. >> thank you senator nelson. senator gramm? senator graham? >> thank you. i think the president has put together a top-notch security team. you are an important part of that.

now for the tough questions. there is no place you can go to protect you from the justice of the american people. my general belief is that this war is more complicated than killing terrorist. do you agree with that? >> yes. >> we have to fight the terrorist in their own backyard. don't you agree that takes more time? >> it absolutely does take more time. >> do you agree that the payoff is more enormous if we can get it right? >> that is right. >> what happens if we lose in afghanistan? >> if we lose in afghanistan, we not only create another safe haven for al qaeda and for their

militant allies, but the world becomes a much more threatened place because of that loss, particularly in that region. >> i cannot agree with you more. what do i tell a family in south carolina that has lost a son or daughter in afghanistan to an i.e.d. that we cannot do anything about? what do i tell them? >> that is one of those situations that is frustrating and enduring -- and angering. we have got to say to that family that we are not just walking away from that responsibility. we are continuing to put pressure on those countries and about. >> i could not agree with you

more. i trust you and general petraeus to deliver that message. on behalf of the people of south carolina and most members of this committee, if you are living in pakistan, you need to choose. it is in your interest to fight the people who would undermine afghanistan and pakistan. i am all four winning in afghanistan. pakistan needs to get with the program one way or another. the pentagon itself. do you agree that the system we have to provide weapons -- the more time it takes to develop a weapon, the more money the contractor makes. isn't that kind of stupid? it really is. i do not blame the contractor. i blame us. what if we said to the contractors, you are welcome to bid on major weapons systems,

why don't you share 25% of the development costs? if there are any overruns, you share in the overruns. >> i think that is a suggestion worth looking at. >> one thing i would like you to do is go back in the past. how much money would we have saved in the last 20 years if we had had that arrangement? it is a way to save money and get weapons done quicker. when it comes to iraq, if the iraqis asked us to provide some troops in 2012, secretary gates said he thinks that would be smart. do you think that would be smart to say yes? >> yes. >> do you think secretary gates has a pretty good view of what is going on in the world? if he said 5000 makes sense when

it comes to do live with trawl, withdrawal, do you agree with that number? >> would you consider that request? positional petraeus' and the president also position -- all that should be considered. they have a pretty good view. >> when it comes to libya, if gaddafi stays, what does that mean to our national security interests? >> it impacts on our national security interests if that happens. it sends a terrible signal to

other countries. >> do you think it tells the iranians that you do not have to fear america when it comes to developing nuclear weapons? >> it tells them our word is not much if we cannot stick to it. >> when it comes to detainee's, if we captors someone tomorrow -- when it comes to detainees, if we captured someone tomorrow , a high-value target, do we put them in jail? can i tell you with admiral mullen said when asked him that question? he did not have an answer to that question. do you think that is a smart policy to be a nation without a jail in the war on terror? >> we need to provide for

detainment of these individuals. >> guantanamo bay is a good candidate. it is the only one left. am interested in making sure afghanistan never becomes a failed state. secretary gates said today and in february when i asked him this question that he believes that joint basing past 2014 where you would have american air power left behind in afghanistan in a joint in climate in training in counterterrorism if the afghans requested would be a good policy for us. do you generally agree with him? >> the president has made clear that we have to make a long-term commitment to stability in that region.

>> i will read what secretary gates said to my question. "a security agreement with afghanistan and some kind of joint facility and training for counterterrorism beyond 2014 would be in our interest." do you think that is a reasonable statement? >> i think is worth looking at. >> you are taking over at a time when the budget for the nation has never been more out of whack. you have got a big agenda to fulfil. what would you tell the american people in terms of the attitude we need to take as a country? address their war weariness and tell them why we should stay

behind in iraq and why we should consider a long-term relationship with afghanistan. why is it so important that we continue to stay in the fight after 10 years? >> it goes back to my father's statement. if you want to be free, you have to be able to establish some kind of peaceful solution to these challenges abroad. >> thank you, a senatorgraha -- thank you, senator graham. senator mccaskill. >> thank you. part of our mission is to secure and stabilize and enhance the infrastructure. i want to commend to you and ask you to direct the folks who work with you to pay attention to some of the findings on the commission on wartime

contacting. they issued a report last friday. it is full of basic information that seems to be escaping us in the area of contacting and contingency operations. that is two important factors. one is security and whether or not security is available and appropriate to support the building of projects we have put a lot of money in. we saw this in iraq over and over again. we would build a power plant. we would work on an oil refiner we and two months later, it would be -- and oil refinery and two months later, it would be blown up. the second one -- this report came out on friday and it was an important report -- that is

sustainability. we have white elephants all over this part of the world brought to you courtesy of the american taxpayer. the the sustainability part is -- i will read you one part of the report. a project carefully planned, well executed, and economical. it will be wasteful if the host nation cannot provide a trained staff, provide fuel for necessary maintenance or produce the intended outcomes. we have one of these white elephants we spent $300 million on in kabul. they made a commitment to us that they would fuel it and now they say they cannot afford the fuel. this makes it complicated in terms of the technology. now it is used as a backup for

buying electricity from other countries. this is a great example. it can be replicated over and over again. i understand the mentality. i respect general petraeus and his strategies in terms of counterinsurgency. there is this myopic focus. if we can build this project and put people to work, this is good. this is what counterinsurgency is all about. they do not think what it does point to look like in three or four years. especially -- what is going to look like in three or four years. this is not a nation that is ready to take over anything, including some of these projects we are building. i think if we do not begin analyzing sustainability at the front end -- i will make a formal request to you that every project being built right now

whether it is a road or a health care center or a school -- every project be analyzed right now for sustainability. if it is obvious it will not be sustained, we have to pull the plug. this is tens of billions of dollars that have gone down a rat hole because we did not think about what happens when we are finished building. it is really important. this is the hardest question. you and i talked about this. what are the conversations that are ongoing? what are the plans about how afghanistan, with their meager tmp, how do they afford what we are building them in the projects and his army we are building for them?

it is difficult for me to figure out what happens to this army when we leave? they cannot afford it. >> on your first point, i want you to know that if i am confirmed, i really do want to work with you closely with regard to the contacting issue and sustainability. i share your concerns. i know how that has developed. at the same time, we have not paid enough attention to that issue. i would like to work with you in trying to improve that aspect. with regard to the issue of afghanistan, i share your concern about where they are going to draw the resources they need to sustain the army and the police force and to be a country, to be able to carry on their responsibilities.

that will be the governance challenge we will face their, to ensure that as a nation, they will develop the revenues they need to govern the country. that will be part of it. otherwise, it will not work. >> is there a plan in place for short-term and long-term? is there a plan that we will be contributing $13 billion to this year? what is the plan for four or five years from now? will we spent $5 billion or $6 billion per year? we are building them an army with a size and scope -- they have never had an army. this is new. is there planning going on that would indicate how this will look bad years down the line in

terms of what we have built -- like like four years down the line in terms of what we have built? >> let me get into that. if i am confirmed, i would like to give you a better answer. >> thank you. the wartime contacting commission has done some great work. it is like many other commissions. it is not getting enough attention. where it needs to be front and center will be under your purview. i hope you make sure your immediate staff is aware of its work and takes it to heart. we have a lot of lessons learned that we have never learned. it is really important as we try

to do things with less money. the only other issue i would like to bring up today is getting your commitment and your comments about what needs to be done and should be done as it relates to problems of sexual assault of women in the military. they have had difficulty accessing some sense of justice. >> we talked about that together in your office. i totally share your concerns. we have to have zero tolerance for any kind of sexual assaults in the military. we have to give the victims of sexual assault the ability to complain and have those complaints listen to and to be able to establish those cases. there are steps that need to be taken. i look forward to working with you and others in the department to make sure we protect women who have served so well in the military these days. >> thank you for your time here

today. thank you for loving your country so much that you are willing to take on this important responsibility. thank you, mr. chairman. >> thank you, senator mccaskill. >> mr. chairman, thank you. i think most americans would find it shocking that the department of defense is unable to produce accurate and complete information to support management decisions. as we also discussed, the law of the land requires the department of defense to be able to complete a clean audit by 2017. i think that would be shocking to most people. i appreciate your response on page 74 of the chances you

submitted to our questions. you said achieving audits would be one of your top priorities. you have the capabilities to complete that requirement of law. the marine corps is actually doing relatively good compared to other services in this area. they are experiencing a 3 to 1 return on every dollar they spend. they are getting a good return on that investment. it may be the attitude and the strong institutional resistance of the department of defense in believing their main job is to fight the nation's wars. we all know the budgetary pressures the department will be under as we deal with the unsustainable debt and these

huge deficits. it is important to me an important to you to make financial management reform one of your important priorities. having said that, i would ask you a straight up question. do you agree with secretary gates when he said the defense budget, and no matter how large it may be, it is not because of the country's fiscal woes? >> i agree with that. it is by no means the cause of the huge deficits we are encouraging. >> the question has requested a $671 billion budget for 2012. there is going to be room for the department to share in some of the budget and cuts that will

be on the table. as you and i discussed, i hope this is not seen as an opportunity for those who want to whack the pentagon budget in a way that will impair the ability of us to defend ourselves. i am sure you share that concern. >> yes, sir. >> you have the benefit of great experience. that also means you have a record i want to ask you about. you were president's clinton chief of staff and director of the omb before that. he played a role in the budgets and oversaw a 4% decline in fiscal year 1994. some have called that a fiscal

holiday. others said we were catching a peace dividend. -- cashing a peace dividend. i want to give you an opportunity to explain your role in those cuts and whether you think they were deeper than they should have been. give us the benefit of your perspective. i hope we do not try to cash a peace dividend in 2012 as we are engaged in two and half wars. >> as the director of omb, i was given the responsibility of the president to try to achieve significant savings as part of the economic plan that was adopted by the congress. we reduced the deficit by almost $500 billion. i think that plus other agreements that were made in the bush administration and with the

republican congress all contributed to our ability to achieve a balanced budget. with regard to the defense area, my responsibility as omb director was to provide a number to the defense secretary and allow the defense secretary and those in the defense department to determine how best to achieve those savings. i understand that was part of what they proposed. looking at it in hindsight, it might not have been the best way to achieve those savings. it was a decision that was made at the defense department. >> turning to afghanistan, i know there is a lot of -- are a lot of favorable comments. you deserve credit for your part in taking down osama bin laden. congratulations to you and the president's national security

team for that accomplishment. i get the sense that people were prematurely declaring that the fight is over because we have degraded al qaeda in afghanistan. i am glad to hear you point out that they metastasized to other parts of north africa and the region. i want to ask you in particular -- there are other groups that may not be as familiar to .mericans as al qaeda - could you talk about the islamic jihadist groups that are out there and could easily more for -- easily morph into a threat as dangerous as al qaeda? >> there are other groups out there. al qaeda is the one we are principally concerned about because they attacked this country. they continue to attack this

country. there are interrelationships they have with other groups. there is a group that has relations with al qaeda. they are conducting attacks in afghanistan. there is a group called ttp that has relationships with al qaeda that conducts a tax -- planned attacks against us and they have conducted al qaeda attacked as well. there is a group that conducts attacks largely in india. they have been known to discuss attacks elsewhere. if you move to the area of yemen, there is a man associated

with al qaeda. he is computer oriented and does represent the potential to try to urge others in this country to conduct attacked here. that is a concern. we have somalia, where el shabab operates in somalia. we have intelligence that indicates that they are looking at california -- looking at targets beyond somalia. if you look at has a lot and hamas -- hezbollah and hamas you will see that there are a lot of groups we have on our plate. >> the threat to american citizens extends beyond al

qaeda. thank you for your answer. i look forward to working with you. >> thank you. senator gillibrand. >> thank you, mr. panetta, for your extraordinary service to our country. i want to explore a little more on pakistan and go to a little bit of cyber warfare. chairman mullins stated that it is well known -- chairman mullen stated that it is well known that pakistan agree to go after the terrorist group. how do you judge pakistan's commitment to that effort? >> i think there is a simple test, which is whether or not they are continuing to go into

afghanistan and attacking our forces. if they have an influence over them, they could urge them to cease fire and stop those kinds of attacks. >> i appreciate your testimony earlier about the nature of al qaeda and that it has metastasized. many believe a guy in the arabian peninsula is more dangerous. -- many believe al qaeda in the arabian peninsula is more dangerous. it works in a diffuse way. the greek terrorist attempts on our homeland since 9/11, one came out of pakistan and one k -- out of -- the

>> i support your view that we have to take these threats head on and make them very much a part of our mission. i want to understand why, in yemen, our approach is so much different than afghanistan and perhaps talk about what your long-term strategies are to deal with the fact that al-qaeda has changed so much. >> with regard to specific operations, i would have to do that in another forum. generally, our approach has been that because of these nodes that have developed, our approach has been to develop operations in each of these areas that will contain al-qaeda and go after them so they have no place to escape, so that we are doing that in yemen. it is obviously a dangerous and uncertain situation, but we continue to work with elements

there to try to develop counter- terrorism. same thing is true for somalia and with regards to aqim in north africa, we are working with both the spanish and the french to develop approaches there that will contain them, as well. at the cia, we have tried to develop a more comprehensive strategy to kind of looked at all those nodes, look at all of those threats, and not just focus on pakistan. >> obviously, we do not know whether the government survives or not, but do we have strategies in place to make sure that if there is a transition, that we are very knowledgeable about what military assets are there, what will happen to them, and you have -- have you engaged the saudis or any other potential allies on what we can

do there to protect against future growth of terrorism? >> with regards to specific operations, i really have to discuss that in another forum. as you know, it is a very uncertain situation. it has been destabilized, and yet, we are continuing to work with those individuals in their government to try to go after aqap and we are continuing to receive operation from them. at this point in time, i would have to say that while it is obviously a scary answer -- scary situation, we continue our operations. >> lastly, if i still have time, mr. chairman, i appreciate the testimony about cyber terrorism, cyber attacks, cyber warfare. i appreciate the fact that the statement was made that a cyber

attack could be a declaration of war. we had a chance to talk about this in some respect. can you share with us any of your vision, design, goals with regard to how we create a greater platform for a cyber security and cyber defense? in particular, i have worked with senator hatch on creating international protocol to create alliances and working relationships with allies and non-allies on how to begin to have the ability to enforce laws against cyber attacks, a cyber criminals, cyber terrorists and any other form of cyber miss chief. >> senator, as we discussed in your office, this is an area of great concern for me. i think -- what i have witnessed at the cia and elsewhere is that we are now the target of increasing attacks that go after

our systems and it is extremely important for us to everything we can -- to do everything we can to confront that threat. i have great resources at nsa that has tremendous expertise and knowledge in this area. i would like to develop it to be an even more effective force to be able to confront cyber terrorism and i would like to work with you on the effort to try to develop those kind of relationships, not only here but abroad, so that other countries could work with us in this effort. you know, we talk about nuclear. we talk about conventional warfare. we do not spend enough time talking about the threat of cyber war. >> thank you. last, i want to thank you for your testimony today about your priority to look out for the men and women serving in our armed services and your families.

not only must that be one of your primary responsibilities, but i appreciate that is at the forefront of your mind. my time is expired. i hope you continue that focus and particularly focus on the issue of housing. a lot of troops are coming back from various missions and many places around the united states have inadequate housing supply. i hope you can address that in an aggressive way. thank you very much for your testimony. >> thank you. senator collins. >> thank you. thank you, mr. chairman. director, you certainly deserve the widespread accolades and expressions of gratitude that you are receiving from virtually every member of this committee today. i want to add my own thanks for your willingness to continue to serve our country during such a

difficult time, but like my colleagues -- now the hard questions start. i want to start with libya. you have repeated today the administration's goal that colonel gaddafi must go. what then? if there's any painful lesson we have learned from our experience in iraq, is that if we do not have a plan in place after we have been posed a high rent, that chaos and violence in seuss -- have deposed a tyrant, that chaos and violence ensues. you have a plan for dealing with libya post-gaddafi? do we really know who we are dealing with in the opposition?

>> i know that secretary clinton is spending a great deal of her time working with our allies to respond to that concern to try to work with those in the opposition who have come together. to try to work with them, so that if they do have to take control of the country, they will have that capability. what you have raised is a legitimate concern and its an area we have a lot more work to do in order to ensure that gaddafi does step down, we can ensure that libya will be a stable country. >> it really concerns me particularly when you look at the leadership of al-qaeda and but libyan president -- and the

libyan presence there and the number of foreign fighters from iraq. i do not feel we have any confidence that we know what comes next. >> the opposition, obviously, has been made up of various tribal groups that have come together. there are concerns about some of the other influences that are now trying to impact on the opposition. it is something we are watching very closely. stepe can get gaddafi to sto down, i'm confident that there are enough leaders in the opposition who can provide, hopefully, that continuity. >> let me then turn to afghanistan. no one wants to lose afghanistan. all of us are so mindful of the enormous sacrifices that are

military men and women have made in afghanistan and the enormous amount of taxpayer dollars that have been spent. senator brown ask you a question today about what our mission is. you talked about the goal of having afghanistan be a stable state. that is certainly something that i want also. to me, that seems to be a never ending mission. i do not see how we get to a stable state in afghanistan. let me give you an example. a key to our transition in afghanistan, a key to our troops being able to come home is the development of a confident,

aggressive afghan security force. we have made a lot of progress in that area. i look at the cost of maintaining the afghan security force. in this year's presidential budget request, is $12.8 billion. the total afghanistan gross domestic product is about $30 billion and 97% of afghanistan's gdp is derived from spending related to international military and donor community presence. when i look at that, i do not see how afghanistan is ever going to be able to afford its own security forces. that says, to me, that we are going to have to continue to be

a major contributor to paying for those security forces forever virtually. tell me how it ends. i just do not see how it ends. >> i am understand the concerns you have raised, senator, and i think we all share those concerns. i can only say that having served on the rocks -- served on the iraq study group, there was a moment in time i had a lot of and whetherout iraq it would ever be stable enough to draw down our forces. afghanistan is a very different country with a very different history. the fact is that i have seen progress made with regards to governance in some of the key areas, with regards to security, with regards of the role of the

afghans in participating. they have gotten better. whether or not in the end they will be able to develop resources, develop revenue, develop the governance that needs to be done, those are major questions. i think, if we stick with it, if we continue to provide help and assistance to them, i think there is going to be a point where afghanistan can control its own future. we have to operate on that hope. >> finally, let me echo the concerns my colleagues have raised about whether the budget constraints, which are very real, are going to drive our military requirements rather than vis versa. this year, when the independent panel looked at the qdr,

concluded that the qdr had been molded by the budget, rather than what it is supposed to be, which is an unvarnished assessment of what our military requirements are. i am particularly concerned about the gap when i look at the navy shipbuilding budget. the cno has testified before our committee that we need, at a minimum, a 313 ship navy. we know that the 313 ship goal is much smaller than the actual requirement our commanders have. there was a recent report just two months ago from the navy on the ballistic missile defense force structure requirements. they said the navy currently

does not have the capacity to meet the demands of our contended -- of our commanders for capable ships. i'm very worried about that gap in this time of budget constraints. i am worried that the navy has yet to complete the contracts on the tdg 1000, the second and third ships. what actions do you think need to be taken to help close the gap between the 285-ship navy today and the, at a minimum, 313-ship requirement? >> i strongly believe the navy needs to project our force throughout the world. the navy is obviously crucial to that mission. i agree with the ship numbers that have to be developed for

the navy in order to do that. the key will be something that has happened in your own state, which is shipbuilding operations have to develop greater efficiency. yours is a great example of having developed those type of efficiencies that help us on the cost control side and at the same time allows us to continue our shipbuilding capability. i think that a greater competition, a greater presence of an industrial base here that deals with those issues, will provide the type of cost savings that we need. >> thank you. i look forward to working with you. thank you, mr. chairman. >> thank you, senator collins. >> i do not know if you are going to take a break -- >> yes, it sounds to me like we're going to take a break. this will not be a lunch break. this will be a brief five-minute break. >> great. >> a very quick break, we will

finish the question is, and then you have a lunch break. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> senator blumenthal? >> thank you, mr. chairman. thank you for answering all our questis, for your extraordinary service, and for your very powerful and eloquent testimony today and your very

responsive answers to all of the issues that have been raised. i want to second the sentiment that has been expressed by senator gramm, which is, i cannot wait to vote for your confirmation and i appreciate your willingness and patriotism to take on this very tgh assignment. and also to second his views, and i think they are widely shared, that we need fundamental and far-reaching reform in our methods of acquiring and terminating weapons programs. would you agree with that? >> senator blumenthal, i think director panetta would probably also agreed that secretary gates forot wait for us to gvote director panetta's confirmation. [laughter]

>> thank you, mr. chairman. and speaking of secretary gates, i hope and assume you would agree with him that the second engine for the f-35 is unnecessary and should be terminated. >> i support that. >> and that we need to continue the sub building program a the rate of two per year, which is fairly noncontroversial. >> that's correct. >> would you also agree with that theill wmullen greatest threat to our security today is the national deficit? >> there's question in my mind that the size of the threat we are confronting. >> and we need to address that problem without excessive cost cutting in the defense budget.

>> obviously, defense needs to play a role. when you are facing that size deficit, everything has got to play a role. >> i want to talk for a moment about one of the causes of those costs in both our defense budget and our veterans programs. they are a cost that is t necessarily in the headlines or even reported. those costs have to do with tobacco use, tobacco addiction, and the cost of tobacco-related diseases. i know the defense department is very aware of this costs. as a matter of fact, it asked all military personnel and next year to make their 2011 new year's resolution to quit smokg. in fact, about $1.6 billion per

year in department of defense costs are related to medical care that is provided for tobacco-related diseases and among the retirees from our military for veterans, about 80% of the $5 billion in annual cost of treating pulmonary disease are directly attributable to smoking. the cost of smoking simply in dollar terms, medical treatment, is about at least $5 billion per year, not to mention the impact on readiness, which are, in effect, less fit, less physically able military personnel. more likely to sustain industries. more likely to be stressed out. more likely to be dependent and addicted to nicotine.

e stark fact is that military personnel, 50% more likely smoke and use tobacco products than their civilian peers. my question to you is both immediate and a longer reach one. first, do you have any suggestions as to what can be done immediately? second, would you be willing to commit the resources and the interest of the department of defense to addressing the problems of nicotine addiction and tobacco use and the related medical impacts? >> senator, if i amonfirmed, obviously, one of the areas i have to focus on is the health cost. i think the area that you have just to find is one area that we do have to pay attention to in terms of its implications on health and costs.

i will loo forward to working with you to try to develop an approach that would allow us to , again, deal not only with smoking, but deal with other threats to health care that impact not only our soldiers, but frankly, the impact americans. >> and the families of our soldiers and veterans because of not only the immediate effect of smoking or other kinds of health problems, but also the related impacts on families. >> that's right. smoking, good nutrition, good exercise, and a number of areas i think need to be focused on as part of the solution to dealing with health care costs. >> i would welcome the opportunity to work with you on those issues. >> thank you. >> let me say, while we're talking about veterans, i have

offered a measure and a number other senators have to broaden and deepen the commitment of our country to caring for issues related to employment, homelessness, health care of our veterans and would hope that the department of defense would also increase its commitment in that area and hold under the leadership, it would, given your very moving and powerful remarks about the need to take better care of our military personnel. >> senator, i really do feel an obligation to those that served. i do not treat this like a situation where once you have completed your service and to become a veteran that somehow you are someby el's responsibility. i think we ve an obligation to make sure people are treated right once they serve this

country, not only now, but in the future. >> finally, because my time is close to expiring, one last question. the ammonium nitrate fertilizers that are the cause of probably the vast majority of the ied, very tragic and unfortunate injuries to our troops are transported from pakistan. i wonder what can be done to stop that flow of fertilizer, the ammonium nitrate substances that are the basis of those explosive devices. >> senator, that is a continuing concern for us. it is not so much the transfer of the material, but it is actually the development of ied's, the explosives themselves, that we see taking

place in pakistan that make their way into afghanistan. we have to take a number of steps, not only with the pakistanis, but also trying to check at the border to make sure we do everything possible to stop the flow. it is a very real threat. a lot of that is coming across the border. >> thank you very much and i look forward to working with you. thank you, once again, for your service to our nation. >> thank you. >> thank you, senator blumenthal. >> thank you, mr. chairman. it's a pleasure to have you before the committee. we had a chance to speak, leon panetta. i'm delighted to see that a former omb director can make something of himself. you have done a great job as director. i know you've had the opportunity today to answer tough questions, but the tone has been appreciative and respectful.

i am most concerned, as you know, on the budget front, particularly with regard to our major programs and the cost of growth, the time delays have been troubling to me on this committee. over the last four or five months, we've heard a lot of testimony. this is at the same time, of course, we are talking about not just restraining spending, but putting everything on the table to deal with our historic deficits, the debt overhang that is affecting our economy so directly and affecting our future. i also think, for natural -- for national security to our men and women need the best equipment and a need it in a timely matter. the cost overruns annually are over $300 billion per year. this is compared to a decade ago when it was average $40 billion

per year. the average delay is almost two years of delivering initial capabilitiesor these programs. the reasons are varied. sometimes it is internal department of defense process these, i think. sometimes it is the contractor processes. they have been subject to a lot of reports, directives, and public and private studies. the chairman has done some good work on it. we still have a long way to go. this would be one of my major concerns. given your background expeence, you are well qualified to address that. senator gramm cost about -- talked about joint agreements. we heard testimony that we are 80% over costs from the original estimates. and 30% more than the current base line.

for 15 years of development and two years of operational production, we still do not have a stable design. i think that impacts our war fighters, as well. i realize department of defense is working on implementing the actem's acquisition reform and is ongoing, but frankly, there's a lot more that needs to be done. could you talk more about this and the benefits of competition, as we talk about privately, and finding efficiencies? >> senator, because we share a common background, i think we understand the costs involved in this area. we are dealing with a culture that has develop that we have got to somehow change. i know during the period from

9/11, of thwe have lost a lot of money that has been put into the department of defense, equipment that has been developed during that period. a lot of it has been important to our national defense. a lot of bad habits have developed during that period. there is an assumption that outehow this thing can play a and the cost can increase as dramatically as you have pointed out in some of these areas and somehow, somebody will still pay the bill. i think but we have got to do is to -- i think that what we have got to do is make clear that those who are involved -- they're great companies and good people. a lot of them do a good job. they have a responsibility to be able to work with us to develop better competition, to do some of the things that senator

graham mentioned. the work that they are doing is not just money in their pocket. what they are working on it is important to the national security of this country. i think we have to work with them, work with contractors, work with others to try to develop approaches that can shave the costs that are involved and the delays that are involved. i know that this is tough. some of this military technology is extremely intricate and involves a lot of complicated worked. i'm absolutely convinced there is thought to be a better way to achieve greater cost savings. i hopeo work with you and others to do that. >> i am encouraged from our conversations and this testimony today that you are prioritizing that. if we do not fix it, we will be robbing from some of the fundamental responsibilities you

would have as secretary of defense to protect our country. looking at some of these projections over the next decade or two decades, if we do not figure out how to deal with these overruns on the acquisition programs, it will take the entire current department of defense budget. we need to make sure our men and women in uniform are getting what they need. and the healthcare issue that you addressed today is the other one. if you look at the huge cost increases, it has to be handled in a way that ensures the focus is on our national security concerns. quickly, on trade agreements, as you are aware, we are reviewing export agreements with the republic of korea, panama, and colombia. this has been increasingly clear that all elements must be used to provide for our security and build effective allies. these three countries are great allies, as you know. in response to prepared

questions, you know that the republic of korea remains one of the strategies in the pacific. you plan to stay in close contact with your counterparts there and build on relationships built by secretary gates. it also noted the importance of government efforts to support department of defense activities providing training and equipment to panama, given the importance of the canal, and also with regard to colombia. in testimony earlier this year, the commander described the trade agreement as open put a positive, beneficial -- as " positive and beneficial." how the uss the value from a security -- how do you assess the value from a security standpoint?

you believe this is one way to combat the threats? >> senator, i think that when it comes to protecting our security, there are a number of areas that have to be addressed. one of those, obvioly, is not just the military responsibility, but there is an economic side of this that plays an important role in terms of providing better security. the ability of these other countries to develop trade with us, to develop their economies, create greater stability within those countries. i think that is a fact. to the extent that we can help promote that kind of trade, that we can promote that kind of economic development, i think it assists these nations in their ability to achieve stability.

a good example is colombia. they have done a great job going after narco-track being -- narco-trafficking. that could become another added factor in providing british security in the region. the same thing is also true for korea. >> you think it will be positive for our national security interest? >> yes. >> thank you, mr. chairman. >> senator webb. >> thank you, mr. chairman. i appreciate you coming by my office to have detailed conversations on a number of areas. having had the honor and privilege of meeting with weinberger when he was secretary of defense for four years, i'm well aware of the challenges of your job. i honestly believe that other than the presidency itself, this is probably the most difficult

and complicated job in our federal government. i wish you the best. i also appreciate -- was gratified to hear your response to senator collins with respect to the need to rebuild our navy and get the navy's numbers up. the situation in afghanistan and iraq, as it allows us more leeway on how we shape the department of defense budget, we really need to do that. the size of the navy right now is about 282 ships. the ground floor goal of 313 and all of the vital nationa interests that we have with respect to the stability of east and southeast asia will be very important for us to look at. in thategard, i would like to raise two points with respect to

the situation in east asia and i would also like to ask you about the situation in libya. first, when we are looking at the tempo in east asia, we see clearly that the chinese military activities have dramatically increased in the past 15 or 16 months. the most glaring examples of that were the situation with japan about one year ago and most recently, the chinese naval vessels cutting the table of a vietnamese ship that was exploring the possibilities of oil in the south china sea. these are basically related to sovereignty issues. they are not only national security issues, they also have downstream economic consequences. to me, they clearly talk to the

commitments that we have for stability in this region. we have made these commitments. i think we are the key to the strategic balance in that region. i am wondering if you are of the same mind as secretary clinton was and gates was last year when they pretty strongly stated that we are not going to be deterred from protecting the interests of countries in international waters in that part of the world. >> very much. that's annd screaming important region. we have to have a presence there -- that is an extremely important region to have to protect our presence there. we have to have respect for international law. the has to be freedom of the seas, so that we can do our job.

i think it is important to have a relationship with china, but they also have to understand that by trying to advance in the china sea, they can interfere with our ability to navigate and that part of the world. >> or to unilaterally address sovereignty issues with respect to other countries? >> that is correct. >> thank you. that also gets to the very important question in this part of the world. the chairman address ts and i heard your response to that. i tnk the timing of addressing these issues, particularly with respect to japanese, is vital. we have been kicking the can down the road. we are not going to have stability in asia iwe do not have it in northeast asia of. the only place in the world where the direct interest of russia, china, japan, the united states intersect.

it was right in the middle of all of that. i hope we can work with you on the suggestions chairman levin, senator mccain, and i brought forward. >> i appreciate the conversation we had in your office. i know this not an easy issue. that is why the can has been kicked down the road all these years, because of the cost, the politics, and the diplomatic problems with each of these decisions. absolutely has to be addressed. we have to establish a sble situation. we cannot have aituation where we are playing this year to year. we need a long-term solution. i want to work with you, the chairman, and others. >> thank you. i do believe this is fixable. i've spent many years thinking about this. what we were able to come up with is at least the right approach and it could be done in

a timely way, if we could get people to work with us on. doing. -- on doing that. with respect to the situation in libya, i take your point during your exchange with senor mccain that it is the president's responsibility to ensure national security. at the same time, we have the situation where when the president unilaterally decis to begin mitary operation and then continues it, where, clearly, as a former member of congress, i think you would agree that the congress needs to be involved in shaping and downstream when something like that occurs. let me say this in another way. no one would disagree with the president's authority to unilaterally order military -- under eminent threats or

invoking the right of self- defense, which i think is what we're doing in places like yemen -- we are coming to the aid of an allied based on treaty commitments. we are defending americans, protecting americans. we have a situation in this case for the justification is a humanitarian. you can see the potential for a very broad definition of what a humanitarian crisis is. once that decision is made unilaterally by the president, it needs to be subject to the review and direction of the congress in my view. >> senator, it has been my experience as a member of congress and a member of administrations that while, obviously, the constitutional power rests with the president,

once those decisions are made, in order for those decisions to be sustained, it's important to work with the congress to seek best advice and counsel of the congress and hopefully to get the congress to support those actions. >> i did hear you agree with senator mccain -- his, that nobody is thinking about putting american ground forces in libya. i assume that also means after the fall of the gaddafi regime. >> as far as i know, no one is discussing any boots on the ground at any time. >> as you know, the house passed a provision to that effect with 416 votes and i have introduced arovision. i just think we have our hands full and it is not something we should be doing in the future in that part of the world. thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. we are almost done. i was listening to senator

nelson's litany of the challenges ahead of you and i certainly think you will get confirmed and i will vote for that. i thought, why does he want to do that? like eryone on this committee, i'm very grateful that you are willing to do that and appreciate your patriotism and commitment to the country. thank you very much for that. i also very much appreciated the opportunity to sit down with you and your willingness to listen to some of our particular concerns in new hampshire. i was very pleased to hear you are familiar with the men and women at the portsmouth naval shipyard. i was pleased to hear your comments to senator collins about your commitment to address the backlog that both the shipyard and other shipyards around the country are facing. i was also very pleased that you

were willing to listeno the good work that has been done by new hampshire's national guard deployed support program. listening to your commitment today to better serve men and women after they get out of the military -- i hope you will look at programs like new hampshire is and some of the other states that have been so successful. not only are our national guard and reserves going to continue to play a greater role in defense, there is some very good data that shows how successful these programs have been. i think they serve as a good model for the rest of the military services to look at. i hope you will do that. >> thank you, senator. >> one of the reasons that we have been so successful in

developing the technology for our national security and have given us our superiority in terms of our military might around the world is because of our national defense technology sector. new england and new hampshire have been a knowledge center for that defense technology sector. i wonder if you could speak to how d.o.d. or what d.o.d. is currently doing to ensure there is a sustained commitment to that defense technology sector so they will continue to be there as we need them in the future. >> senator, i have not been fully briefed on all of the efforts to try to deal with preserving that kind of technology. if i am confirmed, i just want you to know that i am a very

strong believer that if we are going to have a strong defense in this country, that we have to have industrs here that our american. we have got to have technology capabilities that are american. we have got to be able to have a base of support in this country in order to maintain our defense systems. it does not mean we do not deal with our allies. it does not mean we do not try to negotiate agreements with them in certain areas. if we are going to protect our national defense, we have got to protect our industrial base, our technology base, and we have to be able to protect the capabilities that we need here in order to make that happen. >> thank you very much for that commitment. as you know, a piece of that is the research and development needs and, obviously, the d.o.d. has been a very important

part of ensuring that r &d gets done. given the budget constraints we are facing, are you -- how d you see that affecting our ability to continue to ensure that the r &d that we need is done? >> again, i do not think we can do this job whout investing in research and development. as part of the process of making sure -- we're at the cutting edge for the future. i recognize that as part of the effort to look at the entire budget in order to achieve savings -- all those areas will be looked at. my view is that if we want to protect the weapons systems, if we want to protect our capabilities for the future, we have to have good research and development at the same time. >> thank you.

in talking to some of those new hampshire and new england companies that are part of our national defense manufacturing base, one of the concerns that i often hear from them, because there often doing commercial work as well as work for the military, is their frustration with our export control system. as i know you know, the restrictions are onerous. in many cases, they are out of date. they were really designed for a cold war system that no longer exist. i know that secretary gates has been a real propent of addressing that system. i hope that you will be as committed. i would ask how you see moving forward an agenda that update our export control system in a way that both protect our national security, but also recognizes that we need to be competitive globally? >> i want you to know, senator,

that i share secretary gates' attitude. i think we have got to be able to develop 21st centur approaches to this kind of exchange in order for us to be able to make sure that the technologies we have are in fact technologies that we're working with others to have. >> thank you. i know you were asked earlier about iraq and whether we would continue to stay in iraq, if we are asked. like others, i have been concerned about increasing, violence increasing, -- about increasing violence and recent casualties. we just lost somebody from new

hampshire in the attack over the weekend. i wonder if you can talk to what we need to do to keep our focus on the efforts in iraq, assuming that we are not asked to stay, how we will deal with drawing down the remaining troops that are there? >> at the present time, we are on track to withdrawing our forces by the end of 2011. i think that it is clear to me that iraq is considering the possibility of making a request for some kind of presence to remain there. it really is dependent on the prime minister and on the governnt of iraq to present to us what is it that they need and over what period of time in order to make sure that the

gains we have made in iraq are sustained. i have every confidence that a request like that is something that i think will be forthcoming at some point. >> my time is expired. i would like to explore that more later. >> thank you. >> thank you, mr. chairman. welcome, mr. director. i was going to say good morning. i realize it is afternoon. i also want to end knowledge your tremendous leadership, your personal friendship, and your willingness to take on another assignment -- perhaps one of the biggest and most important in the federal government. i think we share a concern about the country's fiscal trajectory. secretary gates has pointed out this is a key threat to our national security, as has admiral mullen.

i know we will not support any cuts that wl harm our troops. a broke country is a weak country. you have had to deal with this at the agency. that is, how do you balance the needs and the resources? also everything has to be on the table. i'm curious what your thoughts are about what the right size is of our military and how do we determine what our mission will be? i have two easy questions for you. what role do you believe the american military should play in the world? as a senior military adviser to the president when you are confirmed, what would be a set of guidelines that you would use to recommend to the president where the military action is justified?

>> obviously, i think the united stat exercises a unique role in the world by virtue of our leadership in the diplomatic arena, but also because of our military power we are able to back that up. i think it is extremely important in today's world where there are so many challenges and threats we are confronting that we maintain a strong military in order to deal with those kinds of teats. this i you know, not only the fact that we are involved in facingut we're clearly increasing turmoil, terrorism, and other challenges. in my view, the united states plays a very unique role in the world as far as providing the kind of leadership that tes to

advance universal rights, a peaceful approach to dealing with the world, that tries to advance. good economic and political. that is a unique role for the united states. i think we need to continue to send that message and to continue to exert that leadership. for that reason, i think having a strong military is essential to the longer -- to the larger role the united states plays in today's world. we work with our allies. we work with nato to work with other nations. there's no question in my mind that the united states is the fundamental leader right now in the world in a number of ways. having the military strength to back up that kind of strength is important. with regards to how we approach the use of force, i think there are several important guidelines.

one, what is the threat to our national interests? what is our capability to be able to respond -- our military capability to be able to respond to that kind of a reat? have we exhausted all other options to the use of force? lastly, what are the prospects to the support of not only the congress but the american people in that effort. i think all of those things are important considerations. >> thank you for those thoughts, director panetta. i think this will be a topic of ongoing conversations, obviously, as we work to consider how, if we need to reconfigure the department of defense in a world of insurgencies and cyber security needs, satellite systems that are very important to all of us -- there's a real change under way. i also hope that we will continue to strengthen our

relationship with china as it becomes more of an economic power. hopefully, it will shoulder some of the responsibility, because of its own self-interest, quite frankly. let me turn to energy. i think this has been an area of your interest, as well. it is one of the concern, but i also think great opportunity for us. admiral mullen has said saving energy saves lives. he recently pointed out that before we buy another airplane or ship, we ought to look at what we can do to save the lives of our soldiers, marines, airmen, and sailors through our dependence on oil and other energy technologies. what are your thoughts on what the d.o.d. can do to reduce our dependence on foreign oil? >> senator,>> this is an area io

learn a lot more about in terms of the area of how the defense department is approaching this. the defense department really is a leader in trying to develop better energy efficiency, and we need to be, because we use an awful lot of fuel. my hope is to continue those efforts and to work with you and others to try to determine what additional steps we can take both in developing weapons -- the development of weapons, the development of technologies, how we can better use clean energy, how we can better use some of the new forms of energy in order to reduce fuel cts at the pentagon, but more importantly, to contribute to hopefully a cleaner environment. >> i just introduced a bill along with congresswoman difference -- giffords that

would provide more direction to the department of defense. that has widespread support from particularly retired officers and others. i look forward to working with you. the chairman has been moved to authorize defense department activities for 2012. it is about $13 billion a year, and the d.o.t. uses more energy than most countries -- dod uses more energy than most countries. my time has expired, but for the record, maybe i could ask one estion and you could give a brief response. i know 2014 is our date for afghanistan, the full handoff. you know all too well about the safe havens in the sanctuary

they provide for the taliban. if we cannot reduce the safe havens or at best eliminate them, what are your thoughts about at that means for hopes for a resolution of the situation in afgnistan? >> we can only win in afghanistan if we can win in pakistan by reducing those safe havens. the two go hand in hand. the ability to achieve stability in afghanistan is dependent on whether or not we can limit and hopefully stop the transfer of terrorism across the border. >> thank you, mr. director. you and the chairman are both my heroes because you have been sitting here for some four hours. with great patience and particulate answers. thank you. articulate answers.

>> before we break for lunch, let me try to clarify a couple of things. first, would you agree that security transition to afghan securityorces is to be completed by 2014, but that the process of transferring provinces and districts to an afghan security force league begins in july? >> that is correct. >> president karzai in march tontified diffthe first areas begin transition, and that has already been presented and approved by nato? >> that is correct. >> next, my staff tells me that they have not been able to find any statement of secretary gates in which he specifies the number of u.s. troops that he believes should be withdrawn from afghanistan starting in july.

are you aware of any statement by secretary gates identifying such a number, whether it is 3000-5000, or any other number? >> i have discussed this with staff at dod. and they're not aware of any statement that has indicated a number that woulde involved at this point. >> at this point? >> at this point. >> thank you. it looks like about one a 5:00 p.m., is that right? --

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>> tonight on "road to the white house," an interview with g.o.p. presidential candidate and former governor gary johnson. he talks about prayer in public schools, abortion, and how he would reduce the national debt and the federal deficit. "road to the white house" tonight at 9:30 p.m. eastern on c-span. on wednesday by a vote of 54-45, the senate rejected a proposal by senators jon tester and bob corker that would have delayed a federal reserve rule that puts a cap on debit card usage fees for a year.

the delay would allow more studies to be done on small banks. the federal reserve proposed capping those fees at 12 cents as opposed to 1% of the total purchase. this portion of the debate is just over 45 minutes. is and what it is not. in drafting any regulations required by -- in drafting any regulations required by this amendment, any agencies involved are required to not only abide by the letter of the law, but also the congressional intent of its office. so let me take a minute to try to make crystal clear what exactly the intent of this amendment is. first of all, let me address some of the claims that have een let me address some of the claims that have been made

about debit regulations. my amendment would direct the fed to implement these provision os a date of their determination. why was this language included this way? the intent of this language is to provide the fed with discretion to implement this as quickly as possible for merchants, issuers and networks to prepare for such new regulations. the hope of this language would be to avoid the situation that we're in right now, where parties impacted by these changes would have less than a month to implement significant changes to the debit interchange system. to be clear, the fed may not disregard implementation of debit interchange regulation, as some have articulated. they also may not arbitrarily decide to implement these rules five years from now. any delay in implementation beyond a reasonable timeline of a few months would need to be justified by the fed. let me also take a minute to address concerns that have been

raised about the language that we've used to describe what considerations the federal reserve must make if a determination is made in this amendment and the federal reserve is directed to rewrite debit interchange rules. the language states that the federal reserve shall consider -- and again -- shall consider all fixed and incremental costs in determining what is reasonable and poportional interchange fee is. again, let me say this again. the fed shall consider, not include, not calculate, but shall consider all fixed an incremental costs. that word is important, because "consider" provides the fed with the discretion to consider and determine using their judgment, what is reasonable and proportional, meaning that any costs considered would need to be jutched to the fed. to further clarify, the language directs them to

consider all costs associated with debit transactions and allow incentives for a more innovative and sufficient payment card network. statute limited the costs that the federal reserve could consider to only those costs associated with the authorization, clearance or settlement of a particular electronic debit transaction. this language severely limits the costs to issuers that the fed may consider in calculating reasonable and proportional rates and is in a large measure why the federal reserve's proposed rule is currently at 12 cents. there are a number of fixed costs that are associated with debit transacks, chief among them fraud costs, which are also arbitrarily limited in the original statute. the fraud language states that the federal reserve may -- not must, but may allow for a fraud adjustment for costs associated with fraud prevention.

now, the federal reserve draft proposal did not include any fraud adjustment, and we have no idea what an adjustment might look like or whether the final rule would include one, but if it did, it could only include an adjustment related to fraud prevention, not the actual costs or losses associated with fraud. take, for example, the breach by michael's store, a breach, by the way, which was the fault of the retailer who had their debit kiosk compromised. what was the cost to the issuer of the cards which were compromised? well, they were significant. first of all, it was a community bank in illinois who had a fraud monitoring program that identified the threat and alerted the retailer that their kiosks had been compromised. then there was the cost to these issuers of making their customers whole again for the losses that they sustained by criminals removing funds directly from their bank

accounts, $500 at a time. additionally, issuers had to foot the costs associated with reissuing the cards and opening new accounts for customers with compromised accounts. but none of those costs associated with fraud and losses assumed by the issuers could be calculated in the fraud adjustment under the current statute. that's why we included language directly with the federal reserve to consider all fixed and incremental costs associated with debit card transactions and program operations to capture those costs. fraud losses and monitoring programs are not associated with individual transactions. nor is the creation or reissuance of physical cards, account maintenance or card holder services. let me also say that what we do not believe is included in any reasonable and proportional fixed and incremental costs associated with program operations. as a result of our conversations and consultations with the fed, we do not believe that rewards

programs or miles, neither would nor should be considered as per missable compensation, nor should be any executive compensation nor should the costs of maintaining a.t.m. machines. and why did we include the language in allowing the federal reserve in setting reasonable and proportional rates to allow insentives for a more innovative and secure payment card network? we added in because of conversations with the federal reserve about what sorts of costs would be included in reasonable and proportional costs. they indicated that right now they do not have the ability to incentivize savings by issuers to make processing more efficient or secure. it seemed like a pretty good idea to senator corker and i that we should give the federal reserve this kind of discretion and that issuers should be incentivized to lower costs below whatever the federal reserve determines to be reasonable and proportional. otherwise, the fee would likely stay the same for years to come as there would be no incentive to lower costs. in addition to the flexibility

provided by the federal reserve to set the rates, the amendment also intends to provide discretion to the federal reserve to include additional factors in the study, such as the overall impact of regulating interchange fees on small businesses and the economy, as well as discretion in the agencies that the federal reserve may consult when drafting the study. in addition, it is intended that the findings must be made public and that the federal reserve is not required to start from square one. the intent is for the federal reserve to be able to build upon the information and insights that they have gathered already and are a part of the current record. finally, this amendment doesn't underminor inhibit the federal reserve's ability to implement the routeing and network exclusivity provisions in the underlying statute. in fact, it does quite the opposite. we sought to preserve this language, and these provisions as they were originally included in the statute. in the last couple of days, as senators have suggested, additional changes that would improve consumer-related aspects

of the study proposed by my amendment. i very much appreciate their concerns and their interest on this critically important point and the changes that they have suggested are certainly ones that myself and other cosponsors are open to. unfortunately, the senator from illinois filled a second-degree amendment that essentially closed off any chance to make additional changes once the amendment was filed. i am more than willing to work with my colleagues to find ways to continue to improve this amendment and ensure that consumers, small businesses and small banks and credit unions get a fair deal as we move to a regulated interchange marketplace, and that is what we will get out of this amendment. the same idea of regulation that 64 members of this body supported last year, but the difference between my amendment and the current law is that we will ensure that the fed's regulations do not set the price below the costs of doing business. current law prevented the fed from looking at any number of elements of the cost of

interchange. some fraud costs were yud to be included but not others. some technology costs were included but not others. why? because the senate made those arbitrary decisions. the result is a proposed fed rule that sets debit interchange rate at 7 cents or 12 cents for all transactions, a level most folks agree is too low. let's -- let's allow the fed to find the actual correct number. as a farmer, i could tell you that it costs me $3 to produce a bushel of wheat. it won't matter if i sell it for for $2 or $1 or 50 cents. i'll still go out of business because it's below my cost of doing business, and that is precisely what will happen to our smaller banks and credit unions. with that, mr. president, i yield the floor. i note the absence of a quorum.

the presiding officer: the clerk will call the roll. mr. durbin: mr. president? the presiding officer: the senator from illinois is recognized. mr. durbin: i ask the quorum call be suspend. the presiding officer: without objection. mr. durbin: i have high regard for the senator from montana. he is my friend and will be however the vote happens in a couple of minutes, but i do disagree with him on this. and i would like to make it clear from the start, the law on the books today specifically exempts community banks and credit unions, specifically, those valued at $10 billion or less. that means 100 banks out of 7,000 in america are affected by this new law and three credit unions in all of america. now, the banks and credit unions have come here and said not enough protection because we can't be sure that you'll protect us from the credit card companies coming back on us and hurting us. okay. we could write in more protection, if necessary, but to

argue that we're -- we're trying to save mom and pop banks here from whom? we're trying to save them from the credit card giants who have created this price-fixing mess. if you're an autograph seeker and you happen to want to meet c.e.o.'s of major corporations, you hit it rich today. get over there and walk the halls of the senate office buildings and you will meet the c.e.o.'s of the biggest companies and banks in america. why are they here today? because of this 2:00 vote. why is this 2:00 vote important to the three biggest banks in america, chase, bank of america and wells fargo? because right now, what is at stake with the tester-corker amendment is $8 billion, is $8 billion, $8 billion in fees that they want to collect from consumers and businesses all across america. $8 billion. now, when we got into the business of tarp -- remember those days? when the banks had messed up the

economy so badly that we had to come to their rescue with taxpayers' money, and the average family across america watched the taxes they were paying this government going to the biggest banks on wall street. well, that was about about $800 billion. the three big banks here that profit the most from this amendment, the three biggest banks that will profit the most, chase, bank of america and wells fargo, each were the fisheries of that tarp money, of that bailout money. $25 billion to chase, chase, $45 billion to bank of america, and $25 billion to wells fargo. they did quite well. we not only rescued them, they sent us a little thank you card. do you know what it was? it was a notice that they were giving their chief executives bonuses out of the tax money we were sending. well, the question is not whether we're going to do another tarp today, whether we're going to do a baby tarp.

it's only $8 billion for these three big banks this time, but i think it's an outrage. it's an outrage to make consumers across america pay this. they pay it every time they use their debit cards. and the merchants and retailers who collect it have no voice in this process. i wish some of the people who come to this floor and shed copious tears over community banks and credit unions that are already protected in this law, i wish they would shed a few tears for the people who run the shops and businesses across america, the restaurants, the hotels. these are the people that are being hit by these debit card fees every single day. where is the sympathy for small business on this floor? they're all over illinois, they're all over america. if we really believe that the key to economic recovery is the strength of small business, creating and expanding jobs across america, for goodness sakes, why don't we stand up for them? you can't vote at 2:00 for this pending amendment and say you're a friend of small business.

no, you can't. small businesses -- small business is lined up across america for once saying give us a break against these credit card companies and the big banks on wall street, give us a break. are we going to do it? i'm afraid not if we pass this amendment. i look at this amendment and i think to myself why did the banks write it the way they did? they wrote it so that they could include more cost into their calculation of the fee they charge on an interchange transaction with debit cards. i will tell you this -- based on the language that was just read to us, they will easily justify the 44 cents they are currently charging and more. i respect my colleague from montana and what he says on the floor, he didn't mean to include certain things, i wish he had been specific. i think the language of this amendment is broad enough and wide enough to drive a truck through it. the banks are going to come out

quite well, thank you, at the end of the day, but don't they always? when it's all said and done, aren't they usually the winners around here? today is the chance to turn the tables, to really make the winners small businesses and consumers across america. that's why consumer groups support keeping the law as it is. that's why when the banks wrote this, they said the four agencies that would decide what the fee was going to be will be four bank regulators, searching, searching, searching for any reference to consumers, small businesses, sorry. banks couldn't include those people. couldn't include those people in that calculation. so to say that we are for the little guy and that's why we need to vote for this amendment is to ignore the amendment's wording as written. if you're for the small business people across america, there is only one vote and it's a vote

no. let the federal reserve issue this rule. don't let the banks stop them in their tracks, and that's exactly what they want to do. let them issue this rule. if more needs to be done, i'm on board, but the notion that we can't even trust the federal reserve to come up with a rule on this that may protect small businesses and consumers across america is just plain unfair, it's wrong, and we ought to know better. i reserve the balance of my time. the presiding officer: the senator from montana is recognized. mr. tester: mr. chairman, i, too, want to echo the thoughts of the good senator from illinois. senator durbin and i are friends. it may not sound like it today but we are. we just happen to disagree on this particular piece of policy. there is one premise that i think, mr. president, that is being taken as a given that is not a given at all, and it was in the original durbin amendment, and it said we were going to exempt banks of of $10 billion and less and

credit unions of $10 billion and less. so we're going to do that. a lot of folks voted for this amendment because they knew the small banks couldn't distribute their costs and it could have undue harmful effects on the small banks, small credit unions and community banks. but the facts have borne out different since in the last year. and they haven't been borne out by stuff that i've made up. it comes from the regulators themselves. and i have avenue said many times on this floor that every regulator i have talked to, state or federal, have said, the exemption for small banks and credit unions won't work. it won't work. we voted on something a year ago that we thought we had, and it doesn't work. let me read you the quotes. fed chairman ben bernanke, still not sure whether it will work. the market forces that would work against this exemption. said it may 12 of this year. another quote by chairman

bernanke. "it's going to affect the revenues of small issuers and could result in some of the smaller banks being less profitable or even failing." once again at a banking hearing. by fdic chairwoman b amendment of r. "i do think this is going to reduce the revenues." let me say it again. "i do think this is going reduce the revenues at a number of smaller banks and they will have to pass it on to the customers in ties's terms of higher fees." chase that mean? checking, time to get a loan, all of that stuff. money doesn't grow out of the air. you've got to make it up somewhere. another quote from ben bernanke. and it is about the two-tiered system that is unlikely to be maintained to protect small institutions. "a number of networks have expressed their interest or willingness to maintain a teeferred interchange fee system. but of course it is not

required." chairwoman b amendment of r again. "if the federal reserve's view that there's no legal authority to require that, it does become more problematic. the fact that the two-tiered system is not going to work. every regulator said it is not going to work. its impact is going to be small community banks. not the wall street boys. they're fine. we agree on that. but the community banks and credit unions are going to have incredible impacts on our small businesses that we're trigg to help get us out of this recession that we're in. this is into the bailout. this will ensure a regulated debit card interchange system and by the way, yot i don't believe in bailouts. i voted against the tarp bailouts, voted against the auto industry bailout. i wouldn't be supporting this if it were bailout. i wouldn't be offering t wall street banks are going to be just fine. they're going to be just fine regardless of what happens. the fact is that the exemption for banks under $10 million will

not work. that's why i'm here. it's as simple as that. i want to close for now with a statement made by the frank in dodd-frank, who this bill is named off. barney frank, who worked with chris dodd to craft this bill in the house and the senate, here's what barney frank says. it today the 8th, by the way? he said it today, the 8th of june. i quote -- and he's speak of the tester-corker-hagan-crapo-bennet amendment, this amendment of i quote. "this is a good, balanced, compromised approach. i support it, and i hope it will pass." the author of this bill from the house thinks this is a good policy change to make dodd-frank better. i yield the floor,

mr. president. bthe presiding officer: the senator from delaware is recognized. mr. carper: mr. president, good to be with you again. spent most of the morning with you and now part of afternoon. this is -- this is -- this is -- this is really a difficult issue for a number of us in the senate because we have friends on both sides of this issue. and it's also a difficult issue for a lot of people because we don't want to be unmindful of the concerns raised legitimately by merchants for a number of years about debit charges that they have had to pay and we don't want to be unmindful of the concerns of banks, be they big or licialtion or by credit unions. one of my colleagues said, i don't want to vote on this. one guy said, i certainly don't want to have to vote on it twice. another colleague said to me, i don't like the idea of just kick the can down the road, having a

24-month pause and maybe the new congress, the new administration, maybe it'll all go away. that's not interested in what i'm doing. one of my colleagues said, why don't we fix this problem rather than kick the can down the road for 24 months? as it turns out, phaser our colleagues who voted with the senator from illinois, the author of the durbin amendment, voted with him originally when the bill was first -- the amendment was first offered, they actually sat down, two democrats, two republicans, and they and their staffs hammered out legislation. they worked with senator tester and senator corker as well, but that's really who wrote the bill. did they get input from the merchants? i would hope they did. did they get input from the banks? that's the way this place works. we seek input from not just banks, not just credit unions, not just merchants but consumers

as well. i think back on the life that i've been privileged to lead dish spent a lot of years in the navy, had the privilege to serve my state as gone shall now here in the senate with my colleagues, i know any number of times in my life i have done things that i thought was sure to be the right thing to do but had an unintended consequence. i was sure i was doing the right thing. but ultimately it turned out that there were consequences that i didn't anticipate. and what we had to do what i had to do is go back and help be part of the solution in addressing those unintended consequences. senator durbin put his finger on a big problem and the finger that he put -- the problem he put his finger on actually more than a year ago but a number of years ago was we have a situation with the use of debit cards were merchants are disadvantaged, don't really have a lot of options and they end up having to pay large fees to banks, sometimes big banks but sometimes small banks, and they really don't have much choice. they don't like that. and they'd like to see us do something about it.

so what senator durbin proposes is a way to deal with that. he intended in his legislation not only to try to help consumers, to help merchants but he also tried help small banks, those under, i think, $10 billion in assets, and to protect credit unions and their members. i -- i tboonts see if we have a quote here. all of these banks have different regulators. i don't have quotes from all of them but here is a quote that senator tester shared with us of ben bernanke, the chairman of the federal reserve when he was talking about the unintended consequences and here's what sheila bair said from the fdic. "we are concerned that these institutions may not actually receive" -- she's talking about small banks under $10 tbhl aassets -- "we're concerned that these institutions may not actually receive the benefit of the interchange fee limit exemption explicitly provided by congress, resulting in a loss of

income for community banks and ultimately higher banking costs for their customers." john walsh, the interim controller of the currency, he says this, "we believe the proposalation an unnecessarily narrow approach to recovery of costs that would be howable under the law and that are recognized and indisputably part of conduct ago debit card business. this is long--term safety and consequences for banks of all size." they think they have a job here. their job isn't to be the lap dog for financial institutions. their job is to regulate financial institutions. i have gone back here trying to think about some times when we had abuses to clean up and how do we go about doing them. we had big -- this is going to sound strange for a guy from delaware to say this. we had big abuses from credit

cards. it was impossible for people to get credit card applications, look at it and maybe got six of them and decide which are actually in their best interests to fill out and to submit. we had banks -- credit card banks are take advantage of people in ways that were untoward and unethical. what we did in the banking committee when i served there is we held not just a hearing, we held extensive hearings for months. they did the same thing in the house. and we asked gork g.a.o., to hep with us an in-depth study of the credit card industry. there are watchdog agencies. they came back and said, these are our recommendations. and we passed legislation in the senate -- the senate passed legislation in the house. the banking industry didn't like it much. they complained about t we went to conference with the house and senate, worked out a exrosm the banking industry didn't like tch. the banking industry -- the

regulators were required of the banks to help us implement the legislation and they had to write regulations. they had to write regulations that were true and consistent with the underlying law and they d and you know what? the banks didn't like it very much. but they were promulgated and the some of them immediately, in some cases over a period of several months but eventually got the job done. i think consumers are much better o are banks making as much money as they used to on credit cards? no. are consumers being treated more fairly? yes, they are. part of what happened here is extensive hearings involving g.a.o., getting input from a lost folks, a lot of folks with different views on this, and then acting, in light of the process. i think what's different in this case is i don't believe the banking committee -- and i can't speak for other committees in the last congress -- but i am not aware that the banking committee had the opportunity to hold hearings and bring people in on the last congress and say,

this is what's good about the amendment proposed by our friend from illinois, and this is what's bad. i don't think we had g.a.o. -- g.a.o. didn't have the opportunity to come in and say, you know, we never invited them to come in, as we did on the credit card side. therefore, their voices were not available to us. that's unfortunate. here's whapped what's happened. the legislation was passed. senator durbin offered it. he said, we've a problem here. here is my suggestion. he said, we should regulate the marketplace for debit cards. and the free marketers said, oh, no, no. we should let market solutions work. something i generally agree with. but in this case they weren't working. he came up with an alternative. unfortunately, the best of intentions, we have these unintended consequences. what do we do about them? we have a situation where i'm

not sure consumers are going to be advantaged by the current law as it reads. big banks, they'll be okay. theg take care of themselves. a lot of smaller banks, the community banks, they've been beating on my door and the folks from credit unions. they are less able to look out for them sessments that's despite the effort by the author of the amendment to try to make sure that we provide them an exemption. the regulators say, frankly, sorry, it doesn't work. doesn't work. so that suggests to me that we hit a pause button not for two years, at least for the next -- as much as six months and to the regulators, okay, do now what we should have done a year or two ago. complete an in-depth study, look at the concerns of the merchants, look at the concerns of the consumers, look at the banks of big banks, small banks,

middle-sighed banks and credit unions appeared come back to us with what you think to be a fair approach. if you can do did in less time, let's do that. and if they come back to us and say, look, the legislation as written, current law, is just fine for consumers, is just fine for institutions of all size, and is fair to the merchant -- if they come back and say this, the durbin amendment in the law prevaisms we say that's it. the regulators have subpoenaed we're done. now, if they come back and say, we've got a problem here, these outfits, the regulators have up to six months to figure out regulations that can then be implemented after the six months, to fix the problem. some will say, well, how do we know they'll do anything fair for consumers in they just did it for credit cards two years ago and the bankers didn't like t they still don't like t we have the pain in my state in the unemployment records to reflect that. but who's better off?

consumers are better off. consumers are better off because the congress did its job. we were deliberate about t we sought input from all cite sides. the regulators did their job and it has been implemented in a prompt way. i want to close maybe with this thought. there is an outfit called michaels. we have a michaels store not far from where my family live in wilmington. they sell art supplies. they are a national chain. and pretty successful company. they were i in the news recently not because after good storks but because of a data breach story. a lot of people who had accounts with them, their information, of their customers was disclosed. and there's great concern on the part of the consumer, the customers, the consumers that there had been this data breach and some of their sensitive

information was going to be at risk. could be identity risk. who did those customers turn to and say, fix this problem? did they turn to michaels and say you fix this problem? most probably didn't. you know who they turned to? they turned to their banks. they turned to the issuers of their credit cards and say you fix this problem. you issue a new credit card for us and cover this for us. the banks did that. finally, i'm not here to carry the water for the banks. i think we're all here to do what we think is right. my colleagues who are undecided how to vote here -- i know some are -- they don't want to choose between their two favorite children, the merchants on the one hand and the financial institutions, credit unions and all on the other. you don't have to choose between

your two children. ask yourself what is the right thing to do. try to understand what is in the bipartisan amendment, some of the people i most respect here in this body. listen to guys like barney frank who don't have a dog in this fight but have a lot of knowledge, and try to make the decision that you think is the right thing to do. thank you very much, mr. president. the presiding officer: the senator from illinois is recognized. mr. durbin: how much time is remaining? the presiding officer: 13 minutes, 52 seconds. mr. durbin: mr. president, if senator tester returns to the floor and wants to speak before the vote, i'm going to ask for unanimous consent to each have two minutes for that purpose. perhaps he does not want to but i want to make that a matter of record here because euplt him -- i want him to have a chance to close. did you ever pull out one of these cards to pay for something? if you're my age you don't do it as often as younger people. i was in the carry out this morning and a young woman who

was a police officer put up a pack of chewing gum for $1.20 and put up her debit card. the average amount for a debit card is 44 cents for each transaction. how much money do you think the owner made? the answer is nothing. what happens is the banks issuing these debit cards are impose swipe fees on these transactions and merchants and retailers have no voice on the amount of that tpaoefplt the federal reserve did a study and asked how much does it actually cost them to process that debit transaction, and the answer was 12 cents. in a range of 12 cents. the charge is 44 cents, the cost is 12 cents. is there something wrong with this picture? it means that person, every

person buying goods in stores across america pays more to pay for this fee. now we have heard the plaintive cries of those offering this amendment of how we've got to have some sympathy for these banks. these poor banks struggling to survive. if they can't collect the maximum on their debit fee, interchange tpaoerbgs swipe tpaoerbgs -- swipe fee, what's going to happen to them? we've already implemented all banks with $10 million or less, so we're talking about the big boys, big banks. let's ask a few basic questions. how does the debit card interchange fee in america compare to other countries? visa and master card do business all around the world. banks issue these all around the world. how do we stack up? where is the old u.s. of a.? we have the highest interchange

fees charged by visa and master card than anywhere in the world. the highest. thank you. can america express its gratitude? what do they charge in other countries? debit interchange fees in the european union less than one-fifth the charge in the united states. so let's do the math. 9 cents a transaction in europe, 44 cents here. we want to give a big sloppy kiss to these big banks at 2:00 for the way they're going to treat us on this. but it gets better. when you go to canada, visa and master card debit interchange fees in canada? zero. there is no interchange fee. now we have people on the floor

asking us to show sympathy for the banks and give us an interchange fee and they charge nothing in canada. zero. that's the reality. and the biggest banks make the biggest money on this process, far and away. chase, bank of america and wells fargo, to the tune of almost $8 billion a year. how long do they want the study to go on on interchange fees? if you're making $1.3 billion a month, you want the study to go on for months, if not years. get back to you later, we say to the banks. yeah, that's exactly what they want. and at 2:00 we'll decide as a senate whether we're going to give it to them. this amendment drawn up by the banks compromises between the banks, gives to the banks exactly what they're looking for. a huge loophole to assess their interchange fees to justify what they're charging today and charge more.

nothing in here, nothing to protect consumers and businesses across america. i got started in politics with a fellow named paul douglas. this goes back a few years. i was a college student. douglas was a ph.d. in economics, much smarter than i am for sure. he spent his whole life trying to pass something called truth in lending. all he wanted the banks to do was to tell their customers how much they were charging them with interest rates. he spent 18 years battling that and he left the senate without getting it done. couldn't finish it. bill proxmire took up the battle and passed it, but paul douglas fought those banks for 18 years. it's a battle that's been going on a long time around here because there is a lot of power in this banking community, these financial institutions. when they come to the floor and say they want something, congress decides we better start talking. it's rarely, rarely that they ever lose.

i guess you could say the wall street reform bill was a loss for them, but they deserved it. look at the god-awful mess they put america into with their rotten practices, their stupidity, their reckless conduct. we're still paying for that. we still have a lot of people out of work and businesses that failed. many of the savings accounts of families across america are still suffering because those banks made those mistakes. and in the free-market system, did they pay for their mistakes? no. the american taxpayers paid for their mistakes, giving credit where it's due to senator tester, he voted against the tarp bill. i want to put it on the record. he said it and i want it to be on the record. i voted for it. i did because i was told by ben bernanke of the federal reserve and hank paulson of the department of treasury if you don't help these banks and they fail, you're going to see a worse depression than 1929. i bought it, voted for it. almost $800 billion in bailouts to these banks. i was seething to think we were

going to pay taxpayers money to help these banks be rescued from their own stupidity and their own greed. we did it. the three biggest banks that are involved here, some $# 5 billion we sent -- 59 billion we sent to them. they're back. they're looking for the second installment on their payments from businesses and consumers across america. what they're asking for, the biggest banks, is almost $8 billion a year in these interchange fees. we've got a chance now to try to bring balance to this conversation. we've got a chance to finally stand up for small businesses and merchants and consumers across america who have been victimized by the credit card companies and the big banks for too long. can this united states senate stand up once a year, once a decade for consumers across america against these financial institutions? that's what's at stake with this

amendment. i know it's going to be a heated vote because my poor colleagues have been beaten to a pulp by both sides that feel very intensely about this. and i want to credit my colleague from montana because he told me at the outset when i said, jon, please don't do this, he said i believe it. and, jon, i admire you for doing it. still do, even though i disagree with you, i admire you for doing it. you're a man of conviction and principle and a great senator. but this is an historic moment in the senate. it is a moment where we will decide whether or not for once the big banks are going to lose and the consumers are going to win, whether or not we're going to reduce the cost of these transactions that help consumers across america, help small businesses across america make the profit they need. some people say that, well, this hasn't been studied enough. for 11 months now the federal reserve has been studying this, the best economists, the best minds there.

they have entertained 11,000 comments. they have heard everything under the sun. they have heard it all. in a matter of days they're set to issue a rule, a rule which no one has seen arcs rule which the banks don't want anyone to see. they don't want this rule to see the light of day. that's why they're here today to stop the federal reserve from issuing a rule that may cost them in terms of their bottom line. it's our choice now. it's our choice about whether or not these banks are going to prevail or not. and history will record the strength of consumers, small businesses across america against the wall street banks who take away more than half of the interchange fees on debit cards that are collected across america. i hope that my colleagues will stand by the decision that we made a year ago. i hope that we'll give each of us an opportunity to see this rule come in effect and from that build on it a stronger,

growing economy, one that is fairer than an economy where interchange fees have been dictated by big banks for too long. mr. president, i reserve the balance of my time. the presiding officer: remaining time, 3 minutes, 55 seconds. mr. durbin: i mentioned on the floor earlier that i would like to give to my colleague 2 minutes, and then i'll take 2 minutes. i ask unanimous consent that the senator from montana -- the presiding officer: is there objection? without objection, so ordered. mr. tester: just to clarify, i've got two minutes, senator durbin has got 2 minutes and then we vote? the presiding officer: that is correct. mr. tester: god bless the united states senate. i would say this, first of all, to the folks in the galleries and members that are still in their offices, look at me. do i look like a banker? senator corker and myself drew this amendment up. the banks did not draw this

amendment up, with the help of senators hagan, crapo and bennet. as is usual, we agree on 90% and 10% we disagree on. do i think swipe fees need to be regulated? of course. the problem with this amendment is the exemption on community banks under $10 million does not work. i've read the quotes from bernanke and bair and all and they said they don't know how to make the system work as a free market. the system will overrule that and that's the way it ought to be in this country. the bottom line is i look at this from a rural perspective and the impact the federal government has on rural america and while we're trying to solve one problem we're creating two or three others. i could care less about the wall street banks. they're going to do fine. i tell you what, we lose the banks in our small towns in montana or wyoming or tennessee, and you can put another nail in

the coffin of rural america. with that, i yield the floor to the good senator from tennessee. mr. corker: mr. president? the presiding officer: the senator from tennessee. mr. corker: i couldn't agree more. it's amazing, we passed this 2,400-page bill a year ago. and on all the tough decisions we defer to the regulators. and the regulators are now creating all kinds of rules because we knew that they had some wisdom that we didn't have. and yet in this case where the regulators, every single regulator involved is telling us the way the durbin amendment was written, we're going to damage the community banks and credit unions, that it won't work. so it's amazing that in this case where the very people who regulate tell us please change this, it won't work, we're saying, no, this is going to benefit wall street. that's not the case. this puts the durbin amendment in the middle of the road, where it needs to be, and i hope everyone will support it.

thank you. the presiding officer: the senator from illinois. mr. durbin: mr. president, i understand 2 minutes. the presiding officer: the senator has 2 minutes. mr. durbin: if you're interested in small town america, you should be interested in the businesses that operate in small town america and they are begging you to vote no on the tester-corker amendment. i happen to live in a town of 120,000 people. it's a little bit larger than my colleague's hometown in montana. but i can tell you what the businesses there are saying. i can tell you what wendy cronister who is saying who is owns the road rein skwrer gas stations. she is saying give me a break. they're hitting us so hard with debit interchange fees. we've got letters from the military base exchanges which says this is the fastest-growing uncontrollable cost they are facing. this is a problem which the credit card companies and banks wanted to ignore, and now this amendment wants to delay for six months, a year or longer. in terms of trusting the regulators, i'm afraid that the

banking interests that wrote this amendment didn't trust them to even issue the rule. you had to call this debate before they even issued the rule. you don't know what the number is going to be on the interchange fee, but the -- you if you go to the rooms on capitol hill here, you won't find a lot of small town bankers, you'll find the biggest banks in america waiting in the wings, waiting, putting in billion dollars worth of prayers that this amendment is going to pass. i don't question the intentions or motives of senators tester or corker, i never will. but i can tell you the effect of this amendment is going to be giving to those big banks and those credit card companies a windfall of profit they do not deserve. if the interchange fee is zero in canada, why is it 44 cents here? can we stand up representing the people of this country and say that is fundamentally unfair? you've got to treat our consumers and merchants fairly. if we can't stand up and do

that, why are we here? to do the bidding of the banks and the credit card companies? i hope not. i hope we're here to stand up for economic fairness and for consumers and small businesses across america beg >> that the amendment failed by zero vote of 54-45. both chambers are in next week. the senate gavel's then tomorrow at 2:00 p.m. with no votes expected on that day. they will return to work on economic development measures. can follow the senate live on c- span2. the house returns on monday at 2:00 p.m. eastern and are expected to resume work on 2012 spending for military construction and the veterans affairs department. a possible vote is possible early next week. watch the house live on c-span.

now look at the history and future of opec and how it affects the world oil market and gas prices in the u.s. this is 35 minutes. "washington journal" continues. host: kevin book is a co-founder of clear view energy partners. he is here to talk with us about opec and how the current situation in north africa is fecting oil prices. what to the letters stand for? why was it founded? byhom? guest: the oil exporting countries. it was founded in 1960 in a meeting in baghdad. it was formed in emulation of a u.s. organization called the texas railroad commission. the texas railroad commission

took over control of oil production in texas because they we worried about producing too much and cratering the price. you have an organization that discovered, in the world thursday for overseas oil, new import restrictions -- thirsty for overseas oil, new import restrictions. the idea was to maintain revenues. they have a more complete understanding of supply and demand, which means you have to care more about the customer, too. it is about maximizing money to the countries that are producing. host: how was opec government? do the members have an equal say in the governing? guest: the board of governors is open to anyone who was a member. there is one vote f each member. there are 12 full members. it is a simple vote, a simple majority to get things done in opec. it is not a total democracy. he may have one vote, but you may not have the same number of

barrels -- you may have one vote, but you may not have the same number of barrels a saudi arabia. there is a non-chartered fact. if opec as seriously astray, -- goes seriously astray, sdi arabia does have the ability to flood the market. it may be about to happen again. host: we have a chart that shows the 12 members of opec and the oil production for 2010. saudi arabia is at the top with million barrels per day, followed by iran, 4.2 million. united arab emirates, just under 3 million barrels per day. kuwait, venezuela, iraq, and major, and paula -- nigeria, angola, algeria, libya, qatar, and ecuador, at the lowest point with .5 barre --

.5 million barrels. they do not seem to be preventing the unnecessary fluctuations. why is tt? guest: i would say that they are not entirely unnecessary. opec's role is one of stabilizing the market. their view -- their mission has broadened to making sure that the buyers never stop. they want to eliminate price the volatility by buffering supply. opec provides a key role in preventing prices from going too high. what is different from 10 years ago is that the energy-demand growth in some nations is so rapid and brisk that it does not necessarily matter what the primary buyers in the world -- we're still the biggest buyer in the world in the u.s., but we are not the biggest grower. world demand will grow, even if we have a significant

contraction. what that means is their ability to play the best and manage price in that fashion -- placate us and manage price in that fashion is considerably less as a result. host: we're talking with kevin book, " founder and managing director of clearview -- co- founder and managing director of clearview. you can send us e-mails or messages via twitter. if you're in the oil business, we would love to hear from you. tell us about the effect of the fluctuation of oil by players tside of opec, particularly canada, russia, in china, i guess. guest: the first two have one of

fact, that another. canada became a significant producer in the lasfive years to 10 years. it was never going to be in the money at $40 per barrel. suddenly, it lookseally good at $60. they are ramping up and continuing to do so. russiaas succeeded as an export nation and is still ahead right now. the recent russian oil production is a threat to opec is because russia and other former soviet states are essentially aftethe otc -- oedc coun -- essentially, after the oedc countries, the third- largest producer. china is actually declining. there significant importers. they have to continue ramping up imports. russia could, at any given time, be called upon and deliver oil that opec might wish to withhold

from the market. on the other hand, if russia does not deliver and opec does, china will buy from whoever is. it ia three-way balancing act. opec es not want to retrace too much, because russia could capture that opportunity. host: is the impact from china and russia and canada so big thatt would not allow them to be members of opec, or have they just not been allowed an invitation to join the club? guest: the club has a 1960 charter which says you have to be sympathetic to the missions of the member countries, your net exporter of petroleum. you want to be part of the club. russia -- there have been moments where we ha been close to what i call "ropec" -- russia eye.opec, eye-to0- the canadian market is delighted

to have the oil. they have the refineries that can use it. they have no reason to join opec at this time. they would probably have a very tough time meeting the second test, being simpatico with the missions of the organization. host: our first call for kevin bookomes from st. petersburg, florida. michael. caller: thank you for taking my call. we focus so much on oil in this country. when are we going to art really focusing on hunkering down on going to green technologies, renewables? there was a wonderful documentary on going grain. -- green. they have algae that turns plant matter io usable

fuels. they have cards that they can use that will synthesize energy. when are we going to start doing this in this country and really focusing on the things that are important? host: kevin book? guest: it is a great question. we have been looking at alternatives. effectively, 1973, the embargo, and efforts -- serious efforts began that started to make a difference. we wanted to be safe. we put together the strategic petroleum reserve. we wanted to become more efficient. the first national mandate for fuel economy came out, and it did make a big difference to consumption. fast forward to where we are now. we have had a number of significant initiatives. incrse in the ethanol from essentially 88 million gallons per year in 1980 to 13 billion

gallons per year in our fuel supply. most of that happened in the last few years. not everyone thinks of ethanol as a green fuel, but that is someone that you can debate, with facts on your side. are making some modest increases. problem is that you need a big solution to tackle supply of this bill. host: next up -- this scale. host: next up, robert,o ahead. caller: i am wondering why we do not have our own hard shale, such as canada, mexico, the united states -- maybe some sympathetic countries -- and they uld put the opec people back quite a bit, bring forth cheaper prices throughout the entire world. thank you. guest: it is a great question, because we do have one. it is called the international

energy agency. it is comprised of the oedc nations to put together strategic reserves. -- who put together strategic reserves. one thing you will hear is, why don't we draw down our strategic reserves? it is a powerful tool. have 700 million barrels. globally, more than 2.5 billion barrels that we can source. caot run the world on our safety blanket, but we can make things difficult. it is a powerful negotiating tool. the notion that we can be a demand cartel has also been discussed. that is not so possible anymore. we're not the largest demand growth there have been efforts to talk about what if we could make enough oil or substitutes on our own to make opec less relevant? the problem aga is one of volume. we have an organization that

works. it has its own board of governors and works in a similar fashion. it is what i would call "and inconvenient truce -- "an inconvenient truce." host: was that preserve most recently tapped -- when was that reserve most recently tapped? guest: there have been small swap exchanges happening all the time. there have been about 17 draws since it was created, 34 overtly political budget-reducing reasons, one as a test, flexing -- 3 for overtly political budget-reducingeasons, one as a test, flexing our muscles in negotiating. they have refined products in

their reserves. when something happens in the u.s., there is the opportunity for them to read these reserves to help us. we just have crude oil, the per -- to release those reserves to help us. we just have crude-oil. interestingly, we did not have any response to the loss of capacity from libya. host: what is the response from opec when we do draw on the strategic reserve? guest: air is a difference between -- there is a difference between when they can draw on the reserve easily, like now, and a difference between when they cannot. if they can rise to the occasion, they are generally responsive -- anecdotally. they have responded to the gentle or perhaps not so gentle jawboning and ramped up supply,

either through saudi arabia, or as an -- saudi arabia or as an aggregate group. there is a potential significant loss of revenue. they aren't happy about it. host: you are on the "washington journal" with kevin book of clearview energy partners. caller: opec's suppose a reserve numbers went crazy between 1985 and -- supposed reserve numbers went crazy between 1985 and 1990. saudi arabia has reported 216 billion barrels of oil from 1990. for 20 years, they have never changed their supposed reserves. iraq is sort of the same thing. 110 million barrels. they have fought two wars over

the last 20 years. they have very little increase exploration and drilling because of sanctions, yet their numbers never, ever change. have this implicit assumption that these numbers -- every year, sort of like, i am taking oil or money out, but my balance never chaes. it does not make any logical sense. i do not really believe saudi arabia has the oil -- or the other opec members, for that matter, for the last 20 years they have been reporting. i second quick question -- i would like to comment on that. it is about people i have been studying. -- peak oil. i have been studying. iran reached peak o in 1974. the united kingdom in 1999. there are a lot of people, geologists, veterans, folks who

know the industry, who believe that by 2008 or 2012 or 2015 -- ere is a consensus. when can we expect it? thank you. guest: two common questions. i am happy to answer them both. on the reserve numbers -- there are a couple of ways to think about how price works in the world. traders think about what could be produced to versus what is being produced. there is also global spare capacity, not what is reserved, but what could be produced and introduced into supply and price. spare capacity and price are the numbers that matter more than reserves. reserve members tend to be a bit of a comparison between men in an unflattering way in the back room somewhere. in a bathroom somewhere.

you do not want to find more reserves and introduced fear of supply in the traders' equations. you would rather stand pat at 216 million barrels and let others say 116 million. you woul probablyd lose if you told -- you would probably lose if you told the traders that there was more supply. the actual molecular peak is a long way off. we are still well below half of the oil resources in the earth's crust. what is changing is the definition. the conventional definion -- we stop using the conventional techniques. things that were on dimensional

one first on a by the government are nowommon -- things that were unconventiol at first are now commonplace. there is no peak. in the u.s., we are rising again in production, but it is not conventional oil. there is a bit of an intellectual, but not a practical people that we have reached -- peak that we have reached. we're still a long way off from the real, practical peak. host: 7 book is the co-founder and managing director of clear -- kevin book is the co-founder and managing director of clearview energy partners. our next call comes from fayetteville, n.c., ronald. you are on the air. caller: i have a couple of questions for mr. book. i find it funny how the gas

prices just went up during the bush administration, when you have and will family in the whiteouse- an oil family in the white house and the price president who is heavily invested -- vice president who is heavily invested in oil. you do not think it may have something to do with us going around the world, flexing our muscles, and causing other nations to just not play ball with the united states of america? i will take your answer offline. thank you. guest: thank you, ronald. the easy thing to do is say this is simple and there is only one explanation. if there were only one planation, i would have a lot more time at home. there are better explanations and worst explanations. on september 11, 2001, something happened that created new geopolitical risks. it destabilized the supply side,

at least a little bit, and changed world prices in the with the people thought about it -- oil prices in the way that people thought about it. you would not have introduced a significant alternative to the gas supply. went from 2% ethanol to 9.5% ethanol during the bush years, by his own design. host: is there a line that can be drawn between the fluctuation in the price of a barrel of oil and the price that people pay at the gas pump? and what is that connection, if there is such? guest: there is not really a line. there are a lot of weird connection that the people on capitol hill very can see -- very antsy.

simple math, 42 llons per barrel. take a barrel price of about $100 and divide thaby 42. add in a little bit for shipping. 18.4 since for federal tax. the state averages about 20 cents. then the sometimes small -- not so small -- refining margin. it explains it very simply on the website. the relationship of how they move can be very different. the oil that is of the highest quality turns into gasoline at the lowest price. if there are easy ways to make that, refiners will take them to get the most money out. the high-quality oil, the price to priced, they tend well above, setimes $20 from $30, $40, above the lower- quality -- sometimes $20,

sometimes $30, sometimes $40 above the lower-quality oil. as we see prices rise, does the refinery fleet of the world refined -- rise in complexity so it can process the lower-quality oil we have a lot of? there is a bit of a disconnect because of the refinery quality. it takes two weeks to four weeks for news applied it to the u.s., whether it is gasoline or crude -- for new supply go get to the u.s., whether it is gasoline or crude. no one likes to see a $4 or $5 decline in the oil price on tv, then go to the pump and to the same damn price day after day. the person who runs the service station has to make a choice -- and do i have the money to buy the next cargo? he is trying to manage his

capital to run his business. it does not make a lot of money at the margins. if the prices down, he runs the risk of not having enough money for the next cargo or he is grabbing market share from the next guy and prices will fall. the term is "rises like a rocket, falls like a feather." moverices do not always at the same time in the same direction. host: where is the quality between the high-quality that you explained and the lower- quality -- where is the quality of the guelleh come from the middle et and north africa -- of the oil that comes from the middle east and north africa? guest: there are very different. africa sells mostly what would be called -- their are two skills -- there are two scales. api gravity. the standard in the u.s. is 39

api gravity. and the question is how much sulfur or contaminants it has. ours tends to be sweeter. what you have in north africa, algeria, libya, a very high- quality oil. that is what your password -- what europe has relied on, because they have lowequality for refineries. our economy is not doing so hot. there is an increasing disconnect between the faster- growing economies using the higher-quality oil and the slower-growing economies using lower-quality oil. host: art, you are on the "washington journal" with kevin book of clearview energy

partners. caller: the future of nuclear energy -- we have been using this for 55 years. we have had three incidents, three mile island -- no one got killed. fukushimaaihi -- where no one has gotten killed. and chernobyl, a communist country at the time. why are we not using more of that? that is my first question. second, it is saudi arabia -- if iran arebaia and such bitter enemies, why aren't the saudis pumping up production to influencbehavior of iran? guest: two great questions. we did not use oil anymore in the u.s. to make power. the easy answer to why aren't we

more excited and of nuclear power is priced. -- more excited about nuclear power is price. prices can be high. there is a big risk. more centralized government that can source funds on a non- private bases using public money will see more nuclear power construction. the arrests have been very low, generally. the soviet -- the risks have be very low, generally. this is recognized as an -- an outlier.n = people get scared by something that can conminate large swaths of land. if you own it for long enough, very cheap, expensive up front, scary to people who do not understand it. as for the iran-saudi

conflict, they are conflicts -- iran has the titular, rotating presidency for opec. it is tical in the oil- exporting nations that the president will say something not so favorable to the united states very publicly. in the petroleum minister will say, quietly, it is ok, we're still your friend. we are still a buyer. ahmadinejad decided he would try to be both people at once and he attended the opec meeting. iran has taken warships to the mediterranean. they sent soccer players to a world cup qualifying match -- the male soccer players -- female soccer players, not in the approved headdresses. iran has to manage a budget and

slowing oil to the exclusion of profitability could hurt their economy at a time when the arabs bring has made things a little -- arab spring has made things a little tender for them. host: how many ofhese decisions are made by ahmadinejad? how much of it comes from the religious leaders? guest: you could ask that about every physician in iran -- a decision in iran. there was a time when that presidency was relatively symbolic. since ahmadinejad rose to power, it has been changing rather dramatically. there are several public-private enterprises in iran that are called -- oh, gosh, i forgot the names. they will coem back to m -- come

back to me. they are effectively running for the islamic republic as an ecclesiastical state-leadership entity. they do a lot of the business. the national oil company of iran is still, essentially, under sovereign control come increasingly of the president's, less, as it used to be, in control of the mullahs. host: the arab spring has cauwsed -- caused a disruption to libya's oil production. because libya is ninth on the list of 12 of the oil-producing nations in opec, why is there such a focus on the oil that is not coming out of libya right now? the 2010 production level, 1.7 million barrels per day, as opposed to the 10 million barrels per day out of saudi

arabia and all the countries in between. it seems almost negligible. guest: it goes back to the quality discussion. libya has got the good stuff. theirs is a high-quality oil. it is relatively sweet. it works well in the refineries. it was a huge export product italy -- to italy for their national consumption. a change the balance of l in the world in terms of the quality -- it changed the balance of oil in the world in the terms of quality spectrum. that does a lot to inflate the price. host: our next call comes from richmond, virginia. don on our line for democrats. don? let's mo on to jackson, mississippi. james, go ahead.

caller: in the news media, tv, paper, i keep hearing -- i am not -- not oil produced -- chevron filed a permit to bui a reserve, yet they were turned down by the energy department because of carbon emission problems. we can't fill in the national park. when you look at it, it's nothing but wasteland. we can't go off the coast of florida. yet the chinese are drilling less than 90 miles away for cuba. we do not have an energy policy in the country.

host: kevin book? guest: the conflict between energy policy and environmental policy is significant in this country. we have a lot of resources that we could potentially exploit. as a nation, for a variety of reasons of the years, we have decided not to. you might say and i would agree that it sounds weird that we would keep that oil for the care of blue in -- the caribou in alaska. when you look at the siz of the resource, the gulf of mexico is many timeshe size of the anwar resource and a lot closer to the refineries that might use it. as to the unconventional supply, the shale o was utilize significantly by the -- utilized significantly by the 2005 act. it is not necessarily competitive.

you will see more of it. there is a lot of interest from our investor clients in doing it. the carbon footprint is not flattering. a lot of hydrocarbons, right in the center of the country -- they need a lot of water for production. water is not always the easiest thing to get there. host: next up, alison, you are on the "washington journal." caller: thank you for taking my call. do you think it would be a wake- up call if we created a mass- transit system, saving a significant amount of vehicles off of the road? more people would be able to venture out from their residence to seek employment opportunities. thank you. guest: that is another perennial question. you are asking about a societ

change for america, a company -- country where we idolize the open road. it is a place -- is it a place where we can live as they do in japan and continental europe using a heavy reliance on public transit? price issues, right away issues, qualitof life issues -- right- of-way issues, quality of life issues. there is no surety that it would say be that much. the cato institute argues that it is more expensive and does not promote significant will security for the price. whether or not we will do it is a different question and has to do with how much money we will spend. things are looking very tight and tightly contested. whether or not it would be a good solution, we might have to wait years to find o. host: tim on our line for

republicans. caller: thank you for answering my call. host: yeah, go ahead, tim. caller: my questions, i just want to ne, the diesel fuel -- to know, the diesel fuel. why is diesel so high? that has an effect on our economy. host: all right, tim, we'll leave it there. guest: great question. that goes to the question of what happens when you turn oil into refined products. you ve a vy dense compound, il. you heat it up and subjected to chemical processes. one of the process -- products

is diesel, a middle distillate. we use diesel for jets -- for freight. we export a lot of diesel. diesel and middle distillates are much more sought-after. there is greater demand for those. kerosine-type jet fuel. heating oiols. -- oils. that is where the prices higher globally --hy the prices are higher globally. host: the opec meeting is being written up as one of the most acrimonious and least productive meetin in recent history. why is that?

guest: i think a lot of people expected opec to say, we care about the customer, we will increase production. there is a lot happening. you can blame speculators. i am sure you will see that before the summer is out. people are betting on next year's scarcity. there is a problem of intractable demand in the growing nations and recovery of demand in the u.s. and western europe. when you make more oil and put it on to of a market -- out onto the market -- you need a simple majority, 7-5 would have been enough. you got a 6-6 tie. a number of nations would have been expected to say no -- iran, venezuela. algeria is making a lot of money selling into the absence of libyan oil. their self-interest is well understood. understood.