and humility and some trepidation given the excitement of the job. i will give you, in a nutshell, where i see the key priorities of the fund's mission. i would like to thank the man sitting to my right, john lipsky. as you know, he is the first deputy managing director. he will be completing his term on the 31st of august and has been throughout his term a fantastic first deputy managing director. i was able to see that from a distance, from where i was, as clearly a shareholder, a client and a member of the firm, representing france on many instances, fora, and other seminars. i can tell you that john has been a fantastic advocate, spokesperson, person of substance, as well, and a person of charisma and joy in

the last few weeks. he has been a critical addition. .. in opening these remarks, i would like to say so publicly and with great friendship to him. you might be surprised that i'm here so soon after my election. i thought it was necessary to come back to d.c. very promptly, simply because there are many issues that need to be addressed. those issues cannot wait for yet another summer holiday. so, here i am, and, for good. in terms of issues, as we see them, as you see them, as you describe them, as you underline them, wherever your eyes turn, wherever you are located, whatever your articles will be,

there are issues, there are concerns. when we look at the status of the world, we have clearly gone over the financial crisis that hit all economies, and particularly the advanced economies in the fall of 2008. and which continued throughout, at least well into 2009, and in some countries well into 2010. and some might argue that it is continuing, given that the growth potential has not been restored in many countries, given the fact that unemployment is still very high in many corners, and therefore a lot needs to be done by the economic players. now, obviously, recovery has taken its course, as well. when we look at our growth forecast for 2011, 2012, we are clearly on a rebound and things are improving, and are getting better, if we compare with the situation as it was in 2009 in the height of the crisis.

that recovery is, as people will say, as you will comment on, uneven. if the growth forecast is in the range of 4.5%, looking ahead, it is clearly unbalanced in the sense that advanced economies are more in the range of 2.5%, whereas emerging markets are more in the range of 6.5%, some of them, such as india and china, hitting much higher marks. we are facing a turnaround which is very uneven, with countries leading the charge and not those that were historically leading the charge, and others, advanced economies that are lagging behind in a way, given their status of development. in the midst of that, we have clearly in each of those two categories different issues to address, and where clearly the fund can provide service, can provide guidance, can provide advice and recommendations, and if and when necessary, and if

asked, obviously support. those two categories are, on the one hand, the issues of sovereign debt. and that concerns all advanced economies, ranging from japan to the united states, but clearly with a focus, as you write about it, as we know, with a focus on the euro zone and in particular on countries such as greece. on the other hand, when we look at the emerging markets, we have in some corners the risk of overheating, and we obviously have the risk of inflation as well. and sometimes, particularly in the low-income countries, the risk of imported inflation that results from the high prices of commodities. and i include in commodities obviously both oil, energy prices in general, but of course agricultural products as well, which are so critical for low-income countries.

so that gives the fund a landscape where to really excel in terms of giving advice, recommendations, analysis, ringing the alarm bell now and again, and obviously providing support if and when necessary. we are facing a landscape that is in better shape than two years ago, but clearly with an uneven process of recovery and specific issues of a divided nature, given the division that we are seeing between the advanced economies on the one hand, the emerging markets on the other, and the least developed countries, or low- income countries, however we want to call them, with specific issues and yet a path to recovery that is obviously pronounced. let me now turn, i'm sure you will have questions and i'll be very happy to take your questions. i'll be very humble also in saying "i don't know" when i don't know. because, as you probably decipher, i'm new to the job. i was a member of the fund for a few years. i was an active shareholder of the fund. i have been on the receiving end, if you will, whereas i'm

now finding myself as managing director, clearly on the sending end, the giving end because we are here to serve the membership of the fund, that is the 187 members, for those of you who were eventually in doubt. let me turn to some of the things which i believe the fund should focus on, and i will address them in two chapters, if you will. one that concerns the external action of the fund, and one that concerns the inside issues of the fund. i will take the latter second because i regard them as important, but not as the key priorities. certainly, my wish is for us, the fund, that is the executive board, the management, and the staff, which as i have said yesterday in the town hall meeting, is the key asset of this institution, we need to

focus on the outside. we need to focus on what we can provide. we need to be available for our membership and not constantly look at our belly button and wonder how we can best do this or that. we will, but those are not the immediate priorities in my view. those three external chapters, if i may say, all begin with a "c," which helps me to remember exactly the order in which i want to take them. the first one has to do with connectiveness. we have seen during the crisis that all countries, all sectors, industries, services, finance were highly connected with each other, and amongst themselves. and, we need to address that interconnectiveness, all those interconnections, however you want to call them, with a view to refining, enhancing and improving the type of services we provide to our members.

for those of you who are familiar with the fund, we have the bilateral work, and to take a very traditional example, it is the article iv review, the work done, the substantive work done by the fund, to really analyze the quality of an economy and make recommendations. but, we do not necessarily take into account this interconnectedness that is so obvious to us and that has been clearly epitomized by the crisis. first of all, let's focus on those connections and those connecting points between economies, within economies, and make sure that our services and our advice are actually properly including that particular aspect. my second "c" is credibility. the first one was connections, connecting points, the second is credibility. for the fund to be credible its analysis, its work needs to be

candid, needs to be credible, needs to be evenhanded. there is no one category of country that deserves a special treatment, and another one that will receive harsh treatment. evenhandedness, level playing fields are words that you will hear me say over and over. the third "c" is the comprehensiveness. in other words, it needs to be connected, credible, and comprehensive. and by that i mean, we cannot only analyze the economy by looking at some of the traditional standard criteria. we cannot be only driven by the hope to reduce fiscal deficits and organize fiscal consolidation in a big way,

reduce debt and make it sustainable. those are key criteria, but they're not the only ones. and the path that has been clearly opened by my predecessor, dominique strauss- kahn, to include such matters as employment, social affairs, peripheral components of the traditional economic look at the situation of a country, needs to be taken on board as well. i'm not suggesting that the fund should be turned into a specialized boutique on employment and best way to reduce unemployment. boutique on the employment and the best way to reduce the employment. we need to rely on other institutions that exist and the work that has been undertaken together needs to be pursued, the same together with the wto. so the comprehensiveness of the approach must be enhanced. because ultimately we should never lose sight of what we are

about. the international monetary fund is here to serve and provide services to its 187 members with a view towhat? help restore stability where there isn't stability and there's plenty of that around. to help make sure the economies of the world work better to provide a better welfare for people come and clearly on an plant is a key issue whether you look at the the evidence economies or emerging markets the issue of employment is a critic one and one that actually determines a stable social chemistry for the society so we should not lose sight of the overall main goal of the fund. i told you the were about three chapters that were my three priorities, connectedness,

credibility, comprehensivene. the two chapters concerning the internal affairs of the fund that reflect o the external as well where the substance are very closely interlinked the same is true for the fund what we do externally reflects on how we are bled internally and vice versa. to that end, we must continue to improvehe legitimacy of the fund and that touches on the government's, it touches on the appropriate representation and representative this of all members, whichoes not exclusively, fleet into quotas or seats of the board not to say that we must not que to the contrary we must complete the reform approved in 2010 ad i will see to that and i left and made sure our increase was wrapped up in the parliamentary

process approved by my parliament so we must complete the 2010 reform and governments on the quotas must be adjusted to reflect the architecture of the world but that's to those who reflect the unemployment policies in our training policies and the way in which we build teams and the way in which we organize recruitment s people are not clones of each other and that the second aspect which to me is very important in addition to legitimacy, diversity is actually properly taken on board. it's not just gender diversity for those the would worry about and feel excluded. it's about including, not excluding. it's about reaching out, about engaging, breaking down the barrrs, removing the obstacles sohat all participants can actually be at the tale and it touches on geographical origins, it touches on culture, touches

on the background, so as i said, we can to give vantage of the differences that we all bring to the overall table of the international montary fund. with that, i will unless you would like to ask anything we will then open the floor. >> thank you very much. as i said it would be great if you could prove to one of the microphones to identify yourself and your news organization and please, one question each. >> good morning. i am from brazil. for what you've seen in this very short period what time to get acquainted with the imf what

would you review the most? >> it's been a force. [laughter] and i've had eight hours of preaching and was 24 hours so little sleep in the meantime. you have the pressing immediate issues that perhaps dewitt sovereign debt. and as i said, it's broader than just of the year ozone. there's a tendency to focus on the year ozone because it is a mixture of various components that make it more critical and sensitive to add more difficult to address because of this sovereignty, yet thlack of polical sovereignty in one

single capital. but it's a very broad based issue that needs to be looked at as a matter of urgency. the second one coming from brazil you will be particularly aware of that is the capitol flow, and the fact that as a result of sovereign debt issues and concerns and doubt and suspicion by investors there's a massive investment to areas of the world that are not wanting the and to spend or are t prepared for it or fearing the effect on the economies, so i think it is a combination of these two that are of immediate concern and that are pressing issues. >> thank you to read over here the microphone. >> [inaudible]

i would like to ask about your personal feelings. this would be your second or third time leaving the area and high school and now you came back here as the head of one of th most prominent international institutions. did you imagine those kind of things, and what is your sense right now and expectation as the head of the institution? >> thank you for the personal question. you remi me of something which is to recruit, the passing of time. while i look back i was here in '73, '74. washington did not have an metro. washington was a very reasonably quiet capital with not a lot of

activity, lovely country club's. clearly the world has changed massively in the meantime. was i expecting i would return to d.c.? no. i knew i would have something to do in the world on an international basis because my american field service experience brought me up with a wide horizon than my home town orven my country, and i'm delighted to be back to reviving the international monetary fund has exactly that set of both technical focus, rigor of expertise and analysis and williness to confront and the eight delete to delete and be specific and controlled with very international background

because it's not so much the smile on my like the background that really eak for the fund and its international nature. but for all of the young girls in school of the moment, i would like to say they should each consider that everything is possible. >> thank you very much. >> congratulations on a new job. you are obviously from the right from what i believe is the socialist should we expect any changes in the spirit, the letter or the priorities of the policy to north africa in the middle east. >> you know, i tend to be very praccal not to be as dearth and were labeled by particular

certifications and i think you have to judge people by what they do what they propose rather than whatthey say, and if you look at the map of the world and look at the international socialists' around the world you have a massive range of views and opinions from the old marxist leninist to the much more fee-market oriented so to speak socialists. so i thnk it's certainly not with that sort of cut occurs asian and mind that i address the challenges ahead, and i believe that no one shld be earmarked with a particular label. they started in our excellent reforms, and iwould certainly consult on them and be very supportive of contnuing the them. i think i've given you an

example for instance when i speak of the comprehensiveness we should adopt embracing the employment and social issues as well as the economic trends that are more traditional, the reforms that he has started and that have culminated in 2010 are good reforms and must not only be implemented and forced in all corners of the world, it's not just a matter of paying some principle but back at home the principles are implemented but also pursued. the world is going to continue to change. we have this plant that is moving at the moment and that needs to be reflected in the government's and employment and i would continue that. >> thank you. over here? >> from china media. about the spiller report recently i just want to accept for the current what else you

plan to bring into imf to monitor the important country and what else. >> you're right to mention the spillover report as one way to address my first c, the connectedness, connection and the fact one particular policy will have willful affects and consequencesoutside its territories, and the fact the idf has embarked in addressing and describing and analyzing them is i think it important. we need to take stock. we need to see how hopefully this, what we can offer to the members as a result of the effect. second, in terms of how can we constantly improve to the fund. as you now, my colleague and

friend, the minister of finance for singapore to the imf see suggested and i've supported the proposal that many reports, whether you talk about the standard article or whether you talk about the financial report or five spillover report, it's better in aggrated so that there is a i think that would be a very important improvement on the services. john is also suggesting, and he's right, there is the triennial surveillance report that is coming out very shortly which will also help us to actually determine how we can improve. for your information, it is one of the comments that we shared with not only the management,

but also the heads of departments with whom i plan to work very cohesively. if there are things that the fund has been doing for many years and it has been like that, so let's continue, i will say, if it is not useful, if it is not providing value, then let's drop it, and let us focus our immense resources and massive capital power, brain, on what is going to be useful for the members. it is in that spirit that i begin the job. >> i have a question in french, if you allow me. your first imf board meeting will apparently be on greece. what is your strategy to address this sensitive issues for europe? and my question in french, as you can imagine, is about dominique strauss-kahn. what is your feelings regarding

the last events regarding this case, and are you going to see him in europe? >> on the first one, there is an imf board meeting which is scheduled for friday at which we shall consider the fourth review and eventually the payment of the fifth tranche that falls due. so that will be, that is scheduled, as i said, for friday. you will appreciate that i'm not going to share with the press, however i appreciate the quality of your television channel, the conclusions or even the considerations that will take place on friday. on your second question, as i said, the most important thing for me is to make sure that the institution actually is proud of its achievements. it has reasons to be proud of

its achievements under the previous managing director's helm, and i'm the first one to acknowledge the quality of the work and the quality of the reforms that have taken place. as to the rest, we shall leave it to the legal course that it should take, and i'm not going to comment further on that. >> madame lagarde, i want to wish you all the best in your new job. i am with greek sky tv. i would like to ask you what are your anticipations, what are your expectations from the greek government and the major opposition political parties in greece? how do you assess the social reactions? if you would like to answer to the objections of many analysts which say that since greece core primary spending is up compared to the last year, the

imf seems to support this creation of deficits? thank you for your attention. >> without anticipating on what will be discussed for the board scheduled on friday, i would like to say simply that i hope the greek political parties altogether either in government or in a position, can be rightly inspired by the decisions, the courageous decisions made by political parties in ireland, the courageous decisions made by political parties in portugal. comes a time when individual interests, political rivalries, should be set aside when it is in the national interest of a country. and that was clearly demonstrated both in the case of ireland and in the case of portugal. in relation to the analysis

conducted by the imf, you can rely on me that the imf in its judgment will remain independent and will conduct its analysis in such independence. >> thank you. the lady in white there, please. >> i would just like to ask how might a possible default and restructuring of greece's debt harm european banks? how likely is it that you would support such an approach? toi'm afraid that i'm going disappoint you because you are going to point a lot of questions on greece and i'm

going to either elude the responses, or be very sanitized in my responses, simply because the matter is under review. the board meeting is scheduled on friday. i have a briefing this afternoon on greece. and, there are many issues and matters that are under development as we speak, including in paris, concerning the private sector involvement that was sought by germany, in particular, but other members of the euro zone. let me not comment, actually, on your questions. it is clearly a matter that is high on our agenda, and one that we will continue to work on a troika basis, as was the case up until now and clearly in mind the ultimate purpose that we all pursue, which is to restore the competitiveness of the country.

>> thanks. howard schneider from "the washington post." >> one broader question about europe, if i could, particularly now that you have switched perspectives. do you think the ecb has been overstating the risks of an orderly default or restructuring of sovereign debt throughout the continent? they clearly feel like this would set the dominoes rolling. they also have a lot of their own assets in play and at risk here. so, i'm wondering if you think that because of that they have overstated the risks? secondly, briefly -- i can't resist. do you think the staff here are all clones of each other? >> dealing with your second question, of course not. of course not. i attended the town hall meeting, you should have seen the room. your room here is full, but the

room yesterday was just amazing. and what was even more amazing was the diversity that was clearly obvious in the room. what i suggest is that diversity is multifaceted. it's not just about gender, color, religion, sexual preferences, but also about culture, also about academic background. i think that we need to draw on the resources and the intellect developed in many corners of the world, because that will make us better and richer. now, on your first one, i have very, very clear recollections of the first days of september, 2008. and the last days of september, 2008 when some people at the beginning of the month thought, "it's not a big deal, it will teach those guys a lesson." at the end of september it was not quite on the same page.

i think that it doesn't hurt to be maybe overly concerned, but to try to anticipate consequences of any of the measures being considered. i think we have been burned once. better be shy this time. >> just a couple more questions. these ladies, bob, then allan. >> you just emphasized diversity several times. my question is, in terms of the fund's management reform, could you elaborate on the timeline or the framework of the management reform? how soon should we expect a real change? >> i'll be very clear on that.

it is a twofold response. number one, about management style. it is not criticism of my predecessors, but my style is about opening up, reaching out, engaging people and working as a team. i can't do it alone. they can't do it alone. we have to pull the institution together and engage the staff. make sure people are not only satisfied with the work, but proud with the results, and happy with their work. so in terms of -- and i'm not suggesting that they were not happy or not proud, but my way to try to organize that is by working as a team. so there will be a delegation of work, there will be regular meetings of the team, so that we can all be on the same page. and by "team," i mean the

management team, with the deputy managing directors, but also the heads of department. now, in terms of physical changes, as you know, the addition of a fourth deputy managing director was being considered by my predecessor. not a bad idea, and i'm going to consult in the next few days on this matter. >> thank you very much. here. >> let me ask you a couple issues i'm sure you have not expected to come up. as a lawyer, until recently a french finance minister, how do you counter accusations that you are, one, not qualified to take decisions on economics, and two, might have the interest of french banks and french taxpayers at heart on issues like greece rather than those of the imf? >> you always ask such nice questions. always a pleasure. you know what? i'm not going to brag about my qualifications, or lack of

qualifications. i think that the truth of the pudding is in the eating, as you say, and we'll see how it goes. but i come to the job with an open mind, with my ability to manage and draw resources and willingness to contribute from all. not going to second-guess. i'm going to ask questions. i'm going to evaluate, and i'm going to rely on the advice of people who know well their area. and, you know, without being too poetic about it, not all conductors know how to play the piano, the harp, the violin, or the cello. goodll try to be a conductor. ok? as to the bias that i would have to favor one or the other, certainly don't expect me on

that particular front. i will not be biased. >> it is too bad all of you couldn't have joined us at the town hall yesterday, to have seen the enthusiasm of the staff in welcoming our new managing director. she brings many firsts. as i said, many people say she is the first woman managing director, but she is to my mind a woman of firsts, with great experience leading a large international organization, experience in both the private and public sector. the staff is very welcoming and very enthusiastic about the leadership that christine lagarde is going to bring the imf. >> from your very long experience as a lawyer, given your experience as a lawyer in the u.s. for quite some time, what lessons do you think ought

to be drawn from the way the u.s. legal system handled the strauss-kahn case? >> i'm sorry. the way -- >> the way the u.s. legal system handled mr. strauss-kahn's arrest and subsequent proceedings, and what lessons ought the media learn from that? in a related question, you have talked several times about how you would follow mr. strauss- kahn on certain reforms he had made. how would you consider that you would differ from mr. strauss- kahn? >> if you will allow me -- and you will appreciate why -- not to comment on the comparative study of the judicial versus the continental law system as we call it. different systems, different backgrounds, different ways of

reaching what is critical in my view, and i speak as a former lawyer, to that end, the truth. that is what eventually all legal systems aim at. now, what lessons to be drawn as far as the media is concerned? i think the presumption of innocence is something that is highly valued the world over, sometimes protected, sometimes respected, and i think it would be the honor of the media to actually respect that as well. more broadly, actually, this huge appetite that media has in general for the new announcement, the new bit that you will be able to capture and make headlines with, sometimes blurs the overall judgment and the sagacity often required to analyze, for instance, an economic or a fiscal program. there are obvious examples that

we can use. when a program is designed, for instance, when the agreement is reached, it is obvious that the results cannot be acknowledged and computed the following day. so, the passing of time that i was referring to earlier on, which makes us look a bit old, which whitens our hair, is often something of use to better analyze the situation. >> how might you differ on the policy basis at the imf from mr. strauss-kahn? >> one difference that comes to my mind right from the start is the management style, because i'm a different person. and i'm probably more inclusive, more team minded. in terms of substantive issues, allow me to take stock and be properly briefed and appreciate the depth and substance of some

of the matters that are on our plate in the coming weeks. to sure i will come back you. >> i want to follow-up on the strauss-kahn case. >> i'm sorry. the press to the -- >> would there be any reforms in the human resources policies here? do you plan any changes in them in light of the controversy over mr. strauss-kahn? and, will it make a difference that you are a woman? finally, is there too much testosterone in the building? >> before, could you describe and affiliation? thank you. >> i thought i was making it clear that diversity and the value of diversity was at the top of my list of priorities as far as the fund was concerned.

together with diversity comes respect for everybody, and it has been the case in the past that people have been respected. i will make sure that they continue to be respected, no matter what their differences are. that goes to both the substance of the analysis, but also the individuals as they stand. apart from that, i will very shortly be taking the training program on ethics, and i think it is a very good thing. i had instituted such a thing in my law firm prior to my government life, and i look forward to it. who is next then? >> over here and this is the last. >> it is not the first time we see a french managing director and an american deputy managing

director. there has been a lot of talk about the role of emerging economies. would you consider changing the status quo right now, would you consider a deputy managing director from an emerging economy? i put that question to both you, mr. lipsky, and madame lagarde, as well, please. >> i think i addressed the second part of your question earlier on, saying that the matter was under consideration by my predecessor and i will consult, and consult very rapidly on this matter. otherwise, i don't plan to change my nationality. >> thank you all very much. thank you all very much indeed. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> in u.s. politics, house

speaker john boehner said house republicans would not accept president obama's debt reduction plan. he says he is looking at a plan half the size of the president's proposal. we spoke with a capitol hill reporter this morning about the speaker's comments and how they could affect tonight's meeting between the president and the top eight leaders in congress. let's go to the editor of "cq roll call." , mantis is this the shift? guest: i don't think it is that momentous. the flurry of talk last week about going big and swinging for the fences were underscoring the idea of the president and the speaker to persuade the democratic and republican rank- and-file to go for something as big as $4 trillion.

it was a long shot to begin with. both sides decided to spend a few days pursuing this long shot and it turns out that speaker behner blinked first. he was the first one to realize publicly that he did not have the votes in his own troops to get this through because it would require too much. host: if the number goes down from $4 trillion, what gets left behind? guest: you go from $4 trillion down to something. the fall back number we think is $2.50 trillion. that is the amount of deficit reduction that would be necessary to get republicans to vote for an equivalent amount of debt ceiling increase. that is what is required to keep the treasury in the flush to get

for the next election. that is the number and we know that the vice president had six members of congress and they were pretty close. they were at about $2 trillion. entirely from the spending cuts side and from limits on entitlements, farm subsidies, maybe, and some other lesser entitlements that don't have the political punch of medicare and medicaid. in theory, they are most of the way they're on a deal with that would get them to $2.40 trillion but the assumption is to get from that will require revenue increases. that is still the sticking point. how much the republicans will be willing to allow revenue to go up and whether they will allow it to be called -- they won't

allow it to be called a tax increase -- they might allow it to be called a revenue increase or some other euphemism. host: speaker banner and president obama are the two key players in this. how has that relationship been going over the last few weeks. we have seen images of them playing golf and meetings that they have had privately. how much are we looking to these two men as opposed to all the other congressional leaders? guest: it is up to these two, really. they seem to be -- they seem to understand each other's political imperatives which is that both want to be seen -- as the unambiguous leaders of their party. both of them have dealmaking in their heart. mr. behner is a deal maker from way back. back when he was the chairman

of the house education committee, it was john boehner to cut a deal with ted kennedy on the no child left behind law. he knows how to cut a deal and the likes to cut a deal. he feels like that is good government at its best. the president, likewise, would like to cut a deal. if anything, there was some worry that the two, from the rank-and-file, that these two leaders would be so interested in cutting a deal that they would essentially cut a deal that could never get through congress and would look worse in the end. the end. it now seems like the two of them are bound and determined to get something that can get through their caucuses. host: we have heard from minority leader nancy pelosi, talking to reporters on friday from congress. other people are involved in this process. how much do you expect to hear

their messages this week? do they have more sway now that the go big deal is off the table? >> i think they do. the person to look to the most is probably eric cantor who is the house majority leader, who is the number 2 and the republican hierarchy. he was the only house republican in the biden talks. it was he who pulled the plug on the biden talks a few weeks ago by saying that he could not support any revenue increases and he was going to withdraw from the talks and lead to the president and the speaker. president and the speaker. politically, anything that eric cantor refuses to support can't get through the house. he is arguably more in touch with the conservative rank and file in the house. if he says this is a deal that is good enough for him, the votes will probably be there to get through the house.

probably the same could be said of nancy pelosi as the house minority leader. the house democrats are a pretty liberal bunch of these days. if she says that whatever entitlement cuts need to be part of the deal and if she supports it, she can probably get the votes on her side. this will still be a deal that will need to get through the congress with good numbers for both republican and democratic votes, probably a majority of republican votes. and in a near majority of democratic votes. host: speaker behner referenced the biden talks and said he would like to get back to that number. majority leader kantor pulled out of that. do we pick up where they left off? how does the bided work to go forward? >> they are picking up what they left off.

they will try to do something bigger and they are back to where they left off. the biden talks had gotten to $2 trillion mostly in spending cuts and lesser entitlement reforms like farm subsidies and now they need to find another 400-$500 billion on top of that and that will require revenue increases almost certainly and this is where they are stopped. the talks are rapidly winding down. if they don't get a handshake agreement this week, it will be very difficult bulk mechanically in terms of writing the bill and in terms of rounding up the votes to get this done by the

>> meanwhile, leaders said a major proposal on cutting spending, favored by the white house, is author of the table as far as republicans are concerned. speaking on "fox news sunday," they say raising taxes is a bad idea given the weak economy. president obama is holding a talk with congressional leaders this evening at the white house scheduled to begin at 6:00 p.m. eastern. they have been negotiating for weeks to increase the nation's borrowing capacity before the august 2nd deadline. you can see continuing coverage on the c-span networks. >> c-span has launched a new tv to navigate -- a new easy to navigate web site for the campaign trail, biography information, updates from candidates and reporters, links to media partners. visit us at c-span.org

/campaign2012. >> two house subcommittees held meetings on mortgages and home closure mitigation practices. this book about the development of new mortgage servicing standards. we will show you a portion of that hearing beginning with their opening statements and some of the first round of questions. this is about 90 minutes. >> i appreciate the opportunity to appear discuss issues relating to mortgage servicing. i will focus on three areas. first, right written statement will discuss the other federal banking agencies about defects in foreclosure at the 14

largest servicers. they have found a that the loans in the samples examined were seriously delinquent. they found serious deficiencies, different degrees of each of these servicers in the areas of foreclosure governance, document preparation, and the oversight of third-party service providers. these deficiencies constitute unsafe and unsound banking practices. to address them, the occ issued a cease and desist orders. the sample foreclosures reviewed in the examination exposed serious flaws in the foreclosure processes. as a sample, it could not, of course, quantify the individual borrowers that may have suffered financial harm due to these defects.

that is why the orders issued by the agency required a comprehensive and independent review of foreclosure actions during a two year time. the independent review will seek to identify borrowers who have a pending or completed for closure in 2009 or 2010 through two distinct means. one, notice and out reached a those are words of their right to file a complaint and have that complaint reviewed. two, a targeted review of the loans of borrowers who are in identifiable high-risk segments who will provide an additional opportunity to detect borrowers who suffered financial harm. the orders require that the

servicers submit detailed action plans to revamp their mortgage servicing and operation. for example, an action plan is required to implement comprehensive provisions of mortgage servicing, lawn modification, and foreclosure. they address the implementation of a dual tracking and require the establishment of a single point of contact system to ensure that borrowers can contact a live person drop process. the second portion discusses the relationship between the implementation of our enforcement orders and the suspect -- the separate negotiations being conducted by other authorities, most notably the department of justice in settlement discussions involving a group of other federal agencies and state attorney general's. the scope of these discussions includes issues outside the scope of our orders, but it also

includes areas of mortgage servicing and foreclosure procedures that overlap with the scope of action plans that are required under our orders. other initiatives are also under way that will affect mortgage servicing standards. and the particular, the newly announced gse delinquency management default standards which will have a substantial effect on it practices since those standards, for the foreseeable future, will govern an overwhelming portion of the mortgage market. but these different initiatives will subject servicers to more rigorous standards and provide borrowers greater protections, but they also raise the prospect of multiple and potentially inconsistent standards. we have strongly urged the value of achieving a common set of standards whereby servicers can satisfy not only the terms of any settlement agreement and other applicable agreements such

as the gst standard. in order to achieve this result, in consultation with the department of justice, we have adjusted the deadline for actionrs'submissions of plans required under our order to facilitate synchronization with the department justice's efforts. in the final portion of my testimony, i discussed the inter-agency efforts to develop comprehensive and uniform servicing standards. the goal here is to establish rigorous, uniform standards for responsible servicer conduct that reach beyond those covered by the current the enforcement actions. it will be critically important to ensure that any standards adopted apply to and are implemented it by all engaged in the mortgage servicing, not just federally regulated depository institutions and that there is

strong oversight. i appreciate the opportunity to appear before the subcommittee this morning to discuss these important topics and i look forward to entering or questions. thank you. >> thank you. our next witness is mr. martin pierce. i have your information summer. director of the depositor and consumer protection. >> members of the subcommittee, thank you for the opportunity to testify today on behalf of the fdic about the ongoing need to address and resolve challenges in mortgage servicing. the issues continue to impact our housing market, bar owners, and communities across the nation. the fdic is not the primary regulator.

major deficiencies have been found, nevertheless as the insurer of the deposits, we remain concerns about the potential ramifications of these petitions, not only on these institutions, but on the housing and mortgage market overall. last fall, in the wake of allegations of robosigning, you invited the fdic to the debate in an inter-agency review of 14 servicers. we identified significant deficiencies in all 14 institutions. these deficiencies included the filing of an accurate affidavits and other documentations in foreclosure proceedings, inaccurate oversight of attorneys and other third parties involved, inadequate staffing and training of employees, and the failure to effectively coordinate the loan

modification and foreclosure process to ensure effective communication with borrowers seeking to avoid foreclosure. in april, the federal regulators took in important for step in addressing the deficiencies by issuing enforcement orders related to foreclosure practices by the largest servicers. they want to work effectively with homeowners to efficiently to solve -- resolve mortgage defaults. we need to monitor the servicers to ensure the orders are implemented as they are intended to be. the view of past foreclosures should be able to convince the public that errors have been identified and compensated by regulators. even if implemented fully, the

consent orders are only a partial resolution to mortgage servicing unit -- deficiencies. they did not purport to examine loan modification practices. the fdic supports the federal- state collaboration between the department of justice and state attorneys general to address the broader range of issues regarding the servicing process. a comprehensive resolution were passed servicing errors is essential for recovery of the housing market and the greater economy. servicer errors have given rise to potential claims and litigation, placing a cloud of uncertainty over recent foreclosures and transfers of title. uncertainty dampens expectations regarding the housing market's

recovery and the return of private capital to the mortgage market. the fdic has encouraged the financial stability oversight council to continue its efforts in examining the systemic risk surrounding mortgage servicing and foreclosures. until servicers improve their practices and process these, some homeowners will miss opportunities to avoid foreclosure while others will be able to delay the inevitable. given the continuing fragility of the housing market, effective servicing is more important than ever. the mortgage servicing system has ill-served to all parties involved. it has impaired the help of the recovery of the housing market -- health of the housing market. the fdic will continue to work with our federal colleagues to develop a balanced servicing

standards tempered by the knowledge that community banks have not demonstrated the type of deficiencies and errors present in the largest institutions. the key for the opportunity to testify on these issues and i looked over to responding to your questions. >> thank you. our next witness is mr. date raj. he works at the consumer federal protection bureau at the department of treasury. welcome. >> randy members. thank you for inviting me to testify on mortgage -- ranking members, 84 inviting me to testify on mortgage servicing. -- thank you for inviting me to testify on mortgage servicing. we want to present their nests

on consumer finance and set clear and consistent rules -- present clear p principles -- principles on the federal finance and set clear and consistent rules. >> could you move the microphone and a closer? -- microphone a little closer? >> certainly. mortgage servicing is important. it has $1 trillion in unpaid principal balances. it is marked by two structural features. the first feature is simple. in the vast majority of cases, consumers did not change their

mortgage services. last week, i had occasion to go to a drug store. if my promises had made me stand in a long line or if she gave me guidance that was wrong, i would go to a different pharmacists next time. that is how most consumers facing markets work. i get to choose my drug store. i do not get to choose my mortgage servicer. the second feature relates to consumer protection. taking on the surface of a mortgage resembles betting on credit. if the borrower becomes delinquent, the cost of properly servicing the loans is likely to be greater than the revenue from servicing that loan. it's the servicing portfolio contains more non-performing -- is the servicing portfolio contains more 9-performing loans

-- non-performing loans, the loan is not profitable. in examining 14 major servicers, we discovered -- we discovered violations of state and federal law and deficiencies in all 14 of the 14 servicers examined the accounting for a 2/3 of the servicers. the dodd-frank log will correct the lack of direct oversight over independent, non- depository servicers. to make sure we deeply understand the markets we will be regulating, we are in touch

with credit unions, consumer groups, academics, and others. a comprehensive approach requires the coordinated action of a larger group of federal agencies. the bureau will be working with those agencies. consumers and the industry will benefit when regulatory action is careful and coordinated. two weeks from now, the bureau will be ready to start helping consumer finance markets work for the american people. i am confident that the results of our efforts will make the servicing market work better for everyone. thank you for the opportunity to testify. >> thank you. our next witness is the honorable luther strange. >> thank you chairwoman and

ranking members. my name is luther strange. i am the attorney general for the state of alabama. thank you for inviting me to testify. the alabama attorneys general office joined other states to investigate whether mortgage servicers violated laws. alabama is a non-judicial foreclosures states. . in march of this year, the working group submitted a report on behalf of attorneys general that was intended to settle allegations of improper

foreclosure practices and loan servicing. negotiations are currently under way -- currently underway. i am guided by three overarching principles. the settlement must hold the mortgage services accountable. the attorneys general are not responsible for legislating or setting policy. we should not attempt to overreach. the settlement must contain provisions to discourage future illegal activity. and that the cold war is servicers -- but at the co -- on at the co -- unethical mortis servicers should be punished. in force agencies should have a

debate on this proposal. we want to prosecute bad actors to the full extent of the law. protecting consumers is not only laudable, it is something i consider my highest duty. this has the ball into an attempt to create a regulatory scheme that restructures the mortgage system of the united states. it is beyond the scope of the responsibility of attorneys general. here are the specific concerns i have. alabama has made the policy decision to admit non-judicial

foreclosures. mandated principal reduction is bad public policy. it creates questions of fundamental fairness and justice. it would create an incentive for homeowners to default, requiring lenders to reduce mortgage balances. denying people access to the credit they need to purchase a home. a settlement should not impair an efficient foreclosure process. i am skeptical of any system that forces people to violate an agreement. in alabama, we have over 130 community banks. they are an important economic driver in the state.

we must not increase their regulatory burden. thank you for holding this important debate and i look forward to answering your questions. >> thank you all. i would like to begin questioning ms. williams. one of the questions i have is that we have been --have the ooc -- have the occ over here. the state attorneys general have servicing standards. who is going to enforce all of this? what kind of singular standards -- singular standards would certainly be better in terms of

the service provided to consumers. could you comment on that? >> as i indicated, a concern we have with the processes under way right now is whether there will be -- the process we have a underway right now is that if there will be consistent standards. -- have underway right now is that there will be consistent standards. there will be be components of different enforcement results -- that there will be components of different enforcement results. results will be ongoing among the banking agencies with respect to developing uniform

consisted national standards that will apply to all servicers. the enforcement processes will identify a body of course standards and some detail under those standards that will translate into significant portions of uniform standards that the agencies can adopt going forward. there are potentially different enforcers involved or the different entities subject to the standards at the end of -- enforcers involved for the different entities subject to the standards at the end of the day. >> we want to stop some of the practices that have gone forward. the other thing i would like to ask about is the principal reduction. i would like to ask all of you this question briefly.

mr. strange as already mentioned that he does not think principal reduction should be part of a national servicing standard. i will start with you mr. data. what does the cfpb think about that? >> i would like to think of the notion of principle reduction as loss mitigation. it would be a non-recourse secured lending market. there is always potential for moral hazard. most of the loss mitigation techniques employed today in the marketplace involve some manner of economic concession to a borrower to try to keep that bar were current. principal reduction -- to try to keep that borrower con

current. >> it might be one of the tools in the tool box but it would not be part of the national servicing agreements. >> national servicing standards may or may not address particular loss mitigation techniques. i know that the interagency group is trying to frame the issue. >> are you aware if this is included in the settlement agreement being worked with the attorneys general? >> i am not involved with the day to day conversations with mortgage servicers. >> mr. pearce did you have a quick comment on that? >> when servicers look at whether or not to do a modification, they think a modification is better than the

alternative of going to foreclosure and losing a significant amount of money. >> do you think it should be a mandatory part of a national servicing standard? >> i think the department of justice is working out whenever agreement they can come to with the largest servicer is on that. i cannot speak to where they are in that process. i do not think a mandatory process is something we have talked about. people should make possible reductions when they do not make sense. that is not something we have talked about. >> for the overall economy, the large number of be false, the servicer challengers are putting

up a barrier that could delay the broader recovery of our economy. moving forward and getting this solved is critical. i would like to ask mr. strange and mr. date about the servicing process. we had the highest number of servicing loans. banks participated, not for profit. one on one, we worked out details that help people stay in their homes. do you think servicers have done a good job of communicating to borrowers about their loss mitigation policies and about their rights and options once they have gone into default? if not, what improvements could be made and what is the best

mechanism to ensure we have this improvement? starting with mr. strange, mr. date and down the line. >> i would not say it is a crisis situation in alabama. we have state laws that deal with it. they work well. that is a decision we have gone with. we are diligent in making sure those procedures are followed. i think it is working fairly well in our state. >> mr. date? >> mortgage servicing has a range of players in terms of how good they are. in a loss mitigation and making sure there is a high touched customer contact during the

linguistic, it is difficult. some firms happen to be better at it than others. there might be some matter of baseline expectations. it is exactly the kind of question i would love to address in our dialogue on national mortgage servicing. >> what would you think would be the baseline jump of what we saw in the past was rowboats signatures -- robo-signatures and not even looking at their bank account to see if they could work this out. what kind of baseline would be appropriate? >> the most rudimentary baseline is abiding by current and state law. it is promulgated by the gse's

andd the fha. there is no state where falsifying paperwork is the right thing to do. with respect more broadly, there are mechanisms one can use as a trigger point in terms of number of days of giving wednesday. if you are going to proceed to for closure, some other steps should have taken place. one form of that is restraints on dual track processes. >> thank you. >> in our inner agency beat you, we found significant efficiencies around staffing and training -- significant deficiencies around staffing and training.

there are larger mortgage servicers that do not communicate with each other well. that can have significance for borrowers. it is important to have a person there who can answer a borrower 's question whether they are in the process of foreclosure or the process of loan modification. that would add a lot to making this process work more smoothly. >> i think you are asking a question that has a couple of dimensions. how the bar wars are dealt with -- how the borrowers are dealt with by the servicers. what we have seen over the course of the last few years is

that the servicers got a slow start in both respects. they have done a lot to improve the out reach -- outof reach parts. -- outreach part. in the complaint process that we envision in our orders to have the services reach out to borrowers at any state in the foreclosure process during a specified time. bang, we are going to be requiring more aggressive outreach during that process. -- during a specified period of

time, we are going to be requiring more aggressive outreach during that process. >> if there are appropriate policies in place, you have taken the appropriate action. these servicers did not originate these loans. we have to be careful of what we are punishing them for. are we trying to punish them for some mistakes that were made up the food chain? i am most concerned about the clear evidence that this administration has been trying to install into this settlement agreement policies that this congress has rejected. that is the point that i want to cover this morning. mr. date, we rode secretary

geithner to express our concern about elizabeth warren's -- we wrote to secretary geithner to express our concern about elizabeth warren's con involvement. we received documents that said elizabeth warren took a leadership role. and e-mail showed that the cfpb convened an emergency meeting to push settlements solutions that focused on principle reductions and modifications. would you agree that that activity constitutes a little bit more than advice? >> thank you for the question. with respect to the request as of the treasury department with respect to an elizabeth warren's participation in the mortgage

servicing sediment conversation, i feel that the response has been on ambiguous over time. i would reiterate it today. we had been asked by the secretary of the treasury to provide advice to the federal and state agencies involved in this matter. we try to do that. in doing so, we wear active and and engaged -- we were active and engaged participate -- we were an active and engaged participants. >> we can look at a series of e- mails between ms. warwick and yourself documenting meetings held on march -- ms. warren and yourself documenting meetings held on march 10.

what was the nature of these meetings? >> the ceo of u.s. banks have had a chance to talk on a variety of issues. the nature of my role is to lead the division of u.s. markets and regulations. what we do from a policy point of view is grounded in empirical analysis and grounded in the pragmatism of what happens in the marketplace. to my recollection, any conversations have been held with that in mind. the meeting you our discussion -- you are discussing had elizabeth warren prefacing the meeting about what the meeting was about. the beating was about the market broadly.

>> this loan modification discussion has been going on for a long period of time. there was a detail regarding the presentation. there were discussions about determining who was going to get loan modifications. >> without talking about anything particular as it relates to u.s. bank, i would be happy to talk about the nature of that conversation with mr. davis. it is broadly known that the institution required through the fbi process -- the fdic process an institution. mortgage participants have thought about the range of loss mitigation. lost mitigation is a form of

economic recession. if you do not think about how they are offered, it could trigger moral hazard. you are talking about one of the means by which that is done. >> my time is expired. you have done a great job of avoiding the question. the cfpb has been extremely involved in these negotiations. there are other e-mails from other ceo's where they are wondering if they can meet all of the record. that is the troubling part of what is going on here, the fact that this agency that has no director and there is a question as to whether your agency can be up and running on july 21. you do not have an acting director or the director has not been nominated or confirmed by the senate. it is troubling that we find

the extent of the nile by the cfpb of having implants -- the extent of the denial by the cfpb. >> i would like to ask unanimous consent to enter into the record a statement from the national association of realtors. >> mr. attorney general, you raise some interesting points. you or your predecessor voluntarily joined this lawsuit? >> it was my predecessor. >> for any settlement, is there a way for you to step back and say, we were glad to be a part of it up until now, but we do not want to participate anymore. ? you do not have to participate.

>> that is correct. >> that is important because some of the points you raised are important. i agree with the trade issue. no one should be required to take action they do not want to take. in the final analysis, how do 50 states come to an agreement at the end? do you vote on it? how is it generally done? >> i am relatively new to this. i inherited this. as i have weighed into it, i have learned what needs to be done. mr. miller has been active in this for many years.

>> it is the attorneys general who are left at the table and who are having say in the final decision. >> there are seven or eight attorneys general who are involved. >> no one from the outside can force you to come to a decision. >> that is correct. >> and that includes the cfpb. >> no one can force the attorney general to do anything. >> i did an awful lot of different corporate business transactions. would you ordinarily reach out to people who may not be participants for their expertise or their input our advice? >> i was typically dealing with parties in negotiated arrangements. i don't have a lot of experience

dealing with these global policy matters. >> i would like to ask ms. williams. is it ordinary for people to reach out to you or for you to reach out to other people who have knowledge in an area that you do not? >> my experience is in the interagency process with the banking agencies. i do not know if that parallels the experience of having 50 attorneys generals in a negotiating group. within the occ we reach out to experts within different departments to provide support. >> mr. pearce, have others reached out to you when you were not parties to a suit? >> as ms. williams points out,

we are trying to line these things up as much as possible. we have interagency confrontations. >> is it fair to say that everybody should have a general interest in a coordinated oversight and regulation of the financial services industry. has anybody ever heard of anybody who was interested in having a discoordinate its relationship to make sure every bank has 20 different regulators? has anyone ever heard of anyone advocating that position? i did not think so. we all want coordinated oversight. is there anyone who disagrees with mr. date's comment that the cfpb will take over a

significant amount of the regulatory oversight of this particular aspect of the financial services industry. ? >> the one thing i would clarify is that the transfers that will occur on january 21 do not transfer the safety and soundness of the banking -- occur on july 21 do not transfer the safety and soundness of the banking system. >> we have a situation with people who do not have certain expertise and have reached out to us to ask advice about coordination. cfpb has no authority or no rights and they have never said they can force anyone to agree to anyone. the big crime here is that someone actually reached out and ask for advice. i would suggest that that is not only not a crime, but it would be a crime to do otherwise.

>> i would like to recognize the chairman of the full committee for five minutes of questions. >> i would like to clarify something first. when elizabeth warren testified in march before our committee, i asked her if she had participated in negotiations. her response was that she gave advice when asked. i then wrote her after the hearing and asked her if she would like to clarify. at that time, she said she had been an active participant with both federal and state agencies. i consider that quite different from advice. i asked her if she participated. she was forthcoming in her response to my letter. most of the headlines at that time said that she gave the same

response he gave at the hearing. you have to be illiterate to think that. i do not think people read her response and compared it to her testimony. we asked her in march for any documents pertaining to that participation. we did not get those until this tuesday night. judicial watch put them out about one month ago. it was tuesday night this week when we were given an formation that other independent sources had picked up. i think the staff has handed you the perspectives on settlement. this is a settlement proposal that the consumer financial protection bureau gave the attorney geralgeneral in februas

it not? >> this is a document meant to propose ideas and put those ideas into perspective. >> you proposed a settlement of $25 billion. you say 8 $25 billion settlement would not be sufficient. -- you say a $25 billion settlement would not be sufficient. you say servicers would save $25 billion. you say the settlement seems too low. >> the second sentence says the penalty of $5 billion would seem too low. >> you say they save more than $20 billion. were you proposing 8 $5 billion settlement or saying $25 billion -- propose a and $25 billion

settlement or saying $25 billion would not be enough? >> i believe this says $5 billion would not be enough. >> were you proposing -- you proposed that the settlement be used for principal reduction. >> i would be happy to describe the analysis that underpins this document that is in the public domain. >> you say the press or reduction mandate would be a meaningful at a tip to have. prm would mandate 3 million permanent modifications. -- you said the reduction

mandate would be a meaningful additive to have. you are proposing components of a settlement. is that right? >> to ground what is here, if it is helpful. there are different means to think about the size of a penalty. this tries to say, if i stole a car and it is your job to punish me for stealing a car, you should probably take the car away. >> so you propose taking the $20 billion they say plus the penalty. >> that would be a way in which -- >> i am not arguing with you about the merits.

you say they save $20 billion and in addition to that, they should pay a penalty. >> that is not what is in this document. i am not sure i see that. >> it to be close by saying, you propose that the money -- let me close by saying that you propose that the money be used for principal reduction of the mortgage. >> that is a fact that has been presented to you. >> are you aware that we have a law -- the miscellaneous receipts settlement -- that says the settlement needs to go into the treasury to pay down the debt. ? you would not be opposed to that, would you? >> mr. chairman, i should not -- >> i will close.

instead of a principal reduction, that would be an alternative, would it not? >> the ranking member is recognized for five minutes. >> i am thinking of claude rains in his portrayal of a police chief. i am baffled as to what this is all about. elizabeth warren is an able and thoughtful expert in the field. apparently, she made some suggestions that were not binding or coercive. instead of talking about the merits of the issues, we are in this panic or out rains that she did do that. this is the silliest thing i

have never heard of. were you the attorney general in february of this year? the you feel coerced by elizabeth warren? did she bred new in anyway? -- did she threaten you in any way? >> i believe i have met her once. she did not seem threatening. >> i hope my colleagues will be curse is by your ability- -- colleagues will be incurred reached -- encouraged by your ability to stand up to her. she had the temerity to suggest that financial institutions that made loans they should not have

made and package them into securities that should not be sold, that they should pay some penalties. that is consistent because my colleagues on the other side have been protective of the financial assets of the large institutions. there have been complaints about the money that has been spent. the bill originally passed the conference committee and there was a section that said $20 billion would come to let mr. this financial reform bill, including some mortgage -- $20 billion would come to fund this financial reform bill. it was transferred from being financial institutions to the taxpayers. there has been consistency here in terms of worrying that the financial institutions would be

unfairly put-upon. elizabeth warren suggested that the estimates bein what they sad and a penalty. that might be wrong and that might be right. maybe you want to do principal reduction and maybe you don't. when we are talking about the unemployed, there is a clear case for that. the notion that it is improper for elizabeth warren to suggest that in a non-coercive way. there is an obsession with elizabeth warren. it comes from people who wanted consumer protection to continue to be with the regulators. they did not want independent consumer protection taken away from those regulators. we found in the majority that the regulators had not done a good job. we want to put consumer

protection in an independent agency. they have not been able to make the head on assault because it is not popular. let's demonize elizabeth warren. let's discredit the consumer agency by attacking the person that i think should be the head of it. what did they convict her of? i guess i elizabeth warren should take comfort from the fact that the worst thing based -- i guess elizabeth warren should take comfort from the fact that the worst thing they can come up with to discredit her is that a woman charged with protecting consumers and looking out for consumer interests proposed a plan for dealing with the mortgage situation. how terrible of her?

shame on her that she would actually sit down and try to figure out what she thought was best and submitted in a -- non-coercive way. i do not think anybody has ever said that elizabeth warren threatened to beat me up. come save me and protect me from elizabeth warren. i would just say this -- >> i would like at least 30 seconds to respond to that. >> you can finish in 10 seconds. >> i do not understand that we

go back and forth and response. i will offer to anyone who feels threatened by elizabeth warren, let us know. i will do everything i can to protect them from this menace of a consumer protection adviser who is making suggestions. date, what is it about the deficiencies that justified the principal reduction? >> thank you for the question. the deficiencies of mortgage services, which have been documented by the examination of our sister agencies, are troubling. they are pervasive and within the scope of the examination quite profound. in cases where a violation of law has taken place, it would be

a reasonable question to ask an active-duty soldier who has been closed to plot -- who has been foreclosed upon, what is the appropriate penalty for that kind of activity and what is the appropriate remedy and how should it be structured? there are a range of alternatives with respect to those questions. that is precisely why i have the bglad that secretary of the treasury has been trying to inform us. >> do you see a link between robo-signing and eight borrower -- and a borrower the underwater? >> there is a systematically

boss provision of affidavits -- systematically false system up affidavits. this is not the furniture business. it is not as if paperwork is ancillary. this is a financial-services. paper work is the point. with respect to the transactions, the documentation is made to provide investors with be, but that they need in order to put money into the system. it is meant to provide borrowers with the comfort they have with respect to the transactions they have entered. >> mr. strange, you testified that the enforcement would enforce alabama to become a traditional or closure state. can you expand on that? -- become a traditional

foreclosure state. >> my concern is that a settlement imposes on my state and the majority of states who have chosen this path -- making a policy issue needs to be a decision for the members of congress and for members of the state legislature. attorneys general are good at enforcing the law and preventing future legal activity. they are not good at economic policy. >> were you aware of the proposed settlement terms before they were sent to the mortgage servicers? >> i was not in the loop on the details of the settlement.

>> do you think attorneys general should be about in setting national servicing policies? >> it is our job to protect consumers and enforce the law. policy matters should be left to policy makers, which are in this room, in congress, and in the state legislatures. >> the gentle lady from california is recognized for five minutes. >> i am perplexed about how this subprime meltdown and the so- called efforts to help homeowners vary. this review that was led by occ

that found about 14 loan modifications that had been turned down and had not been done correctly. are you familiar with that, ms. williams? >> are you referring to the interagency b. du? i am familiar with that reports -- are you referring to the review?ency leave y >> they found 500 foreclosures that should not have proceeded because the borrower was a member of the military. >> the horizontal examinations that were done relied on a sample of loans filed by the

servicers. there was a limited sample that was covered. >> we have basically projected out the number of foreclosures that have taken place. 10,000 homeowners had been wrongfully foreclosed on. did you do those kind of protections? >> the purpose of the look-back process is to specifically identify homeowners who were financially harmed as a result of the efficient practices. we have not done a back of the envelope extrapolation. a robust process is required using independent consultants to latin by homeowners who suffered financial harm as a

result of the efficient practices. - d efficient --effi deficient practices. >> was it identify how many records get lost? is anybody aware of that? are you aware of the problem of beans. even if homeowners get to modification -- are you aware of fee. s. the process these that the mortgages back up they are back where they were before they got the loan modifications. are you aware of that? >> what do they were

specifically authorized by the loan documents that the borrower had with the lender is an area that we will look at in this process pursuant to our enforcement orders. >> don't you think consumers should have more protection than anyone should be able to see? most people do not know that they have all of these opinion fees and process fees. most consumers do not know that. >> there is a lot of room for improvement in the financial services arena. we strongly support that. >> since we have three of the too big to fail banks who did 60% of all servicing, don't you

think we should be able to get our arms around that? in addition to all of the loss papers and the fees, i discovered that many of the servicers were not well trained. has something been done about that? >> there are provisions in our enforcement orders that address staffing in terms of numbers and training of staff involved in the servicing, lost mitigation, loan modification processes. >> he did know that loss mitigation is often offshore? >> i am not aware of that. i can take it out. >> thank you. i yield back. >> ms. williams, in your

testimony, you talked about the examinations that were produced by your agencies and several other regulators. there was a sample size of 2800 for closure cases. how was that sample chosen? >> the sample was 200 per servicer. it was a judgmental sample determined by the examiner responsible for the particular institution. there was a mix of judicial and non-judicial states. >> do the agencies considered them representation all of the larger universe? there are 2 million under the dissent and decree foreclosure cases that mortgage servicers are going to be required to reach out to. is that correct?

>> the samples were intended to be representative of the types of standards and the processing centers and representatives. >> on page four of your testimony, you say that the loans and the samples were seriously delinquent. you are telling me that at least you consider the sample to be representation no. loans in the sample were seriously delinquent. i know mortgage servicers have gone out and done a lot of bad and sloppy work. i am trying to figure out the extent of it. we are trying to figure out how widespread this damages. -- this damage is. the vast majority of these

loans -- there are going to be foreclosure proceedings against these people anyway. is there another sample size between the 2800 foreclosure cases that your agencies have examined and what is the number of those that have been foreclosed upon who were not seriously delinquent? do-- do you have a number? what we know is limited to this 2800 sample size. the conclusion is that these folks were seriously delinquent. you say in your testimony that the bureau is not yet open for business. it sounds like you have been pretty busy for an agency that is not get in business. in your terms sheet, you clearly suggest a $20 billion settlement.

looking at your term sheet dated february 14 -- i do not see a page number, i am sorry -- page two. you suggested $20 billion settlement. my question is this. you have been charged with protecting consumers and you are also suggesting $20 billion in principal write-downs, is that correct? i believe you testified earlier "that was an aspect of it." >> i believe you are referring to the presentation -- not the 27-page states attorney general. >> wasn't this your perspective on what the term sheet should be? >> the term sheet is rather more comprehensive care that is what i am trying to draw as a distinction.

>> if you're suggesting a $20 billion principal right down, we know right now that, already, the taxpayers are about $150 billion so far on the tse's -- gse's. the fed has invested about one trillion dollars -- $1 trillion in mortgage-backed securities. every single investor group i know of in america is fearful of a government-fourth principal reduction. my question is, if you are there to protect consumers, does a robust, private capital mortgage market -- does the cfpb consider that to be part of consumer protection? >> access to financial markets is part of our mandate. >> you would be concerned -- would you be concerned if there

was less private capital coming into the market because of this global settlement that you suggest? >> congressman, i am concerned that the pervasive and profound divisions in the mortgage servicing have made it difficult for investors to have confidence in how their assets are going to be serviced. >> the gentleman's time has expired. the gentleman from texas, mr. hanabusa -- mr. hinohosa. >> thank you, madam chair. i ask unanimous consent to enter into the record these .upplemental, directives, -- supplemental directives dated july 6.

>> out objection. -- without objection. >> thank you. last month, the treasury department rated the department of the 14 largest servicers participating in the making home affordable program, ranking member on three criteria. number one, how they did in the contracting. 3, program management reporting and governance. treasury determined that six servicers needed moderate improvement. four needed substantial improvement in the first quarter of 2011. none of the servicers needed only minor improvements. the inter-agency review of foreclosure policies and practices found that

"individuals who signed foreclosure affidavits often did not personally checked the documents for accuracy or possess a level of knowledge of the information that they attested to in those affidavits. in addition, some foreclosure documents indicated they were executed under oath when no oath was administered." "examiners also found that the majority of servers had improper notary practices, which failed to conform to state the requirements. these determinations were based primarily on servicers' self- assessment of their foreclosure processes and examiners' interviews of staff involved in the preparation of foreclosure documents." it seems to me that there is

room here for investigation of claims that borrowers are often charged exorbitant and unjustified, forced-place insurance. can one of you tell me how this is being handled so as to help these individuals we are trying to help out? >> congressman, i can start. fees and whether it borrowers were charged fees that were not reasonable and customary or were not authorized under the terms of the agreement that they entered into is an element that is part of the look-back process pursuant to our enforcement orders. so, that is one of the things that we will be -- that will be

part of the review of the borrowers that are in the scope of that look-back. >> anyone else? >> congressman, i know that -- dodd- of -- frank frank requires the bureau to take this review and analysis of the impact to the market and consumers. >> we have seen an impact that the actions of the top 14 servicers had on our military servicemen and servicewomen, who put their lives at stake each and every day to protect those of us in america. what actions can be taken to ensure that those troops are

protected from unscrupulous lenders and mortgage servicers? them a congressman, from a law enforcement perspective, -- >> congressman, from a law enforcement perspective, we are seeking interests -- incidents like that. if that activity comes to our attention, we will pursue it to the bulletin of the law. -- to the full extent of the law. >> the short answer to your question is 100% compliance with this service member possible relief act -- the member's relief act. >> thank you. >> i am not a fan of bifurcated regulation. adding it has had an adverse consequences -- i think it has had adverse consequences.

the number of existing or proposed servicing standards is pretty daunting. fanny, freddie,, the bank regulator joint injured-agency initiative, the legal settlement reported -- joint inter-agency initiative, the legal settlement as reported, the risk retention, the congressional proposals, the potential activity by this efp -- the cfpb. i quoted from "the new york times" about -- i think there are some 60-years' worth of backlog in just new york state. you mention that to support development of uniform service and standard -- that you support development of uniform servicing

standards. i want to ask about that. looking at the backlog of foreclosures to route the country, -- throughout the country, what impact does a lack of clearly defined rules have on the confusion throughout the market' ? does that add to delays and to recovery? to the extent -- >> to the extent that lenders and servicers are not certain about what the rules of the road are and proceeding with -- in proceeding with their mortgage servicing and the foreclosure process, that does slow down that process. as i said in my testimony earlier, on their way right now are a number of different initiatives that deal with mortgage servicing in the larger

sense, mortgage servicing with respect to current and performing loans, lost litigation, including on medications -- including loan modifications. we do think it is very important for the different players to try to bring those together to be as consistent as possible, so that there is a single set of standards to the extent possible, so that servicers clearly know what is expected of them and so that customers know what to expect from their servicers. >> the committee has heard a lot about coordinated rulemaking efforts. i can just give you my take on this, sitting through the hearings and then the talking with people in the regulatory community. the truth seems to be that there

is little communication and coordination occurring in many ways, partly due to regulatory turf battles, partly due to the fact that we just do not have this one, clear set of rules. and i think it is in everybody's interest to see that this is done right. let's say for a minute that "the new york times" is right in this story of a weakened a half ago. let's say that new york state -- that it would really take -- a week and a half ago. let's say that the new york state is right that it would really take 60 years. how will we see a return to the private market when we are building so many inconsistencies in to the system? >> congressman, i do not recall all of the details of the

article that you are referring to, but it is premised on the current pace. one would hope that current pace is not want to be the current pace -- the pace -- one would hope that our current pace is not going to be the current pace -- the pace going forward. >> the story goes through other states, new jersey, 49 years, florida, massachusetts, illinois -- it would take about a decade in those states. again, we are dealing with bifurcated regulation, with different fifth states, different rules -- with 50 different states, different rules. it is hard to figure out how we move out of this morass and sort things through in the marketplace with respect to the

overhead. -- overhang. >> the american people are justifiably skeptical that anybody involved in this who is supposed to be independent has actually been independent. that was certainly true of the ratings agencies. everybody involved seems to have deep business ties with each other. even when there are supposed to be looking after someone else, they seem to be just looking after each other. it is all the same folks, whether you call them security, trustees, whatever else. the settlement agreement, the consent order, a couple of months ago, with the 14 servicers required an independent review. in this testimony, it was said that the review should include

all foreclosures or the homeowner had applied for modification or had filed a complaint against the servicer, or was a member of the military, and that, because of the importance of the reviews and the skepticism about whether they were really independent or not, that there be an injured -- inter-agency group that would look hard at these reviews to see how they had been done. do you agree with that? >> the approach that we're taken at this point is to share information. we have been sharing information among the agencies that have been participating, that we have not gotten to the point of having a sort of injured-agency second review as part of that process. >> are you saying -- are you doing it in consultation with

the internet--- injured-agency group? -- interagency group? you say that you are taking a hard look at a reasonable sample? >> absolutely. >> doesn't include all of those where a homeowner applied for a modification -- does it include all of those who were homeowners who applied for modifications and were in the military? >> we're doing a different review for different segments, factors that will trigger 100% review versus assembling approach. >> there is a further concern that contributes to the skepticism of the american people. louis brandeis said that the best disinfectant was sunlight

and the street and the most efficient policeman. there has been no light on any of this -- will the result of the reviews the public? to what extent will the publics of the public can look over your shoulder and decide whether -- will this be public, so the public can look over your shoulder and decide whether you are being an independent watchdog? >> we have proposed an interim report to describe the structure of the look-back process so that the details of the process will get to some of the questions that you asked. there will be a report at the end of the process that will be similar to the interagency horizontal report -- >> reports from the consultants? >> the reports that the agency would put out, describing the

look-back process, describing the findings, describing the financial remediation that would be provided. what we would not anticipate doing is having a bank-specific information, because that is confidential, but providing information about the scope and the details across the board. >> do you have response to those questions about the necessary views that address your testimony? >> well, i guess i would said that, you know, people have been skeptical about what has gone on in mortgage servicing and whether folks are. to make errors in but -- in the following the law -- and whether folks are going to make errors in following the law.

and this look-back process needs to be robust. it needs to look at the areas where we think there is likely .o be harme the sampling approach can really identify where there might be errors and how many errors you might find there. but it will not go all the way for these high-risk segments like borrowers who applied for a loan modification and then ended -- excuse me -- having the whole review of those files seems to be pretty fundamental in our view. >> now available, c-span's congressional directory -- a complete guide to the first session of the 112th congress. inside, new and returning house and senate members with

contacted permission, including twitter addresses, district maps, and committee assignments, and information on the white house, supreme court justices, and others. order it online. >> two house foreign affairs subcommittees held hearings on thursday, looking at the situation in somalia, including famine, piracy, terrorism, and government corruption. congressman chris smith of new jersey serve as the chairman for this hearing. -- served as the chairman for this hearing.

>> somalia once again head the annual list of failed states. the current issue of foreign policy magazine. this country has held that dubious distinction for the past four years. sudan, chad, zimbabwe, and the democratic republic of congo are on the list. but since 1991, the united states has been involved in addressing the consequences of somalia have been no functioning government in mogadishu to effectively rule the entire country. this lack of government has resulted in somalia being engaged in the chaotic civil

war. humanitarian, political, and security conditions continue to deteriorate across somalia. in the past two years, more than 22,000 civilians have been killed. an estimated 1.1 million people have been displaced. at least 476,000 simoleons -- somalis have fled to neighboring countries. they are experiencing what is considered the worst drought in the horn of africa since the 1950's. nancy lindborg, assistant secretary -- assistant administrator for u.s.a.i.d., will testify. deputy assistant secretary reuben brigety will testify.

there are more than 750,000 people in the horn of africa -- going and africa region -- or about for the region. in 2003, the group was added to the list of terrorist organizations-- al shabab, whose primary objective was to establish a greater somalia under sharia. al shabab has increasingly controlled the country. the transitional federal government has lost control of most of south central somalia to insurgent groups. u.s. officials are concerned that al-qaeda and its allies in east africa continue to pose serious threats. al qaeda poses a direct threat against u.s. interests and allies in east africa.

al shabab looks to be more focus on carrying out attacks on somali citizens. the african peacekeeping forces as well. it has threatened to attack neighboring countries of ethiopia and kenya. for too long, somalia has been a cancer for the continent. to many criminals have come from -- too many criminals have been active, including in piracy. pirates attack in the waters off of somalia and in the horn of africa. it has brought new and renewed attention to the longstanding issue of maritime piracy. at least 219 attacks occurred in the region in 2010, with 49

successful hijackings. pirates have attacked ships in the gulf of aden on long somalia's eastern coastline and outward into the indian ocean. in due to sophisticated tactics, the pirates have gone as far east as the maldives and as far south as the mozambique channel. this substantial growth to the economy -- the annual cost of piracy to the global economy ranges from $7 billion to $12 billion by some estimates. two years ago, secretary of state clinton announced that the doctor -- part plan to combat piracy -- announced of four-part plan to combat piracy. the threat posed by somalis is

not confined to their territorial, surrounding waters. in recent years dozens of young somalis, many from indianapolis, have left the united states to return to somalia to fight with also bad -- al shabab. more than one dozen permanent residence were -- residents were arrested. eric holder announced that more than 14 people were being indicted. two of them raised funds for al shabab. they made several money transfers between 2008 and 2009. the danger to america posed by al shabab continues to the very serious. in his nomination hearing to become secretary of defense, leon panetta noted that the threat to the u.s. on land is on the rise. -- "the threat to the

u.s. homeland is on the rise." he also noted that it is not -- since the fall of the last national government in somalia, 1991, somaliland and puntland, both the autonomous areas of somalia, have been the only areas with effective governance. small and and it seeks international recognition -- somaliland seeks international recognition. the question is whether we will acknowledge it or support reintegration into greater somalia. that requires greater discussion. today's hearing is a valuable opportunity to look at the various issues involving somalia. now i turn to the ranking member for his comments. >> cross is a very much. let me thank you -- thank you

very much. let me thank you for calling this important hearing on the consequences of a failed state of somalia. it is good to see my friend mr. royce back. he has maintained a strong interest, as has congressman smith. it is a pleasure to be here at this very important hearing. unfortunately, i would have to leave a few minutes before 2:00. i have been invited to be part of the presidential delegation that will celebrate the new state of south sudan and must believe in an hour or so to be part of that great achievement. but i will stay as long as i can

and i certainly look forward to your insights and -- insights on challenges facing somalia. how can the united states best address the root causes of these challenges? let me also say that i commend our witnesses, all of whom have distinguished backgrounds in dealing with somalia and other difficulties places in the world, especially the honorable donald to yamamoto -- donald yamamoto, who has been so much time in the area and been responsible for many of the achievements we have seen in the very troubled parts of the world where he has served. i have a long history of engagement with somalia. my most recent trip to mogadishu of in april, 2009,

gained international attention, because of the mortar attack on my airplane as i left mogadishu, but that was not my first visit to mogadishu, nor was ahead -- was it the first attack on a boarding. i was the first happened in the early- 1992, when i attended, the plane was fired on as we were getting ready to leave mogadishu, but was not airborne, as it was in the recent attack in 2009. of course, my good luck, they didn't shoot straight and therefore i am here to give testimony. i first travel to mogadishu in the summer of 1993, just

following the killing of the pakistani peacekeepers, 2 years after said had been overturned and the country had devolved into a state of lawlessness and warfare. you may remember a number of countries went to see that the country could get the food that was being sent to somalia, but the distribution was being prevented by the warlords. there was food, but children were dying because the warlords would not allow the food to be distributed. my first trip was then. i returned back again in late 1993 because, from the state and new jersey, we have a long number -- large number of

pharmaceutical corporations. i asked them if they would participate in a pharmaceutical drive that unicef co-sponsored with me to provide medications for children to help in the situations since the children were suffering so much. we had a 100% cooperation of the new jersey pharmaceutical shot pharmaceuticals to provide treatment that was needed. my recent trip was noted by some of the participants that remembered the pharmaceutical drive that brought millions of dollars of donated products to the children of somalia.

after leaving mogadishu on my first trip in 1993, i then went to one of the largest somalia camps -- refugee camps in kenya. camp thatsited the ge exist today. -- exists today. the situation has always been a very serious question and problem for the surrounding countries. the people continue to suffer in these rough conditions. the spirit of the somali people has always impressed me. throughout the toughest times, somali's remain hopeful and find ways to run businesses, make the best of situations. i greatly admire their fortitude and sticktoitiveness and even created this -- creativity,

creating a new industry. four years ago -- actually in 1994, -- actually, four years following a 1993 trip, i went and i met with the former president of somaliland. i met recently with the current president in nairobi before the elections. we spoke by telephone recently. i was the original sponsor a resolution on somaliland in 1990, which called on the united states to provide assistance to and give somaliland observer status at the united nations, and to recognize their

accomplishments. as you know, somaliland, puntland, and mogadishu were all controlled by different colonial powers. i think the reason that some have succeeded, for example, somaliland, is become some colonial powers a more but autonomy to the locals and provided them with the opportunity to govern, where as, in mogadishu, there was very little of that. this was the only resolution to be introduced in congress that focused on somaliland in two decades, at that time. i also met with the president of. land 0-- of puntland several times today testified in a hearing i held in july, 2009. -- i also met with the president of puntland several times. he testified in a hearing held

in july, 2009. i also met with the president, sharif sheikh ahmed, and ministers, journalist, and a prominent coalition of women's organizations who were very active in mogadishu at the time. as a matter of fact, i was there the day following the u.s. navy seals taking down three somali pirates. of course, i was asked at a press conference -- al jazeera was there -- what i thought about this. i made it very clear that piracy is illegal, that the united states of america would not tolerate the intrusion on a u.s. ship, and i totally supported

president obama and the u.s. navy seals in the taking down of the three somali pirates. i think that may have had something to do with al-shabaab taking a shot at my plane when i left. in 2009, and introduced a resolution calling for the recognition of the transitional federal government -- i introduced a resolution calling for recognition of the transitional federal government and for the establishment of a diplomatic presence in mogadishu when conditions improve. as you know, the transitional federal government remains weak. despite recent shake-up, there are glimmers of hope. last month, the president and speakers of parliament -- and speaker parliament agreed to hold elections by august 20, 2012. it was also decided that a new prime minister would be appointed.

the tfg is planning a conference in mogadishu sponsored by the un to bring together all of the somali stakeholders. it is unclear whether the somaliland officials will attend. the president must be given support as he attempts to increase dialogue and fight off al-shabaab, which continues to recap it on the population. over the past several years, more than 22,000 civilians have been attacked. an estimated 1.1 million people have been displaced. 476,000 somalis have fleet to neighboring countries. this is unconscionable. many people in washington are focused on the criminal aspects of piracy. i spoke with secretary clinton while traveling with her in nairobi when she met with the president there. she expressed her views that

piracy is a symptom, not because of somalia's problem. we need to work on that strategy -- not of the cause -- not the cause of somalia's problem. we need to work on that strategy. the state department has said it will not recognize somaliland, but has commended progress of somaliland and. -- puntland. this will allow a more effective dialogue. -- inasking panelists deference of time, i will conclude that we do have a problem with the 1/4 of the country's population that is either with a jeep or internally displaced. nearly 100,000 people have fled -- that are either refugees in or internally displaced.

i look forward to hearing from our witnesses. with that, i will yield back the balance of my time. >> the thank you -- >> bernanktk you. >> in working with donald payne in that capacity over these years, his willingness to speak out was always very impressive. i know he has to leave sometime today to speak out in terms of the situation in south sudan. we were actually on a deal in africa when we got the word that he had done two things. one, he had had a press conference and minutes later his plane was mortared as he was flying out of town. it was because he was willing and has been willing to speak out, and because of you, mr. chairman, that we have got some light on this issue.

it is an issue -- this situation in somalia -- that is not only a humanitarian crisis, but also a national security threat. i chair the terrorism subcommittee. this is an aspect of that at the state department has been talking to us about -- that the state department has been talking to us about -- and the defense department. somalia was a failed state for a long time. but nowhere are the consequences of somalia more evident than when it comes to international terrorism and the threat from al-shabaab, which is, as we designate it, a foreign tourist organization -- terrorist organization. in the past few years, the threat to the u.s. has grown dramatically. in the theater in somalia, we have seen roadside bombs,

suicide blasts, militant represent -- ich wer because of the influx of foreign fighters into this area, the neighborhoods around mogadishu are referenced by locals there as "little afghanistan." a year ago, al-shabaab conducted the first attacks actually outside of somalia. they killed 76 people, including one american in you going to -- in uganda. there is growing concern that al-shabaab leaders are striving to strike targets not just beyond somalia, but beyond africa. a european plot was recently uncovered. it was in the works and it was

uncovered. links between al-shabaab and al- qaeda in the arabian peninsula, the most active of all of the outcry that franchisees -- al qaeda franchises, are becoming more and more clear. they are working together on training. they are working together on tactics. the bomb-making capability that al qaeda has, the expertise that they have, is being combined recruits.abaab's they frequently have western passports. many of them have u.s. passports. this is quite a deadly combination. that is why, last month, director panetta called al- shabaab's threat to the homeland "significant and on the rise." u.s. forces have gone on the offensive, of course, targeting the leaders from the sky and,

but we should have a diplomatic attack as well, and that is where i would like to focus my attention here. we should target al-shabaab's outside source of support. the government of eritrea'd support for -- eritrea's support for al-shabaab is well documented. there was testimony about eritrea's supply of weapons to terrorists inside somalia. the u.n. security council, acting at the urging of african neighbors, passed sanctions against eritrea, demanding that the country -- and i will read from the sanctions -- "ceased arming, training, and equipping al-shabaab." with al-shabaab under pressure, it is time to tackle its state sponsors and supporters before this menace ridges the united

states. we must have an honest recognition of the destructive role eritrea is playing in the region and designate it as a state-sponsor of terrorism. i yield back. >> thank you. thank you for holding this hearing. picking up where mr. royce left off, the inherent instability that has long dominated somalia as a failed state has spillover effects that certainly affect the united states national security, the shipping lanes of the gulf of aden, and, i think they are of deep concern. i am particularly interested in hearing the views of panelists on the paris the aspect of this -- on the piracy aspect of this.

the pirates are more emboldened. it is a cash business. they are more successful in ransom in numerous ships. that lane has to be secured. we have always had an interest in that part of the world and putting an end to privacy. over 200 years later, we are still dealing with this. what are our options, what should they be, what steps can we take to further enhance our capability to deter piracy in that part of the world? >> very briefly, mr. chair, as somalia continues to receive a rating of a failed country, our country must continue to remain active and expand our diplomatic commitment and support to restoring somalia. i appreciate your leadership on this matter. thank you. >> i want to introduce our distinguished panel, beginning with ambassador donald yamamoto.

he has testified before us in march on the democratic republic of congo. he has served, since 2009, as the principal deputy assistant secretary of state for the bureau of african affairs. we will hear from nancy lindborg, the assistant administrator for the bureau of democracy, conflict and humanitarian affairs, at usaid. she spent time as immersed -- with mercy corps. she also served in a number of positions and the non- governmental organizations -- in non-governmental organizations and in advisory capacities related to foreign relations and foreign

assistance. the full biles will be made part of the record. -- bios will be part of the record. we will then hear from dr. reuben brigety. he supervises u.s. refugee programs and the africa, manages humanitarian diplomacy with major international partners, and oversees international migration policy. he previously worked for humans rights watch. he recently returned from east africa, where he worked on the ground with somali refugees, and he will be returning shortly to that area. dr. yamamoto, please proceed. >> thank you is very much, distinguished members of the committee -- thank you very much, distinguished members of the committee, for holding this very important hearing, and for your very kind words.

problems of somalia are not isolated. the solutions to them are neither easy nor 1-dimensional. there are signs of progress and improvement to encourage u.s. efforts. most recently and significantly , a somali national security forces, under the control of the transitional federal government killed the al qaeda terrace to run a check. in mogadishu. -- terrorist who ran a check point in mogadishu. in october, 2010, there was a dual track approach announced. listening to your advice on the approach to somalia, take into consideration somalia's past and present, as well as its challenges and strengths, we continue to support the peace process for the transitional federal government, its national

security forces, and african union mission to somalia. we recognize there are large pockets of stability that merit greater u.s. engagement. we want to broaden our engagement with a small inland, -- with somaliland, puntland, and anti-al- shabaab groups. we want to foster dialogue and peaceful reconciliation. we will do everything we can to provide humanitarian assistance. due to the dedication and sacrifice of tfg forces, al- shabaab can no longer claim control of mogadishu. since 2007, the united states has supported this development by obligating approximately $258 million of support to their

training, logistical needs, as well as approximately $85 million to support and build the capacity of tfg forces. we will support new troop contingents and training and logistical support. we will focus on supporting their political project -- progress over the next year. after five months of political infighting related to the tenure coming to a close in august, 2011, the president and speaker of parliament cosigned the accords on june 9, rededicating themselves to finding an end to the transition that has been in place since 2004. the ugandan president and a un enoy witnessed -- envoy witnessed the agreement.

there was a transition of a federal charter to complete a set of federal tasks to be monitored by the international community through parliament and through -- and to hold elections for the president and speaker by 2012. they confirmed the prime minister on june 28. the accord is a sign that the , the people, the international community do not have the patience to accept in fighting that serves no purpose, except for certain individuals. we will be pushing for timeliness, benchmarks, including the completion of national constitution -- a national constitution, meaningful engagement with puntland and other somalia

stakeholders. we have expanded our diplomatic outreach with these regional authorities and partners. we advocate for representation. the un's consultation in april focused on ending the transition and the joint security committee. the interaction between the u.s. and somalia is critical as we work to build peace and security throughout somalia. we are looking at our travel policy to somalia for more robust -- two more robustly execute our dual track approach. it is important when considering travel inside somalia. we do not shirk from this obligation. there'll be an impact on our

ability to affect changes in somalia. demands for support to amazon troop contingents and the needs of the fledgling tfg will continue for some time. in fiscal year 2011 gossypol lea -- in fiscal year 2011, somalia received approximately $28 million in -- they also received $80.3 million in humanitarian assistance for those who have fled somalia. united states government continues to do as much as possible to promote our core goal of building a peaceful and secure somalia. during 2011, we have used funding to assist somalis in clearing the streets of mogadishu of garbage, provided streetlights in mogadishu, and provided technical assistance to the ministry of finance to combat corruption. increasing parity problem off

the coast stems from years of instability, lack of governance , and economic fragility on land. the tragic deaths of four innocent americans provided a sober demonstration of the need to do more to correct this problem. my colleagues across interagency, including the department of defense, have been at the forefront of u.s. government's counter piracy efforts. we must work with somali authorities to enhance their capacity to prosecute suspected pirates and imprison those convicted. internationally, more focus should be placed on tracing financial flows in order to determine who benefits most from piracy. these efforts take place in the context of other challenges. we'll continue to support efforts aimed at reducing piracy threat. al-shabaab and its relationship to hawkeye that is a significant

concern the united states and its partners in the region -- to al qaeda is a significant concern to the united states and its partners in the region. al-shabaab's hold on mogadishu has dramatically decreased. there has been additional pressure on their ability to hold these areas. as more areas is a al-shabaab -- more areas escape al-shabaab's control, they will need more government and services to prevent them from returning. were we see signs of al-shabaab -- where we see signs of al- degreasing,ld the we remain strongly concerned about the region and we -- holds a decreasing, we remain strongly concerned about the region. al-shabaab includes multiple factions with competing objectives and has lost

significant areas of territorial control in the south and central somalia. al-shabaab's leadership is increasingly fractured and divided, with questionable support from the somali people in many areas. somalia's and stability is a product of generations of neglect and corruption -- somalia's instability is a product of generations of neglect and corruption. we will continue to focus efforts on somalia in ways that grapple with its challenges effectively and flexibly. thank you, mr. chairman. i look forward to your questions. >> thank you there much for your testimony and insight. assistant administrator lindborg. >> thank you, distinguished members of the committee. i wish you a safe journey today, congressman payne. thank you for the opportunity to testify today on the

humanitarian crisis in somalia and for your continued interest and leadership on this issue. i have submitted my longer testimony for the record. that it has made part of the record, as is -- >> without objection, your statement will be part of the record, as is the statements of the other witnesses. >> thank you. i will give you a brief update on the situation, as well as the u.s. commitment to helping the 2.5 million people in need in somalia. this is a regional crisis. more than 10 million people are in the countries of the horn. they are deeply affected by drought, crop failure, and high livestock mortality. the crisis is further complicated by the continuing conflict in somalia and our inability to fully and reliably reached more than 1.8 million somalis primarily in the south

and parts of central somalia, and the outpouring into the drought-stressed areas of kenya, ethiopia, and djibouti. there have been cyclical droughts in the horn for decades. we have advanced early-warning systems that we establish and fund, including the famine- early-warning system network, and the food security and nutritional analysis unit. they continually collect data and provide analysis that has enabled us to pre-position stock in the region, to target our assistance where we can, and to look ahead. the draw that we're currently seeing in the region is the worst in the horn of africa since the 1950's. in somalia, the combined effect of consecutive seasons of poor or failed rainfall, coupled with the conflict, have resulted in rising inflation, severe crop

failure, very high loss of livestock, and significant, even alarming, malnutrition rates. there are 1.4 million somalis who are displaced now. there are thousands of refugees. it takes great resilience for the somalis to continue. this is a 19% increase in six months. that means of the estimated 9.9 million people in somalia, one in four now needs international assistance to survive. in may, i travel to kenya and somalia to ensure we are able to respond as fully and

irresponsibly as possible to this crisis and to express the commitment of the united states to the people of somalia in this critical time. along with the u.s. special envoy, i traveled in the semi- autonomous region of somaliland. we met with government officials and international non- governmental associations while there and we met with the president who expressed his concern over the failed rain, loss of livestock and he expressed deep thanks to the united states for our assistance. i spoke with a civil society leader who said we are seeing the end of the pastoral life style as we know it. with the drought and conflict, the continued lack of water and pasture, we see nomad's migrating into urban areas, including parts of the

somaliland, adding strain to an already stressed situation. the impact of the drought on the people in somalia is most vividly illustrated in the refugee camps in ethiopia and kenya. as a result, an inability to get in, i visited the refugee camps in kenya and talked to several families who lost all of their livestock or sold their land, had no remaining assets and thus began a long walk across somalia to the refugee camps in kenya. we now see refugee populations are arriving with global acute malnutrition rates of 30% to 40%. this is more than double the world health organization estimates of 15%. we see severe acute now mission rates of 23%, 7 to eight times

higher than the 2% to 3% which is considered alarming. we see a similar increase in ethiopia with even higher malnutrition data which my colleague will discuss. but let me make this data very simple to remember. one out of two somalis is acutely malnourished. one in three are arriving in kenya is acutely malnourished. unfortunately in somalia, we have a significant challenges in providing humanitarian assistance. to to the presence of armed groups, especially, a u.s.- designated foreign terrorist organization. general insecurity and lawlessness prevents aids workers from reliably reaching more than 60% of the people in somalia that need assistance.

in january 2010, the world food program suspended operations in southern somalia because of threats and an accepted conditions created by these groups. many other international and non-governmental organizations are unable to operate safely and this lack of access has created a severe unabated humanitarian crisis and contributed to be significant outflow of refugees. in order to deliver assistance to these areas, we have developed a risk mitigation strategy with an emphasis on assuring assistance reaches those most in need. we have put into place basic procedures and special conditions for our grant agreements and continue to work to ensure our programs are appropriately and accounted lead managed and monitored and

reaching the areas that we can. as a result, we have provided $48 million in humanitarian assistance inside somalia this fiscal year. we have been pre positioning supplies in the region since we were warned of the crisis in 2010. we are hoping to see 1.2 million people in accessible areas of somalia and st. tens of thousands of people countrywide. we are providing health care, clean water and rehabilitation of basic infrastructure, hygiene education and supplies. we are also working to improve long-term opportunities with an emphasis on youth and women. we will continue to identify additional opportunities to meet the growing needs in somalia. just two weeks ago. we released 19,000 metric tons

of food aid from our prepossessions stock to per -- to have a supplementary school feeding and mother and child feeding inside somalia. to help refugees who are fleeing the country, we have provided over $76 million in life saving assistance. in early june, we set up a task force in the region and we have elevated that this week to a disaster assistance response team with 20 members in the region. looking ahead and looking at the most recent data, we expect the situation in the horn to worsened through the end of this year. given the limits it a labor opportunities and dwindling fyns -- dwindling food stock and sky- high prices, we believe many households will continue to experience this severe situation and be unable to put food on the table. we will see an increased number

of hou in though weeks and months ahead. as unfortunate as that is, we expect the situation to continue to decline and we will look for additional ways to provide to those in somalia while also providing assistance for those forced to flee. we are coordinating our programs and we have an estimated budget of 21 million for 2011 in our development programs and they will continue to look at building economic and political stability in areas where we can. we consider this an extremely grave situation. we thank you for your support of our ongoing programs and thank you for holding this important hearing today as we continue to work on this issue. >> thank you for your testimony and for working so hard to meet

the needs of so many suffering people. i would like now to ask the doctor if he would proceed. >> good afternoon. thank you very much for including me on this panel to review the situation in the horn of africa, which is one of the consequences of what many have called the failed state. we are facing a critical emergency in a situation which dates back to 1988 when people in northern somalia fled to escape attacks by their own government. some always represent the largest refugee population in africa with over 750,000 in the greater horn of africa region alone. whether 120,000 have arrived

since january of this year. ethiopia open its camp for refugees and it is already almost full. a seventh camp is currently in the works. djibouti has announced a second camp as well. the international community continues to press can get to permit expansion of a camp complex which is home to over 300,000 refugees, almost all of which are somalis. you already may be aware that the camps were opened some 20 years ago to house about 90,000 refugees and now how house over four times as many, making just the camp the fourth largest population center in kenya and the largest in the world. even in this overcrowded state, more than a thousand refugees have arrived per day over the past few weeks in search of assistance.

indeed, the situation has worsened dramatically in the last month with reported new arrivals almost double in ethiopia and triple in kenya from what was reported in may. ironically, this may be partly the result in the success of pushing back the terrorist group, offering some who could still move to do so. though the main factor remains the difficult conditions within somalia. from a humanitarian perspective, what is most critical is addressing the desperate and deplorable state of malnutrition which threatens the lives of many newly arriving refugee children. they have endured the ravages of ongoing conflict and struggle to survive in wide swaths of south- central somalia. these new arrivals have faced the latest devastating droughts as the administrator noted,

affecting the entire horn, rivaling everything on record going back to the 1950's. having sold all they own to survive, they have made the arduous journey mostly on foot for days or weeks to reach safety in kenya and ethiopia. to illustrate the severity of this situation, the humanitarian community considers it an emergency when the rate of global acute malnutrition in an area exceeds 15%. in ethiopia, as was noted, global acute malnutrition rates close to 50% have been reported among newly arriving refugees children. in kenya, rates of up to 40% have been reported this situation is substantially worse than when i last visited at the refugee camps in february of this year. newly arriving children are

dying at the rate of two to three children every day. during my most recent visit to the region, just last week, a senior adviser of the refugee agency and a veteran told of the condition of near-death of many children as they arrived at the camps. some are so emaciated and with skin lesions so deep that you can see their bones and skulls and it in their arms through their translations again. in his words, people are coming from somalia to die in ethiopia. we must ensure that as many as possible of these children are saved their urgent and timely interventions. though some of these activities are already under way, the level

is not yet adequate to meet the considerable needs of the population. given the urgent nature of this situation, i will be traveling to the horn again tomorrow and planned to visit cams which are receiving the vast majority of new arrivals. i will be accompanied by our ambassador, donald booth. speed is of the essence as we seek to prevent additional deaths. yet we cannot forget this is a regional crisis which will require the combined efforts of the international community. all the more so as my colleague testified, this disaster is putting some 10 million people at risk throughout the horn. the appalling state of refugees is a stark example of what is being done to the people of the horn and emphasizes the importance of a comprehensive response to address the needs of all those suffering from this

crisis. regrettably, famine experts tell us the worst of this drought is still to come this fall. my bureau, the state department's bureau which supports all refugee protection and assistance efforts except food aid, which is supported by my colleagues from the usa i.t.'s food for peace program is programming over $63 million for the corn and will peak -- and will be providing new funds would we expect an appeal to which we will be responding. there are clearly many challenges still ahead. countries in the horn are understandably wary of posting hundreds of thousands of refugees. some, such as kenya in the 1990's have seen refugee inflows reached 1000 per day, and we want to avoid repeating these experiences.

some, such as yemen are in great turmoil themselves. events in sudan can generate more refugees in the coming months. security inside much of south central somalia is not conducive to mounting successful operations that might reach those in need where they are. for example, i am understand the efforts of the un humanitarian team this week to assess conditions and humanitarian access in the borders were derailed by the presence of roadside bombs and land mines. as a consequence, we must ensure safe places of asylum in somalia continue to exist and refugees can find security as well as life-saving assistance. we will continue to work with our colleagues in the government with counterparts in other countries to achieve these goals.

we welcome your support and we're grateful for it. i would welcome any questions you may have. thank you very much. >> we do have a recorded vote, one of the vital and necessary distractions we faced during the day. there'll be about one hour's worth of voting. i will ask questions, rapid-fire and as my colleagues -- if we could ask some questions and hopefully get it done and go to our second panel when we return. very quickly, the on met food need -- you have outlined a catastrophic situation of malnutrition. what is the lack of donor aid? is there an inability to deliver because of conflicts -- we just cannot get the security aide or food aid to the people because

they're occupied? we have a great insight to what is coming as far as malnutrition. what are we looking at as far as menacing diseases? are there others on their way? if we could just go through those diseases. if you might touch on what that plan that need, what you anticipate that needs will be so we can hopefully meet our significant obligations from the humanitarian point of view. if you could speak about the relative security inside and outside in proximity to their refugee camps? we know that camps all over the world are often menaced by camps, especially to women. then, ambassador, peacekeepers, the rules of engagement, are they robust enough? some suggest their presence

hurts the ability to be able to rule primarily because of an aversion to a sense of an occupying force, even if that force is benign. the resilience -- the doctor talked about the ability to adapt. what is the troop strength, the terrorist trained, how big is it? are the weapons coming through sudan or are any of them coming from china? with regards to the pirates, the doctor pointed out in his testimony and others have pointed out as well that there needs to be a land solution. i think that is obvious, but if you could touch on that. we will do all the questions --

>> deputy secretary, if i could ask this question -- when the last administration left office, there was an internal debate about whether eritrea should be designated as a state sponsor of terrorism for its support of al- sabah. it did not happen at the time, but just after she left government service, the former assistant secretary wrote a good piece in though wall street journal with these seem of eritrea should be listed as a state sponsor of terrorism. we have the u.n. reports citing their support and the case is cut and dry. the assistant secretary testified flat out that the government of eritrea continues to supply missions to extremist elements -- we are trying to put them on and now was the time to

press. many of these problems cannot be solved by military means alone. here is the chance for diplomacy to add these to this. i put that question to you. >> thank you. >> thank you very much. i would just like to ask, with the 12-month -- that will be used now for a elections in somalia, do you think they will be able to handle that? what do you think is a new move with the prime minister, the contention between the president and the prime minister -- do you think we will be able to see the tfg put elections on course? the strength of the forces, to

you feel they have enough forces to contain the group -- they are getting support from al qaeda -- do you c. whether the government is being able to win that battle? and on and eritrea, i was the last member of congress to visit their several years ago and i've been able to talk to the president. i wonder if in your opinion, as we move forward, i have a lot of respect for the congressman's opposition -- once you get on that terrorist list, that's it forever and that could close off any kind of possibility. is there in your opinion a last- minute opportunity to see whether the president's of

eritrea did it right to president obama saying he was interested in having some dialogue -- do you think ann's -- i'm not saying absolutely everything points to the fact that there should be something done -- to you think a last minute shot at tempting to see it said government could be convinced that it should try to cooperate? i'm still at the point where i know once that designation goes, it stays. president mandela was just able to get off the terrorist list last year because they said anc was a terrorist list and for a birthday present were able to take president mandela off the

terrorist list just last year. once you get on that list, you are there forever. i just wonder your opinion. >> thank you. just to reiterate, as fortune -- as unfortunate as it is, we expect this situation will continue to decline and famine conditions are possible. there is a concerted effort to try to meet not just our food needs, but water, clean drinking water, and the ability to access to supplies that are still available to them. we see a $200 million funding gap, even with the $349 million that we have provided toward the

un funding appeal. again, to reiterate, we have currently provided about $48.4 million. we have more in the pipeline and we're looking at how we can responsibly provide that assistance. unfortunately, there is difficulty in reaching nearly 61% of the somalis who live in the south and parts of the central somalia because of the presence of armed terrorist groups and the inability to safely provide assistance. in terms of diseases, because of the ongoing programs that have been conducted by usaid and others, 93 to 95% of somali children we can reach have received polio immunizations. just to show the power of those interventions, we have been able to prevent reoccurrence of that. what we are most concerned about and what we see as children, across the border is

malnutrition and disease is related to a lack of sanitation and clean drinking water. respiratory diseases, gastrointestinal and malnutrition -- we are always on alert for the possibility of those kinds of epidemics that are all too frequently common in these situations and thus far, and the camps at least, we've been able to address that. the concern is as conditions continue to deteriorate in those areas that are difficult to reach. >> thank you. >> thank you very much for your questions. in the interest of time, i will do my best to be brief. with regard to the appeal, we do not yet know exactly what the size of that shortfall is going to be. the high commissioner for refugees has publicly said that there is a shortfall for the

entirety of their african program. he has directed to immediately obligate $20 million out of their operational reserve to respond quickly to the crisis and he is traveling to the region and will be there tomorrow to go to the camps in ethiopia and kenya. we anticipate seeing their revised emergency appeal probably on monday and we are prepared to respond generously. we have been able to respond to that appeal and that would depend on what the size of this. with regard to security, camp security is an issue in every security camp. it is particularly an issue in kenya where that is true probably for two reasons. i don't know if he had had a chance to visit but it is

masses. there are security incidents in the camp with not a fair amount of infrequency. the interior ministry does have guards on the periphery but it continues to be an issue. with regard to the camps inside ethiopia, it is probably on a comparative issue -- it is even more remote than the other camps are and the nature of that population is at least 90% women and children. they're very few men in those camps in ethiopia. that is one of the things i will be looking at intensely when i go to the region tomorrow. >> let us know what you find. thank you and be safe. >> i would just add that because this is a regional crisis, the totality of the united states is currently $360 million. that is just to underscore the

stresses the refugees are placing on the drought affected communities in kenya and ethiopia. where we are able to reliably reach people throughout the region, there is a generous response from the united states which has been critical to saving lives throughout the region. >> african union forces are up to 20,000 troops and air up to getting -- there at 10,000 troops and we're trying to get them to 12,000. they probably will not be able to make that number. we are looking at other countries, but we want to commend you gonna and burundi. there have been a lot of sacrifices. they have lost 200 troops and we're trying to do the best we can to provide the assistance and support they need. over the last four years, we have given about $258 million compared to other operations it

is not a lot of money, but we are trying to do the best we can as far as training and logistical support and to give the capacity and capability to protect their troops. the other issue is $85 million to get the troops trained to capacity so they can fight the war. ultimately, the amazon troops can only do so much. this has to be a war conducted and executed and prosecuted by the somalis themselves and that is what we are trying to do. right now, something on piracy -- it is symptomatic of the instability within somalia. we saw the first cargo ship being hijacked and that is not a good thing. from that point on, we've seen the rate of hijacking and hostage taking grow from about

11 ships, about 276 hostages to earlier this year, about 53 ships and over 500 hostages. that has gone down to 17 but that is because of the monsoon season. this increases taking place when we areit underscores that the pm is not a piracy issue. it reflects the instability in somalia. that is what we need to target and confront. the secretary of state outlined and articulate it several points we need to do. we need to enable operations and capacity building looking at prosecution and incarceration. the united states has taken 28 pirates. 17 have been convicted.

the others are awaiting prosecution. the most recent one has been taken to new york city. the other issue is we are looking at best practices. we are looking at how we can expand and communicate and disrupt piracy enterprises. the congressman had stated clearly and articulately that we need to look at how we can disrupt the financial assistance being accumulated by the pilots -- by the pirates and arms and other issues. the wing to your question on who sponsors terrorism. -- go into your question on who sponsors terrorism, that is a difficult -- going to your question about who sponsors terrorism, that is a difficult question. there is support for rebel groups aimed against ethiopia

and they are at their camps. we are looking at the arms flow from all countries and all areas. one thing we have learned in somalia is that we need to give these tamales an opportunity to solve the problems themselves. it has to be a somali approach and a somali solution. the smp designation is a difficult one. we are trying to get as much evidence together and to discuss this as we can. congressman payne, to raise an important argument. >> briefly, our chief specialist for african affairs on the subcommittee will stay and hear the remainder of your comments. we are at 0 on the house floor

onterms of terms -- zero the house floor in terms of votes. if you can go back to the ships at sea that are attacked and talk about restrictive rules of engagement. if you could speak to that as well. it is a harrowing experience. the seas need to be controlled by the navy. if you could speak to that. i think you all for your extraordinary testimony and your work. >> rules of engagement for piracy -- the international task force was set up to address the piracy issue. the u.s. navy, along with 24 other countries, has contributed ships, 48 ships, to

look at an area that is extremely expensive and difficult to monitor. during the nine months, the pirates are able to go far from their bases in somalia into other areas to catch the ships. it is a difficult task. it is a tremendous problem to get all of these sips. the rules -- all of these ships. the will of engagement is to coordinate with all of the countries in the region. we have talked to and negotiated with ethiopia and kenya to look at how we can address the catching of these pirates, how

to handle these pirates. more importantly, it is to work with these countries. there has to be a shared prosecution of all of the pilots that are captive. they have to have shared prosecution and imprisonment and legal processes and procedures. going back to what congressman payne said about the here trade issue -- the air trade issue -- our message has been clear. we will extend a hand of discussion and dialogue. we have not received any response. since that time, my visia to

return -- my visa to return has remained unacted upon. our mission is to look at areas where we can engage with them. on the sst, we continue to look at eritrea on a wide range of issues. they are producing profits in excess of several million dollars. in the future, it will be even more. we look at the foreign exchange reserves. we think, is this according to international financial lot?

everything is being looked at and -- we think, is this according to international financial laws? there are a lot that actors in somalia that we are trying to prevent from playing a destructive role. the last thing, on the financing for the african union and the transitional federal government, we work closely with the transitional government to ensure they will address this one-your period is resolved a stalemate. we were headed into august 2011 without any resolution into the transitional government. we wanted to look at this agreement and in the next year, how can we push the government

toward elections? how can we act on and polymathy agreements? gosar -- how can we act on and implement the agreements. that is a summary of the efforts we will make. >> thank you to all of the panel. on behalf of the chairman, we are in recess. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> i would like to apologize to the witnesses for that long recess. our first witness is the vice president for the study of africa, an organization that represents more than 1000 scholars. he is editor in chief of the journal of the middle east and

africa. he was the winner of the 2008 nelson mandela prize for african security and development. he has authored books and chapters concerning somali piracy. he has been a distinguished witness before our subcommittee over the years. we will hear from ms. bhutan. she has worked for the national endowment for democracy. as a 2008-2009 scholar, she offered a series of reports and articles on somalia and has provided expert commentary on somalia. he has traveled frequently to the northern regions of somalia

and has collaborated with non- governmental organizations. she is a scholar at the one earth future organization. our next witness is a business at the center for maritime policy space studies. he was a senior fellow at the center for strategic and budgetary assessments in 2008 and 2010. he has authored a number of books, chapters, and articles on somali policy and related topics. finally, we will hear from dr. david chin. he served 37 years in the u.s. foreign service and held the position of ambassador to ethiopia, director of east

african affairs, deputy director of the somalian task force, and officer fourth somalia and djoubuti. thank you ambassador for being here and all of you for your patience. >> thank you, chairman said. mith. thank you for the invitation to appear before you to discuss the consequences of the failed state of somalia and the policy of america toward the challenges that arise. i will summarize my prepared testimony, which i have already submitted. as we meet, the situation in somalia has reached a critical point. two decades after the collapse of the last into deep that could be described as a government of

somalia -- entity that could be described as a government of somalia, the country has become a collection of fiefdoms. while the islamic insurgency spearheaded by al shabaab has suffered a series of setbacks in the last nine months at the hands of the african union mission in somalia, to say nothing of recent air strikes operated for coordinated by u.s. forces, it is far from defeated. even allowing for the most optimistic interpretations, the fact remains that the commanders

claim to have secured barely half of the 16 districts of the city. the total area under the effective control is smaller than the departing ethiopian forces relinquished two years ago. the fate of yemen is undetermined. there is an increase in the existing links between al shabaab and al qaeda in the arabian peninsula. they represent a greater threat to international and regional community. there is the threat of piracy in the gulf of aden. the greek tanker carrying 1 million barrels of fuel oil was set ablaze after it failed pirate attack. unfortunately, compounding its

core political and military problems, somalia has problems that exacerbate the former. rather than being a solution to the challenge of state building in somalia. tsg has shown itself to be part of the problem. last year, the u.n. security council documented house senior tfg officials were directly involved in the visa fraud, including the travel to europe of two al shabaab members. reviewing the books for 2009 and 2010, they revealed that i rattle -- bilateral assistance

totaled $74.6 million. only 7 million could be accounted for. more than 96% of international aid was stolen. they recommended for rested investigations of the office of the president and prime minister and the ministry of finance and telecommunications. is it surprising that such an outfit that has had little success in rallying minimal public support behind its and accomplishing any of the basic -- behind it can accomplish the tasks of its mission. three different western initiatives to train a military force has recruited and trained more than 9000 troops. fewer than 1000 of these remain loyal.

the organization is not viable as a strategy. despite its recent success in combat operations, the african union force remains limited in the ways it can accomplish due to the lack of manpower and materials. even if the personnel could be found to bring the force up to the new ceiling authorized, it would still be beyond delusional to think 12,000 -- a 12,000- strong contingent could do what is necessary. the ham-fisted way the uganda regime has dealt with problems

in the recent months. the resilience of al shabaab and other research and -- insurgent forces should not be underestimated. the process of devolution in the somali state continues. it is a trend that has become irreversible in the last 20 years. it seems a foregone conclusion that the political momentum among the somalis is moving into the direction of multiple divisions and a heavily de centralized top-down arrangement. there have been various signs

that parts of the international community may be finally coming to this conclusion. last fall, the assistant secretary announced a second track strategy that would include engagement with government officials in somali land with an eye to strengthen their capacity to govern and offer services. it represents a dramatic and long overdue shift. the challenge is to be equally creative in developing the appropriate vehicle for political economic and secure engagements with appropriate tamale partners. with the new coordinator of u.s. efforts on somalia, there is an occasion for a thorough review of our policies and the consequences thereof.

if we must endure another year of the tfg's existence, let's make sure the final year is exactly that and avail ourselves of the time to figure out what the somali people deserve. i look forward to your questions. >> thank you congressman s mith. thank you for allowing me to testify today. my remarks will explore the bid falls and possible benefits -- the pitfalls and possible benefits of u.s. involvement in somalia. in the interest of time, i have summarized my views in a short

prepared statement, which i would ask to have entered into the record. since october of 2010, al shabaab has suffered severe military setbacks at the hands of african union troops. it movement appears increasingly weak and preoccupied with internal power struggles. no analyst with suggest that al shabaab's decline is related to the emergence of the transitional government as a bible are threatened to islamist -- viable alternative to islam as rule. -- islamist rule. because the somali conflict has settled into an indeterminable and fruitless failure between ae

troops and al shabaab. there was pressure to pump additional money and troops into mogadishu. the obama administration will not allow somalia to become a quagmire for u.s. troops or funds or forces. the utility of al qaeda investment is limited. the only victim of the ongoing military stalemate is somalia's suffering civilian population. i wish to emphasize the following points. bolstering this organization to 20,000 troops will not transform the tsg into an organizations worthy of u.s. government support. it will reenergize al shabaab

and produce a new and more energetic round of violence. the use of counter terror tactics could have the same effect. the state department's new dual track strategy better reflects the reality on the ground in somalia. it has the potential of doing less harm than previous policies. it could ride the space and resources for a much-needed -- it could provide the space and resources for much-needed new strategies. it is the sort his path to reconciliation -- the shortest path to reconciliation though less -- to reconciliation. these strategies are not a magic bullet. most of the pitfalls associated

with state building efforts could appear at the local or regional effort. powerful sponsors will succeed in crowding out -- powerful the oilers will succeed in crowding out -- powerful spoilers will succeed in crowding out other voices. the strategy of development without regard for government will require the united states to prioritize the delivery of an immediate benefits to communities over any attempts at institution-building or taking political winners on the ground in somalia. in order for the dual-track

strategy to succeed, the u.s. needs to revisit is the that the decision to suspend humanitarian finding to be -- revisit its day e facto decision not to provide humanitarian funding. this conflicts with every precept of counterinsurgency strategy and will deliver some desperate communities into the hands of al shabaab. thank you and i looked over to your questions. >> thank you for your testimony. dr. murphy, please proceed. >> thank you for inviting me to give evidence on the concerns involving somalia.

i expertise lies in the area of piracy and maritime crime. i have a prepared statement. i would like to summarize my views. piracy is a symptom and not a cause of somalia's current predicament. there are fears that the black hawk down incident will be repeated. piracy is an economic crime that requires political and economic engagement if it is to be controlled. the concern that piracy will become epidemic. the problem will be increasingly

difficult to eradicate. piracy needs to be crowded out using political and economic engagement in the areas of somalia that hosts piracy. economic alternatives need to be increased. the aim must be to change incentives away from piracy and toward legitimate economic activity. the cost of economic alternatives need not be great. whatever because, they will be less than maintaining the moderately effective naval presence operating off of the somali coast currently. delaying land-based development will increase the initial costs. there is a substantial bottom-up element. investment in a judicial capacity will be necessary.

the primary objective must be to encourage international, commercial, and diaspora investment. we must work with somalia's messy and decentralized politics. hopeless candidates should be discarded. the aim should not be on picking winners. winners will emerge. failure is to be expected. this will crowd out the less effective alternatives. piracy has a political significance exceeds its economic impact. the u.s. navy is the ultimate

guarantor. the u.s. commitment to maritime commitment is brought into question. non-state competitors intervene for their political advantage. anti-piracy operations were described as the way china gained a foothold in the vital region. in relation to contain it and to avoid land engagement, it has been suggested that the at this stage should out of the payment of rent. it would eliminate piracy if it proves enforceable. this must be in doubt.

it would take time to take effect, possibly two or three years. there are 400 hostages that would be at risk. most of those held come from developing countries which are america's friends such as the philippines and indonesia. the outcry in those countries would be loud and politically damaging. as long as the u.s.-led international community is on willing to intervene or engage on land in somalia, the payment of ransom will be the only way hostages will be brought home. if yemen were to fail, maritime disorder would worsen considerably. if both sides of the gulf was open to terrorist attack, there would need to be a higher level of naval protection.

this would add to the cost of finished goods and raw materials, including oil and gas. economic development will crowd out islamist extremist. thank you for -- economic development will crowd out islamist extremists. a key for the opportunity to testify. >> the tsg is the only entity with any claim to speak for somalia. if it cannot make significant progress by the end of the extended mandate, it is difficult to imagine there will be any support left for it in the international community. the united states should devote more development resources to somalia.

the u.s. government personnel should have more flexibility in visiting somaliland. the heart of the two-track policy involves reaching out to south and central somali. the united states has not think it out how to reach these groups because they are under al shabaab control. whatever strategy is pursued, it must be some molly-driven. -- it must be some molly -- somali-driven. on the issue of counterterrorism, following 9/11, counterterrorism became the policy in somalia. it continues as a major factor. counterterrorism should not overwhelm u.s. and international community action that might make

a stronger contribution to diminishing the influence of al shabaab in the region. military strikes me to be limited to high-value targets with the intelligence is almost incontrovertible and the likelihood of collateral damage is virtually nonexistent. it would be a shame if the strikes became the u.s. default policy for countering extremist s in somalia. this does nothing to mitigate the root causes that continue to generate support for al shabaab and similar organizations. on the issue of contact with al shabaab, it is a controversial topic. there are rank and file members with al shabaab that have no ideological commitment and could be lured away. i see no one in a leadership position with whom the

international community should be involved in a dialogue. on the issue of piracy, much has been set on that as is necessary. i will pass over that. i will only add that in addition to dealing with piracy per se, there is a somali element of this that needs addressing. that is that the united states focus on ensuring that illegal fishing in the 200-mile zone in somalia be dealt with. there has been a bad history of that in the past. there have been a few cases of toxic waste dumping in the waters off of somalia. there has been a lot of exaggeration on that point. it is important the international community do

whatever they can to make sure there is not toxic waste dumping. on the recognition of some maulingla -- somaliland, it should be recognized. any decision on its recognition should be led by the africans, he did the african union collectively or individual african countries. finally, i would like to make a plea for greater consideration of regional economic integration in the area. this is a long-term goal that has major implications for the future. somalia is one of the most conflicted countries in the world and has been for a long time. it is possible to identify ways to increase regional economic integration for all of the horn countries and the east african countries.

it has the potential to mitigate conflicts significantly in this part of africa. thank you, mr. chairman, for hearing my dues. -- my views. >> you mentioned there are 400 hostages. i wonder if you can tell the subcommittee how they are treated? what is the average stay of incarceration. i do not know how else to explain it. are they tortured, any of these individuals? >> thank you, mr. chairman. there are about 450 hostages currently. length of the state has increased. it is about four or five months. that is is because of the negotiations needed for the

ransom payments. -- that is because of the negotiations needed for the ransom payments. there have been all sorts of reports that their food has been prepared correctly. we have had some reports over the last six months. our pilots being treated badly. --are hostages being treated badly? what is difficult is to ascertain what the actual evidence of that is. it is systematic. have as not seem to b systematic pattern behind it. because of general migration, the somali pirates are tracking -- attracting people from the

interior who do not have an understanding of the sea or the business model that has been so successful for the pirates. it is a situation one has to keep under review. it is important not to exaggerate it. we need better and more reliable information upon which to make a judgment. >> have there been reports of sexual abuse? are women among those detainees? >> there was one woman detainees. there was no report of any sexual harassment -- there was one woman detained. there are few women in the international crewing business. it is a small proportion. i do not know if there is any

particular policy to keep women out of the arabian sea. >> what has been the experience of those men and a woman once they are back home? tsd?there any signs of p >> given the way the international shipping industry works, there is little monitoring of what happens afterwards. there is no hard evidence as to what is happening to these people. that is part of the way the international shipping industry works. it does not want crew or officers to be interviewed. we do not know how these people are dealing with it. historically speaking, the majority of people who have been pirated have a never gone to sea again.

the trauma was significant. we do not have a particular survey as to what has happened to the people who have been held in somalia. >> you mentioned that the somali diaspora can be part of the solution in somalia. young somalis are joining al shabaab on the battlefield. do we have a sense as to how many somali imigres have gone back to the fighting. -- immigres have gone back to the fighting? >> there have been around 30 from the united states.

larger numbers have gone back from the united kingdom. i saw a figure of one doesn't from sweet and and small numbers from other -- i saw a figure of one dozen from sweden and small numbers from other european countries. some of them might have sent money to al shabaab. there might be better numbers on money transfers. most of that money is sent back by a morgan as a -- an organization where you can go to a large mall and there will be a little office where a somali- american can deposit $105. that money will show up

miraculously anywhere in somalia several days later. someone will deliver it to be intended person. it is hard to track this sort of thing. i do not know if anyone knows the degree to which al shabaab has benefited from the diaspora the numbers are not there. >> you have faint praise for the dual-track. you said it is less harmful than the other policies. i wonder if you might want to speak to how well you might think dual track is progressing. >> i think the dual-track policy has yet to get out of the ground. in theory, it could work well. that will require the u.s. to use a light footprint and not use the dual track strategy to

pursue political ends at the local level. if the u.s. pursues political ends on the ground, the result will be similar to what we have seen in mogadishu. the dual-track policy has been held up by the tremendous difficulties involved in formulating a decent strategy for engaging at the ground level, particularly in south central. other entities are working hard to come up with another strategy given the evolving political situation. some of this finding could go into the hands of al shabaab. the dialog needs to move much more quickly. most people who have worked in somalia will tell you it is not as difficult as people think it is. if you take a few precautions, it is possible to do amazing projects with little funding. i am personally hopeful that

school-track will be able to accomplish those things. -- that dual-track will be able to accomplish those things. >> we need to flesh out the dual-track strategy. it is a movement in the right direction. we need to flesh it out in terms of distinctions in the secondary track between entities that are approaching quasi-state levels. secondly, we need to be able to offer resources. it is good to say we have a dual-track strategy. unless assistant los to put -- flows to put resources back, it

remains a year radical strategy. >> there is an area where one would like to see the dual-track strategy take root. one of the things we are going to find out in the coming weeks as the united states government tries to deal with this corrected drought that was talked about earlier -- with this horrific drought that was talked about earlier, areas where one can provide food in areas controlled by al shabaab. al shabaab says it will lead to international organizations into that area to provide food. they threw them all out earlier.

what we have not heard is what are the conditions for those organizations to go into al shabaab territory? the al shabaab organization has tried to extract money from these group, assess them fees or taxes or insist that anyone works in -- anyone working in their area uses their transportation. it is a tricky situation. you do not want anyone to be dying. you do not want to be supporting out about directly or indirectly. the other area where the dual- track system is critical is where pirates may killings along the coast. right now, we are focused on stalling between $1 billion and $2 billion per year.

it clearly does not work. maybe it is time to see if there is a way of working with local communities, community leaders in the existing high-risk areas, going in with some ideas for development assistance -- the international community -- and seeing if there is a way to convince the elders that there is a way of existing without private money. you might be able to find some local leaders who might be willing to look at another way of increased -- increasing jobs and trying to construct an economy there. >> i endorse my colleague's comments about the needs in the piracy area. it is important we do not

couple development aid with the fact that you have been a bad boy as a pirate. otherwise, we are awarding malfeasance. >> let me ask you a couple of final questions and then i will yield to my colleague. ms. bruton, you said it was time to revisit the territories that are not getting the kind of humanitarian aid that they desperately need. it was pointed out that there is a 2 $90 billion gap in terms of -- there is a $200 million gap in terms of what is needed and what is there. you are confident that our donors will stand up and provide additional matching money. the human trafficking report has

just been released. it points out that in previous years, trafficking victims were from the south regions. it points out that the government made no known efforts to prevent trafficking. i am wondering if the international community and the are event, the tsg aware that this problem is going unattendedtive -- un att to. it was pointed out that one of the rallying cries against the government -- if not the au troops, who?

who would provide that necessary lifeline to protection? i do have a question about the whole issue of the rules of engagement. do the au troops have a sufficient mandate to protect. >> thank you congressmen smith. i am grateful to have the opportunity to address this question. but memory differs from some of my colleagues'. the somalis were collecting fees from some of those agencies.

typically, it was $30,000 a year. it is not a huge amount of money, particularly when you contrast it with the amount of funds and weaponry al shabaab has gotten from the sale of weapons. al shabaab can be difficult to work with. they have always been difficult to work with. the united nations and other humanitarian agencies have always succeeded in gaining access to the territories after negotiations. there are some subsets' up out about that refused to have humanitarian -- subsets of al shabaab that refuse to have humanitarian actors in their territories.

we need to ensure that humanitarian relief flows to the communities that are not receiving any aid at all. we cannot allow our political ideas about what al shabaab may or may not do in the future allow people to start today. >> concerning the african mission in somalia, i would like to a knowledge its performance has improved a great deal in the last year because of increased training by u.s. and european union countries. partially because a change in command. the commander from uganda has made a valiant effort. there have been changes in

personnel and political resources. currently, there are almost 10,000 african union forces out of an authorized strength of 12,000. earlier, we heard testimony from the ambassador and it seems unlikely that anyone would come up with the rest of those 2000. even if 2000 were found, we have 12,000 troops with a mandate to do something that 15 years ago during an insurgency that was not committed or as well armed and trained as al shabaab is, the u.n. failed with 37,000 troops. it is beyond delusional to think 12,000 could pull it off. if you look at the numbers, they have roughly one soldier for every 500 people. the surge in iraq, when it

turned the tide, it was one u.s. soldier for every 187 iraqis. beyond to strength, you have the issue of political agenda. you may be able to gain space. but in order to hold that space, it has to have a political solution. the government must be ready to offer services and goods to people to hold their loyalty. what we have in the transitional federal government is an outfit that is doing one thing, robbing and stealing the resources they have. in the last two years, government offices have stolen 96% of the bilateral assistance. we have a prime minister who was a u.s. citizen. during the time he was in office, the payroll account for his office was $864,000.

of which, only $216,000 can be accounted for. $640,000 disappeared from one account. that is not a political figure or a government that is going to inspire people to shift away or shift their loyalty to an institution like this. we have to it knowledge that the organization is improving. it cannot hold without a political strategy. >> let me intervene and thank you all for your patience. you come during a difficult time. we have an appropriations voted occurring. i apologize that i have not had the benefit of most of your testimony today. before we conclude, let me thank you all for coming and pull back a little bit and ask a broader question if you care to answer.

when the people of the united states think about somalia, they will have the recollection of the loss of 23 soldiers in the 1990's. they will see piracy. they will have a notion that this is is an ungoverned space for terrorist activity. there were the problems that some of you have addressed. it is important that you step back and say, why is the strategic? why is this important that somalia have a semblance of a vision for a transition for

somalia with a stabilized the government that has the potential to keep out the threat of those who would land there and expand terrorist purposes or affiliate with other terrorist organizations. explain why this is important. >> mr. chairman, let me try to answer that question. i have worked on somali affairs going back to the 1960's. i think what the united states aply cing -- you quite athl describes being the american perception. you have an entity that has been a failed state since 1991. if that entity cap problems to

itself, there would not be a great deal of concern in the united states about what is happening there. it has gone far beyond that now. not only is it coming to the somali people themselves, but there are americans interested in the somali population. they have direct interest. now that it has gone so far beyond the borders of somalia with piracy, with terrorism now, which has extended outside , with even american links to terrorism in the form of somali- americans. there have been 30 of them that have been directly impacted. it isn't that it -- it has impacted other countries, particularly ethiopia and kenya. it is an issue that is of concern to the united states government. it is in our interest to try to

do something to create a government that can control the country. until that time comes, these problems will get worse and not better. that is the rationale for it. >> thank you. i approached the issue of somalia from the sea and my concerns about the international maritime commons and mind -- our ability to maintain our way of life. i see the somali pirates as presenting a major challenge to that international maritime security ratio. i have argued that it represents the most significant challenge to the peaceful use of the sea since world war ii. how does it affect the united states? the united states is the ultimate guarantor of the

maritime security system. where that is challenged and not responded to, that gives opportunities for competitors states. i drew an example recently made by the central committee of the chinese communist party. they are prepared to take advantage of weaknesses in this area specifically to gain advantages for themselves in what they view as a strategically important area. i am more concerned about that than i am of the "and now you see it coming 90 cannot" to its in the region. -- "now you see it, now you don't" issues. >> the u.s. has a very limited

range of reasons for being in somalia. it has been common sense that because it is a security vacuum that it is a terrorist threat. after the u.s. pulled out of somalia in 1995, it became more stable, more economically viable, and less threatening than it had ever been in the past. 1999-2004, there were virtually no discernible terrorist threats in somalia at all. the counterterrorism center of west point road report in which it said -- there wrote a report said that there were not hospitable, arguing that it was a bad place for terrorists to work. obviously, now there are terrorists in somalia, but the thing that change was the level of the u.s. engagement in the

country which dramatically increased starting in 2004. the reason for the interest on behalf of the u.s. had nothing to do with what was going on in the ground of somalia and had everything to do with 9/11. i am in favor of airing on the side of caution when talking about character terrorism, but somalia, the pre-emptive efforts have backfired in really terrible ways. i think that should be the source of most u.s. thinking on somalia now. not if we intervene, is there a chance that we can make things better? but if we intervene, can make things worse because of an interesting consequences? when elected counter-terrorism efforts taking place there now, i am equally concerned that they are being driven not by events in somalia, which are more or less moving in our direction,

but things are happening in afghanistan, pakistan, yemen. and i urge this subcommittee to let somalia to guide your policy on somalia rather than any other country. >> i echo my colleagues sentiments. to answer your question, i think we need to look at not only the threat that emanates from there, which does affect our way of life, the freedoms that we enjoy, commerce, threats to navigation, the very real threat irrespective of how are when they got there, the fact that al shabaab has been possible to other terrorist movements and extremist groups allowing them to operate in somalia creating a hodgepodge of

characters gathered there, introducing them to reach other, including introducing them to the 30 americans with european and australian passports that of now gone through. for all of those reasons, we need to be concerned. we need to be concerned because we take for granted the areas in somalia and it is not the chaos that we imagine, but south central areas mainly where the conflict is. as the ambassador said earlier, it has been one of the most democratic states in the region. they have its problems, some of which is of its own making did piracy, but relatively speaking it is stable. we take that for granted at our own peril. it will not remain this way forever if it is left in this

limbo, with no engagement from the international community or not a part of somalia. money can buy a great deal of things there including people who accommodate pirate action, but we have to avoid the moral hazard dr. murphy spoke about and we need to realize there is no solution to tyrosine without engagement. we need to withhold what we have even if we recognize the limits of positive action. >> thank you. >> answers are helpful in terms of pulling back and seeing the larger picture as to both of the reasons for concern, whether they manifest themselves in maritime stability, the potential spread of terrorist activity into the neighborhood and horn of africa, as well as things that transcend that, such as humanitarian concerns, it seems that we have some contrarian views here.

not having the benefit of your full testimony earlier, i appreciate you raising a different perspective in that regard. before i conclude, if we could go back to one key point that you raised come ambassador, regarding the spread of al shabaab or its affiliation with other groups that could leverage -- i do not want to call it the on governed space, but the semblance of long governed space for the stabilization purposes, ideological and destabilization. >> i would be happy to do that. i agreed with one of your comments on this that it is quite true that if you go back to the early 1990's coming we have -- we have documents from out qaeda that were collected it and they are now translated,

declassified, and available at west point that points out that al qaeda had a difficult time getting engaged there in 1991- 1992 and ran into the same problem. they are very individualistic and very hard to get along with them. it is hard to get them to do anything. at some point along the way, al qaeda did make some recruits, made some progress in somalia. >> the specified u.s. engagement as the reason. do you agree? >> only partially. the next up in all of this is going to 1998 and the bombings of the u.s. embassy, and it turns dark that several of the key factors had support from

somalia during that time and they took refuge, three of them come in somalia. all three of them happen to be dead now. it to get long time to track them down, but there are now all gone. at some point between the early , 90's and the late 1990's there was a link between somali and the terrorist network before the u.s. got off on their counter-terrorism preoccupation after 9/11. i would agree that dr. 9/11 there was an excessive focus on counter-terrorism that did contribute, to some extent, to the problems today. i do not think that art can be attributed to u.s. counter- terrorism policy at this time.

when you have is a clear link between al qaeda and al shabaab, not operational control but a link to. there has been training provided, minimal funding. most of it was funded in south and central somalia, but they do get some outside of money. they have clearly established rather close links with al qaeda in the arab peninsula. this is a very scary organization. it is of real concern to the u.s. >> is that purely ideological? religious ideology? >> it is hard to know whether it is a marriage of convenience.

there have always been a long term links between yemen and somalia. it goes back centuries. this is nothing new that they visit each other's countries. the fact that you have the two terrorist groups linking up is different. that is what is great concern to the u.s. there is a lot we do not know about this link yet. >> can you address the magnitude? >> a really cannot. i am afraid that i would be getting into an area where i did not have access to classified information, including the announcement yesterday in "the washington post" and "the new york times" about the man brought to the u.s. who was picked up commuting between yemen and somalia.

according to press reports, this was in connection with aqap. that in and of itself does not prove a lot, but i have heard from african union personnel that they are very concerned about the link between awap and -- aqap and al shabaab. this goes beyond somalia. we also have the bombing from uganda of just one year ago this month. there are links that are now starting to extend beyond the borders which is what should concern the united states. >> there is a refugee problem in kenya. >> there is that problem as well. >> one more question about the potential for the african union for stabilization purposes. is it minimal? what is the projection? >> the african union forces,

when they went in there, they went in without a clear strategy other than a broad mandate to be peacekeepers and protect of the government. for most of the last four years, until about nine or 10 months ago, their chief duty was, literally, the physical protection of the so-called government that was confined to the presidential villa and mad dashes to the government. >> but they are concentrated? >> yes. they do not have enough to hold that which presupposes a trained somali force which a out of nine have deserted. second, you need a political strategy. that is clearly absent whether you give them one year, but unless that develops, it is gone. we need to rethink the political role. "war is the continuation of politics by other means," and we have not figured out what other

achievable political objectives we want these warriors to do and it does them a disservice. if i could just returned for one moment to the earlier discussion of al shabaab, the anecdotal evidence that the ambassador alluded to is the number of links that are to be logical and of convenience. two years ago, the suicide bombing took the lives of a number of south korean tourists. the fellow who carried out that attack is who we have from intelligence and his martyrdom video. he went to somalia, was framed there, came back, and carried out his attack. that goes both ways. the many extremist helped to rescue after the ethiopian invasion when the islamists made the mistake of engaging the

ethiopian defense forces out in the open and were pretty much destroyed. there has been a back-and-forth and what is worrisome is their reach into the community. those from yemen and in different al qaeda groups are in trouble. >> do you know this -- if this is a religious ideology or some restraint act -- strange nationalism that we cannot agree with or is this something else? convenience? you talk about it spreading to the diaspora, then i assume it would be primarily religious ideology. >> a mixture of religion and nationalism, but the ideology is clearly there. most of them are veterans of jihad in south asia, kashmir,

pakistan, indonesia. some of the commanders are actually foreigners. >> you have no of the magnitude or size of this problem? >> the size of al shabaab shifts. you have the core group then you have the militias which switch allegiance very quickly depending on circumstances and happenstance. the number that most analysts play around with, and this is only a guess, and that is probably in the low thousands, maybe upwards of five. at times you can capture the loyalty of certain clans or sub- clans. each has its own armed force which can be purchased. what other times you can purchase entire units even from the transitional government forces. >> congressman, if i could add, i have done research on the issue of particularly the foreign element in al shabaab

and the strength of the organization. no one knows other than al shabaab how many armed followers they have in the country, but the last estimates were 4000, going up to 6000 or 7000 armed persons at any given time in the country. the more interesting part of the equation though is the number of those who are not local from inside somalia itself. there is agreement pretty much of that in terms of the true foreigners, those who have no somali ethnic connection, not from the somali diaspore up, the numbers around 300. it may have gone up a bit. it is not a huge number of true foreigners, those from pakistan or from the swahili coast. most of them are from cans and tanzania and other parts of africa -- are from kenty and

tanzania. there is another category of somali from outside somalia who have a foreign passport who have spent all or most of their live somewhere outside of somalia, including those from the united states. the numbers are very fuzzy, but it is a fairly significant number, which is what we are facing with al shabaab. primarily somalis from somalia, then this group of 1000 or so from the somali diaz borja -- diaspora. these are the people who come from other jihad bottles or from the swahili coast of kenya. >> is their complicity with the privacy issue? or is that a random criminal activity?

>> that continues to be searched for. the pirates are criminals. they are inspired simply for the need for money. al shabaab is in the core leadership and they are ideologically motivated. their allies of convenience and are motivated by access to money, like anyone else. the situation is not crystal clear. there seems to be, clearly, some financial transactions that have gone on between the pirates and al shabaab. just exactly how much money is involved is unclear, but there will be a version of a shakedown, a version of extortion in the same way that the pirates are paying a fee or

taxes to clan leaders are political figures in various parts of the north of the south central region. al shabaab appears to have got in on the act and are squeezing in on some of these more southern part groups. where the money is going on within al shabaab is unclear. is it staying within the peripheral groups or is it going into the center? someone may know, but i certainly do not. >> if i could just add on to that, congressman? i agree with everything dr. murphy said. there is a fascinating piece there reuters did yesterday that claims to document payments that al shabaab have extracted. i would be happy to share it with your staff. >> thank you.

>> of i could point something out? it concerns me so much that we are using the word "al shabaab" as a singularity. it is important to point out that probably 90% or more of the members of al shabaab, those will call themselves al shabaab every day are motivated by money. but we think the pirate connection is largely motivated by money, and it is often important to remember that in addition to having a money motive, they have a local agendum which has been shown to vastly supersede any international agenda that they have. when we talk about these american to have moved to go fight for al shabaab, the vast majority of them went during the ethiopian occupation when there were reports of ethiopian troops raping somali woman.

the number that have gone over since then is quite small. i am also concerned when we talk about potential links with al qaeda in the arabian peninsula, of course that is a worry, but there is a big difference between being worried and having actual proof. in 2006, the united states stated mogadishu was being run by members of al qaeda which turns out to be an absolutely inaccurate claim but we used it to justify the gop and innovation which triggered all of these migrations to somalia. the risks to hear it are much higher than what we are allowing. the u.s. has had a much more direct role in stimulating the terrorist and we feel comfortable admitting. in a particular, we should keep in mind they have a motive to

associate with al qaeda that has nothing to do ideology. >> clearly, a complex situation and one where governing structures are weak or collapsing and other forces, whether they be national, criminal activity, are filling the space with the potential for the export of those activities, which should be a worry mitigated by some of the concerns you raised that may be around the edges of the conversation. if you all except that, i think that is a fair point to make of the summary, but it has been very helpful to me to hear you all's testimony in what is clearly a complicated situation. i think this has been an important outcome and i appreciate your willingness to testify. if any other questions are

around, the bill submit that to you -- they will submit them in writing. the committee is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> who is going to get fired up. they are proxies for the very narrow range of choice that we have an elected officials. >> in "the declaration of independents," nick gillespie takes on possible libertarian options tonight on c-span's "q&a." >> british prime minister david cameron discusses the outcry over allegations that journalists at "news of the world" owned by news corp. packed into the cell phones of victims of crimes. the prime minister said a public inquiry is needed to invent -- investigate the allegations.

there were also questions of education reform and the cost of health care services in the u.k. "prime minister's questions" at 9:00 p.m. eastern and pacific on c-span. >> at the white house, president obama will be meeting with congressional leaders to talk about the deficit reduction plan. the white house put forth a package of $4 trillion in cuts accompanied by tax increases. the house speaker said late last night that republicans would not except any plan that included tax increases. instead, he says they want to return to an earlier smaller deal to make half of the cuts the president is proposing. meanwhile, the leader of republicans in the senate, mitch mcconnell, echoed the speakers' concerns. he says raising taxes is a bad idea in the face of a weak economy. again, tonight president obama is holding talks with both leaders in the white house. officials have been negotiating

for weeks on whether to increase the nation's borrowing capacity and the deadline to reach that agreement has been set for august 2nd when the government will enter into default. two of the president's advisers say he will continue to press for his plan. chief of staff daley and timothy geithner says the president wants it to include internal reforms comment cutting spending, and tax increases. you can follow the deficit talks here on the c-span networks. >> i want to emphasize that nothing is agreed to until everything is agreed to. the parties are still far apart on a wide range of issues. >> the debt limit is the legal limit on borrowing. since 1962, it has been raised 74 times, the last time in february 2010. learn more about the debt ceiling on line with the c-span

video library. it is washington your way. you are watching c-span. politics and public affairs. every morning, "washington journal" that the news of the day collecting you -- connecting you with journalists. watch live coverage of the u.s. house and weeknights, policy forms and supreme court oral arguments. on the weekend, our signature into the programs. "the communicator's" on saturday. on sunday, "newsmakers," "q&a, clothes "and "prime minister's questions." it is all search ever on the c- span a video library. washington your way. c-span, a public service. >> this week, congressman jordan and the chairman of the

republican study committee. we have two reporters with us this week, up from bloomberg and "roll call." the president in these debt talks have said that both sides need to deal political paying and that both sides need to drop their ultimatums. do you have an ultimatum? >> it is called cap and balance. we think it makes common sense. cut spending in the short term, in the mid-spending, cap spending as a percentage of gdp. in my mind, the real game changer is that we need to use this moment, for the first time come to pass a balanced budget amendment. actually pass either the house and senate. if we compare to accomplish the,

it would truly, fundamentally change the way things happen in washington and change things to help us get our fiscal house in order and put us, frankly, and a fiscal path that is actually sustainable. yes, we have a an ultimatum. do with the american people sent us here today. that is what needs to happen. >> it all those things are not included, the balanced budget amendment, more than 175 house republicans voting no? >> i do not think all of them would, but what a lot of them? yes. there are 33 people who signed the pledge for cap and balance. we will not support borrowing more money. we cannot support raising the debt ceiling. we think $14 trillion, when you look at the cbo numbers that came out a few weeks ago, it is out of control. out of control.