oral arguments on friday at 8:00 p.m. eastern time on c-span. if you are follow the news to into c-span, friday night. in other news, here is the headline in "the baltimore sun" following a town hall meeting with mitt romney and marco rubio. "rubio tries to court latinos" is there headline. after bush won 40% of the latino vote, john mccain who once championed comprehensive reform, won just 31% of the latino vote in 2008. those who supported mccain, split their vote between the two parties. the issue on whether mark to --

marco rubio could be the mvp pick -- vp pick, some are saying that this speech may indicate that he is interested in being the running mate for mitt romney. one last phone call here in open phones. go-ahead. caller: pretty much, i have something about immigration. his is not the issue with -- host: are you there? we are listening, got to make it quick. issue with is an african americans. it is an issue with mexicans.

[unintelligible] host: i will leave it at that point. that does it for today's "washington journal." next, we want to bring it to a committee about the mf global collapsed. it will raise questions about the collapse and discuss ways to improve credit -- regulatory oversight and to protect customer funds in the future. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> i will call this hearing to order. today's hearing will examine the lessons learned from the collapse of mf global, the misuse of customer accounts by one of the world's largest commodities and derivatives and brokers has shaken confidence in our markets. it deserves a thoughtful discussion of how to better protect farmers and investors going forth. but before we get to these important issues, i would like to express my deep concern that almost six months after mf global's bankruptcy, thousands of a former customers, including thousands, still have not recovered the $1.6 billion removed from what should have been protected customer

accounts. i know that the trustees, regulators, as well as the fbi and justice department continue to investigate what happened in the final chaotic days of mf global. but in these customer funds must be returned without further delay to the rightful owners. these individuals and executives responsible must be held accountable to the full extant of the law. lastly, it is not acceptable for mf global executives to be given bonuses when customers have not recovered funds improperly taken by mf global. i thank the senator for his leadership on this issue. since the collapse of mf global

on -- in october of 2011, my staff has worked closely with the senator's staff of conducting interviews and a due diligence with regulatory organizations and parties involved in overseeing the mf global in its bankruptcy. we have also coordinated with the senate ag committee which has jurisdiction over america's involvement with commodities for all senate, staff, and representatives before us today to help our constituents impacted. as investigators seek to recover mf global customer funds, and hold accountable those responsible for any wrongdoing, this committee will

focus its attention on preventing future abuses and the other critical policy issues raised by the collapse of mf global. provides aring unique opportunity to ask an important set of questions. how can we strengthen protections for customer accounts? including those firms that hold u.s. customer funds abroad. given the sharp fall from mf global customer accounts, what should congress understand about the idea of extending to commodity accounts similar protections that are currently available to secure the accounts under the investment protector act.

and how we can continue to improve regulatory oversight and coordination for a large, complex -- for large, complex global institutions. they also provide early lessons since it is the first collapse of a major institution since the law passed. for example, it teaches us that customer protection and oversight demands that we fully fund our regulatory beat. in hindsight, there is little doubt that the people responsible for regulating mf global should have taken additional steps. it will only force them to

delegate even more authority to regulatory institutions and incur a effective market surveillance. the american people and american conference pace of the price. additionally, the key pillar of the wall street reform bill was too big to fail. mf global -- if mf global demonstrated anything, it it took the risky bets that companies are now afraid to have and will not receive any more taxpayer bailouts. to reserve time for questions, opening statements will be limited to the chair.

however, i would like to remind my colleagues that we will be open for the next seven days with other materials. >> thank you, mr. chairman. thank you for calling this very important hearing. the collapse of mf global is one of the largest bankruptcy in u.s. history and the greatest consumer protection of failure since the enactment of the dodd frank act. it has been six months or more since they filed for bankruptcy. customer assets remain in dispute. hundreds of customers are still waiting to learn how much, if any of their funds will be returned to them. the study of mf global occurred despite the fact that it was regulated not only by the fcc, but also the financial industry

regulatory association, the chicago board options exchange, the national futures association, and the chicago mercantile exchange. the job of each of these regulators was to ensure that customer assets were protected. those customer assets remains subject to ownership disputes. it reveals a serious regulatory failure, i believe. according to the purpose of today's hearing tough, it should be to help the committee determined which regulators failed to do their job and why. i asked the cfd last november to examine the oversight of mf global. the inspector general's findings should assist congress in its efforts to hold regulators accountable for any identified failures.

the also asked the inspector general to determine whether the chairman's refusal was appropriate and whether he should have recused himself much earlier in the process. prior to mf global's bankruptcy, chairman and gensler -- have made multiple contacts with jon corzine concerning the red in the -- the regulation of the firm. if recusal was a proper, it seems it would have been more appropriate at the start of jon corzine's tenure at mf global rather than when the firm had failed. furthermore, the due diligence had revealed that the chairman player -- played an active role leading up to its failure. yet, his recusal nowt shields him from explaining his actions. i believe this is unacceptable. the public an

explanation of his job at mf global. it appears we will have to wait a little bit longer. and of global certainly will not be the last financial firm to fail. failure is an inevitable part of the free-market system. our goal should be not to protect the private market from failure. our goal, i believe, should be to set establish a credible regulatory system that protects consumers while the market is free to innovate and expand. we must hold that regulatory system accountable for its failures. this is an exceedingly difficult when one of the main participants refuses to speak here. i look forward to the testimony today and i thank our witnesses for appearing. perhaps one day we will hear from mr. gensler. today does not appear to be that day, however.

>> thank you, senator. now i will briefly introduce our witnesses. mr. james giddens is a trustee for the securities investment protection act and liquidation of mf global. louis freeh is a trustee from mf global holdings. jill sommers is a commissioner for the commodity futures trading commission. mr. robert cook is the director of the securities and exchange commission's division. mr. richard ketchum is the chairman and ceo of the financial industry regulatory authority. mr. terrence duffy is an executive chairman of the chicago mercantile exchange. i thank all of you for being

here today. i would like to ask witnesses to please keep their remarks to five minutes. your fault written statements will be included into the record. mr. giddens, begin your testimony. >> chairman johnson, ranking member shall be, and members of the committee, off thank you for inviting me to testify. i take seriously my duty as the trustee of mf global inc to treat customers equitably. i would like to provide some proposals that may merit further study and of course input from regolith -- regular is, experts, and the public. -- regulators, experts, and the public.

the possible remedy is imposing personal liability on senior officers and directors when there is a regulatory shortfall. consideration should also be given for requiring not only financial operating principles, but senior officers, including the c e zero -- the ceo and cfo. requiring compliance on a much more frequent basis. secondly, i suggest the establishment of the commodities customers fund. we found that more than three- quarters of the customers have a value of less than $100,000 each. that is a fund providing for protection of up to $100,000 would have made a substantial number of the claims held within days of the bankruptcy filing. third, we have learned that many

commodities customers have not fully understood the nature and risk of certain financial products in which their funds were invested. currently, commodities customers are not subject to suitability requirements, as are securities customers. in my view, they should be. as a suggestion, future merchants might be required to subject an amount in excess of customer funds. that would help ensure there is a significant cushion at all times for commodities customers. let me now turn to funds held for u.s. customers trading on foreign exchanges. arer current rules, fcm's not required to calculate the requirements for foreign trading in the same way they do for domestic trading. reliance on this alternative calculation resulted in a substantial difference in funds segregated. the alternative calculation had

been in place, it would have required a greater segregation. the alternative calculation should be eliminated. finally, i believe there is a great need for international cooperation on insolvency laws. customers would benefit from greater harmonization of the rules regarding the segregation of customer funds for both commodities and securities customers. i have been engaged in active discussions since november with the administrator of mf global u.k. ltd. concerning the return of approximately $700 million of commodities property. this dispute is now being submitted to the u.k. courts for resolution. in concluding, my staff and i continue to work as quickly as possible to return access to all claimants. we have distributed an excess of $4 billion. we have sought for an approval

-- $4 million. we sought from approval of more. thank you members of the committee for this opportunity to testify before you. >> thank you. habib dr. freeh, please proceed. -- dr. freeh, please proceed. >> thank you. we have sufficient time for your colleagues on the panel. i was appointed as the chapter 11 trustee, a effective november 28 of last year. there are, in addition to mf global holdings, five other subsidiaries to which i am acting as the chapter 11 trustee. i think everyone understands the function of the chapter 11 trustee is very disdain and very

different from my colleague, mr. gidden's. under the bankruptcy code, my obligation is to study the conduct, among other things. unlike mr. gibbons who is charged with the return of customers property, the responsibility of the chapter 11 trustee is to maximize the value of the estate for the creditors. we have a list of many creditors, including the top 20 which is i believe in the materials. when i was appointed in november, i landed in the middle of a number of issues. first, a very ongoing, active investigation by the agencies represented here this morning, in addition to two federal prosecutors' offices. one of my first challenges was to understand what documents the

chapter 11 trustee and the estates controlled so i could make some arrangements and ensure that the investigators could access the information they needed without compromising any of the privileges that have a judiciary responsibility to protect. we looked at thousands of materials. my team and i, which consists of lawyers, financial experts, and investigators, we determined what the materials were over which we had authority and jurisdiction. we reviewed thousands of pages. we then set in place a process that would quickly produce documents to the investigators. we did a limited waiver of the existing privileges that make appertain to the chapter 11 trustee. i was happy to say that ultimately all of those issues were resolved in the process of producing evidence for the

investigators has gone forward expeditiously. we are very sensitive to the fact that many customers have lost huge amounts of money and collateral that was entrusted to, in this case, the subsidiary but but but of mf global inc. to make sure none of the cash collateral and the estate is in any way related to part of the customer accounts. if we concluded, with no disagreement from mr. giddens and his staff, that the cash collateral does not include any misappropriated or misdirected customer funds. let me also talked, and i am pleased to be able to talk about the subject of bonuses. this was raised, very appropriately, by senator, you,

and your colleagues. the source of this, as you know, was a media report. i do not have control of the media anymore than anybody in this room does. i want to make it very clear that it was never my intention to pay any bonuses. i never had a plan in place to pay any bonuses to senior executives. if i read the story with a lot of surprise. there had been no discussions between myself and my staff about bonuses to senior executives. bonuses are not part of my consideration now and they have not been in the past. i want to be as clear as i can about that. my responsibilities as trustee is to maintain the people that i need right now to help administer a cost efficient and well-administered as state. there are 15 employees. these are non-insider employees

who worry about tax, a financing, unwinding transactions. they are all working, at this point, on salaries. the senior executives who have been, i believe, before the senate, are also working on salaries. if i have to negotiate with any of the employees to stay on board because there is a $22 million tax refund that i need to get from the estate, they have the expertise and the experience. you know, i will set fair and competitive salaries with them. if they do not agree with that, then that is not going to work out. i want to remain transparent, as i must, in this bankruptcy process. everything i do will be reviewed not just by the trustee, but by the bankruptcy court. all of our fees and expenses have to be reviewed there. i want to conduct the chapter 11

with full transparency and cooperation. in closing, i just want to say i worked very cooperatively with mr. giddens. our staff's are in sometimes daily contact. we meet on a regular basis. there'll be times where our interests diverge. just as the interest of other parties in this very complex and, i think, long-running bankruptcy, will occur. but we have some very clear and immediate common goals, which is to get as many assets back to the estates as possible and then alternately courts in england, perhaps the bankruptcy court in new york, or ultimately make decisions about how those assets are distributed. sharing the information, getting the assets, returning them is a very common, critical need. i very much endorse the

important considerations that were set forth, particularly on the international cooperation. we have a lot of assets that we believe are in the u.k., but the u.k. has a separate administrator. a separate court system. we do not have privy as to the holdings company to challenge some of the files and claims that the subsidiary will do. but it is a very difficult task to get facts and receive assets overseas. some restrictions about how segregation should be mandated for u.s. investors overseas, i think, it is a key from the point of view of the chapter 11 trustee. i would just emphasize that. thank you very much. >> thank you. sommers, please proceed. >> thank you for inviting me today to address the collapse of

mf global, lessons learned, and the consequences. the commission voted to make me the senior commissioner with respect to mf global matters. this need to exercise the executive and administrative functions of the commission with the respect to the bankruptcy proceedings and other actions, to locate and recover customer funds or determine the reasons for the shortfall in the customer accounts. while i am happy to be here today to testify, the scope of my election does not extend to the market-wide policy arising from mf global's failure. chairman gensler remains in charge to develop recommendations for enhancing self-regulatory organization programs that are related to the protection of customer funds and

has instructed staff to do so. my focus has been on making sure that they are doing everything they can to facilitate the recovery of customer funds and to bring those responsible for any violations to justice. toward those ends, over the past 5.5 months, the commission's staff has conducted a thorough analysis of the books at mf global. it continues to work closely with the trustee. we are also engaging in a comprehensive and ongoing enforcement investigation. it is imperative that the commission, the industry, and the congress identify and assess the causes and collapse and a shortfall of customer funds. and to take corrective action where possible. if we must do everything in our power to restore confidence in the futures markets so that producers, processors, and other

end users of commodities can once again hedge their price risk without fear of their funds being lost or frozen. section 4d of commission regulations require that holding customer funds treat such funds as belonging to the customer at all times. from usingrohibited a customer fund to margin or guarantee the trade or contract of another customer or of the fcm. fcm must maintain sufficient funds at any given point in time. our regulations also require fcm to hold funds in separate accounts. the part of 30 rules provide for an alternative calculation for

funds to be required to be segregated that does not afford the same protection as the net liquidating equity that is used for section for the funds. this is something that i think should be changed. frontline financial regulation is performed by designated self-regulatory organizations. the chicago mercantile exchange and the national futures association are the two primary futures markets. to minimalubject financial and reporting requirements that are enforced in the first instance by the dsro's. many are registered as broker- dealers. toly registered fcm's -- ensure that all activities of a

broker-dealer fcm are properly reviewed, future regulators, coordinate.ro's mf global was a registered, and were subject to the regulation. the primary responsibility was reviewing the compliance of capital segregation and financial reporting obligations required by the cftc. prior to the bankruptcy, the features and security regulators shared information and examination results regarding mf global. in august of 2011, mf global filed a revised financial statements and regulatory statement with the cftc as a

result of capital charges that it required the broker-dealer to take on. -- with regard to certain reposed transaction on foreign debt. at approximately the same time, the staff contacted us to inform us of the capital charges. the cftc also consulted regarding the rationale for these additional capital charges. commission staff consulted with foreign regulators during the period of october 24 through october 21 as well as in the critical hours leading up to the bankruptcy filing. at the direction of chairman dancer, commission staff continues to review provision of the commodity exchange act and our commission regular station -- regulation to identify improvement. while the staff has not yet

proposed, it is expected to make recommendation in several areas. at a minnow, i believe changes should be made to our parked 30 -- at a minimum, i believe changes should be made to our role.of 430 that more information be provided to customers regarding how their funds are held and invested and that more frequent reporting provided to regulators. i understand the severe hardship that mf global's bankruptcy has caused for thousands of customers that have not yet been made whole. they may have correctly understood the risk associated trading futures and options, but they never anticipated that their segregated accounts were at risk of suffering losses that were not associated with their trading.

the shortfall in customer funds was a shock to the market from which we have not yet recovered. i believe the commission can make improvements to our regulatory oversight about fcm and dsro's. i will help the commission and congress to implement the rules necessary and to foster open and competitive, a financially sound markets. thank you. >> thank you. mr. cook, please proceed. >> members of the committee, good morning. my name is robert cook. i am the director of the trading markets of the securities and exchange commission. thank you for the opportunity to testify concerning the lessons learned from and policy implications of the collapse of mf global. the bankruptcy of mf global has

caused serious hardship for its customers with respect to their ability to access their own assets. more broadly, for the failure of mf global and a shortfall of customer assets highlight the need for financial firms and regulators to remain vigilant in ensuring that customer assets are appropriately protected. fcc rules are designed to protect customer property by prohibiting broker-dealers from using brokered funds and securities to support proprietary positions and expenses. broker-dealers that hold securities are cash for customers must maintain control over securities that customers have paid for in full and cannot use the security staff to support the firm's own business activities. further, when broker-dealers to extend credit to allow customers to buy securities on margin, there will strictly limit how much of the security is appropriate to pledges to finance the credit extended to customers. the rules also protect cash

derived from customers security by requiring the broker-dealer to maintain a reserve in a bank account with the exclusive benefit of customers in an amount that exceeds the net amounts owed to customers. these cannot be in any instrument that is not paid in full credit by the u.s. government. the capital requirements and protections under the securities and investment protection act, this regime is designed to ensure that if a broker dealer fails, customer securities and funds will be available to be returned to those customers. the preferred method of returning securities customer assets is to transfer those assets to another broker-dealer. on december 9, the bankruptcy court approved the initial sale and transfer to a solvent broker-dealer. this sale transfer apply to approximately 318 accounts held

for non-affiliated customers. the trustee reported that since the transfer, nearly all mf global transfers have received 60% or more of their value. 194 customers have received the entirety of their account balances. we understand that those 194 customers include anyone entitled to advance with an equity claim up to 1.2 $5 million. generally, the rules -- $1.25 million. the fcc has proposed to clarify and strengthen the dealers. including, an examination and effectiveness of broker-dealer controls related to the custody of customer assets. the fcc also continues to work with organizations to strengthen financial

responsibility requirements. for example, in june of last year, the fcc approved a rule requiring the establishment of registration and qualification and examination and continuing education requirements for certain operations, including those who handle customer assets. this role should help ensure that those responsible for these operations are fully versed in their legal obligations, including those related to customer assets. in february of this year, and modern task force formed specifics to the board, including changes. the sec staff is evaluating these recommendations as well, several of which are directed to the scope and dollar limit in a specific liquidation. the fcc is also engaged in international to share more and better data and to do so in a timely way. some of these efforts involve

improved coordination with the sro's. including establishing more meetings with them. thank you for the opportunity to testify on this important subject and i look for to answer any questions you may have. >> thank you. mr. ketchum, please proceed. >> thank you for the opportunity to testify today. my name is richard ketchum, the chairman and ceo of the financial industry regulatory authority. s when a firm like mf global fails, there's always value in reviewing the events and examining where rules might be improved. clearly, the continued impact of mf global's failure and customers who cannot access their funds is a great concern. every possible step to be taken to restore those accounts as quickly as possible. with respect to the mf global's oversight compliance, we shared

responsibility fcc, of course. when finra is not the dea, we work closely and routinely analyzed annual, audited financial statements as part of our ongoing oversight of the firm. while that focuses on a broad range of issues, is particularly valuable to note that we focus on european sovereign debt and during april, may of 2010, we began surveying those instruments. and -- a review of mf global's financial statement filed on may 31 of last year, our staff raise questions about a footnote disclosure regarding the firm's maturity. during discussions with the machine -- with the firm, finra learned that it was collateralized by priceless $7.6

billion in european sovereign debt. according to the u.s. debt, rtm's are afforded treatment and not recognized on the balance sheet. notwithstanding that position, the firm remains subject to credit risk throughout the life. beginning in mid june, finra had discussions with the firm regarding the proper treatment of the rm portfolio. -- rtm portfolio. as such, we observe the capital needed to be observed. we also had discussions with the fcc about our concerns. they agreed that they should be holding capital against these positions. the firm fought this interpretation throughout the summer. they eventually conceded in late august. mf global infused additional capital on august 31 and

september 1. is it notified regulators of the identified capital and the change in the capital of the rtm portfolio. following this, finra added mf global to a heightened monitoring process where we required weekly information. during the week of october 24, off as mf global's equity price declined and its credit rating was cut, finra increased the level of surveillance over the firm. it became clear that mf global was unlikely to continue to be a viable -- stand alone. we worked closely with potential acquirers with the hope of avoiding liquidation. as has been widely reported, a discrepancy discovered in the futures side of the firm headed those discussions. while finra believes that the

rules provide a good structure for protecting customer funds, from the failures provide an important opportunity for analysis where improvements may be warranted. finra has identified changes that could be made to better protect customers and their funds. also, in terms of our coordination with our counterparts. most recently, finra and the chicago mercantile exchange established call so that our staff can share information between 50 firms that are both broker-dealers and fcf's. we have briefings on firms and futures. our next briefing will be in june. we have also continued our work on rules-making efforts and surveillance. starting in october, firms must file additional reports to capture more detail about a

firm's revenue and expenses. last week, finra's approved a report on a net capital, leverage, and liquidity. finra shares your commitment to reviewing mf global's collapse. we will continue to review our own rules, identify areas where current processes may be enhanced. again, thank you for the opportunity to share our views. i'll be happy to answer any questions you may have. >> thank you. mr. duffy, please proceed. >> thank you for the opportunity. lessons learned from the collapse of mf global. so i have previously testified concerning mf global's miss use of customer funds -- misuse of customer funds. the shortfall was limited to the funds under mf global's control. the customer funds held in

segregation by cme's clearing house were complete. our ability to transfer a position and the collateral of our customers was undone by a provision in the bankruptcy code. we believe that congress can help protect customers whose collateral is safeguarded at a clearing house. it can do that by changing the bankruptcy code to permit houses to transfer to customers, despite a failure of their clearing member. the industry is united in a search for a solution that will restore confidence. obviously, changes in the bankruptcy code are not easy or quick. it is constructed to look at a wide range of actions that could be implemented without action. cme group, along with others, has imposed forms for -- to intensified reporting to prevent

funds. they also proposed enhanced reporting and transparency. cme group is already in tormenting proposals by all fcm's. a requirement that the fcm's a cfo assign all payouts exceeding 25% of aggregated amounts. a bimonthly report and where they are held. cme has also challenged the industry and commission to consider whether other solutions will better-serve the interests of customers and the industry. in addition to the proposed amendment industry code, cme is working to find a structure that will protect collateral against fellow customer and a fraud risk. we're committed to finding a

solution of provide strong, segregated funds from a legal, operational, and cost-benefit perspective. in addition to these regulatory initiatives, we also recently lost to the cme group family farmer and rancher protection fund. it is designed to protect them and the cooperatives in the event of shortfalls of funds. if we hope the steps will give additional confidence after the actions and failure of mf global. the misconduct of mf global, however, should not serve as a reason to undermine the current system by clearing houses and exchanges. some critics suggest that the current system is compromised by conflicts of interest. there is no conflict of interest in cme's due to its customers, and shareholders. it is required to keep its

markets fair and open by vigorously marketing all participants. a federal law structure that eliminates conflict of interest. the current regulatory model f has served this industry, its customers, and the public very well. off and we look forward to working with the congress and a regular tourist -- and regulators in our markets. thank you. >> thank you. i would like thank you -- thank all of our witnesses. as we begin our questions, i would ask the clerk to put five minutes on the clock for each member. just to be clear, given that $1.6 billion of customer funds and has yet to be recovered due to mismanagement or possible illegal transfers by mf global, can you commit to us today that your office will not be seeking bonuses for any former or

current mf global employee? >> mr. giddens, some have a specific insurance coverage had been in place, how would that have impacted the transfer of client positions through other for former customers of mf global? do you believe that congress should visit the idea of commodities accounts and insurance coverage similar to that provided under the securities investor protection act?

>> yes. the proceedings which govern broker-dealers contain procedures for contemplating and facilitating trenchers of accounts to other broker- dealers and provide mechanisms for the prompt payment of customer claims. this is greatly facilitated because there is the financial support of the sipa fund. it has several billion dollars of assets in the ability to assess the industry for additional funds. those funds would assist, if it were necessary to cover shortfalls, to enable a trustee to transfer accounts to other solvents fcm's. i think, as mr. duffy was

alluding to, there are problems here because you have to distribute equally. i believe that if you had a fund that would give you more flexibility as a trustee, you could more rapidly transfer accounts and have those available in your arsenal of things to move things along. >> commissioner sommers, could you describe any legal actions or efforts the cftc is taking to recover the u.s. customer funds being held in the u.k.? how is the work of the cftc being coordinated with mr. giddens efforts to protect u.s. customer efforts subject to regulation 30.7? >> thank you, senator.

the cftc does not have the authority to bring an action to a u.k. court proceeding. we are, as we are in the united states, working very closely with mr. giddens and his staff. the law firm he has hired to represent bankruptcy in the u.k., in front of the english courts. we will continue to monitor all of the different actions that happen in that proceeding. >> mr. giddens, do you have anything to add? >> just to confirm that we do confer frequently with the cftc about the strategy in the u.k. and the nature of the legal issues. equally, to the extent we can of shared information with judge freeh regarding that proceeding,

our review is that all of those funds are segregated assets that belong to the 30.7 customers of the broker-dealer. >> mr. duffy, do you have any views of the fie recommendations to better protect customer accounts? also, would it be a valuable for sro's in the cftc to receive daily, electronic backup documentation on these accounts directly from exchanges, clearing houses, and custodial banks in order to confirm that a self-reporting by fcm's is a separate? >> let me take the latter first, as far as the daily reporting from the sro and cftc to the exchanges.

i am a big believer in transparency and real time reporting. since it is kind of hard to argue with that. if the reality is, what is the practicality of getting that done? even if we had it on a real-time basis, if people were having multiple books or doing nefarious activity, it to be very difficult to detect what happened in the mf global situation. as much as i support real-time, i think there's a lot of information that needs to go into that. as far as the fia's recommendation and some of the things they propose, cme is supportive of their recommendations. >> i note that senator shelby has temporarily left the committee to attend an appropriations committee and he will be back. senator? >> thank you, mr. chairman. i thank all of you for your

testimony. i sit through most of these hearings. it always gives you a headache to think about all the regulators involved in one entity and we created that. you didn't. i am not criticizing that come off but it does seem like there are a lot of silos and various areas that each of you look at that to not overlap property -- properly. i would like to ask mr. giddens and judge freeh, what happened? what happened to the customer accounts? how did the money end up in places that it was not supposed to end up? we have talked about everything but that here today. >> our analysis of what happened and where the money went, i think has substantially concluded.

that is the first phase of the process. because of the liquidity crisis in the last week, something like $105 billion in cash went out of the firm to banks, depositories, some to commodities customers, some to securities customers. what on the surface appeared to be normal transactions. a great deal of this was caused by customers leaving the firm and asking if their assets could be transferred out of the firm. also, the firm had to scurry around to find additional collateral. additional collateral was required with respect to the repo to market transactions which went from $200 million to

$900 billion additional collateral required. in these firms, cash is moved around from various accounts on a daily basis. and it is possible that if mistakes are made, and you say we have excess in one category and we could use that to move it to another, and with some much happening in the last week and some of the bodies of transactions, that is where we think -- what we think accounts for the mistakes. we can trace where the cash and securities and the firm went. that we have done. the second, more complex phase, which we are aggressively pursuing, is to get as much of that back off if we have an appropriate legal theory to do that. if we have done that.

we have had some success to date. we will continue to pursue that with the goal of getting back as much of the property as weekend. >> f let me ask you this question. we of the picture of what happened. a lot of money was moving around quickly. with all of that occurring, regardless of the regulators who look at this, how you keep, at the end, money going out of a customer account inappropriately some other place? and how can even a regulator at an instant keep that from happening? >> a given the fact that so- called operational personnel can move a funds and have authority to do it, it is almost not possible to build a full-proof system.

the checks that you have, or the reporting requirements and the totaling up on a daily basis of what the requirements should be, so if there are substantial mistakes in that, it permits someone to say, theoretically, i have an excess in the commodities funds, therefore i can transfer that to the securities accounts, or vice versa. we had an example shortly after rose appointed. i got a call -- after i was appointed. i got a call from mf global saying they broglie transferred from the securities accounts to the commodities accounts and would like to reverse it. -- they are wrongfully transferred from the securities accounts to the commodities accounts and would like to reverse it. how that was done, we cannot say. there were mistakes being made. a part of this, the process that most people do not realize,

relatively low operational people, at any given time, have the authority to transfer hundreds of millions of dollars. >> , was there an investment committee? is their personal recourse to the executives when these kinds of things happen? is there a way to deal with them on a personal basis against their personal assets? secondly, was there any kind of investment committee or in turn controlled that existed there to keep this kind of thing from happening within the firm? if not, are there other firms to your knowledge that have the same problems? >> on the personal liability, i think there are -- my personal view and the people working with me -- is there are discrepancies. there are higher ups who do not

influence the vice president to move money, are probably very difficult to suggest that they are personally liable. that is one of the reasons i suggested that we look at that and begin to consider, saying it is not enough when you're managing the firm, determining the investments and the overall strategy. and the overall strategy. if you create the liquidity crisis, you will bear responsibility if there are shortfalls in customer property. there are risks officers at the

firm. there were examples of recommendations were not taken by the risk officer, and under a perfectly legitimate structure, senior officers could choose to ignore that. the firm was planned perfectly capitalized before mr. corzine came to the firm, and in fact those problems continued. they went through the motions of having operational supervision and risk supervision and the like. how effective that was i think is demonstrated by the elements

at the firm. >> thank you for your time. enendez.or mr >> i just heard the question about mf global being poorly capitalized. was that the harbinger of its do? >> -- its doom? >> that was a large contributing factor. also it would be the nature of their investments in risky european sovereign debt of countries such as, i believe, italy, spain, and ireland. with the result that since those were purchased on margin, and the margin and the collateral put up at to be continually increased so that toward the

end, as i recall, something in the neighborhood of up to $300 million in margin became closer to 900 million in march that had to be put up. that created much more strains on the firm. >> in addition to that a critical factor was the inability its i.t. at technology system to keep pace with the trades that record them in the last few days. there are many non-reported trades, and even to reconstruct what happened, there is difficulty. the technology was not equipped for the frenetic pace of trading in the last several days, and that, combined with the miscalculation, using the most generous term at this point, subject to investigation, of what was segregated, not

segregated, and the inability to track the trades and the accounts was a perfect storm for the disaster that occurred. >> so you had between poor capitalization, highly leveraged, and an inferior technology ability, a structural problem at mf global. let me ask you this? has it been part of your effort and review to determine what individuals at what level -- by and try to think of your structure -- individuals created the set of decisions that created the challenge that we have? >> nascar, that is subject to both my investigation and mr. giddens'. we're looking to determine be available cause of action, lack of fiduciary responsibility --

>> where are you now in that investigation? >> we are beginning. >> you can not identify the responsible party ? >> i cannot do that. >> mr. giddens, at the suggested in your earlier testimony -- they're not director liability here now? >> farewell may be, and we're looking at that. if their work breaches of fiduciary duty, that are accessible, we will pursue that. >> ms. sommers, in december 11, there was a rule that prohibited the investment of customer funds in foreign sovereign debt securities. if the rule had been finalized before the collapse of mf global, or not overturned in 2005, does the cftc believe mf

global would have avoided collapse? >> no, sir. the investments under when 0.25 are the permissible investments that the fcm uses to invest customer funds in segregation. they cannot be used by the fcm themselves to invest it for the f cm's own gain. >> my understanding you have identified where the money is. what is the likelihood of recovery get on behalf of those individuals? >> with respect to the $700 million represented to u.s. customers as being segregated for them, our position is that under u.k. law that money should be treated as segregated customer funds. i think we are reasonably

confident of a positive outcome from the u.k. courts, but there is no guarantee for that. >> one final question. clearly, what a company does in the first instance is the challenge. we would expect them to do the right thing legally and substantively and ethically. in the absence of that, is there anything in this experience that this to you that there's something structural that needs to be changed to at least mitigate the expense? my understanding is there was $700 billion some-odd instance were reported would have indicated that funds were coming book. had been done, but could it have been made vacated to 1.6 million? >> our number is significantly

lower. anything that we could have gained, we have done everything. we have reviewed all practices looking through the whole forensic analysis of mf global, and we feel we did all things apart. . mr. gideon said something that was important. he said the company had a liquidity crisis, and their increases went to $900 million, and the money at to come from somewhere. where did the money come from? that was one of the things under bullet 4. the cme that is the biggest part of what we do, to protect the integrity of markets and clients. >> so nothing structurally? >> let me say thank you for being here. mr. giddens or judge freeh, i've

tried to get a perspective here in terms of time. he said when mr. giddens -- that when former senator corzine came on board, there were problems with this firm. they had liquidity problems and that sort of thing. as i understand it, that would have been within the scope of $200 million at that point in time? is that what you found? >> no, senator. alluding to the fact that the evidence we see is from the 2008 on, mf global was either losing money in an operating cents or was overhighly leveraged.

it was a firm that had financial difficulties when mr. corzine came in, and that is simply to say that the liquidity crisis was not as severe as it was in the final weeks, the october of 200011. >> everything i have heard through hearings like this, reading testimony, etc., was in the final weeks of mf global the sky fell in. now, my understanding, and to meet it seems so basic, even at a been a lawyer where you maintain a trust account, somebody gives you money, you put it in a trust account, you are not authorized to say, gosh, kind of a rough month this month. clients are not paying their bills. i will borrow money out of the trust account. that is in effect what they did

here, right? >> the analogy is good, but what they can do, perfectly legally through fancy footwork and cathy each day is look at funds that are theoretically in a so-called trust account and say we now have access. money -- excess. money is moving in and out of daily. we have a chart between the broker-dealer, segregated accounts, the european subsidiaries, bank depositories, so it is all very fluid. the concept there is a frozen trust account you cannot touch is not the way it operates in the real world. it operates in such a sense -- if you do a calculation and somebody in chicago says we have calculated we have 200 million --ess, we contracts hadn't

we can transfer that to the broker-dealer account, from the broker-dealer segregated fund, $220 million, on the assumption they had excess. the rules of the regulators and the way it has to work is that the money is really not frozen and can easily be moved around. there could be much stricter safeguards. some of the things mr. duffy was talking about in terms of making people responsible at the time, which is what i was talking about, and it is not easy for some $85,000 a year vice-president seeing the calculations and they have moved the money. >> deep you come across any indication that the firm was using that approach in a way

that you personally would regard or you would offer an opinion that that was deceptive? it was done in a way to deceive people were supposed to be paying attention to this or regulating this? >> i really have no personal opinion about that. >> that me ask a question them about that. you are going into this time of a personal investigation, is what he said, judge freeh, and you are going to try to start to uncover who did what and when. what are your options? if you see evidence that that practice was done in a deceptive way, just describe for the committee that three or four things that could happen to the principals here. >> yes, in addition to the

regulators and criminal investigators conducting simultaneous and in some ways very similar investigations, and that is why we are cooperating with them to the ultimate extent possible, making available witnesses, records, waiting privileges when we need to do so. in our own investigation and our own mandate, myself as a chapter 11 trustee, mr. giddens as a trustee, is to look for causes of action. at this point nothing is off the table. we not only look at employees and directors of the holding company as well as the subsidiary that mr. giddens is the trustee for, but third parties, including financial institutions, who had different collateral requirements, which changed, particularly in the last several days, so at this point literally everything is on the table, both individual

persons as well as institutions. and what we will do baby separately, but may be simultaneously, is make legal determinations with lawyers about whether a bible course of action exists and whether -- a bible course of action exist and whether it is sufficient to pursue that course of action. we may have a course of action that because $10 million -- cost $10 million but the individual has no assets. i would have to weigh that in terms of wasting assets in the estate. >> thank you, mr. chairman. i appreciate you holding this hearing. we saw montanans funds being hedged being wiped away.

this is the eighth largest bankruptcy in u.s. history, and the first time segregated funds have been violated. i will probably get back around to corker's question. mr. freeh, might want to thank you all for testifying. you have an incredible resume, one that you are proud of, one that is very, very good, and going back to the question the chairman asked, the very first question, where he talked about bonuses. i want to clarify because interest into the said businesses are not part of consideration now or in the past. i thought you told the chairman nor in the future. is that correct? >> i did, sir. >> and the questions have been asked previous to this, he said

about 15 employees you have hired, plus three senior executives, is that correct? >> the 15 employees remain. they were pre-petition to operators. they maintain a tax activities, and they are the worker bees us to the speech. >> not folks that would be part of the problem? >> we do not know at this point, but we are not considering, and we are considering them employees. >> how about the three seniors executives? >> they were insiders. >> in the previous question, you are looking about who did what, when, and a potential cause of action. when you negotiate their salaries, how are you going to do it when you are looking at them as being part of the problem, part of the so-called crooks? >> we have not made any

determination in that regard. the salaries are set, senator. >> who sets them? >> they were set at the time of the petition, reverting back to their base salaries. each employee, including the three insiders, had based salaries which have been continued. >> ok, all right, so the point i am trying to get out here, and i think i heard the answer, i do not want to get any benefits but to ever to anybody who caused debacles ise, and the bauc not a tough enough word. >> the group working now to get the very important and valuable tax refund back to the state, i need to maintain them or else the alternative would be to go out and hire an accounting firm

that three or four times the cost. that is the balance i'm conducting, but it is on the nine-insider level, and -- non- insider lever. >> -- level. >> mr. duffy, you describe the futures market as both the professional, and mr. giddens said 70% of claimants suspect some farmers and ranchers would be seeking a return of less than $100,000, and this is the question -- why should farmers and ranchers trust cme in the future to regulate and be able to protect their money? >> there are several reasons, but first is the money of segregated funds that mf global is holding, cme held 2.5 million

of those funds. our customers were made whole. it was money transferred out at the firm lovell. with respect to what mr. giddens said about the fines, there are many clients that have significant ballots is higher than that. there is roughly 36,000 accounts of which 20,000 -- of which are $20,000 or less. if this happened today, every farmer and rancher would be made whole. >> but what about the folks who are not being made whole now? >> it would be considered a moral hazard. there is $158 million in segregated funds, and that would

be a detriment to try to guarantee that. >> mr. giddens, there has been a lot of questions here today about a half a dozen regulators, maybe more, about what happened, what transpired, and things have been attatalked about. we see something happening in the eighth largest bankruptcy ever happened, that segregated funds were compromised. does this kind of stuff just happened, or as a policymaker, you look to say what went wrong, what could we have done better, who screwed up? are you to a point where you can say that? i do not want you to throw anybody under the bus. are you ready is say this is where the system failed? this was a regulator that did not do their job or did their

job, or you have a cagey enough accountant you can juggle the books and up and get away with just about anything. it appears to me unless there's something out there, tell me what it is. >> i think the evidence indicates that in most of the cases the individuals complied with -- complied with the regulations, regulators looked at materials, materials were filed, but all of the failures of either broker-the lawyers or part causedt most by fraud or financial mismanagement. in those percentages, where this occurred, as i think was the case here, you can buy hindsight look at it and say there are

some things that could have been done more frequent reporting, also i think the imposition on seniors in the firm, such as the ceo and the cfo to say if there is a shortfall in customer funds, you may be liable, personally liable, and that should incentivize you did at internal systems which assure you that you have enough funds, and perhaps one of the ways to do that, as is done with any kind of normal repo, is you have excess collateral. i think there are specific things that can be done to ameliorate the situation. i do not think it was just a happenstance circumstance. i think there is often a case in many bankruptcies, fromenron

out, where a firm is in financial trouble, and the normal controls are ignored and people act in desperation to try to avoid these kinds of problems. i think the regulators and the reports and things required to serve a viable purpose. i think they can be improved. >> that you for your testimony. >> commissioner sommers, i want to focus on cftc. what was the conflict of pinchers -- of interest that the chairman recused himself from? thism not specific to thinking. >> there was not a discussion?

>> no. >> there was a boat that assumed you to be the lead? >> the other three commissioners voted. >> there was no question about why the chairman was going to act in that capacity? >> no, sir. >> prior to the bankruptcy, looking back it seems clear that mf global was under financial stress. you can look at stock prices, the new york fed reaction. did the cftc take action to enhance its surveillance or encourage others to enhance its surveillance prior to the filing of bankruptcy? >> in the week leading up to the filing, we had people on the ground at mf global. our staff of chicago was on the ground. the numbers and what the book at are better not the firm is capitalized or whether they have the money to meet their

segregated obligations to their customers. the day that that was provided to us from mf global showed they were in compliance up until the very last few days. >> when you say you had people on the ground, was that any increase? did you detect there might be something wrong and react it or not? >> we had people at mf global's offices in chicago and new york, and that is not typical. >> when did that occur? >> a week prior. >> went over 99% of mf global's accountants were commodity did cftc havecou the opportunity to take over at

the bank dropsy? why was it allowed to file chapter 11? both of those instances seem to have preferred the general creditors over that segregated account holders. did cftc their role to affect the decisions made to allow those things to happen? mya's involvement, to assessment, and to the detriment of account holders -- both of those were to the detriment it seems to me to the segregated account holders. the cftc had a role to play in those decisions? >> although i was not privy to the conversations that led up to mf global been placed into mfsipa bankruptcy proceeding, it was my understanding that when that is done, and the sec has the ability to place and and to

keep a bleak is either in financial distress or purging financial distress, they have the ability to refer them refersipic. we do not have that authority. it is my understanding that even though the into the was not a joint broker-dealer placed into a proceeding, that all the --mission's regulations those all applied, just as they'd boyd if it was a stand- alone fcm and those were not -- >> what you're telling me is my understanding or by suggesting that those segregated account holders were harmed by that decision is not true? >> but understanding is it is

not true. >> did that discussion occur before filing of bankruptcy? >> the commission was informed that mf global was going to be laced into ba sipa investigation. >> new at cftc was handling decisions related to enhanced supervision and the kind of bankruptcy or the bankruptcy proceedings? hoop was handling this decisions prior to bankruptcy? >> up until november 3, chairman ginsler. >> sent you told me you do not know what his conflict of interest was five days after the bankruptcy, you did not have the opinion as to whether that's in

conflict of interest would have accrued prior to the filing a bankruptcy? do you know of something happening between the pilot a biker -- bankruptcy -- between the filing of bankruptcy? >> i do not know. mr. chairman, thank you. >> senator shelby. >> i apologize for missing some of this testimony. we have a marked up in the appropriations committee and you should not be absent from that, as you can recall. i hope some of these questions have not been asked. in the area of -- i will first go to you, commissioner sommers. in the week leading up to the bankruptcy, of mf global come up

did chairman ginsler katie you ever that he was concerned about customer assets at mf global? >> my recollection, senator, is that german ginsler concerns regarding the financial condition of the company, and that is why staff were sent. >> how many times do you recall or do you have a record that you could furnish the committee, if he did not recall, did chairman ginsler fuel and other commissioners at the cftc's meetings on the management of the crisis? that had to be a concern of the cftc, because this was not business as usual. >> rights. over the weekend, prior to the filing of the bankruptcy, i recall receiving to emails from the chairman, and we held a

closed meeting. >> what was the substance of those emails? >> informing us -- >> there was a problem? >> no. he had been on conference calls with domestic regulators regarding the potential sale of mf global to another financial institution. >> did he indicate great concern at that time? >> not at that time. >> ok. mr. duffy, i will direct this question to you, and also to commissioner sommers, what authorities as the chicago market tell exchange have to protect customer segregated accounts an emergency situation? commissioner sommers, what

authorities the cftc have to protect customer accounts during an emergency situation? mr. duffy, you first. >> we make sure they are in segregated compliance -- >> what did you say? they should be segregated? >> we get segregated reports from mf global, as he got them from a daily basis since they were acquired. they work on a daily segregated report anyway. we were getting these reports on a daily basis, and you got a time out over several days. these were things we do to make sure they are in compliance. if they go out in compliance, in a violation of the cftc -- >> some of those reports, as you look back, or they misleading?

a little more than that or what? >> >> a little more than that. we were told in one report that they had $200 billion in excess after they had announced that the money was missing on sunday evening -- >> is that true? >> they then get us the report on monday. the reports were inaccurate. >> that is misleading you, right? , very misleading. sommers?ssioner com >> although we have never had this type of situation in the past, but if we were in a situation where we believe a company was in a situation where they could not meet their obligation, the commission could seek legal action to have a

receiver appointed in an emergency situation. >> i will direct the same question to both of you. in the area of protection of customer segregated accounts, commissioner sommers and mr. duffy, most -- but of your organizations at staff on site in the office as the weekend before the bankruptcy filing. what steps the door agencies -- i will start with you commissioner sommers -- take to correct customer assets prior to learning that customer assets were missing? and what date, time, and stack it first learned that there was a profitable problem in asia -- a possible problem inge said short -- a possible problem? what steps did you take to ensure customer funds were not

improperly transferred over the weekend, when there was more than a little mischief done. >> the first question with regard to what our staff was doing, although the commission and the dsro receive daily segregation reports, those reports only list the amount of money that the fcm owes to customers. our staff is in the process of trying to get supporting documentation from mf global to be able to make sure they actually have that money in the bank. >> you had that conversation that you testified earlier, either personally or some communication by e-mail come from chairman ganinsler, there was more than a little concerned at your office regarding and of global?

>> is that right? you did not think everything was ok at mf global after you read the emails of chairman ginsler? >> in the beginning the reason why he sent staff to the office of mf global is so we could receive the supporting documentation to make sure or to do that type back of the segregated accounts -- bam not because there were concerned in your agency about mf global, where the money was coming from, what money they had come and so forth? >> and the documentation and the day that they provided to us showed that they were in compliance. >> that was not true, was it? >> it was not true. >> did you have suspicion at that time? >> i do not believe staff had

suspicion. over the weekend the staff was in the process of filing the documents we would need to file in order to make a transfer possible so customers from an f global, if there was a financial institution that would purchase the fcm, that this customer accounts could be transferred with our approval. we were drafting those documents in order to make that transfer of customer positions possible. we were not informed -- the commission was not informed until monday morning, october 31, that there was a shortfall in customer segregation. >> where you ever concerned there might be some things wrong at mf global? obviously, something had to come up on your radar. >> absolutely, we were concerned, but i do not believe i ever thought that one of the concerns should be that there would be a shortfall in customer

segregation. >> mr. duffy, you have any comments? >> i echo her comments, and we also had people validating reports against bank records, and we got through friday, and into saturday we still have people on the ground, and then we told there was an accounting error of $900 million. everybody was trying to put the company -- >> 900 and dollars -- >> some people felt there had to be an accounting error. i was in the latter camp. >> that sent a lot of anxiety -- a lot ofu anxiety through your organization?

people were dead wrong. >> dead wrong? >> dead wrong. mr. giddens, use -- you are the mf global trustee, are you? >> yes, sir. >> and what is your portfolio? what are you supposed to do as a trustee for mf global? >> by an appointed the equivalent of a chapter seven liquidating trustee, and i have he same powers as a chapter seven trustee for the broker- dealer. my job is to marshal the assets of the broker-dealer and to pay them out as required by law. there are shanker sank properties, -- sacrosanct

properties that belong to the customers, and also the securities customer funded, and there are detailed provisions for the cftc act and the sipa act. big distinction and a big difference in and the reason mr. cooke but the fcc has pointed out, some of the securities customers have been paid in full is the existence of the resources of the sipa fund which provides up to $500,000 to cover losses in the accounts. >> is that $500,000 per account? >> yes, sir. >> what is the average account? >> the average securities account at mf global -- i am

just doing the calculations in my head -- probably a million dollars or more. commodities accounts, 75% were less than $100,000, and probably 93% of commodities accounts were less than a million dollars. in both cases, there were significant numbers of commodities customers and securities customers who in the last week's transferred there can -- their accounts to other firms. >> why did they do that? was their concern in the marketplace at mf global? >> absolutely, it had been downgraded. >> do you know that that concern in the marketplace extended to chicago, the commodity futures trading, or to the sec or to the

cme? >> certainly, it was in the major newspapers that everybody was experiencing trouble. whether everybody expected there was a shortfall in segregation, i do not know that, but i know because of downgrading and losses -- >> people were leaving the ship? >> absolutely. >> your written testimony, mr. giddens, provides an overview of large cash movements at mf global during october of 2011. were there any large transfers -- would talk about others -- from mf global's 7 gathered customer accounts to the firm's own accounts while multiple regulators were on site at mf global starting on october 27? >> the answer is yes.

there were billions of transfers in and out of the firm and from the various accounts. >> and the regulators were on site? >> yes, sir. >> where their subsequent large transfers to pay counterparts? >> during the period of october 27 through october 31, yes. >> mr. giddens, you recently announced you would pursue litigation in the united kingdom to recover approximately $700 million of customer funds. what is your best guess or your judgment about how long it will take for mf global customers to recover, if they do, the $700 billion that is trapped in the u.k., and will take weeks, months, or years, and so forth? >your best judgement.

>> the petition to commence the case is due to be filed shortly. how quickly and how the court determines how the litigation is held, what discovery is required, and the like, is unknown at this time. we will try to expeditiously get a decision from the court. we had a similar situation in the lehman case, in which our position was that funds that the lehmen broker-dealer funds were customer funds, and that was opposed by the english regulators, and that process, because of appeals to three courts, took almost in excess of two years until there was a final decision.

i hope that will not be the case here. >> is your best judgment about how long it will take to recover the remaining $900 million in customer funds? >> we have recovered some portion of that already. >> how much? roughly. you can correct the record. >> i believe about in excess of $500 million. i'm not sure. >> you will furnish the correct -- >> i will supply supplemental information on that. >> in an attempt to justify his mf global refusal, mr. ginsler stated he did not want his relationship with john corzine "to be a distraction." did chairman ginsler expressed any concern that his

relationship with corzine would be a distraction from any previous matter involving the mf global, including matters related to cftc rules 125 dealing with investment a customer segregated funds? >> not that i am aware of. >> you cannot recall? >> you have searched records and emails? >> yes. >> mr. ginsler also stated he will not participate in any enforcement matters involving mf global and any matter directly related to, those are his words. this language appears to prohibit him from participating effortsof the cftc's because of lessons learned from the collapse of mf global.

do you agree? he cannot have it both ways. he is either in the game or out of the game. he is saying he is out of the game, is that correct? >> we have sought direction from the general counsel, we are told my delegation does not go toward the policy recommendations that the chairman would be handling. >> i know my time is moving on, but i have another question i'd ask mr. giddens, as trustee. on april 4, he provided an update on your investigation of jpmorgan chase which is mf global's largest creditor. regarding the end of global bonds in its possession, he stated that you and jpmorgan are presently engaged in substantive discussions regarding regulation -- resolution of claims. is it your expectation that some

of these funds will be returned from j.p. morgan chase 2 mf global customers, and when can an affable customers expecting resolution of claims from jpmorgan, if they can prov? >> i believe we have a solid basis for seeking recovery of some of the funds transferred to jpmorgan. as to how that decision ultimately will be made, if we do not reach a consensual conclusion, it will probably have to be resolved by bankruptcy judge john glenn, and how long that will take is difficult to predict. we would not be exchanging

information and engaging in really confidential discussions about legal arguments are less we thought we had a good prospect of recovering something from them. >> mr. chairman, could i ask mr. freeh one quick question. mr. freeh, are the trustee of mf global holdings, is that correct? >> yes, sir. >> is it your responsibility to protect the corpus and assets of what is left of mf global holdings? >> guest, mf global and other debtors in chapter 11 of which i am the trustee, exactly, to get the assets and get them back to the creditors, if possible. >> ok, thank you, mr. chairman. >> i would like to thank our witnesses for this testimony today. it is important congress

continues to evaluate lessons learned from the collapse of mf global a discuss the issues relating to this hearing. i look forward to working with my colleagues to ensure we can better protect customer accounts and improved future regulatory coordination. this hearing is adjourned. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

>> in seven minutes we will go live to the u.s. house where members are beginning to work this week. they will have morning speeches and legislative business will get underway at 2:00 p.m., dealing with federal land and an airport in minnesota. we will have been house like here at noon on c-span. cam year's student competition. ♪

♪ >> think about the progress we have made in the last two century. first, we were a country of elites. now we have a more broad concept of citizens.

the real success of this country is not that we started as a great nation, but more that we instill a system for change that will enable us to become a great nation. i believe the desire for progress is an intrinsically american value. over the last 200 years, we continue to cause problems at the surface, and all wall up holding the constitution. >> if there had not been an article 5, there would not have been a constitution, because many of the leading citizens would not have supported the constitution without article 5. >> i know that laws and institutions must go hand in hand with the progress of the

human mind, as that becomes more developed a more enlightened, as new discoveries are made, the truths disclosed, opinions change with circumstances. institutions must advance and keep pace with the times. let us to provide in our constitution for a provision that states what nature itself indicates. there should be an opportunity for doing this. that should be provided in the constitution. i think he mentioned 19 or 20 years and he felt that was a generation, a new generation. >> the genius of madison was not written within the words of the constitution. it is humility and that it come as they knew the document they could write with all the problems that later surface. after experiencing the failures

of the articles of confederation, the genius of the framers was despite the collective intellect within that room, they acknowledge their own inherited imperfections and built in a system for change that would enable it the evolution of the country they created. the amendment process is a very arduous, very complicated process to shuttle -- constitutional process. >> we only have 27 the minister reconsider 10 of them all came with the constitution, then we really only have made significant changes 15 times. >> united states constitution provides 8 2/3 vote in congress before being ratified. >> there is an alternative and that is that a constitutional convention, and the states can

-- if they were to call for a constitutional convention, each state would send representatives to a convention similar to when the constitution was first written. >> congress shall make no law respecting the establishment of religion or abridging the freedom of speech or the press or the right of the people to assemble and petition the government for a redress of grievances. to the amendment process the bill of rights in short personal liberties for all americans. >> when it is necessary, each generation has amended the constitution. the guarantee of free speech, the abolition of slavery, giving women the right to vote -- all those things required a constitutional amendment. >> i think the amendment process facilitates the

perfecting of the union, that it acknowledges its. we would not likely have gotten everything right, and as the issues come forth there is a weight citizens can retrace. >> the amendments have extended the fried -- the franchiser. they have brought our conception of conception -- of democracy, and our democracy includes advance toward, compared to the rest of american history. 10 degrees south of nirvana. >> united states has seen a progression up ideals. the living nature of the constitution and the influence of precedence are actively debated. >> the living constitution is an idea that is controversial. the idea that the constitution as drafted in 1787 and amended a

few times since then, that constitution has devolved. >> many would say that the evolution of our federal government has gone well beyond what our constitution as intended, and that the correct way to change the federal government, if you want to see it do things that are not in the constitution, is to amend the constitution. >> the framers understood this. they knew we would discover pieces of the constitution that should have been written, but which were not, because they did not think of it. >> the process has only just begun. as we move into the future, article 5 will continue to allow us to move toward the milestones that we can reach. not only do we up hold a living constitution, but rather an eternally living constitution, one that will always hold the

freedom. the progress of the constitution will propel the country on word. >> watch all the winning videos and continued the confiscation at our facebook and twitter pages. >> members will begin with morning our speeches now. that is that the business will start at 2:00 p.m. eastern. now like to the u.s. house. e a communication from the speaker. the clerk: the speaker's rooms, washington, d.c. april 24, 2012. i hereby appoint the honorable john abany culberson to act as speaker pro tempore on this day. signed, john a. boehner, speaker of the house of representatives. the speaker pro tempore: pursuant to the order of the house of january 17, 2012, the

chair will now recognize members from lists submitted by the majority and minority leaders for morning hour debate. the chair will alternate recognition between the parties with each party limited to one hour and each member other than the majority and minority leaders and minority whip limited to five minutes each, but in no event shall debate continue beyond 1:50 p.m. the chair now recognizes the gentleman from washington, mr. dix, for -- dicks, for five minutes. mr. dicks: mr. speaker, i ask unanimous consent to insert extraneous material in the record. the speaker pro tempore: without objection, so ordered. mr. dicks: mr. speaker, i rise today to note the passing of a constituent and friend of mine who was a true friend and one of the great leaders of the city of bremerton, washington. mel died last month at the age of 91, and he was remembered

this past weekend at a service by his family and friends for his wit and for his many enduring personal relationships he developed over decades of working at the puget sound naval shipyard in bremerton. and during the years of service to many organizations in our community. i knew mel for most of my life. he was a high school graduate of my mother's high school and he always joked that he would never have graduated if she hadn't helped him through math class. he was also a great friend of my father, and they were often enjoying their favorite pastime, fishing for trout. in fact they had a secret formula that i'm sure i'm hoping mel will pass on to me. mel served in the navy in world war ii before taking a job at the puget sound naval shipyard, eventually rising to the

superintendent of shop 31, which was the machine shop. mel's personal advice to me ranged from pointers he gave me when i played sports with his sons to the suggestions offered when i was running for congress and later as a member of the defense appropriations subcommittee. on important things we could do to make the shipyard in bremerton function better. mr. speaker, mel was one of the remaining members of this greatest generation of americans who selflessly served in world war ii and then returned home to raise families and pursue their careers without asking for thanks. i think it is appropriate once again for us in the house of representatives to express our thanks to those great americans as we note the passing of one of its finest, mel. i submit for the record mel's obituary as it was published

noting his wife, jane, and the many members of his family who have lost a great patriarch. i yield back the balance of my time. the speaker pro tempore: the gentleman yields back the balance of his time. the chair now recognizes the gentleman from florida, mr. stearns, for five minutes. mr. stearns: i ask unanimous consent to revise and extend my remarks. the speaker pro tempore: without objection, so ordered. mr. stearns: good morning, mr. speaker. last week, april 17 was tax day, when all hardworking americans must file their taxes with the internal revenue service. ironically enough, april 17 was also tax freedom day, a day when americans earned just about enough earned income to pay off the tax bill for all federal, state, and local taxes. the first 111 days of the year, everything you and i and all americans earn went to fund the united states federal government. in 1900 americans paid about 5.9% of their income in taxes and tax freedom day came about 22 days into the year.

it is a far cry, my colleagues, from what we have to endure in taxes today. you now, if you think 111 days to reach tax freedom day is excessive, just wait until next year. we are on the cusp of a tax armageddon or i'd like to call it a taxmageddon, scheduled to hit january 1, 2013. the largest tax increase in memory, possibly ever, $490 billion tax increase in one year. so when we talk about taxes, we usually project the increase or decrease in revenue over a 10-year budget horizon, but this $494 billion tax increase isn't over a 10-year budget window, it's an immediate massive tax increase in one year. now, one of these tax in-- where did these tax increases come from? there are a number of tax provisions set to expire at the end of this year. unless action is taken to extend these provisions or make

them permanent, it will lead to an unheard of tax increase in january. about 1/3 of the tax increase also come from the expiration of the bush tax cuts from stwun to 2003. these tax cuts reduce the marginal rates for all americans and expanded the child tax credit, reduced the marriage penalty, increased the tax break for education costs. the majority of the tax benefits in these tax cuts were targeted towards the middle and lower income tax folks. about a quarter of the tax increase also come from the expiration of temporary payroll tax cuts that was created just two years ago. another quarter of the tax increase also come from the expiration of the alternative minimum tax. with all this talk about creating the buffet rule, the president seems to forget that we already had the buffet rule in the a.m.t. the a.m.t. was created in 1969 to ensure that

155 high income household paying zero federal income taxes would pay income taxes. unfortunately it was never indexed to inflation. so more and more americans become entangled in the a.m.t. and today the a.m.t. threatens to hit most americans in the middle class and is regularly patched to protect taxpayers but never repealed. so unless it is dealt with, it will impact millions of middle class taxpayers. in 2013 we get a brand new tax courtesy of obamacare. it will be a 3.8% tax on wages and salaries over $250,000, and investment income over that same amount. while this seems like it won't affect most people, this tax can apply to unearned income. like capital gains from selling your home, affecting middle class families when they sell property, and like the a.m.t. tax penalty, this tax is not indexed to inflation, which

means that more and more americans will be affected by this tax over time. we also see the return of the death tax to its pre-bush levels when the maximum rate can be 55% of your estate. i believe there should be no taxation without respiration. that is you have to be breathing. it is wrong to tax a business or family farm when it's transferred from parent to child. this tax has hurt family farms and family businesses with children have been forced to sell the businesses or farm because they could not afford to pay the death tax. federal reserve chairman ben bernanke has reserved to all these expiring tax provisions as a massive, massive fiscal cliff. so when we talk about taxes, we usually project the increase or -- increases but this is going to be immediate in the year 2013, january 1.

there's been failure of leadership in the white house. instead of president doubles down on his he ewlecks year rhetoric, instead propose as slew, a slew of new taxes on americans and companies. you do not raise taxes during a recession, raising taxes will halt what little economic growth we have over the last three years and returns to the days of double-digit unemployment. the speaker pro tempore: the chair recognizes the gentleman from texas, mr. green, for five minutes. mr. green: thank you, mr. speaker. i ask unanimous consent to revise and extend my remarks. the speaker pro tempore: without objection. mr. green: mr. speaker, stayed i rise to commemorate the 176th anniversary of the battle of an jew sin toe. last saturday the state of texas celebrated april 21, 1836, forces led by houston

decided a blow to santa ana. several weeks after the signing of the texas declaration of independence in march, 1836, roughly 900 members of the texas army overpowered a much larger mexican army in a surprise attack. texas soldiers ran and shouted remember the alamo, some 700 mexican soldiers were killed and 730 captured by -- while only nine texans died. general santa ana was captured the following day. the battle is memorialized along the an jacinta river. it's in our congressional district. god bless texas and god bless the united states of america. i yield back my time. the speaker pro tempore: pursuant to clause 12-a of rule 1, the chair declares the house

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>> secretary leon panetta says the u.s. is preparing fonings military options in syria. testifying before congress he said diplomatic not military efforts remain the focus for trying the president to step aside. he testified alongside general martin democracy, chairman of the joint chiefs of staff, for an hour and 45 minutes. >> the committee will be in order. i was just informed that first votes could happen between 10:10 and 10:25. the secretary has a hard closed time at 12:30, so we are going to be as expeditious as we possibly can here. good morning, ladies and gentlemen. the house armed services

committee meets today to receive testimony on the security situation in syria from the secretary of defense, the honorable leon panetta. and chairman joint chiefs of staff general martin democracy. gentlemen, thank you for your distinguished service to our nation and thank you for being here today. >> even though asawed has committed to the cease-fire, reports indicate that he continues to inflict violence on the syrian people.

>> the program will get a lot bigger than it's been. the trustees did say congress should act. what did they say on medicare? guest: they weren't very specific about what they want. but they just pointed out that this is an unsustainable path, and they also pointed out even with the projections that they have given, that there are some unrealistic policy expectations into those numbers so it could be worse than it is. other than that better for congress to act sooner so everyone can adjust to the new reality and can you have good pol sane providers can adjust and beneficiaries can adjust instead of waiting until a crisis moment. host: here's one report. in the absence of wider changes being made by congress to

address medicare's long-term imbalance, the trustees said lawmakers would need to increase the 2.9% payroll tax by 47%, or cut the program's expenditures by 26%. guest: that's right. the trust fund is paid for through this medicare payroll tax. certainly historically there have been many predictions over the years that the trust fund is going to run out of money. what's happened historically is congress hags raised both tax to make up for that shortfall. it never has gone into default before. >> you said there are presumptions in the trustees' reports. what are some of those based on current law? >> a couple of things. the big one is that the house passed in 2010 did things to constrain the growth of medicare, the bending the cost curve. and one of the things that it did was it lowered the rate at which hospitals get pay raises each year on the assumption that productivity was going to improve. what the trustees report says is that that's good -- they are

unprecedented in health care. who knows if they can achieve them. also on the doctor side a couple of things. one is this thing called the sustainable growth rate we talk about every year. it was this program that congress passed in 1997 to try to make doctors more efficient. host: i'll say the lang a wadge for viewers hearing the doc fix. guest: it's what we do every year to deal with the form louisiana what it would do is cut doctor's pay raise every year. congress doesn't want to do that so they put in a patch. so the assumptions in the medicare trustees' report they assume next year that doctors are going to get a 30% pay cut and continue to get cuts after that every year. that probably won't happen. there's also in the law there is a board that is supposed to be appointed to constrain the future by a set target. there's been some push back in congress against that and there's possibility congress will roll that back. if they do you can see those growing.

host: we are talking about the fuhr of medicare here. john a republican in florida, go ahead. caller: don't hang up until i get done. the reason our social security is going broke they got almost a million illegal aliens -- are you on the phone? host: we are listening. what do you mean? caller: they let a million illegal aliens in our social security and medicare. please don't say they are not because they slipped away it's always been proved. host: john, what is the evidence of that? caller: you-all had it on your show here a year ago. i have heard it through the congress. all these lawyers is advertising on tv come, come on down. sign up. we'll get you on disability, social security. it's all over the tv. judge judy, all you have to do is watch her and see these people come on there and they are not disabled. host: john. we are going to be talking about the issue of immigration, illegal, the arizona immigration

law in a round table discussion at 8:30 a.m. eastern time. who is eligible for medicare? guest: medicare is eligible to u.s. citizens. over the age of 65. it's a entitlement program once you are 65 you can sign up for medicare. everyone gets into the hospital program. the part that is covered by the hospital trust fund. and then the other parts which deal with doctors is the prescription drugs, can sign up for and pay a premium and get into that part, too. host: democratic caller, meridian, mississippi, you're up next. caller: yes, i feel like we are just being suckereded more or less by our politicians -- suckered more or less by our politicians. the budget should not be that big of a problem. i have a three-pronged idea that i think that could solve a lot of our problems. we could put it into medicaid or social security and shore it up. the wealthiest americans should

pay their fair share. secondly, even -- you should not get more money back on your income tax than you pay in. and third, our churches are the biggest welfare recipients of all. everything their petitioners pay in is tax deductible. they don't pay taxes. they should pay that 10% to the federal government for medicare and social security. it should be targeted for that. and that would go a long way en shuring that our citizens have health care and the poorest of americans' social security is secure. i'm challenging at least one religious leader to come out and say that they should do that. they should at this taxes at least 10%. host: caroline. we got your point. yesterday during the briefing by the treasury department and health and human services secretary about this trustees'

report, secretary see we'llous -- sebelius talked about medicare anti-current situation. >> today's trustee report confirms that medicare is in a much stronger position it was a few years ago thanks to the affordable care act. without the health care law, the hospital insurance trust fund would be exhausted in 2016, just four years from now. as a result of the law, we have added another eight years to its life. putting medicare on much more solid ground. the law does this through a range of reforms. from cracking down on fraud to helping providers prevent costly medical errors, to reducing excess payments to medicare advantage plans. the report our department released today shows this first wave of reforms will save medicare more than $200 billion by 2016. host: what number is she

pointing to to show that medicare is stronger than it was four years ago because of the health care law? guest: the health care law actually sets a budget for medicare growth over the future. it says that the independent payment advisory board will have to -- do things to influence what providers are paid to keep the growth of the program on a budget no more than 1% greater than g.d.p. growth per person in the program. so because of that and because of some of these other adjustments to the payment rates that hospitals get and some reductions to medicare advantage plans comes to about $500 billion in savings. so it is true that the health care law does save medicare some money over the long term. she makes the argument that this policy going to lead to long-term sustainability and i think that is a stretch. the procedure did say only enough money to last until 2024. host: then this headline, medicare bonuses are bogus,

republicans see the pre-election ploy. host: what is this all about? guest: this is about this program called medicare advantage which is instead of being in regular medicare seniors have a choice of joining a private plan instead. the federal government pays those plans a little more than it would pay if they were enrolled in normal medicare. one of the waste the cost savings was achieved, they cut the tax breaks amount they were going to pay those programs and it was going to be a big cut and there were projection as lot of people were going to leave those programs as a result. what the government did, what the h.h.s. department did is they created this payment pilot program where they basically put some more money back. what they said is the idea was to have incentives for those programs to hit certain quality targets. if they improve their quality

they would get a bonus payment. what the g.a.o. report said is that this was just a way of shifting money around and giving them back some of what they had lost. it wasn't the sort of thing h.h.s. should have been doing. host: gary an independent, you are on the air. talking about the future of medicare. caller: good morning. i have a question i see that -- 48 million people that enrolled last year, how many people left because they died? i couldn't find -- host: we'll ask our guest here. do we know that number? is that something they track? guest: they do track. i think the number of people entering the program is many more people leaving the program due to death. host: debra, a republican, cincinnati, ohio.

caller: my main question is, all of this is -- you tell people every year or every six months or whatever the new cycle is we are going to end medicare, we are going to end medicare. i don't really see that feasible or possible. these people have to be taken care of. i'm hoping 20 years from now when i'm of retirement age that medicare will still be for me. when you start talking about ending medicare, talking about how they are going to fund it and actually what -- you keep talking about these numbers and the budget and billions of dollars. people don't -- i don't even understand it. i try to follow c-span and news and listen to things. could you really explain what this means for individual peoples' lives and what it means if we don't have it? i feel like it's all about scaring people into -- i don't

know. whatever it is you want us to think, but not really about what we need to do to fund this and really help people. can we speak to that point? guest: the first thing i would say not give the trustees too hard a time. they are required by law to come out with this report and give congress a report. i don't think they are scaring everyone. those are good questions. that's the reason why we have this system where there's a report to congress every year. congress is the body that has the ability to decide how they'll make medicare work better. some of that could be as you said increase taxes. some could be cuts to benefits. some could be asking people who receive medicare to pay a larger share. on and on. but the republicans have proposed changing the format of the medicare system so that more people go into private plans and the hope is that those private plans will do a bert job of controlling the cost curve. host: who serves on this social security and medicare trustee

committee? >> it's a number of cabinet officials, the secretary of health and human services, the secretary of the treasury, the secretary of labor. and the secretary of the social security. and then there are a couple of independent economists on the trustee board, too. host: the caller talks about she keeps hearing about these reports. they date back to 1970. the ezra klein column written yesterday coats nothse that the trustee reports from the 1970's said the year of insolsen have i then would be 1972. it goes through every year's report and the years of insolvency. 1991 the year of -- 1997 the years of the trustee's report, year of insolsolsen have i, 2001. what keeps happening? guest: the main thing is congress does raise the taxes used to pay for this fund. host: the payroll tax? guest: that pays for medicare.

but i think something that's worth noting is, yes, we have had -- there has been a lot of crying wolf in the past maybe we shouldn't worry about these numbers. i will say there is a demographic pressure on medicare we are experiencing now is different than the past a number of people entering the program it is a big increase. host: the baby boomers. if you look at this chart, entitle growing as the share of g.d.p. the green line represents both medicare and social security combined. the red is medicare and the percentage of g.d.p. by 2085 goes to almost 15% of g.d.p. john, democratic caller in camden, missouri, good morning. caller: good morning. when is congress going to start questioning these hospitals and doctors about their charges and their fees? about two months ago i'm on blood thinners, i have had heart

attack and open heart surgery. i'm on all kinds of blood thinners. about two weeks ago i was 40 miles from home and got a bloody nose from sneezing. stopped at the emergency room. i was there for an hour, five minutes with a nurse's aide, five minutes with a nurse, five minutes with a doctor. two weeks later i got a hospital bill for $1,400 for the time in the hospital to get a piece of gauze stuck in my nose. $250,000 for open heart surgery. $29,000 for a one-night stay in the hospital. somebody has got to hold some hearings and question why these hospitals are charging this much and medicare is paying for it all. host: we'll take that question. the cost of health care and

medicare and how much they pay. guest: i think it's a huge question. there is a debate all the time about how fast health care costs are rising, what we can do to control them. it is true that medicare pays less than other payers in the system. if you have a private insurance plan, they pay higher rates for alt things you just described than what medicare pays. medicare has been able to hold down its cost growth in some ways by price fixing. but a lot of what the affordable care act took account of was are there ways we can change the system that encourage maybe bert care, more efficient care, change the way doctors are paid so they have incentives to do things differently and keep people out of the hospital more. the jury is out on whether or not those things work. but there is some hope, i think, that some of those payment pilots now being experimented with right now may come up with some ideas that will lower the overall costs. host: we are talking about the future of medicare and the trustees' report that came out yesterday. let me give you some numbers from the "wall street journal."

this is the number of workers paying taxes per social security beneficiaries. in 2000 it was 3.4 works for each beneficiaries. the estimate for 2012 is 2.8 workers paying for each beneficiary. what do you make of those numbers? guest: this is demographics. i do think this is the main driver of why we are seeing difficulty how are we going to deal with the fact we have a lot of people aging into these programs and not as many people in the work force. host: chicago, morning, jerry. caller: i think she's partial-l answered my question. i retired in april at age 65. my job was filled within 30 days. all of these hundreds of thousands of people that have retired or are going to retire, why are these jobs not being filled so that there is a continuation of the payroll tax that supports medicare? it seems that these jobs are

going up in the air and i understand that a lot of people are not qualified to take the positions, but there's so many kids coming out of college now that are qualified i don't understand why our unemployment rate is as high as it is. people are retiring. replace them with the people that are younger and can sustain these jobs as well as social security. can you give me an answer? guest: that's a gli kated question because it gets at what's going on in the larger economy and why we are having a recession and why there's been difficulty in replacing the job growth that we used to have. the issue of -- host: the issue of health care and the cost of health care and the law came up last week when we had charles who serves on this medicare and social security -- guest: one of the trustees. host: he's a g.o.p. trustee. he came out with his own numbers about the cost of the health

care law to the budget. he was on our show. here's what he had to say and we'll talk about it. >> i would say it's the fact that the new cost commitments under the legislation substantially exceed the cost savings under the legislation. there are a lot of parts of this law. many of them cost a lot of monyism there is a very substantial expansion of medicaid that costs hundreds of billions of dollars over the next 10 years. there is the creation of these new health exchanges and necessities for these also costs hundreds of billions. there is also an extension of expansion of the spending authority of the medicare program. it would be able to send out full benefit payments for many more years. that also is a spending commitment or certainly an extended spending commitment that losses kyl money. you add those things together. compare them to the cost savings and other provisions of the law and the new costs exspeed the cost savings by over $340 billion, even in the best case scenario. host: explain what you heard

there. guest: what he's talking about are the things that the health care law things are not part of medicare. it is true many are expensive. the program sets up a system of tax credits to help people who have lower incomes pay for insurance. host: the health care law does. guest: the affordable care act. it also makes a big expansion of the medicaid program which is the state and federal program that takes care of poor and disabled people. a lot more people will be taken care of using that program and that's a big commitment of federal funds. medicare is where most of the savings have been achieved, as he points out those savings are being used to pay for some of these other new programs. host: clifford a republican, jacksonville. . flarks, go ahead. caller: my question is about number. i notice that you showed it was $509 billion for 2010, and then prior to that sebelius was trying to say there was savings of $530 billion. like you said it made it sound

like it was going to sustain it. that was only a one-year savings. if you looked at it. and also i was wondering about the number of people. do they use full employment to figure out how many people in the work force? or do they use the current work force numbers? host: do you know? guest: i don't know the answer to that. host: what about the first question in there about the numbers that sebelius gave medicare's past and future right now? guest: i think one thing that's important to know when they say in 2024 the trust fund will be in trouble, they don't mean there is zero dollars to pay for medicare. what it means the amount of money coming in will be less than the money going out. what sebelius said and report said is that the health care law basically buys the trust fund another eight years of being able to fully pay the bills. host: an earmark, the rising cost problem is medicare's privatization of hospitals.

what happened to the public community hospitals here in northern california and everywhere? privatization and profit taking in our health care system. that's the cause of the problem not the population who suffer from this change. guest: there have been big changes in the way the hospitals are organized in this country. there's been a lot of consolidation. hospitals being bought by large groups. these private for-profit hospitals, even though that's a smaller phenomenon. overall the growth these hospitals have more to do with people who have private insurance paying than people who have medicare and the taxpayers are paying for. medicare does have the ability to set prices and all hospitals have to accept that. host: medicare coverage, part of medicare coverage is hospitalization. in fact it covers the full cost of hospitalization. dr. visits, medicare pays about 80%, beneficiary pays 20%. medigap is private insurance covering costs not paid by medicare. can you exmaybe that a little

more. -- explain that a little more? guest: it doesn't pay for everything. there are limits on how much it will pay. so what a lot of seniors do they buy a private plan that covers that gap. that's why they call it medigap. it enables them not to worry about having a lot of financial exposure. host: joyce says in in email, medicare has clearly been underfunded by the baby boomer generation. now starting their collection of benefits. shouldn't the primary responsibility be borne by these recipients? it was their lax oversight of the government's lax oversight which caused this problem. they underfunded the benefits they expected to see. they should receive less or contribute more. brian, democrat in massachusetts. go ahead. caller: i was watching on the news that a country, don't know if it was taiwan or indonesia, looked to start a health care system for their country and they looked around the world and tried to find the best one. they found one where the

government owns all the hospitals and they -- the doctor gets $25 to see a patient. and they work 12 hours a day. they see about 60 patients a day. they are paying 7% of g.d.p. and we are paying 17% of g.d.p. for our health care. i think we need to do that. guest: it is true, if you look around the country and look at other western modern countries, the united states pays on average about twice as much per person for our health care system. and we don't have the best health outcomes. some of these measure measures you would think would be really good if we had a great health care system. our system is very expensive compared to other countries, but if you look at how other countries run their systems they have programs i think would be sort of very politically difficult to achieve. they mostly have government-run

single payer systems. host: do any other countries have a medicare-type system tem? guest: it's for everyone. the government is the payer for everyone's health care. host: there isn't another country that just has a program for the elderly? guest: i don't believe sorks no. host: mark, independent. bel air, ohio, good morning. caller: good morning. how are you? host: doing well. what's your question or comment? caller: it's kind of a question. i'm 55 years old i have been disabled since about 45. i worked for 32 years, had a full-time job. i'm a veteran. i have applied for social security and can't get it. but they talk about high social security is going bankrupt -- how social security is going bankrupt and medicaid will fall out from under it. yet our government lets these people that are 18 years old up to 35, 40 years old have never

had a job in their life and they are getting their s.s.i., they never paid taxes, yet they can go to a doctor and say that they can't work, they are bipolar, and they get their disability, and yet we have people in the country that are 55, 60 years old that are disabled and can't get anything. but yet all our money is going -- paying these people that has never really worked. and never paid into the system. yet it just -- these numbers just grow on a daily basis. guest: our social security system is set up to provide benefits to people who are disabled for various reasons. that's the way it's been established. so it is true that if you have a disability you can qualify for social security even if you haven't worked. often the reason why you haven't worked is because you have a

disability. host: the trustees report also dealing with social security what, did they have to say about that program yesterday? guest: social security also in trouble. compared to last year they said that social security has three years left. that's it. that fund will run out in 2033. host: what were the reasons why? guest: one is i believe they added another year on to their outlook on their prediction. i think again some of this is demographic. because of the economy people are paying less into the fund. we have this payroll tax so that's meant that some people aren't paying into the social security fund. so all those things play in. host: mark, independent caller. you are on the air. good morning, to you. this must not be mark. is this joan, a republican, rockville, maryland? caller: has. host: go ahead. caller: i think whenever the government gets involved in anything there is not going to

be waste and fraud, it's going to be what percentage of waste and fraud there's going to be. it's in student loans. it's in medicare. it's in -- whatever they do. so my question is, why can't we think more of privatization? i know that's a naughty word, but it works. let's take, for example, social security, which is sort of related. you know, if you want to give up medicare, you have a better plan through your employment, retirement, you have to give up social security. i don't think seniors know that. the obamacare has taken a half a trillion dollars out of medicare. it's going to be destroyed. host: is she correct?

half a trillion or half a million out of medicare? the health care law? guest: so 500 million. 500 billion. host: is she correct? guest: she is. that's part of what enables the trustees to say, you get eight more years in the medicare trust fund as a result of this law you because it did make those cuts. host: the call also brought up fraud. was that addressed yesterday? guest: it wasn't a major factor. there is fraud in the program. it's something the obama administration has taken on pretty aggressively. they recovered $4.1 billion back into the fund. that's not how much they found. that's how much they were able to get back. fraud is a problem. i think it's one they are trying to address better. as for her point about privatization, that is something that's very much on the table. the republicans in the house have two years in a row passed a ghauth would call for at least a partial privatization of the medicare program. and certainly many leading

republicans yesterday were saying this is evidence we need to consider that approach. host: that was the reaction on capitol hill. guest: yeah. host: what did democrats say? guest: mirrored what we just heard from sebelius, this is proof the health care reform law is working and helping medicare have a little bit of a more stable fuhr. host: when the supreme court rules in june on the health care law could that ruling impact medicare in a way? guest: there are a lot of choices. they can overrule one part. the whole thing. if they overrule the whole thing it could be problematic for medicare because there are changes of medicare that are part of that law and no one is sure what would it mean? we have to stop paying people? are we going to have to cancel these programs? i think the bad is a very big unknown. overturning is probably not the most likely outcome but a possibility. host: crystal in oklahoma city. caller: she just said something

that something i was wanting to talk about is. in that in the health care -- one of the provisions of the health care reform view that they would want to attack fraud which is -- takes up probably a lot more than the other kaler was talking about of people who are getting s.s.i. part of the -- to get rid of this massive massive, massive is the doctors out of the state of texas who had $350 million in fraud and he was a supporter of the tea party. and also donated part of his proceeds to the tea party movement. a lot of the people who fought

this health care reform act--who have joined forces people against obama because of his race. i wish they would be more forthright in the information and mott hold back. republicans are not winning their argument because they are telling the truth. they are winning the arguments because democrats are not forceably, they are not direct, and they are so slow in coming out with the information. thank you. host: carol, independent in philadelphia. caller: hi. my anaheim name is carol, good morning. my question to you is i recently have been approved for rehab hear in philadelphia for a head injury. and in consultation with my case management person at the hospital, i was told my level of care is now dictated by medicaid wean even though we are private pay blue cross, blue shield.

we can't get services we were able to get a few years ago for things like knee replacement and hip replacement because medicaid and medicare no longer pay for it. host: is that true? guest: do you know what the changes have been to the two programs? the medicaid program varies by state. every state has its own way of administering the program, it's own rules. there has been a movement in a lot of states to move to privatization of the medicaid and the manage the care model. some of the medicare models may stop covering things that were covered in the past. host: quickly the differences between those two programs medicare and medicaid? guest: medicare is for old people. every gets it. paid for by the federal government. medicaid is a program for the poor and disabled and it's administered half and half by the federal government and individual state. it has a lot of ghrecksibility about who qualifies for it and what kinds of -- flexibility about who qualifies for it and

what kinds of benefits they get. they standardized that so they would have to cover everyone below 133% of the federal poverty limit and basic service that is everyone gets. it's a hodgepodge. every state has something different. host: deborah in richmond, virginia. caller: hi. i almost worked 30 years and i had to have an emergency operation on my back where my disk was cutting into my spine. ok. now, what i'm seeing is thatter there are almost three times -- that there are almost three times of apartment of -- amount of people that don't even get a chance to use their medicare and social security because they die before their time compared to the number of people that you claim are growing older and older. what happens to all that money? what happens to all the money that immigrants who have to use false social security numbers

which taxes are taken out of those checks, they nemple would get a chance to use that. and don't even talk about the people who choose to get medicare rid and both of them are on medicare because they are getting married one has to give it up. what happens to all that money? host: do we know? guest: that money goes back into the system and that's accounted for in this report. even though some people die early and don't consume as many resources, there is still not going to be enough to take us out long-term. host: hollywood, florida. democratic caller cofment i'll make a brief comment. thank you for taking my call. i fear that this drive for mass privatization and the elimination of government is frightening. it is a word which i think plagues the republican party. that's fascism. i think growing fascism in the

republican party. they are not conservative. they won't be happy until they privatization everything in god's creation and they frighten me because this is exactly -- god forbid -- thank you, thank god they didn't. but these people, these republicans are ruthless. and it's a neoconservatism which is nothing but fascism. host: mickey an independent in new jersey. caller: vineland, new jersey. i think this, i think the shortfalls in social security are because the politicians have used the money for other purposes i think to solve it they ought to tax political donations and put it back in social security. host: the health care reporter,

but two phone calls there about congress and what they have or have not done. what do you think happens with this trustees report that came out yesterday and capitol hill? guest: i think given the current political climate not very much. i think we'll hear from both sides and they'll continue to say what we heard yesterday, republicans, especially republicans in the house, and governor romney who looks to be the republican nominee for president, they both are in favor of these partial privatization plans for medicare. i think they'll use this data as evidence that we need to make a major change in medicare and this is the way to go. i think democrats will continue to say, ok, there's still problems with medicare, but it's bert than it was before and our health care reform law is right way to do it without take ag way benefits that seniors like. host: in the governor-led house any plans to bring up specific legislation to deal with medicare or dealing with the president's affordable care act? and then in the senate where it's led by democrats what are the plans over there? guest: the house actually has already passed a bill that was the ryan budget that would have

included this transformation of the medicare program. these not going anywhere. and there have been attempts on the house side to pear back some parts. one is this independent payment. advisory point of order a quorum is not present that's supposed to hold down the price increases in medicare in the future. one of the things the trustees said is that it's a real possibility that that board will be able to rule and they did a separate projection about what was going to happen, as you may imagine the program is planning to get more extensive without that. host: oklahoma. good morning, ron. caller: hello. my question is what happens to the millions of dollars in i.o.u.'s for money borrowed by our government? and then taken away from the social security funds and the medicare funds? guest: we talk about these trust funds, like they are real trust

funds, bank accounts, and the money has been socked away for all these years. it's not true. they are kind of really an accounting tool. we count how much money has been paid in and how much we are paying out. we know there are theoretically some reserves in the past that will pay some of the shortfall. the truth is all this money is in the budget. the government spnds the money -- spends the money coming in and they have to borrow to make up the difference in the future in this universe we are in now where there are major deficits, money is coming from other places to pay for social security and medicare. host: the money goes into the treasury? guest: as a practical matter the money gets shifted around as long as there this separate accounting for what they are entitled to oferte long term. host: by calling it a trust fund it's really on the books, binding this money has to be paid out. guest: exactly. host: sal, democratic caller in new york. caller: medicare's really great. but the only big problem i see

with it is not you is the doctors. for example, my brother-in-law had cancer and they take advantage of you. they knew he was going to die and every time he went for radiation, only for a who have hour, they averaged him $3,000 a visit. now, if that's not a report for the scam. it seems like the doctors really take advantage of this. when they know that they got you and you're really sick, they getway with charging you anything they want. i think that's what we need to do is concentrate on these doctors and make sure they are not ripping off the system. and this whole thing about 2024, it seems like everything is 2024. they say all this money was wasted in afghanistan and all the troops are going over there? we would have plenty of amongy for medicare. host: doctors and their role in all this. guest: i mean i think it's really widely acknowledge we have a health care system that has a lot of problems, unnecessary spenged. not just the fraud we were

talking about before. people aren't getting primary care so they get sicker and have to be hospitalized. or getting two drugs that indact and cause a reaction and no one noticed until it was too late. there are things we can do to make our health care system less expensive and make sure people are getting appropriate care and not spending on stuff that is unnecessary. medicare does have set price that is they pay for things. most private insurers, do, too. they negotiate with hospitals. host: one last phone call here for you. mike an independent in texas. good morning. caller: good morning. i just wanted to say that 48.7 million joined in 2011, that's 12.5% of the population. so i don't think that that's a correct number. i think that would probably be the total number of persons in. host: you're right. you're right. absolutely. caller: number two, the great

governor of florida was fined $1st8 billion for -- $1.8 billion for overcharging medicare. and his defense was,dy it because everybody else was. so i think if he were fined and he probably got a lot more than $1.8 billion, that there's a great many other health companies out there that did the same thing that we should go after. under criminal laws not civil laws. host: anything there to respond to? guest: there has been an increase in kind of investigation and prosecution of people who are scamming the medicare system. i think it's a big program. the system is set up to pay the bills first and figure out about the fraud later. i think there are some -- there is an acknowledgement i think both by republicans and democrats. i think this was they were trying to make it better and reduce some of the fraud.

host: margaret sanger, thanks for talking to our viewers about this trustees report. guest: thanks for having me. >> legislative work in the u.s. house will get under way at 2:00 p.m. eastern, just over an hour from now. members will work on six bills under suspension of the rules dealing with federal lands and airport in minnesota. live coverage of the house here on c-span starting at 2:00 p.m. eastern. shortly we will go live to president obama. he's at the university of north carolina this afternoon where he's expected to launch an effort to get congress to prevent interest rates on student loans from increasing. live coverage of the president starts at 1:15 eastern. we'll have him here on c-span. also coming up today on booktv.org. rodney king on his new book which recounts his life at the days and years of the video recording of his beating by los angeles bliss officer on march 3, 1991. that will be live today. it starts at 6:30 eastern on our

website, booktv.org. again president obama live from the university of north carolina. until then your phone calls from this morning's "washington journal." host: we are back in open fonets this morning for the remainder of today's "washington journal." you can weigh in on anything you have seen in the program or what's in the newspapers this morning. let me give you a flavor of the headlines on the front pages. here's "the washington post," pentagon revamps its spying program. this new unit is to work closely with the c.i.a. as military moves to expand its reach. host: in an of the to bolster operations overseas at a time when the missions of the agency and military increasingly converge. it's a new agency being formed at the pentagon. financial times has this headline about the financial

situation in europe. leaders face austerity backlash both in germany and france and the netherlands as well. that's the financial times. then "usa today" on the domestic front has this headline about financial illiteracy with the youth in this country. millennials are the latest generation to struggle with dollars and cents. yet this enduring national problem isn't getting better. they go through the number. 25,000 is the average in student debt for the class of 2010. $1,800 is the average credit card debt for those 20 to 29. 12.4% the unemployment rate. 13 states require high school students to take a personal financial class. and 60% of 18 to 34-year-olds are not keeping a budget. on this issue of zuent debt, president obama to talk about it later today. 1:00 p.m. eastern time at the university of north carolina. look for our coverage go to c-span.org.

on the issue both prom and former massachusetts governor mitt romney agree that the loan rate should not double in july as it is set to do. more than seven million students need to take out new loans this year face a doubling in student loan interest rates under the popular stafford loan program, unless congress votes to keep current rates in place. some republicans in congress, though, have been reluctant to extend the current loan rates because of the cost to taxpayers, roughly $6 billion a year. that's the latest on student loans. then "los angeles times" this morning, their front page, they have a picture here of the former senator from north carolina, john edwards, and former vice president pick, former presidential candidate, john edwards, arrives with his daughter kate for the first day of his trial yesterday on charges of violating federal campaign finance laws. first to testify was a former edwards aide who is now the prosecution's chief witness. that was andrew young.