anniversary at the museum tonight. ambassador ginsberg. what's next for you? >> guest: we want to see how much money we raise tonight and go on to finish generation entrepreneur our television series of training. we'll wind up doing more educational program focusing largely at this point in time on women and issues involving the young demographic that's changing and reaching out to them and helping to educate them on energy tremendous personal opportunities. >> president of laylina. thanks for coming in. >> thanks for having me. >> that always for "washington journal" we'll be back at 7:00 tomorrow mornle. we'll head into the house of representatives and the urban affairs committee where j.p. morgan chase will look at loss and financial regulation oversight.

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the speaker pro tempore: the house will be in order. the chair lays before the house a communication from the speaker. the clerk: the speaker's room, washington, d.c., may 22, 2012. i hereby appoint the honorable roscoe g. bartlett to act as speaker pro tempore on this day. signed, john a. boehner, speaker of the house of representatives. the speaker pro tempore: the prayer will be offered by the guest chaplain, monsignor steven rosetti, associate propetsor. the chaplain: good and gracious god, it is your spirit that leads us on the straight path.

in these challenging days, may we be open to being led by this spirit. may we be so docile to your divine guidance that all of us will work together with one heart for the betterment of all. finally, we know that one day your spirit will lead us safely home. with this saving knowledge and guided by this same spirit, we now step forward into the future with confidence and hope. we make this prayer in your holy name. amen. the speaker pro tempore: please join me in the pledge of allegiance to the flag. i pledge allegiance to the flag of the united states of america and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the chair has examined the journal of the last day's

proceedings and announces to the house his approval thereof. pursuant to clause 1 of rule 1 the journal stands approved. without objection, the house stands adjourned until 10:00 a.m. on friday, may

>> senator tim johnson just opening the hearing with the f.c.c. chair and also the head of the commodities future commission. live coverage here on c-span.

according to a recent report. regulators have met only one third of the dad frank dead lines and while there's no question that the rule writing process mandated by frank makes it very difficult to meet some of these deadlines the regulators share cull ability

here. although they have promoted new rules for drive itives they have still not proposed rules that clarify the definition of a swap. let me repeat that. almost two years after the passage. giving the c ftc and fcc jurisdiction on the swap markets they've not still agreed on a definition of a swap yet they finalize rules based on swap dealers and major swap participants. if market participants don't know which activities will fall under swap definition how can they be expected to know whether these activities are subject to the patch-work of registration. record keeping and clearing and trading rules and if market participants do not know if their activities will cause them to be classified as a swap

dealer dealer, how can they be expected to know when to submit comments. this is one example of how dodd frank has created uncertainty in markets at thes american market continues to struggle and the fall out from the on-going european crisis. the last thing i believe we need are self-inflicted wounds. this include those inflicted by congress. regulators and most recently poorly concede trading and hedging activities in one of our largest banks. today's hearing presents here in the banking committee an opportunity to discuss all of these and how they can be avoided in the future. i thank you for calling this hearing. >> thank you senator shelby. i would like to introduce our witnesses of whom are neither strangers to this committee. the head of the u.s. exchange

commission and chairman and head of the commodity futures trading commission. we appreciate both of you for taking time-out of your schedules for being with us today. please begin your testimony. >> ranking member shelby and members of the committee. i appreciate the opportunity to testify regarding on-going implementation of title seven of the dodd frank act. it creates a new regime and directs to write a number of rules necessary to implement. of course title 7 is just one of the many areas ranging from credit rate together private fund and municipal advisor to disclosures where the fcc is charged with writing rules. the f.c.c. has proposed or adopted rules for over 3/4 of

over 90 provisions in the act that mandate f.c.c. rule making. additionally it's finalized 14 of the more than 20 reports or studies that it directs us to complete and commission has proposed almost all the rules requireed by title seven. we're continuing to work diligently to have all the provisions and other rules we're charged and with the other domestic and foreign regulators. under the act. regulatory authority over swaps is divided. the law a zioned the f.c.c. the authority to regulate security based swaps while the c ftc primary authority is over the bulk of the derivative market. to rebuts transparency and similarly the and security based swaps to reduce counter party

risk. they're also designed to enhance investor swap transactions and mitigating conflicts of interest. by promoting efficiency and stability this framework is intended to fast another more stable and conservative competitive market in the staffs of the cf tc and other financial regulators in particular commission staff is coordinated extensively with staff in development of the definition rules including joint rules for the defining key product terms and rules further defining categories of market participants that we adopted last month. although the timing and the sequences of the f.c.c. rules making may vary they're the subject of interagency discussions and the objective of consistent and comparable requirements will continue to

guide our efforts the act specifically requires that the f.c.c., the c ftc and regulators consult with foreign regulatory authorities in international standards. the commission is actively working with regulators to a the regulation of derivatives encouraging development of rules and standards complimentary to our own. the commission expects to complete the last of the core elements of our proposed phase. in particular rules related to the financial responsibility of swap dealers and major security based swap participants. it's finalizing how the substantive requirements under title seven will be put into effect. this policy statement are establishing workable sequence and time leadership for the implementation of these rules as a practical matter certain rules will go into effect before

others can be implementing and reasonable but not excessive time to apply with the new rules. this will let market know the expectations regarding ordering of the compliance date for various rules. relevant and national immre min tax will be addressed in a single proposal. your single letter asked i address recent tragd losss by j.p. morgan and chase. our best estimate is that it took place in the bang, london and perhaps other affiliates. although the commission does not discuss investigations public i can say in circumstances of this nature where the activity does not appear to have occured in our regulated entity the focus be on the appropriateness of

entities financial reporting and other disclosures in conclusion as we implement title seven we looking forward to continuing to work with congress, our fellow regulators home and a broad and members of the public. thank you for the progress of the implementation of title seven and i'll be happy to answer any questions. >> thank you. chairman. please begin your testimony. where's the cf tc on swaps market reform and over seeing markets for. chase chief investment office and third international progress on swaps reform and cross border applications. i welcome ranking member

shelby's questions and looking forward to chatting that with public and private as i would. a small agency is tasks with overseeing the futures markets and now with passage of frank a market nearly eight times larger the swaps market. given the new responsibilities we're significantly under-funded. a market oversight relies on market participants with laws and related rules and self regular lo treg regulatory rules and in addition we do rely on implementing rules. in that the c ftc has redone 33 to date. we have just under 20 to go. what do they do? bring trance barren stoi the market place and lower risk on central clearing of standardized swaps and lower risk by

regulating dealers. we're on track to finish the reforms this year but it's still very much standing up and we're also giving market time to phase in implementation to low tear cost and burdens on this very significant transition. to energy chr increase we have report together the public and regulators this summer. on clearing we finalize risk management and will seek public comment on which contracts would be under clearing mandate to. promote market integrity we've had antimanipulation rules and we're looking soon to finalize the end user exception. to lower risk of the swap dealers post to the economy at large we've completed rules requiring robust sales and joint rule with the f.c.c. on the

further definition of swap dealer and security based swap dealer. all this is tending to finalizeing the further definition of swap and security based swap. it is essential that the two commission's move forward to finalize this rule and i'm glad to say both commission's now have a draft of this rule that's been worked out through staff and hopefully we'll finalize this in the near term. we've made significant progress working with foreign regulators to bring a consistent approach and though not identical europe, japan and canada now all have made real progress legislatively and rule writing to bring similar reform. we're working on a consistent approach to global margin for uncleared swaps. it's important for a lot of reasons but let me no one reason. the c ftc proposed a rule that did not post more and we're at

slow kateing the same globally. wanted to make sure people know that in the end. the commission's also working on a balance approach to cross border applications of swaps reform. i think congress was guided buy aig with the london affiliate and actually along don branch. leyman bros.. city group and bersterns and even transactions that might be booked uh shore but nonetheless have a direct and significant effect on u.s. congress and activities that in essence a stark reminder of the last two weeks when j.p. morgan trading losses were overseas from trades that lost multi-billion dollars and the credit default swaps. the c ftc division of enforcement has open investigation related to credit derivative products credited by j.p. morgan's chief investment office and although i'm unable to give you specific information

i'll touch on the commissionest role in overseeing the markets. we have oversight and clear antifraud and antimanipulation fraud regarding trade of de fraud and the clearing houses that we see clearing these products. starting this summer there will be real time report together the public. later this year we envision the dealers to begin to register and trading will commence on swap execution facilities so we're in the midst of implementation that will take still some time in conclusion we've made great progress to the swaps market lowerring risk. it's critical we complete these for the credit toift protectio public. >> thank you for your testimony. as we ask questions i'll ask the clock have five minutes for each member. what role did you and your

agencies have in monitoring this swap trades at issue in the j.p. morgan matter? and were any concerns raised about the trades at either agency. what changes will the derivatives reforms bring to the regulation of these types of trades and what are the potential in filtrations for the role. chairman, please start? >> as i mentioned, and more in depth in my written remarks we're in the midst of standing up regime that will still take some time but the credit to it fault swap parts of products reported in the j.p. morgan was trading already come under antifraud and antimanipulation

regime. three clear credit default swap entity is. later this year we anticipate seeking public comment on having a clearing mandate so that more of these trades will come into the clearing house. currently it's just dealers to dealers. later this year we'll have rae gym that actually i think dealers will start to register, but this bank was not yet as a swap dealer because we don't yet have complete rules to make that a true being and maybe in the end o 2013 you'll start to see the commencement of trade and transparent markets. we're not trying to do this against a clock but trying to get it balanced. congress gave us one year to get the job done and we're pushing on two years. i do think the job needs to get done but take ten 30,000 comments we've received. you ask when it came to our attention? with matters like this i don't

want to get in specifics of an investigation but as press reports have shown these are credit to fault swap under our jurisdiction and the clearing houses we monitor on a real time daily basis for the completeness of the margin and the clearing houses. >> pearl? >> thank you. to the best of our understanding none of the trance saxes were held in or executeed in the u.s. broker deal. the activity took place in the london branch of the london bank and affiliate investment bank unit so the f.c.c. did not have any direct oversight or knowledge of the transactions. i would reiterate what chairman said, is the ruled had been in place these positions likely would have all been cleared. some substantial number were but not only all of them were

cleared but they would have likely been reported to a swap state repository and detailed transparency to regulators and public. under the f.c.c.'s proposed rules for reporting we would have known them as well who put the positions on. the dealer would have been registered and subject to business conduct standards and they would also operate under new rules for enhanced supervision. think there are a number of pieces that would be in place once all of the proposald to implement are completed. >> chairman, can you commit to us the f.c.c. will implement the last of your proposed to rules in the coming months and that you will prioritize within the f.c.c. the importance of

enacting the final rules and a timely manners in >> absolutely mr. chairman we have the last piece of proposing rules and financial responsibility rules for swap dealers and major swap market participants. i hope we'll issue that. two there key pieces from f.c.c.'s perspective. one as i spoke about in my testimony the implementation plan we'll lay out in a policy statement our views on how the rules should be implemented and what the compliance time-lines would look like and we'll see comment on that and finally across border release that will talk about the application of each of our rules to cross boarder board activity or entities and we want to pro o post that release before we adopt final rules beyond the definitionle rules. >> senator shelby? >> thank you mr. chairman.

a lot of people have been basically saying that chairman, that the sec and in the dark that you didn't know what was going on atjp more gavenlt we don't know that yet, but when did you first learn about these trades? >> i would say that the trades that came to many of our attentions personal attention with press reports. but our staff was aware of trades that are in the clearing houses because they monitor the clearing houses daily in an aggregate basis for the clearing house rest and that the clearing house is fully collecting margin to protect the risk of the clearing houses. again, we don't regulate j.p. morgan chase as a swap does he

recall yet but we do regulate the clearing houses and then have antifraud and antimanipulation. >> did you know what was going on there in such a large position that j.p. morgan has taken here? >> well, again. >> were you in the dark? or did you know what was going on? >> it's in transition to speak about this. our oversight of the careerlear houses give us a lot of win goes the clears house that have 27 members and the margin collected there. that's not the full j.p. morgan picture because they have a lot of swaps not cleared. that would have been a principal regulatory in terms of the bank we don't have that. >> you didn't know what was going on. or the problem with the trade until you read the press reports like us? >> that's what i've said, yes,

sir. >> chairman shapishapiro, where the f.c.c.? did they know what was going on and if not, why not? >> they became aware of the activity in press reports back in april when the london well trading was first reported on. just to remind everyone. this activity did not take place in a broker dealer and we don't have oversight responsibility over the broad based cdx index products that were the subject of much of the trading although i think there's still much to learn here about the full - >> what was your responsibility as you see it's a chairman of the f.c.c. looking to try and find out what happened atj m morgan chase? what's your responsibility? >> our focus is on whether the company's public disclosure and financial reporting is accurate in light of what the press has teed up as what did they know

and when did they know it? >> and if they knew something, say a month earlier that was going wrong, should they have disclosed that to the sec the c ftc and is that what you're trying to find out now? >> that's what we're investigating right now. to what were their earning release statements and theirq 1 financial reports accurate and truthful. >> but you're in the investigation of that now >> yes, sir. >> what do they know inside? when did they know it and what should they have divulged? correct? >> yes and as congress gave the similar authority to the sec we didn't form early have a strong and antifraud and antimanipulation authority that included deceptive practices that's part of this new authority that we have so we have currently oversighted the

clearing houses and then of course this on-going investigation that i don't want to go into the particulars because it's really just best not to compromise the investigation itself but it's in that realm. >> chairman of the f or c ftc. you basically are telling us you didn't know there was a problem there until you read the press reports? >> i think that is accurate. we're standing up regime. we don't have any regulatory oversight of j.p. morgan chase the bank. we will when they register as a swap dealer but they're not currently registered as that. we have oversight of futures merchant. >> there's nothing, no man's land. there's things that have not crystallizeed in a regulatory fashion yet over such a big bank? >> the bank is over seen by

banning regulators but under frank the market - we will stand up and over see swap dealing activity in a bank or an affiliate of the bank or securities based swap activity but currently the american public is not protected in that way. >> chairman, were any of the trades conducted throughjp morgan's future commisioner? chant? >> not that i'm aware of. it may be upon further review but today the knowledge is no. >> thank you. senator menendez. >> at the last hearing on, m f global i asked the trustees who at the company was responsible for the wrong doing and they informed me their investigation was beginning to just determine that. i want to ask you the same question. can you shed light at this

point? >> not at this point, no, sir. >> so you do not know at this point who is responsible for what took place there? >> i think the agencies collectively including the criminal authorities are working hard to untangle exactly what happened at that firm. >> with reference to what happened at, j.p. morgan where the huge losses there take place, have you determined who is responsible at this point for that? >> no. as i said, our focus is very much because we do not regulate the london brand of j.p. morgan branch that's an o.o.c.. fed is open company regulator. our focus is on the quality of risk disclosure and specific disclosures as a public company. when they talk about potential and all the risk as a business when they talk about potential losses. under their model.

we are very focusd on the accuracy and timelyness of that disclosure. >> i just say that we're aware that it's primarily in the bank that much of this emanated from the london side of the bank and as news reports have suggested. credit derivative products are at the center of it. >> in reference to these investigations are they criminal or civil? >> the f.c.c. authority is simply civil not criminal. >> are you working with entities conducting criminal investigations? i believe the fbi has announced they have opened one and we will all work closely together even though. >> into which of the two i'm referring to. >> i think actually with respect to both. >> okay. so in essence, it's the agencies

that are conducting civil reviews, i assume and to text tenth that there are criminal reviews being conducted they're being conducted by law enforcement entities is that right? so it's not senate tar bank committee conducting those? >> i wouldn't think to tell them what to do or not. >> but at this is points a far as i know we're not. do you hope to intear pret the rule in in a way that what took place at j.p. morgan would not have taken place without real consequences? >> i think that we've obviously been thinking a lot about that and the volker rule is foremost of where we are in the comment letters but also because of this activity and it strikes me that the statute is pretty clear in order to rely on the risk

mitigating hedging exemption to the volker rule there has to be pretty strong criteria that needs to be met. whether or not thej m morgan trades meets those standards or not i don't think we have a view yet. they have to be correlated to the risk. they cannot give rise to significant new exposures but have to be subject to continue management. the compensation of the persons doing the trading cannot partake to outside risk or unnecessary risk and they have to import or importantly document the trades when the hedge is being done at a desk that's different than the position that's being hedged was done at. i think there's strong language there and what we need to do is take what happened to jp and

view it and see how that helps to inform it going forward. >> i think as one of those that supports the wall street the agencies will look at this broadly because if j.p. morgan lost 2 billion or slightly more through the trades what's to stop them from losing ten billion or even worse to stop another less capitalized bank from taking losses so large that could bring it down? is that the whole effort that we try to move here in the senate, which is to have the type of reform does not create the systemic risk that places everyone in america responsible for the decisions of large entities such as this and i hope that's thaw regulators at the end today understand that was the mission that the - all of us support at wall street reform want to see. >> thank you, chairman.

>> senator? >> thank you and thank both of you for your testimony. when an event like one that's just occurred happens in the middle of a rule-making process. that effects things. does it not? meaning that you have an example. a real live example and we have had this issue and realize it's a blip on the radar but it does effect the way rules end up being done. >> i believe it does in a more disas draws way. this is not that. >> as american people watch they wonder why we're having hearings and the point is that there's a lot happening at the regulator level and event like this ends up affecting things and it effects the rules and end up being created and i guess i have this fear i think much of what

we did was to you guys and the fact that you didn't do that. we did that but the fact that it's taking us two years to define what a swap is, is pretty incredible and it's because we never defined it offs to understand what a swap is, but the thing i guess i fear is in a rush to make it look like the o dodd frank legislation addressed the issues. what you may do. we never debated that institutions should be. we layered a lot on top. we have these highly complex organizations where even the ceo itself realizes he didn't know what happened in this london operation and i fear that you're under pressure that a lot of calls are being made that administration is concerned that american people will wake up and look at the last three years as

a bad dream. maybe the healthcare bill becomes unconstitutional. this big bill doesn't address maybe real time issues and that what you're going to do, is end up causing the volker rule to be something that it was never intended to be and would like for you to respond to that. in the process possibly making these highly complex organizations even morris i can than they already are. just a couple of comments in that regard. >> i think our job that you delegated or asked us to do is - i was trying to be more respectful to congress. >> you don't need to be. >> and i appreciate that. i think was to ensure that the american public gets the benefit of transparency and lower risk because firms will fail in the future as they have in the past and the critical thing is they

have a freedom to file and fail and the american public doesn't stand behind them. the one industry we do this around the dwloeb and that's why i'm so committed personally to getting this reform done. this circumstance i think is just a reminder in one area. i look at it as cross border application. whether lehman bros. or long-term capitol management who you might recall was a hedge fund that was set up in the kamans. just a reminder to make sure we get that part right. the london risk can come back and hurt the good folks. >> let me - is there a pressure though, to define what's occurred here in such a way that you may end up in the short-term making a piece of legislation look good. but in the process. causes a stir. a highly complex institution like this to be in a

position where they're not appropriately hedgeing the risk. >> we're most definitely public actors as you are as a member of this great body, the senate and we're influenced by we've had many meetings and this is part of the topic to dialogue but i think we have to just as we do get it balance and right and not if your concern is we can have the u.s. taxpayer come stand on them. >> my time is running out and by previous history i'll be cut off immediately. i do want to ask when you're making rules that you're making we do it here to the benefit of

co cost-benefit analysis. i know you know courts now are challenging rules and regulations because regulators are not doing that and secondly to ensure that we don't create another systemic risk by shifting off to these clearing houses, systemic risk that otherwise was held in other place so is think - i thank you for what you do and looking forward to the next hearing with banking regulators suppose to oversee these activities. thank you. >> thank you. and thank you all for your testimony. i wanted to start with returning to the basic premises of the volker rule creating a fire wall in the loan making institutions and hedge fund style investing and in the effort to create that fire wall, one of the issues was when banks were holding funds in between

making o loans how would they utilize those funds so they had liquidity but it was relatively safe so it's clearly not in the world of the basic statute for a notion of investing in government bonds as the safe place to put your money. the draft regulation had liquidity management proposal and it's not if we look at j.p. morgan they have 331 billion in fund that's were a waiting, if you will, lending out so. in between loans. unlike other institutions that largely put it in government bonds they took half and put it incorporate bonds. that started

this sequence of event that is the led to the 2-3 billion or greater loss and then they said, we have these corporate bonds and better protect against them dropping in value and they bought insurance and said well we have to pay for that so we'll sell it another form to create revenues to pray for that. and when the bets went bad they had to pay off that hasn't been focused on much. what's the appropriate place to put your funds in between making loans so that you're clearly in the deposit taking lone making business and not in the hedge fund business? >> i think that is a great question and the rational behind the liquidity management exclusion in the rules was to make sure that banking entities would have sufficient readily

marketable assets to meet the short-term liquidity needs and that's all critical to the safe and sound operation of a banking entity and there are requirements around that, it has to be a legitimate plan set out in the rule. the question you raised really requires us to go back and look at that and see if we carried that to his logical extreme. maybe we need to tighten this up and look at it more closely. that's what i think in response to the senator's question this is very instructive. it would be wrong for us not to take this real-life action example of the application of the cross border, provisions or the volker rule itself to use this example and to see what the impact would be of all the things we propose to do.

if you take the provision of the funds making new loans if you will can be invested in a huge variety of things and it's a gateway and has two impacts. inverts funds that were intended to be lent out the door reducing credit for businesses and families and second it introduces a lot of risk and complexity. chairman? >> well, as a derivatives and swaps regulator we're mostly focused on the implementation of volker rule with commisioner? chants and i don't have a many views of chairman and the management piece but if i can pick up on the second that was implied in there was we received a letter from jp morgan. all of us received on our side in february specifically saying that they thought we had to

loosen up or widen out the hedging exception. we're entrusted by congress to figure out how to prohibit it so taxpayers don't stand behind the institutions but prevent market making important to markets and hedging which helps lower risks of the institutions it's that challenge and it's not easy by the way but you were clear. it has to be tied specifically to aggregate things and congress is clear on that and it's instructive it was february 13th. j.p. morgan sent in like a 65 page letter and within that they said you have to leans up the portfolio hedging and this has to be looked at in the context of the february letter as well. >> okay. great. i'm out of time so we're going to return to senator.

>> thank you for being here. madame chair, i want to flo up on a few things you said that f.c.c. did not regulate the london branch that actually was something over on the o.o.c. side. and i'm trying to maybe take the next step here with my question. could this risk management that was being done by j.p. morgan have been done in such a way that it would be under your jurisdiction or are you just saying this doesn't fall within the purview of the powers given to me? >> if the trade where is done in an f.c.c. regulated entity. or ultimately when the rules are finalized security based swap dealer then it would be under the jurisdiction of the sec >> okay.

which of course raises another question. if i were running j.p. morgan. couldn't i just set this up in a way to avoid you? well that's an important issue that we're all wrestling within the context of the cross border release and how we'll apply our rules to activities that might not take place in the u.s. entity but might face a u.s. customer or take place in an affiliate of a u.s. entity or a branch over sees and those are the issues we'll lay out in the cross border release. i think generally a foreign entity with a foreign customer we with that can feel our title seven would not apply. but the foreign entity that's regulated registered with us with the doing business with a foreign customer would be subject to our

rules. including a branch of it operating in a different country or d title seven. we want to lay it out. >> one of the concerns about d dodd track and this area as you know it's been my concern. the more you crank it down the more the regulations become more and more own rousthis way the ge people are to hire smart lawyers and smart accountants and at the end of the day avoid you. >> that's why international efforts are engaged and they're critical here. pain-stakingly time consuming as we it is on a bilateral and multi a lateral basis as we sit through issues like pre trade and post trade transparency.

clearing mandate. the trading exchange trading mandate and work through each one of these issues to try to get the regulatory regime as comparable as possible so there isn't an opportunity for people to engage and just do their business in the least regulated market. if it faces u.s. customers and that is potential to impact the u.s. financial system we have to very seriously consider making that part of our mandate. >> mr. chairman i want your comments on this. before you comment, when you say you know and i have no doubt your work can harden the international arena and you want everyone to be as harmonized as they can be. i've worked there in the position much like yours and you know, we would work days, weeks. months. years with the "w" t o process with 50 countries trying to get

people on the same page. we were proposing they do and before i take all the time go ahead. mr. chairman because i could go on and on. >> senator, you're right on both points we will ultimately have differences. we're work well together but there's different political systems and again das. there will be differences and two, i think you're correct modern finance large complex financial institutions will rationally look to see if they can find the lowest tax regime and a counting regime that favors them or regulatory regime that they can put customer money at risk and less cap toitol and

rationally the large firms will do all of this. i did it with a cofinance officer for a large firm. we would set up 4-6 legal entities in every jurisdiction and long-term capitol management was in the kaman islands. and aig needed a bang license so they went to france and put a branch in london and the gentlemen that ran it was running it out of london and all that risk came back here. we have to be careful as chairman said, to say yes, there are costs on financial institutions and yes there will be differences overseas but the bigger cost is letting the american taxpayer be at risk so we're trying to cast this appropriately with direct and significant effect on u.s.

commerce or activities so that those transactions be in. if i was on the other side of the table representing them i would advocate something different than i am in this job right now, so it's an interesting challenge and we're not going to be as good as we hope to be. there will be something get by us in 3-6 years they say you figured out something in the islands or something. >> mr. chairman. thank you. senator reed. >> you've already indicated that you don't have direct jurisdiction over the j.p. morgan entity but in this collaborative rule making you're trying to define hedges in a way that covers the legitimate operations of financial institutions minimizing their risk without allowing speculation. there is this tension it seems.

the tension between risk management and profit making. i know you've - suggested so the criteria. you have anything else to in terms of the dilemma of defineing a hedge so it's protecting investments of the bank and clients but not opening it up to speculation? .

they morph into some things over time. we have been working hard with respect to compensation, that incentivizes out-sized risks taken that threatens people to take bigger risks than they should. the criteria are there. it is incumbent upon regulators to write a rule that allows the to the hedging to go forward as it needs to, but it must be risk-mitigating hedging and not anything people what to do, called hedging. >> another variation, we have

end-user exemptions. you could be doing hedging as an end user but you could also be very aggressive in your hedging. we sought an example in enron, it collapsed because of very aggressive use of derivatives. is there anything you are contemplating or anything you could do to anticipate this problem? >> connors anticipated it because they included major swap participants. congress set if you are not financial you can choose if you are involved in this clearing, trading, and we suggest you do get to choose on that, too. if you are so big that your major swap participant would be brought into this.

i think chairman shapiro said it very well. one thing i would add is this concept of portfolio hedging can mean different things to different people. what congress said, it has to be tied to specific risk of positions. this experience reminds us we have to make sure is tied to specific aggregate positions. it is not like we think revenues will go up, we like the european debt market these days. from my experience, these things sometimes mutate into something else come up when they are set up as a separate business unit and have a separate profit and loss statement. hedges generally lose money as many days as they make money because they are hedging something, the position is going up, the position makes money,

the hedge his and his money, and a hedge goes down. when you set up as a separate unit in a different country, different leadership, you start -- it is prone to morph. >> an initial reaction is that when the entity designed to be the risk manager and chastise everybody in the institution for being too aggressive or not responsive to risk is a major profit center. that might be a sign that the role is emerging in an unproductive way. a final point, you have pointed out the international interconnections here, which suggest that our regulations have to be not only strong, internationally applicable, but

we have people on the ground looking at these institutions. if an american institution is going to locate their activities overseas, the regulators should not only have been there, but they are enforced with adequate personnel to look at what was happening and be the first line of defense. >> i cannot speak to them, but the system we have at the cftc does not contemplate that. we have been kept reasonably small, 10% larger than we were in the 1990's, and we rely firmest -- for most on wall and the regulations. we examine the organizations, but we do not have people on- site at northeast merchant, at the clearing houses. that is the reality of our funding and thus the decisions

that had been made over the decades in a bipartisan way. >> when did you know when -- could you have anticipated recognizing the occ's responsibility that if they do not have people on the ground, you will not know until a reporter breaks the news and then a lot of damage can be done? >> agreed. >> the benefit will be when we have full reporting. the transparency to regulators will make a big difference. >> thank you both for being here. i would like to follow up on the discussion that chairman gens ler spent touching on, your views of purpose ability of hedging in the packet. used the expression about its portfolio hedging that is tied to specific positions. i am wondering if you could clarify that, because if you

type hedges to individual physicians, that is the opposite of hedging that has some kind of cumulative net risk. my question is, is it your view that it is and will continue be permissible as well as cost effective to manage interest rate and credit risk in the aggregate in these portfolios rather than limiting it to a one-off individual basis? >> congress addressed this and said this had to be tied to the hasidic rest of either individual or aggregate positions. tied to the specific risk of some aggregate positions. it has got to be tied -- >> a could be the aggregate interest rate risk of a bond portfolio -- >> that may have 170 bonds in its. >> you could measure that and codify that and measure that.

would the rule prescribe the kind of instruments permissible to use to hedge that kind of portfolio? >> as written now, it speaks to instruments that are reasonably correlated with the risk. it is all in that word " reasonably." >> who decides that? the regulators? >> the first quarter, the institution does, the firm does, but then there is a compliance program and regulators would -- >> the point of the rule would be to say this is permitted and this is not. that is the purpose of the rule. >> although as written, i would consider it more principles base, that the firm has that policies and procedures to ensure that their hedges are reasonably correlated to the

specific risk. >> again, the ultimate question in hedging is a question of who gets to decide. there is an inherent risk in hedging. it is not a complete offset. there is always some residual risk and always as subjective judgment call. in complex markets like ours, there are a lot of truth is available if somebody wants to hedge a portfolio. my concern goes to the heart of what dodd-frank is about, but given an impossible task. that is to micromanage the activities of these institutions. we will limit systemic risk by controlling everything you can do increase detail. let me give you an example. chairman mary schapiro give the challenges of the market-making exception.

company rules that we will impose on institutions, which will establish metrics, and they will quantify how much in quarm can be barred from the date-one offer spread versus what can be barred from office moves. we will have roles a much business and market maker must do with and it rulers -- uses. we will decide and have rules that will take out the to whether we can quantify these things at the level of the individual trader or will we acrobat several traders or the entire trading floor. how will we do this? we will have rules that will established which kinds of classes are permitted to hedge of risk.kinds can you short the s&p 500 on that can you use default swaps? this has a huge cost, not just

the cost of compliance, but it has the cost of less liquidity because traders have fewer options. it will lead to less innovation because people will be prescribed narrowly. it will have who knows what kinds of the unintended cuts is when people decide it is better to avoid this incredible micromanagement and go somewhere else. this is why i think we have gone down the wrong road here. the better solution is require more capital so we can let people do what they want to become let the people in the marketplace make the decisions, and let them live with consequences without having a tax payer at risk because we require a sufficient buffer that a firm could lose 1% of their capital and not have everybody sweating bullets. frankly, firms should make decisions and live with consequences and taxpayers should not be at risk. you do not she that i try to control every aspect of their business, which is what these

folks have to do. the alternative of tougher capital regimes achieves the goal of reducing systemic risk without putting us in the impossible position of trying to run these institutions. >> thank you, mr. chairman, and thank you for your comments to date and your commitments. in senator reid's discussion, you mentioned data collection, and will be ftc --- when it will this data be collected? >> the security based swap reporting data collection will begin when the rules are finalized, which they are not yet. i -- it is hard to me to predict

what the commission when we will have final adopting rules. hopefully sometime later this year. we have one set of rules left to propose and then we have done one final, we would do another final in the next month or so, and then a steady stream after that. it is important -- i am a big believer in transparency in the marketplace, and we have seen it work extremely well in other markets. we think it is critical for the public have access to this information and critical for regulators to have access to this information, that ultimately translates to management as well, to know the regulators and the public can see the information. when we have the rules in place, we will have a granular information right down to the trader and the trading desk, from which a particular transaction emanated. >> i would say and maybe to inator toomey's comments,

think trans fats is important, so in addition to capital transparency come out in the credit the ball swat industry area and in interest rates and so forth, they will be later this summer, as soon as august. then in the commodity, oil and gas and the others, three months after that. both for the public to see the trades, which is very big, and for the regulators as well. >> you and i have talked at length about that especially in the swaps market, and we agree transparency is critical to reducing the risk. the market north american investment grade you mentioned in your testimony only has received attention recently for the role it plays in the losses at jpmorgan of the. this index of credit default

swaps contract is a relatively transparent product. i would like the hear your thoughts on the transparency of a product such as suchcvx index and how that can reduce risk in the system, and how could we see such large losses in this tradeable product and what lessons do you think a financial institution will take from this incident? >> i think you are correct it is a standardized product right now. the dealers are into a clearing house, but as we complete the rules, the non dealer, the hedge fund positions, will also cut into the clearing house. regulators will have more transparency in the data repository. from the public right now there is not mandatory post-trade transparency and as that comes into being in the next several months there will be a benefit the public. we will see the pricing. we masked the sizes. if somebody did a large size

trade, it gets a plus at the end, whether it is at a hundred million dollars size or more. i think the public's will greatly benefit from such transparency in addition to the regulators. >> i wanted to ask about the value at risk. a metric that listed the financial institutions include in their filings -- can you discuss the value at risk and how it is used by the financial institutions and what are the work rules regarding its disclosure? >> sure. diarist estimates give you a confidence lever, potential of the client in a valuable possession or a portfolio under normal market conditions, and i would say that raises one of the witnesses that it does not

measure for you the maximum possible losses in a portfolio. these could be incurred during very stressed market conditions trip it has its limitations. public companies are required to discuss their risk and are given an option of three ways to go forward in their item 305 disclosure. when they have to give quantitative information, they can use a tabular presentation of information. they can do a sensitivity analysis or to embark disclosure. most institutions in fact choose to do that. they also have to discuss at the same time any material limitations on the model, what it is not telling about risk exposures, and when there are changes to the bar model as

newspapers have reported, at j.p. morgan, they changed their bark model. changes have to be disclosed. they also have to be publicly disclosed. >> have you followed that with the recent losses, how it impacted from the sec evaluations? >> our staff would look at cuts in the capital context, we allow certain firms, a small number, the use the bark to complete the market risk detection from the capitol. if they have large losses tumbled have them provide us with full information about why that their estimates of losses were so far off. >> thank you. >> my first question relates to funding. we have heard people being

critical, why did you not know more about this, and that takes staff. he had been given huge amounts of responsibilities, but without in my judgment the concomitant resources to fulfil those responsibilities. that is one of the reasons he thinks are taking long grip that they should. that is one of the reasons you're not everywhere. one of the greatest regrets in the bill is we have a proposal that did not affect the cftc, but it affected the sec that would have allowed all the levees on transactions to fund the sec, and we had a fight in the appropriations committee that insisted on not doing that. they have increased your funding but not to the extent it would have been under the proposal i had in dodd-frank. could you talk about the funding issue, especially in relation to the oversight you are being

asked to do by everyone on both sides of the aisle? >> we ask and ask to take on berries that can new responsibilities, but hedge funds that are not registered and overseen by the sec. municipal advisers, specialist corporate disclosure, a whistleblower program, quite a lot of new responsibilities. in fiscal year 2012, we asked for 116 position for dodd-frank implementation. we got a good budget for 2012, not as good if we would have been self-funded. the hiring is going on now for those new positions, and we have been able to attract tremendous cost to the sec in a different skill sets. >> what about investments in technology?

>> have make technology investments and the significant focus of our additional resources, and had been able to make dramatic improvements in the agency's technology. that set, which are still way out-gunned by the firms we regulate in terms of technology, but we are making steady progress in that regard. for 2013, when these rules will start to be in the fact and we will have the clear responsibility for oversight and monitoring of the security-based swaps market, we asked for an additional 200 cyndi 2 positions. >> that is a lot? >> that is a lot. >> what are the vibes on the appropriations committee approved >> they do not show their cards. >> you were in the conference

committee trying to do the same thing, but we failed. >> i think this is a good investment for the american public. cftc is funded at $205 million. imagine there were eight times the number of teams, but no more referees, and instead of having seven refs on the field, there was only one. there would be mayhem in the field. the fans lose confidence, in this case, market participants, and ultimately we need the corporate end users to have confidence that when they enter the market they can do it free of fraud and manipulation. they can enter the market with speculators, but they feel that the market is a fair and accurate reflection of the pricing of risk. we're way underfunded at the cftc. >> i agree with your, with reference to senator toomey,

that even if you think capital requirements are the major protections here, because to cannot regulate every trade, that does not gainsay the need for transparency. i would like to follow up on my good colleague from north carolina's questions on that. we know from media reports that the j.p. morgan losses involved large positions in a broad-based indexes comprised of the credit default swaps on over 100 companies. the vast majority of trades in this index our record in the trade information warehouse, so that would meet regulators have access to some information. they may not have information about exactly who was buying and who was selling. is that correct? >> that is correct, although i think as our rules go into effect, we will have that information more specifically,

and we already do have it in the clearing houses. as a dividend portion of this transaction, a dealer to dealer, are in the clearing paths. >> as i take it, the coding system is what you're talking about, or will that add to additional information? >> that will add additional information. >> what is the pernicious -- promises of that coming into effect? >> wie finalize you -- be finalized rules last year. the legal identifiers to which the senator refers, we are going to announce in a week or two weeks a service -- put it out to a service, for partisan gain and similar to procurement and it looks that we will pick someone.

>> one more question. would it be possible to set up an early-warning system that would warrant us facing the company accumulates unusually large positions in any single product? is there any warning system that regulators could develop regulators identify risky positions? >> early warning -- that is what we do now in the futures world in corn, we, and interest-rate products. we plan to do that in the swaps. once we have a funny, we need every friday, where we go over significant positions in the market. >> you think surveillance will get better? >> yes, but underfunded, it is stretched thin and something could be giving. it could be weeks, will, but

something will give. also toclearing house the extent these instruments are mandatory early cleared will have a clear insight into the early morning levels concentrations and be in a position to adjust the requirements to account for that. >> i might add that the two main clearing houses has a concentration were when add ions get large addthey additional margin on the top. without adding details, you can imagine what happened here. >> we will have an additional five-minute rounds. >> i would like to go to nfl global -- mf global. diligencettee's due

as revealed that you played an active role in the oversight of an f global in the week leading up to its failure. we would like to know how many conversations did you have with jon corzine during the final weeks, and during these conversations, were there discussions about possible shortfalls in customer accounts? this is central to what we're looking at. >> i thank you for the question. i had no individual conversations jon corzine. i participated on that sunday on a group called with chairman schapiro. presentations were coming over a conference call, which i believe once or twice jon corzine spoke up and gave information. to answer your question, i think about what was my role that

weekend? would that be helpful? >> you are chairman -- you still are, of the cftc. your role is chairman. >> as that week developed and the firm looked to develop and be in a frail shape, to ensure customer movement of money, and we were informed in that we can, by other regulators, and i compliment them for that, there were the big she's gone on to move the positions, so we wanted to be sure those customer moneys, positions were removed. week or a short from the company and from the first line regulators that all the moneys were there. it was only 2:30 in the morning that i was awakened on monday the 31st of october it that we learned of the shortfall at 2:30

in the morning. the sunday it was about moving the customers and key focus -- we did not care beans about jon corzine. we cared about the thousands of customers that needed those moneys. we were sure all the moneys were there. >> how many people did you have on site at mf global? >> i am not aware, whether it was less than a handful, but starting thursday, which sent folks in on thursday. friday, the full commission in our meeting got a briefing that friday morning. the first reading was that they were and what is called segregation compliance, but over the begin, we kept asking questions for more details, because you wanted to see the details. it was not fully for cut -- forthcoming, but by sunday we were on these joint calls together, sec at others, and

then we asked to talk to the bair sunday night, the interactive broker at that time, to see they were guaranteeing that they would insure the moneys as well. >> that was relating to the steps you were taking to protect customer assets after learning that assets were missing? >> drop the weekend we were assured by the company and the front-line regulators. the law is 24 hours a day, what is to be in compliance and none -- and one must report that you are not. >> either you are in compliance or not? and you're supposed to protect your customers' funds. >> absolutely. people here, i agree with you, sir, were hurt because that did not happen. i am not in the specific

investigation and i chose the general counsel and the chief ethics officer said i could become i said i thought that once it turned to an investigation that was about jon corzine, i thought that made sense to step aside. >> on what date and at what time staff did ite cftc learned there was a shortfall in customer accounts? >> i remember at 2:30 in the morning on monday. 31st of october. >> after you learned on monday or sunday night, of the missing customer assets, what specific step did you take to ensure that customer funds were not improperly transferred over the weekend but for the firm failed? >> this was already monday.

i put on my bathrobe and but a conference call and joined in with other regulators. i think it was up to six hours later that it was put into dane proceeding. >> on october 30, to does a lot, a cftc employee gave two cme employs documents to support the october 26 m f global segregated funds statement which initially showed no shortfall. when did the cftc receive this disk from mf global? >> i am not familiar with the disk. >> it is our understanding that the cftc did receive the disk and that it began reviewing the documents of the disk and we would like to know when, and i

will ask for the record. what was the result of this review of these documents, and did it show any shortfall? >> if the general counsel could follow up and make sure you get the information you desire for the record. >> ok. may,rman gensler, about a a year ago, finra the terms finra determined mf global had a capital deficiency. the sec upheld the determination and mf global reported deep deficits in august, 2011. when it did the cftc learned themf global had a capital

deficiency? >> if i could have the general counsel follow up on the specifics, but as i recall, my own memory was over the course of that summer. they can follow up on the specifics, if the date the staff learned it. >> that goes to the heart -- and i will be interested in the answer of the sec and the cftc's coordination of the regulation. if the sec did something they should not have, and if cftc did not know that, there is a problem, but if you did know it and did not that anything about it, that is a problem. >> my memory is there was coordination, but as to the civic dates and times, i do not recall. >> thank you. >> senator warner? >> thank you. i apologize for being out for so long.

i do not have a specific question on mf or, but there are questions i would like ast. some of the items that senator shelby magic is this issue of coordination between your two agencies on approach to rule that implementation. one of the things that i have been concerned about for some time on is that in dodd-frank, very active in title one entitled to, and be committed -- we created the oversight panel- forum i thought would at least be the resolution of areas where there might be this rubbing. i was interested in one area and senator shelby did not agree with me, ofr, which would be in effect the independent repository of data and

information said that the -- could have the ability to adjudicate if need be between different interpretations or conflicts on agency -- or role promulgation. we are concerned that the administration is slow on getting the ofr nominee. they have one to get passed, but i would like you to weigh in on the ability -- to be that adjudicating body were issues rise up, and has at an effective or not? either one. >> i think f-sock has been a good form to share concerns and ideas and differences as they of rise and have a discussion and hear the views of other people

from their unique perspectives, regulating different types of institutions, all connected with an >> financial markets. we are working on our next annual report that we will try to lay out the systemic risk issues we see facing the economy. every agency contributes to that, and those issues become very lively discussion for how to approach particular problems. i think ofr is hopefully starting to get going in a more meaningful way, and it can be an important adjunct to the work of the individual agencies with respect to data collection and analysis. i think it is working pretty well and one of the side benefits off-sock has enabled us to relationships. >> i would say having witnessed what was its predecessor, the

president's working group in the 1990 bus, being honored to serve that and in this administration, it is a real enhancement. it is more formal, and with formality there is not as much flexibility, but it is a big enhancement. it has not been tested in two ways, not any real crisis. that is yet to happen. i think it will serve better than just the old president's working group, and it has not been tested when to ages is at a knockdown drag out this agreement. it has been helpful to smooth through smaller differences, and it has been positive in that way. >> my hope would be that the ofr would at least be the day that analysis. my concern is you are going to get data coming in from different agencies that might be counter to each other, and you have to have a trusted into the end they're sorting through that. let me ask one last question.

not directly related to the jpmorgan issue, but one of the challenges we got on the international implementation is when we have a large american and the date that has a foreign set up and you have a foreign counterparty that american foreign-based subsidiary. and how we deal with the extra- territorial application of u.s. laws. what is your sense of the whole international implementation question, particularly in terms of counterparties? >> we had made progress, but there are differences between the u.s., canada, japan, and other jurisdictions. you get to the question of cross-border transactions. we believe and relying on a

compliance rushing overseas, but we are a believer in learning from experience. in 2008 come out in that three or four biggest 6 6 reasons, they all had offshore entities, we have to learn from those experiences and not be naive that wall street will structure around these things. some of these large institutions have thousands of legal entities. we have to be thoughtful and cover a lot of those transactions and not just leave it to say my guaranteed affiliate's will meet your guaranteed affiliate in london, because that is the worst outcome. the rest will flow back here, but the jobs will move overseas, and that is a bad place to be. on the second thing, we can, if it is our affiliate's meeting in

london, that might be a way we could substitute, plants. >> we will lay out a comprehensive approach to cross- border publication. we will do that before we set out the final rules set it can inform the reach of every role as we adopt them. i think that will give everybody a opportunity to see the entire picture of proposed rules and how we expect them to be applied and comment. we know for regulators had a deep interest and this and it is an intense part of the discussion that we have with our foreign counterparts. >> i would also add, if the overseas affiliate, a branch, tris dealing with an insurance company in germany, we want to make sure they have a competitive fields that they can

compete like a barclays bank rate deutsche bank. it is trying to get that balance as well. >> thank you, senator warner. chairman, you mentioned twice the list of factors that were essentially ways to define risk mitigation with regard to the full court ruled statute, and related issues and there were you are addressing specific risk, and it does not give rise to sniff and exposure. if you think about a company that has funds in between making loans and the liquidity role and chooses to do so in corporate bonds, some of those will be allowed, then the first easiest thing is to get worried about the quality of those bonds which have been described as extraordinarily high quality

bonds, you can reduce your exposure by selling bonds. that is a strategy one. strategy to is you can take insurance directly against those bonds. that is insurance on a specific position you have. then you start getting further afield. you can imagine the spectrum of positions of field where you choose to do and index instead of insurance space -- insuring specific bonds. then you do any tranche and then you decide you need in come to raise your insurance. at that point you have crossed the line in which you have introduced by selling insurance to others. you are in a whole different world of risk introduction. you have these two components. part of the challenge of the regulators is to define this world.

when have you crossed the line to sibley have an excuse to do hedge funds without trading? where d.c. those lines being drawn in thiis? >> i agree, it is a continuum, and those may be best perfect hedges, and there is a continuing to portfolio hedging , to being in the world of prop trading or speculating. we recognize all that just will not be perfect and this is a continuum, and finding that point will be difficult. that is what the metrics are designed to do, and we have proposed metrics. i don't think there is an expectation all those will make it into the final will. the goal is to see how behavior changes in time over in a firm,

as a way to see if things had edged are moving into a different where alma. that is the difficult piece, to find where something is no longer a hedge and how we can to find that, and not in a way that we just opened the door to a lot of other contact. >> would you say is a red flag -- i will give you examples -- if the hedges is only loosely correlated -- would it be a red flag if you are buying insurance to ensure a larger quantity than you actually are holding? would it be a red flag if you are in the business of selling insurance? >> it might well be because then you have a hedge transactions that is giving rise to significant exposures that were not there at inception because you have over hedged position.

you have to be able to identify the positions that are being hedged and demonstrate the hedge is in fact risk producing, and i keep going back -- a risk mitigation is an important piece of how we are describing the hedging here, and if you think all those factors together, you can build a pretty strong wall around this contact. >> one of the things that senator levin and i had said on the floor in our colloquy was you need to identify the specific assets and you need to identify the specific risk that you are hedging, so that gives regulators a sense of what was the straight all about? if you cannot identify the risk you're hedging, then it is hard to get your hands around whether it was appropriate or not. >> that does not mean it has to be position. it is expensive to hedge and

counterproductive to hedge by position. there's something between position by position and complete speculation. >> chairman? >> i said earlier i think this of the more challenging task, permit market making, to permit hedging. dear question about catching, hedging has a lower risk. that is what congress wanted in this provision. they do overlap. it is not a perfect circumstance. it is our challenge amongst regulators to say if it is hedging apus a big risk, but we put in a role that is reasonably correlated.

maybe "reasonably" needs more definition. they can mutate when you have a separate desk and they have a separate profit and loss and are motivated to take on positions and swing for the fences. my own experience on wall street is long ago, but i will say that when i saw these debts, they sometimes work for up to 24 months, and they would take a big loss and shut down, and several years later they would come up again. i'm like the old-fashioned. i liked it when you could tie the hedge somewhere reasonably to the positions. >> that word "reasonably close " is in the statute, and that is because the word, correlated, by

itself suggested that something could be barely correlated and meet the test. it did place challenge other regulators to define it reasonably, but it certainly was in all the conversation meant to identify the specific risk and have something as directly related to insuring against that risk or hedging that risk. senator warner, did you want to take an additional time. ? >> we have each had our time. >> one more question? was interested in being pursued because what is

reasonable, what is connected to the? in a sense, we are going to have an incident like this, it could be a blessing that it is happening with the strongest financial institution we have, and thank goodness we have higher capital requirements, so there is not a systemic risk or a risk to the institution, at least at this point. to get to the point of liquidation at how it relates to derivatives. one of the things -- thank goodness this case did not result in an institution going down -- but one of the things we all worked very hard together, senator shelby, 85 votes on

that, was to make sure that any institution that goes into liquidation, while we main the system in poor unscom while we maintain the systemic -- neither one of your agencies are run to be involved in that process. the question of how you clear and handle the derivatives that might be involved in that institution's swaps is something that is important. i am curious how you are thinking through that portion of the liquidation process. >> i think central clearing is important, and there is a central clearing, said a dealer facing the hedge fund is not yet in. that will help a lot.

we spent a lot of time with the fdic on title to to give them advice and thoughts on it. the most challenging piece is on the swaps that are not cleared. they still leave this tangled web of interconnected this, and that is why it is acquittal -- critical to it rolls right, that dealer to dealer, that there is margin being collected, not against the commercial end users, i have to say that, but between the financial institutions and particularly between the dealers. >> you're working with the fdic and the fed on this? >> yes, and i will call them tabletops, where we take a hypothetical -- not a real company -- but we think it through. there is a challenge in one title 2.n in provisio

you remember we work on that. what uncertainty would be in the market. it seems these weekends everything is challenging before japan or australia open, which is sunday at around 5:00 p.m. at there might be this 24-hour stay, and that is an unfair set of challenges. >> i agree with west german gensler said. >> i have a few observations. did both of you agree that you cannot take risk at a marketplace? >> absolutely. risk is part of the marketplace. these large institutions how our society manage that. >> you cannot take that out and

should not try. >> if you micromanage what entities are doing, for example jpmorgan -- a huge bank -- obviously ever be hard to micromanage them to begin with, but if they got capital and if there is no risk to the taxpayer, alliance -- i'm thinking about what senator toomey said -- i do not know of any financial institution that has been well-capitalized first, secondly, well-managed, and well regulated that has gotten in trouble. i do not know of any. if you got one, tell us about it. capital is number one. to make sure that the banks are adequately capitalized. i guess it is up to you to

determine the difference between speculation and investment. it might be hard at times. i probably could recognize it if i sought, but maybe not, because somebody might be speculating and call it an investment. i do not know how you get around it. you cannot take risk out of the marketplace, and i hope you as regulators will try not to do that. >> i agree, but i would hope -- i think it transparency -- a more transparent markets are that it is harder to misunderstand the risk that you have. the risk gets priced in the marketplace, and it might be painful, but if you are well managed and you say that risk is being priced differently than i thought, i'm just going to have to eat my beans here and mark the position to from a creek without that transparency, a lot of times things start to get

poorly understood and managed. >> you should not let institutions that you regulate operate in a dark hole somewhere. he cannot do it. thank you. >> thank you. i think we are on the point of wrapping up. >> could i just add -- i agree you cannot take crist out and i agree capital -- beckham is -- but there is a point where there is so much capital required that you can make them not competitive. many of these institutions have literally thousands of subs. that is why having that ability to raise the position is important, but i cannot agree with you more, you cannot take risk out of the marketplace. >> i will add 80 to about

investing hedge funds, the abrogation of capital, the question is not whether it is risky. of course it is risky. subsidized by taxpayers thoseits, and occasionally doe bets go back, you will blow up or melt down the investments of the investors or whether it is on to refer break in a way that affects broader access to capital. that is back to the whole theory of the fire wall between traditional deposit taking and hedge funds. it is compatible with that mission that you cannot take out the risk. >> i thank you very much for your testimony and for the dialogue and for the members oversight of the derivatives market pick it remains an important issue for this committee, and the committee members look forward to working with you and your agencies to ensure the implementation of

derivatives reform improved protection for the american people and our financial system. thank you. the committee is adjourned. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

>> banking committee chairman senator tim johnson said last week he is inviting jaime diamond to testify about the $2 billion loss at a related hearing in the near future. for updated information about all hearings, you will find them in c-span pose a congressional -- hearing directory. for affirmation about congress, cabinet members, supreme court justices, go to c-span.org. pollex people look at what happened with jpmorgan and -- >> people look at what happened with j.p. morgan and they say, here is a company that made a stupid decision. fire the people responsible. that is the way it works. does government need to play

a role? >> if this had happened two years ago and j.p. morgan have lost what appears to be two billion dollars, i think you would have seen much more panic. what we did was to require the financial institutions be much better capitalized. one of the things that is a result of the government telling them you have to have more capital, that helped give people the assurance. >> this past weekend on "newsmakers," barney frank spoke about the over $2 billion loss by jpmorgan chase as well as be sustained effects on the world economy. what his comments on line at the c-span video library. >> road to the white house coverage later today with vice president joe biden. he will be campaigning in new hampshire, speaking at keene state college about the economy. you can see his remarks live at

1:45 p.m. eastern. next up, from this morning's washington journal, a discussion of the federal government pose a role in housing market. role in thet's housing market. >> freddie mac and fannie mae are a tarnished brands. they cost taxpayers billions of dollars. they're a broken system and a damaged system. there is a key to seeing that we have robust capital flowing into the housing market. what this bill does is put

freddie and fannie in a receivership, create a new entity called the mortgage finance agency, and have a 10 year plan for them to go out of business of the taxpayers are no longer on the hook for those mortgages. >> eventually transferring mortgages to the private sector. it also creates a self funding catastrophic fund to prevent taxpayer bailout. talk about that. >> first of all, the program in great britain known as the catastrophic business insurance were there is a surcharge that goes into a sinking fund to back up catastrophic insurance, we use the same thing in the

mortgage finance agencies were buying -- whereby any surplus goes into a catastrophic sinking fund to go -- to be the first, against a government guarantee. host: senator, you worked with senator boxer of california on the helping responsible homeowners act to let millions of underwater homeowners refinance at the current rate. the obama administration put forward something similar. do you think that was a successful collaboration? how does what you're doing now reflect what happened in the past? guest: california and georgia

have similarities in the situation. we have families that are making payments on time that they're under water on their mortgages. the government was rewarding people who were defaulting on their mortgages but not rewarding the people who were paying their mortgages. we suggested freddie mac and fannie mae ought to refinance these people to incentivize them to stay in the homes. if they stay in their homes and make the payments, and eventually, the value will come back. host: we have been talking with senator isaacson of georgia. here are the numbers to call. we have wane on the line from pennsylvania. democratic caller. go ahead. caller: i have been listening to

everything the congressman has been saying and it sounds good to me. but it when i they going to let the american people go forward with the program? why is it the republicans always want to stop something? host: what program are you talking about that you want to see go forward? guest: i am talking about agreeing with the president or disagreeing with the president. what about the other people who started this stuff in the first place? what are you going to do about them? host: tell us about the partisan divides that you see right now. do things the senate is holding things up in too much of a

partisan way? guest: partisanship and a political year ken play a role. i would -- can play a role. this week we will pass a bill to reauthorize the federal drug administration. last night we unanimously passed the iran sanctions bill. while there is a partisan divide and sometimes it becomes very costly. most of that is aired on network tv in terms of talk shows, not in the senate. host: there is a five. agenda he is asking congress to act on. a republican strategist said the president has reduced the issues to the size of a post-it note.

but the president proposed five things that include eliminating tax incentives for companies that outsource jobs and small businesses or those who invest in grenoble energy. what do you think of his plan -- in renewable energy. what do you think of his plan? guest: we have a deadline at the end of this year were every tax rate expires and the tax rates go back to the clinton administration. some expire but a lot do not. i happen to be one of those people that things we need to do what simpson balls recommended. we need to put the entire tax code on the table. we need to lower the marginal rate, raise revenues through a simpler system and empower the free enterprise system. host: georgia, republican

caller. caller: the gentleman you have on there is the nicest politician we have in this state. i have a policy question that is a little bit tougher. the last time i called up with you it was in early 2009 after your vote for tar. i notice there was misspending all over the place for that bill. you promised tight oversight over bailout money. at that time you were involved in the first-time home buyers tax credit. 19,000 buyers had not purchased a home. 70 four thousand or not first- time buyers. there were 53 cases of irs employee violation claims and 12 under 95 cases of people in prison filing for this credit.

georgia is no. 1 and no. 2 in mortgage fraud for five years running. today you're actually opposing a 20% down payment for those purchasing homes if there mortgages are to be bundled and sold on the bond market. you are also requiring banks to retain 5% or more of the risk. i am a very frugal person and a saver who has been devastated in this process. i do not see that there is a whole lot of concern for us. how many more billions to you expect folks like me to throw away on wall street and real estate bailouts? oppose the not 20% down payment.

i support a credit enhancement. in terms of the risk retention, under dodd-frank, they require that mortgage firms hold as much capital as the amount of the loan. it is a very cumbersome system. i require them to guarantee the value of the debt up to 50% face value. there is a catastrophic risk pool to be taken by the agencies, paid by the borrowers and those lenders. you are right about tarp. i did vote for it. one of the things we did that turn out right was to save the banking system. we are now in the black. tarp has been paid back in full and because of the interest rate, the government has made a

profit on the system. as far as the auto bailout, i did not support that because as i said in my fannie mae freddie mac proposal, a structured receivership would have been far better. that is what fannie and freddie ought to go under. that is how you get out of all the contracts and obligations that you need to and get them down to bare bones. i hope you have a great day and i appreciate your call. host: we of the question on twitter asking you who caused the mortgage crisis? guest: congress had something to do because they mandated that fannie and freddie by what amounted to subprime loans that were made to borrowers with less than pristine credit. fannie and freddie guaranteed those. the securities were sold around the world. when they were defaulted on, the

claims were made against aig, which had sold credit defaults swaps. in part it was fannie and freddie and congress forcing them to do it. on the other hand, it was shoddy underwriting and poor underwriting of loans. loans were made to people who were not prepared to pay them back. host: carl, independent line. caller: senator, i am going to take the last caller is word for it that you are a nice guy, but here is the deal. if you want to get the housing market on the upswing, these banks have to go on and if you can pay mortgage not the credit

bureaus. the credit bureaus are not always correct. there is always something in there holding you up. if you have substantial income to pay a mortgage, then you should be able to buy property. i have been trying to buy property, acreage, with a double wide on it. i lost a couple of good deals because of a credit problem. credit bureaus are not always correct. this housing market is going to stay where it is or worse because people cannot buy. look at all the people that lost their homes. are their credit ratings up to snuff? it was not their fault of their credit ratings went right down the tubes. guest: we passed a few years ago

a major overhaul of the credit ratings agencies. you have the ability once a year to access a free report of your own credit. if you find something incorrect, you can work to correct it. equifax has a great program to work with people whose reports may have an error to get those things corrected. the first thing i would do, if you are being rejected because something on your credit report is not correct, i would suggest you get to equifax or one of the credit ratings agencies and work with them. it has to be a part of underwriting just like down payments should be a part of the underwriting. caller: i just wanted to say first of all, thank you come a c-span. i love the washington journal.

this is a hot topic for me. this is my number one campaign issue. i'm glad to see that you're talking about it. i'm one of those people that has made payments. i have never taken money from the government in any shape or form, and i cannot refinance my home because i am under water because of economic circumstances and the housing bubble. but i cannot take advantage of any of the programs that are out there currently, and president obama has addressed this as well recently, it is on the list.ssional to liv do because my mortgage is not backed by fannie ready, i cannot take advantage of some of the programs were i do not have to

have so much down or whatever. i am at a terrible disadvantage because i do not have a government-backed loan. i wanted to take advantage of lower rates, but i cannot do that. all of a sudden i'm looking at p.m. my insurance, which i have never paid in my life. guest: i appreciate your call and i understand your concern. a lot of americans have been caught with declining home values through no fault of their own, and they feel trapped. that is why we have required that in frannie to refinance loans at lower rates to the credit is good. but because you do not have a fanny or freddie loan, you would not qualify. there is a move to make all

loans comply with that. go to the fha office where restructure programs may be possible to help you with your situation. first, talk to in the glow of a charter -- amy globochar. host: senator isaacson is in his second term in the senate. he serves on foreign relations, commerce and transportation. he also co serves bj he also serves with health, education labor -- he also serves with health, education, labor and pension. he worked in the realty market and served in the u.s. house of representatives. senator isaacson, wanted to ask you your opinion on micro

unions. use land approval of a micro union within bergdorf goodman. -- use land approval of a micro union within -- you slammed in my career union within bergdorf goodman. talk about that. guest: the national labor relations board just approved last week a request to organize the shoe department in bergdorf goodman. just the shoe department, not linens, not lingerie, not outdoor goods, nothing, just shoes. if we go to the principal and start organizing companies in micro unions, you haven't inability to -- you have an inability to cross workers in stores.

if they want to organize, organize the entire store. let everybody vote. but you cannot put them in a situation where they have to respond to just the shoe department when the rest of the company is not organized. this is a huge threat to retail and large distribution. it is a reach way too far and it breaks 80 years of federal law between labor and management. host: marjah calling from atlanta. i think we lost her. let's go on to our next call. this is robert, independent in houston. caller: good morning. i am independent but i have been leaning toward voting for mitt romney. but he kind of scares me because just like you were saying you signed for the tarp money on the first round and you also signed a bill about fannie

mae and freddie mac, he is saying he would not have done that. he also said he would have let the auto industry go under. i do not understand that. how long have you been in the senate? guest: eight years. caller: the have any idea how many millionaires there are in congress and senate? guest: i think it is about one- third. i voted for the tarp. guitar work and the united states is in the black. -- tarp worked and the united states is in the black. the reason i did not vote for

the auto industry is that many people ended up being wiped out by union contracts. it was not a fair share of the burden. if they had gone into structured bankruptcy or receivership, they could have renegotiated the contracts. that would have protected the value of the bondholders equity. we still would have done the same thing, buying 61%, but i disagreed with the approach totally. as far as fannie and freddie are concerned, this is not a bailout. this places them in a structured bankruptcy, replaces them with a new entity whose equity goes to pay back the taxpayers. host: silver spring, md., democrats line. guest: to me it seems that it is

all like a ponzi scheme with the banks creating big credits swap defaults and giving loans to people who could not afford it. when you go into a bank and take out a loan, they know how much money may, where you work, if you work,. it seems strange to me that the bank would not know if you did not have enough money to pay the loan back. it seems to me the only reason they would have given the loans out is because they knew two weeks later they were going to sell the loan to another mortgage company who in turn was going to sell the loan to another mortgage company. it was all going to get lost in the paperwork and traded on wall street. another thing i would like to say is, it was on some program

that i heard that a good amount of these bad loans went to people who own three more houses. there were a lot of people buying houses and swapping them. a lot of those people are the people who got stuck with the bad mortgages. host: we will leave it there and get a response from the senator. guest: he is a very insightful listener because on one part he is absolutely right. there were a lot of lenders making loans to people who were not prepared to pay them back and they were fraught with failure from the beginning. they were making stated in come loans. if you ask me how much i make and i say $100,000, they would say ok, we will loan you $200,000, never checking to make

sure if that was right. when they close a loan, within a couple of weeks, they flipped it and sold it, made a margin on the loan, and the bad loan went somewhere else. what he is talking about is not a ponzi scheme. the credit defaults swaps were an imprudent failure, but not a scheme. it was a failure on the part of a i.t. by not pressing the risk the way they should have. -- by aig in not pricing the risk the way they should have. guest: one thing you have not talked about that i have heard a lot of bad out is the ag settlement that one out of 49 states. could you explain that? guest: the federal government

took on fraudulent -- it started with road-signing. there were back room operations were people would sign on transfer of loans, securities and loans. some of those were not properly executed. when i paid off my loan a couple of years ago i found out it was one that was improperly assigned. there was a lot of shoddy paperwork in the mortgage business. countrywide was bought by bank of america, probably among the worst. there were lawsuits against 49 generals -- by a 49 attorneys general of the united states to make these things better. host: our guest serves on the veterans affairs committee,

health, education, labor and pension. he also works on science and transportation. he is serving his second term in the u.s. senate. switching gears a little bit and looking at your foreign relations experience, nato wrapped up yesterday. the headline in the washington times regards the pullout of afghanistan. what do you make of nato's plan and you have any concerns about the afghans ability to pick up where the forces are leaving off their -- leaving off? guest: i biggest concern is to advertise that we are leaving at a date certain. that not only gives our enemies a window of opportunity to plan for when we are gone -- and of course your perception -- your question is perceptive because if we leave and the afghans are not capable of defending themselves, then we have a lost

decade of service by many brave americans who tried to free afghanistan of the taliban and al qaeda. i do not particularly care for giving the enemy notice that we are leaving. that is something we have to deal with. we are working with nato countries. there is a lot of afghan weariness on the part of the american people and the nato allies as well. i understand the pressure, particularly during difficult economic times to sustain what appears to be an ongoing war that will never end. quite frankly, that has been the history of afghanistan. what we have to make sure we do in this last year of our presence is do the training of the afghan forces to make sure they have the ability to sustain the protection that nato and united states have given them from al-qaeda and the taliban. host: calif., independent

caller. caller: hello. senator isaacson, it is a real pleasure. i have a comment on the fact that you are very knowledgeable about the lending institutions in general. it is nice to know that somebody up there has a grasp of what is going on. this might understanding, sir, that when these things for started up, the loans were packaged together with everything. in other words, you have good loans and bad loans in there and when the banking industry ran into problems by creating packages that should have never existed in the first place. once they had so much involved with the variable and the semi prime that international bankers and larger entities did not wish to purchase the packages, and at that point in time that is when

the banks went to the federal government and said we cannot be holding onto all of this. so really, you can say that fannie mae and freddie mac were accessories after the fact in the crisis thaitself. part of what disturbs me about the whole thing is the exorbitant profit and greed in being able to market these semi prime and some these various interest loans instead of selling a big loan to a person that could afford it. a good trip them over into a variable interest, what would happen -- if they could trip them over into a variable interest, they would get an exorbitant profit from selling that loan. guest: the caller is very perceptive.

freddie and danny were somewhat like an enablers to an alcoholic. -- freddie and fannie were somewhat like an enablers to an alcoholic. also were the color is very perceptive, there were a lot of -- caller is very perceptive, there were a lot of bunglers who bundled credit card debt and mortgages and put them in a security. they would use a credit card debt at a higher interest rates to push the value of the security up, but it was sold as a housing backed security which made it seem more secure than it really was. the caller is right on both points. host: brooklyn, new york. james is a democrat. caller: good morning. i wanted to know, what is the reason for -- and we have a

voter registration coming up in november. why is it so necessary for the republican party to say now that everything obama wants to do? it is not necessary to have this kind of nonsense in the house of representatives. once they won the house back from nancy pelosi, they went crazy. it ain't necessary. the gas prices is of higher than they have ever been. when you do away with the racism in this country. -- in this country, we could go places. guest: i do not know of that is a question so much as a

statement, but since he mentioned gas prices, let me talk about that. one of our vulnerabilities is the absence of a stated energy policy. because of that, we are subject to whims of the opec nations. we're subject to shortages that come about. we are subject to not having the kind of reserves we should have. we have rich reserves that help us cushion the blows. we ought to be exploring for natural gas and oil, and terminally soundly, while -- environmentaly soundly, always, but our resources should come first. when we have used hydraulic fracture for the better part of 40 years, it is time we develop a plan and lock arms, democrats,

republicans, american citizens, and get the greatest country on the face of this earth to have an energy policy that assures users of energy that they're going to have a reliable, safe and relatively expensive form of energy. host: senator isaacson is the top republican on the africa subcommittee. he went to you gone the last -- you went to uganda last month. looking at food aid, there is a new alliance for food security and nutrition. what do you think about the u.s. role in helping countries like tanzania and uganda in terms of food security, and how about the intersection of private industry and getting them involved? guest: i am glad you brought that up because i do spend a lot

of time on africa as the ranking member of that subcommittee. tanzania is one of the countries that has taken over more and more of the responsibility. they are bearing a lot of the expense of manpower and labs. another thing we have to work on is the horn of africa, somalia, parts of ethiopia, all the way down to kenya. there is a horrible drought. millions of people without food. 600,000 people alone are displaced in northern kenya. if it were not for usaid, the united states, feed the world, the yuen program and the european nations through nato -- the united nations program and the european nations through nato, they would be in a very dire situation. as africa develops, they will become consumers. they are a large continent with

wonderful people, but they suffer from a lack of development and a lack of stability in terms of their infrastructure. as we help them to grow and gain that stability and overcome famine and disease, they become consumers on the world stage. africa is a rich, bright continent for the future of the united states in terms of its resources as well as its people. host: you talked about the leader to get joseph kony -- kony 2012 got a lot of attention here in the united states. what are your thoughts about that effort? guest: i was very glad that the president sent the troops and advisers with a specific mission to aid in the capture of joseph

kony. is been on the run for 26 years. he has been discredited -- he has been on the run for 26 years. he has been credited with killing 66,000 people, taking women and children as sex slaves and men as soldiers. we did capture his no. 2 lieutenant. i hope we're helping them to tighten the noose around him. he needs to be brought to justice. he needs to be captured. the children of africa and the world deserve a better place than a world with him in it. host: there may be a pardon of the associate you said was recently captured. guest: do not overreact to that. we of a program of psychological

warfare were those who have been abducted or pardoned in exchange for repatriation that will lead to his captcapture. it is an amnesty in return for information that leads to the capture. jeff on thego to independent line. caller: i applied for veterans' disability benefits almost two years ago and i still have not heard word one. i thought these were supposed to be expedited, and i'm getting very discouraged. could you tell me what is going on? guest: i am very discouraged with it too, the amount of time it is taking to get a determination on veterans' benefits is totally unacceptable. secretary shinseki, who is a

wonderful man, still has not been able to get his arms around the disability claims and determination in a reasonable amount of time. i understand the volume because of the wars, and the pressure on the agency, but it is unacceptable for someone who has served our country to have to wait 600 days to get an answer on a benefit. , we haveking every day a task force now working with the veterans administration to reduce the times of your claims are answered more swiftly and more accurately than ever before. host: georgia, republican caller, good morning. caller: i would like to talk to senator isaacson. i give him things for his time on c-span.

senator, when you first were elected, i wrote you a letter. i never received a response. maybe it was because your office was not organized. the other thing, my family have been a resident of georgia for about 50 years. [unintelligible] cuba. the question i have is, why is it when i write your office, i get a form statement and not reply to the questions i asked. guest: i was having a little bit of trouble hearing that i think

he said he wrote me a letter when i first got elected and did not get an answer. we returned 1.2 million last year, most of which were e-mails because of the anthrax attacks and a 9-11 attacks on congress before i got to the senate. every written letter goes to ohio and is irradiated. sometimes it is 6-8 weeks before we get it. sometimes the radiation destroys it. the best way is to send it by e- mail, secondly, by fax. we do a 48-72 hour turnaround in answers by e-mail. back then, we were not getting e-mail because we were in the house and not on the e-mail. we try to answer every letter we get. we respond to every single e- mail we get directly and i am

sorry we missed the one he wrote 89 years ago. host: lee said, democrats line. caller: i have a question about your agenda in uganda. it seems as if there have been issues with food imported three usaid. i am concerned about what america is getting in return for its so-called good deeds, bringing in medicine and food. it seems like all of that is serving some kind of population control agenda that we have. that is our comes across to me and a lot of others. i would like you to clarify what our agenda is there. why uganda? guest: usaid in the united

states state department have relationships around the world. we of a world agency to try to protect against pandemic, contagions, measles, tetanus, things that are still relevant in africa and taking lives, trying to and diseases like polio. that is in everybody's interest. diseases do not recognize political boundaries or oceans. they travel with people. it is in the interest of our country and our world to have a good world medicine system. i have never seen any attempt to control population except to save lives, which increases population. that is something i think it is important for the united states to do is have better health around the world and save the lives of people who otherwise might die at the hands of disease, bad water, famine, or

whatever else it might be. host: many argue that ending friday or fannie would crush the economy. could -- freddie your fanny would crush the economy. could you comment on that? guest: the caller is right. you have to put freddie and fannie in receivership so they do not feed on themselves downwardly, but you have to replace them with an entity that has the capability of securitized mortgages until such time as they are able to privatize which in our legislation would be about 10 years. >> about an hour from now, more road to the white house coverage as joe biden campaigns in new hampshire. he will be speaking at keene state college talking about the economy. later this afternoon, an author presents the history of american war reporting during au revoir ii.

-- during world war ii. his book followed journalists from the front lines including walter cronkite and howard oil. he is speaking live this afternoon on book tv and 6:30 p.m. eastern. >> congressman, there are people that look at what happened with jpmorgan and say, here is a company that made a stupid decision, did something dumb, lost money, did not collapse, fired the people responsible, this is how the market works. what is the government need to be responsible? >> that is somewhat true, but i also take credit for it. the government is responsible. it is it happened two years ago, i think you would have seen much more panic and concern. what we did in the legislation we passed and through other things was to require the financial institutions to be much better capitalized. so one of the things that is a

result of us telling them you have to have more capital, that helps give people reassurance. >> this past weekend on " newsmakers," barney frank's book about the over two billion dollar loss by jpmorgan chase as well as the state of the u.s. and world economies as well as gay marriage. what his comments on line at the c-span video library. >> right now i want you to take a look around you and think not about where everyone has been but where they are going. the guy in front of you could win an academy award sunday. the girl behind you could be a future president of the united states, or even better than that, the mayor of new york city. the guy sitting to your right to be a future nobel laureate. ok, maybe not the guy to your right, but certainly the one to your left. >> memorial day weekend, what commencements on c-span.

leaders share their thoughts with the graduating class of 2012. saturday at noon and 10:00 p.m. eastern. >> last night, president obama deliver a commencement address to students of joplin high school in misery. it has been one year since a tornado killed 161 people and destroyed schools. [applause] >> thank you. thank you very much. thank you so much. thank you. have a seat. a few people i want to acknowledge. first of all, you have an outstanding governor in jay nixon, and we're proud of all the work he has done.

i want to acknowledge senator mccaskell, representative billy lowell, your mayor, somebody who does not get a lot of attention but does amazing work all across the country including here. craig fugate. [applause] the head of fema, who spent a lot of time here helping to rebuild. superintendent huff, the principal, to the faculty and the parents, family, friends, people of joplin.

most all, the class of 2012. [applause] congratulations on your graduation and thank you for allowing me the honor of playing a small part in this special day. the job of the commencement speaker primarily is to keep it short. they had given me more than two minutes. [laughter] the other job -- as i look out is to inspire but as i look out at the class, across the city, what is clear is that you are the source of inspiration today.

to me, to this state, to this country, and people all over the world. last year, the road that led you here took a turn that no one could have imagined. just hours after the class of 2011 walked across the stage, the most powerful tornado tore our path of devastation through joplin that was nearly a mile wide. it took hundreds of homes and businesses and 161 of your neighbors, friends, and family. it took a classmate, will

norton, who just left the auditorium with a diplomat in his hand. and by now i expect that most of - lance hair you have probably relived those 32 minutes again and again. where you work, what you saw, -- where you were, what you saw, first contact, the first phone call you had with someone you loved, the first day you woke up in a world that would never be the same. and yet, the story of joplin is not just what happened that day. it is the story of what happened the next day and a day after that.

and all the days and weeks and months that followed. as your city manager has said, the people here chose to define the tragedy not by what has happened to us but how we responded. class of 2012, that story is yours. it is part of you now. as others have mentioned, you have had to grow quickly -- up quickly. you have learned cannot always predict what life has in store. life can bring some heartaches. at some point, life will bring loss.

but here in joplin, you have also learned we have the power to grow through these experiences. we can define our lives not by what happens to us but how we respond. we can choose to carry on. we can to estimate the difference in the world. in doing so, we can make true what is written in scripture, tribulation produces perseverance. perseverance, character. and character, hope. of all that has come from this tragedy, let this be the central lesson that guides us, let it be the lesson that sustains you through whatever

challenges lie ahead. as you begin the next stage in your journey, wherever your going, what ever you are doing, whenever you encounter greed and selfishness and ignorance and cruelty, sometimes just bad luck, you will meet people who tried to build themselves up by tearing others down. you will meet people who believe that looking after others is only for suckers. you are from joplin, so you will remember, you will know just how many people there are who see life differently. those who are guided by kindness and generosity, by service. you will remember in that town

of 50,000 people, nearly 50,000 more came in to help the weeks after the tornado. perfect strangers who never met you and never asked for anything in return. one of those was one man who mark carr traveled all the way from japan. because he remembered that americans were there for his country after last year's tsunami and he wanted the chance, he said, to move forward. -- to pay it forward. there were americorps volunteers who left their homes and chose done.

and there was the day the football team rolled into town with an 18 wheeler full of donated supplies. there were assigned to help out on -- of all places, they were assigned to help out on kansas[laughter] [applause] i don't know who set that up. [laughter] while they all the washing machines and refrigerators from the debris,they met a woman named carol mann who had lost the house she lived in for 18 years. she did not have a lot. she works part-time at mcdonald's. she struggles with seizures and she told the players that she had even lost her change purse that held her lunch money. so one of them, one of the

players went back to the house, and dug through the rubble and returned with the purse with $5 inside. and her sister said so much of the news that you hear is so negative, these boys renewed my faith that there is so many good people in the world. that is what you will remember. because you are from joplin. you will remember that half million dollar donation that came from angelina jolie and an up-and-coming actor named brad pitt. [laughter] you also remember the $360 that was delivered by a 9-year-old boy who organized his own car wash.

you will remember the school supplies donated by our neighboring towns. -- your neighboring towns. you will remember that laptops that were sent by the united arab emirates. a tiny country on the other side of the world. when it came time for your prom, makeup artists melissa blake donated 1000 prom dresses and cupcakes were donated for the occasion. they were good cupcakes. [laughter] there are so many good people in the world. there is such a decency. a bigness of spirit in this country of ours. country of ours.