a third party advertisement. what we are hoping is the next two panels will help us understand, or better understand, the variability be fined. thank you. -- we find. thank you. >> the head of the securities and exchange commission told lawmakers her agency is investigating j.p. morgan chased following the $2 billion in trading losses. that hearing is next. after christine lagarde weighed in on the help of britain's economy. later, they fact check did the 20,000 -- fact checked ad in

the 2012 campaign. >> 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 the mayor of new york city. the guy sitting to your right to be a future nobel laureate. >> of memorial day weekend, what commencement speeches on c-span -- memorial day weekend, watch commencement speeches on c-span. saturday through tuesday at noon incident got p.m. eastern. -- through 10:00 p.m. eastern. >> gary gensler and mary schapiro questions on jpmorgan chase's recent losses. they testified about derivatives and financial regulations. the chairman is tim johnson of

south dakota. this is two hours. >> i will call this hearing to order. today we will review the progress being made to reduce systemic risk and improve oversight in the derivatives market. before we get to the main subject, i want to make a few comments about the recent news made by jpmorgan chase. the massive trading losses is a reminder of the financial crisis of 2008.

since the conference call, our staff and members have held briefings with the company itself. following this briefing, i callnced that i intend to jpmorgan's ceo to testify before the committee. june 6 supervision durina hear, said there on their way to having a more complete

understanding of the jpmorgan matter that will help us better oversee the implementation of wall street reform. this has been a wake-up call for many in the needed to fully funded the agencies for overseeing the trade that appeared to be at the core of the strategy. it is my hope that all of my colleagues to express such alarm about this matter will now join democrats in full funding to address this very issue that seems so -- they seem so concerned about. this loss has called many to

renew their interest in wall street reform. as chairman, i have never taken my eye off the ball. that is why we are here today continuing our oversight responsibilities. much of the reaction to recent events are focused on other provisions of wall street reform. what has gotten the most attention is the impact reform that will reduce the likelihood that banks would want to engage in swap transactions. higher margins increased obligations and anti- manipulation authorities

included in the wall street reform while improving the integrity of the swap trading between large financial firms. chairman schapiro and gensler, i applaud you and your staff for implementing these reforms and i look forward to hearing from you today. i urge your agencies to take a single unified approach in cross border transactions and to integrate this approach into all of your swap rules. difference between your two sets of rules should approved compliance costs.

it will be more challenging if we connected these efforts by our agencies here at home. lastly, i would like to apologize in advance to my colleagues. i will need to excuse myself for a markup in the appropriations committee. the senator has agreed to chair this in my absence. the reserved time for questions and opening statements will be limited to the chair and the ranking member. i would like to remind my colleagues that the market will be open for the next seven days for other comments. i now turn to senator shelby for his opening remarks. >> since the passage of the dodd/frank act, and iit's proponents have claimed they

will but if it from the new law. we now know that both of the claims are false. since last year, gary gensler oversaw the largest consumer failure in the history. customers had $1.6 billion of funds improperly taken from their accounts. the first and most basic responsibility is to ensure that customer funds are not misappropriated. despite all the new authorities conferred a on thecgfg, the sftc was unable to fulfil this primary responsibility. failures are troubling because the funds went missing at a time that it was well known that they were under severe stress and the rest of

misappropriation was very high. even more embarrassing is the facts is that there were numerous -- fact that there numerous employees when it went missing. although i am pleased to see they are making process, he owes the public a full accounting of how they failed to protect as customer assets in the first place. chairman gensler refuses to excuse himself from ms the global -- mf global. the public deserves more from their financial regulators. we need regulators willing to explain their actions. if there were failures, it irresponsible parties the to be held accountable for their actions -- the responsible

parties need to be held accountable for their actions. they had impeded congress's ability to examine every facet of the figure. i hope he will be more forthcoming about his involvement so that progress can begin to understand what role he played and how congress should respond. they have jointly created widespread uncertainty about the regulation of derivatives. according to a recent report, regulators have met only 1/3 of the rulemaking deadlines. while there is no question that the rule writing process makes it difficult to meet some of the deadlines, the regulators share cup ability.

although the sftc and sec have proposed new rules, if they have not proposed rules that clarify the definition of a swap. the are giving them joint jurisdiction. they have still not agreed on the definition of a swap. somehow they finalize roles based on swap activities. they do not know which of their activities will fall under the swap definition. how can they be expected to know whether the activities will be subjected to record keeping in trading rules. if market participants do not know if their activities will cause them to be classified as

a swap dealer, how can they be expected to know when to submit comments? this is one example i am bringing out of how dodd/frank and its implementation have created unnecessary uncertainty in our markets. as the american economy continues to struggle with high unemployment and sluggish growth, the last thing we need are self-inflicted wounds. this includes those inflicted by congress and poorly conceived hedging activities. today's hearing presented opportunity to discuss all of these and how they can be avoided in the future. i thank you for calling this hearing. >> thank you. i would like to introduce our witnesses, known of whom are strangers. mary schapiro is the head of the

u.s. securities and exchange commission. chairman gary gensler is head of the futures trading commission. we appreciate both of you who have taken time out of your schedules to be with us today. please begin the testimony. >> i appreciate the opportunity to testify regarding the security and exchange committees implementation of the dodd/frank act. it creates a new regulatory regime for over the counter derivatives and the sftc to write a number of rules. title 7 is one of the many areas ranging from credit rating agencies to municipally adviser registration with the sec is charged with trading rules. the sec has adopted rules for

over 3/4 of the more than nine provisions in the dodd/frank act. the commission has proposed almost all of the rules required by title 7. we are working diligently to coordinate implementation with the sftc and other domestic regulators. under the dodd/frank act, regulatory authority is divided between the sftc and the commission. the sftc has regulatory authority over the bulk of more the derivatives market. our role makings are designed to improve transparency, reduce asymmetries and facilitate the

clearing of swaps. they are designed to enhance investor protections by increasing disclosure regarding security based swap transactions and mitigating conflicts of interest. by promoting transparency and stability, this is intended to foster a more competitive markets. in implementing title 7, sec staff is in regular contact with the sftc and other regulators. the accord needed extensively with sftc in the roles including joint rules further defining key product terms. although the sequencing may vary, there are the subject of extensive interagency discussions and the objective of comparable requirements and will

continue to guide our efforts. the dodd/frank act requires that the regulators consult and coordinate with regulatory authorities on the establishment of international standards. they're actively working with regulators to address the regulation of derivatives, encouraging regulators complementary to our own. the commission expects to complete the last of the core elements in the near term. the silk trade workable timeline for the implementation of the rules. certain rules will need to go

into effect before others can be implemented. they will need a reasonable but not excessive. a time in which to complete. the statement will let them know the expectations regarding the ordering of a compliance date. relevant international implementation issues also be addressed. although the commission does not discuss this publicly, i can say that in circumstances of this nature where the activity does not appear to have occurred in one of our entities, the sec would be pried hprimarily

interested in on the financial reporting and other public disclosures. in conclusion, as it implements title 7, we afford to working closely with congress and members of the public. thank you for the opportunity to share our progress on the implementation. i will be happy to answer any questions. >> thank you. chairman gensler, please begin your testimony. >> good morning. i am pleased to testify. i'm going to speak to the three topics of your invitation letter. where is the sftc onslaught market reform? -- on the swap market reform? international progress on swaps reform and related issues across border application. i welcome the questions and look

forward to chatting about that as i would in private with any of the members. ththis is a market eight times larger. given the new responsibilities, we are significantly underfunded. overside relies on participants complying with the law and related role. do they do? they bring transparency. they lower risks through central clearing of standardized swaps

and lower rest by comprehensively regulating the dealers. we are on track to finish their reforms this year but it is very much standing up. we are giving the market time to phase in implementation to lower the costs and burdens. to increase market transparency, we have completed a key reforms including real-time reporting to the public and regulators. we have finalized risk- management and wilson seek public comment -- will soon seek public comment. to promote integrity, we have great is strong anti-fraud roles and we're looking to finalize the end user exemption.

all of this is still pending. it has to finalize the further definition of the term "swap." it is essential that the commission's move forward to finalize this rule. i'm glad to say that they both have a draft of this that has been worked out in we will be able to finalize this in the near term. we have made significant process working with regulators to bring a consistent approach to swap market reform. europe, japan, in canada have made real progress legislatively to bring similar reform. we are working on a consistent approach tfor uncleared swaps. the cftc proposed a rule that users propose this.

the commission is working on a balanced approach to cross border application and swap reform. congress was guided by the experience of a.i.g. lehman brothers, bear stearns, and long term capital management have a direct and significant effect on u.s. commerce and activity. that is a reminder we got the last two weeks when jpmorgan's trading losses were overseas from trade that lost a multibillion-dollar is in the credit default swaps. the division of enforcement -- even though i am unable to

provide specific information, i will touch upon the commission's role in overseeing these markets. the cftc has clear oversight regarding the trading of credit default swaps. ee the clearing t houses. later this yet, we envision the dealers themselves began to register and that trading will commence on swap execution facilities. we are in the midst of implementation that will still take time. we have made great progress putting common sense reforms regarding transparency, it but it is critical that we complete these for the protection of the public. >> i will ask the court typify minutes on the clock. chairman gensler, what role do

agencies have been monitoring this swap trade issue in the jpmorgan match your? were any concerns raised about these trades at either of your agency's? what changes will these reforms bring to the regulations of these types of trade? of what are the implications? >> as i mentioned, we are in the middle of standing up a regime that will take more time. the credit default swap indices are already under our anti- manipulation raising. the clearing houses, three of

them, cleared credit default swap indices voluntarily. later we anticipate seeking public comment on having a clearing mandate so that more of these trades will come into the clearing house. currently it is just dealers to dealers. later we will have a regime that i think dealers will start to register. this bank was not yet registered. we do not yet have complete rules to make that a true thing. later this year, maybe end of 2013, you will start to see the commencement of the market. we're not trying to do this against the clock. we're trying to get a balance. i know congress gave us one year and we're pushing onto years. we need to get the job done to better protect the public. you asked when it came to our attention.

with matters like this, i do not want to get into specifics, as press reports have shown, these are indices under our jurisdiction. the clearing house that we monitor on a daily basis for the soundness of the clearing houses. >> chairman schapiro? >> none of the transactions were executed in the u.s. brokerage dealers. the activity took place in the london branch. the sec did not have any direct oversight our knowledge on the transaction. i would reiterate that if the dodd/frank rules have been in place, of these positions likely would have all been cleared.

not all were cleared. they will likely have been treated. they would have been reported to a repository. there would have been detailed transparency to regulators and the public. under the sec's rule, we would have known the trading desk and trader as well the but the positions on. the dealer would have been registered for conduct standards. they would also operate under the new rules for supervision. a number of pieces would be in place once all the proposals are completed. >> can you commit to us that the sec will issue the last of your proposed rules in the coming months and that you will prioritize within the sec the

importance of enacting the final rules in a timely matter? >> absolutely. we have the last piece of rules and the financial responsibility market dealers. smar i will testimony the implementation plan that will lay out our views on how the rules should be sequenced and implemented, what the time lines would look like. we will see comments on that. a cross border relief that will talk about the application of each of our rules to cross border activity or cross border operating entities. we want to propose that cross border relief before we adopt rules be on the original rules. the regional rules.

>> some are saying that the sec and cftc were in the darkened that you did not know what was going on at jpmorgan. -- dark and that you did not know what was going on at j.p. morgan. we do not know that yet. did you know? >> i would say that the trades that came to many of our attention with press reports, but our staff was aware of trades that are in the clearing houses. they monitor the clearing ouses daily in and that the clearing house is collecting margins to protect the rest of the clearing houses. we do not regulate jpmorgan

chase as a swap dealer yet. we do regulate the clearing house and anti-manipulation. >> did the cftc really know what was going on on such a large position? were you in the dark? you said you learned appeared >> it is in transition -- learned. you said you were in i think it has 20 or something members in it. that is not the full j.p. morgan picture. there are a lot of swaps that are not clear. the would be in our principal regulatory -- in terms of the bank -- >> so, you did not really know what was going on until you read the press reports? >> that is what i have said.

yes, sir. >> german shapiro, i pose the same question to -- chairwomanpi pose the same question to you. >> we do not have oversight responsibility over the broad base and the products which were subject of much of the trading. i think there is still much to learn about the full -- >> and what was your responsibility as you see it as chairman of the sec and looking at what happened to j.p. morgan chase? what is your responsibility? >> clearly our focus is on whether the company's public disclosure and financial reporting is accurate in light

of what the press has said. what did they know and when did they know it? >> absolutely. if they knew something, like a month earlier, should they have disposed that to the sec? is that what you are trying to find out right now or do you already know? >> that is what we are investigating right now. we are looking at the q1 financial reports to make sure they are accurate and truthful. >> you are investigating into that right now? >> yes. >> knowing what they knew and when they knew it. is that correct? >> that is correct. >> we are also looking at deceptive practices. that is part of this new

authority that we have. we have this ongoing investigation. i do not want to go into the particulars. it is really just the best not to compromise the investigation itself. it is in that room. >> as chairman of the sec like this, are you basically telling us that you did not know there was a problem there until you read the press reports? >> i think that is accurate. we do not have any regulatory oversight of j.p. morgan chase national association of the bank. we will at some point when they register as a swap dealer, but they are not currently registered as a swap dealer. >> are you saying it is ain't no man's planned? things have not crystallized in the regulatory fashion yet?

>> the bank is overseen by bank regulators. >> but on their dodd-frank -- >> we wiyour right. it is not protected in that way. >> were any of the trades conducted through j.p. morgan's future commission merchant? >> not that i am aware of. perhaps with more review, but as of today, no. >> thank you. >> at the last hearing mf global, i asked the trustees who at the company was responsible for the wrongdoing. they informed me that the investigation was just beginning to determine that. can you shed any light at this

point? >> not at this point. >> you do not know at this point who is responsible for what took place at mf global ? >> i think agencies collectively are working very hard to untangle exactly what happened at that firm. >> with reference to what happened at j.p. morgan, or the huge losses there take place, have you determine who is responsible for that? >> no. as i said, our focus is very much -- the fed is the holding the regulator. when they talk to go their potential and all of the risk that they face of potential

losses under their model, we are very focused on the accuracy and timeliness of that disclosure. >> yes? >> i would just say that we are aware that it is primarily in the bank that much of this emanated from the london side, branch, of the bank. as news reports, credit derivative products are at the center of it. >> in reference to these investigations, are they criminal or civil? >> it is simply civil and not criminal. >> are you working with entities who are conducting criminal investigations? >> i believe that the fbi has opened a criminal investigation. we will all work closely together. >> with which of the two that i am referring to? mf global?

>> with reference to both. >> it is the agencies that are conducting civil reviews, i am assuming. and criminal reviews are being conducted by law enforcement entities. is that correct? >> that is correct. >> as far as i know -- let me ask you this. do you hope to interpret the volcker rule in a way that what took place at j.p. morgan would not have been possible to take place are would not have taken place without real consequences? >> i think we have been thinking a lot about this. the vocal role is foremost in everyone's mind because of where we are and because of this activity. it strikes me that the statute

is pretty clear that in order to rely on the risk mitigating and hedging exemption, there has to be some pretty strong criteria that needs to be met. whether or not the j.p. morgan traded meets that standard or not, we do not have a view on that yet. they have to be correlated to the risk. they cannot give rise to significant new exposures. they are subject to continuing monitoring and management. that has to be specific risk on the positions. they have to document the risk mitigating purpose of a trade when the head is being done at a desk that is different than the position. i think there is strong language there.

>> we are going to look at this broadly. if j.p. morgan lost 2 billion or more through the streets, what is to stop them from losing $10 billion the next time? are even worse to stop another less capital bank from taking losses so large that could bring it down? that is the whole effort that we tried to move in the senate. we want to have the type of reform that does not create a systemic risk that and places everyone in america responsible for decisions like this. i hope that is how the regulators at the end of the day understand that is the mission

that all of us are supporting of. thank you, mr. chairman. >> senator? >> thank you, mr. chairman. when an event like this one happens in the middle of a rule making process, that affects things, does it not? meaning that you have a real- life example. we have had this issue and realize it. did not book a great? >> it is as real life experience. -- do you not agree? >> it is a real-life experience. >> the point is, there is a lot happening at the regulating level. an event like this end up affecting things.

i have this fear that much of what we gear was a pond to you guys. the fact that it has taken new two years to define what a swap is pretty incredible. it is because we have never defined in our cells are did the work to understand what a swap is. the thing that i fear -- what he may do -- what you may do is .ayer on top maybe the ceo himself did not realize what was happening in this london operation. i feel that you are under pressure and a lot of calls are

being made that the administration is concerned. the american people will wake up and look at the last three years. maybe the health care bill becomes unconstitutional. this big dodd-frank bill really does not address real time issues. you will cause the volcker rule in a way that it never was intended to be used at. can you please respond to that? and in the process, things are more risky than they already are? i'd like a couple of comments in that regard. >> i think that the job that you delegated and asked us to do, i always try to be respectful to congress. >> you do not need to be. >> i appreciate that. i think the american public should have transparency and

lower risk. firms will fail in the future as they have in the past. they have a freedom to fail. it is like the one industry where we do this around the globe. it is why i am committed personally to getting this reform done. i think this circumstance is a reminder in one area. i think of it as more of a cross border application than the volker rule. it is a reminder to make sure that we get that part right. the london this can come back and hurt other good folks. >> is there a pressure go to define what is heard 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 because a highly complex institution like this to be in a position where they are not appropriately hedging activity? is that the kind of thing that you talk about from time to time? >> we are most definitely public actors, just like you are part of this great body of the senate. we have had 30,000 common letters and 1600 meetings with folks in the markets. this will be part of the topic and the dialogue. absolutely. we have to get a balanced and right and not tip too far in one way or another. we cannot have the taxpayers stand behind them. >> my time will run out. in my previous history, i will be cut off immediately.

i do want to ask that when you are making the rules that you are making, do it to the process of costs analysis. courts are challenging some of the rules and regulations because regulators are not doing that. secondly, to ensure that we do not create another systemic risk by shifting off to these clearinghouses that otherwise was held in other places. i thank you for what you do and look forward to the next hearing we have with the banking regulators who are supposed to oversee these activities. thank you. >> thank you, senator. thank you all for your testimony. i want to return to the basic premise of the volcker rule. in the effort to create that

firewall, one of the issues was when banks were holding funds in between making loans, how would they be able to utilize those funds so that they have a committee from making loans but was relatively safe? that was not in the world of hedge fund investing, if you will. the basic statute provided for the notion of investing in government bonds, that is a safe place to put your money, but allowed regulators additional flexibility. the drafting of the liquidity management proposal -- it is not really clear in the and what would be allowed here. if we look at j.p. morgan, they unds.$381 billion in fine

unlike other institutions that put into government bonds, they took half of that and put it into corporate bonds. that started this sequence of events that led to this $2 billion or break your lost. we need to -- or more loss. we might sell another form of insurance to credit the revenues to pay for that. we will haven to sell -- it begins with this liquidity issue. that has not been focused on. what is the appropriate place to put your funds in between making loans so that you are clearly in the deposits and making loans business and not in the hedge fund business? >> sir, i think that is a great question. the rationale behind the the

quiddity management exclusion that was included in the rules was to make sure that big entities would have sufficient readily marketable assets to meet their short-term liquidity needs. i think we can all agree that is essential to a banking entity. there are requirements around that that would need to be documented and the criteria and so on. but i think the question that you raised it really requires us to go back and look and see if we had carried that to its logical extreme. could we have anticipated what happened to j.p. morgan? look at it much more closely. this is very instructive. it would be wrong for us not to take this example. it is a real-life example of what can happen whether it is that application, provisions, or itself.o volcker rule

>> if you take the situation that you have funds that are awaiting and making new loans if the will to be invested in and essentially it is a gateway to being involved in trading, it has -- impacts. chairman? >> as a derivatives and swaps regulator, we will be focused on the implementation of the volcker rule. i do not have as many views as german shapiro in the liquidity management -- chairwoman shapiro in liquidity management.

did he specifically said we had to loosen up are widened out the hedging exemption. we are entrusted by congress to figure how to inhibit trading so taxpayers did not stand behind these institutions. we should permit hedging, which helps lower risk to the institutions. there is that challenge and it is not easy. i think you were very clear. in these to be tied specifically to specific and to officials. i think congress is very clear on that. j.p. morgan said in a 65 page letter. within that, they said you need to loosen up his portfolio of hedging. i think this has to look back in the complex of the february letter as well. >> i am out of time. we will return to the next senator. mr. chairman.

i want to understand this better. you said that the sec did not regulate the london branch. that it was something on the other side. i am trying to maybe take the next up with my question. could this risk management that is being done by j.p. morgan had been done in such a way that it would be under your id jurisdiction? or are you saying that this does not fall within the purview of the powers given to me? >> if debt trades were done in an sec regulation or broker- dealer, then it would clearly be under your jurisdiction. excuse me.

are the sec. >> that raises another question. if i were running j.p. morgan, could i set this up in a way to avoid you? >> that is an important issue that we are all wrestling with in the cross border release and how we will apply our roles and activities that may not take place or may take place overseas are in a branch overseas? those of the issues that we will lay out in our cross border police. the fourth filly of the u.s. entity -- foreign entity and the farm customer will likely be

subject to our role, including a branch operating in a different country. we want to leave this out in detail for comment years. -- commenters. >> in this area of dodd-frank, it has been one of my concerns that the more that you crank it down, the more regulations become more and more onerous, the greater the temptation is for smart people to hire smart lawyers and accountants. at the end of the day, avoid you. >> that is right. that is why international efforts are engaged. they are painstakingly time consuming. we have done this on a bilateral basis with the regulators in the markets and have gone the issues like pre-trade transparency and

post-trade transparency and the margins and a clear mandate. we work through each and every one of these issues to try to get the regulatory regime -- as other is not an opportunity for them to disappear in arbitrage. if it has the 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 -- i have no doubt you are working hard in the international arena and you want everyone to be as harmonized as they can be -- i look at that international arena and i look at it the position like yours, we would work days, months, years with the f wto process

with 150 countries and tried to get people on the same page on trade. at the end of the day, they have their own agenda. they have their own in tests. interested. -- interests. i can go on and on. >> i think you are right on both points. we will obviously have differences. there are different cultures, political systems, and agendas. there will be differences. second, i think you are correct. arden finance institutions will larger look to see if they confine the up lowest tax regime or counting machine that favors them. -- accounting regime that favors

them. these large firms will do all of this. i used to do this when i work for a large firm. long-term capital management was in the cannes islands. aig financial products that we thought were in connecticut, they went to france. london. a branch anin all of that came back here. we have to be very careful. there are costs on financial institutions. yes there will be differences overseas. the bigger costs is -- we are trying to cast is appropriately in.

we want to make sure transactions are in. wall street is rationally advocating something different. if i was on the other side, i would advocate something different than i am right now. it is an interesting challenge. we will not be as good as we hope to be. they will get something by us. in a few years, someone will say that you missed something. >> mr. chairman, thank you. >> senator reid. >> in this joint will making and clever rulemaking, you are trying to define hedges in the way that covers the legitimate operations of the financial institutions and minimizing the risk without allowing speculation. there is this tension it seems

-- the tension between a risk management. i know that you suggested criteria. do you have anything else to add to this dilemma of defining a head so that it is properly protecting clients and protecting investments and banks and not opening it up to speculation? >> i think that is the hard challenge the congress has given us. i would say that it is true with the market making extension as well. we believe deeply that businesses have to be able to engage in both activities such as marketing to make sure our kids are operating as efficiently as possible at hedging to reduce risk. i think the criteria that are laid out are actually pretty good in terms of helping us keep the focus on hedging as truly hedging. mitigating more risk either in

name individual positions are other positions. that is a themself have given -- monitoring hedges and adjusting, they march into something else over time. let cannot be compensation programs. we have been working hard in the disclosure area that really incentivizes outside risk taking in a way that threatens the franchise by encouraging people to take bigger risk than they should. i think the criteria is there. it is really incumbent upon the regulators to figure out how to write a rule that allows legitimate having to go forward as it needs to. but it must be genuinely risk my gating hedging and not anything that people want to do and call it hedging. >> there is something else you

have to deal with. in dodd-frank, is there any other exemptions? you could be doing hedging, but you could also be very aggressive in your hedging. we saw 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? >> congress anticipated it because they included major swap participants. congress said 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 schapiro 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 it is tied to specific aggregate positions. it is not like we think revenues will go up, like the european debt market these days. from my experience, these things sometimes mutate into something

else 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, 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 rule 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 in force 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 for most on the regulations. we examine the organizations, but we do not have people on- site at a merchant, at the

clearing houses. that is the reality of our funding and the decisions that had been made over the decades in a bipartisan way. >> 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 gensler spent touching on, your views of purpose and ability of hedging. i used the expression about portfolio hedging that is tied to specific positions.

i am wondering if you could clarify that, because if you tie hedges to individuals, 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 risk of either individual or aggregate positions, tied to the specific risk of some aggregate positions. it has got to be tied -- >> it could be the aggregate interest rate risk of a bond portfolio -- >> that may have 170 bonds in it. >> 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 based, 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 a subjective judgment call. in complex markets like ours, there are a lot of truths 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 gave 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 can be barred from the day-one offer spread versus what can be barred from office moves. we will have rules for market makers. we will decide and have rules that will take out the two. whether we can quantify these things at the level of the individual trader or will we have several traders or the entire trading floor. how will we do this? we will have rules that will establish which kinds of classes are permitted to hedge

which kinds of risk. 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 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 taxpayer 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 have 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

today and your commitments. in senator reed's discussion, you mentioned data collection, and when will this data be collected? >> the security based swap reporting data collection will begin when the rules are finalized, which they are not yet. 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, so 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 senator toomey's comments, in addition to capital transparency coming out in the credit default swaps 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. 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 the cvx 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 nondealer, 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 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. 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 -- that it does not measure for you the maximum possible losses in a portfolio. these could be incurred during very stressed market conditions. 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 a bar 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 jpmorgan, they changed their bar 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 valuations? >> our staff would look at cuts

in the capital context. we allow certain firms, a small number, the use the bar to complete the market risk detection from the capital. if they have large losses, they 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. you have been given huge amounts of responsibilities, but without in my judgment the concomitant resources to fulfill those responsibilities. that is one of the reasons you 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 levies 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 asked and asked to take on 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 positions 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 talent to the sec in a different skill sets. >> what about investments in technology? >> we have made technology investments the significant focus of our additional resources, and have been able to make dramatic improvements in the agency's technology. that said, we are still way outgunned 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 effect and we will have the clear responsibility for oversight and monitoring of the security- based swaps market, we asked for an additional 272 positions. >> that is a lot? >> that is a lot. >> what are the vibes on the appropriations committee? >> 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 in football, 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 would 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 you, with reference to senator toomey, that even if you think capital requirements are the major protections here, because you 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 jpmorgan 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 of record in the trade information warehouse, so that would mean 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. and the dividend portions of this transaction, 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 promise of that coming into effect? >> we 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 warn us when a company accumulates unusually large positions in any single product? is there any warning system that regulators could develop so regulators can identify risky positions? >> early warning -- that is what we do now in the futures world in corn, wheat, and interest-rate products. we plan to do that in the swaps. 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, but something will give. >> the clearing house also to the extent these instruments are mandatory will have a clear insight into the early levels concentrations and be in a

position to adjust the requirements to account for that. >> i might add that the two main clearing houses have a concentration where when positions get large they add additional margin on the top. without adding details, you can imagine what happened here. >> we will have an additional five-minute round. >> i would like to go to mf global. this committee's due diligence has revealed that you played an active role in the oversight of mf 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 with jon corzine. i participated on that sunday on a group call 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 movement of positions, so we wanted to be sure those customer moneys, positions were removed. we were assured 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 that we learned of the shortfall, at

2:30 in the morning. sunday it was about moving the customers and the 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, we 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 in what is called segregation compliance, but over the weekend, we kept asking questions for more

details, because you wanted to see the details. it was not fully forthcoming, but by sunday we were on these joint calls together, sec at others, and then we asked to talk 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? >> throughout the weekend we were assured by the company and the front-line regulators. the law is 24 hours a day, that is, to be in compliance, and one must report that you are or 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, so 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 did the cftc staff learn 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, if the firm failed? >> this was already monday. i put on my bathrobe and got in a conference call and joined in with other regulators. i think it was up to six hours later that it was put into a proceeding. >> on october 30, a cftc employee gave two cme employees documents to support the october 26 mf 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. chairman gensler, about may a year ago, 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 learn that mf 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, 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 do anything about it, that is a problem. >> my memory is there was coordination, but as to the specific 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 global, but there are questions i would like ask. one of the items that senator shelby mentioned is this issue of coordination between your two agencies on approach to rule implementation. one of the things that i have been concerned about for some time on is that in dodd-frank, very active in title 1 and title 2, 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 that could have the ability to adjudicate if need be between different interpretations or conflicts on rule 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 where issues rise up, and has that been effective or not? either one. >> i think fsoc has been a good forum 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 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 a very lively discussion on 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 of fsoc has enabled us to form relationships. >> i would say having witnessed what was its predecessor, the president's working group in the 1990's -- 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 for 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 two agencies have a knockdown dragout

disagreement. 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 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 entity when 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 entity that has a foreign setup and you have a foreign counterparty to 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 have 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 in relying on compliance from overseas, but we are a believer in learning from experience. in 2008, the three or four biggest banks, 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 will meet your guaranteed affiliate in london, because that is the worst outcome. the risk 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 affiliates meeting in london, that might be a way we could substitute plans. >> we will lay out a comprehensive approach to cross- border publication. we will do that before we send out the final rules so it can inform the reach of every rule as we adopt them. i think that will give everybody an opportunity to see the entire picture of proposed rules and how we expect them to be applied and comment. we know four 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, is dealing with an insurance company in germany, we want to make sure they have a

competitive field that they can compete in, like a barclays bank, 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 risk and exposure. if you think about a company that has funds in between making loans and the liquidity rule 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 two 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 insuring specific bonds. then you do a 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 word. when have you crossed the line, do you have an excuse to do hedge funds without trading? where do you see those lines being drawn in this? >> i agree, it is a continuum, and those may be 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 bill. the goal is to see how behavior

changes in time over in a firm, as a way to see if things hedged are moving into a different realm. 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 it is a red flag -- i will give you examples -- if the hedge 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 transaction that is giving rise to significant exposures that were not there at inception because you have overhedged the

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 take 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 it 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 is one of the more challenging task, permit market making, to permit hedging. a question about hedging, 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, a big risk, but we put in a rule 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, 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 conversations 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? i was interested in being pursued because what is reasonable? 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. i want 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 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, so 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 2 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 interconnectedness, and that is why it is critical to get the rules 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 provision in title 2. you remember we worked 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. at there might be this 24-hour stay, and that is an unfair set of challenges. >> i agree with what chairman gensler said. >> i have a few observations. did both of you agree that you cannot delete risk in a marketplace? >> absolutely. risk is part of the marketplace.

these large institutions are how our society manages that. >> you cannot take that out and should not try to. >> if you micromanage what entities are doing, for example jpmorgan -- a huge bank -- obviously going to be hard to micromanage them to begin with, but if they got capital and if there is no risk to the taxpayer -- 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 saw it, 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 transparency -- the 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. 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. you 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 risk out -- 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 about investing hedge funds, the abrogation of capital, the question is not whether it is risky. of course it is risky. subsidized by taxpayers deposits, and occasionally those bets go bad, you will blow up or melt down the investments of the investors in a way that affects broader access to capital. that is back to the whole theory of the firewall 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. 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] >> up next, christine lagarde of the international monetary

fund talked about britain's economy, greece, and the eurozone. then a group of journalists fact addaims made by campaigns. >> mark sullivan and charles edward will testify tomorrow morning about the firing of nine agents falling in incident involving prostitutes in colombia. it said it sent 30 a.m. eastern here on c-span and on c-span radio. the u.s. is one of a number of countries that have signed but not ratified a law. established the use of the ocean for mineral extraction services. on c-span3, hillary clinton, a secretary panetta, in general chief dempsey will testify about

the national security. live coverage begins at 10:00 a.m. eastern. >> international monetary fund managing director christine lagarde said that fiscal policies instituted by britain's government had most likely averted a larger financial crisis. she also discussed other potential threats to the stability of the british and european economies including the possibility that greece might leave the eurozone. this >> ladies and gentlemen, welcome to the treasury. i am delighted to welcome christine lagarde and her team for their assessment of the united kingdom.

before i hand over the recommendations in detail, let me say the words about at home and in the eurozone. the imf could not be clearer today. britain needs to deal with its debt. it is an essential part of our road to recovery. it enables interest rates to stay low. it means we can use the credibility we have earned it for the government posted balance sheet to support lending businesses, new housing, and more infrastructure. i welcome the imf's continuing support. they agreed decreasing the deficit remains the essential. they made it clear they consider the current pace of consolidation to be appropriate. they have also backed our fiscal

plan. some have argued he events in the eurozone shows that britain should borrow and spend out of its crisis, but i agree with the. christine made about deficit- reduction. we have news that inflation is down. falling from 3.5% to 3%. it means for the first time since i became chancellor, i have received a letter explaining why inflation is off target. is the first time since 2009 this has happened. this brings relief to families on tight budgets. the bank of england expects more over the next year or so. unemployment has fallen, but it remains too high. the imf will come and will use

the credibility of its balance sheets to go further for infrastructure. the imf identified setbacks from the euro area as the key risk to the uk's economic prospects and financial stability. we have a flexible exchange rate, an independent monetary policy that allows us to ease the adjustment with supportive monetary policy. the imf has advice for the bank of england on that today. indebted countries have to deal with high budget deficits without that support. it is clear we are reaching a critical point of the eurozone. they need to stand behind their currency or face up to the prospect of a greece of -- a greece exit. the british government is doing contingency planning for all potential outcomes. is our responsibilities to

ensure we prepare for something worse. the imf must also prepare for the consequences if members in europe do not follow its advice. let me ask you to welcome christine lagarde. she will answer your questions afterwards. thank you. >> good morning. thank you very much. i am particularly pleased to be here in london on the day when the inflation number is announced. i did not comfort that purpose. i came for the conclusion of the imf mission. and just to give you a bit of background in terms of what that is, it takes a team of more than seven members on a two week mission. they spend it those days walking to multiple stake holders reject

talking to multiple stakeholders. offering confronting views and debating policies that have been in place and recommendation. it is an animated exercise but is conducted as is always the case with excellent cooperation. as a global hot and as an island with a long trading history, he understand better the benefits of living in an interconnected world then the united kingdom. the authorities understand the challenges and opportunities of policy choices in a world where what happens in one country affects all others. it is welcome that the u.k. authorities have reinforced credibility at a time intensified global uncertainty. the bank of england has been nimble and easing monetary

policy to support growth. just for one second, you have to appreciate that we do not assess the validity of policy but of policies and policy mix, which to us is the reason this policy mix in our view has been good. i just want to get back to my text. i do not want to be to raise seven different drafters. the bank of england has been no. 0 in easing monetary policy. this helps rebalance the economy toward investment and external demand. the recovery in the u.k. has not yet taken hold and uncertainty is abound.

the stress in the euro area of facts the u.k. through many channels. growth is too slow and unemployment including youth unemployment is too high. policies to bolster demand for low growth becomes entrenched are needed. i am encouraged prime minister cameron emphasized the need to use the credibility of the balance sheet to help the economy grow. i am often encouraged by the outcome of the g-8 leaders' summit last week to promote growth and jobs while supporting sound and sustainable fiscal consolidation policies. my position certainly a couple of weeks ago, that growth without austerity is a failed debate. we should recognize policy options, with risk. these risks need to be weighed against the risk of lost years

of growth. further monetary easing is required. underlying inflation pressure is weak. easing should be consistent with inflation returning to the 2% target in a reasonable time frame as indicated by the trend if only this morning. the slow pace of this consolidation is it appropriate. it is below the annual average two percentage opint in the previous two years. that is understated or hardly ever mentioned it. it has progress that a rate of 2%, which was a significant exercise. thanks to the decision made in november 2011, that pace of fiscal consolidation has abated at a risk of half a percentage point of gdp, which is the right

way to address the current situation. it has embedded the flexibility that actually allows for the slowing of the fiscal consolidation. that is right. the quality of fiscal adjustment can be improved to provide support for growth. this budget neutral ships toward more infrastructure spending and measures to shield the poor. if the economy turns out to be significantly weaker than forecast, fiscal easing should be considered. the measures would have to focus on supporting growth and encourage employment. a delay in fiscal consolidation in these circumstances would be a good use of the credibility of fiscal policy and institutions in the united kingdom. i should also mention the united kingdom has a financial sector assessment last year. that progress has been made

since then to implement the recommendations. some of them were concluding on systemically important financial institutions. i cannot stress enough the importance of robust regulation and supervision for global financial hubs such as the united kingdom whose stability and soundness is a global public good. i would like also in conclusion to express my thanks to the authorities for their contribution of additional lending, to the imf resources to help strengthen the global economic and financial stability in the interest of our members. the very courageous chancellor osbourne has been appreciated in that regard in trying to strengthen the ability of international institutions such as the imf to protect stability. thank you very much to all the

authorities, the treasury, the bank of england, and the financial stability authority for their good spirit in which this work has been concluded. i am sure you will have some pressing questions. for those questions that are highly technical and complex, i have the support of the mission chief sitting next to me. >> i just wanted to have a question about are there other options to boost demand for credit. >> which dropper you talking about? the latest one? >> yes. the bank of england has always been very opposed to doing things like ltros and has said

repeatedly they do not think they should do that. given that the bank has been relatively firm in saying they will not do that, how do you expect british authorities -- how do you recommend they should actually go ahead with doing this -- meeting its recommendation? >> my understanding from the team -- i will let my team express additional views. they cannot carry the risk on their own balance sheet. it would be with the bank of england acting as an agent on behalf of the treasury. that is the approach that would be acceptable. clots that is absolutely right. what we are trying to get that over here is that high funding costs are straining the credibility to the economy. any policies that lower the

funding costs would be very valuable. the way these are designed should be specific to u.k. circumstances. as the managing director just said and as we say in this draft, the point is to utilize the government's balance sheet. the instruction would be for the bank -- what we are proposing is that if this is pursued, the bank would act as the agent of the government. the additional point that would note over here is there has been experience with these schemes in the u.k. in the past. it is a matter of designing schemes that are appropriate for the u.k. circumstances. >> clearly one of the biggest

risks facing the u.k. is the euro crisis at the moment. the chancellor said in his remarks they need to stand behind their currency or face up to the prospect of the greece exit. would you echo those words? what is your current advice as to what europe needs to do to sort out this crisis? >> i would at first of all acknowledge the work that has been done by the members of the eurozone. in addition to the governance changes, they have clearly gone beyond by, no. 1, clearly expecting some of the nation's

two do very serious technical adjustments, fiscal reforms, consolidation. i am thinking of countries like spain and italy that both of gone into strong programs of their own. they have also decided on the 30th of march to build a more serious fire wall. this is clearly work in progress. it is good. at third, the european central bank has gone into completely different policies by the way of expanding the collaterals, by cutting the interest rates several times. clearly by going into the long- term refinancing scheme. all of that together is a serious improvement relative to anti crisis. we consider that more needs to be done.

rather by way of fiscal liability sharing. there are multiple ways to do that. more needs to be done in relation to supporting growth, particularly by way of structural reforms, certainly not by way of suggest of stimulus because we do not think the fiscal position of the member states can bear that on an aggregate basis. there is still work on the way. we help the monetary zone that has been built for the last 10 years will continue to be strengthened. the political will of the members will be conducive to that effect. that was not really the point to your question, was it? he would want to know what they would do to consolidate their currency zones. >> good morning.

you said if the economy weakens further, the authorities should consider fiscal stimulus. the imf has been saying this for nearly two years. they always said there were risks, and if they materialize to my have to consider a different path. every time you said that, the risks have materialized. since last year the growth forecast for this year has been more than halved. to much worse doesn't have get for you to feel enough downside risk has materialized? >> every year since we said that, measures have been taken. -- ever since we said that measures have been taken. it would be shortsighted to exclusively look at the fiscal policy. i did not suggesting that you are at all. we look at the policy mix. what has been done in the bank

of england to use the tools available to actually facilitate and ease financing to provide liquidity are the measures that are to be taken. they were taken in due course. the decision made by the u.k. government and the november 2 not add to the fiscal consolidation measures despite the fact the difficulty had been reassessed was the right decision. it has produced half a percentage point of fiscal consolidation as opposed to the two percentage points that had been harvested in the two previous years. that pace of decellerated -- that was the appropriate measure. we are saying there are more tools that can be used from a monetary policy. of year and we have discussed

the extensively with the bank of england. we believe they have quantitative easing measures that could be resumed. we also believe that there is room in terms of interest rates that could be used as well prior to considering the improved fiscal consolidation at budget neutral basis. in addition to the measures that were common, which are really to use the government budget and the extremely favorable financing terms under which are involved today to try to support the economy by facilitating the financing of households in order to stimulate the economy. the gain resulted from the

fiscal consolidation that was decided over two years ago has been the such a result, the credibility of the u.k. government and its ability to borrow at extremely favorable rates. sometimes you feel like you could look back and wonder what if. what i think back to may 2010 when the deficit was at 11%. i tried to imagine what the situation would be like today, if no such fiscal consolidation program had been decided, i shiver. >> but you have done a lot of analysis in the last two years in europe as well on the impact of fiscal consolidation. how have the views change compared to two years ago because of what happened? as that had a larger impact on

growth and what you would have expected two years ago? >> as i said, there is no question fiscal consolidation has effected -- well the fact growth as a general principle. there is no question that fiscal consolidation has been adopted across europe, that has improved in due course. that is the case in the united kingdom. what we have said -- you are right. we have conducted a lot of research and analysis. we have said the consolidation is not a matter that can be decided across the board in a one size fits all principle. it has to be tailored to the specifics of each and every economy. what we see at the moment is that it as broadly appropriate under the circumstances and in the current outlook. there is no question that some countries have to take from

loaded measures. they have because the financing pressures are such that they have to resort to that. >> in paragraph 13 you refer to -- >> 13? >> i think it is paragraph 13. you refer to tax cuts. i just wondered what areas you might consider were appropriate if the government were to take that course? >> i am going to give the floor to my colleague. generally when you do that, you try to focus on the tax cuts that will produce the highest possible multiplier effect. i will turn to buy partner here who knows that much better when it comes to the u.k. economy. >> i think the measures we have

in mind are when you consider cutting the added value tax. you consider the payroll contributions. these can be incredibly temporary. the emphasis here is on temporary. those are the kinds of measures we have in mind. >> on this same. -- on. 13, at what point should this action taken going forward? is it another recession? is a growth below your own forecast? when should we have this fiscal action you are calling for here? >> i do not have a present term or threshold or deadline. it is always country specific.

it should be assessed on the basis of the entire environment demand address to the country. it is really at a time it falls significantly below forecast we think that measure should be adopted. bear that in mind because there is a talented focus on paragraph 13. it so happens there are 17 paragraphs. i hope you do not exclusively focus on that one which is in our view forth in the line of possible additional new policies that should be considered. >> i will go to your least favorite subject. do you think the financial system, especially the eurozone, can afford a greek exit? have you quantify the damage? if for the sake of government

they remain in the eurozone, do you think it can keep on going without a significant hair cut? >> it might not be one of your favorite answers since it is not one of my favorite questions. i will simply tell you that the clear preference of the imf in the interest of stability is that appropriate implementation of the program be endorsed by whoever are the political forces that will result on the election of june 17. those political forces will engage in a constructive dialogue with both the rural area partners as well as the imf in order to proceed to the implementation. saying that obviously is i have mentioned in the past, the job

of the imf is to look at all possible technical options and all possible alternatives. this is what the imf has to do. >> i would like to return to the fiscal easing suggestion. the contradiction between your suggestion that there may be caused to ease back on cuts in the u.k. and this morning saying there is no room to ease back, how would you explain that? >> the passing of time. you either analyze the situation at a particular time, which is probably what they're doing. what we do because we come annually as we review what has

been done in the last year, what the policies have been, what the inflation forecast is, so on and so forth. we try to consider what is likely to happen in the future and will make some recommendations. hence, the four different steps and for different policies we identified as possible options depending on circumstances. we do not always agree. we respect each other but we do not look exactly at the same time frame in particular. >> the question is whether you agree with leaders warning that increase will be voting on their euro membership on the 17th and whether if a democratically elected government comes and asks for renegotiation on the fiscal program, what were your

-- what will your reaction be? >> the first thing i will say is, what will a democratically elected government by any of our members? we have discussions and we never leave the table. we abide by the principals. we are a rule based institution. there is no reason why any particular member in any particular zone would have the benefit of different principles, policies, and rules. we have to operate in the two parameters. we always engage in discussions with legitimate institutions. we applied the same principles and we do not discriminate favorably or unfavorably with any member. if any government in greece has

better ideas on how to reach our targets, our objectives, then what we have put in place, very seriously, karoly explored -- carefully explored with the authorities, we would be pleased to hear about it. there is structural reforms that need to be put in place. there is tax collections that has to happen. >> after two and a half years, if it says that does not work. the greece economy is worse and the people are worse than ever.

if it is not in the right direction to sort out the miss in greece, are you thinking to do something about that to change? >> first of all, i would like to say under previous governments, massive efforts have been matter taken. the fiscal consolidation that has taken place in greece is very remarkable. you know, you just have to look at the numbers. there is still work to be done. there are still efforts and implementation to be had. structural reforms have to be implemented. taxes have to be collected. the civil service has to be

improved in efficiency. there is a lot to be done. whether it is a memorandum that is criticized or under any other regime, the same reforms will have to be made. >> hello. i notice there is no mention of the word recession in this document. i wondered if you can explain why that is despite the fact that the u.k. is in a double dip. is this because the imf believes that talk of the actual situation is not as bad as the official figures are showing? or is there another reason? >> official numbers are very often revisited and revised. we tried to take a longer-term view and we do not focus on two

quarters numbers or preliminary numbers. we try to look at the annual forecast. we will be revisiting our forecast in july 2012. yes, our latest forecast for 2012 does not mention recession for a good reason. we do not see a negative number for 2012. >> do you want to add something? >> no. >> all right. thank you so much. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

>> tomorrow, thomas mann and norman ornstein discusses" it's even worse than it looks." then chris chocola looks at the record of republicans that affiliate with the tea party. after that, timothy ferris on activity of the sun. plus you're e-mails, phone calls and tweets. live wednesday 7:00 a.m. eastern on c-span. >> right now i want you to look around you and thing not about where everyone has been but

where there are going. the guy in front of you could win an academy award sunday. the group behind you could be a future president of the united states or even better than that, the mayor of new york city. the guide to the right could be a future nobel laureate. maybe not the one to your right, but certainly the one to your left. >> watch commencement addresses. leaders share their thoughts about the class of 2012. next, a form on fact checking the 2012 campaigns. journalists examine some of the claims made by mitt romney and president obama's campaigns.

>> and good morning and welcome. we would like to welcome you to our morning panels on fact checking in 2012. this is a project of the policies and oppose the fact check.org and by the contribution of donors. our first panel is chaired by jackson.k.org's brook >> our panelists going to go through some of the prominent deceptions that we have heard for and about the two presidential candidates, barack obama and mitt romney. panelists in turn.

i will introduce them in a second. we are going to discuss what changes have been brought about by our fact checking. our predictions collectively for the rest of campaign 2012. my panelists from my immediate left, bill adair, the inventor of the truth-o-meter and chief of the tampa bay times. glenn kessler the current proprietor of the pinocchio shop of the washington post. he has multiple skills sets as international correspondent and business reporter. it is the kind of stuff -- a lot of that experience comes in handy. to my far left, james drinkard.

we both came to washington together. he has come back. among his many hats, he is no accountability editor of the washington bureau. he is trying to keep the politicians accountable for their misstatements. we are going to present seated. i am going to move this podium back so the rest of you can see. i will turn it over to you. >> thank you for inviting me. i think it speaks to the fact

that for the fact checking business, business is good. it is a growth industry. we are all seeing how busy we are even though it is just made. we are friends and competitors. we read each other's work. we have a lot of respect for each other. we also compete. occasionally, we will disagree. we are all committed to this journalism that kathleen and brooks did. we are glad to see so much of it.

thank you for inviting me. i thought i would talk about health care and some of the deceptions that we have seen in health care and later we will talk about the deceptions we will see in health care. if you go to the next slide, why are there so many falsehoods in health care? a couple of reasons. if you go to the next slide. it is a complicated issue. complexity scare's people. that makes it ripe for falsehoods. it is costly. we are all paying more. finally, there are scare tactics. i was talking to kathle abouten this, you go back -- kathleen about this, once medicare

started in the mid 1960's, medicare became a prime topic for scare tactics. when we have issues of life and death, it is right for faucets. -- falsehoods. because of the nature of our database, we can extract data. what this really shows is that, you are much more likely to have falsehoods in health care claims than in general. if you look at that ratings

account for 18% of all of our ratings, only 15% for health care. if you look at the bottom, the false readings account for 20% of all the of our work. our number is skewed towards the red end. this is not scientific. we do some effect checks, at one point, i counted, we have done more than 600. so many of them are repetitive. they are talking points that the parties use. they use over and over again. the value is one defect check it once, we can apply that -- once we fact check it once, we can apply that to the people who are doing it. they are making the same claim

that somebody made on the national level. i think this is a telling chart. i want to talk about the two prominent falsehoods that brooks asked me to address. this was our ally of the year in 2010. the law is a government takeover of health care. we raided this in many different ways. -- rated in many different ways. it was typically used by republicans to describe the democratic health-care law. it was even used by romney to discuss the democratic health

care law. it was also used by michele bachmann to describe romney's health-care law. he has used the line and been a target of it. of course, this claim, if we go back, this originated with a memo that urged the house republicans to use this line to describe the health-care law, in particular, what was then in the bill, the public option, the option there would be a government? run -- government-run program. that was removed from the final bill. it of course conjured images of a european-style medicine system.

it was a very inaccurate way to describe the health-care law that relies on private industry, on private health insurance companies providing coverage. health care exchanges are themselves marketplaces where private health care providers compete. it was ridiculously false. on the democratic side, this is more from the democrats than from obama himself, the claim last year about the budget, that it would and medicare. the details of the budget, it has been modified to include a medicare option. back then, it was a better system exclusively. in the view of many democrats, it would so drastically change

medicare they felt it would not provide the benefits that medicare had traditionally provided. they overreached by saying it would and medicare. an attempt to scare old people, a tried and true tactic. we read this ally of the year for 2011 -- rated this ally of the year for 2011. what we singled out in particular was the way that some groups portray this. in one ad, there was a man who looked like paul ryan pushing a granny off a cliff.

a line that did not include any details that said the program ends medicare. since we did this, i think many democratic campaigns have adjusted their rhetoric and made it more accurate in have been described the plan. that is not to say they are choirboys. there are still plenty of falsehoods. the rhetoric has improved. i know this because i have heard from democratic super pacs which have almost saw the good housekeeping approval for their rhetoric. here is our at, would you rate it so we can show the republicans? i am heartened by that that they pay attention to a work and they are concerned about getting things right.

that is not to say they are not stretching the facts. sometimes we will have instances like that. with that, i will go back to you. >> thank you very much. it is good to be here. thank you to kathleen. i remember as a young political reporter, not a week went by when i did not call her up and ask her for her advice. i am going to talk about how both sides talked about the auto industry bailout. this is important for president obama. it is one of the centerpieces of his reelection campaign. as joe biden likes to say, bin laden is dead and general motors is alive. it is in his interest to play up what he did and how he did it. romney, on the other hand, has the opposite problem in that he

famously wrote an opinion piece for the new york times, the headline was "what detroit go bankrupt." -- "let detroit go bankrupt." he did go on tv today it appeared and said, that is what i said. it is a great clip you are going to see repeatedly. so, it is in his interest to say, they ended up doing what i had proposed. what obama did was not that great. it is in obama as interest to say, what i did was amazing. it was against unbelievable odds. i will take a few examples of what i looked at about the way

the men talk about this. this is something obama likes to say, chrysler has repaid every dime and more of what it as american tax payers. they repeat it six years ahead of schedule. the every dime and more -- he sounds like a used-car salesman. the math was totally fake. what he did was he was only talking about the loan that was made during his presidency. the words "during my presidency." he does not talked about the loan that had been advanced, $4 billion that was given by george to the bush. -- geroge w. bush. what company pays back more than they owed?

when the treasury department writes about this in their official press releases, they will say, $1.3 billion. it is not being paid back. the way the white house will spinet, it is they paid back every dime and more. a more honest presentation, the way the math went was chrysler paid back 1 ander% of obama's loan and 70% of bush's loan. the government got back 90% of what it invested. i give obama 3 pinocchios for this. the white house hosted a blood post cold fact checking the fact checker to argue. obama likes to say it was a tough decision.

he will say a line like, it is good to remember there were some folks who were willing to let this industry die. that is a subtle way of reminding people about romney's led detroit go bankrupt. interestingly, when i would ask the white house for examples, they cannot give me an examples of romney. they gave me statements from republican lawmakers when which you look at the statements, it was all a question of tactics. in particular, the republicans did not want to give a sweet deal to the united auto workers. they had less interest in the power of the uaw. there were a couple of quotes from people who said, chrysler is toast. give it up.

that is not saying they want the industry to die. it is stating a fact. if you read a book, there was a big debate about whether they should let chrysler died. obama's advisers split. his chief economic adviser requested a special meeting with the president to make the case we must let chrysler died. the only real example was in the let us. that is not -- in the white house. that is not what the president was referring to. romney says things like, -- to the great irritation of the white house.

romney will try to say, they ended up doing what i proposed. they ended up doing the bankruptcy. if they had listened to what i said. the problem with that is by every account of experts in this area, the proposal that romney had was not a viable. the time he made it come out early november, december, he was saying, no government bailout. maybe a eventually, but not enough. -- maybe eventually, but not now. it is easy for him to say, in the end they did a bankruptcy. that is not what he was proposing. that is not what happened.

the democrats like to pretend that he is not being consistent. he was remarkably consistent, particularly when you go back and look at his remarks in the 2008 campaign. he tried to spin it as in the end bay accepted what i plan to do. it is not the case. he is left with saying things like, i take a lot of credit for the fact this industry has come back. he also likes to say, he tries to say that obama kept a bad deal. he will say things like, they gave the company to the uaw. he said the kind of did what i wanted to do. they did it the wrong way with the government's heavy hand involved. the more complicated it is, the easier it is to manipulate the facts.

there is a trust known as the voluntary employee beneficiary association. it was created to take on the retirement operations. it owns about 10% of general motors. it is not giving it to the uaw. it is a percentage. it is managed by a three -person investment committee. recently, romney has tried to say, 100,000 jobs were lost under obama's watch. i checked the data, if you are going to do it the way these guys do it, to count from january, the actual number of jobs in the auto industry, dealers, manufacturers, has gone up about 50,000. how does he say that it is

100,000 jobs lost? they decided that in this instance, they are only going to count the jobs lost in 2009. not anything that has happened since then. even though i went back and showed the campaign that whenever romney talks about on the president's watch, he is talking about the entire presidency. that is why he got the rating he did. >> thank you. >> i am not going to be as the magic as these deaths were. i just picked a couple of my favorite -- as a thematic as these guys bang were. i just picked a couple of my favorite. it is something romney said on fox. they were talking about the task force obama had created to investigate why gas prices were so high.

romney said, "i can cut through the baloney and tell him, opened up drilling in the gulf. open up drilling in the other continental shelf. drill in north dakota, oklahoma, texas." it was a familiar cry from the republican side. we had heard it from a lot of the candidates. there was an ad after that that said, obama had restricted oil development and said that energy policy is main energy prices we cannot afford. the most succinct summation was in the title of a book it gingrich wrote in 2008, "will hear, drill them, a tooth -- drill here, drill now,. pay less." we are all todd the price drops as supply increases.

it makes sense. this argument revolves around the domestic oil industry. oil is a global commodity. the u.s. shares that -- the u.s. share of that is not a controlling market. it is the world market that influences prices. we have said that a lot of times. every time somebody brought this up. it kept being repeated. we had a science writer in our bureau who was thinking about this and wondering, how else can i get at this? how else can demonstrate the fallacy? he got together with one of our tete-a-tete guys.

the two of them pulled all of the information on gasoline prices over the last 36 years, that is when and unleaded gas started. for that same time, they pulled data on domestic oil production. he ran an analysis. to find out what was the relationship between these two data set. zero. absolutely no correlation between the two. they decided -- we did a story just walking readers through this. they ran the numbers another way. they found that gas prices did not follow any bipartisan pavin either. the average gas price since 1976

and the democrats has been two dollars and 75 cents. under republic and, it has been $2.34. they had a lot of fun with this one. we are still here in this. -- hearing this. it is a lesson we kurt -- learned the hard way. fact checking is not a magic solution. people tend to believe what they want to believe. we have all had the experience of one side embracing the fat checks. -- fact checks. this was another example of that. they did not just have been at off-the-cuff situations. -- they do not just happen at of the cult situations. -- off-the-cuff situations. in the state of the union address, to be statements creep in. in obama's appearance he asked

congress to help revive the economy through construction projects. it is something republicans have resisted. what obama said was, "take the money we are no longer spending at war, use half to pay down alan debt, paid the best to do some nation-building." -- use the rest to do some nation-building." it is budgetary sleight of hand. you have to remember that the wars were financed by borrowing. stopping wars that were financed by borrowing does not create new money. it just means you will be

borrowing less. even in a carefully crafted message, you can look for wrong assumptions. they are often their. >> thank you. i cannot mention the prerogative of mentioning a couple of my favorite. when gasoline prices were higher, we are hearing must now because the prices are going down. no price is advertised as extensively as gasoline. when the concern was in its peak -- >> it is because we started drilling. >> obama was being criticized. the line was, bring in more canadian oil. your prices will go down. obama is propping up gasoline prices by not approving the keystone xl. what this ignores is there are other pipelines that already

crossed the border between the united states and canada. without the keystone being constructed, there are 1 million barrels a day of excess capacity. the keystone would add to that. it would give canada an advantage. it would not bring it dropped more of canadian oil into the united states. the whole attack was based on facts that were not in evidence. the democratic side, we had to tweak the obama let us -- white house for the graphic. one of the claims they made was that romney's social security proposal would cut social

security benefits by as much as 40%. if you look at that, what they are talking about is a progressive indexing proposal for those at the upper income levels. they would advance their future social security benefits only in line with inflation. for somebody who is not born yet, 70 years from now, that would result in benefits for upper income people. 40% or less than are scheduled. the problem is the white house says nothing about their own proposal, which is nothing, which in 21 years will result in a benefit cut of 25% for everybody. further cuts further on. we get these distortions in both sides.

some are busier than others. we are entering into a busy one them. i would like to ask the panelists we have put all this work in. people have this tendency to believe what they want to believe, . they scratch pretty hard to find the facts to support what they believe, whether they are true or not. they tend to ignore things that are right in front of their nose if they conflict with their beliefs. we wrestle with that all the time. think about the behavior of politicians. what examples can you give me?

how much change do we bring about in the behavior of politicians? i will give you my example. some politicians, none. barack obama we once tweaked for saying he had worked his way through college, this is in the first at he ran nationally, we wondered about that. what did he do? the campaign got back to us. the campaign said, one summer he sold newspaper subscriptions. another summer, he scooped ice cream. that is not working through college. we came down on him through that.

obama adjusted his rhetoric. he said he got through college on hard work and scholarships. it made it true. that is about as much change you are going to get. when they are using deceptive lines that have the utility. thank you for bringing up the memo. this brings up something i see over and over again. when somebody running for office, the stakes are high, when they have a plan that works, the utility of the line will trump whether it is factual or not. both sides are reluctant to give up a false claim for a distorted fact that is working for them politically.

this is just a personal subjective impression. i want to give your impression. i find that on the republican side, they tend to keep saying it. democrats will sometimes, they will push back with indignation. the term false equivalents comes up. i never hear it from republicans. meaning, you are implying that our allies are equivalent to their lives. -- our lies are equivalent to their lies. i see little change in behavior. what about you guys? can you give me examples of politicians who have tweaked their rhetoric? >> and the one involving obama. -- another one involving obama. one was a line he is using about gas prices.

he said gas prices were higher than they have been. when you control for inflation, they were higher in 1981. the next night he started using the line, giving it differently. making it accurate. after recalled one guy out for a fact he got wrong. he tweed, i misspoke, - tweeted, i misspoke. the democrats have adjusted their rhetoric on medicare since the big careful over the. i of the year. -- over the line of the year. we have not gone back to rate those claims. the new plan does include the medicare option. i think there has been an adjustment as they tried to get

it right. underwriting it is the calculation -- underriding it is the calculation that it works. we are going to use that line. even as we grow and there are more of us, maybe you can speak to this, the calculation. the fact checkers on going to raise a fuss about it. >> i did not receive much adjustment. normally they say, as we know it. you can change the law and that ends medicare as we know it. that means nothing. i move to the other panelists. what adjustments have you seen?

>> i agree with you. i see subtle changes, tweaking of language. romney will slightly tweak it after. some of his talking points after i have been to him, -- dinged him. ultimately, if it is a line that works, they are going to use it. he called his book "no apologies." there is no evidence to the

claim. he is going to say it. you are going to hear it again. you are going to see it in his convention speech. even if he has decided, i guess i went too far, he is not going to change it. it works. ultimately, you can see, there is a certain calculation that they feel they have to back up their claims with facts. everyone of these eds has a citation that indicates there is something behind it. often, the campaigns will be quick to provide you with data. they will try to argue why they think they are right. it is a different matter than if you go back and look at some

of the old richard nixon ads. ultimately, we are talking about the most important office in the country. the stakes are very high. you are going to throw away the presidency because he decided your facts are not right? >> not much. >> over time, it is a slow process. i wrote a piece called, "effect checkered challenge." i challenged both to give a 50 minute speech without any factual errors. it was mostly a device to recap

some of my favorite. i never expected to hear anything from either campaign. i was right. [laughter] >> the only direct knowledge of a change made because of something we wrote was the republican primary campaign. newt gingrich claimed that under his speakership in the house, he had achieved four straight balanced budget. two of those came after he left office. he was claiming credit for things that happened under another speaker. that is right.

that is the other piece. we kept pointing out, we kept pointing that out. finally, one day, gingrich told an audience he had set the conditions for four straight balanced budget. i said that right for the fact checkers. it was not a week before he relapsed. a similar thing happened with romney. he said, on day one and i am going to get rid of obamacare. -- on day one, i am going to get rid of obamacare. michele bachmann pointed out the error of that. she said, it cannot do that. you have to do that in a reconciliation. later on he said, on day two a i am going to do it rick cancellation -- on day two i am going to do a reconciliation. for obama, he is to say, -- he used to say, you can keep your

doctor no matter what. we wrote that, that is a promise you cannot make. employers provide most health care. conditions change. they can change the plan. they can drop it altogether. what obama did was say nothing requires you change your doctor. >> one thing about newt. he was an avid reader of the fact checking columns. he would talk about them. during one debate he pointed to romney. when i gave a movie four pinocchio's, he said since it cut four pinocchio's, they have to correct the errors.

>> they use us when it is convenient. a question i am interested in. i do not think it is our job to change their behavior. if we thought it was, we would be doomed to have their heart broken. it seems our job -- and some politicians are going to do this, they have been doing -- since politicians are going to do this, they have been doing this for ever, our job is, those readers who are interested, they have some place to go to sort through the distortions, the confusion. i did not view the politician as

my audience. i did not judge my work by how much we change their behavior. i think we ought to apply a different metric. >> i would say that, my hope is actually we change voter behavior. that voters become more knowledgeable, more adept at being able to figure out when a politician is spinning them. being able to be a sophisticated consumer of political ads and political themes. therefore, the next time they see an ad where granny is thrown off the cliff, it is not as effective because they say, i read about that thing and i know that is not true. i do not have to pay attention. if the change of voter behavior, politicians would have to respond to that. -- if you change voter behavior, politicians would have to respond to that. i got an e-mail thanking me for said a new light. -- shedding new light.

>> i agree. our role is the role of the journalist. we are to empower democracy. we will give people the information. they can use it in making the decisions they unmaking in that democracy. >> we were asked to come up with predictions for the course of the remainder of the campaign. i can summon up in four words, more of the same. what the think? what can we see in terms of deceptive or false claims? >> i think we are going to see a lot of connecting the dots. what we have seen from democrats where romney has not explained much of his plan.

if you go to his website, it is skimpy on specifics. the democrats have said he supports the ryan budget. the budget would allow this terrible thing to occur. from that, they make these tremendous inferences of what might happen. in many cases, we have been given falsehoods to these claims. the specifics on not there. -- are not there. that is one theme. the other theme is, they have their lines down. they have the talking points. those talking points are getting repeated. by the parties, by the supertax, by everybody. although, as many have shown so affectively the way that you can coordinate with the coordinating, these lines are

getting -- without coordinating, these lines are getting used again and again. it is the same lines we are hearing from the republican campaign that we are hearing from the superpacs about what nmed -- medicare would do. >> there is a poll that shows how close this election will be. i do not think the dynamic is going to change at all. the stakes will get higher and higher. there will be no money available for positive

advertisements. on either side. they will be spending so much time tearing each other down. obama had such a money advantage over mccain, he was able to run just as many negative advertisements but still have one-third of his advertisements be positive. that is not going to happen. with all of the money going to the funds, by the time november comes of, it is going to be the most nasty, brutish, campaign in american history. we will not know who the winner is until late at night. >> i would agree with everything that has been said about the repetition. i think we will see a lot of that. the economy continues to be the issue. also, they have done this

capacity. the only place we might hear something new is its subject matter changes. you can have distortions on subjects we have not talked about, like foreign policy. the obama administration has a tendency to put an overly rosy gloss on the situation in afghanistan. we may see more of that -- in the middle east, we may see things. one of the things we like to do is to have -- we do not have designated fact checkers so much as we have reporters we enlist. we bring in our experts. if the subject shifts, the one thing we have not mentioned -- to the extent we hear from joe biden, we are going to have a lot. he recently said that the raid to get bin laden was the most audacious act in the last 500

years. we just wrote a little piece saying, d-day? pearl harbo? 9-11? >> when he was talking about crime in michigan, -- you had to wait 20 minutes, the statistics were changing. things were getting more of a of line. we had three different misstatements. we are just about out of time. do we have time for any questions? i guess we do not. thank you for your attention. >> if one of the goals of the

process is increasing [applause] the likelihood the candidates change their behavior, we hear that does not happen very often. the panelists have not taking credit for something they deserve pettit -- credit for, the claim that romney has produced 100 dozen jobs. it has been backed off. one person commented that government romney had crafted the most carefully statement to make his claim accurate. the bottom line was, thousands of jobs. now they claim appears to be, he can claim a larger numbers across the life of the company. that is a significant claim.

other republican candidates contributed. all of the fact checkers look at it carefully. they said the evidence did not support the claim. the model that assumes it educates the electric provides one model. i want to make another case. it provides the basis for local station managers when they receive third party eds to identified the current facts. assuming the distortions are clear-cut. what website has set up an e- mail process -- 1 website has set up an e-mail process to ensure the accuracy of third- party ads and to make sure they are fact checked. one of the things that should make that easier it is the existence of a fact checking organization and that claims do tend to be repeated. as a result, the website has set

up a log that summarizes fact checking and linking to it. hoping that when the stations get the advertisements, they will see what has been checked. they can make that judgment. we have also put on line a sheet of but the process. -- a sheet about the process. we will be talking about it in the next panel. we think it will be easier for you is to be protected from deception if they can recognize -- for viewers to be protected from deception if they can recognize the deception. if they can recognize a pattern that tends to be tied to deception and go to the fact checkers. you are seeing a rotating video that runs on the site. it shows a pattern of deception. our hope is that over time people will come to recognize that when you see one of these, perhaps you do want to go check the facts. we also think that there is a role for viewers to thank stations when they are doing a good job.

there are stations that a doing a great job. they do it routinely. this is focusing on improving things. we want to praise those who make the democratic process work. the local stations are our first line of defense against air pollution. most of these advertisements are not going to be aired nationally. as a result, it is decisions at the local level that act as the protection. insisting on the accuracy before they aired them. and also fact checking.

as a result, to honor brooks jackson we are establishing an award that will be given with our sister school and will honor the network, broadcast, or cable, that does the best job of fact checking presidential at. -- advertisement. we hope that behavior will be emulated. we will be giving a second award to the best local broadcast nation for its fact checking. we will be trying to distribute the fact that these awards are available. we hope the industry will submit the best examples so we can praise what is good. with that, i would like to introduce a man who is going to report on a study we did to find out what station practices are. we did this to set up the question for our next two

panels. >> thank you very much. good morning everybody. here is the power point. next on this. to better understand how local stations deal with third-party advertisements, fact checking of political content in news and online, we surveyed 2 06 local broadcast station managers and executives from march 26 to may 15, 2012 online and by telephone. they included those responsible

for stations under corporate ownership and those owned by local -- owned locally. because this was an opt in sample, we do not know whether they are representative of podcast patients in general. our focus -- broadcast stations in general. our focus is on consistency. the understanding of the fcc regulations governing the airing of various forms of political advertisement. next slide, please.

we found wide variability in the understanding of federal regulations. we found differences in the treatment of third party political at. the numbers who engaged in programming on the new shows. we found differences in the treatment of prague -- advertising in the stations. next slide, please. turning to regulations, among those who asked the federal regulations, we found a range of understanding of the differences between regulations regarding advertisement for federal office candidates, in which the candidate appears in the advertisement, and state office candidates, in which the candidate appears. we see 24% say the regulations concerning the broadcasting of political ads for candidates for state office of the same as sec regulations. -- are the same as fcc regulations for federal office. they are not.

28% say they are different. 34% say some are the same and some are different. further, station managers and executives differ in ways in which they treat political advertisements. 74% at the station managers said advertisements run by candidates for federal office must be run as presented. no edits, the suggestions for cuts. -- no suggestions for a cut. 54% say advertisements must be run as presented. there is the difference between the two. on the federal side, 12% say

stations can and it was a guest at its. -- can edit or suggest that it's -- edits. while most report airing third- party advertisements, half say they were aired one third-party advertisement in the past month, some screening for -- some do screening for accuracy, some do not. 56 percent and take some steps. 74% make steps about airing third-party advertisement. 17% say it is at the corporate level. focusing on advertisement watches.

among station managers who run third party advertisement most report engaging in a little advertisement watching. some report will \ there was deception ands third-party, advertisement. -- there was deception in that third party advertisement. 20 percent and only do it for some of the deceptive advertisements. -- 20% only do it for some of the deceptive advertisements. these hardly ever or never report deceptions. next slide, please. so, overall, product advertisements are subject to greater scrutiny than third party political advertisement. of the 206 we spoke with, at 86% and do some screening to

decide whether to air product at. 54% due screening -- to air product advertisements. 54 percent and do screening. -- 54% due screenings. only 32% say they have rejected a third party advertisement. what we are hoping is the next two panels will help us understand, or better understand, the variability be fined. thank you. -- we find. thank you. >> thank you for sticking around

for the final panel today. these are the guys in new take these commercials and to test them. i think it is an important part of the process. that is where we will get into for the next hour. we were talking about the money is flowing this year.

the mayor may not know that across the country it is estimated that close to $10 billion will be spent in this political season by the candidates themselves and by the super pacs. a lot of that will go to key battleground states. one today thatour said a station in columbus ohio that said we are running around with a bushel basket trying to get all of the money that is falling out of the sky. that lasted be interesting. it is a deposition to be in. that is the kind of thing that we're looking at this year. these gentlemen are among those on the news side to take these

ads and but then to the test. let me introduce the panel -- and put them to the test. let me introduce the panel. each one brought examples of their work. they will have time for some general questions. i hope you do too. greg fox has been covering politics for wesh tv for 25 years. >> this month. >> he is under than i am. he is a two-time winner of the walter cronkite award of excellence in journalism. he is recognized for his series of shrewd tests, of which you will see today, it to uncover -- truth tests, which will see

today to uncover untruths. >> next is pat kessler, with wcco-tv in minneapolis. he has been covering conventions, campaigns, since the mid-1980s. there is a popular segment called "reality check" that helps your separate fact from fiction. it says the political world according to the station is often more fiction than fact. finally, james pindell, political director and wmur.com in new hampshire. that little state is so important this time of the year. >> you forgot to add the word

jr.. i am about 14 if you have not noticed. >> great. you can keep us all young. he also provides political analysis for the tv station wmur. the washington post called him "the insider's insider." please join me in welcoming the panel today. let's take a look at what they brought. [applause] start with you. >> i brought two truth tests. thanks to dr. jamison and the policy center and migke are heading this panel. you picked three reporters that had distinctly different names. it would have been bad if you had two reporters with truth

tests. we are a hearst station. fact checking or whatever you want to call it, giving pinocchios, is something that we have done at wesh since august 2002. the first true test was not on a commercial but when the former governor was running for attorney general. his opponent put up a billboard that said it took three times for him to pass the bar exam. we decided to treat tested that -- truth test that. >> was a true or false? >> it was true. >> charlie crist did take three times to pass the bar exam. we decided to go at that point through different ads.

this year is going to be the busiest year that we have. we typically do somewhere between august and november in a general election year and 2024 27 -- 20 and 24 ads. it takes an enormous amount of time to research some of these things. we did not as many as we like. this year will probably be on course. in the way of numbers, i know we talk about numbers here today. we have been the sum to folks here in washington. we talk about the $200 million that super pacs have raised, you're talking about more money than the washington nationals made last year, more than three times the salary of the washington wizards.

it is very much money. about $110 million has been spent so bar. i am going to give you some number at the end of the tests as far as ratings go. we had our research department do that. we have had a number of news directors that i have talked to that say we do not have the resources to do that. i know there is a discussion in the last panel that resources can be a challenge. i would also point out that james works and not a gigantic market. it is important. so they do it. sometimes the small market is a bad excuse. they can do it. our first ad is one we did last week. i know the folks at p olitifact did it. they are attacking senate candidates in ohio and hawaii.

they take the same theme and change the faces. this is one attack of bill nelson. >> he is taking a beating. >> it says the health care bill leaves many without coverage. >> we put this through the exclusive truth test. >> obamacare will be a nightmare. >> here are whether people use the phrase "chamber of commerce day" when it is nice and shiny. usually it means a hurricane. here's the latest from the u.s. chamber trying to scare florida's senior citizens, attacking bill nelson. >> did bill nelson consider the consequences when he cast the deciding vote for obamacare?

>> the ad said he cast the deciding vote. that is false. he was one of 60 senators to voted for patient protection. it was that bill nelson but rather ben ne who was -- nelson who was last. funny the chamber of commerce gave $5,000 to ben nelson's campaign. now he tries to get a word in. >> this legislation is going to let folks that are happy with their insurance keep it. what's wrong. 20 million people could lose their current coverage. >> we are going to have to leave this in the middle. cbo did release a report on employment based health insurance that had a range of scenarios. one could result in a reduction

of 20 million people being insured. this a report predicts $3 million -- 3 million people or 5 million. >> seniors will seat $500 billion in medicare to fund obamacare. >> it brings this. the fight centered billion dollars is the money the government aims to prevent unnecessary spending hikes for medicare down the road. according to the cbo reports in the micro fine print, spending for medicare would increase by $732 billion through 2021. the health care reforms will decrease the deficit by to under $10 billion. the name of this ad is a "nightmare" but the chamber is dreaming if they expect to get away with the distortions.

>> do you want me to go into the next 1? >> yes. >> we can talk about this on the other side. the other one was from january. a lot of money was spent heading up to our primary election. this was an ad attacking rick santorum. >> they are starting to fill up on a television. greg fox puts rick santorum to the true test. >> barack obama knows a 4 fax about rick santorum that you do not. -- four facts about rick santorum that you did not. >> you might think this is coming from obama's campaign, but it is thought. it is coming from a super pac. is it true that barack obama knows four things about rick

santorum did you do not? quite false. after the media attention about what they have not done, no one would believe that. >> santorum push for billions in wastefulness. >> he was one of 91 members to vote for a massive highway bill in july 2005 that included more than 6300 year marks, might that lawmakers tucked into big bills to support projects in their home states. this advertisement from the rick perry campaign appears to be openly supporting earmarks. but it had a lot of year marks. i am proud of all the earmarks. >> whether or not they are we saw as a matter of opinion. it points out some of the more unusual earmarked. >> even in indoor rain forest. >> were these included in the

bill for rick santorum dachshund it is true. the bridge to nowhere would have cost taxpayers 21 to $20 million to build a bridge to replace island ferry in alaska, asserting 50 residents and an airport. the teapoy museum is primarily a place for a collection of more than tea pots. the total tax dollars fax $495,000. a group that's been talking about a rainforest that was earmarked for $50 million of your tax dollars to be used as a tourist attraction. in each of these three cases, your tax money was never spent. the projects were killed are required matching dollars. >> santorum voted to raise the debt limit five times increasing spending in debt by $3 trillion. >> it rings true.

according to the records, santorum voted to raise the debt limit half a dozen times. >> he even voted to that convicted felons abouvote. >> centaur address this when asked romney it be denied felons the opportunity to vote. since it applied santorum voted to allow convicts to cast ballots from the i'm bars, the claim is false. -- from behind bars, the claim is false. >> how will santorum beat obama? obama knows he cannot. >> as the president knows santorum cannot be 10? it is false. voters have yet to decide. i am greg fox. >> thank you.

we will come back to that and others. let's go up north to minneapolis. >> we have been doing reality checks since 1990 thanks to our saints. back in 1990, we attended a seminar where this concept was discussed. we thought why not do it locally? why should we not do it? we began to do it more and more. there is an ebb and flow to all of this. in lean years, we cannot do as much. in fact years we do a little bit more. we also have a lot of production that we have to do. those are fantastic. it takes a long time to do. lothave to dedicate a lon of people. i was very interested to hear in

the last panel the cost of this. there is a cost. " we have tended to do in the last couple of years since 2000 8 cents the bad economy hit everyone, we had a lot of laos -- 2008 when the bad economy had ever won, we had a lot of layoffs. as political year begis, we ns, we are dedicating ourselves to doing a lot more of reality checks. we were doing one a week, maybe more. it takes about two days i think for us to write, research, and produce these. in the meantime, we are going in a couple of different directions. we also fact check billboards, a campaign speeches, and comments in interviews. that is what i brought with me

today, an example of some of the things we have to do that we like to call "quick strike." we do these within hours. i covered our state legislature and constitutional officers. i spent my days at the state capital. it is only rarely that i am able to go off on the campaign trail. we have reports enough to have two great candidates. they give us a lot of material. we also have a great history of research from al franken to jesse ventura and now wisconsin has this got walker recall which we also have a tremendous opportunity to fact check what these candidates say. minnesota is that going to be a

battleground state. generally, we are thought of to be purple. we lean democratic. we do not expected to be a battleground state perce. -- per say. we believe into iowa and also to wisconsin. we would get a lot of this. we have already seen a major for the fall in minneapolis, st. paul. we're going to see that. i am surprised that we have not seen much of the recall advertising for wisconsin. we do expect that in just the next couple of weeks. i would like to talk more about that in the cost of being a reporter trying to put this together. i have to thank our management.

you have to have managers who actually believe in it and allow you to go off and do this. we talk about the high production values. we do that during election years. what i brought with me were a couple of examples. maybe i will show you one of them this is something we have learned how to move a little more quickly. we focus on one thing that if candidates says. in this case, it is michele bachmann whom i traveled with on the presidential campaign. there were all sorts of things we're able to fact check with her. she is a fascinating candid it. this one in particular -- candidate. this one in particular, she went after gov. rick perry on the hpv and mandatory inoculation of

girls and taxes. that was not the whole story. what happened after that -- in texas. that is not the whole story. what happened after that, some came up to her after the debate in told her that it caused " mental retardation." quickly we were able to move on that. it took us three or four hours to research and write this. it was plugged into a format. that is what i and going to show you. campaignle bachmann's has gone viral. she is under fire for comment that some call reckless, and that the hpv vaccine may be dangerous. it is not backing down. >> professionals say her comments are not just untrue,

and they could do serious damage to efforts to immunize millions of preteen girls. >> i had a mother come up in tampa after the debate appeared she tell me that her little daughter took that vaccine and suffered from mental retardation thereafter. >> that is false. hpv is safe and 100 % effective. 35 million doses have been given. side effects are rare. there's not a single case of "mental retardation." be cdc says 38% of gross completing the vaccines last year. that is up from 2009. that is below the 50% rate.

see is refusing to retractors statement. she released a video attacking texas governor rick perry for ordering that they receive the vaccine. >> i have three daughters. i believe the parents are the ones who should decide whether our young doctor should receive injections. she could produce a verify vaccine victim. neither her nor her campaign have responded. >> that was never paid that we work .

if we have time, i will show more. it was about 120. >> have been doing that was some time. i am new to television. i in new for the context. this was in a very unique face. a number of people have to know off the tips of their time. we are the best television station in new hampshire. you're the only television station in new hampshire. we are part of the boston media market. because new hampshire is not only prominent during a presidential primary, we are also a swing state.

correct me if i am incorrect. bill clinton won that year. republicans have only one election. in number of those races are with in the single digits. john kerry won the state by two points. right now the state is way too close to call. we just put out a poll showing that 90% of democrats are with obama. 90% are with mitt romney. currently on airways, we have the mitt romney super pac which is airing a positive one. we have crossroads. they are about obama.

we've had barack obama in there. this is also running in the boston market. it is a deadly more expensive. to remind geographically that most of the states, about 2/3 of new hampshire lecithin 45 minutes. is the dividend amount of the population, roughly half could work in massachusetts. when i first came to wmur, i did not consider doing back checking. it was my management. they are the ones to pushed it. they said from the get-go look, we knew about citizens united, and we figured this is going to be a very important -- new hampshire and wmur is going to be important to that aspect. we are obviously a lot cheaper than the boston market stations. at the same time we are the targeted audience.

i should say for full disclosure that our building at wmur is also called -- to show you how important political advertising is, is called the house that steve forbes built. this is a very big deal for us. what we started doing was a number of fact checks, not just on campaign ads, but also on the campaign trail. here is the weird thing. it is all in preparation for our new hampshire primary, but this particular new hampshire primary, while i know particularly florida had so much advertising, we didn't. we really didn't. in fact, i call this the lamest new hampshire primary we have had since 1960, and i really mean it. advertising was not a lot. mitt romney went on to win the state by 19 points. that was a huge factor. the other important thing is there were only two super pacs

that played, one was from john huntsman. they said wouldn't it be great if there was a candidate, and there was, his nast walk huntsman. ron paul, i call it the monster truck ad. he is as big as an f-150. it was on our air, which is why we would fact check. we didn't run a lot for the lead-in. i picked some from the last senate election in 2010. one you may know. the first is about her maybe, and then the next is about her democratic opponent. >> u.s. senate candidate kelly

uses this ad to attack his opponent bill binne for being too lillibridge rat. this is to help define him. half way through this ad, ayotte makes claims about bailouts and taxes. let's break down each claim. >> so is the claim true or false? it is false. supporting the concept of amnesty or letting illegal immigrants become legal immigrant is a big no-no in republican primaries. benni has said he opposes amnesty. the a ymp otte campaign points to this sentence in a "washington post" article which says this -- he wasn't quoted

as saying he supported a pathway. that is all they had to support their claim. >> this is always false. at one of the forums featuring all four candidates, bennie was asked if he would have supported the troubled asset relief program back in 2008. some called this the big bailout bill. here is what he said at that forum. >> so sitting here today i am not sure is the honest answer. i would like to think that i wouldn't have. but i know a lot of people, and i have done many billions of dollars worth of transactions myself, who thought it was the right thing at the right time. smart men and women who were in the firing line, if you will. so it is easy to criticize. >> in his own words, he said he was unsure how he would vote,

but that he hoped he would have voted against it. he has never said he supported it and has since repeated his opposition to bailouts in general. last there is this claim. >> european style taxes. >> this claim once again is false. the ayotte campaign points to a forum in wind ham. he said this. >> i am for looking at a fair tax. i don't think it will practically happen in the next few year and would dramatically simplify the tax video. >> the value added tax is a common consumption type tax used in europe. he said he is just in favor of considering it, along with other tax ideas. he didn't say he likes that tax or even propose a bill for it

if elected. note this ad where he does get it right. >> he is open to a european style value added tax. >> checking out the political scoops, i am james. >> one thing you could see on there that is helpful is i go to a ton of events, but i often can't get a camera there. what is helpful is youtube. if can get the candidates in his own words, it is very helpful. >> great work all. do you have one more that you want to show? >> we can show another one if you have the time. >> let's go ahead real quick. >> whichever one you want, i guess. paul was the opponent -- actually, i want to do paul because it was a third party

ad, but i want to do kelly ayotte. >> which one to you want? >> the second one. >> ayotte. >> in this ad from senate candidate bill binne, former state senate majority leader questions the credentials of his opponent, kelly ayotte. >> soft on illegals and soft on guns. >> the ad maims two claims, the first involving gun rights. >> i am a conservative republican, and kelly opposed our second amendment right to defend ourselves against criminals with a gun. >> this is true. this is something advocates call the castle doctrine. you have the right to shoot to kill while defending your home or castle. 23 states have some form of that law, including maine and

massachusetts. new hampshire law is less clear. in 2006 a majority republican legislature passed a bill that would clearly establish a castle law in this state. ayotte opposed the bill, and it was vote vetoed. the second involved a claim of series arrests five years ago. >> she stopped local police from arresting illegals when they broke the law. >> this one is false. a police chief made national headlines when he arrested illegal immigrants and charged them with trespassing. a district judge threw it out. ayotte didn't appeal the ruling. she said law enforcement

officials shouldn't make arrests based solely on a persons immigration status. if we are getting into semantics here in the ad. she didn't actually stop anyone from making arrests if they wanted to continue making arrests. that police chief is supporting ayotte and issued a statement against the ad. >> so maybe that line on your bio is right. maybe most of it is false. [laughter] thank you all for doing that. gosh, a whole bunch of follow up questions. one of the things i would like -- and greg you may want to address. what about the viewership? what about the impact on the viewer? is your audience recentives to

this? >> do they get a reaction out it have? >> what did they do to your numbers, your ratings? >> i will get to the rate ngs a second. a lot of what we do people don't react to. i to stories and don't get a single e-mail about it. a couple of stories a week i will do something, and i will get people going to my e-mail address or because they communicated with me before and say i agree or disagree with that. when we do truth tests, we get three dozen is a good round number as a typical response. if it is a democrat-leaning organization or a democrat attacking a republican. we find most of the claims to be false. i get e-mails from half of those people saying you must be a dempster. if conservative groups and republican candidates attack

falsely democratic opponents, and we find those claims to be false, somebody calls in and says you must be a republican. all those people have to do is go to the supervisor of elections and they can find out what party affiliation i have. people are very well tuned in to what is boeing three-run into their television sets. they want to see how we treat it, and they usually react to it. usually we do not do any overnight promotion for a truth test, although it typically takes us a day to research and do the writing, and then the second day we usually shoot the stand-ups, dole production and edit. but we do -- from the noon program on we promote that at

6:15, which is our time slot for truth test, that we have one coming up. when we look at the months of september and october of 2010, on the nights that we aired a dozen truth tests on the 6:00 news, on those nights your numbers were up 7%. an -- a congressman alan grayson accused him of authorizing a spiral staircase in the speaker's office, and it was a stairway to nowhere. we got a guy in charge of photos of the staircase in a closet. we promoted that overnight. on that night we did a 7.2

rating, which was about a 32% jump in our 6:00 news rating. >> so it gets reaction. pat, we were talking about this earlier. you guys do such a good job and a thorough job in vetting these things out. clearly, so much of it is false. what you do, does it ever have an impact on the sales side in terms of the station thing? we are not going to do it? we are not going to run it. >> two answers to that. number one, i am discouraged to say that i don't know that it has an impact at all on the politicians. the reaction from the public is very similar to orlando and i imagine in new hampshire as well. there is a fiery reaction generally when we do these, and the ratings go up. i have never known us to pull

an ad, nor has, to my knowledge, changed an ad based on what we did and what we do. there has been a change in behavior over the last 20 years, and that is that the candidates now in advance provide us with all of the source material for their advertisement. that is the biggest change that i can see, and we can go and fact check all of those. but the short answer is no. >> james, when we talked before about the challenges to doing this, even large stations. certainly smaller stations with smaller staffs, maybe single staffs doing this can be even more challenging. walk us through that? how do you deal with the pressure to get this kind of thing done and get the work load accomplished?

>> basically we try to get it as quickly as possible from when it begins to air. then it is how quickly can we get it done? there are hard declines -- deadlines eventually. i give it a day or two to actually make it happen. it is actually part of a team, which is helpful. the lag time is when you are talking to campaigns or talking to third parties to try to figure out where they are coming from. actually when you have the material they use, you can evaluate it and make other phone calls. the biggest lag time for me is getting the campaigns or sponsors to give me their source material. sometimes it is on their ad. in terms of resources, it is something that the station really wants to put in. i should say this because we

are here. i know my station, and i know myself, we stand on the shoulders of what brooks jackson has done, and hugh penn, and i thank them so much. it has legitimatized it, and you folks, makes it easier to see the importance to the station. going through the resortses, it is a matter of going through your check list and finding one or two facts. >> pat, you were referring to some of what you do as quick strike material. three or four-hour productions? >> yes. it is difficult for us to gather everybody for two days. that is the cost factor again. when we first began doing this, we had a graphic artist who was dedicate dedicated to this. we don't have that anyone. we had a dedicated researcher, so there would be two of us. that has gone away.

generally i am the one who does the research, and we have one person who does final cut editing on this. that makes a big difference. something that is slightly different that we did is that when it is a commercial, we have found it is sometimes helpful to let it run for a few days so people know what we are talking about it. we do it three are four or five days later, and we get a big reaction. similarly, i will be covering a tax committee hearing in the afternoon, and i moot be at a political event at night, and then i do radio during the day, political radio. there are so many different things we have to do that we have to actually dedicate the time, which is what my management again is doing during this coming election. >> if i can add to that, we do that also. we want the add to run for a few days.

when we first starting doing truth test, we were like as soon as that ad gets on the air, we are going to have the truth test done at 6:00. after a while we were thinking people are not getting a chance to digest what the content of the ad is. if we don't give it a chance to breathe, then we are not giving them a chance to soak in what we are telling them is true or not. we let it run for a few days, and then we go after it and start researching it. >> questions from the audience? hairy, we will start with you. >> let me get this straight. so you find that the ad is false, but the station continues to air it after you find it as false. >> i would love to answer that because that is the most difficult question that i have.

we heard from a questioner from the center for application. that is the number one question i get. we don't find an entire ad false. we find one thing. there may be something that is half false-half true, and you have to decide what that is. that is for me, journalistically and ethically what i wonder about all the time. now my news director and the people who run the station might feel differently that this is within the realm of political debate, within the bands of reasonableness and truthiness, and it goes ahead and runs. yet this is something i think about every time i do one of these. they are not all false, but parts of them are. >> i will ask quickly have ever seen one taken off the air after what you do?

>> after what we have done? >> yes. i think this was in the 2006 cycle. we actually found a couple of ads that had some material in them that caused -- because these were from the candidate, not a third period group. the candidate agreed with our assessment, and they made a slight change and reissued the ad within a couple of days. that hasn't happened since that time. so you are talking about ancient history now, six years ago. after we removed an ad since the 2010 cycle that has come from a third party? i can't remember one. >> we actually spend a lot of time -- and this is not something i am involved in, but they spend a lot of time before they even go on the air. i know of a few examples they did not appear on the air the first time, so they would never be pulled back. >> to follow up, my reading of the social signs research is

that your best chance to actually change somebody's mind who is affected by these ads is when they have immediately heard it. if you do leave it going for a few days, the cognitive biases, the chance of you having any effect on the viewer is relatively low. in terms of what you are trying to do in terms of educating people, it is challenging. >> i think what pat and i were saying, a lot of these have an ad or other ads. we may get one version of an ad in the thirst week of may, and we may get a slightly twisted version of that ad in the second week of may. we want people to be able to see it foe a few days to get an idea of what it is attempting to say or they will have no understanding of what we are trying to tell them.

those two truth tests, they are about three minutes long. we are trying to give them a lot of explanation, but it doesn't do any good if they don't understand what they have been looking at. >> and also, tell me if i am right or wrong, but it is my understanding that our viewers, voters, must see something many times before they do grock it, before they do understand it. is it 16 times that a commercial runs before someone actually believes it or does not believe it? that is not a robidas that we do it, but we just feel intuitively or journalistically it needs to be seen, that it doesn't make sense in context with what we are doing. but i take your point. >> those viewers are watching in different day parts, and you

have to give them an opportunity to see it. it may run at midday, and somebody who watches in the evening may not get a chance to see it. >> that is the one thing we try to make sure of is that it doesn't run during the commercial break before we do the truth test. >> i want to follow up on that point, partly because i think the social science research on this is in fact even more discouraging. i think much of the research over the past four or five years suggests, for precisely the reasons you are suggesting, that repeating false claims tends to reinforce them, and they are actually very difficult to de-bunk. one of the things that concerns me with some of the fact check segments, and i understand this is a tough catch-22.

it strikes me that many of these segments may reinforce the claims that extensively you are trying to debunk. if i was a campaign manager running against nelson, i would be thrilled with that fact checking segment. partly because of the images, because it presents nelson as weak, and partly because it simply repeats the claim over and over again. what we see again and again with field experiments, when you repeat a false claim against a candidate and say it isn't true, you go back and ask them later, what do you know about bill nelson, they will repeat the false segment even if they have seen the debunking segment. there are things we can do. of course we do want to provide accountability, but tate -- but

at the same time you are doing additional damage to candidates who have been unfairly attacked. >> i will answer that simply by explaining to you -- afterwards, i can get your e-mail address and i can forward to you the response from the campaign manager for bill nelson, who took a web link video of the truth test, and he forwarded it to all major media around the country. i will tell you if we came out and said every claim in that ad is true, i wouldn't have gotten a contact from that guy. as the previous fanl and the panel before that pointed out, the candidates when they are slammed, and we pick out distortions, they are quick to embrace us. if their opponent gets four

pinocchios from the washington post. they say they have been liping about me. but if you get four against the candidate, they say we have to check our research on that. >> i agree with what you are saying now, but i do think that the instances that you showed, greg, where it shows a very small clip and then goes right into the fact check, and it is set behind him, clearly cuetoing like an emotional distance from it, i think it has to do with the production values. i was going to say i think that that programs adapted the best of what we saw, to use a format that created that psychological distance for the viewer. i agree with what you are saying, but i think those examples were actually pretty good examples. >> and there is a reality here which is we can do our fact check at 6:15, or we can do it at 5:05.

most people don't watch that newscast, because they always watch the 11:00, and we didn't replay it. that ad is going to be run a heck of a lot more times than we do the segment. we are already swimming upstream. sthra is the reality. >> what is the goal? is it to make the politicians stop what they are doing? is that our goal? is it to have them pull their ads down? or is it to tell people what happened and in my view, this is what's true and this is what's false. what is our ethical responsibility? to me, it is to inform or viewers and there foreinform the voters. i -- and therefore inform the voters. i don't have the broad view of changing michele bachmann's campaign. >> as we get deeper and deeper

into any campaign season, and this one will not be any different, and the newscasts are filled wall to wall with political ads, the station is filled with political ads for that matter, viewers just get to the point -- because having done this for a lot of years, i have heard all the complaints. they say i just tune it all out. i don't pay any attention to any of it balls you don't know what to believe and not to believe. how do you get viewers engaged on the editorial side with an interest in these kinds of things, especially as we get deep into the season? >> first of all, i don't believe it. i don't believe that voters tune out. that is not my experience over the years. i think they get more engaged, in some cases get more angry, agitated on either side. i go sblo this without that expectation, that they are burned out.

however, my mantra is simplify as focus. i grab what i think is the most salient fact that may be true or not, and i focus on that and try to make it more visually interesting. >> the thing i would say is just this last week we had a great example of where we were teasing the audience a bit. mitt romney came to the state for the third time in a month. last friday he came to new hampshire. he was making fun to another bridge to nowhere. it was a stone bridge they preserved as a park in a small town in new hampshire. he was going to make a mockery out of it because it was stimulus funds being used. the reality is it is part of the state's 10-year highway plan. 28 people had voted for the same project he was ridiculing. with a tease like that, our audience is very engaged with

that. >> final thoughts. we have a few minutes left. >> i would like to say i think, giving my opinion on this last question, for people who may be disengaged with the process right now, we save a lot of this material on our website, and people can go to it. if they are not tuning into the cam .pain until a week before the august 14 primary in florida, they can go back and see all the things we have said back in may, so they can get a flavor for whether they can believe what they are seeing in august. >> i think this is an extremely valuable tool for journalists,

and i hope this goes more local. i strongly believe that most of our viewers get much, if not most of their information locally. there is a national campaign, but it is played out in different states in different ways. for television stations all-around the country, i think this is the future. this is what the people should be doing. >> it is a huge responsibility. again, i am newer to tv, but my news director before i go on the air reminds me your audience is wakamatsu shoppers. you hear your word repeated back to yourself. there was a pew study earlier in the year that asked americans where you get your news about elections. 36% from local news, and 12% from newspapers and it went down from there. it is significant and something

more stations should be doing. >> gentlemen, thank you. a great three hours today. hope you enjoyed it. thank you so much. >> thank you, mike. let me close by summarizing our reasons for concern. we know we are going to have an unprecedented level of third party advertising. we know it will damp candidate advertising in expenditure. third party advertising has been deceptive. stations can reject those ads if they could choose. local television stations are on the front lines of determining whether what is aired is checked. ownership grooms are doing a really good job dealing with this difficult issue, the challenges they have confronted and the ways they have overcome it. we document inside a study that

the four highest spending third party grooms through wisconsin had spent more be half their dollars airing ads with at least one clear-cut deception in them. i like the title of their panel. they are session is shadow money, stealth wealth and political non-profits. we are trying to urge journalists to adopt the concept of misleading money or deceptive dollars to talk about the ways in which third party money moves deception through advertising to affect the electorate. that is the reason for this. go to our website and look at the reasoning that illustrates the study. those who you who would like to e-mail your station to encourage them to check the

accuracy of third party ads before they air them. come to fact check.org. use the structure cohen the stations are doing a great job to tell them thank you. express your appreciation for the hard work and money involved in doing this very difficult work. i think what when station managers receive thanks, that is more powerful than severing our urging. i hope they receive both. hopefully we are creating a positive structure for them saying that viewers appreciate this kind of work. ratings are a part of expressing that appreciation. we would like to encourage you to go to the fact check website to look at patterns of deception. this is a way of determining whether you need to go to the ad watching sites in order to see whether or not the facts involved and the issues you care about might be distorted

in this ad. finally i would like to thank the panelists and moderators and our funders, and i long island to invite all of you to lunch. [applause] [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute] >> the head of the securities and exchange commission told lawmakers today that her agency is investigating jpmorgan chase following the film's $2 billion in trading losses. that hearing is next on c-span. then the manninging director of

the international monetary fund said it would be extremely expensive if greece were to leave the eurozone. christine lagarde also weighed in on the health of britain's economy. >> tomorrow on "washington journal," co-authors discusses their book" it's enworse than it works" then cris looks at a recent study by his organization that evaluates the voting records of 87 freshmen republicans who affiliate themselves with the tea party. after that, timothy of national geographic on his recent story of the patterns and activity of the sun, whose behavior scientists still can't predict more than a few days ahead of time. "washington journal," live at 7:00 a.m. eastern on c-span.

>> congressman, there are people who look at what happened with jpmorgan chase and say who is somebody who did something done, fired the people responsible. this is the market at work. this is supposed to happen. why does government need to play a role? >> to some extend that is true, and i take credit for it. if this happened five years ago, i think you would have seen much more papelbonic in the economy, much more concern. what we did in the legislation we passed was to require the financial institutions to be better capitalized. one result is the government telling them you have to have more captain than others wise. >> this past weekend, congressman barney franc spoke about the over $2 billion lost by jpmorgan chase, the

dodd-franc law and gay marriage. watch his comments online at the c-span video library. >> commodity futures trading chairman, gary, and mary shah hip other too questions on the jpmorgan chase trade losses. they talked about derivatives and financial regulations. this hearing is just under two hours.

>> before we get to the subject of the makeup hearing, i want to make a few comments. the company's massive trading loss is a stark reminder of the financial crisis of 2008 and the net of wall street reform. since the firm's may 10 conference call, my staff and ranking member shelby's staff have jointly held briefings with the company itself. following those briefings, i announced last week that i intended to call jpmorgan chase's c.e.o. to testify before the committee. in calling for him to testify, i expect him to inform the

committee of the details surrounding what has been reported to be a very complex trade. with today's hearing, or june 6 bank supervision hearing with other key regulators, the committee is on its way to having a more complete understanding of the facts about the j.p. morgan matter that will help us better oversee the implementation of wall street reform. this trading loss has been a wakeup call for many owe opponents of wall street reform and the need to fully fund the agencies responsible for overseeing the swap trades that appear to be at the core of a firm's hedging strategy. it is my hope that all of my colleagues who express such

alarm about this matter will now join democrats in educating full funding for the regulatory comes on the beat to address these issues that we seem to be concerned about. it has caused many to renew thay interest in wall street reform. as chairman i have never taken my eye off the ball. much of the reaction to recent events has focused on other provisions of wall street reform. but what has gotten far less attention is the impact derivatives reform will most certainly have on reducing the

likelihood that banks would want to engage in certain high risk complex swap transactions in the first place. higher margins and captain performance for swaps, increased obligations, real time reporting, and new anti-fraud and anti-manipulation authorities included in the wall street reform will reduce record risk and improve the integrity of swap trading between large financial firms. chairman schapiro and chairman denziler, i complement you in your efforts and look forward to hearing from you today as you continue your efforts. i urge your agencies to take a single unified approach and to

integrate this approach into all your swap rules. differences between your two sets of rules and implementation efforts should improve compliance and cost. and efforts by the u.s. to promote the decision abroad will be more challenging if we cannot harmonize efforts by our agencies here at home. lastly, i would like to apologize in advance to my colleagues, but i will need to excuse myself for a 10:30 mark-up in the appropriations committee for a bill. the senator has graciously agreed to chair this hearing in my absence. to preserve time for questions, opening statements will be limited to the chair and

ranking member. however, i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i now turn to senator shelby for his opening remarks. >> thank you, mr. chairman. since the passage of the dodd franc act, it's proponents have repeatedly claimed consumers and our financial markets will benefit from the new law. we now know that both of those claims are false. since last year, chairman gary beginsler overawe the largest consumer protection failure in the history of cftc. they had $1.6 billion of fund improperly taken from their accounts. the first and most basic responsibility, i believe, mr. chairman is to ensure that customer fund are not

misappropriated. yet despite all the new authorities confered on the cftc by dodd-frank, it was still unable to fulfill its primary responsibility to mf global customers. the failure is especially troubling here because the fund went missing during a time when it was well known the firm was under severe financial stress and the risk of misappropriation there was very high. even more embarrassing for the cftc is the fact that there were numerous cftc officials on-site at the firm when the funds went missing. while i am pleased to see that the mf global trustee is returning funds to customer, the chairman owes the public a full accounting of lou they failed to protect the fund in

the first place. unfortunately, he continues to recuse himself, which insulates him from congressional scrutiny. mr. chairman, i believe the public deserves more from financial regulators. we need regulators that are willing to explain their actions rather than run for the hulls. if there were failures, the responsible parties need to be held accountable for their actions, and they need to admit what happened. the chairman's refusal has not allowed congress to look at the failure. i hope chairman beginsler will be more open about his role. so we can understand what role he play. i hope that the chairman will be more forthcoming about his management of the cft's implementation of dodd-frank. the chairman and the s.e.c.

chairman have jointly created widespread uncertainty about the regulation of derivatives. according to a recent report, regulators have met only one third of the dodd-frank deadlines. while there is no question that the rule writing process make it difficult to meet the deadlines, the regulators share culpability here. although they have proposed numerous new rules for derivatives, they have still not proposed rules that clarify the definition of a swap. let me repeat that. almost two years after the passage of dodd-frank, giving the cftc and the f.c.c. joint jurisdiction on swap markets, they have still not agreed on the definition of a swap. yet they have still finalized rules, defining and governing

swallow dealers and participants. if market participants don't know which of their activities will fall under the swap definition, how can they be expected to know whether these activities will be subject to the patchwork of registration, record-keeping, clearing and trading rules? and if market participants do not know if their activityings will cause them to be classified as a swap dealer or a major swap participant, how can they expected to be when to submit comments. this is just one example of how dodd-frank and its implementation have created unnecessary uncertainty in our markets. as the american market continues to struggle on high unemployment, sluggish growth and the fall out from the european crisis, the last thing we need are self inflicted wound. this includes those inflicted by congress, regulators, and

poorly conceived trading and hedging activities in one of our largest banks. today's presents here 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. now i would like to introduce our witnesses, neither of whom are strangers to this committee. sharme shapiro is the head of the u.s. securities and exchange commission. chairman gary ginsler is the head of the trading commission. chairman shapiro, please begin your testimony. >> chairman johnson, ranking member shelby and members of the committee. i appreciate the opportunity to testify regarding the s.e.c.'s ongoing implementation of title

vii of the dodd frank act. it creates a new regime for over the counter derivatives and acquires them for write a number of once. title vii is one of the many areas where the s.e.c. is a charged with writing rules. the s.e.c. already has proposed or adopted rules for over 3/4 of the 90 provisions in the dodd frank act that mandate s.e.c. rule making. additionally the s.e.c. has finalized 14 of the more than 20 studies and reports that the dodd frank act directs us to complete. we are continuing to work diligently to implement all-pro visions of title vii as well as the many other rules we are charging with drafting and to coordinate impleblings ace with the f.c.c. and other

regulators. it is divided between the cftc and the economics. the law assigns the f.c.c. authority to regulation security based swaps, while the s.e.c. has the bulk of the title vii. our rule makings are designed to improve transparency, to reduce information asymmetries, and to facilitate the centralized clearing of security based swaps to reduce counterparty risk. they are also designed to enhance investor protection by increasing disclosure regard security based transactions and mitigating conflict of interests. by promoting transparency and stability, this framework is intended to foster a more stable and competitive mark. in implementing title vii, s.e.c. staff is in contact with the staffs of the cftc, the federal reserve board and other regulators. staff has coordinated extensively with cftc staff in

development of rules, including joint rules for defining key product terms, which we expect to finalize soon, and rules further defining categories of market participants. although the timing and sequencing of the cftc's and the s.e.c.'s rule making may vary, they are the subject of extensive interagency discussions and the objective of consistent and comparable requirements will continue to guide our efforts. the dodd franc act requires that the s.e.c., the cftc and the prudential regulators consult and coordinate nature with other authorities. accordingly the commission is working with leg lators abroad to address derivatives, encouraging foreign regulators to adopt rules similar to our own.

the commission is finalizing a policy statement regarding how the substantive requirements under title r in our jurisdiction will be put into affect. this statement will establish a workable time line for the implementation of these rules. certain rules lillibridge need to go into effect before others can be implemented. the market will need a reasonable period of time in which to comply with the new rules. this statement will let market participants know the commission's expectations regarding the ordering of the compliance dates for various rules. relevant international implementation issues will also be addressed in a single proposal. finally, your invitation letter requested that i address recent trading losses recorded by jpmorgan chase. our best information is that the trading activities in

question took place in the bank in london and perhaps in other affiliates, but not in the broker dealer that is directly supervised by the s.e.c. although the commission does not discussion investigations publicly, i can say that in circumstances of this nature where the activity does not appear to have occurred in one of our regulated entities, the s.e.c. would be primarily interested in and focused on the appropriateness and completeness of the entity's financial reporting and other public disclosures. in conclusion, as we continue to implement title vii, we look forward to working close withly congress, fell regulators at home and abrought and the public. thank you for invites me. >> thank you, chairman, please begin your testimony. >> good morning, chairman johnson and ranking member shelby and members of this committee. i am pleased to testify along

with the s.e.c. chairman. today i am going to speak to the three topics of your invitation letter. first, where is the cftc on swaps. the second the cftc's role. and third, international progress on swaps reform and related issues of cross-border application. i welcome ranking member shelby's questions and looking forward to chatting about them in public as well as in private. the cftc is a small agency tasked with overseeing the futures market, and now a market eight times larger, the swaps market. we are significantly under funded, but you have lettered me say that before. our market oversight critically relies on market participants complying with the laws. and then the self regulatory

commissions that provide the first line of oversight information addition to that we do rely on promulgating and implements rules. in that context, we have completed 33 swaps market reforms to date. we have just under 20 to go. what do they do? they bring traps appearance to this marketplace. secondly, they lower risk through something called central clearing of standardized swaps. thirdly, lower by regulating the dealers. we are on track to finish the reforms this year, but it is still very much standing up, and we are still giving the market time to phase in implementation to lower the cost and burdens on this very significant transition. to increase market transparency, we have completed eight key reforms, including real time reporting to the public and to regulators that will begin later this summer. on clearing we finalize risk management and soon seek public comment on which contracts

themselves would be under what was called the clearing mandate. we have completed strong anti- fraud and anti-manipulation rules, and we are looking son to finalize the end user exception. to lower risk of the swap deal posed to the economy at large, we have complete the rules requiring robust sales practices. all of this is still pending because it has to rely to us, finalizing the term swap and swuret swap. it is essential that the two commissions move forward to finalize this rule. i am happy to say that both commissions have a draft of this rule worked out through staff. we have made significance progress as well working with domestic and foreign regulators to bring a consistent approach

to swaps market reform. though not identical, europe, japan and canada now all have made real progress legislatively and in writing to bring reform. we are working on a consistent approach to global margin for uncleared swaps. one reason is that the cftc proposed a rule that did not require financial and users to post margin, and we are advocating the same globally. i wanted to make sure people know that in the end user community. the commission is also working on a balanced approach to cross border application of swaps reform. i think congress was guided by the experience of of a.i.g. with its london affiliate -- actually a london brnch. lehman breers, bear steern and citigroup, on transaction that is might be booked off shore, but nonetheless would have an

effect on commerce and activities. that was the stark reminder we got when jpmorgan chase's trading losses were overseas from trades that lost bullet billion dollars on credit default swaults. the division of enforcement has opened an investigation related to credit derivative products traded by j.p. morgan's market. a.l. touch upon the commission's role in overseeing these markets. the cftc has oversight and clear anti-fraud and anti-manipulation authority regardless the trade of credit default swap indexes. we oversee some of the clearing houses that clear them. starting this summer there will be real-time reporting to the public. not yet, but we envision the dealers themselves to begin to register and trading will going on swap execution fit