a white house is block the legitimate cleanup of the voter registration rolls in state after state after state. this is the most unconstitutional reach by the executive in the history of the united states. and here are some things that the president could do if we let him assert his authority. i'll go all the way down through and just pick the most important ones in article 1, section 8, the innumerated powers of our constitution. giving congress to collect taxes. what if the president decided that he didn't want to collect taxes against people in the lowest bracket because after all that would be an income redistribution that he would favor? do you think those people would feel good to the united states and maybe go to the polls and vote for him? would that change the political dynamic in the country if they didn't have a tax liability? probably, if that's his calculus, what prevents him? if he has the power to lay and

collect taxes, he can always absolve people of those taxes as well. what if mitt romney is elected president of the united states and he decides that in order to stimulate the economy he would just waive the taxes on u.s. capital that's stranded overseas and the trillions of dollars, waive the capital gains taxes, let those resources come back in the united states tax-free and be reinvested in the economy? does the president have the authority to waive taxes or does the president have the authority to lay and collect them? no, madam speaker, he does not. the president of the united states has the obligation to take care that the laws be faithfully executed, the authority to legislate is exclusively within the united states congress, house and senate, with the consent then of the signature of the president or the overriding of his veto. the president could under the same rationale he has here lay

and -- collect taxes. what if he decided, i feel sorry for the people whom i wrote in this memorandum and so i'll waive it, would the american people need to be outraged? i think we need to understand this constitution better and we need to be outraged. what about borrowing money? borrow on the credit of the united states? what if the president decided under the same authority he's assigned himself here that he's not going to pay any attention to congress on whether we agree to lifting the debt ceiling, he's just going to go by executive order or presidential fiat and direct the department of the treasury to go ahead and borrow money beyond the debt ceiling this congress has set? what would we say then, madam speaker? how about this, to regulate commerce. wait, they're already doing that. they're alleging under the commerce clause of the constitution that the -- that they can go ahead and declare

breathe only one lungful of american air constitutes engaging in interstate commerce and they can compel you to buy health insurance policy that's written or approved by the federal government. that's the decision that we expect from the supreme court next week. i think it's going to be a constitutional one. barack obama asserts that the commerce clause is so broad that congress can reach across allstate lines and declare that breathing one lungful of american air is enough to engage in interstate commerce and therefore they can regulate all activities that they can declare to be interstate commerce. that means all activities, whatever, whatsoever. and by the way, i will say that if the commerce clause is so broadened by consent of the supreme court next week, then the commerce clause itself swallows all of the enumerated powers, everything can be regulated within the commerce clause. but i'm really here to focus on the -- on the difference -- on the separation of powers

between the legislative and the executive branch. and so i take us to naturalization. the enumerated powers grant that power of a naturalization to establish a uniform rule of nationalization to the united states congress. exclusively. not to the president of the united states. the president has argued exclusive rule of naturalization includes all immigration laws and congress should determine that and there is no 10th amendment. that's another case before the supreme court that i expect we'll get on next week, but the scratch of the rationale that the president has sent does great offense to the constitution of the united states. regardless, this congress has the constitutional -- exclusive constitutional authority to establish a uniform rule of naturalization. the president can't write that. the states can't write that but the states do have the

authority to write immigration laws that mirror those of the united states government. the president can't write them, as he intends to do. this is what he's created. unconstitutionally he's created these permits and these classes of people. the president has also declared that the senate wasn't in session when they were in session and committed his recess appointments and i'm dess appointed frankly, madam speaker, that the united states senate didn't step you and defend its authority to be -- to determine when they were in session and to not adjourn and to be in a pro forma session. they did so so the president could not insert recess appointments and the president did so any way. if the president of the united states can declare that the united states senate is not in session, then he can effectively abolish the united states senate except for -- except for it being just simply a symbolic body. there are countries around the world like this, in this

hemisphere, i might add. i remember the president being in a double handshake with one of those people a few years ago. i talk about sb-1070. the president sent his attorney general to sioux, arizona. he classically asked the question, attorney general holder, did you read the arizona immigration bill? his answer was, no, and congressman ted poe said, here, you can read mine. it's 10 1/2 pages long. i read it. ted poe had read it. i think every member of the judiciary committee on our side. but the attorney general had determined he was going to sue arizona because he was ordered to by the president of the united states. and the announcement came in ecuador from the secretary of state hillary clinton. that's how we found out, and they created a whole new legal argument called the careful balance theory that congress had directed the executive branch to create and maintain a careful balance between the various immigration laws. we did no such thing.

there is no record of this. there's no statute of this. there is no dialogue in the congressional record that would direct such a thing. they asserted it because that was the only argue they could manufacture that suited their political position. this is not an administration of law. it's not an administration bound by it. they are not bound by the constitution. the president himself has stood before this nation multiple times and given the lecture about the separation of powers. congress passes the laws, the executive branch carries them out and the supreme court of the judicial branch interprets the laws. that's the president's lecture. and he cast it all aside and asserted an executive edict that he could create these things out of thin out. if the president can do so then , as we go on down the line, he can regulate commerce. he can do the naturalization. the president's already stuck his nose in the bankruptcies

and the secured creditors for chrysler saw themselves aced out while the white house was the only appraiser of chrysler motors. they were -- they wrote the terms of the chapter 11 for chrysler and they were the only company that was -- only entity that was bidding on chrysler's assets. they set the price going in. they wrote the terms of the bankruptcy, and they offered the price on the other side of it. and what did they do? they scooped the secured creditors' assets away and handed them over to the unions. congress sets the terms of bankruptcy, not the white house. again, he's crossed the line. we go on down the line. what if the president decided he could establish the currency of the united states? that's exclusively the congress as well. what if he determined the euro was going to be the currency of the united states of america? what could we do? what would our alternative be? well, take the gentleman to the courts and ask the courts to determine the difference. in the end the people will decide this. intellectual property, he could waive copyrights, trademarks

and those types of laws, or he could create tribunals or wipe them out if he's going to assert authority to rewrite article 1, section 8. madam speaker, i appreciate your attention. we must keep our oath to uphold the constitution of the united states and the separation of powers. i intend to do so. i ask everyone's help in this whole country, and i yield back. the speaker pro tempore: the gentleman's time has expired. under the speaker's announced policy of january 5, 2011, the chair recognizes the gentleman from new mexico, mr. pearce, for 30 minutes. mr. pearce: thank you, madam speaker. i appreciate the opportunity to address the house on a matter of the west. there are major fires burning across the western united states.

there's tremendous property damage and tremendous damage to the environment. habitat for endangered species is being purned up in the hundreds of thousands of acres. the species themselves are being killed in these massive wildfires, and the chief of the united states forest service says we need to introduce fire back into our forests. i asked the chief just this week as he visited the house here in rayburn with me, i said, chief, this is what it looks like when you reintroduce fire in the forest in the west right now. the forests are chalked full of fuel. decades of mismanagement by our forest service has allowed the fire to build up to where it's a dangerous explosive environment. the drought which actually occurs regularly in the west has caused those buildup of

fuels to be explosive in nature and when fire gets there, this is what it looks like. this is the town of raoux dosea, new mexico -- ruidoso, new mexico, and this is what it looks like, haties has taken over all of new mexico. is this what you intended, mr. tidwell? is this what you describe as allowing fire to run its course and demand -- accomplish management objectives in your forests? you're the one responsible, sir. thank god for the firefighters who will come out and fight to save the community. thank god for the men and women who will stand in harm's way to stop this, but this should not be occurring right next to this forest. this is the lincoln national forest. and right next dore, the apatchies have about the same acreage of forest. with 14 people, they're able to

clean their forests out. they're able to harvest the timber. when the fire gets to the indian reservation, it simply drops down on the ground and becomes a grass fire. the way that fires typically ran in new mexico and throughout the west. history shows us that in our forests we generally had somewhere between 50 and 100 trees per acre in the arid west on our forest lands. there were grassy savannah lands mostly with widely scattered trees. it never became more than a trass fire but the tree ring shows up about every eight years. a big fire will burn all of the grass, the underbrush, the lighter fuels, burning the small diameter trees while they're still small. but decades of putting out fires and decades of not harvesting any timber at all have allowed our forests to become exexplosivive calderons which are breaking into -- explosive calderons which are

breaking into fire. this fire in new mexico started as one quarter acre, and for about a day it stayed about a quarter of an acre. and then it spread to four acres for the next three days. still, no call for tankers, no call for those aerial drops of water or the splurry which puts out the fire. none. not until the fourth day, late in the fourth day. the forest service says they can't ask questions like that about those decisions. i think that the decisions locally are made by people who are trying to follow the policy of reintroducing fire into the forest. regional forest -- regional forester, corbin newman, recently stated, fire will have to take its natural course. and we're just trying to put fire back into its natural processes, he said.

this rings the same tone as was stated by mr. tidwell in my office this week, that we want fire to get back in the forest. well, fire in the forest had a natural process when the forest was in balance. the forest is desperately out of balance right now. this is not the first brush with disaster we had. keep in mind that the forest serviceperson ell themselves said they were worried about losing the entire town of ruidoso. that it was high risk, not just at risk but high risk with their statement as we were briefed about the fire. but we had warning signs last year. this is what it looked like last year in ruidoso. high winds and a small fire began to throw embers throughout the town and you can see the little spots of fires over and through the mountains that are in and around ruidoso. we began to sound the alarm at

that point to our forest service, please clean the fuels out. we can't stand for this to run wild. and this year it has run wild and destroyed 242 homes in this area and more structures beyond just the loss of homes. . this is not necessary. all is required is for them to manage the forest properly. a call going out from the people out west. they are watching the areas and forest lands burn to charred masses and the forest service personnel themselves, the specialists are telling me that trees will not grow here for another 100 to 150 years. how is it managing our forests to burn the trees for 150 years? how is it good for the environment? how is it good for the species? and how is it good for the people who live in this area?

shame on you, forest service. shame on you for dictating policies to local managers who know better. shame on you, mr. newman and mr. tidwell, for saying that we are going to re-introduce fire into our forests and let it run its natural course. the forest in and around lincoln county, some have been cleared and harvested. we aren't saying -- we aren't saying to clearcut our forests but a balanced thinning program will leave wildly spaced trees. this is how it looks on the reservation and similar to how it looks at fort apache in arizona. last year, the wildfire burned

500,000 acres in arizona and new mexico. when it got to fort apache, it fell down and stopped. this is what a forest should look like in the west. there is not enough rain and not enough nutrients to support 2,500 trees per acre. this is the way forests looked in the west when fire had its way, when fire ran its course. instead, our forts today are densely packed, 2,500 trees per acre and this is the outcome. that's what the u.s. forest service looks like in most places. a deep contrast to what it should look like and it is into this forest that the head of the forest service, the chief of the forest service is saying that we are trying to re-introduce fire into the wilderness and into our forests. it is a misguided approach. that idea that we're going to

re-introduce fire is playing russian roulette with our national forests and it's a game not working out too well. we have two major fires in southern new mexico. and we have 300,000 acres of land that has burned. a strong mix of combination between the gila wilderness and gila national forest. it started as a small fire. and the forest service says they are monitoring it, that it is achieving its management objectives. i'm sorry, but management objectives of using fire in drought-stricken areas of the west in forests that are chock-full of fuels is misguided at the very least.

the people who live and lost much have suffered deeply. the forest service needs to be responsible for those losses. but additionally, they should be responsible for the loss in tax base to the local communities. they should be responsible to local homeowners whose value of their homes is going to be depreciated for decades, those people who moved close to the national forts want to be -- forests want to be there with the natural beauty and will be faced with an area that doesn't grow trees to the next 100 to 150 years, according to their specialists. are we to stand by and allow our forests to burn because of policies that originate in washington? are we to put at risk the lives of local people? are we to put at risk the

property values of local value are are we to call on common sense? just aragmatic understanding that you cannot use fire to achieve the balance when the forest is full of fuel. we have deep disagreements with our forest service on their policies. we have deep love for the people who manage the forests out in the field. and for the firefighters who risk lives. we are thankful every day that they are there 24 hours a day, around the clock, seven days a week, away from their families to protect us. but they should not have to protect us in this fashion. it's expensive. it's expensive in the loss of our forests. it's expensive in the dollar cost of the fire. the fire in lincoln county was running $2 million a day to try to put it out. the one on the other side of the

state, $1 million a day. but that is not the only problem that we face. now that the trees are gone, when it rains, the rainwater is going to rush off the hills into the valleys and going to rush down the valleys and we are going to see flooding. if you go to the web page that we have for our congressional office, you will be able to see a dramatic video called the dixon apple orchard flood. that's just above the santa clara pueblo in northern new mexico. people from that area were waiting for the water that they knew would come and videoed several different spots. take a moment to look at that and see the next calamity that is going to face new mexico. because when you burn the trees, there is nothing to stop the water that is going to carry

topsoil and rocks and boulder and it's going to flood towns completely off the face of the earth. one of the people fighting the fire out west in the gila said that that area would be some of the most dramatic flood potential that he had ever fought fires in. that is the canyons are so steep and so deep and they come together nine canyons come together at glenwood. all of that water is going to be pouring through the small town. high, steep canyon walls on both sides of it. it's at the bottom of the v. and those communities that have existed for decades. santa clara which has existed for hundreds of years is going to face flooding, not because of anything they have done, but because the way the forest service has managed its lands,

the way that the forest service has managed those resources that we asked for them to take care of, so that we all might enjoy the benefits and the beauty of our nation's landscape and yet, we're not going to be able to see that and we are going to be exposed to floods for decades to come. what kind of sense does that make from washington? people across america are beginning to say that our government is broken. they are saying it's broken because of policies that result in fires like the one that we just showed the picture of. people are saying that this is not responsible that a government would -- who would say we are going to re-introduce fire into the forest with this kind of result. what kind of responsibility is that? that's the question that we're here tonight to ask. it's not reasonable to expect people to just stand back and

say nothing. and so we are accepting an invitation to speak at a public rally where people are going to express their concerns, their fears and express their losses in this fire, a fire that we have had decades to prepare in. several years ago, we had a fire on the backside of capitan area. and the local superviseors said it was a small fire, 15 acres and didn't justify bringing in air tankers and more resources. it blew out of control and became a 58,000-acre fire. it's that mindset that we aren't going to address the fire situation totally that is putting the west at risk right now. in colorado, that fire, we actually lost the life of a citizen who couldn't get out of her cabin. when are we going to start managing properly?

it's the question that lies before us all. us as a nation, us as a congress, and the u.s. forest service. and the head of the agriculture department, who manages them. it's a tragedy what's going on in the most pristine parts of our country. wilderness areas, where fuels have been allowed to burn and where we're go to go see the absolute destruction. it's not a matter of if our forests will burn. it's simply a question of when they're going to burn. we can manage differently. and we can manage better. but we absolutely have to make the commitment that we're going to give up the policies that are failing and move into the new thought process. in visiting the head of the u.s. forest service this week, i asked about a policy that used to exist to put out fires.

it was called the 10:00 a.m. policy, that is if we see a fire running at any time today, we will put it out by 10:00 a.m. tomorrow. and if we don't put it out by 10:00 a.m. today, it will be 10:00 a.m. tomorrow. mr. tidwell said it was very successful and he said it was too successful. too successful? how can you be too successful inputting out these fires? too successful. that was his statement. he said it worked too well. mr. tidwell, i want it to work too well, because i don't want the forest to look like this. i don't want our communities to be greatly at risk. this is your standard operating practice. this is the outcome. i want you to go back to the 10:00 a.m. policy that says put it out by 10:00 a.m. tomorrow

and start clearing the forests out and start managing those forests and then we'll start burning them up. then they will be healthy forests, widely-spaced trees. the bug beatles won't be to -- the bug beetles won't be to able to get in them. they are weak. they are susceptible to not only fire, but disease and insects. and all of our specialists tell us if we don't make a change. we have many mountain communities in new mexico, all of them face this same risk. we aren't going to stand idly by while our chief u.s. forrester says it's time to re-introduce fire back into our fire. i'm sorry. i disagree with the concept that

our wildernesses will become charred stumps, that our national forests won't grow trees for 150 years because the heat of these fires and turns it into a glass where the trees can't get root. only the grass and small shrubs are able to set some rain at the top of the surface will penetrate this. we have an area closed to a town in my district. it still is only shrubs. we haven't grown that forest back. so i believe when the specialists tell me it is going to be 100 to 150 years. i have seen at least one in that forest myself. i know they are saying partial truth and i think it to be complete truth. why are we accepting this management process on our nation's forests? it doesn't make sense. it is extremely costly to

people. it is extremely costly to the government. we can and should use the resources of this country better and more fairly. we should allow our species to have forests to live in, not to burn them out and not to burn the species out. the spotted owl lives in this area and you can see what is happening to his habitat. you can see what has happened to the spotted owls who were here. they don't exist anymore. the fish and wildlife service in the past has said this fire runs less risk to the spotted owl than logging. how can you say that -- let me have the other poster -- how can you say that this is less dangerous than doing this? the logic is completely missing. actually, the spotted owl thrives in these areas.

they tell us they have numerous pairs that are owl glidse off, prey and comes back up. it cannot do that in this forest and it can do it in this forest. every argument that we are being faced with right now doesn't make logical sense as we talk about the policy here in washington. it is a discussion that has started in earnest in the west. eastern states don't have a problem with the drought. and number two, they don't have as much public land as we have in the west. it is the west that is burning up. ith is us in the west. the western caucus, i'm the chairman, taking the lead invoicing our complaint, our frustration and our fears for our population because of the management of the forests in the west. again, our highest compliments to the forresters who live and work in the west.

it's the culture, it's the thought process that somehow tries to justify the actions which are causing these mondays strouse, massive -- monstrous, massive fires. we need to stop it today. we need to stop it now. we need to manage properly for the future so all might enjoy these precious resources. and i yield back the balance of my time. the speaker pro tempore: the gentleman yields back the balance of his time. does the gentleman have a motion? mr. pearce: move that we adjourn until tuesday. the speaker pro tempore: the question is on the motion to adjourn. those in favor say aye. those opposed, no. the ayes have it and the motion is aagreed to. accordingly, the house stands

agreement to the surface transportation bill. the current authorization expires. the house returns to o'clock p.m. tuesday at eastern. on the agenda next week, the 2013 spending bills for the agriculture, transportation, and housing and urban development departments. the chamber will vote on a congress resolution against attorney general eric holder. the attorney general failed to provide documents related to operation fast and furious. follow the house live here on c- span when the members gavel back

in. this weekend on "after words," the detail fast and furious. >> this was something under -- kept under the rug from the american people and the mexican people as well. hundreds of innocent mexican citizens have been murdered as a result of this. the only thing we knew was that guns from american gun dealers were going into mexico and causing problems with the cartel. really, the government was sanctioning the sales. >> she is interviewed by " national journal" white house correspondent major barrett. this weekend on c-span 2. this coming sunday, c-span coverage takes a look at the obama for america campaign and their political strategy. we speak with senior strategist

david axelrod and band level. -- ben labolt. they talk about social and media and it tends to target key voters in at -- a battleground states. edison and i, 6:30 p.m. on c- span. -- sunday night, 6:30 p.m. on c- span. >> how you approach book interviews differently from news reports and interviews? >> the book is viewed as gathering history. interviewing when i am working for the news side as -- is gathering contemporary information. >> how difficult is it to remain impartial and not get caught up in one campaign or in other? >> i tried to, as best as i can, give people a full understanding of what is happening in this campaign. it is not that difficult to put your biases to the side.

>> how has social immediate change to work in terms of reporting? >> twitter is now a primary source for anybody who covers politics. it did not exist four years ago. >> perdue university students interview the washington post reporter on at the newspaper business, covering elections, and the rise of social media. sunday at 8:00 on c-span. earlier today, house democrat and republican leaders gave their weekly briefing. during remarks, minority leader policy called the vote against eric holder and "shameful display of abuse of power," and accused house republicans of retaliating against him because of their department's investigation into voter suppression law. she spoke for just over half an

hour inside the capitol. >> good morning. this is a very interesting week, because so many things are coming together or not. what we have seen is a shameful display of abuse of power by the republicans in the house of representatives. instead of bringing jobs- creating legislation to the fore, the transportation bill, they are holding the attorney general of the united states in contempt of congress for doing his job. it is really important to note how this is connected with some of their other decisions. it is no accident. it is no coincidence that the attorney general of the united states is the person responsible for making sure that voter suppression does not happen in our country, that issues related

to civil liberties of the american people are upheld. these very same people are holding in contempt -- they are part of a nationwide scheme to suppress the vote. there are allied with those who are suffocating the system with unlimited special interest secret money, and they are poisoning the debate. they are poisoning the debate with that money. so what does the average citizen say? a pox on both your houses. and that is a victory for the special interests. our founders had in mind a democracy where governments are of the many and determine our government.

these folks want a plutocracy. instead of the voice of the many, the checkbooks of the very few determine the outcome of the election. again, a plutocracy. so nbc is diversion. -- you see a diversion. let's not talk about this transportation bill, student loans, nine days until the lower interest rate will expire. instead, instead, let's tie the hands of the person who will decide to make sure that the american people have the right to vote -- who have the right to vote are able to vote on their vote is counted. it is all tied together. combined with their threat on the debt ceiling, the republican delay in ejects not only uncertainty -- that has

prevailed for a while, paralysis in our economy. we hear this from businesses large and small. the threat to our credit rating. to the full faith and credit to the united states -- of the united states of america. this contributes to a process on a part of businesses who want to hire -- a paralysis on the part of businesses who want to hire but do not. why would they do such a thing? because it is their philosophy. they are the party that makes adam smith look like a keynesian. they are laissez, laisseez, laissez faire. they support those who would privatize the system and

nationalize risk. in our financial transactions. laissez faire in terms of they do not want any regulation for public housing, public education, public health, social security -- this is what they believe. no government. bless their hearts, they act upon their beliefs. their beliefs are dangerously thriving middle-class in our country. so you see so much of a coming together. why would they oppose an initiative to create jobs? the president's american jobs act. some people called obstruction. it is obstruction, but obstruction is their orthodoxy. they do not believe in a public role. it is not the they are obstructing this way of getting something done. it is no way for them.

that is why they take pride in that they do nothing. everybody knows that our founders had in mind that there would be a public role, that we would have a public-private partnership, and that the education of our children, incentives for the creation of jobs, and economic security for our seniors. we all believe kids should be in clean and safe neighborhoods. the security of our country should be done in a fiscally sound way. there is no political bias to it. that is not partisan in any way. but it is the orthodoxy -- if your belief is that there should be no public role, and the only role of government is to give tax breaks to the wealthiest people in our country and let

something trickle-down. if it does, that is okay. and if it doesn't, as the speaker said, so be it. we do not say amen to that. their approach under the bush years, and the george w. bush years, created the deficit, did not create jobs, took us to the brink of a depression. it is very hard to grow out of it. when they bring this up again as their approach, you have to say, this did not work before. it bought only make matters worse for america's thriving middle-class. so we say to them, passed the transportation bill. take away the uncertainty to students for the interest that

they will pay on student loans. past the middle income tax cut. so that we can remove all doubt that that will exist and not be held hostage for tax cuts to the wealthiest people in the country. the budget in which they have enshrined uncertainty -- this is their goal. and fairness. -- on the fairness. how else could you describe the elimination of medicare, resulting in fewer benefits to what you give $4,000 -- while you give $4,000 tax cuts to people making up more than $1 million a year. is it fair to make people pay more student loans will you give that tax break to the wealthy? you see it all coming together. a diversion from not doing their job of helping us come together

on transportation bills -- it has always been bipartisan. it has always been a job creator and has always treated to the safety of transportation in our country, the promotion of commerce, the quality of life, moving people and products to and from home and work. but now it has been held up. nine days to go. let's hope that there is still a chance that there can be some interest on the part of the house republicans to support what 74 members of the united 3/4 of thete's -- senate on record supports a bipartisan bill. that is unacceptable to the house republicans. this is a serious time, especially as we go into approximately 140 days until the

election. 140 days until the election, or maybe what i monday off. 140 days -- maybe i am one day off. not only important to our economy, to our one and five kids who live in poverty in america and are being cast aside, not only to those who are looking for jobs and this perhaps -- paralysis is preventing them from being unleashed, but also important to our democracy. suppress the vote, suffocate the debate with unlimited dollars. poison the debate, a victory for the special interests. in shrine and fairness in the favor of special interests at the expense -- expense of the the middle-class. it is an important week. as we go into a celebration of

our own independence, it is important for us to understand that you cannot change the policy on us to change the politics. unless we dare, unless we dare, by -- as they have to do -- as we have to do, they should do. amend the constitution to overturn citizens united. remove money as completely as possible from the process, and electrons farmers who will do that in both parties. -- b. let reformers who will do that in both parties. it is important to know that this is nothing accidental, coincidental or just happened to happen. the decision to suppress the vote to validate policies that increase that deficit and

increase unemployment. that is exactly what they had in mind. >> democrats are tough on george w. bush's policy. what is the difference between what republicans are doing with eric holder and what democrats did to michael mccasey? >> in the house, our contempt of congress was addressed to josh bolten. i cannot speak to those cases, they never came to a vote on the senate floor. in the house, we took a hat -- a vote. the circumstances were quite different. we were talking about political intervention in the hiring of u.s. attorneys, having them

retain their position through political innovation -- political intervention from the white house. it is important for me to speak about this issue because our e leisure cummings -- elijah cummings, who we are proud of the role he played -- the particulars of the cases are very different. as you know, we want our case. a judge ruled in our table. i can only speak -- speak to our experiences. >> a ranking member of congress said that, if speaker boehner were to bring up the vote to hold holder in content, he would become one of the most extreme members of congress ever. do you agree?

>> i defer to the superior knowledge and wisdom of mr. cummings on the suspect -- subject. i just know that this case is different from what we have before us years ago. >> you have any -- given the fact that the interest-rate increase will only apply to new loans -- >> suppose you are a student. you are taking at 11 and he signed up for 6.8%. you signed up. sometime down the road you are going to perhaps renegotiate the loan. you have to really know how to do that. there is a lot involved in that. that'll be passed on to the borrower. people have to make decisions --

if you want to talk about the uncertainty, how about the uncertainty of knowing that this may or may not be the interest that i pay? you do not even know if it will be retroactive. so why would we do that, except to schumer -- humor the intransigence of the republicans in the house of representatives. why should students have to face that uncertainty if we agree that the interest rate should be 3.4%, not 6.8%? it hurts the students. we had a presentation as recently as this morning about what it means to the -- a student. it means a lot to the student and the families. so much so that these families may have to decide, not knowing

whether this will happen, they may just have to pass up going to school this year. >> madoff leader, how to follow up -- madame leader, i want to follow up. the attorney general said he was willing to give some documents, then the president picks -- withheld them. this turned into a clash between the house and the white house. are you worried this will turn into a fight between the president and the house? >> this is part of the scheme that the right wing -- i do not think all republicans subscribe to this, but the over the edge gang which dominates the house of representatives has said that this is the best way for us to spend our time, to review a

policy that began in the bush administration. a mistake was made, a person was fired. tens of thousands of documents have been turned over. without going into the conversation between the feds and the jury -- the attorney general -- the administration made every attempt to make every document available. the president said that to the speaker of the house. >> we all know what his pledge is. but i want to talk about to the pledge means and what it does not mean. what does it mean to have this interaction between the republicans and mr. norquist?

>> i think they are in touch every day. i think his physical presence is not indicative of the influence he had on the caucus. if we will take any pledges here, it should be a pledge to uphold our democracy, not to give tax cuts to the richest people in the country, which undermines fairness in our country and destabilizes the middle-class, does not create jobs, and increases the deficit. >> is there a difference a tween the attorney general being held in contempt and being fired? >> there is a big difference. >> democrats and republicans agree they are walking guns into -- were walking guns into mexico. a letter was later retracted. i'm curious about what you think is the difference between why it

was appropriate to hold contempt one time, but not the other? >> that is -- i'm going to leave it to elijah cummings, who has made us very proud in doing the right thing on this. not taking it swinging to some other place, but trying to take this to a balanced place about what our responsibility is. contempt of congress -- to frivolously use that very important vehicle to undermine the person assigned to stop the voter suppression in our country -- this is connected. it is no accident. it is a decision and it is a clear -- it is as clear as can be. it is not only to monopolize his time.

it is to undermine his name, to undermine his name as he goes forward to protect and defend the constitution of the united states. >> the supreme court did not rule on health care. the democratic left told reporters that democrats had discussed their contingency plans for a range of options. do you maintain confidence that the court or role in your favor -- i am wondering what the contingency plan of democrats is if it is struck down? >> the only means i have been party to were once we have tabulated the benefits of the plan, knowing that people have already benefited and that more people are now on their parent'' plan until they are 26.

many more millions of young people cannot be discriminated on the basis of a pre-existing medical condition. seniors pay less for their prescription drugs because of legislation which closes the doughnut hole -- you probably do not know what that means kids, meansat that means, but it something to seniors. that is the annual checkup without co-pay. those are some of the benefits. as many as 80 million people already benefit from those. that is what we are trying to defend in this legislation. there had been some other meetings about the implementation of the law that have nothing to do with the court case, but i believe that the court's oral in favor. we are ironclad constitutionally. we are ironclad on the

constitution and we will see what the court does. we believe in judicial review. republicans have not come up until now, belief in judicial review, and now suddenly they are big proponents of margaret vs. madison, which just a few years ago they said was -- marbury vs. madison, which until a few years ago they said was wrongly decided. the speaker said he was going to take the massachusetts case on doma to the supreme court, and use tax dollars frivolously to defend this bill. i think it is important to now. i talked to about one republicans did not believe in judicial review. one occasion was on the bill in

2005. they rode a bill that said the court should not have judicial review over doma. they know it is on very fragile constitutional ground. we think it is unconstitutional. but they, realizing that, wrote a bill stripping the supreme court of the right to rule on it. it passed the house but did not pass the senate, thank god. >> a last question about health care. on policy, i know you have to -- i know you are going on 63 -- 6-3, but on a matter of policy, if the court strikes down at the mandate and leaves in place all the things that you

like and the doughnut hole closure, as a matter of policy, can you justify leaving those things in place without a mandate? all those other things without the mandate -- if a strike that down, how can you leave those in place? >> to borrow a supreme court metaphor, you have to eat your vegetables. you have to have the mandate in order for this to work from a financial standpoint, but that -- in other words, we want to keep those in place. the biggest difference in the lives of the american people -- one of, in terms of this legislation, is that you cannot be deprived of coverage if you have a pre-existing medical condition. this is huge. this is huge. and insurance companies even say

that they cannot do that unless the premiums skyrocket. the american people like the idea that they cannot be deprived of health insurance because of medical pre-existing conditions, then that will require other action for that to happen. what could that be? there could be something passed in the congress similar to what we had in the house bill, a surcharge on the wealthy to pay aspects of that. that was an hour pay-for. the senate had another idea, so it went a different path. states can take their own action. in california, we have our own legislation. massachusetts, under mitt romney, passed a mandate that

was necessary for the people of massachusetts. some states can have their own extensions, single payer, the public auction. we are right now in the world of speculation, and i do not like to go into that world, but you are asking what are the things that could happen that we cannot say to the american people we are going to throw you at the mercy of the insurance companies who refused coverage to you, recent said -- rescinded policies when you were going into the operating room, raised rates to the point where they were prohibitive. one of the main reasons -- if you had no other reason to pass the health care bill, if ever beloved their insurer, coverage, the cost of it is unsustainable the individuals, families, businesses, to our economy, to

our competitiveness to have this anvil of health care costs around the neck of our businesses, and to the public budget, whether it is county, state, or federal budgets. it is unsustainable. you have to have legislation which in its oneness at this integrity and took us down the path to all the entities that i mentioned, including the federal budget. many things in there that we do not get credit from the cbo, some things that go along with it like electronic medical records, that kind of thing, which will drive down that cost of health care as well. that is not figured in the cbo report, but the think tanks have said this will be hundreds of

billions of dollars of savings over the life of the bill. let's hope and pray that the court will look at love the constitution more than that loves broccoli and we will have a decision that is based on merit and the constitution of the united states. >> those are the things the american people will demand, the broccoli versus the goodies. can congress justify additional being taken off the table? >> throughout all of that we had to be sensitive to cost, but let's say the majority in the house right now has no interest in making these things available. you should see in their budget they want to do away with medicare. they do not want to spend for medicare as we did in the health

care bill. ec the -- you see in "the wall street journal," editorial-page -- does that happen where you were? they are separate, they tell me. they love that, right? they will have fun with that. they are criticizing, some other republicans who say we like these things and would like to perpetuate them, but there has to be a way to pay for it but to reduce the cost, to expand the coverage, to improve the quality, and this bill did just that. hopefully they will see the light that in order to have these things that the american people are taking advantage of

toeady, and they're not even 2014 yet, and to have the exchanges, the mandate, but as i say, states can do what they need to do. that is not going to be the answer. some of these same people -- many insurance companies are getting tens of millions of new clients, subsidized by the taxpayer, under a federal set of rules -- that is a beautiful thing for them, and that is a beautiful thing for them, but if that whole federal structure comes down, it makes matters worse for that. they are like in the crocodile- tier place -- tear place.

they want to see a formulation that is federal rather than see it in 50 states. this is speculative until what we see what the court will do. it is a remarkable thing. nobody knows, and those who speak do not know and those who know do not speak -- that is a phrase we have been using in politics for a long time, it applies more to the supreme court of the united states. they're going after eric holder because he is supporting measures to overturn these voter suppression initiatives in this state. this is no accident. this is no coincidence. it is a plan on the part of the republicans. thank you, all, very much.

[captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute] >> boehner briefed reporters at the capitol afterwards. he spoke about fast and furious, but declined about whether attorney general holder should resign. this is about 15 minutes. >> good morning, everyone. the american people are continuing to ask the question where are the jobs. middle-class families and small businesses struggling with high unemployment, rising prices, and stagnant wages -- republicans have been relentlessly focused on helping small businesses create jobs and we are going to remain focused on that goal. congress also has the

responsibility to the american people to learn the truth about what happens in fast and furious. on february 4, to death 11, the department of justice denied allegations that it allowed guns to be smuggled into mexico. tens months later the justice department formally withdrew its denial at the nile -- and acknowledged it made false claims to congress about this operation. the obama administration has legitimated congress' responsibilities to find out how and why it be these false claims. we're talking about a program that a mexican drug dealers guns and those guns killed an american border agent. the american people deserve the truth, and the administration has an obligation to turn over to the relevant documents now.

the decision to invoke executive privilege is an admission that the white house officials were at fault in decisions that misled congress and have covered up the truth. what has the -- what is the obama administration hiding? today that house will pass the domestic energy and jobs act which will help create good- paying jobs by expanding american energy production. is the latest in a series of more than 30 house-past jobs bills that have removed government barriers to economic growth and stopped policies that are driving up gas prices. house republicans want to get a highway bill done. we want a bill, and our colleagues are working to producing a bill. we want to make sure it includes real reforms to ensure that taxpayer funds are paying for legitimate projects that support economic activity, not planning

more -- planting or flowers and beautification projects. we want to continue to support bipartisan job-creation initiatives like the keystone pipeline. next month the house will act to boost economic growth and create jobs by preventing a massive tax hike and providing for a simpler tax code that lowers rates and closes special interest loopholes. stopping the tax hikes is critical to our economy, which more and more democrats are acknowledging every day and tax reform will help fuel or economic growth and job creation in our country. house republicans will vote on several measures to stop harmful regulations that are creating more uncertainty and hurting small businesses. in coming days you know the supreme court will rule on the president's health care law, which are driving up health care costs and making it harder for

small businesses to hire new workers. unless the court throws out the entire law, the house will vote to repeal whatever is left of " obamacare." then we need to enact common- sense reforms that protect jobs and protect americans' access to the care they knew, from the doctor they need at a lower cost. with that, i will take your questions. >> everett attentions from the transportation but -- diverting attention from the transportation and the attorney general guaranteeing the right to vote in these states. the you have a response? >> i met with conferees today on the highway bill. they have been heavily engaged. clearly, there is some movement under way since the meeting that i had with senator reid and

senator boxer. we're continuing to do our work. the american people deserve the truth about what happened in the fast and furious. the terry family deserts answers about why their son was killed as a result of an operation run by united states government. this morning, the family put out a statement. i will read you the last sentence. "our son lost his life protecting this nation and it is very disappointing that we are now faced with administration that seems more concerned with protecting themselves rather than revealing the truth behind the operation fast and furious." this is a very serious matter, and until yesterday, it was just the department of justice that we were concerned about.

clearly, at the 11th hour, the 50th minute, the white house decided to inject themselves into this, where there have been no indications that the white house had been involved at all. there have been claims about how many times this white house and that white house in the past have invoked the issue of executive privilege. a privilege that is preserved for the president's and his top advisers and their deliberations. why the white house would invoke executive privilege over the department of justice document raises very serious questions. >> knowing what you know now, should holder resign? do you call for his resignation? >> where try to get to the facts and truth about where this program started, white continued, and why an american

border agent was killed as a result of it. what we want is the truth, and we want to get to the bottom of th. the house will vote next week on a contempt resolution unless these documents that we are looking for are in fact turned it over. this is about getting to the truth for the american people and the family. it is not about personalities here. >> he should not resign? >> there are some on your side of the aisle who say we should negotiate the position with them. are they not looking at this group is there dissension in your conference over this? >> the negotiant proposed by the attorney general is we should accept documents of his choosing and as a result of him turned over some documents of his choosing, that we would never, ever pursue content.

this is not hardly a rational basis for negotiation, nor is it a reasonable attempt at turning over the documents that we have been asking for. i have been heavily involved in this now for months, making sure that the t's were crossed, and what we were asking for was reasonable. i understand there is a criminal investigation going on, and i do not want to do anything that would interrupt that investigation. the documents, as an example, relating to why they sent a letter up on february 4 of last jicama why it took them 10 months to retract that letter, what those deliberations are, have nothing to do with a criminal trial. those documents i think are important for the truth to come

out. >> i know what the attorney general said on wednesday afternoon. there seems to be somebody out there at st. we do not want to pursue. >> as more and more members understand all of the facts, as i know them, and as chairman issa knows that, and the leadership team, this was done with plenty of deliberation. and plenty of time for the administration to work with a result this issue. >> you mentioned taxes over. grover norquist is coming up here to talk about the pledge. republican challengers will not sign the pledge, and lindsey graham said the party position should shift. is this not as important as it used to be? >> i understand mr. norquist is

got to come up here and we will have a conversation about it. the american people understand that raising taxes in this economy is the wrong thing to do if we're serious about creating jobs. we are going to move our extensions next month. we are on to outline our principles for tax reform. i have been around the political process for a long time. i had never voted to raise taxes. but we have a big job to do. i am not interested in raising taxes. they can discuss whether loophole closings or tax increases -- i hope the result at all, actually. >> mr. speaker, following up, i know you believe that spending is the problem, but given that some members of your party are showing some reluctance decide this pledge, you have shown some willingness to raise tax revenues as part of an effort to bring down the debt.

the you feel more members of your party are coming around to that and feel that that will make common ground easier? >> i have an additional revenues on the table, economic growth, out of more efficient tax systems, revenues out of what i will call opportunity costs from having uncertainty about what the tax code looks like. i believe there is a way to resolve this. at this point, given this government -- giving this government more revenue will be like giving a cocaine addict who wants to quit more cocaine. we have to have controls on spending. we have to deal with the intent of a crisis that is threatening the existence of these programs. that conversation will continue well into next year. >> deeply by pursuing contempt

of congress citation that you liked the track from their jobs agenda? we began talking about jobs today. people are saying this is getting you off message? >> our focus has been on jobs, but members of congress take an oath of office to uphold the constitution and the loss of the united states. when those laws are broken, the congress has a responsibility to provide oversight of the executive branch. we are pursuing our legitimate concerns about making sure that the american people know the truth behind fast and furious and the death of randall terry. >> if there are further negotiants, would you get involved in them? >> i believe chairman issa as a better handle on the types of documents needed. i will do everything to facilitate a conversation, but i believe that it is chairman

issa's responsibilities . >> there is concern that the fiscal cliff does not just to have effect on january 1, particularly in the defense community that there are are to be decisions made or contracts slowed down and that could affect the economy this fall. are you committed to turning off the sequestered before the election? >> we have done everything we can to try to replace the sequester. that is why the house acted last month to make sure that these reductions in force, which are coming and will come before the first of the year, do not happen. i am concerned that you cannot wait -- the department of defense cannot wait until january 2 and the peace which and fined $50 billion worth of savings next year. i am convinced we will see pink

slips coming month after month as we get up to january 2 it the sequester is not replaced. it is time for the senate that act. but the way, we have not heard anything out of the senate, and nothing from the president. maybe instead of campaigning every day, he could be concerned about the security of the american people and concerned about the job picture in our country by working with the congress to make sure that this sequester not go into effect. >> is grover norquist still a random person? >> grover norquist is on capitol hill today speaking with republican lawmakers. in the senate, the democratic leadership held a briefing before his visit to lay out their problems with his pledge to not raise taxes.

they spoke to reporters for about 15 minutes. >> sorry to hold everyone up, but we had a vote that affected nevada, and i was on the floor to make sure it turned out ok. it dealt with rural water systems. i felt searchlight should not be treated differently from denver, albuquerque, but sorry to be late. the leader of the republican party is to appear today on the hill, but you may be surprised to learn that it is not mitt romney, not john boehner, and not mitch mcconnell. you know is. it is grover norquist. nearly every republican in

congress has signed his pledge. mitch mcconnell signed its. mitt romney has signed its. and he is sticking to it, mitt romney. when romney was asked whether he would support a deficit reduction plan that had 90% in cuts, 10% in revenue, he said he would reject the deal. this is at odds with the american people. 3/4 of americans support a balanced deficit reduction package that ask corporations to pay their fair share. the support goes across all the political spectrum, democrats, independents cannot even republicans agree. the only ones are not on board are the ones in washington. they jumped all on board with the ryan plant. this throws a monkey wrench into

the relationship with grover. a report yesterday showed that the ryan plant would raise taxes on middle-class americans. it would raise them a lot. the ryan plan pay-for $10 trillion in tax cuts that would pay -- these loopholes are popular dedications -- i am sorry, deductions and credits that benefit the middle-class. deductions that help families safe for return, pay premiums, and purchase homes. the lower tax rates for the red diaz quest for the wealthiest 2, paul bryan and mitt romney would -- paul oryan and that romney would raise taxes on the middle class.

republicans who were enthralled the pledge had questioned its request does this scheme not violate that norquist pledge could i would hope someone would ask him session and asked about mitt romney what's to come here and work things out when he would not go for a 90-10 deal. that is what is happening. senator durbin? >> i have attended a lot of meetings, and with very few exceptions who have told me the biggest single problem is the pledge that was signed to grover norquist. if you watch "60 minutes," he has these pledges framed on his office, like they are scalp that he wants to show off. if anybody crosses him, they know that club for growth is got to come down hard on him. the problem is none of us have

taken a pledge to anything other than the constitution when it comes to service in the senate and house, and those who think grover norquist is equal to that pledge have lost sight of the notion of public service. if we are on to get serious about ending this session in a positive fashion, all the work in the senate is going to go for naught if the house republicans, particularly tea party, are to wait for the thumbs-up from governor request. we have serious issues facing this country right now and at the end of the year. to resolve those in a favorable way, it means both sides have to be willing to give. these ironclad pledges to norquist make it impossible to govern this country responsibl y. >> we know one thing. you cannot solve our fiscal problems, you cannot avoid the if you sign grover norquist's pledge.

grover norquist in solving our fiscal problems are on opposite poles. in an hour or so he is scheduled to offer tutorials that house republicans on what his tax pledge means for the fiscal cliff negotiations later this year. the blitz he is doing is a sign of weakness. it is relevant as the openly questions for the first time lately, and he is in full damage control mode. he has an uphill climb. more and more republicans are beginning to decide they do not care what he thinks. more and more republicans are realizing that is all our nation's fiscal problem they cannot be part of grover norquist's army. a couple of weeks ago lindegren said he had crossed the rubicon on the need for revenue and deficit deals and urged his

fellow republicans to join in in putting the need for a grand bargain, coburn, never one to shy away from a fight with norquist, said this week, "the well-to-do are ok paying some more taxes as long as the taxes aren't paid down the debt, not going to grow the government." on those words, national views at that kind of talk may not please norquist, but coburn does not care. other republicans are decided it did not care about norquist either in. jeb bush, as expected a figure -- as respected a figure that exists right now in the modern republican party, decided to take him on a very high-profile way. this was a big deal. jeb bush is a heavy weight on the side of those republicans who want reform, who want fiscal responsibility.

he may run for president in four years. many wanted him to run this time. he dismissed the norquist pledge and basically declared grover norquist to be a gnat that other republicans should just brush away. joseph r. perrault said in a fight between bush and norquist, jeb bush's republican party is the party of the future. we are seeing glimpses of that feature on the republican side, and thank god. this week we joint another one of those briefings that our friends mark warner and a more active alexander at an organization -- and lamar alexander been organizing. the republican house is still far from getting its act get there, there are good bipartisan

abides all around the senate these days. we are about to pass a major farm bill. this is the latest breakthrough with each of these accomplishments, we are building up a reserve of trust and good will that will help during the big picture negotiations coming at the end of the year. "road to the white house" -- grover norquist is the problem and bipartisanship is the solution. >> a bipartisan agreement is possible. there'll be a bipartisan compromise that will make sure that congress gets reports on the impacts of all aspects of sequestration's both the defense and non-defense. it is an amendment that calls for the examination of the impact of the cuts to the defense department and

border patrol and many of the programs that middle class families and the most vulnerable americans depend upon. i think this is a strong sign that both sides understand the pain that sequestration would inflect. both sides believe it is a terrible way to cut spending. my hope is that it will show that we can and must work together to get a bipartisan and balanced deal required to replace the automatic cuts responsibly and fairly. but were there are rumors of hope and clear signs of bipartisanship in the senate, there is more of the same in the house. this week, instead of working on passing a transportation jobs bill that passed the senate was 74 votes or taking up bipartisan legislation to protect vulnerable women with 68 votes, or working with us to signal support on the job creating farm

bill we are working to complete right now. the house republicans went with none of the above. instead they decided to create partisan, political theater. they are retreating further into their corner. it is time for them to talk it over with their coach. grover norquist is working to renew the pledge to once again remind the house republicans he is watching and special interests come first. he was a the same piece of paper that deadlock the super committee and brought it to this point. i hope the republicans in the house have the strength to stand up to these tactics and realize this is a bipartisan problem that requires a bipartisan solution. we have seen evidence at today that there are those in the senate who understand that fact. i hope that message reaches over to the house and into the room

with mr. norquist. >> we are cramped on time. >> can you give us an update on the transportation bill? i understand the progress made time istiations, but pr short. will you need an extension? >> i hope not. i cannot guarantee we will get a highway bill, but we are in much better shape than we work 24 hours ago. they wanted a deal by tomorrow. i have spoken to them several times and there is significant progress being made. we hope we can get this over the finish line. it would be wonderful for the country. it really would be. we are trying.

>> president obama nominated someone for congress. >> we know he got sick. he was anxious to get the job. i would hope there would be a consensus nominee forward and we can get it do. it is important. we need someone leading that important agency. >> what can you tell us about what paperwork is still on the table? >> like the highway bill, we have great hope that we can get it done. we have had a series of meetings in the last 48 hours. we are not there, but we can get something done. you have heard the republican leaders and something will get

done. it is easy to say that. but it appears that they are compromising just as we are and hoping to get something done. did of minutes left -- two minutes left. ok. >> they might strike down the mandate in the health care act. if that happens, how will democrat justify the policy of leaving pre-existing conditions that people like on the table if the mandate goes? how we justify leaving the good stuff in place if the bad stuff goes? >> it is a matter of opinion if anything is bad. the reason we have that in there is so people have the same insurance that i have as the rest of the federal employees. i will not sit here or stand in front of to and speculate what

will happen if the supreme court did this are that. we will wait for their decision to be made public. but we will not speculate on w. it is not fair to the supreme court or the president or the senate. >> [inaudible] >> pardon me? we have about eight or seven minutes. >> did he resign? >> no. >> tonight weekly briefings from house leaders nancy pelosi and john boehner. nancy pelosi discussed yesterday at's house committee vote of content on attorney general eric holder and on negotiation -- ongoing negotiations with the highway bill. speaker boehner said most of

his briefings discussing the attorney general and operation fast and furious. the house hold a vote next week on the contempt charges against the attorney general. you can see both briefings tonight at 8:00 p.m. here on c- span and any time on c-span.org. tomorrow morning on "washington journal" she discusses we where u.s. financial markets are headed. he examines the executive privilege claims concerning attorney general eric holder and the fast and furious case. he talks about hispanics in the u.s. and education and income. "washington journal" is live at 7:00 a.m. eastern on c-span.

earlier today, the sec chairman mary schapiro talked about money market funds. after her comments, the senate banking committee listen to comments from several panels. this is an hour and 25 minutes. >> i called this hearing to order. today we will examine the health and stability of money market mutual funds. the impact of two reforms and the potential negative consequences additional proposed reforms from the perspective of the industry itself and products.

i look forward to hearing testimony and recommendations as the committee can tinges its oversight of the financial markets. we are anticipating a series of 11 votes, we will forgo opening statements from the committees and members in order to begin questioning of our witnesses. i remind my colleagues at the record will be open for the next seven days and any other materials you would like to senate. i would also ask everyone to take five minutes for your questions. the first panel, we have the chairman of the securities and exchange commission, chairman mary schapiro. please begin your testimony. >> i appreciate the opportunity to testify about money market mutual funds.

as we all know, during the financial crisis and a single money market fund broke the box and triggered bonds across the market. within a matter of days, investors have withdrawn $3 billion from prime market bonds or 40% of those bond assets. it is one of the destabilizing events during the crisis. money market funds began selling portfolio securities into markets that were already under stress. if for the depressed the value of the securities and created a vicious cycle. other funds held in the same securities were struggling to meet the demands of their customers and found themselves at risk of breaking the box. the shock waves were widespread. money market funds began courti hoarding cash. this dramatically reduce the cash and liquidity available for entities. in the final two weeks of

september 2008, money market funds reduce their holdings of commercial paper alone by more than $200 billion. the money market funds ended only after the treasury department to the unprecedented step of using the exchange stabilization fund to guarantee more than three trillion dollars in market bfund shares. it improve the market, but it put u.s. taxpayers directly at risk from any losses. in the wake of the financial crisis, many asked, where were the regulators? why did they not do more? having viewed this issue closed and methodically since my arrival in 2009, i have come to understand that money market funds produces a risk. others agree. regulators and both political parties have raised flax about the risk posed by money market funds and the need for reform. two years ago, we passed a

series of measures to increase their resiliency of money market funds by instituting a liquidity standards and reducing maturities and a pristine -- and approving credit. these steps have been broadly killed, i have said then and still believe that -- have been widely hailed, i have said then and still believe that more needs to be done. this core part of our financial system is operating without a net. there are several features of the market finds that needs to stabilize. first, the one buyers share price was sponsors support has and expectation of asia safety. sponsors of stepped in with their own capital at least 300 times to absorb losses our

protector funds from falling below $1. when sponsors cannot support a bond, investors lose confidence and rush to redeem. an early reading shareholder can get their full $1. investors have an incentive to redeem at the first sign of problems in a fund. large institutional investors are most likely to be monitoring that and to remove large sums of money quickly. the slow-moving retail investors and small businesses will bear the full loss. there are too many investors redeeming at the same time. the fund could be forced to sell securities at higher prices. it would depress the barter short-term market. this spreads the contagion to other funds. it is for these reasons that i asked the staff to explore a number of the structural reforms, including two particular that may be promising. they need to set their share

prices based on the market the idea of the fund's underlying assets. understanding the dollar is important to investors to use this project, a second option would be to allow money market funds to maintain a stable dollar you as they do today and require the funds to maintain a capital offer to support the funds stable the al and to impose restrictions on redemptions. -- the values and oppose restrictions on redemptions. if a large that occurred, the money market fund would incur a loss. it a supplement the capital and dramatically reduce the contagion to other funds and the system. these ideas and others are the subject of continued analysis and discussion.

if the commission were to propose a reform, there were a be an opportunity for comment. investors, taxpayers, and the financial system at large. it is essential to address this risk now instead of waiting for the next crisis. thank you. i would be pleased to answer your questions. >> thank you, chairman schapiro. please but by then it on the clock for each of the questions. -- please put five minutes on the clock for each of the questions. what did the sec know about money market funds that you did not know before the crisis? how is this new information inform their views of the risk

of money market funds? >> senator, the transparency initiative that the sec undertook had been extremely useful to us in the monitoring the rest of the money market funds are taking. i would also say that every morning when i pick up the newspaper and read about an earthquake in japan or problems in european financial institutions, the first question i asked the staff is, what is money market fund exposure to these incidences are institutions? what the data has done is given us a window into these exposures in a bigger way. it also helps us understand the risk that exist within fund portfolios. we have hired a former money market fund portfolio manager to help us work through this data. we have noticed interesting things that some fund managers are taking on the ticket to get a greater risk than others while the share prices are still

priced at a dollar. we learned that most funds significantly reduce their exposures to european banks in light of all the problems in the eurozone. they were able to capture higher yields. that is enticing to investors. the church to the $1 share price can be a little bit this double this shows the $1 share price can be enticing. >> which one are two revisions in the 2010 reforms do you believe have been most beneficial? what analysis has the sec conducted on the full impact and effectiveness of the 2010 reforms? has it informed your view on what worked well?

>> sure. we studied the 2010 reforms very carefully. from my perspective, the most value has been the liquidity requirement. the requirement for 10% daily liquidity. it was exceeded on average. that has been the most helpful in meeting redemptions, particularly hot numbers of redemption that we saw this past summer. we have analyzed the 2010 reforms carefully. we believe they have served their purpose quite well. they do not solve the problem we are most concerned with right now, which is the potential for a money-market fund suffered a severe loss as a result of the credit event and not be able to absorb the loss and the propensity if there are grounds of the market funds. we think the 2010 reforms were extremely positive.

if we put out a release recommending for their reforms, we will include in that a careful analysis of the 2010 reforms and why we believe we need to go further. >> there are pros and cons within the policy proposal. what would be the impact of additional reforms such as asset redemption restriction on those who use our rely on money market funds, including minister polities and companies in the retail if implemented? do you agree with some who have suggested that additional reform because investors to move assets out of the money market funds? >> senator, that is a question i

could answer over a long period of time. additional reforms will have costs associated with them. we would intend in our release to fully analyze not is operational and administrative costs which could come from other kinds of changes, but also costs competitive issues and opportunity costs and the full range of costs-benefits. the costs would be far, far outweighed by the benefits of for stalin and other potentially devastating run as we saw in 2008 -- of forestalling another potentially devastating run we saw in 2008. investors not having access to their accounts during back to period, the costs of the short-

term market freezing up, and other companies not able to have access to commercial paper, the costs of small businesses and individuals not been able to access their cash management accounts and make payrolls are tuition payments. the implications for our economy are very broad and very deep. those are costs we need to take into account, as well as the costs of course of any proposed changes. >> senator shelby. >> thank you. in your written testimony, it talked about the financial system as a justification for additional money market fund regulation. has the financial stability

oversight council designated any money market funds or activities systemically important? >> senator, as you know in their annual report of the financial stability oversight council, money market funds were discussed at length as a weakness and the potential systemic risk for the u.s. financial systems. they have not designated to any institution at this point as systemically important financial institution. >> yesterday the wall street journal reported that a new sec study has found that money market mutual funds receive financial support from their sponsors more than 300 times since the 1970's and about 100 more times than previously reported. did the commission review or approve a steady? if so, could you provide a

steady -- a copy of this steady to the committee? and how many times has money market funds required sponsors since the 2010 reforms? is that too much? that is a lot. >> it tests my ability to remember, but please remind me if i forget anything. it is not really a steady, a tabulation. -- study, a tabulation. it does not include all kinds of sponsors support. i believe the number may be conservative. it is a tabulation in many instances where people came to us in order to get authority to do sponsors support. what you wanted to do was an affiliate transaction, which would be a violation of sec rules. i would be more than happy to provide the information to the

committee. it is likely conservative number. it is those instances i came to the attention of the staff or were notified about the support that was given. i know that moody reported a number summer in 200. i do not know what they look at. our staff we did everything back to the 1970's. they might have a different base line at moody's. they reported that 62 money market funds required support from the sponsors, but they looked only at the 100 largest bonds as an example. our staff look at everything back to the inception of money market funds in the 1970's. >> the sec work with the fed reserve in developing the 2010 money market fund reform?

if so, can you please explain? >> senator, i am not sure to what extent the staff consulted with our talk with the fed reserve board's staff with respect to the 2010 reforms. they may well have, but i do not know the extent. >> are the currently working with the fed reserve in developing further reforms? >> yes. our staff has had lots of conversations about the potential reforms. >> ok. german chairman schapiro, there were some speeches about shadow thinking. our money market funds shadow banks? >> i am not a big fan of the term shadow banks.

money market funds are hugely important in our economy. they are important to millions of investors. honestly, they have been generally irresponsibly managed. this is not about shadow -- they have been generally responsibly managed. >> should the fed be the primary regulator of money market funds? >> i think as ec is a fine regulator of money market funds. they are at the end of the day investment products. the sec is the government expert on investment products. the confusion of the complication is that their value

does not fluctuate like investment products can and should and do. >> thank you. senator reid. >> thank you. thank you for a holding this hearing. looking back over the last several years, there are many issues that had potential dire consequences to the financial system that were not examined. there were small risk, but the consequences were extraordinary. this is a very important topic. let me follow up on a question that senator shelby post. the council has not designated a fund that is subject to regulation, but they can do that. is that correct? perhaps i believe it could designate individual funds that

are systemically important for the activity of maturity mediation or where ever. th-- or whatever. >> if the sec does not a play a role that -- apply a rule that applies to all funds, or imposed restrictions are operating procedures on them, is that a fair estimate? >> i think that is right. we are working on refining what criteria would be used in designating what is systemically important. but i believe that is right. >> you could potentially have a system in which some are regulated and some are not. this would apply to every individual find equally. >> it would apply.

the risk of having some designated and some not designated, the run could begin on a particular find, but contained it could spread very quickly across many money market funds. there is no incentive not to run if you can get your dollar out as an early redeemer. why take that chance and stay in the fund and potentially have to bear the losses? >> as you pointed out, most of the institutional investors have the most connectivity to the fund. they monitored it on a regular basis, retail investors. they could withdraw their funds at the full dollar and the end of the line, they might get less. >> that is right. the losses would be in the slower moving shareholders. which is always retailers and

small businesses. >> one of the issues that >> one of the issues was that there were 300 situations in which the sponsor of the funds stepped in and provided capital which raises the issue that if that is the norm, if they have the intent and capability of doing that, then essentially the funds can police themselves. that raises another issue on the capacity of these funds and their willingness. perhaps another issue, is any consideration, the stress- testing of the financial companies are popular now, but looking at the capacity of funds to be able to support or sponsors to be able to support the funds as something you would

consider? >> we do have stress testing now as part of the reforms but it is really stress testing a portfolio of the funds as opposed to testing their capacity and willingness to step in and support a fund that is in danger of breaking the dollar. the real concern about that is not that it is necessarily a bad thing to have sponsors support, it is that there will come a time when a fund will not half neither the capacity or willingness to step in and support its fund and investors believe that there will be support because history has shown us that in hundreds of instances funds have stepped in to do thus and when things got very bad, the federal government stepped in to do that. experience is trumping their theoretical understanding that these are risk. >> i appreciate the impact.

many municipalities use money market funds in a very efficient way to manage their cash and are you looking seriously at any impact that that could have? they are all under real siege. >> absolutely. we love of is considered. -- obviously concerns. this really constitute perspective. this is one reason why we have an option for capital which would allow the product to stay 8 stable value. there are concerns whether the money market funds will be able to buy security.

this is a larger percentage for sure -- short-term paper. there ishe mey market funds that will continue to exist and they will continue to invest in municipal securities. if the treasurer cannot bear the risk of a loss, a penny in their share, one has to wonder whether a money-market fund is for them to be because they do have that risk if the fund breaks. >> thank you. >> thank you, mr. chairman. i would like to thank you for having this hearing. this is a very important topic and i appreciate the chance to have this discussion. my first question, in a footnote on the first page of your testimony, you acknowledge that the views of your testimony are yours and not of the commission. is it fair to say that the views

that you have expressed in fact do not represent the majority of the commission? >> senators, i guess i would not say that. clearly, they have not joined me in this testimony, the commission as a whole has not. some would tell you that they still have open minds and they want to engage with the staff when it has circulated and to see what the proposals are. but, you were right. some of them have expressed their views that nothing more needs to be done. i am hopeful that we will have the debate that i think that we need to have. >> it seems to me that there is a majority on the commission that is not share your view but we will see how this develops. i want to make a point that the disclosure that there was 300 instances in which there was

some voluntary support succeeded in getting some sensational stories written but the fact that it came without the analysis and the data so that people cannot really evaluate it is pretty unfortunate because i have seen articles in which people leap to conclusions that may not be supported by the data. i would like to drill down into this topic since few have raised this and have made this an important basis for suggesting that we need some extraordinary new regulations fifth of of of the federal reserve bank cited that there was 47 instances of direct support between 2007 and 2010 in a recent speech. moody's reported in 2010 that there were 181 cases between

1980 and august of 2009. is everyone using the same definition? >> they might not be looking at the entire universe. >> could you tell us what is the definition you have used to define an instance of this support? >> we have used a pretty conservative evaluation and looking at those instances where money market funds came to the staff of the sec and sought the authority to violate the abilities on transaction rules by making a contribution to the fund. we have generally talked about it as by not stressed paper and interim into a capital support agreement or a letter of credit. we did not count renewals, we did not count other types of potential contributions. >> a credit agreement is

essentially conditional support if that was never drawn on, does it still count? >> yes, because it shows up as a liability. >> but there was no credit event that occurred. there was no adverse outcome. there was simply an arrangement made. do you distinguish between significant fanned four in minimus amount of support? fifth fourfit its for the safety distinguish between them. 's for few distinguished the fleecing 54 fanfare -- clef fluff in the event that is sponsor had an agreement to sponsor securities, would that count as one of the fifth? >> yes, if with the death

>> is very hard for us to evaluate, when you say necessary. we just went through a number of examples in which support is defined in ways that certainly would not suggest to me, or to many people that there was any real danger. my concern is that this is the impression that is being created. these are all instances about which we should be very concerned when in fact it sounds as though many of them are not terribly disturbing. >> i would be more than happy to provide the background information to you but i think it is important to note that money market funds come to us and ask us for the authority to

enter into these arrangements. these are generated -- >> there have really regulated and they're forced to come to you for permission but that does not mean that they are forced to request permission for unnecessarily disturbing or evidence that there is a problem here. you will give us public release of all the data in the analysis. when will we get a chance to look at that? >> i endeavor to get it to you as quickly as possible in the next couple of weeks. >> i would like to make the general point and just wrapped up my time, your testimony, which i read closely, in my view it you are portraying an industry that is extremely vulnerable and has all these risks of runs and i really find that extraordinary in light of the actual history. when you think about the way this industry has tried for decades that has seen so many

extraordinary of events, serious recession, bouts of inflation, the crash of the s and l industry, devastating natural disasters. all the while, prior to the financial disaster, there was thousands of bank failures some individual years in which hundreds of banks failed. if during all of that time, one money market fund had a problem. along comes the financial crisis which is the worst since the great depression, commercial banks go down, an entire industry is wiped out. the big wire house broker dealers no longer exist. all of them are forced to be bought or convert their charter. while the entire financial services sector is collapsing and seizing up, the panic that seized this whole sector did in fact affect some of the money market funds somewhat.

then, you impose new regulations that you talk about, liquidity, maturity, more transparency. since then, we have had another round of real problems. considerable redemption pressure and not a single problem in this whole industry. no one gets in trouble. now, without having a chance to look at this data that you cite, the very characteristics that have been in place from the very first day of this industry, you are telling us that this is a very vulnerable industry and there are great threats of a run and you were using that to justify regulations which i think threaten the existence of this industry. >> thank you, mr. chairman. madame chair, thank you for your surface. i am not sure which analysis are you referring to that you're

going to make public? i had the line of question about your analysis process. >> i was asked to provide the background on the 300 occasions where there has been capital support provided to money-market funds. >> my question is, have you add to the sec study the impact of the 2010 changes on money market through 4 f yes, we half and in full release that we have published -- my question is, have you had a chance to study the impact of the 2000 changes on money- market? >> yes, we have, and we have released these. we believe that these can meet heavy redemptions. as we saw through the summer in europe when there was a time of veterinary redemptions, they performed very well.

-- there was a time of extraordinary redemption, they performed a very well. about $100 million was withdrawn -- $100 billion was withdrawn. i would disagree that there was no run. there was a clearly a run in 2008 and the goal here is to not demonize an industry. as i said, this is an industry that has performed very well. >> i appreciate that you want to do that. that is good for presidential debates. let me ask you this, are you going to release the impact of the 2010 changes before you move on to your next set of reforms? some of us would like to know what those changes did before you move on to a next set of reforms to get a sense of the impact. for example, how much have they

reduced systemic risk? have they reduce the risk and of so, how much? >> lehigh thus we can do that. we can provide that in the form of a response on the record. >> have you done an analysis of your proposed reforms that are coming down the pipe that you can share with us? >> well, that would be in the form of a proposed rule recommendation with lots of alternatives, options, questions and that would include a complete cost benefit analysis of the proposed options floating the asset value or the capital buffer with redemption restrictions and also the cost- benefit analysis compared to what of the overrun is to for our economy and all of the alternatives, where money might flow if it was to flow out of

money-market funds. this is a quite detailed analysis in the proposing relief. >> are you going to define the reforms both on safety and soundness but also whether investors would be willing to invest in these funds? >> yes, we would look at of the competitive impact of any reform. >> i have heard some criticism that there is not a wide enough our rate of options being considered. >> well, as you might recall, the president's working group published a report that laid out more than half a dozen options for reform including capital but also a liquidity facility, converting the money market funds into special- purpose banks. there was four or five other

recommendations there. >> i am concerned about the net asset value of fluctuation and that is one that i think is problematic and i think we have written to the commission along with others expressing that view. how much with the capital buffer's cost? >> it depends on how you structure it. we think, i think that a small capital buffered coupled with limitations or fees on redemption would permit you to have a small buffer and yet require shareholders to bear part of the loss, some of the cost of their redemptions. at the same time, this would allow you to have fluctuations that could be absorbed on a day- to-day basis. we will try to cost out in our release about the cost of capital would be. >> right now, you cannot tell us

how much that would reduce systemic risk? >> that is part of our analysis. this would allow the money market fund to maintain a stable value. this would last through the relatively small mark to market losses. >> thank you, mr. chairman. i would like to fall about the analysis. it is my understanding that if money market funds are forced to float their net asset value, there is a great concern about the fact that the flow of hundreds of billions of dollars in corporate and municipal financing would be severely disrupted. can you or your staff discuss how the reforms to have floated affect investors to use money markets as an investment tool? >> part of our analysis is the

impact on state government use of money market funds for cash management. we understand that many of them operate under the the requirements. that is one reason why we are proposing alternatives. if you need to use a stable that you product, then there is a product which allow the money market fund to price at $8 but we will look at the cost implications for the municipalities. also, their capacity of state and local paper. >> have you reached any conclusion as to what kind of disruption might be caused in the economy? >> we have of the sea had conversations with state and local governments. we had participation from state and local governments talking about the issues, talking about

their concerns. >> part of our release is to see specific economic data about what those costs would be. this gives them no access whatsoever to their cash management vehicle. >> the committee of the organizational steady bond -- studied the money market funds which includes the net asset value or other varieties of capital buffers. three of the five commissioners issued a rare statement that said that that report does not reflect the views and input of the majority of the commission. who did provide the input on this report and were the three

dissenting commissioners consulted? >> the staff worked on a committee that was dealing with these issues and the commissioners did disagree with the conclusion where the disagreements were registered at the highest levels. the paper was published prematurely before the sec through a genuine screw up at the process. before a the commission was able to register their was not a majority of the commission support. this was a consultation of staff papers seeking comment on a brad pitt -- on a broad range of potential options. >> the point was made that it is extremely important to distinguish between a destabilizing run and an orderly walk. in a run, the funds are forced to sell assets at potentially distressed prices, potentially

destabilizing money markets. in a walk, the funds can be used in the normal cash flow manner from maturing assets to meet redemptions. are you focus on that kind of distinction? do you agree with that distinction in the first place? do you think that the reforms probably take into account that type of issue action? >> i think they do. our concern is the propensity to run. our concern is not to keep money market funds in business or to limits -- or to limit people's access. our concern is the stabilizing run. we're very focused on that. we have a number of our staff look at the report and i think it contains assertions, conjectures, quantitative data and analysis that we did include along with our reform proposals. >> you do this thing is to

between the difference in a run and an orderly walk. >> when a fund breaks the buck, it is very hard to have an orderly walk. this is likely to suspend redemptions which freezes everyone in place including people that need access for the funds for cash purposes. my concern is but the potential to break the buck because of the brittleness of the $1 value. >> thank you, mr. chairman. let me thank you and the ranking member for holding. among to come back to the comments that were made. i share your concern that if you have got to have an intervention, it has the potential of starting an

unraveling. the interesting thing is that when we look at the stock, we usually go after the larger systemic institutions. the largest money market funds are probably the safest in terms of shoring up if they get into this gray area and it is really the smallest on the fringe that might be providing the most threat to the system. there is not some equivalency of a stress test for analysis, could you speak to that more? >> sure. i think the importance -- the stress test is an interesting idea. with respect to the capacity to provide capital. if there is going to be capital

support, it should be explicit capital support. they should not be left to wonder whether it be a sponsor is willing to provide support. i think that that is why we need to move forward with the rules that would require either floating the net asset value or a capital buffer and some redemption fee or limitation in order to ensure. >> there is no differentiation between those money market funds we have had, along stable relations, everyone would be in the same pie, right. would the capital buffer before a collapse or would this be in no -- in the normal course to have a small reserve so if it is

something that got you near that cushion or would that be part of the review and analysis? >> that is certainly part of the analysis but that was about a $62 billion fund, not a household name. they had only about 1.2% of their assets in the paper. when they broke the buck, yes, it immediately, it was in a time of general crisis in the economy but it spread rapidly to many many other money market funds. when you read the book, we talk about standing on the edge of the cliff, hearing from money -- money market fund managers that did not know what was going to happen to them because redemptions were going through the roof and if they were going to have to sell securities, they are going to create this spiraling down that would be very very difficult to stop which is why the treasury did

step in to the tune of more than three trillion dollars guaranteed all money-market funds. >> if you had to put a capital buffer to be in place for that level of potential contagion, wouldn't you really disrupt this whole thing? >> i think the capital buffer to contain that level would be prohibitively expensive and probably does not make sense which is why you could have a much smaller capital buffer if it is coupled with some kind of limitations on redemptions so that at least the losses are borne by all redeemers, not just those who aren't left at the end of the day. >> again, your notion here on these reforms would be a system wide, not the some analysis of those funds that are graded stronger verses those on the periphery? >> investors need to understand

will the capital be there or not be there? the uniform capital requirement or offered, this has that benefit to it. just to assume because they find never has supported a sponsor -- its money market fund in the past, its future would be very concerning to me. >> since you have seen improvements since the 2010 reforms, have you look at other things in terms of additional liquidity requirements as opposed to some of the other reforms? is there any way to get to this protection without looking at the options that you have prevented -- presented? >> we have, there are lots of different options converting these thank products for special purpose banks. there are two-tiered money market structures and we would

have these on the state and value fund. there was several other alternatives. we took comments on those and held a round table. we're open to continuing to discuss options. we have had lots of conversations with industry, but we have to get at the structural weakness and i'm not sure just enhance liquidity requirements going to 50% weekly rather than 30 would get us there. if we can get a release out, we can have this discussion in far more concrete and specific terms with some economic analysis to accompany it. >> thank you, mr. chairman. thank you for having the hearing. it is nice to see you. thank you for your service. i have actually lived as a former school superintendent and

i have seen this huge importance of money-market funds to school districts and municipalities, both for the cash management also the financing. i also taught saw the challenges are rising when there is a run. this is where raising. but i think that we need to be really cautious about this because i think the costs are potentially very real and very large for municipalities, for school district, for local government, and there has been a lot of general talk about that today. are you concerned about the potential loss for these? >> we have data on the potential cost to the miss bodies and state it shores as well as the capacity for use in these vehicles for cash management.

we will seek input on those issues. i spent time with the number of members from colorado after the reserve wrote the block and i was brand new at the sec. their local governments cannot access their accounts. >> i was there. i know it. having lived it, i have seen its. people are worried about the unintended consequences that might arise. what i know in our case is the financing we're able to do to radically improved the condition for kids in the schools for the first time in our history. they are seeing resources added back to their classrooms while district around us are having to

cut back. as to go forward, at this is one for precision and paying very close attention to what effect this might have on liquidity at the local level. >> we recognize that these are incredibly valuable tools. our goal is to make them stronger. >> i wanted to ask a question i heard earlier. had the dodd/frank log been in place and have the 2010 reforms been in place, what do you think the likelihood that the reserve fund would have broken the book? do you think it is possible that

it would have reduced the likelihood that lehman brothers would have been in such terrible shape? >> i do not know that the 2010 amendment would have been enough. i think they had contributed to the resiliency. did they do not address a certain credit event that causes a loss which is what we had when lehman declared a curtsy. -- declared bankruptcy. they require higher quality. they did not address a certain credit events or altered the incentive a shareholder has to run if they even fear losses. penalty to hangingl

are browned. i do not think they addressed the unfair results when an investor get out quickly and losses are concentrated with retail investors. i do not think they would have been enough. >> thank you. >> any additional questions can be submitted for the record. you may be excused. i will not ask the witnesses of the second panel to quickly take their seats. the thank you for your willingness to testify before this committee. nancy is a treasure of the state of maryland. mr. paul stevens, christopher

r. bradleyy. cox, and david scharfstein. because we are running short on time, we are going to move right to questions on our second panel. each of our witness statements will be submitted for the record. i will ask the clerk to but five minutes on the clock for each member's questions. please describe the causes of the money funds in september

2008. you recommend further reforms to preserve financial stability. >> thank you. the run on the money funds was triggered by the failure of lehman brothers. actually, in the months leading up to this, research shows that not just the reserve primary funds but a whole host of other funds to the opportunity to increase risk in their portfolios. there were stresses in those markets at the time. increased yields on various forms of papers that were issued by financial institutions. those of funds increased their

portfolios. there was a lot of exposure to risky paper and those funds. when lehman failed, it was on their reserve primary fund. institutional investors run here. they pull their funds out. the 2010 reforms do not go enough. if you look at the recent experience with the european sovereign debt crisis, what we saw was a similar event that happened. it was not as extreme. what we saw was funds increasing their risk and their exposure to eurozone banks.

when the crisis escalated last summer, what we saw was large withdrawals from those funds. they had implications for foreign banks which are the main accusers of the funds. this created a funding problem for them which spilled over. there were other companies that needed dollar funding. it i would also said that the liquidity requirements also are at cross purposes with other efforts that are in place to the u.s. banks to fund themselves anymore long-term basis. this means that banks will be

issuing more short-term paper. we are trying to get banks to fund themselves a more stable ways. >> what impact do the 2010 s ec reforms have on users of money market funds? >> as you know, at the state and local governments they use money market funds for liquidity and money management as well as financing. the fact is that the increase and tightening of the credit in the shortening of the duration, the disclosure of having the total portfolio has made it more

possible for us to compare the sites to go where we have to go. we use these for daily liquidity and for managing our money. that is our main concern. it has made its simpler. these are testament to the fact that we have not had runs. >> what are your views? >> i think the money market funds are allocators to borrowers in the corporate marketplace. some 40% of all corporate commercial paper is purchased by

the funds. these have only enhance the role they play in the marketplace. i think that is shown with the fact that there are $900 billion invested currently in prime money-market funds from institutional investors. did they have proven very resilient in the face of very serious global market turmoil. >> senator shelby? >> thank you. i will direct this to mr. stevens and mr. donahue. some have argued that a product that seems to maintain a stable idea that is essentially

maintaining a picture. is the stable net asset a fiction? >> it is clearly not. we have done a considerable amount of empirical variability of the funds and net values over extended times. the degree to which they fluctuate is really quite marginal. you can look at it in times of stress over a long terms. >> doesn't depend on what you are looking in? >> you are right. we invest only in the highest quality paper that is available. this permits them from keeping this with a great deal of

precision are around $1. >> we had a hearing in the late 70's. it is the same issue. the sec is looking for a redo. this is precisely because of the portfolios. it is a solid thing that has done a great thing for the american public. >> have the disclosure requirements to improve your ability to manage cash tax would your ability to manage cash -- cash? would your ability to manage cash be easier if it was provided in real time? >> if you are talking to go to a floating-rate.

let me make it clear that the rap the country there are laws and ordinances that require the vehicle. they would have to change all of those laws to pull out their money. last week the general met in chicago and they do not allow them to go to that system. there would have to go to banks which are less transparent. >> it to be difficult to monitor this point.

corporations would not use them as this. this has been very helpful. we understand where they are invested. we are comfortable with the $1 net asset values. >> what should be done to increase the expectation on the bailout of the money market industry? is it more capital? >> i would say it is more capital. there is extraordinary support during the crisis. there's the treasury guarantee. calibrating the exact amount of

capital is difficult. i do not think it will be nearly as costly people say. if the industry is correct and there is not that much risk in the funds, having a subordinated costlyre class should not be at all. >> is the bigger the fund the larger the funds, the less likelihood of visiting the tax payers? you have a lot of small money market funds that operate everywhere. some operate very well. in the time of crisis, does this have more potential to save themselves and others? >> sponsor certainly supporsupps important.

>> what would you say about this? do you have a figure in mind that >? >> i do not see it as being particularly costly. >> the mac does not work. >> why does and not? >> we have a $2.50 trillion industry. if you say 3% of capital, i do not know where you get $75 billion. if you can, that demand a return on capital. our cost is about 11%. let's use 10. that is easier numbers. you have to earn $75 billion. where will you learned? from the $2 trillion in the industry. it does not work.

we have in good times have revenues of 15 basis points. the numbers do not work. >> i understand to some extent be interest of people in the use of money market funds. it works well. sitting up here as a senator, i want to make sure the taxpayers did not have to bail out the body. we have been done that road. it is a bad road. the best part of dodd/frank is saying you're not allowed to do it for money funds which we did not ask for and did not want. >> thank you. >> implicit in a lot of the questions and operation of the funds is that the bonds have the capacity to go up and maintain the dollar. is that a fair assumption?

>> because of the construct of their portfolio they are able to maintain a $1. if they blow the credit it is not going to be a $1.10. but then you will have the suspension of redemption and the orderly liquidation of the funds. you do not have a run. the people do not run. you have an orderly but with asian which is not what happened in the freezer -- but you do not have a return which is what happened. >> a have a promise on the miscalculated. we held reserve assets which were raised of triple a 24 hours before they went bankrupt. they looked pretty good.

because of the notoriety and the assumption that people have that a lot of mutual-fund are basically sort of similar it is wrong connect one could stop predictions -- could stop redemptions. >> i just want to understand. black because of the amendment, you will not have a run in the fund. you have this other one. what has happened is that you have more cash in the system. you have transparency. people know what is in the portfolio.

you have to know who is going in and who is going out. the key is do you have liquidity in the system that the problem in 2008 is that there is no liquidity in the system. there was no harm know about. there was liquidity in the system. things could work out. when the marketplace was shut down, you had a problem. >> i think the comments, write to the heart of what our job is. we have to contemplate things that seem so far removed from the day-to-day practice. there is a possibility that there could be a liquidity problem in the overall system. foin the european banking system the problems allied and liquidity start freezing up. it is not the question of how much liquidity you are holding.

it just cannot get access to sufficient liquidity to reading. is this a possibility? >> they direct the fed essen as practical. they're supposed to come up with rules and regulations to govern the emergency lending that is supposed to add money and liquidity to the financial system. it has to be done in a way were they do not lose money. it has to be exited quickly. >> we're getting to what this might rest upon. is the federal reserve stepping in and declaring that the potential impact of a failing

fund could trigger other well- run funds that then we're stepping in and using federal resources. >> what is the assumption underlying? >> what the testimony in bytes this to look at all 300 of those events through the lens of what happened september 2008. the reserve had a contingent of anyother money market funds. this is the only other time the fund broke a dollar. this is not have a knock on the effect. i invite you to scrutinize whether it is likely that they

have $600 billion in assets that they can liquidate within a week to meet redemptions. whether we have done what the industry thinks we have to address the kind of crisis that we might need without any prospect of are going to the taxpayer again. tax payers pay nothing on that program. >> i think your point is extremely well taken. we cannot ignore 94. we cannot ignore 2008. we have to look at both and assess the probability. what are the underlying assumptions if we get into the 2008 situation?

one assumption is that the fed had the general authority to come in and use resources. that cast a big knowledge. >> the fed has taken steps to make sure the commercial paper markets are functioning effectively. >> i want to make sure that we all understand that this is implicit. if the fed does take a move like this, i think we all want to have said that they knew this was the authority. this is not one of those unauthorized bailout. thank you. >> thank you. i would like to direct several questions.

the first question would be in response to chairman sir pirro's point. one of the central arguments that she seems to be making is that the past instances in which sponsors provided some degree of voluntary support means that these funds on not as safe as they appear. that is one of the central arguments. can you respond? >> we create a lot of funds. we create a lot of children. you are forever supporting them. the idea that you support funds and you look at any other product, what are they trying to do? they i making a market place analysis and judgment about what to do with a product. i do not know anything about the 200 or 300. what matters is that you have good solid people deciding whether or not and what to do to help shareholders.

i think what the support shows is the inherent resiliency of the funds. when you have $2.60 trillion in these funds with no interest and lots of regulatory abuse, that is really an accomplishment. it is because people want the cash management system. if the talk about support in terms of what was done how about the support that every single one is doing 100 term on waiving investment advisory fees in order to keep the funds going during these low interest times? i look at support as something that is not unlike having a family. what are you going to do? wii by other funds. we put them out of existence. -- we buy other funds. we put them out of existence. we're trying to buy other clients. manys it fair to say that i

of these are a strength of the industry? >> there are manifestations of the strength and judgment people make about why to do something. there may be a reputation will issue. customers may be uncomfortable with the name even though it will pay off in time and in full. there may be questions do you want to improve things. there could be a lot of reasons. there may be individual customers you are trying to deal with. there are a lot of reasons other than you had to buy the lehman peeper. there are other elements to it. it shows a strong dynamism to be able to see the variety of moves that people have made to support the strong products. >> some have suggested that having a fixed net asset value unfair tow a

investors because investors should not really understand. they think this is akin to a bank deposit. that strikes me as a rather surprising argument. it appears frequently. an chairmenon is testimony. >> most investors deal with us on one account. the understand what the money market fund is. if there's any good thing to come out of reserve funds, they realize that the investors were worth a lot. there is no bailout. people understand it. fidelity has run a good survey of their retail base. they said they understand what the lay of the land is. one of the thing about all this regulatory noise is emphasizing what we put on the front page of

report.end e-mail those money. >> i would just like to ask unanimous -- you may lose money. >> out like to ask unanimous consent. >> can i ask on behalf of the many investors that we represent millions. we do read the prospectus. we know it is an investment. it is not a savings account. three forms of 2010 has brought back home. i think treating us like children is really not appropriate. >> thank you. i summon a question about -- i have so many questions for all of you. of you.