tax reform takes six months or a year. its current law goes into effect on january 1, my hunch is that increases republican interest in tax reform that they do not want 39.6%. the democratic position is we will work with you to get below 39.6% so we can get a net contribution of somewhere in 1.x trillion range. if the republicans go for that, and democrats agree to certain things. this is the optimistic scenario. we would have a process that takes six or 10 months and you

have a timeframe by which they can produce legislation to raise y revenues and you package them together and you have some kind of enforcement mechanism if they do not do it. i think there is a somewhat better chance of actually getting their if the 39.6% actually takes effect. i want to be clear that if we go into january and started down the slope over the cliff, there is no way that all of the bush tax cut state expired until the deal is done. when they work out the so- called framework agreement, they will make the book of the tax cuts retroactive to january 1. >> bill, you were dying to say something. >> i was not time to say something. >> you can speak anyway. >> there is an issue that we should keep in mind.

we have had one major tax reform in 50 years. we have had one major health care reform in, i would guess about the same amount of time. we cannot afford to let the perfect be the enemy of the good. we cannot wait for the perfect tax reform, the perfect health care reform before we deal with medium-term budget deficits and long-term budget deficit. that means we may have to take a deal that gets us on the right path even if it does not give us the right structure. we will have the opportunity to get on the right structure and we will have the money to deal with it. it means we have to deal with the deficit before we are ever going to resolve all of the issues in health care and tax reform. i want to be sure that people do not have the sense that if we

do not solve the entire 70 five- year, 150 year deficit issue, that anything short of that is a failure. there is no public-policy issue we have solved 75 years into the future. it is a result of inflated expectations and rhetoric to expect we will solve this problem 75 years out, or 100 years out in the future. my message is, let's not the perfect be the enemy of the good. if we can get onto a good path, let's take it and work from there to a better structure. >> i agree with that but let me be more optimistic about tax reform. this may be a moment where we dropped the impediment of incrementalism in tax reform

which is fatal because then you are arguing about whose ox gets gored. this might be in a moment where we start over and put in a more sensible set of provisions which would tax almost all income at the same rate, lower the rate, and reinstate only a few of the most necessary and important provisions, a child credit, and an earned income credit. and a credit, not a deduction, for home mortgage. you could do that and it is very attractive. there are a lot of actual republicans who think this way.

and not all are in the grover norquist camp. if you read in the times today, he sounds a republican note of hope. >> i realize we are mostly scholars here. we are negotiating with frenzel, but he implied he is not a full politicians anymore. let me ask you a question, this is a risky strategy by democrats. it could blow up and produce problems for them. are any of you concerned about that? >> less risky than national the fault like the republicans did last summer? >> i think it is similar to that. >> bill, go ahead. >> that was a high risk.

may be a worse risk. but this is a very high risk, too. high risk for the economy and high risk for the democratic party. they have a lot of interest involved in that tax code. they have amt going after their people. they lose their 10% rate. they lose a lot of things they like to have. i think it is high risk and i tend to look at it as a before the election kind of threat or challenge to the republicans. i think you get the same thing back. it is a whole new game after the election day. >> bill is not dying to say something but he can anyway. >> it is a competing risk issue. it is not a high risk.

the democrats have seen the risk of going to the table and negotiating. what they got out of it in the debt deal was an all spending bill which was not even entitlements, it was discretionary. if they are not happy with that strategy, that outcome. they want the government to beef up revenue structure in the wrong term. the only way to do that is to let the tax cuts expired. i cannot believe republicans, 90% of them have signed a no new taxes pledge -- i cannot believe they are going to defect despite what coburn wrote. the one risk is we never get enough revenue to deal with the fiscal issue. the other risk which would be incredibly damaging to the economy and another risk is that we her to the economy in

the short term. it sounds to me like what they're trying to do is say, we're going to take the second risk and the argument maybe we could get some stimulus short- term but that is not related to the bush tax cuts and we're going to move forward on the revenue effort of the long term fiscal solution. that seems like a choice, balancing one risk against another. no matter what you do you are facing risk. >> you have to ask a question. if we had defaulted last august, maybe three or four weeks later, come up with a plan, would that have caused no more damage to the economy that we go into january and come up with a plan that is retroactive to generate one? every person i have asked that question to says it ain't really

close trade once you default you do for damage to the full faith and credit of the u.s. government. the reason we're going over the cliff is because of the aggregate demand. you do not pull that much aggregate demand in the first few weeks. and make most things retroactive to january 1. it would create uncertainty saar have asked a number of wall street types -- so i have asked a number of wall street types about this. you would get volatility to my interest rates might go up, but if you then get the deal, that would fadeaway and what is striking is the paper put out by the carlyle group. it cannot get much more establishment. they basically say there is a risk of going into january but the bigger risks to the economy is kicking the can down the road and not addressing the deficit said at all.

and the tax reform issue, this is a challenge and risk to both parties. everybody talks a good game on tax expenditures. he mentioned at all and i forget the second. there were really tiny. -- they were really tiny. it is striking about all these plans, cut tax rates and pay for with tax expenditures. they have one specific and that is to take capital gains and dividend rates off the table which makes it impossible to pay for the big tax cuts unless you end up doing a net increase of taxes in the middle. a big challenge for both parties not just [inaudible] -- republicans, if you have some

from work, you will achieve x but you will lower the top rate and you then get into the finance and ways and means committees and look what you have to do to mortgage and charitable and employer health exclusion. do they have the gumption to do it? i do not know. i am worried about that and frankly it is why my recommendation is not to lock in up front what the maximum top rate would be. just walk -- locked in your revenue number and say the more you're willing to close tax expenditures, the more you lower the rate but i worry that a deal that locks in the maximum top rate and gives you a revenue number, those two numbers conflict when the policy makers confront the specific choices

and i worry that if that occurs, the revenue number gives way and we do not get the deficit. >> you are right to worry. senator coburn side some symbols -- signed simpson- bowles. the point is, such plans do exist and some republicans are for them. >> i do not think either party -- i do not want to single out the republicans. you cannot get a majority of either party to vote for the plan in bowles-simpson. >> we may be in a different environment with respect to taxes which is less income until they used to be. >> i agree. the perfect example coming back to living tax cuts will expire would raise more revenue than bowles-simpson would generate. it has a structural issue. >> all the tax cuts, not just the high income. >> the baseline which lets the tax cuts expire would raise no

-- more revenue than the simpson-bowles did. you can let tax cuts expire so let's cut taxes and get down to bowles-simpson. >> that was naive. >> i do not think that lawmakers will tech -- let all the tax payments expire. >> you have more revenue and you had a structure that a lot of people did not like. you have an incentive to make the change. if you make the change now that would be scored as a revenue increase and it would be killing a lot of people's taxes. the strategy here matters a lot. >> i hate to think we get

driven to responsible tax reform by falling off the cliff but maybe -- it is the incentive that some of them need. i would like to see the -- think that congress and the president could move jointly into tax reform. >> 90% of americans sign and then -- >> i do not have much guts. >> how do you get tax reform from the current system? how did you get around that constraint? >> i do not know how many of signed it. i understand as does, there are a number who are willing to discuss putting revenues in any kind of a grand conclusion. i am with her.

i think eventually it is going to happen but i hate to see us thrown off the cliff to have it happen. i notice that a couple of people here mentioned if we got thrown off the cliff and to -- what did the cdo say -- cbo say? >> 1.4% or 1.2%. >> in the second six months it increases more than in the first six months. and what is possible -- it is possible we could have some stimulus programs. if they could not agree on that cliff problems, there would agree on the stimulus question. that is pretty much out of the question.

>> let's go to the audience. ask a question, did not make a statement so we can get more questions in. you'll have to come up here. go ahead. >> thanks reim much. i write the mitchell report and i want to ask this group of economists including you, a political question. that is if we define best of all worlds as some sort of deal in december or the early part of january, followed by some substantive tax reform over the course of the next six to 12 months. what political configuration do you think creates the greatest likelihood that either or both of those could get done? the status quo meeting obama is back in the white house and republicans have the house and democrats have the senate. or romney in the white house and status quo in the congress, a republican sweep, a democratic sweep. is there something to be said

and i would add to this that the reporting i have been doing and seeing, virtually all the new recruits, republican recruits running for congress are not signing the pledge. which i think is an interesting -- >> great question. what do you think? >> i think sweeps are not in our interest at this moment. we must have a bipartisan deal and the chances are getting one are greater either with the status quo or with some other configuration against both parties a say in the deal. >> can i answer very briefly what she very briefly? what she said. >> i was thinking half an hour ago that we should clarify.

most of this discussion is based on the assumption that, for example, there would not be a republican sweep. if there is a republican sweep, you get everything extended until the new congress comes in and president rummy takes office and then you have a budget resolution and -- president romney and it takes office and then you have a budget resolution. romney might be forced to move forward with his right cuts which are in the ryan budget. what we're talking about implies next government. the most likely -- implies a mixed government. you mentioned something we have all been saying. it can i do a tax reform up front. you have a process of tax reform and i want to make the

point that in some of the entitlement areas, particularly health care, medicare, medicaid and social security, the same is true. the weakness of the bowles- severson plan is some of the medicare proposals have serious problems and many injured people in the lower part of a scale. there were thrown together at the end of the day. for a variety of reasons, the optimal package is at the same point you have x months to produce tax reform and a parallel track, you do the entitlement changes. you have targets for them, too. not only is it better to get designed entitlement changes, what we really want a is to knit the -- what we really want is to knit the pieces together. the democrats and i get the revenue increases of less -- do not get the revenue increases, as the entitlement changes.

>> i would like to say that i hate to find myself agreeing with bob. it is going to tarnish my reputation. but i think he is dead right. i think taxes and entitlements have got to walk hand in hand. they are the whole essence of the problem. democrats defending entitlements, republicans defending no tax increases. what ever has to be done, they have to be done together. with respect to the question, i am with alice and ron. i believe we're going to have a divided government. no way the republicans can win everything plus 13 seats in the senate. and that is the best way. we still have to have both parties. in this country -- to have never been able to do much

unless you have both parties cooperating at least minimally. >> i think it is an interesting question whether to buy -- to divide a garment or -- a divided government can work. they can blame the other side for those items. it is interesting to think about unified government and whether that would work. the attractive thing is there is accountability. and somebody is responsible for this and if the republicans sweep the white house and congress, they have to do something about it. if you look at countries that have elementary systems, there are more adept at dealing with these issues than we are precisely because there is some parties in charge and if they

screw up the get voted out. i do not know. i think mainly what it takes is policymakers that want to act like adults and solve the problem. i am not sure whether that is bipartisan. >> next question. all the way on the other end. go back four rows. >> a question for mr. greenstein. the others can answer. i would like to hear your thoughts about whether the senate democratic leadership could keep all their members in line come december. i am thinking of senate democrats from red states who might be up for reelection in 2014 to agree to allow the cliff to expire then they have

to go home and tell their constituents, your taxes are going up but do not worry, we will fix this. i would like to hear the other end of the conversation from the constituents. in particular, with moderate democrats, i wonder about the moderate democrats in red- leaning states who might but -- be up for reelection, whether they would agree to that. >> there is to aspects. first there is an issue for both parties, right? republicans go home and the question can be, why did you -- this is the line. why did you block the extension of the old tax cuts -- middle- class tax cuts so people could have an average tax cut. there is a line here that you can see the script of what each party's line would be trying to blame the other. do i think there would be some democrats who would be nervous

about that? yes. i am not sure that the number does not go down after the election. you have some people who may be nervous before november 6, more than they are nervous after. either they won or loss. it is not as big a risk before as it is after. i think the question would be -- have a bigger relevance if the democrats had a potential if they held onto every vote to passing their proposal. they do not because it will take 60 votes. i need to see the democrats of the senate able to get 60 votes or extending the tax cuts without the income, nor do i see republicans. nothing passes the senate. if so many democrats got nervous that what the house

passed got 60 votes in the senate, the president would veto. as he said last monday. he would have one-third plus some margin in both houses. i do not think that factor in affairs this approach and the strategy and what it underscores his basically in the absence of a bipartisan deal, you cannot pass anything. >> one more question. right here. >> my understanding is the fiscal cliff would not completely eliminate the deficit in 2013 and if it did not, we're going to hit the debt ceiling that year at some point.

later on but at some point in which case it brings back the dynamics of the republicans negotiating over another extension. we did not comment on that a whole lot. i was wondering your thoughts and whether the democrats are prepared to watch the republicans tried to drive the country over that much bigger a cliff. >> you are smiling the lost so you get to go. >> after you. >> i like your smile better. >> i have no idea. i hope that the republicans to think it is a good idea to fuss with the debt ceiling will mature a bit over the years and have learned something from their experiences in the past, that is not a good way to enforce any kind of economic or budget discipline. you are dealing with the full faith and credit of the united states. nobody should want to see that

even threatened. >> if and when there is an initial bipartisan from work a deal, whether it be as we all hope, in december, whether it is january, it is hard to believe that such a deal would not have a modest extension. we have been talking about the fact that the first bill was a framework bill and then you add tax reform and potentially entitlement changes that are to be produced by it date certain. as part of a first framework, it is extended so it expires at the same time you're supposed to pass the entire line and package changes and if congress fails to make good on those, you're hitting another limit. if you make good on those, legislation that raises revenue and reduces projected in talmadge spending is moving

forward some time later in 2013. presumably that legislation has another extension of the debt limit in it. the debt limit gets tied into all these other things and is not totally divorced from that. >> if you do not want bob greenstein to have the last word, you had better speak out now. >> join me in thanking members of the panel. we will send a note to senator murray. we are having a lot of fun. thank you. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute] >> some things have happened in the last two decades that are

changing the nature of large corporations. that is that the cycle time, the time if they have to stay at the top of the pact has been compressed by globalization, technology shifts, regulatory shift, and large corporations have to deal with known products, known customers, and disruption. disruption is when they have a great business, and some crazy comes along and says we are going to take of this company. the best example of this are two of the smartest companies has anyone -- cos. has anyone ever had a blackberry or a nokia fund? i was at finland when somebody was at the board meeting when the iphone came out. the fatal quotation was "why should we care about this?

>> stanford professor steve blank on innovation and economic growth, at the c-span video library. >> the colorado theater shooting is the topic of both the weekly addresses. we will hear first from president obama and then from house speaker john boehner. >> as many of you know, early on friday, at least 12 people were killed when a gunman opened fire in a movie theater in a roar, colorado. dozens more are being treated for injuries. dozens more are being treated at children's hospital. we are still gathering facts about what happened, but we do know the police have one suspect in custody, and the federal government stands ready to do whatever is necessary to bring whoever is responsible for this heinous crime to justice. we will take every step possible to ensure the safety of our

people, and we will stand by our neighbors in colorado during this extraordinary difficult time. even as we come to learn how this happened and who is responsible, we may never understand what leads anyone to terrorize their fellow human beings. such evil is senseless, beyond reason, but while we will never know fully what causes someone to take the life of another, we do know what makes life worth living. the people we lost in aurora loved and were loved. they were mothers and fathers, husbands and wives, sisters and brothers, sons and daughters, friends and neighbors. they had hopes for the future and dreams that were not yet fulfilled. and if there is anything to take away from this tragedy, it is a reminder that life is fragile. our time here is limited, and it is precious. what matters in the end are not the small and trivial things which so often consume our lives. it is how we choose to treat one another and love one another.

it is what we do on a daily basis to give our lives meaning and gives our lives purpose -- give our lives purpose. that is what matters. that is why we are here. i'm sure many of you have the same reactions i did -- what if it had been my daughters at the theater doing what young children enjoy doing everyday? michelle and i are fortunate enough to be able to hug our daughters a little tighter this weekend. but for those who are not so fortunate, we need to embrace them and let them know we will be there for them as a nation. this weekend, i hope everyone takes some time for prayer and reflection. to the victims of this terrible tragedy, the people who knew them and love them, for those who are still struggling to recover, and for all the victims of less publicized acts of violence that plagued our communities on a daily basis. let's keep all these americans in our prayers. to the people of aurora, may the

lord bring you comfort and healing in the days to come. >> hello, i am john boehner, speaker of the u.s. house of representatives. my plan was to share some thoughts about the u.s. economy, but life, they say, is what happens when you are making other plans. they're still too much to sort out about the tragedy in aurora, colorado. words cannot capture the horror of something so senseless, so i will not try. this much i know -- when confronted with evil we cannot comprehend, americans pulled together an increase our national family more tightly. we joined president obama in sending condolences and prayers to the loved ones of those who were killed and wounded, and we also thank god for the police, the first responders, the doctors, the nurses whose swift and heroic efforts saved lives. at a time like this, we count our blessings, and as we do, we come to be reminded that the depth of our great also reveals the depth of our love and

resolve -- the deaths of our grief. scripture tells us that the faith that sustained this is the substance of things hoped for and the evidence of things not seen. we may not yet see or fathom comfort for the mourning, but we will stand by them and stand together as one nation in the difficult hours that lay ahead. may god bless the grieving families and yours and may god continue to bless the united states of america. thank you. >> this weekend, on cassette in american history tv" -- >> 30 years of the administrations of ronald reagan and bush and clinton and reagan -- and obama have done more to confirm marx's prediction of the rich getting richer and everyone else falling behind and 75 years of the soviet union perhaps. >> socialism in america, colombian history professor on the rise of socialism in 20th- century america. >> tonight at 8:00 eastern.

and more from "the contenders," ag -- a series of key political figures who ran and lost but forever changed politics. thomas dewey would lose to both fdr in 1954 and harry truman in 1948. at 7:30 eastern and pacific on c-span3. >> david bagley, the head of group compliance for hsbc, told the senate homeland security subcommittee tuesday that he will step down. the bank allegedly gave terrorists, drug cartels, and criminals access to the u.s. financial system by failing to guard against money-laundering. bagley was one in a panel of hsbc executives who testified before the senate subcommittee

which showed a decade up compliance failures. this portion of the hearing is an hour and 20 minutes. >> mr. thurston, hbms is a bank that had a longstanding, severe money-laundering problem, and we describe this at length in our report. the bank was purchased in 2002. you did not arrive until 2007. take a look, if you would, at the exhibit booked in front of you there. exhibit 1b. what we have done is put together a chart of some of the exhibits, just a few highlights of some of those exhibits, which are really a litany of money laundering deficiencies at hbmx

from 2002 through 2009. the first reference is 2002 in this exhibit. here is what the audit found -- that is 2002. then in 2005, three years later now, -- >> this is taken from exhibit 12, but we put together these on exhibit 1b.

the fabrications were ordered by the head of the anti-money laundering compliance program, who was asked then to leave the bank. this e-mail was sent by mr. bagley to the then head of the hsbc group ceo. this is a quotation from a july 7, 2007 e-mail from a senior compliance person at hsbc group. it is taken from exhibit 19. it is an e-mail to the head of hbmx compliance after finding out that the anti-money- laundering committee allowed three different high-risk accounts with suspected illegal drug proceeds to stay open. he writes -- "what is this -- the school of low expectations banking?"

in 2008, this is a statement from hbmx's anti-money laundering director, who was leaving that affiliate's. he was participating in an exit interview with mr. bagley, and he said that there were allegations of 60% to 70% of laundered proceeds in mexico going through hbmx. he also stated that hbmx executives did not care about anti-money laundering controls. that comes from the exhibit 30. this is 2008. another quotation from mr. bagley in 2008 -- "what i find most frustrating is the way in which new issues

constantly emerged, however much time is spent with hbmx." in 2009, a quotation from mr. bagley to the ceo of hsbc latin america. "the risk in latin america is still very high." this has been going on for seven years. money-laundering problems, and tight-money laundering problems at the hbmx bank, the mexican affiliate. mr. thurston, when you are writing in 2008, you immediately began making changes. problems you face had been longstanding. they were not corrected before you got there, and plenty were not corrected until you got there, and then some remained, and they were corrected, some of them, after you left. why did you discover that these

have festered for so many years? what was there about that bank, that culture that you discovered allowed these things to go on and on and on? these are not things which were discovered later. these were known at the time. e-mails show that they were known at the time. a number of you talk about hindsight. these are contemporaneous e- mails. this is not something discovered or learned in hindsight. this was something people knew was going on at that bank. why was it allowed to continue? what did you find when you got there? >> thank you, mr. chairman. my assessment was that starting from before the acquisition, this bank had been a fast-growth bank. that was the reason why it fell into trouble any reason we were able to acquire it. it grew fast, but it had no

controls. the business model was completely decentralize. all the files, how all the decisions were taken in a distributed branch network. it was very difficult to get controls, and there was a very strong incentive scheme that backed continued volume growth rather than quality of controls. a number of steps were taken to install group processes and group systems, but if you are confronted with that, as i have said in my opening remarks, you would need to address the business model that is underneath it and put something systemic in. one of the steps i took was to create this centralized platform where instead of relying on 1300 branches to do the kyc, we would have all of those papers image to a central site where we could check and see that we had all the documents, that we had all the papers, and if we did not, we would not open the accounts,

but that kind of investment takes time, and there was a significant remediation task to be done, to put right the files from the past, so there were multiple problems that existed in the bank, as i saw it while i was there. >> these were problems which were known for years. this was not something which was, you know, looking back. this is something which year after year after year, starting in 2002, was known by this bank. and yet, these problems festered for these years. here is another e-mail. exhibit 36. this was hsbc group deputy head of compliance in 2008 e-mail. he had been sent to mexico to try to get a handle on the money laundering problems there.

one of the problems discussed was a backlog of 3600 accounts that were supposed to be closed but were not. including 675, which had been identified as potentially involving money laundering that had been ordered closed by hbmx 's anti-money laundering committee. here is what the e-mail noted -- and this is 36. of the 675 accounts, 16 had been ordered closed in 2005. 130 in 2006. 172 in 2007. 309 in 2008. it took three or four years to close a suspicious account. is there any way that that should have been allowed to happen? forget the business case and e-

mails. is there any way that should have been allowed to happen at the time? >> no, senator. >> another problem involving hbmx was the committee at the bank which was mandated under mexican law as composed of both business and compliance personnel charged with resolving anti-money laundering issues, such as what accounts should be closed. in july 2008, after the ccc committee decided to allow several suspect accounts to remain open, a senior compliance official at hsbc group -- this is the group now -- sends a blistering letter to hbmx's compliance head, mr. garcia.

exhibit 19. i will read from this exhibit. "a number of items jumped out from your most recent weekly report, but everything pales in comparison with the money- laundering items on page four," he writes. "it looks like the business is still obtaining unacceptable risks and the committee is still going along and after some initial hemming and hawing. i am quite concerned the committee is not functioning properly, alarmed, even. i am close to picking up the phone to your ceo." what on earth is 8 resumption responsibility letter? he notes that you can dress up the -- $10 million to be paid to the u.s. authorities as an economic penalty if you wish, but a fine is a fine and a hefty one at that. what is this? the school of low expectations banking? we did not go to jail -- we

really signed a settlement with the feds for $10 million? so he set one problem was strike one, another strike two. let's now look at strike three. he writes, "i hope you like baseball." this is his riding -- "the same person who is given the sourcing responsibility presumptions letter is being asked by the ceo to explain why he retained cuts of the relationship after 11 million u.s. dollars were seized by the authority in pueblo in an account with wachovia in miami. what? the business was ok with this? the anti-money laundering committee cannot keep accepting unacceptable risks because someone might see -- writes a

nice letter. it needs to understand. it needs some cajones. we have seen this movie before. why is it that the bank that is the group bank that sees these kind of problems just does not flat out hold some folks accountable and fire some folks? they could write this kind of a letter, and they did. we dug this out of the e-mails. why, of the folks running this bank are so bad, why is action not taken against them by the parent bank? >> mr. chairman, in the time that i was in mexico, we held -- we were very firm on discipline. we took strict disciplinary action against many members of staff, even at senior management levels, including dismissals. so we were certainly taking it seriously within mexico. >> my time is up. thank you.

dr. coburn. >> i want to go to mr. bagley for a moment if i might. you were in charge of compliance, but you had no central line of authority to enforce that. is that right? >> that is right. the core responsibility of " compliance was to escalate issues when they were reported to us, but we did not manage and control the individual compliance departments in each one of the affiliate's or subsidiaries. >> those individual compliance departments in this subsidiaries reported to the head of whatever the subsidiary was, correct? >> there were two reporting lines. one to the group compliance seem, and then another line to the local ceo or business head. >> i think it was also your

testimony that that has now been changed and that there is a line function for compliance from corporate hsbc all the way down to every bank. is that correct? >> it has fundamentally change in that the hardest line of reporting is now through the function, so i am accountable, responsible, and have authority over the whole function globally. 3500 people across the group, and that means i control resource, allocation, budget, remuneration, the performance of the function, and can ensure that the adequate resources, the white -- the right amount of money is spent on these efforts. it is a radical shift, a significant change. >> there's the answer to the question you asked. in other words, you can have a compliance officer all you want.

if they have a lot of authority to cause people to change absence, and the same people that are guiding had a line authority that says, "here is your profits based on how well our affiliate or subsidiary does," one will have more power than the other. thank you. mr. gallagher, you said in your testimony," it -- with ndsight, it is clear we did not understand the risks of our business, and we could have done it better and more quickly ." it is almost like you were not aware -- is it fact that you were not aware of these things happening? >> it is a fact that there were certain things we were not aware were happening. that is true. within certain entities, that is

true. >> what were the efforts made to try to become aware of what was happening? my natural inclination is to say you did not fully understand the risk, or you ignore reality -- ignored the reality, based on the data we collected from inside your own operations. could you expand on that a little bit? >> i appreciate the question and share your concern on this matter. one of the lessons we have certainly learned is the sharing of information, not only throughout the organization and across various operations and silos, as it were, but across geographies is something that requires significant improvement. i'm led to believe that has improved significantly since i left, and even during my time there, it was improved, but heretofore, it was not easy to

move information across the proper levels and filtered down. compliance and monitoring was our first level of finding issues and looking after them. whenever we found issues, in my experience, i believe we inquired, reacted, and pursued. i think we did a lot at the time, but as has been said by others this morning, we learned a lot as we have gone along. >> thank you. mr. thurston, in early 2007, right when you started, one of hbmx's clients was a reported drug lord who got caught selling precursor chemical -- chemicals for methamphetamine. when you learn he was a client of hbmx, what was your reaction? what did you do?

>> i was horrified by the case. this really exposed a series of witnesses within the bag -- within the bank. i personally conducted an investigation. i brought in the audit team. i brought in the security and fraud team. i brought in the compliance team, and we made a number of changes. this is where i found that, for example, the business heads were overriding the people in the compliance department on decisions on accounts. so i put up an escalation process so the compliance had a route to the chief operating officer and then to me if it were not comfortable with the decisions that were being made through the legal committee. i look to the fact that we have here a business account that was being managed in a personal consumer part of the bank, which would make it very hard for people then to spot the underlying activity and compare it with normal activity. so we have made a number of

changes about that, and that is where we started to -- we dismissed a number of people who had falsified business records, not been to visit the premises when they said they had. that is when i realized that practice existed. we look to see if there was any sign whatsoever of any collusion. we investigated all the staff accounts, and as a result of that, we found some incidents of staff lending to each other, so we created policies on that, so there were a whole series of actions that stemmed out of finding that incident. >> there was, in fact, significant attention from the compliance officer at that time. prior to your knowledge of it, that had been raised as an issue. >> that is correct. >> during your tenure, i understand law-enforcement raised concerns about high-risk

money laundering at hsbx. what was it that the mexican legal authorities think today that your record was worse than any other bank in mexico? is it fact, or is -- are there some assumptions there that the committee should know about? >> they found that whenever they wanted information from the banks, hsbc was one of the slowest to respond, so when they were conducting investigations, hsbc took longer to produce documents and had more challenges producing documents than most of the other banks. when we investigated that, again, we look to see if it was people deliberately trying to withhold information from the authorities, and we found no sign of that whatsoever, but what we did find was a process where these things would go out.

because all the files were held out around the country, and the quality was so poor, it would take a long time to call it effective information and get it back, and there were things that were missing, which is why the centralized program we had was so important, but we were also swamped with information requests. we had on average 1000 a week coming from the regulators, not distinguishing between different types, so we then set up a direct line with the financial intelligence unit within mexico so that when they were conducting its investigations, they could come through straight to the bank so that we could respond more quickly. >> thank you.

mr. thurston, you were at the bank for a year, you have testified, and while there, you made some improvements, but the problems continued. part of the reason was the nature of high-risk products and clients that the bank had. i want to get to some of the issues by discussing with you became an accounts. when you buy the mexican bank, when hsbc bought the mexican bank, it found that hbmx kept open a so-called branch office in the cayman islands. my understanding is there was no actual building, no office, no employees. it was just a shell operation that offered u.s. dollar accounts. the so-called branch in the

caymans was run by hbmx itself using its own employees in mexico. any branch could open a u.s. dollar accounts for a client, and at one point, 50,000 clients had these came in accounts, holding $2.1 billion in assets. we have spent a lot of time on this subcommittee, raising questions about caymans and other tax havens for tax avoidance purposes, but this is a little bit different. the subcommittee has a lot of interest in these issues because they are shell corporations. they possess and pose significant money laundering problems, and they do it as soon as they are organized because nobody knows who is behind those

corporations. here is a few of the highlights relative to the caymans -- exhibit 9 is a 2002 audit hbmx -- of hbmx, which notes that 41% of the accounts in the cayman islands had no client operations. is it a 31 is a 2008 e-mails saying that 15% of the customers there did not even have a file. fixing became an accounts will be a huge struggle. he says, "how did you locate clients when there is no file?" exhibit 32 is a july 2008 e- mail, noting that hbmx has discovered significant u.s. dollar remittances being made by canon customers to a u.s.

company alleged to be involved in the saliva of aircraft to drug cartels -- the supply of aircraft to drug cartels. a later e-mail, november 2008, which is exhibit 34, describes the came accounts as having been frozen "due to massive misuse of them by organized crime." first of all, did you know that the cayman branch was fictitious, just a shell? >> it would is called they can be license, i believe -- >> but did you know that it was just a shell? there was no office and no employees? did you know about the problems in the cayman accounts that i have just read? >> mr. chairman, no, i did not. during the time i was there. on reading your report, i was really angry defined there had been an audit report on these in

the previous year, but that it had been closed off with no actions, so when i got there and went through what are the top risks and the big audit outstanding items, these were nowhere to be seen. >> so you were unaware of the cayman accounts at the time you were head of that office? >> correct, sir. >> you indicated that the subcommittee during an interview, that although you were aware of the accounts since 2002, you focused only on them after a july 2008 incident involving funds going to buy planes for drug cartels. i do not know how you could possibly not know the severity at the time, but in any event, the new head of hbmx decided --

this is 2008 now -- decided to suspend only new cayman islands accounts. hbmx initiated a review of accounts, eventually closed 9000 of them. there were still about 20,000 accounts with $670 million in assets. 2/3 of the money laundering risk continues. mr. bagley, this subcommittee found out that these kind of shell corporations in the caymans and other places create all kinds of tax avoidance problems, but this is a different kind of issue. this is a money-laundering issue, and we have got up 2/3 of the accounts.

with that many assets apparently still sitting there, what are you going to do about it? >> thank you. the point is that when we became aware of those accounts, the ones that remain have all been fully repeated. when we became aware and focused on the cayman accounts themselves, what we did as a group was worked through each and every one of those accounts, revise and refresh the kyc to satisfy ourselves that there was an explanation for the money, and what is left has been subject to revise an enhanced due diligence and a refreshment of all of the information we are holding. >> does that mean 20,000 accounts now you will keep their? >> the group has recently arrived at a decision, which i support, which is to actually

close those accounts? -- actually close those accounts. >> that is the short answer, and a very welcome answer. the committee can look at its work. >> i should be clear that we are in the process of closing those accounts. they are not yet closed, but they will be closed. >> that is good news. >> hbmx did not inform hbus about the cayman accounts for many years. is that correct? >> yes, that is correct. >> these transactions were run through the u.s. dollar correspondent account that hbmx

had at hbus. would hbus have wanted to know about these high-risk accounts? >> absolutely. >> do you know why you were not informed? >> no, sir. i cannot answer that question. >> why would the hbus -- why would they not have been informed of those accounts? >> it is a very proper question. -- a very appropriate question. i think there are two or three reasons. at that stage, neither hbus,

your report reflects, was conducting affiliate's do diligence -- due diligence. second, we did not do diligence across the group. as a result, the question you would expect to be asked -- the questions you would expect to be asked from one of the lead to another were not asked. they are now. >> you will be notifying affiliate's of this kind of action in the future? >> what we are doing and have introduced and are in the process of rolling out is affiliated diligence across the group. that will be to the same standard as we apply to an entirely independent third party. in addition, we have put in a place -- in place a process that will insure if there is a material deficiency or issue orders in one of the elite, that

will be reported on a mandatory basis across the group. that will mean that each affiliate will treat its affiliate's at arm's length, will ask all the proper questions, will know everything that it needs to know about the risk profile that what affiliate's presents to another. >> when will this be put in place? -- the risk profile that one of philly it presents to another. -- that one of billy at -- that one affiliate presents to another. as a >> as we can. we have already put in place a process and we have it up and running. >> when will it be completed. do you know? >> i do not know when it will be completed, but will do it as quickly as we can. >> will you let the said

committee know what it is completed? >> i would be happy to. >> if you turn to exhibit , prior to 9/11, hsbc had relationships with this bank in iran, which would get more scrutiny in the u.s. because of its home country. hsbc help coach the bank to send payments through the u.s. without getting slow down. why was hsbc interested in doing business with this bag? >> i cannot speak specifically for all of the reasons the business desire was coming out of europe in the middle east, not coming out of the u.s. there was a memo that describe some opportunities that they saw for growth in business generally, but hbus was not

driving that business decision. >> what major say in the e-mail that you wish to be on the record is not comfortable with this piece of business? >> thank you. that is a very important question. i was very concerned about the lack of transparency in the proposal that had been put forward that describe how the payments would flow. in this particular case, there seemed to be an inability for the bank to describe in advance who its primary beneficiaries would be. that caused me to say we should not want to engage in business with a client who cannot provide that level of transparency to our system. >> so there was really no "know your customer" here? >> i cannot speak to it, but when i became aware that there was a seamy lack of transparency in one of my roles, i thought that was inappropriate and very

strongly suggested we should not proceed. >> what was the response to that? >> ultimately, the transaction never was approved. >> do you know why? >> discussion with on for some time back and forth across the regions of the world. i do not recall the specific reason, but i was delighted to know that my recommendation was part of it. >> did you raised other concerns other than in this e-mail we have documented? >> i do not recall. >> if you turn to exit 57, in november 2004, this e-mail suggest that some inside hsbc thought all iranian payments to the u.s. should be fully disclosed. nonetheless, some payments still went through without full transparency, sometimes because information was removed by hbeu.

this e-mails as they would be well advised to not alter payments with in this way. is it understood that information was being removed from payments before they arrived in the u.s.? >> i do not know how well understood it was, and i do not recall specifically from the exchanges, but if i had to speculate, consistent with my earlier position, which was unchanged regarding importance of transparency in these messages, i am quite comfortable that the proper people were alerted and it was in the proper hands for resolution, but specific details i do not recall. >> but the decision went against your advice? >> yes. >> because in fact, they were altered, correct? >> it would seem so, yes. >> ok, do you have any idea how hsbc intended to make sure all these payments complied with u.s. law? >> there was a view at the time

that the team in london and/or subsequently elsewhere, was going to ensure that the payments were going to be compliant before they got to the u.s. >> do you think they were? >> i do not honestly know specifically that they were not. some of this information is slightly new to me in being involved in the investigation and catching up, so i do not know the answer to that question. >> who would know the answer to that question? >> i would suggest either operational staff doing the work on the other side and/or possibly someone in compliance. >> should we have relied on people in iran to do that? >> in retrospect, we should not have relied on anyone but ourselves.

data in your testimony, you said compliance was a critical part of the hsbc banknotes business. >> correct, sir. >> can you explain what you mean by this and tell me what it looked like? >> we have a system in place whereby customers are risk- rated and why they are rated in different categories, and then for the high-risk customers, we need to make sure that there is a process in place whereby the information about a client is laid out in the open so that people can come in, including the relationship managers, the business people so that we can evaluate the risks, and finally, compliance has to be the final

sign off so that we can do business with these people. in other words, we consider compliance a very important partner in our business. >> de to recognize certain vulnerabilities in your compliance strategy in the bank note business? >> at that moment, honestly, no. >> you would agree that there were, though, in hindsight? >> in hindsight, yes. looking at all these documents, definitely yes. >> just for our educational purposes, and given your broad experience, are there certain challenges that are different in the bank that business, related to certain currencies over other currencies? you repeat thean question? >> are there certain challenges related to compliance related to

one currency over another? for example, is it easier to run a scam or it easier to play the game with the u.s. dollar, the british pound, the euro, the japanese yen -- in other words, did you recognize -- in other words, does the same compliance vulnerabilities that you see in hindsight applied to different currencies in different geographic locations? >> at that moment, it did not strike me it was a compliance risk. we were not -- no, the answer is no. >> all right. i will deal back. -- i will yield back.

>> let me ask questions about the corporation, which was a u.s. money service business that transmitted funds from u.s. clients to mexico and latin america. the dea undertook a sting operation in 2007 in which agencies told the operators that they wanted to send drug proceeds to mexico, and more than two dozen of those operators obliged. in january 2008, they entered into a deferred prosecution agreement with the u.s. department of justice admitting the facts for failing to have adequate money laundering programs. hbus determined that in 2007

alone, it had processed 159 u.s. dollar wire transfers for them involving about $500,000, and they were all sent through the hbmx correspondent account with hbus. if you would look at exit 18a -- exhibit 18a, this was a memo that was prepared after a 2008 "wall street journal" article on the wachovia case. it notes that it was not added to theb hbus -- the hbus

filter, it could be subjected to additional scrutiny. do you know why hbus did not subject to enhanced monitoring after the 2008 deferred prosecution agreement? >> no, mr. chairman. i do not know. looking at the memo, i note that i am not address. i cannot honestly recall if i saw it, but the decision was whether to add any name to enhance monitoring. >> but you do not know why? you are saying it is not your department, but you just do not know why it was not added? should it have been added? >> seemingly, it should have been. i do not know why it was not. >> in 2007 -- this is exhibit 30

-- a man who was head of the hbmx anti-money laundering program, was leaving the bank. he had an exit meeting with you, mr. bagley, i believe. according to a meeting summary you wrote, he told you there were allegations that 60% to 7% of money proceeds in mexico went to hbmx, and he did not think that senior management had robust commitment to senior management controls -- a senior management had robust commitment to enhancing the controls. what was your reaction when you got that memo?

>> mr. chairman, i was incredibly distress. i do not think anybody wants to hear those sorts of things coming through, so we made sure that we investigated. we made sure we took the points that were there. we have recently had discussions with the regulators in mexico, and we made sure we took account of those points within the remediation program that we were looking at in mexico to make sure there was nothing new that we had miss. it also caused us to question whether our head of compliance was sufficiently good for the role as well. >> let me now turn to the iranian issue. iran had been subject to sanctions in the u.s. for a long time as a rogue nation, had long

been on the u.s. sdm list, as we heard about this morning. our laws prohibited doing business treacly with iran, but until 2008, u.s. banks were allowed to process transactions that might involve iran, but which were sent to the united states by foreign banks located outside ever ran. those transactions were called you turns because they went from iran to a non-iranian bank, a foreign bank, to then a u.s. bank, and then back to a different non-iranian foreign bank, and then to the final party, so there was a u-turn that was made through the u.s. bank. the issue with hbus is that the hsbc affiliate's wanted to send

currency through accounts in the u.s. without triggering that filter or an individualized review to make sure they were permissive vieturns. they wanted to remove any reference to iran and to go through the hbus systems without a manual or more detailed review. this was a battle over transparency. the united states wanted full transparency so that it knew it was dealing with an iranian u- turn and could make sure it complied with u.s. law. the affiliate's did not want to trigger these reviews or to take the time for those reviews, so hbus and the affiliate's fought over this issue for a few years, but while they argued, the affiliate's were sending undisclosed iranian you turns

through their accounts anyway, and to do that, the hsbc affiliate's in europe stripped out the references to iran. senior employees protest in 2003 and 2004, and i believe one of these protests was read by dr. culver -- dr. coburn, that they did not want to be faltering wire transfers to iran. they even set deadlines in 2004 when they said they would stop doing it, but book deadlines were ignored. hsbc issued group wide policy statements on iran in 2005 and 2006, but neither resolved the issue. the issue was resolved only in 2007 when hsbc made a global decision to exit iran. i believe that exhibit 41 was

referred to by dr. coburn. if so, i will not read it again, but since i'm not sure, let me read it for you -- okay. 40 was read by dr. coburn, which made reference to the statement about "i wish to be on record as not comfortable with this piece of business." exit at 41 was with the amount of smoke coming off this gun, remind me again why we think we should be supporting this business -- exhibit 41. that was another employee describing the iranian business. but at hbeu, the your branch, they were stripping payment

information, so the u.s. was on aware. -- the europe branch. senior officials at hsbc headquarters in london knew that affiliate's in england and the middle east were sending an undisclosed payments through their hbus accounts but did not stop them or inform hbus of the extent of the activity, so they knew their affiliates were hiding key information from each other. senior compliance officials were on notice as early as 2001 that the stripping was occurring but took no decisive action to stop it. they stopped the case on a wire transfers from iran with the words, "do not use our name in new york."

first, mr. bagley, did the european and middle east affiliate's -- why would those affiliates -- why was hbus not told? what possible justification is there for not telling an key information to them so they could comply with their own laws that had been removed? >> it is a very sad question, senator. my understanding of the position was that hbeu was checking each one of those transactions to ensure that they were you turn compliant. i was always advised that they were. when i first focused on this

issue, which was, i think, in mid-2003, although there were indications in e-mails before that, i emphasize and recommended that there should be full transparency given to hbus so they could check compliance themselves. >> was it? >> it was not. and that exhibit 55 says simply, eloquently, dramatically -- >> exhibit 55 says simply, eloquently, dramatically, your own people were asked to fudge the nature of agreements to avoid u.s. embargo and seizure.

you were not the only one that was uncomfortable, mr. gallagher, with this piece of business. people in this global bank were being asked to fudge the nature of the payments to avoid a u.s. embargo and seizure. it is pretty shocking stuff. from 2003 -- 2002 through 2003, hsbc affiliate's continued to send thousands of these undisclosed iranian transactions through hbus. exhibit 1c is a chart that shows the numbers. even though the hsbc group was on notice, as early as 2001,

hsbc affiliate's were sending these hidden aryan transactions through their accounts in the u.s., nobody did anything to stop it for years. you have recently become the head of compliance for the hsbc group. earlier that month, hbus was sent a memo laying out the business case for it to process iranian transactions. there was a substantial income opportunity. here is what you wrote in 2003. exhibit 45. the business case include references to practices which may constitute a breach of u.s. sanctions. in october 2003, one of your attorneys wrote to you that six

banks were processing u.s. dollar payments that were being altered by hbeu abefore going to hbus. breaching these sanctions is a serious matter. as the head of compliance, you were making that point. when you learned of this, why was not the practice simply stopped right then? why did it take so long to fix? >> mr. chairman, that is an absolutely appropriate question. with the benefit of hindsight, this clearly took far too long to resolve. what i can say is when they came to my attention, i very clearly recommended that all transactions should be compliant, transparent, and

should be made in a way that hbus was comfortable with. that recommendation went to the relevant parts of the group and ultimately was escalated to senior management within the group. >> how long did it take? >> i think as you have indicated, there were various discussions between different parts of the group, and i think we started to introduce transparency into the payments in 2006. >> that would be about three years? >> far too long. >> about three years? >> yes. >> if a u-turn transaction is fully compliant and transparent, i would make the point is t is legal. no one here is claiming

illegality. if one of these payments was not compliant with u.s. law, who is responsible? >> ultimately, i anticipate the transaction passing through the u.s. bank may expose the u.s. bank to rest. if there was in 10, it could expose someone else as well. >> in this great big organization, is it fair for 01 profit center to put another at that kind of risk? not only is it fair, but is it the right thing to do? >> i neither think it is fair or the right thing to do. i would like to stress that at

all times we were told and believed the transactions were compliant and lawful and that there was a process where people seriously tried to ensure the transactions that were sent were compliant. >> if you are feeling, you cannot know this as a fact, by your feeling was none of these transactions that hbus saw no transparent see on, it is your testimony that you feel that they all met the inten that poweredt government said if you are going to run it through u.s. dollar banks, then you met that expectation. >> i do not think i can say that all of those transactions -- what i was told -- >> who are those people? >> the unit within hbeu.

>> who is the head of the processing unit? >> i cannot recall who it was. >> who can recall the name? >> i am sure we could find that name. >> would you do that for the committee please? i would love to have that name during our questioning this afternoon because that is a key point. either they were legitimate u- turns or they weren't. >> i believe the result of the look back indicates that most, ,f not all tra transactions were compliant. that is my understanding. >> who has that report? >> i think the result of that report have been disclosed to the committee.

>> thank you. >> mr. lok, exhibit 78, if you could take a look at that. you were interested in carrying on a business relationship with this bank to sell its bank notes. page two shows that one of your compliance people wrote "i am not trying to be difficult." what was your impression at the time that she would be concerned about being difficult? >> the way i wrote teh message,

"difficult" referred to her reluctance to sign off on the profile. she is saying here that she is not comfortable signing because she does not know the client. >> do you feel like she did not feel comfortable because someone was pressing her to do something? >> that is not my interpretation. that could be interpreted as difficult. >> she also states, "i cannot answer questions if and when the bank appears in u.s. media." what kind of concerns were you aware of that would rise to that level? >> i know that this name appeared numerous times in the paper, negative reports about family members and also allegations.

it is a very, very controversial name. >> on page one, you road, "it is compliance that is key." where you suggesting that someone had to approve the deal or you were willing to submit whatever the compliance said? >> because this is a very, very difficult case, it is not simple at all. when it was passed on to me by my colleageue, on the one hand, there was this negative news in the paper, etc., etc., but on the other hand, there was a very supportive report coming out from the the south of arabia. at the same time, the group complains reversed its decision,

saying that they were happy to let the individual and did the resume doing business. you have some very, very bad news, but on the other hand, you cannot ignore the news that seemed to be favorable. that is why i presented this to compliance so we could engage in an open dialogue and show it to a few more people to elevate the issue so more people who know this can think a lot better than me can engage and arrive at a decision. >> ultimately, you did not complete this deal. >> no. i think after a very long period of time, new york compliance had agreed to letting us presuming

the relationship on the u.s. side. it took a long time because i read this file before coming here. the dialogue first started in may and then a decision was made in new york that we could resume trading. this was in december 2006. >> thank you. >> thank you. mr. gallagher, take a look at exhibit50a if you would. when denise writes to theresa, the anti-money laundering director. the memo referring to alterations to remove references to iran. that memo was discussed at a meeting with you, mr. gallagher.

so, this is dated december 17, 2003. the question is when you learned that hbeu was sendin these hidden payments to their question ishe real what steps did you take to stop the practice. what did you do beyond that? >> thank you for that. i read these documents. while i do not recall this does of the meeting that is discussed, i feel very comfortable about two things. my position on this with respect to transparency and full compliance was unchanged

throughout the process and secondly it this was in the right hands. terry was teh head of aml compliance. all of the right hands were in fact contained in this memo. i do not recall my specific discussions but i would have to speculate they would be consistent with my prior convictions which is an abundance of caution them bang >> you objected in 2001 of the practice but then in 2003 you were head of the cash management division. why not pick up the phone in 2003 and call the ceo or somebody in the hsbc group and raise hell? why not do that? by then you knew whoever was supposed to be taking care of it

was not taking care of it and then cracks in the benefit of hindsight, that is what should have been done. >> mr. lok, let me ask you about an exhibit. 84b. you with the head of hbus's global bank note business that supplied u.s. dollars to a financial institutions around the world. some of your clients, to put it mildly, did not inspire confidence and where either opposed by compliance or they thought to subject them to money

laundering monitoring. you often opposed those recommendations. here are a few examples and then this is an e-mail exchange in 2005. classifying a particular hbus bank notes client as a special category client. it is a high-risk client that undergoes an additional scrutiny maintai. the. to senior management and employees have been involved in numerous significant instances of corruption, fraud, and embezzlement fluff over the past few years and it recommended that it be classified as a special category client. he responded as follows.

"yes, corruption can be rampant in this bank, but it is not unique to that bank." you opposed the sec designation. now, the hbus compliance officer described ates bank as an "government owned in a high-risk country with a politically exposed person who is 72 requires enhanced due diligence -- who requires enhanced due diligence." he recommended an sec designation. your response, "this is such a large bank. hands malfeasance is expected." "however, i do not agree on

these breaches that the bank should be classified." so, your position was nonfeasance is to be expected at a large bank, so do not even bother to do additional anti- money laundering monitoring. exhibit 82 from 2007. in this e-mail, an hbus bank note colleague asks if you and mr. lok would be willing to help to open an account for islamic bank bangladesh which was partly owned by a saudi arabian bank whose account was closed by hbus in 2005 for terrorist financing reasons. in part in 2007 because of your urging, hbus 3 opened the account. "i am happy to be the

relationship manager if this is an account with jason." how much money did you expect to make from this name? when you were told that the account would produce about $75,000 in revenues per year, you wrote that the money is there and two, you would jump in. your test for opening an account was first how much revenue it would produce, but what about a second test, if the bank is involved in wrongdoing? enoughn't this factors for you to say, "we are not going to do it." >> let me try to explain what had happened. 82b, the classified client in

china with the sec. the thinking was china is a different country than many other countries and has its own characteristics. samebank ishares the characteristics of the other big banks as well. so it is not just this particular bank. if fig which is a unit of compliant ones to say this should be sec, the other banks should be subject to the same rating. >> why not all banks where corruption is rampant? why not all be subject to the rating? >> i have to apologize for the

colorful words that i used. >> apologized to home? -- whom? >> i was very tolerant to this malfeasance. it was not the right word to use. >> i am afraid it was the right word to use, "corruption was rampant at the bank." did you believe it? >> it was a very large organization. when you have such a large bank, there are bound to be cases of .alfeasance they've been >> >> so you did not mean that corruption was rampant and it was not unique to that bank? you were inaccurate in your e- mail? did you express would you

believe at that time? >> looking back -- >> did you express what you believe at that time? >> at that time, yes. i need to clarify that statement. the e-mail came forward and i was overwhelmed with the feeling that the other banks needed to be sec. at that time, china was looked at as a very important market. it was an elevated issue. a that is why i brought in compliance to take a look at this been bank that is what i was trying to do at the time. >> what about your exhibit 8 4a. recommending to proceed despite the fact that this was described as a government-owned bank in a high risk country with

politically exposed persons that required due diligence and a reputation no risk due to corruption. your recommendation was co-head anyway.they've bego ahead "i do not agree that the banks should be classified." did that reflect your view at that time? did you believe what you wrote at that time? >> at that moment, yes. >> what about this bangladeshi bank? you seem to be interested in how much money it will make for us, how much money to expand. $75,000 in revenues. you would be happy to wear the

global relationship hat. when your employees see those kinds of remarks, what kind of an impact do you think it has on their willingness to consider compliance issues when deciding whether to open an account for a potentially lucrative but high- risk client? what do you think the effect of those words are on your employees? >> i agree that it is not perpetrating a right image. not even the right message, looking at the message now. >> just for the record, the e- mail that mr. lok sent said "can be rampant." some of the realism of the world we live in in global commercie -- if you take this particular bank or you look at their own

bank in mexico, they will tell you that it could be rampant there as well. corruption could be rampant in that. i think we have a better understanding, mr. chairman, of what went on. someone taught me a long time ago that greed tends to conquer all technological difficulties. we are about -- money laundering. that is what this hearing is about. it is the accusation of poor judgment and mistakes and not good authority inside a very large and very successful organization. i would just say i appreciate the candor of the witnesses today. it is a very difficult issue.

i am still concerned even though the lloyd said there are 79 accounts they could not account for in terms of u-turns. i still think it is a difficult issue when the world is dealing with a terrorist state like iran and we are allowing them the flexibility. my hope is we can learn some things than then i know hsbc certainly has. i appreciate our witnesses testimony. >> thank you. i will read the e-mail again. "yes, corruption can be rampant in this bank, but it is not unique to the bank." i think it speaks for itself. yes, it can be rampant and it is not unique.

your quote is exactly right and the one i just read is exactly right. there is not much difference between it can be rampant and it is not unique.

we thank our witnesses. we appreciate the cooperation with this investigation of your bank. what time is it?

we are going to recess now until 2:00. we thank our witnesses. you are discharged. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> washington congressman adam smith, the ranking member of the armed services committee, talks about sequestration, defense spending, u.s. policy towards syria, national security, and other military issues. sunday at 10:00 a.m. and 6:00 p.m. eastern on c-span. >> it was about those men and women who are almost mortally injured in war, that because of

the huge advances that have been made in medical trauma treatment over the last 10 years, ended up being saved. and incredible number is being saved. i wanted to write about what life was like for these people. it started off with a question then been having seen some people who were pretty gruesomely maimed, would they be better off if they were dead? >> his 10-part pulitzer-winning series, speaking with veterans and their families as well as medics and nurses on the daily struggles for those severely wounded. learn more sunday at 8:00 on c- span. >> now, goldman sachs chairman

and ceo lloyd blankfein discusses the european debt crisis, the state of the global economy, and lessons learned. he is interviewed by the economic club of d.c. president. this is about 45 minutes. >> lloyd has been the ceo and chairman of goldman sachs since 2006 when his predecessor hank paulson left to become the secretary of treasury. he started out as if lawyer. before that, let me give you some of his background. he grew up in brooklyn. his father worked in the post office and did not have a lot of money, but he got scholarships and was valedictorian of his class in high school and then he went to harvard on a scholarship and graduated in 1975.

from there, he went to harvard law school, graduating in 1978. then he joined a law firm in new york. prior to that, he thought about joining goldman sachs but he turned -- he was turned down by goldman sachs. then he went to work for a commodities trading firm that was subsequently acquired by goldman sachs. he has been doing that since 2006. he is involved in philanthropy as well. he is involved in the robin hood foundation. he has been involved in a lot to get philanthropic causes including [inaudible] >> that is very impressive. i cannot do that without note

spirit like i stayed up all night memorizing. when you were growing up in brooklyn, your father was working at the post office. you do not usually think he will wind up running one of the most prestigious financial institutions. what was your goal? was it to get out of brooklyn? what was your goal? >> i was in washington. i cannot say that closer to home. i wanted to get out and see the world. i knew there were other things to do. i did not know who i was. frankly, i wanted to get out and have my eyes open. >> when you went to practice law, and if you want to be able year or did you think about getting into finance? >> i think somebody when i was young said to me "you are like a

philadelphia lawyer." i had no idea what that meant. it's tough to me. it is fate. i must have to be a lawyer. when you go to school and major in liberal arts, law school is an extension of liberal arts. i drafted a log into the profession. >> did you ever think you're going to be an athlete? you were a great swimmer and high school. you went to harvard. what happened? >> i thought i was a great athlete. i was a great swimmer in the context of a huge community that did not swim. >> did you try out for the harvard swim teams? >> i did. i was so stupid i did not know these things. is this a what do you like that i said distance.

this wasn't in 1971. -- was in 1971. there was some long. all i remember is that when i got out of the pool the people i started with were already dressed. i got myself out of the water. without turning around, i walked out of the building and over to the vote house and said i would try something else. i was a bad rower. >> you decided not to be professional athletes. >> i have the right volume, not the right height. >> when you join goldman sachs, did you ever aspired to be the head? did you have

and plan where i should be. i decided early on that i was getting too old to keep deferring gratification. i had to enjoy what i was doing. i like markets. i found something where my near add was an advantage. he can watch screens all day. like the market led to economics which led to liking business which led to the world we are in now. >> you rose up because your business is one of the most profitable parts. he became a no. 2 person. what was your expression when

hank paulson said you were leaving to the secretary treasurer? were you shocked? >> when you think succession, you always think you have a euphemism. you think of long-term succession and what happens when a person on top get hit by a bus. this was the equivalent of getting hit by a bus. i was in line. i was a member of the board. i knew i would have been in that plan. we all thought that he was planning to stay a lot longer. one thing that was like getting hit by a bus was that it was no transition. when i got that call he was saying i would like you to join me. the day after that announcement was made, and he was not coming

back to goldman sachs to show me were the keys were. >> let's go forward a few moments. those days when you took over. when you look at the economy, you are one in one of the largest institutions in the world. are you optimistic about the u.s. economy? what about the global economy? >> you have to put things in perspective. sentiment is very bad and for real reasons. by and large, of the world gets better most of the time. i am in the risk management business. i am in the business of trying to separate sentiment from what is real. sentiment helps drive reality. they iterate with each other. things do get worked out in the do muddle through. they always have. it is a rhythm and a cycle. we can spend a long time thinking about all the problems

that i have to go home and worry about. by and large, i am optimistic partly as a personality matter and partly because set to play things do work out. you have to figure it out. all the times people were throwing in the house. it was just wrong. >> we often talk about the fiscal cliff. suppose the president called you up and said many people in your firm have been giving government leaders. should i extend the bush tax cuts? should i be to them? what would you advise the president? >> i would say the fiscal cliff as a major uncertainty is responsible for a real burden just because uncertainty makes

everything worth less. it is not just one side or another. i wrote a note arguing for moderation and compromise. this is a march of folly to have between.o with twee nothing will get done. if one side wins, as one side will win, you do not accomplish the certainty because after one side wins and then takes all, the other side will be plotting to reverse it two years later. much has happened after the house of representatives won the election. any kind of stability in our system could only be achieved if

everybody throws in at least a little so that it is stable. it is that stability that helps things to go forward. >> would you recommend an extension of the bush tax cuts or not that i'm the president of the united states. i need your advise. >> if a gun replace -- plus, i would have to capitulate either side rather than have these things going on. everyone comes out ahead if there is a resolution. >> you mean certainty is what you're interested them. >> knowing that things can always adjust. when you're dealing with tax cuts, there are some things in life that you're either or. when you're dealing with rates, you can split differences. one of the things that is lunatic is the idea of backing yourself into a corner and saying "i cannot compromise on

this, it is a matter of principle." the matter principle is that this is a country and if you want to manage the country you better not lead a 49% minority harping at you. undermine u.s. and biding its time to reverse a majority. that is what i would strive for. >> many of your predecessors have wound up as senior government positions. secretary of treasury. i think five of your six predecessors have been senior government officials. do you have any aspirations to go further into government? >> i have aspirations to be desired. [laughter] >> ok. by a president? >> by any president, not limited to the united states.

>> you mentioned tax rates. talk about interest rates. the libor scandal is one that has caused a lot of contention. your firm was not involved to set rates. what was the impact of the problems that arose in libor of what the actual libor array should have been? >> i will tell you the biggest impact i am feeling. the facts are not played out. there was a calculation. things are coming up as a factual base. people had good intentions. putting all that aside i think the liability that can come from it, and the biggest impact is once more undermining the integrity of a system that is

already been undermined. there was this huge hole to dig out of in terms of getting trust back. now it is that much deeper. i think it will be a big burden for all of us in the narrowest part of the financial industry, business in general. uncertainty is something that puts a burden on things and makes it harder to transact. also a lack of trust. it is a cousin of that. >> use been a lot of time in europe. you are a prominent firm. are you worried the euro will servsurvive? >> i am worried. i think it will survive. i spend about 98% of my time worrying and trying to manage the risks of 2% probabilities or less. there is a not insignificant

possibility that there could be an unraving. i really do not think it will happen. i do spend a lot of time in europe. the last three weeks i was in germany and italy and other countries as well. one thing i come away with, i know all this up before i get there. it had such a big impact. there is no doubt the intensity of everyone of government leaders to want to preserve the eurozone and the euro. how important is this tax i think people that grew up in another country can be more cynical about it than people who grew up over there. there is a commitment by the welfare state like germany and the need year states. there is a unanimity.

that is not dispositive. in addition to the will, you have to have the capacity. there is always the risk that if the snowball starts rolling by the time in its midway it gets too big to stop. you have to have the mechanisms to be affected to stop it. when you look at the governance nd the structure of the ereuro, they're baring with its own currency. the mechanisms in place is a form of federalism. mechanisms were achieving results that were saw. i would say all those elements are troublesome t.

there is a will and capacity. there's a likelihood that it goes well and metals group. there will be difficult moments. >> your firm manages money. suppose i was one of your clients and i called you up -- >> oh i'm sorry. that was an inflection . >> adjusting treasury bills. [laughter] if i said should i invest in europe or the emerging markets like china and india, what would you recommend? >> i would say that in any given moment, i would say if you are looking at investments, we're not talking about corporate investment. i would say it is easier to

forecast the growth markets of the world 10-year forward rather than 10-month forward. i think the growth market, there are certain things that are clearly cyclical. one of the great secular changes is the creation of wealth in these growth countries were the genie is out of the bottle. that will keep on building. there will have high growth rates. they will bring their hands. china's growth rate may be going from 11 cermet to 7.5 -- 11% to 7.5%. they got the feel and value of markets and investment. this is going to be the century of those bricks and maybe even china specifically. the 20th century means we do not get every year.

there were some pretty bad years. if you took your money out in 2007, you had missed the last 93 years. >> someone in your term invented the term of bricks, brazil, russia, india, china. what is your view on russia's? >> let me be moderate. we put out reports. we analyzed this to death. we stare at things in real time. we want to know where to invest money for the longer term. we are bullish on all these countries. each one has a separate dynamic that might make us cautious in the short term. at a time when there is global growth around the world and that group of countries that have much more of their wealth and growth predicated on commodities and the demand for commodities will have a better time when the

whole world is growing and not a good at a time when it isn't. with the lower oil price, they are going to have a little bit more of a speed bump along the way. their success is not predicated on that. it is predicated on its population. >> what about brazil? you are bullish on brazil? >> it is a similar story. they have back problems in their markets. there's a global slowdown. when we had theselly moments in time, the second that the developed world would sneeze and they would catch the big is cold and a fever. that is not happening now. it is going to represent a slowdown. of those markets are all riskier and consequently more

leverage if things go well. that trajectory bulls seem to come down more. it will come down to a growth rate seemingly pulling up the global growth rate. of the global growth rate today in this recession is still 3.5% or more for the world while the developed world is much much lower. that is still being pulled up by these countries. >> do you foresee a recession like in the united states? >> they do not. i do not. when you're talking about recession, you are talking difference could be two quarters in a row. not so much whether it is a technical recession, it is whether we are in a time of

recessionary tendency and whether the trajectory of growth is not quick enough to change the sentiment and get people to start moving. these are vicious circles. if people start to feel more positive, they go out and do things that creates more positive thoughts. >> europe cannot with earnings yesterday. the press accounts said this was due to the fact that the regulatory environment was forcing firms like yours to change their business model. do you think that is a fair summary? what is your view on dodd/frank? >> the biggest of that, and we have been quite open, all of our businesses correlate with growth. we it buys companies that make acquisitions and want to sell divisions. -- we advise companies that make

acquisitions of want to sell divisions. we finance transactions. there are fewer transactions to finance. we manage money in the asset management business aware of the value of what we do and the fees we take and are better and there's more opportunity and people are confident. you cannot find a part of the cycle where all of those volumes and all of those activities would be lower. to me that is the cyclical part. that is what we are living through. it was not that long ago. we have record years as recently as 2009. we are not waiting. of course we are not waiting. there are certain things that it is not very good for us to over react to. things that are more secular, which might include regulation

we have to react to. cycles can be severe and it can last a long time. if you get killed in the back part of a cycle because you do business andyour left, -- >> if you think dodd/frank is good or bad? >> the second question was narrower than the first. it is good to address legislatively. the vast bulk of it i think is good. there are parts that will go too far. i think the regulator, a lot of dodd/frank as a bill was skeletal and a lot to the important details were let to a regulatory process. the regulators are having problems coming to the right

conclusion and filling those in. there was a pact to the regulators. it is happening now. if i could push a button and eliminate dodd/frank, i would not want to have that field and regulated. >> what about the volcker rule part of that? >> no. the volcker rule i do not think addressed issues that were not -- the volcker rule address issues that were not the problem and raise the rule over whether institutions like ourselves will be able to easily carry out all of the important financial functions that are needed. i think that was, the volcker rule has passed. it is interesting to see how they interpret it appeared >>

you joins an investment bank because it was something people aspire to join. do you think of people have as great a career in investment today? do your children want to go into investment banking? >> but my children there is the additional complexity of getting closer to me read it and further away. -- rather than further away. i think it's today, kids this age when they are talking and thinking, there at the age when we would be thinking of careers we were their age. kids now are thinking what do i want to do for the next three or five years. that suits us. " we have provided to generations of people was great training. we bring people in. we worked them hard. they learned how to think, how to learn rigor.

there are people who join us. they think they will only stay three years. they say 30. some people think they will stay 30 and they stay 3. we always get great kids out of school, some of whom content to stay in the investment bank. for some of them is the furthest thing from their mind. they come because what ever else they will go into understanding finance and a profession and to work hard and do have presentation skills -- >> be able to recruit the best young people? >> we had twelves are more applicants than the year before. lacher made a that job offers was in thed ratacceptance rate middle or high 80's. >> goldman was famous for being

an adviser to companies. now you have shifted more toward proprietary investing or trading. is that fair to say? do you get the bulk of your earnings were you are the principal rather than the advisor? >> we always distinguish. this means something to us. we have always been in the principal business, much less so in the proprietary business. most of the activities we duke are where we are taking a risk and managing it. proprietary would be a subset. it is not when we're the other side. it is where we decide to put on a position because we like it.

most of the time the principal risks that we take is you want to find something and we have to decide whether we can make a commitment. you have commodity risk, you come to us and say can you take me out of this risk and we take it on ourselves. to the traders to analyze the risks it is the same thing. we are in the business of facilitating other peoples' activities by lending and capital on the one hand and risk profile and expertise on the other. that has always been the bulk of what we did. we said we are such good market years. we set up other groups that did not interact with clients. they became proprietary traders and put on risks that they wanted. that is something that a volcker addresses clearly when

the writing was on the wall two years ago. we are left with principal activity that we yield result of the people can do their business without the risks that would otherwise impede them. we shoulder them. >> you are a licensed banks. there was an article suggesting that you're going to become a larger and larger bank. is that article accurate? >> one of our strategies, they focused on that particular thing. it has the risk of looking disproportionate. one of our big strategic pillars to move and is saying it is not a hypothetical. it is not a question whether we want to be a bank. we are a bank. we're meeting the regulations and burdens.

it is not a question of saying should we do banking activity. we already have the regulation and the expenses in that part. what incremental costs would drive what kind revenues? really should extend ourselves to do more private banking. it is not our intention to compete with the big commercial lenders or the big consumer lenders and the bank. we're going to stay true to who we are. we view banking more the banking that we want to do. it to be an extension of our private wealth management which is helping private clients manage their assets to help them with the liability side.

there are certain lending activities we can go into more. we do not have the aspiration to be a trillion dollar balance sheet. at $50 billion we could certainly grow more. >> going back to where we you were, you are now the ceo. you were 50 years old or something? >> at the time i was 50 or 51. then the world collapse. the economy have all those problems. did you ever fear that goldman would not survive the? ? >> if you ask me what i thought, i will answer that question. of course. we sit around and we do

contingency planning for epidemics. we study the pack of the influenza virus. we want to know how we stack our offices. we spend a tremendous amount of time coming up with ways of dealing with minor risks. i spent a lot of time worrying about more remote risks. it was not a risk that i enjoyed. it was a level i did not enjoy. i do not enjoy with that much risk as it was. we got on our horses very quickly. warren buffett and berkshire hathaway, we did an equity raised before talk was

announced. from berkshire hathaway pulled in $5 billion a preferred share and then did a capital market transaction with the public for another $5 billion which we had a lot more offered to us. we thought we were quite doing well and sustainable. the external market, it too. we were always able to raise money in the public market. that is not to say that the level of risk was not so high that i was not relieved that the taking steps.lators were one thing i think was unfair is the way these communities of the official sector is being viewed in hindsight. the world and not blow up. they say you took these steps. that was bad. it was unnecessary because maybe

it was rendered unnecessary because they did it. it might have been unnecessary had they not done it. >> at the situation were to rise again, what would you recommend the government do differently? >> i would recommend that hank call somebody else. look. you plan for remote conditions. the broad has a tendency to come up with ways to could not have thought of. this will not happen again because people will have contingency plans for this. in hindsight, what do i wish? everyone could have done better. everyone has more capital. if you are people like us, you needed more capital. he never would have needed it other than the events.

of all the things that are being done what would be the most important and effective thing and least damaging to the system is the requirement that every institution like ours and others carry more capital. all this may turn out to be counterproductive. from the people who engineered the relief, i think you should cut some latitude. there were a lot of people that took personal risk to interpret their responsibilities broadly and took risks. they did not get a lot of money to do it. they interpreted themselves and implemented things that worked. in hindsight they could have been more open, more

descriptive. there is not a lot of time to do things. >> after the recession is over, some criticized major investment banks. why do thing goldman was pick don? -- why do you think goldman was picked on? >> we've been first in some analyses. there is some bad behavior. the real thing is not that there were issues. it was extrapolated to a very big firm in this century long history of being very important to clients. i do not want to cut the real issues that we have to deal with away.

i will say part of the place we held -- we were a host cell institution. we had no dialogue. people did not know what we were doing. we were mysterious. that was a problem. in hindsight, that was a mistake. consumers is another word for citizens and taxpayers. what he did not have to have a good dialogue, it turns out we should have a better dialogue with tax payers. it turns out that we play a very big part in their lives. now we know ourselves that they play a very big part in

hours. we have to reach out more and make ourselves aware. we were always engaged in the public debate. the general public did not know our views of things. congressional staff, big companies came to us. look at the number of people. it became a liability. the numbers of people at the height of their careers would go into public service. much involvedvery in the big public issues. it was a basic resource for decision makers. we were not known for the. >> what would you like to see when you were finished as being the chairman of goldman sachs? he had no plans to leave the. what would you like to be your

legacy? you have a lot of distinguished predecessors. is there something you like to say you did for goldman sachs? >> i would like to be thought of someone who in good times did better than our competitors, made contributions to the growth of the world. when things turned bad i like to think of as someone who made a contribution to remind people of the reality of things and not succumb to that sense and and make sure we are resilient and, come out stronger. we did not realize the

relevance. >> you are very pleased with your situation today in terms of the role that goldman is playing. is that right? >> i am not altogether a czar and gave up the practice of law. -- sorry that i gave up the practice of law. we can never be satisfied. we are all strivers. if the birds were chirping we would still find new places to do things in. this is not a zero sum game. we're not competing against each other. our job is to grow the pie and make everybody wealthier not for trying to get richer but wealth in the sense of making the world stronger and healthier. for lack of a better word, better. that is what we strive to do.

>> i appreciate very much you giving us your perspective. you have given us great oversight. i want to thank everybody for coming today. >> thank you very much. i have a gift for you. hold on one set a [applause] . [captioning performed by national captioning institute] i have a gift for you. hold on one set a [applause] . [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] my favorite, thank you. thank you for coming. thank you very much. watch as they explore the literary culture of louisville,

ky. a and its oldest independent bookstore. >> a lot of the ones i have seen fail were stores that were open by people who were interested in having a business. not that they had an attachment to books or a love of books. they were business people. you have to have a gut attachment to care enough about them. your customers are like that. >> watch for american history television august 4 and fifth on c-span2 and c-span3. >> on tuesday, gary kessler acknowledged that the regulatory system failed to protect customers of a financial group. they have admitted to $100

million in fraud. the case follows another bankruptcy at him at the global. he heads the commodities trader investigation. this is about one hour and 35 minutes. >> the morning. were calling together this

committee. welcome our witnesses and everyone that has joined us today. for our first panel we have agreed because of the importance of the number of issues to do two rounds. we will be given each member seven minutes. we will have some additional time to have some important discussions. it has been two years since congress passed the reform. in that time there has been an open rule making process with multiple opportunities for public input. it is extremely important that we get the rules done right. recently the role was made final which starts the clock on compliance. this is a significant step toward greater transparency and final implementation of key provisions of the law. i also appreciate the work to finalize the end user roles.

we are still waiting on rules to be made final including those on capital and margin, clearing in trading, conflicts of interest, and execution facilities. there is no question that it is important coordinate the roles between agencies and harmonize them internationally. it is critical to get them done. so many r ules and written, many dressed his ascent in the dark. if anyone is wondering why we need these rules, all you need to do is turn on the news. there is the libor rate setting scandal. the eurozone crisis. significant trading losses at j.p. morgan and the end of

global bankruptcy. cannot blame people for thinking what is next? we need these markets to have integrity. market participants need certainty so that they can plan for compliance anmake business decisions for the coming months and years. job-creating companies and farmers and ranchers need to know that these markets are safe for trading and hedging their risks. american families need to know that their jobs are not going to disappear again. because of excessive risk- taking by few. i understand there are hurdles. we have seen proposals to defund the agencies charged with protecting our market. even as events continue to highlight the need for effective oversight. we cannot forget that when this law was passed we were on the brink of a global economic

crisis. a crisis that left 8 million americans out of work, home mortgages out of water, and small businesses closed forever. despite the challenges, and of the individuals charged with writing these roles have been working very hard in the face the great challenges. and what this committee can do to support those efforts. i would welcome both of our witnesses. we appreciate your efforts and leadership. i will now turn to senator roberts.

>> let's get started. thank you. thank you for calling us here to discuss the dodd/frank bill. in light of the libor situation, you brought up very appropriately the cftc knew about. i concerns a why it has taken this long for the committee to act. this committee and the american taxpayer deserve an explanation. typically two years after a major piece of legislation is passed we would hear an update about how the law is affecting the real world. we would hear from the agencies in charge of implementing the law about the things congress did well and for sure some of the things we might need to consider changing. stakeholders are still confused

and frustrated and betting to be told what is expected of them. the courts have already thrown out a major rule for cost- benefit analysis. others are being challenged. agencies are here to explain why they cannot operate and why it is taking them over two years to find a way to cooperate with the rest of the world. here are two years later. we have no plan. they have not said how they plan to implement the thousands of pages. no one knows how these will fit together. i want to be clear stakeholders are certainly not opposed to the certainty that goes along with the mandate. in fact, many firms has spent millions of dollars in an effort

to be ready to implement the dodd/frank rules. what these folks want and what they have been asking for is certainty and direction of the cftc as to what they need to do during implementing the intergalactic commerce clause. the problem is that no one knows what the plan is. his plan to years later is disjointed, and incomplete, and we find out is just interpreted and therefore not enforceable by law. regardless, the cftc is about to initiate countdown to implementation. in doing so it is a set in motion a series of events that will send further shock waves of uncertainty there are users. what happened at the end of the 16 days when our domestic users of derivatives or international

users of derivatives are not ready? will the commission offer waivers? if the cftc about to create a system of systemic risk? the cftc is not doing a good job of what it was created to do, to police the financial straits. it appears as though they're too busy working on this intergalactic plan to have a conversation with anyone including fellow commissioners. the chairman set a unique precedent by taking a nonparticipating roll the money to step aside from his relationship with john karzai -- jon corzine.

made it clear that he wanted to keep control of the recommendations that came out. where are the recommendations that stakeholders and others me confidence in the system. he called for using the most innovative and least burdensome tools to meet the regulatory and ends laid out. they should be focused on doing exactly that and overseeing the rules on the books rather than looking for justification to regulate the world. with regulations we have seen are not enforceable by law. i look forward to hearing from the chairmen on how the land the spaceship and how we plan to

cftc.with the >> where lot of things to discuss. we welcome both of you for being here today. let me introduce our first ler.list, gary again flagens prior to his appointment he held to positions with the treasury under the clinton administration. he served as undersecretary of the treasury for domestic finance and assistant treasurer for financial markets. we welcome chairman gensler. let me introduce robert cook. mr. cook has oversight of the standards for a fair and

efficient markets. he is a nationwide leading practitioner on market regulation. we welcome you this morning as well. >> good morning. thank you for inviting me here to talk about the swaps market reforms. i also want to comment on libor in the recent events. the commission has made some of again progress in implementing the common sense rules of the road. and years after the fact anti, shelling from the worst crisis since the great depression. millions of families lost their homes. thousands of businesses shuttered. with 35 roles completed, we are changing this to the

implementation of reform appeared at the ford to the questions. -- implementation of reform. i look forward to questions. around october price and volume information will be publicly recorded for the first time in real time. it regulators will get their full window into the market. i forget spot month position limits [inaudible] we look forward to completing other reforms this year including those related to determining swaps must be cleared pre-trade transparency to permit competition. we will recall the lessons of past crises. financial transactions executed off shores are often sending rest right back here to our shores. it was sure in london and became

the cayman islands. the recent events the jpmorgan chase, why do they call in the london waled? -- whale? it is a stark reminder. hundreds of trillions of dollars of derivative transactions are based on libor. often in the fine print there is reference to libor as well as big companies during complex transactions. what do they rely on? the honesty. s.ey must not rely on rate l cannot do it if they're

concerned about their profitability. it is wrong and against the law. if these benchmarks are based on observable transactions, but if these key benchmark for not based on on the submissions we all lose. before i close, i like to review the recent events. the cftc filed an action for $200 million fraud misappropriation. the owner was arrested and charged criminally. the evidence alleged is that he embezzled millions of dollars, manufactured phony bank statements, forged signatures, and traded bank banque addresses. charges against him are that he took customers' funds out of the bank and lied about it for years. the national futures association is the organization

required to conduct periodic audits. there has to be an annual review by an independent cpa. just like the police cannot prevent of bankruptcies, regulators cannot prevent all financial frauds. the system failed to protect the customers. we all must do better. the commission has been actively working. the finalized for separate critical roles -- we finalized four separate critical rules. finalized rules that are common sense to protect customers. the cftc has been implementing a restructuring. we have hired new leadership. looking forward, i believe it is critical that we further update our rules, giving regulators

access to all custodial accounts. we do not yet know the full facts. are committed to conduct a full review of the self regulatory the openlydudit, for further improvements. we must do everything within our resources to strengthen our oversight programs. i look forward to taking your questions. >> welcome. thank you. my name is robert cook. i am the director of the sec's division of trading and markets. thank you for the opportunity to testify. as you know, title 7 creates a new regulatory regime for derivatives and directs the sec and cftc to write a number of

rules. the sec has authority over security based swaps. my testimony today will provide an overview of the sec's efforts to implement title 7. since enactment of the dodd/frank act, the sec has proposed most of the rules required by title 7 and we were diligently in coordination with the cftc and other regulators to implement all the titles and provisions. in june, the sec issued a policy statement describing the order in which it expects to require compliance with the final rules under title 7 and requesting public comment. the policy statement is divided into five broad categories of rules and explains how they wouldthe policy statement emphas

those subject to the new regulatory requirements will be given adequate time to come into compliance with them. i am also pleased to report earlier this month the sec adopted final rules and interpretations the fighting products subject to title 7 including swap, security based swaps and swap agreements. in april, the sec adopted final rules and interpretations further defining certain entities subject to title vii and provided guidance and identifying such entities. the rulemaking also implemented the dodd-frank act with the minimum exception for dealers. that includes a phase in designed to promote the orderly

rollout, a security based swap dealers. the completion of these two joint rule making is a significant milestone in the journey toward the complete implementation of title vii. the sec has adopted rules to establish procedures for actions undertaken by a clearing agencies including information to the sec about the security based swaps they planned for clearing. the rules require clearing agencies designated as systemically important under the dodd-frank act to submit advance notification of changes to the rules, procedures, that may have a level of risk of the clearing agencies. moving forward the sec expects to complete the last of the core elements of our proposal range. further, we intend to propose and a single rule making rules

and interpretive guidance suggesting to the implementations of title 7. our cross approach will be informed by discussions with fellow regulators and other jurisdictions. i suspect to address the international implementations with respect to each of the major registration categories covered by title vii relating to infrastructures for security based swaps as well as with respect to the transaction requirements under title vii with reporting and trade execution for security based swaps. this is intended in part to give investors, market participants, foreign regulators and other interested parties an opportunity to consider as a whole our approach to the regulation of foreign entities across to involving u.s. persons. this will be published before the underlying rules addressed and the are finalized so the comments can be taken into

account in drafting the final rules. in conclusion as we continue to implement title vii we look forward to working closely with congress both at home and abroad and members of the public. thank you for the opportunity to share progress and thinking and implementation of title 7. i will be happy to answer questions. >> thank you to both of you. there are a lot of things we want to talk about that are very important in terms of the dodd- frank implementation on title vii as well as what has happened since then. let me start by asking something related to and of global and to the financial group because there is no question these efforts are devastating to the markets. the point to regulatory gaps. he spoke about that in your opening statements. some things were being done. earlier this year after mf gl obal i had asked to those

involved as market participants give us regulations and what -- recommendations and what we should be doing and what you should be doing, we will be doing a hearing in august specifically on that. i would like to know from your perspective what is happening as you are making changes, what else are you going to protect consumers and instill confidence in the integrity of the futures markets? i get asked by farmers, should i use the futures markets anymore because of their concern about what has happened and their lack of confidence. what are we doing to repair what is a broken regulatory system at this point? >> an excellent question. we pull together market participants and early february and to two full days of round tables. out of that good recommendations came at the natch -- natural

futures association that we finalize the last week around three areas. one was the use of the firm's money that sometimes they put into the customer fund. this is called the access funds that remember so well from the events of last fall. that can only be removed if it is over 25%, remove with signatures of the chief financial officer, some other senior management and reported directly to regulators. we close a significant gap that existed for over 20 years about corn futures accounts. there are two method of -- methodology -- we closed that gap as well. those are very important changes. we also have been from of commissioners not a series of recommendations to go further than that, one of them that i highlighted in my opening statement, i really believe the regulators should have direct

electronic daily access to see what is in the bank accounts and in the custodial accounts, not relying somewhere on -- of course the events were about falsifying bank statements and forging signatures and so forth. we are not going to be able to stop every fraud. to have the regulators have direct access on a daily basis is a critical reform. >> on that point, is that one of the changes you will be making because of the technology available today? i do not know why we are not requiring real-time oversight of the futures commissions merchants at this point. >> i think it is a critical reform. it is one that we have talked to the future industries association about. i am hoping we will have broad support. we departed out to public comment. >> talk a little bit about --

obviously there is criticism about the regulators failing to do your job and reacting to crises rather than preventive efforts. can you speak broadly to that? >> we are an agency that ultimately has responsibility for the features and it now the swaps oversight. through statutes we have to work with self regulatory functions agencies. that has been appropriate for decades. i think the sec has a similarly. there -- they are the front-line over regulator -- we are the front-line regulators agree oversee them as well. i think we need to do more. we have to review that relationship and make sure we are doing the right things when we examine the examiners so to speak as the second line of defense to ensure their audits are full and did not miss things.

>> mr. cook, when we look at that, we appreciate you working together on rules. at this point they have been behind the cftc in terms of moving forward and finalizing. i think about one-third of your role as you indicated there is a lot coming up in the near future. i wonder if you know when the ftc will put forth a proposed rule on territoriality and why they chose to propose a rule rather and then interpreted guidance. >> thank you, chairman. it is difficult to predict exactly when the rule will come out but i can say it is right in the sweet spot of the focus of the staff right now to gather with the final proposal of the role we need to implement which is the rule requiring to the financial requirements for the capital margin rules.

we are hoping in the next several months we will have those rules in front of the commission and act upon it -- we are having the cross border coming second because under our approach to the cross border release is really the capstone to all of our regulatory proposals. it looks back over all of them and asks how will this supplied to cross border transactions. it is important to have our proposals done and do the cross border relief. that is an answer to your second question as far as why do we do it as rose, we are in some cases amending some of the roles that we have already proposed in providing guidance about how the rules would apply in cross border context where we feel it is beyond the scope of what we can do by interpretation. the question of whether you do something by interpretation or rule is a judgment each entity

has to make it. we have different statutes. our approach so far has not yet addressed this issue. we will need to do that through rulemaking that adds to what is in the statutes within the scope of our authority and will -- >> what would you anticipate having that done? you look going forward you have a third of the rules done now. are we talking the end of the year? archer talking before the end of the year i would hope. we are hoping to get it done in the next couple of months, meaning finalized in the next couple of months. the cross border release would come right after that. we are working on it now. it is a sequence after capital margin but have a dunk as quickly as possible after that. >> thank you. -- have it done as quickly as possible after that. >> thank you.

>> the descent to regarding the fiscal year 2013 budget, he states the commission's investment in technology should be its highest priority. funds for technology should not be redirected. my question, it be redirected funds meant to be used for technology and i stress -- was it not a technology update that allowed the self-regulatory association to ultimately catch him? >> from reports, sir, it does appear that they go in every 9- 15 months to do audits. this has made from a paper process to an electronic process. from the reports we will learn more facts. they are moving to an electronic confirmation platform rather than a paper platform.

>> if you redirect funds meant to be used for technology -- that is my basic question. >> i believe we have gone the other way. we are an agency about 10% in head count more than we were 20 years ago. we are about 690 people right now. this year we will spend approximately 50 million in technology. working with congress i think there was -- they laid out we must spend at least $45 million. what we have been able to do is redirect more and technology. we need to do both. we the people and machines. >> have you redirected funds that were designated for technology for other purposes? what's our appropriation said we had to spend at least 45 this year. i think we will be close to $50 million on technology. >> let me understand this correctly. the cftc needs a larger budget

to regulate a $50 swap and singapore because it has a correct -- connection to you as commerce. this involves an action on a foreign bank based on substituted compliance in interpretive guidance a document that has no force of law. where is all of this found in dodd-frank? >> they played up the jurisdiction of the agency, they did not have a similar provision on the sec side. we have many common tercel, can you help interpret the words, what does it mean to have a direct and significant effect on commerce and activity in the united states? that is what 722d is. that is what we are trying to interpret.

>> what is this you as% disagrees it is 8 u.s. person based on the enterprise of guidance that you have met, what happens then? >> the statute is very clear black letter words and we are helping give guidance. we put it out in notice and comment. we will take public comment and benefit from the public before we finalize a guidance. >> if we have letters from five international regulatory agencies saying thanks but no thanks, we are not the u.s. person, does this still make the u.s. vulnerable to a retaliatory regulation or regulatory arbitrage? >> if somebody is not a you as person under the guidance of a lot it is not under our jurisdiction. the u.s. just lost $7 billion of in london and that became a u.s. issue.

a i g if i can say was very much a u.s. issue even though they ran their derivatives portfolio out of mayfair, london. that is $600 for each of us. >> i understand problem and is a serious one, but what happens when foreign regulations are not similar to u.s. regulations. which supersedes the others? who will decide if there is a disagreement? what's what we have said if they are comparable and comprehensive, which are words that have been used for more than a decade, then we will defer under something called substituting compliance. if u.s. taxpayers are left exposed because a u.s. bank is operating in london and we are exposed, dodd-frank would still be applicable in that situation. what about one year ago i asked you if the kansas city elevator would have to change its sign to

read swap dealer. one year later we have five different definitions for a bonafide hedge. like a weed not just have one definition? >> -- why can we just have one definition? >> why do we have different definitions is in the circumstance of users and their choice not to clear, i think congress is very direct with us. make it easy. make sure all these non- financial users do not have to clear and i think that is what we did last week. in a another circumstance for instance, the volcker rule, there is different language about hedging. different circumstances with intent. >> what are the recommendations regarding the second-biggest seller we have this week?

>> recommendations are in front of commissioners now. some were embodied with good work with the cme and the futures industry finalized last week. >> the cftc has already proposed guidance, you say the sec intends to impose an administrative role. you are doing a cost-benefit analysis, the cftc is not. it is my understanding the two agencies will merge this into a single proposal coming later. is this correct? >> it is correct we intend to do a series of rules. >> how long will this take? >> we are not going to merge our rules into a single rule. when we propose our role will take into account what the cftc has done. we have to consider whether being different than another regulator and a part that overlaps, what are the costs and

benefits to doing that. >> are you saying the sec is one way and the cftc is another and ultimately the sec wins? >> no, i did not mean to suggest that. we have not come out with our proposal yet. fifth in many respects it may look like it or it may look different. all of which we would respect. >> he believed the sec is doing this correctly, -- you believe the sec is doing this correctly? >> it allows us to follow certain administrative procedures. >> do you believe the cftc is during this correctly? >> i do. may i clarify something because it was on this transfer of technology we spent a little over 137 million. i think there was discussions with congress over how much we should spend this year.

the appropriations bill ended up at $55 million but said it could be brought down to $45 million by something technically call transfer authority. we did that but we are spending approximately $50 million. >> thank you. >> thank you, madam chair. you already covered a little bit about peregrine financial going under in iowa. a couple of observations. first of all, i find it hard to believe that one person with hundreds of employees dealing with all of these accounts could be the sole person responsible for this. i find that hard to believe. i hope the investigation will continue on to find out if there were others involved. the controlling agency, that was the national futures

association, not you, not the cftc, the national futures association. i am astounded this could go on for nearly two decades and yet nobody checked to see where the bank statements were going, who they were going to, i find it mind-boggling. it raises a question about the whole issue of self regulation. self regulation only works if you have tight controls from the regulatory bodies over them. i guess picking up on this peregrine debacle, if the cftc has direct access to bank records of customer funds, if you do that, do you have the resources to actually -- and the personnel to do an adequate job of oversight? >> we do not, frankly. we are only about 10% greater

than we were 20 years ago. the future markets alone are five fold bigger and we have the swap market. eightfold over that period i do think direct electronic access for the self-regulatory function and for us is critical. it will still be the first line of defense will be the self- regulatory organizations. >> i am losing faith and self regulation. unless there is adequate tight oversight by the agencies that refunds through the federal government and through the regulatory process, do what you can do to make sure they're doing their job. we have seen self regulation fail since glass-steagall was overturned in 1999. i had a federal chair reserve men here telling me that, yes, there was self regulate themselves. we found that did not work either. you have to have the personnel

and resources to able to oversee the national futures association. >> we absolutely do need the resources. the president put forward a $308 million budget. we do need those resources. >> the house appropriations committee just cut the funding by $25 million. how will that help you? how will that help reassure the public that the cftc will have oversight and adequate regulatory oversight over the an f fe? what's the think there would be more mayhem in the markets. >> that is what is happening. they are sayg, they will take care of theelves. we have seen what happened in the past. i wanted to get in just briefly on the swaps issue that my friend from kansas raised in terms of overseas. dodd-frank does say and i quote

that u.s. regulators and oversee swap activities have a direct and significant connection with commerce on the united states. you mentioned that there. i am concerned without the proper regulatory frameworkhat large u.s. what dealers while retaining the financial risk in the u.s.-based company. u.s. taxpayers will bear the risk. did the trades conducted -- did the trades have a significant effect on commercee united states? >> absolutely, yes. >> going forward how will a commission ensure taxpayers are protected from swaps conducted overseas from which financi risk is held in the united states? >> what we have laid out in this

statute that congress wrote is if the branch of a u.s. person overseas that is covered by dodd-frank, if it is guaranteed by the mother ship back servers can come back here, that comes under dodd-frank. we can look to substituted compliance and so forth. these to come crashing back here. i used to work at large financial institutions. today i understand is set up thousands of legal entities around the globe. in a crisis the risk comes crashing down. >> i am worried about the integrity of financial markets, especially in areas of swaps and teachers. he are some troubling events. labeled it one bad deal. the chief investment officer at j. p. morgan, the $7 billion

lost in london. two futures brokers mf global and peregrine have been found to have significant shortfalls. when i hear people say we need to get rid of the reforms of dodd-frank, most of which are not even any effect yet, it makes me wonder if people are paying attention to the same things we read in the paper. again, it is high time we get the regulations out, the reforms of dodd-frank finalized -- when will your commissions get this worked out? >> the whole series of regulatory requirements under dodd-frank to address a range of those issues we ranged including things beyond the title seven whether it is the volcker role or restrictions on asset backed offerings and we're trying to

move them as quickly as possible. it is going to be -- we have a lot of work ahead of us but we understand the emporiums of getting it done as quickly as possible and try to end -- we understand the importance of getting it done as quickly as possible. >> we are well over half way down. you give us 55 things to do. we have under 20 to go. i think it will complete most if not all by december 31 this year but there may be two or three that slide into the first quteof next year. >> good luck getting it done when there are going to cut $25 million for your budget but i hope we do not do that. >> thank you very much. >> i am glad you are having this hearing. i followed a lot on what senator harkin said about peregrine and i have some questions. before i go to those, let me say a few things. it is important that we do

fleshing out the issues with the implementation of dodd-frank. i continue to be concerned about what kind of reached the regulations will have on agriculture properties especially given that the agriculture properties were not responsible to the evens that led to financial crisis in the first place. our commodity markets are vital for our economy. we must have confidence in our system. the confidence of investors and other market participants a shake it. participantsmf global. now we have peregrine. while we are here to discuss the regulations we also have to make sure that the regulation -- we already have it being enforced. i know some people will try to get around regulations. both mf global and peregrine's

situation causes me concern that not everything is being done to insure proper oversight to brokerage firms. it has been widely reported that the owner of pfg was able to fraud by forging bank statements. i will give you both parts of it. is it not a cornerstone of the independent auditing for auditors to check with banking institutions as to what account balances are? why were the auditors who were auditing pfg best not checking with the bank during the 20 years the fraud was apparently occurring? >> i appear here as the head of the trading commission and not as an auditor. i understand as are the cornerstones of confirmation. it appears here and what we have

alleged is there was deliberately and dishonest forged bank statements and also fake bank addresses on these statements. as what we have alleged. that fact has been admitted in a note that was left when mr. wasendorf attempted to take his own life. i think the independent cda and the an f j -- nfa were well aware of the cornerstones mentioned in the paper world. i think you have to go to direct electronic means. the regulators in the cpas can get the confirmations and acknowledgement letters. >> my second question -- we have had customer money go missing in mf global and peregrine.

what does the seek ftc do to ensure subrogated customer money is properly safe guarding? how is the cftc going to respond to jittery farmers and investors' worries about whether money is properly accounted for a whatever firm it is held? >> we have done significant steps and we need to do more. we have reorganized and set up a division and hired new leadership not only at the top of the intermediary oversight but also the examination functions, a man who is a longtime auditor himself. we have helped with the nfa and others put in place common sense rules. i know i am not participating in the mf global situation, we have had good public comments about that, you and me. we got public input and the nfa

put new rules in place. the commissioners have new rules that will put out in the near term. i think we the -- need to do a complete review and get -- and see how we examine the examiners. how we oversee the functions as senator harkin and roberts also referenced. we have to be reflective. we might findings over the years that we wish we had done better at the cftc, too. we should not shy away from that. it we have to see what we can do better as well. >> my last question, do you have any initial impressions or opinions of how the national features association or the cftc missed this fraud over the last 20 years? " i think we will learn a lot more facts. we are going to look at the audit files and see specifically what was nfa looking at and it

will be part of the investigation. we will be reviewing our selves, too, and having people looking at how we examine the examiners, how we look it up. i look forward to sharing as we learn more of the facts. >> i will yield back my time. >> thank you very much. >> thank you, madam chairman for holding today's oversight hearing. i think we all know in the last two years since dodd-frank has been signed into law there have been too many stark reminders of the financial crisis of 2008 and the necessary reason to put forth reform of our regulatory system. we have seen the collapse of mf global which the system was supposed to help -- many are still working to collect the money and has a devastating impact on the savings of so many

people. we will have a hearing on august 1 so we can explore what is happening with that. more recently as we discussed, j.p. morgan trading loss, barclay's admission to manipulating the libor rate. andperegrine filed for bankruptcy. since there is more work to be done. and that is what i wanted to focus on. another you discussed what some of my colleague, the emergency industry set for next week. to score how to better protect money in light of what happened at pft. it just seems so unbelievable that it is nine months after mf global, especially when you look at the time line. as my colleagues from iowa pointed out, the simplicity and how the fraud was perpetrated. what assurances do you have that we can address this going

forward? i know you were pushing them to do electronic filings. do you have the power now and it has not been ruled out? can you require all of these firms to do electronic filing and what other ideas do you have? what to do think we have the authority but we have to do it through comment in the administrative procedure. we do think we have the authority and we look forward to doing that. in terms of the of that i also believe that investors should get to the same transparency into their accounts that they have come to an expected in the securities world of the mutual fund area. if i have a futures account somewhere that i -- if i choose to i could know how that invested in so forth. we have raised that industry. if we have the support to put it out to public comment will do that. thirdly, i think there is to be a strengthening in the internal controls.

higher internal control at these futures commission merchants, particularly the separation of duties, separation of duties of the people who can move money from those who can count the money. classic separation of duties issue as well. >> just to give you a sense of one thing we have already heard on peregrine, he copied me on the letter he sent to the nfa. this guy had his money at mf global and then he went to peregrine, to try to protect himself. this is where he said. he said the problem with your statement is the implication -- the statement from thenfa -- the problem is the implication that failure to detect a $200 million fraud earlier should not count against the. it just matters that you catch it. i could not disagree more.

your job is to prevent fraud by putting in place the tools and people to ensure funds are as reported. segregated balances are protected and people making investment decisions can rely on the audits that your reform. why has there been so many recent cases where the system has failed to detect the risk? again, can you commit to fixing this? >> iphone myself a drink with their constituents that read the letter. -- i find myself agreeing with the constituents that wrote that letter. we have to -- there are funding issues as well, i think it is really about how they audit and the examination function occurs on the street. >> i know i heard you talking to some of the other senators about reaching out to the banks where future firms held cash to seek

to obtain verification of statements made by the firms, which i think would have helped catch the peregrine problem earlier. i wonder why this decision was not made back in january to rely on intermission obtained by the -- instead of confirming balances. >> we will learn a lot more facts. as we understand it, photoshop or purposely it forged documents and even a fake p.o. box for the bank. what we understand is the nfa last had an audit in may of 2011, may of 2010. the independent cpa december 31, 2011. all of them were in essence defrauded. we are going to take a look very

close -- we are taking a close look at each one of those for each year the documents exist and look at what the cftc did and what we need to change. >> you think the nfa is up to the task of searching as a first run regulator here? we are getting letters like the one i just received that people think they are not ready for this. >> you raise an excellent question. i will say to this committee, we are broadening it with reforms of dodd-frank. the nfa will be the front-line regulators adopted ranging from the j.p. morgan's of the world across any swap dealers. we did address that. i want to make sure we understand it. we are adding to this a self- regulatory function.

you raise an excellent question. i think all of us have to do better. we will review the nfa's regulatory responsibilities. >> one last question. you mentioned in your testimony the cftc has been working with the federal reserve. the rule proposed -- it would require swap dealers said participants to collect margins from non-financial users under certain circumstances. you talk about your efforts to align the requirements here and abroad. where do things stand with the regulators? >> we ask you to do that

quickly. >> because it was such an easy question. >> we have made great progress and we put out internationally and approached a margin that actually i believe is consistent with with the cftc had done. this only went out one week and a half ago. i think that the regulators understand -- >> we will simply ask a follow- up question in writing to the chairman about this matter. >> thank you very much. >> thank you, madam chair. thank you for holding this hearing. it is important and timely. i want to follow up a little bit. i am just curious to know from the standpoint of the average investor out there, when the meltdown occurred adductor 2008 we enacted these reforms. dodd-frank was supposed to make sure that investors were

protected. these types of things that had been done in the past would be prevented from happening again. if you are an average investor, what kind of the -- this is kind of a global question -- how would you read a sure that person out there after you had mf global and a peregrine and what is happening with j.p. morgan chase, those are major, big significant events that i think cause people to question, doubt, and really impact the confidence that the american people have that there are safeguards in place to protect them. how do you respond to them in light of the fact dodd-frank was supposed to address the issue of systemic risk and get us away from the concerns and the

doubts and questions and lack of confidence that the american people have. that the financial system is working with integrity. >> senator, i would add to that the recent matter with barclays and libor that was not with integrity in essence. i would say this is midstream. this is a work in progress. dodd-frank is historic in the think is critical we get it in place. we have not been trying to rush it against the clock. if we have been trying to get it imbalance, but it is time to get it done. i think we have a lot of work to do at the cftc both in the futures and the swaps area. there will be greater transparency starting this fall that the public will see these swaps markets. we have greater customer protections. just as an peregrine's

circumstance showed, when somebody attempted to rob the bank. this is like a bank robber with falsified statements and taking $200 million. we have to do everything we can to ensure that is harder to do. in human nature there will always be somebody out there looking to defraud. you have to make it harder and have enough cops on the beat to go after them. >> you are confident the commission has types of safeguards in place? >> i think we are getting there. in terms of the swaps market reform, we are not really there. we need to continue to work with industry to make sure it is a smoothly implemented. it is not like a dog to moment on october 1, but if it is -- a gotcha moment.

there is a lot to do. just as the peregrine situation highlights it is critical that regulators have direct access and can see these accounts. >> let me ask a question because a lot of this comes back to use of segregated customer accounts. the volcker rule would apply. i would like to ask you how you distinguish between proprietary trading and hedging, which i think is the crutch -- the crux of the volcker rule. how would you make the distinction? >> i think it is one of the most challenging rules that congress gave it. prohibit proprietary trading so taxpayers do not stand behind betting on the markets but

permit hedging as well which is critical. it is critical banks heads themselves. we are making good progress but it is challenging. they overlap. >> what about portfolio hedging? is that some thing that should be allowed? >> congress said its hedges for specific risks or ever get positions. i think that should be allowed. congress answered that question. this word portfolio hedging can sometimes mean almost anything to anybody. if it is tied to specific positions, even if there are 100 of them, i think it should be allowed. not if it is just something that has a label but is really betting on markets. >> let me ask the whole question on how the cftc interact with

regard to capital and margin requirements. the commission initially said it would recognize the capital margin requirements. it is now indicated they will not. we're in the dodd-frank act is this distinction made? >> they are often registered as broker-dealers. we have joint rules on capital that have been in place for numerous years. we continue to share our work with them for the non a joint registrants. i think that we who set the margins for somebody who is not a broker-dealer and just under our jurisdiction, may be similar -- it maybe mr. cook has something. >> one of the proposals was to

recognize the use of models or evaluation at risk. there was some recognition if the sec approved a model the cftc would adopt that. i think that as part of a overall regime we're trying to recognize were other regulators have already addressed a particular frame mark, something we are considering on our end as well. >> since we are a thin staff we are glad to recognize models that they approve. >> ice -- i see my time has expired. >> thank you very much. senator lugar. >> thank you. i remember vividly hearing the that senator harkin conducted four years ago. it was the time of mortgage crisis. this oversimplifies the explanation we were given.

the gentleman from the federal government said, you must understand it this way. it young the bankers out in the neighborhoods coming together as many mortgages as possible. you even get bonuses. regardless of whether the borrower can pay it back. the bank then packages all of these mortgages, sends it onto a larger bank, has no risk left. the larger bank packages some more. the bigger packages finally arrives and financial institutions realize they have quite a bagful now. the risks are such -- they tried to devise formulas from 1 to 10. some are risky and some are less. they produce securities that have lots of risk attached. they tried to market those,

often successfully. those who buy the riskiest ones want insurance. the door to a firm might aig that was mentioned specifically in those days. aig offer insurance, but the testify as -- did testify that for opinions. what does all this about? somebody at aig might decide that a security in pakistan was the one that they wanted to have a trade off, swap or what have you with. and so they go into this situation. i mention all of this because it was a reasonable way to explain to my constituents why aig had to finally be rescued from all of these. and we had descriptions of able guys in the back room trying to

make money for in their banks or institutions with all sorts of extraordinary trades. people said this is the american enterprise system. this is a freedom of choice to use your money however you want to. the dilemma was the american public was left with a recession and all the tragedies that have come from this. this led to dodd-frank and other things prior to that point. even as he testified, over the years we always keep raising the question -- you raised it tactfully today -- how are all these regulations ever going to be written with the staff that you have? how can the cftc or other regulatory -- may be s b.c., to -- the answer never really comes through. --sec, too. there seems to be a tension between some who are risk takers

in our system and we admire and those who do not want regulation. the tension finally comes down to the fact that if we do not have money rule makers at the cftc, which will not have many rules. we passed dodd-frank and two years later we are asking where are all the rules, you're saying you have to go through this public notice and all the rest of it. i would be curious how you run the agency. why do you have people sitting a roundtable and say, make a decision. we're going to move this thing along. leaving that aside, it seems to me like we keep talking past the issue. on the one hand we know these risks occur. on the other hand, we seem ready to do rulemaking or have transparency with swaps for example or transparency with a lot of things. it is an invasion of privacy or a curtailment of american free enterprise. i lay this all out because i am

wondering how with 30 rolls down or 25 to go, how there is any assurance to the american public that in the meanwhile more tragedies are not going to occur. then get back to the argument of too big to fail. if an agency or entity makes a mistake, do they fail and take everybody with them? is there a public assurance they will be rescued? when you advocate before congressional committees for more staff, why are you not successful? why did you not make the rules and get on with a much more rapidly? what's these are excellent questions. i have three daughters. when they ask for the car keys i am glad there are common-sense rules to the road and traffic lights and the cops to protect my daughter's from drunk

driving. i think that is what the american public wants in the financial market as well. common-sense rules that allow you to get where you need to go and risk in the economy is there and it is the great backbone of our american success is that people can innovate. the head winds are very significant. we have gotten 33,000 comment letters. we have had 1700 meetings on it. you are going to have another round table on customer protection. we have two lawsuits already. it is our american way. we will vigorously defend them. if the courts as to get them on we will have to go back and do them again. i think that the american public needs us to finish these rules. i believe it is a good investment to have the cftc have more cops on the beat in essence like my doctors would like so that we protect -- my

daughters would like so we can protect the roads. >> paul volcker was talking about the fact, but as a depositor in my local bank to do not want the banks speculating with my money even if they can make more money on it. we try to separate these functions. will this work in real life? are people going to continue to protest that depositor money or what ever you want to call it is really up for grabs? can we get that part save? >> i think it is a real challenge. there will still be risk in banks. nobody is going to repeal there is risk in banks. i think they need to have the freedom to fail and when they fill the taxpayers do not peel them out. >> thank you. >> thank you, madam chair.

i agree with senator harkin in the sense we need to provide you with the adequate resources that you need to carry forth with the agency and provide oversight. i guess the question is perhaps, a lot of people are concerned you have mission creep that has creeped over to areas with duplicative entities. sometimes not really having the authority that dodd-frank gave the. i think you used the term "in the spirit of dodd-frank," whatever. i think an example of that might be the cftc has in their definition registration and things, initially will have 18,000 to 28,000 registrations despite having regulated many of

them -- many of them being regulated by their agencies. with the problems that we have had with situations where people have lost a lot of mount -- lost a lot of money, would you not be better off concentrating on the core role of the agency and getting back under control? >> senator, we are focused on a core role and mission to oversee the derivatives market. congress added the market swaps eight times the size. the cftc opened an investigation in 2008, april to look at a key benchmark where market regulated. there were bank regulators around the globe. we as a market regulator no it was critical. it did take us for years.

it is a very complex case. we are focused on the core mission. a score to the futures market place even before dodd-frank. we are also focused on what congress asked us to do to protect the public for the unregulated swaps market place that existed in 2008. >> let me ask both of you, are you doing a better job of working together and trying to come up with regulations that are in harmony with each other and not regulations that make it difficult as those who follow the regulations, for them to really feel like one agency is going one way and the other is going the other? >> thank you, sir. i think we are working hard to do that. in the spirit of the need for regulators to be critical, the jury is still out. we have not finalized our rules yet.

if you look over the rules, there are vast similarities or identical aspects of what we propose. there are important distinctions. i think we need to keep that in mind. if it is different we need to justify it based on some rationale. there are some differences between the markets we regulate. our differences on our statutes. i think we need to take a careful look at that as we move forward. >> your role is different than the other agency's role. can you tell us why you choose to roll it out in the way that you did as opposed to peace meaning it? >> we made a choice early on that we wanted to delay the effectiveness of the requirements. none of our substantive rules were triggered by the recent adoption of the product of the definitions because we were not sure where we would be in the

process. at that time we decided we were going to -- each time we adopted a rule, consider when it should go live. wanting to look back at the whole mosaic of the rules and see how they fit together and give people an opportunity to see how we sequence them and consider how to comment on them. that is the policy statement i mentioned a in my opening remarks that we put out as a way to help inform the debates. >> very good. you have taken a different view of that in your role. will you comment on that, and comment on how things are going and working with the -- with trying to get these things accomplished? >> one of the problems we have and you know this better than anybody. when there is uncertainty -- there is uncertainty in this area, there is uncertainty throughout our entire economy.

is such a drag on our economy. if you can comment that would be great. >> i forming a partnership, but it is the staff, really. there are roles that this congress asked the two agencies to do in 2000 that were not done when each of us got there eight, nine, 10 years later, yet we just completed two important financial roles jointly. that as a low bar, but we are doing so much better. in terms of moving forward, congress gave us oversight to what is approximately 95% of the overall swaps market -- the interest rate swaps market, the big energy swaps, the agricultural swaps are smaller. also credit defaults wops. that is the thing we got -- they

then have a lot of other things to do that you, congress, give them to do. in fairness to the sec, they have such a full plate. that is partly why we have taken another approach and have gotten so much completed. they have many other things completed in other lanes, not derivative is lanes. >> your approach is being -- >> our approach is that we finish our proposal phrase of about 55 proposals by about one year ago. then, we opened them all up to public comment, or mostly all of them, then we turned the corner and started to finalize roles about one year ago. we finalize 35 of them. many of them will now be implemented. we're living in the president's commitment to the g20 leaders that said we would complete this by december 31, 2012.

we're living what congress said to get rid within one year of dodd-frank, and now it is two years. the sec is in many other lanes. that is what we had the luxury to get our job done on this, or further get it done, before then. >> thank you. madame chair. >> thank you very much. chairman, i would like to talk a little bit more about libor. i appreciate your recent enforcement actions against barkleys. there is no question that this rate manipulation scandal is very significant -- implications of hundreds of trillions of dollars in transactions. it cast another cloud over the financial industry. are you working on similar cases related to libor? >> i would not want to compromise other enforcement matters, but i would say that numerous other financial institutions have publicly

reported that the cftc has been asking them questions. >> could you speak to the length of time that has taken? it is hard, from a public standpoint, for people to understand. we began this in 2008. what took so long? >> these are complex cases. we started in april of 2008, and started to review the markets and rita. i arrived in the spring of 2009. i remember this one pretty well. i got involved with the wonderful staff. evidence starts to populate by late 2009 and early 2010. we get the justice department and the financial services authority to normally -- formally opened a case in england in 2010. that is almost two years. what happens in a case like this -- there are millions of documents, and information

requests have to be handled overseas. sometimes the schedule, what are called into the is there, we call them deposition's year, takes a significant amount of time. -- we call the depositions here. this takes a significant amount of time. this involves two rates. this involved of these four other banks selling in its bank a, b, c, and d. aiding and abetting. this management directive, where management was saying, stay below the pair pat. over 14 orn the pact 15 month period. an important case -- we focused resources. i would also say that it started -- we have far fewer people on our libor team that are sitting at this table right now.

400 investigations going on at any particular time at the cftc. >> when you look at the terms of the settlement -- parameters for rate-setting that seem to dictate standards that bring integrity back into the process, firewalls, transitions, based submissions. when you are talking about the broader global lending implications, certainly of which there are many, did you work with the fed? did you work with international banking authorities on prescribing standards? how did you approach this? >> we work with other law enforcement agencies. when we pursue enforcement action like this, we work with other enforcement agencies and try to keep the parameters within that community. that protect the enforcement and does not compromise that enforcement effort. but i thank you for raising the undertakings. we thought barclays really

needed to do this better. they are committed to making a transaction-focused, based on real transactions. firewalls and other provisions are critical because of what they were doing, it was so pervasive. and it was ron. >> talk a little bit more about international harmonization and global coordination of financial market coordination. it is really a balance. we want to make sure we keep this important industry in the united states. at the same time, we are in a global marketplace, so there are broad implications. i know that there is some very important things to look at on both sides here. i am glad that year for post this, but -- you have proposed this, but i have some questions. for both of you, what sort of

coordination are you doing with the sec? in terms of this whole question of the global marketplace and international harmonization? >> we shared with the sec, the federal reserve, the treasury, the other regulators, not only our draft document, but we also started a year ago in consultation with the sec, and by about six or eight months ago, with the treasury department, particularly the group of international people there. we got a lot of feedback from the sec and treasury on our guidance. >> mr. cook, you want to respond to that? >> we have consulted extensively with the cftc staff. as we move forward, the state considers comments on their proposal -- i fully consider we will continue to do so. we have also been partnering up with international organizations, working groups in that area, but also some other

multi-natural conversations, including at least two meetings of regulators in key jurisdictions and agencies from around the world to talk about the timing, what the is of regulations th further seeks to harmonize. >> as you look at regulating branches of u.s. institutions at the transactional level, could he speak to the concerns that i now that there is a significant competitive disadvantage with u.s. entities versus foreign competitors -- how do we balance that american consumers and american investors? >> if we were to fully adopt what some in the industries have asked for, jobs would move off shore and risk would still be here. let me say that again. if we do not cover the branches

of bank of america and jpmorgan and citibank to do this business, guaranteed affiliates of morgan stanley and goldman sacks -- if we do not cover that in dodd-frank, the risk is still to the american taxpayers, and the jobs and markets will move to london and elsewhere. the they will go to where they can have less regulation. i used to do a bit of this when i was at one of those firms. it is natural. it is basically just planning. they have thousands of legal entities to pick from. we are taking in consideration how to best protect the american public and comply with dodd- frank. >> thank you very much. senator robert. >> one of the things i think is obvious is that, as the senator pointed out, the need for transparency and cooperation. just as a question to the chairman -- when did the

commissioners, or how the commissioners received your recommendations on mf global? >> i am not dissipating, so i assume your question is more broadly about -- participating, i assume your question is more broadly about consumer protection. >> i need your specific recommendation -- your plan for mf global. they did the investigation by the fbi and all the other folks involved -- you indicated your a non-participant, but then he said he wanted to be in control. i am assuming that you have a plan for mf global, a basic plan to go forward. have you share that with commissioners? >> i am not partisan bidding directly in that. in terms of customer protection initiatives -- i am not

participating in that. in terms of consumer protection initiatives, we use that with the national futures association -- >> you have said before the commissioners are working on recommendations, sharing things on recommendations. when did they get a copy or the final product in regards to your recommendations? >> the product is not yet time -- finalized. it started in january with staff meetings, lists of possible alternatives, and a lot of that led to -- >> you did not give the commissioners at 6:00 last night a copy of your recommendations? >> what they received yesterday is still a draft of rule taxed -- >> to receive a draft? >> that is correct. >> a draft recommendations? >> a draft of ruled taxed.

-- rule text. >> we are sort of dancing around here in terms of cooperation, or at least letting your commissioners know what the heck is going on. why did the cftc choose to address the cross-border issue by guidance rather than a formal rulemaking process? the obvious follow-up, was that so you could avoid the cost- benefit analysis the sec is doing? it seems to be indicating you are trying to direct or push this from the cftc standpoint so that the sec would follow when it comes to defining overseas reach of the u.s. derivatives regulation? that was a speech. you can respond to it any way you can. >> there is a specific provision in dodd-frank, which is not also over in the sec. i do not now the legislative history, what we have it and they do not. but we do. we have a lot of questions, i'm

sorry senator? >> i am concerned that what has been described as your intergalactic plan that nobody else besides you knows what is -- it to be taking our british markets over a if. -- could be taking our derivative markets over a if 3 winnowed the sec is doing. they have a plan. -- we know what the sec is doing. what is your plan? we have three swap agencies up today? >> swap execution facilities -- we estimate there could be close to 20. we have not yet finalized as. >> my understanding is that there is only one up in operation. >> swap execution facilities -- there are not any yet. we have not finalized the rules.

but you it -- if you are referencing swap data repositories, there is just one. there are four others that have various stages of application to become swap data repositories. >> mr. cook, can you confirm -- you have already indicated that the sec will be indicating its own cross-border proposal. is that true? >> yes, sir. >> willy and up with two separate and distinct cross- border regulations? >> i think that we will have to, as i mentioned, take into account closely what the cftc has done and consider if there are any differences in markets which may justify a difference in our proposal. one of the things that we found is that one of our rule making could propose alternatives -- it is important to get good comments to in formerly ultimately land. but we have not yet put out our proposal. >> i am worried about the two trains going in a different direction. why is the cftc to enter it

directly? why don't you have a 60-day clock at the sec? >> i believe a 60-day clock is triggered by the adoption of a product's release. on the cftc said -- site, the trigger is the application. >> one is an interpretive guidance, and the other one, basically, is rulemaking that involves a cost-benefit study, which cftc has not done. it seems to me that you have to bang different frameworks. is the sec requiring any registration, or even provisional registration, to be automatically triggered before its effects come into effect? >> -- rules come into effect? >> we're not requiring registration. >> i yield back, madam chair. >> thank you very much.

where are we? senator lugar -- senator bozeman. >at this point, we will thank mo -- both of you. we continue to work with you and appreciate the opportunities, formally and informally, as we have certainly been in communication with you directly and through staff. there's a lot of work left to be done. we look forward to working with you on it. thank you very much. >> thank you again. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> washington congressman adam smith, ranking member of the armed services committee -- he talks about sequestration, defense spending, u.s. policy toward syria, national security leaks, and other military issues. "newsmakers," sunday at 10:00 a.m. and 6:00 p.m. on eastern -- eastern on c-span.

>> trip was about those men and women who are almost mortally injured in war, who, because of the huge advances in medical trauma treatment over the last 10 years, and up being saved. an incredible number of them are being saved. almost everybody who falls on the battlefield is being saved. i wanted to write about what life was like for these people. i started off with the question, having seen some people who were pretty gruesomely maimed, or would it be better off if they were dead? do they wish they were dead? >> in "beyond the battlefield, " his 10-part pulitzer-winning series, and the subsequent book, david would spoke to veterans and families, as well as surgeons, combat veterans, and

nurses on those severely wounded in combat operations. learn more sunday at 8 on "quq &a" >> of the colorado theatre shooting is the topic of both weekly addresses. we will first hear from president obama, and then from republicans, with comments by house speaker john boehner. >> as many of you know, early on friday, at least 12 people were killed when a gunman opened fire in a movie theater in our rock, colorado. dozens more are being treated. some of the victims are being treated at children's hospital. we're still gathering all the facts about what happened, but we do know that the police have a suspect in custody. the federal government stands ready to do everything necessary to bring whoever is responsible for this heinous crime to justice. we'll take every step possible to insure the safety of all our people, and we will stand by our neighbors in colorado during

this extraordinarily difficult time. even as we come to learn how this happened, who is responsible, we may never understand what leads anybody to terrorize their fellow human beings. such evil is senseless, beyond reason -- but while we will ever -- not ever fully know what causes some to take the life of another, we do know what like -- makes life worth living. the people we lost in aurora lot and were left. they were sisters and brothers, sons and daughters, husbands and wives, friends and neighbors. they then had hopes for the future and dreams that were not yet fulfilled. if there is anything to take away from this tragedy, it is a reminder that life is fragile. our time here is limited and precious. what matters in the end are not the small and trivial things which so often consume our lives -- it is how we choose to teach -- treat one another and love one another. what we do on a daily basis to

give our lives meaning and purpose. that is what matters. that is where we are here. i am sure that many of you who are parents had the same reaction i did when you heard this news -- what if it had been my doctors at the theater, doing what young children enjoy doing every day? michele and i will be fortunate enough to halt -- hog art daughters a little tighter this weekend, as i am sure you will this weekend. for the parents who have not been so fortunate, we need to embrace them and let them know that we will be there for them as a nation. this weekend, however betty takes some time for prayer and reflection. the victims of this terrible tragedy, the people who knew them and love them, those are still struggling to recover, all the victims of less-publicized acts of violence applied our communities on a daily basis -- keep all these americans in our prayers. to the people of aurora, maybe

lord bring you comfort and healing in the days to come. >> i'm john boehner. my plan today was to share thoughts with you about the economy, but life, they said, is what happens wheyou are busy making other plans. there is still too much to sort out about the tragedy in colorado. words cannot capture the score or make sense of something so senseless, so i will not try. this much i know -- i know that, when confronted with evil we cannot comprehend, americans pulled together and increase our national family more tightly. we joined president obama in sending condolences and prayers to the loved ones of those who were killed and wounded. we all say, thank god for the police, the first responders, the doctors, and nurses, whose swift efforts saved lives 3 we count our blessings and come to be reminded that the death -- that of our grief also shows the depth of our love and results.

scripture tells us that the faith that sustained us is a substance of things hoped for and the evidence of things not seen. we may not yet seen or felt and comfort for this, but we will stand by them and stand together, as one nation in the difficult hours that lie ahead. may god bless the grieving families, and yours, and may god continue to bless the united states of america. thank you. >> this weekend on american history tv -- >> 30 years of the administrations of ronald reagan, bush, clinton, and obama -- they have done more to predict marks's prediction than 75 years of the soviet union. >> socialism in america -- a colombian history professor on the rise of socialism in 20th- century america. sunday, more from "the

contenders," a series on key political figures who ran for president and lost the changed political history. this week, thomas dewey. he rose to fame prosecuting depression-era gangsters, but the republican would lose to both fdr in 1944 and harry truman in 1948. american history tv, this weekend on c-span 3. >> tonight, a clock 30, -- at 8:30, women leaders take part in the national journal's conference on women in washington d.c. here's a portion of the discussion with kay bailey hutchison. >> do you think that you will see a woman elected president? >> yes, i do. >> when you think that will happen? >> i thought it would have happened by now. but i do think that it will happen.

i think that we are becoming so much more equal in our experience and credentials that it is less of a factor now. i think it will happen when the time is right. i think we are tough enough, we are treated pretty much the same, i think people do not think of us as women candidates as much anymore. they think of us as -- what do you want to do, what are your plans, what is your platform? they then vote their own interests. that is good, i think. >> let's go to the audience -- does somebody have a question? i have another question. let's pretend i'm a member of the audience.

you interviewed a male senator 15 minutes after he has won his first election -- he thinks he is already in the white house. not so much for himself, but for the good of the country. [laughter] you interview women who have been in the senate for model terms, like yourself, they do not seem to make that assumption, that the white house is where they are headed. why, in general, t think that is true? -- do you think that is true? lots of male politicians in texas think they should be president. this year, texans were running for the republican nomination. have you ever thought about running for president herself? if so, why did you decide not to? >> i have, and i would love to have had the right timing. but timing is everything in life. i talked to mike two children 11 years ago -- my two children 11

years ago. that took me out of the capability. i go home every weekend. i was not here to build my name identification in the way that you would if you were running for president. i have not been able to do some of the things that would prepare. also, up until really this year, it was kind of a given that the person with the most seniority and the most logical next step choice would run for president? . this year, amazingly, people just popped up and ran for president. [laughter] if i were 15 years younger and my children were already gone, i could have run for president.

but not under these rules back then. i would have loved to have run, but the timing was not right. i never felt, as you said, that when i was elected i was ready to run the country. i have met those people in the senate. [laughter] i do think that women generally are more humble. all the women who have been elected have had to overcome so much. they have had to mostly deal with running their homes, having children, the 24/7 experience of that, and then also, on top of that, overcome the obstacles to a woman's election, which we have had in the last 25 years. when i read my book, i thought about women trailblazers -- the women who were in the first, who

were in the arena first generally did not succeed to the highest level that they helped, but they did set the stage. it was the second wave of women in that field who did hit the top. i think, in many ways, that is -- i am in the first wave, and the next will be the one president. >> the conference focuses on women's issues and the challenges women still face in america. we will also hear from house minority leader nancy pelosi and white house adviser valerie jarrett. that is tonight, beginning at 8:30, on c-span. ♪ watch boat tv and american

history tv the weekend of august 4 and 5 as c-span's local content of vehicles explore the literary culture of louisville, kentucky, and the oldest independent bookstore. >> a lot of stores i have seen fail our stores opened by people who were interested in having a business, not having an attachment to books or a love of books. they were business people. i think you really have to have kind of a gut attachment to books to care enough about them. your customers will like that. they come because they really care about books. >> what american history tv in louisville, august 4 and 5 on c- span to an c-span 3. >> you are watching "the communicator's." this week, we are