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tv   U.S. Senate  CSPAN  April 30, 2012 12:00pm-5:00pm EDT

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the white house this these reviews? >> you know, we do whatever the administration asks us to do, and we don't do anything they don't. [laughter] >> good standard. thank you for that. doctor, do you want to comment on that at all? >> i agree with what dr. gerstein said. if you look carefully at the durc policy, within 60 days to give an inventory, within 90 days how you're going to determine how to do a risk mitigation. that was the first cut at making sure we know what's going on right now. ultimately, we are going to try and make sure that when you get down to the local level of the institutional biosafety committees, a lot of the kinds of monitorrings that will be done will be, essentially, automatic by well-trained people. >> um, i agree. um, let me ask this question. in your testimony, dr. fauci, you discuss nih-funded efforts to develop a universal influenza
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vaccine, and dr. inglesby highlights the ongoing efforts to develop vaccines focused on h5n1. i wonder whether the findings of these kinds of studies will lead nih and other organizations that fund vaccine research to increase the priority that you're placing on these kinds of research efforts. >> the answer is a resounding, yes. the situation, there are a couple of ways of getting rid of this problem. one of them i think dr. inglesby mentioned in his testimony, certainly in some discussions we've had, just kill the chickens that have h5n1 and make sure that we just get rid of the reservoir. that's very difficult to do because you have countries that are not very interested for economic and other reasons. the other thing is to have available countermeasures that actually work and work really very well. and the idea of getting a universal influenza vaccine is not only going to be very
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important for seasonal influenza so we don't have to keep chasing each year getting the right combination and matching it with what is circulating, but also it is a major, major countermeasure against the emergence of a pandemic. so we are putting a considerable amount of effort, and we've had some very encouraging scientific advances over the past just year and a half to two years on understanding much better the type of immune response that you need to induce in an individual to cover virtually all strains. we're not there yet, but this is something that we see the light at the end of the tunnel. it's always risky to predict when you're going to get a vaccine for whatever, but unlike it was a few years ago we now see that we have the scientific mechanisms and where withall that we are on the road to developing a universal flu vaccine. >> well, that's tremendously encouraging, and, of course, that's exactly the kind of work even in a budget-constrained
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atmosphere i hope we'll find adequate funds for. do you want to comment on that at all, doctor? >> i would say that it is extremely encouraging, it's exciting. if we had a universal flu vaccine, it would change the risk equation for everything we've talked about today in the realm of influenza, so i would just strongly support the efforts that are going on at nih, bar none, on that. >> i have a final question which is the kind of question, i must say for the benefit of staff, that my friend and colleague from delaware, senator carper, would normally ask if he were here, which is, um, incidentally i've learned a lot from the testimony today, and overall i'm reassured by the government policies that have been put into effect and the decision making process. we haven't even at the far end that we've set up a process that considers and values risk mitigation and says in some cases it may be that there'll be a decision that research shouldn't proceed because it's
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impossible to adequately mitigate the risk. so the question senator carper would ask, i believe, if he were here, is if you were a member of the committee -- and you probably, well, no, i want you to assume that you have the knowledge you have -- is there anything more that we with our primary concern about homeland security ought to be either asking the government to do or doing ourselves either by way of encouraging regulation or in the extreme some kind of legislation? dr. inglesby, why don't you start first. >> i don't see at this point any legislative or regulatory proposal that would substantially improve the situation. i do think it's very useful to have oversight like this on the development of the new policy because i think there are a lot of things on the way that are going to be challenging. i think, for example, understanding the criteria for
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risk assessment and how we manage those risks is going to be very important. i think the composition and responsibilities of the nsabb will be very important. so asking questions, reasonable questions of government about how this is working as we involve it is very important. and i think in particular paying attention to the very specific case of h5n1 mammalian transmisabout research, i agree that while the decision has been made to move on to publication for this experiment -- which i am concerned about -- i think the next issue is going to come up relatively soon unless there's a change in course. i think that will come up again, so i think you have to pay attention to that. >> thank you. dr. keim? >> so i guess i would reiterate what tom just said, that the new policy and how it's implemented is going to be very key. one thing that i think was an important role that the nsabb played here was we are an independent body. we were nongovernment. >> right.
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>> i think it's very important that you have external eyes as part of this new policy. there are inherent conflicts of interest between the funding agencies and the investigators, and the investigators themselves. and what was a unique role that we played in this was, we were outside the small influenza research community, and we were independent of the funding agencies, and we were able to look at this in a way that i think is unique, and i think that's an important part to what needs to happen. >> i agree. dr. gerstein. >> well, thank you, senator. well, i go back to the original remarks i made that i think it's a very complex issue, it requires balancing outcomes. we don't want to do something precipitously that's going to have a deleterious effect on the science. on the other hand, we have a very important mission in homeland security that we must insure is well served. we do have to avoid red lines because the minute you put out a red line, somebody's going to figure out a way to cross it. so the best way to do it is
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through very thinking, very judgmental-type bodies like the nsabb that has played an extraordinarily important role in getting us through these two papers and understanding what was going on with those papers. so it really does come down to a matter of judgment. on the question of, the direct question do we need legislation right now or regulations, i would say the executive has a lot of work to do to work through the policies as we talked about, the 29, march, government policy is a first step. we are making great headway. we're continuing those deliberations. we are learning from each other. we think in dhs we've got a lot of good policies that we've got implemented. we're sharing those to the maximum extent possible. so i would like to put down a marker that says perhaps later when we've had some more time to administer meat to the bones that -- add more heat to the
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bones. >> that makes sense. i hope you'll do that. dr. fauci? >> mr. chairman, i don't see any immediate legislative issue that would be appropriate at this point, but i think when you asked if i were on the committee, what would i do, i think what you just did today was really a very important thing. that's really very beneficial to this difficult process that we're going through, particularly with the new policy and trying to get it right and implement it right. and the fact that an important committee like this committee with yourself as chair are actually interested in the subject, are looking at us, and we know that we'll come back to you sometime and maybe soon to just give you follow up about how we're progressing on the implementation of this policy. so you've already done something, i think, that's very important and valuable to us because not only here in the united states, but globally people are aware that the united states senate and this committee is interested in this problem. and that adds a degree of seriousness to it which we appreciate. >> well, i appreciate you saying
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that. and that, clearly, is our intention. so let's agree we'll keep in touch. you know, we want the benefits of scientific inquiry. we need them. we also need to mitigate risk. and i think the policy that we have now is, clearly, aimed at doing exactly that. so we'll follow it to see how it's going, maybe we'll come back again and do one more hearing toward the end of the year. but i thank you very much for the work you did on your prepared testimony which will be entered into the record of the hearing and for the testimony this morning. we're going to leave the record of the hearing open for 15 days for any additional questions or statements. with that, i thank you very much, and the hearing is adjourned. [inaudible conversations]
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[inaudible conversations] >> you can find out more about the homeland security and be government affairs committee and other committees with the c-span congressional directory. it's a complete guide to the 112th congress, and inside you'll find each member of the house and senate including contact information, district maps and committee assignments and also information on cabinet members, supreme court justices and the nation's governors. you can pick up a copy for $12.95 plus shipping and handling at c-span.org/shop. next month nato leaders gather at a summit in chicago, and this afternoon on c-span2 a look at the future of nato from the center for strategic and international studies. we'll hear from the national security council's senior
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director for european affairs. and, again, that discussion live here on c-span2 at 2:00 eastern. and every day this week on c-span2 at 7 p.m. eastern, q&a interviews on education in america. tonight, carrie nelson, president of the american association of university professors. he says social, political and cultural forces are undermining academic freedom at colleges in the u.s. on tuesday, new york naomi scha, on wednesday gerald turner, and thursday, andrew ferguson, author of "crazy u." and finally, on friday madeleine sackler who made a documentary on the lottery system used to select students in new york city's charter schools. q&a on education every day this week at 7 p.m. eastern here on c-span2. the aclu has believed for some time that police
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departments around the country are tracking people's cell phones on a routine basis often without getting a warrant based on probable cause. >> should tracking a cell phone require a warrant? tonight, american civil liberties union attorney catherine crump on police use of technology for surveillance purposes and be whether current law adequately protects an individual's right to privacy at 8 eastern on "the communicators" on c-span2. tonight on c-span2, booktv in prime time with a look at u.s. senators. starting at 8:30 p.m. eastern with former pennsylvania senator arlen specter on his autobiography, "life among the cannibals." john -- and at 10, al simpson, a biography about the former wyoming senator. the senate banking committee last week held a hearing on the
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bankruptcy of the financial firm mf global. in the days before mf global collapsed, $1.2 billion of customers' money disappeared. trustees overseeing the bankruptcy and federal regulators testified. senator richard shelby chaired the almost two-hour-long hearing. >> i'll call this hearing to order. today's hearing will examine the lessons learned from the collapse of the mf global, the misuse of customer accounts by one of the world's largest commodities and derivatives brokers has shaken confidence in our markets and deserves a thoughtful discussion of how to better protect farmers, ranchers and investors going forward. but before we get to these
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important issues, i would like to express my deep concern that almost six months after mf global's bankruptcy thousands of former customers, including hundreds of south dakotans still have not recovered the $1.6 billion removed from what should have been protected customer accounts. i know that the trustees, regulators as well as the fbi and justice department continue to investigate what happened in the final chaotic days of mf global. but these customer funds must be returned without further delay to the rightful owners, and these individuals and executives responsible must be held accountable to the full extent of the law. lastly, it is not acceptable for
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mf global executives to be given bonuses when customers have not recovered funds improperly taken by them, by mf global. i thank senator tester for his leadership on this issue. since the collapse of mf global in october, 2011, my staff has worked closely with senator shelby's staff in conducting extensive interviews and due diligence with regulators' self-regulatory organizations and other parties involved in overseeing mf global in its bankruptcy. we have also coordinated with the senate ag committee which has primary jurisdiction over matters involving commodities, and be holding a series of
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bipartisan briefings where all senate staff with representatives of the organizations before us today to help our constituents impacted by the firm's downfall. as investigators seek to recover mf global customer funds and hold accountable those responsible for any wrongdoing, this committee will focus their attention on preventing future abuses and the other critical public policy issues raised by the collapse of mf global. today's hearing provides a unique opportunity to ask an important set of questions: how can we strengthen protections for customer accounts and broker dealers including those firms that hold u.s. customer funds abroad? given the size of the shortfall
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in mf global's customer accounts, what should congress understand about the idea of extending to commodities accounts similar insurance protections that are currently available to securities accounts under the securities investor protection act? how can, and how we can continue to improve regulatory oversight and coordination over large, complex mobile financial institutions. mf global may also provide some early lessons about the wall street reform act since the it is the first collapse of a my your financial -- of a major financial institution since the law's passage. for example, the story of mf global teaches us that effective customer protection and market
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oversight demands that we fully fund our regulatory cops on the beat. in hindsight, there is little doubt that the regulators responsible for monitoring mf global should have taken additional steps. by shortchanging the cftc or sec of much-needed funding will only force them to delegate even more authority to self-regulatory organizations -- market surveillance. running costs prevent regulators and firms to send staff for crisis, the american people and market confidence pay the price. additionally, a key pillar of the wall street reform bill was it end too big to fail. and if mf global can demonstrate
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anything, it is said those who take the risky bets that bring down their companies are now afraid to fail and will not receive any more taxpayer bailouts. to preserve time for questions, opening statements will be limited to the chair and ranking member. however, i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i now turn to ranking member shelby. >> thank you, mr. chairman. thank you for calling this very important hearing. the collapse, the collapse of mf global is one of the largest bankruptcies in u.s. history, and the greatest consumer protection failure since the enactment of the dodd-frank act. it's been six months or more since mf global filed for bankruptcy, and the ownership of $1.6 billion in customer assets
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remains in dispute. hundreds of mf global customers are still waiting to learn how much, if any, of their funds will be returned to them. the disorderly failure of mf global occurred despite the fact that it was regulated by not only the cftc and the sec, but also the financial industry regulatory association, the chicago board options exchange, the national futures association, and the chicago mercantile exchange. the job of each of these regulators was to insure that cus per -- customer assets were protected. that $1.6 billion in customer assets remains subject to ownership dispute, that remains subject to ownership dispute reveals a serious regulatory failure, i believe. accordingly, the purpose of today's hearing should be to help the committee determine which regulators failed to do their job and why. to assist this effort, i ask the
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cftc inspector general last november to examine the commission's oversight and regulation of mf global. the inspector general's find beings, along with other ongoing investigations, should assist congress in its efforts to hold regulators accountable for any identified failures. i also ask the cftc's inspector general to determine whether chairman gensler's refusal -- recusal was appropriate and whether he should have recused himself much earlier in the process. prior to mf global's bankruptcy, chairman gensler had multiple contacts with mf global and its ceo, jon corzine, concerning the cftc's regulation of the firm. if a recusal was appropriate, it seems it would have been more appropriate to do it at the start of mr. corzine's tenure
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rather than after the firm had failed. furthermore, this committee's due diligence has revealed that chairman gensler played an active role in the oversight of mf global during the week leading up to its failure. yet chairman gensler's recusal now shields him from explaining his actions. i believe this is unacceptable. chairman gensler owes the public a full accounting of his role in the fall of mf global. it appears by his absence today, however, that we will have to wait a little bit longer for such an accounting. mf global certainly will not be the last financial firm to fail. failure's an inevitable part of the free market system. but our goal should be not to protect the private market from failure, our goal -- i believe -- should be to establish a credible regulatory system that protects consumers while leaving the market free to innovate and to expand. we must then hold that regulatory system accountable
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for its failures. this is exceedingly difficult. however, when one of the main participants refuses to speak here. i look forward to the testimony today, and be i thank our witnesses for appearing. perhaps one day, mr. chairman, we will hear from mr. gensler. today does not appear to be that day, however. thank you. >> thank you, senator shelbyment i will briefly introduce our witnesses. mr. james w. giddens is the trustee for the curtis investor -- securities investor protection act of mf global incorporated. the honorable louis freeh is a trustee from mf global holdings. the honorable jill sommers is a commissioner for the commodities futures trading commission. mr. robert cook is the director of the division of trading and
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markets for the u.s. securities and exchange commission. mr. richard -- is chairman and ceo of the financial regulatory industry authority. mr. terence a. duffy is the executive chairman of the chicago mercantile exchange. i thank all of you, again, for being here today. i would like to ask the witnesses to, please, keep your remarks to five minutes, your full written statements will be included in the hearing record. mr. giddens, you may begin your testimony. >> chairman johnson, ranking member shelby and members of the committee, thank you for inviting me to testify. i take seriously my duty as the trustee of mf global inc., to treat commodities securities customers and general creditors
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equitably. i would like to provide some proposals that may merit further study and, of course, input from regulators, industry experts and the public. a lack of supervision and inattention to maintaining segregation of customer accounts caused the shortfall of customer funds. thus, a possible remedy is imposing personal liability on senior officers and directors when there is a regulatory shortfall. consideration should also be given to requiring not only financial operating principles, but senior officers including the ceo and the cfo to certify compliance with commodities segregation requirements on a much more frequent basis. secondly, i suggest the establishment of a commodities customer protection fund. we found that more than three-quarters of the
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commodities customers had accounts of a value of less than $100,000 each. thus, a fund providing for protection of up to a maximum of $100,000 would have made a substantial number of the claimants whole within days of the bankruptcy filing. third, we have learned that many commodities' customers have not fully understood the nature and risk of certain financial products in which their funds were invested. currently, commodities customers are not subject to security requirements as are securities customers. in my view, they should be. as a fourth suggestion, futures, commission merchants might be required to segregate an amount in excess of 100% of customer funds. that would help insure that there is a sufficient cushion at all times for commodities customers. let me now turn to funds held for u.s. customers trading on
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foreign exchanges. under current rules fcms are not required to calculate the segregation requirements for foreign trading in the same way as they do for domestic trading. reliance on this alternative calculation resulted in a substantial difference in funds segregated. the alternative calculation, had it been in place, would have required a greater segregation. the alternative calculation should be eliminated. finally, i believe there is a great need for international cooperation on insolsolvency la. customers would benefit from greater harmonization of the rules governing the segregation of customer funds for both commodities and security customers. i've been engaged in an active discussion since november with the administrators of mf global/u.k. limited concerning the return of approximately 700
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million of commodities customers' property. this dispute is now being submitted to the u.k. courts for resolution. in concluding, my staff and i continue to work as quickly as possible to return assets to all claimants. we have distributed in excess of four billion. we have sought court approval to distribute an additional 685 million to commodities claimant plants. thank you, chairman johnson, ranking member shelby and other members of committee for this opportunity to testify before you. >> thank you. dr. freeh, please, proceed. >> thank you very much. good morning, chairman johnson, and senator shelby, and your colleagues. thank you for the opportunity to appear here. you have my opening statement, i just want to highlight a few things for you and leave sufficient time, obviously, for your questions and my colleagues on the panel. um, i was appointed as the chapter chapter 11 trustee effective
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november 28th of last year. there are in addition to mf global holdings, five other subsidiaries to which i am act as the chapter 11 trustee. i think everyone understands the functions of the chapter 11 trustee very distript and very -- distinct and very different from my colleague, mr. giddens. under the bankruptcy code, my obligation is to investigate the acts, conduct, look at assets, liabilities and the financial condition of the debtors among other things. unlike mr. giddens who is charged primarily with the return of customers' investment property, the responsibility of the chapter 11 trustee is to maximize the value of the estate for the creditors. and we have a list of many creditors, including the top 20 which is, i believe, in the materials. when i was appointed in
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november, i landed in the middle of a number of issues. first, the very ongoing, active investigations by the agencies represented here this morning, in addition to two federal prosecutors' offices as well as the cipa trustee. one of my first challenges was to understand what documents the chapter 11 trustee and the's candidates -- the estates controlled so i could make some arrangements and insure that the investigators could access the information they needed without compromising any of the privileges that i have a fiduciary responsibility to protect. so we looked at thousands of materials, my team and i which cysts of lawyers, and financial investigators. we determined what the materials were over which we had authority and jurisdiction. we reviewed thousands of pages,
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and we then set in place a process that would quickly produce documents to the investigators. we did a limited waiver of the existing privileges that may ap pertain to the chapter 11 trustee, and i was happy to say that, ultimately, all those issues were resolved, and the process of producing evidence to the investigators has gone forward expeditiously. um, we are very sensitive, of course, to the fact that many customers have lost huge amounts of money and collateral that was entrusted to, in this case, the subsidiary mf global inc.. we have scrubbed our own cash collateral upon direction by the bankruptcy judge to make sure that none of the cash collateral in the estate is in any way related to or would be part of the customer accounts. and we concluded with no
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disagreement from mr. giddens and his staff that the cash collateral that the estates now possess does not include any misappropriated or misdirected customer funds. let me also talk, and i'm pleased to be able to talk about the subject of bonuses. this was raised very appropriately, senator tester, by you and your colleagues. the source of this was, as you know, a media report, and i don't have control over's in the media -- over what's in the media no more than anybody in this room does. but i want to make it very clear, it was never my intention to pay any bonuses, i never had any plan in place to pay bonuses to senior executives. i read the story with a lot of surprise. there had been no discussion between myself and my staff about bonuses to senior executives. and bonuses are not part of my consideration now, and they have not been in the past. so i want to be as clear as i can about that.
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um, my responsibilities as trustee is to maintain the people that i need right now to help administer a cost-efficient and well-administered estate. so there are 15 employees. these are non-insider employees who worry about tax, who worry about financing, unwinding transactions. they're all working at this point on salaries. the three senior executives who have been, i believe, before the senate are working on one salary. if i had to negotiate with any of the employees, the 15 non-insiders, to stay onboard because there's a $22 million tax refund i need to get for the estate, they have the experience. you know, i will set fair and competitive salaries with them if they don't agree with them,
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then that's not going to work out. i want to remain transparent as i must in this bankruptcy process. everything i do is subject to review not just by the trustee, but the bankruptcy court. all of our fees, all of our expenses have to be reviewed there. so i want to conduct the chapter 11 debtor's candidates with full transparency and cooperation. and in closing, i just want to say i've worked very cooperatively with mr. giddens. our staffs are in sometimes daily contact. we meet on a regular basis. there will be times when our interests diverge just as the interests of other parties in this very complex and, i think, long-running bankruptcy will occur. but we have some very clear and immediate common goals which is to get as many assets back to the estates as possible and
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then, ultimately, courts in england, perhaps the bankruptcy court in new york, will ultimately make decisions about how those assets are distributed. but sharing the information, getting the assets, returning them is a very common, critical need. from the perspective of the sipa trustee, i very much endorse the six very important considerations that he sets fort, paragraphly on the international cooperation. we have a lot of assets we believe that are in the u.k., but the u.k. has a separate administrator, is a separate court system. we don't have privity as the holdings company to challenge and file some of the claims as the subsidiary inc. will do. but it is a very difficult task to get tacts and retrieve asset -- get facts and retrieve assets overseas. so some restrictions about how segregation should be mandated for investors overseas, i think,
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is a key one from the point of view of the chapter 11 trustee, and i would just emphasize that. thank you very much. >> thank you. commissioner sommers, please, proceed. >> good morning, chairman johnson, ranking member shelby and members of the committee. thank you for inviting me today to discuss the collapse of mf global, lessons learned and policy implications. on november 9th of 2011, the commission voted to make me the senior commissioner with respect to mf global matters. this authorizes me to exercise the executive and administrator functions of the commission solely with respect to the pending enforcement investigation, the bankruptcy proceedings and other actions to locate or recover customer funds or determine the reasons for the shortfall in the customer accounts. while i am happy to be here today to testify, the scope of my election as senior commissioner for mf global matters does not extend to the
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market-wide policy implications arising from mf global's failure. chairman gensler remains in charge of directing commission staff to develop recommendations for enhancing commission and designated self-regulatory organization programs that are related to the protection of customer funds and has instructed staff to do so. my focus has been on making sure that the commission is doing everything it can to facilitate the recovery of customer funds and to bring those responsible for any violations of the commodity exchange act or commission regulation to justice. towards or those ends, over the past five and a half months commission staff has conducted a thorough analysis of the books and records of mf global. and continues to work closely with the trustee in the sipa bankruptcy. we are also engaging in a come prehencive and ongoing
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enforcement investigation. it is imperative that the commission, the industry and the congress identify and assess the causes for the collapse and shortfall in customer funds. and to take corrective action where possible. we must do everything in our power to restore confidence in the futures markets so that producers, processers and other end users of commodities can once again hedge their price risk without fear of their funds being lost of frozen. section 4d of the cea and commission regulations require that an fcm holding customer funds treat such funds as belonging to the customer at all times. fcms are prohibited from using a customer fund to margin or guarantee the trades or contracts of another customer or of the fcm. and the fcm must maintain sufficient funds in segregated accounts to cover the net
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liquidating equity of each of its customers at any given point in time. our regulations also require an fcm to hold customer funds deposited for trading futures and options listed on foreign boards of trade in separate accounts known as part 30 secured accounts. the part 30 rules provide for an alternative calculation of the amount of funds required to be segregateed but does not afford the same protections at the net liquidating equity that is used for section 4d funds. this is something that i think should be changed. the act and the commission regulations establish a regulatory structure where front-line financial regulation is performed by designated self-regulatory organizations. the chicago mercantile exchange and the national futures association are the two primary futures market dsros. fcms are subject to
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cftc-approved minimum financial and reporting requirements that are enforced in the first instance by the dsros. many fcms are also register with the the sec as broker-dealers. these duli registers fcms -- to insure that all activities are properly reviewed, futures and securities regulators including sros coordinate their regular ha story oversight. regulatory oversight including periodic meetings of the intermarket surveillance group. mf global was, therefore, subject to the jurisdiction of both the cftc and the sec. the cme was the dsro for mf global's futures markets activities and had primary responsibility for overseeing the fcm's compliance with capital, segregation and financial reporting obligations
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required by the cftc. prior to the bankruptcy, the futures and be securities regulators shared information and examination results regarding mf global. in august of 2011, mf global filed revised financial statements and regulatory notices with the cftc as a result of additional capital charges at fen rah and the -- that finra and the sec required the broker-dealer to take on -- with regard to certain repod maturity transactioned on foreign sovereign debt. at approximately the same time, the sec staff contacted cftc staff to inform us of the capital charges. the cftc staff also consulted with cme, finra and sibo regarding the imp decision and rationale for these additional charges. commission staff consulted with domestic and foreign regulators during the period of october 24th through october 31st as
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well as in the critical hours leading up to the bankruptcy filing. at the direction of chairman gensler, commission staff continues to review customer fund protection provisions of the commodity exchange act and our commission regulation to identify possible improvements. while the staff has not yet proposed amendments, it is expected they will make relations. at a minimum, i believe that changes should be made to our part 30 rules so that customer funds held for trading on foreign markets are subject to the same net liquidating calculations as section 4d funds; that more information be provided to customers regarding how their funds are held and invested and that more frequent reporting be provided to regulators and that fcms' internal controls for the handling of customer funds be strengthened.
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i understand the severe hardship that mf global's bankruptcy has created for thousands of customers who have not yet been made whole. these customers may have correctly understood the risks associated with trading futures and options, but they never anticipated that their segregated accounts were at risk of suffering losses that were not associated with their trading. the shortfall in customer funds was a shock to the market from which we have not yet recovered. i believe the commission can make improvements to our regulatory oversight of fcms and dsros to help restore confidence in the futures market, and i will help the commission and congress to implement the rules necessary to enhance our ability to protect market users and to foster open, competitive and financially-sound markets. thank you. >> thank you. mr. cook? please, proceed. >> chairman johnson, ranking member shelby and members of the
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committee, good morning. my name is robert cook, and i'm the director of the division of trading and markets of the securities and exchange commission. thank you for the opportunity to testify on behalf of the commission concerning the lessons learned and policy implications of the collapse of mf global. the bankruptcy of mf global has resulted in serious hardship for many of its customers who have experienced significant delays and uncertainty with respect to the ability to access their own assets. more broadly, the failure of mf global and the shortfall in customer assets highlight the need for financial firms and for regulators to remain vigilant in insuring that customer assets are appropriate ri protected. sec rules are designed to protect customer property by prohibiting broker-dealers from using customer funds and securities to support their proprietary positions and expenses. broker-dealers that hold securities or cash for customers must maintain physical possession or control over securities that customers have
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paid for in full and cannot use these securities to support the firm's own business activity. further, when broker-dealers extend credit to allow customers to buy securities on margin, the rules strictly limit how much of these securities the broker-dealer can pledge to finance the credit that's extended to customers. the rules also protect cash held for customers or derived from customer securities by requiring the broker-dealer to maintain a reserve in a bank account for the exclusive benefit of customers in an amount that exceeds the net amount owed to customers. these funds cannot be invested in any instrument that is not guaranteed by the full faith and credit of the u.s. government. together with applicable sec requirements and protections under the securities investor protection act, this regime is designed to insure that if a broker-dealer fails, customer securities and funds will be available to be returned to those customers. the preferred method of
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returning securities' customer assets in a sipa liquidation is to transfer those assets to another broker-dealer. on december 9th, the bankruptcy court approved the accounts to a solvent broker-dealer. this transfer apply today approximately 318 accounts held for non-affiliated securities customers. the trustee has reported that since the transfer nearly all former mf global securities customers have received 60% or more of their account value. 194 customers have received the entirety of their account balances. we understand that those 190 of our customers include anyone entitle today a sipa advance of a equity claim of up to $1.25 million. generally, the rules governing protection of customer funds and securities have worked reasonably well over time, but we are considering whether there are ways they can be strengthened. for example, the sec has
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proposed to clarify and strengthen the rules governing audits of broker-dealers including an auditor's examination of the effectiveness of broke or-dealer controls relating to the custody of customer assets. the sec also continues to work with self-regulatory organizations or sros to strengthen broker-deal financial responsibility requirement. for example, in june of last year the sec approved a finra rule requiring the establishment of registration, qualification and examination and continuing education requirements for certain operations or back office personnel including those who handle customer assets. this rule should help insure that those responsible for these operations are fully verse inside their legal obligation, including those relating to the segregation and protection of customer assets. in february of this year, a modernization task force issued 15 recommendations to the sipc board including proposed
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staffing changes. the sec staff is evaluating these as well, several of which are direct today the scope and dollar limit of customers in liquidation. the sec is also engaged in a number of efforts both domestic and international to share more and better data and qualitative assessments of firms and markets and to do so in a timely way. some of these efforts involve improved coordination with the sros, include establishing more frequent meetings with sros with oversight responsibilities. thank you again for the opportunity to testify on this important summit, and i look forward to answering any questions you may have. >> thank you. mr. kevin channel, please, proceed. >> chairman johnson, ranking member shelby and members of the committee, thank you for the opportunity to testify today. my name is richard ketcham, chairman and ceo of finra. when a firm like mf global fails, there is always value in reviewing the events examining
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where rules and processes might be improved. clearly, the continued impact of mf's global customers who cannot access their fund is of great concern, and every possible step should be taken as quickly possible. with respect to the oversight of mf global's financial compliance, finra shared overall responsibilities with the sec, of course, and the chicago board options exchange which was the dedicated examining authority or dea for mf global. when finra's not the dea for one of its regulated broker-dealers, we work closely with the dea and routinely analyze the focus report filings and annual audited financial statements as part of our ongoing oversight of the firm. while that monitoring focuses on a broad range of issues, it is particularly relevant to note that our surveillance team placed a higher focus on exposure to european sovereign debt, and in april and may of 2010 we began surveying firms. in the review of mf global's
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audited financial statements filed with finra on may 31st of last year, our staff raised questions about a footnote disclosure regarding the firm's rtm portfolio. during discussions with the firm, finra learned that a significant portion of that portfolio was collateralized by approximately $7.6 billion in european sovereign debt. according to u.s./gap, rtms are afforded sale treatment and, therefore, not recognized on the balance sheet. not withstanding that accounting position, the firm remained summit to credit risk throughout the life of the repo. beginning in mid june, finra had discussions with the firm regarding the proper treatment of the rtm portfolio. our view was that while recording the repos as sales was consistent with gap, they should not be treated as such for purposes of capital rule given the market and credit risk those positions carried. as such, we asserted that capital needed to be reserved
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against that position. finra and the cboe also had discussions with the sec about our concerns. the sec agreed with our assertion that the firm should be holding capital against these positions. the firm fought this interpretation throughout the summer going directly to the sec before eventually conceding in late august. mf global infused additional capital and made regulatory filings on august 31st. on september 1st, it notified regulators of the identified capital efficiency. following this, finra added mf global to alert reporting, a heightened monitoring process whereby we require firms to provide weekly information including net capital and reserve formula computation. during the week of october 24th, as mf global's equity price declined and it credit rating was cut, finra increased the level of surveillance over the firm. at the end of that week, finra was on site with the sec as it became clear that mf global
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would continue to be a stand-alone business. our primary goal was to locate the customer securities and to work closely in hopes of avoiding sipc liquidation. as has been widely reported, the discrepancy discovered ended those discussions. while finra believes that the financial securities rules of the sec combined with sipc create a good structure for creating customer funds, firm failures provide an important opportunity for review and analysis of where improvements may be warranted. finra's identified changes that could be made to better protect customers and their funds through both our own rule-making process and also in terms of coordination with our regulatory counterparts. most recently, finra and the chicago mercantile exchange established regular coordination calls so our respective staffs can share information about the approximately 50 firms that are both broker-dealers and fcms. in addition, we've initiated a series of briefings on select
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firms, domestic and international regulators, the securities and futures. our next briefing will be in june, and we've expanded a list of the regulators and sr os included in the event. we have also continued rulemaking efforts. starting in october finra-regulated firms must file additional operational reports that capture more granular detail about a firm's revenues and expenses. and last week finra's board approved an additional report that would inform the assessment of off-balance sheet activities on firms' net capital, leverage and equity. finra shares your commitment, we will continue to review our own rules and procedures and reach out to our fellow regulators to identify areas where current processes may be enhanced. again, thank you for the opportunity to share our views, i'd be happy to answer any questions you may have. >> thank you. mr. duffy, please, proceed. >> chairman johnson, members of the committee, thank you for the opportunity to testify,
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respecting lessons learned from the collapse of mf global. i have previously testified respecting mf global's miscushion of customer funds. today i will summarize our efforts in the industry to retore customer confidence. the shortfall in customer-selling redated funds was limited to the funds under mf global's control. the customer funds held in segregation by cme's clearinghouse to cover futures positions were complete. our ability to transfer the positions and the collateral of our customers was undone by a provision in the bankruptcy be code requiring pro rata loss sharing among all customers. we believe that congress can help protect customers whose collateral is safeguarded at a clearinghouse. it can do that by changing the bankruptcy code to permit clearinghouses to transfer fully-collateralized customers to other clearing members despite a failure of their clearing member. the industry is united in its search for solutions that will restore confidence in regulated
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futures and derivatives markets. obviously, changes in the bankruptcy code are not easy or quick, and it is constructive to look at a wide range of a actions that can implemented without legislation. cme group, along with other exchanges in and the national futures association, has proposed four forms of preventing misuse of customer funds. the association, on behalf of its members, also proposed enhanced reporting and greater transparency. c, america group -- cme group is implementing proposals which includes statements by all fcms, two, additional surprise reviews of customer-segregated accounts, three, a requirement that the fcm's ceo or cfo sign all 25% exceeded amounts, plus immediate notification to cme and, four, bimonthly reports reflecting how segregated funds are invested and where they are
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held. cme has also challenged the industry to commit to seeing whether other institutions will better serve the needs of the industry. cme's working with its clearing members to find a structure that will protect the collateral against fellow customer and fraud risks. we are committed to finding a solution that will provide strong protection for the segregated funds of futures and swap customers from a legal, operational and cost benefit perspective without destroying the industry's business model. in addition to these regulatory initiatives, we also recently lawned the cme group family farmer and can rancher protection fund. it's designed to protect family farmers and ranchers in the event of shortfalls in segregated funds. we hope these steps will give additional confidence after the failure of mf global. the misconduct of mf global, however, should not serve as the reason to undermine the current m of front-line auditing and
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regulating by clearinghouses and exchanges. some critics suggest that the current regulatory system is compromised by conflicts of interest. there is no conflict bees of interest in cme's duties to the cftc, to its customers and its shareholders. cme's duties to its shareholders require that it diligently keep its markets fair and open by regulating all market participants. federal law mandates an organizational structure that eliminates conflicts of interest. the current model has served the futures industry, its customers and the public very well. we look forward to working with the congress and the regulators to enhance customer protections and foster confidence in our markets. i thank you for your time this afternoon. >> thank you. i would like to thank all of our witnesses for their testimony. as we begin questions, i will ask the clerk to put five minutes on the clock for each member.
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judge freeh, just to be clear given that $1.6 billion of customer funds has yet to be recovered due to mismanagement or possible illegal transfers by mf global, can you commit to us today that your office will not be seeking bonuses for any former or current mf global employee? >> [inaudible] >> if some type of insurance had been in place for be commodities accounts, how would that have impacted the transfer of client positions? are there other fcm as well as the claims distribution process for former customers of mf global? do you believe that congress
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should tud and revisit -- study and revisit the idea of extending to commodities accounts an insurance coverage similar to that provided for securities accounts under the securities investor protection act? >> yes. sipa proceedings which govern the liquidation of broker-dealers contain essential and well established procedures for contemplating and facilitating transfers of accounts to other solvent broker-dealers and provide mechanisms for the prompt payment of customer claims. all of this is greatly facilitated because there is the financial support of the sipa fund which has, in the case of sipa, several billion dollars of assets and the ability to assess
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the industry for additional funds. those funds would assist if it were necessary to cover shortfalls to enable a trustee to transfer accounts to other solvent scms. i think as mr. duff we was alluding to -- duffy was alluding to, there are problems here because under the statute you have to distribute equally on a pro rata basis. so, yes, i believe that if you had a fund which would give you more flexibility as a trustee, you could more rapidly transfer accounts and at least have that as available in your arsenal of things to move things along. ..
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>> nares, the sipc does not have authority to bring action in the u.k., court proceeding, but as we are in the united states, we are working very closely with the staff and the law firm he's hired to represent the bankruptcy in the u.k. and part of the english court, and we will continue to monitor all of the different actions that happen in that proceeding. >> do you have anything to add?
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>> just to confirm that we do confer frequently with the cftc about the strategy in the u.k. and the nature of the legal issues. equally, we have, to the extent we can, shared information with judge free regarding that proceeding. our view, of course, is all the funds in the u.k. are segregated assets that hold on to the 37.7 of the dealer broker. >> do you have any views offeredded last month of whether to protect segregated customer accounts, and also is it variable for sros in the organization to have warehouses
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and banks in order to confirm that the self-reporting seg funds by fcms are transferred? >> i'll take the latter first as far as reporting from the sro and the cftc and the exchanges. i'm a big believer, senator, in transparency and realtime reporting so it's hard to argue with that. reality is what's the practicalities of getting that done? even if it's on a realtime basis, if people had multiple books or doing activities, it's difficult to detect what happened in the mf global situation. as much as i support realtime tie outs, i think there's a lot of information that goes into that. as far as the recommendations on the sign offs and some of the things they proposed, yes, cme group is very supportive of
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their recommendations. >> i note that senator shelby temporarily left the hearing to attend an appropriations hearing, and he will be back. senator corker. >> thank you, mr. chairman. thank you, all, for your testimony, and i sat through most of the hearing, and after today, it almost gives you a headache to think of all the various regulators involved in one entity. we created that, and i'm not criticizing you of that, but there's various areas that don't overlap properly, and i want to ask mr. giddens and judge freeh what happened? what happened to the customer accounts? how did the money end up in places that it was not supposed to end up?
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we talked about everything but that here today. >> the -- our analysis of what happened and where the money went, i think, is substantially concluded. that's the first phase of the process. because of the liquidity crisis in the last week, something like $105 million in cash went out of the firm to banks, depositories, some to commodity customers, other to securities customers, but on the surface, appear to be ordinary commercial transactions. a great deal of this was caused by customers leaving the firm and asking if their assets be
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transferred out of the firm. also, the firm had to scurry around to find additional collateral. additional collateral was required with respect to the repossession to market transactions which went from 200 million to 900 million additional collateral required. in these firms, cash has moved around from various accounts on a daily basis, and it is possible that if mistakes are made, and you say we have excess in one category, we can use that to move it to another, and with so much happening in the last week and so many volumes of transactions, that's where we think what accounts for as
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thetics. we know, we can trace where the cash and the securities in the firm went, and that we've done. the second, more complex phase, which we're also aggressively pursuing, which is to get as much of it back on the appropriate legal theory that we have to do that. we had some success to date, and we'll continue to pursue that with the goal of getting back as much of the property we can. >> i mean, we all get the picture of what happened, a lot of money moving around quickly, the firm was in a desperate state. i mean, with all of that occurring regardless of, you know, the million regular -- million regulators that look at that, how do you keep, at the end, money going out of a customer account inappropriately to another place? how can a regulator at that instant keep that from
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happening? >> given the fact that so-called operational personnel can move funds and have authority to do it, it's almost not possible to build a foolproof system which would, the checks that you have or the reporting requirements of also the totaling up on a daily basis of what the segregation requirements should be, if there's substantial mistakes in that, it permits someone to say theoretically i have an access in the commode -- excess in the commodity's funds or vice versa. we had an example shortly after i was appointed. i got a call from mf global itself saying we have wrongly transferred $220 million from the securities accounts to the
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commodities accounts, and we'd like to reverse it. how that was done or who authorized it or whatever, we can't say, but clearly, there were mistakes being made, and part of this, as i say, the process is that most people don't realize is relatively low level operational people in any given time have the authority to transfer hundreds of millions of dollars. >> was there an investment committee? is there a personal recourse to the executives when these kinds of things happen? i mean, is there a way to deal with them on a personal basis with personal assets? was there any investment committee or internal controls that existed there to keep this kind of thing from happening within the fund, and if not, are
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there other firms to your knowledge with these same problems? >> on the personal liability, i think there are, my own personal view, so seniors and higher ups who do not directly those the young vice president to move money probably, very difficult to suggest they are personally liable, and that's one of the reasons i suggested that we look at that and begin to consider something that's not enough when your the manager determining the investments and overall strategy, and if you, in effect, create the liquidity crisis, you're bear responsibility if there's short falls in the customer property. i think it's certainly -- >> and just, i'm -- actually,
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i'm over. were there internal controls or investment committees? any discipline within the firm that kept one person from making a big bet and the company going haywire? >> there was -- my understanding is there was an investment committee rmt there were risk officers at the firm. there were examples of where recommendations were not taken by the risk officer, and under perfectly legitimate corporate structure, senior officers could choose to ignore that, and our view of mf global from our analysis of its operations was that the firm was poorly capitalized and had liquidity crisis, highly leveraged before
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mr. corzine came to the firm, and, in fact, those problems continued. they certainly went through the motions having operational supervision and risk vision and the like. how effective that was, i think is demonstrated by the ultimate failure of the firm. >> mr. chairman, thank you for the time. >> senator menendez. >> thank you, mr. chairman. thank you, all, for your testimony. i want to ask, i just heard the response to senator corker's last question that mf global was poorly capitalized in a liquidity crisis, it was highly leveraged. was that an message of its doom? >> that was certainly a large contributing factor so if they had a crisis, there was not much of a cushion to fall back on. i think also would be the nature of their investments and risky
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european sovereign debt of countries such as i believe italy, spain, and ireland with the result since those were purchased on margin that the collateral amounts had to be continually increased so that towards the end, as i recall, something in the neighed of $200 million to $33 # 00 million in march came to $900 million in march. that all created severe strains on the firm. >> in addition to that, a critical factor was really the inability of its, you know, i.t. and technology systems to just keep pace with the trades and to even record them in the last few days, there's many non-recorded trades, even now to reconstruct what happened there is difficult.
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the i.t. system and the technology, you know, was not equipped for the pace of trading in the last several days, and that combined with the miscalculation using the most generous term at this point subject to investigation of what was segregated and what was not segregated and the inability to control and track the trades and the accounts is just a perfect storm for the disaster that occurred. >> you clearly had between poor capital vacation, liquidity crisis, highly leveraged and inferior technology ability and structural problems at mf global. let me ask you this. has it been part of your review to determine who and what individuals at what level -- trying to think structure here more, but what individuals created a set of decisions that
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created the challenge that we have? >> yes, senator, i mean, that's subject to both my investigation and mr. giddens. we're looking to determine the available causes of action including a fraud, lack of few -- few diewsh ri responsibility. >> where are you in that? >> just beginning, sir. >> cannot identify responsible parties? >> i can't do that at this point. >> mr. giddens, you suggested in earlier response that liability could be a measure. isn't there protecter linnet here -- liability here now? >> there well may be, and we're looking at that as there were breaches of fiduciary
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responsibility. >> in december, they prohibited customer funds in forch sovereign debt securities. if the rule was finalized before the collapse of mf global or not overturned in 2005, does the cftc believe that mf global would have avoided collapse? >> no, sir. >> okay. >> the the investments are permissible investments they can use to invest customer funds in segregation, but they cannot be used by the fc and themselves to invest it for the fcm's own gain. >> what is the likelihood of -- my understanding is you've identified where the money is. what is the likelihood of recovering it on behalf of all of those individuals whose money is abroad? >> with respect to the $700
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million represented to the u.s. customers as being segregated for them, our position is that under u.k. law that money should be treat the as segregated customer funds, and i think we are reasonably confident, a positive outcome from the u.k. courts, but there's no guarantee of that. >> one final question, mr. duff mr. duffy. clearly, what a company does in the first instance is a challenge. we expect them to do the right thing legally, substantively, and ethically, but in the absence of that, is there anything in this experience that says to you heading cme, that there's something structurally to be changed to at least mitigate the extent? my understanding is there was a
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$700 million some odd instance in which they would have -- reporting would have predicated that funds for co-mingled. that couldn't be stop because it was already done, but might have it mitigated going to $1.6 billion? >> the number of $1.6 billion, ask mr. giddens where that came from. our number is lower, down to $700 million missing. anything gainedded by the experience, i think we've done everything as dsro, reviewed all our practices going back looking at the forensic analysis of mf global, and we feel very strongly that we did all the things that were appropriate. i think something was said a moment ago important, company couldn't handle the liquidity crisis, and increases went from $200 million to $9 hirks million on margin calls. that had to come from somewhere. where was the money coming from? as far as going forward, the
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cme, you know, without a doubt, that is the biggest part what was we do is a dsro protect the integrity of the markets and clients. >> nothing structurally? >> i don't believe there's anything structurally wrong with the process. >> thank you. >> let me say thank you for being here. mr. giddens or judge freeh, either one of you with a quick answer to this. i'm trying to get a perspective here in terms of time. you said when, i think, mr. giddens, that when former senator corzine came on board, there were problems with the firm. they had liquidity problems and that sort of thing, and as i understand it, that would have been in the scope of $200 million in that point in time. is that what you found? >> no, no, no, senator.
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i was just eluding to the fact that the odds we see is from 2008 on, mf global was either losing money in an operating sense or was over highly leveraged, and so it was a firm which had financial difficulties when mr. corzine came in. that is simply to say that the liquidity crisis was certainly not as severe as it was in the time weeks of october of 2011. >> that's what i was trying to get at here is that everything i've heard through hearings like this and reading testimony, ect., was that in the final weeks of mf global, the sky fell in. now, my understanding, and to me, it seems so basic, you know,
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even having been a lawyer where you maintain a trust account. someone gives you money. you put it in a trusting the. you're not authorized to say, gosh, kind of a rough month this month, clients are not paying bills, or whatever, so i'll borrow money from the trust account. that's, in effect, what they did here; right? >> the analogy is good, imu what they can -- what they can do perfectly legally through fancy foot work and accounting each day is look at funds that are theoretically in a so-called trust account saying we now have excess because money is moving in and out daily among -- as we have a chart in here that indicated between the broker dealer, the fcm accounts, segregated accounts to european subsidiaries, to bank depositories, it's fluid. the concept there's a frozen
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trust account that you can't touch is not the way it operates in the real world, and it operates in such a sense that if you do a calculation and in chicago they said we calculated, have $200 million access, we can use that as collateral and transfer that to the broker-dealer account equally as in the example i gave -- a transfer made from the broker-dealer segregated fund on the last day of $220 million. maybe on the assumption they had excess. the rules of the regulators and the way it works, and maybe the way it has to work is that the money is really not frozen and can easily be moved around. could be stricter safeguards, some of the things mr. duffy talked about in terms of making people responsible at the top, which i was talking about and
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others, so it's not so easy for some, you know, $85,000 a year vice president to say i've seen the calculations, and therefore, i move $200 million from one way to the other. >> did you come across any indication that the firm was actually using that approach in a way that you permly would regard or you would offer an opinion that that was deceptive? it was done in a way to deceive people who were supposed to be paying attention to this or regulating this? >> i really have no personal opinion about that. >> let me ask a question then about that. you're going into this time of a personal investigation i think is what you said, judge freeh, and you're going to start trying to uncover who did what and when and that sort of thing.
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what are your options? if you see evidence that that practice was done in a deceptive way, just describe for the committee the three or four things that could happen to the principles here. >> yes. in addition to the regulators and the criminal up -- investigators conducting simultaneous and in some ways similar investigations, and that's why we are cooperating with them to the ultimate extent possible, making available records, witnesses, waiving privileges where we can do so, but in our own investigation and on our own mandate, myself as the chapter 11 trustee and mr. giddens as the sipc trustee, it's only table. we not only look at employees and directors of the holding
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company as well as the subsidiary as mr. giddens is the trustee for, but third parties including financial institutions who had different collateral requirements which changed, particularly in the last several days, so at this point, literally, everything is on the table both, you know, individual, the persons as well as institutions and what we will do maybe separately but maybe simultaneously is make legal determinations with lawyers about whether a viable course of action exists and whether it's sufficient to pursue that cause of action. my own case representing the debtors, we may have a cause of action that would cost $10 million, but the institution or the individual has no assets. i'd have to weigh that in terms of wasting assets in the
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estate. >> thank you, mr. chairman. >> thank you, mr. chairman, i appreciate you holding the hearing. it's not a surprise to, especially to mr. giddens, and we saw funds used to hedge one way because of the lack of mf global's ability to segregate funds and keep them segregated. i think this is the 8th largest bankruptcy in u.s. history, and correct me if i'm wrong, the first time segregated funds have been violated so to speak. i'll probably get back around to corker's question because i think it's a good one, and i don't know that there's an answer to it, but we'll probably do it any way. mr. freeh, first of all, thank you to everybody who testified here today. mr. freeh, you have an outstanding resumé, and back to the first question talking about
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bonuses, and i just want to clarify because in your statement today, you said bonuses are not part of consideration now or in the past. i thought you told the chairman nor in the future; is that correct? >> i did, sir. >> well, thank you. the questions asked add credence to this. you said there's 50 employees you have hired, and plus three senior executives; is that correct? >> yes, sir. the 15 employees remain. they will pre-petition operations. they run tax activities, and, you know, they're the worker bees so to speak, so -- >> not folks, so to speak, that would be part of the problem? >> well, we don't know at this point, but, of course, we're not considering them insiders. we're considering them employees. >> what about the three senior executives? considered insiders? >> yes, they are inside. >> okay.
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so the previous question that senator johanns asked, looking at what did what when with a potential cause of action. when you negotiate their salaries, how, just how can -- i mean, how are you going to do it when, n., you look at them as part of the problem, part of the so-called crooks? >> we have not made determinationings in that regard. salaries are set, senator. >> who sets them? >> well, they were set at the time of the petition reverting back to base salaries. each employee with base insiders had base salaries which have been continued. >> okay. all right. the point i'm trying to get here, and i think i heard the answer is i really don't want to give benefits whatsoever who caused this debacle.
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are you confident that's the case? >> i'm confident that's the case. what i said to the chairman with respect to the insiders, for instance, the group working now to get very important and tax refund back to the estate, you know, i need to maintain them or else the alternative would be to go out and hire an accounting firm at three or four times the cost. that's the balance i'm conducting, but it's on that non-insider level, and there's only, as i said, 15 critical people that i have to balance a fair and competitive salary for. >> okay. mr. duffy, in your testimony, you described futures market as mostly professional, and yet mr. giddens sunlights in his testimony 78% of them have global claimants, and i suspect some farmers and ranchers seeking a return of less than $1 # 00,000.
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this really is the question. why should farmers and ranchers trust cme in the future to regulate and be able to protect their money? >> i think there's several reasons, sir, but first and foremost really important is the 5.5 or $6 billion roughly of segregated funds that mf global held, cme held $2.5 billion, and when mf global claimed bankruptcy, they still head $2.5 million. our customers were made clear. with respect to what mr. giddens said about the clients, there's clients with significant higher balances than that, but the reason we have the rancher and farmer protection program is there's roughly 36,000 accounts of which 20,000 have $50,000 or less. that's smaller. they are ranchers. it happened under our program,
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every farmer and ranch would have been made 100% whole. >> it was not. what about the facts not made whole now? the little guys? >> again, looking back, it would be considered a has a-rod with $158 billion of segregated funds in the futures industry, and that's a detriment to cme to estimate that number. >> mr. giddens, there's been a lot of questions here today about half a dozen regulators, maybe more about what happened, what transpired, things been talked about, poorly capitalized with liquidity problems, and when mr. corzine came on board, and we see something happen in the 8th largest bankruptcy that ever happened, funds were compromised, does this stuff just happen?
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as a policymaker, you look to say what went wrong, what could we have done better, who screwed up? are you to the point where you can say that? i don't want you throwing anybody under the bus, but be honest. are you at a point where you can say this is where the system failed? a regulator who did or did not do their job, and you can juggle books good enough, you can get away with anything? it appears to me unless there's something else out there, tell me what it is. >> i think that the evidence indicates that in most of the cases, the individuals complied with speaking of cme, generally complied with the regulations, regulators looked at the materials, the materials were
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filed, but all of the failures of either broker dealers or fcms are for the most part caused either by fraud or by financial mismanagement, and in those percentages where this occurs as i think was the case here, you can't really hindsight and look at it and say there's more things that could have been done. more frequent reporting, and also the imposition on seniors in the firm, leek the ceo and the cfo to say if there's a short fall in customer funds, you may be liable, personally liable, and therefore, that should incentivize you to have internal systems that assure you you have the funds, and perhaps one of the ways to do that is done with any kind of normal repossession or so, there's excess collateral.
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why not have a requirement there's excess segregation? i think there's specific things that can be done to prevent the situation. i don't think it was a happenstance circumstance. i think there is often a case in many bankruptcies from enron op out where -- on out where a firm is in financial trouble, and the normal controls are ignored, and people are in desperation to try to avoid these kinds of problems. i think the regulators of -- and the reports and things required do serve a valuable purpose, but i think they can be improved. >> thank you, thank you, all, for your testimony. >> chairman, thank you.
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commissioner sommers, i want to focus on cftc. what was the instance chair gary tuck rescued himself after the bankruptcy? >> i'm not familiar with the specifics when he decided to recuse himself. >> there was not a vote? >> there was not a vote. >> no discussion about why chairman gensler was no longer going to act in that capacity? >> no, sir. >> prior to the bankruptcy of mf global, it seems clear mf global was under financial stress. look at stock prices, the new york fed reaction. did the cftc take any action to enhance surveillance or encourage others to enhance surveillance prior to the filing
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of the bankruptcy? >> in the week leading up to the bankruptcy filing, we had people on the ground at mf global, our staff in chicago was there on the ground, but the numbers and what we look at are whether or not the firm is capitalized and whether they have the money to meet their segregated obligation to their customer, and the data provided to us from mf global showed they were in compliance up until the very last few days. >> when you have personnel on the ground, was that an increase in personnel on the ground, and did you detect there was something wrong and reacted or not? >> we had people at mf global's office in chicago and new york and that's not typical. >> and when did that occur, the increase -- >> a week prior. is>> a week prior. >> uh-huh.
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>> when over 99% of mf global'singing's accounts were commodity accounts, did cftc have an opportunity to have sipc take over the authority, and why chapter 11? both instances to me seem to prefer the general creditors over the segregated account holders. did they have a role in altering the kind of decisions that were made that allowed those two things to happen? the kind of sipc's involvement, in my view to the detriment of the segregated account holders and the holding company wide bankruptcy filing. both those worked to the detriment, seems to me, to the segregating the holders. did the cftc have a role to play
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in those decisions 1234 -- >> am though i was not privy to the decisions that led up to mf global placed in a specific bankruptcy proceeding, it is my understanding that when that is done, and the cftc has the ability to place an entity they believe is either in financial disstress or is approaching financial distress, they have the ability to refer them to sipc. we do not have that same authority if they are a stand alone fcm versus a broker dealer fcm, but it is my understanding although the entity was a joint broker dealer fcm placed into a sipca proceeding that all the commissions regulations, bankruptcy rules and regulations, those all apply just as they would if it were
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just a stand alone fcm, and those, you know, were not -- >> commissioner, is what you're telling me then is my understand that or my suggestion that those segregated account holders were harmed by that decision is not true? >> my understanding is that it is not true. >> did that discussion occur prior to the filing to bankruptcy? was cftc engaged in this conversation about how the brupsz would occur? >> the commission was informed that mf global was going to be placed into a liquidation. we were not involved in whether that decision should be made. >> who was handling decisions relating to enhanced supervision and the kind of bankruptcy or the bankruptcy proceedings? who was handling the decisions
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prior to bankruptcy? >> up until november3rd, chairman gensler was directing those decisions. >> because you told me you don't know what his conflict of interest was that caused himself to recuse himself five days after bankruptcy, you don't know whether that conflict would have accrued five days after the bankruptcy? do you know if something happened between filing p bankruptcy and five days later when he recused himself or was it the same conflict there prior to bankruptcy and subsequent to bankruptcy? >> i don't know. >> thank you. >> thank you, senator shelby. >> thank you. i apologize for missing part of the testimony. i have a conflict as others do. we had a markup in the appropriations committee, and you shouldn't be absent from that, you know?
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i hope some of these questions have not been asked, and if they have, i was not here to hear it. in the area, first to you, commissioner. during the week leading up to the bankruptcy leading to senator muran's question, during the week before bankruptcy, did chairman gary gensler indicate to you he was concerned about customer assets at mf global? >> my recollection is, senator, that chairman gensler had concerns regarding the financial condition of the company, and that's why staff were sent. >> okay. how many times do you recall or do you have records of it that you can furnish the committee if you don't recall yourself at the moment, brief you and other commissioners that the cftc's
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meetings on the management of the crisis because that had to be a concern for the cftc because this was not business as usual. >> right. over the weekend prior to the filing of the bankruptcy, i recall receiving two e-mails from the chairman, and then we held a closed meeting. >> what was the substance of those e-mails? >> just informing us -- >> there was a problem? >> no. informing us that he had been on conference calls with domestic and foreign regulators regarding the potential sale of mf global to another financial institution. >> did he indicate great concern at that time? >> not at that time, no. >> okay. mr. duffy, i'll direct this question to you and to also commissioner sommers.
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what authorities does the chicago merc have, cme, to have accounts at a future commissions -- during emergency situation, and commissioner, following up on that question, mr. duffy, what authorities does the cftc have to protect customer segregated accounts at a futures commission merchant during an emergency situation? mr. duffy, you first. >> first and foremost, they are segregated compliance, and these are reports that we -- >> what did you say? there should be segregated -- >> we get segregated reports from mf global, and all along on a daily basis since they were acquired, and they were on a daily segregated report
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voluntarily anyway. we were getting reports on a di lay basis and tie them out over a several day period. these are things we do to have authorities to ensure they are in compliance. if they are out of compliance, it's in violation -- >> were some of the reports you got as you look back, were they misleading or a little more than that or what? >> the latter, sir. a little more than that. we were told on one report given to us on a thursday that they had $200 million in excess seg after they announced that the money was missing on sunday evening. >> was that true? >> it was then true that they gave us the right report saying there was a deficit, but gave that on a monday. they gave it from the prior thursday. the reports were definitely inaccurate. >> misleading you; right? >> very misleading, yes. >> okay. question to you, same thing, --
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>> we have never had this type of situation in the past, but if we were ever in a situation where we believed that the company was in a situation where they could not meet their only gageses, the commission could seek legal action to have a receiver appointed in an emergency situation. >> i'll direct the same question to both of you. in the area of protection of customer segregated funds and accounts, both of your organizations, as i understand it, had staff on site at mf global chicago offices the weekend before the firm's bankruptcy filing. what steps did your agency, starting with you, commissioner, take to protect customer assets prior to learning that customer assets were missing? what date and time did staff in
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your agencies first learn that there was a possible problem of a short fall in the customer segregated accounts, and after you learned of the missing customer assets, what specific steps did each of your agencies take to ensure that customer funds were not improperly transferred over the weekend? that seems when there was more than a little mischief done. commissioner, you first. >> so, the first question with regard to what our staff was doing, although the commission and the dsro received daily segregation reports, those reports only lift the amount of money that the fcm owes to customers. what their obligation would be there. our staff was in the process of trying to get courting documentation from mf global to
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ensure they actually had that money in the bank. >> you had that conversation you testified to earlier or either personally or some communication about e-mail from chairman gensler. obviously, there was more than a little concern at your office regarding mf global; is that right? >> well, i think -- >> you didn't think everything was okay at mf global after you talkedded or read the e-mails of chairman gensler, did you? >> i think in the beginning the reason why he sent staff -- >> sure. >> to the offices so we could receive the supporting documentation to make sure to do the tie back of the segregated accounts. >> because there was concern your agency about mf global -- >> right. >> where the money was coming from, what money they had, and so forth; is that correct?
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>> that's true. the documentation and data they provided to us showed us that they were in compliance, so over the weekend -- >> but that was not true. >> it was not true. >> did you have suspicion -- >> i do not believe staff had suspicion they were not in compliance. over the week, the staff was not process of filing all the documents that we would need to file in order to make a transfer possible. customers from mf global, if there was a financial institution that would purchase the fcm, that those customerring thes could be transferred with our approval. we were drafting those documents in order to make that transfer of customer position possible. we were not informed -- the commission was not informed until monday morning of october 31st that there was a short fall in customer segregation.
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>> but were you ever concerned that there might be some things wrong at mf global? obviously, something had to come up on your radar. >> absolutely. we were concerned, but never -- we -- i don't believe i ever thought that the concerns would be a short fall on customer segregation. >> mr. duffy, do you have comments on that? >> i echo commissioner sommers for the most part, and we had people on the ground tieing back the reports against bank records and everything else, and got through friday and saturday, people were on the ground, and we were told there was an accounting testimony -- accounting error that i referenced in the testimony of $900 million. >> accounting error of $900 million? >> it's staggering. some said it was too big, had to
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be an error, and others thought it was too big and was not an error. i was in the latter camp. >> did that send a lot of anxiety through your organization? >> it sent a lot of anxiety, but people felt fairly confident there was no way it was not an error, and the company was going to be whole. >> [inaudible] >> people were dead wrong, sir. >> dead wrong. >> dead wrong. >> mr. giddens, you're the mf global trustee; right? >> yes, sir. >> what is your, as trustee, just for the record, what is your portfolio? what are you supposed to do as the trustee for mf global? >> well, i am appointed the equivalent of a chapter 7 liquid
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ateing trustee. >> o.k.. >> my job is to marshall the assets of the brocker dealer estate and pay them out as required by law. there are properties which is really not part of the estate, which belongs to customers. the commodity customers' funds and securities funds, and there's detailed provisions about the cftc right act and the act that call calculates claims and how you pay them out. a big distinction and difference and the reason as mr. cook of the fcc pointed out, some are paid in full and that's the existence of the resources of
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the sipc fund that covers an additional $500,000. >> $500,000 perking the? >> yes, sir. >> what is average account? >> the average securities account -- >> at mf global. >> at mf global, probably -- probably just doing the calculation in my head was probably a million dollars or more. >> okay. >> the commodities accounts, i think as we indicated, 75%, were less than $100,000, and 9 3 #% of the commodity accounts were less than $1 million. they transferring thes from mf global to other smaller firms. >> why did they do this? was there concern in the marketplace about mf global at that time? >> absolutely.
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because it was downgraded. >> did you know of your own account, your own knowledge that that concern in the marketplace extended to chicago to the commodity futures trading or to the fcc or to the cme? >> the -- certainly it was in the major newspapers -- >> everywhere. >> that they were experiencing trouble, and whether anyone suspected there was a short fall segregation, i don't know that, but i do know that because of downgrading and losses that many of the -- >> people were leaving the ship? >> absolutely. >> okay. the testimony mr. giddens gives provides a large view of the movement in object at mf global. were there any large transfers,
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you talked about some others eluded to, from mf global's customer segregated accounts to the firm's own accounts while multiple regulators were on site at measuring -- mf global starting october 27th. >> the answer is yes. there were billions of transfers in and out of the firm and from the various accounts -- >> and the regulators on site there? >> yes, sir. >> okay. were there any subsequent large transfers out of mf global's own accounts to pay counterparties? >> certainly during the period of october 27 through october 31st, yes. >> okay. mr. giddens, you recently announced you would pursue litigation in the united kingdom to recover approximately $700
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million of customer funds. what's your best guess or judgment on how long it will take for mf global customers to recover if they do the 700 million trappedded in the u.k., and will it take weeks, months, or years, and so forth? just your judgment. >> the petition to commence the case is due to be filed shortly. how quickly and how the court determines how the litigation is held, what discovery is required and the like is not known at this time. we will try to expeditiously get a position from the court. we had a similar situation in the layman case in which -- >> okay. >> which our position was that
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funds with the layman u.k. broker dealer were segregated customer funds. these happened to be securities funds opposed by the english regulators, and that process, because of appeals, to the three courts took almost in excess two years until there was a final decision. that may not be the case here. >> what's the best judgment on how long it takes to recover the remaining $900 million in customer funds? >> we have recovered from class out to some parties some portion of that already. >> how much of the $900 million? roughly. you can correct the record, but just give your judgment. >> i believe about ab excess of $500 million, but i'm not sure. >> okay. >> we'll supply supplemental information on that. >> commissioner sommers, coming
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back to you. mr. gensler stated he did not want his relationship with mf global ceo jon corzine, quote, "to be a distraction." did chairman gensler express any concern that his relationship with mr. corzine would be a distraction from any previous matter involving mf global including matters related to cftc rule 125, dealing with investment of customer segregated funds? >> not that i'm aware of. >> you don't recall? >> no. >> have you searched records, e-mails, and everything else? >> we have. >> okay. mr. gensler also stated that, and i'll quote him, "he will not participate in any enforcement related matters involving mf global and any matter directly
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related there to. those are his words. this language appears from reading it to prohibit him from participating in any of the cftc's efforts to develop recommendations based on lessons learned from the collapse of mf global. do you agree or disagree? >> senator, we -- >> in other words, can't have it both ways. he's either in the game or out of the game, and he's saying here, he's out of the game as chairman; is that correct? is that how you read the language? >> we sought direction from the general counsel, and we're told my delegation does not go towards the policy recommendations that the chairman would be handling them. >> moving on, but i have another question i have to ask. on april the 4th, mr. giddens,
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you provided an update on jp morgan chase, mf global's largest creditor, regarding funds in its possession. you stated that you and jp morgan, your words, are presently engaged in discussions regarding the resolution of claims. is it your expectation that some of these funds will be returned from jp morgan chase to mf global customers, and when can mf global customers expect a resolution of claims against jp morgan if they can? >> i believe that we have a solid basis for seeking a recovery of some of the funds that were transferred to jp morgan. as to how that decision
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ultimately will be made, if we do not reach a conclusion, we'll probably have to be resolved by bankruptcy judge, john glenn, and how long that will take is difficult to predict, difficult to predict, but we would not be exchanging information and engaminging in really confidential discussions about legal arguments unless we thought we had a good prospect of recovering something from them. >> mr. chairman, can i ask mr. freeh one quick question, if i could? mr. freeh, you're the trustee of mf global holdings; is that correct? >> yes, sir. >> is it your responsibility to protect assets, what's left of
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mf global? >> yes, mf global and the other debtors in chapter 11 of which i'm the trustee to get the assets and get them back to the creditors if possible. >> okay, thank you, mr. chairman. .. >> [inaudible conversations]
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>> [inaudible conversations] you can find out more about capitol hill with the c-span congressional directory. it's a complete guide to the 112th congress, and inside you'll find each member of the house and senate, including contact information, district maps and committee assignments. also on cabinet members, supreme
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court justices and the nation's governors. can find a copy for $12.95 plus shipping and handling at c-span.org/shop. we take you live now to the senate floor strategic and international studies here in washington for discussion about the future of nato. nato leaders gather at a summit in chicago in about three weeks. at today's discussion we'll hear from elizabeth sherwood randall, the senior director for european affairs. she will be introduced by stephen flanagan. he holds the kissinger chair of the center for strategic and international studies. [inaudible conversations]
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>> good afternoon. cannot ask everyone to take their seats, please. good afternoon and welcome to the center for strategic and international studies. i'm stephen flanagan, holder of the henry kissinger chair in diplomacy and national security here, and it's a pleasure to welcome our audience, particularly many members of the diplomatic corps, and the media here at csis in washington, as was our viewers on c-span, and also over the world wide web. we are really truly delighted that dr. elizabeth sherwood-randall has agreed to join us here today to discuss the obama administration's goals for the nato summit chicago, now just three weeks away. and plans for sustained transatlantic relationship over the longer-term. i think is very large turnout
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that we see in this room there, and i'm sure many more watching as i said on electronic media, is a real testament to her speaker, but more importantly it's a strong counterpoint to those who suggest that no one in washington is really all that interested in nato anymore. thank you for that you. i would remind you of the ground rules before we -- please, turn off all electronic devices because we are recording this for posterity and for further dissemination. as we have just an hour i'll be offering a very brief introduction of our speaker. you have a more complete bio in your program here. so the rules of the road are here, this is as i said being recorded. so it is on the record. following dr. sherwood-randall's remarks i will offer a few brief initial questions and then open the floor for discussion from the audience. we will adjourn probably at three. because as i said, the summit is only three weeks away. not to mention everything else that is going on in dr. sherwood-randall's very
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responsibility. so, some brief highlights of who career. she is of course a special assistant to the present for national security affairs, and senior director for european affairs on the national security staff. prior to her service in the white house, she was senior scholar athlete with both accounts on foreign relations and stanford center for international security and cooperation. she bravely serving government has deputy assistant secretary of defense for russia, ukraine and eurasia in the clinton administration, and as a senior advisor to senator joseph biden during his service in the senate. dr. sherwood-randall receptor ba from harvard college and international relations from oxford university where she was a rhodes scholar. dr. sherwood-randall, the floor is yours, and welcome to csis. [applause]
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>> thank you, steve. steve is a very old colleague and friend. not old, valued colleague and friend. >> thank you. >> we work for so many years in and out of government on europe and alliance issues together, it's a privilege to be and what thank you for the work you and your team do here at csis. and i especially want to thank you for the work you did in support of nader's new strategic concept. year critical partners, madeleine albright, as she led the group of experts who provide very important input into the development of that concept which was agreed in lisbon in november 2010. i'm also happy to see somebody friends here today, colleagues, members of the diplomatic community with whom i worked very closely. thank you for taking time to come and join us for this conversation. many of you know i have devoted much of my courage working on strengthening our alliance with europe, to ensuring that it is capable of meeting the threats we face together today, and it
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is capable of adapting to a rapidly changing strategic environment. this has already happened many times before in nato's history, and it is happening again today. we are, as steve said, less than three weeks from the nato summit the president will host in chicago. he's been bragging about hosting this summit in his hometown. it's the largest international event that he will host this year, with more than 60 delegations participating in the summit. because today's program is titled from lisbon to chicago, i would like to provide some concept or that journey. you may recall that a little bit more than two months after president obama took office in 2009, he traveled to strasbourg friends in germany to attend nato's 60th anniversary summit. on that first major overseas trip as his presidency also attended the g20 meeting in london. he met with e.u. leaders and delivered a speech on nuclear
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control and nonproliferation in prague, and he visited turkey. this trip was designed to set to both the breath and death of the relationship that he intended to have with your. i want to start with that point because it's important to understand how the president viewed nato, and our cooperation with your. and the overall role of alliances and partnerships in our foreign policy from the outset of the obama administration. in the early days of the administration, those of you who serve in government know, you're the opportunity to set the trajectories are what will follow. and in strasbourg, the president was very deliberate when he said, we cannot be content to marry celebrate his achievements of the 20th century, or enjoy the comforts of the 21st century. we must learn from the past to build on its success. we must renew our institution, our alliances.
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we must seek the solutions to the challenges of this young century. so from the start of the administration, revitalizing our alliances has been a foundational element of our work. this includes our bilateral ties with asia. but the best example that we can point to is our work with nato. as the president has said repeatedly, nader is the most successful alliance in human history. and together, we face challenges that none could face alone. but it is also true that nato has required stewardship, and nato is at its best when it is based on mutual respect, and guided by respected americans leadership. president obama has provided that leadership that nato needed to re- we've the fabric of the alliance which has been badly frayed. today made a stand united and the alliance is doing more than ever to advance security within
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europe, as well as beyond. the president gives nato as unique american aspect and, indeed, it is an asset to every country that is a member of the alliance. no commitment is more solemn than the collective defense agreement we share with our nato allies. the duty we have to each other to uphold article five of the washington treaty, which stipulates that an attack on one is an attack on all, serves as an unbreakable response to the trans-atlantic community. perhaps the valley of this commitment isn't as apparent to some as it used to be now that we no longer need to look across the hills of central europe towards looming danger. but the truth is that we have to depend on each other now more than ever. in practical terms. because live in a very dynamic world and the reliability of the reliance is more important than ever.
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afghanistan and nato's other operations are prime examples of this. currently more than 125,000 allied troops are serving in afghanistan. and that takes place more than 3000 miles from nato's headquarters in brussels, where troops from all 28 members serve with troops from 22 nonmembers, partner countries have joined in the isaf mission. only nato has the integrated command and control structure that could manage such a complex undertaking. and 7000 more soldiers are maintaining security in the balkans where casework continues to play a crucial role. including are fighting the insurance of a safe and secure environment during the serbian presidential elections that will take place this coming sunday. presidential and parliamentary election. made it was also conducting maritime operations under nato flag. and as you know the last few weeks we successfully concluded a critical mission and libya
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that saved countless lives. there really isn't an issue today that is of national security importance that we do not work on with our european allies. countering terrorism, dealing with weapons of mass destruction and ballistic missile proliferation, addressing cybersecurity, enhancing energy security. the list goes on and on. when we act with our allies as countries that share our values, and that we can rely on, whether in afghanistan or in the skies over libya or combating pirates, it's not a increases the legitimacy of our efforts but at the same time it reduces the burden of the united states. so the police the president set forth as a guiding principle for our foreign policy, that we are stronger when we stand together, with allies and partners, has brought us to the place that we find ourselves today, with a re- energized and united nato. at the lisbon summit in november of 2010, the president had asked
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to recapture nato's potential and focus it on the future. france rejoined nato's military structure, allies agreed on a clear process for the transition of security in afghanistan, and we defined a critical 21st century defense capability that nato required. perhaps most important, the alliance also presented its current strategic concept, which is nato's roadmap to the future, essentially it's updated mission statement. this document set a solid course for future transformation. i can say that it hasn't always been easy, and those who know nato understand that it's transformation is perpetual. but that is part of its dynamism. we have made tremendous progress in just the 18 months since the last summit in implementing the goals we set for ourselves in lisbon. i want to provide you with some specific examples of that progress and explained how we intend to carry it forward in a few weeks time in chicago.
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we have three main substantive dimensions of our summit. which involve first, nato's military mission in afghanistan. second is development of defense capabilities for the future. and third, its efforts to increase and incentivize the contributions of nato's partners. so first, on afghanistan, operationally nato has maintained the highest off tempo the alliance has ever experienced in the last two years. in afghanistan will continue to help the afghans to maintain a secure and violent throughout the country, we begin to implement the lisbon framework in july 2011 with the start of transition. from that point to today with handed over security responsibility to the afghan forces in areas that comprise more than half the population of the country. with our allies and partners we continue to train the afghan
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army and police, and we witness growth in their size and their ability. as we work with the afghan government, to build capacity to develop institutions as well. at the chicago summit come in line with what the president said in his speech in afghanistan last year we will shape the next phase of transition. to be clear, this is not a departure from the lisbon framework, and the course that was agreed thereby allies, partners and the government of afghanistan to complete the transition by the end of 2014. setting for the next phase of transition in chicago is an important step that will ensure that we complete our work on time. in order to ensure responsible transition of security, we have judged that it is necessary to develop milestones along the way, and it's our intention to do that in chicago. in addition and very much in support of the transition
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process, we want the afghan national security forces, the, to maintain security once it is in their hands. we have witnessed a qualitative improvement in the afghan forces, as demonstrated in the response to the recent attacks in kabul. they are taking more of the lead in areas where data and isaf forces are partnered with them, and they've taken on greater responsibility for training. these positive signs need to be reinforced in our judgment by a tangible commitment from nato allies and partners to the sustainability of the afghan forces the on transition. and we're working toward that goal for the summit as well. finally as transition progresses and as we commit to contributions that sustained the ansf after that transition is completed, we have to look beyond the end of our combat mission in 2014, and together with our afghan partners, further defined a long-term relationship between nato and
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afghanistan. the conclusion recently of the u.s. afghanistan strategic partnership agreement is a significant step in demonstrating our enduring commitment. several other allied countries have also recently reached similar agreements with the afghans. nato's collective support for training, advising and assisting the afghans once they're fully responsible for their own country will add needed confidence. our work in afghanistan is substantial and requires our continued dedication. but nato proves in march of 2011 that the alliance also stands ready for new challenges, even unexpected challenges. then the president judge that nato should play a leading role in fulfilling the u.n. mandate in libya. because he knew that only nato had the capacity to provide the command and control necessary to
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integrate multiple outside and partner air force is in an effective operation. operation unified protected in libya demonstrated the first capability and truly unique quality of nato. in its rapid response conduct political consultation, performed military planning and separation, deploy forces, and integrate partners in the kinetic operation. there is no other group of countries on earth that could do what we did so successfully for the libyan people. and i will underscore that in nine days, just nine days, we went from a u.n. resolution to putting aircraft in the skies over libya. we all know that nader succeed in protecting civilians and the changes now in the hands of the libyan people. while the military intervention in libya was successful, we also focused on an important lessons to be learned from that operation. and that dovetailed work is
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underway to learn lessons about afghanistan for the alliance. this brings me to the second area of progress since lisbon and the second key priority for the summit, which is on defense capabilities. the libyan operations highlighted heavy outside dependence on the united states for intelligence, surveillance and reconnaissance assets. we, therefore, seize the initiative and have worked to secure common funding for an allied intelligence, surveillance and reconnaissance capability, called the alliance ground surveillance program. this program will help nader acquire a long range uav capability that would not be affordable for most allies on an individual basis. and is a superb example of defense burden sharing, for what secretary-general rasmussen called smart defense. we support his efforts and
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useful means of meeting the goals nato has set in the development of the critical capabilities that it needs. it allows allies to prioritize, to pool resources and share capabilities, and to specialize where appropriate. nato as a whole will benefit, and the whole will be stronger than the parts. this is not to say we were not concerned about capabilities, even before the libya operation. coming into the administration, those of us who worked on nato, and many of you are here today, we're keenly aware of a growing gap between american and allied military capability. from the start the president directed us to place a high priority on nato maintained a military capability it needs to achieve its objective, on doing contingency planning for all allies, and on developing new capabilities where they are required. so at lisbon with his nato counterparts, the president set
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a number of capabilities object is for the alliance to achieve. work is ongoing in areas such as the protection of nato's computer networks, and innovative ways to counter ieds in afghanistan and elsewhere. but perhaps the best example of the president's commitment to nato's capabilities of the future is our work on missile defense. the united states is heavily investing in europe's security through the development of a nato missile defense capability. at lisbon, our leaders agreed that the alliance would develop a capability to defend our populations and territories against ballistic missile attack. we offered and our allies welcomed the u.s. contribution of european phase-adaptive approach towards realizing this important objective. its first phase includes the deployment of a radar in turkey, and a ship in the mediterranean that can begin to defend
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european territory and population. since lisbon, his face was completed consistent with a commitment the president made to congress at the end of 2011, and now additional work is underway on the next phase. at chicago, it is our intent to declare an interim capability for nato missile defense, based on the ability to employ u.s. assets under nato command, should conditions warrant. we also will conclude the deterrence and defense posture review, or the ddpr, that was cast by nato heads and states at lisbon. the ddr will identify the appropriate mix of nuclear and conventional and missile defense capabilities that nato needs to meet 21st century security challenges. we expected to be in proved -- approved, and it will reaffirm nato's determination to maintain modern and flexible
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capabilities. these are the concrete deliverables that the president is committed to achieving. but fulfilling them will make the alliance stronger and ensure that the alliance can manage the challenges we all face on the fiscal front, while building the forces it needs to meet the challenges of today, and the future. the third area of progress since the lisbon summit, and the last area of our focus in the chicago summit, is on nato's partnerships. the strategic concept of 2010% a comprehensive view regarding the value of partners, and the desirable and necessary role that they play. specifically, it notes that the promotion of euro atlantic security is best assured through a wide network of partner relationships, countries and organizations around the globe. the partnerships make it concrete and valued contributions, to the success of nato's fundamental task. to put it simply, although nato
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is regionally based, the threats we face are now global, and partners add real value to alliance security. all in all, more than 6000 troops from partner countries support nato's efforts in afghanistan and in the balkans. in libya, for the first time, arab state partners played critical roles in the strike missions. partners also contributed financially to nato's operation, invest training for local soup forces to help them become more self-sufficient, and add political support and legitimacy's to our efforts. in terms of progress made since lisbon, in april of 2011 when nato's foreign ministers met in berlin, they agreed to a set of partnership reforms, called for in the strategic concept, and recommended by our partners. these included three major components. first, they made additional
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tools and resources available to all of nato's partners, including training and support for security sector reform. second, they instituted a new system of consultation to allow allies to meet with partners in what is called in native bees, flexible formats. that is, consultations can happen on specific issues with any configuration of partners who are interested in talking to one another. and third, the partnership reform helped institutionalize early and regular cooperation between the alliance and capable partners in a given operation. >> through its dynamic partnerships, nato has been emerging as the hub of a global security network, and we'll use the chicago summit to demonstrate the value, added by partners, and to incentivize, incentivize increase participation and contributions. from our global partners.
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at the summit, allies will meet with partners in several sessions to take stock of the work already underway in ongoing operations, and to further enhance our relationship. let me mention russia in this context. russia is an important partner for nader, and we worked hard with developing that partnership since the time i served in the clinton administration at the pentagon. in fact, we just marked the 15th anniversary that nato russia tied, and rush has provided substantial support as a major conduit for supplies and personnel to afghanistan, with over 42000 containers of cargo transiting russia to date, in support of u.s. troops and our isaf partners. it also conducts important counter-narcotics training for afghans. 2000 officers have been trained under the nato russia council program. for these reasons we've invited russia to participate in the
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isaf summit at chicago. unlike at lisbon, nato's leaders will not hold a meeting of the nato russia council in chicago. president-elect putin and secretary-general rasmussen made a decision based on the timing of the event. the president obama continues to support our work to enhance nato russia cooperation going forward. he also supports nato having candid conversations in this forum on areas of disagreement with russia, such as our view that nato's door must remain open to new members, that nations must be free to choose their own alliances, and that we reject russia's recognition and continued occupation of the separatist region of georgia. we are not interested in outdated and zero-sum thinking with respect to each other's security, and we want use the nrc to further practical cooperation. finding common ground, for
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example, on missile defense is a worthy endeavor with great potential benefits for nato and for russia. the nato-russia council recently concluded missile defense exercise, the first that has taken place since 2008, was an important step forward. we have a lot more work to do on that front, and we are committed to doing it. in conclusion, given the presence of members of the diplomatic community here, for both members and partners of nato, i want to acknowledge the tremendous work that is done every day by representatives of each nato country, and each partner country, to carry forward the revitalization of this alliance. i'd also like to recognize the men and women who serve our nation on the front lines and the difficult missions we ask them to conduct with courage, and at times with great sacrifice. they have guaranteed our
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collective freedom for more than 60 years. now, i haven't been working on nader that long. some days it feels that way. the present luxor to beginning the next chapter in this alliance stored history when he welcomes his counterpart to the third summit on american territory and the first outside of washington in the alliance's history on may 20 and 21st. thank you for joining me today and i look forward to your comments and questions. >> thank you very much, liz. [applause] >> okay, as i mentioned before we open to the floor. i just thought i would post a cash that pose a few questions to against just to get things started, to pick up a few strands that she left in her opening remarks. first on afghanistan, liz, you talked about the scope and nature of the commitment and support to the afghan transition and beyond the 2014 presents.
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there have been various figures put out as to what the actual cost, with the size of the old afghan national security forces will be as a result. but there's also the question of beyond money. what else, this group of committed states, including a number of allies as you said have are in as partnerships of very skies with the afghans over the long term. what of the kind of presence and commitment do you envision, or do you think allies are willing to support beyond 2014 in the area of training and advancement of the capabilities of the afghan security forces? >> does far there's been substantial interest in continuing a mission that trains and advises the afghan forces. allies have invested a great deal of blood and treasure in afghanistan, as have partners. and it is appreciation of the necessity to sustain the gains we've made, and to ensure that afghanistan is not again become
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a safe haven for terrorists. and so we heard at the foreign and defense ministerial, called the jumbo ministerial, in brussels two weeks ago, that allies are prepared to do this work together post-2014. there's an additional element which would be addressed in the summer, which is a whole project of building an afghanistan that is sustainable economically. because of course afghanistan has been supported by the international community during these periods, this period of war. and it will have to get on its own feet financially as well. so there's a substantial commitment that the international community is working to generate on the development front to assist afghanistanon its economic growth of sustainability. >> thank you. on the military capabilities initiative, as you know, this is
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sort of joining a list of kerry's initiatives and capabilities areas that nato has had over the years. but there is a sense certainly among some and some allies certainly think given the nature of the financial crisis, given the nature of the sovereign debt crises that a number are facing a we really do have to do things differently. do you think as you look in your consultations with allied governments, and we're certain a number of representatives to address this later, but do you see something fundamentally different here that will make smart defense, as i heard on capitol hill asking questions lastly, smart defense another gimmick, another way to camouflage the fact that europeans are not doing enough on defense? how will this become a way of doing business within the alliance, or how do you think it can become a way that will really make a difference and end up with nato doing as it's going to commit to do, to spend truly more wisely the resources, still enormous resources that many european governments devote to defense. >> i think that is the silver lining in the economic clout,
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which is that this is disciplining us to be rigorous about how defense dollars and euros, and other currencies, are spent to ensure that there is value added by the expenditures of each country. and we do have countries that have not sufficiently disciplined their spending to focus on what's most important. and countries are increasingly looking at ways to cooperate among themselves, especially regionally. so they can purchase assets together that may be useful, either in smaller groupings or as i said, through commonly funded projects like the alliance ground surveillance system. but we have a good example of this that we are working on baltic air policing for the summit, which is that initiative that will ensure that the guys over the baltic countries continue to be patrolled with additional support provided by the balkans states themselves. and this is been an effort in which we have lined up
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commitments over a number of years, and the baltics have stepped forward to provide their own contributions. and we are working this in a way that shows that everybody does their fair share. i am hopeful that in this period of fiscal constraint we will generate the capabilities that are required. and achieve the goals that we have set for the outlines in a way that will make it capable of meeting the challenges that we will face. >> thank you. and lastly, we have 25 minutes more for general questions. on partnerships, you alluded to the gains that certainly came in our duty, particularly with country in the midrange region in the aftermath of operation unified protector, and proved that nato is not only capable of helping to assist security in that region but not toxic politically in the air the middle east. what gains have you seen, what changed you expect to see made at chicago in terms of advancing that particular set of
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partnership? >> we are working on various elements of that, some which i can actually describe here because they will be, to be demonstrated at the summit. but the participation of a number of partners in some events, and the language that is included in a summit communiqu communiqués, for those who peruse them, will indicate that this is a very important element of nato's future. >> well, thank you. okay, let's go to the floor. i would just ask if you'd way for a microphone and identify yourself. right here in the second row. >> steve, rand. >> hello, steve. >> as you know next sunday there's an election in france, and polls if they are accurate seem to suggest that he will become the next president. that means that he will be coming to the summit a proximate three days after he has been inaugurated and put together his
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cabinet. it seems to me it's likely that under those circumstances he is not going to be in a very good position to make commitments on a number of things, particularly missile defense. i'm just wondering how you, what impact this will have and how you plan to handle it spent four join most of our governments have permanent bureaucracies that do the work every day to keep commitments and advanced towards goals that we work on in the nato context. and it is our expectation that if there is a change in french government that france's reintegration internet will be sustained and france will remain a very important contributor to nato operations. and that the new government will appreciate the fact is that we are providing to the alliance with the missile defense architecture that we have
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offered it. so i am fairly confident, steve, that will have a successful summit, whoever represents the government of france in chicago. >> a couple of questions here in the middle. >> thank you very much. josh rogin, "foreign policy" magazine. i would love to ask you about syria. as you know, turkey is considering whether to formally invoked article for here in washington. the u.s. government is doing a preparation for various contingencies in this area. is nato doing preparation, should turkey invoke article for and leading to in article five? do you expect this to be a part of discussions in a public or private in chicago, and will be the u.s. position on nato's involvement in an article for an article five discussions, thank you? >> thank you, josh. allies consult on issues often.
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turkish foreign minister briefed his counterparts at the nato foreign minister ariel a just a place in brussels on syria. and there are ongoing discussion in the alliance about it. and our commander can do a certain amount of planning as he does for various contingencies around the world. that there's been no formal tasking, and there's been no formal request by the turks for consultations in an article for our five scenario. so we will continue our work on syria together. we've had extensive discussions with the turks bilaterally as well. the president met with president 31 and so when he was their most recent, and we continue to stay in very close touch with them on the coordination of our responses to the situation there in which there is continuing terrible violence against the syrian people. >> my name is -- [inaudible] from voice of america.
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your remarks come you were referring to afghanistan's future engagement with nato in the u.s., that will be discussed in chicago summit. so i was wondering what would be the u.s. position in terms of its engagement, especially military engagement and presence beyond 2014 when it comes to antiterrorism combat forces, or nature of military operations to? that is something we're working on now with our allies and partners in the isaf context, and that's something that will be discussed at the summit. and i think i will have to encourage you to watch this space in chicago, and to hear what the leaders have agreed on that subject. >> there's a question on the far end. >> my name is mike, recently retired from the senate armed services committee, and nice to see you again. we had a discussion not long ago
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with the atlantic council on the subject that came up that there was a perception that maybe race in in chicago by couple of our allies. we always point out that we want the europeans to do more, and we've been working with them on various development projects over the last number of years, one of which they seem to be very antagonistic toward the fact that they feel we have kind of pulled the rug out from under them. and i was surprised at how strongly the opinions were voiced on this, and to the effect that there'll be some discussion of this in chicago. i don't know as much about as i should but i would like to hear your opinion of where you think that might go. >> this is an issue that, about which there are strong views in congress, and i think that that will not be a topic in chicago. i think that is a topic for a bilateral discussion with her
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german and italian colleagues, and take place in defense jails. but i don't anticipate it being on the agenda in chicago. >> there was a question here in the second row. >> hello. ii am correspondent of serbia national agency. my question is about balkans. serbia still is not a member of nato. don't you think would be better if she enters the nato in the future? would that be possible if we remember the past war in 1989? >> as i say we believe nato store should remain open to all the countries of europe that are capable of achieving the standards that nato sets for membership, and are capable of contributing to nato operations. and if serbia continues on its reformed half, and if the serbian people choose to pursue further integration into euro
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european and euro atlantic institutions, nato's door will be open. as you know we've had discussions with serbia about cooperation with nato, and there's a great deal of interest among the number of allies in enhancing that cooperation. and so assuming that as elections take place and the new government comes into power, if it chooses to continue to invest in ties with nato, that opportunity will be presented to the serbian people do expand your cooperation with nato. >> thank you. turkish daily. i had quick question about the missile defense system. right now the rate which has been deployed on turkey -- [inaudible] it is not under the command of nato. what kind of decision will be made in chicago regarding this?
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and also if you clarify what kind of facilities will we need from turkey in terms of this radar and the phase one missile defense, phase one. how many facilities in terms of speed is as i sit in my remarks from one of our goals into some is to declare interim capability which would allow us transfer command and control to nato, and that would include for the radar that is placed in turkey. and our objective is to achieve it. there's lots of work underway to get to that point. it requires the involvement of many military planners in many countries, and the military headquarters in belgium. we are hopeful we will achieve that goal. >> doctor sherwood randall, i'm from lockheed martin. this administration has done a really remarkable job in moving the missile defense issue forward, both nato statement on
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territorial defense, very brave decision that turkey took, spain, poland, romania. a lot of accomplishments. are you concerned as you move toward the chicago summit that some in congress, including the house armed services committee, are criticizing nato, the missile defense architecture and our abdicating instead for a third site in the united states? does the administration have plans to step up its campaign in congress in support of the phase-adaptive approach? >> we are fully committed to the phase-adaptive approach because we believe that it is the best approach to beating the evolving emerging threats. and so this architecture, which we developed when we came into office, which was a change from the program of record, as you know, was developed because of two factors. one, that the threat assessments that we received suggested a
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more imminent threat to europe then had been previously judged in the case. and second, that our technology have developed in such fashion that we could feel the systems that were more capable of defending your. and so taking those two together, we decided that we would offer this new architecture to europe which has the benefit of being adaptable, as the threat evolves, and conceivably the threat could evolve in a positive way, that is the threat could be diminished. but so long as we judge that there is a series ballistic missile threat to europe we will continue to proceed forward as we have committed to doing. and we have a number of allies who have offered support for that. that is, in terms of basing agreements, and there are other allies would like to participate as the architecture develops. and we are committed to fulfilling this offer to nato to field the full system.
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>> just to flush out the argument that she alluded to, someone who are saying what does this would do for the united states? is this another example of the use sharing europe's burden in defense and since? could you address, how does this contribute to security? >> this does have the benefit of defending the united states, and so we have, it would, as we field the system and we see the evolution of the capabilities of the potential adversaries, we know that this would also provide coverage, intercept capabilities for the united states in the event of an attack on american soil. that has been fundamental since the start for us. there have to be an american natural interest in this as well. and so this is about both events of european territory and american territory. >> thank you. yes, there's a question way in the back. i will come back.
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the second to the last row. a young gentleman. >> thank you. thank you, dr. sherwood-randall, for your remarks today. i want to touch on something you said about, with regards to serbia capable of becoming a member, and bring up the point of macedonia. macedonia has adhered to the criteria since 2008, and with the recently of the icj this past december, international law has spoken that greece's veto of macedonia is illegal. where do you see the future of macedonia? how do you see the united states administration taking on this role? and are they going to be an advocate for macedonia moving forward on this matter? >> we have worked very hard behind the scenes to achieve resolutions to the standoff over the macedonian main issue. one of the things the president has mused about is that many things that you have to know about as president, and one of those is the macedonian name issue. and he himself has been involved
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in discussions with counterparts on this issue, and, unfortunately, it has not been resolved in time for the nato summit in chicago, but we continue to hope that this will be resolved so that macedonia can take its place as a nato member. >> thank you. robert, elizabeth, thank you for excellent presentation. things that get done then, they can also be about things that one tries to do in the future. i was wondering if you have any plans, to use that wonderful phrase, the summit task atlantic council and permanent session to look at the following. i've a few ideas. one, you haven't mentioned i gather will not be very proud of, conference of approach selection to the european union. and what to do in area of the
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middle east, including north africa, whether there are various things that nato and e.u. and the rest of us will have to do there. do you have some ambitions of the future you would like to see get on that particular forward-looking agenda? >> ambassador hunter is one of the people who is talking about nato like i know. [inaudible] [laughter] >> i didn't mention it because it is so much other stuff of our everyday business. that is, we are working collaboratively with the e.u. on many fronts, trying to define what the you can bring to the table that is complementary to what nato can do. and for example, we're talking with the e.u. about his long-term role in afghanistan. that will complement what nations are doing in afghanistan. that's also true with regard to the middle east and north africa where we have an extensive ongoing dialogue with kathy ashton and her team, in which we have tried to a certain degree
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-- there so much to be done, and the e.u., for example, has taken the lead in tunisia and we said that's terrific. we will support the. we will be involved but we'll understand that you'll be in the leading role. and so across the board on the air spring, the e.u. has been a very important partner. now, as you know there are issues at a level of principle but have not yet been resolved between nato and e.u. and what we're trying to do is come at a practical level, encourage the growth of cooperation to ensure operational effectiveness in a wide number of areas, and over time, reach agreeing on some of those principles that need to be resolved. >> yes, along the front row. >> thank you. mark jacobson, formally of isaf.
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i'm very encouraged by what i'm hearing in terms of partnerships, that they said secretary-general rasmussen's comments in march 2011 in warsaw that threats emanating from outside europe and these are things nato has to deal with, and this would be something that will be unaddressed in chicago, what unconcerned about though is what i'm hearing from many european colleagues, that is a desire for nato to retrench that. afghanistan is too tough, cyber is too complex, and we ought to focus on basic territorial defense. how will the united states combat that sort of you in terms of, and i tried to coin a phrase or, moving towards a real global partnership for peace program? >> thank you, mark. you know, i think that debate about whether nato should be about territorial defense or an expeditionary alliance is one that has not been central to our dialogue with our allied colleagues.
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because it has increasingly become evident that we have to do both. and that as the president has reassured allies of our fundamental commitment to article five, we can do to continue declining, we've supported baltic air policing and we provided the missile defense architecture, there's an understanding on the part of allies that their security is not going to be reduced by the commitments we must make beyond europe to ensure our security because that's where the threats emanate from, by and large. and so while this has been a subject of discussion since the creation of nato, since the alliance had a defined treaty area but the principal allies have always had interest outside of europe where the expected that they would receive the support other allies to defend those interests. i see this as being a dynamic conversation, but not one which allies are seeing black and white either/or, zero-sum, but rather this alliance has got to do both going forward.
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>> last week you in chicago inspecting the venue and the sites before the summit and unit some communities -- i bet what you think about that trip? was it the right choice to make summit in chicago? >> so, the biggest -- he is the lead when ambassador and i and several other ambassador, some of whom are here today with us from estonia, from romania, from the czech republic, joined us in chicago to speak with a number of the ethnic communities that represent a number of our new allies in the chicago area. and it was an extraordinarily powerful experience. our deputy national security advisor and i traveled there together, and the palpable sense of what this administration has done for nato, to make new
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allies feel that they allies full stock, that there is a distinction between old members and members, but that we are all allies together, and all have made this solemn pledge to live up to our article five commitment, was a very positive experience. and hearing what you and your colleagues had to say about what nato means to your countries was also very moving. because it helps us to appreciate the value that is being added by this alliance in central and eastern europe. the other element of those conversations, which was very important, it was we talk in several different public forums about the role central european allies are playing in some of the democratic transformations that are taking place, both to the east and also in middle east and northern africa. and these countries have much more recent experience with
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transformation in these revolutions. and so they can play very significant leadership role, and are keen to do so. and we're very proud of that role, that they're seeking to play in helping other countries learn from the own experience and build new institutions and democratic governance going forward. >> well, we are on this theme, sorry. just one second. second row there, sorry. >> calling clark, aol defense. it's all interesting to hear talk about burden sharing and all. i'm looking at a briefing by adrienne kennedy of nato about the share of u.s. spending. into cells and one it was about 50%. now it's about 75% of nato spinning to you're going to the heartland of america where people care about taxpayers dollars. when are we going to see a shift in european defense spending in
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nato? i offer that to anyone in the audience who would like to address it as well. >> i think you can anticipate growth in european defense spending when europe has recovered from the economic crisis, and obviously there's a lot of work to be done on that front i would have a much broader conversation about the challenges that europe is facing right now, and the implications for europe's future as well as for hours because we are so interdependent economically that this affects our growth as well. that said, we have got to find a way to maintain our allies capability during this period of fiscal constraint, and that's what we are working to do. and it's a very tough but i will say on the number of initiatives, for example, on the ground surveys with the president was personally involved in speaking to counterparts about the importance of making this investment, we have succeeded in securing the kind of funding necessary to buy this capabili
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capability. and in these fiscal times, that was something that his colleagues were willing to step forward and do. and so, our judgment is that when we prioritize we make live with the benefit will be to allies. allies unwilling to take the steps necessary to provide nato with the means to do the job. >> well, i think that's a good cutoff for inking, let's hope that doesn't in fact prove to be the case, the in these difficult times that allies will agree on a plan for effective prioritization and better use of those resources that are available to maintain the transatlantic relationship. dr. sherwood-randall, you've been very generous with your time. i think we covered the whole waterfront but there are a number of issues we can bore down on as was just as is suggested by want to thank you for making time for this after just having come back from chicago on a similar mission to give as much as a preview as you could on the summit agenda. we wish you great success next month and we look forward to maybe having you back here again to discuss the way ahead from chicago.
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thank you very much, dr. sherwood-randall. >> thank you, stephen. thank you to all of you. [applause] [inaudible conversations] ..
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u >> last week, epa add min straighter, lisa jackson, spoke to students at american university here in washington answering questions about gas prices, renewable energy, and climate change. this is about 45 minutes.
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>> good morning. >> good morning. >> on behalf of the school of business and its new ms and stainability management program, welcome to the grand finale of au's first week events, a town hall with epa administrator, lisa jackson. i'm dan jacobs, director of the stainability management program. i'd like to welcome our dean, michael ginsberg. a brief word on the format. administrator jackson makes brief remarks followed by a question and answer period moderated by dean ginsberg. in the matter of time and efficiency, write questions on the index cards made available
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to you, and pass them down to the end of the row of the folks roaming periodically to pick them up. this is really a special privilege and pleasure to introduce administrator jackson with whom i feel a special bond. we began our careers in environmental protection in the same year. when lisa jackson joined epa as a scientist, and i, first, began representing epa as the justice department lawyer. i guess you could say that lisa jackson and i, rather lisa jackson and her colleagues were my clients for many years, all be it non-paying one, but more recently shared an interest in seeing the justice is served in the bp gulf oil disaster case. administrator jackson's public service came both at the federal and state levels. prior to serving as epa
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administrator, she served as the commission ire of -- of the new jersey department of environmental protection. sense we are here on a college campus, i would be remiss not to mention that lisa jackson obtained her undergraduate degree in her hometown of new orleans and her master's degree in chemical engineers from princeton. i have many fond memories of my former client, but i wanted to share just one with you in particular. i was getting on a plain in february to fly out to l.a. to give a talk. just before the plane door closed, lisa jackson got on and sat down across the aisle from me, one row up in coach in a middle seat. i was so excited to see her again that i spoon tape yowsly shouted, i love you, lisa. [laughter] she smiled and waved back.
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then i turned to the startled young man sitting next to me wearing a high school jacket, and sounding as prof sore yal as i could explained, you know, that's lisa jackson, the epa add administrator. very poised high school student nodded and said, yes, that's my mother. [laughter] startled, myself at this point -- [laughter] i asked in my typical new york fashion, but she's sitting in a middle seat to which he responded, she likes to be in the middle. while she's in the middle of a lot of things these days, and i, for one, is glad she is because
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as someone who's been in the environmental protection business for as long as she has, i have confidence that she will do the right thing for the environment. please join me in welcoming epa add min straiter lisa -- administrator lisa jackson. [applause] hey, how are you? good introduction. best one yet, dan jacobs. well done, a personal touch. i'll go further. everyone talked about how this weekend is white house correspondence dinner weekend, and they call it dc prom or nerd prom, but it's real, and if you have a high school student, people ask me, how do you balance it out and think and keep things in perspective? that helps, with moments like that, that helps a lot. thank you for acknowledging them. a special thank you to dean
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ginsberg for coming and staying and moderating our q&a, high level moderator. appreciate that as well. a special shout out to jeneatte, are you here? i got an e-mail from vicki saying you were intern extraordinary and representative of this wonderful institution so thank you, and i know we're trying to get you back. thank you for the hard work at epa this past summer. let's spend time before we have a conversation what has been and continues to be. the defining mission of our time in office. that is, of course, our mission to strengthen the economy and i wanted to spend some time on how epa and environmental protection in particular fits into that mission. since taking office, president obama, and, in fact, all of his administration and all of my colleagues have been focused on
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the urgent need to continue creating jobs. after the collapse of the economy in 2008, there was nothing more pont than making sure businesses got up and running and ensuring families had as much help as they could get in making sure that critical industries like the auto industry could stay afloat not only because we started and wanted to sustain jobs, say, in detroit, but because we wanted to sustain the companies that make up the supply chain. that make their money sending materials and components to auto makers. the economy's growing again. the u.s. has added 4.1 million jobs over 25 months. american manufacturing is creating jobs for the first time since the late 1990s, and the american auto industry is coming back. while developing fuel efficient vehicle to save money and cut pollution from the skies, we've
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also agreed to cut the deficit by more than $2 trillion. put in place new rules to hold wall street accountable. good start, but we can do more. we can go back to an economy based on outsourcing and bad debt and phony financial profits. president obama calledded for more than just an increase in job numbers when outlining the second economic vision for our country. he's called for is an economy and an america built to last. for years now, economic security for the average american family and members of the middle class has been eroding. we have come to what president obama called a make or break moment for the middle class and those trying to reach it. our mission today is to build and rebuild a country and economy where everybody gets a fair shot, where everyone does their fair share, and where everyone plays by the same set
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of rules. to get us on the right track, we focused on four pillars. the first is american manufacturing. president obama has laid out a number of proposals for how we bring about a new era of american manufacturing, to keep those jobs here attracts new manufacturing jobs and makes more products made in the usa. we need our facilities to be more first time and give american -- efficient and give american companies incentives to keep jobs on our shores. the second pillar is american energy. the president wants to move our nation into a new era for american energy where energy is powered by home grown and alternative energy sources designedded and produced by american workers. some of you may have seen that earlier this week, president obama was on "late night" with jimmy fallon. i don't usually watch, but, you know, that's my boss, so one of
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the questions the president got while he was there if there was any one thing that you could make happen that would change the world just by snapping your fingers, what would that one thing be? the president's answers was in short clean energy. he said that we must invest in the clean energy sources of tomorrow, mentioned solar and wind, talked about supporting electric cars and new sources of energy like biofuels. he said we need to do those things because it's good for the planet, because it helps us deal with climate change, and because it's good for our economy. of course, that can't happen just by the president snapping his fingers. it takes hard work, and we need a lot of help. this administration has dedicated more than $90 billion for job creating clean energy products and areas like grid modification, advanced vehicles, and supplemented by private capital that money is supporting
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more than $150 billion in clean energy projects, and those projects help put people to work. a new era of american energy is about more than just solar panels or increased use of cleaner, natural gas. one good example is the work with the awe though industry to make vehicles more efficient. the historic fuel economy standards this administration put in place nearly doubled the efficiency of the vehicles we all drive over the next decade. this single step will save american families $1.7 trillion at the gas pump keeping pollution out of the skies and cut oil consumption by $12 billion. i want to stay on that point for a moment because this is one of the most important steps we can take to address the spike in gas prices that we're seeing right now and every summer. high gas prices are painful, especially papeful for middle
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class families, and as a result, they are painful to the economy. the fact is there are no silver bullets to bringing down prices in the short term. anyone promising they can do that is frankly not telling the truth, and the president said many times this administration is not going to get into a false debate or phony promises. only way we're going to really deal with this problem is through a sustained #, serious, all of the above approach to developing new, domestic energy sources. that means safely expanding oil and gas production, but also means reducing overall reliance on oil through fuel efficiency and through the use of renewables. these changes in addition to saving money has also sparked widespread innovation from companies developing components to innovators making advanced batteries. in north carolina, an advanced battery company called cell guard recently hired 200
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employees and is adding 250 more, one of many companies operating here in our country that have dramatically increased our global market share for advanced batteries. another example is the company alcoa, not exactly a start up, but they are investing $300 million in their alum numb rolling facility in davenport, iowa because they expect demand in their product as fuel efficiency in cars improve, 150 jobs. auto industry is benefiting as well. we read the stories of chrysler and general motors adding engineers and technicians to make the more fuel efficient cars called for, and yesterday chrysler announced first quarter profits for 2012 quadrupled from the previous year. the third pillar is ensuring a
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fair shot for workers. ensuring our students and workers get the education and training that they need. some of the maps he outlines including connecting our colleges to industries in need of new workers and helping small businesses get up and running and suspending reports for students paying down student loans which you may have heard about. 7.4 million people with student loans see interest rates double on july 1st of this year. we want to make sure that does not happen. when we need highly educated people to drive our economic growth, it's not the time to make it more expensive to go to college. the president is also urged congress to reform an immigration system that allows immigrants to come to the united states, get educated, and then tells them they cannot stay once they are finishedded. finally, maybe most importantly, the president called for a return to american values, values of fairness for all and responsibility from all.
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it is critical to our economic success that it is a fair shot, and everybody plays by the same set of rules. in all of this, epa, i believe, has an important role to fill. our mission, day in and day out, is to protect the health of the american people. how do we protect health? by keeping pollution out. air we breathe, keeping toxins out of the water we all drink, keeping harmful chemicals out of the lands where we build our homes, our communities, our schools, our churches. in other words, the work we do each and every day is focused on ensuring our economy works for the american people. it is consistent with american values to say that industry should not be allowed do dump up treated sewage into waters where we drink or swim or waters needed for agriculture. it's consistent with those values to say that automobiles
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should need some standards, and those standards should keep everything from dangerous led pollution to carbon pollution out of our air, and that power plants should have some limit placed on their emissions of mercury and neurotoxins that affects children's brain development. it's consistent with those values to say that the food we put on our plates shouldn't be covered in harmful chemicals that threaten our health or the health of our children. as president obama said, we will not back down from protecting our kids from mercury pollution or making sure that our food is safe, and our water is clean. right now, there are two ways to go, two visions dominating the conversation. one says we can rely on science, laws, innovation, i'm an engineer, i like innovation, to protect hiewm health and grow a
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clean, stable economy. the alternative vision of moving forward requires rolling back standards, clean air, and clean our and says we have to increase protection to those who might choose to pollute while reducing safeguards for all the rest of us. turn on the news to hear the consistent drum beat against environmental protection, and has very real consequences. last year, the house of representatives orchestrated a total of 191 votes against environmental protection. that happened in response to misleading information about epa and its work. there was an assertion made by groups that the epa was putting forth a train wreck of regulations that would hobble our economy. it was repeated in news outlets on the on the floor of congress. one of the bills restricting clean air protection was
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entitled the train action. the problem? there was no train wreck. it was founded on a council report about regulations that epa never actually proposed. we can't build an economy in a nation built to race to the bottom, and the most loopholes in our environmental laws. for those of you born after 1970, it would be the first time in your lives that the health and environmental protections you grew up with may be taken for granted and not steadily improved, but deliberate ri weakened. the result will be more as ma, more respiratory illness, more premature deaths, but the result won't be is a clear past to new jobs. no credible economists thinks our current prices or any crisis
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to clean air and clean water standards. in fact, our experience indicates just the opposite. epa has been around for 41 years. during that time, american's seen gdp rise 200%. after all that time and growth, it's clear that we can have a clean environment, better health, and the growing economy all at the same time. i'll be clear, accomplishing these things at once requires diligence. president obama directed federal agencies to review regulations to eliminate unnecessary burdens for businesses to ensure that vital health protections remain in tact. that is a good idea. streamlining regulations is not the beginning and end of our plan. it's not the only idea we have to face we have, but we used to face the broad range of economic challenges ahead of us.
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we need proactive measures to end source jobs that should be created here in america. aggressive steps to strengthen our manufacturing sector, new ideas to make sure workers have a fair shot, and strong support for innovation, the backbone of our economy, and certainly critical to a new era for american energy. i'm proud to serve a president who said we can't wait on these issues. proud to know he believes that epa's health protections are vital to the american people, and that the choice between our economy and our environment is a false choice and proud to serve an administration that's committed to building an economy that's built to last. we can either settle for a country where shrinking number of people do really well or more americans barely get by or build a nation where everyone gets a fair shot, and this make or break moment for our middle class, we have great opportunities to serve the american people and strengthen
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our future. the strategy to grow our economy by simply doing less is not good enough. it's not how we meet the needs of the people that we serve. i'm here today because so much of what is at stake will shape your future, and you have the power to influence the directions that we don't. i can't say how critical it is you lend voices to our discussion here and to our discussions in our country over the next month. i know if of you are here to talk about your commitments to the issues of stainability, and i look forward to having that discussion in just a few minutes as well. thank you for coming and thank you for everything you do in school while there, that's important too. i have to let the mom in me say that, do well in school. your parents are paying your tuition, and thank you very much. [applause]
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>> ms. jackson, thank you so much for the remarks. i greatly enjoyed them, and they resinated well with this long time business professor. i'd love to have a conversation directly with you about that, but my job is to moderate questions. indeed the questions are coming from the students in the audience submitting them and they have come in via twit e and let me start with the first one. this is charming. what is your advice to a young woman who would someday like to have your job? [laughter] >> well, maybe i'll start where i ended which is presuming that young woman is in the audience or still in school, i just rooptly did a lovely white house event on science, technology, engineering, and math. stem they call it. i know many of you may not be science majors, but it's important to recognize -- i love to talk about the connection
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between environmental protection which may seem like something not technical in technology. you know, you probably all don't remember cad liddic converters, but representing the air over los angeles or houston or major cities is a significant cause of as ma imness, heart attacks, premature deaths inspired innovators to realize there's a market to make that air cleaner. it's not going away any time soon. the epa can't protect health without technology because we cannot adopt rules that put a huge burden on the economy without cost effective solutions to address the problem. you know, the history of epa is a history of innovation. if you're not a science and technology major, i would strongly advise you keep that in mind from the stand point of epa and understand that connection.
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whatever your studying, we had lawyers, all kinds of folks who ran the epa, probably more lawyers than anything else, and 24 is a city, a town of lawyers. you are all bucking the trend potentially, but i would say it's also important to recognize that increasingly and we'll talk about stainability. the private sector is key too, all right? there's no such thing as government does or imposes in the private sector. the private sector being a part of this can mean we can see changes in everything from the behavior to marketing to wants to needs, an economy built to last. >> pursuing a master in science and stainability. >> there you go. advertisement for -- [laughter] >> okay. here's a more current topical question. what are the epa's plans for
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conducting research on the natural gas fracking? >> sure. there's an ongoing 2-year study on the fracking, hydraulic fracturing, the primary technology making all this natural gas potentially available for us in the country, and its impact on drinking water. it's been scoped publicly with peer review of the scoping of the document. right now, in the data collection phase, and we said that we're rolling out intrerm data and information as we get it and probably the earliest we see that is at the end of the calendar year. and this study is scheduled to be completed a year from then. completed in 2013. we also just put out finalize the rules for air emissions, and if you heard me speak before,
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natural gas is tremendous opportunity for our country, especially when it comes to carbon pollution, but it needs to be done as the president says safely and responsibly, one of the areas that has potential to be of concern if not addressed by states and federal government is air emissions. right now, we inadvertently emit a lot of natural gas in the process of finishing and completely the wells, natural gas wells. natural gas is a greenhouse gas. it's shorter lived, but from the standpoint of our planet and also for vlc, precursors to the formations of smog. it's volatile and compounds like chemicals responsible for emissions in wyoming. they have a lot of cars or other smog producing, but they have really small base in certain
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areas. combination of emissions from oil and gas development and others that keep the air where it is, and there's an inversion, and people are seeing smog levels as though they lived in l.a.. don't ignore that. states are stepping up. we have to address air emissions, drinking water concerns. the federal government, the president has put into next year's budget proposal his vision is that we should work with the department of energy and the department of interior to do additional studies to ensure that hydraulic fracking is unsafe. >> thank you. on the topic of emissions, is there a time line for creating regulations for c02 # emissions from power plants? >> we just proposed regulations to deal with c02 emissions from new power plants so if you want to build a new power generation
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in this country, under the clean air act, the existing authority under the law of the clean air act, we proposed regulations for, mandates maximum carbon emissions, i think a thousand pounds for a million btus or kilowatt hours. okay, a thousand. come back to me in a second, but i think we should go through public comment on those as you might imagine. these are our nation's first real standards to limit carbon pollution from energy generation, the largest sector in terms of energy, in terms of greenhouse gas pollution in our country, and so we need to do them. we need to do them right. we're going to start by -- i think we started a 60 days comment, and i think we have to focus on finalizing those rules because they're going to be, i think, very important and
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watched around the world as well. by the way, we already addressed carbon pollution from cars and trucks. those historic fuel efficiency standards are extremely helpful in helping us ratchet down carbon emissions from the cars. the fuels you don't burn is a huge savings, but making cars first time, air conditioners in cars, refrigerants are potent greenhouse gases, and those are included in the rules as well. >> thank you. this question is by what year, maybe it should say do you see the u.s. relying primarily on renewable energy sources opposed to oil, gas, or coal? >> you know, every forecast from all the energy agencies shows that there is a doubling of solar power in the last few years, real take off in terms of solar as batteries become
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cheaper and storage for technologies like solar that are only available when the sun is up and shining, gets people more available, and i think you'll see that continue. obviously, wind, the department of interior has outlined support for wind projects off the coast and off of other areas, trees yal winds in parts of the midwest as well so, you know, i think every forecast shows that we're going to continue to be dependent on fossil fuels. obviously, as we move, right now because of economic pressures, price of natural gas, i think, is down by, i think, i was reading yesterday 30% since the beginning of this year. surprise. down $2btu from last, and so it's very, very cost competitive with respect to coal. i think we're going to see additional moves in that
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direction following the marketplace. i also think that we're going to continue to see as the president has said, a need to invest on the technology, the research, and the energy efficiency side. please don't forget energy efficiency because in many areas the difference of building any new power plant and retrofitting or keeping what we have or investing in some of the renewables is the peak time, hot days in the summer, for example, and if you bring those peaks down, you just need less power because when we power up, we have generations. >> this is particularly interesting wrote i was hoping there would be a big growth of electrical powered cars and one of the most important strategies to improve vehicle mile per gallop reducing vehicles environmental impact. expwr well, i think the most
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important strategy is if you asked me about it before i was epa administrator in 2009, i would have wondered what you were thinking. just for a sense of how much the land scape and leadership changed of this president, you know, forever, there's the clean air act, about eight of the top ten were cities from embassies from the american lung association, and cities in california, and that affects the health of literally millions of people. california has a special place under the clean air act because the programs in many ways are more mature than programs that came first. california sets standards of emissions from vehicles and other states can opt in or out. this administration came in where california wanted to set stashedz in addition to the other emission standards and
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have been denied the opportunity because we now have given california the opportunity to do that because that means cars are becoming more efficient and 12 or 13 states joined california in wanting to do that, and then we made national standards that nationalize california's standards for the rest of the country. under this president for the first time ever, a national set of standards that move us towards doubling fuel efficiency, 55 miles per gallon by 2025 and decrease in carbon pollution at the same time. that's in the books. a second set of standards have been proposed were scheduled to adopt those in believe august or september of this year. it will be done. we'll have a blue print for car manufacturers from now through 2025, and it requires increasing every year reductions, well, increasing fuel efficiency which means reductions every year, and
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pollution. that's really, really good news. we really have taken -- gone from a place where people thought we couldn't be manufacturing folks of hybrids or efficient diesels. we don't tell people what kind of car to build or say it has to be electric or not. california is pretty far out in trying to go to zero emissions. if you see their air emissions, you understand why. it's really necessary in california like it is in many other places in our country, thankfully, but i think we're going it see that. the other thing that i think many people are talking about now is natural gas, and its potential to affect the transportation sector. i'm an engineer, and natural gas first and foremost is the building point of keep -- chemicals that remanufacture and use like fertilizers, and i know we talked agriculture issues, but now because we have so much
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of it, you can think of it for power generation, and because we have so much of it, it's a resource, especially for fleets that are based in delivering or trucking in some parts of the country. it can become an option. >> more potential question. what's the hardest part of your jube? >> first off, it's a great job. people say to me, especially as i discussed, it's a touch environment here in washington, and you know that really well. it's an enviedble privilege to sit at the top of an agency that i worked in. i worked at epa for 15 years as dan mentioned. i was a staff scientist, worked up on the career side, and now i'm back to head the agency. i know that we have to do our job. i know we have to connect with the american people. that's why i love doing events
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like this. one of our -- i'm telling you what i love, but one of the big pushes is expanding the conversation on environmentalism so that people, no matter where they live especially poor communities, disadvantaged communities, can see in this epa, an organization there to help them. we made a special push with la latinos. i'm an african-american, first one to run the agency. if there's a tough part, it's a hard job and a hard environment, and if anything, i think we spend far too much time talking about trivial things and things that are amiss. i went around the country last year to assure the agricultural communities that we were not going to regulate oil pollution control although we announced, and i can't say it over and over, we're not looking to
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change the standards for course particles with what they call dust, and we spend a lot of time on that all based on this misrepresentation and not enough time really confronting issues that face us, including climate change which is determinative for you in the room in terms of what your economy's look at and having to to deal with. >> more substantive difficult -- we'll see if it's difficult. how satisfied are you with the country's response to global warming, and if you're not satisfied, what do you think needs to be done in time to prevent a catastrophic point? >> i think it is pretty -- first of, there's the federal response which i've outlined to you. we don't have a climate change
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law that deals with carbon, and what we've done by law is work under the clean air act and do that responsibly and use common sense. we're not trying to make some big shock to the system because the system, we're all involved in energy and energy touches all of our lives and our economy in so many ways, but please, and this is an important thing to note, do not assume because there is no federal law, this there are not state laws. there are state laws. there's a compact in the north eastern states called the regional greenhouse gas initiative. there's laws out in california that have withstood challenges. ab # -- ab32, and many, many states, there's communities across the country seeing the economic opportunity, and this is why they are doing it, they also love doing the right thing, but
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these are cities and tops and counties and states who see economic opportunity in cleaner energy. the international energy administration estimates $3-$4 trillion spent on cleaner energy in the country. if you're all about innovation figuring out the next big thing, and then bring it to market and make money and doing really well doing that, all of those communities want to be home to that because that's where the jobs are. i think we should not underestimate the energy that's happening. the energy that's happening around clean energy around our country, and i'm going to say, again, you know, whether it's natural gas which is tremendous opportunity for us. i'm an environmentalist, but you can't look at natural gas and not see the potential if you do it right for 40% reduction just like that in some of the greenhouse gases.
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carbon capture and sequestering, an innovation and opportunity. some working someplaces, but you have to sequester, and people see an opportunity there around that technology. there's people who look at the energy storage area. i mentioned leadership in advanced battery manufacturing all as part of what's happening in the country. if you think of the states as laboratories of democracy and in this case public policy, i feel certain we're coming back to talk about energy in a much more, you know, we have to confront it. you all will. you absolutely will. >> thank you. coming towards the end of our time. >> so sad. >> one more question. >> okay. >> the secretary general asked president obama to tweet and join the real plus 20. would you encourage the president to attend, and will you tweet him in the process? [laughter] >> i will not tweet the
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president of the united states. [laughter] i will speak to the president of the united states on a range of issues that i think are really important, and i will, i think, we've talked about working with the department of state to try to make sure we're engaging ngos and business community prior to the summit who ensure that the united states is put and present at that summit is representative of that which we do best, which is, again, innovate and create whether you call it stainability, clean energy, or low toxic, low chemicals or water when it comes to agriculture. we have to feed potentially 9 billion people and have to address the fact that in this point in time people live in cities more than rural areas issue and that's not going to
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change. until you're traveling, but when you see what cities are like in developing countries, you know what they know which is they have to feed and create economic opportunity the initial migration is around economic opportunity, but having those people means that the united states has a lot to give, money to be made around making sure there's clean water, that we rethink waste as an option for energy, that we rethink ways of an opportunity for materials. i love talking electronic waste and the periodic table is in our excellence, but yet we have to figure out where we get the materials for the next generation. in our smart phones is not an endorsement of any product, but as we think about the
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opportunities, we can't get there without changing the way to think about things, and blessed in the country that we're so aloft, frankly, and we can think about them, market them, and get out and talk about them. last thing to say is there's a great summit in, i think, it was stanford outside palo alto. they called it rei yo plus 2.0. get it? the use of social media tools, not just as awareness, but the same revolutionary changes we see in parts of the world in people's access to information, and we really make a huge change in people's carbon -- people's access to clean water. able to tell folks in this one african village when the water delivery came freed them to go work because they would wait sometimes a day or two, can't go
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anywhere or do anything without water. it's little things, it's huge things like energy opportunity, and food opportunity and food fairness and also and always climate, so thank you very much. [applause] >> thank you. >> i want to thank you so much. this was terrific, and for all of the community, thank you for coming here, sharing your time with us, this really is the culmination of the earth week activities, and it's terrific having you here. we're looking forward to the fall, and we do introduce that stainability management, and we hope our students will carry on with the same high standards
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that the epa, that you represent for the epa. i want 20 thank all of you for coming. can we have a time round of applause? [applause] [inaudible conversations]
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>> we have believed for some time that police departments around the country are tracking people's cell phones on a routine basis often without getting a warrant based on probable cause. >> should tracking a cell phone require a warrant? tonight, american civil liberty's union attorney on police use of technology for
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surveillance purposes and whether current law adequately protects an individual's right to privacy at eight eastern on "the communicators" on c-span2. >> katharine, fox news channel's homeland security correspondent and spoke at the conference of the rockies this year about the threat of home grown terrorists. this is an hour. >> [inaudible]
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in 2001, now covering intelligence, the justice department, the department of homeland security. her latest book, "the next wave," exposes the new face of terrorism and predicts the source of future threats. it was the first book of its kind since bin laden's death. to show what the next chapter of terrorism could look like, and she called it al-qaeda 2.0. katharine was the first reporter to coin this term. her investigation of al-qaeda 2.0 inspects the rising threat of home grown terrorism, and how social networks is the life blood of jihadists and first american on the cia's to capture list. steering al-qaeda and yemen, and most active -- the most active
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and lethal of the terror networks affiliates. at fox news, katharine and the team of journalists traveled across the united states and yemen to complete the 18-month investigation into -- the link of three of the 9/11 hijackers, the fort hood attack, attempted bombing on christmas day on 2009, failed attack on times square in may 2010, and the cargo printer plot of october 2010. "the washington post" described the documentary as an explosive hour. she's described as one of the country's top national security correspondents with reporting prompting letters from capitol hill. homeland security committee has now opened an official investigation into the american collarric and whether he was an overlooked key player in the
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9/11 plot. her security reporting is personal. she's not on the sidelines like most correspondents. her family is feeling the impact. katharine's also the mother of two young chirp, and in 2005, her family made national headlines when she donated part of her liver to her youngest son, peter, for a life saving transplant. she's an outspoken advocate for organ donation, and the experience brought a new fearlessness to our reporting. a graduate of harvard college, she began a career as a london based correspondent for abc news. she has reported from afghanistan, iraq, qatar, israel, and former yiewg love ya, and new york city on 9/11. one of the few reporters to sit in the same courtroom of the architect of the 9/11 attack and his four alleged
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co-conspirators. help me welcome katharine to our program. [applause] >> bob, thank you very much for that kind introduction, and i appreciate the honor of speaking here to you today and also the sponsor who made the events possible so good morning. thank you for being here, and for deeply caring about our nation's security. this book "the next wave" began with a simple question after the attack in fort hood in 2009. one of my colleagues at fox asked how is it that americans who are old enough to remember 9/11, less than a decade later, turnedded their back on their own country? that question gave me pause because each one of us remember where we were when the twin towers collapsed and the pentagon was struck and when the
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plane crashed in pennsylvania. what i found through reporting along with fox specials unit is that every investigative thread led back to an american, anwar al-alawaki, the leader of al-qaeda 2.0, this new generation of american recruits, people who leverage technology against us so whether they are e quailing or blogging or skypeing, they are like the facebook friends from hell. this could not be more topical because what most americans don't realize is that there is a documented case of home grown terrorism in this country every two to three weeks. there have been more cases in the united states in the last two and a half years than we had in the first eight years after 9/11. just recently, we had a case in washington, d.c., a young man who had been living in the
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united states illegally for 12 years was accused of being a suicide bomber. his target was the capitol building. an important threshold has now been crossed. what's more striking is that he is not the first case of the suicide bomber in the united states. in january, a young man in florida faced the same accusations. the next wave was written in july of last year, and this book accurately predicted the future, predicting the spike in home grown cases and predicted an american citizen, al-alawaki, the first on the american's cia list would be killed at the hands of his own government and predicted future threats to al-qaeda and other extremists would be yemen, somalia, and north africa.
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shaping up to be afghanistan on steroids. now, this book you'll be pleased to hear is not an academic book, and it's not a book i wrote to impress people inside the beltway, which i know is a bigger relief. it's really written so every american can pick it up and educate themselves about an issue that i think is one of the most pressing facing our country. i wrote it in a way to go behind the scenes of our investigation, sit in the courtroom with me at gautham guantanomo bay, and what we read in the book are not only shock you, but it will also expose some of the uncomfortable truths about the way washington works today. this story is literally bookended by scenes in
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guantanamo bay. as bob mentioned, i'm one of the few reporters who sat in the courtroom with the conspirators, not 20 feet away from these men, and the first chapter is called "made in the usa," and it's an overview of who these people are. it's not just lar who was born in new mexico and who went to school here in colorado. it's not just major nadal, the shooter in fort hood. it's the jihad janes, the western face of the al-qaeda affiliate, and it's a chapter that shows you how this white house is so reluctant to call fort hood an agents -- act of terrorism. fort hood was not a drive-by shooing. it was not a convenience store
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shooting nor an example of workplace violence. fort hood fits the classic definition of terrorism. it was an act of violence to promote a political end. one of the things i do in the book is show you how washington works. i take you into a conference call called a background conference call. when you're reading the newspapers, you see quotes from senior administrator officials often from these calls. reporters can get on the call and ask questions of people in the white house. you can't identify them by name. i asked the question in that call, and the white house add milted -- admitted fort hood was an act of terrorism. there was an incredible pile on by the other reporters, and you know what happened? the call ended. chapter two is called "the
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digital jihadists," and it opens with a scene i'm trying to get a message from al-alawaki, and he exchanged e-mails with the shooter at fort hood, and i made contact with someone in yemen, and they ultimately send me to a file sharing website which is really a porn site, so i get to the site, and i open it up, and i'm thinking, number one, i should not be here, and number two, i think the legal department is going to call me at any moment. [laughter] this is not a good situation. once i got to the file, what i found is that it had been encrypted by the person in yemen, and that i needed a password texted to me to unzip it. the reason i tell that story is because there can be this popular narrative that these individuals are very primitive and hanging out in their caves and sending messages, but, in fact, no group is better than
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marrying the best of the old with the best of the new. look at bin laden. in his final days, he relied object most ancient form of communications, a courier, but he used it to take thumb drives to internet cafes to upload his messages. in this chapter, you learn how people are radicalized, and you need somebody who i have deep respect for, charlie allen, he is legend in the u.s. intelligence community, 47 # years with the cia and three at homeland security, and he's someone who had the courage to be the first government official to publicly identify the american al-alawaki as a threat to u.s. national security, and what charlie al help explains is that the internet really is the driver of radical islam and radical ideas. ..
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>> outside interest is that i do believe there is a generational divide. people who grew up with social networking, people under 30, seem to connect with each other in a way on the web that older generations do not. it's a more intimate connection. and what i mean by that is the former cia director michael hayden said to me that in the old days, pre-9/11, there was a view in the u.s. intelligence community that you had to have
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one-on-one contact, kind of the mentoring thing, to get you over that threshold to violence, to become a suicide bomber. but after fort hood that calculus seemed to change, and it's continued to do so. the individual i mentioned in washington, d.c.,al ca live my, there's no evidence that he had any contact with a foreign terrorist organization. he seemed to be able to do it all on his own. the third chapter is called "slipping through the net," and i explain how this american, anwar al-awlaki, slipped through the grasp of the fbi after 9/11. not many people realize that the fbi interviewed anwar al-awlaki four times in the first week after 9/11 because he'd had contact with three of the 9/11 hijackers. and what most people don't know but what we reported at fox and
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it's never been disputed by the fbi is that in october of 2002 this cleric was held in federal detention by customs agents at jfk international because he was on a watch list, because there was an outstanding warrant for his arrest. and he was released on the say so of an fbi agent, wade amerman, even though the warrant for his arrest was still active. and anwar al-awlaki makes his way could be to washington -- down to washington, d.c., and in a few days he appears in an fbi investigation where the same agent is one of the principal investigators. now, i know how the fbi works, that wouldn't have been the agent's call to wring him in, that had to go much higher up buzz that's how the bureau works. and there are really only two explanations. one is that the bureau wanted to track him for intelligence inside the u.s. given his
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contact with the hijackers, the second and the evidence really supports the second is that the fbi wanted to work with him. they saw him as a friendly contact. and what i show in my reporting is that this incident in 2002, the arrest warrant, the decision to pull that arrest warrant, none of it was shared with the 9/11 commission or with congress. just give a moment to think how history would have been different for those families at fort hood if he had been prosecuted in 2002. and not allowed to walk away. also in that chapter i take you to the cia, and you meet this new generation of analysts who's joined since the attacks, and they look at pakistan, yemen, somalia and north africa, and
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then i take you to the new generation in the radicalization unit, and they study how it is that americans have bought into this message. chapter four is called "justice delayed," and that's where i really investigate how are we going to prosecute these cases, especially when americans are involved. one of the uncomfortable truths i lay out in this book is that the obama administration wanted to bring the 9/11 suspects, all foreign-born, to a federal court in new york city where they would have the presumption of innocence and full constitutional rights like any american citizen. yet they took an american citizen, the cleric anwar al-awlaki, and they put him on a kill or capture list, effectively making the government judge, jury and executioner for one of its own citizens. without any due process.
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and i'm the first person to say that anwar al-awlaki was a you know what. i mean, he was a bad guy. but maybe i'm old-fashioned. i think the threshold's got to be pretty high for an american citizen. they killed anwar al-awlaki in september, drone strike in yemen. there has never been a public accounting of the evidence that this administration used to make that determination. i'm sure there is evidence. but if you want to build consensus for this strategy in the future, you want to tell the public that it's not an arbitrary decision when the u.s. government kills one of its own citizens. what i also lay out in that chapter is that there have been a half dozen cases at the military commissions in guantanamo bay, yet almost all of them have ended in plea agreements. and these individuals, close associates of usama bin laden,
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have gotten ten years or less, some of them are already home. yet americans who are prosecuted in american courts -- in some cases simply for making threats on the internet -- are doing 25 years in prison. it's another disconnect. it's another one of the country country -- one of the uncomfortable truths because we still don't have a strategy. and based on my reporting, i predict we will see more americans in the future who are going to qualify for the kill of capture list who could well be better placed at guantanamo bay than in a federal court. and the fifth chapter i'd like to spend a little bit of time discussing in detail because i think it's one of the most important elements of our reporting about al-qaeda 2.0. it's called "guess who's coming to lunch," which is kind of a cheeky title, but it's a reference to anwar al-awlaki's lunch at the pentagon after
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9/11. some of you may have read about story. we were the people who broke it. and showed that a man who had been interviewed four times by the fbi because of his contacts with the hijackers was a guest of the office of the general counsel at the pentagon. these are the top dod lawyers. and he was invited to speak on middle eastern politics and islam. he was part of their outreach to moderate muslims. [laughter] and in the book i have one of the invitations that we obtained through foia, which i think -- i always believe it's good for people to read this information themselves and, you know, be their own reporter in many respects -- and what you see on the invitation is that the menu included pork. [laughter] i'm not really sure how the lunch went, but i know my husband who's a west point grad was so incensed about this lunch because he said to me,
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catherine, there are people who will serve in the military for 20 years, and they will never have the chance to have lunch in an executive dining room at the pentagon. you see, there was a question that always bothered the 9/11 investigators. they always wondered why it was that khalid sheikh mohammed, the self-described architect of the attack, would send two of his most important hijackers not only to southern california, but the ghetto of san diego in early 2000. you see, these two hijackers were extremely important to the plot. they were the advance team, they were the beachhead. they were battle-trained jihadists. yet they had never been to the united states before, and they
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spoke virtually no english. and the 9/11 investigators believed there had to be someone here to meet them. and they long suspected that someone was the cleric anwar al-awlaki. you see, when the two hijackers arrive in january of 2000, they have what's described as a chance lunch with a saudi. they say they run into him, the saudi does, at a middle eastern restaurant in los angeles. and senator bob graham who was part of the joint congressional inquiry -- that was the first investigation into 9/11 in 2002 -- told me they were also very suspicious of this chance meeting. and they hired an actuary to figure out what the statistical likelihood -- [laughter] you've got to love bob graham for that. of two hijackers having a chance meeting with this saudi who was widely believed to be a spy in
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the community on saudi students. and he told me that the statistician came back and said the likelihood was more than five million the one. five million to one. look, i'm not a math person, but that says to me it's statistically impossible. and you know what happens at that meeting? the saudi hooks up the two hijackers with the cleric's wingman, his buddy. you know what his buddy does? he drives those two hijackers from los angeles to san diego. and i've been to that neighborhood in san diego, and i can tell you that in the '90s, early 2000 this really was the deepest, darkest ghetto. this was gang bangers and check-cashing places and hookers. it seems an unlikely place for you to go unless you want to hide in plain sight. because the mosque where anwar
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al-awlaki was the imam is a very unassuming ranch-style building. if you go along the street in san diego, i mean, you'll go right by it unless you know what you're looking for. and i'm the kind of reporter who likes to talk to people. i like to hear their point of view. and we called the mosque because we wanted to hear what they had to say. they'd been in the news a lot after fort hood because of the connection to al-awlaki, and strangely they didn't return our phone calls. so i said to my producer let's just go. okay, let's just go. so we went, and when we arrived at the mosque, the imam came out, and he saw us with our camera, and he hopped into his car and sped away. i don't know if i have that, i don't know, prompt that reaction from a lot of people, but i said to the producer, you know what? the answer's not, no. let's go inside. so we went to the mosque, and
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the front door was locked. so i walked around the side of the building, and there was a staircase leading up the back, and be as i walked up to the staircase, i saw a little door. and when i opened the door, there was a small anteroom, had only one entrance point. very low ceiling, probably not more than 25 feet by 15 feet. it was the kind of place that you would go if you want to have a private conversation about important matters. and i later learned that that was the very room where the cleric anwr al-awlaki met on a regular basis with the two 9/11 hijackers. you see, once they got to san diego, the cleric's friend really hooked them up, found them a place to live, helped them get driver's licenses, got them jobs at the gas station. but by early 2001 the cleric,
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al-awlaki, was on the move. he went to falls church, virginia, and a much larger mosque. and you know what happened? he gets some visitor in the spring. one of them isal hasny, the san diego hijacker. and you know who's with him? one of the pilots. and when they go to his mosque, you know what happens? they hook up with one of the cheric's contacts. and -- cleric's contacts. and it's like a mirror image of san diego. in the jordanian finds them a place to live, settles them, driver's licenses, ids, you name it. and by early may of 2001, the jordanian goes to the apartment, and he now finds that there are four people living there; the two hijackers i mentioned, and they've got two friends with them. you know who they are?
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they're muscle hijackers, just come in. and the four men say to the jordanian, we'd like to take a tour of the east coast and see six flags. can you help us with that? and he drives them. ultimately, to connecticut and then patterson, new jersey. and i'm sure many of you know the significance of patterson, new jersey. it was really the final point in the united states for the hijackers. and by late may, early june of 2001, the landlord in patterson, new jersey, reports to the 9/11 commission many years later that there were now six people living in this tiny apartment, and and each one of them was a hijacker. and then a seventh person arrives. and you know who that is? the other hijacker from san
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diego and awlaki's mosque. almost half of the hijackers are now in a tiny apartment in patterson, new jersey, all with some kind of loose connection to this american. and when i've reported that story, some of my fbi contacts say to me, yeah, well, where's the smoking gun, catherine? i mean, where is the smoking gun? i'm like, i don't know if that's just not enough for you. [laughter] look at the phone and the banking records. because what the phone records show that the fax number for anwar al-awlaki's mosque in virginia was found in the personal phonebook of one of the 9/11 suspects, in the apartment in hamburg, germany. that's where the plot was really finalized. and be -- a fax number's a lot
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more significant than a phone number because they understood that you were much better off to send very sensitive information via fax because we really weren't as good at intercepting that kind of information. and then they're like, well, okay, so there was a fax number. it's a big mosque, a lot of people go there. well, there are banking records too. because when the two hijackers left arizona with their flight training, the interesting thing about the hijackers is they were so fastidious about their finances. and they had a utility deposit, i don't know, $40, something like that. and they told the utility company in arizona, please, send it to this address in falls church, virginia. and you know what the address is to? it's to anwar al-awlaki's mosque. so, you see, a man who ultimately became the leader of
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what i call al-qaeda 2.0 was really an overlooked, key player in 9/11 itself. his contacts with the hijackers were not a series of coincidences. they were really evidence of a purposeful relationship. and i still talk about anwar al-awlaki as the leader of al-qaeda 2.0 because, you see, it's really one thing to kill a man, but thanks to the web it's quite another thing to kill his ideas. in closing before i take your questions, i'd like to tell you about the epilogue in the book. i mentioned we start and finish at guantanamo bay. and it's really something to sit in that courtroom with these men, it really is. because it's very educational, very instructive. i really believe that the best reporting is the reporting that you do with your own eyes.
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and it was one of the final court appearances for the 9/11 suspects. as you know, they were in military commissions, and then attorney general eric holder said they were going to new york, and then that was ultimately reversed. so this is one of their final court appearances in the first round of military commissions, because the second should come at some point this year. and as a side note, i wish all of you -- and if you read the book, you'll meet some of these 9/11 family members -- and the fact that there has not been a trial for these people in a decade is criminal. these are people who read through their children's cell phone records up until the moment the tower collapsed because they had to understand their babies' final minutes. and nothing has happened. so in the courtroom there's someone called washington lead men dash. i don't know if any of you know him, but he is, he's like
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al-qaeda royalty. his family and bin laden's family were friends, grew up together. and those who have seen the classified information often say he's even more important to the 9/11 plot than khalid sheikh mohammed because he was one of the guys who was really moving the money. he's a little, small man, very skinny the. and he always insists on sitting on a pillow in court because he says the chairs are too hard. so he comes in, and he sits on his cushion, and the courtroom is really stupendous. there are five long defense tables on the left-hand side of the courtroom, and it was custom build for their -- built for their trial. i think it was $12 or $14 million. [laughter] each table is almost as long as the tables you're sitting at right now because there's a spot for the 9/11 suspect, then there's a spot for at least one translator, then there's a spot for a couple of military attorneys, and there are often civilian attorneys as well.
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so they're often at the table with maybe six, eight, nine people. so washington lead is in the court, and he has a legal pad in front of him, all of them have legal pads. and i see him, and he's starting to fold it, and he ends up making this paper airplane. and he takes the paper airplane, and he shoots it at one of the other 9/11 suspects, a guy called baluchi. that day only three guys were in court because khalid sheikh mohammed sent word to the judge that he couldn't be wortherred coming, rather sleep. and one of the other ones is so crazy, it can be difficult to get him to court. so baluchi opens up this paper airplane, and you can see these two men laughing. the sound is controlled by the military, so you can't really hear them, but you can see that there's something written inside that airplane. and when i got back to washington, d.c. through one of my legal contacts who had picked up some information from the court security officer who had
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retrieved the airplane, or on the inside of that airplane had written either the 9/11 flight numbers or the tail numbers for those jets. just the symbolism of a military courtroom, one of the 9/11 suspects throwing a paper airplane with the flight numbers inside almost a decade after they murdered nearly 3,000 americans, this is a real window on to who these people are, and it's a very dark window. i often say that people in the government who make decisions about these people, how they're going to prosecute them or decisions about how we're going to prosecute future cases, ought to just go sit in that 9/11 courtroom at guantanamo half an hour, i can tell, would be enough. or maybe their camp seven cell. because then you really
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understand what we're up against. so with that, i'd like to take your questions. [applause] >> thanks for your presentation. recent news stories have spoken of the withdrawal of fbi training materials that have been found offensive to the care/muslim brotherhood lobby in this country. along with other things that you have mentioned from your reporting, do you have an assessment of how badly compromised the fbi is relative to having their eyes open about al-qaeda 2.0? >> that's an excellent question. if you look at the data, what you see is that the fbi has been very effective in breaking up plots inside the united states because in many respects this administration has been very aggressive.
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at trying to target individuals through surveillance or through the web. almost all of these fbi cases that are broken up involve some type of informant, and the defense is almost always that it was entrapment. so on the one hand, the data shows that the fbi has been very effective, but on the other hand your point is well taken because there is a real reluctant to call this what it is. as i mentioned with fort hood, it took almost two months to call it an act of terrorism. and just recently i was the reporter who broke the story that the defense department was trying to deal with these attacks in the context of workplace violence. um, if you're able to speak to fbi agents privately, i interview one in the book who was very generous to do that with me, they speak of their frustration, they speak of an administration in the opinion of this one agent that seems
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desperate to assimilate these people. when it's not possible. to do that. and i may be old-fashioned, but i think that if you're going to tackle a problem, you have to call a spade a spade. because when you go on to the web and you go into these web sites which are run by extremists, they mock us. they mock us for offering the olive branch. they mock us for trying to make peace. and the first homeland security secretary, tom ridge, said to me years ago that he always thinks of the issue this way: we've got watches, but they've got time. next question. go ahead. >> yes, thank you for your presentation. i very much look forward to reading your book. my name is matt arnold, i'm an
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lpr graduate from 2008, also candidate for c region at large. the reason i bring that up, i found it very interesting, your comment about how al-awlaki went to school here in colorado. apparently, colorado colleges are a source of a lot of radicalization. the entire islamist movement traces back to outrage at the moral lie seven shusness of university of northern colorado in the 1940s. so i find that an interesting connection. but i'm also a serving military officer. i'm in the reserve component. in fact, after today i'm going to go right to fort carson to serve my drill weekend, and i'm curious as to two things. number one, i'd be interested to hear more about how the radicalization is being spread, and it's sort of all the wrong type of self-actualization. and the other issue is i find it
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a very interesting struggle, and we in the military are struggling with this because it's a very new kind of war. and we're fighting folks that, like you said, exploit our weaknesses and exploit the fact that there is no set battlefield. and we as military officers are sworn to uphold and defend the constitution, and we take that oath very seriously. however, the way that it gets exploited and the fact that they're attacking us on our home territory in the ways that are certainly a form of warfare but not a traditional form of warfare poses a number of challenges, and i wonder if you might address that conflict between how we fight wars traditionally and how we deal with this new form of warfare and attacks on our society in our nation. >> thank you for the question. i'll take that in a couple of different parts. um, on the colorado issue, i think many of you would be interested to know that anwar al-awlaki went to school in fort collins, he is a dual -- he
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was a dual national, american and yemeni, but when he entered the united states to go to college because, as i say, all good terrorists want an american education, he came here and said that he was a foreign student, not an american so that he could qualify for $20,000 in scholarship money that was paid for by the u.s. taxpayer. [inaudible conversations] >> okay, that's enough there, i think. in terms of the radicalization, i am not a scientist, but what i can tell you from my reporting is this generational divide is important. i really think there is a difference for people who grow up with social networking and the way they connect with each other on the web in a virtual way is far more real to them than it certainly is to me x. what you have at play often is what i call small group dynamics. because what the web allows people to do is it allows them to identify like-minded people in a very quick way.
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let's say in the old days they used to congregate at the 7-eleven. this was, actually, the big congregation point for the hijackers at anwar al-awlaki's mosque in falls church, virginia, it was actually the 7-eleven. no offense taken to the 7-eleven, it was just a convenient spot. but, you see, you don't have to do that anymore. you don't have to physical travel to afghanistan or somalia. you can find people who share your very extreme viewpoints, you know, in minutes. you start putting in the right words. and it's, it's very confirming, and it's very, it's very confirmatory of those extreme points of view. so you get a group together, 30 people on the web, and they all happen to believe that the moon is made of green cheese. and you know what? pretty soon you are absolutely committed to the idea that the moon is made of green cheese, and everyone else who doesn't believe that is just not
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enlightened to what's really going on. so i believe this component is very important. what i also want to mention, and thank you for your service, is that one of the most disturbing trends we've seen in the last two years is the increasing targeting of people in the military here in the united states. that, in fact, about 70% of the plots in the last two-and-a-half years have targeted members of the military. and the reason, as someone in a military family, i find that so distressing is that these people serve, and they go overseas, and then in some cases they become targets, they become targets at home. and i have a theory as to why that is. again, it's not scientific, it's just based on what i've seen in my reporting. al-qaeda has tried to sell its message to americans and western europeans really since about 2006 when they saw that we were profile being people.
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profiling people. and they said, you know, we can play that game too. we're going to find people who don't fit that profile. we're going to find, you know, blond, blue-eyed recruits. so they started identifying people, and they started really using the internet as a driver for that. but here in the united states when they've been able to convince people of the ideology, to become sort of lone wolves, if you will, it doesn't seem like they've been able to convince them that it's okay to hit american civilians. americans feel uncomfortable with that. but because these people have bought into this false narrative that the united states government is at war against their religion, they feel that people in uniform are a legitimate target. that's my own assessment based on my reporting. and what's troubling is that there really has been an acceleration in these cases. i mentioned earlier this man down in the washington, d.c. area, this alleged suicide bomber?
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well, the alleged target was the capitol building, but, in fact, he considered several military targets before he settled on the capitol building. initially, he wanted to hit a build anything alexandria, virginia, that housed military offices, then he thought he'd hit a restaurant in washington, d.c. that was popular with the military. you see it in almost all of these cases now. >> there's a recent case in las vegas where someone just walked into a restaurant where four or five military officers, military members in uniform, unfortunately unarmed due to policy, made a great target. walked in, gunned them down in that las vegas ihop. >> well, there was a case in arkansas, you may recall this recruitment center shooting? >> that too. >> this was in 2009. that case was not prosecuted as a terrorism case, by the way, even though the young man wrote a letter to the judge saying that he committed that shooting on behalf of the clerics' group in yemen, al-qaeda in the
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arabian peninsula. even though this young man, carlos bledsoe, traveled to yemen for training. he was prosecuted in state court. like a drive-by shooting, ultimately. thank you. thanks for the question. >> hi. glen friedman, adam county lpr class of 2012. thank you for your -- >> thank you for coming. >> -- talk and the great reporting you've done. has your reporting uncovered or revealed any connection between, um, local homegrown terrorism and iran or saudi arabia? >> what i've found in my reporting especially looking into 9/11 and the cleric anwar al-awlaki is that there are many, many draw si contacts. -- saudi contacts. this man out in los angeles was very troubling. he was somewhat glazed over in the 9/11 commission report, but not so in the joint
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congressional inquiry in 2002. one of the sections in the book deals with hezbollah. a year and a half ago when i interviewed members of the radicalization unit, they not only talked about al-qaeda, but they talked about hezbollah and to what extent it may have a network inside the united states. i'd say based on my reporting that's really an unknown, but if you look at the recent statements of the director of national intelligence, james clapper, who is the nation's top intelligence adviser, he's telegraphed two very important be things in the last couple of months. first and foremost, that he believes there's been a change in the calculus by the supreme leader in iran, that they may be willing to retaliate against the united states, strike here in the u.s. if there was a strike against their nuclear facilities. and secondly, james clapper said something publicly that people have only talked about privately for a very long time which is that he really believes there is
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an alliance between al-qaeda and iran. and this is not a popular idea because the conventional thinking has been that sunnis and shias cannot work together. but clapper said this is really a shotgun marriage. a marriage of convenience. and that the alliance really does exist. and when he was pressed by, i believe it was senator portman, whether this was sort of an insurance policy, if you will, that if they were attacked, they might rely on al-qaeda's network to retaliate, he said that that was the belief of the u.s. government. thank you. >> hello. i'm eric weissman from boulder. >> hi, eric. >> and i'm a candidate for the second congressional district. i was struck by your comments about the messaging of the stories about ford hood, how they would not recognize the facts and avoid discuss what it really meant. and it made me think of the story in this morning's times about the intelligence agencies saying that they don't see a move by iran to build a nuclear
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weapon. to what extent do you think messaging is going on there, or how shall we interpret these different narratives that are coming out of different parts of our and other administrations? thanks. >> well, i think it's very important in many respects to be your own reporter, you know, to take the information and try and assess it for yourself. there is a lot of messaging going on, if you will. there's always what they're saying and what they really mean. when i was reporting on anwar al-awlaki, people would tell me privately that i was making a very public case about why he should be on this cia kill or capture list. yet i found it bizarre that the u.s. government did not use all of the tools at its disposal to, um, delegitimize him. for example, when he lived in the united states, he was picked up at least three times for soliciting prostitutes and also
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loitering around the school in san diego. and there are police records that show this. and there are mug shots that show this. and you can get a mug shot of almost any hollywood celebrity -- charlie sheen, lindsay lohan, nick nolte -- but, you know what? you cannot get a mug shot of the cleric anwar al-awlaki. i never understood that. because i thought that was such a powerful piece of evidence. here he is portraying himself as a holy man on the one hand on the web, but on the other hand he's picked up for loitering around some -- i don't know if it was an elementary school, i assume so, in san diego. it's a disconnect. and i think you have to see what's in the public domain especially when it comes to iran, you have to see it, um, say through a filter, but i think you have to use your own good judgment about measuring the message. not so much what they're saying, but what they really mean.
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does that help? >> i think so. their commentary was that they see iran building some capabilities but not developing an intention. is that a distinction without a difference in your mind? if we could put it through your filter, what are they trying to tell us? >> well, my, my assessment would be that it may be an effort to minimize the findings of the iaea this week which said that they had serious concerns about the nuclear program in iran. i know from speaking with the former cia director michael hayden that he always felt that iran was one of the toughest issues to brief on to the president. in part because our general understanding of the regime is very limited, our intelligence. he said it was very opaque. you never really understood where the pressure points or the leverage points were to try and convince them.
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to abandon this program. and that when you have countries that have unlimited intelligence -- a limited intelligence view and you have a country like iran which is becoming more and more isolate isolateed, which is part of your strategy to try and convince them to abandon their nuclear program, as they become more isolated and out of touch with the rest of the world, you do what? you increase the likelihood of a dramatic miscalculation. so you have two parties, limited information about each other, and the likelihood for miscalculation is very great. so i think that is part of it as well. and my final point i would make on that is, um, recently the defense secretary, leon panetta, said he -- you probably all read this -- he believed israel would hit iran in april, may or june. and one of my contacts up on capitol hill who's on a relevant
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committee said, catherine, do you know what the headline is? the headline is that we don't really know, we believe. the israelis are not sharing that kind of information with us, he said. we're not in lock step. we think, we believe, but we don't really know. and that's a change from eight years ago. thanks for the question. >> thank you. >> hello. my name is sue neil. excuse me. >> sure. >> i'm running for national delegate here in the county, but i'm a native of colorado, born in northeastern colorado, graduate of colorado state university, raised my children here. and in 2001 my son was attending csu. we approached them about getting financial aid as an in-state student, and we're told what's wrong with him, foreign students get more money than he can. and then we were stationed in germany when the war broke out. there was a cell captured in
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hide l burg, germany, just knot of it -- just north of us. one of the ladies had worked in the commissary, we'd seen her many times. and, of course, we were trained, what to watch for and so forth. we got back here to colorado, and, oh, my gosh, i knew there's a pipeline coming up from mexico, but i began finding out in the loveland, greeley and i-76 it's no longer just migrant workers from the mexico. there are many different folks from different countries coming through. also with the beef plantses in greeley and fort morgan there's a lot of somalians, there's a lot of iranians started coming in about the '70s. how do we as citizens begin to understand who's friendly and who's not? [laughter] >> that's a good question. um, one of the things i try and tell people is that when we look
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at this problem in the future, i try and remind people that one of the goals of a group like al-qaeda or extremists is to try and encourage us to use religion as a dividing line. do you know what i mean by that? to be overly suspicious of people who are muslim, for example. when, in fact, i think when we want to create a dividing line, we want to ask ourselves we're going to have the terrorists on one side and everyone else on the other. and i think they try and use religion as a wedge. because to use religion as a wedge here in the united states is very un-american to sort of vulcanize us, if you will. and your question is important because what we've seen in the last ten years is that a group like al-qaeda's no longer like a fortune 500 company with a bin laden as ceo. you have this homegroan component. and as i mentioned in 2006,
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al-qaeda made a policy decision to go after people from america and western europe because it kind of blows the entire profile. so one thing that law enforcement says to me often is it's more important to look at who people are following because then you understand who the followers are. because it's a broad spectrum of people now. as i said, it's the jihad janes, the jihad jamies. it's the baptist carlos bledsoe from tennessee. there are no, it's not black and white anymore. that's part of the problem. so there is no real easy answer. to your question. thank you. go ahead. >> good morning. >> with good morning. >> i live in denver, and be for my day job i actually work with the social networks and digital
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advertisers doing data mining. >> oh, good. >> and i can tell you it's amazing what we can learn about a person without actually knowing who they are. so my question to you is given there's over 100 million users for facebook and the other social networks are just as large, how do you balance our ability to data mine this information to find the bad guys versus my desire not to have the government intrude into my private life? >> that's an excellent question, and i think that's really the leading edge of where we're going. at what point does this hateful speech on the web really cross a line where it starts to incite violence. the head of the george washington homeland security policy group said to me recently we really ought to treat this material like child pornography and have filters. because what good really comes of this material? then the question becomes, how do you -- what characteristics
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do you use to define that basket? and to what extent do we want the government looking at people on the web all the time? i know from my reporting that after fort hood there was a facebook page up for the cleric anwar al-awlaki, and you had to assume that when you friended him on facebook, that really you were friending an fbi agent, right? i mean, this is kind of the honey pot of how you gather information. you want to leave these sites up to see who comes to them. the flip side is that if you leave them up, you could create a problem. and an example of that was "inspire" magazine. i don't know how many of you are familiar with "inspire" magazine. it was created by this group in yemen, and the editor for the magazine was another american from north carolina called khan. he was killed in the september
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strike with anwral lawn key, and i know there was a consideration in the government to make him the second american on the cia's kill or capture list. and this digital magazine is very slick. it's kind of like the martha stewart living for would-be jihadists. it's a lifestyle magazine. [laughter] i'm sure she would appreciate that, that plug, but it's very western, very friendly, the kind of thing you'd pick up in a dentist's office. and there was a debate between the u.s. intelligence committee and the british as to whether -- because there's a big build-up for the release of this magazine -- whether they should just leave it up and see who goes to it, obvious, right? or whether it was really going to cause a lot of problems, and they should just take it down. and, in fact, the first version of "inspire" magazine when it went up, it was all crazy. it was sort of gash led and on all of these jihadist forums on the web they said, oh, you know, it's got spyware, don't go near
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it. well, in fact, they were right because the british were like we don't care what the americans think, we're taking that sucker down. we just don't want it up there. we don't want to see who goes there, see what kind of trouble it causes. so you've really hit the nail on the head there. i don't know where we draw that line yet because one of the goals of these groups is to fundamentally change the way that we live our lives. so in an effort to protect against attacks in the future, do we want to hand these groups a victory that they wouldn't have already? by fundamentally changing the way we operate, by fundamentally changing the way the government monitors its own citizens? it may be that we have to have -- and this was an idea that was given to me that it may be time to have a real policy debate in this country about the likelihood of a small-scale or medium-scale terrorist attack and that will, ultimately, be the price for not having the
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government so into the business of its citizens. thank you. >> thank you. >> this'll be our last question right here. >> okay, great. >> thank you. >> thank you. >> my name is joe hines -- >> hi, joe. >> from adams county, 2012 class of lpr. given that we really cherish religious liberty in this country and the struggle that we're engaged in, obviously, has the strong religious component, um, kind of getting back to one of the other questions is how should we as americans try to engage the muslim population such that we can better assimilate them into our culture? first question. the second one is related to do you see this struggle more as a criminal struggle or as a military struggle? >> i see it more, um, as, i think, a military struggle. less a criminal struggle.
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in large part because this is really a battle of ideas in the end. it's about an ideology, and while i may say i see it more as a military struggle, unfortunately, it's just not a set of ideas that you can nuke. it doesn't make it go away. what troubles me about taking these cases to the criminal system is that i think that there's real opportunity to lose intelligence. guantanamo bay was supposed to be closed, as you know, by january of 2010. that hasn't happened. for a variety of reasons. but the compromise that's really been made is there have been no new detainees for several years now. one of the reasons that's happened is because we really no longer have a capture policy, we just have a kill policy. people are very gun shy about
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interrogating people now. because they're worried about whether they're going to be sued, whether a decision by the justice department under one administration will be thrown out the window by the next. and people are, i know from speaking to individuals, that they're very reluctant to get into that business. your first question which is really a question about america, i come back to this idea that was given to me by britain's equivalent of their homeland security secretary. and they have been living with homegrown terrorism a lot longer than we have. and he said in their country what they've tried to do is use a dividing line and say the terrorists are on one side and everyone else is the other and not use religion as a divider. one of the great things about our country is you can practice your religion here unencumbered, and that's not something i feel -- and this is a personal
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view i'm expressing -- not something we want to let go of because it hands them a victory they wouldn't otherwise have. but there's no denying the data when you look at the cases, especially the young men from the minneapolis area who have gone to join al-shabaab, many of them are naturalized citizens, and they came to the united states as very young children. and for whatever reason they've never felt completely at home here. the case of the suicide bomber that i mentioned in washington, d.c., this is someone who came here, um, as a teenager and was here illegally for 12 years. never really connected. so there is this element of disconnection. i'm not sure if i'm really smart enough to answer that. for you. but that was my best shot. [laughter] >> thank you. >> thank you. thank you very much. [applause] >> thank you, ms. her ridge.
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wonderful job. >> every day this week on c-span2 at 7 p.m. eastern q&a interviews on education in america. tonight carrie nelson, president of the american association of university professors. he says social, political and cultural forces are undermining academic freedom at colleges in the u.s. on tuesday naomi schafer riley on college professors and tenure. wednesday, gerald turner, president of southern methodist university. and on thursday, andrew ferguson, author of "crazy u: one dad's crash course on getting his kid into college." and finally on friday, madeleine sackler who made a documentary on the lottery system used to select students in new york city's charter schools. q&a on education every night this week at 7 eastern here on
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c-span2. and also in prime time booktv. tonight we'll get a glimpse at the lives of former and current u.s. senators. starting at 8:30 p.m. eastern with former pennsylvania senator arlen specter's "life among the cannibals." at 9:25, john shaw on the senator from indiana, richard g. lugar, statesman of the senate. and at 10, a book party with former senator alan simpson and author or donald hardy, "shooting from the lip." booktv all week in prime time on c-span2. >> the aclu has believed police departments from around the country are tracking people's cell phone records often without getting a warrant based on probable cause. >> should tracking a cell phone require a warrant? tonight aclu attorney catherine crump on police use of technology for surveillance purposes and whether current law
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adequately protects an individual's right to privacy. at 8 eastern on "the communicators" on c-span2. four years ago i was a washington outsider. four years later, i'm at this dinner. [laughter] four years ago i looked like this. [laughter] today i look like this. [laughter] and four years from now i will look like this. [laughter] [applause] that's not even funny. [laughter] >> mr. president, you remember, you remember when the country rallied around you in hopes of a better tomorrow? the. [laughter] that was hilarious. [laughter] that was your best one yet. [laughter]
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but honestly, it is, it's a thrill for me to be here with the president, a man who has, i think, done his best to guide us through some very difficult times and paid a heavy price for it. you know, there's a term for guys like president obama, probably not two terms, but -- [laughter] >> miss any part of the white house correspondents' dinner? you can watch anytime online at the c-span video library; behind the scenes, the red carpet and all the entertainment at c-span.org/videolibrary. next, pbs talk show host tavis smiley moderates a forum examining poverty in america. participants discuss short and long-term solution toss combating poverty. speakers include suze orman, labor secretary hilda solis. this is two hours.
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[applause] >> good evening from nyu center for the performing arts here in new york city. i'm honored to be joined by an all-star panel tonight for a conversation about women, children and poverty in america. i want to start by asking you in advance of the conversation to thank this august panel for being here and giving of their time for this conversation. please, thank them for joining us. [applause] i want to mention, also, at the top of this conversation that this conversation is being heard live around the country thanks to pacifica radio network and specifically here in the great city of new york on wbai, so, please, thank wbai for caring this conversation live. [applause] and it's always good to have my public radio family join us for
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these conversations, so thank you for making the feed available for this particular conversation i want to jump right into the conversation, introduce these possiblists as i get to them -- panelists as i get to them because i want to jump as quickly as i can into what i believe is going to be a great conversation. we're going to do this for three nights here on pbs, and we're delighted to be on the campus of nyu. let me start by asking you to thank, also, nyu for having us here. [applause] again, i'll bring all these women into the conversation as we move around, and i want to start by, um, going first to the labor secretary. i said a couple hours ago to some friends of mine that i was so delighted that you were going to be here because it seems to me you can't have a conversation about women, children, and poverty in america without talking about the numbers. and i know that is a dreaded statement for many of us. sorry, dr. malvo. i know a lot of us don't like numbers or talking about
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numbers. [laughter] but we're here for a very simple reason. women and children, as you well know, madam secretary, are falling faster into poverty than any other group of americans. it is also the case that the younger you are in this country, it's hard for me to even get this out, but the younger you are in this country, the more likely you are to be poor. something, it seems to me, that is wrong with a nation that allows its women and children -- often times the weak and the vulnerable -- to fall into poverty faster than anyone else. so i want to start with you and ask why is, in fact, that's the case? why are are women and children falling into poverty faster than anyone else? please welcome our labor secretary, hilda solis. [applause] >> thank you. i'd like to begin by saying that one of the things that the president did can, president barack obama as soon as he got into office was help provide funding to help provide support, a safety net for all these vulnerable populations, particularly women of color and
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children. and the emphasis there was to try to provide a network of services through department of labor, work force investment training because education and training is really what the key is here. it's about jobs, j-o-b, get a job. let's help people get a job. let's make sure that young people have opportunities. and in this recovery what we've seen is more participation on the part of women because they've fallen out of the work force. they have been stagnant in terms of their wages. there's still that gap. we still have the 80 cents on the daughter per male -- dollar per male, and it gets harder when it's minority women. for latinas it's 60, and for native americans probably a lot wider. but i would say that our efforts have been to try to put more people back into new kinds of jobs, renewable energy, health care, i.t. and also stretching our imagination to put funding into programs that didn't exist in the last decade. so i have to give credit to those folks that help to support the funding for these programs, but now in my opinion is not the
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time to take away that safety net because there are folks in washington that would like to see us go back because they want to make the deficit the issue as opposed to helping vulnerable populations. and now at a time more than ever 15 million more women are taking advantage of our work force investment training programs. and that tells me that we've got a long way to go, we need to do more to make sure that we incentivize tax breaks so we can create jobs and allow for individuals to stand up on their own and also look for their own jobs and create their own jobs. so we're looking at using the ui benefits in a different format by allowing people to do work sharing to stay on the job, get paid maybe a subsidized salary, but also to start up your own business. and i think that's really exciting for women and especially because many of us, we are the full bread inners in the our household, and you're seeing a lot of minority kids that are still dropping out of school, but some of our programs are serving the hardest to

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