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tv   Today in Washington  CSPAN  December 14, 2011 7:30am-9:00am EST

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small businesses are in good health and the need to follow those sorts of procedures to make sure that happens. >> mr. russell brown. >> thank you, mr. speaker. with youth unemployment rising by 65% over the last 12 months, and with the british retail consortium indicating that almost one in three jobs are filled by under 25, does he recognize that the projected -- projected squeeze on the retail sector will only increase the chances of youth unemployment increasing across the entire country speak with the thing though put the biggest squeeze on the retail sector is if interest rates went up. just one percentage point increase in interest rates would see the typical family lose a thousand pounds a year through extra mortgage payment. so that everybody knows where any difficult economic situation and we have to take difficult decisions but as there is effectively a freeze across the
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eurozone but the most important thing is to keep those interest rates low so that people it my in the pockets and we can see some good retail recovery. >> david rightly. [inaudible] canna primus to join me this season in supporting the great work these charities to and clicking the street was hundreds of thousands of pounds for the port work of our volunteers? >> i certainly join my honorable friend at this time of year particularly and praising the amazing work that hospices do. many hospices don't see the huge amount of government funding but they have to be very ingenious about how the race money from people up and down the country and collecting and recycling christmas trees so we don't just leave them outside the house but do this thing probably i think isn't that the id and enter the whole house will want to join in praising the work hospices do, particularly at christmastime. >> the prime minister has been
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promising legislation but a registered lobbyist for the past 18 months but nothing has happened so far. will be either give us a publication date for a consultation paper leaving the legislation, or he could take on my 10 minute rule which was already published so he could have it now and getting on this? >> i'm a generous sort of bloke, too, so i can tell him that leads to the lobby proposal will be published within the next month. to this government would have moved faster in 18 months and the less government did in 13 years. [shouting] >> adrienne saunders. >> mr. speaker, the prime minister will have received the news this morning of the study in excess, people with diabetes to unnecessary deaths in the condition if -- the national service framework for diabetes comes to an end in 2013. with the prime minister looked
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as a way of meeting the challenges that will be on the health service and helping people with diabetes in the future? >> i'm very happy to look at the financial service framework, as he says but i think the key issue with diabetes is both we need to raise the profile of this condition because many people have it and don't know they have it, but the keeping as well if you look at the public health issues because the explosion in diabetes is coming partly from bad diets and obesity in childhood and we need to address those issues otherwise was always going to be dealing with the disease rather than trying to look for the prevention. >> i'm in a generous mood and is always a delight to listen to my colleagues so we'll have a little more. and mcguire. >> thank you very much, mr. speaker. earlier this week in -- the coalition government --
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[inaudible] can i ask the prime minister that by reducing benefits for disabled children by over 1700 pounds a year is something that identifies his often repeated mantra that we are all in this together and? >> first of all we are not cutting benefits to disabled children. and actually we are upgrading, we are upgrading by 5.2% all of those benefits so that people will see an increase in the benefits that they receive next year. >> last but never forgotten, mr. brian findlay. [shouting] >> mr. speaker, the prime minister will be a where that allows on the west coast are intolerable and getting worse. does he share the concerns that there are delays to high speak to will only make their journeys more unpleasant? and will he provide the assurance they seek about the
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future he promised then? >> i'm grateful to my honorable friend for raising this question. the country has a choice but because the west coast mainline is as congested as if we need either to replace it with a traditional line or a high speed line. it's one of the government is a high speed line is the right answer. that's what this consultation has been conducted. and i think it's not just good for people who want to use the west coast mainline but also the successful regional policy in linking of our great cities, shrinking the size of our country and making sure that all parts of our country can enjoy economic prosperity and growth. >> order. statement for the sector of state for environment, food and world affairs. >> from london you've been watching british prime ministers questions. it's live every wednesday that parliament is in session here on c-span2. you can watch this again sunday night at 9 p.m. eastern and
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pacific on c-span. coming up in about an hour and 50 minutes, house speaker john boehner will sit down with mike allen of politico. they will talk about extension of the payroll tax cut which the house passed yesterday. >> at a hearing yesterday, a witness whose company audit of the financial firm says he was told former mf global ceo jon corzine knew about loans made with custom money. $1.2 billion in customer funds disappeared as the company went bankrupt in october. here's part of the hearing. >> or patients. it's been a long day but it's very important that we hear from all of you because a third panel, all of you are extremely
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important in all this process, and so we want to make sure to lay out all the parameters today, even though we know that it's a long hearing today, that we thank you all for being here here and let me introduce our three panelists and then we'll ask him as you know, for an opening statement. of course, we want whatever written information like to give us it would ask for five minutes of verbal testimony, and then we will have a question get our first palace is the honorable joe summers. joe summers is a commissioner for the commodities future trading commission. in 2005 she was a policy director and head of governmental affairs for the international swap and roses association. prior to that ms. somersworth and governmental affairs office of the chicago mercantile exchange where she was instrument and overseeing regulatory and legislative affairs for the exchange you're welcome. >> next move back to james
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gibbons. he is a trustee for the securities investor protection act the quotation of mf global. he is also the co-chair of bankruptcy and corporate opposition group. welcome to you as well. and, finally, went mr. terrence duffy. mr. duffy is the executive chairman for the cme group based out of chicago, illinois. he has been a member of the board since 1995. is president of tba trading from 1981-2000 has been a member of cme since 1981. so welcome to all of you. and for giving her testimony i would ask you to rise and raise your right hand. [witnesses were sworn in] >> thank you. miss summers, would ask you to start her testimony. >> good afternoon, chairman stab
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in, banking -- ranking member robert ament of the committee. thank you for inviting here today to discuss mf global bankruptcy. i understand the severe hardship this bankruptcy has cost for customers of mf global. these customers correctly understood the risks associated with trading futures and options, but never anticipated that their segregated accounts were at risk suffering losses not associated with trading. many customers have reached out to me and my staff directly and are doing everything we can to get as much of the money back to them as quick as possible. i have made this my number one priority. the commission has dozens of staff members in new york, chicago and washington working on these issues. i am unable to discuss matters that might compromise the ongoing enforcement investigations or parallel investigations by any other government agency, so i'll focus my comments on the bankruptcy cases pending in new york and on
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the legal requirements surrounding the segregation of customer funds held at the future commissions merchants. as i understand the securities investor protection act 1970, the sec has the authority to refer an entity registered in a broker-dealer to the seekers investors protection corporation, if there's a reason to believe that the entity is in or is approaching financial difficulty. they may -- to protect customers of an insolvent broker-dealer when statutory criteria are met. when a broker-dealer is also a registered as mf global, there is one duly registered entity in the entire entity gets placed into liquidation. because there is one entity and it is not possible to initiate as stiff and liquid, a separate, it is important to note that when a duly registered is placed
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into a liquidation, the relevant provisions and protections of the bankruptcy code, the commodity exchange act, and the commissions regulation applied to customer commodity accounts just as they would if the entity were solely and and a non-set the bankruptcy. the commission is no stranger to bankruptcy. lehman brothers and refco are two of the most recent. by the lehman brothers bankruptcy was monumental in scale and the refco bankruptcy about serious fraud at the parent company, commodity customers did not lose their money at it affirm. in both instances, the customer accounts were wholly intact. that is, they contain all the open positions in supporting collateral for those positions. that being the case customer accounts were probably transferred to help with the commodity customers having no further involvement in the bankruptcy proceeding.
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unfortunately that's not what happened at mf global because the customer accounts were not intact. commodity customers have an exclusive right to customer property. this includes without limitation segregated property, property that was illegally removed from segregation and it is still within the debtor's estate, and proper that was illegally removed from segregation and is no longer within the debtor's estate but is clawed back into the debtor's estate by the trustee. regulations allow other property of the debtor's estate to be classified as customer property to make up any shortfall. within the first weeks of the mf global bankruptcy, the trustee with encouragement and assistance of the cftc transferred nearly all positions of customers trading on u.s. commodity futures markets and transferred approximately 2 billion of customer property. on december 9 the bankruptcy
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court granted a motion to transfer an additional 2.1 billion back to customers. when this additional transfer goes forward, commodity customers should have received approximately 72% of the account values as reflected by the books and records of mf global. these transfers demonstrate the commodity customers are receiving the highest priority in claims to the bankruptcy. we understand that more must be done. fcm is authorized to invest funds that are in customer segregated accounts. this authorization is found in section four d. of the cea and in commission regulation 1.25. the commission finalized changes to read one red 1.25 just last week. those changes just reinforce the long held view of the commission that sacred funds must be invested in a manner that minimizes their exposure to
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credit liquidity and market risks to preserve the availability to customers. all regulation 1.25 investment are subject to a general standard which requires that all permitted investment be consistent with the objectives of preserving principle and maintaining liquidity. while our current focus is on returning as much money as possible to customers, we are expending an enormous amount of effort to locate the missing customer funds and pursue the enforcement investigation. all of the information we learned during these aspects of her work will be relevant to the commission as we consider lessons learned and any policy responses or regulatory changes. obviously the commission has a great deal of work to get customers funds back where they need to be, to determine what went wrong with segregated funds at mf global and determine whether to prosecute any
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violations of the act and to determine what needs to be done to prevent a similar circumstance in the future. .. >> members of the committee, thank you for inviting me to testify today about efforts to identify, preserve, and return assets to former customers of mf global. i and the court appointed trustee for the securities investment protection act liquidation of the failed broker-dealer mf global bank. i appreciate the interest of
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this committee and other members of congress, including the direct encouragement of chairwoman and senator roberts to expedite their returns to customers as quickly as we can. along with my staff, have been working closely and continuously with the securities investor protection corporation, commissioner joe summers, and commodities future trading commission, and the chicago mercantile exchange. by statue the trustee is a customer's advocate. my staff includes legal experts, consultants, and forensic accountants. we take very seriously our obligation to protect customers of a failed brokerage. our primary mission is to look at, for the customer and creditor interest. we are focused on returning assets to customers as quickly as possible in a manner that is fair and consistent with the
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applicable provisions of the securities investor protection act. the bankruptcy code and the cftc regulations. every distribution we make must be approved by the bankruptcy court on notice to all customers and parties and interests. it we are distributing as much as we can as soon as we can within the law. while we work around the clock on identifying, preserving, and distributing customer assets, my office has made every effort to keep customers informed. we have a website which has had, i think, more than 10,000 inquiries. information on the status of the proceeding is posted to the website daily. in addition, staff his answering calls and e-mails and holding meetings with customers and councils. a call center and website, as we indicated, are in operation. we also will be mailing to all
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36,000 remaining customers statements of their last positions and reflecting, as best we can, the first to transfers to assist them in understanding where we are in the process and completing claim forms. i am very pleased to report that distributions to nearly all 36,000 former retail customers, farmers, day traders, or institutional investors have been made within weeks of the bankruptcy filing. we are now in the process of implementing a third book distribution that will bring the total amount of customer distributions to more than 4 billion. the order approving that was entered by the bankruptcy court yesterday. the team worked over the weekend to put in place the mechanisms with the cooperation of the cftc and cme, and the first distributions are expected to begin to be made tomorrow and to be completed within two to four
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weeks. all of this requires transfers and is a complicated process. this will mean better retell commodities customers with u.s. positions will receive approximately 72 percent of their property. the customer claims process is also up and running. claims forms have been sent, and they are available on our website. filed, reviewed, and as we meet here today, some claims have already been approved and allowed. as part of my steps toward the mandated duty, i am also investigating the extent of and reasons for the apparent shortfall in funds. the investigation is ongoing. it has led by the department of justice, also with the cftc, as ec, and we are cooperating fully in their investigation.
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it is too early to make or draw a definitive conclusion on many of the matters. at this time we do not know with certainty the extent of the potential segregation and compliance shortfalls, but i estimate the figure is not less than $1 billion. for you as futures, foreign futures, and securities customers. there are three categories of segregated assets with mf global . first, those with u.s. futures positions, which is primarily under the jurisdiction of the cme. well, they are also u.s. clients with substantial foreign positions in security's customers who had segregated funds. the full amount of the shortfall will not be known with certainty until the plants process is completed i feel obligated to
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share these preliminary numbers and highlight the uncertainty that surround them. it is my hope that the shortfall number will come down. we have collected the available assets from depositories that appear to be on the books. this is not simply a mathematical calculation, but is the actual control of dollars. we also have estimated the potential claims, and that is how we calculate the shortfalls figures. no matter the final amount of the shortfall it is probable size is going to be significant, and this will substantially affect our ability to make 100 percent distribution to the former cftc customers in the immediate term. exhaustive efforts to collect funds continue.
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assets located in foreign depositories are in more complicated matter. they are now under the control of foreign bankruptcy trustees or administrators. we will pursue these assets vigorously, but recovering may be more uncertain than take more time. thank-you, chairwoman and ranking member and other members of the committee for the opportunity to testify here today. you can be assured that commits to the unprecedented circumstances surrounding the failure of mf global bank, we are moving with speed and diligence to return customer property in a fair and equitable manner that complies with the law. thank you. >> thank you very much. terry duffy, welcome. >> members of the committee. i am terry duffy, let me start by saying the actions of mf global have put a lot of market users in a tragic position. our efforts with respect to the
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unprecedented loss of customer segregated funds caused by mf global is to assist these customers. my testimony summarizes efforts from our staff who were on site at mf global along with the cftc in the days immediately preceding its bankruptcy. my written testimony expands on the statement includes substantial background material. so -- by the middle of the week they announced poor warning to cut earnings, sparking rumors that it was going to sell the brokerage business. cme was the designated regulatory organization with irresponsibility for auditing the futures business. on thursday, october 27, 2 of our auditors what to the chicago office of mf global to review the daily segregation report for the close of business on wednesday october 26.
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it was not available until thursday but showed full compliance. we asked for the material necessary to check the numbers and third-party sources and began the process of trying out the numbers. that substantial review process of the segregation report continued on thursday and friday . mf global segregation report for thursday, october 27, delivered to cme on friday the 28 stated that it remained in full compliance. in fact, it showed that the firm held 200 million in excess segregated funds. on sunday the cftc informed us that they were aware of a draft segregation report for the close of business on friday october 28 which showed more than $900 million shortfall. cftc and cme staff returned to
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the firm and were informed by mf global employees that this discrepancy was caused by an accounting error. our auditors worked with the cftc and devoted the rest of the day and night sunday to find the so-called accounting error. no such error was found. instead at about 2:00 a.m. monday morning mf global informed both the cftc and cme at approximately the same time that the shortfall was real and customer segregated funds have been transferred out of segregation to the firm's broker-dealer accounts. after receiving this information cme remained at mf global while mf global attempted to a to defy funds that could be transferred into segregation to reduce or eliminate this discrepancy. a cme honor participated in a phone call with senior mf global employees were in one employee indicated that jon corzine knew
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about the loans made in the customer -- from the customer segregated accounts. the cme group has provided this information and the names of these individuals to the department of justice and the cftc who are investigating these matters. on monday, october 31st mf global revised the segregation report indicating that the alleged $200 million in excess segregated funds should have been reported as a deficiency of $200 million. this shortfall on segregation on thursday, october 27 was hidden by the inaccurate report, a telling sign to keep regulators in the dark. it remains to be seen whether this failure to disclose funds and probably transferred. throughout this time the firm and its employees were under the direction and control of mf global management.
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transfers of customer funds infatuated by teefor management for the benefit of mf global constitutes a very serious violations of our rules and .. regulations. we met our obligations to all other clearing firms and their customers. at all times we held $1 billion in excess of the required amount of customer segregated funds on behalf of mf global customers. all of the efforts of cme have been directed toward speeding customer access to trading accounts, transferring positions and providing the trustee with the $550 million guarantee from cme krupa to encourage the quick release of customer funds. the federally mandated customer segregation program has been in place since 1936. in the time prior to the mf global failure no customer has lost segregated funds because of a member of the cme.
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we intend to work with congress, regulators, and industry leaders to strengthen customer set of cards. i think you for your time and attention. >> thank you very much. let me start, mr. duffy, with your comments that you just indicated. you raised a serious allegation. you did not mention that in your written testimony, and you did not mention it in your testimony last week before the house agriculture committee. this leaves us wondering why you are sharing it now. i trust that cme has, in fact, shared this information in a timely way with the appropriate officials and would urge everyone to cooperate fully with the investigation going on. of course, anyone who is engaged in wrongdoing must be held accountable. would you want to respond
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further? >> i would be happy to. i did not become -- this information was not made available to me prior to my testimony last thursday. i received this information this past saturday from an e-mail and phone call from our warriors. they informed me of this, what they had found and their investigations, but did not share with me prior to thursday. >> do you have the names of the specific people involved in terms of -- >> i was given. >> i'm hearing people refer to things they heard, what do you have the specific names? of those who were on the call and were involved in the conversation? >> one of our folks from cme who is the one that recorded was on a call. you have to forgive me, i don't know the woman's name.
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>> i just want to make sure you are recording the specific names of people. >> yes. >> in the discussions. >> there are specific names. yes, ma'am. >> mr. duffy, in march she testified before the community pushing back the effort by cftc to acquire more exchanges and clearing houses like cme when it comes to compliance and oversight. in march you said there is no evidence that this will be beneficial to the public or the functioning of the market. i am wondering if you still believe it is true. >> i don't know what you're referring to. >> we were moving forward. cftc was moving forward. pushed back moving away from principles. i'm wondering if you still hold that today. >> it has worked flawlessly. we do believe in this instance
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the segregation funds still work. somebody went in and violated the rules of the cme and the government and transferred out customer monies in to the broker-dealer accounts. that has nothing to do with the principal based regulation, i believe, of the firm or the segregation of the firm. someone violated the rules. >> and so, do you believe that cme has in the responsibility as a front-line regulators? >> what cme has done, and i was very much in favor of doing this , was to put up a guarantee of $550 million so that the trustee could then issue money, much more quickly back to the ranchers and farmers. if you would like, i would happy to explain why. asked specifically for the farmers and ranchers, not wall
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street your hedge funds or any other clients. the most important constituency is to get the money back quickly that is why they put forth $550 million so that he could allocate. >> as we go forward, this kind of thing, we all want to make sure that this kind of thing does not happen again. the think the right kind of questions are being asked of the futures commission merchants? are we getting enough information to keep markets safe andn order to tre are you planning on reviewing the oversight system in light of the mf global bankruptcy? >> obviously anything of this magnitude happens, which has never happened before, you want to look at different things. we're obviously open, as i said in my oral statement, to working with congress to see if there is
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any change that needs to be made for this not happen, but i do think it is important that there are a hundred and $58 billion of customer segregated funds in the united states of america. this potential violation has never happened. so i don't think that the system is broke. i think someone violated the rules. >> and for a moment let me talk about customer money, which brings us all year. end of want to thank you for your efforts. encourage you to continue to move as quickly as possible to make people. i am concerned that we are hearing there may be a shortfall in customer money. even with the latest distribution we know that people will not be getting 100 percent of their funds. with that in mind it's important to talk about what happens next.
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it hovered like each of you to answer a couple of questions. do you agree that any value left in mf global should first go to customers until they are made whole? to put it another way, creditors and investors should not get a single penny until mf global customers have been paid in full and i am wondering if each of you would agree with that. commissioner summers? >> thank you. i think that it becomes a little complicated when you're talking about the bankruptcy of mf global holdings, the parent company. if we have evidence to show there is customer money at the holding company level, then absolutely will do everything we can to make sure that money comes back to customers and to the state. we will be working closely with the trustees to make sure that happens. >> would you respond.
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>> sorry. yes. i agree that both the commodities exchange act and the securities investment protection act give priority to customers, security's customers and commodities customers respectively. if they're is a shortfall, there are provisions which say that other assets ought to be reached to cover those shortfalls. that may be deemed by some to be something of conflict. the positions may disagree, but both statutes, if there are shortfalls, neither category commodity or security, a preference and have a mechanism for a trustee to seek to recover for an estate assets which should have been in segregated funds. >> mr. duffy. >> i am not a trustee or regular here, but i believe that there
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is insurance on the broker-dealer side. there is what we call segregated funds. i do believe that clients should be first in line in front of all other participants. >> thank you. thank you very much. senator roberts. >> thank you, madame chairwoman. mr. duffy, we have spent a lot of time here today. we probably should have had you on first. you have sort of tossed a bomb here right in the middle of who we are trying to find out who is responsible, who has the responsibility and authority. so senior mf global employee told one of your orders, why not use apply that to the committee if he might. i think you were going to turn to one of your attorneys. we will leave it at that unless that jeopardize is in the
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ongoing investigation. i will let you decide that with law-enforcement. october 31 jon corzine was well aware of loans that mf global made to other mf global affiliates. is that correct? >> sir, i am reporting back to you everything that i know that was told to me. i was not there, sir. we in our interviews with our employees, our employees told us they are on the phone conversation with this particular person at mf global that mr. jon corzine was aware. >> to that employee indicate which affiliate's customer segregated account funds were transferred to? >> not to my knowledge. i believe what they were trying, as i recall the e-mail, something of $175 million loan that was made to a european affiliate of mf global.
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if i remember correctly. >> did indicate when those loans were made. >> i don't recall. i believe it was the last couple of days prior to bankruptcy. >> did this individual indicate when governor corzine became aware of those loans or if he ordered them to occur? >> all i was told was that jon corzine was aware of the loans being made. >> did you provide this information to the appropriate authorities? >> yes, sir. >> is there anything else about this conversation you believe important for this committee to know? >> no, sir. i'm telling you what i know. >> i appreciate that. commissioner summers, it is my understanding of the cftc can create advisory boards. is that correct? >> yes, senator. >> as the cftc considers setting up an advisory committee to find what happened with mf global and help make recommendations to ensure it does not happen again.
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>> we have had a number of conversations about what an appropriate forum would be. we can hear from industry participants and get their feedback on lessons learned. >> has anybody stop you or recommended otherwise? >> no. we have -- i don't think that we have had discussions that have taken it to the chairman's level it has just been internally with my office and industry participants. >> not participating. >> that is correct. >> well, i would strongly encourage you to set that up, and i encourage you to make that recommendation to the commission and to pursue it. and since the chairman is not participating, and as stated, he does not know exactly what happened with mf global, those recommendations should be given to you as the lead investigator.
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you and the other commissioners should make a determination on whether or not those recommendations should be pursued. let me say that -- whitney get organized. mr. duffy, again, beginning on monday, october 24, the day of the moody's downgrade he said the cme began heightened scrutiny of mf global. what does this entail briefly? >> we were in they're to make certain that the segregated reports were accurate, as i said in my oral testimony. they were on daily reported since they were -- cents they became refco. so we were in there just making certain that moneys were turning
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out. as i said, friday through the week. >> commissioner, did the cftc participate or assist? >> the cftc staff went into mf global midweek, i think the 26 was a wednesday under the same part of review to make sure that the daily sales reports were accurate. >> under the heading of what you were looking for, the primary purpose was to ensure it. ♪ ready customer accounts or not dissipated or otherwise miss used. >> that is correct. we received daily segregated reports from mf global. beyond the normal course of business it would tie this back to bank records. that is what we read the process of doing. >> did you suspect customer funds might go missing? >> nosair.
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>> i understand you were not in charge of the mf global investigation, but you have since learned that whether or not the cftc participated or otherwise confirmed the cme conclusion at the close of business on wednesday october 26 that the customer money was safe, is that correct? >> that is correct. >> my understanding the chairman would have been the lead at that time on all mf global-related issues because he did not become non but is the story until eight days later. is this correct as you understand. >> i took over on november 9th >> i see. i'm down to 37 seconds, and we have a senator to my right that is waiting patiently. i may ask a couple more questions, madam chairman, but i think i will yelled back at this
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time. >> thank you very much. let me talk a little bit more about customer funds. ask each of you another issue that i think, as we look at going forward we will be asking a lot of questions about additional stories from congress in terms of putting customer funds first, not in process. and it is possible during the days, perhaps even weeks and months that led up to the firm's collapse that there were certain parties who saw it coming and, perhaps, they were well within their legal right to do so, but third parties held back money or assets to keep them out of a link the and uncertain bankruptcy proceeding. should the court be able to reclaim the money for stabenow customers? >> the only -- i guess my
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understanding is if that money belongs to customers or blonde in the account. absolutely that would be able to come back to the debtor's estate. i am not aware of money was third parties or aware of whether or not there was money that belonged in the account. >> we are looking at all transfers for several months out of the firm, and if they're is a legal basis for recovery, we will make a demand and engage in litigation if we have a sound basis. we are in the process of collecting from counterparties of mf global who principally closed all open transactions after the bankruptcy. whether they lost or made money, no money to the estate, we will pursue that.
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there is nothing to indicate, unfortunately, that the amounts based on our analysis is going to be astronomical or anywhere nearly sufficient to make up. part of my duty as trustee is to pursue causes of action to recover funds for customers, and we intend to do that. >> i have nothing more to add. >> thank you. some have suggested that the customers should be made whole right now and take over claims. would you consider that idea? >> as i said, we put up money to encourage the trustees to pay back. also $158 billion of customer segregated funds.
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nobody can guarantee $158 billion. that is why there are rules on the books, and that is why we have disclaimers to make certain because they're is a risk. so, again, madam chairman, that would be something that would be an extreme moral hazard for the cme to try to make up $158 billion. >> you mentioned it earlier on the securities side that's there was an insurance system. it is a little early to spend too much time. we are not sure where the recommendations will go, but one question that we have been asked the number of times is should there be insurance that is on the commodities site for commodities customers? >> you are talking about trying to have an insurance system that would be in the hundreds of
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trillions of dollars to insure the premiums would be so astronomical. so i don't know if that was something that would be beneficial. it may be something you want to look at with preliminary investors. pure hedgers of the product. you may want to look get different types of accounts for them. i don't know. >> thank-you. the chairman testified at our last hearing that the cftc did not examine a single futures commission merchant referencing the duty of the front-line regulators. can you confirm that information should the commission audit or examine every futures commission merchant? if we go down that path, does the cftc have enough resources to do that? i think i probably know the answer. is that the path that the cftc
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would look at? >> currently the way it works, we have authority over the dsr0 in registry with us, but the dsros are the front line auditors. we do periodic reviews of the dsros and look at the reviews or audits that the dsros do. so we may go in and do spot audit checks that the dsros has already reviewed to see what our own results would be of that type of audit to make sure that the dsros are doing their job. if we find any in accuracy in the job that the dsros do, then we make recommendations to improve the system. >> after this investigation, are you open to recommending tightening up current
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protections? >> absolutely. no doubt that after the investigation is concluded and we look back to know exactly what happened that there will be a number of lessons learned and recommendations that we can bring to you for your consideration. >> is it true that if a firm invests customer money right now that those investments decrease in value and the firm is responsible for the loss, not the customer? >> that's right. if the firm is investing under regulation 125 and they're is a loss in value of those instruments they have to make up the loss. >> thank you very much.
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>> my colleagues. cme, the last few days, mf global transactions that did not follow a straight path. what did you mean by that? >> i'm not aware of that exact quote. it may be in my written testimony, but i am assuming -- its not in my written testimony. i didn't think it was. i don't know where it came from. the only thing i can say, sir, is they gave us a report that showed a $200 million to the good, and then they gave us the same report four days later dated from the week before that showed a $200 million deficiency . maybe that is where that
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language came from. >> then use of several transactions. >> chernoff. >> on november 2 in a press release he said the firm made subsequent transfers of segregated funds in a manner that may have been designated to avoid detection insofar as mf global did it not report such transfers until only morning monday october 31. how is this affirmation disclosed to you by mf global? >> that is less at the moment ago at a press statement that i put out. a lot of it was based on the false sec reports that we received and are now aware of. >> what exactly did mf global tell you? >> obviously this is 2:00 in the morning. i found out. i was only told that they came to us and cftc stopped looking
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for the so-called accounting area. $950 million transferred out of customer segregation to the broker-dealer count. that is one of stowe. >> was this before or after? >> this was prior bankruptcy. >> well, for the entire panel -- i'm sorry. >> the same day because it happened in the middle of the night. >> this seems to me you go back to the time when one knew for sure that the money was there. trace the path forward in time. it could be done. and that would take quite a number of people. i understand that justice is involved in locating the money with the fbi in the offices of to u.s. attorneys. cme and cftc not directly
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involved. you have your own team as trustee. it seems to me there are a lot of cuts in the kitchen. who is in charge of this policy that we have are arranged here to find out the truth? are there too many members of the policy that you have not been able to find the money, or are you satisfied that they're all talking with one another? >> i think it is a very cooperative operation. the potential law enforcement operation led by the department of justice and the u.s. attorneys in new york and chicago. and they were taking the lead on that. my personal investigation was really to look at the transfers and try to find potential sources of recovery to bring back the money is for customers. i don't have a role in the law enforcement aspect of this.
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there are frequent meetings and corporation, full cooperation, no inserting privilege or recalling information. i think it is working well with the cftc. the sec also is interested in this because there were transfers and transactions relating to segregated securities accounts. all of the -- i think all of the independent regulators -- too many people to be there. i think in terms of a conclusion of what happened it is a complicated analysis. i think it is fair to say it is more than looking at transactions in the last few days. i think it is looking, whether relevant or not, for transactions and transfers that
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went over several months and are really hundreds of thousands of things to do. as i indicate, there is no magic source of where the money is. no depository, counterparty, or anyone sitting with $600 million that we have identified. i don't think that will happen. i think we have collected the available assets, and we already distributed nearly 80 percent of that with our -- we have other constituencies. the last transfer motion there were more than 25 objections, including from the u.k. administrator, the creditors committee of the holding company who were opposed to our distribution on grounds that we may be distributing assets which belong to other creditors or other parties. so i think, as i say, the
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analysis, the business practices of the firm and whether there were solvent or insolvent is going to take some time, but i don't think it will magically come to a pot of gold at the end of the rainbow immediately. >> i appreciate your candor. >> senator, i just want to make it clear that cme is cooperating with the authorities, but also the cme has been instructed by both the cftc and the department of justice not to conduct its own investigation. all the information i have given you is by interviews we have conducted internally. i just want that to be clear. >> appreciate that. >> thank you. >> thank you very much, madam chairman. mr. duffy, i was asking jon
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corzine and mf global witnesses about the statements that you had made and your understanding of what had happened. it your testimony you give what i would consider the most detailed account i have heard today as to when and how the customer funds were missing. do i correctly understand it is our belief they were illegally transferred out of segregation on october 27 of the thursday and friday are to return jill sommers? >> we were told that the customer funds were transferred from customer segregation to the broker-dealer. those are not excess customer funds and is a violation of the rules. yes, that is correct. >> in new information we got today, was that one of those transfers, or from the loan to the european affiliate? >> i am aware of what it was other than what i was told over the weekend by our lawyers by an e-mail conversation that jon corzine was aware because our
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employee had heard this talking to another. it was on the phone with the european affiliate and the european affiliates send back the 175 million, and the woman said that jon corzine is aware of these loans. >> and this is a woman at mf global? >> yes. >> who is this woman. >> i don't have for exact name. i will give it to the committee. >> very good. and so she told an auditor with cme about this? >> the auditor was in the room while she was on the phone. >> and it was under the $75 million loan to what european affiliate? >> i have no idea. >> i know senator robbers just ask you, but in your testimony you said the transfer of segregated funds out of the appropriate accounts, i engaged in the previous panel about
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disguising and what they are required to do with disclosures and those kinds of things. can you explain why you chose? >> because, as i said in my testimony, we were tying out, which means that we were validated the funds from wednesday's statement to thursday and friday. we had 80-90% done to show that funds were basically intact. this is on friday. it is based off of wednesday's report. then they gave us another report first it showed $200 million in excess, and then they gave us another report four days later after bankruptcy with the same day prior that showed a $200 million deficit. so clearly they gave us to different reports on the same day with a $400 billion swing 80 to 90 percent of the funds being
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there on friday. >> service is different than when i talked to about the reporting to the sec about where the funds went. this is during this weekend. >> i am talking about this being done on thursday or friday, wednesday's report, and then the report that they gave us was revised on monday. >> okay. mr. duffy, you stated that according to the information you believe there might be a shortfall in segregated funds between 13 and 19%. has that changed it all? >> i'm going on dollars. >> i wondered where that rested with the figure. >> we are estimating the shortfall between 700,000,900,000,000. >> okay. so that is less. >> $550,000,000.10. do the math from there. >> what is this difference? >> of three said refunds
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mr. duffy is referring only to the u.s. futures when he gives his figure of up to 900 million. i am also referring to the segregated accounts of foreign futures and segregated securities accounts. >> okay. >> i am referring to u.s. >> got it. i know this is complicated. are you confident at the end of the day you will be able to account for all of the transactions in and out of segregation from start to finish? >> that is what we are trying to do over a several month timeframe. i have a very good group of folks working with me who are trying to reconstruct this. >> and so what i have understood from your previous testimony,
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something like 70 percent of the money will go back to people that are victims of this colossal collapse? >> yes. the commodity exchange act requires to give the same pro rata distribution to every customer. after this distribution each customer should have received a 72% of the value. >> all right. and then how about above that? under what circumstances could customers to have their funds integrated accounts not be made whole? >> if we have continued a shortfall in total assets it is my intention to make further distributions of the claims process as promptly as possible. it depends on the total recovery of assets. if we have only the assets we have at present there will be a
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shortfall. it is michael or aspiration through litigation or otherwise impossible to make up that shortfall. >> finding some ways to find this money. >> yes. >> okay. and so what do you see as the timetable? you have the distribution of 72%. determined the shortfall. >> well, the time for filing claims expires on an january january 31st. by that time we should have a picture of wall. we have an estimate. for example, an account with mf global u.s. of several hundred million dollars. we have not distributed anything. there are also other subsidiaries around the world and other potential creditors. until the claims process is completed, we will buy no with
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the claims are. we have, and we are very grateful for the guaranteed because i was given some assurance that we could proceed with fairly substantial distributions without knowing in reality what our total assets are, but our intention is to do it as quickly as possible and to make further distributions as quickly as it appears comfortable to us, the cftc, and, of course, eventually we have to persuade the bankruptcy court to approve these transfers in the interest of all the parties in the bankruptcy. >> thank-you very much. if we have anymore questions, especially about the timetable we will follow-up and writing. thank you. >> thank you very much. senator. >> thank you, madam chair. mr. duffy, did you get a chance
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to hear the testimony of governor corzine and his associates? >> i did. >> was the testimony that you heard consistent with the facts that you have uncovered in your investigation. >> what i can tell you this we were told that by mf global they transferred money from customer segregated accounts to the broker-dealer. i can also tell you that one of our employees was on the call with one of their employees when they said that jon corzine was aware. >> again, it is remarkable. you mentioned lehman brothers and things like this. is this unique, this sort of thing happening? absurdly to this extent, but is a unique in its of? >> yes, it is, for the customer funds. >> you mentioned, you know,
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customers. how do we differentiate between what is and what is the customer dollars? >> the customer fund would be put in a segregated account, and says would be segregated. >> the money that they discovered. >> there could be money in a lot of other accounts outside. there could be house proprietary accounts, a broker-dealer accounts, the board feature accounts. >> okay. a very good. the $550 million guarantee, is that money, is it going to be used to make customers whole if we cannot find the shortfall? >> that is not the nature of the guarantee. the guarantee, which we are grateful for, is not the sum of
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money or an additional sum of money. it is if it turns out at the end of the day at the proper pro rata distribution is 75 percent but we have given out 80% to somebody or to others the money can be used to cover that deficiency. so -- >> that is not correct. what is correct is cme has said to the trustee of up to $0.75 for every dollar must be paid, and if you end up with only having $0.60 or $0.65, we will make up the 75. we don't go above that number. maybe we are saying the same thing in a different way, but it is basically if they pay up to $0.75 and find that he doesn't, we pay to order and 50 million.
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sixty-five we pay another two under and 50. if he has 60's on his own. >> thank you, madam chair. >> thank you. senator. >> thank you, madam chairman. i would like to start with mr. duffy. would you feel it is fair to say that either customer money was moved from segregated accounts to company accounts for use by the company or there is an accounting error here where we will find the dollars? and what you say it is fair that one of those three other is the case or will be the case? >> if -- we were told, not me personally, but my staff was told there is no accounting error. i was told there was money moved from customer segregated funds to the broker-dealer account. that is what we were told. >> you indicated $200 million. >> no, sir.
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950 million moved out of customer segregated account to the broker-dealer. what i was referring to on the 200 million was a report to week prior that showed him in excess of customer moneys, 200 million of their own monies. that was revised down a week later. >> your auditors indicated that dollars were transferred from customer segregated accounts to the firm's accounts? >> no, sir. our auditors were told by mf global that is what mf global did. >> and under what authority did they have to make those transfers? >> don't know if there were the ones that made the transfers are not. they told our orders to stop looking. they moved the money out of segregation. >> in that was on what date? >> october 301st at 2:00 a.m.
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>> so it would be your expectation the investigation, the cftc, sec, trusty, would then be able to determine when it was transferred, who authorized the transfer. >> we have given them all the information that we have. we are not part of the investigation. we have been asked by above the cftc and the department of justice. >> you said earlier that you felt this was not a system tell your but rather that somebody violated the system. >> there is somewhere between 700,000,001. two. in six or seven weeks later and the money is not there. it appears to be missing. >> commissioner, would you give me your thoughts on the same issue? system failure versus somebody
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violating the rules, and then also your sense of house in we will be able to investigate to determine what happened and who is accountable. >> the first part of the question i think is a little premature for us to make determinations about whether the system failed until we know exactly what happened. after we have a chance to go over all of the facts and circumstances, obviously we need to decide whether or not there were any parts of the system that failed. the second part of your question is how long it may take. to assure the committee that we will follow, you know, every single lead in this investigation, both law enforcement side as well as tracing where every penny of the money went, but it is
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complicated. while you may know that a certain amount of money could have been transferred out of the sem at one time, that could have splintered into thousands of different accounts after being transferred out. we have to trace to make sure which one of those transfers were legitimate verses a legitimate. if a customer had money that they asked be transferred to the broker-dealer, that would be legitimate and we would have to follow any supporting documentation with mf global to know which one are legitimate or illegitimate. while we have -- >> we have to leave this program. you can see it in its entirety and our website. go to and look for the video library. going live up to a discussion with house speaker john boehner.
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they are likely to talk about this pending the payroll tax cut, and apply the benefits and u.s. politics. this is live coverage on c-span2. [applause] >> we appreciate your joining yes. we have had a bunch of great guests. senator schumer, secretary gagger, senator schulz, senator warner, the secretary napolitano, chairman rogers, senator rubio. very excited and appreciate having you here. many of you, almost all of us are really appreciative. for the final we will have speaker boehner who will frame the year for us.
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first we have to take sherman of politico to help us look back. [applause] [applause] and before we pummel jake with questions i would like to think americans for their continued partnership with us. important for issues that matter policy, politics from a personality. all of 2011. supporting through 2012. thank you. [applause] and reminding you about the breakfast. the hatchet man. you were the editor. what is a light? chatty, distant. >> fascinating.
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pauses, dashes, now in the middle of, once again. but a very interesting character to cover. a very interactive and interact well with the press. ..
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>> congress has a 9% approval rating. much higher than that. they are meeting in rooms with members, there is blowups, people are always upset with what leadership is doing. no one can ever get it right until the last moment. even at the last moment people are upset with the outcome. it's constantly fascinating. this year has been a dream to cover. >> what they are you going to go home? >> i don't know. boehner might able answer that's better. >> it ain't going to be friday spent it could be friday. the point we are at the house passed its payroll packages, extended jobless benefits and medical reimbursement rate. the senate passed a. speaker boehner is sure to do. the senate passed the next move. it will do so in the next day or two. it will likely vote down the house bill that basically at
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this point the government could shut down because payroll tax provision which is completely separate provision, democrats and senate are saying we're not going to fund the government into a come to some sort of agreement on how to expand -- extend the payroll dollars. >> do you think that could happen or is that just talk? >> i think given that we haven't, they have a shutdown issue, it's unlikely it would be shocking to me that they would at the end of 2011 after uploading it for this entire time. but it's entirely possible. we are here on wednesday, the path forward i think speaker boehner would say the same, the path forward right now is kind of unclear. >> which of these threats came closest to being true? was ever a time this year we really were on the cliff and something could happen? >> yeah, every single time. a government shutdown is the most real because the default on the debt was kind of always up
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idea, there were things to do to get around to get everyone thought how does it affect me. when the government shuts down an president obama's you will be up to go to the lincoln memorial, you won't future social security checks, that it almost with people. but they are all real in that we're in the town where a lot of people are employed by the federal government. so obviously it's a very real threat to a lot of the folks who work in jobs on capitol hill and around them. >> they went through their exercises to find out whether not they were essentially. >> ego boost to be sure. >> if you could know anything about congress that you don't come if you x-ray vision, what would you like to know? >> one of my editors always asks me, if you put somebody in the real untruths or what would they say. i think that would be a constantly fascinating thing. >> okay, you have truth serum, what's the question?
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>> to the republicans believe that revenue need to increase. they won't say that, especially now with a tea party kind of standard on capitol hill. and do democrats think that entitlements -- that's kind of about we've been fighting all year and something i'm sure speaker boehner will address because there's a huge deficit. his speakership has kind of defined by the debt fights, and i think that's constantly and endlessly fascinating we go through on capitol hill spent after hours are when they're not on camera when members let down her, if they have here, or if they're having a drink, do they acknowledge something you're saying here? or do they admit this is sometimes world wrestling? are what do they claim this is like? >> they kind of dip their toe, republicans have dipped their toes in the pool of maybe we should consider revenues and the
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music how? then they go back onto their beach chair. they do. a lot of these guys are political animals, like all you guys are here to see speaker boehner, and they know what the upper hand is and they think that is what guides them a lot of times but i think that's kind of their guiding, how they live their political life and the policy life, kind of the next election. that's the cycle we are in. but absolutely. they know this is a big game. not that they don't take it seriously but that's certainly the principle that guides them spent don't name names, don't break any confidences, but what seems have a somebody acknowledging that? two people sort of admit the obvious? >> if you look in the senate, saxby chambliss joined with a bunch of democrats and a bunch of republicans. i think there's 47 of them who said listen, we've got to do something about our deficit problem. that was untenable, pretty much
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untenable in the house of representatives. but there are times where people say i don't know how we're going -- we know we have to get out of the mess. we know it needs to be solved. we just don't have the courage to do it. that would be the truth serum statement. >> jake schermer, you had a rapid rise of george washington hatchet to "the wall street journal," came to political and genuine '09. you covered speaker pelosi and speaker boehner. what's the difference? >> i think what kind of gets lost in kind of the caricatures of both of those people is there both, you, speaker pelosi is not the liberal everything she has pictures from baltimore. her father and brother were both kind of baltimore politicians, and i guess the interesting thing about speaker boehner is he always says what you see is what you get with me. he's very methodical. things always start at a certain place. he knows what he wants to end up and he could go through a lot of
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turbulence in between. >> i will give you some truth serum. one thing you started with was you said he was going to happen, things go through committees, that is going to get a lot of the responsibilities, what's the real reason he does that? >> i think he is someone who sees himself as a steward of the institution, and what's interesting about him is he came up, in an age of compromise but he did education reform. as he always likes to remind us, teddy kennedy couldn't be further apart policy wise politically, and they came together. >> so why don't we see stuff like that happen now? >> because a huge bulk of the republicans we see this week, they tried to pass jobless benefits, and just to give them their they had to include a provision to build a pipeline to roll back environmental regulations. i mean, these are the folks in
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getting saint and say you know what? i'll take something that you like, you take something i like, he both don't like the whole package. they do that to an extent but a lot lesser extent than i think speaker boehner was able to do when he was a chairman, when he was in the rank-and-file. he grew up in a different time. >> here's my theory is that they like having this partisan divide. they like having it be this way even though the country doesn't. is that possible? >> i think they do. i think that they think they just really, really think that obama is wrong and they are right. and jim jordan -- >> the other side, to. >> absolutely. jim jordan, chairman said democrats are all over this. he said obama doesn't like the keystone pipeline so that makes me like it much more. and i think -- >> that was very on his. >> that is an honest statement. and actually i think a lot of people in the republican leadership would that what got
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them around, they oppose the payroll tax holiday for a while. what got them around in the endless the package that was built with trees and the keystone pipeline and all the stuff. that's what got them jazzed up about it in the end. they passed it last night but that's really what got them riled up. they were in this room. speaker boehner said i want to hundred 42 of you to vote for this thing. he didn't get that, but he said he wanted that the key was really jazzed up about it. >> one of the little lingo terms i love is they talk about a bill of products, like moving product. but that product is like not going to be on the shelves. the president is not going to buy that product. so what's the point? >> that's the other fascinating about this is you get all you guys, many of these folks have not been in government. when speaker boehner says this is our package and then in a week he might have to compromise with harry reid and president obama and they're like way, i thought that was the package.
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that's always a problem. >> jake sherman, this freshman class has turned out to be more conservative than we thought, less conservative? more of a factor, stronger than we thought? weaker, less of a factor? >> that's one of the things republican leadership has done pretty well is they have kind of molded their agenda in how they do things around this class so they been neutralized innocents. they haven't been hell no to speaker boehner the whole time. to have kind of, they have grown up a little bit in this process. there's a great story of our colleague about allen west who is this tea party favorite in florida, republican, told me when i went down to florida i'm going to hold being his feet to the fire and got your -- >> when you're in florida. >> right. but when he got here things were a lot different. and he was like maybe we shouldn't shut down the government. maybe the united states shouldn't default on its debt. so less of a factor in that way, but more of a factor in the
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sense that these huge appropriation bills that fund nine federal agencies is being held up because republican leadership has to throw all these in on the payroll tax deal. >> we know some of the four ways leadership bottom off. we know that giving them an extra seat at the leadership table. they got better committees than they typically would. what are some of the subtle art under the table ways leadership has tried to tamp down the tea party? >> speaker boehner meet with freshman every week. >> that would have been typical? >> i think it's that outreach a lot more than it used to be. they put them in press conferences. they make sure that they are out there. they make sure they are comfortable. they can't legally say if you do this i will raise money for you, but they are going to the district. kevin mccarthy been all over the place. and so has boehner and cantor for these guys. >> i can't say it specifically but either way?
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>> they do give the money and some of these folks are going to be in primary fights and nrcc is going to be, if they're middle of congress running against an outsider they will be there to back them presumably. but yeah, during every single debate there's a few guys that boehner and cantor go to, freshman that have the temperature of the whole thing. tom reid of new york, upstate new york is one thing cory gardner of colorado i think is also one of them. they can build where the bodies are buried, what they're a choice he is these guys have a problem, we have a larger problem. i think that outreach is important. >> the house democrat house speaker and emerging leader whose name that we maybe don't know, who doesn't get much coverage but you think will be big in the years to come? >> peter roskam of illinois. the chief deputy whip came in -- >> leadership love him. spent actually.
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he came in 2006 in a race that rahm emanuel labored hard to win. string -- swing district in illinois. and we are five years later and he has upwards of a million dollars in the bank and the safest seat in illinois after redistricting. there's a lot of freshmen like cory gardner, rise up, that's something to keep an eye on. tom reed i think is somewhat to keep an eye on. i think a lot will be clear after the election of kind who has staying power in this house republican congress. >> who is the house democrat leader? >> house democrats are in a different situation because a lot of the leadership is older than this republican leadership. founder of blue mountain, online cards is somebody who i know leadership loves. peter welch of vermont, somebody who is in leadership peripherally but carefully a rising star. >> blue mountain cards?
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>> made a bundle and came to congress. >> is that anybody who is poor in congress? >> yeah. i think out of the freshman there are people who are kind of first time politicians spent we only have a couple seconds but what is the do with living in the office parks do this to do the? >> we have a theory that a lot who say they do don't. i would like to do a better check. >> this is something they still -- >> there's a lot to say they do. absolutely. they roll out i got every night and sleep there it's not. >> jake sherman, thank you. i think he will be joining us with the question when speaker boehner joins us. >> any matchmaking at this particular --


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