[Senate Hearing 110-1003]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-1003


               NOMINATIONS OF: NEEL KASHKARI, CHRISTOPHER
                    WALL, SHEILA MCNAMARA GREENWOOD,
               SUSAN PEPPLER, JOSEPH MURIN, LUIS AGUILAR,
     TROY PAREDES, ELISSE WALTER, DONALD MARRON, AND MICHAEL FRYZEL

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

                            nominations of:

   Neel T. Kashkari, of California, to be Assistant Secretary of the 
                    Treasury, International Affairs

                               __________

    Christopher R. Wall, of Virginia, to be Assistant Secretary of 
                    Commerce, Export Administration

                               __________

  Sheila McNamara Greenwood, of Louisiana, to be Assistant Secretary, 
  Housing and Urban Development, Congressional and Intergovernmental 
                               Relations

                               __________

 Susan Peppler, of California, to be Assistant Secretary, Housing and 
        Urban Development for Community Planning and Development

                               __________

Joseph J. Murin, of Pennsylvania, to be President, Government National 
                          Mortgage Association

                               __________

 Luis Aguilar, of Georgia, Troy A. Paredes, of Missouri, and Elisse B. 
Walter, of Maryland, to be a Member, Securities and Exchange Commission

                               __________

 Donald B. Marron, of Maryland, to be a Member, President's Council of 
                           Economic Advisers

                               __________

 Michael E. Fryzel, of Illinois, to be a Member, National Credit Union 
                   Administration Board of Directors

                               __________

                         TUESDAY, JUNE 3, 2008

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate /
                            senate05sh.html




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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania        MEL MARTINEZ, Florida
JON TESTER, Montana                  BOB CORKER, Tennessee

                      Shawn Maher, Staff Director
        William D. Duhnke, Republican Staff Director and Counsel

                      Amy S. Friend, Chief Counsel

                    Mark Osterle, Republican Counsel

                       Dawn Ratliff, Chief Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor















                            C O N T E N T S

                              ----------                              

                         TUESDAY, JUNE 3, 2008

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statements of:
    Senator Bennett..............................................     3
    Senator Menendez.............................................     3

                               WITNESSES

Neel T. Kashkari, of California, to be Assistant Secretary of the 
  Treasury, International Affairs................................     5
    Prepared statement...........................................    50
Christopher R. Wall, of Virginia, to be Assistant Secretary of 
  Commerce, Export Administration................................     6
    Prepared statement...........................................    52
Sheila McNamara Greenwood, of Louisiana, to be Assistant 
  Secretary, Housing and Urban Development, Congressional and 
  Intergovernmental Relations....................................     8
    Prepared statement...........................................    54
Susan Peppler, of California, to be Assistant Secretary, Housing 
  and Urban Development for Community Planning and Development...     9
    Prepared statement...........................................    57
Joseph J. Murin, of Pennsylvania, to be President, Government 
  National Mortgage Association..................................    10
    Prepared statement...........................................    60
Luis Aguilar, of Georgia, to be a Member, Securities and Exchange 
  Commission.....................................................    26
    Prepared statement...........................................    63
    Response to written questions of:
        Senator Dodd.............................................    75
        Senator Reed.............................................    78
        Senator Carper...........................................    79
        Senator Tester...........................................    80
        Senator Crapo............................................    82
Troy A. Paredes, of Missouri, to be a Member, Securities and 
  Exchange Commission............................................    28
    Prepared statement...........................................    65
    Response to written questions of:
        Senator Dodd.............................................    83
        Senator Reed.............................................    91
        Senator Carper...........................................    93
        Senator Tester...........................................    94
        Senator Crapo............................................    95
Elisse B. Walter, of Maryland, to be a Member, Securities and 
  Exchange Commission............................................    29
    Prepared statement...........................................    67
    Response to written questions of:
        Senator Dodd.............................................    95
        Senator Reed.............................................    99
        Senator Carper...........................................   100
        Senator Tester...........................................   101
        Senator Crapo............................................   102
Donald B. Marron, of Maryland, to be a Member, President's 
  Council of Economic Advisers...................................    31
    Prepared statement...........................................    69
    Response to written questions of:
        Senator Dodd.............................................   102
Michael E. Fryzel, of Illinois, to be a Member, National Credit 
  Union Administration Board of Directors........................    31
    Prepared statement...........................................    70

              Additional Material Supplied for the Record

Statement of Bob Dole, former Senator from the State of Kansas...   106
Letter to Chairman Dodd from the Security Traders Association....   107

 
                     HEARING ON PENDING NOMINATIONS

                              ----------                              


                         TUESDAY, JUNE 3, 2008

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 2:48 p.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Christopher J. Dodd (Chairman of 
the Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order.
    First of all, let me apologize to our witnesses. We just 
had the family photograph taken over in the Senate, an annual--
I guess a--no, a biannual event. So we are a little bit late 
getting started.
    Let me thank all of you who are here today, thank our 
nominees, and the audience that is here, as well as my 
colleagues.
    How we will proceed, we have got a busy afternoon. We have 
got a lot of people before us. And so I am going to move 
through an opening statement here rather quickly, turn to my 
friend and colleague from Alabama, Senator Shelby, for any 
opening comments he may have. Obviously, I invite my colleagues 
for any thoughts they may have on the nominees, as well, 
although I would encourage my colleagues to, if they could, 
restrain themselves. I promise them all of their opening 
statements in support or opposition to any nominee will be 
included, so we might hear from our witnesses and move through.
    We have got two panels of witnesses, so we have got a 
crowded afternoon to try and cover an awful lot of ground.
    This afternoon we meet to consider 10 of the President's 
nominees for offices that are within the Committee--this 
Committee's jurisdiction. I want to thank each of these 
nominees for their willingness to appear before the Committee, 
to serve our country, and welcome them, their families, and 
their friends to the Senate Banking Committee.
    I would also like to thank them, as I said a minute ago, 
for their willingness to serve their country in the positions 
for which they have been nominated. In my view, one of the 
great virtues of our democratic system is that we allow, and 
indeed encourage, private citizens to give back to their 
country for periods of time as public servants.
    All of today's nominees have made a decision to submit to a 
nominating process, enter a term of service that can, in many 
respects, be difficult even while at the same time immensely 
rewarding. And for that, I commend each and every one of you 
who are at the table today, and those who will follow you.
    What is particularly noteworthy about these nominees is 
that they have allowed their names to be placed in nomination 
at the end of the current administration. With the possible 
exception of 4 witnesses on the second panel, all of these men 
and women understand that, if confirmed, they are likely to 
serve a relatively brief amount of time. And yet while they may 
serve only a brief time, there is much work to be done in that 
time.
    All of today's witnesses have been nominated to fill 
offices whose missions involve--that addresses some of the 
major economic challenges of our time. I have no doubt that 
these witnesses are motivated, in no small measure, by a desire 
to successfully address those very challenges during their term 
of service.
    This Committee has worked diligently to address many of 
these same challenges, not only by developing and advancing 
legislation but also by seeking to consider and confirm 
qualified nominees. Thus far in the 110 Congress, we have 
confirmed 13 nominees for positions in the administration. As 
my colleagues know, last December we were prepared to move 3 
additional nominees through the Senate but they were blocked 
for reasons unrelated to the merits of the nominees themselves.
    Similarly, 12 days ago, on the same day as his confirmation 
hearing, the Committee was prepared to move the Senate 
confirmation of Steven Preston's nomination to serve as 
Secretary of the Department of Housing and Urban Development. 
Regrettably, that nomination was blocked for reasons unrelated 
to Mr. Preston's qualifications either. I am hopeful that he 
will be confirmed, by the way, in very short order. We need a 
Secretary of HUD.
    With that, let me say a brief word about this afternoon's 
first panel of nominees. Our first nominee is Mr. Neel----is it 
Neel?--Neel Kashkari of California, to be Assistant Secretary 
of the Treasury for International Affairs. This position was 
created as part of the Foreign Investment and National Security 
Act, which was passed unanimously by this Committee and signed 
into law in the first session of this Congress.
    Mr. Kashkari currently serves as a Senior Advisor to 
Secretary Paulson, and prior to coming to Treasury Department 
he worked as Vice President of Goldman Sachs and Company.
    Next on the panel is Mr. Christopher Wall of Virginia, to 
be Assistant Secretary of Commerce for Export Administration. 
Mr. Wall currently serves as the Senior International Trade 
Partner of the law firm Pillsbury Winthrop Shaw Pittman. Prior 
to this, he served as the firm's managing partner.
    Ms. Susan Peppler of California has been nominated to be 
the Assistant Secretary of Community Planning and Development 
at the Department of Housing and Urban Development. Ms. Peppler 
currently serves as the Deputy Associate Administrator in the 
Office of Intergovernmental Affairs at the General Services 
Administration. Prior to holding that position, she served as 
Mayor of the city of Redlands, California. Earlier in her 
career, she served as a public affairs specialist at State Farm 
Insurance. So we thank you for being with us.
    Next we have Ms. Sheila McNamara Greenwood of Louisiana, to 
be the Assistant Secretary for Congressional and 
Intergovernmental Affairs. Ms. Greenwood currently serves as 
the Deputy Chief of Staff at the Department of Housing and 
Urban Development and previously she served as the Director of 
Legislative Affairs in the Office of the Federal Coordinator 
for the Gulf Coast Rebuilding at the Department of Homeland 
Security. Earlier in her career she served as the Senior 
Legislative Officer in the Office of Congressional 
Intergovernmental Affairs at the Department of Labor.
    Mr. Joseph Murin of Pennsylvania has been nominated to be 
the President of the Government National Mortgage Association, 
also known as Ginnie Mae. Mr. Murin previously served as 
President and Managing Partner of the Mortgage Settlement 
Network. He is the former Chief Executive Officer of the 
Basis100 Corporation. Earlier in his career he served as 
President and Chief Executive Officers of Lender's Service 
Incorporated.
    I look forward to the testimony of our witnesses.
    Before I ask you to take an oath here, let me turn to my 
colleague from Alabama. Senator Shelby.
    Senator Shelby. Chairman Dodd, to move on this afternoon I 
would like to ask that my entire statement be made part of the 
record, and we can move on with the people hopefully.
    Chairman Dodd. I thank you for that.
    Do any of my colleagues want to be heard?

         OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Yes, Mr. Chairman, I apologize that I will 
have to leave before we get to the second panel and simply want 
the record to reflect that Donald Marron, who is a nominee for 
the President's Council of Economic Advisors, served as the 
Chief of Staff for the Republicans on the Joint Economic 
Committee when my assignment was to be Vice Chairman of that 
Committee. And he served with great distinction. He is an 
excellent economist. The President has made a very wise choice. 
And I hope the Committee will confirm him unanimously.
    Chairman Dodd. Thank you, Senator. I appreciate that very 
much.
    Senator Menendez. Mr. Chairman.
    Chairman Dodd. Yes.

          OPENING STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. Mr. Chairman, I just want to--I hope I 
can stay for the second panel. But Luis Aguilar is one of the 
nominees to the Securities and Exchange Commission. I have 
known Luis for a very long time. He is an excellent attorney, 
someone who has developed a strong background in the securities 
field, and who is the type of balance that we need on the 
Securities and Exchange Commission to fulfill the mission that 
I think the Commission has and that members of this Committee 
believe in. And we certainly need a full quorum of that 
Commission, which has lacked the ability I think to move 
forward in a way that is important, particularly at a critical 
time in the Nation's securities field.
    So I look forward to hopefully his successful process here 
and his moving forward.
    And finally, Mr. Chairman, I am happy to see that the 
Administration has nominated someone who actually, in addition 
to having the qualities, continues to provide some diversity in 
these fields. Roel Campos was the former Securities and 
Exchange Commissioner, and the first Hispanic ever to be 
nominated to that position. I am glad to see the Administration 
has done the same, somebody very qualified to fulfill his 
replacement.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much, Senator.
    If I could ask our witnesses to rise and raise your right 
hand while I administer the oath of office--not the oath of 
office, excuse me.
    [Laughter.]
    I am a little ahead of myself here. Just another day we are 
in today.
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you god?
    Mr. Kashkari. I do.
    Mr. Wall. I do.
    Ms. Greenwood. I do.
    Ms. Peppler. I do.
    Mr. Murin. I do.
    Chairman Dodd. And do you agree to appear and testify 
before any duly constituted committee of the U.S. Senate?
    Mr. Kashkari. I do.
    Mr. Wall. I do.
    Ms. Greenwood. I do.
    Ms. Peppler. I do.
    Mr. Murin. I do.
    Chairman Dodd. I thank you for that.
    Let me ask you all, if I could just briefly before we 
begin, because it is always a day of great import for families. 
Beginning with you, Mr. Kashkari, any family members here you 
would like to introduce to the Committee?
    Mr. Kashkari. Yes, thank you, Mr. Chairman.
    My wife Minal is seated right behind me. She is here with 
me.
    Chairman Dodd. Very good, welcome. Mr. Wall.
    Mr. Wall. My wife, Barbara is here today with me. My two 
children, Read and Louisa, are college age. They are embarked 
on great adventures and projects this summer and unfortunately 
could not be here today.
    Chairman Dodd. Very good. Ms. Greenwood.
    Ms. Greenwood. You will be sorry you asked. My mother, my 
husband, my son, two sisters, and several friends are here 
today.
    Chairman Dodd. Is anyone not with the Greenwood family?
    Ms. Greenwood. No.
    [Laughter.]
    Chairman Dodd. I just wanted to check on that. Ms. Peppler.
    Ms. Peppler. Thank you. I am honored to introduce my 
husband, Bob, and our two granddaughters here visiting with us 
for the summer here in Washington, D.C.
    Chairman Dodd. Terrific. Welcome, glad to have them here. 
Mr. Murin.
    Mr. Murin. Yes, I am with Sheila.
    [Laughter.]
    Chairman Dodd. We did not know that ahead of time.
    Mr. Murin. I think we have the whole audience.
    I have my wife, Angela, my daughter, Shannon. And I am 
fortunate enough to have my mother and father in the audience, 
along with my two brothers today.
    Chairman Dodd. Welcome. We are delighted they are all here. 
It is a moment of great import.
    I want all of you to know that your written statements and 
any material you think would be pertinent for the Committee 
will be included in the record as part of your remarks, and 
that is also true of my colleagues here as well. I want to 
thank you for joining us today.
    We will begin with you, Mr. Kashkari. Try and keep your 
remarks, if you can, to about 5 minutes so we can move along 
and get to the questions.

    TESTIMONY OF NEEL T. KASHKARI, NOMINEE, TO BE ASSISTANT 
      SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS

    Mr. Kashkari. Thank you, Mr. Chairman.
    Chairman Dodd, Ranking Member Shelby, and members of the 
Committee, I am honored to appear before you today as the 
President's nominee to serve as Assistant Secretary of the 
Treasury for International Affairs.
    Please allow me to express my gratitude to the President 
and to Secretary Paulson for the confidence and trust that they 
have shown in me. I would also like to thank you for your 
consideration of my nomination. And, as I just did, I would 
like to thank my wife, Minal, who is here with me today, for 
her continuous support of my career and my public service.
    If confirmed, I look forward to working closely with this 
Committee, with your colleagues in the U.S. Senate, and in the 
U.S. House of Representatives, to advance U.S. economic 
interests at home and abroad.
    I would like to briefly discuss my experience and how it 
has prepared me for the position to which I have been 
nominated. In my role as Senior Advisor to Secretary Paulson, I 
have been responsible for developing and executing several 
international and domestic policies for the Department to 
foster a more conducive investment climate for the U.S., as 
well as to support global economic growth.
    Prior to my Government service, I worked as an investment 
banker, where I executed financial and strategic transactions 
that have also prepared me for the position to which I have 
been nominated.
    Since joining the Treasury Department in July 2006, I have 
led several policy initiatives for the Department, including 
No. 1, promoting Indian financial sector liberalization and 
free trade through strengthened economic engagement and 
increased infrastructure investment.
    Two, enhancing U.S. energy security by implementing 
policies that will, over time, reduce our exposure to the 
global oil market by encouraging the development of alternative 
fuels and by improving the efficiency of our auto fleet.
    And No. 3, spearheading our response to the housing crisis 
by mobilizing the private sector to avoid preventable 
foreclosures and working to ensure the flow of capital to the 
housing market going forward, enabling the housing correction 
to move forward as quickly as possible, while minimizing 
spillover from housing to the rest of the real economy.
    Prior to joining Treasury, I was a Vice President at 
Goldman Sachs, where I advised U.S. and international companies 
on both debt and equity financings as well as global mergers 
and acquisitions. As an advisor to management teams and boards 
of directors, I gained firsthand insight into the challenges 
that U.S. companies face as they strive to access markets 
abroad as well as competing with global players here at home.
    This transactional experience will be particularly 
important to help implement our critically important investment 
security policy through the Committee on Foreign Investment in 
the U.S. I will work hard to ensure that our national security 
interests are protected, while maintaining an open investment 
climate.
    Prior to joining the financial services industry, I 
strengthened my analytical skills as an aerospace engineer, 
developing technology for future NASA space science missions, 
such as for the James Webb Space Telescope, that is due to 
launch in 2013.
    My educational background includes a Bachelor's and 
Master's degree in engineering from the University of Illinois 
at Urbana-Champaign and an M.B.A. in finance from the Wharton 
School.
    If confirmed, I look forward to working with the 
administration, with the Congress, and with my colleagues at 
the Department of the Treasury to promote global economic 
growth, financial market stability, and open markets for U.S. 
goods and services.
    Mr. Chairman, Senator Shelby, and members of the Committee, 
I am grateful for the opportunity to appear before you today. I 
would be very pleased to answer any of your questions.
    Chairman Dodd. Thank you very much.
    Mr. Wall.

  TESTIMONY OF CHRISTOPHER R. WALL, NOMINEE, TO BE ASSISTANT 
    SECRETARY FOR EXPORT ADMINISTRATION, U.S. DEPARTMENT OF 
                            COMMERCE

    Mr. Wall. Chairman Dodd, Senator Shelby, and Members of the 
Committee, it is a great honor as well for me to be here today 
as the President's nominee for the position of Assistant 
Secretary of Commerce for Export Administration.
    I thank the President and Secretary Gutierrez for their 
confidence and trust in me.
    I would also like to thank the members of the Committee's 
staff who have taken the time to meet with me prior to today's 
hearing.
    If confirmed, I look forward to building on the cooperative 
working relationship between the Bureau of Industry and 
Security and this Committee.
    Of course, I would like to thank my wife, Barbara, as well, 
who is here.
    Mr. Chairman, I recognize the importance of the obligation 
that I will be undertaking, if confirmed. BIS plays a critical 
role in advancing U.S. national security, foreign policy and 
economic objectives by ensuring an effective export control and 
treaty compliance system, while at the same time facilitating 
continued U.S. strategic technology leadership.
    For close to thirty years, I have had the opportunity to 
work on and examine these important issues as a partner at a 
large international law firm. I have advised clients on export 
controls and other international trade matters. I have also 
been active in professional organizations addressing these and 
other international trade matters and have chaired and spoken 
frequently at conferences which promote a dialog between 
industry and Government leaders.
    Of course, as a practicing attorney, one is professionally 
obligated to focus on the interests of one's clients, but more 
important is an obligation to the law itself. The focus of my 
practice has always been on assisting clients to comply with 
and to achieve results that are consistent with the laws and 
guidance in this complex area. At the same time, my continuing 
involvement in professional and other organizations has also 
enabled me to focus on the larger policy issues that inform 
this area. I believe this focus has made me a better counselor, 
and has better prepared me to address these issues from the 
perspective of a policymaker, if confirmed.
    One of the highest priorities in the near term is the 
passage of S. 2000, the Export Enforcement Act of 2007. I 
believe I can speak on behalf of the entire exporting 
community, Mr. Chairman, in thanking you for introducing this 
legislation to reauthorize the Export Administration Act. The 
legislation is essential to provide the tools for vigorous 
enforcement. It is important for the rule of law and good 
government.
    The threats we face today are very different from those 
that we faced when the Export Administration Act was enacted, 
principally terrorism, non-state actors, and the proliferation 
of weapons of mass destruction.
    The economic realities we face today are very different, as 
well. Crafting legislation that addresses these 21st century 
issues is a task that cannot realistically be accomplished in a 
short period of time but I would hope, if confirmed, to play an 
active role in stimulating discussion with all parties and to 
start the process of building a consensus or at least a broadly 
shared approach that may lead to enactment of such legislation 
in the foreseeable future.
    Even within the existing system, however, important efforts 
are underway to address these new threats and economic 
realities. These efforts include the President's export reform 
initiative, responding to the recommendations of the Deemed 
Export Advisory Committee, and continued focus on illegal 
transshipment concerns. If confirmed, I would hope to 
contribute the knowledge and experience I have acquired over 
the years to advancing these efforts and, where possible, 
bringing them to a successful conclusion.
    If confirmed, I look forward to contributing this knowledge 
and experience to the service of our country. I welcome the 
opportunity to work with the Committee on these important 
initiatives in this area, and I would like to thank the 
Committee for its consideration of my nomination.
    I would be pleased to answer any questions.
    Chairman Dodd. Thank you, Mr. Wall.
    Ms. Greenwood.

    STATEMENT OF SHEILA MCNAMARA GREENWOOD, NOMINEE, TO BE 
  ASSISTANT SECRETARY FOR CONGRESSIONAL AND INTERGOVERNMENTAL 
     RELATIONS, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Greenwood. Chairman Dodd, Ranking Member Shelby, and 
distinguished members of the Committee, thank you for inviting 
me to appear before you today. I am both honored and humbled to 
come before you as the nominee for the position of Assistant 
Secretary for Congressional and Intergovernmental Relations at 
the U.S. Department of Housing and Urban Development.
    I would like to express my gratitude to President Bush for 
nominating me for this position and am grateful for the 
confidence he has placed in me. Interestingly, in over 15 years 
of working before Congress, I have either prepared a witness, 
written the testimony, or both, any number of times. And I 
realize that, up until today, I have been in the cheap seats. 
This actual being the witness is a far more daunting prospect 
and I have newfound respect for all those I have cajoled to a 
witness table over the years.
    I also would like to again thank my husband, and our son, 
Tripp, who are here today. I must take this time to thank my 
husband for all of his patience and support throughout my years 
in this Administration. He and my son are my proudest 
accomplishments.
    In the course of my years working before Congress on a wide 
range of topics, I became increasingly interested in housing, 
specifically while working on the rebuilding of the Gulf Coast 
after Hurricanes Katrina and Rita. I was the Director of 
Legislative Affairs for the Office of Gulf Coast Rebuilding, 
Chairman Donald Powell, and worked closely with HUD on one of 
the more daunting post-hurricane challenges: which was finding 
housing for so many after the diaspora.
    Through that assignment, I came to better realize the true 
meaning of home and the complex socioeconomic factors that go 
into both where and how families live across the United States.
    The Assistant Secretary for Congressional and 
Intergovernmental Relations at HUD is the primary resource to 
the Congress for the information it needs in carrying out its 
Constitutional responsibilities. I have a proven history of 
above-board and honest discourse with members and their staff 
and plan to maintain that open dialog in the Assistant 
Secretary's position, should I be confirmed. It is my promise 
before you today to work tirelessly and expeditiously in the 
remaining months of this Administration to ensure that the 
information you request from HUD is provided in a timely and 
thorough fashion.
    Clear and thoughtful information allows us to work together 
on the myriad of legislative initiatives that remain and to 
better inform the difficult policy choices before us all.
    I last want to take this opportunity to thank my family and 
many friends who are here today. My sisters, brother and 
parents have always been there for me over the years and I am 
eternally in their debt.
    Mr. Chairman and Senators, thank you again for your time 
and your courtesy in listening to my remarks, and I am happy to 
answer any questions you might have.
    Chairman Dodd. Thank you very much.
    Ms. Peppler.

STATEMENT OF SUSAN PEPPLER, NOMINEE, TO BE ASSISTANT SECRETARY 
                  FOR COMMUNITY PLANNING AND 
         DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN 
                          DEVELOPMENT

    Ms. Peppler. Thank you.
    Good afternoon Chairman Dodd, Ranking Member Shelby, and 
distinguished members of the Committee. It is a true honor and 
privilege to appear before you today as President Bush's 
nominee for Assistant Secretary for the Office of Community 
Planning and Development at the Department of Housing and Urban 
Development.
    I would like to thank the Committee members and your staff 
members for taking the time to meet with me over the past few 
months, and if confirmed, I look forward to continuing frequent 
and open communication to address affordable housing and urban 
issues facing our Nation today.
    HUD is a good organization that needs to be reinvigorated 
with strong leadership. And while I realize there is but a 
short amount of time in which my colleagues and I can effect 
positive change, I can assure the Committee that I will roll up 
my sleeves and make significant contributions with the time 
that I am given.
    With over 17 years of experience in affordable housing and 
community development, I bring strong leadership qualities from 
the grassroots, community and executive levels, as well as a 
unique perspective and understanding of HUD programs and their 
effect on families and communities.
    I first became interested in housing issues during the 
early 1990s, when I became involved with a HUD-affiliated non-
profit organization called Neighborhood Housing Services of the 
Inland Empire. I initially joined Neighborhood Housing as a 
volunteer, working with them on the weekends with neighborhood 
clean-up and revitalization projects, home repairs, et cetera. 
After seeing first-hand how successful the program was and what 
a positive difference it made in many communities, I joined 
Neighborhood Housing's Board of Directors and became involved 
in the administration and management of the organization's 
programs, including Neighborhood Revitalization/Rehabilitation, 
Homebuyer Education, Downpayment Assistance, and the Youthbuild 
job training program.
    Working from the grassroots level up to the business and 
financial side of this organization, I developed a deep 
appreciation for the important role homeownership plays in 
fostering strong, healthy and safe communities.
    During my nearly 8 years on the Redlands City Council and 
as Mayor, I took that hands-on education in community 
revitalization and housing, together with the program and 
business knowledge I gained as an Executive Board Member at 
Neighborhood Housing, and put it to work in our city.
    One of my top priorities as Mayor was the improvement of 
the city's affordable and multi-family housing stock. By 
working with the community, establishing and building 
relationships, we developed an improvement plan of action. The 
city began cracking down on absentee landlords whose property 
had fallen into disrepair and substandard condition. Through 
enforcement of building and safety codes, including placing 
non-responsive homeowners' properties in receivership, our 
neighborhoods began to improve.
    The city utilized several HUD programs, including Community 
Development Block Grant funds, to improve the properties and 
assist some of the apartment renters in becoming homeowners. 
Additionally, we began improving economic development by 
promoting small business ownership and recruiting larger 
businesses to the area, which created jobs, accomplishing a 
dramatic positive change in a community that had been neglected 
for generations.
    I have also had the honor of serving for 4 years as a 
member of the Governor's Task Force on Affordable Housing, and 
as the League of California Cities' Director of Housing, Inland 
Empire Division. The Task Force studied the lack of affordable 
housing in California, developed innovative solutions, and made 
recommendations to the Governor and state legislature. Our work 
to update the State's housing laws led to the use of tax 
increment financing to provide incentives for the development 
of low-income and affordable housing, bill language that 
clarified and strengthened the anti-NIMBY law relating to the 
approval of affordable housing projects, and the ability for 
cities to receive housing credits for rehabilitation of 
existing affordable housing stock.
    As I mentioned, I bring a unique perspective and 
understanding of HUD programs, as I have seen firsthand how 
those programs change the lives of children, their families and 
our communities. I also know firsthand the benefit of CPD 
programs on local and State government. Simply put, these 
programs work.
    From working with HUD programs as a grassroots volunteer, 
to my involvement in the financial management of HUD programs 
through NHSIE, to implementing and managing affordable housing 
and economic development programs as Mayor, to effecting change 
in housing and economic development laws at the state level, I 
believe I have the experience of leadership, teamwork and 
commitment needed to serve as the Assistant Secretary in the 
Office of Community Planning and Development.
    I thank you for this opportunity to address the Committee 
and I look forward to your questions.
    Chairman Dodd. Thank you very, very much.
    Mr. Murin.

 STATEMENT OF JOSEPH J. MURIN, NOMINEE, TO BE PRESIDENT OF THE 
    GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GINNIE MAE), 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Murin. Chairman Dodd, Ranking Member Shelby, and 
distinguished members of the Committee, I sincerely appreciate 
the opportunity to appear before you today. Thank you, Chairman 
Dodd, for your kind words of introduction, and thank you to all 
of the members of the Committee and their staffs who have met 
with me over the last few months. Those meetings have provided 
valuable insight into the position for which I have been 
nominated.
    It is a privilege to appear before you today as President 
Bush's nominee for the position of Ginnie Mae President. I 
bought my first home with an FHA-insured loan. I have spent my 
entire career in the housing industry, from lending to back 
office operations and even construction. For a man who has 
worked in just about every job in the housing and mortgage 
finance industry, it is an honor to seek your confirmation as 
president of an organization I consider critical to sustaining 
and promoting homeownership opportunities in America.
    They say behind every successful man is a woman. My wife, 
Angela, is here today. Without her love and support, I simply 
would not be here today, nor would I have my wonderful family 
or enjoyed such a successful career. It has been a 37-year 
partnership between us, and I would be remiss if I did not 
thank her for her steadfast love and support.
    Angela and I bought that first FHA home in 1977. Since 
then, because my career required it, we have moved 7 times. In 
every new city, we designed and built a home. We understand the 
importance of owning a home, how it ties you to your community, 
how children benefit from the stability it provides, and the 
manner in which it helps to build wealth. That is why I believe 
in homeownership and I am committed to helping others achieve 
the dream of owning a home.
    But homeownership is not just about families and 
communities. For the last few years, it has served as the 
primary engine of our economy. Buying, building, renovating, 
all of these have a tremendous impact on jobs growth and sales 
revenue, the heart of the economy in our cities and towns. It 
is not just local economies that are helped or hurt by whether 
a family can afford to buy a home. National and international 
credit markets are also affected. We are witnessing this today.
    The mortgage-backed securities industry is the reason local 
housing markets impact international credit markets. In 1971, 
Ginnie Mae issued the first ever mortgage-backed security. In 
doing so, they revolutionized the way housing is financed. 
Because an investor in Asia can buy into a pool of U.S. 
mortgages, a family in Pennsylvania can own a home.
    It has been 30 years since Ginnie Mae issued the first MBS. 
The industry has evolved enormously since then. In the 1980s, I 
ran a mortgage bank. Government loans were our bread and 
butter. My loan officers fed their families on the income 
received from processing FHA and VA loans. But as capital 
became more available through the growth of the MBS industry, 
interest in government products declined.
    Today, that is no longer true. The housing market is much 
different. The MBS that spurred investment in real estate is 
less attractive to investors. Home values are declining and 
foreclosure rates are increasing. Consequently, it has become 
more difficult for low- and moderate-income borrowers to obtain 
a mortgage.
    The industry has come full circle on its view of 
government-insured loans. There is recognition that FHA and 
Ginnie Mae are important elements of a diverse housing finance 
system, necessary elements when credit tightens.
    We are at a turning point in this industry, and Ginnie Mae 
is in a unique position to help the industry navigate its way 
through those challenges. Leading the agency at this critical 
juncture would be a formidable opportunity, and yet it is one I 
look forward to because it is a role that brings together a 
lifetime of skills. More than 35 years in this industry--in the 
title business, in building, and in banking--have provided me 
with invaluable insight into its inner workings, insight that 
will guide decisionmaking at Ginnie Mae.
    Ginnie Mae's mission is to expand affordable housing by 
linking the global capital markets to the Nation's housing 
markets. That mission is about making the connection between 
local communities and international economies, never forgetting 
that behind the current discussion of credit crunches and 
fluctuating markets is a family that wants to buy a home or 
keep the one it has.
    If confirmed, I will be committed to that mission, to 
drawing the link between homeownership, strong communities, and 
a thriving economy.
    Ginnie Mae may be in the best position to meet its mission 
since its inception. Even with the challenges that we face 
today, we can continue to help American families become 
homeowners. Like the thousands who labor daily at HUD, I 
respect and care deeply about its programs, and I am committed 
to making a difference in lives throughout America. It would be 
an honor to participate in HUD's efforts as President of Ginnie 
Mae.
    Mr. Chairman and Senators, thank you for your courtesy in 
listening to my remarks. I will be happy to answer any 
questions you may have.
    Chairman Dodd. Well, thank you very much, and I thank all 
of you for your statements and also the brevity of them, I 
appreciate that in terms of our ability to move along. I will 
take a few minutes. I will ask the clerk to--why don't you put 
5 minutes up on the clock here, and we will try and keep to 
that time, if we can. And let me also just suggest to you at 
the outset that because of the number of you here and the 
second panel coming, I am going to leave the record open for 
several days for questions to come from colleagues, either who 
are here or are not here, to raise with you. And the quicker--I 
will not leave it open forever. I will leave it open for a few 
days. And I would urge you to respond as quickly as you can so 
that we can create the possibility of moving these nominations 
along should my colleagues so desire.
    With that, let me turn to you, Mr. Kashkari, if I can, and 
the position you have been nominated for was created in part by 
the legislation this Committee adopted, as I pointed out in my 
opening statement, unanimously, and was signed into law last 
year. It all began, I think, as a result of the Dubai Ports 
issue that emerged, and then the question was whether or not we 
could balance the interests of attracting foreign investment 
and also maintaining the security of the country. So you have 
been nominated for a position that was created by this 
Committee, and a very short time ago, and a very important 
issue to all of us here.
    So I would like you, if you could, to discuss the 
importance of this new law and your commitment to the 
appropriate enforcement of it, and aside from the specific 
duties that this legislation would require, I would like to 
comment as well on how you envision as the regional 
responsibilities associated with this post that may require 
greater engagement in various parts of the world--the Middle 
East, Latin America, Africa, Asia. Share with us your thought 
about that as well as the specific duties.
    Mr. Kashkari. Thank you, Mr. Chairman. There is no question 
that our responsibilities under CFIUS are of paramount 
importance and striking the balance, making sure our national 
security is protected, while also encouraging foreign 
investment in the U.S., which helps creates jobs.
    Let me just give you a little background. One of my 
colleagues, Assistant Secretary Lowery, has been leading our 
work on CFIUS and will continue to do so. As you can imagine, 
over the past few years the case volume has really increased, 
and the workload has increased, the staffing has increased. So 
I'm going to be joining the team to help carry some of the 
caseload and leading individual cases as appropriate.
    But in my job, if confirmed, working with the regional 
offices within Treasury and, as you said, going to the Middle 
East or going to Asia, I think part of our responsibility and 
part of our opportunity is to help educate other countries to 
make sure that they put the right foot forward. How can they be 
more transparent in their own investment decisions? Think about 
the issue of sovereign wealth funds. We are working with the 
IMF right now to try to put together a set of best practices to 
get the sovereign wealth funds to make sure that they are 
transparent in their motives and they are making investment 
decisions for commercial reasons only.
    So I think not only is CFIUS really important in terms of 
protecting us and finding the right balance, I think our 
responsibility at Treasury is to help educate potential 
investors around the world how they can behave in a more 
responsible manner.
    Chairman Dodd. Let me just in that regard--because there 
are very specific triggers in the legislation. Just over the 
last year or so, there have been--you can gimmick and game the 
triggers a little bit. It is not just the letter of the law but 
the spirit as well, and I wonder if you might address this, 
because I have recommended in a couple of cases where I have 
been asked as to whether or not--while not meeting the 
thresholds, whether or not it would make some sense just to 
make the Department aware of some transactions going forward. 
And while they would not be required specifically under the 
law, the idea, again, of transparency, of a spirit of trying to 
make sure that we are not gaming the system in some way to 
avoid the balance and creating the very perceptions we were 
trying to avoid with the legislation.
    I wonder if you might comment on that, if you would.
    Mr. Kashkari. Chairman, I will be honest, I have not 
drilled into as much depth because this has not been where I 
have been spending my time at Treasury. If confirmed, I will 
get into it in a lot of detail, as you can imagine. I think 
everything that you have said in the spirit of we agree with. I 
can't comment on the specific triggers that you are talking 
about just because I haven't spent my time there. But I would 
be happy, if confirmed, to follow up with you in more detail.
    Chairman Dodd. Well, I would appreciate that, and I think 
you might want to do that. Again, I am not interested in 
changing the law in any way, but make sure we do exactly what 
you have described here, and that is to make sure this works so 
that people understand that we want the investments to come, we 
want them for commercial reasons. We also want the ability to 
be able to have that transparency to make sure that we are not 
falling prey to some of the problems that can arise.
    Mr. Wall, thank you again for being willing to step 
forward. For over two decades, you have practiced export law 
exclusively in the private sector, representing companies 
seeking licenses either from the State Department to export 
weaponry or from the Commerce Department to export dual-use 
technology. I wonder if you might discuss with us the 
appropriate balance that you see made in the area of export 
administration between protecting our national security--not an 
unrelated question--and ensuring expeditious licensing 
procedures for U.S. companies, sort of the same line, in a way, 
that I asked Mr. Kashkari.
    Mr. Wall. Yes, thank you, Mr. Chairman. The fundamental 
premise, of course, of the Export Administration regulations, 
the whole reason for regulating exports from the United States, 
is, of course, to protect national security as well as U.S. 
foreign policy interests in some cases. But at the same time, 
there is a balance, as you note, that is critical to find in 
every case, in every issue that arises before the agency, of 
doing so in a way that addresses that particular national 
security or foreign policy concern, but also in a way that 
doesn't squelch, doesn't stifle economic development, the 
ability to export. Exports are, of course, a powerful source of 
jobs and economic development in the United States. And that, 
of course, is something that as a policymaker, if confirmed, I 
would want to ensure that we continue.
    But the foundation, of course, is to focus on the national 
security issues that arise in transactions and to drill down 
and understand exactly what those issues are. And in some 
cases, it is simply not possible to continue the business 
because the risks are not able to be addressed. But where they 
can be addressed, I would hope that they could be, and that is 
something that I would certainly focus on in my position, if 
confirmed.
    Chairman Dodd. Let me, if I can, on your Committee 
questionnaire, you discussed your role in the licensing dispute 
between the State Department and two U.S. aerospace companies 
who were fined a total of $22 million in civil penalties. In a 
2004 Export Practitioner article, you suggested that this case 
demonstrated the challenges of determining whether export 
licenses should be sought from State or Commerce, and I wonder 
if you might comment on whether or not you think the State 
Department's characterization of your licensing practices is 
now outdated because of subsequent regulations issued by the 
Department of State and Commerce. And if so, how?
    Mr. Wall. Well, thank you, Mr. Chairman. Yes, the State 
Department and I certainly had a disagreement over that 
particular issue. It had to do with the commodity jurisdiction 
over a civil avionics device, civil certified, used in 
virtually every civil aircraft that flies in this country. And 
there is, frankly, a lack of clarity in the jurisdiction 
between which agency, the State Department or the Commerce 
Department, controls the export licensing of those items.
    Now, back then--this is probably 1999, 2000--the State 
Department had never before asserted the position that it had 
jurisdiction over civil commercial end items containing what 
would be termed ``defense article components,'' the so-called 
see-through rule. This is something that had never been 
announced, never been published, never been spoken about in any 
sort of guidance.
    We prepared a commodity jurisdiction request to confirm the 
determination with respect to this particular item, fully in 
compliance with all published rules, regulations, and guidance. 
And yet, 4 years later, the State Department came back and 
said, well, it did have this jurisdiction over defense articles 
incorporated in civil end products, and that the information in 
that request wasn't fully--it didn't fully disclose the 
contents.
    Obviously, we disagreed. It fully complied with all 
regulations. The State Department was simply looking back, 
changing its mind after the fact, expecting us perhaps to be 
mind readers. I don't know. But in any case, it has been my 
position, as I wrote in that particular article, that I thought 
the effort to enforce an unpublished rule retroactively is 
simply not consistent with due process.
    But, be that as it may, that is a historical footnote. That 
was 8 years ago. The jurisdiction over these components has 
still been an issue over these years. And, interestingly, as a 
result of recent very good work between the Department of 
Commerce and Department of State, those issues have been to a 
certain extent clarified. Those regulations as they currently 
exist are essentially the same regulations that I and other 
practitioners in the area assumed existed back in 1998. It has 
been a period of controversy, a period of evolution, and those 
rules have now become clarified. And certainly if confirmed, I 
would hope to continue that effort, to try to clarify----
    Chairman Dodd. Are they clarified to your satisfaction?
    Mr. Wall. Well, to a large degree, yes. There are certainly 
questions that companies have regarding the fine points, but in 
essence, the issue is that a civil aerospace item that is 
certified by the FAA, that is integral to the operation of the 
aircraft, is essentially going to be considered a Commerce 
Department jurisdiction matter as opposed to State Department 
jurisdiction, unless there are certain specific criteria that 
are articulated, such as whether it is considered to be an item 
of significant military equipment, or unless there is some 
doubt. But the point is that for most garden variety, what I 
would call aerospace component matters, there will be 
significantly greater clarity in knowing which agency has the 
jurisdictional control. And those items that are essentially 
military or have military origins or are used in military 
activities are properly licensed by the State Department. That 
is the way the jurisdictional issues divide themselves. But 
there is absolutely room for greater coordination, for greater 
transparency, and greater cooperation between the two agencies 
in dealing with close cases, cases where there are some doubts, 
so that companies can have certainty in knowing the type of 
business they can conduct.
    Chairman Dodd. Well, thank you, and that is obviously a 
very important point and issue for all of us.
    Ms. Greenwood, you have been nominated to fill a position 
that is responsible for ensuring that Congress has accurate and 
timely information, and we have had some difficulty in 
obtaining accurate and timely information from the Department 
in the past. That information we request of the Department is 
obviously vital to our oversight function. You may have been 
familiar that we raised this issue back in previous hearings 
about having access to that information, and I will ask you 
here because it is very important that you would commit to give 
this Committee the data and information that we request in a 
timely fashion.
    Ms. Greenwood. Absolutely, Senator.
    Chairman Dodd. I thank you for that. Also, I understand you 
spent almost the last 2 years working on Gulf Coast recovery 
efforts----
    Ms. Greenwood. Yes, sir.
    Chairman Dodd [continuing]. And have continued to work 
since joining HUD. And as you know, the ability of people who 
are displaced to return home depends on there being housing 
available and affordable to them.
    Last year, I introduced with Senator Mary Landrieu of 
Louisiana the Gulf Coast Housing Recovery Act, which would have 
provided funds to replace assisted housing that was destroyed 
in the hurricanes of 2005. And since coming to HUD, have you 
had an opportunity to play a role in how affordable housing is 
rebuilt in the Gulf Coast? And do you have an opinion as to 
whether more needs to be done to replace assisted housing that 
was destroyed as a result of the hurricanes?
    Ms. Greenwood. The affordable housing has been the slowest 
and the hardest component to come back. I mean, the two bigger 
States, Louisiana and Mississippi--in terms of monies, I should 
say--both chose to triage their programs. They gave money to 
homeowners first, and so unlike a major metropolitan area, 
these are for the most part rural areas. So unlike New York 
City, where you have large apartment buildings that are 
primarily owned by investors and businessmen, you had a lot 
of--in New Orleans, we call them ``duplexes'' or ``triplexes'' 
or ``four-plexes''--that, you know, somebody owns, but they 
themselves lost their own house. And so the small--both States 
have--I think Louisiana now has roughly $1 billion committed to 
small, affordable renting programs, and Mississippi has about 
$250 million, and Haley Barbour has promised to do more if 
necessary.
    I think that that has been in the triage--I mean, the Road 
Home Program was slow to get checks out the door, and so if you 
are the homeowner who lost both your home and your rental 
properties, your first priority, of course, is going to be to 
repair your house, and then you will get to doing your 
affordable rental houses.
    So as of today, I know that it is an ongoing problem in the 
Gulf Coast, specifically in New Orleans. It is our hope that as 
time goes on, that the monies start moving more rapidly and the 
States shift their focus away from the homeowner portion of it 
and into the affordable rental programs.
    Chairman Dodd. Well, I hope so. This has been just an 
ongoing tragedy and too long a time has gone on. I will not go 
into the great details of it, but it has been a tragedy to 
watch people have to pick up and move and change their lives 
entirely because of the absence of available housing.
    Ms. Greenwood. Yes, sir.
    Chairman Dodd. So we are going to watch this carefully and 
urge greater action in the coming months, if we can. But we 
appreciate your willingness to work at it.
    Let me thank you, Ms. Peppler, for being with us. You are a 
mayor, so I can't help resist: What do you think of the 
Community Development Block Grant Program?
    Ms. Peppler. I can tell you it was probably, of all of the 
responsibilities I had as mayor, it was one of the most 
important times of the year spending with the Community 
Development Block grant funding. We had the nonprofits come 
before us. I think I could handle most everything. Those were 
the ones that gave me the sleepless nights. We had a lot of 
excellent nonprofits that came before us that needed the 
funding, and it was a very difficult choice to have to make to 
have a small amount of money to go a long way. So a very, very 
important program to the city and the county.
    Chairman Dodd. Well, I appreciate that. I would just point 
out to you that the administration has proposed significant 
cuts in the CDBG program each year, including a 22-percent cut 
for fiscal year 2009, and, again, the importance of this. If we 
are cut by 20 percent, I just know a number of initiatives and 
proposals have been put in place as a result of that program. 
So I appreciate your comments about the value of it, and 
through HUD, I want to just mention as well the homeless 
assistance programs. We have a couple of our colleagues here 
who have been very involved in the homeless programs. Certainly 
Senator Allard has been one of them involved, along with 
Senator Reed. The two of them have been pushing trying to get 
better coordination of that. It is shocking that over 3 million 
people experience homelessness each year, including over 1.3 
million children. We passed legislation, again unanimously, out 
of this Committee to consolidate and streamline the homeless 
assistance accounts as well as provide funds to help 
communities prevent homelessness. And as mayor or in your other 
positions, were you involved in the McKinney-Vento homeless 
assistance programs, and do you support a move to greater 
consolidation?
    Ms. Peppler. Yes, actually I was involved in the McKinney-
Vento not only as mayor, but also in my position with GSA. 
Housing or any of our disposal properties that we had would 
always go to the homeless--nonprofits that served the homeless 
population first. I am very supportive of it, worked with the 
programs, homeless programs, significant in the city of 
Redlands. We were very lucky that we had a nonprofit that 
worked in transitional housing for homeless families. Often, 
generally people look at homeless as one person and putting him 
overnight in a place certainly takes care of the problems, and 
there are many issues involved with homeless, including 
families and children are living out of their cars. And we had 
a significant problem in Redlands and worked closely with many 
of the homeless programs and were very successful in either 
transitioning them into permanent housing and at least getting 
their vouchers so that they had a place, warm, dry, a clean 
place to live, and the children to live as well.
    Chairman Dodd. Well, we would like you to urge to continue 
to work with our colleagues up here who have a strong interest 
in the subject matter.
    Ms. Peppler. I look forward to it, yes. Thank you.
    Chairman Dodd. Last, Mr. Murin--and I have gone over the 
time I set myself, but to cover all of you here before turning 
to Senator Shelby, just a couple of quick questions. We have 
seen an increased demand at Ginnie Mae, obviously, about Ginnie 
Mae as a result of the present foreclosure crisis. I wonder, 
one, how Ginnie Mae is keeping up with the increased volume and 
making sure that quality stays high, if you have an opinion on 
that. And, second, just your opinions, we passed out of this 
Committee about 2 weeks ago, 19-2, the Hope for Homeowners Act, 
along with several other provisions dealing with a permanent 
affordable housing program as well as reforms of Fannie Mae and 
Freddie Mac. And Senator Shelby and I are both interested in 
having--if we can get these bills through the Senate and work 
out our differences with the House as quickly as we can and put 
the matter on the President's desk.
    I presume you have had a chance to look at what we've done 
out of this Committee.
    Mr. Murin. I have, sir.
    Chairman Dodd. We would like your comments on it and any 
additional thoughts you have about how we might either 
strengthen this legislation or other suggestions you have for 
the Congress to be taking to try and do what we can do, to the 
extent we can at all, through some intervention here to try and 
reduce the number of foreclosures that are occurring and 
getting our housing back on a solid footing.
    Mr. Murin. Yes, sir. I think to answer your first question, 
the increased--you know, Ginnie Mae has gone from roughly $5 
billion a month in issuances to over $22 billion in May. So 
it's increasing at an--the rate is increasing each and every 
month. That is the good news. That tells us that there are 
things working in the marketplace that we had hoped would work.
    We are comfortable, you know, I think Ginnie Mae is 
comfortable with the insistence on FHA to continue prudent 
underwriting standards. That would give Ginnie Mae a comfort 
that the loans that are coming across and in the pools are 
being underwritten to ensure that the homeowner can afford the 
payments. So from that perspective, I think that is a comfort 
level, at least for me.
    As time goes on, we are going to be faced with, I think, a 
market that is going to increasingly look at Ginnie Mae as a 
means to liquidate but, more importantly, I think it is a means 
to provide the market best execution on the securities. And 
what some folks don't really realize is that best execution 
means a better rate that moves downstream to the borrower. So 
we have to do everything we can. Ginnie Mae will ultimately 
have limited resources. It has a very unique business model 
right now where it utilizes roughly 65 full-time FTEs to manage 
third-party contractors, facilitate pool processing, you know, 
master subservicing, trusteeship, whatever it may be. But as 
time goes on and the volume increases, Ginnie Mae will be faced 
with issues.
    I personally believe that the legislation that is pending 
is needed. I think every option that we can provide the market 
to facilitate the increase in foreclosures is necessary. I 
think the big problem in the market right now may be just the 
fact that it is a huge bubble that needs to be absorbed, but 
that does not mean that we should not, in fact, utilize every 
means by which it can facilitate the problem we are seeing.
    If it is enacted, I think the investor community will 
embrace it, from what I am told and what I see. And we are 
going to work diligently to make sure that we can expedite as 
much of the fruits of that labor as we possibly can and 
facilitate not only the issuers but also the investment 
community to do the best execution we can.
    Chairman Dodd. I thank you for that very much.
    Senator Shelby.
    Senator Shelby. Thank you, Chairman Dodd, for covering so 
many issues here.
    On international investments, Mr. Kashkari, I believe, as 
you do, I am sure, that we must maintain the open investment 
climate for the United States of America and work also to 
ensure our national security is not compromised at the same 
time.
    What role do you foresee yourself playing in the CFIUS 
process, Committee on Foreign Investment in the U.S., which we 
have more than a passing interest in this Committee in? And how 
will you work to keep our economy open to foreign investment, 
which we need and it benefits all of us, while ensuring 
national security issues are addressed? I think that is a 
central question that comes before this Committee from time to 
time, and probably all Americans.
    Mr. Kashkari. Thank you, Senator. As I mentioned with my 
answer to the Chairman's original question of me, I envision 
myself leading individual cases as appropriate and splitting 
them with my colleague, Assistant Secretary Lowery. As I 
mentioned, he has been running the process for the past couple 
years, and so there is going to be a little bit of time for me 
to come up to speed to really understand the details of the 
process.
    Now, as you know, Senator, the President issued an 
Executive order that really strengthened the process, made sure 
all the national security agencies were at the table and have a 
voice.
    Senator Shelby. That is right.
    Mr. Kashkari. And we think having them all at the table is 
really important to maintaining that balance. So part of what 
we are going to do and part of what we do already is run a very 
rigorous process where all the voices are heard around the 
table, both the economic interests as well as the national 
security interests. But in terms of keeping it an open 
investment climate, I feel like the burden is on us to go out 
proactively to regions around the world to help, as I mentioned 
with the sovereign wealth fund example, to help educate them on 
how they could help themselves.
    For example, these best practices that the IMF is working 
on, we are hopeful that this is going to create a race to the 
top so that sovereign wealth fund can compete amongst 
themselves to be more transparent in how they are making their 
investment decisions, because it is in their own interest. If 
they are good actors making commercial decisions, more 
countries around the world are going to welcome their 
investment.
    So, Senator, I do not have a perfect answer. It is a 
delicate balancing act that we take very seriously and would 
welcome suggestions as we move forward.
    Senator Shelby. But your role is going to be more--it is 
important today, but next month and the months to come, it is 
going to be very much more important as the sovereign wealth 
funds grow and look for somewhere, either here or in Europe and 
other places in the world, to make a solid investment for 
themselves. And what we want is their investment, but we don't 
want to give away our Nation. Right?
    Mr. Kashkari. Absolutely.
    Senator Shelby. OK. Mr. Wall, could you provide your 
assessment of the current effectiveness of the multilateral 
export control regimes to which the U.S. is party? Just 
roughly.
    Mr. Wall. Well, I can speak, Senator Shelby, from my 
perspective as a private practitioner.
    Senator Shelby. Yes, sir and you have great experience 
here.
    Mr. Wall. Thank you very much, sir. And in that capacity, I 
have had little dealings directly with these institutions. 
These are institutions that are governmental institutions. 
Governments, of course, gather and coordinate their policies 
and such. It is very important for the United States to work 
closely with our allies in these various bodies where we share 
interests, such as the Wassenaar arrangement, which is the 
larger group dealing with dual-use technologies; the Nuclear 
Suppliers Group, which deals with obviously countries 
manufacturing and producing nuclear technologies; the Missile 
Technology Control Regime; the Australia Group, dealing with 
chemical weapons and so forth; the CWC. All of these are very 
important bodies for the U.S. Government to participate in.
    From the companies' perspective, it is very important to 
harmonize these rules to the extent we can, recognizing that in 
some cases it is simply not going to be possible. We simply 
share different interests and objectives than our allies, and 
we----
    Senator Shelby. Well, you might have a higher standard.
    Mr. Wall. We might have a higher standard, yes, indeed, 
Senator. That is correct. That is correct, Senator Shelby. And 
we should not relax those standards.
    Senator Shelby. In those kind of situations, are you saying 
that we should reserve the right to unilaterally control 
certain technologies in certain areas where there are other 
multilateral agencies perhaps lax?
    Mr. Wall. From my perspective, again, as a private 
practitioner, I would say that appears to be an appropriate way 
to resolve the issue, because while companies may complain that 
we can't sell to a particular regime because other countries 
can, that doesn't make it right.
    Senator Shelby. I agree.
    Mr. Wall. And they are prepared, the companies at least 
that I have had the good fortune to work with in my career, 
they are prepared to comply and to further U.S. interests. They 
are not interested in subverting or undercutting any interest 
that would advance the interests of the United States. And so 
in some cases, that is recognized, it is essential. Our rules 
may well be stricter. We should argue for those stricter rules 
in these multilateral forums and achieve harmonies where we 
can.
    Senator Shelby. Well, it is very important, isn't it, that 
your position that you would balance the commercial needs of 
our companies with the security needs of our Nation, we have 
got to have a balancing act there, have we not?
    Mr. Wall. Yes, indeed, Senator Shelby.
    Senator Shelby. In other words, we cannot sell everything. 
Everything is not for sale.
    Mr. Wall. That is precisely the case, and in a similar vein 
as the question to Mr. Kashkari, there is a balancing between 
national security on the one hand and the policy on the other 
hand, within the Treasury portfolio of maintaining open foreign 
investment markets and the Commerce portfolio of ensuring U.S. 
technological leadership and economic growth. But that doesn't 
mean, as you say, we can sell everything to everybody. There 
are some individuals, there are some entities that are inimical 
to our interests, and the regimes as they currently exist focus 
on restricting sales to those entities.
    There is a major focus right now, for example, on 
identifying who are trusted end users. Who can we do business 
with and have a low risk that the items will be diverted or 
used for activities that are against our interests? And that is 
an important development to lessen the risk of these sorts of 
transactions.
    Senator Shelby. You better know your customer, hadn't you?
    Mr. Wall. Precisely. precisely.
    Senator Shelby. Senator Dodd, you have gone through some of 
the other nominees. I just want to tell you I support all the 
nominees and hope that we can have a vote on them as soon as 
possible.
    Thank you.
    Chairman Dodd. Well, you are getting off awful easy there, 
I tell you.
    Senator Shelby. Today.
    [Laughter.]
    Chairman Dodd. Wait until you see his written questions.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Congratulations to all the nominees on your nomination and 
your families.
    Mr. Kashkari, I want to just understand something in your 
response to the Chairman's questions about your role in CFIUS. 
You said that you are taking a secondary role, an equal role on 
CFIUS? I would like to know if you get ultimately approved by 
the Senate, what role are you going to have in CFIUS?
    Mr. Kashkari. Sure. If I am confirmed, I am going to be 
working very closely with my colleague, Assistant Secretary 
Lowery. I can't tell you that I am going to spend--that I am 
going to be in the lead or he is going to be in the lead. I 
think given his expertise leading the process thus far, it does 
make sense for him to continue his leadership in that capacity 
until I come up to speed. But as an example, both of us, I 
imagine will have active travel schedules as we go to regions 
around the world. While Assistant Secretary Lowery is on the 
road, I will be holding down the fort, so to speak, and vice 
versa.
    Senator Menendez. OK. I ask that question because the title 
itself indicates that CFIUS will be under your jurisdiction, so 
I am trying to figure that out in your responses to question.
    Let me ask you this: Do you believe that--are you 
comfortable with the CFIUS review process in place to 
successfully avert a repeat of what we had in the Dubai Ports 
World deal?
    Mr. Kashkari. I am, Senator. I think that a lot of thought 
went into the FINSA law, which is very well done, obviously, by 
the Committee. The President's Executive order I think was an 
important step forward. And then the Treasury has put out draft 
regulations for the CFIUS process right now that are also 
important in the comment period. And I think that given how 
much thought has been put into this, we feel very confident 
that we're not going to have a repeat of Dubai Ports.
    Senator Menendez. I am glad to hear that as someone who 
opposed it very strenuously. Let me ask you this about the 
clarity of controlling interest. There are a lot of questions 
going on about that because that is, in essence, what triggers 
a CFIUS review.
    What is your sense of the Treasury Department's position as 
to what is the essence of a controlling interest?
    Mr. Kashkari. Senator, it is a great question, and very 
respectfully----
    Senator Menendez. I am looking for a great answer, too.
    [Laughter.]
    Mr. Kashkari. Very respectfully, I will have to ask if I 
may, if confirmed, drill down into great detail. Again, it has 
not been where I have spent my time over the last 2 years at 
Treasury, and I would be more than happy to come up and spend 
time with you in detail, if I am confirmed, sir.
    Senator Menendez. I appreciate that. Let me ask you this 
with reference to sovereign wealth funds. Do you believe that 
they are adequately limited in their ability to act politically 
or the dangers of using investments as a political tool greater 
for less regulated markets such as hedge funds?
    Mr. Kashkari. It is hard to say, Senator. I do not know if 
it is greater or less. I understand the concern around 
sovereign wealth funds given the growth in assets that they 
have had and given that they are regionally based, as opposed 
to hedge funds which it is clear that they have more commercial 
interests. But, clearly, I think that our focus right now is on 
best practices, working with the IMF and working with the 
global community.
    Again, what we are trying to do, Senator, is create a race 
to the top so that sovereign wealth funds who want to have 
access to the best commercial opportunities, they are hopefully 
going to compete with each other, because the more transparent 
they are, the more welcoming we are going to be to their 
foreign investment, not just the U.S. but, Senator, as you 
said, around the world--in Europe and other regions.
    And so it's hard for me to say sovereign wealth funds 
behave a certain way, hedge funds behave a different way. It's 
hard to characterize them all as one lump. Not all sovereign 
wealth funds are going to behave the same, just as not all 
hedge funds behave the same. But I think that we have got the 
right process in place to deal with it while also encouraging 
their investment.
    Senator Menendez. I share Senator Shelby's concern that we 
want to have the ability of investment, foreign investment to 
take place, but at the same time, we want to make sure that at 
the end of the day, particularly in critical infrastructure and 
critical entities of this country, that we don't have 
investments that ultimately can be used in a way that 
undermines our national interests, our national security 
interests. And in that respect, do you believe that--or have 
any concern that foreign investors, particularly sovereign 
wealth funds, are trying to avoid a review by holding their 
investment stakes to under 10 percent?
    Mr. Kashkari. Not to my knowledge, Senator. But, again, 
this is an area that I am going to drill into in a lot more 
detail, and I would be happy to follow up. But, again, I mean, 
I think that we have a lot of confidence in the CFIUS process 
that has been put together. That doesn't just govern foreign 
companies making acquisitions. It covers foreign entities. And 
so sovereign wealth funds, to the extent that they pass these 
triggers, as you mentioned, would fall into the CFIUS review, 
which we think strikes the right balance of national security 
and open investment.
    Senator Menendez. I know you are not going to have a lot of 
time, at least in the first instance, but I certainly would 
hope that your attention will be focused on some of the key 
issues as to how we balance this investment desire with 
national security and national interest desire.
    Finally, Mr. Chairman, Ms. Peppler, Mrs. Peppler, I 
appreciate you being a mayor as having been a mayor. It's the 
toughest job in America, even tougher than this job. But as I 
understood your answer about CDBG, it sounded--and correct me 
if I am wrong. It sounded like what your regret was is that you 
didn't have more CDBG money, that you had to make tough 
decisions with the amount of money here.
    Ms. Peppler. Well, we have to make tough decisions. It is 
always nice to have more money, but I can tell you that, you 
know, unfortunately, I wasn't part of the HUD budget process, 
and I know that they are trying to put together a budget and 
submit a budget in very tough financial times. I understand 
that some programs were cut. Some were added to. What I can 
tell you, though, is that the appropriations that Congress 
gives for those programs, my job is to make sure that the funds 
are administered fairly and equally and there is proper 
oversight. So that will certainly----
    Senator Menendez. But if you were here to testify here as 
mayor under oath, your--I am not going to push you to--you 
think I am going to push you, so don't worry about it.
    Ms. Peppler. Thankfully, I am not.
    Senator Menendez. But I do want to ask you, if you were 
here as a mayor under oath, you would say that the CDBG program 
is a valuable tool to you as a mayor, is it not?
    Ms. Peppler. Absolutely.
    Senator Menendez. And that it is one that, in fact, can 
often meet some of the challenges a community cannot meet on 
its own resource?
    Ms. Peppler. That is correct.
    Senator Menendez. OK. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much. Thank you, Senator, and 
we will leave the record open unless colleagues have any 
additional questions.
    Thank you again, all of you, for your willingness to serve, 
and I admire you for doing it, and we will see what happens 
here. We will try and move things along if we can and get you 
confirmed into your positions, at least give the Senate an 
opportunity to vote on your confirmation. So thank you very 
much, and thank you for bringing your families. As you get up 
and leave, we are going to ask our second panel to join us, and 
we will try and do this in a neat fashion. I will give you a 
minute or so here in recess while you adjust yourselves.
    [Recess.]
    Chairman Dodd. The Committee will come to order. I would 
ask our audience to find seats.
    Once again, I would like to thank our panel of witnesses 
here for all your willingness to serve and for your 
understanding of how these will be maybe abbreviated terms if 
you are confirmed, as you are all aware, given the lateness of 
the year.
    What I would like to do, as I said to the first panel, 
there will be--probably some additional questions will be 
submitted by our colleagues here, and I would ask you to ask 
them, firstly through their staffs, to make sure they are 
submitted promptly so that you have a chance to respond to them 
promptly so we don't end up losing any valuable time in terms 
of the possible confirmation of these important posts.
    Well, let me, if I can, ask you to rise. I won't ask you to 
take the oath of office. I will just swear you in here this 
afternoon. Raise your right hands, if you would for me, please. 
Do you swear or affirm that the testimony that you are about to 
give is the truth, the whole truth, and nothing but the truth, 
so help you God?
    Mr. Aguilar. I do.
    Mr. Paredes. I do.
    Ms. Walter. I do.
    Mr. Marron. I do.
    Mr. Fryzel. I do.
    Chairman Dodd. And do you agree to appear and testify 
before any duly constituted Committee of the U.S. Senate?
    Mr. Aguilar. I do.
    Mr. Paredes. I do.
    Ms. Walter. I do.
    Mr. Marron. I do.
    Mr. Fryzel. I do.
    Chairman Dodd. I thank all of you. Thank you very much for 
your willingness, again.
    Let me introduce our witnesses if I can, briefly, and then 
turn to each of you to make some opening statements, if you 
would.
    Mr. Luis Aguilar, of Georgia, has been nominated to serve 
as a member of the Securities and Exchange Commission. He is 
currently a partner in the law firm of McKenna Long & Aldridge 
and has worked on issues pertaining to international 
transactions, investment companies and advisers, securities law 
and corporate finance. Previously, he served at the general 
counsel and executive vice president of INVESCO, an 
institutional investment company with over $380 billion in 
assets under management. He has also served on the staff of the 
SEC. And, in fairness, I should also say that I know Mr. 
Aguilar. We have had a chance to meet and talk on a number of 
occasions over the years, and welcome here to the Committee 
this morning.
    Next is Professor Troy Paredes. Did I pronounce that 
correctly? Is that close enough?
    Mr. Paredes. Yes.
    Chairman Dodd. OK. Of Missouri. He has also been nominated 
to serve on the SEC. Professor Paredes is a professor of law at 
Washington University School of Law where he teaches securities 
law, corporate governance, and corporate finance. Previously, 
he worked in private practice on corporate transactions, 
including leveraged buyouts, mergers and acquisitions, and 
private equity and other financings.
    Our third SEC nominee is Elisse Walter, of Maryland. Ms. 
Walter is the senior executive vice president for regulatory 
policy and programs with the Financial Industry Regulatory 
Authority, and she serves on the board of the Investment 
Education Foundation of that organization. Previously, Ms. 
Walter served as the General Counsel of the Commodity Futures 
Trading Commission and Deputy Director of the Division of 
Corporate Finance. And, again, I know Ms. Walter, and I thank 
you very much for your willingness to serve and to appear 
before us today.
    Third in our panel is Donald Marron, of Maryland--and 
again, I know Mr. Marron as well. We have known each other for 
some time--to be a member of the President's Council of 
Economic Advisers. Dr. Marron is known to many of us due to his 
service as Deputy Director of the Congressional Budget Office. 
Prior to this, he served as the chief economist on the Council 
of Economic Advisers. Earlier in his career, he served as the 
executive director and chief economist on the staff of the 
Joint Economic Committee.
    And, finally, we have Michael Fryzel. Is that how you 
pronounce that, Fryzel?
    Mr. Fryzel. Yes, sir.
    Chairman Dodd. Of Illinois, to be a member of the Board of 
Directors of the National Credit Union Administration. If he is 
confirmed by the Senate, the administration has indicated its 
intent to name Mr. Fryzel to be Chairman of the Board of 
Directors. Mr. Fryzel is currently an attorney in the city of 
Chicago, also serves on the Illinois Governor's Board of Credit 
Union Advisers and prior to this he served as director of the 
Department of Financial Institutions for the State of Illinois 
and as a member of the Governor's Cabinet.
    So we look forward to hearing from all of you this 
afternoon, and, again, we will begin with you, Mr. Aguilar, if 
you could make an opening statement. Your full statements, by 
the way, if you have additional materials you wish to share 
with us, we are glad to have them included as part of the 
record.
    Why don't we begin with your families, by the way. I don't 
want to discriminate here against families. Who do you have 
with you today, Mr. Aguilar?
    Mr. Aguilar. Thank you, Chairman Dodd. Today with me I have 
my wife, Denise, who is right behind me, who has always 
supported and encouraged me. She's my closest friend, most 
trusted adviser.
    Also with us today are my nephews, Mark and Jon Mark 
Traylor from the great State of Alabama.
    Chairman Dodd. Very smart. There you go.
    [Laughter.]
    Any other relatives from around the country?
    Senator Shelby. Let's confirm him.
    Chairman Dodd. Let me go down the rest of the row here and 
do the families as well. Mr. Paredes?
    Mr. Paredes. Thank you, Mr. Chairman. Today with me is my 
lovely wife, Laura, sitting right here behind me.
    Chairman Dodd. Very good. Thank you. Nice to have you with 
us.
    Ms. Walter.
    Ms. Walter. Mr. Chairman, I have with me my husband of 34 
years, Ron Stern.
    Chairman Dodd. Good. Ron, how are you? Nice to see you as 
well. Welcome.
    Mr. Marron.
    Mr. Marron. Mr. Chairman, it is my honor to introduce my 
wife, Esther, who I would like to thank for all of her support. 
And I believe I have a few family members watching on the 
Internet at home.
    Chairman Dodd. Ah, very, very good. Technology.
    Mr. Fryzel.
    Mr. Fryzel. Thank you, Mr. Chairman. Unfortunately, my 
wife, Gloria, cannot be with us today. She is with her job 
responsibilities in Chicago, but certainly her thoughts are 
with me, as is her support.
    Chairman Dodd. Thank you very much. Well, I am sorry she is 
not with us.
    Mr. Aguilar, we will begin with you.

STATEMENT OF LUIS AGUILAR, NOMINEE, TO BE A MEMBER, SECURITIES 
                    AND EXCHANGE COMMISSION

    Mr. Aguilar. Thank you, Chairman Dodd, Ranking Member 
Shelby, Senator Menendez, distinguished Members of the 
Committee.
    Chairman Dodd. You need that on, Luis.
    Mr. Aguilar. Chairman Dodd, Ranking Member Shelby, Senator 
Menendez, and distinguished Members of this Committee, I am 
deeply appreciative for the opportunity to appear before you 
today. I am deeply grateful and honored to have been nominated 
to serve my country on the Securities and Exchange Commission. 
It would be a special honor to follow into the footsteps of 
Roel Campos. I would be proud to continue his efforts toward 
well-functioning, effective capital markets and a Commission 
that effectively fights for all through a strong enforcement 
program. With your indulgence, I would like to briefly share 
some of my life's experiences and perspectives and then mention 
a few of the unique challenges facing the Commission.
    The United States remains the land of opportunity and it is 
the beacon of freedom and democracy for the world. Our 
Declaration of Independence and our Constitution are an example 
to all. The opportunities that are available to us in our 
country are endless and allow us to dream big and then be able 
to make our dreams a reality.
    I am one of the many examples of what can be achieved. I 
came to the United States from Cuba when I was 6 years old, 
basically with little more than the clothes on my back, and I 
have been a beneficiary of this country's terrific generosity. 
When I first arrived as a refugee from Cuba, we received many 
of our essential needs from the generosity of the American 
people, and gratefully, this country's public school system 
provided me a strong education which has been the foundation of 
any success I have achieved.
    This country also provided the opportunity for me to work 
and earn some money. In my early years, I had a number of jobs 
including delivering newspapers, putting up fences, being a 
stock boy in a yarn store, and working at the Miami 
International Airport loading baggage and cargo into the 
bellies of airplanes. These activities allowed me to pay for my 
education. And, fortunately, I had the support of an extended 
family. I was able to live with various relatives my first 
years in the United States, and I was reunited with both my 
parents when I was 10 years old. Between the ages of 10 and 16, 
my family lived in various parts of the United States, from 
Miami, Florida, to Ravenne, Ohio; Little Rock, Arkansas; and 
Rome, Georgia.
    When I was 16, my parents moved back to Miami where my 
father had a good job offer. I stayed in Rome to finish school. 
I was fortunate that a friend told his parents about my desire 
to finish school in Rome, and his parents asked to meet me and 
ultimately welcomed me into their home. This experience had its 
challenges. Among other things, I was in the process of 
improving my English, and my Spanish accent took time for them 
to get used to. I have always been grateful for the generosity 
of a Southern Baptist family who opened their home to a 
complete stranger from another country. It is a generosity many 
Americans have.
    I believe in the American dream. I believe it is achieved 
through hard work, commitment, and perseverance. I believe the 
Commission plays a crucial role in helping to secure the 
American dream. The Commission does this by facilitated access 
to investment capital by growing businesses, by maintaining the 
credibility and integrity of our capital and financial markets, 
and by working vigorously to protect investors. The 
Commission's vigilance and its efforts to prevent and address 
fraudulent activity helps secure the savings and retirement 
assets of American families.
    I have spent most of my professional life dealing with our 
securities laws. My professional career started at the 
Commission, and my involvement with the securities laws 
continued in private practice and as an in-house attorney to 
large global investment managers. I have regarded the 
Securities and Exchange Commission as one of the finest 
agencies of the U.S. Government, with the legacy of exercising 
fair and tough-minded regulatory authority. For 75 years, the 
Commission has been an example of regulatory excellence. I 
fully believe in the Commission's mission to protect investors, 
maintain fair, orderly, and efficient markets, and facilitate 
capital formation.
    The Commission's focus on fully protecting investors is 
particularly significant at a time when many of our citizens 
participate in the capital markets through direct investments, 
pension plans, mutual funds, and other vehicles. It is 
generally recognized that our Nation has the highest level of 
retail investor participation in the world. In our rapidly 
moving and innovative marketplace, it is very important that 
the Commission maintains pace with the continuing changes to 
protect investors and maintain confidence in the financial 
market.
    For example, the recent issues surrounding certain credit 
ratings have shaken investor confidence and focused attention 
on how regulators can more effectively address potential 
conflicts of interest and make the process more transparent and 
increase accountability.
    With respect to these and other matters, if I am confirmed, 
I pledge to work tirelessly with you and with my colleagues at 
the Commission to ensuring that the public has confidence in 
the integrity and efficiency of our financial markets. If I am 
fortunate enough to be confirmed, I will strive to meet the 
challenges of protecting the interests of investors without 
burdening the conduct of business, and to promote an 
environment in which enterprises can raise capital efficiently, 
whether they are large established entities or small 
entrepreneurial and emerging companies. I will also try to 
fairly and carefully determine the appropriate enforcement 
actions and sanctions in pending and future investigations.
    Thank you for the opportunity to appear before you today. I 
would be honored if you would permit me to be a Commissioner of 
the Securities and Exchange Commission. I would be pleased to 
try to answer any questions that you may have.
    Chairman Dodd. Thank you very much, Mr. Aguilar.
    Mr. Paredes.

    STATEMENT OF TROY A. PAREDES, NOMINEE, TO BE A MEMBER, 
               SECURITIES AND EXCHANGE COMMISSION

    Mr. Paredes. Mr. Chairman, Ranking Member Shelby, and 
Members of the Committee, I am deeply honored and humbled to be 
before you today and to have been nominated by the President to 
serve as a Commissioner of the Securities and Exchange 
Commission. If I am fortunate enough to be confirmed, I can 
assure you that I will do my best each and every day to serve 
the public interest.
    I am delighted that my wife, Laura, is here with me today. 
Her love and support are immeasurable. Also, I would like to 
express how much I appreciate all the love and support of my 
parents.
    Justice Brandeis famously observed, ``Sunlight is said to 
be the best of disinfectants; electric light the most efficient 
policeman.''
    Louis Loss, whom I have the pleasure of calling a co-author 
on the Securities Regulation treatise, put it more colorfully, 
once writing, ``People who are forced to undress in public will 
presumably pay some attention to their figures.''
    These quotes drive at mandatory disclosure, a cornerstone 
of securities regulation that deserves credit for the 
longstanding success of U.S. securities markets.
    Today we discuss disclosure in terms of transparency. 
Transparency is a linchpin of a market-based financial system. 
Investors need access to high-quality information. When 
investors are armed with accurate information, they make better 
decisions, and the efficiency and integrity of U.S. securities 
markets are promoted.
    The SEC is responsible for administering and enforcing not 
only the mandatory disclosure regime, but the entirety of the 
Federal securities laws. As such, the Commission is uniquely 
positioned to instill investor confidence, which in turn 
underpins capital formation and well-functioning securities 
markets. Securities markets are not stagnant but evolve. While 
new opportunities present themselves, so do new challenges. 
Whether we focus on Enron, the recent credit market turmoil, 
technological advances, or increasing globalization, the SEC 
should reassess this facts-on-the-ground change and as 
developments unfold.
    It is important for the Commission to be nimble and for the 
regulatory system to be state of the art. This means working 
collaboratively to fulfill the agency's goals in a way that is 
reasoned, balanced and based on the evidence and that weighs 
the benefits of regulation against the costs.
    I care deeply about our financial system and recognize the 
SEC's integral role in overseeing our securities markets and 
helping to ensure that the U.S. continues to have the world's 
deepest, most liquid, and most competitive markets.
    If the Senate confirms me, it would be an honor to have the 
opportunity to contribute to the agency's important mission. I 
have the highest regard for the Commission and for its expert, 
professional, and dedicated staff. It would be a pleasure to 
work with the staff as well as the other Commissioners. I also 
appreciate the important work that this Committee and its staff 
perform as the Committee discharges its oversight and 
legislative responsibilities. If confirmed, I look forward to 
working together with this Committee and its staff to serve the 
public interest.
    Finally, if confirmed, I will fill the seat vacated by 
Commissioner Paul Atkins. I would like to recognize 
Commissioner Atkins for his years of service at the SEC.
    I thank you for the opportunity to appear before you today 
and would be happy to answer any questions.
    Chairman Dodd. Thank you very, very much.
    Ms. Walter, welcome.

    STATEMENT OF ELISSE B. WALTER, NOMINEE, TO BE A MEMBER, 
               SECURITIES AND EXCHANGE COMMISSION

    Ms. Walter. Thank you, Chairman Dodd.
    Chairman Dodd, Ranking Member Shelby, distinguished Members 
of the Committee, I am extremely pleased to appear before you 
today, and I am honored that President Bush has nominated me to 
serve as a member of the Securities and Exchange Commission. I 
would like to thank Chairman Dodd for the confidence he has 
shown in me, and I am particularly grateful to Senator Jack 
Reed and also to Senator Schumer for their support.
    I wouldn't be here today were it not for the support of my 
family, so, again, I would like to reintroduce Ron Stern, who 
is sitting behind me, my husband. And I also know that my 
parents, Shirley and Arthur Walter, would be bursting with 
pride and here today if were still with us. And speaking of 
pride, I would like to mention our two sons, Jonathan and Evan, 
who unfortunately couldn't be with us today because they are 
pursuing graduate degrees and careers of their own on the West 
Coast.
    I would also like to thank my friends and colleagues, a 
number of whom are here today, for their invaluable support.
    My family has come a long way since my four grandparents 
immigrated to this country. If confirmed, I am committed to 
giving back by doing my utmost as a Commissioner to serve the 
public.
    I worked for the SEC for 17 years and know firsthand what 
an exceptional institution it is. The SEC has had a number of 
outstanding Commissioners, including Irv Pollack, who recently 
turned 90. Irv was a Commissioner when I first arrived at the 
SEC in 1977. He always went straight to the essence of each 
matter that came before the Commission and was guided by one 
overriding standard of conduct: Do the right thing. He remains 
today my symbol of integrity and excellence in public service.
    Since those days at the SEC, protecting investors has 
continued to be at the heart of my career. I am privileged to 
have been a securities regulator for more than three decades. 
During that time, I have worked on many issues, including the 
regulation of the markets, disclosure questions, investor 
education, and protection of seniors--issues that are front and 
center today. I have had the honor of serving as the General 
Counsel of the CFTC and as a senior executive of FINRA, the 
self-regulatory organization that regulates broker-dealers. In 
all of these positions, I have been able to pursue my passion 
for the protection of investors and preserving fair and honest 
markets.
    The U.S. securities markets are the crown jewels of our 
Nation's economy. We should be proud that the United States has 
the highest level of retail investor participation in the 
world. And with that high level of participation, the SEC has a 
critical job: protecting investors, facilitating capital 
formation, and assuring the integrity and transparency of those 
markets.
    If confirmed, I pledge to join with the Chairman, my fellow 
Commissioners, and the agency staff to fulfill our mandate in a 
vigorous, balanced, fair, and pragmatic manner. I am committed 
to pursuing both strong enforcement and creative approaches to 
resolving the issues confronting our ever evolving financial 
markets. There is much for the Commission to accomplish, and I 
hope to have the opportunity to return and help it meet these 
challenges.
    John F. Kennedy once said that there are four qualities 
that measure the success of a public servant: courage, 
judgment, integrity, and dedication. If confirmed, I will 
strive to act in a manner that reflects each of those traits.
    Thank you very much. I would be pleased to answer any 
questions.
    Chairman Dodd. Thank you very, very much, Ms. Walter.
    Mr. Marron.

    STATEMENT OF DONALD B. MARRON, NOMINEE, TO BE A MEMBER, 
            PRESIDENT'S COUNCIL OF ECONOMIC ADVISERS

    Mr. Marron. Thank you, Mr. Chairman. Chairman Dodd, Ranking 
Member Shelby, and Members of the Committee, it is a great 
honor to appear before you today as a nominee to become a 
member of the President's Council of Economic Advisers.
    The Council was formed in 1946 to provide the President 
with sound, objective advice on the economic policy issues that 
face our Nation. Those issues span a wide spectrum--
macroeconomic performance, health care, globalization, 
regulation, and fiscal policy, to name just a few. Of 
particular importance today, of course, are the recent turmoil 
in credit markets, the ongoing downturn in housing, and the 
rapid escalation of food and energy prices.
    The role of Council members is to provide policymakers with 
objective analyses that reflect the insights of the larger 
economics community. To do so, Council members rely on their 
past experience in research and policy. My experiences include 
a wide range of policy-related work in academia, the private 
sector, and, most recently, in public service. Since 2002, it 
has been my honor to serve both Congress and the administration 
in a series of economic policy positions. That service began 
here in the Senate, where I became staff director of the Joint 
Economic Committee under Senator Bennett. I then served as 
chief economist on the staff of the Council of Economic 
Advisers.
    In 2005, I joined the Congressional Budget Office, serving 
as Deputy Director for almost 2 years, including more than a 
year as its Acting Director. It was a great honor to lead CBO's 
outstanding team of professionals who provide the Congress with 
objective, nonpartisan analyses of economic and budget issues. 
I left CBO last August, returning to the Council where I now 
serve as Senior Economic Adviser.
    Before my public service, I had a diverse career in 
academia and the private sector. I served as chief financial 
officer of a medical software startup, provided business 
consulting and litigation support to companies in a variety of 
industries, and taught microeconomics, environmental policy, 
and entrepreneurial finance at the University of Chicago 
Graduate School of Business. I hope that my broad background 
will provide me with a solid base for my work at the Council.
    Thank you for considering my nomination and for allowing me 
to appear here today. I would be happy to answer any questions.
    Chairman Dodd. Thank you, Mr. Marron.
    Mr. Fryzel.

       STATEMENT OF MICHAEL E. FRYZEL, NOMINEE, TO BE A 
MEMBER, NATIONAL CREDIT UNION ADMINISTRATION BOARD OF DIRECTORS

    Mr. Fryzel. Thank you, Chairman Dodd, Senator Shelby, and 
Members of the Committee. I very much appreciate this 
opportunity to come before you to discuss my views relating to 
my nomination as Chairman of the National Credit Union 
Administration.
    I am humbled by the trust and faith placed in me by the 
President in nominating me to the NCUA Board. I am also 
grateful for the chance to have met with some of you in person 
in recent weeks and discussed the responsibilities and 
expectations inherent in the NCUA chairmanship. If confirmed by 
the Senate, I look forward to discharging those 
responsibilities to the best of my ability.
    For the past 19 years, I have been in the private practice 
of law in Chicago, Illinois, representing financial institution 
clients before the various regulatory agencies that license, 
examine, and monitor their activity. Prior to that time, I was 
the Director of the Illinois Department of Financial 
Institutions for almost 8 years. In that position, I was 
responsible for the regulation of credit unions, consumer 
credit lenders, currency exchanges, foreign exchange companies, 
and the administration of the Unclaimed Property Act. During my 
tenure, there were 700 State-chartered credit unions with 
assets exceeding $4.3 billion.
    I have also worked with various credit union trade 
associations and for the last 16 years have been a Member of 
the Governor's Board of Credit Union Advisers for the State of 
Illinois. Based on my time as a State regulator of credit 
unions and my experience in the private sector in various legal 
and advisory capacities, I strongly believe that credit unions 
and other financial institutions need prudent and far-sighted 
regulatory oversight during these turbulent days for the 
financial marketplace.
    There are specific principles that have guided and will 
continue to guide my regulatory philosophy if confirmed by the 
U.S. Senate.
    First, safety and soundness must be the central focus of 
any Federal financial institution regulator. Both the Congress 
and President entrust tremendous responsibility to those who 
regulate, supervise, and ensure financial institutions. As 
Chairman of NCUA, I will be extremely vigilant in this area. 
Consumers place not only their money in credit unions; they 
place their trust; and I intend to maintain the most rigorous 
and diligent safety and soundness standards possible. federally 
insured credit unions have never cost a U.S. taxpayer a penny, 
and the high bar that has been set will remain intact 
throughout my tenure.
    A closely related second element of my regulatory 
philosophy involves the consumers. I firmly believe that strong 
regulatory control that aggressively protects the rights of 
consumers is essential, particularly in this extremely complex 
and fast-moving financial marketplace. The multitude of choices 
presented to the consumer must be accompanied by plain language 
disclosures and understandable options. We must pursue common 
sense rules of the road that benefit both credit unions and the 
members they serve. As member-owned financial cooperatives, 
credit unions naturally gravitate toward giving consumers a 
fair deal. NCUA will continue to monitor credit unions to 
ensure that long-standing practice remains in place.
    Finally, I want to stress the need for balance between 
regulators and the industry they supervise. Independence is an 
essential component of being an effective regulator. In 
Illinois, that was one of my core principles. At the same time, 
there needs to be a healthy and dynamic arm's-length 
relationship with the industry characterized by active 
listening, open-mindedness, and a willingness to work together 
to achieve a shared goal of a strong and vibrant credit union 
industry. We will work cooperatively with the industry, but 
will not hesitate to exercise regulatory authority when 
necessary.
    I also understand the importance of being accountable to 
Congress. Your oversight right is an essential aspect of the 
regulatory process, and I will always be willing to work with 
Capitol Hill in maintaining the well-regulated credit union 
industry. Government's role in regulating and insuring 
financial institutions should be as minimal as possible and as 
much as necessary. The credit union industry has proven itself 
a very valuable resource for the American consumer. This is 
due, at least in part, to a strong and credible Federal 
regulatory presence. My commitment to you is to continue this 
track record and build upon it.
    I look forward to facing the challenges that all regulators 
face today and welcome the opportunity to work with the 
Congress in building a strong network of financial 
institutions.
    Again, I appreciate the time afforded me today and will be 
happy to answer any questions you may have.
    Chairman Dodd. Thank you very much.
    Again, I will try and limit our questions on this side and 
leave the record open for some additional ones.
    We have been joined by Senator Reed of Rhode Island. I 
thank the Senator for joining us.
    Let me begin with our SEC nominees. I will ask all three of 
you to comment on these questions. I want to raise the issue of 
proxy access and I want to raise the issue of the credit rating 
agencies. There are a lot of issues to talk about, but those 
are two that are of particular interest to me.
    Obviously, we need a strong Commission that inspires 
investor confidence. In thinking of one word, the most 
important, confidence of investors is the critical word and has 
been during my tenure on the Committee. And addressing 
challenges that arise in our markets.
    The proxy access, last year the SEC voted to deny 
shareholders access to the proxy for proposing procedures to 
nominate directors. Proxy access was the subject of a November 
1, 2007 letter that, I, along with several members of this 
Committee, sent to Chairman Cox in which we stated, and I 
quote, ``Shareholders' rights to place their proposals on the 
proxies of the public companies they own is extremely 
important.'' It was the subject of a Committee hearing, as 
well, I might point out.
    After the Commission's decision, Chairman Cox stated, and I 
am quoting him, ``I believe we can move forward and reopen this 
discussion in 2008 to consider how to strengthen the proxy 
rules to better vindicate the fundamental State law rights of 
shareholders to elect directors'' end of quote.
    So my questions for the three of you are the following: do 
you support the Commission reconsidering this issue and 
determining whether shareholder proposal rules should permit 
proxy access proposals? What are your views on when 
shareholders should have that proxy access? And what are your 
views on the process that the Commission should use in making 
significant changes in policy? That is a broader question.
    In this case, the Commission had a policy of allowing 
shareholder proxy access that dated from 1976 until 1990. Then 
the staff at the Division of Corporation Finance reversed the 
policy and denied proxy access in a no action letter for 
reasons that, as the Second Circuit Court of Appeals said in 
the AFSCME v. AIG case, and I quote, ``the SEC has not 
provided, nor has the Division ever provided.''
    If confirmed, would you support transparent decisionmaking 
processes on these important issues?
    Mr. Aguilar, I will begin with you.
    Mr. Aguilar. Mr. Chairman, thank you for that question.
    I am aware that the Commission passed last year a status 
quo, if you will, to maintain the status quo. And I understand 
the Chairman hopes to revisit the issue when he has a full 
Commission. I welcome that opportunity.
    I believe that shareholders, as owners of our companies, 
are entitled to a voice. I believe that State corporate law 
that gives them the right to vote for directors is something 
that the SEC should facilitate to the extent appropriate. So I 
would support Chairman Cox reopening that issue. I understand 
there were 34,000-plus comment letters that arrived and I would 
be interested in knowing what they say.
    I believe that answers your first two questions.
    The response to my views on the process in terms of making 
broad policy changes is that they should be subject to some 
notice and due consideration so that we can hear all sides of 
the views on the policy, how it has been, the reason why it 
was, the reason why changes are now required, for whatever 
reason they may be.
    Chairman Dodd. Mr. Paredes.
    Mr. Paredes. Thank you, Mr. Chairman.
    The role of the shareholders in corporate accountability is 
certainly vitally important as we try to strike a balance 
between the discretion that managers and boards have to run the 
enterprise, but ensuring that there is the proper 
accountability to the shareholders. And so I would certainly 
welcome any consideration of ways in which that balance can be 
improved and the ways in which it can be appropriately struck 
in order to get the appropriate result.
    And so to be sure, if this issue comes before us, I would 
be welcoming of considering it with an open mind.
    Chairman Dodd. But would you support--Chairman Cox is 
talking about reopening it. Would you support reopening?
    Mr. Paredes. I certainly support the fact that it is 
important for this issue to get a full----
    Chairman Dodd. We all acknowledge it is important. No one 
said it was not important.
    Mr. Paredes. I appreciate that, Mr. Chairman. To get a full 
hearing and assessment of this issue. It has been an issue that 
has been out there for some time, as Mr. Chairman, you all 
know. And to have it finally before the body of the SEC to 
hopefully have a final resolution at this particularly 
important time, I think, is a worthy step in the direction of 
bringing to conclusion and to end the uncertainty that I think 
surrounds the question of shareholder access.
    In terms of the process of decisionmaking, I certainly am 
in favor of a transparent decisionmaking process. An action 
letter process is an important process within the Commission. 
But transparency is certainly important, and the role of the 
Commissioners in assisting in the crafting of policy decisions 
is certainly of utmost significance and importance.
    Chairman Dodd. Putting aside whether or not you agree or 
not with the decision that was made here, but that was the 
policy from 1976 to 1990. To basically change a policy that had 
been in place for that long, without the kind of due 
deliberation and consideration, how does that strike you?
    Mr. Paredes. Mr. Chairman, I think when there is a 
significant change, it certainly--I am open to the fact that it 
needs to be properly vetted by the Commission. I am only 
cautious in not wanting to unduly abrogate the new action or 
the process. But I am certainly recognizing that there are some 
issues that are sufficiently important, to be sure, and of 
great magnitude that they warrant the Commission as a body 
weighing in and making the final determination as----
    Chairman Dodd. Does that decision strike you as one of 
those?
    Mr. Paredes. I certainly think the ways in which things 
have developed since then, at this particular moment in time, 
it certainly has received a great deal of attention. I would 
have to consider the circumstances back at that particular 
time. But right now, we have a renewed, if you will, attention 
on shareholder access. And certainly at this particular moment 
in time, shareholder access is a vitally important matter that 
needs to be finally resolved, I believe, by the Commission.
    Chairman Dodd. Ms. Walter.
    Ms. Walter. Thank you, Mr. Chairman.
    I think questions of proxy access have to be--as many other 
issues under the securities laws--approached from the vantage 
point of individual investors. And in this case, as my fellow 
nominees have pointed out, a shareholders job, in effect, as an 
owner of a corporation is to elect those stewards of the 
corporation. And I think those issues in getting access to the 
proxy under important circumstances are quite important.
    So I would welcome reconsideration of this decision. I 
think it is an extremely important one. And I think it is one 
that the Commission should approach as soon as possible, given 
the complications of the issue and the amount of input.
    I also do think, in general, it is important to have a 
vigorous staff process that allows things to get done. It is 
also important, though, when long-standing positions are 
reversed, for that to be done in a transparent and thoughtful 
way so that both within and outside the Commission people can 
understand the reasons for change, which are appropriate from 
time to time but in fact are not appropriate in other 
occasions.
    Chairman Dodd. I thank you for that.
    Let me ask you about the credit rating agencies. Senator 
Shelby and I have had hearings on this issue and obviously they 
help facilitate the sales of collateralized debt obligations. 
And during the past several months the delinquencies and 
foreclosures of subprime loans have prompted rating agencies to 
downgrade the ratings on thousands of tranches of residential 
mortgage-backed securities, as we all know.
    Significant concerns have been raised about the performance 
of the rating agencies. The Committee had a full hearing on the 
subject matter. Chairman Cox has said he intends to recommend 
additional rulemaking in this area.
    In your view, what types of additional rules should the 
Commission consider adopting to promote investor confidence and 
enhance the performance of credit rating agencies?
    For example, would you seek to require nationally 
recognized statistical rating organizations to provide more 
information about their rating methodologies, the default rates 
of company comparatively rated debt to reduce conflicts of 
interest in the business model, to require more timely updates, 
or other measures that you might share with us as thoughts that 
you have about these matters, given the long-standing 
experience you have all had--the three of you have had--in this 
area.
    And I will begin with you, Ms. Walter, just what different 
direction here? Any thoughts on this?
    Ms. Walter. It is a terribly important issue and it is one 
that is not a new one. It was a very important issue in the 
mid-1980s and one that, in my view, was not addressed as 
vigorously as it really needed to be. And I am glad to see that 
the Commission is going to be moving forward with rules in the 
very near term.
    I do not have definitive views about exactly what those 
roles should look like, but the topics that you have outlined 
in terms of further information, addressing conflicts of 
interest, and addressing default rates are very important.
    As I understand it, the Commission has also committed to 
look at its own rules and the extent to which those rules place 
a great deal of emphasis on ratings as an entre into the system 
in a lot of different ways and in ways that facilitate easier 
treatment under the Commission's rules. And I think those need 
to be looked at carefully, as well.
    And I look forward, if confirmed, to participating in that 
process.
    Chairman Dodd. Thank you. Mr. Paredes.
    Mr. Paredes. Thank you. I agree with the sentiments of what 
was expressed. This is a critically important issue that needs 
further attention by way of potential action when it comes to 
conflicts of interest, potential disclosure of track records. I 
know the Commission is presently considering a rulemaking. And 
if I am fortunate enough to be confirmed, I certainly welcome 
the opportunity to consider what the Commission puts forward 
and what other changes perhaps might be reasonable in light of 
all that we have learned in recent months concerning the credit 
rating agencies.
    Chairman Dodd. Do you have any specific ideas, Mr. Paredes, 
that you think might work?
    Mr. Paredes. Thank you, Mr. Chairman.
    You know, one possibility which I think is worth giving 
serious consideration to is the disclosure of track records and 
performance by way of trying to get a sense of the performance 
of the particular rating agencies. I certainly do not want to 
rule anything in. I think it would be premature on my part to 
rule anything in at a particular moment in time, or rule 
anything out.
    But I think if there are steps that can perhaps promote 
transparency and competition in this base, they certainly 
deserve serious consideration.
    Chairman Dodd. Mr. Aguilar.
    Mr. Aguilar. Mr. Chairman, the credit rating agency 
involvement--the relationship with the SEC is relatively new. 
It began to be first registered by them I think within the last 
year. I think the first round of SEC rulemaking was roughly the 
summer of last year.
    I think in light of what has happened in recent months, I 
think it is appropriate that the SEC take a hard look at the 
credit rating agencies and how they have been performing.
    I understand from the newspapers and otherwise that there 
is a series of rules that the Commission is planning revolving 
around three main issues as I understand it: transparency, 
accountability, and increasing competitiveness, which I think 
are the three important issues. How they go about doing that 
and what the rules are I am not informed of currently, but I 
would look forward to, if confirmed, looking at the rules and 
trying to determine whether they, in fact, do what needs to be 
done to protect the American public.
    Chairman Dodd. But this is all three of you--I draw the 
conclusion that all three of you believe that this is a very 
important area for the Commission to engage in some serious 
rulemaking on? That you are as concerned as we are about the 
problems with the credit rating agencies as part of the overall 
problem we have seen over the last several years and the whole 
issue of the credit markets.
    Mr. Aguilar. Absolutely.
    Mr. Paredes. Absolutely.
    Ms. Walter. Absolutely.
    Chairman Dodd. Let me jump to you, Mr. Marron, very 
quickly, if I can. Ben Bernanke, the Chairman of the Federal 
Reserve, highlighted the importance of preventing foreclosures 
in a recent speech. Let me quote him to you. He said ``high 
rates of delinquency and foreclosure can have substantial 
spillover effects on the housing market, the financial markets, 
and the broader economy. Therefore, doing what we can to avoid 
preventable foreclosures is not just in the interest of lenders 
and borrowers, it is in everyone's interest.''
    Do you agree with that? And do you have any opinions you 
want to share with us about the matter that this Committee just 
took a position on? We covered a lot of subject matters, but 
the Hope for Homeowners Act was a very important piece of it, 
the GSE reforms, the permanent establishment of affordable 
housing programs which Senator Reed had championed along with 
others.
    Will you share with us very quickly your views of that 
piece of legislation, that has only come out of Committee. And 
we have yet to go to the floor of the Senate on?
    Mr. Marron. Certainly. Thank you, Mr. Chairman.
    First of all, I would absolutely like to affiliate myself 
with Chairman Bernanke's remarks on the issues that are 
important in this basis.
    I think for me a helpful way to frame that up is to look a 
little bit at the history of what we have gone through over the 
last 8 or 10 months on this issue, where I think looking back 
actually there are a lot of positive things to say about the 
policy response, both from the administration efforts to try to 
get the private sector to work better to avoid preventable 
foreclosures through Hope Now.
    And I think also from a recognition, which I think has 
broadened over time, that for more direct Government action the 
FHA is the right instrument and the right institution to do 
that. And then what we have seen on that is basically a 
trajectory on which first, the focus was on addressing the 
potential problem of resets and then in the intervening months 
we have come to recognize that because interest rates have 
fallen and because house prices have gone down resets are not 
as severe a problem as we were once concerned about and that it 
is really prices going down, house prices falling, that is 
really going to be the key driver for challenges in the housing 
market.
    And that it therefore makes sense to think about, on the 
FHA front, sort of expanding it in directions that are more 
responsive to that challenge that is out there. The 
administration has taken some steps in that direction and my 
understanding of the bill that this Committee passed was that 
it will take some additional steps in that direction and in 
essence provide a carrot and incentive for lenders, for 
servicers to do some write-downs in situations where it makes 
sense for them to do that and it enables people to stay in 
their homes.
    That seems to be to be exactly the right logical place to 
be looking.
    Chairman Dodd. So you indicate you are supportive of what 
we have done here in the Committee?
    Mr. Marron. I am personally supportive of the general 
outlines of it. I understand that the Administration has some 
concerns about some of the specifics.
    Chairman Dodd. I was not asking about them. I was asking 
about you.
    Mr. Marron. No, I was just setting out the--so, I am very 
supportive of the general structure. Being a--I am a CBO guy, I 
am a green eyeshade guy, I am a budget guy. I was brought up in 
that tradition. I was introduced to the Credit Reform Act. And 
I was taught about how FHA was structured to be, in essence, 
cost neutral for the Federal Government.
    And so I recognize that it is a shift to move in a 
direction where that is no longer true and I think that is--I 
can understand why that is an issue on the table, but I think 
that is a change that one needs to focus on and take seriously 
before doing.
    Chairman Dodd. I would just point out to you that, 
according to some economics, the consumers have lost $2 
trillion as a result of foreclosures that have already 
occurred. So as a numbers guy, I would presume you would be 
deeply concerned about the loss of value that is occurring and 
what that means to people in terms of the overall economy of 
the country and the contagion effect that has spread out to 
commercial and mortgage-backed securities, student loans, 
municipal finance. All of these areas have been adversely 
affected.
    And we have got a tranche coming, a wave coming, of 
foreclosures after July 1 that may make the first wave look 
small by comparison. So my hope would be we would get some 
strong positive statements from people who are sitting in 
critical positions in support of these ideas. I am not asking 
that they support every dotted I and crossed t, but I think the 
longer we wait, failing to act, could even exacerbate the 
problem further.
    Any additional comments you want to make?
    Mr. Marron. You know, my role thus far has been kind of 
advising on these issues. And again, I think the basic 
structure outline of using FHA in this way is the logical, 
reasonable way to go. And I hope and expect that folks will be 
able to reach some agreement on how to move forward.
    Chairman Dodd. Mr. Fryzel, I am going to move right along 
here. And again, there is lots to talk to you about, as well. 
Let me just ask you, as credit unions behave more and more like 
traditional banks and concerns are being raised all the time. I 
have been a strong supporter of credit unions. But more and 
more some ask why should they continue to be regulated 
differently?
    How would you answer such a question?
    Mr. Fryzel. Well, Senator, credit unions are different from 
banks in that they are cooperatives owned by the members of the 
credit unions. In that sense, they are owners of the financial 
institutions themselves.
    I think we need to look upon credit unions as what they 
really started as, as community-type financial institutions for 
individuals who needed those financial institutions. They have 
since grown. But keeping in mind the fact that they continue to 
serve those individuals of those communities.
    Chairman Dodd. What are your views on the expansion of the 
common bond requirement? That was sort of a unique moniker, in 
many ways, the branding of the credit union, was the common 
bond. And the expansion of the common bond requirement and the 
implication for credit unions and their competitors.
    Mr. Fryzel. Well, the common bond issue has been, of 
course, as you well know in the forefront for many years, in 
regards to the fact that many individuals felt that credit 
unions were going beyond what they were required to or allowed 
to initially serve.
    But the position NCUA has taken is that if the credit union 
is able to serve a particular community, the common bond 
remains. So that it is still a defined area of which they can 
serve, be it a community or industrial area or what have you. 
The bond of the credit union or the ability to serve certain 
individuals is specifically designed and specified in their 
charter.
    Chairman Dodd. I just raise a flag of caution in this area. 
This is expanding. And the arguments of those who feel as 
though there has been a disadvantage from a tax standpoint and 
others are raising, begin to raise some legitimate questions. 
And I am a strong backer of credit unions over the years, and 
the value that they provide for their members.
    But this is an area where I think to continue to expand 
those parameters is going to raise more and more questions with 
people if it is not carefully thought out. So I urge you to 
consider that as you move into this new role.
    Let me turn to Senator Shelby.
    Senator Shelby. Thank you, Senator Dodd.
    I will address this first in my statement and then a 
question to the SEC nominees.
    The Financial Times recently reported that Moody's had 
erroneously awarded AAA ratings to certain securities due to an 
error in its rating model, and that it took considerable time 
for this error to be corrected. In light of the significant 
role that rating agencies play in our markets, as Senator Dodd 
has brought up, such errors by the rating agencies are simply 
not acceptable, it seems to me.
    My question to all three of you, are you committed to using 
the tools Congress provided the Commission in the Credit Rating 
Agency Reform Act of 2006, which we passed here in this 
Committee, to ensure thorough oversight of the rating agencies? 
I think Chairman Cox and the other members of the Commission 
are already undertaking that and he has testified here before 
that.
    But the question is are you three committed to looking 
seriously at the failings of the rating agencies under the 
auspices of the Act that I referenced in 2006?
    Mr. Aguilar. Yes, sir. Absolutely, no doubt.
    Mr. Paredes. Yes, sir.
    Ms. Walter. Yes, sir.
    Senator Shelby. Due diligence, I will ask you this 
question, all three of you. Several commentators have suggested 
that in the rush to book the large profits associated with 
structured financial products many underwriters during the last 
few years did not conduct sufficient due diligence to uncover 
the poor quality of the subprime loans being used to create 
many of these securities. We know that now.
    Do you believe, the three of you, do you believe that due 
diligence standards in the structured financial products market 
suffered in the last few years? And if--I think that is a 
given. And if so, what steps could be taken to improve the 
quality of due diligence for offerings of these products?
    I believe I will address this first to Ms. Walter. She has 
been on the staff there a long time.
    Ms. Walter. Thank you, Senator Shelby.
    Due diligence clearly is always an important issue in the 
offering process. I do believe----
    Senator Shelby. It goes to the heart of it, does it not?
    Ms. Walter. Yes, it does. And I do believe that the SEC has 
the tools to address this issue. Some of it obviously has to be 
done in an investigative kind of way in the enforcement 
process. We also do need to look at whether or not there needs 
to be additional rulemaking of some sort. I am not at all sure 
that that is the case, but I think it is an issue that should 
be put on the table.
    It is necessary for all of the participants in the offering 
process to play their appropriate role and at the level of 
quality that is really required in order to make the process 
work correctly.
    And I think that is particularly important in the 
structured finance arena where the products that are being 
created can be quite complex, the ways in which they behave 
under a variety of economic circumstances need to be looked at 
very closely.
    Mr. Paredes. I agree with the sentiments of Ms. Walter and 
yours, Senator Shelby, that due diligence is at the heart of 
the offering process, that due diligence has to be adequate and 
up to snuff so that individuals know what the nature of the 
investment, what the investment is.
    So in that spirit, certainly there should be a 
consideration of what might be able to be done in this basis 
and needs to be done. But the enforcement tools and the 
investigation tools that are presently before the Commission 
are certainly at their disposal and should be used in an 
appropriate way.
    Senator Shelby. Yes, sir.
    Mr. Aguilar. Senator, as the end of the train here in this 
discussion, I am in agreement with my other nominees. I believe 
that the failings have been so systemic, so pervasive, that I 
think the SEC----
    Senator Shelby. It is unprecedented, is it not?
    Mr. Aguilar. In my lifetime for sure.
    Senator Shelby. Senator Dodd and I have been on the 
Committee here together a long, long time. I have never seen 
anything like it in the rating agencies.
    Mr. Aguilar. Senators, I am in agreement that this requires 
a careful, measured look to make sure that if we do not have 
the necessary rules and the necessary authority to address this 
to prevent future actions, then I think I would be among the 
first to come back to this Committee with any suggestion or 
recommendation I may have as to what additional authority or 
action should be taken.
    Senator Shelby. Rulemaking, expedited rulemaking. A recent 
report by the SEC's Inspector General has brought to light the 
long delays U.S. exchanges and other self-regulatory 
organizations, SROs, experience when seeking the Commission's 
approval of proposed rule changes. Under the securities law, 
certain SRO rule changes--it is my understanding--must be 
approved by the Commission before they can become effective. 
The Inspector General for the SEC found that the Commission did 
not consistently approve proposed rule changes within the 
prescribed statutory timeframe.
    You are going to the SEC, I believe all three. Ms. Walter, 
you have worked at the SEC a long time, as well as at an SRO, 
the financial industry regulatory authority.
    How can the SEC improve its review of the proposed SRO rule 
changes? And as a Commissioner--and I will ask the other two 
this, too--will you be supportive of efforts to improve the 
SEC's processes and performance in this area? Because I think 
they are a little lacking right now.
    Ms. Walter, I will pick on you again and then move down.
    Ms. Walter. As an SRO employee, I must say I do think that 
the SEC approval process for rules is at times longer than it 
should be. And that has happened on more than one occasion in 
my own experience.
    I do think that the Commission has the ability and the 
Commission staff has the ability to expedite that. It needs to 
be done, in part, perhaps by a triage process in terms of which 
rules----
    Senator Shelby. What do you mean by the triage process?
    Ms. Walter. There are some rules that could be moved 
through--SRO rules that could be moved through extremely 
quickly because they do not present the same level of critical 
issues that others do, whereas there are others that obviously 
require more time and attention. But I do think----
    Senator Shelby. Well, some are more complex.
    Ms. Walter. That is absolutely right.
    And I do believe that the Commission has said that it is 
committed to fixing this process, and of course it is 
particularly critical with respect to SROs that have 
competitors that are not regulated in the same sort of way.
    And as a Commissioner, if I am fortunate enough to be 
confirmed, I would be very pleased and anxious to work with the 
staff and my fellow Commissioners to making sure that this 
process is expedited.
    Senator Shelby. What about you two gentlemen?
    Mr. Paredes. I, too, Senator, would be supportive of 
considering efforts to expedite the process in a prudent 
matter. Certainly, complicated issues need due consideration 
and deliberation. But without question there would be some 
rules that could be moved in a more expeditious manner. And 
ways to strike that appropriate balance is certainly worth 
serious consideration.
    Mr. Aguilar. Senator, I am in full agreement with what you 
just heard.
    Senator Shelby. Thank you.
    I want to move to our economist here. The dollar and the 
oil prices, we have seen the U.S. dollar depreciate 
significantly against the euro in the past several years. At 
the same time, Gulf states such as Saudi Arabia link their 
currencies to the U.S. dollar and price oil in dollars.
    What portion of the dramatic increase in oil prices could 
be explained by the trend in the value of the dollar? And what 
would you recommend as an appropriate policy response for the 
Administration with respect to the Gulf states and their link 
to the U.S. dollar? I think that is important.
    Go ahead.
    Mr. Marron. Thank you, Senator.
    I am not going to have a specific number for you, but it is 
clearly the case that if you look at the rapid rise of oil 
prices that we have seen over the last 3 years or 2 years, 
supply and demand have been key drivers of that. But in dollar 
terms there is clearly also an effect in the change in exchange 
rates.
    I am not going to have a specific number for you, but if it 
were something in the 10 to 20 percent range----
    Senator Shelby. But a dollar that is too weak or perceived 
as getting weaker is not necessarily in our best interest, is 
it?
    Mr. Marron. Well sir, we are getting into delicate terrain, 
as you know, in that the usual talking point is that for things 
about the dollar the only people allowed to speak about that 
are the Treasury Secretary and the President. But subject to 
that constraint, clearly a rapid decline in the dollar would be 
bad for the U.S. economy in the long run. You do not want a 
disorderly unwinding.
    And clearly, the change that we have seen in the exchange 
rate over the last several years, as I have said, has been one 
of the factors that has been contributing to the rise in oil 
prices. And, I should note, other commodities.
    Senator Shelby. Is part of the price of oil that closed 
today because of the feeling of the dollar in the world market?
    Mr. Marron. I think it is certainly the case that----
    Senator Shelby. It has got to be.
    Mr. Marron. Oh absolutely. The change in the dollar, the 
change in its value over time, has lifted basically most 
commodity or all commodity prices that trade on the world 
market.
    Senator Shelby. It is priced into the price of oil, is it 
not?
    Mr. Marron. Absolutely.
    Senator Shelby. There is some evidence of contradictory 
forces that play in the economy right now. Chairman Bernanke 
has recognized that. In the middle of the present economic 
slowdown, commodity and food prices have continued to increase. 
What do you judge to be the threat of slow growth continuing 
with inflation remaining above the Federal Reserve's comfort 
level? In other words, some people believe that we--can we--how 
do we fight a turn down in the economy and suspect or maybe the 
reality of some inflation out there, too. Is that not a 
dilemma?
    Mr. Marron. It is a dilemma. We clearly face a very 
challenging time. When you tote up the challenges the economy 
faces at the moment between credit and housing and oil and food 
prices, there are a lot of headwinds. Obviously we have seen 
that in the economy in the fourth quarter of last year, the 
first quarter of this year, where we have had very slow growth, 
close to just going sideways.
    I would separate a little bit, both oil and food are 
significant challenges for American families. I would separate 
them a little bit on their overall macro effect, where oil is I 
think a much bigger challenge for us because we import so much. 
Whereas again, from the macro economy as a whole, food has a 
little bit of--on the one hand, it is a major hit to many 
American families. But on the other hand, we do have a very 
strong agricultural sector that is getting some lift from that.
    And so from the macro point of view, it is not quite as 
much of a challenge, even though it is a significant challenge 
again for families and for kind of the inflation that folks 
face.
    Senator Shelby. Do you believe that in America we have many 
challenges? We have many successes, as you know, economically. 
But do you believe, doctor, that our biggest challenge, looking 
at the economy in the future, is the availability and the price 
of oil?
    Mr. Marron. I would--again, putting on my CBO hat for a 
moment, the standard talking point--which I actually agree with 
and embrace--is when you look sort of at the multiple decades 
point of view, the real No. 1 challenge is the long-run fiscal 
situation. But putting that aside, as you look at the next few 
years, I would say oil prices is clearly in the top 5 list of 
challenges that we face. We have gone from an environment in 
which oil prices----
    Senator Shelby. What is our No. 1 economic problem and 
challenge? Is it oil and the price of oil? Availability and 
price?
    Mr. Marron. I would say in the short run it would be 
housing and making sure that the financial markets do not 
basically go back to the way they were in some previous months.
    And then I would probably get to oil and $130 oil is a 
major challenge for the economy and we are going to need to 
figure out ways to respond to that on both the demand and 
supply side.
    Senator Shelby. Do you see any answers to it, quickly, 
other than more supply?
    Mr. Marron. Some more supply, you see some response on the 
demand side and over time we will see more of it. Today's 
announcement from GM, frankly, is one aspect of what will be 
the response to this, which is a shift to more fuel efficient 
vehicles and away from larger ones which clearly has a lot of 
costs associated with it. But I think that will be part of the 
solution.
    Senator Shelby. One question on credit unions and I will be 
through.
    Mr. Fryzel, in this continued period of unrest in the 
financial markets, housing markets and so forth, what do you 
see as the biggest challenge facing the stability and the 
continued profitability of our Nation's credit unions?
    Mr. Fryzel. Senator, fortunately, the majority of credit 
unions are not involved in the housing crisis. The ones that 
are, NCUA has taken swift action to monitor that situation and 
make sure that those credit unions have been----
    Senator Shelby. Are you telling us here today that the 
credit unions--that the housing downturn and the prices--
downward trend of houses, the surplus of houses, the 
foreclosure problem, will not have any effect on the financial 
stability of the credit unions?
    Mr. Fryzel. No, sir.
    Senator Shelby. Well, what are you saying?
    Mr. Fryzel. Senator, I am saying that the majority of 
credit unions will not be impacted in a financial way by this 
downturn.
    Senator Shelby. But some will.
    Mr. Fryzel. There are some that will. And those are the 
ones that are being closely monitored.
    Senator Shelby. And some banks will, too, we have been told 
by the FDIC Chairman right here.
    Mr. Fryzel. But at NCUA, moves have been made to make sure 
that those credit unions are absorbed into stronger credit 
unions and those situations corrected. But for the most part, 
the credit union industry is still very strong.
    Senator Shelby. OK. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you.
    Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman. Gentlemen 
and Ms. Walter, welcome.
    First, Mr. Paredes, as a distinguished academic, you have 
the opportunity to write a lot. That is a problem sometimes, 
but I do not think in your case.
    But one quote, you talk in one of your articles about the 
overload in information and perhaps to scale back on 
disclosure, which tends--at least superficially--to argue 
against the mantra we all use, transparency, transparency, 
information.
    Can you qualify that and put it in perspective?
    Mr. Paredes. To be sure. And quite frankly, in the article 
I also go on to talk about the very important virtues of the 
mandatory disclosures and what any costs would be to any 
scaling back.
    What the paper drove at at its core was trying to recognize 
that the mandatory disclosure regime wants to ensure that 
individual investors, institutional investors have the 
information they need but are also able to process that 
information in a way so that it is usable, as usable as 
possible.
    It turns out there are a lot of studies to suggest that 
that is a very complicated analysis when you engage the 
question of the volume of information. And so it started with 
the recognition that there was a lot of information which needs 
to be disclosed and appropriately so.
    But the question is are there ways in which we can consider 
how information is used to suggest that we could actually come 
up with a more effective mandatory disclosure regime. And to 
the extent that the volume of information can be a challenge, 
one obvious response is to say perhaps there should be less 
disclosed.
    There are a lot of reasons why disclosing less is not a 
wise policy choice. So I go on in the paper to consider other 
possibilities in terms of the presentation of information and 
the like, so that the information which is disclosed is 
actually much more able to be used, and so therefore we end up 
with a more effective disclosure regime than what might 
alternatively be the case.
    Senator Reed. And based, I presume, on some behavioral 
model of how we process information?
    Mr. Paredes. Precisely, based on what we have learned about 
decisionmaking and psychology and the ways in which we tend to 
process information. It is obviously not a one-size-fits-all 
approach in terms of how we process information. It varies from 
context to context and person to person. But there are a lot of 
studies that have been done in this regard and it is building 
on that literature.
    Senator Reed. Ms. Walter, your comments on this whole issue 
of disclosure? Because we all pick up 10-K and the annual 
reports, and the agate print--or whatever the small size print 
they use--is daunting.
    Ms. Walter. It certainly is to someone like me who needs 
reading glasses, I will say.
    It is an incredibly important issue. And again, it is one 
that we really need to look at from the vantage point of the 
investor. And I think particularly I am concerned about the 
retain investing public.
    And I agree with Professor Paredes that we really need to 
look at issues like presentation and issues--there are 
solutions, for example the layer of disclosure.
    At FINRA, I have been a proponent of a point of sale 
disclosure document for mutual funds that makes use of 
technology to do that, where you can present easily accessible, 
understandable disclosure to investors and at the same time 
allow them to access greater detail that they may want on one 
or more issues.
    So we do have to deal with presentation. We do have to deal 
with understandability. And one of the things I have learned 
over the last few years is never to trust any of our instincts 
as to what is going to be accessible and understandable by the 
average person on the street, because I think when we have done 
testing through focus groups and interviews with retail 
investors we have gotten some surprising results.
    So we need to make use of those kinds of techniques to test 
our judgment.
    Senator Reed. Mr. Aguilar, any comments?
    Mr. Aguilar. Senator Reed, I am in agreement with what Ms. 
Walter and Mr. Paredes have said. I would only add that with 
the advent of technology there may be ways to have disclosure 
better disseminated and when disseminated better manipulated by 
the ultimate investors so they can get out of the information 
what they want. Different investors in today's world look at 
different things. And it is hard to decide in an overarching 
umbrella manner that only X amount of disclosure is all people 
really need to have. So we need to be sensitive to what 
investors need.
    With the advent of technology, there may be ways to provide 
it, allow it to be layered, to allow it to be disseminated in a 
more effective manner.
    Senator Reed. Let me flag another disclosure issue. That is 
that there are some secondary markets--in fact, as an example, 
the public reports of Merrill Lynch selling auction securities 
to Springfield, a municipality, in which because it was not a 
primary offering but a secondary offering, they felt no legal 
obligation to disclosure or have a prospectus or anything like 
that. In discussing with people, that seems to be not uncommon.
    Is there a need to look beyond the initial disclosure to 
the secondary markets, the secondary aspects?
    This is a jump ball, in college bowl terms. Any thoughts? 
Ms. Walter?
    Ms. Walter. There is a real balance that needs to be struck 
and the SEC has struggled with this in terms of its point of 
sale disclosure proposals between the desire to get the right 
information into the hands of investors and at the right time, 
and also not interfere with the ability to invest when they 
want to.
    Again, technology ultimately will be the answer to this, 
and it is partially today given the fact that the investor 
community is becoming increasingly technologically--perhaps not 
savvy but at least marginally literate. So that you can get 
information into the hands of investors before they are making 
decisions.
    But even if you go back to primary offerings, there is a 
flaw in the disclosure system in that for the most part 
prospectuses arrive after the fact. That is not the right time. 
So we do have to work very hard to ensure that people are not 
only getting the right information but getting it at the time 
when it matters.
    Senator Reed. Let me raise a general topic and ask if 
anyone has a comment. That is, Mr. Paredes and I had an 
opportunity to have a very thoughtful discussion much earlier 
today about a financial world that has changed dramatically in 
20 or 30 years where so many of the institutions that were 
central to the economy were regulated, by the Federal Reserve, 
by the SEC, by the Comptroller, et cetera.
    Now we have the proliferation of private equity funds, 
hedge funds, a huge amount of leverage is at work, raising the 
question how do you deal with this in your role as regulators 
of financial markets with this whole unregulated world out 
there where counterparty risks might be a serious issue, the 
ability of some of these institutions to manage these risks is 
basically something that you only can touch indirectly.
    And I wonder, Mr. Aguilar, do you have any thoughts about 
this as you go forward?
    Mr. Aguilar. Senator, I do have some thoughts. I am afraid 
at this moment I do not have any solutions for you. I do agree 
with you that to have these pooled funds that can be very large 
in today's market, totally unregulated, is something that needs 
to be discussed and dialogued. Going back to 1990 and long-term 
capital management and the effect that it had on the market.
    I think it is worthy of a serious thought and exactly what 
the answer is I look forward to getting input from this 
Committee and from other interested individuals.
    Senator Reed. My time is rapidly expiring. Mr. Paredes and 
Ms. Walter?
    Mr. Paredes. Thank you, Senator.
    Certainly the degree and leverage in the marketplace and 
the degree to which there is financial innovation is something 
that we should be taking very seriously and whether there are 
steps that are prudent to take without chilling the productive 
behavior, whether there are steps that could be taken to 
facilitate market discipline or otherwise from a regulatory 
perspective are certainly a set of issues that need serious 
consideration.
    Senator Reed. Ms. Walter, quickly?
    Ms. Walter. I also think from an informational standpoint 
it is important for those who regulate markets to have 
information that goes across the board without significant gaps 
in parts of the market that are not transparent.
    Senator Reed. Thank you very much.
    Mr. Marron, very quickly, one question is that we passed 
here a few months ago a stimulus package which let me ask you 
first, how would you evaluate its effectiveness in stimulating 
the economy to date?
    Mr. Marron. Well, as you might imagine, the answer is going 
to be the typical economist, sort of we do not know yet, on the 
one hand. On the other hand, on the consumer side, about half 
the money is out the door and about half the money is yet to 
come.
    To be honest, we have not seen any obvious wiggles in the 
real-time data that we have, but the real-time data are not 
that good. And so this will be something where to really 
fundamentally evaluate it is going to be at least several 
months in the future when we start having good data.
    Senator Reed. I guess the impression I have, and my 
colleagues have the same sort of data, which is going back home 
and talking to people is with the gas prices accelerating, 
those checks got eaten up pretty quickly, just thinking ahead 
of how do we keep the gas tanks full in people's automobiles, 
and all the other issues we talked about, accelerating 
commodity costs, et cetera.
    It seems that the initial data does not suggest a decisive 
impact, which raises a second question in your capacity of 
advising the president on the economy. Would you advise him to 
contemplate and to request a second stimulus package which 
might focus more on infrastructure rather than simply a rebate 
approach?
    Mr. Marron. I guess two parts to that. The first is, and I 
absolutely agree that the increase in energy prices and food 
prices is a serious headwind on consumers. That does not mean 
the stimulus is not working. It just unfortunately means that 
the stimulus will be working off of, in essence, a worse 
baseline than we had originally intended and will also make it 
a little harder to tease out the effect. Because it might be--
because part of the effect of the stimulus is basically going 
to be offsetting that.
    My posture on any kind of additional policy actions is 
mostly at this point a watch and wait and see where we end up. 
In particular, on the infrastructure front--and this is part of 
the discussion that we had several months ago--I think the 
concern there is largely a spend out rate concern in that if we 
are trying to target a downturn that we expect in a particular 
time period, it is challenging to design spending on that front 
that actually ends up within the time period that we are 
worried about.
    Senator Reed. Thank you very much, Mr. Chairman.
    Mr. Fryzel, good luck.
    Chairman Dodd. Thank you, as well.
    I want to just follow up with Senator Reed's last point, 
and that is we have had a hearing here already. There has been 
a proposal that Senator Hagel and I have made after about a 
two-and-a-half year study done by the Center for Strategic 
International Studies on infrastructure need. There is a gap of 
around $1.3 or $1.6 trillion just in maintenance of where we 
are with basic infrastructure, whether it is sewage systems, 
wastewater treatment facilities, transportation, mass transit 
systems. We have literally a collapsing and decaying 
infrastructure in the country.
    And it seems to me, given the residual effects and the 
implications of having some investments made by luring private 
capital with some seed money, initially there is some very 
exciting data that comes up here in terms of what we can be 
doing in this area for employment but also we have never had a 
period of economic growth in the history of our country without 
having a significant investment in basic infrastructure, as 
well.
    And I would urge the Administration to take a closer look 
at this. There have been some pretty responsible people around 
the country who are looking at the issue as a way of 
stimulating some growth in the Nation. It does not have the 
kind of snappy quick answers, but it is clearly a part of what 
needs to be done, I think, for those of us that are looking at 
it.
    Our intention is to try and mark up something here in this 
Committee, hopefully before the end of this Congress, on a 
matter like this, hopefully with some strong bipartisan 
support, as well.
    So we would urge the Administration, if you are going to be 
confirmed, to take a look at this very seriously as a way in 
which to create some economic growth and stimulation.
    Senator Reed. Mr. Chairman, there is also another aspect, 
which is employment. In our neck of the woods, we are running 
about a 6.1 percent unemployment rate which understates, I 
think, real unemployment. One of the virtues of some of these 
programs is they actually put people to work as well as putting 
money into the economy for consumption.
    So I would echo the Chairman's sentiment.
    Thank you very much.
    Chairman Dodd. According to the American Society of Civil 
Engineers, the current condition of our Nation's major 
infrastructure systems earns a grade of an average of D, 
jeopardizing prosperity and quality of life for all Americans. 
So it goes beyond just sort of a stimulation idea but rather 
one that there is a crying need for, as well, in the country. 
And it has gone unattended for too long.
    I have a letter here from Bob Dole in support of you, Mr. 
Fryzel, and your nomination. We will include this as part of 
the record.
    I think it is intriguing that he asked me to put this and 
not Elizabeth, but we will let that go.
    You have all been very good and we appreciate your time. We 
appreciate the participation of our members here. There is a 
lot to chew and swallow on this afternoon but I am very 
grateful to all of you for your willingness to serve and to try 
and move these things along.
    Again, I cannot predict outcomes, but we would like to see 
if we cannot get you up before this Committee and before the 
full Senate sooner rather than later.
    With that, the Committee will stand adjourned.
    [Whereupon, at 5:05 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM LUIS AGUILAR

Q.1. Regulation of Investment Banks: The current credit crisis 
and its impact on the markets, including the failure of Bear 
Stearns, has raised issues regarding the effectiveness of the 
Commission's regulation of investment banks, as well as other 
market participants. If confirmed, will you carefully review 
the Commission's regulatory oversight of the investment banks 
and support adding regulations and adding staff resources if 
necessary to protect investors and promote the stability of the 
markets? If so, what steps do you feel the Commission should 
take?

A.1. Yes. If confirmed, I would welcome the opportunity to 
review the SEC's program for supervision of investment banks 
and, if necessary, I would support adding regulations and staff 
resources. My understanding is that the SEC is already taking 
action, and looking into what additional authority and 
resources may be needed to better supervise investment banks 
through the Consolidated Supervised Entities (CSEs) program. I 
support such an effort. Among the things that the Commission 
should consider is dedicating more staff to the program, and 
working with Congress to review the regulatory framework, as 
currently there appears to be no regulatory agency with the 
explicit statutory authority and responsibility for the 
supervision of investment bank holding companies with certain 
bank affiliates.

Q.2.  Investment Advisors: The RAND Study on ``Investor and 
Industry Perspectives on Investment Advisers and Broker-
Dealers'' reported that there is widespread confusion among 
investors about key differences between investment advisers and 
broker-dealers in their duties (advisers have a fiduciary 
duty), their titles and their services.
    What would you do as a Commissioner to reduce or eliminate 
this confusion for the protection of investors? For example, 
what actions would you support so that investors better 
understand the differences pursuant to which investment 
advisers owe them a fiduciary duty while broker-dealer 
registered representatives observe a standard of suitability?

A.2. It is my understanding that the SEC staff is developing a 
number of options for future regulation of investment advisers 
and broker-dealers that take fully into account the findings in 
the RAND Study. In addition, I would also urge a strong 
proactive educational initiative to better inform investors of 
the differences in the duties owed to by them by each regulated 
entity. If confirmed, I will look forward to participating in 
the process.

Q.3. Cooperation with State Securities Regulators: State 
securities regulators are vital to the protection of investors. 
They have made important contributions identifying and 
prosecuting misleading and fraudulent stock analyst 
recommendations, leading to the Global Settlement; late trading 
and market timing involving mutual funds, leading to 
enforcement actions and regulatory reforms; and in responding 
to retail investor concerns. Would you encourage strong 
cooperation by the Commission with State securities regulators?

A.3. Yes, such cooperation is a key element in investor 
protection.

Q.4. Mutual Recognition: The Commission is considering whether 
to implement mutual recognition, in which citizens in the U.S. 
could purchase or trade securities directly with foreign 
broker-dealers or on foreign exchanges and be regulated for 
many purposes by the foreign regulator instead of the SEC. The 
Commission announced that it has begun discussions with 
Australia, and such discussions are intended to enhance 
regulatory cooperation and investor access to foreign capital 
markets, and is making a schedule for a process intended to 
open discussions with Canada.
    When considering a mutual recognition framework that would 
allow U.S. citizens to directly invest in foreign markets and 
be solicited by foreign brokers, what factors do you feel the 
SEC should take into account? For example, do you feel that the 
Commission should find comparability not only of laws but also 
of a foreign regime's enforcement and inspection resources, 
independence from the government, respect for the rule of law, 
culture of fair dealing, tradition of investor protection, 
impartial regulation over market participants, or other 
factors?

A.4. The factors mentioned are appropriate for any 
consideration in a mutual recognition program. Other additional 
factors may include the transparency and perceived fairness of 
the court system and the ease or difficulty in seeking redress 
if necessary.

Q.5. Adequacy of the SEC Budget: A key factor in maintaining 
investor confidence is having a Federal securities regulator 
that is fully funded. Do you feel that the President's proposed 
SEC budget for FY 2009 at $913 million is adequate to 
effectively perform its functions, including ramping up the 
regulation of credit rating agencies, investigating conduct 
related to the sub-prime crisis, reviewing corporate 
disclosures, overseeing rules for new markets and other 
important activities? If you are confirmed and, as a 
Commissioner, find that more resources are needed, will you 
support an agency request for additional funding?

A.5. I haven't reviewed the budget and staffing levels in 
detail but it is my understanding that Chairman Cox has 
indicated that the FY 2009 request is sufficient for the SEC to 
fulfill its mission. If I'm confirmed and I find that 
additional resources might be needed I will support a request 
for additional funding.

Q.6. International Convergence of Financial Reporting 
Standards: The SEC is currently considering allowing U.S. 
companies to file financial statements using the International 
Financial Reporting Standards, which would give them a choice 
between GAAP and IFRS. Such a change at this time raises 
serious questions.
    A. While the FASB and IASB have undertaken efforts at 
convergence and made important progress, do you feel there are 
at present still significant differences between GAAP and IFRS?
    B. Would investors, particularly retail investors, be able 
to make accurate comparisons for purposes of making investment 
decisions between U.S. companies reporting material financial 
information in GAAP and in IFRS at this time?
    C. If given a choice between GAAP and IFRS, do you feel 
that there are circumstances under which a public company could 
choose one standard above the other to enhance the 
representation of its finances to investors? If so, do you feel 
that such a choice is consistent with the Commission's investor 
protection mission?
    D. Do you feel that adequate capacity exists today in 
accounting firms to provide auditing services for all companies 
that might select IFRS, if given the choice, and do you feel 
such a change would have an impact on the cost of audit fees to 
public companies, particularly small businesses?

A.6. As a U.S.-trained lawyer, rather than an accountant, my 
present understanding of GAAP is limited and I have less 
information about the substantive details of IFRS. It is my 
understanding, however, that both GAAP and IFRS are high-
quality accounting standards. I'm also aware that the SEC has a 
mandate to oversee accounting standards so that investors can 
receive an understanding of an issuer's financial performance, 
as well as be able to draw comparisons between investment 
options. With increased globalization there have also been 
greater opportunities for investors to diversify their holdings 
among both U.S. and foreign companies. As a result there have 
been efforts to develop IFRS to serve as an international set 
of global accounting standards. It is my understanding that 
over 100 countries have adopted IFRS and more are considering 
its adoption, to the exclusion of U.S. GAAP. It is my 
understanding, however, that at the present time many U.S. 
auditors and accountants are not very familiar with IFRS and 
that it is not currently broadly taught by U.S. educational 
institutions. I also understand that there are still efforts 
underway to align the content of GAAP and IFRS and that the SEC 
continues to work toward a roadmap and timetable to develop a 
transition process.
    The questions posed above are appropriate questions that 
need to be fully considered in the process of considering 
whether, and if so when, to allow transition to IFRS. If 
confirmed, I will look forward to acquiring more information 
about GAAP, IFRS and related issues and addressing those 
questions in depth, as well as others that may arise on this 
subject.

Q.7. Opt-In for Proxy Materials: A recent SEC new rule requires 
investors to make individual requests, or opt-in to obtain 
paper copies of proxy materials from companies in which they 
own stock. Reportedly, this rule has significantly reduced the 
number of individual shareholders who vote. The Wall Street 
Journal in late April reported that of ``80 companies that have 
switched to the electronic model, dubbed e-proxy . . . on 
average, just 4.6% of individual shareholders voted on company 
matters using e-proxy, a sharp decline from the 19.2% who voted 
in the year-earlier period, when the companies sent out 
traditional paper ballots, according to Broadridge Financial 
Solutions Inc., which processes proxy votes.''
    Do you feel the Commission should monitor the impact of 
this rule and determine whether the opt-in to receive a paper 
proxy is having an unintended or undue negative impact on 
shareholder voting participation?

A.7. Yes, it's important to avoid adversely impacting 
shareholder participation in exercising their voting rights. I 
understand the SEC staff has been monitoring the impact that 
this rule has had on the industry, including retail shareholder 
turnout.

Q.8. Short Sales in Shareholder Votes: Some have raised a 
concern that institutions which hold investors' stock in 
``street name,'' such as brokers and banks, may not be able to 
accurately account for shares that are sold ``short'' in 
corporate elections and this could cause problems in producing 
a reliable shareholder vote count in a close, contested 
election. Would you assess this concern and seek to take any 
appropriate action?

A.8. Yes, I would look forward to doing so if confirmed.

Q.9. SEC-CFTC Memorandum of Understanding: In March 2008, the 
SEC and CFTC signed a Memorandum of Understanding (MOU) to 
enhance coordination and facilitate review of new derivative 
products. SEC Chairman Christopher Cox and Acting CFTC Chairman 
Walt Lukken jointly stated portfolio margining is an issue that 
should be addressed under the MOU.
    Do you support addressing the customer protection issues 
presented by cross-margining futures and securities in customer 
portfolio margin accounts in the MOU process? If so, do you 
feel analyzing and potentially resolving this should be an 
important priority among the issues to be considered under the 
MOU?

A.9. Yes, these are important issues that need to be addressed 
whether through the MOU process or some other joint mechanism 
for resolving the issue.
                                ------                                --
----


         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM LUIS AGUILAR

Q.1. Please explain if you believe the adoption of IFRS by U.S. 
companies meets the requirements of Sarbanes Oxley for such 
companies to use professional accounting standards established 
by an independent standard setting body?

A.1. At present my understanding of the substantive details of 
IFRS is limited. I look forward to studying the entire issue of 
the potential use of IFRS by U.S. companies. It is my 
understanding from materials I have read, however, that IFRS 
are high-quality accounting standards. I believe that it is 
important that those standards be established and maintained by 
an independent standard setting body, free from undue conflict 
of interests. If confirmed, I will look forward to obtaining 
more information about how the standards are developed and 
interpreted to determine whether IFRS satisfies the intent and 
letter of the Sarbanes-Oxley Act.

Q.2. Financial services firms have become much more complex, 
and the markets have likewise become more complex. We have many 
non-bank entities engaging in banking activities and other 
players active in the markets, such as hedge funds. Many of 
these newer players remain unregulated, or are only lightly 
regulated, leaving some gaps in oversight throughout the 
financial system.
    What should the SEC be doing to better review risks in a 
more complex and global financial system? How can the SEC have 
a better handle on emerging risks because of this complexity?

A.2. The U.S. and global financial capital markets continue to 
evolve at a rapid pace and seem to be more interconnected so 
that the dangers of systemic or ``mega-risks'' are potentially 
more feasible. Preparing to deal effectively with the complex 
market of the 21st century is a major challenge. I'm not fully 
informed about what steps the SEC may be taking or planning to 
take to better review risks but some possible suggestions 
include, among others: utilizing new technologies to more 
rapidly and efficiently collect and access information to 
determine trends or spot potential issues; being able, where 
appropriate, to provide information in ``real time'' to allow 
for quicker analysis and consideration; improving communication 
with the public and media so that accurate information can be 
disseminated when required; and enhancing international 
coordination and cooperation to better address globalization 
and cross-border issues.

Q.3. What is your perspective on the Treasury's ``Blueprint For 
A Modernized Financial Regulatory Structure'' reform as it 
relates to the SEC?

A.3. While I have not reached any conclusions about any of the 
particular proposals in the Paulson Blueprint or the other 
recent proposals on regulatory reform, I do believe that it's 
appropriate to periodically revisit the regulatory framework to 
assure that it continues to meet the needs of the American 
public.

Q.4. What is your viewpoint on a non-binding shareowner's right 
to vote on a company's executive compensation program?

A.4. As a general matter, it's always beneficial when 
shareholders are able to communicate their views to management 
and other shareholders on important issues. In connection with 
the legislative efforts underway in the House and the Senate, 
there have been reports discussing the advantages and 
disadvantages of having a mandatory vote (e.g., the benefits of 
shareholders' ability to voice a collective opinion versus the 
possibility that a mandatory vote would add a costly burden on 
companies and unnecessarily intrude into the affairs of 
corporate boards). If confirmed, I would be interested in 
seriously considering the benefits and costs of a non-binding 
shareholder vote on a company's executive compensation program.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER FROM LUIS 
                            AGUILAR

Q.1. There is evidence that the U.S. has experienced some 
erosion in its leadership position in capital markets. Unless 
reversed, this may hurt Main Street as well as Wall Street. 
When companies choose to do IPOs outside the United States, 
they are locating not only investment banking deals, but also 
jobs, outside our country. A portion of this problem may be 
attributable to the securities litigation risk of being an 
American public company.
    Our colleague, Senator Schumer, together with Mayor 
Bloomberg, issued a report on this problem in 2007. It was 
preceded by work done by Professor Scott of Harvard Law School 
and his colleagues at the Committee on Capital Markets 
Regulation. The Schumer-Bloomberg and the CCMR reports called 
for the SEC to take action.
    Last August, a group of prominent academics from across the 
ideological spectrum wrote Chairman Cox with their concerns 
about securities class action lawsuits and the implications of 
such suits for U.S. capital markets and investor protection. 
This letter expressed concern about the compensatory and 
deterrence rationales for these lawsuits, as well as the 
burdens the existing system places on small investors.
    The conclusion of these experts is that litigation is 
effective at driving business and jobs out of the U.S., but is 
ineffective at deterring actual fraudulent conduct because 
``settlements almost never come out of the pockets of the 
managers who allegedly executed the fraud.''
    Chairman Cox has promised to convene an SEC roundtable to 
study these and other issues related to the existing securities 
class action system. However, little is happening at the SEC, 
at least as far as we can tell. Do you share the concerns 
raised by this group of prominent scholars?
    In addition, do you support the idea of convening such a 
roundtable, as proposed by Chairman Cox? If so, will you work 
with Chairman Cox to schedule it expeditiously?

A.1. I do not presently have enough information to have reached 
a conclusion as to the validity of the concerns raised by the 
scholars. I understand that certain reports have suggested 
discussion around various issues, such as: whether to limit 
settlement amounts in SEC enforcement cases; whether it is 
necessary to provide clarity on fraud statutes frequently used 
in private lawsuits; who should bear the cost of attorney fees; 
the role of insurance in indemnification, etc. I am aware that 
Chairman Cox had announced plans to hold a roundtable forum on 
litigation reform and that the Chairman subsequently thought it 
best to delay it until such time as there was a full 
Commission. I would support the Chairman's effort to schedule 
it as soon as practicable once there is a full Commission.
    If confirmed, I will keep an open mind as to whether any 
changes should be recommended. It is important to consider the 
balance between protecting investors' rights and avoiding 
frivolous lawsuits that may adversely impact the U.S. financial 
markets' competitive position.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER FROM LUIS 
                            AGUILAR

    Last Wednesday, May 28, 2008, The Wall Street Journal ran a 
front page story entitled, `SEC Will Scour Bear Trading Data' 
stating that the SEC has an ongoing investigation into 
``whether there was insider trading or market manipulation of 
Bear Stearns, people familiar with the matter say.''

Q.1. Without asking for you to comment on the accuracy of the 
story, as I understand the SEC--nor its nominees should comment 
on an ongoing investigation--can you tell me whether the SEC 
should look into the possibility of insider trading and/or 
market manipulation as it relates to the Bear Stearns 
situation?

A.1. Market manipulation, whether it's through spreading false 
rumors or other action, would be a violation of securities 
laws. It is important that the SEC continues to demonstrate 
that illegal market manipulation will not be tolerated. That 
would be particularly the case if it occurs in high profile 
events such as the rapid collapse of Bear Stearns.

Q.2. Also, do you believe that the SEC has all of the tools 
necessary to investigate the possibility of impropriety in a 
case like Bear Steams and to a lesser extent Lehman Brothers?

A.2. I am not currently sufficiently informed about what the 
SEC has done in these matters to have reached a conclusion as 
to whether the SEC has all of the tools that would facilitate 
an investigation of the kinds of improprieties that have been 
rumored to have occurred with respect to Bear Steams or Lehman 
Brothers. Any investigations of these kinds of issues are, 
however, an obviously important function for the SEC and, if 
confirmed, I would regularly take stock of the adequacy of the 
SEC's enforcement and investigatory tools and would be 
supportive of addressing any gaps that might come to light.

Q.3. From your perspectives, are the Insider Trading Sanctions 
Act of 1984, Insider Trading and Securities Fraud Enforcement 
Act of 1988 and The Securities Exchange Act of 1934 sufficient?

A.3. It is important for the SEC to vigorously pursue 
violations of insider trading laws. The American public is 
investing in the stock market more than ever before. It is 
important that they trust and have confidence in the fairness 
and integrity of our securities markets. An essential part of 
our regulation of the securities market is the vigorous 
enforcement of our laws against illegal insider trading. In its 
basic form, illegal insider trading occurs when certain persons 
having confidential, non-public information about materially 
important events use that unique knowledge to profit, or avoid 
loss, on the securities market, to the detriment of investors 
who would buy or sell their securities without the advantage of 
such ``inside'' information.
    In order to address the dangers of illegal insider trading 
Congress passed The Insider Trading Sanctions Act of 1984 
(ITSA), and increased sanctions against trading in securities 
while in possession of material, nonpublic information. ITSA 
authorized the SEC to seek in federal court civil money 
penalties of up to three times the profit gained or loss 
avoided by a person who commits illegal insider trading.
    Four years later, amidst several major Wall Street scandals 
involving insider trading, Congress again considered the 
adequacy of the Commission's remedies to combat insider trading 
and passed The Insider Trading & Securities Fraud Enforcement 
Act of 1988 (ITSFEA) to, among other things, broaden the scope 
of ITSA by requiring written policies of various regulated 
entities, increasing maximum criminal penalty from $100,000 to 
$1,000,000 and jail term from 5 years to 10 and expanded the 
potential exposure to civil penalties beyond primary insider 
trading violators to securities firms and other ``controlling 
persons'' who knowingly or recklessly fail to take appropriate 
measures to prevent insider trading violations by their 
employees.
    In addition to these laws passed by Congress, there have 
also been numerous court cases that have contributed to the 
parameters of illegal insider trading, e.g. cases such as U.S. 
v. O'Hagan, Chiarella v. U.S. and Dirks v. U.S. These decisions 
have dealt with the concepts of duty owed, and to whom, duties 
of a ``tippee'', theories of misappropriation, and other 
issues.
    With developments in technology and globalization come new 
potential legal issues. In a recent speech the SEC's Director 
of Enforcement discussed issues raised if a computer expert, 
who could be located anywhere in the world, were to hack 
undetected into corporate databases and trade on the basis of 
information found there. It is unclear how those activities 
would be treated under current insider trading law.
    Clearly this is a very complex and fluid area of the law. 
If I'm fortunate enough to be confirmed, I will keep an open 
mind as to what additional legislation or regulatory actions 
may be needed.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM LUIS 
                            AGUILAR

Q.1. Secretary Paulson's blueprint for a modernized financial 
regulatory structure, along with other studies, recommends both 
regulatory and legislative changes to modernize the SEC's 
oversight of the securities market. That means addressing the 
increasing global nature of the financial marketplace, speeding 
up the rule approval process, and updating and harmonizing 
existing statutes governing brokers and investment advisors to 
reflect current market conditions and client needs. The SEC is 
currently working on a broad array of issues including mutual 
recognition, principal trading relief, and short selling. What 
are the two or three issues you believe the SEC needs to 
resolve this year to enhance the competitiveness of our capital 
markets?

A.1. The U.S. capital markets continue to be the deepest, most 
efficient, and most transparent in the world. By most 
measurements we remain the uncontested world leader. Our 
markets, however, are not immune to challenges. To promote the 
conditions for American prosperity and economic growth, it is 
essential that we maintain the competitiveness of our capital 
markets.
    The SEC has a number of matters under consideration which 
would have a positive impact on enhancing the competitiveness 
of our capital markets. A few that I believe could be resolved, 
hopefully, this year include: the proposals for additional 
rules regarding NRSROs to enhance accountability, transparency 
and competition, and restore market confidence in the credit 
rating agencies; the various proposed rules changes relating to 
foreign private issuers that are intended to improve 
accessibility to the U.S. public capital markets; consideration 
of whether U.S. domestic issuers should be given the option of 
reporting in either International Financial Reporting Standards 
(IFRS) or U.S. Generally Accepted Accounting Principles, and, 
if so, what transition process would be appropriate; and 
consideration of amendments to the cross-border tender offer 
rules to decrease the burdens of bidders and issuers who must 
comply with multi-jurisdictional regulatory systems, and 
facilitate the inclusion of U.S. securities holders in such 
transactions.
    These and other initiatives are commendable and, if 
confirmed, I welcome the opportunity to participate in the 
process of considering them. It is important, of course, to 
move forward in such a manner so as to maintain the credibility 
and integrity of our capital markets and vigorously protect 
investors.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM TROY A. 
                            PAREDES

Q.1. Regulation of Investment Banks: The current credit crisis 
and its impact on the markets, including the failure of Bear 
Stearns, has raised issues regarding the effectiveness of the 
Commission's regulation of investment banks, as well as other 
market participants. If confirmed, will you carefully review 
the Commission's regulatory oversight of the investment banks 
and support adding regulations and adding staff resources if 
necessary to protect investors and promote the stability of the 
markets? If so, what steps do you feel the Commission should 
take?

A.1.  The regulation of investment banks is a very important 
matter that deserves the serious attention it is receiving. 
Recent credit market events, including the Bear Stearns 
situation, instantiate concerns about systemic risk and the 
importance of proper risk management. If I am fortunate enough 
to be confirmed, I am committed to working with the Chairman, 
the other Commissioners, and the staff in carefully evaluating 
the SEC's regulatory oversight of investment banks. Without 
having the benefit of all that I will learn if confirmed and 
given the opportunity to serve as a Commissioner, it would be 
premature to speculate on what precise regulatory changes may 
be called for given this matter's complexity. Indeed, there may 
be different responses for the short-, medium-, and long-terms. 
That said, some possibilities include a reconsideration of the 
Consolidated Supervised Entity program and additional 
coordination among regulators to ensure proper risk management. 
Another possibility is to consider what additional disclosures 
by investment banks may be appropriate to bolster market 
discipline. In general, I would support regulatory changes and 
additional staff resources if necessary to ensure the proper 
oversight of our markets in order to protect investors and 
promote the stability of U.S. securities markets. Indeed, I 
understand that the SEC already has undertaken a more active 
oversight role in response to recent events.

Q.2. Investment Advisors: The RAND Study on ``Investor and 
Industry Perspectives on Investment Advisers and Broker-
Dealers'' reported that there is widespread confusion among 
investors about key differences between investment advisers and 
broker-dealers in their duties (advisers have a fiduciary 
duty), their titles and their services.
    What would you do as a Commissioner to reduce or eliminate 
this confusion for the protection of investors? For example, 
what actions would you support so that investors better 
understand the differences pursuant to which investment 
advisors owe them a fiduciary duty while broker-dealer 
registered representatives observe a standard of suitability?

A.2. The RAND study makes an important contribution to the 
understanding of the investment adviser and broker-dealer 
industries and investor perspectives of them. The SEC should be 
commended for initiating this project, and it may serve as a 
useful template for other studies. The distinctions between 
investment advisers and broker-dealers have blurred. 
Nonetheless, the legal obligations of investment advisers and 
broker-dealers differ, and so whether one is an ``investment 
adviser'' or a ``broker-dealer'' matters. (Interestingly, the 
RAND study found that despite investor confusion regarding the 
differences between investment advisers and broker-dealers, 
investors generally were pleased with the services they 
received.) I understand that the staff is considering the RAND 
study and, if confirmed, I welcome the opportunity to 
participate in that process. One possibility to consider to 
reduce confusion is to require a short (perhaps one- or two-
page) disclosure document that explains to investors in plain 
English (perhaps with the use of bullet points and tables) the 
key differences between an investment adviser and a broker-
dealer, including differences in their duties. The disclosure 
document could include representative examples that illustrate 
in more concrete terms the practical consequences of these 
differences. Investors could then be directed to the SEC's web 
site for additional information.

Q.3. Cooperation with State Securities Regulators: State 
securities regulators are vital to the protection of investors. 
They have made important contributions identifying and 
prosecuting misleading and fraudulent stock analyst 
recommendations, leading to the Global Settlement; late trading 
and market timing involving mutual funds, leading to 
enforcement actions and regulatory reforms; and in responding 
to retail investor concerns. Would you encourage strong 
cooperation by the Commission with State securities regulators?

A.3. State securities laws predate the federal securities laws. 
As the question suggests, state ``blue sky'' laws remain an 
important part of our system of securities regulation. Indeed, 
the federal securities laws contemplate a continuing role for 
the states. In addition to recognizing the contributions of 
State securities regulators, it is also important to recognize 
the value of national law crafted at the federal level, for 
example to achieve uniformity and advance national interests. 
If confirmed, I would encourage strong cooperation by the 
Commission with State securities regulators. One area where 
there seems to have been successful recent cooperation has 
concerned seniors, as evidenced by the joint 2007 report by the 
SEC Office of Compliance Inspections and Examinations and the 
North American Securities Administrators Association, along 
with the Financial Industry Regulatory Authority, on 
``Protecting Senior Investors: Report of Examinations of 
Securities Firms Providing `Free Lunch' Sales Seminars.''

Q.4. Mutual Recognition: The Commission is considering whether 
to implement mutual recognition, in which citizens in the U.S. 
could purchase or trade securities directly with foreign 
broker-dealers or on foreign exchanges and be regulated for 
many purposes by the foreign regulator instead of the SEC. The 
Commission announced that it has begun discussions with 
Australia, and such discussions are intended to enhance 
regulatory cooperation and investor access to foreign capital 
markets, and is making a schedule for a process intended to 
open discussions with Canada.
    When considering a mutual recognition framework that would 
allow U.S. citizens to directly invest in foreign markets and 
be solicited by foreign brokers, what factors do you feel the 
SEC should take into account? For example, do you feel that the 
Commission should find comparability not only of laws but also 
of a foreign regime's enforcement and inspection resources, 
independence from the government, respect for the rule of law, 
culture of fair dealing, tradition of investor protection, 
impartial regulation over market participants, or other 
factors?

A.4. Securities regulation should not ignore globalization. 
Increasing globalization has spawned an important debate, 
including concerning mutual recognition. There are benefits to 
be gained from a well-conceived system of mutual recognition. 
For example, U.S. investors may gain expanded and more 
efficient access to foreign markets, which provide additional 
investment opportunities. Further, mutual recognition may be a 
productive starting point for expanded cross-border cooperation 
among regulators. Any mutual recognition arrangement should 
ensure the adequate protection of U.S. investors. This requires 
a careful assessment of a foreign regime's regulatory structure 
and practices. More than just the ``laws on the books'' make up 
a country's securities regulation regime, and different 
countries may achieve investor protection in different ways. 
Indeed, one can conceptualize a country's securities regulation 
regime as a system comprised of a number of legal and non-legal 
parts that work together, hopefully in a constructive, 
complementary fashion. Recognizing this, it follows that no two 
countries' systems will be mirror images, although they may 
both ensure adequate investor protection and market integrity. 
A careful comparability analysis would engage a range of legal 
and non-legal factors--such as those identified in the 
question--that are part of the institutional mix that makes up 
a country's securities regulation system.
    The SEC has taken some steps down the road of mutual 
recognition, including work with Australia and Canada. The SEC 
also held a roundtable on the topic in 2007. If confirmed, I 
look forward to participating in the ongoing deliberations. 
While there are potential benefits for investors from mutual 
recognition, the details of any such arrangement are 
complicated. It is important to proceed in a deliberate and 
well-informed fashion.

Q.5. Sarbanes-Oxley Act: SEC Chairman Cox has pointed out that 
as a result of the Sarbanes Oxley Act, ``Investor confidence 
has recovered. There is greater corporate accountability. 
Financial reporting is more reliable and transparent. Auditor 
oversight is significantly improved.'' [Quoted in ``Sarbanes-
Oxley Has Been a Pretty Clean Sweep; Most Agree It's a Big 
Success,'' USA Today, July 30, 2007.] Former SEC Chairman Bill 
Donaldson has said ``Corporate boards are working better.'' 
Thomas Healey, a retired partner of Goldman Sachs and Senior 
Fellow at Harvard's Kennedy School said, ``The last five years 
have made it irrefutably clear. Sarbanes-Oxley (Sarbox) is a 
textbook case of how regulations should ideally work in a 
democracy: A scandal is addressed through strong legislative 
reaction, followed by fine-tuning by relevant agencies . . . Is 
it any wonder that variations of Sarbox and its rigorous 
internal controls are being adopted in Japan, France . . . and 
other countries around the world?'' [``Sarbox Was the Right 
Medicine,'' The Wall Street Journal, August 9, 2007.] The GAO 
published a report that found from 1997-mid-2002, 10% of public 
companies restated their financials due to accounting 
irregularities and these restatements cost investors 18% of 
stock value from 60 days before to 60 days after the 
restatement. [GAO Report to the Chairman, Committee on Banking, 
Housing, and Urban Affairs, U.S. Senate ``FINANCIAL STATEMENT 
RESTATEMENTS: Trends, Market Impacts, Regulatory Responses, and 
Remaining Challenges.'' GAO-03-138, October 2002.] The reforms 
in the Act improved internal controls and financial reporting.
    Professor Paredes, in ``Lessons Learned: A Brief 
Retrospective on Sarbanes-Oxley'' (April 23, 2007) published as 
a slip opinion in the Washington University Law Review, you 
stated that ``lawmakers need to undertake thorough and rigorous 
cost-benefit analyses when making law.'' When performing such 
an analysis, would you include and how would you calculate the 
following types of benefits that these and others resulting 
from the Act?
    A. Improved investor confidence.
    B. Greater corporate accountability.
    C. More reliable financial reporting.
    D. Improved auditor oversight.
    E. Improved board governance and performance.
    F. Influence on foreign countries to improve their 
securities regulation.
    G. Improved internal financial controls which when fully 
effective reduce the number of accounting restatements.

A.5. The Sarbanes-Oxley Act of 2002 (SOX) is an historic piece 
of legislation. It helped restore investor confidence, improve 
internal controls over financial reporting, and spur more 
active board oversight. The question appropriately references 
these and other benefits flowing from SOX.
    For any cost-benefit analysis (CBA) to be effective, it 
must account for both benefits and costs. Focusing on the costs 
without giving due credit to the benefits inappropriately skews 
the analysis and vice versa. The general goal of CBA is to try 
to maximize the net benefit of whatever is being considered, 
say a piece of legislation or a proposed regulation. A careful 
analysis might reveal opportunities for greater benefits, 
opportunities to mitigate costs, preferable alternatives, and 
the like. Unfortunately, not all benefits and costs are readily 
quantifiable. Accordingly, CBA also should involve a more 
qualitative analysis that endeavors to capture the nature of 
certain benefits and costs, recognizing that hard numbers 
simply may not be available. Since CBA is forward-looking and 
anticipatory, it is inherently uncertain, even when the 
benefits and costs seemingly are quantifiable. There is always 
a range of possible outcomes. This uncertainty, rooted in 
imperfect information, is what makes CBA challenging. Still, so 
long as its limitations are appreciated, CBA remains a useful 
analytical tool.
    Focusing on the benefit-side of SOX, I would include the 
benefits mentioned in the question as central to any CBA, 
although such benefits are difficult to reliably quantify 
generally, let alone when it comes to isolating and calculating 
the impact attributable to a particular variable, such as the 
adoption of SOX or particular provisions of SOX. That said, the 
available empirical literature may have shed light on the 
analysis. From a more qualitative perspective, these benefits 
are central to investor protection, capital market integrity, 
the well-functioning of U.S. securities markets, and capital 
formation. Investors need to be confident in the integrity of 
securities markets; financial and other disclosures need to be 
reliable; corporate actors need to be accountable; and 
corporate governance needs to be effective. A qualitative 
analysis would look to assess the nature of the impact of SOX 
in these and other respects. This could include, for example, 
assessing the incentive effects of particular provisions and of 
SOX as a whole and the impact on organizational dynamics and 
investor perceptions. Such an analysis also may benefit from a 
consideration of the available empirical literature. In 
addition, whatever the limitations are of CBA, well-conceived 
empirical studies may capture the actual impact of legislation 
such as SOX after the fact, which can help inform future 
lawmaking.

Q.6. Options Backdating: Professor Paredes, you have been 
quoted in the press about options backdating as saying ``We are 
talking about what is, in the grand scheme of things, a 
relatively minor restatement of earnings for a practice that 
has already ceased.''
    This quote raises concerns. Full and fair disclosure and 
accurate financial reporting are vital to investor confidence 
and the integrity of the markets. Companies that improperly 
backdated options, inflated their earnings, and deceived 
investors violated core financial reporting and disclosure 
laws.
    The improper backdating practices led to over one-hundred 
Enforcement investigations and continue to result in SEC 
sanctions, criminal actions, and private suits. For example, in 
April 2008 the SEC sanctioned Broadcom Communications for 
overstating its income by $2.2 billion over five years. On June 
2, 2008, The Wall Street Journal reported that ``Brocade 
Communications Systems Inc. agreed to pay $160 million to 
settle a securities class-action lawsuit related to backdating 
of stock options, in the largest such settlement to date'' in 
an article that noted that the former CEO ``was sentenced to 21 
months in federal prison in January.''
    Do you feel that individuals and firms that engaged in 
improper options backdating have committed a serious violation 
of the securities laws and should be sanctioned appropriately? 
If confirmed, would you monitor the incidence of improper 
options backdating until it reaches levels that are not a 
problem? For example, we understand that the SEC has found 
during 2007 that over 1000 stock options grants were reported 
more than 100 days late.

A.6. The federal securities laws are premised on a philosophy 
of disclosure. Disclosure is effective when it is complete, 
accurate, and timely. Improper options backdating is 
problematic in that it leads to incorrect financial statements 
when the option grants are accounted for inaccurately and may 
also render certain qualitative (or narrative) disclosures 
inaccurate. Any widespread improper activity may erode investor 
confidence more generally. Options backdating in violation of 
the federal securities laws is a serious matter that should be 
sanctioned appropriately. If confirmed, I look forward to 
working with others at the SEC to monitor and address options 
backdating and will take steps to be kept apprised of relevant 
developments. This includes learning more about any late 
filings reporting option grants, which filings, as a result of 
the Sarbanes-Oxley Act, now have to be filed more quickly.

Q.7. Adequacy of the SEC Budget: A key factor in maintaining 
investor confidence is having a Federal securities regulator 
that is fully funded. Do you feel that the President's proposed 
SEC budget for FY 2009 at $913 million is adequate to 
effectively perform its functions, including ramping up the 
regulation of credit rating agencies, investigating conduct 
related to the sub-prime crisis, reviewing corporate 
disclosures, overseeing rules for new markets and other 
important activities? If you are confirmed and, as a 
Commissioner, find that more resources are needed, will you 
support an agency request for additional funding?

A.7. The SEC is responsible for administering and enforcing the 
federal securities law. As the question suggests, the SEC has a 
number of specific responsibilities, and additional priorities 
have emerged in the aftermath of the recent credit market 
turmoil. It is key that the SEC have adequate resources. I do 
not presently have the perspective or information needed to 
ascertain what the appropriate budget is for the SEC. If I am 
fortunate enough to be confirmed, as a Commissioner, I will 
gain the type of insight needed to better evaluate the SEC's 
budget needs; and if, in my judgment as a Commissioner, I 
believe that the SEC needs more resources, I will support an 
agency request for additional funding.

Q.8. International Convergence of Financial Reporting 
Standards: The SEC is currently considering allowing U.S. 
companies to file financial statements using the International 
Financial Reporting Standards, which would give them a choice 
between GAAP and IFRS. Such a change at this time raises 
serious questions.
    A. While the FASB and IASB have undertaken efforts at 
convergence and made important progress, do you feel there are 
at present still significant differences between GAAP and IFRS?
    B. Would investors, particularly retail investors, be able 
to make accurate comparisons for purposes of making investment 
decisions between U.S. companies reporting material financial 
information in GAAP and in IFRS at this time?
    C. If given a choice between GAAP and IFRS, do you feel 
that there are circumstances under which a public company could 
choose one standard above the other to enhance the 
representation of its finances to investors? If so, do you feel 
that such a choice is consistent with the Commission's investor 
protection mission?
    D. Do you feel that adequate capacity exists today in 
accounting firms to provide auditing services for all companies 
that might select IFRS, if given the choice, and do you feel 
such a change would have an impact on the cost of audit fees to 
public companies, particularly small businesses?

A.8. There is much to recommend having a single set of 
accounting standards given the increasing globalization of 
capital markets. A priority in considering whether to allow 
U.S. companies to use IFRS when filing financial statements is 
to ensure that the U.S. continues to have high-quality 
accounting standards. I have not had the opportunity to study 
carefully the particular differences between GAAP and IFRS, 
although I understand that there are significant differences 
and that efforts at convergence are ongoing. I look forward to 
learning more about these differences and their practical 
impact on financial reporting and U.S. securities markets if I 
am confirmed. Appreciating the differences between GAAP and 
IFRS is important in considering how to navigate the road 
toward allowing U.S. companies to use IFRS. For example, it is 
worth considering whether U.S. companies, if given a choice 
between GAAP and IFRS, will choose between GAAP and IFRS based 
on which enables the company to report stronger financial 
results and what this means for investors. This eventuality 
might be addressed by requiring companies making the switch to 
IFRS to do so irrevocably and to show financial results from 
earlier years as if IFRS had been used. Further, if given a 
choice, different companies in an industry may report using 
different accounting standards. This could compromise 
comparability. On the other hand, comparability might be 
enhanced if U.S. companies, by choosing to use IFRS, brought 
their financial statements in line with those of foreign 
competitors that use IFRS. It is important to understand the 
challenges investors may face understanding IFRS-based 
financial statements, let alone comparing them to GAAP-based 
financial statements, and to consider investor education 
strategies, particularly for retail investors.
    Additionally, it is important that the auditing profession 
have enough individuals with the requisite expertise if there 
is a switch from GAAP to IFRS, and it is important to assess 
how the audit function might adapt to a change to IFRS and at 
what cost to issuers. If confirmed, I look forward to learning 
more about the capacity of the auditing profession to audit 
IFRS-based financial statements and what steps the profession, 
as well as business schools, plan to take in light of the 
potential move toward IFRS in the U.S.
    Each of the concerns at the core of subparts A-D of the 
question merits careful evaluation. Indeed, as I understand it, 
the SEC's 2007 Concept Release on Allowing U.S. Issuers to 
Prepare Financial Statements in Accordance with International 
Financial Reporting Standards solicited comments that would 
assist in any such evaluation. If I am fortunate enough to be 
confirmed, I look forward to working with the Chairman, the 
other Commissioners, and the staff on these complex matters in 
considering how best to proceed. In short, this means not only 
assessing the substance of IFRS as compared to GAAP, but also 
carefully considering the practical challenges of any 
transition from GAAP to IFRS and how such challenges might be 
mitigated.

Q.9. Opt-In for Proxy Materials: A recent SEC new rule requires 
investors to make individual requests, or opt-in to obtain 
paper copies of proxy materials from companies in which they 
own stock. Reportedly, this rule has significantly reduced the 
number of individual shareholders who vote. The Wall Street 
Journal in late April reported that of ``80 companies that have 
switched to the electronic model, dubbed e-proxy . . . on 
average, just 4.6% of individual shareholders voted on company 
matters using e-proxy, a sharp decline from the 19.2% who voted 
in the year-earlier period, when the companies sent out 
traditional paper ballots, according to Broadridge Financial 
Solutions Inc., which processes proxy votes.''
    Do you feel the Commission should monitor the impact of 
this rule and determine whether the opt-in to receive a paper 
proxy is having an unintended or undue negative impact on 
shareholder voting participation?

A.9. In general, it is important for securities regulation to 
adapt to new developments, including technological 
developments. Technological advances provide a host of new 
opportunities. But in taking advantage of these opportunities, 
one must account for potential costs, some of which may not be 
fully appreciated until after some change is implemented. In 
terms of e-proxy in particular, the SEC should monitor the 
consequences of the new rule in an effort to evaluate the 
rule's actual impact; such monitoring is an important step in 
identifying adverse consequences and what steps might be 
appropriate for mitigating them. I understand that staff in the 
Division of Corporation Finance and the Office of Economic 
Analysis are doing so, including being in contact with service 
providers and other groups, such as the Society of Corporate 
Secretaries and Governance Professionals, that are part of or 
uniquely interested in the shareholder voting process. Any 
consideration of rule changes that may be appropriate should 
factor in the extent to which any observed negative 
consequences may subside over time if investors become more 
accustomed to e-proxy and companies learn to make the 
transition more effectively.

Q.10. Short Sales in Shareholder Votes: Some have raised a 
concern that institutions which hold investors' stock in 
``street name,'' such as brokers and banks, may not be able to 
accurately account for shares that are sold ``short'' in 
corporate elections and this could cause problems in producing 
a reliable shareholder vote count in a close, contested 
election. Would you assess this concern and seek to take any 
appropriate action?

A.10. The ``mechanics'' of shareholder voting have received 
increased attention recently. As the question indicates, some 
have raised concern about the implications of shorting for 
voting. For example, it has been said that a broker could loan 
such a number of shares that the broker is not entitled to vote 
enough shares to comply with instructions it receives from 
clients on how to vote. Some have discussed this in terms of 
the potential for ``overvoting.'' I agree that it is important 
that a shareholder vote count be reliable in a close, contested 
election. If confirmed, I look forward to working with the 
Chairman, the other Commissioners, and the staff to evaluate 
the concern that has been expressed and to undertake 
appropriate action needed to help ensure reliable voting.

Q.11. SEC-CFTC Memorandum of Understanding: In March 2008, the 
SEC and CFTC signed a Memorandum of Understanding (MOU) to 
enhance coordination and facilitate review of new derivative 
products. SEC Chairman Christopher Cox and Acting CFTC Chairman 
Walt Lukken jointly stated portfolio margining is an issue that 
should be addressed under the MOU.
    Do you support addressing the customer protection issues 
presented by cross-margining futures and securities in customer 
portfolio margin accounts in the MOU process? If so, do you 
feel analyzing and potentially resolving this should be an 
important priority among the issues to be considered under the 
MOU?

A.11. Cooperation and coordination among regulators can improve 
the oversight of our financial markets. Speaking generally, 
regulatory cooperation and coordination may help modernize the 
U.S. financial regulatory structure and enable it to anticipate 
and respond to developments more effectively and efficiently. 
This includes cooperation and coordination between the SEC and 
CFTC, particularly in light of ongoing financial innovation and 
the blurring of regulatory lines and interests.
    Cross-margining futures and securities is an important 
issue to address and one that I look forward to having the 
opportunity to consider further if I am fortunate enough to be 
confirmed. In terms of ``process,'' while MOUs can be a 
constructive means of cooperation and coordination between the 
SEC and CFTC, I do not presently have a firm view on whether 
the MOU or some other approach is the optimal means of 
cooperation and coordination between the agencies when it comes 
to addressing such cross-margining. But I do believe in 
principle that efforts at cooperation and coordination are 
important and, if confirmed, welcome the chance to consider how 
best to achieve a productive collaborative process.
                                ------                                --
----


         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 
                      FROM TROY A. PAREDES

Q.1. Please explain if you believe the adoption of IFRS by U.S. 
companies meets the requirements of Sarbanes-Oxley for such 
companies to use professional accounting standards established 
by an independent standard setting body?

A.1. If confirmed, I look forward to having the opportunity to 
study carefully the range of issues that must be addressed in 
deciding how to proceed when it comes to the prospect of 
allowing U.S. issuers to use IFRS. An overarching objective is 
to ensure that the U.S. has high-quality accounting standards. 
In assessing a transition to IFRS, whether the international 
accounting standards setter (namely, the IASB) meets the 
Sarbanes-Oxley Act requirements is an important consideration. 
I understand that in its Concept Release on Allowing U.S. 
Issuers to Prepare Financial Statements in Accordance with 
International Financial Reporting Standards the SEC discussed 
and solicited public comment on the governance and operation of 
the IASB. I agree that these matters need to be resolved, and I 
look forward to participating in the ongoing assessment of 
these issues if I am confirmed.

Q.2. Financial services firms have become much more complex, 
and the markets have likewise become more complex. We have many 
non-bank entities engaging in banking activities and other 
players active in the markets, such as hedge funds. Many of 
these newer players remain unregulated, or are only lightly 
regulated, leaving some gaps in oversight throughout the 
financial system.
    What should the SEC be doing to better review risks in a 
more complex and global financial system? How can the SEC have 
a better handle on emerging risks because of this complexity?

A.2. Questions of systemic risk and risk management are very 
complex. Systemic risk is often conceptualized in terms of 
externalities, which can be challenging to address. Concerns 
about systemic risk and risk management have magnified in light 
of the recent credit market turmoil and events at Bear Stearns. 
I understand that the Banking Committee scheduled hearings on 
risk management and its implications for systemic risk.
    These issues deserve careful study, as the financial system 
has become more global and more complex. There are benefits to 
be gained from the introduction of new products and an evolving 
mix of financial market participants; but there are risks, 
particularly given the degree of interconnectedness. If 
confirmed, I look forward to learning more and am committed to 
working with the Chairman, my fellow Commissioners, and the 
staff to assess opportunities for the SEC to better serve its 
role in the identification and management of risk. 
Possibilities might include changes to the Consolidated 
Supervised Entity program or coordinated efforts with other 
members of the President's Working Group on Financial Markets. 
I understand that the SEC already has become more active 
following the recent credit market turmoil, but it is important 
to continue considering what else might be done, including how 
best to address any gaps in the regulatory structure.

Q.3. What is your perspective on the Treasury's ``Blueprint For 
A Modernized Financial Regulatory Structure'' reform as it 
relates to the SEC?

A.3. As financial markets continue to develop and evolve, they 
present new opportunities and new challenges. For example, new 
financial products and market participants in an increasingly 
global marketplace may add liquidity and provide a new set of 
investment options. On the other hand, systemic risk may become 
more worrisome. Accordingly, efforts to modernize the financial 
regulatory structure deserve close study. The Treasury 
Department's ``Blueprint for a Modernized Financial Regulatory 
Structure'' is an important starting point for discussion. If a 
reconfiguration of the financial regulatory structure 
ultimately is undertaken, it is important to do so in a 
deliberate, considered fashion given the complexity of the 
undertaking. Any modernization effort must consider, among 
other things, how best to achieve the SEC's core goals of 
investor protection, well-functioning securities markets, and 
capital formation. Insofar as the SEC is concerned, the 
Blueprint suggests merging the SEC and CFTC and creating a new 
``business conduct regulator.'' Merging the SEC and CFTC has 
been debated before; the proposed business conduct regulator is 
a new idea, as far I can tell. If confirmed, I will have the 
opportunity to learn more in my capacity as a Commissioner and 
look forward to giving careful scrutiny to the Blueprint and 
alternatives to it that emerge with the goal of doing my part 
to help ensure that we have the optimal regulatory structure 
for our financial markets.

Q.4. What is your viewpoint on a non-binding shareowner's right 
to vote on a company's executive compensation program?

A.4. State corporate law generally allocates authority to run 
an enterprise to a corporation's board of directors and, in 
effect, its management team. However, this allocation of 
authority presupposes that directors and officers will be held 
to account. This includes a fundamental role for shareholders 
in corporate governance through the franchise. (In addition to 
exercising the right to vote, shareholders also may express 
their views about the business and how it is being managed 
through other channels. One new prospect for increased 
shareholder participation is the electronic shareholder forum.) 
Put differently, the effort has been to strike a balance 
whereby the board and management team have the room needed to 
run the business while ensuring that they are appropriately 
accountable to shareholders so that the directors and officers 
discharge their duties in the best interests of the corporation 
and its shareholders.
    The balance is never perfectly struck in practice; thus, it 
is important to assess carefully ideas for improving the 
balance, such as by giving shareholders a stronger voice in the 
area of executive pay. This includes assessing proposals for a 
shareholder advisory vote or so-called shareholder ``say on 
pay.'' (Presently, shareholders have the ability to weigh in on 
executive pay, at least in certain respects, through the 
shareholder proposal process.) Designing an optimal 
compensation arrangement is complicated, yet it is very 
important. Among other things, compensation arrangements can 
influence top managers' incentives when running the business 
and perceptions about executive pay may challenge investor 
confidence.
                                ------                                --
----


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER FROM TROY A. 
                            PAREDES

Q.1. There is evidence that the U.S. has experienced some 
erosion in its leadership position in capital markets. Unless 
reversed, this may hurt Main Street as well as Wall Street. 
When companies choose to do IPOs outside the United States, 
they are locating not only investment banking deals, but also 
jobs, outside our country. A portion of this problem may be 
attributable to the securities litigation risk of being an 
American public company.
    Our colleague, Senator Schumer, together with Mayor 
Bloomberg, issued a report on this problem in 2007. It was 
preceded by work done by Professor Scott of Harvard Law School 
and his colleagues at the Committee on Capital Markets 
Regulation. The Schumer-Bloomberg and the CCMR reports called 
for the SEC to take action.
    Last August, a group of prominent academics from across the 
ideological spectrum wrote Chairman Cox with their concerns 
about securities class action lawsuits and the implications of 
such suits for U.S. capital markets and investor protection. 
This letter expressed concern about the compensatory and 
deterrence rationales for these lawsuits, as well as the 
burdens the existing system places on small investors.
    The conclusion of these experts is that litigation is 
effective at driving business and jobs out of the U.S., but is 
ineffective at deterring actual fraudulent conduct because 
``settlements almost never come out of the pockets of the 
managers who allegedly executed the fraud.''
    Chairman Cox has promised to convene an SEC roundtable to 
study these and other issues related to the existing securities 
class action system. However, little is happening at the SEC, 
at least as far as we can tell. Do you share the concerns 
raised by this group of prominent scholars?
    In addition, do you support the idea of convening such a 
roundtable, as proposed by Chairman Cox? If so, will you work 
with Chairman Cox to schedule it expeditiously?

A.1. Studies have suggested that the leadership position of 
U.S. capital markets may have eroded, at least to a degree. One 
reason for this may be that the economies and financial markets 
of other countries have continued to develop, better 
positioning such countries to compete against the U.S. It also 
has been suggested that securities litigation risk may 
contribute to an erosion of U.S. competitiveness. On the other 
hand, vigorous but fair enforcement of the federal securities 
laws can advance transparency and the integrity of U.S. capital 
markets, thus promoting U.S. capital market competitiveness. I 
agree with those who believe that it is worth undertaking a 
careful consideration of the U.S. securities class action 
system to ensure that the system is effective and efficient. 
Accordingly, I support efforts such as convening a roundtable 
to study this issue and, if confirmed, look forward to working 
with the Chairman and others to do so.
                                ------                                --
----


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER FROM TROY A. 
                            PAREDES

Q.1. Last Wednesday, May 28, 2008, The Wall Street Journal ran 
a front page story entitled, ``SEC Will Scour Bear Trading 
Data'' stating that the SEC has an ongoing investigation into 
``whether there was insider trading or market manipulation of 
Bear Stearns, people familiar with the matter say.''
    Without asking for you to comment on the accuracy of the 
story, as I understand the SEC--nor its nominees should comment 
on an ongoing investigation--can you tell me whether the SEC 
should look into the possibility of insider trading and/or 
market manipulation as it relates to the Bear Stearns 
situation?
    Also, do you believe that the SEC has all of the tools 
necessary to investigate the possibility of impropriety in a 
case like Bear Stearns and to a lesser extent Lehman Brothers?
    From your perspectives, are the Insider Trading Sanctions 
Act of 1984, Insider Trading and Securities Fraud Enforcement 
Act of 1988 and The Securities Exchange Act of 1934 sufficient?

A.1. The SEC has longstanding authority to enforce the federal 
securities laws against those who engage in illegal insider 
trading and market manipulation; and Congress has seen fit to 
enhance the SEC's authority in the past. I believe the SEC 
should--and does--take seriously allegations of illegal insider 
trading and market manipulation, as such illegal behavior can 
result in investor losses and compromise the integrity of the 
marketplace. This would include the Bear Stearns situation. Of 
course, it is important that any enforcement decision be based 
on the facts as they come to light. I have confidence in the 
ability of the SEC staff to investigate potential illegal 
conduct. However, there may be room for improvement. If I am 
fortunate enough to be confirmed, I look forward to learning 
more about the precise tools the SEC brings to bear when 
investigating possible illicit behavior and what additional 
resources or authorities may be warranted to assist the SEC in 
fulfilling its responsibility to enforce the federal securities 
laws.
                                ------                                --
----


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM TROY A. 
                            PAREDES

Q.1. Secretary Paulson's blueprint for a modernized financial 
regulatory structure, along with other studies, recommends both 
regulatory and legislative changes to modernize the SEC's 
oversight of the securities market. That means addressing the 
increasing global nature of the financial marketplace, speeding 
up the rule approval process, and updating and harmonizing 
existing statutes governing brokers and investment advisors to 
reflect current market conditions and client needs. The SEC is 
currently working on a broad array of issues including mutual 
recognition, principal trading relief, and short selling. What 
are the two or three issues you believe the SEC needs to 
resolve this year to enhance the competitiveness of our capital 
markets?

A.1. An efficient and effective regulatory structure that can 
respond to new challenges and take advantage of new 
opportunities is vital to ensuring the competitiveness of U.S. 
capital markets and that the U.S. continues to be the global 
leader in finance. A strong financial system promotes the 
interests of investors, companies, employees, and communities, 
as well as other stakeholders. The Treasury Department's 
``Blueprint for a Modernized Financial Regulatory Structure'' 
is a constructive starting point for discussion. If confirmed, 
I look forward to the opportunity to participate in the ongoing 
consideration of how to improve the U.S. financial regulatory 
structure, and I look forward to working with others, including 
members of the Banking Committee, to ensure that the U.S. 
financial system remains strong and resilient when challenged.
    As the question suggests, there are a number of areas that 
deserve careful attention. Among these, let me highlight two. 
First, the SEC should continue to consider the options for 
adopting international financial reporting standards (IFRS) for 
U.S. issuers and, in so doing, assess a roadmap for proceeding. 
That said, it is important not to rush, but to give this 
complex issue due deliberation to ensure that there are high-
quality accounting standards and that any transition to IFRS is 
manageable. Second, so-called ``gatekeepers'' play a central 
role in U.S. capital markets. Accordingly, it is important that 
the SEC move expeditiously, but prudently, to reassess the role 
of credit rating agencies in the securities law system and to 
improve the regulatory regime governing credit rating agencies 
themselves. To this end, the SEC has already embarked on an 
important new rating agency rulemaking in the aftermath of the 
recent credit market turmoil.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM ELISSE B. 
                             WALTER

Q.1. Regulation of Investment Banks: The current credit crisis 
and its impact on the markets, including the failure of Bear 
Stearns, has raised issues regarding the effectiveness of the 
Commission's regulation of investment banks, as well as other 
market participants. If confirmed, will you carefully review 
the Commission's regulatory oversight of the investment banks 
and support adding regulations and adding staff resources if 
necessary to protect investors and promote the stability of the 
markets? If so, what steps do you feel the Commission should 
take?

A.1. If confirmed, I will carefully review the Commission's 
regulatory oversight of investment banks and other market 
participants and would support adding regulations and staff if 
necessary to protect investors and promote market stability. 
The Commission should vigorously oversee investment banks under 
the Consolidated Supervised Entities program. In particular, 
the Commission should evaluate the risk management and 
financial stability of investment banks and take the steps 
necessary to address the systemic issues raised by the events 
of recent months.

Q.2. Investment Advisors: The RAND Study on ``Investor and 
Industry Perspectives on Investment Advisers and Broker-
Dealers'' reported that there is widespread confusion among 
investors about key differences between investment advisers and 
broker-dealers in their duties (advisers have a fiduciary 
duty), their titles and their services.
    What would you do as a Commissioner to reduce or eliminate 
this confusion for the protection of investors? For example, 
what actions would you support so that investors better 
understand the differences pursuant to which investment 
advisors owe them a fiduciary duty while broker-dealer 
registered representatives observe a standard of suitability?

A.2. The current regulatory divide between the regulation of 
broker-dealers and the regulation of investment advisers does 
not serve the investing public well. Public investors should 
not bear the burden of understanding the current differences in 
regulatory standards. This is an area where, in my view, 
disclosure may not be sufficient. The Commission should 
implement or propose the implementation of changes in the 
regulatory standards so that the application of regulation will 
be driven by what an investment professional does, not the 
label that applies to his or her profession.

Q.3. Cooperation with State Securities Regulators: State 
securities regulators are vital to the protection of investors. 
They have made important contributions identifying and 
prosecuting misleading and fraudulent stock analyst 
recommendations, leading to the Global Settlement; late trading 
and market timing involving mutual funds, leading to 
enforcement actions and regulatory reforms; and in responding 
to retail investor concerns. Would you encourage strong 
cooperation by the Commission with State securities regulators?

A.3. I endorse and would encourage strong cooperation by the 
Commission with State securities regulators.

Q.4. Mutual Recognition: The Commission is considering whether 
to implement mutual recognition, in which citizens in the U.S. 
could purchase or trade securities directly with foreign 
broker-dealers or on foreign exchanges and be regulated for 
many purposes by the foreign regulator instead of the SEC. The 
Commission announced that it has begun discussions with 
Australia, and such discussions are intended to enhance 
regulatory cooperation and investor access to foreign capital 
markets, and is making a schedule for a process intended to 
open discussions with Canada.
    When considering a mutual recognition framework that would 
allow U.S. citizens to directly invest in foreign markets and 
be solicited by foreign brokers, what factors do you feel the 
SEC should take into account? For example, do you feel that the 
Commission should find comparability not only of laws but also 
of a foreign regime's enforcement and inspection resources, 
independence from the government, respect for the rule of law, 
culture of fair dealing, tradition of investor protection, 
impartial regulation over market participants, or other 
factors?

A.4. There is a wide array of steps that can be taken to make 
it easier and less expensive for U.S. investors to invest in 
foreign securities and those steps have varying impact. It is 
critical that any steps taken not undercut the protections 
afforded to investors. The impact of any steps to be taken 
under the rubric of mutual recognition depends on the standards 
applied in determining comparability, as well as the scope and 
the particulars of the proposal. For example, the Commission 
should carefully consider the range of investors impacted and 
the extent to which enforcement and interpretation affect 
comparability. In addition, there are steps other than mutual 
recognition that should be considered. I look forward to 
learning more about the specifics of the Commission's current 
steps toward mutual recognition.

Q.5. Adequacy of the SEC Budget: A key factor in maintaining 
investor confidence is having a Federal securities regulator 
that is fully funded. Do you feel that the President's proposed 
SEC budget for FY 2009 at $913 million is adequate to 
effectively perform its functions, including ramping up the 
regulation of credit rating agencies, investigating conduct 
related to the sub-prime crisis, reviewing corporate 
disclosures, overseeing rules for new markets and other 
important activities? If you are confirmed and, as a 
Commissioner, find that more resources are needed, will you 
support an agency request for additional funding?

A.5. I do not yet have an opinion as to the adequacy of the 
Commission's budget. However, if I am confirmed and find that 
more resources are needed, I will support an agency request for 
additional funding.

Q.6. International Convergence of Financial Reporting 
Standards: The SEC is currently considering allowing U.S. 
companies to file financial statements using the International 
Financial Reporting Standards, which would give them a choice 
between GAAP and IFRS. Such a change at this time raises 
serious questions.

Q.6.A. While the FASB and IASB have undertaken efforts at 
convergence and made important progress, do you feel there are 
at present still significant differences between GAAP and IFRS?

A.6.A. There are still differences between GAAP and IFRS. If 
confirmed, I will delve into this issue to reach a conclusion 
as to the significance of the differences and the import of 
those differences for Commission action.

Q.6.B.  Would investors, particularly retail investors, be able 
to make accurate comparisons for purposes of making investment 
decisions between U.S. companies reporting material financial 
information in GAAP and in IFRS at this time?

A.6.B. It is difficult for retail investors to compare 
financial statements prepared under differing accounting 
standards. In determining whether to move forward with IFRS for 
U.S. companies, the Commission should consider whether 
disclosure can help to solve this problem.

Q.6.C. If given a choice between GAAP and IFRS, do you feel 
that there are circumstances under which a public company could 
choose one standard above the other to enhance the 
representation of its finances to investors? If so, do you feel 
that such a choice is consistent with the Commission's investor 
protection mission?

A.6.C. Giving companies a choice between GAAP and IFRS does 
present the possibility that a company would choose one 
standard over another to enhance the representation of its 
financial condition. However, the choice should be offered only 
if both sets of standards can fairly represent the financial 
position of an entity. If companies were permitted to choose 
between the two sets of accounting standards, the Commission 
should consider a requirement that the companies present 
several years of past financial statements using the new 
standard to ensure comparability and mitigate this problem.

Q.6.D. Do you feel that adequate capacity exists today in 
accounting firms to provide auditing services for all companies 
that might select IFRS, if given the choice, and do you feel 
such a change would have an impact on the cost of audit fees to 
public companies, particularly small businesses?

A.6.D. I am concerned about the capacity of accounting firms 
today to provide auditing services for all companies that might 
select IFRS. For that reason, the Commission, if it chooses to 
move forward with IFRS for U.S. companies, should assure that 
the program is implemented in a fashion that does not strain 
resources and unduly burden U.S. companies.

Q.7. Opt-In for Proxy Materials: A recent SEC new rule requires 
investors to make individual requests, or opt-in to obtain 
paper copies of proxy materials from companies in which they 
own stock. Reportedly, this rule has significantly reduced the 
number of individual shareholders who vote. The Wall Street 
Journal in late April reported that of ``80 companies that have 
switched to the electronic model, dubbed e-proxy . . . on 
average, just 4.6% of individual shareholders voted on company 
matters using e-proxy, a sharp decline from the 19.2% who voted 
in the year-earlier period, when the companies sent out 
traditional paper ballots, according to Broadridge Financial 
Solutions Inc., which processes proxy votes.''
    Do you feel the Commission should monitor the impact of 
this rule and determine whether the opt-in to receive a paper 
proxy is having an unintended or undue negative impact on 
shareholder voting participation?

A.7. It is important to facilitate shareholders' exercise of 
their right to vote. Technological advances should be used to 
benefit shareholders. The Commission should monitor the impact 
of the e-proxy rule and determine whether any change is 
warranted in light of experience under the rule.

Q.8. Short Sales in Shareholder Votes: Some have raised a 
concern that institutions which hold investors' stock in 
``street name,'' such as brokers and banks, may not be able to 
accurately account for shares that are sold ``short'' in 
corporate elections and this could cause problems in producing 
a reliable shareholder vote count in a close, contested 
election. Would you assess this concern and seek to take any 
appropriate action?

A.8. It is important that shareholder vote counts be reliable, 
particularly in close, contested elections. The impact of 
activity in street name stock on corporate elections and the 
accuracy of tallies should be evaluated and appropriate action 
should be taken to address any problem.

Q.9. SEC-CFTC Memorandum of Understanding: In March 2008, the 
SEC and CFTC signed a Memorandum of Understanding (MOU) to 
enhance coordination and facilitate review of new derivative 
products. SEC Chairman Christopher Cox and Acting CFTC Chairman 
Walt Lukken jointly stated portfolio margining is an issue that 
should be addressed under the MOU.
    Do you support addressing the customer protection issues 
presented by cross-margining futures and securities in customer 
portfolio margin accounts in the MOU process? If so, do you 
feel analyzing and potentially resolving this should be an 
important priority among the issues to be considered under the 
MOU?

A.9. It is important to address the customer protection issues 
raised by cross-margining futures and securities products in 
customer portfolio margin accounts. I do not, however, 
currently have a view as to whether the MOU process is the most 
appropriate manner in which to address those issues.
                                ------                                


         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM ELISSE B. WALTER

Q.1. Please explain if you believe the adoption of IFRS by U.S. 
companies meets the requirements of Sarbanes Oxley for such 
companies to use professional accounting standards established 
by an independent standard setting body?

A.1. I look forward to addressing the important and complex 
questions presented by the evolution of IFRS and the potential 
adoption of IFRS by U.S. companies, if I am confirmed. Among 
other questions, the funding, governance, accountability and 
practicality of operations of the standard setting body are 
significant issues. The legal question whether IFRS are 
professional accounting standards established by an independent 
standard setting body is one of the questions that I would 
examine closely.

Q.2. Financial services firms have become much more complex, 
and the markets have likewise become more complex. We have many 
non-bank entities engaging in banking activities and other 
players active in the markets, such as hedge funds. Many of 
these newer players remain unregulated, or are only lightly 
regulated, leaving some gaps in oversight throughout the 
financial system.
    What should the SEC be doing to better review risks in a 
more complex and global financial system? How can the SEC have 
a better handle on emerging risks because of this complexity?

A.2. The differing regulatory systems applicable to players in 
the financial system--and particularly the differing 
information about financial market participants available to 
regulators--present great challenges for the SEC and its fellow 
regulators. It is critical that the Commission exercise fully 
and vigorously the authority it has over many capital markets 
participants. It is equally critical that the SEC work closely 
with its fellow regulators--who have access to information 
about other market participants--sharing information and 
analysis to develop as full a picture of emerging risks as 
possible.

Q.3. What is your perspective on the Treasury's ``Blueprint For 
A Modernized Financial Regulatory Structure ``reform as it 
relates to the SEC?

A.3. I believe that the Treasury Blueprint raises important 
issues to be addressed by Congress and financial regulators. It 
is a good starting point for discussion. The issues raised with 
respect to the SEC, such as potential merger with the CFTC, 
deserve careful attention. I believe strongly that any change 
in regulatory structure must preserve the important roles that 
the SEC plays in protecting investors and maintaining fairness 
in the securities markets.

Q.4. What is your viewpoint on a non-binding shareowner's right 
to vote on a company's executive compensation program?

A.4. I believe that there are non-binding shareholder 
resolutions concerning executive compensation that, at the 
present time and under current rules, should be included in the 
company's proxy materials and presented to the shareholders for 
a vote.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR CARPER FROM ELISSE B. 
                             WALTER

Q.1. There is evidence that the U.S. has experienced some 
erosion in its leadership position in capital markets. Unless 
reversed, this may hurt Main Street as well as Wall Street. 
When companies choose to do IPOs outside the United States, 
they are locating not only investment banking deals, but also 
jobs, outside our country. A portion of this problem may be 
attributable to the securities litigation risk of being an 
American public company.
    Our colleague, Senator Schumer, together with Mayor 
Bloomberg, issued a report on this problem in 2007. It was 
preceded by work done by Professor Scott of Harvard Law School 
and his colleagues at the Committee on Capital Markets 
Regulation. The Schumer-Bloomberg and the CCMR reports called 
for the SEC to take action.
    Last August, a group of prominent academics from across the 
ideological spectrum wrote Chairman Cox with their concerns 
about securities class action lawsuits and the implications of 
such suits for U.S. capital markets and investor protection. 
This letter expressed concern about the compensatory and 
deterrence rationales for these lawsuits, as well as the 
burdens the existing system places on small investors.
    The conclusion of these experts is that litigation is 
effective at driving business and jobs out of the U.S., but is 
ineffective at deterring actual fraudulent conduct because 
``settlements almost never come out of the pockets of the 
managers who allegedly executed the fraud.''
    Chairman Cox has promised to convene an SEC roundtable to 
study these and other issues related to the existing securities 
class action system. However, little is happening at the SEC, 
at least as far as we can tell. Do you share the concerns 
raised by this group of prominent scholars?
    In addition, do you support the idea of convening such a 
roundtable, as proposed by Chairman Cox? If so, will you work 
with Chairman Cox to schedule it expeditiously?

A.1. It is important both that the U.S. retains a leadership 
position in the capital markets and that there are effective 
remedies for investors who have been victims of violations of 
the U.S. securities laws. The impact of securities litigation 
on our capital markets is a hotly debated issue and, if 
confirmed, I would welcome the opportunity to obtain further 
information and analysis from academics, practitioners and 
others. I would be happy to work with Chairman Cox on a 
roundtable and on any other appropriate steps.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR TESTER FROM ELISSE B. 
                             WALTER

    Last Wednesday, May 28, 2008, the Wall Street Journal ran a 
front page story entitled, `SEC Will Scour Bear Trading Data' 
stating that the SEC has an ongoing investigation into 
``whether there was insider trading or market manipulation of 
Bear Stearns, people familiar with the matter say.''

Q.1. Without asking for you to comment on the accuracy of the 
story, as I understand the SEC--nor its nominees should comment 
on an ongoing investigation--can you tell me whether the SEC 
should look into the possibility of insider trading and/or 
market manipulation as it relates to the Bear Stearns 
situation?

A.1. I believe that the SEC should look into the possibility of 
violations of the securities laws with respect to Bear Stearns.

Q.2. Also, do you believe that the SEC has all of the tools 
necessary to investigate the possibility of impropriety in a 
case like Bear Stearns and to a lesser extent Lehman Brothers?

A.2. To the best of my knowledge, the SEC does have the tools 
necessary to investigate the possibility of impropriety in such 
a case. If confirmed, I will analyze possible cases of 
impropriety closely to determine whether the Commission has 
sufficient tools to address violations of the securities laws 
and recommend that the Commission seek additional authority if 
needed.

Q.3. From your perspectives, are the Insider Trading Sanctions 
Act of 1984, Insider Trading and Securities Fraud Enforcement 
Act of 1988 and The Securities Exchange Act of 1934 sufficient?

A.3. I currently believe that the Commission has adequate tools 
to address insider trading and market manipulation but will 
review this issue if confirmed.
                                ------                                --
----


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM ELISSE B. 
                             WALTER

Q.1. Secretary Paulson's blueprint for a modernized financial 
regulatory structure, along with other studies, recommends both 
regulatory and legislative changes to modernize the SEC's 
oversight of the securities market. That means addressing the 
increasing global nature of the financial marketplace, speeding 
up the rule approval process, and updating and harmonizing 
existing statutes governing brokers and investment advisors to 
reflect current market conditions and client needs. The SEC is 
currently working on a broad array of issues including mutual 
recognition, principal trading relief, and short selling. What 
are the two or three issues you believe the SEC needs to 
resolve this year to enhance the competitiveness of our capital 
markets?

A.1. The competitiveness of our capital markets is a critical 
issue for our nation and for the SEC. It requires that the 
Commission consider and resolve or participate in the 
resolution of a number of complex questions, some of which may 
require legislation or international agreements and others that 
can be addressed through Commission rulemaking or other action. 
The Commission should address these questions in a timely 
manner, assuring that it takes the proper steps to buttress our 
competitiveness while also maintaining the high level of 
investor protection that has been a hallmark of U.S. markets. 
Given the evolution of the marketplace over the last decade and 
the events of the last year, I am confident that the SEC, 
working with other regulators, will be taking prompt action to 
determine the optimal way in which to assure that the goals of 
financial service regulation are achieved.
    The Commission should move forward in the near future on 
several matters, such as the elimination of inefficiencies in 
the self-regulatory organization rulemaking process. In 
addition, the Commission should develop a plan to address the 
issues raised by the increasing convergence of the businesses 
of broker-dealers and investment advisers. If confirmed, I look 
forward to working on each of these issues.
                                ------                                --
----


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR DODD FROM DONALD B. 
                             MARRON

Q.1. Dr. Marron, the Pew Center conducted a recent survey on 
Americans' views on not only the economy as a whole, but on 
their personal well-being. The Washington Post characterized 
the Pew Centers findings as--and I quote: ``Offering the 
gloomiest assessment of economic well-being in close to half a 
century, a new survey has found that most Americans say they 
have not made progress over the past five years as their 
incomes have stagnated and they have increasingly borrowed 
money to finance their lifestyles.''
    Dr. Marron, what economic policies over the past five years 
do you think led to this failure?

A.1. Our economy enjoyed a period of strong growth from the 
middle of 2003 through the third quarter of 2007, but then 
slowed substantially in the fourth quarter as weakness in the 
housing sector and turmoil in the credit markets spread to the 
broader economy. Together with recent increases in energy 
prices, the economic slowdown has created substantial 
challenges for many families and has weakened assessments of 
economic well-being.
    It is inevitable that the macroeconomy will experience 
slowdowns from time to time. It is also the case, however, that 
policy actions could have softened the housing, credit, and 
energy challenges that are now creating economic concerns for 
many families.
    A key aspect of recent challenges in the housing market is 
that in the past several years some homeowners entered into 
mortgages that they did not understand or could not afford. 
Such problems could have been reduced in the past, and would be 
reduced in the future, if (a) borrowers received better and 
more timely disclosure of mortgage terms before closing, (b) 
mortgage brokers met some minimum qualification standards 
before they could advise prospective borrowers, and (c) 
borrowers were qualified for adjustable rate mortgages based on 
the fully-indexed rate, not just an initial ``teaser'' rate. 
Together these policies would have reduced the number of 
borrowers who ended up in inappropriate mortgages and, as a 
result, have run into difficulties making their mortgage 
payments.
    Failures by the credit rating agencies stand out among the 
contributors to the credit market turmoil we have experienced 
over the past year. In retrospect, the ratings on many complex, 
structured financial instruments, including mortgage-backed 
securities, were often too optimistic. Moreover, investors 
often did not appreciate that a structured security with a 
particular rating, e.g., AAA, might pose different risks than 
another security, e.g., a corporate or municipal bond, with the 
same rating. Strengthening the credit rating process and 
reducing the potential for conflicts of interest could lessen 
the potential for a recurrence of these problems in the future.
    Rising gasoline prices have been another challenge, eating 
into family incomes substantially and undermining consumer 
confidence. As we discussed at the hearing, these increases 
have primarily been driven by a combination of strong worldwide 
demand for oil, coupled with limited expansion in supply. In 
recent years, Congress and the Administration have taken some 
steps that may soften gasoline price increases--e.g., 
encouraging alternative transportation fuels and increasing 
efficiency standards--but more could be done (e.g., expanding 
domestic petroleum supply).
    Finally, it is important to recognize policy successes. 
Congress and the Administration both deserve credit for the 
rapid, bipartisan agreement on a fiscal stimulus package early 
this year. That package should help soften some of the economic 
challenges now facing American families.

Q.2. Dr. Marron, you mentioned in response to a question from 
Senator Shelby that over time there will be changes in cars and 
fuel efficiency due to the high price of oil. We have also seen 
a surge in transit ridership recently, with record levels of 
ridership, which at times are straining the existing capacity 
of some transit systems. Do you think that transit use and 
demand for transit is rising due to soaring gas prices? If 
transit demand remains elevated due to higher gas prices, would 
this also justify and require increased investment in mass 
transit to meet the increased demand?

A.2. Yes, I believe that the use of mass transit has increased 
because of rising gasoline prices. I have not yet seen any 
definitive econometric studies of the issue, but recent media 
accounts indicate substantial increases in ridership on some 
systems. It would be surprising if those increases weren't due, 
in significant measure, to rising gasoline prices. Mass transit 
is thus providing an important benefit--softening the blow of 
higher gasoline prices--to Americans who have been able to make 
that switch; more Americans have that option today due to 
support from the Administration and the Congress for new 
transit investment as authorized in SAFETEA-LU.
    Given the recent increase in ridership, it makes sense to 
continually assess the needs of our transit system. The 
Administration has proposed more than $1.6 billion for new 
transit projects for fiscal year 2009. Whether the recent 
demand increase will require increased investment levels under 
the next surface authorization will depend on several factors.
    First, there will be differences across systems. Some mass 
transit systems may have been operating below their capacity or 
may already have expansion plans underway; those systems may be 
able to accommodate increased demand without increased 
investment. Other systems, however, may be pushed above their 
current or planned capacity, in which case new investment could 
be considered.
    Second, a key issue is whether the increased transit demand 
will persist long enough to warrant long-term investments. If 
gasoline prices were to fall in the future, for example, the 
recent growth in demand for transit might reverse. If gasoline 
prices climb even higher, however, growth in transit demand 
would likely be even greater.
    Finally, some transit system managers may respond to the 
recent growth in demand by taking steps to reduce usage, such 
as encouraging employers to stagger employee work hours (thus 
reducing peak demand). Such steps could moderate pressure on 
transit system capacity. Transit system planners should balance 
the impacts of such changes against the costs of any 
investments to expand capacity.

Q.3. Dr. Marron, at the hearing you indicated that the real-
time incoming economic data are not as accurate as is needed to 
conduct optimal economic policy. Do you believe that there are 
opportunities to collect better data that would result in 
better policy decisions? Would the relatively small additional 
cost to collect this information be worth the potentially large 
benefits associated with better policy making? As one of the 
President's economists, will you serve as a voice in the 
Administration in support of collecting better economic data?

A.3. Yes, I will absolutely be a voice in favor of better 
economic data; I think that is one of the key roles for any 
member of the Council of Economic Advisers. I see two basic 
strategies for improving economic data, both of which I believe 
should be pursued.
    The first strategy is to make more effective use of the 
data that we already collect. One example would be allowing the 
Bureau of Economic Analysis (BEA), the Bureau of Labor 
Statistics (BLS), and the Census Bureau to link their business 
data (while maintaining confidentiality). Such linking would 
improve the accuracy and reliability of economic statistics and 
could also reduce the burdens placed on survey respondents. 
With Administration support, the Congress took an important 
step toward facilitating such linkage in 2002 with the passage 
of the Confidential Information Protection and Statistical 
Efficiency Act (CIPSEA), which allowed for limited data sharing 
among BEA, BLS, and the Census Bureau. Full implementation of 
CIPSEA would require, however, changes to the Internal Revenue 
Code to authorize BLS to use business tax data which are used 
currently in the Census Bureau's business list, in the same 
manner as the other statistical agencies.
    The second strategy is to collect more data. One example 
would be collecting more timely data on the services sector. 
Today, the United States conducts a complete survey of the 
services sector--which comprises 55% of economic activity--only 
once every five years. We collect some services data more 
frequently (we have quarterly data for service industries that 
account for 17% of GDP and annual data for a broader group of 
services that account for 30% of GDP), but for a full 25% of 
GDP, data are collected only once every five years. The lack of 
timely data on such a large portion of the economy can make it 
difficult to identify trends--and changes in trends--that may 
be important to both policymakers and the private sector. 
Expanding surveys to cover the entire services sector on both a 
quarterly and an annual basis would require additional 
resources, but I believe that the benefits of improved insight 
into our economy would justify those costs. In addition, there 
is a need to expand coverage of price statistics in the 
services sector. There are significant gaps in our coverage of 
domestic services such as business, educational and medical 
services, and currently there is virtually no coverage of 
exported and imported services.
                                ------                                


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