FROM: EXPORT-IMPORT BANK
Chairman Hochberg's Statement to Senate Banking Committee on Ex-Im Bank’s Oversight and Reauthorization
Washington, D.C. – Today Export-Import Bank of the United States (Ex-Im Bank) Chairman and President Fred P. Hochberg delivered the following remarks to the Senate Committee on Banking, Housing, and Urban Affairs at the beginning of a hearing titled “Oversight and Reauthorization of the Export-Import Bank of the United States” in the Dirksen Senate Office Building.
Chairman Hochberg offered testimony today highlighting many of the Export-Import Bank’s achievements in recent years and its numbers from 2013. Highlights of the testimony include:
• Ex-Im supported an estimated 205,000 U.S. jobs in FY 2013
• Ex-Im generated more than $1 billion for the U.S. taxpayers in FY 2013
• Exports from the United States were up in 2013, but authorizations from Ex-Im Bank were off from the prior year, indicating that as the global economy continues to strengthen, exports are being financed not only by commercial banks but also by capital markets
• In FY 2013, the Bank financed a record 3,413 small businesses - nearly 90 percent of Ex-Im’s transactions.
• Ex-Im financed more small businesses in the last five years than the prior eight years combined.
• The Bank also financed more minority and woman-owned businesses in the last five years than the prior sixteen years combined.
His full written testimony is attached and pasted below.
*As prepared for delivery
Chairman Johnson, Ranking Member Crapo and distinguished members of the Banking Committee, thank you for inviting me to testify before you as the Committee considers the progress of the Export-Import Bank of the United States (“Ex-Im Bank” or “the Bank”) has made in supporting U.S. jobs through exports since our last reauthorization.
Today, American exports are at an all-time high. The United States exported a record $194.9 billion in November, 2013. Never before has the U.S. exported more goods and services in a single month. Our trade gap is the lowest it has been since 2009, when U.S. exports totaled $1.9 trillion. In 2012, U.S. exports totaled a record $2.2 trillion. The “Made in America” brand has never been stronger.
I am proud of the job our 400+ employees do each and every day. Ex-Im Bank has supported nearly 1.2 million private sector U.S. jobs since 2009, including 205,000 jobs in FY 2013 alone. The Bank operates at no cost to the taxpayers, and in FY 2013, the Bank generated more than $1 billion for the U.S. taxpayers above and beyond the cost of all operations and loan loss reserves. This $1 billion goes toward deficit reduction. We do this while maintaining a default rate of 0.267.
Ex-Im Bank has at its core ensuring that small businesses – the foundation of our economy – are at the forefront of U.S. exports. We cannot grow our economy – or our exports for that matter – without fully supporting the small businesses of America. In 2013, the Bank financed a record 3,413 small businesses - nearly 90 percent of Ex-Im’s transactions. In addition, Ex-Im financed more small businesses in the last five years than the prior eight years combined. The Bank also financed more minority and woman-owned businesses in the last five years than the prior sixteen years combined.
As the global economy continues to strengthen, exports are being financed not only by commercial banks but also by capital markets. This is an encouraging trend. In 2013, the total dollar amount of transactions financed by Ex-Im was significantly lower than in 2012, yet exports as a whole from the U.S. were up during that timeframe.
Ex-Im Bank is the official export credit agency of the United States. The mission of the Bank is to enable U.S. companies – large and small – to turn export opportunities into sales that help maintain and create U.S. jobs which contribute to a stronger national economy. The Bank achieves its mission, when needed, by providing export financing through its loan, guarantee, and insurance programs in cases where the private sector is unable or unwilling to do so.
For example, we provide trade credit insurance to Miss Jenny’s Pickles in North Carolina so they don’t need to worry about foreign buyers not paying. We provide a working capital guarantee to Auburn Leather in Kentucky so they can build the inventory necessary to meet large foreign purchase orders. And, we provide direct loans to foreign buyers of GE locomotives so the sales and jobs will benefit workers in Pennsylvania rather than a foreign competitor.
Ex-Im Bank also provides support if necessary to level the playing field when financing is provided by foreign governments to their companies who compete against U.S. exporters. We assume commercial, country, and liquidity risks that are reasonable and responsible, but currently beyond the still-recovering appetite of private lenders. Ex-Im Bank does not compete with private sector lenders, but rather provides financing for transactions that would otherwise not take place because commercial lenders are either unable or unwilling to accept the political or commercial risk inherent in the deal.
Ex-Im Bank offers a variety of products to help U.S. businesses export around the world. Our working capital financing supports small business exporters to obtain loans which facilitate the exports of goods or services made by commercial lenders and backed by our guarantee. These loans provide small businesses the liquidity and confidence to accept new international contracts, grow export sales, and compete more effectively in the international marketplace. Export credit insurance allows U.S. businesses to increase their export sales by limiting their international risk, offering credit to international buyers, and enabling American businesses to access working capital funds.
Ex-Im Bank continues its prudent oversight and due diligence standards to protect taxpayers through its comprehensive risk management framework. It begins with effective project underwriting, including detailed documentation and financial structuring to ensure the Bank’s rights are protected. It continues long after a transaction is approved and disbursed with pro-active monitoring efforts to ensure timely payment.
During all of FY 2013, the Ex-Im Bank paid, from the fees we collect, new gross claims of just $48.8 million on a total portfolio greater than $110 billion. The Bank recovered more money - $62.6 million - than it had in new claims for the fiscal year. The Bank is also appropriately reserved to cover expected loan losses. The Bank’s reserve methodology has been reviewed, by GAO, our internal auditors, KPMG, and our external auditors Deloitte & Touche. As a result of provisions included in the Bank’s charter during last year’s re-authorization, Ex-Im Bank submits a quarterly default rate report to Congress. As of December 31, 2013, the Bank's default rate was 0.267 percent. At the same time, over the past five years Ex-Im Bank has generated more than $2 billion for U.S. taxpayers, above and beyond all administrative operating costs, claims and loan loss reserves we set aside. We operate at no cost to the taxpayers.
Moreover, we are committed to providing “Government at the Speed of Business,” which means top-notch service and a relentless focus on our customers and a drive to innovate. In FY 2013, 89 percent of all transactions were completed within 30 days and 98 percent within 100 days. The time required to process long-term transactions dropped to an average of 88 days in FY 2013, down from an average of 163 days in FY 2009.
In 2013, the Bank named Mr. Charles J. Hall as our new Executive Vice President and Chief Risk Officer. Prudent risk-management is one of our foremost priorities. As chief risk officer, Mr. Hall reports directly to me and is responsible for ensuring that the Bank continues to be properly protected as it fulfills its mission of supporting jobs through exports.
Comprehensive risk management and continuous improvement is what we strive towards, and our default rate reflects that. The Bank has made many improvements over the past few years including:
Modernizing credit monitoring;
Creating a Special Assets unit to address emerging credit issues;
Expanding our pro-active monitoring efforts;
Improving our underwriting; and
Enhancing credit loss modeling with qualitative factors
We also have plans to implement additional risk management improvements identified over the past two years from our internal analysis of best practices, outside expert advice, audit recommendations, and from our Inspector General.
Ex-Im Bank has met all of the reporting requirements set forth in our reauthorization bill. We produced several reports to this committee including:
Our Business Plan;
Our Small Business Report;
Our Content Review;
Our Report on Financing of Textiles; and
Our Quarterly Default Rate Reports
We have added a textile industry representative to our Advisory Committee from Frontier Spinning in Greensboro, NC, which I visited earlier this month. We have fully implemented all Iran sanctions provisions, as required under the most recent reauthorization. In certain instances we have gone beyond the requirements of our reauthorization. For example, Congress required us to simply post our economic impact policies. The Bank went beyond the requirement by re-evaluating our economic impact procedure process and making changes to that process, which included the review of airline services.
As part of the reauthorization we are working in a transparent and cooperative way with GAO. I personally met with the Comptroller General to express my strong desire to work collaboratively and make the Bank more efficient and effective. I received very positive feedback from the Comptroller General about the cooperation between the GAO and Ex-Im.
Four reviews were required under our last reauthorization. To date, three reviews have been completed: risk management; business plan; and jobs supported calculation. In each of these reviews, the Bank agreed with the GAO’s recommendations and we have implemented or are in the process of implementing each of them. We continue to work closely with the GAO as they seek to complete the final audit, due diligence process, which is due in May 2014.
Small businesses are critical to our economy and comprise a significant number of net new jobs. Congress has mandated we make available 20 percent of our financing to meet their needs. In FY 2013 we financed a total of $6 billion in small business exports, of which $5.2 billion was for the direct support of American small-business exporters. Total small business exports include those directly exported by small business to a foreign buyer, plus small business inputs into the supply chain of larger U.S. companies’ products which are ultimately exported. At Ex-Im Bank, small business accounted for a record-high 3,413 authorizations – nearly 90 percent of the total number of Ex-Im transactions.
To put this in perspective, we have financed more small business in the past five years than in the previous eight years combined.
Another area that we are particularly proud of is our financing to woman and minority-owned businesses. In FY 2013, authorizations for woman-owned and minority-owned small businesses reached a historic high of 761 transactions, totaling $815.5 million. One in five of total authorizations supported woman-owned and minority-owned businesses. In fact, over the past five years we have financed more woman and minority owned businesses than the Bank did in the previous sixteen years combined.
To address the needs of our small business customers, Ex-Im Bank has implemented a number of new financial products. Our most popular product, Express Insurance, received an innovation in government award from Harvard’s Kennedy School and has helped more than 800 small businesses get a prompt response to their application.
The key to expanding exports is marketing and communicating to small businesses. Three years ago, Ex-Im in partnership with Tom Donohue at the U.S. Chamber of Commerce, Jay Timmons at the National Association of Manufacturers (NAM) and commercial banks, launched Global Access for Small Business. To date, we have held over 60 Global Access forums across America. From Billings to Boise and from Shreveport to Charlotte, more than five thousand businesses have learned how to access foreign markets and use Ex-Im Bank to give them a competitive edge when exporting. For example, in November 2013, Ex-Im and FedEx announced an innovative new alliance that will help U.S. small and medium-sized businesses (SMEs) reach the 95% of the world’s customers who live overseas. As part of this agreement, FedEx international customer representatives will make their clients aware of the Bank’s abilities to protect against the risk of nonpayment and to extend credit to buyers, eliminating the need for expensive letters of credit or cash-in-advance payments. Customers who are interested in this service will then be connected to Ex-Im Bank’s managers for trade finance counseling. This alliance with FedEx will help businesses increase sales, create jobs, and succeed in international markets.
At Ex-Im Bank we have worked to ensure significant progress in supporting our other congressional mandates to finance more renewable energy exports and exports to sub-Saharan Africa. Our support for renewable energy has increased nearly than tenfold from $30.4 million in FY 2008 to $257 million in FY 2013.
I am proud of our work in sub-Saharan Africa which is home to seven of the ten fastest growing economies in the world. In the past four years, Ex-Im Bank has authorized more than $4 billion in financing for U.S. exports to sub-Saharan Africa, including $604 million in authorizations in FY 2013.
The Bank approved a record 188 authorizations to sub-Saharan Africa in FY 2013. This financing supported U.S. exports to 35 of 49 sub-Saharan African countries, including Cameroon, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Africa and Tanzania.
Ex-Im Bank is a key player in the Power Africa initiative, involving other U.S. government agencies including the U.S. Agency for International Development (USAID), U.S. Trade and Development Agency (USTDA), the Overseas Private Investment Corporation (OPIC) and the Departments of State and Energy. Ex-Im Bank pledged support of up to $5 billion over the next five years in support of the President’s goal of doubling sub-Saharan Africa’s access to electricity.
As a destination market, Sub-Saharan Africa receives about one percent of U.S. exports, but the region receives a higher percentage of Ex-Im’s financing. As of FY 2013, almost five percent of Ex-Im’s total exposure consisted of exposure to sub-Saharan Africa.
I want to thank this committee for their work on our reauthorization in 2012 and stress the importance of a timely reauthorization in 2014. There are some 60 Export Credit Agencies (ECAs) around the globe. Make no mistake, these foreign governments want the 205,000 American jobs Ex-Im financing helped support last year for themselves. As I travel the world on behalf of American companies, I know that my counterparts in China, Brazil, Russia and South Korea, are right behind me. These nations, and many others, are serious competitors in the global marketplace. For example, the South Korean government, with an economy less than one tenth of our size finances more than 3 times the exports for South Korean companies than the United States finances for U.S. companies.. There is a strong drive to increase exports from many countries around the globe. We need to send the same signal to competitor nations that we stand behind American workers and ensure they are operating on a level playing field. In order for U.S. businesses to be able to compete based on the price and quality of their exports, Ex-Im needs to be there to level the playing field when it comes to meeting foreign ECA competition. The thousands of businesses that benefit from Ex-Im Bank financing – almost 90 percent of which are small businesses - appreciate the fact that Congress was able to reach an agreement to reauthorize the Bank in 2012 and they need to know that we will be around in the years ahead to help them meet foreign competition and grow their exports and create more jobs here at home.
I thank you for this opportunity to provide you with an update on the excellent work Ex-Im Bank is doing to support U.S. jobs. I want to commend the outstanding, professional work of our 400+ employees who are committed to supporting American jobs and increasing U.S. exports. I look forward to working with you to reauthorize the Bank and continue to grow U.S. exports.
Wednesday, January 29, 2014
PRESIDENT OBAMA'S STATE OF THE UNION ADDRESS FOR 2014
FROM: THE WHITE HOUSE
President Barack Obama's State of the Union Address
Mr. Speaker, Mr. Vice President, Members of Congress, my fellow Americans:
Today in America, a teacher spent extra time with a student who needed it, and did her part to lift America’s graduation rate to its highest level in more than three decades.
An entrepreneur flipped on the lights in her tech startup, and did her part to add to the more than eight million new jobs our businesses have created over the past four years.
An autoworker fine-tuned some of the best, most fuel-efficient cars in the world, and did his part to help America wean itself off foreign oil.
A farmer prepared for the spring after the strongest five-year stretch of farm exports in our history. A rural doctor gave a young child the first prescription to treat asthma that his mother could afford. A man took the bus home from the graveyard shift, bone-tired but dreaming big dreams for his son. And in tight-knit communities across America, fathers and mothers will tuck in their kids, put an arm around their spouse, remember fallen comrades, and give thanks for being home from a war that, after twelve long years, is finally coming to an end.
Tonight, this chamber speaks with one voice to the people we represent: it is you, our citizens, who make the state of our union strong.
Here are the results of your efforts: The lowest unemployment rate in over five years. A rebounding housing market. A manufacturing sector that’s adding jobs for the first time since the 1990s. More oil produced at home than we buy from the rest of the world – the first time that’s happened in nearly twenty years. Our deficits – cut by more than half. And for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.
That’s why I believe this can be a breakthrough year for America. After five years of grit and determined effort, the United States is better-positioned for the 21st century than any other nation on Earth.
The question for everyone in this chamber, running through every decision we make this year, is whether we are going to help or hinder this progress. For several years now, this town has been consumed by a rancorous argument over the proper size of the federal government. It’s an important debate – one that dates back to our very founding. But when that debate prevents us from carrying out even the most basic functions of our democracy – when our differences shut down government or threaten the full faith and credit of the United States – then we are not doing right by the American people.
As President, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here. I believe most of you are, too. Last month, thanks to the work of Democrats and Republicans, this Congress finally produced a budget that undoes some of last year’s severe cuts to priorities like education. Nobody got everything they wanted, and we can still do more to invest in this country’s future while bringing down our deficit in a balanced way. But the budget compromise should leave us freer to focus on creating new jobs, not creating new crises.
In the coming months, let’s see where else we can make progress together. Let’s make this a year of action. That’s what most Americans want – for all of us in this chamber to focus on their lives, their hopes, their aspirations. And what I believe unites the people of this nation, regardless of race or region or party, young or old, rich or poor, is the simple, profound belief in opportunity for all – the notion that if you work hard and take responsibility, you can get ahead.
Let’s face it: that belief has suffered some serious blows. Over more than three decades, even before the Great Recession hit, massive shifts in technology and global competition had eliminated a lot of good, middle-class jobs, and weakened the economic foundations that families depend on.
Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by – let alone get ahead. And too many still aren’t working at all.
Our job is to reverse these trends. It won’t happen right away, and we won’t agree on everything. But what I offer tonight is a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class. Some require Congressional action, and I’m eager to work with all of you. But America does not stand still – and neither will I. So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.
As usual, our First Lady sets a good example. Michelle’s Let’s Move partnership with schools, businesses, and local leaders has helped bring down childhood obesity rates for the first time in thirty years – an achievement that will improve lives and reduce health care costs for decades to come. The Joining Forces alliance that Michelle and Jill Biden launched has already encouraged employers to hire or train nearly 400,000 veterans and military spouses. Taking a page from that playbook, the White House just organized a College Opportunity Summit where already, 150 universities, businesses, and nonprofits have made concrete commitments to reduce inequality in access to higher education – and help every hardworking kid go to college and succeed when they get to campus. Across the country, we’re partnering with mayors, governors, and state legislatures on issues from homelessness to marriage equality.
The point is, there are millions of Americans outside Washington who are tired of stale political arguments, and are moving this country forward. They believe, and I believe, that here in America, our success should depend not on accident of birth, but the strength of our work ethic and the scope of our dreams. That’s what drew our forebears here. It’s how the daughter of a factory worker is CEO of America’s largest automaker; how the son of a barkeeper is Speaker of the House; how the son of a single mom can be President of the greatest nation on Earth.
Opportunity is who we are. And the defining project of our generation is to restore that promise.
We know where to start: the best measure of opportunity is access to a good job. With the economy picking up speed, companies say they intend to hire more people this year. And over half of big manufacturers say they’re thinking of insourcing jobs from abroad.
So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.
Moreover, we can take the money we save with this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes – because in today’s global economy, first-class jobs gravitate to first-class infrastructure. We’ll need Congress to protect more than three million jobs by finishing transportation and waterways bills this summer. But I will act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible.
We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. My administration has launched two hubs for high-tech manufacturing in Raleigh and Youngstown, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies. Tonight, I’m announcing we’ll launch six more this year. Bipartisan bills in both houses could double the number of these hubs and the jobs they create. So get those bills to my desk and put more Americans back to work.
Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when ninety-eight percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA.” China and Europe aren’t standing on the sidelines. Neither should we.
We know that the nation that goes all-in on innovation today will own the global economy tomorrow. This is an edge America cannot surrender. Federally-funded research helped lead to the ideas and inventions behind Google and smartphones. That’s why Congress should undo the damage done by last year’s cuts to basic research so we can unleash the next great American discovery – whether it’s vaccines that stay ahead of drug-resistant bacteria, or paper-thin material that’s stronger than steel. And let’s pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.
Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The all-of-the-above energy strategy I announced a few years ago is working, and today, America is closer to energy independence than we’ve been in decades.
One of the reasons why is natural gas – if extracted safely, it’s the bridge fuel that can power our economy with less of the carbon pollution that causes climate change. Businesses plan to invest almost $100 billion in new factories that use natural gas. I’ll cut red tape to help states get those factories built, and this Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas. My administration will keep working with the industry to sustain production and job growth while strengthening protection of our air, our water, and our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations.
It’s not just oil and natural gas production that’s booming; we’re becoming a global leader in solar, too. Every four minutes, another American home or business goes solar; every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it, so that we can invest more in fuels of the future that do.
And even as we’ve increased energy production, we’ve partnered with businesses, builders, and local communities to reduce the energy we consume. When we rescued our automakers, for example, we worked with them to set higher fuel efficiency standards for our cars. In the coming months, I’ll build on that success by setting new standards for our trucks, so we can keep driving down oil imports and what we pay at the pump.
Taken together, our energy policy is creating jobs and leading to a cleaner, safer planet. Over the past eight years, the United States has reduced our total carbon pollution more than any other nation on Earth. But we have to act with more urgency – because a changing climate is already harming western communities struggling with drought, and coastal cities dealing with floods. That’s why I directed my administration to work with states, utilities, and others to set new standards on the amount of carbon pollution our power plants are allowed to dump into the air. The shift to a cleaner energy economy won’t happen overnight, and it will require tough choices along the way. But the debate is settled. Climate change is a fact. And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did.
Finally, if we are serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, and law enforcement – and fix our broken immigration system. Republicans and Democrats in the Senate have acted. I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: when people come here to fulfill their dreams – to study, invent, and contribute to our culture – they make our country a more attractive place for businesses to locate and create jobs for everyone. So let’s get immigration reform done this year.
The ideas I’ve outlined so far can speed up growth and create more jobs. But in this rapidly-changing economy, we have to make sure that every American has the skills to fill those jobs.
The good news is, we know how to do it. Two years ago, as the auto industry came roaring back, Andra Rush opened up a manufacturing firm in Detroit. She knew that Ford needed parts for the best-selling truck in America, and she knew how to make them. She just needed the workforce. So she dialed up what we call an American Job Center – places where folks can walk in to get the help or training they need to find a new job, or better job. She was flooded with new workers. And today, Detroit Manufacturing Systems has more than 700 employees.
What Andra and her employees experienced is how it should be for every employer – and every job seeker. So tonight, I’ve asked Vice President Biden to lead an across-the-board reform of America’s training programs to make sure they have one mission: train Americans with the skills employers need, and match them to good jobs that need to be filled right now. That means more on-the-job training, and more apprenticeships that set a young worker on an upward trajectory for life. It means connecting companies to community colleges that can help design training to fill their specific needs. And if Congress wants to help, you can concentrate funding on proven programs that connect more ready-to-work Americans with ready-to-be-filled jobs.
I’m also convinced we can help Americans return to the workforce faster by reforming unemployment insurance so that it’s more effective in today’s economy. But first, this Congress needs to restore the unemployment insurance you just let expire for 1.6 million people.
Let me tell you why.
Misty DeMars is a mother of two young boys. She’d been steadily employed since she was a teenager. She put herself through college. She’d never collected unemployment benefits. In May, she and her husband used their life savings to buy their first home. A week later, budget cuts claimed the job she loved. Last month, when their unemployment insurance was cut off, she sat down and wrote me a letter – the kind I get every day. “We are the face of the unemployment crisis,” she wrote. “I am not dependent on the government…Our country depends on people like us who build careers, contribute to society…care about our neighbors…I am confident that in time I will find a job…I will pay my taxes, and we will raise our children in their own home in the community we love. Please give us this chance.”
Congress, give these hardworking, responsible Americans that chance. They need our help, but more important, this country needs them in the game. That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at that new job and new chance to support their families; this week, many will come to the White House to make that commitment real. Tonight, I ask every business leader in America to join us and to do the same – because we are stronger when America fields a full team.
Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education.
Estiven Rodriguez couldn’t speak a word of English when he moved to New York City at age nine. But last month, thanks to the support of great teachers and an innovative tutoring program, he led a march of his classmates – through a crowd of cheering parents and neighbors – from their high school to the post office, where they mailed off their college applications. And this son of a factory worker just found out he’s going to college this fall.
Five years ago, we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today, more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C. are making big strides in preparing students with skills for the new economy – problem solving, critical thinking, science, technology, engineering, and math. Some of this change is hard. It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it’s worth it – and it’s working.
The problem is we’re still not reaching enough kids, and we’re not reaching them in time. That has to change.
Research shows that one of the best investments we can make in a child’s life is high-quality early education. Last year, I asked this Congress to help states make high-quality pre-K available to every four year-old. As a parent as well as a President, I repeat that request tonight. But in the meantime, thirty states have raised pre-k funding on their own. They know we can’t wait. So just as we worked with states to reform our schools, this year, we’ll invest in new partnerships with states and communities across the country in a race to the top for our youngest children. And as Congress decides what it’s going to do, I’m going to pull together a coalition of elected officials, business leaders, and philanthropists willing to help more kids access the high-quality pre-K they need.
Last year, I also pledged to connect 99 percent of our students to high-speed broadband over the next four years. Tonight, I can announce that with the support of the FCC and companies like Apple, Microsoft, Sprint, and Verizon, we’ve got a down payment to start connecting more than 15,000 schools and twenty million students over the next two years, without adding a dime to the deficit.
We’re working to redesign high schools and partner them with colleges and employers that offer the real-world education and hands-on training that can lead directly to a job and career. We’re shaking up our system of higher education to give parents more information, and colleges more incentives to offer better value, so that no middle-class kid is priced out of a college education. We’re offering millions the opportunity to cap their monthly student loan payments to ten percent of their income, and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt. And I’m reaching out to some of America’s leading foundations and corporations on a new initiative to help more young men of color facing tough odds stay on track and reach their full potential.
The bottom line is, Michelle and I want every child to have the same chance this country gave us. But we know our opportunity agenda won’t be complete – and too many young people entering the workforce today will see the American Dream as an empty promise – unless we do more to make sure our economy honors the dignity of work, and hard work pays off for every single American.
Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment. A woman deserves equal pay for equal work. She deserves to have a baby without sacrificing her job. A mother deserves a day off to care for a sick child or sick parent without running into hardship – and you know what, a father does, too. It’s time to do away with workplace policies that belong in a “Mad Men” episode. This year, let’s all come together – Congress, the White House, and businesses from Wall Street to Main Street – to give every woman the opportunity she deserves. Because I firmly believe when women succeed, America succeeds.
Now, women hold a majority of lower-wage jobs – but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. But Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty.
In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs. Many businesses have done it on their own. Nick Chute is here tonight with his boss, John Soranno. John’s an owner of Punch Pizza in Minneapolis, and Nick helps make the dough. Only now he makes more of it: John just gave his employees a raise, to ten bucks an hour – a decision that eased their financial stress and boosted their morale.
Tonight, I ask more of America’s business leaders to follow John’s lead and do what you can to raise your employees’ wages. To every mayor, governor, and state legislator in America, I say, you don’t have to wait for Congress to act; Americans will support you if you take this on. And as a chief executive, I intend to lead by example. Profitable corporations like Costco see higher wages as the smart way to boost productivity and reduce turnover. We should too. In the coming weeks, I will issue an Executive Order requiring federal contractors to pay their federally-funded employees a fair wage of at least $10.10 an hour – because if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.
Of course, to reach millions more, Congress needs to get on board. Today, the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan first stood here. Tom Harkin and George Miller have a bill to fix that by lifting the minimum wage to $10.10. This will help families. It will give businesses customers with more money to spend. It doesn’t involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise.
There are other steps we can take to help families make ends meet, and few are more effective at reducing inequality and helping families pull themselves up through hard work than the Earned Income Tax Credit. Right now, it helps about half of all parents at some point. But I agree with Republicans like Senator Rubio that it doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work, and help more Americans get ahead.
Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can. And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.
One last point on financial security. For decades, few things exposed hard-working families to economic hardship more than a broken health care system. And in case you haven’t heard, we’re in the process of fixing that.
A pre-existing condition used to mean that someone like Amanda Shelley, a physician assistant and single mom from Arizona, couldn’t get health insurance. But on January 1st, she got covered. On January 3rd, she felt a sharp pain. On January 6th, she had emergency surgery. Just one week earlier, Amanda said, that surgery would’ve meant bankruptcy.
That’s what health insurance reform is all about – the peace of mind that if misfortune strikes, you don’t have to lose everything.
Already, because of the Affordable Care Act, more than three million Americans under age 26 have gained coverage under their parents’ plans.
More than nine million Americans have signed up for private health insurance or Medicaid coverage.
And here’s another number: zero. Because of this law, no American can ever again be dropped or denied coverage for a preexisting condition like asthma, back pain, or cancer. No woman can ever be charged more just because she’s a woman. And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat, and lowering prescription costs for millions of seniors.
Now, I don’t expect to convince my Republican friends on the merits of this law. But I know that the American people aren’t interested in refighting old battles. So again, if you have specific plans to cut costs, cover more people, and increase choice – tell America what you’d do differently. Let’s see if the numbers add up. But let’s not have another forty-something votes to repeal a law that’s already helping millions of Americans like Amanda. The first forty were plenty. We got it. We all owe it to the American people to say what we’re for, not just what we’re against.
And if you want to know the real impact this law is having, just talk to Governor Steve Beshear of Kentucky, who’s here tonight. Kentucky’s not the most liberal part of the country, but he’s like a man possessed when it comes to covering his commonwealth’s families. “They are our friends and neighbors,” he said. “They are people we shop and go to church with…farmers out on the tractors…grocery clerks…they are people who go to work every morning praying they don’t get sick. No one deserves to live that way.”
Steve’s right. That’s why, tonight, I ask every American who knows someone without health insurance to help them get covered by March 31st. Moms, get on your kids to sign up. Kids, call your mom and walk her through the application. It will give her some peace of mind – plus, she’ll appreciate hearing from you.
After all, that’s the spirit that has always moved this nation forward. It’s the spirit of citizenship – the recognition that through hard work and responsibility, we can pursue our individual dreams, but still come together as one American family to make sure the next generation can pursue its dreams as well.
Citizenship means standing up for everyone’s right to vote. Last year, part of the Voting Rights Act was weakened. But conservative Republicans and liberal Democrats are working together to strengthen it; and the bipartisan commission I appointed last year has offered reforms so that no one has to wait more than a half hour to vote. Let’s support these efforts. It should be the power of our vote, not the size of our bank account, that drives our democracy.
Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters, shopping malls, or schools like Sandy Hook.
Citizenship demands a sense of common cause; participation in the hard work of self-government; an obligation to serve to our communities. And I know this chamber agrees that few Americans give more to their country than our diplomats and the men and women of the United States Armed Forces.
Tonight, because of the extraordinary troops and civilians who risk and lay down their lives to keep us free, the United States is more secure. When I took office, nearly 180,000 Americans were serving in Iraq and Afghanistan. Today, all our troops are out of Iraq. More than 60,000 of our troops have already come home from Afghanistan. With Afghan forces now in the lead for their own security, our troops have moved to a support role. Together with our allies, we will complete our mission there by the end of this year, and America’s longest war will finally be over.
After 2014, we will support a unified Afghanistan as it takes responsibility for its own future. If the Afghan government signs a security agreement that we have negotiated, a small force of Americans could remain in Afghanistan with NATO allies to carry out two narrow missions: training and assisting Afghan forces, and counterterrorism operations to pursue any remnants of al Qaeda. For while our relationship with Afghanistan will change, one thing will not: our resolve that terrorists do not launch attacks against our country.
The fact is, that danger remains. While we have put al Qaeda’s core leadership on a path to defeat, the threat has evolved, as al Qaeda affiliates and other extremists take root in different parts of the world. In Yemen, Somalia, Iraq, and Mali, we have to keep working with partners to disrupt and disable these networks. In Syria, we’ll support the opposition that rejects the agenda of terrorist networks. Here at home, we’ll keep strengthening our defenses, and combat new threats like cyberattacks. And as we reform our defense budget, we have to keep faith with our men and women in uniform, and invest in the capabilities they need to succeed in future missions.
We have to remain vigilant. But I strongly believe our leadership and our security cannot depend on our military alone. As Commander-in-Chief, I have used force when needed to protect the American people, and I will never hesitate to do so as long as I hold this office. But I will not send our troops into harm’s way unless it’s truly necessary; nor will I allow our sons and daughters to be mired in open-ended conflicts. We must fight the battles that need to be fought, not those that terrorists prefer from us – large-scale deployments that drain our strength and may ultimately feed extremism.
So, even as we aggressively pursue terrorist networks – through more targeted efforts and by building the capacity of our foreign partners – America must move off a permanent war footing. That’s why I’ve imposed prudent limits on the use of drones – for we will not be safer if people abroad believe we strike within their countries without regard for the consequence. That’s why, working with this Congress, I will reform our surveillance programs – because the vital work of our intelligence community depends on public confidence, here and abroad, that the privacy of ordinary people is not being violated. And with the Afghan war ending, this needs to be the year Congress lifts the remaining restrictions on detainee transfers and we close the prison at Guantanamo Bay – because we counter terrorism not just through intelligence and military action, but by remaining true to our Constitutional ideals, and setting an example for the rest of the world.
You see, in a world of complex threats, our security and leadership depends on all elements of our power – including strong and principled diplomacy. American diplomacy has rallied more than fifty countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles. American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated, and we will continue to work with the international community to usher in the future the Syrian people deserve – a future free of dictatorship, terror and fear. As we speak, American diplomacy is supporting Israelis and Palestinians as they engage in difficult but necessary talks to end the conflict there; to achieve dignity and an independent state for Palestinians, and lasting peace and security for the State of Israel – a Jewish state that knows America will always be at their side.
And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program – and rolled parts of that program back – for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium. It is not installing advanced centrifuges. Unprecedented inspections help the world verify, every day, that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon.
These negotiations will be difficult. They may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and the mistrust between our nations cannot be wished away. But these negotiations do not rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today.
The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. For the sake of our national security, we must give diplomacy a chance to succeed. If Iran’s leaders do not seize this opportunity, then I will be the first to call for more sanctions, and stand ready to exercise all options to make sure Iran does not build a nuclear weapon. But if Iran’s leaders do seize the chance, then Iran could take an important step to rejoin the community of nations, and we will have resolved one of the leading security challenges of our time without the risks of war.
Finally, let’s remember that our leadership is defined not just by our defense against threats, but by the enormous opportunities to do good and promote understanding around the globe – to forge greater cooperation, to expand new markets, to free people from fear and want. And no one is better positioned to take advantage of those opportunities than America.
Our alliance with Europe remains the strongest the world has ever known. From Tunisia to Burma, we’re supporting those who are willing to do the hard work of building democracy. In Ukraine, we stand for the principle that all people have the right to express themselves freely and peacefully, and have a say in their country’s future. Across Africa, we’re bringing together businesses and governments to double access to electricity and help end extreme poverty. In the Americas, we are building new ties of commerce, but we’re also expanding cultural and educational exchanges among young people. And we will continue to focus on the Asia-Pacific, where we support our allies, shape a future of greater security and prosperity, and extend a hand to those devastated by disaster – as we did in the Philippines, when our Marines and civilians rushed to aid those battered by a typhoon, and were greeted with words like, “We will never forget your kindness” and “God bless America!”
We do these things because they help promote our long-term security. And we do them because we believe in the inherent dignity and equality of every human being, regardless of race or religion, creed or sexual orientation. And next week, the world will see one expression of that commitment – when Team USA marches the red, white, and blue into the Olympic Stadium – and brings home the gold.
My fellow Americans, no other country in the world does what we do. On every issue, the world turns to us, not simply because of the size of our economy or our military might – but because of the ideals we stand for, and the burdens we bear to advance them.
No one knows this better than those who serve in uniform. As this time of war draws to a close, a new generation of heroes returns to civilian life. We’ll keep slashing that backlog so our veterans receive the benefits they’ve earned, and our wounded warriors receive the health care – including the mental health care – that they need. We’ll keep working to help all our veterans translate their skills and leadership into jobs here at home. And we all continue to join forces to honor and support our remarkable military families.
Let me tell you about one of those families I’ve come to know.
I first met Cory Remsburg, a proud Army Ranger, at Omaha Beach on the 65th anniversary of D-Day. Along with some of his fellow Rangers, he walked me through the program – a strong, impressive young man, with an easy manner, sharp as a tack. We joked around, and took pictures, and I told him to stay in touch.
A few months later, on his tenth deployment, Cory was nearly killed by a massive roadside bomb in Afghanistan. His comrades found him in a canal, face down, underwater, shrapnel in his brain.
For months, he lay in a coma. The next time I met him, in the hospital, he couldn’t speak; he could barely move. Over the years, he’s endured dozens of surgeries and procedures, and hours of grueling rehab every day.
Even now, Cory is still blind in one eye. He still struggles on his left side. But slowly, steadily, with the support of caregivers like his dad Craig, and the community around him, Cory has grown stronger. Day by day, he’s learned to speak again and stand again and walk again – and he’s working toward the day when he can serve his country again.
“My recovery has not been easy,” he says. “Nothing in life that’s worth anything is easy.”
Cory is here tonight. And like the Army he loves, like the America he serves, Sergeant First Class Cory Remsburg never gives up, and he does not quit.
My fellow Americans, men and women like Cory remind us that America has never come easy. Our freedom, our democracy, has never been easy. Sometimes we stumble; we make mistakes; we get frustrated or discouraged. But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress – to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice, and fairness, and equality under the law, so that the words set to paper by our founders are made real for every citizen. The America we want for our kids – a rising America where honest work is plentiful and communities are strong; where prosperity is widely shared and opportunity for all lets us go as far as our dreams and toil will take us – none of it is easy. But if we work together; if we summon what is best in us, with our feet planted firmly in today but our eyes cast towards tomorrow – I know it’s within our reach.
Believe it.
God bless you, and God bless the United States of America.
President Barack Obama's State of the Union Address
Mr. Speaker, Mr. Vice President, Members of Congress, my fellow Americans:
Today in America, a teacher spent extra time with a student who needed it, and did her part to lift America’s graduation rate to its highest level in more than three decades.
An entrepreneur flipped on the lights in her tech startup, and did her part to add to the more than eight million new jobs our businesses have created over the past four years.
An autoworker fine-tuned some of the best, most fuel-efficient cars in the world, and did his part to help America wean itself off foreign oil.
A farmer prepared for the spring after the strongest five-year stretch of farm exports in our history. A rural doctor gave a young child the first prescription to treat asthma that his mother could afford. A man took the bus home from the graveyard shift, bone-tired but dreaming big dreams for his son. And in tight-knit communities across America, fathers and mothers will tuck in their kids, put an arm around their spouse, remember fallen comrades, and give thanks for being home from a war that, after twelve long years, is finally coming to an end.
Tonight, this chamber speaks with one voice to the people we represent: it is you, our citizens, who make the state of our union strong.
Here are the results of your efforts: The lowest unemployment rate in over five years. A rebounding housing market. A manufacturing sector that’s adding jobs for the first time since the 1990s. More oil produced at home than we buy from the rest of the world – the first time that’s happened in nearly twenty years. Our deficits – cut by more than half. And for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.
That’s why I believe this can be a breakthrough year for America. After five years of grit and determined effort, the United States is better-positioned for the 21st century than any other nation on Earth.
The question for everyone in this chamber, running through every decision we make this year, is whether we are going to help or hinder this progress. For several years now, this town has been consumed by a rancorous argument over the proper size of the federal government. It’s an important debate – one that dates back to our very founding. But when that debate prevents us from carrying out even the most basic functions of our democracy – when our differences shut down government or threaten the full faith and credit of the United States – then we are not doing right by the American people.
As President, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here. I believe most of you are, too. Last month, thanks to the work of Democrats and Republicans, this Congress finally produced a budget that undoes some of last year’s severe cuts to priorities like education. Nobody got everything they wanted, and we can still do more to invest in this country’s future while bringing down our deficit in a balanced way. But the budget compromise should leave us freer to focus on creating new jobs, not creating new crises.
In the coming months, let’s see where else we can make progress together. Let’s make this a year of action. That’s what most Americans want – for all of us in this chamber to focus on their lives, their hopes, their aspirations. And what I believe unites the people of this nation, regardless of race or region or party, young or old, rich or poor, is the simple, profound belief in opportunity for all – the notion that if you work hard and take responsibility, you can get ahead.
Let’s face it: that belief has suffered some serious blows. Over more than three decades, even before the Great Recession hit, massive shifts in technology and global competition had eliminated a lot of good, middle-class jobs, and weakened the economic foundations that families depend on.
Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by – let alone get ahead. And too many still aren’t working at all.
Our job is to reverse these trends. It won’t happen right away, and we won’t agree on everything. But what I offer tonight is a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class. Some require Congressional action, and I’m eager to work with all of you. But America does not stand still – and neither will I. So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.
As usual, our First Lady sets a good example. Michelle’s Let’s Move partnership with schools, businesses, and local leaders has helped bring down childhood obesity rates for the first time in thirty years – an achievement that will improve lives and reduce health care costs for decades to come. The Joining Forces alliance that Michelle and Jill Biden launched has already encouraged employers to hire or train nearly 400,000 veterans and military spouses. Taking a page from that playbook, the White House just organized a College Opportunity Summit where already, 150 universities, businesses, and nonprofits have made concrete commitments to reduce inequality in access to higher education – and help every hardworking kid go to college and succeed when they get to campus. Across the country, we’re partnering with mayors, governors, and state legislatures on issues from homelessness to marriage equality.
The point is, there are millions of Americans outside Washington who are tired of stale political arguments, and are moving this country forward. They believe, and I believe, that here in America, our success should depend not on accident of birth, but the strength of our work ethic and the scope of our dreams. That’s what drew our forebears here. It’s how the daughter of a factory worker is CEO of America’s largest automaker; how the son of a barkeeper is Speaker of the House; how the son of a single mom can be President of the greatest nation on Earth.
Opportunity is who we are. And the defining project of our generation is to restore that promise.
We know where to start: the best measure of opportunity is access to a good job. With the economy picking up speed, companies say they intend to hire more people this year. And over half of big manufacturers say they’re thinking of insourcing jobs from abroad.
So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.
Moreover, we can take the money we save with this transition to tax reform to create jobs rebuilding our roads, upgrading our ports, unclogging our commutes – because in today’s global economy, first-class jobs gravitate to first-class infrastructure. We’ll need Congress to protect more than three million jobs by finishing transportation and waterways bills this summer. But I will act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible.
We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. My administration has launched two hubs for high-tech manufacturing in Raleigh and Youngstown, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies. Tonight, I’m announcing we’ll launch six more this year. Bipartisan bills in both houses could double the number of these hubs and the jobs they create. So get those bills to my desk and put more Americans back to work.
Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when ninety-eight percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA.” China and Europe aren’t standing on the sidelines. Neither should we.
We know that the nation that goes all-in on innovation today will own the global economy tomorrow. This is an edge America cannot surrender. Federally-funded research helped lead to the ideas and inventions behind Google and smartphones. That’s why Congress should undo the damage done by last year’s cuts to basic research so we can unleash the next great American discovery – whether it’s vaccines that stay ahead of drug-resistant bacteria, or paper-thin material that’s stronger than steel. And let’s pass a patent reform bill that allows our businesses to stay focused on innovation, not costly, needless litigation.
Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The all-of-the-above energy strategy I announced a few years ago is working, and today, America is closer to energy independence than we’ve been in decades.
One of the reasons why is natural gas – if extracted safely, it’s the bridge fuel that can power our economy with less of the carbon pollution that causes climate change. Businesses plan to invest almost $100 billion in new factories that use natural gas. I’ll cut red tape to help states get those factories built, and this Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas. My administration will keep working with the industry to sustain production and job growth while strengthening protection of our air, our water, and our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations.
It’s not just oil and natural gas production that’s booming; we’re becoming a global leader in solar, too. Every four minutes, another American home or business goes solar; every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it, so that we can invest more in fuels of the future that do.
And even as we’ve increased energy production, we’ve partnered with businesses, builders, and local communities to reduce the energy we consume. When we rescued our automakers, for example, we worked with them to set higher fuel efficiency standards for our cars. In the coming months, I’ll build on that success by setting new standards for our trucks, so we can keep driving down oil imports and what we pay at the pump.
Taken together, our energy policy is creating jobs and leading to a cleaner, safer planet. Over the past eight years, the United States has reduced our total carbon pollution more than any other nation on Earth. But we have to act with more urgency – because a changing climate is already harming western communities struggling with drought, and coastal cities dealing with floods. That’s why I directed my administration to work with states, utilities, and others to set new standards on the amount of carbon pollution our power plants are allowed to dump into the air. The shift to a cleaner energy economy won’t happen overnight, and it will require tough choices along the way. But the debate is settled. Climate change is a fact. And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did.
Finally, if we are serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, and law enforcement – and fix our broken immigration system. Republicans and Democrats in the Senate have acted. I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: when people come here to fulfill their dreams – to study, invent, and contribute to our culture – they make our country a more attractive place for businesses to locate and create jobs for everyone. So let’s get immigration reform done this year.
The ideas I’ve outlined so far can speed up growth and create more jobs. But in this rapidly-changing economy, we have to make sure that every American has the skills to fill those jobs.
The good news is, we know how to do it. Two years ago, as the auto industry came roaring back, Andra Rush opened up a manufacturing firm in Detroit. She knew that Ford needed parts for the best-selling truck in America, and she knew how to make them. She just needed the workforce. So she dialed up what we call an American Job Center – places where folks can walk in to get the help or training they need to find a new job, or better job. She was flooded with new workers. And today, Detroit Manufacturing Systems has more than 700 employees.
What Andra and her employees experienced is how it should be for every employer – and every job seeker. So tonight, I’ve asked Vice President Biden to lead an across-the-board reform of America’s training programs to make sure they have one mission: train Americans with the skills employers need, and match them to good jobs that need to be filled right now. That means more on-the-job training, and more apprenticeships that set a young worker on an upward trajectory for life. It means connecting companies to community colleges that can help design training to fill their specific needs. And if Congress wants to help, you can concentrate funding on proven programs that connect more ready-to-work Americans with ready-to-be-filled jobs.
I’m also convinced we can help Americans return to the workforce faster by reforming unemployment insurance so that it’s more effective in today’s economy. But first, this Congress needs to restore the unemployment insurance you just let expire for 1.6 million people.
Let me tell you why.
Misty DeMars is a mother of two young boys. She’d been steadily employed since she was a teenager. She put herself through college. She’d never collected unemployment benefits. In May, she and her husband used their life savings to buy their first home. A week later, budget cuts claimed the job she loved. Last month, when their unemployment insurance was cut off, she sat down and wrote me a letter – the kind I get every day. “We are the face of the unemployment crisis,” she wrote. “I am not dependent on the government…Our country depends on people like us who build careers, contribute to society…care about our neighbors…I am confident that in time I will find a job…I will pay my taxes, and we will raise our children in their own home in the community we love. Please give us this chance.”
Congress, give these hardworking, responsible Americans that chance. They need our help, but more important, this country needs them in the game. That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at that new job and new chance to support their families; this week, many will come to the White House to make that commitment real. Tonight, I ask every business leader in America to join us and to do the same – because we are stronger when America fields a full team.
Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education.
Estiven Rodriguez couldn’t speak a word of English when he moved to New York City at age nine. But last month, thanks to the support of great teachers and an innovative tutoring program, he led a march of his classmates – through a crowd of cheering parents and neighbors – from their high school to the post office, where they mailed off their college applications. And this son of a factory worker just found out he’s going to college this fall.
Five years ago, we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today, more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C. are making big strides in preparing students with skills for the new economy – problem solving, critical thinking, science, technology, engineering, and math. Some of this change is hard. It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it’s worth it – and it’s working.
The problem is we’re still not reaching enough kids, and we’re not reaching them in time. That has to change.
Research shows that one of the best investments we can make in a child’s life is high-quality early education. Last year, I asked this Congress to help states make high-quality pre-K available to every four year-old. As a parent as well as a President, I repeat that request tonight. But in the meantime, thirty states have raised pre-k funding on their own. They know we can’t wait. So just as we worked with states to reform our schools, this year, we’ll invest in new partnerships with states and communities across the country in a race to the top for our youngest children. And as Congress decides what it’s going to do, I’m going to pull together a coalition of elected officials, business leaders, and philanthropists willing to help more kids access the high-quality pre-K they need.
Last year, I also pledged to connect 99 percent of our students to high-speed broadband over the next four years. Tonight, I can announce that with the support of the FCC and companies like Apple, Microsoft, Sprint, and Verizon, we’ve got a down payment to start connecting more than 15,000 schools and twenty million students over the next two years, without adding a dime to the deficit.
We’re working to redesign high schools and partner them with colleges and employers that offer the real-world education and hands-on training that can lead directly to a job and career. We’re shaking up our system of higher education to give parents more information, and colleges more incentives to offer better value, so that no middle-class kid is priced out of a college education. We’re offering millions the opportunity to cap their monthly student loan payments to ten percent of their income, and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt. And I’m reaching out to some of America’s leading foundations and corporations on a new initiative to help more young men of color facing tough odds stay on track and reach their full potential.
The bottom line is, Michelle and I want every child to have the same chance this country gave us. But we know our opportunity agenda won’t be complete – and too many young people entering the workforce today will see the American Dream as an empty promise – unless we do more to make sure our economy honors the dignity of work, and hard work pays off for every single American.
Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment. A woman deserves equal pay for equal work. She deserves to have a baby without sacrificing her job. A mother deserves a day off to care for a sick child or sick parent without running into hardship – and you know what, a father does, too. It’s time to do away with workplace policies that belong in a “Mad Men” episode. This year, let’s all come together – Congress, the White House, and businesses from Wall Street to Main Street – to give every woman the opportunity she deserves. Because I firmly believe when women succeed, America succeeds.
Now, women hold a majority of lower-wage jobs – but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. But Americans overwhelmingly agree that no one who works full time should ever have to raise a family in poverty.
In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs. Many businesses have done it on their own. Nick Chute is here tonight with his boss, John Soranno. John’s an owner of Punch Pizza in Minneapolis, and Nick helps make the dough. Only now he makes more of it: John just gave his employees a raise, to ten bucks an hour – a decision that eased their financial stress and boosted their morale.
Tonight, I ask more of America’s business leaders to follow John’s lead and do what you can to raise your employees’ wages. To every mayor, governor, and state legislator in America, I say, you don’t have to wait for Congress to act; Americans will support you if you take this on. And as a chief executive, I intend to lead by example. Profitable corporations like Costco see higher wages as the smart way to boost productivity and reduce turnover. We should too. In the coming weeks, I will issue an Executive Order requiring federal contractors to pay their federally-funded employees a fair wage of at least $10.10 an hour – because if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.
Of course, to reach millions more, Congress needs to get on board. Today, the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan first stood here. Tom Harkin and George Miller have a bill to fix that by lifting the minimum wage to $10.10. This will help families. It will give businesses customers with more money to spend. It doesn’t involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise.
There are other steps we can take to help families make ends meet, and few are more effective at reducing inequality and helping families pull themselves up through hard work than the Earned Income Tax Credit. Right now, it helps about half of all parents at some point. But I agree with Republicans like Senator Rubio that it doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work, and help more Americans get ahead.
Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can. And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.
One last point on financial security. For decades, few things exposed hard-working families to economic hardship more than a broken health care system. And in case you haven’t heard, we’re in the process of fixing that.
A pre-existing condition used to mean that someone like Amanda Shelley, a physician assistant and single mom from Arizona, couldn’t get health insurance. But on January 1st, she got covered. On January 3rd, she felt a sharp pain. On January 6th, she had emergency surgery. Just one week earlier, Amanda said, that surgery would’ve meant bankruptcy.
That’s what health insurance reform is all about – the peace of mind that if misfortune strikes, you don’t have to lose everything.
Already, because of the Affordable Care Act, more than three million Americans under age 26 have gained coverage under their parents’ plans.
More than nine million Americans have signed up for private health insurance or Medicaid coverage.
And here’s another number: zero. Because of this law, no American can ever again be dropped or denied coverage for a preexisting condition like asthma, back pain, or cancer. No woman can ever be charged more just because she’s a woman. And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat, and lowering prescription costs for millions of seniors.
Now, I don’t expect to convince my Republican friends on the merits of this law. But I know that the American people aren’t interested in refighting old battles. So again, if you have specific plans to cut costs, cover more people, and increase choice – tell America what you’d do differently. Let’s see if the numbers add up. But let’s not have another forty-something votes to repeal a law that’s already helping millions of Americans like Amanda. The first forty were plenty. We got it. We all owe it to the American people to say what we’re for, not just what we’re against.
And if you want to know the real impact this law is having, just talk to Governor Steve Beshear of Kentucky, who’s here tonight. Kentucky’s not the most liberal part of the country, but he’s like a man possessed when it comes to covering his commonwealth’s families. “They are our friends and neighbors,” he said. “They are people we shop and go to church with…farmers out on the tractors…grocery clerks…they are people who go to work every morning praying they don’t get sick. No one deserves to live that way.”
Steve’s right. That’s why, tonight, I ask every American who knows someone without health insurance to help them get covered by March 31st. Moms, get on your kids to sign up. Kids, call your mom and walk her through the application. It will give her some peace of mind – plus, she’ll appreciate hearing from you.
After all, that’s the spirit that has always moved this nation forward. It’s the spirit of citizenship – the recognition that through hard work and responsibility, we can pursue our individual dreams, but still come together as one American family to make sure the next generation can pursue its dreams as well.
Citizenship means standing up for everyone’s right to vote. Last year, part of the Voting Rights Act was weakened. But conservative Republicans and liberal Democrats are working together to strengthen it; and the bipartisan commission I appointed last year has offered reforms so that no one has to wait more than a half hour to vote. Let’s support these efforts. It should be the power of our vote, not the size of our bank account, that drives our democracy.
Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters, shopping malls, or schools like Sandy Hook.
Citizenship demands a sense of common cause; participation in the hard work of self-government; an obligation to serve to our communities. And I know this chamber agrees that few Americans give more to their country than our diplomats and the men and women of the United States Armed Forces.
Tonight, because of the extraordinary troops and civilians who risk and lay down their lives to keep us free, the United States is more secure. When I took office, nearly 180,000 Americans were serving in Iraq and Afghanistan. Today, all our troops are out of Iraq. More than 60,000 of our troops have already come home from Afghanistan. With Afghan forces now in the lead for their own security, our troops have moved to a support role. Together with our allies, we will complete our mission there by the end of this year, and America’s longest war will finally be over.
After 2014, we will support a unified Afghanistan as it takes responsibility for its own future. If the Afghan government signs a security agreement that we have negotiated, a small force of Americans could remain in Afghanistan with NATO allies to carry out two narrow missions: training and assisting Afghan forces, and counterterrorism operations to pursue any remnants of al Qaeda. For while our relationship with Afghanistan will change, one thing will not: our resolve that terrorists do not launch attacks against our country.
The fact is, that danger remains. While we have put al Qaeda’s core leadership on a path to defeat, the threat has evolved, as al Qaeda affiliates and other extremists take root in different parts of the world. In Yemen, Somalia, Iraq, and Mali, we have to keep working with partners to disrupt and disable these networks. In Syria, we’ll support the opposition that rejects the agenda of terrorist networks. Here at home, we’ll keep strengthening our defenses, and combat new threats like cyberattacks. And as we reform our defense budget, we have to keep faith with our men and women in uniform, and invest in the capabilities they need to succeed in future missions.
We have to remain vigilant. But I strongly believe our leadership and our security cannot depend on our military alone. As Commander-in-Chief, I have used force when needed to protect the American people, and I will never hesitate to do so as long as I hold this office. But I will not send our troops into harm’s way unless it’s truly necessary; nor will I allow our sons and daughters to be mired in open-ended conflicts. We must fight the battles that need to be fought, not those that terrorists prefer from us – large-scale deployments that drain our strength and may ultimately feed extremism.
So, even as we aggressively pursue terrorist networks – through more targeted efforts and by building the capacity of our foreign partners – America must move off a permanent war footing. That’s why I’ve imposed prudent limits on the use of drones – for we will not be safer if people abroad believe we strike within their countries without regard for the consequence. That’s why, working with this Congress, I will reform our surveillance programs – because the vital work of our intelligence community depends on public confidence, here and abroad, that the privacy of ordinary people is not being violated. And with the Afghan war ending, this needs to be the year Congress lifts the remaining restrictions on detainee transfers and we close the prison at Guantanamo Bay – because we counter terrorism not just through intelligence and military action, but by remaining true to our Constitutional ideals, and setting an example for the rest of the world.
You see, in a world of complex threats, our security and leadership depends on all elements of our power – including strong and principled diplomacy. American diplomacy has rallied more than fifty countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles. American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated, and we will continue to work with the international community to usher in the future the Syrian people deserve – a future free of dictatorship, terror and fear. As we speak, American diplomacy is supporting Israelis and Palestinians as they engage in difficult but necessary talks to end the conflict there; to achieve dignity and an independent state for Palestinians, and lasting peace and security for the State of Israel – a Jewish state that knows America will always be at their side.
And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program – and rolled parts of that program back – for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium. It is not installing advanced centrifuges. Unprecedented inspections help the world verify, every day, that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon.
These negotiations will be difficult. They may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and the mistrust between our nations cannot be wished away. But these negotiations do not rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today.
The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. For the sake of our national security, we must give diplomacy a chance to succeed. If Iran’s leaders do not seize this opportunity, then I will be the first to call for more sanctions, and stand ready to exercise all options to make sure Iran does not build a nuclear weapon. But if Iran’s leaders do seize the chance, then Iran could take an important step to rejoin the community of nations, and we will have resolved one of the leading security challenges of our time without the risks of war.
Finally, let’s remember that our leadership is defined not just by our defense against threats, but by the enormous opportunities to do good and promote understanding around the globe – to forge greater cooperation, to expand new markets, to free people from fear and want. And no one is better positioned to take advantage of those opportunities than America.
Our alliance with Europe remains the strongest the world has ever known. From Tunisia to Burma, we’re supporting those who are willing to do the hard work of building democracy. In Ukraine, we stand for the principle that all people have the right to express themselves freely and peacefully, and have a say in their country’s future. Across Africa, we’re bringing together businesses and governments to double access to electricity and help end extreme poverty. In the Americas, we are building new ties of commerce, but we’re also expanding cultural and educational exchanges among young people. And we will continue to focus on the Asia-Pacific, where we support our allies, shape a future of greater security and prosperity, and extend a hand to those devastated by disaster – as we did in the Philippines, when our Marines and civilians rushed to aid those battered by a typhoon, and were greeted with words like, “We will never forget your kindness” and “God bless America!”
We do these things because they help promote our long-term security. And we do them because we believe in the inherent dignity and equality of every human being, regardless of race or religion, creed or sexual orientation. And next week, the world will see one expression of that commitment – when Team USA marches the red, white, and blue into the Olympic Stadium – and brings home the gold.
My fellow Americans, no other country in the world does what we do. On every issue, the world turns to us, not simply because of the size of our economy or our military might – but because of the ideals we stand for, and the burdens we bear to advance them.
No one knows this better than those who serve in uniform. As this time of war draws to a close, a new generation of heroes returns to civilian life. We’ll keep slashing that backlog so our veterans receive the benefits they’ve earned, and our wounded warriors receive the health care – including the mental health care – that they need. We’ll keep working to help all our veterans translate their skills and leadership into jobs here at home. And we all continue to join forces to honor and support our remarkable military families.
Let me tell you about one of those families I’ve come to know.
I first met Cory Remsburg, a proud Army Ranger, at Omaha Beach on the 65th anniversary of D-Day. Along with some of his fellow Rangers, he walked me through the program – a strong, impressive young man, with an easy manner, sharp as a tack. We joked around, and took pictures, and I told him to stay in touch.
A few months later, on his tenth deployment, Cory was nearly killed by a massive roadside bomb in Afghanistan. His comrades found him in a canal, face down, underwater, shrapnel in his brain.
For months, he lay in a coma. The next time I met him, in the hospital, he couldn’t speak; he could barely move. Over the years, he’s endured dozens of surgeries and procedures, and hours of grueling rehab every day.
Even now, Cory is still blind in one eye. He still struggles on his left side. But slowly, steadily, with the support of caregivers like his dad Craig, and the community around him, Cory has grown stronger. Day by day, he’s learned to speak again and stand again and walk again – and he’s working toward the day when he can serve his country again.
“My recovery has not been easy,” he says. “Nothing in life that’s worth anything is easy.”
Cory is here tonight. And like the Army he loves, like the America he serves, Sergeant First Class Cory Remsburg never gives up, and he does not quit.
My fellow Americans, men and women like Cory remind us that America has never come easy. Our freedom, our democracy, has never been easy. Sometimes we stumble; we make mistakes; we get frustrated or discouraged. But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress – to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice, and fairness, and equality under the law, so that the words set to paper by our founders are made real for every citizen. The America we want for our kids – a rising America where honest work is plentiful and communities are strong; where prosperity is widely shared and opportunity for all lets us go as far as our dreams and toil will take us – none of it is easy. But if we work together; if we summon what is best in us, with our feet planted firmly in today but our eyes cast towards tomorrow – I know it’s within our reach.
Believe it.
God bless you, and God bless the United States of America.
WESTERN ASSET MANAGEMENT TO PAY $21 MILLION IN SETTLEMENTS
FROM: LABOR DEPARTMENT
US Labor Department and Securities and Exchange Commission
reach combined $21M in settlements with Western Asset Management
Multiple settlements resolve allegations brought by both agencies
WASHINGTON — The U.S. Department of Labor today announced a settlement with Western Asset Management Company, a subsidiary of Legg Mason Inc. This follows investigations, which revealed the purchase of prohibited securities that resulted in losses to the accounts of nearly 100 employee benefit plans and investment funds holding plan assets. The settlement also resolves findings that the company engaged in prohibited cross-trading of securities in the accounts of other retirement plans and funds, which caused additional losses. The settlement was achieved in coordination with the U.S. Securities and Exchange Commission. The settlement and related SEC charges require Western Asset to restore a total of more than $17.4 million to employee benefit plans and other accounts and require the company to pay more than $3.6 million in penalties.
"Workers invest too much in retirement plans to have them diminished by the very people they trust to grow their savings," said U.S. Secretary of Labor Thomas E. Perez. "The department is committed to protecting retirement savings so that more of America's workers have the opportunity to build nest eggs and live securely when they retire."
The investigation found that from Jan. 31, 2007, through June 12, 2009, Western Asset used funds from accounts covered by the Employee Retirement Income Security Act to purchase approximately $90 million of securities that were prohibited for purchase and ownership by such accounts. Specifically, Western Asset purchased Glen Meadow Pass-Through Trust Securities for 99 ERISA-covered accounts that were under its management. The investigation determined that the company's own compliance system recognized that the terms of the securities prohibited their ownership by ERISA-covered entities. However, Western Asset overrode the system, allowing the accounts to improperly purchase and hold the securities in their portfolios.
The department determined that the company's management and compliance personnel became aware of the issue by October 2008, but failed to immediately correct the error or inform their clients about the situation. This violated the company's own policies. The accounts continued to hold the prohibited securities until June 2009, at which time they were sold, resulting in significant losses.
The department's investigation also found that from 2007 through 2010, Western Asset arranged 514 cross-trades involving ERISA-covered accounts. Western Asset sold fixed-income securities from client accounts, including ERISA-covered accounts to various broker-dealers. The company then repurchased the same securities from the same broker-dealers on behalf of different clients at a mark-up and without obtaining independent offers. Cross-trade transactions are prohibited by ERISA, except under certain circumstances, to protect employee benefit plans from an investment manager's conflicts of interest. The department's investigation determined that as a result of unfair pricing involving these cross-trades, certain ERISA-covered accounts suffered more than $6 million in losses.
"Western Asset violated its fiduciary duty to act solely in the best interest of its plan clients," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Its failure to follow not only the law, but its own rules, cost hard-working employees millions of dollars."
Western Asset is headquartered in Pasadena. Its clients include numerous ERISA-covered employee benefit plans. This case was investigated by the regional office of the Employee Benefits Security Administration in Los Angeles, in coordination with the SEC's Los Angeles Regional Office and New York Regional Office.
US Labor Department and Securities and Exchange Commission
reach combined $21M in settlements with Western Asset Management
Multiple settlements resolve allegations brought by both agencies
WASHINGTON — The U.S. Department of Labor today announced a settlement with Western Asset Management Company, a subsidiary of Legg Mason Inc. This follows investigations, which revealed the purchase of prohibited securities that resulted in losses to the accounts of nearly 100 employee benefit plans and investment funds holding plan assets. The settlement also resolves findings that the company engaged in prohibited cross-trading of securities in the accounts of other retirement plans and funds, which caused additional losses. The settlement was achieved in coordination with the U.S. Securities and Exchange Commission. The settlement and related SEC charges require Western Asset to restore a total of more than $17.4 million to employee benefit plans and other accounts and require the company to pay more than $3.6 million in penalties.
"Workers invest too much in retirement plans to have them diminished by the very people they trust to grow their savings," said U.S. Secretary of Labor Thomas E. Perez. "The department is committed to protecting retirement savings so that more of America's workers have the opportunity to build nest eggs and live securely when they retire."
The investigation found that from Jan. 31, 2007, through June 12, 2009, Western Asset used funds from accounts covered by the Employee Retirement Income Security Act to purchase approximately $90 million of securities that were prohibited for purchase and ownership by such accounts. Specifically, Western Asset purchased Glen Meadow Pass-Through Trust Securities for 99 ERISA-covered accounts that were under its management. The investigation determined that the company's own compliance system recognized that the terms of the securities prohibited their ownership by ERISA-covered entities. However, Western Asset overrode the system, allowing the accounts to improperly purchase and hold the securities in their portfolios.
The department determined that the company's management and compliance personnel became aware of the issue by October 2008, but failed to immediately correct the error or inform their clients about the situation. This violated the company's own policies. The accounts continued to hold the prohibited securities until June 2009, at which time they were sold, resulting in significant losses.
The department's investigation also found that from 2007 through 2010, Western Asset arranged 514 cross-trades involving ERISA-covered accounts. Western Asset sold fixed-income securities from client accounts, including ERISA-covered accounts to various broker-dealers. The company then repurchased the same securities from the same broker-dealers on behalf of different clients at a mark-up and without obtaining independent offers. Cross-trade transactions are prohibited by ERISA, except under certain circumstances, to protect employee benefit plans from an investment manager's conflicts of interest. The department's investigation determined that as a result of unfair pricing involving these cross-trades, certain ERISA-covered accounts suffered more than $6 million in losses.
"Western Asset violated its fiduciary duty to act solely in the best interest of its plan clients," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "Its failure to follow not only the law, but its own rules, cost hard-working employees millions of dollars."
Western Asset is headquartered in Pasadena. Its clients include numerous ERISA-covered employee benefit plans. This case was investigated by the regional office of the Employee Benefits Security Administration in Los Angeles, in coordination with the SEC's Los Angeles Regional Office and New York Regional Office.
Tuesday, January 28, 2014
WHITE HOUSE ISSUES FACT SHEET ON RAISING THE MINIMUM WAGE
FROM: THE WHITE HOUSE
January 28, 2014
FACT SHEET: Opportunity for All – Rewarding Hard Work
Raising the Minimum Wage through Executive Order to $10.10 for Federal Contract Workers & Calling on Congress to Finish the Job for All Workers by Passing the Harkin-Miller Bill
Year of Action: Making Progress Through Executive Action
The President wants to work with Congress to pass the Harkin-Miller bill that would increase the Federal minimum wage to $10.10 and index it to inflation thereafter, and he will continue to work with Congress to get that done. The President has also looked at what he can do through executive action to help raise wages for hardworking Americans. In the State of the Union Address, the President will announce that he will use his executive authority to raise the minimum wage to $10.10 for those working on new federal contracts for services.
Hardworking Americans – including janitors and construction workers – working on new federal contracts will benefit from the Executive Order (EO). This action will cover workers who are performing services or construction and are getting paid less than $10.10 an hour. Some examples of the hardworking people who would benefit from an EO include military base workers who wash dishes, serve food and do laundry.
A higher minimum wage for federal contract workers will provide good value for the federal government and hence good value for the taxpayer. Boosting wages will lower turnover and increase morale, and will lead to higher productivity overall. Raising wages for those at the bottom will improve the quality and efficiency of services provided to the government. When Maryland passed its living wage law for companies contracting with the state, there was an increase in the number of contractors bidding and higher competition can help ensure better quality.
The wage increase will be manageable for contractors. The increase will take effect for new contracts after the effective date of the order, so contractors will have time to prepare and price their bids accordingly.
Continuing to Work With Congress to Help All Workers
The President is using his executive authority to lead by example, and will continue to work with Congress to finish the job for all Americans by passing the Harkin-Miller bill. The bill would raise the Federal minimum wage for working Americans in stages to $10.10 and index it to inflation thereafter, while also raising the minimum wage for tipped workers for the first time in over 20 years.
Businesses like Costco have supported past increases to the minimum wage because it helps build a strong workforce and profitability over the long run. Low wages are also bad for business, as paying low wages lowers employee morale, encourages low productivity, and leads to frequent employee turnover—all of which impose costs.
Raising the minimum wage will make sure no family of four with a full-time worker has to raise their children in poverty. It has been seven years since Congress last acted to increase the minimum wage and, adjusted for inflation, today the real value of minimum wage is roughly the same as what it was in the 1950s, despite the fact that the typical American family’s income has doubled since then. And right now a full-time minimum wage worker makes $14,500 a year, which leaves too many families struggling to make ends meet. Even after accounting for programs like the Earned Income Tax Credit, a family of four supported by a minimum wage worker still ends up living below the poverty line.
Indexing the minimum wage to inflation would help lower-income workers keep up in the future. Since it was first established in 1938, the minimum wage has been increased 22 times, but was eroded substantially over several prolonged periods because of inflation. Democrats and Republicans agree that indexing the minimum wage to inflation would ensure that working families can keep up with expenses and will not suffer if Congress fails to act. Indexing would prevent a repeat of the 34 percent decline in the real value of the minimum wage from 1978 to 1989 and the 19 percent decline in real value from 1998 to 2006.
Helping parents make ends meet. Around 60 percent of workers benefiting from a higher minimum wage are women. Less than 20 percent are teenagers. Also, those workers who would benefit from an increase in the minimum wage brought home 46 percent of their household’s total wage and salary income in 2011. Raising the minimum wage directly helps parents make ends meet and support their families.
Raising the minimum wage is good for government, good for business and workers and key to a stronger economy. A range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without jeopardizing employment. Higher wages can also boost productivity, increase morale, reduce costs and improve efficiency.
Across the country, Americans are saying it’s time to raise the minimum wage. The President believes that it’s time for action, and people across the country agree. Since the President called for an increase in the minimum wage in last year’s State of the Union, five states have passed laws increasing their minimum wage. And many businesses, from small businesses to large corporations see higher wages as the right way to boost productivity and reduce turnover and therefore boost their profitability.
January 28, 2014
FACT SHEET: Opportunity for All – Rewarding Hard Work
Raising the Minimum Wage through Executive Order to $10.10 for Federal Contract Workers & Calling on Congress to Finish the Job for All Workers by Passing the Harkin-Miller Bill
Year of Action: Making Progress Through Executive Action
The President wants to work with Congress to pass the Harkin-Miller bill that would increase the Federal minimum wage to $10.10 and index it to inflation thereafter, and he will continue to work with Congress to get that done. The President has also looked at what he can do through executive action to help raise wages for hardworking Americans. In the State of the Union Address, the President will announce that he will use his executive authority to raise the minimum wage to $10.10 for those working on new federal contracts for services.
Hardworking Americans – including janitors and construction workers – working on new federal contracts will benefit from the Executive Order (EO). This action will cover workers who are performing services or construction and are getting paid less than $10.10 an hour. Some examples of the hardworking people who would benefit from an EO include military base workers who wash dishes, serve food and do laundry.
A higher minimum wage for federal contract workers will provide good value for the federal government and hence good value for the taxpayer. Boosting wages will lower turnover and increase morale, and will lead to higher productivity overall. Raising wages for those at the bottom will improve the quality and efficiency of services provided to the government. When Maryland passed its living wage law for companies contracting with the state, there was an increase in the number of contractors bidding and higher competition can help ensure better quality.
The wage increase will be manageable for contractors. The increase will take effect for new contracts after the effective date of the order, so contractors will have time to prepare and price their bids accordingly.
Continuing to Work With Congress to Help All Workers
The President is using his executive authority to lead by example, and will continue to work with Congress to finish the job for all Americans by passing the Harkin-Miller bill. The bill would raise the Federal minimum wage for working Americans in stages to $10.10 and index it to inflation thereafter, while also raising the minimum wage for tipped workers for the first time in over 20 years.
Businesses like Costco have supported past increases to the minimum wage because it helps build a strong workforce and profitability over the long run. Low wages are also bad for business, as paying low wages lowers employee morale, encourages low productivity, and leads to frequent employee turnover—all of which impose costs.
Raising the minimum wage will make sure no family of four with a full-time worker has to raise their children in poverty. It has been seven years since Congress last acted to increase the minimum wage and, adjusted for inflation, today the real value of minimum wage is roughly the same as what it was in the 1950s, despite the fact that the typical American family’s income has doubled since then. And right now a full-time minimum wage worker makes $14,500 a year, which leaves too many families struggling to make ends meet. Even after accounting for programs like the Earned Income Tax Credit, a family of four supported by a minimum wage worker still ends up living below the poverty line.
Indexing the minimum wage to inflation would help lower-income workers keep up in the future. Since it was first established in 1938, the minimum wage has been increased 22 times, but was eroded substantially over several prolonged periods because of inflation. Democrats and Republicans agree that indexing the minimum wage to inflation would ensure that working families can keep up with expenses and will not suffer if Congress fails to act. Indexing would prevent a repeat of the 34 percent decline in the real value of the minimum wage from 1978 to 1989 and the 19 percent decline in real value from 1998 to 2006.
Helping parents make ends meet. Around 60 percent of workers benefiting from a higher minimum wage are women. Less than 20 percent are teenagers. Also, those workers who would benefit from an increase in the minimum wage brought home 46 percent of their household’s total wage and salary income in 2011. Raising the minimum wage directly helps parents make ends meet and support their families.
Raising the minimum wage is good for government, good for business and workers and key to a stronger economy. A range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without jeopardizing employment. Higher wages can also boost productivity, increase morale, reduce costs and improve efficiency.
Across the country, Americans are saying it’s time to raise the minimum wage. The President believes that it’s time for action, and people across the country agree. Since the President called for an increase in the minimum wage in last year’s State of the Union, five states have passed laws increasing their minimum wage. And many businesses, from small businesses to large corporations see higher wages as the right way to boost productivity and reduce turnover and therefore boost their profitability.
READOUT: VICE PRESIDENT BIDEN'S CALL WITH UKRAINIAN PRESIDENT YANUKOVYCH
FROM: THE WHITE HOUSE
Readout of Vice President Biden's Call with Ukrainian President Viktor Yanukovych
President Yanukovych of Ukraine called Vice President Biden today to update him on the current crisis in Ukraine. The Vice President welcomed the progress made today and urged President Yanukovych to sign the parliament’s repeal of several of the January 16 laws without delay. He strongly encouraged President Yanukovych to continue to work with the opposition to find compromises critical to a peaceful solution. These include an amnesty law and a new government that can bring political unity, win the confidence of the Ukrainian people, and take Ukraine in the direction of Europe by strengthening democratic institutions and making the reforms necessary to achieve economic prosperity.
Readout of Vice President Biden's Call with Ukrainian President Viktor Yanukovych
President Yanukovych of Ukraine called Vice President Biden today to update him on the current crisis in Ukraine. The Vice President welcomed the progress made today and urged President Yanukovych to sign the parliament’s repeal of several of the January 16 laws without delay. He strongly encouraged President Yanukovych to continue to work with the opposition to find compromises critical to a peaceful solution. These include an amnesty law and a new government that can bring political unity, win the confidence of the Ukrainian people, and take Ukraine in the direction of Europe by strengthening democratic institutions and making the reforms necessary to achieve economic prosperity.
PRESIDENT OBAMA'S STATEMENT ON DEATH OF PETE SEEGER
FROM: THE WHITE HOUSE
Statement by the President on the Passing of Pete Seeger
Once called “America’s tuning fork,” Pete Seeger believed deeply in the power of song. But more importantly, he believed in the power of community – to stand up for what’s right, speak out against what’s wrong, and move this country closer to the America he knew we could be. Over the years, Pete used his voice – and his hammer – to strike blows for worker’s rights and civil rights; world peace and environmental conservation. And he always invited us to sing along. For reminding us where we come from and showing us where we need to go, we will always be grateful to Pete Seeger. Michelle and I send our thoughts and prayers to Pete’s family and all those who loved him.
Statement by the President on the Passing of Pete Seeger
Once called “America’s tuning fork,” Pete Seeger believed deeply in the power of song. But more importantly, he believed in the power of community – to stand up for what’s right, speak out against what’s wrong, and move this country closer to the America he knew we could be. Over the years, Pete used his voice – and his hammer – to strike blows for worker’s rights and civil rights; world peace and environmental conservation. And he always invited us to sing along. For reminding us where we come from and showing us where we need to go, we will always be grateful to Pete Seeger. Michelle and I send our thoughts and prayers to Pete’s family and all those who loved him.
U.S. DEFENSE DEPARTMENT CONTRACTS FOR JANUARY 28, 2014
FROM: DEFENSE DEPARTMENT
CONTRACTS
DEFENSE LOGISTICS AGENCY
Wright & Wright Machinery Company Inc.*, Monticello, Ky., has been awarded a maximum $776,000,000 fixed-price with economic-price-adjustment contract for the procurement of commercial type construction equipment. This contract is a competitive acquisition and 18 offers were received. This contract is one of up to ten contracts being issued against solicitation number SPM8EC-11-R-0003 and with requirements that specifically call for construction equipment within the product line and will be competed amongst other contractors who receive a contract under this solicitation. This is a five-year base contract. Locations of performance are Kentucky and Georgia with a Jan. 27, 2019 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2019 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa., (SPE8EC-14-D-0006).
Toshiba America Medical Systems Inc., Tustin, Calif., has been awarded a maximum $187,732,814 modification (P00101) exercising the fifth option year on a one-year base contract (SPM2D1-09-D-8322) with seven one-year option periods for radiology systems, subsystems and components. This is a fixed-price with economic-price-adjustment contract. Location of performance is California with a Feb. 3, 2015 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2015 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.
Panakela LLC*, Stafford, Va., has been awarded a maximum $22,988,000 fixed-price with economic-price-adjustment, indefinite-delivery/indefinite-quantity contract for oxygen system and related accessories. This contract is a competitive acquisition and 33 offers were received. This is a five-year base contract. Location of performance is Virginia with a Nov. 27, 2019 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa., (SPM2D1-14-D-8205).
Vital Images Inc.*, Minnetonka, Minn., has been awarded a maximum $10,017,588 modification (P00100) exercising the third option year on a one-year base contract (SPM2D1-11-D-8342) with seven one-year option periods for radiology systems, subsystems and components. This is a fixed-price with economic-price-adjustment contract. Location of performance is Minnesota with a Jan. 31, 2015 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2015 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.
Kalmar RT Center LLC., Cibolo, Texas, has been awarded a maximum $8,211,055 firm-fixed-price contract for diesel engines, transmissions, parts and assemblies. This contract is a sole-source acquisition. Location of performance is Texas with a May 29, 2016 performance completion date. Using military service is Army. Type of appropriation is fiscal 2013 through fiscal 2015 Army working capital funds. The contracting activity is the Defense Logistics Agency Land and Maritime, Warren, Mich., (SPRDL1-14-D-0011).
ARMY
Great Lakes Dredge and Dock LLC, Oak Brook, Ill., was awarded a $14,177,652 firm-fixed-price contract for deepening the main channel of the Delaware River. Fiscal 2014 operations and maintenance, Army funds in the amount of $14,177,652 were obligated at the time of the award. Estimated completion date is Nov. 30, 2014. Bids were solicited via the Internet with four received. Work will be performed at Philadelphia, Pa. Army Corps of Engineers, Philadelphia, Pa., is the contracting activity (W912BU-14-C-0008).
AIR FORCE
PLEXSYS Interface Products Inc., Camas, Wash., has been awarded an $8,254,297 sole-source, firm-fixed-price, follow-on contract for commercial training simulation services (CTSS) on contractor owned equipment for the AWACS MTC follow-on program. The purpose of this acquisition is to deliver continued AWACS MTC Block 30/35 CTSS on contractor owned equipment until the trainers are replaced by Block 40/45 Mission Crew Training Systems. Block 30/35 simulation training services consist of: availability of effective high-fidelity AWACS E-3 Block 30/35 training capability; concurrency with ramp aircraft; and compliance with Distributed Mission Operations Standards. Work will be performed at Tinker Air Force Base, Okla., Elmendorf Air Force Base, Alaska, and Kadena Air Base, Japan, and will be completed by Dec. 31, 2014. Fiscal 2014 operations and maintenance, Air Force funds in the amount of $2,072,264.25 will be obligated at time of award. Air Force Life Cycle Management Center, Agile Combat Support/WNSK, Wright-Patterson Air Force Base, Ohio is the contracting activity (FA8621-14-C-6310).
NAVY
Marvin Engineering Co., Inc., Inglewood, Calif., is being awarded a $7,373,028 modification to a previously awarded firm-fixed-price contract (N00421-13-C-0002) to exercise an option for the procurement of 156 BRU-32 Ejector Bomb Racks in support of the F/A-18 E/F and EA-18G aircraft. Work will be performed in Inglewood, Calif., and is expected to be completed in July 2016. Fiscal 2013 and 2014 aircraft procurement, Navy funds in the amount of $7,373,028 will be obligated on this award, none of which will expire at the end of the fiscal year. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity.
*Small Business
CONTRACTS
DEFENSE LOGISTICS AGENCY
Wright & Wright Machinery Company Inc.*, Monticello, Ky., has been awarded a maximum $776,000,000 fixed-price with economic-price-adjustment contract for the procurement of commercial type construction equipment. This contract is a competitive acquisition and 18 offers were received. This contract is one of up to ten contracts being issued against solicitation number SPM8EC-11-R-0003 and with requirements that specifically call for construction equipment within the product line and will be competed amongst other contractors who receive a contract under this solicitation. This is a five-year base contract. Locations of performance are Kentucky and Georgia with a Jan. 27, 2019 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2019 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa., (SPE8EC-14-D-0006).
Toshiba America Medical Systems Inc., Tustin, Calif., has been awarded a maximum $187,732,814 modification (P00101) exercising the fifth option year on a one-year base contract (SPM2D1-09-D-8322) with seven one-year option periods for radiology systems, subsystems and components. This is a fixed-price with economic-price-adjustment contract. Location of performance is California with a Feb. 3, 2015 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2015 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.
Panakela LLC*, Stafford, Va., has been awarded a maximum $22,988,000 fixed-price with economic-price-adjustment, indefinite-delivery/indefinite-quantity contract for oxygen system and related accessories. This contract is a competitive acquisition and 33 offers were received. This is a five-year base contract. Location of performance is Virginia with a Nov. 27, 2019 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa., (SPM2D1-14-D-8205).
Vital Images Inc.*, Minnetonka, Minn., has been awarded a maximum $10,017,588 modification (P00100) exercising the third option year on a one-year base contract (SPM2D1-11-D-8342) with seven one-year option periods for radiology systems, subsystems and components. This is a fixed-price with economic-price-adjustment contract. Location of performance is Minnesota with a Jan. 31, 2015 performance completion date. Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies. Type of appropriation is fiscal 2014 through fiscal 2015 defense working capital funds. The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.
Kalmar RT Center LLC., Cibolo, Texas, has been awarded a maximum $8,211,055 firm-fixed-price contract for diesel engines, transmissions, parts and assemblies. This contract is a sole-source acquisition. Location of performance is Texas with a May 29, 2016 performance completion date. Using military service is Army. Type of appropriation is fiscal 2013 through fiscal 2015 Army working capital funds. The contracting activity is the Defense Logistics Agency Land and Maritime, Warren, Mich., (SPRDL1-14-D-0011).
ARMY
Great Lakes Dredge and Dock LLC, Oak Brook, Ill., was awarded a $14,177,652 firm-fixed-price contract for deepening the main channel of the Delaware River. Fiscal 2014 operations and maintenance, Army funds in the amount of $14,177,652 were obligated at the time of the award. Estimated completion date is Nov. 30, 2014. Bids were solicited via the Internet with four received. Work will be performed at Philadelphia, Pa. Army Corps of Engineers, Philadelphia, Pa., is the contracting activity (W912BU-14-C-0008).
AIR FORCE
PLEXSYS Interface Products Inc., Camas, Wash., has been awarded an $8,254,297 sole-source, firm-fixed-price, follow-on contract for commercial training simulation services (CTSS) on contractor owned equipment for the AWACS MTC follow-on program. The purpose of this acquisition is to deliver continued AWACS MTC Block 30/35 CTSS on contractor owned equipment until the trainers are replaced by Block 40/45 Mission Crew Training Systems. Block 30/35 simulation training services consist of: availability of effective high-fidelity AWACS E-3 Block 30/35 training capability; concurrency with ramp aircraft; and compliance with Distributed Mission Operations Standards. Work will be performed at Tinker Air Force Base, Okla., Elmendorf Air Force Base, Alaska, and Kadena Air Base, Japan, and will be completed by Dec. 31, 2014. Fiscal 2014 operations and maintenance, Air Force funds in the amount of $2,072,264.25 will be obligated at time of award. Air Force Life Cycle Management Center, Agile Combat Support/WNSK, Wright-Patterson Air Force Base, Ohio is the contracting activity (FA8621-14-C-6310).
NAVY
Marvin Engineering Co., Inc., Inglewood, Calif., is being awarded a $7,373,028 modification to a previously awarded firm-fixed-price contract (N00421-13-C-0002) to exercise an option for the procurement of 156 BRU-32 Ejector Bomb Racks in support of the F/A-18 E/F and EA-18G aircraft. Work will be performed in Inglewood, Calif., and is expected to be completed in July 2016. Fiscal 2013 and 2014 aircraft procurement, Navy funds in the amount of $7,373,028 will be obligated on this award, none of which will expire at the end of the fiscal year. The Naval Air Systems Command, Patuxent River, Md., is the contracting activity.
*Small Business
CAPE RAY READIES TO DESTROY SYRIAN CHEMICAL WEAPONS
FROM: U.S.NAVY
The Military Sealift Command container ship Cape Ray departs Portsmouth, Va., Jan. 10, 2014, to test the systems that will be used to destroy chemical agents from Syria. The vessel was modified to contribute to the joint mission organized by the United Nations and the Organization for the Prohibition of Chemical Weapons to eliminate Syria's chemical materials. U.S. Navy photo by Petty Officer 1st Class Isaiah Seller.
The Military Sealift Command container ship Cape Ray departs Portsmouth, Va., Jan. 10, 2014, for sea trials. U.S. Navy photo by Petty Officer 3rd Class Lacordrick Wilson.
The Military Sealift Command container ship Cape Ray departs Portsmouth, Va., Jan. 10, 2014, for sea trials. U.S. Navy photo by Petty Officer 2nd Class Jared Walker -
CAPE RAY LEAVES FOR SYRIAN CHEMICAL WEAPONS MISSION
FROM: DEFENSE DEPARTMENT
With Encouragement From Hagel, Cape Ray Leaves for Syria Mission
American Forces Press Service
WASHINGTON, Jan. 28, 2014 – The container ship M/V Cape Ray and its crew deployed from Portsmouth, Va., yesterday with a message of encouragement from Defense Secretary Chuck Hagel.
M/V Cape Ray is the Defense Department’s primary contribution toward international efforts to eliminate Syria's chemical weapons material program, Pentagon officials said in a statement announcing the deployment.
“As you all know, your task will not be easy,” Hagel said in a message to the Cape Ray crew. “Your days will be long and rigorous. But your hard work, preparation and dedication will make the difference.
“You are ready,” the secretary continued. “We all have complete confidence in each of you. You represent the best of our nation, not only because of your expertise and commitment, but because of your willingness to serve when called upon. For that, we will always be grateful. We are also grateful to your families for the love and support they have given you. On behalf of our country and the American people, I wish you much success. Take care of yourselves. God bless you all.”
Hundreds of government and contract personnel have worked over the last several months to prepare the vessel to neutralize Syrian chemical materials and precursors using hydrolysis technology.
“The United States remains committed to ensuring its neutralization of Syria's chemical materials prioritizes the safety of people, protects the environment, follows verification procedures of the Organization for the Prohibition of Chemical Weapons, and with applicable standards,” officials said in the announcement. “All waste from the hydrolysis process on M/V Cape Ray will be safely and properly disposed of at commercial facilities to be determined by the OPCW. No hydrolysis byproducts will be released into the sea or air. M/V Cape Ray will comply with all applicable international laws, regulations and treaties.”
The Assad regime in Syria is responsible for transporting the chemical materials safely to facilitate their removal for destruction, officials said.
“The international community is poised to meet the milestones set forth by the OPCW, including the June 30 target date for the total destruction of Syria's chemical weapons materials, officials added. “The United States joins the OPCW and the United Nations in calling on the Assad regime to intensify its efforts to ensure its international obligations and commitment are met so these materials may be removed from Syria as quickly and safely as possible,” the statement concluded.
With Encouragement From Hagel, Cape Ray Leaves for Syria Mission
American Forces Press Service
WASHINGTON, Jan. 28, 2014 – The container ship M/V Cape Ray and its crew deployed from Portsmouth, Va., yesterday with a message of encouragement from Defense Secretary Chuck Hagel.
M/V Cape Ray is the Defense Department’s primary contribution toward international efforts to eliminate Syria's chemical weapons material program, Pentagon officials said in a statement announcing the deployment.
“As you all know, your task will not be easy,” Hagel said in a message to the Cape Ray crew. “Your days will be long and rigorous. But your hard work, preparation and dedication will make the difference.
“You are ready,” the secretary continued. “We all have complete confidence in each of you. You represent the best of our nation, not only because of your expertise and commitment, but because of your willingness to serve when called upon. For that, we will always be grateful. We are also grateful to your families for the love and support they have given you. On behalf of our country and the American people, I wish you much success. Take care of yourselves. God bless you all.”
Hundreds of government and contract personnel have worked over the last several months to prepare the vessel to neutralize Syrian chemical materials and precursors using hydrolysis technology.
“The United States remains committed to ensuring its neutralization of Syria's chemical materials prioritizes the safety of people, protects the environment, follows verification procedures of the Organization for the Prohibition of Chemical Weapons, and with applicable standards,” officials said in the announcement. “All waste from the hydrolysis process on M/V Cape Ray will be safely and properly disposed of at commercial facilities to be determined by the OPCW. No hydrolysis byproducts will be released into the sea or air. M/V Cape Ray will comply with all applicable international laws, regulations and treaties.”
The Assad regime in Syria is responsible for transporting the chemical materials safely to facilitate their removal for destruction, officials said.
“The international community is poised to meet the milestones set forth by the OPCW, including the June 30 target date for the total destruction of Syria's chemical weapons materials, officials added. “The United States joins the OPCW and the United Nations in calling on the Assad regime to intensify its efforts to ensure its international obligations and commitment are met so these materials may be removed from Syria as quickly and safely as possible,” the statement concluded.
VA ANNOUNCES MORE SHIPS ADDED TO AGENT ORANGE LIST
FROM: VETERANS AFFAIRS
U.S. Navy and Coast Guard Ships in Vietnam
VA maintains a list of U.S. Navy and Coast Guard ships associated with military service in Vietnam and possible exposure to Agent Orange based on military records.
This evolving list helps Veterans who served aboard ships, including "Blue Water Veterans," find out if they may qualify for presumption of herbicide exposure.
Veterans must meet VA's criteria for service in Vietnam, which includes aboard boats on the inland waterways or brief visits ashore, to be presumed to have been exposed to herbicides.
Veterans who qualify for presumption of herbicide exposure are not required to show they were exposed to Agent Orange or other herbicides when seeking VA compensation for diseases related to Agent Orange exposure.
Find your ship
Ships or boats that were part of the Mobile Riverine Force, Inshore Fire Support (ISF) Division 93 or had one of the following designations operated on the inland waterways of Vietnam. Veterans whose military records confirm they were aboard these ships qualify for presumption of herbicide exposure.
During your Vietnam tour, did your ship or boat have one of the following designations?
AGP (Assault Group Patrol/Patrol Craft Tender)
LCM (Landing Craft, Mechanized)
LCU (Landing Craft, Utility)
LCVP (Landing Craft, Vehicle, Personnel)
LST (Landing Ship, Tank)
PBR (Patrol Boat, River)
PCF (Patrol Craft, Fast or Swift Boat)
PG (Patrol Gunboat)
WAK (Cargo Vessel)
WHEC (High Endurance Cutter)
WLB (Buoy Tender)
WPB (Patrol Boat)
YFU (Harbor Utility Craft)
U.S. Navy and Coast Guard Ships in Vietnam
VA maintains a list of U.S. Navy and Coast Guard ships associated with military service in Vietnam and possible exposure to Agent Orange based on military records.
This evolving list helps Veterans who served aboard ships, including "Blue Water Veterans," find out if they may qualify for presumption of herbicide exposure.
Veterans must meet VA's criteria for service in Vietnam, which includes aboard boats on the inland waterways or brief visits ashore, to be presumed to have been exposed to herbicides.
Veterans who qualify for presumption of herbicide exposure are not required to show they were exposed to Agent Orange or other herbicides when seeking VA compensation for diseases related to Agent Orange exposure.
Find your ship
Ships or boats that were part of the Mobile Riverine Force, Inshore Fire Support (ISF) Division 93 or had one of the following designations operated on the inland waterways of Vietnam. Veterans whose military records confirm they were aboard these ships qualify for presumption of herbicide exposure.
During your Vietnam tour, did your ship or boat have one of the following designations?
AGP (Assault Group Patrol/Patrol Craft Tender)
LCM (Landing Craft, Mechanized)
LCU (Landing Craft, Utility)
LCVP (Landing Craft, Vehicle, Personnel)
LST (Landing Ship, Tank)
PBR (Patrol Boat, River)
PCF (Patrol Craft, Fast or Swift Boat)
PG (Patrol Gunboat)
WAK (Cargo Vessel)
WHEC (High Endurance Cutter)
WLB (Buoy Tender)
WPB (Patrol Boat)
YFU (Harbor Utility Craft)
CFTC COMMISSIONER O'MALIA ON STATE OF COMMODITY FUTURES INDUSTRY
FROM: COMMODITY FUTURES TRADING COMMISSION
Keynote Address by Commissioner Scott D. O’Malia, State of the Industry 2014 Conference, Commodity Markets Council
We Can Do Better: It’s Time to Review Our Rules and Make Necessary Changes
January 27, 2014
Thank you very much for the kind introduction and for inviting me to speak here today.
While it is an honor to be offered a speaking spot, I am also very interested in participating in this conference to learn more about changes that are in store for the commodity merchant businesses. Recent headlines herald the exit of banks from this business. The landscape is changing since the Volcker rule now limits proprietary trading by banks and the Federal Reserve may start assessing new capital charges on bank commodity activities.
Let’s not forget the change that has already come to the commodity space as a result of Dodd-Frank, including the swap dealer definition rule, the position limits final rule and re-proposal, the evolving hedge definitions and the futurization of swaps.
Considering these changes, it is amazing you have let me within a mile of this place, let alone offered me a speaking slot.
Today, I will address three areas where the Commission must make changes. First, I will discuss positive developments in meeting the Commission’s data challenges and our much needed investment in technology. Next, I will discuss challenges in swap trade execution. Finally, I will talk about solutions and possible reforms to rules that negatively impact end-users.
In my opinion, the Commission must make the necessary adjustment to improve our rules when we encounter unexpected outcomes of our rulemakings. In fact, it would be irresponsible of the Commission to ignore problems and to continue implementing its unworkable regulations. The topics I will discuss today are candidates for rule revisions. In the case of data and end users, we will need significant changes. Swap trade execution, on the other hand, requires more targeted reforms.
1. The Commission’s Progress on the Data Front
First, I’d like to address the Commission’s ability to receive and utilize data. I am pleased to announce that the Commission is making progress towards improving the quality of its data. On January 21, the Commission announced that it will establish a cross-divisional team to identify data utilization problems faced by each division and to recommend appropriate solutions.
Until now, nobody has taken ownership to fix our data problems. At last, this will change. In March, the Commission will provide a comment period for market participants to offer suggestions to improve reporting. Based on the comments and its own self-evaluation, the data team will make recommendations to the Commission in June.
I can’t emphasize enough how important it is for the Commission to improve our data quality so it can have an accurate and complete picture of the swaps market. Our ability to perform risk assessments and market oversight will hinge on the quality of our data.
In this regard, I would also like to emphasize the importance of harmonizing the Commission reporting rules with the reporting rules of foreign jurisdictions.
I hope the Commission will reengage with the various jurisdictions that have trade repositories to come up with a global solution to data reporting. As you may know, the European Union reporting rules will be effective on Feb 12, 2014.
By recognizing E.U. trade repositories, we would eliminate the need for dual reporting by U.S. persons trading in Europe and non-U.S. persons trading in the United States. Both regimes can work together to agree on a data standard and taxonomy that can be readily used for identifying risk and performing market surveillance.
Speaking of market surveillance, the Commission’s major oversight functions will be severely impaired if we do not invest in new technology. Investing in technology must be the Commission’s top investment priority.
While on the subject of the Commission’s investment priorities, I would like to note that I appreciate Congressional efforts to provide the Commission with an appropriation of $215 million, a modest increase in current spending levels. It is quite clear from this funding level that the Commission will need to pick its funding priorities carefully.
Tony Blair once said, “It is not an arrogant government that choses priorities, it is an irresponsible government that fails to choose.” I look forward to working with my fellow Commissioners and staff to develop a responsible spending plan with clear deliverable goals that makes technology investment our top priority.
I realize that technology doesn’t run itself, but we must acknowledge we live in a digital age where over 90 percent of markets trade electronically. The future of our compliance and oversight mission must be electronic and data driven. In other words, this agency needs to become a 21st century regulator. So far, we have not articulated our mission and technology priorities, but I believe we can do better.
To ensure that we continue to identify the appropriate corrections, I have included a panel on data at the upcoming February 10 Technology Advisory Committee (TAC) meeting, which I chair. At the TAC meeting, the pertinent Commission Division Directors will share their challenges in utilizing our swaps data.
2. Swap Trade Execution–Positive Progress Report
Now let’s turn to my second topic: swap trade execution.
Although it has been off to a rocky start, we now have twenty-one temporarily registered and operational swap execution facilities (SEFs). I am excited about the opportunity for SEFs to bring transparency to the swaps market.
Still unknown is whether SEFs will become a spitting image of a designated contract market (DCM) or whether they open the door for competition, innovation and transparency in the derivatives markets. As the Commission progresses to the permanent registration phase, it is important to remember that Dodd-Frank did not intend SEFs to look like DCMs. SEFs’ trading protocols must reflect the diversity of market participants and diversity of products traded on these platforms. The Commission must resist the temptation to impose a one-size-fits-all approach to SEF platforms.
Unfortunately, we have already started seeing the results of the Commission’s overly prescriptive regulatory approach when Commission staff deemed certified Javelin and TrueEx’s made available to trade (MAT) requests for standard interest rate benchmark swaps. Staff also noted that any packaged transactions involving these mandatorily traded swaps are subject to the mandatory trade execution requirements. However, in the same breath, staff is now contemplating some relief from the mandatory trade execution requirement for packaged transactions.
In my view, the real break down in the MAT certifications process occurred when the Commission gave up its authority to review these first-of-a-kind products. The Commission and not staff should be making these decisions.
Today, the market trades multi-leg butterfly and curve trades as well as combinations of swaps and Treasury bonds that are subject to Securities and Exchange Commission (SEC) jurisdiction. I understand it is more cost-effective to trade these products as a package. Unfortunately, the SEF rules have not caught up to the realities of today’s market. This is another area where we can do better.
I hope the Commission will identify the critical components of a solution that involves trading, clearing, and reporting of these packaged trades. The Commission must encourage trading on SEF platforms, while, at the same time, protecting the efficiency of trading various combination products. It is also important to recognize that the energy markets utilize packaged transactions. The solutions we develop today will likely impact energy market swaps trading in the future.
The TAC meeting will also address SEF trading to better understand the challenges and opportunities for SEF traded packaged transactions. In my view, Commission staff should have held a MAT roundtable prior to the effective date of the first MAT self-certification. But at least, we will discuss the available options at the TAC meeting before February 17, the mandatory trade execution deadline.
3. Let’s Help End-Users–We Must Do Better
Now, let me turn to my third topic, helping end-users. Yesterday, you heard from former Senator Chris Dodd, whose name appears on the landmark Dodd-Frank legislation. Senator Dodd was quite clear during the legislative debate about the importance of protecting end-users. And, in their letter to the House, both Senators Dodd and Lincoln emphasized the importance of allowing end-users to continue to hedge commercial risk and ensuring that Dodd-Frank regulatory reform does not make this legitimate activity prohibitively expensive.
Regrettably, it has been an uphill battle to get the Commission to follow the express directive from Congress to protect end-users from the reach of Dodd-Frank. As the Commission moves into the rule implementation phase, the impact of our regulations on end-users is becoming more visible. End-users must spend far too much time and resources in order to get the necessary reassurance from the Commission that they are in fact entitled to the protection that Congress afforded them in Dodd-Frank.
It is troubling that our rules require end-users to file numerous forms, filings and reports to validate their commercial behavior, only to be later second-guessed by the Commission regarding what is and what is not a legitimate commercial risk mitigating behavior.
The Swap Dealer Rule Should be Amended to Better Protect End-Users
One rule that must be revisited to provide end-users greater certainty is the swap dealer rule. 1 The rule broadly applies the swap dealer definition to all market participants and then allows for some limited conditional relief, but only if those end-users manage to navigate the market-making definition and do not fall into the trap of the de minimis threshold. To escape entanglement in this regulatory web, it is better to focus on the characteristics of entities rather than their activities.
To give end-users greater certainty, I propose a modest fix that would exclude all cleared trades from the calculation toward any de minimis threshold. This safe harbor would encourage end-users to clear their trades and would provide an additional buffer from being captured in this regulatory mesh. The swap dealer definition was meant to capture entities engaging in dealing activities that could become systemic to their counterparties.2 To the extent that end-users utilize clearing, they should never have been caught up in the de minimis calculation.
Another element of the swap dealer rule that must be corrected is the Special Entity definition. Under this rule, when dealing with Special Entities, such as state, city and county municipal utilities, the $8 billion threshold drops to $25 million. The reasoning behind this distinction was to afford Special Entities special protections, because any loss incurred by a Special Entity would result in members of the public bearing the brunt of the damage.3
That sounds like a noble intention. But, by reducing the threshold, the Commission has limited the number of swap counterparties to the Wall Street dealer banks. In a quick fix, the Commission has since raised the $25million de minimis threshold to $800 million, but this has done nothing to attract commercial participants. These municipal energy firms are large and savvy market participants and should be treated like any other commercial entity. The Commission must fix the paradoxical result of this rule so that commercial counterparties will come back to the market to do business with Special Entities, and Special Entities are not forced to trade exclusively with dealer firms.
Forward Contracts with Volumetric Optionality are Not Swaps
In addition, end-users have been struggling to decipher the Commission swap definition rules4 to determine whether and under what conditions a forward contract with embedded volumetric optionality falls within the forward exclusion.5 To determine whether a volumetric option is a forward or a swap, the rule applies a seven-part test. However, under the seventh factor, contracts with embedded volumetric optionality may qualify for the forward contract exclusion only if exercise of the optionality is based on physical factors that are outside the control of the parties.
This is in complete contradiction as to how volumetric options have been traditionally used by market participants. We need to fix the definition and create reliable and well-defined safe harbors. I also note that both Senators Lincoln and Dodd believe these contracts should not be captured by the swap definition.
Commission Rule 1.35 is Burdensome on Smaller Institutions
There are a handful of rules where the Commission has failed to carefully consider the impact to end-users due to the lack of appropriate cost-benefit analysis. Let’s take Rule 1.35 as an example. 6
This rule requires futures commission merchants (FCMs) and introducing brokers (IBs) to record all electronic communications as part of a trade record, including preliminary conversations that may occur over cell phones if they relate to trading or if they start a conversation that may lead to execution of orders.
In essence, the rule requires the use of hindsight to know if a certain personal conversation led to a trade further down the road, and then it requires that this conversation is recorded in a searchable format. To comply with this rule, FCMs and IBs will need to purchase expensive recording technology.
While large banking institutions will have the means to find a compliance solution, smaller institutions will take the heavy brunt of regulatory compliance. To avoid this situation, the Commission should have performed the necessary analysis beforehand to determine whether the cost, especially to small market participants, outweighed the benefits of this requirement.
The Commission Position Limits Re-proposal Does Not Reflect Commercial Realities
The Commission position limits re-proposal is yet another example of a rule that ignores the realities of end-users’ commercial and risk mitigation operations. For some reason, in the new and supposedly “improved” position limits re-proposal, the Commission has decided to scale back the bona fide hedging exemption.
To put things in perspective, a broader bona fide hedging definition has been in effect since the 1970s. To my knowledge, the previous hedging exemption worked well in the market and the Commission did not encounter any serious regulatory abuses or violations. More importantly, the hedging exemption did not contribute to the financial crisis.
With the passage of Dodd-Frank, Congress gave the Commission a difficult job in setting position limits. On one hand, the Commission is supposed to stop excessive speculation and manipulation, but on the other hand, the Commission must protect the essential price discovery and hedging function of the futures and swaps markets. This is not an easy line to walk.
The Commission must take caution before it prohibits these longstanding and legitimate hedging activities. Unfortunately, this is just another example of where end-users might feel they are on the short end of the stick when it comes to Commission rulemaking, especially when the statute specifically authorizes such activity.7
Again, I have just scratched the surface of some of the issues where the Commission has failed to heed Congressional mandates to protect end-users. Instead, it has imposed massive new documentation and compliance requirements that force end-users to justify their commercial and business operations. These entities did not contribute to the financial crisis, but they will spend an enormous amount of time, money, and effort navigating the new regulatory order.
I believe we can do better. When the Commission spots a rule that imposes unnecessary or undue burdens—or doesn’t have the data to validate the position—the Commission must consider revising the rule to offer cost-effective alternatives, not another barrage of reflexive no-action letters.
Conclusion
The Commission has an express directive from Congress to accomplish two competing objectives: reduce systemic risk in the derivatives markets and protect end-users. In a rush to reduce systemic risk, the Commission has neglected to safeguard end-users from costly compliance with our regulations. It is the Commission’s responsibility to provide the necessary relief to end-users.
I have shared with you three broad areas where I believe the Commission should reconsider its rules to make critical and necessary modifications to take into account commercial interests of end-users.
Finally, I am pleased that we are making the initial strides to improve data quality. But we cannot continue to ignore the technology needs of this Commission. It’s time to focus on technology. The Commission must make the investment that drives its mission. This will certainly make us better.
I look forward to working with the new Commission to address these issues.
1 Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security- Based Swap Participant’’ and ‘‘Eligible Contract Participant,” 77 Fed. Reg. 30595 (May 23, 2012).
2 Id. at 30744.
3 Id. at 30628, referring to documented cases of municipalities losing millions of dollars on swaps transactions because they did not fully understand the underlying risks of the instrument.
4 See Further Definition of ‘‘Swap,’ ’‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement,’’ Mixed Swaps; Security-Based Swap, Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012).
5 The seventh criterion states that the exclusion applies only when “[t]he exercise or non-exercise of the embedded volumetric optionality is based primarily on physical factors, or regulatory requirements, that are outside the control of the parties and influencing demand for, or supply of the nonfinancial commodity.” Id. at 48238 n. 341.
6 17 C.F.R. § 1.35.
7 7 U.S.C. § 6a.
Keynote Address by Commissioner Scott D. O’Malia, State of the Industry 2014 Conference, Commodity Markets Council
We Can Do Better: It’s Time to Review Our Rules and Make Necessary Changes
January 27, 2014
Thank you very much for the kind introduction and for inviting me to speak here today.
While it is an honor to be offered a speaking spot, I am also very interested in participating in this conference to learn more about changes that are in store for the commodity merchant businesses. Recent headlines herald the exit of banks from this business. The landscape is changing since the Volcker rule now limits proprietary trading by banks and the Federal Reserve may start assessing new capital charges on bank commodity activities.
Let’s not forget the change that has already come to the commodity space as a result of Dodd-Frank, including the swap dealer definition rule, the position limits final rule and re-proposal, the evolving hedge definitions and the futurization of swaps.
Considering these changes, it is amazing you have let me within a mile of this place, let alone offered me a speaking slot.
Today, I will address three areas where the Commission must make changes. First, I will discuss positive developments in meeting the Commission’s data challenges and our much needed investment in technology. Next, I will discuss challenges in swap trade execution. Finally, I will talk about solutions and possible reforms to rules that negatively impact end-users.
In my opinion, the Commission must make the necessary adjustment to improve our rules when we encounter unexpected outcomes of our rulemakings. In fact, it would be irresponsible of the Commission to ignore problems and to continue implementing its unworkable regulations. The topics I will discuss today are candidates for rule revisions. In the case of data and end users, we will need significant changes. Swap trade execution, on the other hand, requires more targeted reforms.
1. The Commission’s Progress on the Data Front
First, I’d like to address the Commission’s ability to receive and utilize data. I am pleased to announce that the Commission is making progress towards improving the quality of its data. On January 21, the Commission announced that it will establish a cross-divisional team to identify data utilization problems faced by each division and to recommend appropriate solutions.
Until now, nobody has taken ownership to fix our data problems. At last, this will change. In March, the Commission will provide a comment period for market participants to offer suggestions to improve reporting. Based on the comments and its own self-evaluation, the data team will make recommendations to the Commission in June.
I can’t emphasize enough how important it is for the Commission to improve our data quality so it can have an accurate and complete picture of the swaps market. Our ability to perform risk assessments and market oversight will hinge on the quality of our data.
In this regard, I would also like to emphasize the importance of harmonizing the Commission reporting rules with the reporting rules of foreign jurisdictions.
I hope the Commission will reengage with the various jurisdictions that have trade repositories to come up with a global solution to data reporting. As you may know, the European Union reporting rules will be effective on Feb 12, 2014.
By recognizing E.U. trade repositories, we would eliminate the need for dual reporting by U.S. persons trading in Europe and non-U.S. persons trading in the United States. Both regimes can work together to agree on a data standard and taxonomy that can be readily used for identifying risk and performing market surveillance.
Speaking of market surveillance, the Commission’s major oversight functions will be severely impaired if we do not invest in new technology. Investing in technology must be the Commission’s top investment priority.
While on the subject of the Commission’s investment priorities, I would like to note that I appreciate Congressional efforts to provide the Commission with an appropriation of $215 million, a modest increase in current spending levels. It is quite clear from this funding level that the Commission will need to pick its funding priorities carefully.
Tony Blair once said, “It is not an arrogant government that choses priorities, it is an irresponsible government that fails to choose.” I look forward to working with my fellow Commissioners and staff to develop a responsible spending plan with clear deliverable goals that makes technology investment our top priority.
I realize that technology doesn’t run itself, but we must acknowledge we live in a digital age where over 90 percent of markets trade electronically. The future of our compliance and oversight mission must be electronic and data driven. In other words, this agency needs to become a 21st century regulator. So far, we have not articulated our mission and technology priorities, but I believe we can do better.
To ensure that we continue to identify the appropriate corrections, I have included a panel on data at the upcoming February 10 Technology Advisory Committee (TAC) meeting, which I chair. At the TAC meeting, the pertinent Commission Division Directors will share their challenges in utilizing our swaps data.
2. Swap Trade Execution–Positive Progress Report
Now let’s turn to my second topic: swap trade execution.
Although it has been off to a rocky start, we now have twenty-one temporarily registered and operational swap execution facilities (SEFs). I am excited about the opportunity for SEFs to bring transparency to the swaps market.
Still unknown is whether SEFs will become a spitting image of a designated contract market (DCM) or whether they open the door for competition, innovation and transparency in the derivatives markets. As the Commission progresses to the permanent registration phase, it is important to remember that Dodd-Frank did not intend SEFs to look like DCMs. SEFs’ trading protocols must reflect the diversity of market participants and diversity of products traded on these platforms. The Commission must resist the temptation to impose a one-size-fits-all approach to SEF platforms.
Unfortunately, we have already started seeing the results of the Commission’s overly prescriptive regulatory approach when Commission staff deemed certified Javelin and TrueEx’s made available to trade (MAT) requests for standard interest rate benchmark swaps. Staff also noted that any packaged transactions involving these mandatorily traded swaps are subject to the mandatory trade execution requirements. However, in the same breath, staff is now contemplating some relief from the mandatory trade execution requirement for packaged transactions.
In my view, the real break down in the MAT certifications process occurred when the Commission gave up its authority to review these first-of-a-kind products. The Commission and not staff should be making these decisions.
Today, the market trades multi-leg butterfly and curve trades as well as combinations of swaps and Treasury bonds that are subject to Securities and Exchange Commission (SEC) jurisdiction. I understand it is more cost-effective to trade these products as a package. Unfortunately, the SEF rules have not caught up to the realities of today’s market. This is another area where we can do better.
I hope the Commission will identify the critical components of a solution that involves trading, clearing, and reporting of these packaged trades. The Commission must encourage trading on SEF platforms, while, at the same time, protecting the efficiency of trading various combination products. It is also important to recognize that the energy markets utilize packaged transactions. The solutions we develop today will likely impact energy market swaps trading in the future.
The TAC meeting will also address SEF trading to better understand the challenges and opportunities for SEF traded packaged transactions. In my view, Commission staff should have held a MAT roundtable prior to the effective date of the first MAT self-certification. But at least, we will discuss the available options at the TAC meeting before February 17, the mandatory trade execution deadline.
3. Let’s Help End-Users–We Must Do Better
Now, let me turn to my third topic, helping end-users. Yesterday, you heard from former Senator Chris Dodd, whose name appears on the landmark Dodd-Frank legislation. Senator Dodd was quite clear during the legislative debate about the importance of protecting end-users. And, in their letter to the House, both Senators Dodd and Lincoln emphasized the importance of allowing end-users to continue to hedge commercial risk and ensuring that Dodd-Frank regulatory reform does not make this legitimate activity prohibitively expensive.
Regrettably, it has been an uphill battle to get the Commission to follow the express directive from Congress to protect end-users from the reach of Dodd-Frank. As the Commission moves into the rule implementation phase, the impact of our regulations on end-users is becoming more visible. End-users must spend far too much time and resources in order to get the necessary reassurance from the Commission that they are in fact entitled to the protection that Congress afforded them in Dodd-Frank.
It is troubling that our rules require end-users to file numerous forms, filings and reports to validate their commercial behavior, only to be later second-guessed by the Commission regarding what is and what is not a legitimate commercial risk mitigating behavior.
The Swap Dealer Rule Should be Amended to Better Protect End-Users
One rule that must be revisited to provide end-users greater certainty is the swap dealer rule. 1 The rule broadly applies the swap dealer definition to all market participants and then allows for some limited conditional relief, but only if those end-users manage to navigate the market-making definition and do not fall into the trap of the de minimis threshold. To escape entanglement in this regulatory web, it is better to focus on the characteristics of entities rather than their activities.
To give end-users greater certainty, I propose a modest fix that would exclude all cleared trades from the calculation toward any de minimis threshold. This safe harbor would encourage end-users to clear their trades and would provide an additional buffer from being captured in this regulatory mesh. The swap dealer definition was meant to capture entities engaging in dealing activities that could become systemic to their counterparties.2 To the extent that end-users utilize clearing, they should never have been caught up in the de minimis calculation.
Another element of the swap dealer rule that must be corrected is the Special Entity definition. Under this rule, when dealing with Special Entities, such as state, city and county municipal utilities, the $8 billion threshold drops to $25 million. The reasoning behind this distinction was to afford Special Entities special protections, because any loss incurred by a Special Entity would result in members of the public bearing the brunt of the damage.3
That sounds like a noble intention. But, by reducing the threshold, the Commission has limited the number of swap counterparties to the Wall Street dealer banks. In a quick fix, the Commission has since raised the $25million de minimis threshold to $800 million, but this has done nothing to attract commercial participants. These municipal energy firms are large and savvy market participants and should be treated like any other commercial entity. The Commission must fix the paradoxical result of this rule so that commercial counterparties will come back to the market to do business with Special Entities, and Special Entities are not forced to trade exclusively with dealer firms.
Forward Contracts with Volumetric Optionality are Not Swaps
In addition, end-users have been struggling to decipher the Commission swap definition rules4 to determine whether and under what conditions a forward contract with embedded volumetric optionality falls within the forward exclusion.5 To determine whether a volumetric option is a forward or a swap, the rule applies a seven-part test. However, under the seventh factor, contracts with embedded volumetric optionality may qualify for the forward contract exclusion only if exercise of the optionality is based on physical factors that are outside the control of the parties.
This is in complete contradiction as to how volumetric options have been traditionally used by market participants. We need to fix the definition and create reliable and well-defined safe harbors. I also note that both Senators Lincoln and Dodd believe these contracts should not be captured by the swap definition.
Commission Rule 1.35 is Burdensome on Smaller Institutions
There are a handful of rules where the Commission has failed to carefully consider the impact to end-users due to the lack of appropriate cost-benefit analysis. Let’s take Rule 1.35 as an example. 6
This rule requires futures commission merchants (FCMs) and introducing brokers (IBs) to record all electronic communications as part of a trade record, including preliminary conversations that may occur over cell phones if they relate to trading or if they start a conversation that may lead to execution of orders.
In essence, the rule requires the use of hindsight to know if a certain personal conversation led to a trade further down the road, and then it requires that this conversation is recorded in a searchable format. To comply with this rule, FCMs and IBs will need to purchase expensive recording technology.
While large banking institutions will have the means to find a compliance solution, smaller institutions will take the heavy brunt of regulatory compliance. To avoid this situation, the Commission should have performed the necessary analysis beforehand to determine whether the cost, especially to small market participants, outweighed the benefits of this requirement.
The Commission Position Limits Re-proposal Does Not Reflect Commercial Realities
The Commission position limits re-proposal is yet another example of a rule that ignores the realities of end-users’ commercial and risk mitigation operations. For some reason, in the new and supposedly “improved” position limits re-proposal, the Commission has decided to scale back the bona fide hedging exemption.
To put things in perspective, a broader bona fide hedging definition has been in effect since the 1970s. To my knowledge, the previous hedging exemption worked well in the market and the Commission did not encounter any serious regulatory abuses or violations. More importantly, the hedging exemption did not contribute to the financial crisis.
With the passage of Dodd-Frank, Congress gave the Commission a difficult job in setting position limits. On one hand, the Commission is supposed to stop excessive speculation and manipulation, but on the other hand, the Commission must protect the essential price discovery and hedging function of the futures and swaps markets. This is not an easy line to walk.
The Commission must take caution before it prohibits these longstanding and legitimate hedging activities. Unfortunately, this is just another example of where end-users might feel they are on the short end of the stick when it comes to Commission rulemaking, especially when the statute specifically authorizes such activity.7
Again, I have just scratched the surface of some of the issues where the Commission has failed to heed Congressional mandates to protect end-users. Instead, it has imposed massive new documentation and compliance requirements that force end-users to justify their commercial and business operations. These entities did not contribute to the financial crisis, but they will spend an enormous amount of time, money, and effort navigating the new regulatory order.
I believe we can do better. When the Commission spots a rule that imposes unnecessary or undue burdens—or doesn’t have the data to validate the position—the Commission must consider revising the rule to offer cost-effective alternatives, not another barrage of reflexive no-action letters.
Conclusion
The Commission has an express directive from Congress to accomplish two competing objectives: reduce systemic risk in the derivatives markets and protect end-users. In a rush to reduce systemic risk, the Commission has neglected to safeguard end-users from costly compliance with our regulations. It is the Commission’s responsibility to provide the necessary relief to end-users.
I have shared with you three broad areas where I believe the Commission should reconsider its rules to make critical and necessary modifications to take into account commercial interests of end-users.
Finally, I am pleased that we are making the initial strides to improve data quality. But we cannot continue to ignore the technology needs of this Commission. It’s time to focus on technology. The Commission must make the investment that drives its mission. This will certainly make us better.
I look forward to working with the new Commission to address these issues.
1 Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security- Based Swap Participant’’ and ‘‘Eligible Contract Participant,” 77 Fed. Reg. 30595 (May 23, 2012).
2 Id. at 30744.
3 Id. at 30628, referring to documented cases of municipalities losing millions of dollars on swaps transactions because they did not fully understand the underlying risks of the instrument.
4 See Further Definition of ‘‘Swap,’ ’‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement,’’ Mixed Swaps; Security-Based Swap, Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012).
5 The seventh criterion states that the exclusion applies only when “[t]he exercise or non-exercise of the embedded volumetric optionality is based primarily on physical factors, or regulatory requirements, that are outside the control of the parties and influencing demand for, or supply of the nonfinancial commodity.” Id. at 48238 n. 341.
6 17 C.F.R. § 1.35.
7 7 U.S.C. § 6a.
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