New initiatives you have put in place with him are what he described to congress recently as 40 new cyber team is working under cyber command, which is the military side of his job. He said 27 of them more for defense. 13 were for office. He said 27 of them were for defense. 13 were for office. This comes before we even have a general discussion about whether you want the department of defense in the business of cyber office. Cybers about what these teams are supposed to do, what their mission is, how much all of this costs, whether it is expensive or inexpensive compared to the other things you are doing, and how you get the conversation going on offense of cyber. Very important. I divide the mission of cyber of in the department of defense into three pieces. The first and most important piece for us is to defend our own networks, the integrity of our own networks, because everything we do depends upon the use of Information Systems, including ones connected to the internet. 10 years ago, he would not have seen it except at a command level command post. Now you go to a Company Command post. It consists of eight or 10 screens. They are all check in with other units around them. They are getting satellite feeds. They are getting intelligence product. Theyre getting information from other units. We depend on that everywhere in the world. If we lose that, we think about what would do in that instance. We think about operating through the loss of connectivity, but is not good if it happens. Job one is protecting the integrity of our networks. Enters snowden and we can get to that in a little bit. The next thing is to deploy in the preparation for our own to nullifyilities the cyber advantage on the part of others. You are right. That is something worth talking about. I will tell you some of the tricky issues associated with that. The new field of warfare, obviously we want to do things in a way that is lawful and our population can support and is consistent with our values. The tricky things that come into ourur privacy privacy. Sure things like, are you a particular action you take with an enemys Information System will only have the consequence of disrupting an air Defense System . Have water consequences . You have to understand the consequences of your actions. The authorities to do this, these things are serious enough to reserve for the president. We have bought these through. We are thinking them through. It is fair game for a wider conversation. The third thing we do is play our role in defending the nations networks. I say our role in because we do not have the lead. We support Law Enforcement and homeland security. We tried to support them. Our principal source of support is the National Security agency. We manage. That is a capability i am responsible for on behalf of all of these other agencies of government that use it. Is that where the 40 teams come in . The 40 teams are new and in addition to the existing cyber work force which is mostly cybered towards intelligence collection. We are trying to create another also associated with nsa Whose Mission is defense, the development of capabilities for the u. S. Military, and played an Important Role in defense of the nation. The defense of the nations many of youwhich participate in is very important. Government can and needs to help. Another thing that has to happen is many of the Civil Networks are so poorly protected that it is very difficult for us to claim we can come to their aid. They need to be protected themselves first. That gets too much bigger problem in our society. Ist is that Cyber Security underinvested in. There is a market failure in the cybersecurity field. Those of you who have markets products to market, it is a hard slog. A lot of people do not want to spend a lot of money and acknowledge they have a problem. A lot of our critical businesses are more global than they should be. What should happen is they should take the steps to harden themselves. That is more important than us rendering a, which we are prepared to do as we defend the rest of the country. Of these 40 teams, give us a sense of the size. It sounds closest to the model of special operations. You have a highly trained group. Thousands ofking people . We have thousands spread among the teens. I am starting that way because were drawing people in from the services we already have. It, like special operations people, are hard to find and grow. It requires a lot of talent, a considerable amount of experience. When we havedo high skill areas, we have to worry about how long we can keep them before they go off to companies and so forth. We are starting his ways because this way because i want to start fast. We are taking the people we have an slowly growing the new people we need. That is the management strategy. Were starting off with these three teams. We will rule of that change our approach. I may take a different approach down the road and do things more like the model. But we are not starting there yet because we need to get started. We have got to get going. You mentioned money. This is not expensive. This is not a money problem for me. This is a management problem. It does not cost a lot. Were spending everything we can think about spending intelligently notwithstanding our budget hassles because this is an area were protecting even as another the other military capabilities will be cut. Lets turn to sequester. A year ago, you and i were talking about sequester. You said two things. First, i do not think it will happen. Second, i do not want to plan for it happening because if the word gets out that you are planning for it, you are making it easier for it to happen. I think you added to it, i cannot believe we would ever do anything quite this done. What has happened a year later . That part is right. I could not believe you would do something that down. The second part is not so right. Of course we planned. It turned out to be easier than you might think to plan for sequester because sequester, by its nature, gives you very little choice. You have toer cut here and here by this much. There is less planning to it than there might be if you were just told to take the cut and do what ever you want, which i would dearly love, but we do not have that kind of flexibility. Ready. But the second thing is i did not take action until it became clear the budget deal collapsed at the end of the year. Dot is because the things we under sequester are harmful. I was not going to do anything until ito our defense think clear i do not any man or woman would have thought we would topple off of this cliff. And did not want to do harmful things until january 1. We were ready, but we did not begin taking Management Action until the deal collapsed because the actions were taking are so harmful. Why is sol you difficult to deal with. We are doing our very best everyday to do the best we can buy our defense, given the circumstances. We are trying very hard to get through this and get a sensible result. Let me tell you why things work out so badly. Our budget has three pieces. It has people, an operating budget, and investment. Lets start with the people. I have got to take money out of those three pots. I cannot take money out of iople just like that because can in voluntary separate in voluntarily separate people in uniform. But it turns out it costs me almost as much to put them on the path to involuntary separations over the path of the year as it does to just pay them. You do not save much money in the process. What a Company Might do it faced with a budget cut is to dramatically said people. That is not something we are able to do. Because it falls into the other parts. The operations and investments. What do we do there . In operations, have to take the war off the table. I cannot short of people at war in afghanistan. I cannot short nuclear be andnce we cannot ready as a Nuclear Force. Airplane needsl to keep flying and so forth. There are certain things you take off of the table. The bill gets squeezed into the rest. The happens as a result is in that not spread out all over the entire Defense Budget but in just a few areas. The two areas that are most painful our training, readiness , and our civilian people getting furloughed, a terrible thing to do to them. Let me take the first one. Training and readiness. Lets take an air base. At an airbase, the air bases are open. They have guards at the gate. They have people in the tower. They have people in the fire truck. The lights are on. Were spending the money for all that. Where can you stop spending money quickly . Painting the buildings. Mobil on less often. That kind of thing. Important, you stop trading. When you stop training, he stopped readiness. You have stopped readiness. We are protecting those in as we know are going to afghanistan and would be in a fight tonight on the Korean Peninsula if god forbid we ever had a wart on the Korean Peninsula. Were trying to produce protect the units most likely to find themselves in combat. For the others, we cannot afford to train them. That is risky because if something happens, those units will not be fully ready. Then we get to the civilian personnel part of a week ago, furloughs began for many of our civilians. Washington, but our civilians live all over the country. Aty are not people that work desks in washington. Theyre people that fix airplanes and other essentials things. These folks have had their pay frozen for three years. They have had a hiring freeze. Now were taking 1 5 of their paycheck in the last quarter of the year. It is causing many to have to change their family plans and not do things they had hoped to do for the kids. It is a miserable way to treat people. I talk to audiences of civilians. I say, i do not know why you put up with us. Except i do know. They are there for the mission. They care about defending the country. Otherwise, they would tell us to go to hell and leave. But they care and are dedicated. They do not deserve this kind of treatment. These are the things that happen as a result of cuts that are very steep and fast. To taked more time cuts like the cuts weve already taken, we approach it strategically. We say there are things we do not need any more. We can phase this out. What kinds of capabilities do not need any more . We get rid of the old and start buying the new, like cyber. That is the sensible way to do things. The sequestered thing in the short term frustrates us. If you have said six months ago a betting person would not think this would happen, if you were to put money on the table , you probably have to bet that the sequestered will get extended. I am afraid you are right. The newhas become normal for you. How does that change the nature of the plan . You are right. Were taking very seriously the prospect that this craziness is going to continue into the next year. That is the path of least resistance in the political system. If a big deal cannot be put together by the congress that can be approved by both houses that the president can sign, then we will drift into next year with some continuation of what we have had this year. Our responsibility is to be prepared for that even to quality as we try to be prepared for others. Looking forward, you asked if this could go on. We started about four months ago, an effort to be prepared for exactly that. Haspresident s budget further cuts for us to meet the objective of deficit reduction. But they phased in gradually. From a management point of view, that is the sensible way to do things. I can shed people over time, i just cannot do it in one year. That, we can handle. I do not know that the president s budget will be approved. It is to live. You do not see a lot of forward motion. It is july. You do not see a lot of forward motion. Were looking at the possibility this does become the new normal and our budget stays low. We are preparing for that. Were going to do our level best to make this strategic transition which is the paramount thing. Get rid of the things we do not need. It new things. Treat our people as decently as we can recognizing we will have to shed people. Perhaps i did not make it in until late last night. From the discussion yesterday, one reason you might not do in nofly zone around syria is because you could not afford it under these circumstances. We would need supplemental funding, which is normal for a new contingency. This is a consummate where you add money to the Defense Department when you have a new need, which is a sensible thing to do. There is no reason for us to have that money if we are not the units. Using the example i give people is hurricanes. We have a bad hurricane about once every three years. Money to give us the be ready for hurricanes every year, but then we would waste it two out of 3. What is sensible is you do not give us the money all the time and you give us extra money when something extra needs to be done. That is the concept we have applied to the wars in iraq and afghanistan, to readiness in the persian gulf, operations in the one of africa, and so forth. It makes perfect sense when you have new, temporary things that cost money. Let me ask you to briefly put on your Political Science have hat. Something has changed in the political culture. Hawhe post 911 years, the ks always outvoted the budget cutters in congress. When i was the white house correspondent, you would frequently hear president bush say, i will give my generals whatever they say they need. Notmight argue that is necessarily a position the commander in chief should take, but you heard the line very often. Own party and to some degree in years, what you are budget cuts in first and defense second. Is this just a function of how many years have gone since 911 9 11 . What has changed in this debate . A couple of things. It is very noticeable. Centeras always a solid of the opinion that supported defense that you could count on. Much less so now. In both parties. There are a few reasons for that. One is the one you mentioned, which is we have a competing party, which is fiscal discipline for the country. Unfortunately, the part of Government Spending that has been most politically easy to get to has been discretionary spending. Of course, there are revenues and entitlements also. Those are three parts of the federal budget. Much harder from a political point of view to get to the second two. A lot of the cutting has fallen discretionary expenditures that pay for defense, homeland security, and all of the other agencies of the federal government. That is one thing. The other thing is time has passed since 9 11. People are tired of the two wars. They are tired of afghanistan and iraq. You do not see afghanistan in the headlines as it used to be. Do, it isn you usually about the pace at which we are leaving. Then there is the last thing that is particularly true for the counterterrorism effort. Way, the better we are, the less people will notice what we are doing. Disspirited byt the fact people do not seem to pay enough attention and care enough about defense and security, i consoled myself with the thought that if were doing our job well, people get up in the morning and go to work and take their kids to school. They live their lives and in their dreams without having to worry about physical security. What a gift that is. Looking around the world. A lot of people do not have that. Security is like oxygen. If you have it, you do not think about it. If you do not have it, it is all you can think about. We would like to be in the former circumstance. That is kind of a paradox. It is very important in the counterterrorism effort, of which we are a part. Is an Important Mission of the Defense Department. Is the balance of getting enough public support to do what needs to be done but not scaring people. The president said something written to me in a speech he gave on counterterrorism a few months ago. Point, we now at this after a decade of fighting and learning what we have learned, we can proceed not on the basis of fear but harder wisdom. E have hardearned wisdom we have gotten better. That is the foundation on which we build now. You briefly mentioned mr. Snowden and before. After wikileaks, i was involved in some of the times coverage. We were asking a lot of people the question, how can you download 250,000 documents from the state department . My recollection is your old boss, bob gates, asked that question publicly and privately vividly. Then mr. Snowden comes along. It was not 250,000 documents, but it was documents at a higher level of sensitivity. Happened,at you think why it was able to happen. You mentioned before the importance of defending your own networks. Tell us how you are changing or plan to change your practices going forward. Making maybe make an assessment of how much damage was done. We are assessing the damage. I will tell you the damage is substantial. There is a criminal investigation involved. I cannot talk about that. The issue gets back to what i said about job one needing to be defending our own networks. This is a failure to defend our own network. This is not an outsider hacking in. This was an insider. Rybody who has networks no knows the Insider Threat is an enormous one. This failure originated from two practices that we need to reverse. In an effort for those in the Intelligence Community to be able to share information, there was an enormous amount of information concentrated in one place. That is a mistake. We normally compartmentalize information for a good reason so one person cannot compromise a lot. Loading everything onto a server by people cleared in their own securityt creates a risk of the compartmentalization de from criminalization. E compartment alyssum. It is something we cannot do because it creates too much information in one place. The second thing is you have an individual that was given to accessl authority that information and move that information. That should not be the case are there. We are acting to reverse both of those things. It is clear those are the to the root causes of this. What do you have to do about it . You have to compartmentalize more rigidly. Systemve to have a like what we have for handling Nuclear Weapons. We have no lodestones, the two man rule. You will see a red line and if you cross the can get shot. There are areas where you are not to be. The proximate the two Nuclear Weapons is to moment