themselves and involve themselves in public policy at all levels. in 2006 he accepted the position of chief of staff for senator george allen. ..

>> it happens to me two weeks ago on cnn. i was so excited to go on cnn because we have to take our message be on fox news. we have to go sometimes even to msnbc. so i was at cnn, and i was having a good old time arguing with this real young thing and thinking i was doing great. and they threw out a question to me. i don't know what it was, something about dick cheney and why doesn't he come testify in

front of congress. and so my answer, my brilliant answer was whatever. really, i said this on national television. what ever. i didn't just think it but i said whatever. so that was one of my shining moment. don't do that. change the topic. answer something else, but never look and say what ever. and of course she came back and said what? that is your answer, what ever? don't say what ever. okay. i am so glad to be bringing up the rear here because there are just a couple of things, after watching these speakers, they are so great, are they not? [applause] >> they are. just one after another of the greatest speakers, but there are a couple of points i want to clarify. and since i'm going practically last i get to do that which is great. but you can tell after being here for a week, how important the work that the young america's foundation does is for

you guys on campus, but even more importantly for your liberal compatriots on campus. you know, these are the guys and girls who have been thoroughly indoctrinated by their leftist professors or their teachers in high school that by the time they get the college they are committed liberals but if they are not they have to go through that weeklong freshman indoctrination program, you know what i'm talking about were they all teach a sort of atrocious things. don't fall for it, okay? so that is why we are dean until doing here is so incredibly important. did you know that last year a rock obama was on 100 college campuses? over 100 college campuses. do you think that the left recognizes the importance of getting young people on their side? i think 100 campuses means they understand the importance of getting the left on their side. his plan to socialized medicine and pretty much every private sector of our economy, he knows

in order for that plan to succeed he has to get buy-in from you guys. for it to succeed to the law and. he just can't get the baby boomers. he needs the young people and he recognizes that. who else understood the important of young people when it came to institutionalizing an idea? funny, one of the youngest president ever, jefferson. one of the oldest president got it too, and that was ronald reagan. i hear a lot of folks say this week that we can't constantly being looking back to ronald reagan to find our answers today. we shouldn't constantly look at any one human being. but we should not ignore him. we ignore him at our peril. one lesson we can learn from him, and that is the importance of young people, of talking to them, of listening to them, and of recognizing their importance in the future of our movement. next week i will be in california at the reagan ranch. young america's foundation about

10 years ago saved to the reagan ranch for you. it is closed to the public, but we saved it and it is exactly as ronald reagan left it. because we want you, the young people of the united states of america and our friends from overseas, we want you to get to know who ronald reagan was. and when you walk in his footsteps you really see him. you get to know the humility of the man, why he did what he did. not for the praise, not because he was american man who needed constant adulation. no. he was a working man. he loved to get down there and build the fences and dig post holes and get rid of the weeds and all that stuff. i don't even know what it is. but it is amazing to go there and see how he lived and what gave him this strength and encouragement. he spent an entire year of his eight years as president, he spent an entire 365 days at the ranch. isn't that amazing? so you all need to get out in

california and come and see the reagan ranch. him to one of our conferences out there. next week i'm going out there. we celebrate the anniversary of ronald reagan's signing of the 1981 tax cut. you know why he cut taxes in 1981, largest tax cut ever, to stimulate the economy because we're in the midst of an incredibly difficult recession. so instead of spending billions and billions and trillions to stimulate the economy, he slashed taxes. what happened? we got out of the recession. quickly. because he cut taxes and allowed individuals to keep more of their hard earned dollars. do you think in 25 or 30 years liberals are going to be celebrating barack obama's signing of the $787 billion stimulus package? do you think they will all be gathering at the white house and singing and celebrating it lacks well, maybe they will, but you know, it's a stimulus package that did nothing, actually. actually instead of cutting the

unemployment rate, the unemployment rate has gone from 8% to as of yesterday, 9.6% when barack obama said if we pass the stimulus package immediately that it will not go above 80% are okay, we are at 9.6% just to get a. reagan went to the college campuses just like barack obama because he believed in this our job as americans, not just to understand, appreciate and teach freedom, as important as that is, rather it is our job to institutionalize an idea such as freedom. at the end of his presidency, in 1981 when he became president, america reputation around the world was nothing. we were humiliated. they were laughing at us. unemployment was through the roof. you all don't remember those gas lines, but inflation was through the roof. we were in the midst of this horrible recession. but at the end of reagan's administration, by 1989, america's position in the world had been reestablished their our pride as the country had been

restored. we were back, and the future was bright and hopeful. reagan recognized that that sense of faith in our country, that incredible love of country can be a fleeting thing. and so he said our spirit is back, but we haven't read institutionalize it. we've got to do a better job of getting across that america is freedom. freedom of speech. freedom of religion. freedom of enterprise. and freedom is special and rare. it needs protection. that is what we do at young america's foundation. we need to read institutionalize freedom through you all, because we know, as reagan said, that freedom is not something to be preserved at any one moment in time. we must struggle every day to preserve it. and freedom is never more than one generation away from extinction. as you know, we have a serious

problem confronting us in our mission. and it is that barack obama gets what ronald reagan gets, the need to institutional and ideas through young people. the problem is, barack obama, the idea he wants to institutionalize is socialism. that is why it is so important that you all are here and that you carry that message that you are hearing every day from all these speakers back to your campuses. now, i said at the beginning that i disagreed with just a couple of things that some of our speakers have said and it is not fair for me to go through and dissect their speech is liable to do that. bubble to you that thomas jefferson, what rich said, thomas jefferson is the greatest founding father of them all. [applause] >> i'm a proud graduate of the university of virginia. okay. and the other thing that i really have a bone to pick with is the attacks that i've heard from a few on sarah palin. that let me just say that i

admire some of the speakers, one in particular who i heard, sort of go after sarah palin. in fact, she is one of my mentors and i adore her. but i just want to say, boggles my mind, how we as conservatives can go after the one conservative who more than any other over this past year, despite the most intense, gruesome, brutal attacks by the media and by the left, has to courageously for our shared conservative principle. she carried the water for a failing presidential campaign, in which she was the only bright light for conservatives. she was the energy. she was the vision. she was the hope of that candidacy. when the presidential candidate was going to appear at an event, the advanced and got ready for a couple hundred. when they heard sarah palin was going to be there, 10000. it was incredible, the difference in enthusiasm that

her presence created. listen to me. if we attack for now, if we as conservatives attack sarah palin now, we allow the left to win. [applause] >> and let me tell you, this is going to be the hardest issue for you on campus over the next year's. this is going to take all the courage you can muster. and i'm going to talk about courage today, but i want you to recognize and i want to talk about some of the things that you can say if you agree with what i am saying, let's let sarah palin said that as governor and i admit it when i heard that announcement i was stunned. i really was and i shook my head. but as i stepped back and thought about it, i completely respected her. did she do it because she was scared or because she is a quitter? that's what the left will tell you. they will be little her and say she has no sense whatsoever.

you know what? some have said that if she stepped down because of her family, why didn't she just say it. she did say it. did you hear? she said my son, my baby needs me. my family needs me. so why are people saying she should've just said it. she did say it. do not let the left rewrite history, particularly when it happened a month ago. we cannot allow them to do that. [applause] >> she step down for two reasons, and she articulated those two reasons. one, her family needed her and they were on the verge of bankruptcy. alaska is one of only two states in the country that does not pay to defend their governor against scurrilous, ridiculous attacks. she had to dig into her pocket in order to pay for her own defense. that is ridiculous. that is absurd, and for people to say she should have stayed

there and fought it out, you'd all of her money, got into debt, gone into bankruptcy, that is an absurd thing to ask of any human being. the other reason that she step down was because of alaska. because she loved her state. because she was not going to be able to get anything accomplished for her state. not because she is not competent or qualified. she is incredibly successful as governor until she came vice president joe candidate reaching across the aisles, working for copper mice. but because the left was determined to destroy her, she was not going to allow her to accomplish anything. note why does the left want to destroy her by the way? because they are scared of her, with very good reason. she terrifies the left because they see how she has this ability to connect with average, hard-working americans who don't want to hear some slip,

consultant groomed politician from washington, d.c.. they want to hear somebody that understands where they are, the challenge is that they go through, their families, a small-business owner, somebody who fights and fights and fights for a better life for their children. that is why they are so scared of her. now, sarah palin you, she is a smart woman. don't let anyone tell you otherwise. she is a smart woman and she knew she would take a potentially fatal hit for stepping down as governor. anybody knows that. but she did it because it was the right thing to do, both for her family and her state. and she articulated those reasons. for conservatives to attack her now is galling. many who are supporting another presidential contender sees this as an opportunity to damage her as a potential candidate. but i am not asking anybody to sport her for further office. i probably will but that is just me personally. i am not asking you to do that, but i am asking that we support

and defend her as a conservati conservative. because it is the right thing to do, and because we do enormous damage to our movement when we pick up the left and go after governor palin. we heard of other conservatives who want to go out and champing our ideas because we see what happens, what they will do, what the left will do when we step out. it hurts us when women who we want to bring into our movement, because they identify with sarah palin and they see us attacking her. they are furious at what they see in the media and the left due to her. let's not fall into that same trap. it discourages other conservative women from running for office when they see the brutality of the left and the media, and when they see other conservatives jumping on the bandwagon. we need conservative women running for office. we need to bring women into our movement. [applause]

>> so all i ask is that we honor governor palin for her commitment to her family and to her state, and let's honor her on labor and defense of smaller government, strong national defense, love of america in defense of our country, love of the second amendment and love of individual liberty. [applause] >> so for goodness sake, as conservatives, when sarah palin is attacked and ridiculed and you will hear it time and time again on your campuses, we of all people should have her back and defend her. so let's get out there and do that. [applause] >> now the speakers this week have talked a lot about what it is to be a conservative. what makes as conservatives, the roots of conservatism, the difference between conservatives and liberals, all that is so incredibly important i want to talk to you today about what gives us the ability to stare

down intimidation, ridicule, and downright hostility, both on our campuses and beyond as we fight for what we believe in. as we fight, really, right now for the existence of our country as we know it because of the very roots of our country are under attack and we have got to dig deep and find the courage to stand up. when we find it within us to stand up for what we believe in, we are standing up for our ideas, for rights, for principles that are bigger than we are here that is how we do it. would recognize that there are things bigger than us, bigger than our egos, bigger than our need to be like, that is a real tough one to get over. you will be fighting it for ever but if you get that now, being liked is not the end all and be all, it is okay for people to look at you with a little bit of scorn and contempt. you should be honored when they do. what it had been berk say once, all it takes is for evil to prosper is for good men to do nothing.

do not allow evil to prosper. look at our fellow americans right now, the courage that they are exhibiting. people prefer to stay home, the comfort of their elders they don't go out to meetings. these are not professional organizers who you are seeing on tv these days. they are not political or social activists. but they know if they sit home right now, they allow evil to prosper in our country. so they are subjecting themselves to ridicule and division and they're coming out in droves to those town hall meetings, the rallies, to stand up for what they believe in. now, what does the left due to intimidate us? we see them doing it right now. particularly to intimidate young people and not standing up for what we believe in. too often they are totally successful and they fight with us. their number one tactic to shut us up, and call us names. is that stupid or what? it's what you thought you left on the second ground playground. you did not. think again. what are they calling us right

now as they recognize they are losing this health care debate? thugs, bob, lounge shirts. it is completely amazing, not. they are comparing us to nancy's. not to mention that now we are all called on to report dishy behavior, activity discussions to the white house. you all are going to be reported to the white house, just recognize that. don't worry about it, by the way. i mean word about it, but still do it. these are perfectly legitimate protest that are taking place with sound logic behind in. it is participatory democracy in action. it is a great thing that we are seeing bubbling up from the grassroots of our country. but instead of responding to the merits of these arguments, liberals do what they do best. they call names. keith olbermann, a name caller and she. i'm going back a couple of

months ago at the tea party, the april 15 tee party. he came out and said stop, these are about quote some americans who just hate the president of the united states. unbelievable. then he had a leftist actors janine droppable, do you like or? she is a lovely, lovely lady. she came on to a barely watched show on msnbc and she did the left quite proud with her name calling. she said that the parties were quote not about bashing democrats. it is not about taxes. they have no idea what the boston tea party was about. they don't know their history at all. this is about hating a black man in the white house. this is racism, straight up. is that amazing that she said that on national television and keith olbermann is like yeah, that is exactly right. if you dare to criticize the president of the united states and his policies, they may call you racist. unbelievable? but that is what they will do. if you watch the tea parties and

the speakers you would be amazed by their eloquence and their presentations. they were rich with history. each one of them cited the underpinnings of freedom and liberty upon which our nation was founded. these people certainly know their history, and they were standing up for it. that is why they were there, because they know their history. now that's what happens when somebody cannot back up their argument with facts. they call names. we should be free to criticize the president and his policies. there are certain a lot to criticize writer with being a responsible if we didn't. government health care, lack of leadership around the world, you know, this international apology tour that barack obama went on a couple months ago? you don't want to have to worry about being the only ones who are going to attack the president's policies by the way. there is an epidemic sweeping the country faster than any of us thought would happen. the obama fatigue syndrome. we are seeing it in virginia,

where there is going to be a governor's election next year. [applause] >> and in ohio where they are being hit hard by unemployment numbers. and both of those days his approval ratings have dipped below 50%. that is pretty significant this early in his administration. so what do we do to respond to those attacks? now the most tempting course is because these attacks make our skin crawl. to be called racist or intolerant or small minded, it kills conservatives because that is not who we are. we are the opposite. we are so tempted to get in there and just defend ourselves and. however, if you do that, you have allowed the left and your opponent to distract you from your point. you are clearly winning the argument, and if you shift, they will start to win. do not respond to their absurd attacks. the key is not to fall for it. rush limbaugh said if conservatives spent their time responding to the never-ending

series of baseless attacks from liberals, they would be lost to the cause of truth and freedom forever. awesome point. book, liberals are angry and they don't take the time to equip themselves with the facts. so look at that as a great opening for yourself. do what ann coulter does. when they call them names, laugh. just laugh. that is exactly what ann coulter does. [applause] >> they have no idea what to do with that. when you start laughing, they are completely at a loss. it is laughable what they are doing. and then just tell them it's the oldest trick in the book and it will not work for me. it is one thing for me to be up here today telling you to laugh in the face of liberals, and in your classes and to laugh in the face of your professors. i know it is another thing entirely to be able to actually do it, to laugh at those who call you names.

it is tough to dig deep, to believe in something bigger than yourself, to find the courage to do it. and in particular topic in those classrooms when you have that authority figure standing up there proclaiming his opinion to be back and really daring anybody to challenge him, or when you're the only one in a lecture hall filled with hundreds of other students who are nodding their heads and everything else the professor says it but it is incredibly important that we are able to do that. you know what? when you do stand up, you just have to start going for it, like they talk about the other day. you just have to start engaging on tough things like 9/11, a tough things like abortion, health care, all of that. you have got to start saying what you believe. and when you do, your professor and others will call you a flag-waving fanatic. they will call you crazy. they will call you kooks. they will call you all sorts of things. but if they do, just remember, you are in good company.

how fanatical was john paul jones in 1779 when he was commanding a ship against the vast naval power of the britz? you guys, they were rulers of the world at that point. and john paul jones is on this little tiny boat, little chef, and he is being shot to smithereens. literally. he was 5-foot tall, that is shorter than i am, 5-foot tall captain and he refused to lose heart. he was literally, practically hanging onto a piece of wood that was left from his boat, and there were some guns and they were still shooting. and the british commander called the rancid are you ready to surrender? and a jones shouted back, he said, i have not yet begun to fight. and guess who won that battle? john paul jones. [applause] >> sorry, guys. there is no question that in

england and in america, the colonies, in 1775, patrick henry of virginia was regarded as a fanatic. he was a lunatic. what craziness to stand up before an assembly of colonists and say that his tiny little band of insurgents in america had a chance to beat the british, the most formidable military might in the world. it was craziness for him to say, this battle, sir, is not for the strong alone. it is for the vigilant, the active, the brave. his life so dear, forbid it almighty god. i know what know what force others may take but for me, give me liberty, or give me death. [applause] >> now sometimes when i get engaged in these argument and i'm a flag-waving fanatic, my voice is like this, i am a

little timid. patrick henry's voice was booming in that church. saint john's church in richmond. booming. they said the raptors were shaking. people were sitting on the edge of their seats just staring at him. he was not afraid. he was vigilant, courageous and brave. he won't know those words. you know the words of patrick henry. are they part of you and who you are? thomas paine, do you know his words? they ring as true today as they did in 1776. this is almost exactly what we are facing now and we have to dig deep and be courageous. he said the summer soldier and the sunshine patriot will end this crisis shrink from the service of this country but he who stands it now deserves the love and thanks of man and woman. tyranny, we are facing tyranny right now, tyranny like hell is not easily conquered. yet we have this consolation with us that the harder the conflict, the more glorious the

triumph. if you have never heard those words, if you have never absorbed them, go home and read that, read good books on the founding and let those words give you courage and become part of who you are. john paul jones, patrick henry, thomas paine, fanatical kooks, everyone of them. and i am so proud to be among them. so were the 56 signers of the declaration of independence. not one of them lost hope. this was not some glamorous time that we sort of paint it as as we look back and say 1776, that was great. no know, their very lives were at stake. do not lecture her eyes untranslated as glaze over as you think i'm going to give you a history lesson. that is not why i'm here. i editorialize the whole thing. so don't let your eyes glaze over. i want to tell you about a few of these amazing men who signed a declaration of independence. you and i need to look back to them now for that courage in standing up for what we believe in. we don't realize what they faced

as a sign that parchment that was written, by the way, by thomas jefferson who was not much older than any of you, from all of you in this room. he was a young, young man. they were in the stifling hot room in philadelphia in july. the windows were shut because they didn't want the passersby to hear the debates that were going on. there were these passionate speeches were interrupted by these allowed blacks as delegates lacked these giant horse lies that were biting at their necks and legs. it was not a comfy situation. . .

is for that person will be the textbook of freedom, the bible of the rights of man forever. [applause] now, stirred by the passion of the man who collapsed back into

his chair, the man can afford to sign the declaration and, of course, of the gallant john hancock was the first to sign and he said the lad in clearly, there, his majesty king now read my name without glasses and you can double the report on my head. but then benjamin rush described it to a pensive awful silence val as one after another of the delegates came up and sign their names for what they believe to be was their death warrant. william ellery was a delegate from an island and he wants each man faces as they came forward. he lay that although that moment was intensely heavy and serious, he said in no face was able to discern a real fear delegate stephen hopkins who suffered from policy with shaking, he said his hands shook absolutely uncontrollable in coming you could sit on his signature when you look to the declaration but

he said my hand trembles but my heart does not appear the the signers separate and mike kelly as a result. we don't hear about that in our history class is and we think they went on and were considered the heroes and everything was great, and nine died during the war from a their wounds or hardships. five were captured and ever made examples of by beatings and the brutal beating since our mission. their sons when captured had the worst of it. two other wives were thrown into prison camp every one of them was hunted down and chased from their homes at one point. many lost their homes and their fortunes. john hart, the delegate from new jersey knowing that his home was being watched tried and failed to return to be there with his dying wife. hessian soldiers chased into the woods the 65 year-old man where he lay sleeping in caves and the soldiers destroyed his farm. when he was finally able to sneak, his wife was dead, their

13 children have been taken away, he died in 1779 without ever having seen his children again. abraham clark, his two sons were captured and sent to one of the prison ships off a cust that are really just plugging death ships. there were discussing in her rhetoric. they retreated to unspeakable misery, they were starved, beaten, their father abraham clark was told that he could spare their lives if only he would recant his signing of the declaration. now remember when they signed this they pledged their lives at their sacred honor and a sign the document so he was told his brother alive if you just recant the promises and he said in the hardest work he's ever had to utter was no apparent in that declaration they did pledged their lives, their fortunes and their sacred honor in not one of and the signers ever went back on their word. now everyone word of was a

sacred honor the other courageous leader that i want to remind you of is ronald reagan. he stood up for free in and our liberties and a time when our country was mocked around the world. reagan became president in 1980 and as i told you it was a very dark time in in 1981 for our country. there humiliating errors hamas the high recession, malaise, but ronald reagan had of the courage to stand up not just for what he knew was right economically citing tax cuts, major accomplishments and slashing taxes, but he was able to stand up for freedom around the world of. his berlin wall speech which we all know, mr. gorbachev, tear down this wall and -- every one of his advisers told him not to say it's coming out 17 over its mr. president. they kept taking it out of his speech with every track and he said now.

i am going to say that all santi will be laughed at, they will ridiculed and our country. and he did it anyway. and as a result millions said that the freedom we love and cherish as american. in [applause] when i ask you to take from this week here with us at young america foundation i ask you to take courage back to your campuses. you're task of outstanding and for which you believe in both as school and well beyond is daunting. there's no doubt about it but it is not as daunting as the challenges that those 56 men face. they're willing to sacrifice all so that he might enjoy the blessings and liberties of others say it for granted. take part every one of you as you face the challenges.

look to ronald reagan, in washington, adams, jefferson and not one single second again how proud you are and should be to be american. let that be a your courage to go for the nba leader for righteousness every them. thank you all so much. [applause] >> hi, steve lindsay, prince university in those wondering what is your justification for why thomas jefferson is the most important or best or most consequential have a father as opposed to the likes of let's say james madison and alexander hamilton? >> and listening right now -- can you hear me, enlisting two founding brothers and talking so

much about medicine and i need to go back and read it great biography. there is no question that all of our founding fathers by something key. madison was the detail man, the brain is arguably behind the strategy, he was able to ensure through congress the constitution, the bill of rights, incredible mind. i love thomas jefferson because i went to the university of virginia and is to the declaration of independence was of the most important document of the era so listen, i would -- i love to get into a debate about the planning father is. >> at like that too. >> but to me he is the most important because i've been two his fellow and i think he's incredible and i'm a virginian. i just love thomas jefferson. he was a renaissance man he was amazingly accomplished not just in his writing ability but he was a scientist, inventor, he

was just so many different things. you know what, i love them all. as you can tell i love them all and i think we need to know about every one of them. you only to read the best biographies americans are the ones. don't read the revisionist history that left the professor's right. talk to been conservative professors are conservatives love history. rivas biographies please so aphorism argue with me about why thomas edison is the most important because it's my opinion. >> i still was back with disagree but thank you. >> thank you. >> university of mississippi. in your speech to as this morning you ran over how you criticized the laughs were ridiculing us and name-calling. yet at the same time in your speech today you said that liberals are angry and it don't take the time to put themselves

of the tax entellus to laugh in their faces. also in a speech to praise from last night's compared democratic senator from arkansas to saddam hussein. do not see this as a doubles their price. >> i wasn't there and wasn't able to be there for her comments, i didn't call liberals and names. they're usually ill-equipped. [applause] and the only time he should laugh in their faces is what i call you're rafik names, you are perfectly within you're rights to do that. and to believe and i hope that people have argued with me i do believe we should be gracious and our arguments with a laugh. we should listen in. i have reached former liberals by listening to their arguments and when they do throw a few facts out which are very rare and shallow i'm able to answer them or i tried to 25 if i can i promise i'll get back to them, but i do believe we should be

gracious and not be arrogant and condescending. that is part of who we are. i think most often conservatives argue with that stone and tenure. there are some of our great conservatives who are satirical and sarcastic and that there are a very effective in that approach and i think that is fine. there are some who do use that approach and are very successful for our cause and that they throw some of these bombshells' into a discussion and go to these liberal campuses where students have never heard of conservative thought before and i heard all the sarcasm into this liberal establishment. you know of a duplex that free discussion and debate in energy where it has never existed before. they opened up a free state of ids. [applause] is a great thing. >> i appreciate the clarification. >> my name is brian, i attended the college of new jersey.

how would you respond to republicans in many of whom in the new jersey establishment republican party would tell conservatives like me that we can to win it reacted talk conservative? and how do we as conservatives win within a party that wants us conservative to ignore conservatism and run as democrats and there will not win? >> that's a big problem, isn't it? where are all the women by the way asking questions? i need some more women up there. i have been here and not many women are asking questions. surely have something to ask ferreted. nobody will notice when you get up into it, don. that is a problem as the republican party because a lot of these establishments said the only way we can win is by reaching out to the middle and i would ask them to look and say the majority of a bush's

campaign for president when he broke off the new taxes' pledge and as a result conservatives did not come out and vote for him and and and we've got bill clinton. so there is, of course, there are ways that a certain district we need to be more attractive and conservatives seem to be attractive enraging onto modest because they are intensely liberal areas and we still want to win everywhere. conservatives want to win everywhere but i think that that is fine in certain areas but across the board as conservatives we need to continually articulate a conservative message because if we don't then have the republican party which is controlled by moderates and we will lose the pillars, we will lose the low taxes, the strong national defense. the pillars on which the republican party has been founded and it will fall apart. when there is no difference

between republicans and democrats people will vote for democrats, there mark jose, the have the language down pat that we don't always master. but we cannot abandon our principles otherwise there is no reason for conservatives to vote for republicans. >> thank you, god bless you. >> hi, i'm lisa from the king's college. and just wanted to ask you a quick question, i agree with why your say about sarah palin and the left viciously attacked her and as conservatives its request to join in on that a gang up on her when she is a lot of what we need the senate to have another question why this to run for vice president? >> of that has nothing to do if -- >> to step down from her governorship because her family from a bankruptcy and the state of alaska. bankruptcy, her family issues is the first thing, why did you ever vice president issue is fine to step down a couple

months even later? and in the second one is bankruptcy -- sarah palin has sent momentum in the conservative party in wouldn't have been a problem for her to hire the best lawyers to defend herself. >> she did not have money. >> that they should have got a suburb of. >> let me is your question, i appreciate that. first of all, what is your other vice president because she cares passionately about the future of this country and she knows she has the capacity and ability to articulate the use of irish-americans and to further our beliefs and for the policy is reported to our principles. that is why she ran. no human being, no good morrow decent human being could have ever anticipated what happened to her. i think it took every -- we knew she would be attacked by never to the degree and with the viciousness with which he was. now she believes -- her family

was perfectly well provided for by herself and her husband, her husband took a leave of absence from his job to care of their baby and care of the family. by the way of a family coming even the daughters from a teenage daughters especially them should have been completely off-limits. [applause] they are still off-limits. when i said to stand down because of her family i mean because of the attacks that came as a result of current non only be a candidate but being a real, the biggest threat that the liberal see out there. they went after her with everything. i cannot understand how people say she should have just faded and hot and hired the best attorneys. the woman doesn't have my. she -- she will god bless her

have lots of money and i congratulate her for that. [applause] i hope he makes millions and millions, she deserves every penny have. now but she did not have money. he would have had to declare bankruptcy because two is not intended by the state of alaska and all of these ethics charges brought against her they have been dismissed. there are frivolous, they are -- we can argue afterwards. they have all been dismissed, they have been shown to be frivolous and she did exactly the right thing protecting the future of her family. she could never have anticipated attacks her children were receiving, her daughters. that is absurd and her son, to attack this baby is disgusting and her reckon i would say to step back. [applause] but the conservatives to say she is going to get out and say abnegation probably look this payroll there on because they're working for another candidate. they want her to stay out of

personally whether you are for her are not the attitude conservatism. her voice is important and she expands our members and she is a valuable horse within our movement and we should want her to stay in. >> university of wisconsin. >> i saw a. >> actually it relates back to that. you have given us a speech on how liberals are so have a credit, and why they don't usually win or why they should not win. my question toç you is after te first six months of a barack obama's presidency what do thinç personally is the most hypocritical thing he has done so far?ç >> i'm not sure -- >> for his administration. >> i think i would change my speech topic nextç time to say why liberals live because it's not so much just the hypocrisy now appears it is a flagrant

embolden face lives that we've heard in the campaign and either use the word libraryç often. i made my kids a fibs because i know why the replies but they live. my gosh, have you seen this stuff? the taxes, how long did it takeç them to raise cigarette taxes on theç working-class, that is a user of a. it is anç attack on a working-class itç really is the value-added tax, because as soon as they closed that balloon we need to be all over that because we cannot have a value added tax in the u.s. of america. [applause]ç you clearly know the value added tax is. that is taxing everything you use. so i would say that lives on the economyç and certainly this foreign-policy is terrific. of the fact that weç are goinga round of theç world been repeatedly bowling before other

rulers of other countries and apologizing for america's transgressions instead of sayin have a notice we are the most generous country in the world, that we come to your eighth and then do, we did when she by providing our resources and by sending our military to defend do for liberty is in peril. that is what barack obama should be running around roads saying instead of begging for forgiveness. >> thank you. [applause]ç >> hi, my nameç is listed nilsn and from the university of¿ central florida. the left has pretty much celebrated their victory overç sarah palin since she stepped down here and is there something she can do besides public speaking to send the message that she has not been defeated? if so, what, and if not, is a public speaking in the former? >> i think sarah palin will be doing a lot. she is writing a book right now and, in fact, is turning down all public appearance because

she is finishing her book. she will certainly be giving a lot of speeches around the country there, i think with cheese to do right now is to write editorials on the substantive policy issues because she is a smart woman. she should be on the energy issue because she is very good on it here issues to be talking about economics of foreign-policy issues. to is great on national defense and i believe she should be really focus on what this administration is doing to gut our national defense. we are cutting significantly if we find every turtle cropping and of the road we are cutting our foreign-policy, cutting our national defense, cutting all of our weapons and the cutting missile defense. i think she's to be outspoken on this issue nab not so much on the social issues but she is very good on those as well and arctic establish yourself there

so i like to see her and brought in and talk about some of the issues she has not party talks on but the leftist going to know very quickly that sarah palin is not going away because she will be replaced. >> could you answer. >> my name is travis, i attend george washington and and also the president of ms. young america foundation chapter. as a gw conservative i want to extend a warm welcome to you and the foundation and everyone in the room on five to see this many conservatives at gw and of fortunately we don't have as many trendier. >> fell one and only time this many are here. >> i question in view of about the importance of women being more active in the conservative movement and more active than the parti. what are you going to run for office and you will you expect to vote for you? [applause] >> i like what i'm doing, i like criticizing people in office. is much more fun. no, is that earlier question by

[laughter] us talk about women in public office. this is what to do instead of saying whatever. you shift the topic. [laughter] i know i probably engraved on some of you when i say we need more women and i say why aren't there more women up there. because if you were being directed to come out with me on that and i respect and appreciate that because we conservatives don't believe in quotas, we believe the best person should be in a job. i love of margaret thatcher said when she was asked those to go for the feminist movement and she said no thank you read much i owe myself thanks for where i am and has nothing to do with other women. it is made, i encompass all of this and i truly believe that. but i believe, of course, some reasons women in a society needs an extra push to get involved in public office and i don't know why that is sometimes on not saying all of you.

i run in this, i started this training program for women in virginia to get involved in politics and that's the first class i will ask this. after eight months of training one day a month i come and say how many of you consider running for office and everyone raises their hand. there is just -- i don't know what this is, but i do believe that is incredibly important for the conservative movement for us to have high-level prominent women articulating our message. i've heard a lot of these women here this week say when are we going to get the women speakers? where are they? their is something we identify with somebody like ourselves. and chile and try to articulate women bring more moderate men into the party and that is a great thing to.

[applause] and bringing men and women in. i think we just need to show that we are diverse in thought and who is within our movement appear found it is only a good thing. we john more women into this movement we have particulates courageous conservative women out there articulating our message and as you want to say a lot of women choose not to because there are at home raising their own families and it is consuming. is all consuming to be a man and having a career and being a father and has been, that is all consuming as well. we as women don't have a choice right now. if we are at all interested or at all concerned about the future of our country, we have no choice. we have to become involved and there are ways to do it and still raise your babies and did the best mothers in the world, the best wives and mothers to have got to figure out that way to get involved and have a voice of the wise to advocate to the radical feminists we do not want to be representing you.

thanks for that. >> you mentioned earlier that one reason that sarah palin has become so popular so quickly is she is able to take policy and political issues and explain them in a way that normal citizens can understand why for basketball analogy in her speech, everyone to be connecting with that. do i think that that type of -- do you think that use of speech can welcome people who may otherwise be discouraged from interested in politics because of the type of political space? >> that stuff? >> might bring people to the conservative side who before were not be interested at all? >> very much so and that is why see 10,000 people coming out to hear sarah palin wherever she goes, she gets the most enormous crowds. now she does not speak why she graduated from yale and all i can say is thank heaven for that and another as two anybody from

yale. we need politicians who are genuine. she is genuine fear into language. i frankly don't worry at all about sarah palin changing her position five years from now on some issue. i think that women wish to believe something she believes it and she is not good to change to come hell or high water and i think that is a great thing. is who she is. people see her toting her shotgun in they've taken this is a woman -- this is awesome. and they know when they see her and they see her holding her baby on the stage. that takes in that. i have four children and i have been the politics before and it would terrify me to bring my children on to the stage of. when i was running for party chairman i had one of my babies in the background crying or talking or laughing and by consultant no longer affiliated with me says you cannot go to have a kid in the background from our you, try to get those?

i can't do that? so when i saw sarah palin on that stage holding her baby i thought yes, that is great, she is a normal guy that loving husband loving family lathing soldier loving america and and i love this woman. [applause] >> fey gave. >> thank you. >> i'm nick from the university of colorado and when the republicans were about to announce who ever going to have as mccain is running mate, i felt like most liberals i knew were like lines waiting for sheep to be dropped into their cage. and unfortunately sarah palin was that she put. to them. i am just curious to know how a liberal what it delve with the republicans when they have chosen mitt romney or huckabee

for his running mate? >> how liberals? >> you think they would have been worse? >> it couldn't have been worse. no, there would have gone after them and attacked them in. they would have been attacking mitt romney's faith. all sorts of horrible the tax would have come forth on these folks. but we would have had a crowds of a 300 or 500 or maybe a half and coming out to have a ticket and that is fine. we would have still lost, there's no question. sarah palin in my opinion wasn't the only chance the republicans had of winning. i know that a lot of people say if she hadn't been on the ticket they would have a chance, that's ridiculous. she's the only thing that sparked interest in energy and enthusiasm in the republican ticket. [applause] >> thank you very much. >> thank you all so much, god bless you. [applause]

>> i think we need about 100,000 people more like her. [applause] just before it breaks an announcement, she's available to speak at your campuses through young america foundation program if you like to do that we be happy to talk with you about that. finally for our viewers will be taking luncheon after lunch we will talk with roberts. thank you. [inaudible conversations] the seventh is about to gavel for a pro forma session, the completed legislation before recessing for the rest of the month until early september. this meeting is necessary to avoid pending nominations from being sent back to the president of the senate and having to be

resubmitted when members return. that would happen if the senate or at a session for more than 30 days. live coverage on c-span2. the presiding officer: the senate will come to order. the presiding officer: the clerk will read a communication to the senate. the clerk: washington, d.c, august 10, 2009. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable benjamin . cardin, a senator from the state of maryland, to perform the duties of the chair. signed: robert c. byrd, president pro tempore. the presiding officer: under the previous order, and pursuant to the provisions of h. con. res. 72, the senate stands adjourned until 2:00 p.m. on

tuesday, september 8, 2009.

>> how is c-span funded? >> by donations. >> federal ferns or grant funds. >> maybe private contributions. >> honestly i don't know him. >> i would say from commercials. >> advertising? >> something from the government. >> how is c-span funded? 30 years ago america's cable companies created c-span as a public service. a private business initiative. no government mandate. no government money. stack now we look at u.s. policy toward afghanistan and pakistan with the chairman of a house subcommittee on terrorism. this is half-an-hour. >> california congressman brad sherman shares the subcommittee on terrorism in foreign affairs. here in watching them, at least

today during the recess, here it is going to talk to us about afghanistan and pakistan, another terrorism issues that we touched on this article earlier today, a piece in the washington post yesterday. he writes that general stanley mcchrystal later this month, the top u.s. commander is expected to present his analysis of the situation in that country that could prompt an increase in u.s. troop levels, help implement president obama's new strategy. what are your thoughts on his upcoming report? what would you like to see? >> guest: the general course is focused on afghanistan. that is his mission. the national mission is to do with all the security threats to the united states. and those threats come chiefly from iran, north korea, and the possibility that pakistan might unravel. the chief relevance of afghanistan is not afghanistan. but its location between and its involvement with pakistan.

it is not article to our national security. i think you would be an outstanding outcome if we were able to redo nationbuilding in afghanistan and turned that country which has had so many problems into a real functioning state, but in terms of our national security the issue is does al qaeda have major bases in afghanistan that they couldn't have anywhere else, were able to present that. and second, how do we support democracy in pakistan. >> host: where does al qaeda, where do you have concerns about al qaeda? >> guest: first, they don't have the enormous bases that they had prior to 9/11. you are never going to prevent them from having a conference or. some of 9/11 was plotted in an apartment building in hamburg. but you do want to disrupt their operations and you do of course want to go after their leadership. the locust of their activity

seems to be in waziristan just on the pakistan side of the border, but throughout the border area. and so that afghan pakistan border is perhaps, is the most important area from an al qaeda perspective. we are able to have troops currently operate in half the theater, the afghan side of smack talk about your the national security. when you see a headline like this morning in the los angeles times, pakistan preys on use. militants kidnapped and trained teens in the north to bolster their forces. what sort of concerns those that arise in you? >> guest: we live in a world that is a far more evil in it and we choose to acknowledge. first is what is happening to these views untrimmed youths in afghanistan. to see them kidnapped. that evil is happening in many parts of the world right now.

the second is, those are soldiers being deployed against our troops in afghanistan. and it is just one more thing for us to prevent and for us to publicize, but we call -- we are on both sides of the afghan, pakistan border is kidnapping is just one illustration of evil we are up against. >> host: broadening out this discussion to iran. what do you make of the recent elections and how does that impact u.s. national security? >> guest: well, from a national security perspective, our key focus is presenting iran from having nuclear weapons. the idea that, oh, it is okay for iran to have nuclear weapons because they will be deterred and ignores several facts. the first is we did deter the soviet union. but in large part because we

were lucky. when we had the cuban missile crisis, we face a relatively sane crew chef. is there an eyeball to eyeball crisis with a nuclear iran, and there will be several. if iran blows up the jewish community center, as they did last decade, if iran challenges our ships in the straits of her muse as they do periodically, that is an eyeball to eyeball confrontation with a hostile nuclear state. we had one of those in the cuban missile crisis. i am not looking to have more. and then second, my hope is that this regime is swept out in the next few weeks. but one fear is 10, 12 years from now, a nuclear iran has a hundred thousand or so per hundred thousand people in the streets. the regime feels it is going to be swept out of power and they decide to go out with a bank. >> host: your hope is the regime is what that in the next few

weeks? >> guest: i am not putting that for a realistic possibility, just, you know, that would be my preference certainly. >> host: we have a couple of california callers lined a. go ahead. >> caller: hello, congressman. i have been trying to get you for the longest time. first of all, you are on the foreign affairs committee, okay, and first of all look what happened, look what motivated the 9/11 hijackers. you can look up, america' america's-hijack.com, and you will see its arsenal support for israel and their brutal oppression of the palestinians which got us attack. you can also look on james book a pretext for war. >> host: do you put any credence in her argument? >> guest: you could have come to our townhall. we had on june 3, we had almost 500 people from the valley there. i am not hard to talk to.

of course, i will be at warner center with a concert in the park a couple of sundays of this month. as to the idea that bin laden would be satisfied if we just count was his goal with regard to israel, which of course was the expulsion of all i think lensing and perhaps their mer, that would certainly not satisfy bin laden. that would whet his appetite. if you look on his webpage, he claims spain as well. so if you are ready to ethnically cleanse israel and every ethnic cleansing that we'vwehave seen recently is accompanied by genocide, in order to buy off bin laden, think again. because he wants, and then he refers to the battle in which islamic forces were prevented from conquering france. he wants to reverse the outcome of that battle.

so you better be prepared to give up most of the old world, and then hope that doesn't just what bin laden's appetite for the new world as well. >> host: democratic color. good morning, dennis. >> caller: good morning, congressman. thank you for being on the show. my question to you, you were mentioning about the hijackers of 9/11 and they're planning in hamburg. we know so very little as far as i can see as far as what these people did prior to boarding those planes. it seems like that is something that needs to be looked into very carefully if it has not been looked into. and also look into, whether or not they were aided by someone in this country. that's the concern i have and doesn't seem to be addressing anything i am reading. >> guest: i know that has been thoroughly investigated and yet we have not come up with the kind of detailed information we would like. one of the reasons why suicide bombing is favored by those who try to attack us is the perpetrators are dead. it's very hard for us to know

what they were doing six months prior. we know some of the facts, for example, attending a flight school but not being interested in takeoffs or landings. but aside from that, we don't have the kind of detail we would like to have. >> host: do you think the 9/11 commission did its job well and answered all the questions that should have been answered? >> guest: they answered i think all the questions they could answer. i think is a good report. >> host: broadening our discussion to north korea in the wake of former president clinton's trip and the retrieval of the two journalists there who came back last week to california. jim jones, the national security adviser was on several programs yesterday. u.s. and north korea seeks better relations and bilateral talks. what are your thoughts on the former president's trip? does this provide an opening? is it something that we shouldn't have done in terms of are we giving north korea an opening they shouldn't have had?

>> guest: first, it's an outstanding humanitarian result to see laura land at burbank airport. i think with a sigh of relief for all americans are it's clear that there were discussions between kim jong-il and president clinton. what that message is, i don't know. north korea has always preferred bilateral talks, but that has the effect of splitting the united states off from the rest of our allies in the six party talks. and the key to dealing with north korea is not whether it's a six sided table or a two-sided table. vicki goetze can you put pressure on them. the only way to put pressure on them is china. and the only way to get china to change its views is to make it clear that our trade relationship could be put at risk if they continue to

subsidize north korea while telling us that they are doing everything possible to prevent north korea from expanding their program. >> host: so we have more leverage with north korea than we do iran? >> guest: we have very little leverage with north korea, but china has a lot. and we have a relationship with china that -- i know often is characterized that we are the weaker party. the fact is in international relations, debtors are more powerful than creditors. and those who allow imports are more powerful than those who have a need to export. it's a exact reversal. our banks can foreclose on our houses if we don't pay. in international affairs, the debtor is immune from for closure. >> host: strictly on the nuclear programs, which country causes you more concerned, iran or north korea?

>> guest: iran because they are ambitious. north korea seeks only to exist maybe make some money here or there. iran clearly wants to affect world affairs. you have a country that has conducted bombings as far away as argentina. you have a country that wants to spread its view, and the messianic views of some of the leaders, particularly around aqua dinner shot are particularly boring. you would expect iran to affect events very far from its borders, and every one of those efforts could lead to a confrontation with the. >> host: let's hear from la crosse, wisconsin. bob on our republican line. >> caller: good morning here i have a question about literacy in the afghan area. wouldn't nationbuilding be easier if people were later it? as opposed to, you know, just people being told what somebody

wants them to hear. >> guest: clearly afghan, a nationbuilding would go better with litters a. we are building schools. half the population obviously of afghanistan is female, and that's where you face a controversy that is so foreign to us. the taliban is opposed to female literacy. they throw acid in the face of little girls who dare to go to school. they burned down girls schools. and so that's just one of the problems we face in trying to build afghanistan as a nation and to build up litter. >> host: admiral mullen touch on that last week in an interview with the washington times. he writes about his trip to afghanistan. he said what i do seek, and as i've seen over the last few years is something i call a culture poverty and isn't that -- it isn't the that we have under resourced at. we have under resourced it for a

significant period of time. so in your view, is what's needed more in afghanistan is a civilian effort, a civilian search for lack of a better term, rather than what you do on the ground? >> guest: well, if your goal is to create an afghanistan that is moving forward as part of the modern world, you clearly need more in the way of a civilian effort. with those civilians have got to feel secure. so for every agronomist, you need a squad of troops to make sure you don't have a dead agronomist. security may be the most important thing, and then you are talking about the schools, you are talking about improving crops. and hopefully providing a substitute crop for the poppy that is grown under taliban. >> host: and your role as a subcommittee chair as terrorism, how often do you visit places

like pakistan, afghanistan? >> guest: you know, i make very few board trips. and i sat down more than one and decided i can learn probably a bit more. and this is a close call for me, because there are so many of these trips that i could either lead or join. you get so little time to read and study. to give up that time, minute per minute, i think i learn more behind my desk. enlarge part also because the same foreign leaders that i would meet on a foreign trip join us at the capitol. and so the last thing i want to do is spend a day to meet with the foreign minister and didn't be too busy to see that same foreign minister when he comes to the capital. it's a close call but i have -- i travel very rarely. >> host: this is used in texas. joe, good morning. independent like. houston, go ahead. >> caller: hello? >> host: you are on the air. go ahead.

>> caller: i have a comment to make. can you hear me? >> host: loud and clear. go ahead, job. >> caller: on 9/11, from what i know, many people were involved in the hijacking, they were from jordan and egypt. those were your own allies. we don't hear, you are not getting the truth. it is nationbuilding, it is like talking to the government. every leaders of this,. [inaudible] and allow that part of the world. >> host: the role of the saudi's in 9/11 just that,. >> guest: one thing turns out to be not true is the idea that the people who are terrorists are desperately poor, personally

oppressed, and that is why they become terrorists here the truth is the vast majority of the 9/11 hijackers were middle-class saudis from one of the richer countries in the arab world. saudi arabia is -- fund an awful lot of things around the world that are very dangerous to the united states. they find montross is where hatred is spewed against us, and we have an uneasy relationship with saudi arabia. at the world wasn't so dependent on saudi oil, i think we would be considerably more critical of saudi arabia. >> host: good morning, brother, on our republican line. >> caller: hello. i have a couple of questions and a couple of comments that i want to spit fire quick to. i am a conservative from washington. number one, if the terrorists in

afghanistan are so evil, how come the big new brezinski can create them and then roam free? number two, how come bush told all the fbi agent on the fbi who were very close to stopping the attack to stop or they would be fired? and three, how come obama did not arrest bush? and now the three comment. one, even though i hate to say it, under international law iran has every right to develop nuclear material for power sources. number two, if our soldiers are so great at stopping the poppy fields, how come they are guarding them ex-and three, we know under the white papers that have been released that our own troops have raised children with objects covered with acid. >> host: where did you read that? >> caller: where did i read

that? that issued the official white papers released by the general. >> host: will get some comments from the congressman. lots to chew on there. >> guest: most of those comments are so absolutely absurd and offensive they don't deserve a response. one of the comments was one that i have heard before. and that is the idea that iran has a right to develop its nuclear program. the fact is that iran signed the non-deliberation treaty and is bound by. there are three nations in the world that did not sign. israel, india and pakistan. they are not bound by the treaty. but iran is. iran violated that treaty in a series of different respects, and iran has been sanctioned by the united nations for those violations. the sanctions are way too weak to cause a change in iran's behavior, but at least it demonstrates that iran has violated its nonproliferation treaty and responsibilities. the fact is that while iran has

the right to develop electricity from nuclear power plants, they are clearing their natural gas. so if they want electricity, they could generate electricity for a couple of cents a kilowatt because natural gas is free to the. >> host: what is the deal? >> guest: they have no way to export it. liquefied natural gas plant would be very expensive and there are no gas pipelines running from iran to market. >> host: back to pakistan for a moment. a full page of photographs for afghans. a new test of democracy. the presidential election, their elections are coming up in 10 days, august 20. what are your hopes for that election? >> guest: a fair and free election would be an outstanding step towards building afghanistan as a state. i can't tell you that i would vote for this candidate or that candidate. >> host: is garside the best candidate to have an income of

the best person in u.s. interest? >> guest: i couldn't say that, nor should. >> host: to long beach california. go ahead. >> caller: good morning. i just like to say i really have one fear or whatever it is, that israel is going to attack iran. and then go behind us and get us got. we pay two and a half billion dollars to israel every year. we give egypt a billion or a billion and have. we give jordan a billion and a half not to attack israel. and yet all they are doing is telling us don't expand your settlement here they say go to hell with you. does give us our money. we have people in sherman oaks. we have people in moscow who need a place to live. >> host: are there concerns about israel taking preventive strike against iran? >> guest: well, i have been working my entire career in congress to try to put economic and diplomatic pressure on iran. so that iran does not develop

nuclear weapons. i would have to say that i have been unsuccessful until recently and perhaps unsuccessful, would even cover recent events. we are not putting economic pressure on iran. the world bank is loaning money to iran, including our money. the imf, we recently put a hundred billion dollars plus into the imf. they provide about $2 billion of special drawing right to iran. so the israelis are put in a circumstance where we don't do what we should do. and iran is within a year or so of having enough material for nuclear bomb. israel then we'll have to decide what to do, but had reinforced the iran sanctions act, which we have deliberately refuse to

enforce, and have begun further with other economic sanctions we wouldn't be in this. >> host: "the wall street journal" has an editorial this point about the killing of the taliban leader. "the wall street journal" says the attack in pakistan is an early obama foreign policies exist. they write the strike underscores that pakistan has been -- has an early obama administration foreign policy success only three month ago the taliban were marching on islamabad and u.s. officials were fretting about the lack of pakistani will to resist islamist extremism. but the u.s. work behind the scenes to encourage behind act if they essentially taken the swat valley in the north and mr. zadora's government has put aside some of the petty domestic squabbling to focus on the main enemy. president obama has also stepped up the pace of growth attacks, which are now thought to have killed more than a third of the top taliban leaders. and yet just a short while ago those grown attacks were source

of some concern between the u.s. and pakistan. >> they still are a concern and yet we see the success. here's the individual most responsible for the death of bhutto, a prosperous and democratic pakistan. and we are only 99% sure that the missile got him, but that is a major step. is seems to have already caused the pakistani taliban to fray at the top and is a major success. as to those drone aircraft, i have long been pushing to provide drone aircraft to the pakistani military so that when drone aircraft are used, is unclear whether they were operated by americans or

operated by pakistanis. that would both give pakistani military weapon it doesn't have now, but just as importantly, it would limit the political damage for when we use a drone aircraft. >> host: who has to okay that? is that something that admiral mullen okays or how is that? >> guest: overlay the administration and the state department would okay that. there are discussions of exactly how the training would take place. i think most people have now accepted the goal, but it hasn't quite happened. >> host: has pakistan asked for that? >> guest: yes. >> host: good morning on the republican line. >> caller: how are you doing? two questions. about three or four weeks ago, two main things is north korea and iran.

iran and most of the terrorists in the world come out of iran. and north korea is just bullying the u.s. around. the thing i would like to see is about three to four weeks ago, that ship from iran, we had a destroyer following it, and it was supposed to board the ship. and all of the same time, they had the election in iran. and they had chaos over iran. it seems like to me we would would have been in a perfect time for obama to do some kind of action and they do a way with them. this makes the u.s. look like

they could be bullied around. >> host: we will get an answer. thanks for the call. the two threats we face are north korea and iran. we are taking action. but this is not something where one bold courageous well-planned military action is a wonderful solution. i think that we could do far more on the economic and diplomatic front that we have done, but the idea that this is the kind of problem you can solve in two weeks if you just do the right thing, much tougher. >> host: how does this work from sort of a practical standpoint in terms of general mcchrystal comes back with a report saying we need maybe x. number of troops. we need this and we need that. congress is already working on. will this require additional budgeting it was this report comes out? >> guest: the report itself

doesn't change the budget. if the president comes to us and says, the plan needs to be changed. we would probably pass a supplemental, and that is controversial because in dealing with the budget and the budget deficit, the supplementals tend to be off on the side. not counted in the budget resolution. >> host: has the president pledged to use that anymore? >> guest: he said he was used that for the expected operations in iraq and afghanistan, whether he would use it for some change, i don't think the general would be asking for it and i don't think you will receive something that is way out of bounds compared to what we are budgeting for. >> host: one more call for you. samantha on our independence line. >> caller: good morning. congressman, i was under the assumption when i voted for barack obama that the democrats

understood that the reason we were voting for the democrats was to get out of afghanistan and iraq. and i am wondering if your committee is aware of the suicide -- >> we leave the last couple minutes of this recorded portion. live now to the national press club and an event honoring phyllis schlafly. las. .

welcome to the c-span audience as well. we are so happy today two have a special luncheon in honor of phyllis schlafly para we send a special thanks to mr. roger milliken in south carolina who made this event possible with a deft. he has been supporting the clare booth luce policy institute since our first year in 1993 and mr. milliken, let me thank you so much for changing in saving the lives of so many young women all over america with your support for our average to young women and promotion of america's great women conservative leaders like phyllis schlafly.

now easier the clare booth luce policy institute presents one woman with a woman of the year award. we choose an extra nouri lady who has shown grace, leadership and dedication to advance the conservative principles but this year our recipient has such a long amazing record that we felt women of the year just did not cover it. also today we are honored to present phyllis schlafly of with their first-ever clare booth luce lifetime achievement award. [applause] ms. schlafly first emerged on the national scene as a conservative leader back in 1964 with the publication of paribas

selling book from a choice not an echo, the inside story of how american presidents are chosen. a few years later in 1972 she started a national pro-family organization now called eagle forum which he still heads today. in his tenure battle ms. schlafly led the pro-family movement to defeat to the equal rights amendment in this constitutional amendment was a key legislative goal for the radical feminist movements and other leftists and would have greatly expanded the role of the federal government and the court's. mrs. schlafly has been inarticulate opponent of the radical feminists for decades and we can thank her a great measure for how inconsequential and these feminists are today. she has been on virtually every national television and talk show and has lectured or debated on more than 500 campuses, more

than any other conservative leaders. she is a speaker in the clare booth luce policy program and will be featured in our 2010 great american conservative women calendar along with i was telling her earlier along with kerry pregame. [laughter] in addition to a monthly newsletter called the phyllis schlafly report which is now in its 43 year mrs. schlafly has ordered 20 books and her books have coverage of subjects as varied as family and feminism, nuclear strategy, education, child care, and bonnets. her most recent book is called the supremacists, the tyrrany of judges and how to stop it. she also writes a syndicated column, she has a good one coming out today i think for tomorrow. it appears in publications such as "the wall street journal", george and human events and popular web sites such as world net daily and town hall in.com.

mrs. schlafly is an attorney admitted to practice law in illinois, missouri, the district of columbia and the u.s. supreme court. two u.s. appointed by president reagan to serve as a member of the commission on the bicentennial of the u.s. constitution from 1985 to 1991. she has testified before more than 50 congressional and state legislative committees on issues, the whole range of issues -- education, national the offense, one policy and many more to work your way through college at washington university of st. louis and received a b.a. in 1944. he received her master's in government from harvard university in 1945 as hearing a jd interest dr. from her washington university law school in 1978. in 2008 to was awarded an honorary doctor of humane letters by washington university

as a loess. she and her late husband of 44 years of the parents of six children and 14 grandchildren and in 1992 mrs. schlafly was named illinois mother of the year. the u.s. named one of the 10 most admired women in the world in a good housekeeping paul and the world almanac major one of the 25 most influential women in america. mrs. schlafly will celebrate her 85th birthday this week and continues to be a tremendous force for the conservative movement. [applause] let me finish with a quota about mrs. schlafly, economist george gilder in his book, men and marriage: quote, when in the

history of this era are seriously written, phyllis schlafly will take her place them on a tiny number of leaders who made a decisive and permanent difference. if she changed the political landscape of her country. and now it is my pleasure to present phyllis schlafly with the clare booth luce policy institute lifetime achievement award. [applause] [applause] >> thank you so much, michele, and thing to for all your kind remarks andç in this award. i'm very honored to be here

today. the last time i saw clare booth luce was when we attended a reception at the white house given by ronald reagan and she gave me a list back to my hotel in her limousine as he expressed yourself as very supportive of my work. so i'm proud of that and i also want to thank roger milliken for hosting this luncheon. he certainly is one of the great patriots in our country who has been on the right side of every issue where many years. maybe even longer than i have. in i want to address my remarks today particularly to the young people because we need you. we need you to restore the america that we have known. if you need to find her place in and the conservative movement and i think maybe it was you learn from my life is a, first

of all, that anybody can be a leader who, you can be later, iç was not born that way, i developed it and work that adds. and also whether grassroots can organize and take on all the powers that be and the feed them and that is a lesson. [applause] you need to understand how destructive the feminist movement is. the movement that teaches young women that you are victims in the oppressive unjust society, that is just simply ridiculous. american women are the most fortunate people who ever lived on the face of the earth. and you need to not be propagandize against bat by a new women's studies or those -- don't waste your education dollar on any of those courses.

an american women have always been fortunate. the feminist movement did not sought fly for women just in recent years. my mother that her college degree in 1928 followed by a graduate degree then. and i worked my way through college and went to my say a non-traditional job. i will say bernard testing ammunition and the rogers ammunition plant in the world is a louis parent i tested 30 and 50 caliber ammunition with all the tests that the government needed to run before they accepted bids oral 42. accuracy, penetration, velocity, aircraft function. the tracer bullets implies, did they really go off. examining the misfires when they did not go off. and the course of the velocity. i worth half the time of midnight to aid in the morning and they ever have four to

midnight and went to college in the morning and got through in three years and i don't know what college students do in college these days. [applause] but i work a 48 hour week. but i have been a volunteer in politics all my life into a political science into my schedule and that is where the action is. as for in is going to depend what kind of a country we have been and you have to take your opportunities when they come along. now i guess some leaders are born but i was not born in vader. i grew up very shy. it's been a learning experience and i figure if i can two any of you can do it and we certainly are desperate for later today. at the present time you find in the conservative movement in this country is going to be depressed about the way things are going and i just want to

remind you young people that we have been through other times of significant depression in by the conservative movement. of this is the way into less in the years preceding the goldwater nomination of 1964. that is why i wrote my book, a choice not an echo come into this crime out of the north eastern establishment country club type of republican had been dictating our nominees. not in the middle west where i live in st. louis republican party was very -- today my think of it as almost right wing. we did not use the word conservative but it was genuine conservative and we were tired of these new yorkers telling guests who our nominee should be so i wrote this book to describe what went on and in previous

republican national conventions. most of the people who have gone to the convention have never been to america what is a first-time experience for them and at that point i was a have -- housewife and a little town in illinois and, of course, nobody is fine to publish a book by some of a lie that who had never published before. so i published it myself and is 03 million copies. [applause] and every week i need some public official who says i came into the conservative movement as a high schooler reading from a choice not an echo, because what it did was to show how this establishment republicans for forcing their views on us when we wanted to barry goldwater.

and at any rate we got him nominated but we have a devastating defeat after that and conservatives went into another time of great depression. we did not think that we can ever a lacked a real conservative like barry goldwater. that is what made as well for richard nixon and we learned that that was a bad idea. so that did not work out obviously. but those of us who were attending anti-communist movements through the 1960's when i was writing about the strategic missile defense and so forth, it never could have imagined the that the soviet union would collapse. we thought it would always be there and not only did we think fact of the whole intelligence apparatus in this country was convinced that the soviet union would be the great superpower and henry kissinger said one as the chief adviser for nixon and

others that he thought his job was to negotiate the best second best place he could put the u.s. the has and these people believed the totalitarian government was more efficient, and get things done better and could produce better well, now i know that is not so. it is the free market that produces better. better things, more conventions from a better quality of everything. and, of course, in the years after ronald reagan failed to get the nomination in 1976 he and others were traveling the country talking to little groups, redefine in their conservative image. in and he had a different view. he thought when it comes to dealing with the soviet union he

had another message. we win, they lose and he made it work. [applause] and so despite our beliefs that we cannot win he did win, it was a big shock to a lot of us in 1980 when ronald reagan actually wind and then the same thing happened after clinton won in 1992. we cannot believe it feared a two years later we came and have the biggest republican victory and i think it was 40 years in '94. so that can happen in can but we need in the young people to become leaders and to take on an active role in the the whole political process. it is really find a. now you have got to be kind of tough to hear that because sometimes it gets a barack's as we saw just last week in one of these town hall meetings at the

town hall meeting of a missouri congressman where the union dues came in and beat up a black conservative who was passing out fliers. that was his offense and if they did not like kathy idea that an african-american could actually be conservative. but we know there are a lot of concern to test who are of all kinds emmy need to educate them and train them and stand up for them. and attend these town meetings and let the grass roots be heard because i believe that the grass roots in the all the powers that be. that is what we did with the whole rights amendment. it was a 10 year battle, we had everybody against the. richard nixon, gerald ford, jimmy carter, all the magazines, then 9 percent of the media, all of the calaveras who marched in

protest of -- all of the money from all of the hollywood stars. we beat them all. [applause] of course, they have never been forgiven me for that but you can keep in touch through the phyllis schlafly report. now in i guess i wrote 100 and out era but i write about a lot of other subjects to. and i hope you will enjoy being in the process that keeps our country great. and remember, those who laid upon the lord will rise up with wings like eagles and then they will run in not be weary and to ever be wary because the battle goes on year after. we need all of you young people to join us in the battle. thank you very much. [applause]

[applause] you are such a nuys audience. [laughter] it is exactly that way out of college campuses. [laughter] >> but you were so good on the campus is when you go from a year zero is an inspiration in phyllis and phyllis has agreed to is to some questions here. two have a little bit of time. there's a microphone back there and if you wouldn't mind ladies line up and give your names in your affiliation if you would.

we will do some questions. >> you can even ask austal questions. [laughter] >> hi there, my name is maria and i am with the clare booth luce policy institute and have been inspired by your work since before i was with institute but even more so as this is that we work with. still always going back to mrs. schlafly so they really love your work. i just wanted to ask you as a woman who has been involved so long in the trenches of hasty base but also raised a wonderful family and clearly have a strong faith, how did you back in the days when there wasn't as common and has accepted to be raising a family and in the trenches have did you balance that and you have any words of wisdom for the young women here now who are

encouraged to put aside her family for career? >> you have to structure your life, to accommodate what is important to you. now i did not have any full-time job or in a paid job after i was married. i spent about 25 years raising my six children and politics was my hobby. a lot of which was done on the telephone, by mail, a lot of it was pre internet, pretax machine. [laughter] and when iran for congress iran in districts where i never had to be done overnight. and i guess i am a workaholic. but it was fun in my husband was extremely supportive. he enjoyed when i was doing and

it all kind of fit into gathered. one i would go on for some meaning whoever was the oldest one in the household was the one in charge. [laughter] but, of course, a full-time job is very difficult in that and back before you came on it used to be that you're average of middle-class blue-collar guy could make enough to support a full-time homemaker in that same city in america that is slipping away from us with jobs going overseas sites you find out what you are most interested in and went to can develop as your particular space in the conservative side. but i was a marriage and family are certainly worth the top of the list remains and everything else had to blend in underneath it.

>> kelsey budd, it seems to be overarching issue today is health care so i was wondering if you give us her thoughts and feelings about it. >> the healthcare bill is every bit as bad as the one we beat when hillary clinton was promoting her health care plan. it is a government takeover of a tremendous health care industry. it is complete pain for abortion on demand any time in a place. we have recently learned about these counseling sessions they're going to give to the old people and basically they are sessions, why don't you hurry up and die, take a pain killer so you are costing us too much money. anybody who thinks that health care is going to cost less if the government runs it must believe in the tooth fairy. [laughter] it isn't going to happen.

and then the idea of letting the government from all of our health care industry is simply unacceptable and i think we would be better off if we defeated a whole thing that is proposed and then if there is some particular revenues have -- remedies we can work and we can try that everything obama is promoting on health care industry is bad, it is government controlled. which is what he wants. he never had a real job before he bought and politics. he was a community organizer and this is a process of making people believe that they live in an unjust and discriminatory society and they should organize into protests and a man to take money away from the taxpayers. one of the big problems we face is that now about half of the

people did not pay income tax so his plan is to take money away from the taxpayers and give it to the non taxpayers and i think we have to call him on every turn. i am hopeful that we can defeat the healthcare bill. [applause] >> i'm eva molina, i go to amherst college. i want to know to think about the resurrection of seven equal rights amendment that they are talking about in resurrecting the and and for those of us who weren't around it can you, please, elaborate on what it was you did with the first equal rights amendment and? >> i didn't hear the last part of your question. >> and you elaborate on how it is that you defeated the equal rights amendment? >> it was debated for 10 years

in this country, had completely their representation at the hearings. that was the only place where we had a 53d chance to get our message out in the u.s. defeated. the american people did not wanted. and, for example, illinois was in the front line in it was voted on every year for 10 years and defeated. the attempt to resurrect its is i think principally a fund-raiser for the feminist movement. and they tell a lot of women who don't know any history that send your $25 and will put you in the constitution. of course, they don't tell them that men are not in the constitution so why should women be in the prosecution -- that isn't the way the constitution is written. you can't believe how many times i went to pot -- testified and

my opponent is saying that they need and the equal rights amendment because we want to get rid of all men are created equal. i am sure you smart young people know that is not in the constitution, that is in the declaration of independence and fortunately we are not trying to amend the declaration of independence. [laughter] if it had passed we would have had a same-sex marriage 25 years ago, and i testified in 41 state legislative hearings. there is no benefit to its. there was only one case where somebody came in and said our state has a state law that discriminates against women that era will remedy. their state had a lot less than that wives could not make homemade wine without their husbands' consent. [laughter] for this we need a constitutional amendment? you've got to be kidding.

it had no other -- when i went on television and they would say they would make women think they weren't paid enough but, of course, in the employment laws are already sex neutral so it would do nothing in employment so they were never able to say that anything in the hearing is going to give you a raise or help you with employment. however, the class and discriminatory law is the draft registration law which says that male citizens of age 18 must register and i have sons and daughters of that age when era was alive and my daughter thought this was the craziest thing. you're going to put this in the constitution and the first thing is you have to sign up for the draft like our brothers? it was an hon saleable proposition. we were just coming at of the vietnam war and, of course, you young people are fortunate to live in a post reagan era where you don't have the draft hanging

over your head and so there are all kinds of bad things and then there were no benefits. they were trying every precut idea to bring it back, but you need to let your legislators know there is no benefit to have it wrong to anything good for women, and it does a lot of bad things. thank you. >> my name is katie walker with american life league. i wanted to get your thoughts on the role of the pro-life movement within today's larger conservative movement in the fight against feminism. >> wealth, the pro-life movement is very essential in one of the things that's my represent my contribution to the movements, you see we have in the fiscal conservatives the 27 million of us who voted for barry goldwater

in the 1960's and that was not enough to elect a president. ..

>> the solution to what they cared about. and the pro-life movement is absolutely essential to the conservative movement. absolutely essential. we cannot win without them. and so the republicans in name only, very mistaken in trying to get rid of the social conservatives guess we need to pro-lifers, and we are very proud of the republican national platform adopted a national convention. every time since roe v. wade has taken a strong pro-life position, and i believe always will. [applause]

>> i am with the clare booth policy institute. we can all agree how important it is to have a model for young people these days. i wanted to hear your opinion on who in congress or who in the public sphere we should be looking to as leaders for the future. >> well, i am not ready to pick a candidate for president. my opinion is that anybody who thinks he might be a candidate should travel the country and meet with small groups. and that is what ronald reagan did. he wasn't all that conservative when he started out. but listening to the people, he redefined his conservative views. and that is so essential. we can't wait until the primaries in iowa in 2012 to find out who these leaders are. you know, and the last time around john mccain who comes

from arizona went up to iowa where they do meet with little groups. that is the primary system up there. and then he said and was quoted in "the new york times" as saying i didn't know integration with such a big issue. now, we can't afford to wait until the primaries in iowa and new hampshire and south carolina in 2012. encourage everybody, and there are a lot of good people. congressman steve king, congressman michele bachmann, congressman tom price, just to name a few. and they are articulate defenders of the conservative position. and i urge them all to get out and travel the country. get out of washington and find out what the grassroots really want. go to some of these town hall meetings. [applause] >> i noticed that after in saint

louis last week, that the senator from missouri, claire mccaskill, has announced that at her next town meeting she will not take any life questioned. she will only take a few written questions. >> hello there i have a comment and two questions. first of all, the young lady who just preceded me, one of four daughters that i have, and i'd just like to thank you as a parent for being the role model that you have been for peeping like my daughters to look up to and see that it can be done. [applause] >> and the question i would like

to put forth, it's more if you would just perhaps, it most recent appointment to the supreme court. and the supreme court in general appears to me, it is my sense, that over the years congress and the politicians are politicians. but the real direction downhill, as i see it, has been a large impact of the decisions of our supreme court setting out what their opinion is for the rest of the country. >> well kaw it sounds like you read my book. because that is the theme of it. i trace most of the bad decisions by what i call supremacist judges because they do believe that they are supreme

over the other branches of government and the will of the american people, can be traced to the erlewine court. and the whole line of cases, cases against religion, the cases to let the illegal aliens and, the cases against property rights, the feminist cases and abortion cases, the case is signing international law. all of these things, bad decisions, what we call activist decisions stem from the lower untrimmed war in court because ward was a first run one to write that whatever the supreme court says is the supreme law of the land. and you all read the constitution. you know that is not true. the supreme law of the land is the constitution itself, and laws that are made in pursuance thereof, and all the laws are supposed to be made by the legislative body.

now, i do urge you to get a whole picture, to answer your question, by looking and reading that book. but i will also point out that barack obama -- you know, the internet is so great to get things that you might have been buried in history. but he gave an interview on a chicago radio station a couple of years ago in which he said that the court didn't go far enough. all it did was change some of the law. but they didn't address the economic issue. they didn't transfer the wealth from the non-taxpayers to the taxpayer. and his motive is to find people with judges with empathy. that means the ones who really want to move the money around, just decide to lower laws. who cares what the law says.

move the money around. and that is his purpose. and this is a very dangerous thing. and that's why with all of george bush's failures we can thank him for alito and roberts, and we can be worried about who obama may appoint next, and be ready for a fight. and i will also mention for your four daughters, you give them a copy of my book, there are about a hundred of my acid under essays about feminism because it is really important for them to know what feminism is and how destructive and anti-marriage is. thank you. [applause] >> i have more of a comment than anything because i was part against the ra and that was a

long time ago. but i just wanted to thank you and really how it was being on that committee that initiated me into the import of action and doing something. and i would just commend to everybody, be a part of reform and read all her books. thank you. >> thank you. i appreciate that. [applause] >> well, yes, it is enjoyable. and it is more fun to win than lose, and we have had some defeats, but we have had some very significant victories. which when you get active, you learn about our other victories. it wasn't just the era. we have had a lot of other very significant victories.

>> my name is rachel. i would first like to say it i have been a lifelong supporter of yours and you have inspired me and so may ways and i credit for you why i am here today. your gumption, you go out, a woman, you might sincerest guidance. my question deals with your fight against era. i see today the importance of grassroots efforts, and i'm sure all of us conservatives are as worried as i am about the future. i really would like to know how was it that you took on the nation and change everyone's mind about equal rights amendment? how did you break through the brick walls of congress and gain medias attention? how did you do it and how can we work alongside you and do the same for a lot of the problems that we have going on today? keymac thank you for your kind words. well, there are a number of elements in that.

i chose the battleground that we thought that battle on. in the battleground that i chose to fight on was the legal rights that women will lose if this is ever ratified. and so i showed how they would lose the right to be exempt, and if they are in the militaries as volunteers they would lose the right to be exempt from combat. a wife would lose a right to be supported by her husband and have her children supported by her husband. these are discriminatory laws. that we would lose the right to legislate against same-sex marriage, that the era would transfer all laws about marriage, divorce, family law, child custody, everything to the federal level instead of the state level. and so i forced the other side

into kind of dividing up to the report and come into the hearing and say they say so and so, and it isn't so. but that was the whole defensive game. it's like a football team that never goes over the 50-yard line. and they were not able to show any affirmative case. so i would say that was a main thing. also, we had the committee in each state that was fighting it. we drink them, how to make the arguments. how to make them calmly and respectfully and truthfully, and not to say anything that was exaggerated, or not to use other arguments like it was caused by the un or some other argument like that. just stick to the legal arguments. and the one place where we got

fair treatment was in the hearings, because your typical state legislators, when they hear about a bill, we need to hear from both sides. of course, the media doesn't think that way at all. the media were 99% against us. and it was pretty funny. a lot of those shows that i was on, and so you will have to see -- i didn't speak a couple years ago called doing the impossible. it has some clips from some of those shows, and you will see how we handled it. and we just simply kept presenting the truth. and that was the thing the other side couldn't get a handle on. of course, the most frequent question i get is how you stand it when they are so ugly to you and say such nasty things. well, i just did not going to let those lobs ruin my day.

[applause] >> thank you very much. >> griffin communications, and i go way back with bill as to when i was chairman in illinois and phyllis was very, very supportive to us. at that time, phyllis, the hippies were the counterculture. and thus people wanted to have regular marriages and family. and everything kind of flipped in a way, you know, the hippies sort of won that battle because even some young people i know now are so conservative, they want to limit their family to one child. you know, they are kind of accepting maybe these homosexuals want to live together, this kind of thing. how do we go about sort of, you know, influencing this mentality, especially this

homosexual marriage movement which seems to be on a steamroll. not only that, but also convincing our young people that children are a blessing and that every child that is born have something to contribute. there are so many scientists and people, number 10 or number 11 in their family who aren't being born today. >> you have raised some very important points. i think it's important for young people to understand that it isn't just the gays who are pushing the same-sex marriage. it is the feminist movement to. and the feminist movement is really anti-marriage. you have an element of the libertarians that do not want the government to establish the rules for getting a marriage license.

now, i believe we have to have the definition of marriage, that we have to have laws saying polygamy is a crime, bigamy is a crime, marrying a child is a crime, marrying a sibling is a crime. and i would point out that the republican platform since the very first one in 1856 said that we are opposed to those twin relics of barbarism, slavery and polygamy. and the aclu is openly supporting polygamy because it goes along with this idea that marriage is just a private matter. now, marriage is not a private matter. the definition of marriage is society's way of dealing with these helpful little creatures who appear when men and women do what comes naturally.

and somebody has to be responsible for taking care of them. and marriage should be the institution that isn't legally designated to take care of that child. and then you've also brought in, you have a population control movement, that these are the people who think the earth is more precious than people. i mean, you can get rid of the people and just have, just have natural order here. know, people are good. and i am quite sure that god provides enough resources for whatever population this earth has. and so we need to identify the distractive miss of the feminist movement and where the anti-marriage and anti-children propaganda is coming from. and it isn't just the gays. thank you.

>> elizabeth cordova with clare boothe luce. i was wondering if you could share one of your favorite experiences from being around college campuses. [laughter] >> most of the bad experiences were a number of years ago. it has really gotten more civilized in the last few years. but there were several where a bomb set was planted so we had to change the location at the last minute. there was one where they all lit up marijuana as protests when i started to talk. there was another one where, when i started to speak, they were very noisy and raucous. and i shifted immediately to q&a and that didn't calm them down. and then the guy who invited me came up and said i see a spray paint can in the front row,

let's get out of here. [laughter] >> so we left the platform. but i would say the most amazing was at the university of wisconsin, in madison, which may be the leftmost left wing college in the country. i apparently was the first conservative who had ever spoken there. and a lecture series. and the university was so apprehensive about my coming that they assign an armed guard to meet me at the plane and stay with me the entire time, to check into the hotel under an alias, and to have 22 security people on duty that night i spoke. of course, nothing happened with all that security. but it's amazing. this is the united states of america. it has become more civilized in recent years. and so when i fell recently at berkeley, it was not the

students fault. [laughter] >> well, you have been a lovely, lovely audience. i thank the clare boothe luce institute for inviting me today, and i thank all of you wonderful people for coming. and again, i am challenging the young people, go out there and be leaders. be active in the political process. maybe you will enjoy it as much as i have. thank you. [applause] [applause]

>> there is nobody in america more deserving of a lifetime achievement award than phyllis schlafly. thank you for all you do, and may god bless you and your family and the many years ahead. thank you all for coming. safe traveling. god bless you all. [applause] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations]

>> how is c-span funded? >> donations. >> federal funds or grant funds. >> honestly, i don't know. >> i will say from commercials. >> advertising? >> something from the government. >> how is c-span funded? 30 years ago america's cable companies created c-span as a public service. a private business initiative. no government mandate. no government money. >> in a few minutes we will bring you a house oversight hearing on fannie mae and freddie mac. both companies came under government control in 2008 in the wake of the collapsing housing market. witnesses will include officials from the federal housing finance agency, which is in charge of regulating fannie mae and freddie mac. first though some background on the status of housing related legislation in congress from a capitol hill reporter. >> dawn kopecki a bloomberg news, why is congress continuing

to hold hearings about flame eight and freddie mac? >> the mortgage company right now have taken more than $85 billion in federal aid, and congress is trying to figure out what to do with them. they said whatever they do, do with any entry they are going to look like they look like today. they're going to restructure them. they could remake them as a public utility. there are a number of options on the table they are considering. >> does it appear that lawmakers are interested in writing legislation to address some of these issues? and if so can you give us some specifics about what might the legislation do? >> they are not writing legislation yet. they are holding a lot of hearings and they are starting an internal debate about what to do with the companies. there will be legislation sometime early next year. a couple of options include placing the companies into receivership and replacing them with a public utility model, kind of like the like companies are not for your mortgage. another option is going with

something called covert mortgage bonds, which is something that is used widely in europe. and another option is creating a sort of bad bank for the bad assets of the companies, and then pulling off a good asset either into one of the companies or in into something else altogether. there are a number of different things they're looking at right now as to how are the agencies faring since the troubled asset relief program, and some of the other mortgage related legislation? >> well, with tharp, the troubled asset relief program, they never actually did what they said they would do which would buy troubled mortgage assets. what they did instead was the treasury extended a $200 billion lifetime into each company, 400 billion. and they already have used up about a hundred billion dollars of that. they are not faring very well. the read default rates on the loans that they are modifying as part of president barack obama's home affordable loan

modification program are somewhere around 60%. so for every 10 people that are getting a modified loans, six of those people are falling behind, and the program has been only underway for a few months so they are not faring very well. and he just lost $15 billion that they reported on thursday. and freddie just reported a profit, but most of that profit wasn't stemmed from accounting changes, different games. actually, they were paper games are they were actual games. so even though on paper the company looks like it did okay because it went to profit it really is very financially weak. >> hasn't been reaction from officials at fannie mae and freddie mac about what lawmakers are talking about doing? >> no, there hasn't been. the only reaction is that they're going to cooperate with congress fully. they don't have a choice in the matter. the companies are being run by the u.s. treasury, and they

ousted any managers there that might have put up a really hard fight. right now they are busy executing the president's plan, and they really don't have a choice in the matter because as they say, in their earnings reports they are completely dependent on the federal government for the financing, otherwise the companies would not survive. they actually would not produce enough cash to meet their obligations, and they would default on their bonds if it weren't for this treasury backing. >> we talked about the house. what about the senate, what can we expect from them? >> the senate is always slower to act than the house. chris dodd has a bit of a conflict because he had one of the vip mortgages through countrywide that may have had ties back to fannie mae. so the senate is always a little slower there. but i think you will see, you will see shelby and dodd. is an issue that senator shelby who is the ranking member, he cares very deeply about.

and i think chris dodd will probably go along with whatever it is or with a lot of what shelby wants. >> and in a few seconds we have left what about the obama administration, what do they say about the status of fannie mae and freddie mac and the overall industry? >> the same options are on the table for the obama administration, as are in congress. they have actually, they're going to roll out a comprehends of regulatory plan for fannie and freddie when the president submits his budget in february. so they're on the same table. everyone in washington, d.c. much agrees that these companies cannot go on, cannot continue to exist in their form right now. and so you will see some dramatic changes to their structure sometime next year. >> dawn kopecki of bloomberg news. we thank you for joining us. >> thank you. >> on come to order. this hearing on the subcommittee on capital markets of insurance in enterprises. will be in order.

i ask unanimous consent to participate in today's hearing. pursuant to a prior agreement with the ranking member, each side will have 15 minutes for opening statements today without objection. all members opening statements will be made part of the record. i yield myself such time as i may consume. we meet today to examine the present condition and future status of fannie mae and freddie mac which together have lost more than $150 billion since the third quarter of 2007. this hearing is not only the first hearing of the 111th congress on the two government-sponsored enterprises, but it is also the first in a series that the capital markets subcommittee will convene to review these matters. last summer, congress completed work on an eight year project by enacting the federal housing finance reform act. shortly thereafter, the new federal housing finance agency placed fannie mae and freddie

mac into conservatorship. since then, the treasury department has purchased $85.9 billion in senior pervert stalks at the two enterprises. this investment could ultimately grow to as much as $200 billion per institution under current agreements. in recent months, the treasury department has supported fannie mae and freddie mac in other ways as well by purchasing 5 million of their mortgage-backed securities, in 20 oh eight, and requesting 249 million more in 2009. in addition, the federal reserve now has a sizable interest in the success of the two companies holding more than $71 billion of their bonds, and a 365 billion of their mortgage-backed securities. in total, these growing taxpayer commitment are quite sizable, if not staggering. they have also led many to

conclude that the implicit government guarantee for the enterprises has now become an explicit one. our hearing today will therefore examined the government financial support for fannie mae and freddie mac, and explore the options for the future of their relationship with the government. from my perspective, the emergency actions taken today by the federal housing finance agency, the treasury department and the federal reserve, were needed to ensure the continued functioning of our nation's housing finance system during this period of considerable economic turmoil. with all of these problems and imperfection, fannie mae and freddie mac have insured that millions of americans can continue to purchase and own their homes. while the existent at this time of fannie mae and freddie mac is essential for our nation's economic recovery, this is also appropriate moment to begin to consider how we might modify

their mission operations and ventures going for. as former treasury secretary henry paulson has observed, and we need to use, while fannie mae and freddie mac to stabilize and to decide what role they should play in the markets. i must, however, caution everyone that this debate will be a long distance relay between congresses, not a 100-meter sprint within the 111th congress. this debate, over what roles and functions fannie mae and 3 should perform has, of course, raged for many years did many good reform ideas have started to come to light in recent months and we should study them closely. some of our choices include reconstituting the enterprises they were before the conservatorship decision, splitting them into smaller operating companies like we did with at&t, regulating prices they charge like a utility,

creating core operative, non-pictures or resolving them back into the government. many have also called for privatizing fannie mae and freddie mac, and there are some precedent for some actions. in the 1990s, for example, we enacted a law that allowed sallie mae to graduate from the school of government-sponsored enterprise. what we could do the same here, we got to move cautiously. we created fame and freddie mac because of the market failure, and we ought to ensure that any new system of housing finance continue to provide a stable source of funding and long term credit to help people to purchase homes. in short, we must keep our minds open to all reform proposals and refrain from drawing lines in the sand about what each of us will or will not support. until we have had the chance to consider the pros and cons of the many different options.

with that said, one key factor in my examination of each choices. , i want to insure that community banks and retail credit unions continue to have access to a neutral source of affordable funding to help them compete against large institutions. these mortgage providers are important participants in our markets, and we must ensure that they continue to have an opportunity to help hard-working families to achieve the american dream of homeownership. in sum, this hearing is timely. congress has a constitutional responsibility to conduct effective oversight of the work of the federal housing finance agency, to make sure that it is operating as we intended it. we also have an obligation to ensure that the executive branch is effectively allocating federal tax dollars and helping as many people as possible to remain in their homes. finally, congress needs to begin

to think about how it will structure the government's relationship with fannie mae and freddie mac once we emerge from this financial crisis. i look forward to a vibrant debate on these important issues. i recognize the gentleman from new jersey, mr. garrett, for five minutes. >> thank you, mr. chairman. i also want to thank the chairman for your comment in your open to different ideas with regard to restructure our mortgage finance system. i think the one agreement is that doing nothing in keeping the status quo is unacceptable. fannie and freddie played eight lead role in adding fuel to the mortgage finance fire that burned down a good portion of our financial system and the economy as a whole. by financing of roughly 36% of the subprime housing market, increasing their leverage to 101, it really abused the government advantage in the marketplace and they run up a bill to the taxpayers of

$85 billion and accounted for total bailout costs are expected to climb much higher. when the housing and economic recovery act was passed, and arm twisted cbo scored the gsa titles of the bill as 25 billion said there was less than a 50% chance that a bailout authority would ever be used unless in a 5% chance that the cost would ever run over $100 billion. the chairman of this committee, chairman frank, chastised republicans on the floor who said that the cost would likely go well over the cbo estimates. he said it is the most inflammatory rhythmic tic i've ever heard. the higher use but republicans he stated the summers are being thrown out are simply inaccurate and misleading, he said. speaking of inaccurate and misleading, the cbo weekly updated their scores, and the cost estimates have increased by over 1500%. so as we begin this month with a more formal debate overregulate where restructuring and providing the government with an explicit bailout authority, i

think it is essential that any conversation begins and ends with gics and any rigor toward reform that does not conclude gse is not to reform. fannie and freddie were a large part of the problem and reforming them should be a large part of the solution. also i'm very worried that proposal being discussed by the administration and some others to create a so-called systemic risk regular will actually create what amounts to another new set of government-sponsored entities. by creating a new systemic risk regulator we could essentially establish a dozen new freddie and fannie's that would be too big to fail, and had the inherent architecture that will come with that distinction. as a distinct wrecking member from alabama point out, this will be privatizing profits and socializing risk is a bad business model and we should learn from our past mistakes, not repeat them. don't forward i do believe it's very important that we have a viable and liquid mortgage market to provide additional funding so that people can experience the american dream of owning their own homes.

in one tool that i believe we can do that with is something i talk about a report and that is covered bonser bonds are dead and she was offered by financial institutions, they are backed by collateral is pool of mortgages, investors purchase these bonds that the pool of mortgages are treated as secure collateral. they also continue to have a full recourse on the institution in case of a failure. this type of securitization is widely used in europe to private liquidity over there and they believe we can do it here in the u.s. as well. i also want to thank chairman frank for his comment sometime ago when he said he would hold a hearing on this important topic that i do look forward to working with them and all my colleagues as we continue to move forward on this. i want to again thank the chairman and thank you, the witness coming forward. >> thank you very much, mr. garrett. mr. scott. >> thank you, mr. chairman. i want to thank the chair and ranking member for holding this hearing concerning the state of fannie mae and freddie mac as it

continues to be about most concern to our economy. the collapse of these two mortgage giants has had a profound impact on our markets and total economy and i am interested to hear more details and opinions about the risk of a prolonged economic slump, and how long the gse plans to proceed in the future, as well as access to their current conservatorship situation. i am further interested to hear what the federal housing finance agency has to say about the future and what this agency believes they should or will look like down the line, especially as mortgage markets continued to face turmoil. there are many ideas and proposals regarding the direction in which gse's should take, for making them a government entity or absorbing them into another government entity, such as the fha. to splitting them up into

multiple gse. to privatization, simply eliminating explicit government backing for mortgage related instruments. the fannie, freddie fallout not only affected the economy of all that it affected mainstreet as well. many of our nation community banks have been hard hit. because they have held some 85% of lenders that held fannie and freddie stock. our community banks are the backbone of communities across this country. and this is especially true in my state of georgia, as we are currently experiencing a very large number of the bank closures. this whole situation is helping to reduce bank capital and impede upon their ability of banks to make new loans and renewing existing ones. and i just want to make one mentioned of one particular situation that has resulted and raised the question. when freddie mac ignored the two

leading rating agencies, moody's and standard and pours on rating the market of securitization and i relying instead on the market to smaller agencies, such as canadian agency, dominion bond rating service is, that $1 million deal has led to aaa ratings, so close to the deal claim that voters in s&p lost the freddie mandate as their rating method used was considered too rigorous. so the question has to be answered and dealt with today is this, is it not the role of these agencies to be more vigilant in their rating process after getting chastised by congress and the media over handling of aaa rating on complex injuries that begin to falter when homebuyers could no longer pay their mortgages. and of course, the flipside of that of course are the big credit rating agencies may be

making some of these institutions jump through hoops that are not necessary. serious questions in a very timely hearing. i look forward to hearing from our witnesses. thank you, mr. chairman. >> thank you much. we will now hear from mr. bachus for three minutes. >> thank you, mr. chairman. i appreciate you convening this hearing. congress established a new made during the new deal to make homeownership more affordable, and they created freddie mac with a similar purpose in 1970. neither provides home loans. instead, their purpose is to increase the funding available for home mortgage financing, either by providing credit guarantees on mortgage-backed securities, or by directly investing in mortgages and mortgage related securities through their retained mortgage portfolios. to further their missions, the

gse's congressional charters granted them unique privileges, shielding them from many of the financial standards and tax burdens imposed on their competitors. these benefits created a perception that fannie and freddie were backed by the u.s. government, and this implicit guarantee also provided them a funding advantage over private-sector participants. not surprisingly, over time that gse's advantages in enabled them to dominate secondary mortgage market. today they have more than five points on an opposition outstanding, an amount that is nearly 40% of the size of the entire u.s. economy. the systemic risk posed by the size of these entities was only magnified by investor perceptions that gse security's were backed by the full faith and credit of the u.s. government. in september, those perceptions

became reality. on september the seventh, 2008, shortly after congress passed the gse regulatory reform legislation, the federal government placed fannie and freddie into conservatorship. the rescue was one of the most extraordinary federal intervention into the private sector, and is on track to become one of the most expensive, if not the most expensive. as part of the gse is conservatorship agreement, treasury committed up to 200 billion to purchase preferred stock from each company through december 31, 2009. in exchange, fannie and freddie provided the treasury with 1 billion senior preferred stock and warrants to acquire 80% of each gse. in addition to treasury purchases, preferred stock, both the treasury and fed also

scheduled dates are also scheduled to purchase trillions of dollars worth of gse debt mortgage-backed securities, as of may the 29th, the treasury has purchased 167 billion of the gse, mbs and is using authority granted under the act of 2008. cbo estimate in march that the gse's titles of t.a.r.p. will cost $384 billion. the fed currently holds 81 billion of gse debt and 507 billion of agency mbs. on march 18, the fed announced its purchases of agency mbs will total 1,425,000,000,000,000 by the end of the year. finally, the treasury has also initiated a credit facility for both gse to provide liquidity. mr. chairman, in conclusion, the

magnitude of the trillion dollar gse bailout demands our full engagement about the future of the gse's. congress must work to develop a new model for housing finance. sound like treasury secretary paulson, or former secretary paulson, have endorsed a public utility model. others, myself included, have proposed shrinking and privatizing the gse's. whatever the gse's ultimate fate, we can all agree that the gse's cannot continue as before. socializing risk and privatizing profit. as mr. garrett said, must enter the american people demand an end to the bailouts. we need discussion in the long term future of the gse's must include a bailout exit strategy. i would like to thank our witnesses for appearing today and look forward to the hearing and their ideas for a transition period for the gse's. i yield back the balance of my time at. >> thank you very much.

we recognize the gentleman from illinois, mr. foster, for two minutes or. >> i would like to follow up on breaking member garrett interest uncovered bonds. i think we should all show some humility in our current situation and look laterally at countries that have systems that did not get into this mess. and in particular, the american enterprise institute has reason to have some public presentations and meetings on converting the present gse -based system and mortgage-backed security -based system to that is known as the danish system which i personally think has tremendous potential. it has provided an efficient and liquid model for housing finance ever since the great fire of 7095 in copenhagen, survived numerous booms and busts, and as i say, i can't see what's wrong with it. and there is a fairly workout scenario in these presentations

are actually transitioning fannie and freddie into the system. and it would be very interested in pursuing this if not in this hearing, and subsequent hearings and conversations. thanks much. yield back. >> thank you very much, mr. foster now we would hear from the gym and from mr. delaware for one and a half minutes. >> thank you, mr. chairman, and thank mr. garrett for your holding today's hearing. i believe debate the future of fannie mae and freddie mac is important as these have to minutes impact on our markets. i also believe that we cannot neglect talking about the future of other elements in the housing market. while the gse are important also need to consider other aspects of housing finance and their role in the market moving forward. the events began unfolding last summer have led many to believe the public-private business model of government-sponsored enterprises is inherently flawed. does this model invoke moral hazard or entities backed by the government take unnecessary risks, all because they know they will be provided a lifeline if things go really bad? on the other hand does his argument apply to all public-private partnerships, even those dashed those

partnerships have worked well. perhaps some of the practices what about the gse's themselves that are indeed of reform. so the question is raised. what do we do with fannie and freddie in the future, should they return to the gse status? after we have exhausted the conservatorship will. to become an official government entity? or do we privatize them and the government backing role altogether? i am looking forward to the testament of the panel before us to try and hash out this issue. i also hope that the experts before us today will be able to address the future of the housing and mortgage market in general as a fannie and freddie are soupy part of the greater debate this committee needs to address. thank you and i yield back the balance of my time. >> thank you very much, mr. castle. now we will hear from the gentleman from california for one and a half minutes. >> thank you, mr. chairman. i think i've worn 16 times in this committee about the danger of government involvement in the market with respect to gse's.

the role of the government should be to be a regulator. what we did was we replaced political poll with market forces. and in 2003, i introduced the first legislation to bring fannie and freddie under one regulator. in 2005, i got the amendment onto the house floor, frankly, that would allow the gse's regulators to control for systemic risk to actually step in, which is exactly what the regulators wanted to do. but political poll and the lobby by fannie and freddie prevented this from happening. now we have got 6 trillion worth of a mortgage market out there. and basically what we did was we allowed a cross i political government-sponsored enterprise here to borrow at a much lower rate than their competitors could in the market. we allowed them to form a system in which they could arbitrage, and in which they could build up

a portfolio and then forces in congress forced a majority of that loan portfolio to be in sub prime. and when we called attention to this repeatedly, we were told there is no risk. we will roll the right dice on this risk. the consequences have been not only to drive up a balloon in the housing market, with a collapsed, to lose billions of dollars for stockholders. and more important, to lose that money for those who were involved in the housing market, and the side effect that this has had on housing prices in the u.s. so the observation i would make first is, i get a hold of any it one that is interested in this debate, the housing boom and bust, and see the role that congress played in terms of helping create this crisis. and second, i think long and hard in the future about creating political manipulation into the market. we should be the regulators.

we shouldn't be tying the hands of the regulator. in 1989 we had freddie mac, the chairman of that organization, come up here and said it would risk safety and soundness to allow these kinds of portfolios to develop. and instead, we allowed 101 and one in this institution and the resulting collapse and the systemic risk. and we ignored the very institution of regulars that try to warn us and we tied the hands of those regulars. that's the debate we should be having today and we should learn a lesson from it. i thank you, mr. chairman. >> at you, mr. royster will now hear from the gentle lady from west virginia. >> thank you, mr. chairman that i would like to thank you for holding this hearing today. it is my hope that this will be the first of a series of discussions on the future of the gse, fannie and fred. as we are all too well aware of the long debate over whether or not the gse federal guarantee was explicit or implicit was resolved last fall due to an over abundance of risk on their

portfolios. fannie and freddie were placed in conservatorship by the treasury and the federal housing finance agency. since then the government has set new management teams within the to gse to control day-to-day operations. but they remained in tight control over all other other operations. i look forward to hearing of lofa -- did i get that right -- on the current status of the gse's and the role they continue to play that the current situation is not ideal and it is my hope that we return the gse to the private market as quickly as possible. what shape or form this will take is unknown at this time but it is going to the previous business model was not sustainable as it allowed the gse to take on too much risk and leaving the taxpayers to step in with when the losses became too great. there are many proposals out there and our witnesses will be elaborating upon the. one issue that does concern me and that i have heard from numerous constituents throughout the last several months is the effect of adverse market fees from the gse are having on my

constituents ability to purchase a home. in some cases these additional fees are actually pricing homebuyers out of the market. i look forward to hearing the director speak on the genesis of these fees and their affect on liquidity in the mortgage market. i look for to him from all of our witnesses today i want to thank the chairman for holding the hearing. i yield back. >> thank you very much. and now we'll hear from the gentleman from florida, for three minutes. >> thank you, mr. chairman. thank you for holding this hearing and the ranking member as well. the current turn has certainly shown weaknesses of eddie and freddie and is it important to determine the proper structure of these goals going for. however it is equaled as important to assure that fhfa is doing everything possible to stabilize the mortgage market and prevent foreclosures. i am particularly concerned about the current edition of housing market where i come from in south florida. particularly because of the lack of the quantity of staff at

fannie mae and freddie mac in florida. i've heard from plenty of loan modification specialists law firms and other distressed asset managers in my district and throughout florida that are ready to assist fannie with the vastly increased caseload of foreclosures, modification and refinancing yet they are having trouble being approved by freddie and fannie because of redgate. my concern is that foreclosures are a great because there isn't enough staff to do proper loan modifications and we also understand it is unacceptable and we all know it is acceptable for families to lose their homes for foreclosure or i would just like to point out as i said that we've had some conversations and certainly recommend and ask that as we work through this difficult time period that we have the staff and support to get these modifications working through the process. and look forward to hearing the comment and look forward to working with all of our members and representatives to congress this. thank you, mr. chairman. >> thank you very much. and now we'll hear from the gym and from texas.

>> thank you, mr. chairman. from my perspective as a member of this committee and as a member of the congressional oversight panel for the t.a.r.p. program, i believe there are a number of but for causes of our economic recession. none larger than the monopoly powers that were granted to fannie and freddie coupled with the so-called affordable housing mission. that essentially mandated that loan money to people to buy homes that ultimately they could not afford to stay in. many have said no that under h.r. 1427 passed in may of 2007, that somehow this situation has been rectified. since that legislation has passed, the conforming loan limit has increased to 729,000, increasing taxpayer liability, the portfolio limits of the gse's have been increased to 900 billion, more taxpayer exposure. their share of new mortgages has gone from 50% to 90%, more

taxpayer exposure. taxpayers have now been forced to invest almost $87 billion in preferred stock agreements. they are exposed up to 400 billion under those particular agreements. the congressional research service has estimated the cost to the conservatorship to be 384 billion at a time when americans are struggling to pay their taxes and keep their jobs. i am glad, mr. chairman, that you're holding this hearing. since certainly h.r. 1427 hasn't taken care of the worst of fannie and freddie. ultimately, we need to see this conservatorship at a time certain to end and transition these enterprises back to the private market and get the hand of government out of this enterprise that has caused this taxpayer debacle for generations to come. thank you and i yield back the balance of my time. >> thank you very much. we will hear from the second

showmen from texas, mr. neugebauer, for a minute and a half sack thank you, mr. chairman. i look forward to the test would've our witnesses today and i believe the task ahead for this committee and for administrator lockhart and his team is number one stop the bleeding. as obviously you are going to justify the mirkin taxpayers have had to put an extra in the large amount of money into this entity and it looks like we'll have to put more. the second is in this committee is we go down the road is how do we keep this from happening again. because certainly we want to take steps in the future that do not put us back in the position that we are in a. and also making sure that we develop an exit strategy that protects the money that the taxpayers have already invested in these entities. and fourthly, while we are doing all of this, we have to ensure that there is a substitute, another entity, another way to ensure that there is not a major disruption in housing finance in this country.

and if we do not have a way to transition to a housing finance resource that will take up the slack, because what we will see is testimony basically the only game in town that is fannie, and freddie. if we do not have entities in place to take up that slack, we will cause another major disruption in the housing market at a time where american families have already lost a substantial part of their equity. we do not need to be in a situation we are creating that. so easy to identify the problems that need to be addressed. obviously, many people have reasons how we got here, but more importantly, i think the important questions are where do we go from here. and i look forward to hearing from the witnesses today, as where do we go from here. thank you and i yield back. . .

>> thank you for inviting me to speak today about fannie mae, freddie mac, their future and the federal involvement in the housing finance system. with almost $12 trillion in outstanding mortgage debt,

housing finance is critical to the u.s. economy. as the conservatives, fhfa's most important goal is to preserve the assets of fannie mae and freddie mac. that is a statutory responsibility. as the regulator, fhfa's mission is to ensure the enterprises provide liquidity, stability and affordability to the mortgage market in a safe and sound manner. that is also our statutory responsibility as it is the public purpose, that congress gave the enterprises. the enterprise's own are guaranteed 56% of the single family mortgage is in this country for a total of $5.4 trillion. given that massive exposure, the best way to preserve their assets and fulfill the mission is to stabilize the mortgage market and strengthen their safety and soundness. working with the federal reserve, the bush and the bomb administrations and other regulators, that is that our top priority since the

conservatorship began and will continue to be so. supporting markets modifications and refinancings for homeowners into safer mortgages arnn important element of stabilizing the housing market and thereby the u.s. economy. the form in which fannie mae and freddie mac exit from conservatorship once the housing market has stabilized should be addressed by congress and the administration and i think this is a great first step to have this hearing. fhfa continues to classify fannie mae and freddie mac as critical supervisory concerns. as there was-- were significant risk they would be unable to fulfill their missions we place them into conservatorship last september. since then, the treasury department has purchased $86 billion in their senior preferred stock. >> enterprises short-term financial outlook remains for. which will result in additional requests for preferred stock investment from the treasury

department. however, both enterprises have stress tests their capital shortfalls and expect treasury commitment to fund up to $200 billion in each-- and capital for each of them to be sufficient. the senior preferred stock purchase agreements have given investors the confidence there is an effective guarantee of gses obligations. in addition the combined financial support of the treasury department and the federal reserve of over three-quarters of a trillion dollars to date for housing gse debt heaven sure they remain liquid. because of this support both enterprises have been able to maintain a critically important presence in the secondary mortgage market. their combined share of mortgage originations in the first quarter of 2009 and also in 2008 were 73%. that was double the 37% in 2006. while the enterprise continues to support the secondary mortgage market, new senior

management teams have worked with fhfa to establish and implement comprehensive remediation programs. the enterprises have made progress but they face numerous significant challenges to their operations. the steps of the enterprises and fhfa have been working hard to help to strengthen their safety and soundness. in the current mortgage crisis, the enterprises have focused on mortgage availability, mortgage affordability and foreclosure prevention. lawn modifications undertaken for their own business are critical for limiting their own credit losses and even more importantly stabilizing the mortgage market. the enterprises and fhfa work closely with the administration to develop the making home affordable program. both enterprises have undertaken , affordable wheat finance initiatives to enable homeowners who are current on their enterprises to own guarantee mortgages to refinance at lower rates.

fhfa expects both commodification and the refinance program, which is just to really ramp up rapidly by late summer. in my written testimony i summarize what went wrong in housing and mortgage markets. i identified some lessons learned and raised basic questions that policymakers face at this juncture. i will now focus on my thoughts on the potential roles for the federal government and the housing finance market in some principles that i think should guide policy choices going forward. the starting point has to be the future role of the secondary mortgage market, which connects global investors to local lenders and borrowers. dealing stowe helps to lower borrowing costs for homebuyers and in part because large institutional investors may be better able to fund mortgages and manage the risk and those mortgage portfolios. whatever options are chosen the country's financial system will

continue to require a vibrant secondary mortgage market including the function performed by the enterprises. there are three specific roles in the secondary mortgage market. the first role is that of a liquidity provider to the secondary mortgage market for mortgage-backed securities. the second role is that of a structure and/or injure of the credit risk of conventional mortgage-backed securities. private firms are limited in ability to ensure agents catastrophic events but the government insurance comes with significant risk and moral hazard. a third role is to walter the allocation of resources by providing subsidies to attempts to increase the supply or reduce the cost of mortgage credit to targeted borrowers. suds earl has really been central to what the housing gses notch as fannie in freddie but the home loan banks which we now regulate, but unfortunately as the present crisis shows it has

had some mixed results. with these roles in mind, i would like to turn to what i consider some of the basic principles you have to consider as you were looking at the future in the mortgage market and fannie and freddie. the first principle is these institutions should have well-defined and internally consistent missions for commissions that do not encourage excessive risk-taking. a second principle is there must be much clearer demarcation of the respective roles of the federal government and the private sector in the secondary mortgage market. any federalist bearing should be provided explicitly and and and actuarial cost. the old hybrid model as many of you said are private for-profit ownership underwritten by implicit federal guarantee poses a large systemic risk to the

u.s. economy as we found out. the third principle is debates and the organization that provides mortgage guarantees or insurance on sound insurance principles. that requires strong underwriting, strong capital positions, risk-based pricing and flexibility to react to changes in the marketplace. the fourth principle is to create a regulatory and government structure that ensures risk-taking is prudent. for merely the first day on my job for years ago i pointed out the allowing enterprises to have such large portfolios, which we did cap and also the folly of allowing the legally leveraged on mortgage credit by over 100 to one and of course many others including many in this room did as well. congress did provide a stronger regulatory structure of the housing gse's as part of hera last july but unfortunately it

was much too late. the fifth and final principle that is the housing finance should be subject to the supervision that seeks to contain both the riskiness of individual institutions and the systemic risk associated with housing finance. the latter type are-- wood includes counter-cyclical capital and policies that counter the private sectors tendency to generate blanding bones in boss. with those principles in mind, there is really three basic structures for the future of fannie mae and freddie mac. one is a government agency and another is hopefully a much improved gse and the third is a fully privatized firm. the first option would be the equivalent of nationalizing the enterprises which i am opposed to because i believe the government insurance programs are particularly high risk and rife with moral hazards. the second alternative would be

to keep enterprises as gses, building upon hera. they could be a public utility or a cooperative structure. they could continue with treasury net worth protection or government reinsurance for catastrophic risk. but extreme care would have to be taken to prevent the inherent conflict always present in the gse model. a third option is to establish a purely private sector firms to supply liquidity to mortgage markets with or without some form of government catastrophic reinsurance. private firms could offer greater competition and improved operational efficiencies, however to maintain the liquidity, the level of liquidity the mts market has enjoyed under fannie mae and freddie mac, the high degree of standardization and quality control across firms would be necessary. i would like to close with a few personal thoughts. having worked at several private-sector insurance

companies and it buys many others and actually run several government insurance programs i can tell you government insurance programs are high risk. than by the private sector to shift risks to the government. among other issues it is often difficult in a political environment to calculate our charge and actuarially fair price. it is difficult to resist pressure to broaden the mission and prevent inaccurate compensated increases in risk-taking. nevertheless, the government has important role to play in providing certain types of insurance, especially reinsurance against catastrophic risk, but again that insurance has to be refunded and actuarially sound and that is difficult and the government. the enterprises and the federal home loan banks are playing a vital role in helping to stabilise housing in the economy today. fannie mae and freddie mac's participation in leading role in the making home affordable program is extremely important

helping to stabilize their mortgage market and their own books. as congressman neugebauer said, it will help stop the bleeding if we can make this program work. as markets and the enterprise stabilizes, it will need to address the complex issues i have outlined in this testimony. it is important to get the mortgage market model right and the restructuring of the gse's right, not for the u.s. economy but also for all present and future american homeowners and renters. i would be happy to answer any questions as will my colleagues. thank you. >> thank you very much mr. lockhart. mr. lockhart, part of the problem that we have and-- we have never had a definitive set of hearings or commission appointed to designate what the

causes of the disaster, the economic crisis over the last year or year and a half has been. i hear many of my colleagues, as i hear other commentators there are economy, asserting into the cause for several reasons, quite extreme reasons but i never knew c.r. a was so extensive within our system that they brought down the whole system but i have heard some people make that charge. i have also heard people make the charge that fannie mae and freddie mac brought down the system and i guess i want to ask you the question. is that your opinion? i can express mine, that fannie and freddie fell after the credit crisis occurred and the credit crisis basically occurred more in the securitization and private markets particularly of sub-prime loans then of fannie and freddie. they followed in the destruction of credit in the country. is that relatively true? >> there are many, many factors

and lots of people guilty over this bubble we had in the economy and in particular the housing market. there was excess liquidity. as former secretary paulson used to say, wrist was mispriced not only in the housing market but across financial markets and across financial institutions. certainly, in the housing market, underwriting standards fell dramatically and in particular the sub-prime and all day market in most of that did go into the private label securities. i have to admit fannie and freddie were big buyers of those securities. only the aaa once, but they and everybody else including the rating agencies did not do enough analysis on those securities. certainly, to about 33%, they did lower their standards and 06

and 07. they didn't lower as far as the rest of the market but they did lower their standards. as i said, there were a lot of reasons for what happened. fannie and freddie, i do not think, were the cause that they like many others, institutions including the poor regulatory structure that ofheo had. we didn't have the power to stop them from being 100 to one leverage. we actually have the capital charge on them. we froze their portfolios and still there were problems. so there were a lot of different reasons, regulations. we were too slow to get the new legislation. the housing market bubble was caused by worldwide financial issues and not just fannie and freddie. >> as you know, the reform legislation, to correct your present agency and give you the powers of world class, independent regulator, that

started considerably before it actually became law. if i remember, in 2005, we put that legislation for the and it failed to get senate confirmation and therefore it did not proceed to the president for his signature. after that, it was enacted the there. not to place blame because i think it is the worst mistake we could make in placing blame, it was a republican demonstration, a democratic congress. we do entertain the facts that at all times during this immediate run up to this crisis, that is the four or five years of their real-estate bubble gum of the senate and house were in control of the other party. that is the republican party, is that correct? >> i guess so, yes sir. >> the presidency of the united states was in control of the republicans. >> that is correct in that republican was asking for reform

almost from the day he took the job. >> his party congress did not respond, is that correct? >> as i understand the history, and i was not here in 05, so you will this have to bear with me. they wanted stronger legislation. >> no question about it, they wanted stronger legislation that the people who controlled the house and senate at that time were his own party, is that correct? i want to place plain. [laughter] i think if we could leave today's hearing, i enjoyed my colleagues on the other side, that they appreciate my tense here. i think we have to finally draw the line on finding fault. it is not going to get us anywhere. the one thing that does disturb me though as we talk through that, there is a tendency to think that maybe if this had

been done in totally in the private market and government had not been involved, to you see that is a viable alternative that we can just let fannie mae and freddie mac dry on the fine, become friends, and forget about them and let the private market golan or will there be a negative impact in united states in terms of real estate ownership real-estate, and so that history is correct, fannie and freddie were instruments forced upon the american people, even though one of them was done in the depression-era times, it was to fill a void that the private market wasn't filling. we didn't have a secondary market in real estate until government took the responsibility of establishing fannie mae. is that correct? >> that is correct. in the recent decade the private market for these private label securities it did increase their market share pretty dramatically from fannie and freddie and from

fha for that matter. and unfortunately, they did it in an unregulated and unsafe and unsound fashion. >> i was fine to say they didn't do it in a very superior way. if we had to say anything in making the comparison between the government agency in creating the secondary market and wall street left to its own designs, wall street those last two or three years became an absolute disaster. >> right, and i think going forward we need a private-sector market, and there's a lot of activity going on. >> we are going to try wall street again. >> the much reformed version with much more transparency, much stronger underwriting for the one of the things we did in the seven is withhold bennie and freddie they couldn't buy any more private label securities unless they conform to the nontraditional mortgages guidance, the sub-prime guidance and those kinds of rules have to come forward, that we do have much better transparency.

>> last night i had an interesting dinner, mr. speaker with an interesting gentleman and members of the committee were there, mr. simon, who is a financier in quite renowned in the united states. he made the proposal to us and i think it merits consideration and i would like your opinion of what it roughly is. he feels that one of the major to the securitization market was the failure of the rating systems, the institutions that were there too late and did in fact read all of these aaa ratings that we found out much later on for nonsense. his suggestion, and opinion was that we should take upon forming a nonprofit governmentally sponsored and supervised, super rating agency that does not make money from the issuer, but its fate independently and

separately either throup and assessment or a fee and that it have to rate all of these bundled securities and securitize operations. have you given any consideration to that type of fund? >> there is no doubt that the rating agency has failed. if you look at the aaa's that fannie and freddie bought, about 60% of them now are junk and only 5% are still aaa, not on downgrade so there's no doubt that they feel that there's no doubt that they should be reformed. i have not really thought about that but there is somewhat of an analogy in the insurance world where the naicu does rate for insurance companies. whether that works and not i'm not sure, but it is something that can be considered. i think more importantly, we need to reform the rating agencies and we need to get them back to rating anna consulting in getting these for structuring bonds. >> thank you mr. lockhart. i have already gone over my time and i would like to recognize

mr. garrett from new jersey. >> thank you and i too will not try to lay blame or be partisan on any of these things. i appreciate the fact that you were laying out the history of things, that it was the reforms did get through to the house. they were requested by-- you were here sometimes, other people during the bush administration were here. at i remember secretary snowe with sir and a number of people pushing for limitations on portfolios. it did go to the senate and then senator, not president obama i guess was in the senate at that time and not being partisan at all when were the other adjusting the could not get cloture and as i recall to be able to get those pieces of legislation to the president's desk. have we done it at that time, perhaps we would not be sitting here today looking back to say, why didn't the world class regulator do the job because a world-class regulator potentially could have done the

job. esol find your comment with regard to what did the gse are a federal regulations were part and parcel to the cause of it. just very quickly ran down and said it was excess liquidity. i guess that is part and parcel due to the excesses by the fed on monetary policy. you talk about lowering of the underwriting standards. i guess that is part and parcel of the fed and the boston fed and others which instructed wall street to lower their underwriting standards and also with regard to the gse's i appreciate your candor saying the standards themselves were actually lowered in a period of time, so we can say that this one factor was the cause of it but certainly we can say that certainly this one factor helped to exacerbate a problem when they bought up some of these bad, bad securities and debt underwriting things. wit favell said, one of my objectives has been to try to lower the risk that the gse's oppose to the taxpayer. both enterprises have a

significant amount of interest-rate risk due to the hedging practices with the limited number of counterparties. we have discussed this before, a handful that you are able to do within these interest rates which are swaps standardized bilateral transactions to help you manage your portfolio and hedge the risk. now there are new clearinghouses that have been popping up if you will, being established and they have the potential to significantly reduce the counterparty risk posed to the enterprises through these transactions if he were to funnel them through and of course you know how that works so could you elaborate on how you are working to try to reduce the risk to the taxpayer with their counterparty risk through clearinghouses like this for these swaps? >> counterparty risk is a big issue in the financial markets today. there is actually over the last year concentrations of counterparties as there have been mergers and acquisitions, whether it is in the mortgage

market, the deposit market and other areas but certainly as the quality of some financial institutions has suffered, that is meant that fannie and freddie and many others have had to concentrate their derivatives activity and fannie and freddie both have well over a trillion dollars of derivatives as to the federal home loan banks that one of the concerns we have is that counterparty risk, what can be done about it and we have certainly talk to them and they are looking very seriously about starting to move then some of their business into clearinghouses and exchanges to diversify their risk and lower the risk. >> the product here is basically the standard product that we are dealing with, right? >> a lot of the fannie and freddie, the prepayment risk basically and they use swaps to a large extent sometimes they use more exotic instruments but they do a lot of interest rate swaps and certainly-- >> is there something holding them back or is there a

timeline? bsc said these are relatively new vehicles. they are looking at them. we want to make sure it is done in a safe and sound manner. >> on another no, with regard to the portfolio which is one of the areas that there was a request for years to try to rein them in. what is the purpose of keeping the portfolio where it is now? is gone up since this whole problem began. i notice supposed to begin to run down next year but when we began running that down right now and then to say we are going to eliminate that? >> the key thing that the portfolio has been used for since the conservatorship is to support the mortgage-backed securities market. obviously the treasury has been buying a lot, the fed is than buying a lot but that is extremely important to get those mortgage rates down. since the conservatorship we have seen mortgage rates dropped about 150 basis points, 1.5% to about 5% from 6.5% imparted that has been the treasury, that that

and also fannie and freddie buying those mortgage-backed securities but obviously the fed and treasury have much more firepower and this point the portfolios are relatively stagnant. >> there stagnant, but they went up. >> they went up but now they are coming down. >> kenny guiness the tymon projection on when they will be-- >> a lot will depend on what happens in the mortgage market. what we need to do is to stabilize the mortgage market and then we need to figure out what to do if-- the key job, number one job is to stabilize the mortgage market and that is by bringing mortgage rates down. does by modifications, it is by refinancing. >> i guess that is my last question, your overall job, one of your opening comments is what is the job of the conservative and you said it was to preserve the assets of the gses. you did not say in any sentence or paragraph after that, and balance it against the interest up to the taxpayer.

do you see that actually? do you see that is part of your role? >> very much so. if the assets of fannie and freddie go down that means more money from the taxpayer. so, that is part of very much the job, to try to overtime limit the draws from the treasury department and in my view the best way to do that again, is to stabilize the mortgage market to modifications in refinancings. >> we have had correspondence in the past with regard to the west point, and that is as far as the statutory authority to the gse, to enter into these modifications, some outside experts have said there is not the statutory authority to enter modifications and the fact that that doesn't, and errett to the benefits to the taxpayer as well as in a side issue as well. do you just want to comment on

the statutory authority? >> you are asking about the modifications, higher than 80% loan-to-value. our view is that these are the risks that they are holding. they hold these mortgages and by lowering the payment three refinancing their lowing their risk and therefore helping the text their potentially going forward, and by the way, the guaranty fees on these mortgages tend to be higher than the ones they are replacing so it is really a benefit to the taxpayer. >> my understanding is that fannie mae's financial statement indicated that would actually increase risk for the dfc. >> not for refinancing. i think what they may have said is that modifications could potentially have the impact of increasing short-term losses, but my view is over the long term, they will be a benefit to the gse's and to the taxpayers. ..

>> it has actually been relatively low, about 30%. in the last year that has, you know, risen quite rapidly with the downturn in the economy. >> right. well, we are talking about with this provision as far as the modification. >> again, these new modifications are significantly

deeper than the ones even a year ago. i just saw a chart, a year ago in the first quarter only 2% of the modifications had payment reductions of 20%. this quarter, the first quarter this year it's 52%. so the modifications have changed so dramatically over the last year that it is really hard to use historical numbers to say that, you know, we are going to have. the economy still has troubles. that is suddenly the reason. lost jobs, lower income and things that are affected by the economy. >> all right. thank you. >> we are in the midst of four votes right now. they should take probably 30 minutes. we will recess until that time. [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> the committee will reconvene. we probably will get interrupted very shortly for another vote, but we will continue while we can. mr. campbell, you're recognized. >> thank you, mr. chairman and director. there is a bloomberg report out today about and letter from then

sec chairman christopher cox written to you in january of this year with a number of subjects, i guess, including suggestions that, perhaps, fannie and freddie are being encouraged to make loans that might not be in the best interest of the profitability of that entity. i you familiar with this letter? >> we don't really comment on correspondence from board members. i can tell you -- and chairman cox was a member of the new board that was created. i can tell you that we work closely. he is very involved in the fannie minds that we did about three years ago. if the issue as reported -- and i will comment on the issue as reported in the bloomberg

article. and the issue, i think, if you want to sum it up is that does modifying mortgages and refinancings them cause damage to fannie and freddie? in my view, as i think i said earlier, they sit on $5.4 trillion in mortgages. that mortgage book is so large and so important that if they -- what they can do the stabilize the market will be good. now, one of the problems is from an accounting standpoint, when you modify along they have to take it out of their mortgage-backed securities and write it down as if it wasn't modified. so there is a short-term cost, but my you is if it goes into foreclosure the cost will be worse on that mortgage, but more importantly it will be worse with the neighborhood and the

$5.4 trillion book. so the few that i have had and share it with the management of fannie and freddie, their number one job at the moment is to help try to stabilize the mortgage market. >> even if that may be in the short term or whatever is not the best thing for the financial results of fannie and freddie? >> it is of very short-term negative on the financial results because they get to take this back in. in fact, that accounting is going to change january 1st of next year with the consolidation of all their mortgage-backed securities. some of that may be written back. >> let me ask you. could we, members of this committee, see this letter? >> i don't think that is appropriate, but i will check with my lawyers. >> okay. mr. chairman? >> i think it was an sec letter. it may be better to ask the sec. >> mr. chairman, if there is a letter written from christopher cox to director marquardt in january, i think that is

something the committee members should be able to see. and i'll just say, by would have a hard time understanding why members of the committee be given that the fannie and freddie are under receivership. >> conservatorship. >> sorry. you're correct. when not be allowed to see this lovable. i would hope that the chairman and committee would support that position. >> i can tell you that this letter has been discussed with the new board at the first meeting. we have gone through the contents. we are continuing to look at those issues and will continue to work through those issues. again, as we work with the board members it is an advisory board, and they have been very helpful. i think it is very useful to have that kind of dialogue, but to the extent that dialogue gets out to the public it's not as helpful, and we may not have as much dialogue in the future.

>> the only people i know that have it on the press. [laughter] >> i guess that probably makes my point. thank you, mr. chairman. we should be seeing a letter. another question is i believe the sec -- i think your believe, sir, is that we have about 150 billion. fannie and freddie has about 050 billion in risky outstanding mortgages, but the sec believes it's closer to 1.7 trillion. how do you reconcile that difference? why did they feel it is so dramatically higher than you believe? >> i don't know where the hundred 50 came from. might be that they have about 170 billion in providence securities which are risky. there is no doubt about it. but they also have the rest of their bark which is well over 5 trillion. and there is obviously higher

risk mortgages in that book. there are some sub prime, but not a lot. of interest on mortgages, option arms. there are a series of things. >> they don't add up -- >> that don't add up to 1.7 trillion. the sec double counted. i would say it is about 1.4. >> i would love to ask more questions, but i believe my -- well, then i'll ask a question we discussed earlier. it's my understanding that some of the early default rates on loan made since the first of the here and become a lawyer after we knew about the stresses are equivalent to some default rates that were done before all of the sub prime stuff kind of became out there, is that true? and if so, is that part of the strategy of helping the housing

market by continuing to make loans to sub prime and other lower qualified buyers and lower underwriting standards? >> it does no one any good, and it's one of the lessons we really learned to make a loan that we think they're going to default on. it hurts the individual. it hurts the neighborhood. it's just terrible. certainly not part of the strategy to make loans that we think -- >> do you know what the first payment default rate is? >> i don't have the number in front of me.

i can provid it to you. it is not only a function of the loan, but it is a function of the economy. as i told you earlier, it can be a function that the underwriting was poorly done. in that case danny and freddie have a right to return it to the financial institution that sold it to them. >> thank you. >> i am happy to yield. >> maybe it would be. along the analogy that there may be some cost involved short-term on some of the aspects. but the it overarching goal is to just stabilize the marketplace. maybe it's not a bad system from that analysis. it may not be a bad thing to say we are going to underwrite loans at rates on terms that are necessarily likely to get paid back. it will probably economy.

>> congressman, you know, a default does not help anybody, and it certainly doesn't help individuals, neighborhoods,. >> particularly a first payment of default. >> well, we have two votes. we will take every recess. that will probably consume at least 15 minutes, and then we will reconvene. committee stands in recess. [inaudible conversations]

[inaudible conversations] >> the committee will reconvene. we will recognize mr. hensley of texas for five minutes. >> thank you, mr. chairman. in your testimony you stated that as conservator fhfa your most important goal is to preserve the assets of fannie and freddie, but as regular journalism the mission is to ensure liquidity, affordability in the mortgage market. it seems to me that kind of gets to the crux of the matter. how do you reconcile these two missions? how are you serving two masters? >> we actually reconcile it pretty easily. the safety and soundness that you left out of the statement is

also important in the mission side. and certainly can serving assets that are safe and sound is principal. what my view is, and it's critical that the best way to conserve assets for fannie and freddie is to be able to be aggressively modifying loans, refinancing loans, and ensuring the liquidity in the mortgage market. they sit on $5.4 trillion in mortgages. and if the market continues to fall those losses will continue to mount. so the best way to serve assets it's for them to continue to fulfill their mission of providing liquidity, stability, and affordability to the housing market. >> under one scenario would you recommend an alteration of the status from conservatorship to receivership? already we are at about

$85 billion of taxpayer exposure. 400 has been authorized. yet uncle sam is a% honor of the gse, ostensibly for 5.3 trillion, i believe. is there a scenario under which you say conservatorship simply is not working? >> we have looked at a receivership versus conservatorship last august and september as we considered what to do with fannie and freddie. and we've weighed the pluses and minuses. it was our view that conservatorship was the for the mortgage market and u.s. economy. that is still my view. it would unstabilize the mortgage market. receivership might have been the wrong impact. so at this point we are not contemplating receivership, and i really don't see the advantage

of receivership versus conservatorship. >> is the taxpayer on the hook? >> for the senior preferred facility that the treasury department negotiated, and that is 200 billion to each of them. >> but the 5.3. and 80% number. correct? >> the federal government has an 80%. it never exercise the warrant. but it has the right to exercise that warrant. that is a common warrant, and as you know, if you are a shareholder you are not responsible for the debts of the company. >> well, it is of very unique shareholder. it seems to me that part of the problem that was created was the whole impetus obverses an

explicit guarantee. and we know that one of the reasons fannie and freddie, is there any scenario where you would recommend that the full faith and credit with the u.s. be behind all $5.3 trillion? >> the implicit guarantee was the problem. we talked about it in this room many times and other places. there was no market discipline for these two companies. we didn't have the powers as a regulator to control their growth. the market wasn't doing it either. my view is that there is no

reason at this point to make that explicit. i think that $200 billion senior preferred stock, given effective guarantee, and that is all that is necessary at the moment. certainly there are buyers and mortgage-backed security. >> don't you think the buyers of this paper think that once again congress would come to the rescue and build them out? >> the buyers of this paper think that there is strong support from the u.s. treasury. yes. >> so what is the exit strategy >> exit strategy is partially the new structure we have been talking about here today. you can't do that in my mind. you can't bring them out in conservatorship until the market is stabilized. there may be apportionment as in receivership that gets left behind in what you might call a

bad bank, if you will, that is protected by the senior preferred. and there is a bridge to a new organization. >> thank you. i'm out of time >> the gentle lady from illinois. >> thank you, mr. chairman. i have several questions. so i'll just run through them rather quickly. number one is many consumers in my district are thinking long and hard about purchasing a condo based on all of the new gse requirements which are causing strain for home b uilders. you know, so many people start and say i'm not going to go through the process. can you comment on that?

>> well, the gse's have historically had standard scene for a new condo. 70% has to be presold. during that time when they lowered credit standards it now they have restored that old standard. in some markets there is the issue of empty condos. again, it does not make sense to make a loan that might go into default. they continue to work with, the developers. to the extent that they see it is active project they can bend and change those rules. it's something that they think from a safety and soundness standpoint makes sense. >> a waiver or just bending the rules? >> it would be a waiver. they would look at -- bending

the rules probably not the right word. they look at projects in and to the extent they see that it is a sound project they will make the loan. >> thank you. these are some of multifamily houses or homes that are now considered commercial verses occupied properties. why is that designation for them? >> i'm not sure about that. i'm going to have to look into that. >> thank you. then another illinois issue. why is it that fannie and freddie still have a policy in the state of illinois and they only permit a handful of law firm saddam. in illinois it is too, to handle

foreclosures. this continues to abolish the system. i think it is a disservice to lenders and sellers and bars. because brice i'm not sure about the situation in illinois. i know in other states they are trying to expandability their legal representation. they will be looking at how some more expeditiously work through the issue. >> it is that something -- is there any of regulation on this? >> not that i am aware of. we will certainly go back. >> okay. then why is it that the home evaluation code of conduct is being implemented without the traditional public scrutiny and review? it seems like this new policy was not that it through congress in, but all the a side deal made

with the officials from the state of new york. i think it really is a dramatic policy that could severely impact many small businesses in my district and elsewhere. >> the new appraisal code is by fannie and freddie. this is the strengthening of that code. it was done after a bout of comment. they received many comments from all whole series of different groups. and they made significant changes in in the appraisal code from what they had originally agreed to. it is really designed not to hurt small businesses. what it is designed to do is in many ways the opposite. take pressure off appraisers to

do bad appraisals. there is a lot of problem that went on in the housing market. one of them was fraud. the chairman has obviously been working on a companion one piece of legislation, as well. and we applaud that effort. certainly fannie and freddie will comply with it. >> okay. and just quickly what is the compelling reason to increase consumer fees? >> if you are talking about the fees related to a guarantee fees that fannie and freddie have in place they have a 25% to about excuse me, a 25 basis point adverse market feet. they are going to raise that another 25 basis points. it decided not to. they have also done some risk-based pricing. so where they have raised fees

is because the risks are higher. you know, this is the balance submission of trying to conserve assets versus helping the mortgage market. and there are things that have to be done there. we have watched what they have done, and certainly we have talked to them about what they have done. we are trying, and they are very much working to try to achieve a balance between safety. >> well, thank you. there is no question that we need at t se reform package. i don't know that we want to have the taxpayers of be internally bailing out all of these various companies one including the mortgage giants. >> i hear you, congressman. >> thank you very much. >> now we will hear from mr. adler for five minutes. >> thank you, ñrmr. chairman.

i want to follow up. my sense is that mortgage insurers lack the capitol to underwrite. i wonder what you suggest to do to solve the problem? >> that is a good question. fannie and freddie can write mortgages above 80% of the value. they have relied strongly on mortgage insurers and in more recent past there were something called payback mortgages. so they have relied on mortgage insurers to make greater than 80% of value mortgages. the mortgage insurer's like many other players in the mortgage market took some very significant losses and their capitol has been depleted. that has meant that they can make less mortgage insurance and they have in the past. and rightfully so they have tightened their standards as a result. and that is meant that fannie and freddie can make less long

term space. been working with the treasury department, and we are looking if there is some mechanism under the t.a.r.p. funding to help them to get back into the marketplace and help bring some more liquidity to the mortgage market. >> and do you think that the t.a.r.p. is a proper vehicle to achieve? >> it is certainly well within the philosophy of the t.a.r.p. it was related to mortgages and housing. one of the key target markets for the t.a.r.p. funds. we are have been talking to treasury to see how it is structured. it is different. the t.a.r.p. banks all have federal regulators. the insurance company, as you know, does not have federal regulators. it was the federal regulators that made the recommendations to the treasury team. and so we are working our way through the various issues.

>> leaving aside t.a.r.p., are there other governmental solutions coming congressional solutions you would seek for us to consider that would try to right this situation? >> my view is that's ron the ber mechanism would be t.a.r.p. it is difficult to see what -- these are state-regulated entities. it is difficult to see what congress to do to help. >> i think there is enormous concern that fannie and freddie are big and maybe too big. there is some discussion that maybe we need to have a few smaller entities to provide the gse service that fannie and freddie have traditionally provided. do you have any view of that? >> certainly i have always said their portfolios are too big. one way to shrink them would be

to shrink their portfolios over time. that is part of the senior preferred agreement. i don't think it should be done right away. i think we need to get through this crisis first. there are proposals on the table that say that maybe there should be more gse's or more players in the secondary mortgage markets. i think that is something that has to be looked at. i really have not formed an opinion one way or the other, but i'm sure they need to be looked at. >> i'm sure we're going to look at it. thank you very much. >> thank you. now we will hear from the time for california. >> thank you very much, mr. chairman. i think when we look at the factors that created this economic catastrophe most economists believe one of the major causes besides fannie mae and freddie mac was the fed funds rate in europe and here in the united states, the central banks setting a negative interest rate when adjusted

inflation for four years running. there is no way that would not cause a housing bubble. the question with fannie and freddie purchasing some prime, purchasing all the loans, purchasing as germans that uments that otherwise would not find ready buyers out there. that is unique, and that is part of their role as government sponsored enterprises that they evolved into. as i said originally they would not go near a lot of these practices, especially would not go near the idea of buying these things for their own portfolio. but in that process changed. politics took over. what i wanted task about -- and i'll mention a couple of other factors, as well. i don't think anybody says it was solely fannie and freddie.

and number of economists worry about the amount of bullying of the market that went with cra in terms of direction of loans to be made. their is a lot of worrying about what replaced in statute in terms of the and are as sorrows, and terms of the credit rating agencies and the way in which he replaced by statute what otherwise would have been done by market discipline. and the implication there were that because these were government sponsored or because the government was engaged in setting up the standards that it will remove market discipline from the equation. and that helped compound the problem. and this is the root of my question, and i wanted to ask this of mr. lock arts and mr. dickerson. i think one of the most telling statements of the gse impact on the entire mortgage market came

for me from of former freddie mac employee who mentioned that the executives at the company understood that when they began purchasing jet and mortgage-backed securities based on the sub prime and alt a mortgages they were sending a clear message to the market that these were in fact safe investments. if the monopoly that controls most of the market is now going out and buying does from countrywide it is a message to the market that these have been analyzed. as you know prior to that time fannie and freddie races of the known for buying more conservative conforming loans. so when they began purchasing job of mortgage-backed securities it was a clear deviation. do you believe the executives understood the message they were sending when they began to invest in junk mortgages, and especially at such a

large-scale? >> well, they weren't investing in private label securities that had seven prime kamal today, option arms, arms, and other hk mortgages that were nontraditional. no doubt about it. they stayed in the aaa space. as it turned out, they and the rating agency's models failed dramatically. yes, they probably had some endorsement factor by buying them. no doubt about. whether the management realized it or not i cannot speak for them. i can tell you, to take up your other point, that they did get affordable housing gold credit for buying these securities, and they thought they were profitable, and they were buying them because they thought they were profitable, but it also did help them to get those credits. >> and i wanted to get to something the treasury secretary mentioned. former secretary paulsen actually said this. and this is to do with the three

objectives that he thought we should have in terms of a reformed gst structure. and i'll ask mr. dickson about this. no ambiguity. a clear means of managing the conflict between public support and private profits. a stronger regulatory oversight of the resulting institution. taking politics out of the regulatory oversight function and allowing the regulators to actually do their job. going forward to you agree that these three objectives should be achieved? what do we best if we fail to meet that task? >> well, i definitely agree with the three objectives. i think i incorporated them into my five principles, as well. it is extremely important to get in right. the ambiguity between public and private and the ambiguity between emission and safety and soundness helped cause some of the problems that we have today. so as we go forward we are going

to have to really concentrate on the five principals, what he said with three, to make sure that we can recreate in the secondary mortgage market in this country and as safe and sound fashion. >> i would agree with that. certainly the need for strong regulatory oversight is going to be bought and need that we will need to continue. >> thank you. >> five minutes please. >> thank you, mr. chairman. mr. lockhart, first of what the thank-you for the conversation that we had several weeks ago concerning the home evaluation code of conduct, but i am very disappointed in that answer that i got to our letter dated

april 30th under may 8th of 2009. the ostensible purpose of the home evaluation code of conduct set forth in the newsroom is to improve the reliability. my question to you is if a homeowner gets an appraisal that he doesn't like what is his remedy? >> if a home owner gets appraisal he doesn't like. >> that is correct. what is his remedy? >> try to get another appraisal. >> that is not correct. if you take a look at -- he would be forced to go to a different lender. >> yes. the lender has the right to make the decision. >> and i understand that.

what if the lender is open to another appraisal? >> what if the lender is open to a -- >> that's correct. >> the lender -- my view is the lender cannot shop around for appraisals. >> that's -- >> that's one of the big problems we had. >> i understand. the other problem is this. i refer you to page three, number nine. we discussed this at length on the telephone, and you gave me no answers in the inquiry. if an appraisal comes back that is in error the only way that you can get another appraisal, second or subsequent, is if there is basiso t believe the paper was flawed or tinted and such spaces is clearly noted in the long or as such appraisal or

automatic value is done pursuant to return preestablished bonafide pre or post funding appraisal review board, quality, etc. your inability to understand my question and the inability to answer is based upon the fact that i don't think that your organization knows anything about real estate closings. the people that came up with this rule -- >> the people that came up with this roulade the biggest mortgage lenders in this country. >> that's interesting. >> its fannie and freddie that came up with the will. >> i understand. and a stand that. >> the point is if there is a mistake. >> not under your rules. >> if there is a problem they can go. every state has -- >> so here we are trying to close a real estate sale. their is a big problem with and appraisal. let me give you an example. in a town house area that i know

selling for 500,000. inside units for 407,000. and in units sold for 350,000 because the party had died. it was out of state errors, and they were in a hurry in order to get that still done. so the appraisal comes in at 350,000. the guy who wants to sell his townhouse, and in humid that should be selling for $500,000, under these rules, these are your own rules. he has to either go to another lender, which is absurd under the circumstances, or he has to show a reasonable basis to believe the initial appraisal was flawed or tainted. i mean, your rules can purposely devalue the home that somebody is trying to sell because you have so much bureaucracy tied up in it. >> well, if the appraisal is professional he will have looked at the circumstances.

>> that's not correct. that's not correct. you may have somebody that may not know that the original owner died and that it was a fire sell. my whole point here is that it's your job to come up with a fair appraisal, which improved the reliability of loan appraisals, there is no recourse in here for the homeowner. the homeowner doesn't choose who the mortgage company will be. somehow you think that is collusion. i think that is a just a lack of foresight on the part of the people that came up with the regulations. >> well, of lot of this regulation is based on the -- >> based on the what? >> what? >> based on the what? >> u.s. appraisal practices. >> a understand that. that is methodology of doing it. but i am just talking about a

very simple situation that i brought up. >> i would be happy to see your proposal, and we will certainly forwarded. >> i would like you to answer my letter, number one. number two, we asked about the number of banks that actually on these appraisals. >> we tried to answer your question in the letter. if there are some areas that you feel we didn't. >> i would like -- i would like to submit this under the authority of the chair if it's okay, and force you to answer my question. if i may finish. >> if there are some we figure have not answered. >> you haven't answered. take a look at my question. one of my questions was very simple. how many banks do we actually own? you said we don't know. >> we don't know, but will try to find out. >> that's not what you told us. >> that's about telling you now.

>> well, then i would like, you know, would you consider regulation forcing any bank that owns afc to disclose that so that you can avoid any kind of collision which is the purpose of the document? would you consider regulations that affect? >> we don't have powers over banks. >> you could make a suggestion or even put it into an amended rule if your whole purpose is to stop collusion, don't you agree with that? you could amend your rule here, could do? >> it's fannie and freddie's code. >> i understand that. you are the regulator. >> as i said earlier, the congressmen are working on the legislation. if there is something that you feel fannie and freddie did not to properly, what they're trying to do, and i think it is an extremely important role that rented it did not do as well last two or three years is said better standards. and that is what we are really trying to do here. >> you gave banks the sole

authority to pick the appraisers. >> that's what you did. it's the bank that chooses the appraiser either through an in-house approves a company that the bank owns. >> we tried to. >> that is like asking people for separate restrooms. that doesn't work. that doesn't work. if you had the opportunity to stop pollution you would say look, the banks cannot on these amc's. wouldn't you agree that would be the better way to do that? >> again, it's the bank regulators. >> i know. you could have made that suggestion. could you not have? >> we can make suggestions, but it would not have the power. >> i understand that. you understand what i'm trying to get around here? >> i simply understand your concern in this area, and

certainly will try to respond. i'll be happy to have another meeting with you to get through these issues to figure out what you think should be changed in the code that would make it more responsive to your needs. >> fair enough. thank you. >> thank you very much. and if i may recognize the motion. >> just for a second, mr. chairman. i would like to introduce for the record a highly confidential restricted report from my 2005 that fannie mae staff presented to management at that time which showed the trade-offs between staying the course and maintaining strong credit discipline in the company inverses accepting higher risk higher volatility and higher credit losses in order to drive up profits for their shareholders. >> without objection. and now we will recognize the gentleman from california.

>> thank you. i have great respect for the chairman. we just happen to disagree on this one issue, which is very unusual. i did read you a letter, and i appreciate your response. i read the letter several times. it basically boils down to one sentence. business practices have been adjusted and each market participants can adapt to a more responsible system that avoids a portion of appraisers and reduces the opportunity for fraud. i guess the problem i have with this is i know a lot of realtors and mortgage brokers and a ppraisers. i've been in the real-estate business since i was in my early 20's. really good people. it seems like we have started deal here between the attorney general of new york. a n d your office that impacts 80 percent of all the loans made in this

country. it did not go through the administration procedure act or any such act which normally it should have, and i'm really bothered that we are in have very difficult real-estate market. most of the people i know are somewhat involved in development or real estate. i was a real-estate broker and developer since i was in my early 20's. everyone i know is doing pretty bad out there. i know banks are suffering out there because they have the four flowstones. it is for the declining. homes out there. that it is problematic. reaching a real bottom and the market so that the market down somewhat recover. if we are going to look and say what can we do that really helps consumers, what can we do that is really fair to business people and it seems that we are going in the wrong direction. this is just my opinion.

a mortgage broker with the client. trying to shop for the best loan they possibly can. they can't even shop for the best loan and provide an appraisal associated with it that lenders can look at where they can determine where they can really get the best deal for their client because now we solely have to rely on the bank to do the appraisal. now, when i was a developer and building subdivisions that was very common. he would get to a bank, and the bank would to the appraisal. subdivision is altogether different and much more complicated than making a loan on an existing single-family home or a new on that has just been completed and you can establish some reasonable fair market value. one has much broader pit falls and more areas that can go wrong and complicates the appraisal when you're dealing with the subdivision that when you're dealing with an individual home. i am just, i am really concerned that we are dealing with a very

difficult marketplace. dealing with consumers that are having a very difficult time even getting loans today. they have to have stellar credit to get a get down. they are the only ones really willing to lend in this marketplace. they don't have the liquidity to do it. so when they have consumers out there that go to the realtor or go to the the local mortgage broker who is trying to package of loan for them and go out and shot them down on the marketplace it seems that we are making it much more difficult by saying that an agreement that perhaps worked in new york, i can say it does not seem to be the best thing for the state of california. and many other parts of this nation. making it much more difficult

and placing much more control in the hands of one bank rather than having an individual being able to shop along with numerous banks. the problem is if you approach a bank with a lot you can take that to another bank because the appraisal is proprietary property of the lender. and i don't know why we are going this direction. maybe you can tell me. i understand fraud, but we can deal with fraud. if you have appraisals writing in proper appraisals he can hold that appraiser accountable. that is why we have laws in this country, and there are laws against doing that. it seems like we have all these laws and the books that prohibits coercion and fraud, yet we are saying we might have lost, but that is not a good enough. we are just going to make it illegal altogether. >> i certainly agree that we don't need to make life more difficult for the housing market at this point. i think you're right on there.

on the other end, we also want to make sure and things are done in a safe and sound way. there is not a mortgage broker that can take an appraisal ordered by one bank and use it for the other bank. as i understand it they do permit the transfer. >> they permit them, but the banks don't. that's a problem . they pay for the appraisal, the bank did. that's like i'm -- i'm not trying to rough you. without approval you're not going to use someone else's appraisal. >> maybe. that is a little extra fraction. but the idea was that in too many cases brokers were, you

know, getting appraisals during that time. so many things went wrong in the mortgage market. i think -- >> let me back up. what went wrong in the mortgage market was gse's did a great job of bundling mortgage-backed securities over years. they really did. if a loan they bundled with that they would replace that lost. all these other private-sector lenders said that is a really good idea. look at all the money coming from wall street. and they started making loans just foregoing normal underwriting standards and appraisals. we can go back to predatory. we can really define what went wrong in this marketplace. i can and blamed the lenders making loans that were not even junk bond quality because they didn't even confirm the person

had a job. but i don't want to go back and play my local mortgage broker and a realtor who didn't participate in that front attacked and say perhaps there are a few bad apples out there. let's overturned the entire pocket. i'm not trying to argue. i just don't think we have thought that particular process through. i think we are lumping -- and i agree there was a lot of fraud, but i can point to a few people out there who made it that caused the problem that i don't need to publicly point out because a lot of them are gone today. but we know who bundy's, and we know who made a fortune bundling into left the investors holding the bag it bought the junk. but we seem to be going after a sector of the market price that was not responsible for that. i would just ask you. i am trying to be polite in this. i'm not trying to.

i'm not trying to be rude and cut you off. i have the greatest respect. i really do. i would really hope that you would just take a moment and had to go back and review the process that normally to place, look at the existing laws on the books if modifications need to be made as far as corrupt brokers and corrupt mortgage brokers and dropped appraisers, that we deal with that effectively without taking and turning the entire car over because of an agreement between one state and your office that, perhaps, maybe there is a real problem in the state of new york. i don't know. i'm not trying to accuse them. maybe there is. maybe there is a real reason why the attorney general would come to you saying there is such rampant fraud within our housing market that we need to turn the loss over. perhaps they need to shine a light on their own problem. i think we have done a nationally. impacting 80 percent of the market place in a very, i think, negative way at the worst time. i just asked that you please take a moment and revisit this and say, did we really do the

right thing? and i understand what you were trying to get at, and i applaud you for that, for getting the bad apples out of the marketplace. but what caused us to get into this problem we are in today are not the people, i believe, that are being impacted. i am just asking if you take time, and you have been very generous with your time on something you hate to talk about. so i want to thank you for being generous in granting more time. we are good friends, and i have great respect. he did mention in your area that for years. i would just ask you to please talk revisit with earnestness what we have done here because i think we are going at the wrong people trying to resolve a

legitimate problem. >> yes. there is a legitimate problem, and it's not just new york state. why the attorney general in new york got involved with all the security is because there were sold in new york. fannie and freddie have put out the rule, and they are continuing to look at the impact. and as they get impact back and they understand better what is happening out there they certainly have the ability and will -- >> and you will look at this? >> we will look at this. we don't see it directly. >> that's what i'm asking. you're not responding to my letter, so i'm going to do. i want to thank you for taking your time to respond. >> we continue to dialogue. i have meetings now with about see as once a week. settling this issue has come up in the last month with both. so we are continuing to dialogue as to what is happening out there in the marketplace, and we will continue to do that. >> have my picture taken. let's continue to dialogue.

>> the other point, you have to realize, bank regulators are also looking at this issue and are looking at potentially making changes. >> but i have a problem. when he said bank regulators looking into it we are proposing on one sector. i would like to look at all of the people that are being impacted by this. i agree the bank regulators need to look at it, but can we just revisited? i think you, sir. thank you, senator. >> thank you, very much. i am sure we have more questions. we still have one gentleman from florida. >> thank you, mr. chairman. the form 10q filed by fannie mae the month before it went broke. actually went through it and read it myself personally. i have some questions i wanted to ask you about to try to get a sense of how this happened and what we can learn from it. specifically on page 112 it says

risk-management derivatives, and there is a table there that indicates between dec. 301st of 2007 and june 30th of 2008 fannie mae increased its notional balances for derivatives by $255 billion. can you give me some idea of the justification for a company like fannie mae increasing its exposure to derivatives as in the the worst possible time by a quarter of a trillion dollars? >> the fannie and freddie had many problems that surfaced over the last year and certainly in their june 10k of last year they mentioned many issues. the derivatives have not been an issue that actually cause any of the problems, and significant problems at the two firms. the derivatives were used for

their mortgage portfolios. and what they do often times as the market changes, they add a derivative, but then rather than closing it out they just buy one to counter the one that they had before. and so you get this piling up of derivatives. it is an issue we talked to them over the years about. did they close these out? oftentimes they buy it with the same counter party. so the actual exposure is not that large. it is an issue we have been talking to them about before the conservatorship and after the conservatorship. and as i think congressman gingrich asked earlier, there are ways to lessen the exposure their exchanges and clearing houses, and that's something we're looking at the moment. >> i wonder if it is really true this had no effect? logically having an exposure that as of june 30th 2008

totalled $1,141,000,000,000 is something that could conceivably have some affect on your operation, particularly since we're talking about a time that is two months before it went broke. >> right. >> why would they have such an exposure like that unless it were for a purpose? and for that purpose could it have easily been something that went wrong? if you look at page 78 of this same 10 q. what you see is that for nonperforming single-family and multifamily loans together in their portfolio, which was almost $1 trillion by itself, the amount of interest income that they lost because of nonperforming loans was only $192 million going down. a hundred $92 million versus $2,505,000,000,000. isn't it more likely that they get into trouble over $55 billion than they did over the hundred $92 million? >> i can tell you in retrospect that they have not lost a significant amount of money in the derivatives area.

they are using derivatives to hedge their mortgage-backed exposure. where they lost money, the vast majority of those losses, the hundred billion combined losses has been not on their interest-rate risk and interest-rate risk management, although there has been some there. most of it has been credit loss. credit loss is related to private labels securities and credit loss as related to their books. when we did a lot at the two companies, of very extensive look at the two companies in august we worked with the occ and the fed. we also treasury had hired an investment bank as an adviser. and as we looked at all the issues in these two companies that derivatives was an issue, but nowhere near the top. the key issues really were they had a deferred tax asset. they had credit exposures, and

probable securities. and you know, the three quarterly reports since then have shown that is where the big losses were. well, again, let's look at the information i just provided to you. if, in fact, the interest income that was lost and to find is the amount of interest income that would have been recorded during the time for on balance sheet nonperforming loans had the balls performed according to their contractual terms, if those losses are only $192 million how could $192 million loss result in a hundred billion dollar plus loss to the taxpayers? how is that possible? >> what has happened since then is that they have had to put up reserves for all the loans, not all the loans, but they put up reserves for loans that are in default, and they also had to take other than temporary impairment on their private-label securities. and they booked a lot of losses

related to credit. the interest is of very small issue. under proper gap accounting if you think you cannot recover you have to take a temporary impairment. if it is allowed you have to write it down for the value they expect to recover, and that is what is happening. >> i see my time is up. let me just ask you. thank you for your indulgence. i still don't have a clear understanding for you about the relatively tiny amount, like $1,929 in unpaid mortgage interest on what is a trillion dollar portfolio, how that could possibly lead to the taxpayers shelling out $100 billion plus. >> they have had a lot more payments since then, and it has spread throughout not only their and lower quality, but some of their prime loans. they have had to put up reserves. they have built the reserves vary dramatically because of the

deterioration of the mortgage market and the deterioration in the economy. we would be happy to go through those numbers with you and show you what really happened here and go through not only the june numbers, but the september, december, and large numbers and have these losses have marched through their financial statements. >> that would be great. thank you very much for doing that. as we know, those who don't understand history are doomed to repeat it. they'd you, mr. chairman. >> thank you very much. i want to thank you very much for appearing. tudjman, i'm sorry we have had two interceptions and taken such a long time. i'm actually more sorry to the next panel. but thank you very much. we may ask your indulgence again to appear because i think this is an important area where everyone to spend a little more time. >> thank you for having the hearing, and happy to come back

[inaudible conversations] >> you have been watching a house hearing on the regulation and fannie mae and freddie mac. both companies came under government control in 2008 in the wake of the collapsing housing market. we will have panel two of the hearing in a few minutes, but first a little background on the status of housing related legislation in congress from a capitol hill reporter. >> dawn kopecki, why is congress continuing to hold hearings about fannie mae and freddie mac? >> because the mortgage companies right now have taken more than $85 billion in federal aid. congress is trying to figure out what to do with them. they said whatever they do do with fannie and freddie, they aren't going to look like they

look today. they are going to restructure them. they could remake them as a public utility. there are a number of options on the table that they are considering. >> does it appear that lawmakers are interested in writing legislation to address some of these issues? if so can you give us some of the specifics about what might the legislation to? >> they are not writing legislation yet. they're holding a lot of hearings and they are starting an internal debate about what to do with the company. it will be of legislation early sometime next year. a couple of the options include placing the companies into receivership and replacing them with a public utility model kind of like the lead companies are, but for your mortgage. another option is going with something called covered mortgage bonds which is something that is used widely in europe. another option is creating happen bad assets and then rolling off the good assets and to one of the companies or to

something else altogether. there are a number of different things. >> how are the agencies during says the troubled assets relief program and some of the other mortgage related legislation to back. >> well, with t.a.r.p., the troubled assets relief program they never actually did what they said there were going to do. what they did instead was that treasury extended $200 billion lifeline to each company, and they have already used up about $100 billion of that. they are not hearing very well. the real default rates on the laws that they are modifying as part of president barack obama's home affordable loan modification program of somewhere around 60%. so for every 10 people that are getting the modified mound six of those people are falling behind and the program has only been under way for a few months. so they are not faring very well. fannie just lost $15 billion that they reported on thursday,

and freddie just reported a profit. but most of that profit stems from accounting changes, different gains. actually, they were paper gains. there weren't actual gains. and so even though on paper the company looks like it did okay because it booked a profit, it really is a very financially weak. >> has there been a reaction from officials about what lawmakers are talking about doing? >> no, there has not been. well, the only action is that they are going to cooperate fully. they don't have a choice in the matter. the companies are being run by the u.s. treasury. they ousted in the managers there that might have put up a really hard fight. right now they are busy executing the president's plan, and they really don't have a choice in the matter because as they say in their earnings reports they are completely dependent on the federal government for the financing. otherwise the companies would

survive. they actually wouldn't produce enough cash to meet their obligations, and they by default on their bonds if it weren't for this treasury. >> we talked a little bit about the house. what about the said? >> the senate is always slow to act. chris dodd has a bit of a conflict because he had one of the vip mortgages through countrywide that may have had ties back to fannie mae. so, you know, the senate is always a little slower there. but i think you will see shelby and dodd. it is an issue that senator shelby, who is the ranking republican on senate banking cares very deeply about. and i think chris dodd will probably go along with whatever it is or with a lot of what shall shelby wants. >> and in the few seconds we have left, what about the obama administration? >> the same options are on the table for the obama administration as are in

congress. they have actually -- they are going to roll out a comprehensive regulatory plan when the president submits his budget. so they are on the same table. everyone in washington pretty much agrees that these companies cannot go on, cannot continue to exist in their form right now. so you will see some dramatic changes to their structure sometime next year. >> dawn kopecki of bloomberg news. we thank you for joining us. >> thank you. >> i am pleased to welcome our second panel. each of you will have five minutes to verbally summarize reinstatement. first we have the hon. bruce morse. former member of our committee. former head of the federal housing finance administration. >> thank you. i appreciate the opportunity to be here. i commend you on starting this

process. as you have correctly said, it is not something that can be done in the sprint. these institutions were built over a large amount of time. our mortgage industry and our secondary market have been built over a substantial amount of time. repairing what has gone wrong needs to be done carefully. when you're talking about an industry of a 11-$12 trillion of assets you are talking about real money. it is important that the future of housing opportunities in the country not suffer as it has suffered in the last several years because of mistakes, misjudgments that have been made hysterically. i think it is important to acknowledge that the federal role is not going away and cannot go away. we can pretend that this entire industry can be operated without federal risk, without government rest and then wait until the

calamity comes, but you can ask where was the federal role in aig, and yet all those credit defaults swaps which related to the housing market among others resulted in huge federal intervention. nothing that anybody really anticipated before it happens. with respect to the mortgage industry we have used the federal government to facilitate the equity upon the broad international basis for a very long time, and on an increasing basis. i think our challenge is not to try to privatize our way away from that, but to narrow and focus what the federal role is and to make sure that the insurance that is coming guarantees that are being given are paid for and are priced of the front so that the system really insures itself rather than wait for the calamity and then go out looking for the

taxpayer money for the bailout. we have gained a lot in this country by a broad liquidity function that the secondary market provides. we need to preserve that. we don't have to preserve the precise institutional structures that have provided in the past, but we have to protect the function. it is important when we talk about this subject to a separate do bears the credit risk and other risks involved in the mortgage industry and to do on loans which entities that participate. a lot of the discussion that goes on on this subject tends to cause them up as to which is it that the federal government is going to do and the private sector is going to do, who is going to on the tse's? the most important question is who is going to take which risks. and i think that the federal government should take a very

narrow and catastrophic risk. that is, risk of catastrophic failures. and the private sector should take as broad and extensive of risk position as possible as we are able to define. a big in the past by the gse have taken more risk than they needed to take back. there role in the market was part of a source. there limitations and their size, both of which led to the growth of a private label securities market in no way that undermined the entire structure. and it wasn't fannie and freddie lead the way, but it is fannie and freddie you followed along and became part of the problem. i don't think we should be drawing those lines. i think we need a broader structure that brings the entire mortgage industry under one structural scheme. we can do that without implicating the federal government more. we can actually implement the

federal government less. but we are going to have the federal government as the ultimate guarantor, not as the guarantor of all risks, but catastrophic risk. so that goes to the credit of the scope of the guarantee. and i think if you think about all of the credit risk that can be and will be covered by a securitization model of first loss protection of mortgage insurers and others, a general expected loss coverage, the kind of structured data that parcels out different levels of credit, but which requires a rating agency system that is not corrupted in the way that the system we currently have was during the crisis. you can design a model that is a narrow federal guarantee that would give the kinds of liquidity, the international

access to funding that we have had to have the pro-government very rarely if ever have to step up to the plate. you can pay for it through guaranteed fees from the beginning if you design it that way. and i think that's what we ought to do. i think other attempts to carve up the market that leaves the federal government's role not that a broad we will leave to regulatory the arbitrage as we already had, a situation which the private market brings down the whole system because is not part of the scheme. with respect to ownership of the entities as i say in my testimony i really think that serious looks odd to be given to a cooperative ownership of fannie and freddie or whatever comes after fannie and freddie. at the that the federal home loan bank system is a success in terms of its ownership structure, that it is better

than the gm sees have been at aligning the interests of the public sector and the interests of the capitol providers, it ds not require government capitol. it is able to scale its capitol to the needs of the people who are the customers of the entity. and you don't hear people saying the federal home loan banks are displacing as out of the marketplace, as you always heard about any and freddie from other players in the mortgage business because the people in the mortgage business own the federal home on the banks. the same way that people on the mortgage business can on the secondary market an outlet and gets an advantage in terms of an overall federal catastrophic guarantee, but can provide both the capitol and the risk-taking to make the system run and in a routine times there will be no calling for the of any federal participation beyond that. finally i would say that in

thinking about your regulatory restructuring that you are going to be thinking about across a broad range of financial institutions, think about the mortgage industry as the subject for functional regulation. right now you just heard from fhfa, and you have heard whether certain issues are being raised about appraisals, how they don't regulate this or that. it has to get to the bank regulators. the mortgage industry should not have its regulatory structure divided into so many pieces because looking just at the gm sees as a regulator does not give you the authority nor the perspective to see that the mortgage industry is properly regulated. so think of mortgage industry regulation as of functional regulation subject, and maybe when you overall change the financial institution regulatory structure that will mean a specialization within one agency, a coronation, but there

ought to be a mortgage regulator. we ought not to be just agee as the regulator. thank you very much. >> thanks. and now we will year from the hon. susan walter and richard p. wylie, professor of management at the university of pennsylvania. >> chairman, members of the committee, thank you for the invitation to testify at today's hearing on the present condition and the future status of fannie mae and freddie mac. it is my honor to be here today. the government sponsored enterprises have historically provided the secondary market for mortgages. but considering their future

role today it is most important to consider how we make, develop, and maintained a housing framework that supports home ownership that is sustainable and canter vista overall financial stability. broadly speaking there are three options to the future of gse. first privatization. second nationalization, and third a return to their original federal charter. i will outline hear the pros and cons of these three approaches and the factors that can be and should be considered as we wait the option. privatization of could have the benefit of the socializing the risk involved with secondary market housing finance. critics argue that the special access to cheap credit and high leverage exposed as the taxpayer to large liability. however, as we have seen the socialization of private entity

losses, privatization does not exempt the taxpayer from such liability. a second option is to nationalize. we want to have a solely public market. essentially everyone. taxpayer exposure is still a risk. there is automatic socialization risk and no market check on underwriting because of the u.s. government guarantee. the third possibility is a hybrid public-private secondary market. hybrid public but / private gse financing works very well. the gse found themselves losing market share, and shareholders pressured to lower underwriting standards to compete while federal regulators did not stop. in fact, it is useful to think of privatization and nationalization as one choice

and not to joyce's because nationalization effectively means that the existing fha funding is augmented with the larger sphere for lending and the private sector, of course, would continue to originate and secure mortgages much as it did in the run-up to the crisis. thus the private-label mortgage securitization would take off again. within the hybrid public-private approach there are various options such as cooperative versus shareholder ownerships and stresses on regulation. these choices are not inconsequential, but today i will focus on the larger pros and cons of this middle ground versus the alternative of a federal government entity and gse privatization. that is a private level mortgage backed securities market.

while this issue is complex and multifaceted the overriding question is which of these two alternatives best serves the interest of the public. the public has an interest in systemic stability in the financial system. individual households are the least well equipped to weather instability in the financial system. in addition to financial stability at keep public interest and mortgage finance is consumer protection. moreover from a household portfolio perspective the long-term fixed-rate mortgage supports the goal of most families to at least have the option of continuing to live in their homes in neighborhoods. and the availability of this mortgage and this option depends on securitization. to understand why and to understand the importance of the secondary mortgage market is only necessary to note that to start early in the u.s. finance is provided through banking systems funded by demand deposits.

and most countries today deposit funded banks were the predominant if not the sole source. in countries with banks providing mortgages adjustment rate mortgages could dominate and the long-term fixed rate mortgage is largely. as colleagues and i have shown residential real estate has been linked to banking and financial crises, not just once, but many times. real-estate crashes and banking crises tend to occur together. in our own recent history the state of the loan crisis in the 1980's but contrary to to the recession ended destabilize the financing system requiring the federal bailout. securitization was the answer with the recognition that the stability of the banking system depended upon indian banks and lending long financed by

short-term demand deposit liabilities. and securitization enabled the house and finance system to continue to offer the long-term fixed-rate mortgage to america's homeowners without endangering banks. elsewhere in the absence of a secondary market institution banks provide borrowers with adjustable-rate mortgages. as i noted long-term fixed-rate mortgages are essentially absent. the reflection of this is denmark and to a lesser extent germany. both of these countries also historically had in place extensive secondary market institutions which while they differ do in fact wink long-term funders to long-term borrowers. fannie mae and freddie mac through with banks continued securitization of long-term mortgages originated in securitized. the growth of the guarantee business for which they

guaranteed mortgages bundled into a passive securities and sold to investors and in their portfolio purchases. the growth of the secondary market coincided with a time of financial and economic kalman known as the great moderation. that controversy over the continued growth was to a great extent focused on the growth of their portfolio. ultimately it was used in institutions. as the growth of the portfolio taxpayers were liable for interest-rate risks taken on by these institutions. interest-rate risks was and is an unnecessary risk. importantly, however, that gse federal charters did and do require them to set standards for default risks to minimize. and to monitor the stannous contract to do so. the current crisis originated not with the growth of gse, but rather with the growth of

private-label mortgage securitization is. in it regulation private of labels securitization drove the demand for new types of mortgages. the demand of securitized mortgages said the demand for recklessly underwritten loans. as private label crew in market share and so did not funded mortgages. only 50 percent of market origination and 2002 to almost half of market origination in 2006. of lending standards were not monitored for private-label securitization and declined over time. surprisingly so did risk premiums. as wall street encouraged such lending despite growing risks compresses were artificially inflated, and the willingness of institutional investors across the broad to buy these sub prime mortgages in the form of complex securities created by investment banks. as lending standards deteriorated the demand for homes and the price

buyers burbling and could pay was artificially driven up. there was no end is no regulation in place to stop the deterioration of loan standards over time driven by the competition for market share for private-label security zones. it resulted in a credit bubble that burst bringing down not only poorly written nontraditional laws but carefully underwritten loans as well. the private-label securities backing these loans were not liquid, nor do they dare risk premiums based on their issuers. because these securities were not backed by standard as assets they did not generally trade, even if short sellers knew of the heightened risk they could not easily trade on this knowledge. private-label securities were marks to model with the improving rating agency and not to market this market discipline was absent and did not work.

well it's clear that systemic risk to rise from the erosion of lending standards there is not yet the consensus on how to avoid this going forward. fixed-rate long-term mortgages are stable and that robust status securitization is unlikely to be accomplished by an fha-like entity alone. >> professor, can be wrap it up? >> i'll finish up now. in any event the standardization need not apply. institutions still originate nonstandard mortgage products and hold on to them or resell them. this means that institutions could continue to serve as a laboratory. it would be required to retain the risk.

and in closing, the gse should not be removed from conservatorship until the economy is on a stable recovery path. they are currently helping to stabilize the economy. this effort is especially critical in light of recent discussions. in the future the benefits points to the need for strongly-regulated and private-market discipline to entities to support the u.s. housing market. thank you. ..