help small businesses that unemployment which was 10% or higher from some of the recession in the '80s and 90s have and we helped young people today and help those adults who are working for work or the difference when it came to the recession, other parties were there to walk by on the other side. we decided to act. >> what is the prime minister's attitude to the current situation in the western tahara? >> mr. speaker, i'm thinking of all the issues that he wishes me to talk about in relation to the western sahara. the one thing that i have been worried about is the growth of ethnic violence in these areas. the one thing we've tried to do is to increase and double our a to these areas, and the one thing we have been worried

about, is the growth of terrorist groups in these areas, and that's why we're taking the action that is necessary to dissuade people from terrorism and take the action that is necessary. i have had conversations with leaders in these areas. if he wishes to direct me to a specific point i will take it up. >> does the prime minister recall in september 2008, claiming the success of the 16 air assault brigade and 2000 british soldiers into living to the petitti damped a turbine? will he tell the house why that turbine which cost lives has not been installed? who make these decisions in so-called strategic decisions? this was delivered at a high price? >> i have investigated this issue, and rightfully it is asked of us why the turbine is

not working when it was delivered at a greater cost in terms of lives, in terms of effort to do so. the issue here is the other sources of power have been back and forth, the areas that were supposed to be served that it is still our intention that that turbine be used to create our business that on economic advancement. >> ethics teenage being sent to a sensitive residential area by ethics counsel without any consultation whatsoever. they are terrorizing residents and elderly frail people and businesses with extreme and behavior. does he agree that people should always be consulted and the location of the establishment should be very sensitive and carefully considered and counselors should be ashamed of putting it there? >> well, no one should be suffered to suffer from antisocial behavior and that is

why we have great neighborhood policing units that have a responsibility for antisocial behavior as well as for dealing with crime. is why also we are targeting those families that he is mentioning whose lives are so chaotic that they are disrupting the lives of people around the. no one should be selected to suffer from and that's why next month we will be announcing new measures to help those people who are victims of antisocial behavior so we can get quick action to them as was due with the problems. so i hope you can be sure where taken what action is necessary, but recognize this is a problem for many people in the country. >> the stunning result, demonstrate 10 years of remarkable achievement. and a decade of investment and dilapidated schools transforming them into modern learning centers for the whole community. why is it that the hard-working -- excuse me and the efforts of

haiti's governor, are constantly tossed down by the party opposite? >> mr. speaker, they can try and shut down good does but we will tell people what is actually happened is that 10 years ago, 12 years ago, there were 1600 underperforming schools in our country when we gave came into about it today it is less than 250. this is a huge change that has been met by the national education challenge, and we should continue to ensure that by 2011 there is not one underperforming school in our country. we ought to offer the best education to every child, and i'm afraid even as conservative members here, we will continue to finance the education of every young person in this country. >> mr. speaker, thank you for playing after time. can i ask the prime minister what he is doing to prevent the population of this country reaching 70 million? >> mr. speaker, would have introduced the points system for immigration. the points system is working

because where we need no unskilled workers and aid workers that had that special or skills but not other workers with skills, they will not now be invited into the country. of course when people come into the country they have got to have a contribution to make of this country. the points system is ensuring that net migration is allo not need workers to come into the country, they do not come in. >> order. >> from london you been watching prime minister's question time. from from the british house of commons.

>> the future of mortgage finance companies, and he may and freddie mac was the focus of a discussion posted yesterday by consumer advocacy ralph nader and the center of responsible. both fannie mae and freddie mac were placed under federal conservative chip and 2008 in the wake of the housing downturn. speakers during this 90 minute portion of the e privatization. >> our next paper that want to invite to the podium is peter wallison who is a resident fellow at the american enterprise institute. is the author of numerous books. he is the former general counsel at the treasury department during the first reagan administration term. and now he is the codirector of

aei's program financial market deregulation. >> thanks very much. a pleasure to be here. i would actually like to thank ralph for inviting me. routh and i go back a long way on gse's, strangely enough. someone asked me this morning, in fact, you are going to be speaking at a nato conference, why is that? and i said, well, ralph i think has always seen fannie mae and freddie mac as poster children or corporate welfare. and that's about the way i have always seen them also. so we always had a common view of fannie and freddie in that sense and i suppose that's one of the reasons why rob has been kind enough to invite me here. i want to start off i think by

saying some things that are somewhat different from what sarah said when she talked about her program. particularly, the motives for what fannie and freddie did. there are 26 million subprime and all day loans, that is other nonprime loans. in our financial system today. that's almost half of all mortgages, first mortgages in the united states are subprime or alt-a. they are weak and likely to produce failure. why did that happen? fannie mae and freddie mac were important elements in that process. about 109 of those loans are on the books of fannie and freddie. one of the problems with his is that it raises questions about

the usual narrative that we have heard about why we have these loans. the usual narrative is, at least we see a lot in the media, is that they were made because of the greed of unregulated mortgage brokers, or the greed of wall street. but there are 10 million such loans on the books of two agencies that were working for the federal government, or controlled by the federal government. and there are additional 5 million on the books of fha, about 15 million loans. so more than half of the subprime and alt-a loans are, in fact, they're because of the demands of government policy. that's a point i want to make. now, sarah suggested that, in fact, what happened here is that

fannie and freddie were competing with wall street. while she has a 7 million loans, almost, about one third of the total subprime and alt-a loans that are out there, wall street owns. that's a significant number, but it isn't a very substantial minority. sarah suggested that fannie and freddie was competing, were competing with wall street. that's why they made the subprime and alt-a loans. but there are some reasons to suspect that that was not what happened. those loans increase over time as the authority of housing regulations, the department of housing and urban development rose over time. they started in the early 1990s at about 30%. that is, fannie and freddie had to buy, of the purchases they make, 30% had to be the low and

moderate income borrowers. by 2007, that was 57%. and about half of those have to be made to very low income borrowers. now, it was probably extremely hard to meet those obligations without finding people who had difficulty meeting the usual underwriting standards that fannie and freddie pursued before they were subject to this mission which began in 1993. and i think that's probably what happened. they were complying with the requirements. they were required by law to be the market. they were criticized for not leading the market. ever criticized for not doing any better than the private sector, as bill shir suggested that answer that's what they begin to do. and as a result, of these government activities, we have

an unprecedented number of subprime and alt-a loans in our economy. and that i think ultimately leads to much more competent story, but ultimately, that is the reason why we have had this terrible financial crisis that i won't go into any more of it, but i was happy to hear in the sense that sarah point, fannie and freddie were competing with wall street, that's why they made these loans. it's no longer simply that these loans were for some people, by unregulated mortgage brokers, but now instead of just wall street greed or mortgage broker greed, it's now gse greet. so we are getting to a more sophisticated narrative to explain why we have all these loans. but my explanation i think is the right one, and that is they were following government requirements. okay. what do we do about fannie and freddie? we know where they are now we know what they're doing a.

we know they are absolutely essential to the financing of mortgages in the united states today. wheat didn't have them function now under government control and the conservatorship, we wouldn't have a financing system for mortgages. ic for alternatives dashing ic for alternatives for fannie and three. nationalization, the service for some sort facility or cooperative that a return of chorister status and then finally, privatization. and what i'm going to try to explain is why none of the alternatives, none of the options makes very much sense, except privatization and then suggest how we get from where we are today to a privatized market. first of all, nationalization is retroactive to some people, because it would simply allow an organization like fannie and freddie, maybe both of them, but

merging them into a single institution to do what they have been doing. and that is to buy and sell mortgages in the secondary mortgage market that the trouble is that that has severe budgetary consequences. if they are nationalized him and in fact, even as there is adjusting, they are mortgage-backed securities are guaranteed explicitly by the government, that will go on the budget each year. and in a growing mortgage market, there are likely to be many more mortgages being securitized and charged to the federal budget. than mortgages that are running off, so it will have substantial adverse budgetary effects. and congress i don't think this point in our history is willing to take on yet another activity, another program that will add to

the deficit. so although there are some things that make a nationalized program attracted to people, i just don't think it's politically feasible. so the second idea that has attracted some attention, and it's an interesting idea is this notion of a public utility. the advocates of the sake what we would do is we would have this utility regulated, significantly, so it's not taking severe risks. and at the same time, we would rate regulate them so that homeowners would get a good deal. and that is attractive to some people. and also we have rate regulation and/or to ensure that there was a fair return to the shareholders. i'm assuming here that this utility would be deemed privately owned, because i think the notion is to make sure that it doesn't go on the federal

budget. the reason and he was in fact originally privatized was to get it off the budget. and i don't think as i indicated before, there's much likelihood that anyone is going to want to put it back on the budget in any form. so if we have some sort of utility structure, it would be privately owned. and then you would have to have a steady return to the shareholders, like a public utility the way and electric utility or a water utility would work. i think that's the model some people have in mind. the trouble is this is quite a bit different from an electric utility or a water utility, and that is that these institutions, if they are in the securitization business which i think is what people are assuming, will be taking real risks. we know that fannie and freddie took real risks. that's why they are probably going to lose for the taxpayers about $400 billion, maybe more women get to the end of the line. so they will be taking real

risks are like an electric chili or a water company, which has rarely gets into trouble for taking risks. in the case of fannie and freddie they will be dealing in a very cyclical and illiquid market, and that is in the whole business of dealing with mortgages. and in that situation, you have to have some sort of pricing that reflects risk. that's the trick in insurance kind of situation, which is what they are doing. you have to have a pricing system that reflects risks. well, how do you integrate a private system like that, that is a rate for the activities which reflects the risk that they are taking with something that is a public utility? very hard to do, i would suggest, and much harder to do when they are functioning under

the watchful eye of congress. because again, the whole theory here is that they are regulated, not to take too many risks or the risk they are taking are going to be carefully watched, and they are rate regulated. so congress is watching them and under any kind of regular choices done, like this, congress is going to put downward pressure on rates. they are going to insist that rates be kept low, and they are probably going to insist that there not be any discrimination in the kinds of mortgages that this entity will buy. that's just the way congress behaves, and i don't think we can expect them to behave any differently. so what will happen here is that fannie and freddie, or any combined with freddie and a single entity that would be this public utility, will be required to take very significant risks and what it buys. and it will not be able to charge a rate that compensate it

for the risks that it is taking. it's just the way things work when you're under the control of congress. we see this now with the fha, which is also probably insolvent, and probably will have to be bailed out. and the reason that occurred is because over time, congress insisted that the fha take more and more risk without changing any of its charges for taking that risk. so unfortunately, i don't think the public utility model is going to work very effectively, and i think we ought to try to stay away from it. well, what about returning them to a gse state is, what they had before? i averagely oppose gse's when i started out at at the american enterprise institute about 10 years ago, because it seemed to me there was an inconsistency between a public mission of some kind and a private profit-making

entity. and what would normally happen in that situation where there is a public mission and public support is that the management on behalf of the shareholders would exploit the subsidy that was available from the public sector. i mean, it's such a natural thing to do, and there's almost no way to prevent that from happening. and so that's what we saw happen in fact. fannie and freddie took advantage of the public benefits that they were getting. they made tremendous amounts of money for a period of time, but at the same time they took very substantial risks. the same thing will happen if we restore them to gse status. now i happen to believe that restoring them to gse status is what will happen, and the reason it will happen is that this is extremely attractive to

congress. its attracted to congress because it's kind of a form of earmarking that doesn't involve all the trouble of actually going through the appropriations process. congress is able to influence what fannie and freddie do because they have control over fannie and freddie. fannie and freddie are not on the budget. they don't go through and appropriations process, but powerful congressman can induce them to do certain things that those congressmen want, do projects in the district, in their states, get the benefit of the expenditure of fannie and freddie's funds which are borrowed under some sort of explicit or implicit support from the government, and helps the congressman, senators on one hand, and on the other involves

some fannie and freddie solving their political problems in congress because they are doing things very effectively for these lawmakers. in that case, however, there isn't any market discipline, and it will be much less market discipline in the future now that the market has seen that they were right all along. this isn't just an implicit guarantee by the government. this is as close as you can get to an explicit guarantee of fannie and freddie's obligations by the government, because right now as we speak, as we sit here, the government is backing everything that fannie and freddie did or will do in the future. and in fact, now they are being used for policy purposes by the administration to try to stabilize the housing market. so without market discipline, with unlimited amount of funds coming in, fannie and freddie

will do exactly the same thing in the future as they have done in the past. will they have in the future that requiremerequirement for affordable housing? not entirely clear. fha actually has that responsibility. they did it very well, and don't fannie and freddie started to compete with them. and the reason that fannie and freddie was established to compete with fha is that fha is on budget. and so congress was limited in the amount that they could actually provide for fha's functions by the normal appropriations process, and the pressures that come to bear when you have a deficit. so fannie and freddie were created and given the same authority essentially that fha had so that they could spend much more money on the same general activities, without having any budgetary effect. now they're having their

budgetary effect, but while they were functioning because of their losses, but while they were functioning they had not. and that will happen again. because all of these things operate -- all of these things operate in the same general way, and that is, the incentives are always the same incidents for management, incentives for people in the market who are looking for safe investment, that they know the government will bail them out if there's any trouble, and the incentives for congress to establish and exploit these institutions are also the same. so nationalization doesn't work that i think a public utility doesn't work as an idea. and i think gse's, although they're likely to be the solution that congress chooses, would be a very bad idea. so i am left with only one remains idea, and that is privatization but when you how privatization would work. there would be many companies

competing. they would be no government obligation if they fail. competition drives down rates, and promote innovation and efficiency. the pricing would be a according to risk, and that would mean that everyone would actually get an opportunity to use the services of the private sector, but you'd have to pay for the risks that you create rather than having cross subsidies between high quality mortgages and low-quality mortgages. everyone whose mortgage is used and the private sector context would pay for the cost of that mortgage. the problem has always been how do we get from here to there? how do you solve the problem of government managed programs like we have today and turn it into a private sector program? and i think it is easy bellin might expect that one of the ways to do this, one of the ways to do this, once a housing

finance system is stabilize which will take several years, i don't think any of these things are going to happen soon, but once it's stabilize, i have a minute, once it is stabilize, what i think we would do is start to reduce the conforming loan limit. right now it's, i forget what the number is. i think it's $750,000 for a loan. we would start to reduce it over time. 650, six uncommon 550, 400, and on down. and as the conforming loan limit is reduced, the effect would be to allow the private sector to come in and take over more of the market, above the conforming loan limit. and as more and more private sector companies would come in to function in that market and eventually you could, as congress decides, you could eliminate fannie and freddie and tidy by bringing conforming loan limit down to zero. or you could leave it at some

low level and allow the rest of the market to be handled by the private sector entirely. that's an easy way to accomplish this purpose. as i say, i am kind of doubtful that congress will abandon the enjoyment that it gets from controlling these two companies as a government-sponsored enterprises. thank you. [applause] >> we have about 10 minutes again for questions. >> john taylor. i always enjoy your remarks. but i guess, you started off by talking about it really wasn't wall street and the banks. it really was fannie and freddie because of these government rules that somehow force them to buy bad loans. >> that's right. >> maybe someday you can explain to me what says in any of these

regulations that fannie and freddie needs to purchase unsafe or unsound or predatory or unsavory loads there but that's not my question to. >> i would like to answer that though. >> but my question really is, fannie and freddie pretty much stayed out, they pretty talked about in the '90s, they pretty much stayed out of his predatory unsavory, greedy, malfeasance kind of lending practices and till around 2003 when they get into it in earnest. and even then i think they had more screens and things in the private sector have. what's interesting is fannie and freddie don't make loans. they just purchased them. and after bear stearns led the way, what happened to bear stearns, but after they led the way, how you can make money on these so-called low income loans and cra loans, a whole industry develop around that called countrywide option letters, century and all these other businesses that practice all

these unsavory practices because they knew that wall street would purchase them. at the time, wall street. okay. so here's my point. 2001 to 2003, fannie and freddie went from $2.6 trillion of assets to 1.6% lost $1 trillion in just two and a half year period. and that's when their shareholders and others said look, if we're going to be relevant to this market, and that's when they got in the south prime market and alt-a when the market collapse brought them down. but to say that they created these loans the government told them to buy these unsavory loans or that the market really didn't lead this whole charge into this business is just not consistent with historic fact. so i guess this question is in there, but take a shot. >> somewhere in there there's a question. and would like to say is fannie and freddie were buying subprime and alt-a loans in the '90s. the market was much smaller, but

they were leading the market in buying these loans. and the amounts that you suggest did get larger in the 2000, but it was getting larger as the market as a whole was getting larger. still, the fact remains that when you look at what fannie and freddie bought, and you look at what fha bought, they were more important in creating the bubble and creating the subprime prices that we have been wall street. you can blame wall street for being first and so forth, but in fact, they were a smaller factor in creating all of these loans. and why were the loans created? why did countrywide drive quest they were selling most of their loans to fannie. they were fannie's principal supplier. that's why countrywide was doing so well, and frank green had to go hand in hand to make sure

that angelo mosel would compete to sell him these subprime loans. las. . >> let's leave that aside, you and i will debate this at every meeting we have. but on the question whether regulation can prevent this, i

think the answer is no. and we see that -- actually, i think one of our problems in general in public policy is we have an excessive faith in the regulation. the banks in the united states are the most heavily regulated institutions in our society. they have been very heavily regulated since the federal deposit insurance corporation improvement act was adopted in 1991 when people were saying, ah, now we have the toughest regulatory system we can with possibly have, and all of these problems that came mr. the s&les and the failure of banks in the late '1980s and early 1990s are now solved. and now, of course, we have the worst banking crisis we have ever had. so we have to look very carefully at whether regulation is effective at what we expect it to do. and if we are going to try to rely on regulation to prevent fannie and freddie from taking more risks, it's a vain hope.

>> i don't want to dominate with my comments, but -- thanks, bert. regulatory enforcement is as important as having the regulation. if you don't have regulatory enforcement -- and you've heard some luminaries say we really didn't enforce the way we should have. you've got to have a sheriff that's willing to impose that law for it to be effective. so we'll continue the debate, peter. >> we will. >> a long debate. we have one question over here. >> peter, i'm from the american antitrust institute which may give a hint as to what i'm going to ask. [laughter] you started off in talking about privatization, that there would be many companies and they would be permitted to fail. >> yeah. >> okay. is, are, would they really be permitted to fail especially if the many companies becomes a few large, countrywide and a couple of friends? won't we be back into the too

big to fail problem, or does your solution include some sort of cap on size of the lenders that would be permitted? if not, then aren't you back into the same problem? there yeah, i think we would be in trouble if we had only one or two such institutions that were doing this. >> [inaudible] >> well, well, once you get -- >> [inaudible] >> once you get to a point where the failure of one or two out of a group of ten occurs, there would be no effect on what is really important, and that is the ability of people to finance homes. if you had one or two and one of them failed, yes, that could, that could cause congress and cause an administration to believe that they have to bail out that institution. but normally in a market where people are doing the same thing which is secondary market securitization, you can have an unlimited number of such

competitors. there isn't any reason why that market should consolidate. it was forced to consolidate on fannie and freddie because of the advantages they were begin by the -- given by the goth. but in a case where there aren't any advantages provided by the government, i don't think that would happen naturally. it's raffle. ralph. >> since we now know there are more management-sponsored enterprises that are too big to fail and have an implicit government guarantee like general motors or the smaller number of larger banks, would you objection to the gse be attenuated if you were convinced, a, there could be strong capital standards and other more numerical regulatory criteria that could be enforced and, b, if the government wanted

to pay back the taxpayers and exercise their one-thousandth per share and bought the 80% or just under the 80% and went into the, in effect, business of restoring as a regulated gse fannie and freddie in order to increase the one cent out of a thousand or whatever the share would cost to a few dollars per share and pay back the taxpayer by then selling off the stock? >> i, as i suggested, would be very suspicious about any system in which the government is backing any private company that is a profit-making company. because there is, i think, an unavoidable incentive on the part of management in that case and on the part of shareholders to exploit to the maximum degree possible the value of that

subsidy. and the only people in most cases, the only group in most cases that has any interest in stopping risk taking, any substantial interest in stopping risk taking are creditors. and in the case of a government-backed institution like a gse, the creditors don't care because they know that they will be taken care of if risk taking goes beyond control. so all of these, all of these suggestions which are perfectly good suggestions if you believe that regulation is efficacious, would be to other people maybe very persuasive. they're not persuasive to me for the reasons i expressed. >> [inaudible] concern for risk taking to shareholders. if they were organized and if they had rights of ownership. >> that's possible. but shareholders buy shares in order to profit from their

ownership of shares. i don't think there's anything wrong with that, of course, but the way that you get more profit is to take more risk, to have more leverage. that's, that's okay as long as you can fail. that's the control. and in the gse situation you don't fail. >> we have one final question over here in the front. >> i just wanted to get a clarification of something you said earlier. i think you said that the fms own more subprime mortgage-back securities than do the wall street investors. and if that's the case, when did that phenomenon begin to occur? >> in the late '90s, but they don't own more. wall street issued subprime and at -- alt-a mortgage-backed

securities. they began to buy them in the late 1990s and bought up until maybe 2003 after which they started to go into the business and effect in a large way themselves, but they hold a very substantial number of these wall street-issued mortgage-backed securities. >> okay, thanks, peter. [applause] now i'd like to invite thomas stanton the up to the podium. mr. stanton is the author and editor of a couple of books on government-managed entities, and he is a fellow at the center for the study of american government at johns hopkins can. thank you. >> it's a pleasure to be here and ralph has arranged a program so that everybody can hear various alternatives and really

weigh for yourselves the pros and cons. i happen to be the author of a book, "a state of risk: will government-sponsored enterprises be the next financial crisis?" that book was written in 1991, so you can tell my timing was off. but, in fact, you can point out the structural vulnerabilities of an institution. what you don't know is when the stresses will hit that actually bring it down. so what i'd like to do today is, first, talk about why they failed, fannie mae and freddie mac, and then make a couple of points about the future. and then leave time for dialogue which in this kind of forum is really important. there are a number of reasons why fannie and freddie failed. i'd like to highlight two of them today. the first was a center piece of

this book which was their high leverage. fannie mae and freddie mac fought to have capital standards that allowed them to operate with one-third to bun-half -- to one-half of the shareholder capital that a commercial bank or thrift in the same line of business would have had. so they built in with their political dominance a structural vulnerability that made them weak at the point that a stress would hit. and then, of course, as we've heard fannie mae and freddie mac in the early 2000s, mid 2000s made a series of really horrendous business decisions to plunge into the nontraditional mortgage market that is subprime, alt-a, etc. just at the point that savvier players were looking and saying, gee, there may be a problem here. in fact, jim collins in his

little book, "how the mighty fall," talks about fannie mae as one of his poster children for how big institutions essentially start to fail. and he points out there are five stages of potential failure of an institution. the first one is hubris. that's the first stage. we forget that fannie mae and freddie mac in the mid 2000s had complete failures of their internal controls. warren ruddman was charged by fannie mae's board which was a little shocked by this because of failure of internal controls means bad things happen and management doesn't know it until it happens. warren ruddman was charged with doing a postmortem at fannie mae, and he talked about their culture of arrogance, that's his term.

the second jim collins stage is undisciplined pursuit of risk. and that you found with fannie mae and freddie mac in the mid 2000s where they plunged into the nontraditional mortgage market. gee, we're losing market share to the rest of the world, we'd better become relevant, and they plunged in. and it was an undisciplined pursuit of risk. by the time they went down, they had over $200 billion between them of aaa rated private label mortgage securities, and i've talked to somebody in government who spoke to somebody at one of the gses, so this is a double b-rated rumor because it's gone through three people who basically said the mortgage people at the gse knew that these aaa securities weren't going to act like aaas, but management wasn't listening to them. management was listening to the

people that said we can meet housing goals because fannie and freddie had lobbied so that buying a piece of mortgage security counted for the housing goals, and we can get high yield and don't worry, be happy, it's aaa. and they weren't listening to the mortgage side of the business that should have known better. now, what we see in "the new york times" and washington post in various stories is the way that fannie mae's leadership and freddie mac's leadership disregarded the warnings of their risk officers as they plunged into what jim collins calls the undisciplined pursuit of risk. and, of course, there's the denial of risk or peril. don't worry, be happy. fannie mae and freddie mac were fighting for thin capitalization as late as june of 2008 with respect to the new legislation that was enacted in july.

and then there is a fourth and fifth stage, grasping for salvation and then collapse. but the government stepped in at that point and gave them their salvation and put the two companies into con conservatorship. so i'd like to make two points about the future. the first point is that for the next five years, and i think everybody agrees on this, we need serious government involvement to shore up the mortgage market that is essentially failed at this point. my recommendation is that they become wholly-owned government corporations for the next five years. putting them into conservatorship as the government did means that you've retained private shareholders and legally a conservatorship means that the government and the board of directors and the management of those entities are working to restore those

entities to financial health and their earlier structure on behalf of shareholders. so the same whip sawing that occurred at fannie and freddie between their public missions and the predominant rights of shareholders which is in every law book the first responsibility of management besides obeying the law, that tension continues to exist in conservatorship today which means we can't use fannie and freddie for a number of things that we're being asked about. fannie and freddie could fund mortgages in a prudent manner? you could build a national housing trust fund into their business so that they would keep a certain percentage of their income, put it into a pool and use that to subsidize in a controlled way because you don't have this open-ended exposure of a government guarantee, subsidized low-income housing.

you could provide essential consumer protections for borrowers. i don't know what's going to happen with this little consumer agency, but it will be poised between an industry that's trying to kill it and banking committees that have traditionally been fairly receptive to that industry. but those consumer protections, if administered by fannie mae and freddie mac as government corporations, could involve changing ways of doing business. the way in the early '70s fannie and freddie standardized mortgage forms. so they could provide alex pollack's one-page mortgage disclosure form. they could provide more effective borrower counseling, and they could provide increased pre-foreclosure loss mitigation services among other consumer protections. finally, and a lot's been talked about with fha, and it is stumbling, there's no question that fha is an accident waiting

to happen, the federal housing administration part of hud. but fannie and freddie have automated underwriting systems and other systems that we've already paid for as taxpayers. why not take those systems and use them, clone them, adapt them for fha? so that fha doesn't blow up as a number of people are concerned might happen. and this can happen once you've removed shareholders from the equation and given these entities a single track mission which is to support taxpayers of the united states and the housing market while we're in trouble. that's the first stage for about five years. the second stage we've got to decide what do we want to do? and my only plea is, let's not go back to the model of privately-owned organizations with government backing. people talk about co-ops as an

alternative to investor ownership. we forget that the farm credit system which was a cooperative blew up in the mid 1980s because a co-op has an incentive to lower its profits in order to benefit it member users. so you have distorted incentives there as well. now, how can i say don't recredit the gses? all kinds of institutions have failed. banks, thrifts, wall street, bear stearns, all kinds of institutions have failed. i would say, and this is my special bety which is government organization and design, that, in fact, gses have special vulnerabilities. first of all, they're dealt with as unique institutions. this means that congress can give them lower capital standards than competing banks or thrifts. when they're unique institutions, you're essentially giving them high leverage which

i would contend is a very dangerous subsidy. so whatever happens, they should have the same capital requirements as anybody else that's doing business with them because if you have lower capital requirements, what happens is you arbitrage across the mortgage market, and you dive in the -- drive in the case of fannie and freddie literally trillions of dollars of mortgages to the place where leverage is highest and government ownership is weakest. and fannie and freddie essentially doubled in size every five years since they were created as gses because of that dynamic. only when you make capital standards equivalent across institutions can can you reduce that dynamic. the second problem with the gse is that they live or die according to their charter. if i can get a congress to tell me i get lower capital and higher lev advantage than any of -- leverage than any of my

competitors, that's worth a lot more than knowing anything about the marketplace. they talk about, quote, political risk, and they hire their ceos to manage, quote, political risk, people who are well required both on capitol hill and with whatever administration is currently in power. they're not hired with respect to their ability to manage a multitrillion dollar institution. and that's what we saw as they went down, as they made systemic bad decisions as one speaker said this morning, they doubled down on their bets just as everybody else was backing out of the market. these people along with the failure of internal controls simply didn't know how to manage an institution of this size. everybody talks about government agencies being inefficient? well, i'm afraid fannie and freddie turned out to be much more inefficient and much more costly than a government agency. finally, and they hire their ceos for this, gses are

politically powerful. we cannot assume that what was called this morning robust oversight, serious regulation today is going to last into the future. if you watch the progression of statutory changes for fannie and freddie since they were chartered as gses, you can watch the gses over time peeling away one accountability provision after another. they had a lot strong ther accountability provisions and stronger capital requirements for fannie mae, at least, which i've studied when they were chartered than when they went down in 2008. so i want to close by quoting the former fannie mae ceo dan mudd. and this is a very important quote. i would advocate moving the gses out of no man's land -- he was a marine. events have shown how difficult

it is to balance financial capital market housing, shareholder, bondholder, home owner, public and private interests in a crisis of these proportions. we should examine whether the economy and the markets are better served by fully private or fully public gses. richard siren, the ceo of freddie mac simply talked about getting whip sawed between the obligations to share holders and the public mission and all of the pressure that was being put on the gses to show that they were, in fact, relevant to the housing market and particularly the affordable housing market. and if we don't pay attention to mr. mudd, and if we don't the avoid recreating the gse, then i would like to offer this fine book as a road map for the next time around. thank you. [applause]

>> tom, bernie lee. thank you for your remarks. our luncheon speaker's going to the talk about gses and the danish mortgage system. here you've been talking as did peter about the secondary market, but there's a third financing mechanism well established in the europe called covered bonds. to what extent have you looked at the relative efficiencies and safety of covered bond financing where lenders retain the ownership of the mortgage and fund them with covered bonds compared to trying to perpetuate this very inefficient secondary mortgage market system that we have in this country that depends on gses? >> i've not studied it nearly as well as you have, bert. i have drawn a couple of preliminary conclusions. one, it is definitely a model to look like, and i think the treasury has taken that position. but number two, for the next five years what i'm talking about using a government

corporation and then deciding, do we renew that charter or not, for the next five years our problem is that the covered bond model requires substantial capital, and that's something that's really missing in the financial system today. so i think it is after those five years a very promising possibility, but i will defer to you because i've not studied the issue, and i look forward to our luncheon speaker to becoming informed. no questions. >> other questions? >> over here. >> i didn't want to hog the mic by asking a second question today. laura barry from the interface center on corporate responsibility. the previous speaker offered a simple sort of framework for how do we move from where we are to what he was recommending. do you have a prescriptive that is equally simple and elegant? >> well, if you -- no one can

match peter easel gans, but basically, the first step is to remove shareholders from the equation and put both companies into receivership. and then use them in receivership as government corporations. the second step is, and i think that concerns are there, you know, will anybody buy the debt or the mortgage-backed securities of this thing if it just has this, quote, effective government guarantee? we may have to provide a full guarantee of business going do forward. not the -- i mean, we've already accrued the losses we're going to accrue. and that will require a step forward in terms of the budget process, and i think peter's right, that's difficult. but i, frankly, think it is preferable not to get mired in budget issues if we think that a particular solution is on the

ground the most effective solution. there are answers to these budget questions in various forms as the world's greatest deliberative body has exercised over time, and i think we could apply some of those answers here. and i want to be very clear, i'm a specialist in organizational design. every choice has positives and negatives, and that's why this kind of conference is important. you've got to weigh them, and you've got to weigh them in a disciplined way where you scrape away the rhetoric and really get down to what is it we're really talking about on the ground? sorry, didn't mean to -- >> [inaudible] >> hey. >> my question for you are the participants as well. do you expect to see the obama administration come out with a specific, detailed proposal for handling fannie mae and freddie mac going forward, restructuring them in some capacity, or do you

think they'll just rehash the existing options that have been debated and discussed and leave congress to kind of take the lead? >> bill sheerer from gao declined to speculate, but i not being from gao, i'll speculate. but you've got to understand this is a very low-rated particular ox vegas. observation. it was my understanding initially there was supposed to be a full drill review of gse optionings. and, in fact, at some point my friends told me that's not happening. so i suspect, in fact, that there's a reasonable prospect we are going to see the status quo carried forward, and that ties in with my personal observation -- i'm sure all of ours -- that this administration has a huge amount on its plate. i mean, in between two wars, health care, climate change if that ever is on its agenda is a serious -- i mean, there are just a whole bun with. of things out there. the future of financial

regulations genericically, i have a feeling that there's probably this feeling of, you know, hey, we've got enough balls in the air, let's not throw this one up there yet. so that would be my conjecture, but it's only conjecture. >> in the back. >> tom, given the hundreds of thousands of innocent shareholders who were deceived, manipulated, gouged by management, deceived by ofea as late as april '08 when the head of ofea said things are okay, remember that famous one by lockhart? >> he said they were adequately capitalized which is a term of art. >> yeah. given all that deception, and there are hundreds of thousands of shareholders, not just a few institutional shareholders who were, in effect, assured this was the safest investment after treasuries, and given that the government has the authority now to buy ten shares for a penny up

to an 80% ownership and given that the taxpayer should at least have a chance to be paid back, why don't you take the first five years of your stage to reconstitute and restore under the present system the fannie mae and freddie mac so the government gets 80% of the shares dirt cheap, a penny for every ten shares, restores it to a healthy state, sells off the shares at, whatever, 5, 10, $15 and in five years pays back the taxpayer and lets the shareholders that are left with a very small portion of what they had -- they've already been punished -- at least have a chance to retain what they have and not be wiped out? >> first of all, high leverage which is what fannie and freddie

assiduously lobbied for benefited shareholders. on average before their internal controls failed, they were making 20% return on equity a year up to 39% for one of the two and 40% for the other. so shareholders were amply rewarded for the risk they took when these things went down. secondly, with the shares trading now at, what, between a buck and two bucks a share? i suspect that the original holders are long out. what we have now are holders that are betting on the future of government policy. and by the way, a really neat lawsuit because the terms of conservatorship seem to have been transparently violated as these companies are used in a very tentative way for public purposes rather than to support the private owners. my instinct is let's get rid of shareholders. they had a good ride. they knew these were shares, and

let's create government corporations for the next five years that can take some steps to really improve the way mortgage transactions are conducted. there was a horrendous amount of damage -- i don't need to tell you -- to consumers with what i would call overelevenning -- overlending, pushing mortgages on people when those people wouldn't really qualify with any reasonable stress at all to themselves or otherwise, and i recommend elizabeth warren's book, "the two income trap," for seeing how that dynamic works. i would just as soon use the gses as goth corporations to -- government corporations to try to establish some really good rules for how the market should work. and ingrain those rules in the pattern of transactions that we have going forward rather than benefit a whole bunch of holders now. they've lost most of their

value. a whole bunch of holders now who are probably betting on a really good lawsuit. >> final questions? great. well, thank you, tom. >> [inaudible] >> oh, there's one? in the back, sorry. >> how do you think the obama administration is doing now with in terms of when, what they're disclosing how they're using the gses, what they're doing with the gses and whether you think they actually know what they should do with the xse -- gses? >> i don't know the answer to any of those questions, but once again, i'm always a sucker for conjecture. i have a feeling that they are whip sawed by the same tension between having private owners. remember, the government only owns warrants at this point. the shareholders are still nominally the owners of these companies. they are whip sawed, how far can

we go in using fannie and freddie to achieve public purposes in the mortgage market? and that's a difficult problem, but given the number of things on their plate my instinct is that they're basically saying, this is a problem that's not blowing up on us. let's set this one aside for a while, that's my conjecture. i should really go over to treasury and ask somebody. >> great, thank you. >> yep. [applause] >> our final session is with one of the leading consumer advocates in the country, ed mierzwinski, from u.s. public interest research group as well as mr. nader, ralph nader. [inaudible] okay. come on up, ed.

ed is, as i said, a leading consumer advocate, has worked on a variety of issues including telecommunications reform, banking reform and other issues. thanks. >> and i don't know if they've been told, but john taylor and lisa rice, i've been asked to ask you to join me up here for this discussion if you're available and interested. yeah, up here at the front. [applause] make it a round table. this is supposed to be a round table, not a square or not a classroom. but thanks, charlie. again, ed mierzwinski with the u.s. public interest research group, and john richard and ralph nader thought it might be good to have a couple of housing efforts, which i confess not to be, to come up here and join me. without them being planned to be up here, i'm confident they'll do a fine job. lisa rice is vice president of the national fair housing

alliance. previous to that she was a founder and ceo of the toledo at northern ohio development agency which was a community development financial institution that works on bringing affordable housing to neighborhoods. and john taylor, of course, is president and ceo of the national community reinvestment coalition, a leading organization of some 500 groups that works on community reinvestment act protection and other housing issues. two things we have in common, we each have blood on our fore heads from our terms on the consumer advisory council banging our heads against the wall at the federal reserve board trying to get the federal reserve to take on more consumer and community work over the years. at least that's the way i remember my term. i don't know if john or lisa remembered their terms the same way. secondly, all three of our organizations are founding and active members of the coalition

americans for financial reform. all the nation's leading consumer housing, labor and civil rights and community groups are members of this group. our financial security.org is the web site, we are leading the fight for the community groups and the consumer groups and investor protection groups, as i said, for taxpayers, homeowners and consumers. another way to look at it, against the fay lance of back lobbyists working against financial reform. the people that caused the system that failed are trying to preserve the system that failed. and believe it or not, they're making headway on capitol hill. one of the reasons is they have some 1500 lobbyists according to a study that was done by loom berg news, and -- bloomberg news, and that's not counting the ones who aren't registered to lobby. that's only the ones who have

registered against some 58 consumer lobbyists. at one time -- i may be exaggerating just a little bit -- i'm convinced that fannie and freddie themselves had 1500 will be byist -- lobbyists. i'll just tell one little story, then i'll ask some questions of my colleagues. i was at a conference, john, when was it? 1998? and chuck lewis was the keynote speaker. chuck lewis but the founding directer for the center of public integrity, a leading investigative reporting organization that studies political power. and chuck told the story that they had studied every leading power broker in washington, every influence-peddling organization from the chamber of commerce to others. and he said, they all hire former members of congress. they all hire former staff members from the hill. but fannie and freddie were the

only ones that the center had ever studied that hired the spouses and children of the former staff members and the former members of congress. that's how much political power they sought to have. in fact, at that conference, ralph, you might remember nobody would ask any questions. they were afraid to ask questions. so ralph was up at the front of the room, and he had to hand out index cards so that people could pass their questions forward because if you asked a question in public about fannie or freddie, you were put on a list. you got phone calls. everybody in your office got phone calls. the money to your organization dried up. you're a member of congress, stop getting political campaign contributions. it was incredible. you can't describe how much political power they have. and then like tom stanton pointed out, the book "how the mighty fall," they fell the, but we've got to figure out a way to decide what to do with what's left of them, and i think that's

why this is such an important event that we're putting together today. by the way, they fell because of that nexus between political and corporate power and to those of you who are interested, i understand the supreme court did not come out with a decision today in a very important case on opening the floodgates to corporate money in political campaigns. they might still come out with it tomorrow, so keep tuned on that. but in terms of the future of fannie and freddie, what to do with fannie and freddie, i wanted to pose the question to the either john or lisa, and then we'll open it up to questions or comments from people in the audience, what should president obama do if you were writing this new report for him, what is the most important thing your organization thinks he should be saying in that report, or what is the most important thing that you've learned today that should go into that report? either one of you. >> well, if you would allow me, i'd like to back up a little bit, and i think that the various presenters touched on

this theme throughout the course of their presentations, but i think one of the first things that we, that need to be discussed is what is the purpose of the sms? what public purpose do we want them to serve, and do we, indeed, want them to serve a public purpose? if their public purpose is to buttress the mortgage market and make housing more affordable and more accessible, then it just sort of seems to me that the fms cannot be a private entity. so i think one of the first things the report needs to do is sort of back up and look at the whole issue of purpose. what role do we want them to serve? will they be serving a public purpose? and is it necessary, is it still important for them in this day and age to serve a public purpose? >> and i want to, john taylor, ncrc, i want to emphasize what

you were just talking about as well, ed, and also thank ed mierzwinski. what they do cannot be discounted in terms of their contribution. but this whole business of campaign contributions and more so the lobbying in general from fannie and freddie. one of the good things that happened, one of the small good things that happened, i suppose, through this whole mess is with the collapse and the takeover of the gses, the government made it very clear they can no longer do lobbying because the government now owned them. but now that we now know all of these organizations are too big to fail and in many ways you could really call some of the private wall street firms and some of the big banks government-sponsored enterprises. the taxpayers certainly feel that way, and it seems to me that rule ought to be extended to them in terms of the lobbyists. it's ridiculous to be on capitol hill and just be tripping over blue-suited lobbyists who are fighting over all the meaningful

change to make sure our system does not have the kind of malfeasance and bad practices that got us into this mess. whether you want to blame fannie and freddie for being the leaders of this -- which i think is absolutely absurd -- or whether you want to blame wall street or the big banks, i think they all played a role, but what we need to do is make sure we create a system that doesn't allow that to happen in the future. i think it's an important role for the gses, i think it's important not to throw the baby out with the bath water but to make sure in whatever form they take, and i'd like to think that continuing to be a government-sponsored enterprise they could make enough profit so that it could do more of its original mission, and that is to help people into the mortgage market who otherwise may not be able to be in it would be a good thing. but there has to be safety and soundness and other types of oversight that insures that that happens. what's very ironic as -- and some of you may have guessed, working for an organization like the national community reinvestment coalition someone

would probably attach a label to me of being a liberal. and that's okay, it will stick on me, and i'm very proud of it. but what's ironic about that is the amount of times i was invited into congress to hearings and to meetings to speak, invited by republicans and conservatives because of my views relative to fannie and freddie, feeling that they weren't doing enough with this government-sponsored benefit they had and this too big to fail benefit. so i would argue for stronger housing goals and for them to go deeper into minority neighborhoods and so on because of the benefit and the privilege that they occupy. and i would find myself fighting with democrats over this who thought i was critical of fannie and freddie, but that's what i was critical of them for. not for their core mission and what they were doing and, you know, and here's the rub: ten years ago the american mortgage system was the envy of the world, and now it's, what, the danish system? that's pretty rough. but there was a time when our

mortgage system worked very well. there was a time when we had regulatory oversight, there was a time that the gses worked very well. but, unfortunately, we allowed industry both private sector and government sponsored to evolve into areas without any oversight, without any safeguards, without anybody reining them in to the point where it brought all of us down. i think we can correct that without throwing the baby out with the bath water. >> and can can i add one more comment? i'm glad to hear that you are proudly wearing the red letter l. i do too -- >> that means something else. laugh. >> but i think that, also, any report needs to look at because we have talked about the fact that the sms have a mission, but any report needs to look at how well the sms fulfilled their mission, did they actually do a good job? here's, john, where i'm going to differ with you a little bit, i don't think that they did particularly in underserved

markets. i don't think that they did a very good job of fulfilling their mission when it comes to underserved markets. and that really needs to be looked at and analyzed. from where i sit and based on the work that i have done in the field working, of course, primarily in the states of ohio and michigan, the underserved markets sort of served as an incubator for, for the subprime market to, if you will, and the home mortgage industry to sort of hone and perfect some of the practices that it used and then extrapolated to the larger market. and i think that if they had done a better job of penetrating those underserved markets, that some of that could have been staved off. >> i actually don't disagree. that's exactly the position we took, is that they weren't doing enough. so we're on the same page on

that. >> just to clarify for the c-span audience, you're talking about they didn't do enough to what? police the loans? police the practices? or just make more loans in those markets? h. >> they didn't purchase enough loans from low and moderate-income communities and communities of color that would have enhanced the ability for those populations to get really good quality safe and sound loans. they lived and dwelled in the realm of middle and upper-income lending and kept raising the mortgage limit to the point where, i mean, an affordable -- a mortgage that they need to securitize at over 700,000? i mean, and that was supported by people like barney frank and others. it's just, it's just, to me it doesn't strike me as what we really needed a government-sponsored enterprise's help in this mortgage market to do, is to help people get $700,000 mortgages. i could be wrong. >> yeah. i also think that what we heard

a lot of when we would approach the fms about their lack of penetration in underserved markets was not our thought. if the lenders that we do business with are not selling loans in these communities and we cannot purchase them, and if the lenders that we're doing business with don't sell loans in these communities based on our underwriting guidelines and utilizing our products, the products that we develop, then we can't purchase loans in those communities. one of the biggest barriers was that fannie used and automated and freddie used an automated underwriting system, and prior to that their underwriting guidelines were very prescriptive and rigid, but they also included barriers to fair lending. and so when we would push for them to do things like consider nontraditional credit, we were sometimes met with a huge

bureaucracy of just trying to matriculate through that huge bureaucracy to get new products and new underwriting guidelines developed that would warrant more lending in underserved markets. but i have to say that when we were able to get there and to develop pilot programs that could be used in underserved markets, they worked very, very well. so when we finally were able to get the programs and the products that we needed, they worked well. the fact, the problem was that the curve of developing those programs and products and then bringing them to market in a real way was very, very substantial. i mean, it was a very, very long lag time. >> why did, why did fannie and freddie seek to increase the size of the loans that they could make, and why didn't they promote manual underwriting so that you could help more lower income and people of color get

loans? >> profit? >> profit. >> okay. >> i think lisa, though, in the last comment raised a point that wasn't raised in the earlier discussions, and i want to make sure that that's driven home. what fannie and freddie said to us a lot of times is, look, the banks are not bringing us the prime and good product loans in low and moderate-income neighborhoods and communities of color. what we're seeing is what the subprime and the other, the market has shifted into that direction. i do think this is a great part of the unexplained, undiscussed aspect of what occurred in this crisis. the banks really abandoned a lot of these lmi areas, low and moderate-income areas, and don't assume that homeownership or the ability of someone to pay on a mortgage is necessarily a higher risk in a low-income neighborhood than it is in a

middle and upper-income neighborhood. in fact, fico scores maintains that income is negative liquorlated in the home mortgage market, home mortgage performance. meaning income in and of itself is a factor. the lower the income, the more likely it can be paid off, and that's because if a low-income person be loses their job, they can find another income that can meet that mortgage. not so for middle and upper income. it's more complex, there's more money involved. there are other factors in those credit-scoring models that lisa referred to a few minutes ago. but when the private sector, the mainstream banks pull out of these neighborhoods and close their branches, what moved in was the subprime and often predatory lenders as the service of choice. and also the basic banking services became payday lenders, pawnshops and check cashers. so in the working poor neighborhoods of america, we shifted a financial services

sector with someone referred to this shadow financial services sector. that's a real shadowy aspect to some of the shadow financial services sector that really preyed upon people, that really put people in positions they shouldn't have been in and approved them for loans with terms and conditions that, you know, any reasonable person wouldn't have done. >> we can broaden that, too, to not the just lmi markets but underserved markets too. let's take a look at prince georges county. the highest income county in the united states in terms of african-american wealth. over 50% of mortgage loans in prince georges county were subprime mortgages. and from my work in the field i started out as a fair lending advocate, i ran the toledo faire fair lending lawsuits than any other fair housing or civil

rights agency in the country, and what we would see over and over and over again where lenders who were not willing to go into underserved markets even if we were talking about more affluent african-american and/or latino markets with their prime, sort of plain vanilla products. in fact, i can remember going through we used to be able to purchase pace data in ohio which it's similar to core logic data. and we could look at every single address. it would provide the interest rate and who the financeier was for that particular mortgage. i'd sit down with mainstream lenders and say, look, this person has a loan at beneficial. 18%, 25%. go to that person and refinance, refinance them. there's your mortgage. they refused to do it. but surprisingly, they would

when they adopted subprime lending divisions, what we found was the same lenders whose prime entities would not go into these neighborhoods and make prime loans somehow were able to penetrate these communities with subprime loans and with their subprime entities. what we also found and we were able to document this through a program that we developed with fannie mae, it was an antipredator elevenning remediation -- lending remediation program where we would take folks with subprime loans, refinance them into a prime loan and the number one criteria for participation in that program was at the time that you got the subprime loan you qualified for a prime loan. and we had a consumer after consumer after consumer who actually qualified for a prime loan, and they got a loan with a subprime entity. many of those subprime entities

were actually subsidiaries of holding companies that also had a prime lender who was operating in the larger geographic area. so what, what we have seen is as john has said, prime entities and sort of mainstream lenders not willing to go in with their less risky products or their less risky underwriting models into underserved neighborhoods to generate and originate mortgages. but they would go in with the higher cost products in order to generate mortgages in those areas. >> great. we have some time to take some questions or comments from the audience for the panelists. are there any questions, comments? >> ed, while we're waiting for the question, i do want p to say, too, something that lisa referenced, and that is that the -- we have this forum on home ownership and mortgage

lending. the truth of the matter is the crisis we're in had very little to do with homeownership. most of the loans that we're talking about were really refinance loans. i've seen statistics that say less than 10% of the mortgages that were made or the loans that were made resulted in somebody actually getting a home. it was somebody getting a bigger home or somebody refinancing, somebody taking money out. but it is really the industry doing this las vegas-style gambling with lending as a way of manging a -- making a lot of profits, not a way of increased homeownership. so a lot of the great ideas from denmark and elsewhere sound great but, you know, you're really talking about getting people into homeownership. what we're talking about is really a mall feasant, unregulated industry that's allowed to get away with murder, and hopefully we're going to have a congress that has the -- i have to think of a nice word to do this -- that has the

fortitude to really change the system so we return to ethics and a rule of law in our system of regulating financial services sector. >> great. ralph, you had a question? >> [inaudible] i think it was 1988 or 1978 we worked to get the national cooperative bank law passed. [inaudible] most of the portfolio not so much consumer co-ops. what's your view -- [inaudible] failure of that bank to provide loans for apartment housing, but also it had a low-income development unit into -- [inaudible] >> i'm not familiar with the model that you're talking about. i'm not familiar with that

portfolio. but let me say this, i don't necessarily think that we have to come up with new models to serve, to service adequately underserved communities. i don't think we have to do that. i think we have enough robust data. you could just take the data, for example, from the cdfi sector who focuses on lending to underserved markets, and you can really cull that data, you can analyze that data and help use it, that data, to buttress sort of our mainstream systems, if you will. i don't know that we have to keep coming up with new systems or new models or what have you. i think what we need to be doing is focusing on ways to move folks who are currently underrepresented or who are from underserved markets, moving them into the mainstream market. i do think, also, that there are more protections in the mainstream market.

certainly, what we have seen as a result of the financial crisis today. >> this is not a new market. >> okay. >> [inaudible] vector toward low-income people is an old model. >> okay. >> the point is that the national cooperative bank which was supposedly a bank to liberate funds for low income as well as middle-income co-oped housing has not gotten the attention of your communities. what they say over the years is they're not getting enough demand for their loans. >> right. my comment would be that they've been a nonfactor, ralph. >> [inaudible] >> although you look in canada, and you see the cooperative bank there, and you're seeing a tremendous amount of activity that working class people really rely upon them. but i'll take a cooperative structure we have here in the united states, the credit unions, okay? that's a cooperative