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tv   U.S. Senate  CSPAN  April 9, 2010 12:00pm-5:00pm EDT

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>> that would be a topic you'd have to talk about what the regular. >> you didn't ask for it? >> i think that we were in favor of doing it because it gave us more flexibility. >> because it seems odd to me that as the markets, most business is picking up on mr. thomas is, most business and present are looking at a market in which values are decreasing, risk is increasing. and what fannie mae is doing and announcing with ofheo come is, and freddie, concerted action is these to business center enterprises are increasing their portfolio caps, i.e. the ability to do more business and lower capital. so i just try to understand why it happened. >> i think at least a component of it was it was seen as an indication that there would be some liquidity crisis, right, so there would be some expectation that there would be liquidity available. but it did not imply that we're going to do anything that was
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outside food and standards without the quiddity. when everybody else left the spreads and made that more attractive. . . >> we will break, commissioners, until 12:25. thank you. [and you -- inaudible conversations] [inaudible conversations]
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[inaudible conversations] >> as you heard, the financial crisis inquiry commission taking a break until about 12:25 eastern. they've been hearing from the former heads of fannie mae. in just a little bit, the two former heads of the federal agency that oversaw fannie mae will testify. and the second half of this last day of three of the hearings of the financial crisis inquiry commission. our live coverage will continue with that part of the testimony, 12:25 or so. at about 12:30 on so, over on c-span, bart stupak is announcing hit retirement. he'll be a northern michigan university. we'll have live coverage of his
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news conference. he announced this morning he will not seek a 10th term. also another retirement announcement today. just as john paul stephens, supreme court justice announcing his retirement. he is the oldest supreme court justice, he announced in a letter to the president today that he will retire at the end of his term. justice stephen -- stevens will retire. in our prime time. you can find lots of video online. some 84 programs involving justice stevens. we'll be back live with the financial crisis inquiry commission about 12:25 when they gavel back in. in the mean time, we're going to show you the opening statement from robert levin and daniel
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mudd. >> thank you for providing me the opportunity to appear before you today to assist the commission and examining the causes of the financial crisis. as you know i submitted to the commission a written statement in advance of the hearing, i will not repeat the more detailed explanation, but i thought i would highlight a few of my thoughts now. i am happy to provide whatever assistance i can, and will my best to answer all of your questions to the best of my ability. i was at fannie mae for 27 years. so my retirement in august 2008. and while i left fannie mae prior to the takeover, and the imposition of conservatorship, i continue to work as an advisor to senior management for about six months at the request of the new ceo. at fannie mae was privileged to work with many fine individuals and organization, including
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mortgage lenders, community groups, and other stakeholders to help americans achieve the dream of home ownership and rental housing. my pride at the contribution of fannie mae has understandably will overshadowed by the events that give rise to this hearing. from my perspective, fannie mae was engulfed by an us precedented decline in home price and housing markets. these were truly catastrophe. while some people foresaw a correction, few, if any, predicted the unusually rapid and devastating destruction of real estate values that occurred. in hindsight, if we and the industry as a whole had been able to anticipate the nature and extend of the crisis that engulfed the market, it is clear that we all would have conducted our business differently during this period. but we, like everyone else, were
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surprised by the unprecedented extent of the economic crisis. however, fannie mae, unlike other financial institutions was restricted to one class of assets because of the charter and thus it took the brunt of the crisis head own. at the same time, the global economy was in the middle of the legendty and credit crisis that damaged the capital markets. rose. this extraordinary upheaval in the economy and in the mortgage market in particular challenged fanny mae in ways that would have been difficult to overcome, regardless i inform business decisions that proceeded the crisis. as the commission is aware, congress created fannie mae as the government-sponsored enterprise and we had a variety of stakeholders which included the congress, our mission and safety and soundness regulators, private shareholders, debt and mbs investors, mortgage lenders,
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housing organization and others. as a private company, fannie mae raised capital from investors and sought to provide them with a competitive rate of return. as the company with the purpose, fannie mae thought to permit the line of business and affordable housing which also included meeting government-mandated housing goals. the housing goals were set forth in fannie mae's charter act. some of the goals related to the single family, some related to multifamily. in general certain goals required that the specified percentage of our business be for families at lower income levels and other goals required that the specified percentage of our business be located in certain places in the country that were considered unreserved. hud increased these goals from time to time, frequently requiring levels of affordable
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housing in underserved market business that were higher than what our market naturally produced. in response, the company engaged in efforts to crowuate business, the help us meet the goals. these efforts included outreach programs and the application of different underwriting and pricing standards. part of fannie mae's business was to purchase and securitize mortgage lenders created by lenders. fannie mae's influence on the type of loans that lenders originated often changed depending on market conditions and the availability of the alternative sources of capital for lenders. when fannie mae was one of the principal sources, fannie mae's influence was greater. when other sources of capital were more plentiful, as in the period prior to the crisis, fannie mae's influence was diminished. fannie mae and the other gses were unique.
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we took our duties to our shareholders and public missions very seriously. throughout most of my 27 years at fannie mae, the company was able to balance successfully it's potentially conflicting objectives. however, this was more difficult when the markets experienced significant change and during periods of great stress in the system. the growth in the last decade of the private label mortgage-backed securities market is one such change that had a significant impact on the mortgage markets and fannie mae. private-labeled securities obvious pls for short are mortgage-back securitied issues by entities other than fannie mae, freddie mac, and jenny mae. they did three types of mortgages, subprime, alt-a, and jumbo loans. in 2003, which was also the year of heavy finance, the prize
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marked it was and half of the size of fannie mae's security issuances. and in 2004, that changed dramatically. the pls market increased and fannie mae decreased. dollar buy ins of pls exceeded that of fannie mae and almost reached the levels of fannie mae and freddie mac combined. 2005 and early 2006, that trend continued with the dollar buy in of pls issued exceeding the mbs issue by fannie mae, freddie mac, and jenny mae's bounds. the effects on pls were significant. our business activity relative to the overall market declined dramatically during this period of time. secondly, many of the new products funded by pls had features that attracted low-income borrowers which threaten our ability to meet our mandated housing goals.
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fannie mae had never previously experienced market changes of the magnitude that we were seeing during this period. there was an article in 2006 and a publication called "mortgage banking" which i quote in my written statement which summarize the significance of these trends. briefly quoted, quote, a change in the mortgage-back security markets that began more than two years ago appears to have completely reshuffled the industry's deck of cards. now issuers of pls are holding the aces that were once held by the government sponsored enterprises fannie mae and freddie mac. once a junior, pls are now the leading force driving product innovation and net overall value of mortgage origination. further, it appears that the new dominate role for private securities maybe here to stay.
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unquote. the pls phenomenon and the resulting consequences for our business confronted fannie mae with critical questioned. first with the changes temporary or permanent? and second, would we best be able to deliver competitive returns to shareholders, stay relevant to customers and meet the mission requirements by doing nothing new or increasing the participation to these markets in some degree. these and the related question were the subject of continuous discussion by the fannie mae management team and the board of directors over the last decade. we addressed these issues in a series of dedicated strategic planning sessions as as well as day-to-day discussions. we considered the credit risks in the new markets are capabilities to manage the business and the impact on our achievement of housing goals, our financial results, and our
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strategic positions in the marketplace. these considerations led management to expand fannie mae's already existed alt-a business incrementally over time. implementing these decisions, management continued to mitigate risk by applying underwriting standards that were more conservative that the standards prevalent gnat market at the time. although fannie mae's book sustained disproportionate losing, it did perform better in the market and sustained smaller losses that other than might have occur first-degree. our involvement in the subprime was minimal. it consistented of the purpose of the aaa rated private-label securitied securitied by subprime loans. these purchased contributing to greatly to the housing goal objectives. with the benefit of hindsight, had we anticipated the extraordinary market meltdown, we would have been far less likely to expand our involvement in these nontraditional
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products. we began to reduce or market in the alt-a market in 2007 as the market and our business took a turn for the worse. we tried to balance the pace of our withdrawal with the public mission to provide liquidity, a critical function as the pls market had dried up. >> can you wrap up, mr. levin, please. >> yes, sir. >> in closing, a global liquidity and credit crisis engulfed fannie mae and it's only line of business, secondary market for mortgages these were centered on our market and asset class and we took the bull brunt of the market crisis head on which would have been difficult for the company to deal with under any circumstances. thank you. i'm pleased to answer any questions that you have. >> thank you very much. mr. mudd? >> thank you, mr. chairman and mr. vice chairman.
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i've had the opportunity to watch some of the commission's proceedings this week and having submitted remarks which cover a broad array of topics, i'm going to try a little bit to tailor my remarks to some of the issues that you've been pursuing. and thank you for the opportunity to appear today. i join fannie mae as the chief operating officer in 2000 following a decade at gd. in december of '04, i was interim chief executive officer and in june of '05, the board of directors with the approval named bethe ceo. during my time at fannie mae, the company and the u.s. housing markets faced many challenges. during the early part of my tenure, i worked to reinvents the company and move forward with a sense of purpose, value, and humility. i worked to improve the relationship and to return
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fannie mae in a time think filing status with the sec. after the completion of that, one the most complicated statements in history, the company emerged to face the housing and financial crisis. we did not survive. i want to be clear, i was the ceo of the company and i accept responsibility for everything that happened on my watch. over the past couple of days, i've heard mr. greenspan assign himself a 70/30 rating, i believe the chairman gave him a 51/49. i an envious, my experience during the crisis of 2007 and 2008 at the gse, it was virtually impossible to get on the positive side, because so many decisions were a chose between unsavory alternatives. certainly, fannie mae endeavored to be the best in class and continue to improve our business. we hired talented executives to
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build world class risk management, maintain strong controls, and comply with regulations. i did the best that i knew how to consider alternatives to develop processes, to listen to critical voices. and ultimately, to try to predict the perilous path of the housing market. i could not do with a private firm could do. leave the market, close the window, or short mortgages. the gses had to stay in the market provide liquidity, and obviously were structured to be long only mortgages. the gse structure required the company to maintain a fine balance between financial goals and what we called mission goals. on one hand without revenue and profits and growth, the company could not attract global capital. and on the other hand, without meeting the mission goals for
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affordable housing, the gse would not meet their requirements. thus, i agree with former treasury secretary paulson's ultimate assessment the root caused by the gse lies with the business model. a gse has to perform multiple task, cannot withstand a multiyear home price decline on a national scale even had it been without the accompanying global financial turmoil. the government sponsored enterprises were able to balance business and mission when home prices were rising. they can perform when home prices were flat. they could survive a 30 year flood. but not 2008. as you know the gse require mortgages in the secondary market to promote liquidity, stability, and affordable housing for the american people. the congressionally created gse businesses were specifically prohibited by law from participating in any business outside of the secondary market
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for mortgages in the united states. unlike other financial institutions, this left the gses unable to diversity and therefore to avoid losses stemming from any u.s. housing finance crisis in 2007 to 2010 was not merely a housing crisis. we witnessed the market collapse in a collapse of the only market that the gses were to end. starting in 2007, the financial sector grappled with what most observers view in the conditions in the modern market. in the midst of turmoil, every other housing sector investor fled the market and the gse were specifically required to take up the slack. through the spring and summer of 2008, my colleagues and i worked with government officials, regulators, our customers in the banking system, housing advocates and others to maintain the excuseuating balance of
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protecting fannie mae's regulatory capital. until the time the government imposed conservatorship, they sated fannie mae had maintained capital with the relevant standards and we were still along with freddie mac, the principal source of lending to the mortgage market. based on ongoing examinations and frequent if not daily meetings into late 2008, our regulator continued to declare us in full compliance with our capital requirements. we were also balancing against our hud housing roles, our role in the capital markets, our fiduciary responsibility to our shareholders and the need to help homeowners hold their mortgages and avoid unnecessary foreclosures. we sought this balance with a strict interpretation of our congressional chapterrer. as the crisis became havoc, fannie mae was called upon to
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refinance subprime mortgagers who qualified. the gses were asked to provide the lead in providing modifications. they were asked to provide warehouse loans by lenders that previously existing the idea of fannie or freddie entering that market. from other corners they were pushed to raise capital, earn returns, and cut cost. i sought to balance the fine pointing of mission and business insofar as i could understand them with regulators and policymakers. that was no longer possible in september 6, 2008, and i am sorry for that. since that time, as i'll agree, the companies have been operated to implement public policy. as i've tried to explain, a considerable portion of my energies went into balancing the conflicting demands of operating a enterprise sponsored by the government. the notion of balance is now a thing of the past. shortly after, the regulator declared both the house goals and capital standards in valid.
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i believe in retrospect that there was over investment in housing. i believe in retrospect origination standards slipped. there was too much mediation and middlemen. home ownership rates probably rose too high. the gses were chartered to expand while operating as private companies. and in doing so, they contributed to the crisis but they did not precipitate it. let me end by suggesting that home ownership remains a dream for many americans. i believe that once this crisis is behind us, the fundamental and solid economics will reinsert themselves. and i hope in that, there's an opportunity to engage in the future structure of the housing finance system. there was a lasting consensus in this country really going all the way back to the great depression that home ownership was a net good for individuals or communities and for the country at large.
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absence some new consensus, i fear it will be difficult to choose between competing models for a new housing finance system. government entities created to support home ownership as a social good will tend to socialize the risk to all taxpayers. truly private companies will exercise their fiduciary responsibility to pass the cost and the risk to homeowners. hybrid organizations such as a gse will be left to balance conflicts between taxpayers and homeowners and shareholders. there are no simple answers. i appreciate the commissions work to understand, and i thank you very much. >> thank you very much, mr. mudd and mr. levin. we will now proceed to questioning my commissioners. i will start with some questions today before we move on. and so let me just move into this. so really to either one of you or both of you, and each of
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these questions i'm going to put some facts on the table for the public and you. according to your scc reports, the 2009 401(k), fannie mae reported $1 31 million losses, most were credit expenses, loan losses, which totaled more than $40 billion. if you look at the losses, very significantly, they come from loans with higher risk product features, alt-a, subprime, interest only, loan value of 90% plus, loans of fico, scores of less than 620. at the heart of it, looking back on that business decision, would you kind of go to the thinking
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behind -- your thinking behind as leaders of this organization that really the dramatic expansion in these higher risk products in the 2006, 2007 period. what was at the core of the decision to move more dramatically into that arena. just for the edification of you and others, i guess, as you look at losses, for example, in losses in '07, all loans, the selected higher risk product features constitute i believe @% of the loans and 58% of the losses in '08, 28% of the loans, and in 2009, 24% of the loans and 69% of the losses. >> mr. chairman, certainly the higher risk loans put on the books closer to the time that
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the underlying home market collapse were the worst performing and were the first to go. so if you could go back retrospectively and look across the book of loans, i think anybody could say that in particular, the alt-a book is as you pointed out in your data, a source of the difficulty. the thinking goes back over a period of time and just as a bit of context, the company had come out of a period where through the '90s, fannie mae was really the dominant force in the marketplace. and during the period of the restatement, that had slipped on one hand and on the other hand, the market had developed a number of ways to go around him and mortgage was a fannie mae
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mortgage. and alt-a mortgage stood for nothing but an alternative to a mortgage, alternative to fannie mae mortgage. there were a number of studies, questions, process to look at the market and to determine whether the features that went with alt-a mortgages were things that we had been asking for for 10 or 15 or 20 year that is were no longer relevant to the market. yes, sir. i'm sorry. >> yeah. >> or whether they were key data that was still needed. what was variancing and so forth. under the completion of these trends, fannie mae and freddie mac's role in the market would be less relevant. there was sort of a strategic question of relevance to went to that, led us to use the data that we had to study the market
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and develop a plan to understand it, go in prudently, get the data, look at the data, develop some experts that understand how the market operated, look at the originators, do business with those we knew. and we built it out from there. it was the reflection of the growth that mr. levin described in his statement that the portion of the book grew. it grew along with the market. >> let me ask specifically were your market share in 2002 was of the mortgage market about 29.4%, 2003, 36%, 2004, 24.8%, 2005, 18.6%. was this? and i don't want to tilt it. i want to ask of the things you laid out in tomorrows of your consideration, was it market share, competitive positioning that drove you, or mission-related item that is drove you? >> well, i'd like to ask you and
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you also. >> well, i would say it's a combination of those things. i would say we did not consider market share itself to be a primary output. right? so market share to me is kind of a secondary indicator of do you have a roll in the market or are you remaining relevant to the market? it's really very -- >> if that's secondary, what's primary? >> primary is the mission component of the business. are we performing our mission, are we in the markets that we're supposed to be in, is home ownership growing and are we maintaining capital, earning a fair return orb -- or managing a financial -- >> i'm asking you to weigh these. you are saying market share itself, let me take the two mission related. you're not talking about public policy, but it could include that. you're talking about your corporate mission at large. you were saying obviously return
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ontic quitty to shareholders, profitability, growth, and then home ownership mission. how would you weigh those? >> i always try to weigh them about equally over the course of time. obviously on any given decision, you could move one thing up or down. >> all right. mr. levin -- >> -- can you pull the mike close and on. :
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>> it posed a mission threat, because many other products that that were financed by pls had affordability features. and so it threatens our ability to meet our government mandated housing goals. and also threatened our development with our customers. and i recall a customer saying to the degree i'm doing less business with you why should i invest in my own company, resources to continue to do more.
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>> and that person would be? >> that was a conversation on the multi-family site, which was also affected by these same influence, but same influence. i just happen to recall that conversation. and then over all there was such a strategic positioning in the marketplace. and so those were the strategic issues that we were confronting and that we were trying to deal with. along with associated issues of to what degree with this phenomenon permanent, to what degree was a temporary. could we really set out, would we be permitted to sit out? that's what we were grasping with. >> let me see if i can -- >> testimony this morning from robert lovett and daniel mudd. we will leave us now and take you back live to the hearing room. commission and julie's and chairman cannon back into here from two former directors of the office of federal housing enterprise oversight, live
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coverage on c-span2. >> we swear all our witnesses. so i'm going to start off by asking each of you to stand and be sworn. do you saw me swear or affirm under penalty of perjury that the testimony you're about to provide the commission will be the truth, the whole truth and nothing but the truth to the best of your knowledge? thank you very much. now gentlemen, we do have your written testimony. but as you know we would also invite you to make comments today, coming to us today. and in that regard we would ask that you make an opening statement of no more than 10 minutes. and i think what i will do in kind of chronology of service to this country, i will start with you, mr. falcon, nasty to go first and mr. lockhart, turn to you. so mr. cochran. proceed.
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>> thank you, mr. chairman, mr. vice chairman, members of the commission. thank you for having me here today. the failure of fannie mae and freddie mac will be a case study in business schools for decades. how to operate a business with the most generous government subsidies which convert very powerful market advantages and run the business into the ground? ultimately, the companies were not unwitting victims of an economic down cycle, or flawed products and services of theirs. their failure was deeply rooted. the culture of their goods and read. i should be clear that this was a failure of leadership. there were and aren't many good people in the ranks of both companies. i would address the issues raised in your invitation letter by explained activities of ofheo and overseeing fannie mae and freddie mac and the challenges we faced. i remain proud of what a small and dedicated group of people at ofheo accomplish. we stood up to the full political on spot of fannie mae and freddie mac and rallies all over town and we did our job to
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the public servants. we accomplish much despite the fact that ofheo was structurally weak and almost designed to fail. ofheo like the same statutory powers as every other safety and said his regulator, and the key area such as enforcement powers, capital requirements, funding mechanism and receivership authority. at one point we attempted to stop bonus payments to the part of executives responsible for the accounting misconduct. only to be reviewed by federal judge for exceeding our authority. from the beginning to end of my tenure as director i took every opportunity to press for legislation to fill these important gaps in ofheo's a story. the lacks of flexibility on setting capital requirements was especially troubling. i statute the enterprises minimum capital requirement was set at 2.5%. which permitted them to operate at a highly leveraged level with very little margin for error. we never received the discretion to raise the standard.
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our only opportunity to increase capital and reduce leverage was in connection with the supervisory agreements to remediate the accounting violations. only then was i able to oppose a 30% cap surcharge on both enterprises. in addition ofheo is the only safety and soundness regular that was required to update it's funny to the appropriations process. this was despite the fact that our funding was provided but assessments on fannie and freddie and not derived from taxpayer funds. the result was that the agency was starved for resources for many years. to illustrate this point i recall that when i first took office i received briefings from the exam step on their work schedule and laid his examination size. when i inquired about some key areas that they had omitted they respond that due to staff limitations, a review of that particular miscarry was put off until the following years exam cycle. in response i ask exam staff to conduct the study and tell me how many examiners would be assigned to examine fannie and freddie to. if they were raided by another
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regular. their conclusion was that the other regular with their funding outside the appropriations process would maintain a team of at least 30 or so examiners her enterprise. by contrast, at the time ofheo a total exam step of less than 20, perhaps less than 15 to cover both companies. despite that kind of dated to support us can we had a very difficult time getting meaningful budget increases. but ofheo's budget request went to congress for consideration the agency's request first went to the office of management and budget for review and approval. we receive very large budget cuts at only be until about 2003, when i request begin to receive more favorable consideration. a few years later when ofheo need additional resources to conduct a special examination of fannie mae's accounting practices we encountered more difficulty and delay. fannies lobbyists were on the hill spring misinformation about my motives and asserting that special exam was unnecessary.
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we eventually received the funding and finally had the resources to dig deeply into fannie mae's accounting. it wasn't long before we realize that fannie mae's problems were even worse than freddie mac's. the enterprises -- manifest itself in their many efforts to abstract the regular process. let me describe just a few. the first involved circumstances around my forced resignation unfair for fourth, 2003 on a year and a half before the expiration of my term. at that time the agency was preparing new research report that analyzed the systemic risk created by the enterprises growing portfolios, debt, and role in the mortgage market. we need to be sure the agency and others in government fully understood the nature of their systemic risk, have to minimize it and have to deal with that if the companies ever expect financial problems. the enterprises did not want the agency conducting such a study and certainly did not want it released to the public. at the time they were doing
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everything possible to convince the public and policymakers that their operations did not pose any systemic risk to our financial system. a few days before the agency was good to release the systemic risk report, the chairman of fannie mae, franklin's, kolbe to protest about the release of the port and his conclusions. he urged me not to release it and when i reaffirmed my plans, he threatened to bring down me and the agency. our call was over and soon received another call from a church official who said that fannies lobbyists were calling other agencies to urge them to press ofheo not to release the systemic risk report. he asked for a copy, which are provided, and she respected my decision not to delay its release. a few days late on february 4, 2003, i was in new york to give a speech on the findings of the report, which was being released that day. in the morning as i was waiting to give my speech, i received a call from the white house personnel office to inform me that the white house was issuing an announcement on the nomination of someone to replace
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me as director of ofheo. by the way, it was not director lockhart. someone in between. i informed the personal official that there announced it would seem odd since it was not a vacancy in the position. i asked the official to withhold announcement for a day while i considered my options. a decline and a issued a resignation letter later that day. the next day's news emphasize coverage of the personnel change and a very scant coverage to the findings of the systemic risk report. this was of course exactly the result intended by those who engineered the timing of the announcement of my replacement. the white house withdrew its nominee and i remain in office for two more years. in 2004, as ofheo begin its accounting of fannie mae the political attacks and efforts intensified. and he was with document requests and engage supporters for assistance. as described the indie ofheo special exam report, in
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april 2004 fannie mae executives acted on the plan to have the key senior comic he senator initiate an investigation of ofheo by the hud inspector general. the goal was to try to discredit the agency in advance of its report on fannie's accounting practices. the intrusive nature of the ig review was clearly designed to intimidate ofheo personnel, and to distract them from their work. the ig eventually conclude that the agency had done nothing improper, but wrote a very biased report to curry favor. later in september of 2004, the senate appropriations va hud subcommittee passed the bill that provided money for ofheo's budget in 2005. the bill included specifically which getting that 10 million of the agencies 2005 budget could not be spent until i was removed from office. the language was later removed from the final appropriations bill. also in that same month, ofheo
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release its first report on the accounting misconduct at fannie mae and we took supervisory action to correct the problems that i was summoned before the house financial services committee to testify on the findings of the report. it is a vast understatement to say that i was met with a well orchestrated effort to discredit the report and my character. one number of the committee even accuse me of conducting a code political lynching. it was a shameful day in the committee's history which i worked at the committee for ages. and another example of the dangers of political power of fannie mae had amassed. while all this political power satisfied even as of fannie and freddie executives, and totally serve one primary purpose, as the accumulation of personal wealth by any means that a court we also put the american dream of wealth accumulation as long as it is done within the rules. fannie mae begin the last decade with an admissions goal. double earnings in five years, to $6.46. a large part of the executive compensation was tied to meeting that goal.
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the internal auditor of fannie mae made a famous quote which was detailed in the ofheo specially report examines which advised chairman thomas mentioned our little i will not repeat but it just what part of how much 6.46 and these armies were so important to the personnel within the companies and the compensation that they would receive as a result of meeting those goals. and they did receive a great deal of compensation. in the case of ceo franklin raines he collected over $99 in total compensation from 1998 to 2003. of that about 52 month was directly tied to achieving earnings per share goals. however, the article turned out to be unachievable without breaking the rules and hiding was that fannie and freddie executives worked hard to persuade investors that mortgage related assets. while at the same time covering up the volatility and risk of their own portfolios and balance sheets. the ofheo reports go into great
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deal on how this was done over the years. one very to speak can you wrap up? i know this is your written statement but did you could quickly just very quickly make the point of the bows of your statement so we can stick your schedule. is that okay? thank you. >> sorry. one very tiny example of the accounting violations was a $200 billion would have a the fourth quarter of 2004. by shifting to an billion dollars into future years, they were able to obtain 100% of their bonus compensation in that year as opposed to zero if they had properly accounted for the 400 million properly. >> your letter also asked me to talk about the impact of the afford a house and on their financial problems. in my opinion the goals were not because of the demise. firms not engaging in activity, or otherwise unless the was a prophet to be made. in the in despite management turnover at both companies,
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problems persisted. the companies could not accept the role in the mortgage market in the reduction of the profitability. so they make a fateful decision to make big investments and subprime and transferred assets. in summary, the fannie and freddie model was privately chartered companies inherently flawed. the market and political power that it confers breviary goods, greed, excessive risk-taking and abuse. if any every are not to continue in any creation of their current form, another commission at some future date will again be asking the question of what went wrong. that is why the work of this commission is so important, and i appreciate the opportunity to be here to testify today. >> thank you very much, mr. falcon. mr. lockhart? >> thank you, mr. chairman, for inviting me to testify about fannie mae's and freddie mac's role in the housing market. the flaws and the regulatory structure and the actions we took prior to considering i didn't conservatorship. i served as director of ofheo in
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the fhfa from may 2006 to augu august 2009. the enterprise's mission is to provide stability, liquidity and affordability to the housing market. despite having over 4.3 billion in debt at that point in being some of the larger financial institutions, fannie mae and freddie mac were both very troubled as they were unable to produce timely financial statements and had serious deficiencies and systems risk management and internal controls. ofheo was finalizing its special examination report of the fannie mae, and also a consent agreement as i arrived. we find them $400 million impose about 80 remedial action items. very importantly, we froze the growth of fannie mae's mortgage portfolio and continued the 30% in the capital requirement. the report quoted an e-mail from ben fannie mae ceo -- coo dan mote at that point of and the quote is the old playground was that we always want to we took
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no prisoners. we used to be able to write or have written rules that work for us. that was really the key flaw as the week legislation that created ofheo in 1992 was a product of that old political reality. i endorse strongly in three congressional hearings recommendations from the report that we move the caps to freddie as well as fannie. we support legislation to fix the agency, and we need to strengthen our regulatory infrastructure. in june i met with freddie's board, and ask them to voluntarily freeze their portfolios. the portfolios as you know has been a major target of gse reform because of their interest rate risk that required extensive use of derivatives. their portfolios were a major source of income, even though half of their portfolios were in their own mortgage-backed security. the other half were in aaa private labels the goodies and hold those, and that compounded the credit risk that we have
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heard. at the freddie board meeting, i went to a long list of issues, and mention credit risk. and on credit risk the pushback was explaining intense. but they did agree to the freeze. in retrospect having the growth on the portfolios prevented tens of billions of dollars or more losses. president bush has been pushing for gse reform for many years, a need for the legislation was obvious and so ofheo is wrigley to of the the largest systemically import financial institutions, which would require extraordinary powers for the regulator, and we had just the opposite. the key components we asked for finally got into law only 38 days before we had to put them into conservatorship. first issue is the capital, both minimum capital and risk based capital requirements were weak and outmoded. the minimum capital standard actually allow them to get leverage over 100 to one. the definition of capital itself was in flexible. but exclude large losses.
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just one month before the conservatorship, both fannie and freddie published financial statements that show that they were in excess of the legal adequately capitalized standard. even though in the case of friday they had a negative fair value of equity. the portfolios as mentioned compound of the mortgage credit risk and introduce large interest-rate and derivative counterpart risk. there was no mission related reason why the performers had to be $1.520. hud was the enterprise's mission regular. in retrospect hud push the housing goals too high, and aired by giving credit for the underlying mortgages and private-label mortgage-backed securities. both seat oh oh still that one of the first worst beers fears was missing their affordable housing goals. the high goals plus their drive for market share and profits were major reasons why they lowered their undivided standards, but i must add that
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they were still much higher than the marketplace. if you look at danny's acquisitions from 2001 to 2007, the% of subprime mortgages remained militantly stable at 16 to 18%. even though the subprime market was tripling or more than that come and represent about a third of the market at the end. however, as mentioned the sport of their purchases of the alt-a went up dramatically. they also indirectly encourage lower standards by purchasing those private-label securities, and also by not aggressively forcing originators to repurchase noncomplying mortgages for fear of offending major customers such as countrywide. as ofheo's budget was subject to congressional political process, ofheo's growth was constrained in subject of annual freezes. the other issue, major issue was receivership. we did not have that in the original legislation. we guided in the new
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legislation. however, at the end we did decide to put them into conservatorship rather than receivership because we felt it was critically important to keep the enterprise is going to prevent a total collapse in the mortgage market and potentially the u.s. financial systems. without treasury authority to fund the enterprises, which was inserted into the legislation and really the last few weeks, is my belief the conservatorship would have failed. the company's opposition to legislation for so long was a major mistake. the board focused on maximizing sure holder profitability of they failed both the shareholders and taxes that article was to strengthen our regulatory oversight. we had large teams of fannie and fit and we continue to add a skilled examiners. i met monthly with the ceos. we sit in and report to congress on the enterprises which detailed the many problems and remediation efforts. in the 2006 report, we rated them significantly supervisory
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concerns. we met with the board and the to discuss the reports and at other times. in midyear 2008, we lowered the rating to our lowest category. although the enterprises never violated even a ofheo directive extra capital requirements as the market began to deteriorate, they hit triggers and/or brought regulation. ofheo mate escalating request to its curve capital including detailed capital plans, dividend constraints come and increased capital requests. ofheo create the first government regulation on mortgage fraud. in 2008 we adopted a new rating scheme called government solvency earnings and enterprise risk, market credit and operational and we reorganized our operation examination teams around those areas. on the compensation sigh, our three was wrote every week but we did successfully pressured the boards for some moderation
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and created broader performance metrics. the enterprises management and the credit miles they relied on failed to identify how badly the mortgage market was deteriorating. many other failed to understand how bad the toxic was. booming and then falling house prices, low underwriting standards, disappearing financing and wall street's destructive creativity. the enterprises believe that they could save the troubled market that began to erupt in 2007. we constrained fannie mae from construction and combined less than aaa private-label securities. i made 2007 they were putting extreme pressure on ofheo backed by members of congress for us to remove the portfolio caps and the 30% extra capital constraints. ofheo turn down their request as it would embed a critical need to support the conforming mortgage market. from the fall 2007 to the
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conservatorship's, it was a tightrope with no safety net. house prices will continue to fall to the liquid foreclosures were rising and mortgage credit was drying up. we encouraged the enterprises to cut their dividends, and they raised $17.5 billion in preferred stock in 2007. they represented about 75% of the market at that point. but sitting on over $5 trillion of mortgages and raises in capital it was critical for their country financial future at the mortgage market stabilize. they are withdrawal would have created a self fulfilling credit crisis. as the enterprises struggled with a mounting losses, our communications with him, treasury and the fed grew. in february we published time the financial statements, and has agreed we remove the portfolio caps. we also mention at that point that we would look at lowering the capital requirements, and we did in march slightly, and also
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did that only because they agree to raised significantly more capital and to keep capital well in excess of requirements and support gse reform. fannie mae actually did raise capital, but freddie was unable to. and by august, it was obvious that they could not. by august the conference of the enterprises plunged working with a treasure and the federal reserve. we made recommendations, my staff made a recommendation to put that in conservatorship, which we did in september and they voluntarily consented. before concluding i would just like to thank the team at ofheo, fha for their extra network on that very. although ofheo what repeatedly of the systemic risk that fannie mae and freddie mac presented to the financial markets, and took many steps that help lessen the damage, everybody including ofheo could have done more. there was a strong emphasis on
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remediating their operational risk, and monitor their interest rate risk that credit risk it was not emphasized as much as it should've been in 2006. we did require them to adopt the bank regulation nontraditional mortgage guidance and subprime guidance. and even extended to those private-label securities. but the foremost it was a legislative framework, especially the capital roles. the gse's structured allow them to be so politically strong that they resist the very legislation that might have saved them. the only sober line was legislation was finally passed and about the conservatorship to function very smoothly. the enterprises are continuing to fill their mission. thank you. >> thank you, mr. lockhart. so, i'm going to actually give her right now to the vice chair to start this session. so mr. vice chairman. >> thank you, mr. chairman.
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mr. falcon, when did you come to washington? >> it was in 19 -- >> yes out. >> 1989 i believe. >> 1989. mr. lockhart? >> 1989 as well. >> 1989. i am reminded of a movie which basically has a story, but then it is seen from various participants as to what they saw. so your testimony is one view of what happened, and if you were privy to the panel in front of us, decidedly, it was somewhat of a different view in terms of attitudes and relationships. i just have to say, i was there for the movie as well, and i think your version tends to have
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a greater degree of credibility about relationships than the one i heard earlier. to bolster this, and we are trying, i say we, staff and commissioners, are trying to work out a timeline with specific events, some of which are public, others are much more private, including e-mails between individuals, and statements from individuals, and we're going to continue to work on the veracity of it. but i eventually, mr. chairman, plan to place it in the record, to let people in a relatively brief, almost a visual way, take a look at those events. and the first day we have done is september 19, 2007, with a
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press release on portfolio caps and liquidity. where i think, would you agree, that the significance was basically the recognition that safety and soundness is probably more important than the liquidity mission, based upon the circumstances that we were in? >> what i was try to say and that is safety and soundness was critical and liquidity was critical as well. and they couldn't provide liquidity to all the housing market. they didn't have the capital to do that. >> and then we pass through the end of '07 into february of '08. and then some of it is interesting, but for the sake of time, move on into early march, where things start to happen fairly quickly. on march 7, we are a winner of an e-mail exchange between
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mr. mudd, ceo, and mr. deal who is the undersecretary at the treasury. and my understanding is that mud rights to steal that ofheo, having unrestricted capital authority will as ever be the sticking point. mr. mudd rights to 11, quote, it is a timed game, whether they need us more, sooner to show administrative action or if we hit the capital wall first, be cool. . .
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>> they were still shareholder centric at that point. the discussions that i've had the with board over the years, they were reluctant to raise equity. >> is that an indication as a partial lose of focus as what who they were and fundamental underlying goal, notwithstanding, making a profit is always nice. >> as i said in my written testimony, the boards were focused on profitability. they felt that was responsibility to the shareholders and the mission was a distance, not even second.
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that was my view and i had many conversations with the board. >> my assumption was there was no discussion about taxpayers rather than shareholders? you don't have to answer that. obviously background into that first week in march, march 11, the barnes article comes out. suggesting that fannie mae is insolvent in predicting that the government will bail the company out. march 16, undersecretary steele e-mails to others at rash re, lockhart needs to eliminate -- that's you -- lockhart needs to eliminate the negative rhetoric. i have e-mails and called and waiting to here back.
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i was leaned on very hard by bill dudley, official at treasury, to harden -- huh? >> he's with the new york fed. >> to harden substantially, i do not like that and it has not been part of my conversation with anyone else. i view that as a very significant move. way above -- we've heard this before, my pay grade to double the size of the u.s. debt in one fell swoop. since it was directed toward you, what do you think was meant by eliminating the negative rhetoric? >> well, i think it's well known that i was pretty strong against some of the things the two companies were doing. i was very strong in supporting the legislation. and was, you know, as id -- said
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in my testimony, we had a fine line. we have to force the companies to get more capital. the legislation of the flawed. i was using the press occasionally, but more often talking about the need to raise capital. >> same day, march 126,bear sterns collapses. >> certainly i did talk to the treasury and bed. our concern was fannie and freddie could be next. we thought it was critical to raise capital. to do so, we basically, as you know, did an agreement with them in return to raising the capital and committing to keep the capital above the minimum standards that we start to lower their carr capital. >> on march 17, that was the subject of an e-mail from --
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talking about releasing capital surplus in the gses commitment to invest $300 million in market to raise capital. what was your opinion of that particular deal? >> i did the deal. so -- >> i understand you did the deal. but what was your opinion of the deal at the time? >> i thought it was necessary because we needed to stabilize. >> a number of us take out garage. but that doesn't mean that's our ideal. >> we had to play the cards we were dealt with. we had capital structure that didn't work. we had a gse structure that didn't work, and we had a $11 trillion mortgage market that could have catered if we hadn't done something. >> okay. then obviously after that which you did, which you felt was absolutely essential not perhaps ideal, march 19, ground fisher gse analysis joshua quoted any
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capital is a comment not on the current safety and soundness, but on the verge of panic in washington. and that quote, we believe the failed director, lockhart took this action in the destabilizing of the gse. a fail to go from the only regulator who had prevented their charges to getting into trouble. a textbook example of why regulators should be shielded from outside political pressure. do you feel that the decision that arrived at was substantially based upon the outside political pressure that you received? or in your professional judgment, absent any pressure that was okay. >> in my professional judgment, it was the necessary step. i had run the pension benefit, made a lot of life and death decisions for corporations at that point. so hi a lot of experience.
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twa, pan am, so i had a lot of experience in working with financial markets and in my professional judgment, it was necessary. now i would have loved to have more capital. i would have love to have counter capital so they would have had the capital to do what was necessary. they didn't. so they had to raise it. >> mr. chairman, full disclosure, i worked with mr. lockhart on the pbgc, we ended up relying the structure which allays them to not sure of the commitment that they make. but it would have been useful to have capital at an earlier time, i believe your testimony and others indicate there was great resistance because you'd have to go through congress to achieve that. and we've heard from mr. falcon's testimony, that there was constant pressure from
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congress. and i just want to reform the argument that sounds a lot more like the washington that was in for three decades. especially when they had have the ability to communicate to you through the protections process. thank you, mr. chairman. >> all right. let's do this. i'm going it to defer for a moment. ms. murren. >> thank you. and thanks to you both for being here today and for your testimony. i have in an interest of looking more broadly at the regulatory processes and the framework that really are the basis for which shareholders and taxpayers rely on the ability for the financial systems to be transparent. i'm interested in the some instances in the mechanics and practical realities of that. so i'd like to ask a couple of questions to begin with on your daily interactions with the people or that of your staff at
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fannie mae. and the way you describe the relationship, obviously, as it seems very tense, certainly at the senior levels. could you talk a little bit about whether that type of tension was also evident when you carried out or when your staff carried out the daily duties in interacting with the line staff there? maybe if you could comment on it. >> okay. certainly. on the daily level, there's much interaction between the examination staffs, legal staff, basically there's a lot of interaction done at the staff level of both entities. part of my responsibility is leading the agency and trying to make sure the people in the agency had what they needed to do their jobs properly. and so i was often in position of seeing the deficiencies with our structure and funding. so taking the responsibility as
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a head of agency to try to seek broader policy changes to help the agency. and those were certainly in the realm of what i tried to accomplish among other things at the agency. and if there was tensioning, and there were between the senior executives and myself and my senior staff on those issues, i wouldn't say that filtered down below us to the people doing their job day in and day out at the agency. >> could you say that the people that worked for you found that when they reached out to their counterparts at the company that they were -- they compound that there was a cooperative mindset on the other side? in other words, did this sort of resistance that you describe filter down to the lower ranks over at fannie mae? >> i think -- yes. many times we did have difficulties in the lower ranks as well. and i recall one of the early
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meetings with my staff and it was an issue where we needed some data. and i was told that it'll be difficult to get the data because we get resistance from the companies. they didn't like to have two request at the same time. so they said we don't know if we can deal with it now. there was the cultural problems at the staff level. so i had to try to change all of that. i insists to my staff, go make the request. we're going to get the data. if they had to assign more people to the agency's reporting needs, they need to do so. but at the very beginning, there was always a very deep relationship issue about the agencies not having problems getting full corporation on the companies as something as minimal as the data request. that had to change. >> from my stand point, we put a
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lot of that into the consent agreement. we write it in that they had to cooperate and change the tone at the top. we really worked hard with the board and management team to do that. and they did make progress in a lot of that over that period. in fact, they really by the end of the period actually complied with the consent agreement. there always has to be some tension between a regulator and regular lay tee. in this situation where you had two firms that couldn't produce financial statements on a timely basis that didn't have good internal controls, you had to have a regulator that was in there all the time working with them, trying to fix the problems. on the staff level, the cooperation was good. i would have meeting with, you know, quite a few of their people down three or four levels occasionally on a topic. and i always found it cooperative, you know, occasionally, there was an issue that we just disagreed on and we couldn't come to an agreement on. butt key thing to me was that we
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had to have a professional approach in my team really did. >> so would it be fair to say then that sometimes if the response that you get from one of these entities that you supervise or that your requesting data or information from that says gosh, the nature of your request is too vague or it's just too much for us to do in a particular time frame, really that reflects the resistance at the top to the work that they are doing in producing this information. >> i think there was the resistance as i pointed out. now i agencies that i was dealing with were much different than the agencies that professional lockhart had to deal with. perhaps, he didn't encounter the same times of the issues that i had as director of the agency. but we did have those problems. >> i think that's right. it changed because of the consent agreement. there's still arrogance at that company, and certainly, they are
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fighting the legislation over that period was probably the worse set of arrogance and the biggest mistake that they made. >> general respeaking, how did you convey any concerns that you might have to the management of fannie mae? was everything documented or did you attempt to have an oral discussion beforehand before you would seventh send an e-mail or formal documentation? >> i was meeting with the ceo's monthly. we tended to have the frank conversations about the key issues or i would give them some heads about examination reports about ready to put out and really tried to work with them to help move the organizations ahead. at the time we were there, fannie mae probably had 5,000 employees and 2 or 3,000 consultants trying to fix their problem. it was a major, major problem at those companies. so we were all working to try to fix those operational and financial and accounting problems.
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>> you both mention the fact that you felt that your own resources and ability to manage this was -- it was less than ideal. you didn't have necessarily the greatest amount of resources to be able to address the problem that is you just described. how then did you allocate your resources? how did you think about the way that you would take what was fairly precious and make sure that was physical indicated properly to be able to perform the duties with which you've been entrusted. >> you prioritize. that's a painful process. when the list of many priorities, all very important to fulfilling your mission and you realize that you can only fund a handful of them, it's not an easy thing to do. but you have to prioritize. and hope that you can at least give some amount of coverage to the other issues. one on the same as others, and you of try to sketch -- stretch
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your resources as thin as you can. >> we were -- we had less problems with resources because director falcon had made such a big issue of it that congress had backed down and we were getting, you know, our request through. the real problem with us was the every september there was a freeze. so you go through three or four months so you could never build up to the staff level that you wanted. and -- but we set priorities. we put the resources on the examination side as much as we could. but we also had a capital team. we had the risk-based capital model team. there was a lot of things that needed to be improved in the company at that point. the companies. >> this is the final question. and in reading your testimony and listening to what you have to say, it sounds as though this doesn't sound like an especially enjoyable position to be in. sounds like there was an enormous amount of pressure. could you talk about why did you
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continue to do what you were doing? a lot of people, i don't know would have made that same decision. >> well, in my case, i had worked for the house banking committee for eight years. i was at the committee when the law created was enacted and understood the motivation behind it as the same loan crisis. so i did understand and believe in the agencies commission and why he was created. so the agency was struggling at the time that i was approached about running this agency. and given my background with the banking committee, i thought here's an opportunity to take on the challenge and try to help build this agency and help its fulfill its mission. because it was struggling very much. so it was a challenge. and it's something that i believed in because why it was created.
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i would echo that. this is my third major job in the government. but i'm really from the private sector. each time it was a challenge, social security and oheo. fannie and freddie for struggling, i seized the challenge. sometimes it was fun, sometimes it was very difficult. but we made progress until the housing market just fell apart. >> thank you. ive exceeded my time. >> thanks. i'm going to take the opportunity to ask a set of questions. because i want to build on a little line of questioning that mr. thomas engaged in with you. i really want to -- i think, set a context here. it's march of 2008, obviously the housing markets are in substantial trouble, bear stearns has collapsed, i think
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it's fair to say liquidity is diagnose up in the housing market dramatically. there was a big challenged posed here of the safety and soundness and solvency of the corporations and liquidity is the larger mission. in a sense, there's probably no time when this dual mission collapses or comes together so dramatically. it clashed -- >> and it didn't clash. because when they were sitting on $5 trillion of mortgages, and if we couldn't stabilize that mortgage market, the safety and soundness was not going to work. i mean basically, they were going to fall if we couldn't stabilize the mortgage market. there was the tight rope that we were walking. >> i do want to ask you a couple more questions about this. mr. thomas laid out a timeline. he referenced on march 17th a press release that was proposed and then there was one other item. you actually did respond to the
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first press release. i want to get your thinking. because you are there on the ground. y'all have a follow up. when you responded, i think, on march 17, to mr. mudd, who sent you a draft press release. i believe there was a quote where you -- they had a proposed quote for you that said let me be clear, both companies are well capitalized and have adequate reserves. they had a quote from secretary paulson, it was important the housing in the gse step up to provide liquidity. they must be a key part of the solution. you wrote back, at first it appears the failure was being asked to be first, last, and only. that's in brackets to raise capital. and the idea, quote strikes me as perverse as it would seem perverse to regulator would allow a regulator would allow,
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2-1 to 1-1 to 0-1. obviously you were not comfortable with. now a press release is issued three days. your quote as changed, both companies are prudent above the failed directed capital requirements to increase their reserves. i'm trying to probe to see as a regulator what kind of pressures you are under and how you were balancing this need for national liquidity with obviously some pretty grave more thans you have about the condition of these two entities, fannie and freddie. i have a larger follow up question. >> well, it was definitely a balancing act. but the press release you quote was a draft one. it did not reflect the deal that we cut. that's why i responded the way i did. they had to commit to raise capital. that's the only way we would have ever lowered that capital requirement, failing them meaning the con sent agreement which was the test for the whole
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30% to come off. so from our stand point. >> can i ask you a question on that, mr. lockhart. the ultimate deal or agreement was that you would low the capital standard for fannie in their exchange or willingness or commitment to raise new capital. freddie, was there any capital relief without a money raise? >> there was 30% to 20% without the money raise. but with a promise from the board of directors that they could do it. so for both it was a commitment fannie mae fulfilled it commitment. freddie mac did not. >> correct. >> go ahead. i interpreted you. >> from my stand point, we wanted to stabilize the mortgage market and two firms. the only way we felt we could do that is to get them to raise significant capital and agreed to keep capital well above the minimum levels. they did do that and agree to
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it. that's the reasons we lowered from 30 to 20%. so in the large picture, here's what i'm trying to understand. so it's march of 2008 was the view. because obviously you are a participate was the view of the depth of the crisis in subprime lending was that if would stabilize. if you viewed it could stabilize, i understand the transaction. the hope was it would. in normal circumstances, as mr. thomas said, a normal business may have acted differently. they probably wouldn't be lowering capital, move into the breach like this. in fact, everyone else was retreating. they didn't lower capital. fannie had 30% extra capital. we lowered the requirement, but the capital didn't come down because they raised more capital. >> it i remembers of real capital? >> yes. >> freddie? >> freddie's capital came down.
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they were still above the 20%. probably about 25%. >> okay. but was the view at that time that we think the market will stabilize or was it also the view that there was an acknowledge at some point, at some point these institutions might have sob to -- to be seized? >> we were hoping to stabilize the mortgage market. we were not assuredly that we were going to do it. but we felt the combination of bear stearns purchase by jpmorgan and this would help stabilize the market and we might be able to get through it. it didn't work, as we all know. >> all right. a couple of other quick questions about your reviews. you did mention you noticed credit risk in 2006. did you know credit -- but at
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the time i think you'd said there's credit risk but i think you felt responsible, is this fair interpretation about the quality of the assets? i think at that time, high-risk loans were about 20% of the book. but they were still pretty darn substantial in terms of the percentage of capital for alt-a loans, 750% of the capitalling -- capital. the amount of high-risk was 750 to 1,000% of the capital. they were substantial. in 2007 and early 2008, at least my recollection is you didn't focus much on credit risk. i guess my larger question is you've said you didn't do it enough. looking back on it, do you feel like ohfeo missed? >> we started a task force of freddie and fannie creditors to look at credit. we were continuing working with the companies, looking at their
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credit risk models and continuing to, you know, look at -- in particular look at the credit risk in the private-labeled mortgage-back securities that, you know, freddie was the biggest guyers of the securities by far, fannie was the second biggest buyer. we spent a lot of time on those credit risk. we forced them to take temporary, we approached a new approach that. we were focused on credit risk. you know, i think the failure was -- a failure that no one understood how bad it was going to be. the models, whether they rating agency, wall street, fannie and freddie's models with never got the downside in the models. we really did not forecast what happened. >> all right. did you ever -- did you ever ask them to cut back on their level of high-risk lending? what's your weigh in and say
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enough is enough here? >> we did ask them, obviously, to freeze their portfolios. and the -- >> total capital; right? >> right. and that's really are stopped a lot of the private label securities. we certainly looked at their fannie expanding authority and my examiners were able talking to them and asking them to try to slow it down. >> in writing? >> probably main linn -- mainly verbally. there were some reports though. >> i think the memo from mr. dickerson to you is dramatic. it's very stark. and it doesn't quite comport with the other examinations that i see along the way. >> well, as you heard mr. mudd say, there wasn't anything new in that report. he knew it all. i think that's what heisted --
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he said this morning. what we were trying to do is make a case to the board of directors that they had to voluntarily agree to a consent agreement. we wanted that to happen rather than to have the regulator have to do it and all of the nasty lawsuit that is might happen. so we made -- we pulled it all together to make a strong case for the board of directors did not have a choice. >> all right. last question before i go to mr. georgiou, what did you see in terms of the ramp up of -- why did each of you, just very quickly, why did you see fannie in particular move into the subprime breach? competitive pressure? if you were to weigh these on a scale, competitive pressures, affordable housing goals, what were the driving forces? you said profit? >> in my opinion, i think, it was driven by a desire to want to regain their dominance in the market.
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and to try to increase profitability to what it had been in its hay day. and given this is where the market is going, this is where they thought they had to go to achieve that. >> from my stand point, it was combination. partially because the goals had increased so rapidly since director fall don had left. the 55% goal was almost impossible. partially it was hud agreement. also, it would have incurred the path of congress. profit and market share was important. >> so the trifecta. you've heard the high-risk loans as imprudent, unsafe, and unsound. did you ever flatly say this is beyond the level of risk that you should be taking?
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>> certainly we talked about some of those loans over time. whether we put it in writing or thought, i've been in way too long. i haven't been able to see the papers. >> all right. we may follow up and ask you further questions on it. mr. georgiou. >> thank you, mr. chairman. and thank you, gentleman for joining us this afternoon. i want to ask you a provocative question right out of the box here. and i'm giveing you a little warning. as of 12/31/09, these cost the taxpayers $100 billion and another 15.1 from fannie and i'm not sure what the number is for freddie. it's against $126 billion, can you give us any estimate of how
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much money ultimately the taxpayers will have to pay to back up the loss that were suffered -- that will be suffered by these two agencies? >> the losses will be significantly more than that. what we'll see actually is because the way fanny and freddie had their investment portfolios and their investments were different. also because fannie is about 1/3 larger than freddie, we will see higher losses at fannie and freddie. i will think over the next year, we'll see higher losses. hopefully it will trail off. >> can you give me any estimate? >> i've been away too long. i can give you a year-old estimate. i don't think that would be relevant today. a lot happens on the mortgage market.
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can we stabilize? prevent foreclosures? that will have a dramatic impact on how big the losses will be to the taxpayers? >> it doesn't appear that we are preventing foreclosures right now, does it? >> the administration has the hamp program and it's starting to take some transaction. but it was lower than anybody wanted. you know, it's going to take time. it's -- there is going to be many million more foreclosures. >> okay. do you want to has a guess, mr. falcon? >> i don't -- i can't give you an estimate of what i think the number would be. obviously, $1 is too much. i think it's unconsciousable. >> $126 billion is $126 billion more too much than $1. do you have any thoughts? >> i think it will go up. i think the trend in the prime book is certainly indicates that given that's a much bigger pool of assets than the subprime and
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alt-a pool, the trends in the subprime and prime assets they have are showing deterioration. so it may be one indication from people on the inside was treasurer decided to lift the $200 billion cap on capital assistance to both companies. probation office that was concern or it would go over that amount? >> okay. let me try to see what you did to beef up the capital as the respected tenure. mr. falcon, could you outline what you tried to do and what you were prevented from doing in that regard? >> well, we -- the capital standards are hard wired in the legislation it's 2.5% on balance sheet, 45 basis points off balance sheet.
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that minimum capital requirement, they didn't give us discretion to increase it from any way. from the very beginning we thought the flexibility and statute just the same kind of authority that every other safety and soundness regulator had to have full discretion to raise that amount if we thought it was negative. we could never get that authority and as i said in my testimony, finally we -- after the accounting scandals, we were able to get the companies to agree to hold it 30% capital cushion in reaction to that. that wasn't based on any clear statutory authority, but they agreed to it. and so we did it. >> okay. mr. lockhart. >> well, certainly what we tried to do is we had a very large campaign going really basically
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to make it clear to everybody that their capital was too low. and we were working to get legislation and the -- so that was the key thing. because it was hard wired into the legislation. we did work somewhat on the risk capital model. but unfortunately, the legislation that built that was too weak as well. so we really didn't have a good tool. and which we kept telling congress repeatedly. and unfortunately, uni, by the time the law passed in july 30, 2008, it was much too late. >> right. and of course at that point, it'd be almost impossible to raise the capital under the circumstances. >> well, it would have been impossible to put a new regulation in place. it would have taken six months to a year to do it. it was much too late. >> and you took him over to a couple of months over after that. >> yup. >> did you have have any issues of capital arbitrage when things
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were moved off-balance-sheet to have the reduced capital associated with off-balance-sheet as opposed to on-balance-sheet treatment? mr. falcon? >> i think at point the enterprises would come us with some novel ideas about treating some new kind of product as capital as tier-one capital. and they wanted us to -- i guess they were sold some innovation about how to better receive more return on their capital. and they wanted us to be able to account that as poor capital. i think that would have throughouted the quality as poor capital if we had agreed to do that. we always told them no. but they were coming to us with ideas on some innovative kind of product that should be counted as capital. and we never agreed to it.
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>> they really didn't, despite what you may have heard, they really never thought they didn't have enough capital. in my experience. they could have very easily raised capital by -- they had $700, $800 billion of their own mortgage-backed securities. they could have reduced their capital requirement by 80% by selling them. so they had the ability. they just didn't do it. >> right. but if you keep them on and they are earning a nice spread, if you're getting credit at a government -- effectively government-guaranteed rate, you're making a nice spread, then you are making more profit and earnings on the capital that you have which leads to bigger bonuses does it now -- not? >> that's certainly one way to look at it, yes. >> vice chair? >> would you mind if you yield? >> i'm sorry. i was trying -- i invite the
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vice chair to enter. >> i was trying to figure out what the other one would be is all. you ran through my mind. i couldn't come up with one. >> back on your time, mr. georgiou. >> i think that would be the main one, mr. vice chair. i want to ask you about a few accounting issues. because both of these institutions were at one point in the past cooking their books or so they were found to have done. i understand from your testimony that part of the reason why you didn't have the opportunity to evaluate credit risk as well as you might otherwise have done is that you were spending a lot of time cleaning up the appropriateness of the accounting. is that -- wasn't that your testimony mr. falcon? >> i think that was my testimony. >> i'm sorry, mr. lockhart. i apologize. >> what i was saying in 2006, that first six months i was there, we were so focused on
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market risk and operational risk that we were only starting to focus in on as much as we should on credit risk. we set up a task force to potentially look at the credit risk. >> right. let me ask you a few things that have been brought to our staff's attention. fannie wasn't recording losses until they were 24 months delinquent; that correct? >> that's not correct. let me explain. fannie when a loan became delinquent, they had the option to take them out after 120 days and rework them and modify them. if they did that, they would have to write it down. so they changed their approach to leave them in the securities until they had to modification ready. and that meant anywhere from 120
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days to two years. they did not take that fair value yet. they still had to look at it from a credit stand point though. >> but they didn't have to mark down their books to recognize the loss on that particular delinquent loan? >> that's how the accounting worked. the accounting was changed. now they would have to do that. >> right. weren't they also lending, providing uncollaterallized loans to some of the people who were delinquent to extent it and then treat it as a performing loan to extent the deadline for its recognition as a loss? >> they had the home favor, i think it was called, home favor advantage loan or something like that which was the idea that often times when you cure a loan, you just sort of wrap up the principal and interest that haven't been paid back into the principal balance. >> right.
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>> instead of doing that, they took that amount and gave an unsecured loan for it. they actually wrote those loans down to probably 10% because they knew they were not going to get value for them. >> they just wrote down the advanced loan. >> right. >> but they didn't write down the underlying loan. >> until it looked like it wasn't going to cure. they only did that if people were starting to make their payments again. >> those were relatively modest loan that is they treated. >> right. it was a process that was delaying the inevitable. we put a lot of pressure on them to start modifying those loans more realistically. >> right. >> and when they did start modifying more realistically, there was less default. >> right. did you ever talk to the occ or fed about this practice? anybody. either of you. that would be you. >> no, i did not. by the time that the occ and fed came in august of '08, the think
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the practice may have been lessened. i can't remember exactly. certainly from our stand point, they wrote down on unsecured loan to a value that we were comfortable with. >> okay. and the practice as you understand it has been modified by the legislation effective 1/1/2010. >> the way that you account for securities now, they are all on their balance sheet. they have to count for them as if they were a loan. >> right. okay. let me ask you -- let me turn if i can beliefly to this lobbying business which everybody seems to think. i take it that was equal opportunity, bipartisan lob lobbying push. that is there were well
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conducted people who were either former legislators or former staffers and others from both parties who were retained by these institution to lobby. would you characterize it in that way, mr. falcon? >> yes, i would. >> mr. lockhart? >> yes, they had big groups of lobbyist on both sides of the aisle, yes. >> were you -- did you? obviously the experience that you had, mr. falcon in connection with your -- which they announcement of your successor before the vacancy was an extreme example of the influence that was exercised, was it not? >> yes. it was one the extreme examples. absolutely. >> can you tell us about any other efforts that were significant by these two agency ies?
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>> at one point they worked hard to try to kill our risk-case capital role where with designed a very detailed cash flow model to come up with a risk-base capital requirement. and while it was at omb for review, they worked very hard to try to kill it and have omb send it back and your role that relied on the models for setting risk-base capital. ultimately, that omb rejected your position. and we were able to get that rule out. but at the peak of their political power, they weren't shy about flexing their muscles on not just big issues but small ones. they gave no quarter on any issue. >> i mean, isn't this a particularly egregious lobbying
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abuse in that at least when the private sector is lobbying, theoretically, if they are putting at risk their own shareholders returns by spending -- advancing lobbying expendtures which may or may not advance their interest. here you had the taxpayers institutions that were spending taxpayers money to lobby the administration and the congress who were responsible for their oversight which ultimately redoubted back to the detriment of the taxpayers themselves. it strikes me as absolutely astonishing. >> yeah. and i think it is astonishing. especially -- and of course we all respect individuals right to voice their opinion. but the tactics frequently involved misinformation, markets attacks, questioning people's
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motives. just brutal tactics that none of us would think was acceptable. i think that's what made it very obscene. >> from our stand point, as you know one of the first when we announced the conservatorship, we closed the shops down. we also had in our consent agreement -- >> i'm going to add. how much time? >> two minutes. >> thank you. that would be fine. two minutes is fine. >> in our consent agreement in '06 we had them do a study of best practices and institute it. i think they instituted most of it. but -- so where we saw the lobbying from our stand point was they drug their heels on the legislation, they -- and, you know, that was a fatal flaw as i said before also in the summer of '09 when they felt they could save the market, they were lobbying very hard against us from the stand point that they
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wanted us to remove the portfolio and also to lower the capital requirement. and, you know, we resisted. >> but that's the point that others have made as well. i want to reit late,, -- reiterate, why would you go into a market that's creates risk, expect for the purpose of essentially making more and more money on the spreads between the your cost of capital, which is effective taxpayers subsidized and the returns that you can get in the market? >> to be fair, they thought they had the power to do it. they use to quote to me long-term capital where they came into the marketplace and stabilized it. they thought their ability to come in there, their big balance sheets, unfortunately, they didn't have the capital to go, could stabilize the market. and summer of '07, it was really starting to happen. so it wasn't at end that they
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were talking about this. >> they were really able to postpone the legislation for almost two years were they not? >> i think you could go five years. >> five years. >> four. >> four years. well, that's an awful long time. thank you very much, gentleman. i appreciate it. >> thank you very much, mr. georgiou. mr. -- yes, mr. holtz-eakin. at the end of three days, i was confusing myself. >> thank you, mr. chairman. and thank you mr. falcon and lockhart for both your service and coming here to talk to us today. i think this is of interest not just because of the particular business model that these institutions followed which i had to openly fairly opinion on that. i'll come back to that. but also their role in the larger crisis where their failure occurred during that window, september 6-15 when we saw the transmission of this
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crisis from what was the housing event and financial crisis that spanned all financial markets and ultimately the economy as a whole. so i wanted to ask a couple of questions about both. you know, i think today has been pretty great in painting a picture of narrow housing-related product line that suffered from poor internal controls, that had risk management systems that were below the industry standard that were poorly capitalized. and i guess my question is if you have institutions like that, how did they get so big? mr. falcon? >> well, i think the growth really began in the late '80s perhaps. >> how could they do that given the flaw that is both have con
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chronicled under your guidance? >> the growth and mortgage as long as we did not have discretion to stop them from building the mortgage portfolios as long as they were hedging the risk of portfolio. we paid close attention to issues like the duration gap as you understand. so -- but it was that growth of that portfolio under the ability to earn the spread. and so the more they grew those portfolio, the more spread profit they made off of the spread. >> and they were able to continually access credit markets despite these poor characteristics and risky portfolios. >> well, until the bubble burst everyone was willing to buy their debt, whether it's the straight bullet debt or mortgage-backed securities. >> the -- they were -- had a triple a. i talked to the rating agencies, asking them the exact same
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question, actually. and their answer was that they had such a large market -- almost turning the question on the head. they had such a large market share that the triple a was very strong and besides the u.s. government had the support because they couldn't let something that big fail. >> mr. falcon could you agree the implicit guarantee was part of the business model? >> absolutely. the panel before you disputed this. i wanted to get you on the record for that regard. >> yes. was the large portfolio part of their public service mission to provide liquidity and adjust that as the panel argued before? >> they tried to argue the portfolio was essential in order to promote liquidity in their products. >> that the only purpose it serves. >> there was -- it did serve a
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very small portfolio, i think, was essential. basically to warehouse mortgage loans until they were able to turn around securitize them. but for that kind of a function, they did not have to grow anywhere near the side that they did. i think the overwhelming amount they had were to earn the spread. >> mr. lockhart? >> i'd have to agree portfolios didn't need to be large. they didn't need to buy the private-label securities at all. the reason they did primarily was the spread and affordable housing goals. my view is that the portfolios in any going forward structure should be minimal, if at all. >> we have the fundamentally flawed institution that is are allowed to become systemically dangerous. why as the regulator did you not stop this? >> we had the mission and safety and soundness regulation.
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hud was not of the opinion that the portfolios were improper. as long as they were managing the risk of the duration between their asset liabilities in those portfolios, we were not in position to be able to tell them no. and that was oversight structure. >> and you're on record you tried to impose. >> yes. >> they stopped you. >> mr. lockhart, do you agree? >> we certainly leaned in their growth. dividends, raising more capital. but the key thing again was the legislation wasn't there. we couldn't get it through congress to give us the power and particularly the capital. we keep talking about the portfolios. the mbs was also a very tricky situation and certainly they had gone through that. >> let me now turn to the moment when the legislation actually finally does pass and in the
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course of the debate over the legislation, secretary paulson says something to the effect of, you know, i want to have a bazooka coo, although i'll never use it. i believe you mr. lockhart with ohfeo issued a letter saying they were well capitalized. >> i think they were legally, adequately, and they were. >> why did you send out that letter? >> i'm not sure if this was a letter or public statement. when we capitalize and grade them, we send off a letter what we're going to grade them at. and the numbers were that they were adequately capitalized. i also said in that letter, and this was a primarily letter that we had the right to downgrade
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them so that we put them on notice on that letter that we might downgrade them. >> just for the -- >> and this was always 22. and that is a fair characterization of the letter in the works. my -- thank you. my question then is now shortly thereafter on september 6, it is apparent that they are failing and they are a danger. when was this recognized? were you the first? >> we were work all through august through that period. and we were particularly looking at the reserves. but we were also looking at the issue of the deferred tax asset which is allowed to count for capital. other than temporary impairments, we were going through a whole exercise with the help of the fed , occ, and treasure -- treasury, to look through it. it was going to be difficult for
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them to make it. but factually, they were adequately capitalized based on the numbers that they put out in early august. >> and i understand that. i'm just trying to go from the 22 to 6. somewhere in there, the realizization arrive that is this can't go on. is that a realization that? >> no, the realization was happening potentially before the 22. >> the decision was made, they go into conservatorship. as those quite expert in the area, what was your estimate of the impact having these two institutions which the secretary said has been implicitly backed by the taxpayer is part of their business model? what the market impact of seeing them fail in this way? >> my view is at least for the first week before lehman hit, it
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actually helped. you can see the spreads come in pretty dramatically. certainly, the foreign investors in their securities which were putting a lot of pressure on -- >> helped the securities of fannie and freddie. >> and helped the markets? >> i can't make a judgment. there was some stablelation and the lehman weekend. >> that would be because the guarantee have been hardened? >> yeah. >> mr. falcon. >> i would concur with what director lockhart said. >> thank you, mr. chairman. >> i'd like to take a moment on my time to follow up on the line of question. because i am struck. i don't know if -- i'm trying to get to the essence of happened here. is there a little -- remember when we were kids we had the little toy guns that would shoot out the darts that had the
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rubber tip. were in the position of trying to bring down the elephant or wrestling with the matres. in '05, '06, '07, there were exams done. you did issue letters. but it's not as those the alarm bells are going off in visible ways that danger is coming. you know, there's an issue when the conservatorship occurs whether it's a claude reigns moment. i'm shocked, i'm shock,ing there's gambling going on here. you didn't, you just couldn't, didn't frankly had the political heft to move this ball or much of what was happening on wall street, no one calibrated the magnitude of risk.
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when mr. holtz-eakin asked us questions, what's the sissens of this story from your perspective, each of you? >> my belief if no one had really call -- calibrated the risk. they continued through the march period we were talking about and through september. people lost faith in fannie and freddie. there was a lot of speculation that they were insolvent. there was a lot of articles written. they were going to announce all of their mortgage-backed securities on their balance sheet. people were afraid the capital requirement. there was a lot of things happening that really caused spreads to widen dramatically. in august they couldn't borrow along anymore. they had to borrow short. everything started to pile up. but by the summer of '08, it was
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obviously they couldn't make it in august. >> i know you were around. >> the one thing that's really hard for people to appreciate, for example, the reference to cast -- casa blaca, when you think you have to fall back while others around you are looking at the world as it falls apart, you're slow to come to the realization that it's you too because at some point they are still thinking they have this reserve available to them. which has always pulled them out. :
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>> they didn't realize how big the downside was. >> another important thing is when you look back at it and you can only sort of do this in retrospect, but i don't who could have put them in conservativeship before legislation passed on july 30. >> we could have legally but there would have been chaos. there was no fcic to back fannie
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and freddie. >> i guess and may they raised seven like is that some market indication that some people do believe that this would survive. unless, and this is not an accusation, unless the representations made by the entity in doing the rays were not accurate, which i cannot speak nor would i allege. >> they had sophisticated investors. that were buying it and they exercised the green shoots of the got the extra 15%. they had people that did believe at that point. >> let's not go to ms. born. >> thank you very much, and thank you both for appearing before us. and i personally would like to thank both of you for the public service that you gave the american people during your years as the director of ofheo in trying to do your best against a very powerful
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interests that were aligned against you. i noticed that mr. falcon, you say in your testimony that fannie and freddie political machine resisted any meaningful regulation, using highly improper tactics. and i'd like to discuss how fannie and freddie use their political power to resist meaningful regulation. you've testified as to a number of steps that they've taken resisting reform legislation, for example, which was a really put into place in a timely fashion in order to save the organizations.
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these institutions had an implicit government guarantee, so they were benefiting financially in their dealings in the marketplace from that guarantee. they were getting very low cost money, because of the guarantee. and they were then turning around and putting an enormous amount of their resources into making sure that there was really no effective government oversight to protect the american public here i know that you are both doing the best you could with the powers you had, but it raises a question in my mind of this undo political power that a financial institution can obtain. and how it can be used to resist
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the actions that government needs to take to rein in excesses and to make sure the institutions are safe. i wondered how we can protect against this in the future. and i would like each of your observations. i'm sure, because of your situations, you have thought about this. >> thank you. thank you very much. i do feel strongly that we cannot go back to any kind of a model where you have a privately held and publicly traded stock company that hasn't these kinds of government subsidies. i think that kind of a model is just prone to the abuses as we saw with fannie and freddie. and so there's going to be any kind of government subsidization
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or role in our housing finance going forward, i think it should be with a clear separation of a government role by entities fully -- be full government entities. and the private sector. and have any government subsidies be through government entities and not through some institution like fannie mae or freddie mac. i think that's a very clear lesson, otherwise you do get the kind of abuses we saw with these two companies. >> mr. lockhart? >> well, certainly the power that they had from and lobbying standpoint was abused and abused a lot over the years. the gse models thought, it didn't work, and it needs to be totally restructured. but i have to tell you, i've also run some other government agencies and models that were
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flawed over the years, and that is a problem. legislation can be a messy process, and we don't always get the best part of it. so i think we need to take some of this and put it back into the private sector. at the moment, 100% virtually of our secondary mortgage market is in the government specter and we have to do that. we have to get the right answers back into the marketplace. there was no debt discipline for these two companies. people didn't care that they couldn't put out financial statements for five years. people didn't care, they were starting to lose money. until the very end. so we need to restructure the whole mortgage market in this country, and that's where we should start. what do we want the mortgage market to look like, what do we want the new mortgage-backed security to look like, and to me that is critical. then you decide the future of freddie and fannie. >> i wonder if you have any views as to whether this problem that you faced of an institution
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that has government subsidies in effect, government support, but ineffective government regulation a cousin of their political power, has any broader relevance to the financial services industry as a whole. you know, for example, banks get the benefit of deposit insurance and other support by the government, certainly they are getting a lot of support now. and yet, i think they, too, have been very ready to spend resources on lobbying, campaign contributions through pacs and other activities, that has given them over the last decade or so a great deal of political power
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in resisting regulation. >> i think the difference with the bank, banking system and their regulation is that if there were any flaws in the regulation of the banking system, i would say, whether there are or not, i would say it's the result of policy judgments made by regulators. in the case of ofheo, we didn't even have the authority to make poor policy judgments. we were forced to do the best we could with the authorities that we had. i think that's a very key difference here. >> well, you certainly did not have anything like the powers of a banking regulator, and that you can't really be a safety and soundness supervisor of an enormous financial institution like each of the gse's were, without significantly additional
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powers. mr. locker, do you have a few? >> that's very true. you know, lobbying per se is not a bad profession to the extent that they are informing members of congress about what's going on. what happened was that they were using it to constrict what should have happened. and a baking case at least the fdic is prefunded that at least there's money there and have already paid for some of the injured. in this case they're getting the implicit guarantee for free and the taxpayer was paying the holocaust. but going forward, given the model is flawed and we had to re-create something. >> mr. lockhart, you testified that the mortgage portfolios of fannie mae and freddie mac were a concern because they posed interest rate and prepayment risk, and other risks, and that those risks required an extensive use of derivatives,
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and that some officials, including i think you said federal reserve chairman greenspan, expressed concerns about the large derivatives positions. and i understand that fannie and freddie held about $2.8 trillion in notional amount of derivatives during the summer of 2008. what were they using these of derivatives for? >> they were hedging their portfolios, and as interest rates started to fluctuate pretty widely, especially the spread between their borrowing costs and treasuries, they really beefed up the derivative activities. we didn't close them out. we just kept them in place. it would just keep growing. historically, they used to claim that the use callable debt and they did need a lot of derivatives that as it turned
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out they needed them extensively. they have very sophisticated risk management on the interest rate site, and they tightly managed that prepayment risk that mr. mudd talk about a lot. and, you know, that required very sophisticated approach and lots of derivatives. and we were concerned and we had a market risk teams that were all over them on what was going there. but we were also concerned about the credit risk as well. as you know those derivatives books grew and grew. >> i was going to ask you, were they adequately hedging their credit risk? >> would you like a couple more minutes, and is borne? >> please. >> two more minutes. >> they didn't have the credit risk. and they didn't hedge their counterparty risk. the only thing as was mentioned, the use mortgage insurance because by law they couldn't
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make a loan of 80% loan to value so they used mortgage insurance to cover up that gap. >> so despite the fact that they were hedging some of the risks in their portfolios, the risk that really hit them the most, credit risk, both on the underlying in the portfolio and on the credit, and on the derivatives part, we're not hedge, and that's where they suffered. correct? >> yes. that's what they suffered. whether they -- they probably could not have had a $5.5 trillion housing mortgage credit risk. i mean, they represented so much of the mortgage market at that point, it was probably not possible. as soon as they went into the market to start hedging it probably would have tanked the whole market. so they're in a position that they were too big to fail. >> well, there weren't $60 trillion worth of credit default swaps out there, but
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even for the enormous market, this would have been a very significant, had a very significant impact. >> manspeed? thank you very much. >> a quick comment on that mr. baucus because i was a, if there is one thing, that was to hold more capital. they chose not to do that. >> good point. thank you. >> mr. hennessey? >> thank you, mr. chairman. mr. lockhart, can we talk all little bit about the failure of fannie and freddie, and specifically why you felt they had to be put into conservatorship, in particular could you talk about what might've happened to mortgage markets had you not done that, and why you drew the line with secretary paulson between equity and debt? >> okay. that's a good question there. we put them in to conservatorship because we felt,
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and as we really laid out in those various reports, which i think you all have seen copies of, that there capital was it really extremely quickly. we saw credit losses that were significantly more than their capital. we saw the deferred tax asset was not going to be worth anything. we saw that the low income housing tax credit would therefore not be worth anything because they would be losing money far into the future. and that their private-label securities were really suffering badly spirit why not just let them feel? >> why not let them fail? we felt that if we let them fail, that what happened after lehman would have been very small compared to these $5.5 trillion institutions failing. so we felt that the best thing to do, and we actually, i've gotten some questions about why
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he conservatorship versus receivership, and we made the decision, there were some legal reasons but i think also market reasons, we wanted to keep some faith in those institutions. we had sovereign governed in their security. we had a lot of the banks in this country invested in their mortgage-backed securities, and their preferred stocks. which gets me to your second question of where we drew a line in the conservatorship. one would have thought that we would have let this subordinated debt go. and that's what i thought we were going to do it. the preferred stock and the common stock, in my my, if you're an equity owner and your institution fails you should lose it. and they are worthless at this point in my mind. but the issue was subordinated stock, for many years people talk about the subordinated stock as being one of the --
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>> subordinated debt? >> sorry, sorry. they talk about subordinated debt as sort of being a cushion and would actually get some market discipline. has we looked into the structure of that debt, and the intertwining with the law, if we had let that get go down it would have defaulted all their debt. and that would have pulled out the whole institution. so we have to keep it in place. >> okay. just a follow-up on the. as i understand if i'm running a bank, i cannot hold all of my assets in the debt of ibm or general motors or caterpillar. as i understand that there are banking rules, you can't put all of your eggs into one basket what that basket is in the debt of a particular company. but the same is not true for so-called agency debt, is that correct? >> yes. agency debt which i never liked that term because they were not government agencies. they were enterprises.
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they were treated very much like a ginnie mae, had a full basic of the united states on a. they had owed very little capital against it, and unfortunately some of the buyers of the preferred stock were banks, and they took a 100% hit on it. >> okay. we talked a lot about lobbying. capital standards, minimum capital standards to risk based capital standards, and then the ability to consider systemic risk in the fires under and size of the portfolio. do have knowledge of fannie mae and freddie mac lobbying on any of those points, either from legislative standpoint or from a mandatory standpoint? >> i do not have direct knowledge, but i have indirect knowledge that they certainly had people up at capitol hill talking through the issues of legislation and the harm it might do to the housing market. >> okay. were you then indirectly aware
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that they were lobbying against you having the authority to raise capital standards and against the authority for you to be able to speak in our monthly raise with the ceos we often talk about legislation, needless to say, and certainly to me they resisted some of those and especially the capital wants. so no doubt in my mind that they were resisting to me that they were probably resisting up on capitol hill. >> mr. falcone that you are considered to be an aggressive regulator when you're in this job but you are limited in terms of the authorities that you had. as you look at the legislation that was enacted in 2008, which provided now at a café with significant authorities, can you give us a sense of what you think you might have done with those authorities had you had them in 2004 at 2005? i know you have the benefit of hindsight and knowing what happened, but based on the kinds of things that you are pushing
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for, can you give us a sense had to have the ability to set minimum capital, risk based capital, even if active size up or post them what would have been consistent with your actions at the time? >> i think in 2004-five type it up with those authorities, i think we would have had some more flexibility to deal with the capital issues and try to deal with the leverage issue. i think we would have moved towards having to increase their capital, have a plan to increase capital even above the 30% that we impose on the. we probably would have moved aggressively to begin to shrink that portfolio, the portfolios that both of them had. and we might have moved more aggressively on even considering some form of a conservatorship to deal with the cultural issues that continued to exist at both companies. >> good. if i could, i would like to ask
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a couple of questions that asked mr. mudd this more. the alt-a mortgage that they purchased in all five, '06, '07, do you believe that there was a public purpose of mission related purchase for those, arguably they were primarily driven by profit motives or market share? >> happy to. i would say it was both. they certainly did not want to be left out of that segment of the market. there was certainly a portion of them that admission affordable housing. i'm not sure that on average that they met the 55%. i would have guessed that there is probably less than 55% of the alt-a is that they had that would met their mission go. citi of these was the profitable. and the market share component. you know, they would've seen some of their biggest suppliers go elsewhere in the private label marketplace or whatever.
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i think that they felt that they wanted to be a player. >> okay. and mr. mudd, i didn't raise the issue. he seemed to be suggesting that one of the reasons why fannie failed was that they were in effect a monoline firm that lack the ability to diversify risk. and i was asking, it seemed to me that it is more a realistic explanation is they didn't have enough capital and they were poor at managing the risks. can each give us a sense of your perspective on the monoline argument that we heard this morning? >> i will start. first of all, they were a monoline interns come to. that's really what they were, mortgage-backed securities. they were ensuring. they doubled up at risk, unlike the other monoline insurance companies by having giant portfolios. so they actually doubled up the risks, and that was a problem. but the key problem, they did not have anywhere near, capital
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as they needed, and in retrospect i think we all understand, we talked about it today, that no one understood how bad the mortgage market was going to be. when you really think about, congress when they set ofheo with only 45 basis points a risk on credit mortgage risky just have to scratch your head. >> mr. falcon? >> i think it's a convenient argument to make now, but throughout the existence of these companies, they often touted about how their opinion, they were the best risk managers of any firm out there. and to now say that they could have managed a single risk, monoline risk, i think it is just contrary to what they were saying. the fact is they had the ability to control the risk that they took. took. they set their underwriting standards. they didn't just buy what ever their servicers sent to them. they sent those guidelines themselves. and they had a ability to better hedge risk.
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they had a billy to voluntary hold more capital, if you thought those essential to manage their credit risk. they had the lowest cost of funds of anyone in the private sector. i think this was clearly a failure of management to properly run these two companies. >> thank you, mr. chairman. >> thank you, mr. hennessy. by the way, the claim to be the best risk manager in the world was a shared prize apparent from what we've heard in our heads today. yes, mr. thomas. >> a quick follow-up. you said that you thought it was basically the management and their failure to run the company properly. it depends on a profile or the understanding, or the assumed purpose of the company. and if you're a private company in terms of profit, and the argument about the shareholders and the rest, i'm trying to see
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if you could focus on the fact that they came to understand, for them, the basic value and purpose of the company. and in that score, notwithstanding the failure, they really did a pretty good job of managing it, up until it became as with everything else in that market segment, unmanageable. i mean, i see a pretty clear movement toward the self-interest that may have been one of the reasons they were structuring the operation the way they were. work with a pretty successful in that regard for quite a while? >> well, except for the fact that through their accounting misconduct, they were masking many problems within the companies. >> well, then you ask yourself, what would motivate someone to mask some of the problems? because it would get in the way of their focus of what they were doing, wouldn't? >> well, they were trying to mask a volatility.
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they were trying to mask some of the risk in their balance sheets, and through the process trying to manage ofheo's ability to go in and dig deep and find these things. >> it may not have been that miss manners based upon their focus and goals. >> working within a legal framework that didn't work. and they, you know, before i write there were definite miss manners in accounting and all those areas. they finally got that actually in pretty good shape after all those consultants i mentioned. but the fatal flaw of really was the legislation. the management teams and the board of directors could have gotten that legislation through very quickly if they wanted to. and they didn't. >> i understand. and i agree with you. this management implies the --
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they did know what they're doing. they knew what they were doing to. >> that's the point i wanted. thanks. >> mr. chairman, if i could. >> know, you can't. [laughter] >> mr. jordan have a question earlier, just about the cost at just want to ask in january this year in its august 2009 baseline, cbo projected that the operations of fannie mae and freddie mac would have a total budgetary cost of $389 billion between 2009 and 2019. is that the budgetary or the economic? the budgetary cost is 191. >> that is their estimate of the budgetary costs, which is the subsidy for budget experts. it's a credit subsidy model. i'm sure doug patel is a lot more about it. >> i will await the tutorial. >> i just want to follow-up on that point. i can make it later but i just want to add to what commissioner
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hennessey said. which is that in addition to the dollars that were lost, there also were and are significant investments in both the preferred securities, which mr. lockhart has told us a few things may be never be worth anything, that the treasury has purchased 75.2 billion of fannie preferred stock. and in addition, the federal reserve has been purchasing mortgage-backed securities and has purchased 1.0 to 6 trillion of fannie and freddie mbs and treasuries purchased 254 billion of mortgage-backed securities. of course, hoping that they won't reduce in value, but certainly there is a service question whether they will. >> they are backed by that preferred stock effectively, so if there's further losses the u.s. government is effectively
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backing those mortgage-backed securities. but they have put another one and half trillion dollars to help solve this problem. it's just amazing how bad it got. >> go to mr. thompson. >> you have a next-door notation. yield the gentleman an additional five minutes. >> i don't think i will take that long. as you well know, gentlemen, our mission here is to try to explain to the american people what caused this crisis. what almost brought our economy to its knees and as such we are asked to look at the issues and institutions. and you, mr. falcon, said fannie and freddie are failed enterprises. and you also don't that you're outmaneuvered politically, your budget was inadequate, your staff was too small, you are understood for the task that was before you. you were the fifth regular we've had before us in the series of
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hearings that we have conducted. why do you exist, as opposed to this mission being within the sec or occ or one of those other regulators, if you are in such bad shape? >> i think, ofheo was set up as an independent revelatory entity. i think the idea was trying to make it independent and not subject to the political influences of being part of the treasury department or some other government entity. i think that was sound, except for the lack of authorities and resources on par with every other safety and soundness regular. >> could another safety and soundness regular done this work? >> you got outmaneuvered publicly as you are understood and understaffed that i just don't get why you exist? >> the agency was created along with a 1990 to act that created the agency.
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so by the time speakers i understand that, but couldn't someone else had done this work? >> someone else had done it before, the federal home loan board was responsible for freddie. and the s. and l.'s. and so out of that they decide that they needed an agency that could focus on these two giants and, you know, fannie and freddie didn't want it at the time and they made sure that the legislation at the time was very weak. and that was to me again the problem here. actually makes a lot of sense. i think the new legislation that gave us a responsible and not only for fannie and freddie, but federal home loan banks, does create a regulator that has the power to really oversee the whole secondary mortgage market in this country. >> but the answer to question is yes. congress could have decided to not fail and give this a story to the occ or the federal reserve or some other safety and soundness regular. that was always a possibility. >> it seems as if you were
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inadequate and skills and capabilities that there is a heck of a lot more capability for similar instrument to be in value is an assessed sitting inside the sec or the occ. but be that -- >> most of our examiners came from the occ or the ots. so we actually did read that talent plus that there are economies of scale to be derived from consolidation of organizations as opposed to fracturing and splintering organizations throughout an enterprise. >> commissioner, if i might for just a minute. >> mr. thomas on his own time. >> none of those other regulatory agencies would have been subject to the appropriations process. >> maybe that would have helped. >> let me explain this. i was new to the ways and means committee, and i came up with the proposal to make this adjustment that president reagan had asked for all in one year.
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it was a 30 billion-dollar proposal. i was taken aside and explained, you don't do things that way. we will make it in three, 10 billion-dollar amounts. because then they will have to come to us three different times. >> and that's supposed to be good? >> from the position of the chairman of the ways and means committee it sure was. [laughter] >> well, mr. lockhart, you described the future of this industry industry, and you get a very rational view of what might happen. i then asked the question what happens to ofheo when, if, in fact, a war to evolve? is this a regulatory body that in a repackaged industry we really need? >> depending how the repackaging goes, no. it could be depending, if we re-create new gse's, yes.
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if we go to some other structure, maybe not. i think the key thing though is what ever we have, we have to have a group that really understands the mortgage market and has oversight of it. the mortgage market was very fractured from a regulatory standpoint. the nontraditional mortgage guidance that the bank regulatorregulators put out, we weren't even involved in and get we were the biggest player in the mortgage market. so the key thing in regulatory reform to me is you've got to pull people together. how many agencies you end up with is not as important as you have to have those agencies worked very closely together. >> it certainly would cost the american taxpayers a lot less money if we aggregated the infrastructure that underpins these agencies that oversee the financial soundness of our economy. >> one could argue that. on the other hand, i think actually our ability to work on just a few agencies has actually helped in some areas.
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i mean, you know, a big bank regulator may have a thousand different entities that have to regulate and i can be cumbersome as well. >> it's all about organization. i yield my time. >> thank you, mr. thompson. just one observation. i was going to ask a question, i am going to ask a question related to mr. thompson's questioning about the need for this regular. and it really does go to 2008. just in all candor, did the federal reserve in the occ when they came in, i believe in what, july, august? >> yes. >> did they find things that you have not found, or where they offer me what you had already found? >> some of both. they found some things that we hadn't bought. >> and you had counted because of their capability, the depth of their bench? or why is that? >> well, one thing is the
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actually, the bank regulars had a somewhat different approach to reserving than fannie and freddie did. and when we wrote, read the portfolios through their approach, the losses got bigger. >> so they did have a deeper perspective that you did not have? >> guesstimate okay. mr. mudd earlier today noted the delinquency rate of fannie and freddie loans versus the wall street or private market was definitively less. he noted that the risks of coming by being a big monoline insurer, and i do wonder, and i would say this because i'm picking up on your comment, in the end, you know, so many monoline indies went down. monoline ensures, large thrifts went down because when the market turns against you and that's your only business, it's very hard to sustain a. he made the observation that even if they had been extraordinary well-capitalized, at some point you have to a return on equity for investors.
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there is a bouncy. you can't be so well-capitalized there is no return. he says he made the point we would have needed levels of capital such that there were not feasible in the marketplace to have sustained this. do you agree with that? >> at some point too much capital does not serve the entities. but that level is 2.5%. very, very high leverage. >> so they were -- there at a 61 -- they were even 2.5%. they were effectively at 1.5, 61, 70 to one ratio. but the only reason i mentioned it it reinforces your observation that is part of this market that can legitimately be served by the private markets and some that cannot be, and therefore we should not have a false promise that it can be. because what turned out here it was a massive false promise to the american people that somehow that these activities could be sustained without subsidy in the end. >> if you look at the number, commissioner hennessey just put
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out, that would have been well less than 10% of the risk. and we are now asking us to put out capital around 10%. what really happened here is we subsidized homeowners by that very low capital charge. >> and also -- >> we subsidized homeowners, shareholders and executives. >> i agree. >> is that if their status request that if there. >> it turned out to be a relatively inefficient way to subsidize low. >> and now that taxpayers are paying on subsidy back. >> there were some articles on the well. >> mr. chairman? >> i was that we know for the record that cdo broke apart who got the subsidy. and homeowners got a de minimis part of the subsidy. the vast majority would to shareholders and management. >> mr. holt aiken, would you be willing to provide information for the commission under oath or under subpoena or voluntarily? >> one can get from the websites
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that i want to talk just a minute as we wrap up your about the affordable housing goals, because i want to understand a little bit about how the process worked. hud would propose them. how -- was a process in which fannie and freddie would say here's what we legitimately can meet or do they really flow out of hud? what you look at them for safety and soundness? >> i was not -- the ofheo director is not directly involved in setting the goals, but we do playable and i am a little familiar with alan burks. and from my understanding, it was a sort of a back and forth, that the goals were frugally proposed by hud. there was pushed back by fannie and freddie. and eventually they came out with a number where hud thought it showed investment and higher goals and fannie and freddie with the opinion that they could
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beat them. and that's typically the way this negotiation happened, as i understand the process. >> because it are a to b. as with any staff, according to our staff, and no one of the fannie mae folks we interviewed recalled that they raised concerns. but i guess there was an interim process but at the end of a militant this will jeopardize safety and soundness. so my question is, did you ever comment on tim? >> the hud would run the goals by ofheo, and we would examine them and opine whether not we thought they met. >> so under your tenure which ended in 2005, greg? >> guest. >> did you ever voice an objection to them on safety and soundness grand? >> no. >> go ahead. >> but we always told enterprise is that if situations ever changed and they thought that they could meet the goals without taking on excess of risk, and we made it clear to them that they should not take
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on that excess risk. >> did ever circle back to you and say we have a probably a? >> no. >> mr. lockhart, same question. >> the goals was that i think 2004 were for a four or five year period. >> they did escalate into thousand for? >> yes, they kept pushing them and pushing them but that whole set of decisions was made in 2004 i think. and so we never really got involved in the goalsetting while i was there because they were just about ready to be reset when everything specs of the word annualized. they were not annualized renewals of those? >> it was cast in concrete, if you will, and it was not market related, which was really the fatal flaw. >> so in 2004 and they set them on an escalade. did you have the ability, statutorily, too, like in 2005 or 2006 to express safety and soundness abjection? >> i could have talked to the had but i didn't have the
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authority. >> did you ever express concerns about its? >> i'm just trying to get, how parties felt about them? and i can see in an upmarket where everyone is getting like we can get there, but i'm just curious about whether or not you expressed objections or concerns about in. >> internally, but i don't think we talk to hud about them. >> or defaced it was any talk to us about them a lot. >> they taught you about them in what regarded? >> how tough you are. as i said before, the ceos were very afraid of missing them that they miss part of them that i guess it of seven. they missed them by a mile and '08. part of the legislation you know, we did get authority for that, and while i was there we have change that structure pretty dramatically speck said they were expressing concern that we're going to get there? >> yes. >> okay. because i understand hud lowered standards at the request but we look at the record. >> i think what they did was when they missed them, they
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allowed him to miss. >> they missed them and they in a sense excuse them? >> guest. >> mr. chairman? >> guest: was it on safety and soundness? what were the grounds on expressing concern? >> what -- the underlying with safety and status but the concern was they were just not going to meet the goals, it was just not possible. there was some years, you can look in the historical record that they did transaction right in december to make those goals, the goals were not only single-family but multifamily added a lot to the goals. so you can see some years they do some very large multi-family transactions just medical. >> so they know what the targets are and they sometimes shape their behavior to meet the specific targets be? yes. >> all right, thank you all very much. let me just conclude this meeting by first of all thanking the witnesses. thank you for your time. thank you for your public service. thank you for being here today. i want to thank vice chairman thomas for his continued work
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with me and the other commissioners, as we as a bipartisan commission with a nonpartisan mission really tried to do the best job of examining what happened here, this event of tremendous consequence or series of events of consequence for this country. i want to thank all of members of the commission. i want to particularly thank the league commissioners on this research and investigation project on subprime lending securitization. mr. wallison, mr. georgiou and ms. murren, i want to thank our staff who have provided an exceptional amount of information, literally hundreds of interviews to date, hundreds of thousands of documents for their excellent staff work and the very long hours. and thank you, the public, who has joined is that i also want to remind everyone as the vice chairman, reminded me that folk should go to our website at fcic.gov. we have posted papers on that website, background staff
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reports, preliminary staff reports that have not been adopted by this commission, and they are available for comment. we encourage comments, or would like comments by may 15. mr. thomas? >> continuing the bipartisanship that we have displayed, on behalf of the commission, i would like to thank the chairman of the energy and commerce committee, mr. waxman, and his staff for providing us accommodation. i would like a couple more degrees down on the thermostat, but understanding what our options were, we do appreciate and thank them. for those who have never tried to run these kind of hearings outside of a congressional hearing room, it's really, really hard to do. and i want to thank them for their courtesy. >> thank you all. i would like to ask if the commissions would gather extraordinary briefly in the anti-room right after this meeting. thank you all very much. >> thank you. [inaudible conversations]
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[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> that wraps up three days of hearings by the financial crisis inquiry commission.
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♪ ♪ ♪ >> what in the world is more ridiculous right now that american politics? >> for the past year using clips from various media outlets, including c-span, the gregory brothers have become viral hit makers who have on the to and the news. we will talk to them sunday night on c-span's q&a. supreme court justice john paul stevens announce today he will retire from the bench at the end of the term. justice stevens the oldest supreme court justice was nominated to the high court by president ford in 1975 and unanimously confirmed by the senate later that year. justice stevens becomes the
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second justice to leave the court since president obama's inauguration. joining davidson. no nominee yet from president obama, but today senator leahy the chairman of the do you share a committee announced that confirmation hearings would likely happen midsummer. yesterday american university's washington college of law hosted a discussion on the confirmation process. for supreme court nominees. panelist talk about the format of the confirmation hearings and efforts to learn about a nominee's views. this is about an hour and 20 minutes. >> welcome, everybody. my name is steve and i teach constitutional law and part of the program online government and director of a new summer institute on law and government. and our discussion today is presented by the program online government and the office of special events and continuing
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legal education at american university washington college of law. our topic today is the supreme court confirmation process, play ball. and i want to make a few opening remarks and then introduce our panelists, and get right to their thoughts. we are here to explore what i think is one of the most important and often one of the most contentious responsibilities in our democratic process nomination and confirmation of individuals to serve on the u.s. supreme court. the process which seems to these days produced little in the way of useful information about the nominees and which seems to satisfy almost no one has become captive to a battle of metaphors. our reference to play ball in the title of today's program is, of course, a reference to the
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2005 hearings for now chief justice john roberts who famously declared that supreme court justices are like baseball umpires, he said quote umpires don't make the rules, they apply them. and he likened the role to a very limited one. just how apt that description may or may not be for the role of a justice, and what that says about what is at stake in the supreme court nomination and confirmation process is something we will hear more about today. we are not, let me make clear here, principally or solely to guess about when the next vacancy on the court will over. there's enough speculation already about justice john stevens, nor are we here to principally or solely guess about who the nominee may be. the next candidate for umpire, so to speak. of our candidate wants to speak to that we will certainly invite them to do so, or if our
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panelists. we also want to consider what, if anything, can and should be done about the nomination and confirmation process. and in particular the confirmation process in the senate. which has been described variously by senator joe biden, now vice president biden, as being like a kabuki dance. senator arlen specter, not to be outdone by biden's metaphor, refer to it as a menu at. -- minuet. i don't think we'll be doing as much as he appeared and more about what the problems are in the process, how to make it a meaningful process, what reforms are there, if any, that can help us define what we ought to know about the supreme court nominees before they take the bench. what's the scope of the information we had to be able to find out, what if anything is
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beyond them and how to make the process were, how do we make it a meaningful and effective process as the president nominates senators engage their responsibility. to provide us with that information we have a wonderful panel today. in the order in which they're going to speak, to my far right is bill youmans who is teaching with us here at the washington college of law during this year. he spent 26 years and the justice department handling civil rights cases. serving as deputy assistant attorney general and acting assistant attorney general for civil rights. he has also been the legal director for the alliance for justice. program director for the american constitution society, and was chief counsel to the late senator edward kennedy on the senate judiciary committee. next to bill and speaking second is rachel brand who is a lot at
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the firm of wilmer hale, and most recently before that was assistant attorney general and head of the office of legal policy at the justice department under president bush. she served also as associate white house counsel, has extraordinary expertise in a number of fields national security immigration, regulatory issues, a variety of other issues. and pertinent and to today's discussion, worked extensively on the nomination of chief justice roberts and justice alito, and help prepare them for their hearings. and then also next to me and speaking last, for no particular reason, is named who is the founder for the alliance of justice, a public interest organization founded 31 years ago. sorry for the years there, man.
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as part of that organization, she created a judicial selection process, program in 1985 that has monitored judicial selection activities and confirmation activities ever since. the organization is committed to public interest advocacy in a variety of fields and to training and promoting future public interest, lawyers and advocates. and we are delighted to have all three of them here. and we will start with bill, thre formatted to let each of the three panelists make some opening remarks, and then we will let them have at one another for a few minutes, and we will leave time to open it up to you for questions and answers. >> thank you very much, steve. when most people think about the confirmation process, they jump immediately to the hearing.
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this hearing which is grand theater as steve mentioned, it's been called kabuki theater that i think senator specter actually called it a subtle minuet. i think i would take issue with his qualifier. and it is a grand show, so big that he can't be held in a normal set of judiciary hearing them. it is held in a caucus room. and in evidently, there are previews in the press about all the contentious happenings that are about to come about. and in evidently figuring is portrayed as a kind of make or break drama. that will determine whether the nominee goes on to the supreme court. and then the hearing starts. and the chairman gives an opening speech, the ranking minority member gives an opening
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speech. the senior democrat gives an opening speech. the next republican, and the speeches go on and on. and the tension perhaps for joy starts to drain out of the room. and then, it becomes clear what's happening. the president's party is not there to inquire in particular. is there primarily to buttress, defeated softball questions, to make the nominee look good. the opposition party is there to try to ask probing questions which in some very strict limits. and the effort is to get the nominee to say something new. and preferably something of the gotcha variety. something that will change the course of events. the nominees goal, of course, is
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to avoid repeating anything new, avoid the gotcha moments, after knowledgeable, articulate, and likable. and inevitably, almost inevitably, the nominee wins. for any number of reasons. one of which certainly is that it is something of a mismatch between the nominee, who is inevitably someone who has an outstanding career in the law, is a very accomplished and knows the subject matter that they're talking about extremely well, and they are facing senators who, i think joe biden once remarked to a nominee, this is your day job, we do this part-time. and i think that does sum it up. senators are trying to get rid. they work very hard and their staffs worked very hard, but it is difficult, externally difficult, if not impossible to get onto a level playing field
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within an accomplished jurist. and they are also limited by the requirement that they engage in a 30 minute rounds of questions. which tends to shut off any kind of in depth dialogue. and the dialogue is, at least in recent years, has been consistently bent about a cramped and unrealistic depiction of what supreme court justices do. and things have been boiled down to these kinds of formulaic questions and answers. and it's a shame because it is genuinely a lost opportunity. is a lost opportunity, first, because this isn't the last time that the nominee, assuming he or she goes onto the court, will actually face one of our democratic institutions of government. after they are confirmed ago
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behind the velvet curtain, and whether it is appropriate or not, the supreme court is certainly our least transparent major institution. we don't have tv arguments, conferences of course are very secret. the key medications between the justices remain confidential. so this is the last require time they face our political institutions. . .
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that's the process that we may be entering soon if we have a vacancy. the process of the president selected and the nominee and that i think can often be the more important process since eventually most nominees to end up on the court. sell-through prepared and history president's obviously pick nominees for a variety of reasons. eisenhower reported to have promised earl warren act important for political support to. a plan in the ronald reagan selected sandra day o'connor because she was a woman. i think it's fair to say that in large parts of the reason that
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president obama elected justice sotomayor was she was a latina. bus president's obviously also have chosen nominee as because of their views and what they think that they will do when they get on to the court. i think is one of the great triumphs of conservatism over the last 30 or so years that they have managed to to communicate very effectively about legal policy. they've managed to construct a series of principles that are accessible and the republican party has made those principles an important part of its political agenda. and in turn its main the selection and confirmation of conservative judges very high political priority. democrats have outperformed
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comparable any. i think it's safe to say that liberals have not been nearly as successful in packaging their message, they certainly have not been as successful at making an important part of a political agenda and presidents, republican presidents have been willing to spend considerable capital to get their nominees confirmed. democrats have been much more bashful about doing that. until recently a i think it's safe to say the obama administration was headed in that same direction. it did not appear to be making judicial selection a high priority. overall i thank you probably all read the stories about how the pace of judicial selection has been various of impact of the record slow pace of. i think as of today the
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administration has set up something like 56 nominees for over 100 vacancies which is i think about half the number in is that president george of the bush set up in liftoff of 05 aircraft. of course, the judicial selection process was interrupted by the selection of a supreme court nominee last summer which seems to have put most things on hold including senate consideration of judicial nominations. of 18 obama judges have been confirmed in part to that's a reflection of the slow pace but also in parts of reflection of determined republican opposition and obstruction to confirmations peer down. and i think what's important to recognize is that of the obama nominees barrier to any of them
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can be portrayed as true progressives country liberals for the most part, very moderate selections. and i think the justice sotomayor nomination was ran much in that vein. eshoo was a moderate court of appeals judge. her record and i think gave the opposition very little to go on and so i think republicans were forced to look closely at her outside statements, her off court's activities for information to use against her peer down. the justice sotomayor hearings i think were disappointing in that since they did present an opportunity to challenge some of the conservative dogma of that has dominated much of our discourse about courts in recent
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years and they were not used that way. justice sotomayor backed off of her more controversial statements, otherwise latina statements, backed away from the president's statement that empathy was an important quality in a judge, and i think as a result we lost the opportunity to have the grown-up conversation about what courts religion and about what supreme court justice is really do. this time around i think it's a little difference because just speculating for a minute i'm going to go where steve said we weren't going, but he said -- he said the other end of the table so he can stop me. [laughter] the sooner in the next justice to go is justice stevens, the times will be of little derrin for presidents obama i think because of the justice stevens role in the court to appear he
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obviously emerged as the leader of the liberal wing of the courts and a moderate replacement will move the court to the right beer town so the question is at this point whether the president will play it safe or whether he will go for it in terms of selecting a progressive nominee. interestingly over the weekend senator kyl gave it the first warning when he said -- it's republicans would likely vote against sen democratic nominee, but would filibuster a nominee who was overly ideological here and i think it's interesting that he's already going on records and is likely that republicans will oppose the nominee. an interesting that he assumes
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republicans would vote against someone who is not overly ideological which i think raises a question procession about what the standard is for opposing a supreme court nominee. i think there is legitimate concern being voice and a device of a supreme court fight at this time, could cause problems. certainly there is a threat to the remainder of the president's agenda. things like financial regulatory reform, if immigration if we go there, it seems fairly clear that getting embroiled in the supreme court fight is not going to encourage republican cooperation now on those items. on the other hand, i think as we have heard it's unlikely that there will be republican cooperation in any evidence so the question is whether this is a fight that obama wants now, whether he truly wants to name a
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progressive nominee. here are some reasons why he might. obviously the consensus seems to be the democrats will lose seats in the november elections so the democratic majority is probably at its peak at this point. republicans seem as that they will oppose whoever he nominates anyway so why not shoot the moon. there is an election coming apple which cuts both ways. the president i think should religious and in energizing his base and he also has to be concerned about an adjacent republican base. will take very seriously in a fight against liberal nominee in. health care obviously is going to help manage as the base i think, but they fight over a
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well qualified progress of supreme court nominee would provide a lot more energy. let me just mention quickly just as an aside that i think lurking in the background is the notion this could be an occasion to take a look at the filibuster rules. as you know, there's been considerable talk lately in the number of democratic senators have said that they support reforming filibuster rules. if there is concerted opposition to end obama nominee, that could be the occasion and a straw that breaks the camel's back. it will be interesting to see whether i conversation is like. you will recall in republicans faced with democratic opposition to judicial nominees threatens to pull out a constitutional or nuclear option, but pulled back
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when they were in doubt. that's his dilemma, he can dominate a moderate and probably get confirmation though republicans will likely vote against or he can go for some more progressive. it's not clear at this point where the president head is on judicial nominations, whether to a committed to trying to put more a progressive justices on the bench or whether he is more interested in going the moderate route. i won't go into the possible names at this point now. and certainly open to discussing them later. i will wrap up fairly quickly by turning to the confirmation process i will just say at this point that there are any number of ideas out there how to change its ranging from abolishing the hearing altogether and going on the nominee's record to having
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counsel come in and do some questioning at the hearings, to having nominees submit to depositions in advance or answered written questions in advance, to narrow ante up the debates. if we are going to go on to the confirmation process obviously this is not the time that anyone is going to take seriously radical reform in the process but those things to think about for the long-term. >> thank you, bill. rasul. >> thank you, it's good to be here. before the panel stephen e-mail the us and posed some questions to us which were once wrong with the supreme court confirmation process and doesn't have to be the site is there a way to fix it so i jotted down thoughts about those questions. which i will base on my experience of the white house and the justice brennan's
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helping pick judges and helping to get them confirmed but there are lots of other interesting topics, the nomination process, the filibuster rules and all those things we can talk about in the q and a. so with respect to what supposedly wrong with the confirmation process, everybody seems to know that the process is political and everybody seems to agree that's a bad thing. so what is so political about the process? i should note that although i'm not in a store and i know that they've been political since the beginning of the republic, george washington failed to get john rutledge confirmed and i'm not in the weeds of the dispute but had something to do with the jay treaty appears nothing to do the commerce clause of but something like act but it was political and and grover cleveland failed to get to nominees confirmed to end a row to the same spot on the course because at that time that suit
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was viewed as a new york seat and he had a political rival the york center and that objective. so again political and regional, that's not legal or jurisprudential and then, of course, you have the thomas hearing and so forth but it's not as though politicization emerged in the last decade. one of the reason is that it is open to ago lao or one of the manifestations of its political nature is the press cycle. the nominations i worked on at doj, roberts, my ears and justice alito for the first in cable news cycle, with the first since the predominance of the blogosphere so what you have is a lot of airtime to fell. and a lot of reporters out there looking for a new interest in and out of angle on the story. in a lot of bloggers computing to come up with the most interesting are scandalous take fonteyn's and are the results as
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the press coverage doesn't focus on the jurisprudential or legal issues, but focuses on the nominee's backgrod, the nominees family, the nominees religion, things like fats whether they pose little late -- all these personal details. even when the coverage does focus on the substance of the nominee's background such as the opinions they've written it already a judge, the coverage tends to focus on the underlying facts of the case, an interesting salacious aspects. so when a good example from the roberts confirmation process was a case that he had written on the d.c. circuit. became known as the french franc case in the underlying facts were the d.c. metro police had at a restaurant in nine year-old girl for eating a french fry of dementia and detained her for three hours. everyone seemed to agree it was idiotic behavior on the part of
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the police but the legal issue in the case was whether the girls and men and rice had been violated. but the press coverage, the headline said roberts has no hard to and there was a column that said that he endorsed the manacling of a urals etc.. never mind the fact if you read his opinion he is very witty in the way he writes and very wittily sort of been settled, the behavior of the metro police about whether they did something stupid is different from something constitutional. that sort of gets lost in the press cycle. there were similar examples from the the court of confirmation entering the a justice sotomayor confirmation there was their reach the case which was important, but i think the thing that most people on the public knew about that case was involved white firefighters and that's it to appear in everything about firefighters does press coverage and everything about race concedes
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it was those aspects of my get focus on, not the particular legal issues and questions were. i don't mean to necessarily below the press, they give the people what they wanted. the cover story is the way they think people want to read them. the other of his recent the processes of political is the stakes are so high. we're in a situation where the supreme court dictates everything from the contreras of your family relationships to the outcome of presidential elections and that that's the case no wonder there will been knocked down drag out fight over every vacancy. i would say that the confirmation of supreme court and press my life more than whether or not we have universal health care and whether or not we have a comprehensive immigration reform where financial regulatory reform or the next political issue. the scope and breadth of what the supreme court gets involved in is much broader and affects
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us more than so why shouldn't be more political former holly contested than all those things? so the process is political. the next question is who garrison, is in a problem, is a bad? i can tell you want that too mantel of tax and as to be trimmed from personal experience in administration which is bad the painful lesson going to the confirmation process the tears some from being considered. there are people, during the bush administration who declined to be considered for a supreme court appointment because they didn't want to go to the process. so that's not good, the president should be able to pick from a full scope of qualified candidates from the courts for the the court. that's in -- of fact, but at some level of the process has to be and should be polemical. were talking about a process
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that necessarily depends on the president and the senate and and a process that inherently involves the two political branches is going to be political. the subject matter is important and those two branches should take it seriously and the way to ensure is that have political accountability for how to handle it. under those circumstances it will be it could be less at hominem. i think there are aspects of the process that we can do away with. we can do away with what i do during the roberts and speed of hearings in the appropriate accusation of racism or sexism are things i have based on written title seven case or something. i don't think that's constructive and doesn't talk. i do think we can't do away with that. how to fix the process? you race to of the things i
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wanted to mention. a couple of proposals prickly bantered about our to do away with confirmation hearings and altogether. i think that senator biden's remarks after the robbers hearings maybe we should -- and this is a waste of time and the reason people often say that is because they think it is theater and they said the nominees don't answer the questions and why so what's the point of being here. i disagree with ads. i think the hearings to serve a useful purpose and a useful purpose one is because we deal and a 24 hour news cycle i mentioned this of from the very moment of the nomination or the very moment of the announcement of nomination where his have with the candidate might be everybody in the world is spending the nominee. the administration is spending positively about the nominee. the senators are spending
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negatively. the groups on the right to a spinning one way or the after and it's not until the confirmation hearing when the nominee appears on evidence and sound bites before the american public and live in its entirety on the networks others in benefits allowing the public to see through this is for themselves without the the altar of someone else's views. i will decide with respect to answer in the questions there are reasons why every sitting supreme court justice has taken the same basic approach of the hearings which is two not answer all questions asked and i behalf free to go in more detail in the q&a. the other suggestion is perhaps congressional staffs and ask the questions and on centers of solace. again i disagree with that because i think and the democratically and politically accountable centers should ask and be the ones.
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not an elected staff and it may be two then have more time to be done, in my arm might not be through that they would be less politically motivated to grandstand during the hearings but even if those are true and it's important to have political accountability there. one thing i do think that happened i said before the diminishment of ad hominem attacks. republicans on senate judiciary committee made a staff and the right direction during the justice breyer hearings and i didn't hear the ad hominem direct or indirect accusations during the robins and speed of the hearing so that's good. could be better. but the bottom line is i think adds the process will be for the foreseeable future and i don't have broad sweeping suggestions for how to fix it. >> thank you. >> well, thank you perhaps in
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the. having this panel. i think we've done this a couple of years and a round. i use the when he was a reporter and i remember your stories about the d.c. circuit. this guy actually knew the judge as and made a real efforts in trying to bring to live above that serkin's, it sounds or parochial but the d.c. circuit to many of us is probably the most important circuits. just look but they did yesterday in fcc case so i really private steve for kind of setting the standard for reporters. much of 5i think i had to say has been covered by bill and writer of, but just to say that
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in and run them to a supreme court nomination is all is to mean a very exciting time. i don't now why justice stevens will decide. i know within a week or two we may have an idea whether he's going to announce his retirement this year or next, but for us it's always and i know this sounds so cliche but a teachable mines with allies for justice because most people in america, not to you guys who are and law school and lawyers and law teachers, but most people will have no idea what judges do and most of them, most americans feel as if they cannot have an opinion about a judge. judges to the americans are up there and thus of us are in a little bit intimidated by judges
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and the issue of justice every year. we do focus groups in philadelphia and we are holding one actually tamara just to gauge what people are thinking about the courts and is amazing to me almost no wind and groups of 35, 40 people we bring together every year has any idea how many justices there are on the courts. now one generally can name a supreme court justice. if your arm by a huge income of which is a little bit above how shall we say this, 55, you might know clarence thomas because we lived through a very acrimonious hearing before the senate judiciary committee around thomas's nomination. but generally speaking there are
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opportunity, a supreme court nomination is an opportunity just for the american people to learn of a bit more about judges and what they do here and i'm curious, a show of hands, did any have an opportunity to see the justice sotomayor hearings or robbers or justice alito? you have a little bit of a sense as to what that protocol is here and, of course, president's, most presidents, while shell they say most republican presidents look forward with tremendous energy and enthusiasm and around the appointment process. it reminds me of a store when richard nixon was president. god bless you. remember richard nixon. and one day someone comes into his office and says,
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mr. president, i think thurgood marshall is really sick. well, richard nixon was getting his hopes up of all that maybe he would have an opportunity to name his successor so he sent someone, some high-level official of the justice department over two-thirds of marshall's hospital room and a lawyer knocks on the door, now answer, so lawyer slowly pushes the door and walks up to marshall's bed. the room was very dark, thurgood marshall was lying on the bed with his eyes closed hearing and lawyer goes up right to his bedside and as he approaches the bedside and thurgood marshall lives up one eye and says not yet. [laughter]
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but you can just feel how eager richard nixon was to make a change on the supreme court. as bill pointing out and, if justice stevens steps down and this isn't just any regular justice, by justice stevens is really been the leader on the court hearing if you look of the dissent's, most recently on the citizens united case but in others the seattle schools districts case and others. this is the justice on the court that is articulating a a year in a very emotional way to the current rightward tilt of the supreme court. he has been a panoply important leader on the records and has also been known as a master
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tactician and strategist when he is in the majority. he has been able to fashion a majority decisions and assign the right in. when sandra day o'connor was on the courts to a moderate centrist justice white o'connor, as a means to attend and bring her over to his camp. so if he decides to step down this will be a very important moment for the country. as has been sent, and democrats and republicans see judges and justices harry dimly. interestingly of the end of the clinton administration republicans prevented 60 judicial nominees from being confirmed. ..
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>> these aren't liberal. but i think it's assumed as senator specter indicated over the weekend that most likely there will be a filibuster over whoever president obama sends to the senate. over time -- recent time there's
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only been four attempted filibusters. one to sam olito. there were two attempted filibusters against justice rehnquist both in '71 when he was up for associate justice and then in '86 when he was being elevated to chief justice. the only successful filibuster, recent filibuster was abe fortus's who was nominated by president johnson -- johnson. a very close friend of president johnson. there were only a few days of debate over the -- over his nomination. but his nomination kind of languished and he was -- he withdrew his nomination. so filibusters over supreme
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court no, nominations are very rare. frankly, i couldn't put it past the republicans to filibuster. in part, republicans other time, this is going back to really 1954, right after the landmark case of brown versus board of education. there were bumper sticker that appeared on cars, pry -- primarily in the south saying impeach earl warren. though that decision kind of set out afire storm among people. primarily republicans around judges and judgeships. republican, the ultraconservative be, the republican party, cares passionately about who becomes a judge. and therefore, during election times, republican presidents
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love to take the issue of the supreme court and lower court judges and talk about courts as a way to galvanize the party. i was struck several times before the bush administration, right before the election george bush would all of the sudden was it because he personally cared? no, i don't think so, rachel. but i think it was more. you probably disagree. but it was more because he knew that uttering the word judge, it it would galvanize the base of his party. and i think it's what bill said, the democratic base doesn't yet care as much as the right-wing base.
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and i think as long as that's the case, it will continue to be an uphill battle for, i think, democratic presidents to push on this front. one final thing and then we'll get to some questions. i remember -- in terms of reforming the process, i think it's very difficult to think about reforms, expect for one thing. i do remember speaking to a democrat, this was during the bush years. and i think one of the nominees that may have been jay biebe who is the author of the some of the torture memos, jay in the white house refused to give any of his nem mes that he authored or approved of when he ran the office of the legal council to the senate when he was up for confirmation. and i remember saying to one of
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the democratic senators, well, just don't show up at the hearing. just don't go. if they don't provide you the documents, then how can you have a hearing? and i remember the senator saying, but, nan, the cameras will be there. i can't waste this opportunity. we're kind of stuck with process as it exist. i would make one suggestion. that is i'd love to see the republican senators and the democratic senators each appoint a lawyer to ask questions after the senators go through their questioning of the nominee to kind of tie up lose things, to press a little harder on some points. i think it would make for a much more substantive discussion and perhaps be more instructive for not just the senate and
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committee, but more americans. other than that i think we're -- i think we're struck with what we've got. and we've got to make the most of it. so i look forward to the your questions and comments. >> let's take a couple of minutes if anyone else would want to respond to anyone else on the panel, rachel? >> i made the fatal mistake of not bringing a pen up here so i could scribble down the horrendous things you guys were saying. obviously i take issue with some of the thing that is nan -- the interesting thing about the numbers, i hate discussing the number. which party obstructed more of the other parties president's nominees. i mean, you can use the numbers to prove anything about that question. for example, and i don't use the word number 60, i used to know these numbers by heart, i don't
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remember them anymore. one number i do remember in the during the last two years of the clinton administration, 18 circuit judges were confirmed. during the last years of bush, it might have been 3. look, you can use the numbers any way you want. i think the fact of the matter is both parties work pretty strenuously to block the confirmation of the nominees from the other party that they view to be objectable. the vast majority of nominees go through without any debate. it's very their the district court becomes controversial, and if they do, it's because they have something interesting or something in the background that's truly extraordinary. at the circuit level, even there if you look across time over the last 20 years, most circuit nominees have gone through without a huge comment of
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controversy. somebody would make statements at the end of the day why they shouldn't be. at the end, both parties have to pick their battles. so. >> let me -- i wanted to great with rachel on a couple of things. one that is obviously hearing are here to stay. and giving staff a larger role will be difficult because the senators won't want to give up the limelight. you can find of, as nan suggested, integrate staff and members which has been done any number of times in the senate, particularly on special select committees, thinking about watergate and other investigation where you have council asking questions and conducting examination. and clearly, council doing that would have more time to prepare and would be more able to ask meaningful follow-up questions. so i think that is something worth thinking about.
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and obviously you could do that and preserve sufficient tv time for members. we thought it was necessary. >> i did want to go back to something that rachel raised, which is the notion that there are questions nominees shouldn't answer. i think it was described by elaine keegan once as the pincher movement. where if the question is too specific on a legal issue, the nominee won't answer because it might come before them when they are on the court and they don't want to make any representations to the senate or appear to make a promise. but if it's too general, and at a high level of abstraction, then it calls for speculation and the nominee won't answer
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that. i was wondering what you think about how forthcoming nominees should be? >> i'm not sure i think that a question is ever so broad that a nominee shouldn't answer it. i think nominees should avoid speculating about how they might rule on a hypothetical set of facts that a senator presents or something like that. but if the question is give me your thoughts on the commerce clause, i think a nominee should. i think that's the perfectly good question. if they are not prepared to answer a question like that, they shouldn't be confirmed. the reason i think it's appropriate not to answer questions about how you would rule on a case that might come before you is simply that. i mean you would not want to be the party appearing before a judge who had said under oath in his confirmation hearing, i will rule this way if this question comes before me. because you would legitimately think that judge is not open minded about the question.
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and so people often when you say something like that, people come back with what's the difference between the question and the confirmation hearing. and the judge having expounded their views on a legal issue in a previous opinion. so, you know, everyone knows what scalia's view is because he's written 13 opinions. he can still answer the question. the reason is issues in cases, they are dealing with a particular set of facts, a particular procedural posture, standard of review, all of these things. and they have briefs, oral arguments, they have a long time to consider and come up with what they think is the right answer based on their judgment. and in a confirmation hearing, you just don't have that. you are not concerned by facts. all of the things that would constrain you in the settings. >> i don't mean to interrogate you. can i follow up on one thing?
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>> well, it seems to me one the suggestions that's been put out there is that nominees be asked to apine on long past decisions, decided case that is aren't going to come back before them, most certainly. and there's even been the suggestion that they given those cases well in advance. they can look at the briefs, do anything they want and come before the committee how they would approach and how they could come out. is that legitimate? >> it could be or might not be. it all comes down to the judgment on whether the issue in that case is live and comes before them. roberts and i a -- think alito may have done it too. those are case that is are wrongly decided. >> i think we need to move beyond dred scott. >> robert has gave a list of three or four case. of there's no conceivable chance
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that dred scott is going to be revisited by the supreme court. so it is not inappropriate for me to say what my views on that case. i think that's where you draw the line. if you start to say, okay, roe v wade, what about some only, how aboutwood -- woodburn versus bilburn. it's difficult to know what is going to come up again. >> how about justice scalia's refusal to discuss marbury versus madison. >> you know, i'm trying to remember how he handled that. that's not open for revisitation in any realistic sense so. >> actually, i had a very specific question, bill, that maybe it goes to a broader point
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about whether there is the possibility of change in the senate's process. it seems to me from observation but maybe you know specifically how this has happened, that it used to appear to me that one of the big flaws in the confirmation hearings was that there was no ability on the part of the senators to engage in follow-up questions because they weren't listening. it seems to me in the hearing of sotomayor there weren't -- did something change in the process? >> no, i do think my experience is members work very hard to prepare for these hearings. and staff as you can imagine sit around and anticipate every conceivable response to a question and draft the follow
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up. so it may be that what you are watching was just those happy instances when the nominee gave the answer that fed into the series of follow-ups that the senator had. i do think we shouldn't underestimate the energy that senators put into these hearings. but, you know, as senator biden said, it is a part time thing for them. so it's tough. >> some senators are really good at interrogation if you want to call it that and asking follow-up questions, and others aren't as good. when you are helping prep a nominee, you know who they are. that's part of the prep. senator x is going to ask a follow up, and senator y is going to go after you. >> actually, i'm having a hard time any question joe biden ever asked. he loves to speechfy. i remember reporters use to
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count the minutes. 20 minutes after speech. and had time maybe for one question. but i think he was the exception. maybe. >> all right. maybe we ought to turn to the audience and see if there are questions. if you have questions please come down to the microphones. [inaudible question] >> i got a couple of questions. where is going to happen -- [inaudible] >> anybody want to tackle those? >> with respect to your second question, you can't take away the confirmation process altogether, because the
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constitution requires it. it's not a matter of taking away the confirmation process. the question is whether the hearing itself is necessary. as a matter of american history, the hearings for supreme court justices are a fairly recent phenomenon. they didn't become standard until 50 or 60 years. before that they were sporadic and before that, they didn't do it at all. they didn't require them to show up in person and have the hearing. that's the question is the hearing, not the confirmation prosses. >> and the aspects of the hearing. the hearings weren't televised until justice o'connor in 1981. so you could have the hearing and not have it been on national live together is another suggestion. thank you. >> i am from the faculty. i thought i'd throw out a reform
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proposal. maybe not the most realist lick, eliminate life tenure, you'd have to amend the constitution, i presume. i have a feeling that many americans would support doing that. if that were done and longer 15-20 years terms were substituted that would eliminate or reduce the incestive to really dig in and reduce the incentive on the president's part to choose the youngest nominee so that person could serve forever and be his legacy on the bench. so i'm just wondering, first of all, whether you think the life tenure is a good thing for supreme court and article three judges and whether that proposal would help the confirmation process? >> okay. i'll start. i'm sure there are numerous views. obviously, life tenure is a good thing in protecting judges when they are making decisions. that, i think, is a given.
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there are a number of loopholes. there's one proposal that would have -- would empower the president to appoint a new supreme court justice every two years and then the youngest nine on the court would sit on cases, the youngest nine who are available. and so the older justices wouldn't be deprived of their life tenure, they just wouldn't get to sit on many cases. the idea behind proposals is the one you mention. which is one the ideas to take some of the pressure off of the confirmation process. and i think it would do that to some extent. although you would still know the person is going to sit on the court for a number of years. and as rachel has said, the stakes are so high now, i'm not sure how much difference that would make. it certainly would inject fresh blood into the court
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periodically. >> there have been other proposals too like after a certain number of years the justice could sit on a court of appeals somewhere. i confess i haven't spent a lot of time thinking about this because it has no chance of happening. you know, i don't have a strong view. >> any of the proposals that don't involve a constitutional amendment turned on the presumption that you can talk sitting justices and in effect make them senior judges who still hear cases they haven't lost their article three status, and therefore, they are still within the confines of article three. you don't have to amend the constitution. i think i agree the likelihood of any of those happening is slim. >> thanks. i just have a question. one the things that's interesting about the
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speculation of the new potential nominee is the choice of picking intelligent cull heavyweight versus standing or sitting politician. i was wondering if you could comment on how you think the process would pay out with the sitting politician since many of you seem to think it was be a fight between the parties no matter -- just pick. because a lot of people seem to think the sitting senator, maybe a governor is selected that the process might not be as harsh on the candidate. i want to know if you have any thoughts on ideas about that. >> it's an interesting question that you raise. i think obviously the confirmation process would be slightly different. because expectations would be different. and you suggested that a politician couldn't be a intellectual heavyweight. i'm not going to touch that. it does seem to me there would be less expected in a politician in terms of being able to
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described the fully formed judicial philosophy or dealing with the commerce clause or whatever. how much lower the bar would be, i don't know. on the other hand, it raised a whole other set of issues. which is stemming from the fact that the politician have been out there given political speeches in which he or she no doubt has said some things that would be viewed adds controversial by the other party. it would be a political decision up to members of the to decide how relevant those statements were. you can foresee lots of problems there. president obama has talked about breaking out of the mold of promoting judges and has talked about getting people in with an understanding of the legislative process and being a chief executive. so it's certainly not outside
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the realm of possibility. >> during the reagan and bush years i kept expecting one of those presidents to name oran hatch. i think it's a really good idea. for instance, if you look at just the makeup of the senate judiciary committee now, sheldon whitehouse from rhode island, he was one the star democratics on that committee right now. amy klobuchar is on the committee. also a lawyer and very smart. i wouldn't put it past the president to be thinking in terms of a senator. there are a bunch of names. i'm sure y'all have looked at those names. read about some of those people.
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and i think be obama's -- as bill said constant refrain that he doesn't want to choose someone from the judicial monastery, might actually drive his decision a little bit more this time than in the past. the fact of the matter is it's hard for democrats or republicans to really wage war against one of their colleagues at end of the day. it's much easier to oppose a sitting judge like mayor garland who maybe elevated. one of their colleagues that they've spoken with and done legislative work with, i think the culture of that place is you have such that it might help actually with speeding along the process. >> i think think -- i totally
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agree with president obama it would be great to have somebody on the court not from the judicial category. when harriet was nominated, it annoyed me that she wasn't a judge. that was ridiculous. now the conventional wisdom, it would be easier to get somebody confirmed if they were from the senate. with the caveat that i'm not a historian, if grover cleveland got something confirmed, i think it was a senator. as the counter pointed out, i would point out john ashcroft, he was nominated right after losing his reelect from the senate. and he got the heck beaten out of him at his confirmation and was confirmed by a narrow margin.
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that's the conventional wisdom. in president obama picked a democratic senator that it would be an easy confirmation. i don't know. >> i think one point on which we might agree is senatorial courtesy is not what it used to be. >> i'm with news. i'm not a lawyer. i will ask a subs is thattive question. there have been some discussion about the religion because justice steven is the only protestant. if we decided another catholic or jew on the court, is this going to be a fire storm. the other question i had is what about hillary clinton? >> oh. >> anyone? >> i cannot let that john
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ashcroft comment go. >> i'm sorry. >> john ashcroft, when he was in the senate, waged war against some of president clinton's judicial nominees. i remember a wonderful, really wonderful african-american judge from missouri who had been on the state supreme court i can't remember his name at the moment. >> ronnie white. >> ronnie white! ronnie white had been a state court judge and had actually voted more times than not in favor of the death penalty for certain defendants, but john ashcroft when he was running for his reelection seized upon two or three opinions or statements of ronnie white where he was arguing against the application
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of the death penalty. ronnie white had the endorsement of the aba, endorsement of police chiefs in the state of missouri, and yet john ashcroft solely for political reasons, solely, challenged ronnie white and he never -- he was defeated. every other republican -- he got every republican in the senate. so it wasn't as if there was a lot of love for ashcroft. and it was based in part because for his own political needs and desired, he went after a lot of really wonderful nominees for various positions. all right. now getting to your question. i apologize. it's interesting. i think nina had a piece this morning on npr as to whether president obama should be influenced by the fact in his selection that there are no
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protestants on the court. you know, i don't think it's something that a lot of people will talk about. but it's a lot -- i think a lot of people will think about it. i think there's been an under current of chatter over the fact that both roberts and alito for catholic. certainly it's never and should never be grounds for opposition to any justice. but the fact of the matter is, as a country american think a lot about religion. and i do think-would be and could be a real factor in their minds. as the story indicated, quite often senators will seize upon an issue regarding religion as a way to kind of whip up opposition to a candidate.
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but i don't think it should be a factor. i don't think it's an appropriate thing to consider. but i think it will be because i think americans will think about it. talk about it. and if you look at the blogosphere, there's been many institutional scholars who have promoted the idea of religious divorcety on the -- diversity on the court. i think john stone from chicago we ought to have some more religions represented. >> other views? >> i have nothing to add on religion. i think that cover it is. on hillary clinton. >> oh, i forget. >> yeah, there was a part two. >> there was a part two, thank you. >> you know, it's an interesting suggestion. my guess is the president's
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pretty happy having her where she is. i will just use her to play off to another team which is the theme of age. and i think one of the things -- one the phenomena that we've seen is the desire to appoint younger and younger judges and justices so they will serve long longer on the court. and i think hillary clinton would have a disability in that regard. you know, sort of the -- i think what we heard last time around was that there is a kind of informal cut off around the age of 60 which i mean that soon i have no chance. i think that might be a problem for her. >> actually, i'd like to follow up for one second. if you'll indulge me on the religions.
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if we presume that president obama may consider the question of whether there's a need for another women or another african-american on the court or first asia-american on the court and all of those. why isn't religion diversity an equality relevant factor? >> some may think it is. >> all right. we'll leave it at that. [laughter] >> my name is chris smith, lom student and legal fellow with senate respect. my question is on circuit boards. within the last year, i think there have been three nominations that were stalled and then in the end there was something like 90 some votes to zero in favor of confirming those circuit court judges. any thoughts on reform or changes in that area, in fact, i think there's also a seat in the
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fourth circuit that's been open for -- vacant for 17 years or somebody like that. 15 years. any thoughts on that? >> is your question how to reform the circuit court process? >> i mean it seems to be a problem to me. >> the thing about those seats is if -- i think i know which four circuit you are talking about. i'm not sure the other seat. >> my general question is these delays in the last year. i mean senator lei he spoke about this. >> the thing about is it every seat is unique. in some cases you see a delay because of the confirmation issues. so the person is very controversial like the fifth circuit in mississippi during the bush administration, you had a very long time before bush got a judge confirmed because he
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said couldn't get confirmed, then you had somebody else but after a year's long delay. so it could be something like that. sometimes there are long delays because of disagreements about senators on which state the seat belongs to. if you have a seat vacant from '04 because of the disagreement on whether it belongs to idaho or california. you know, in the fourth circuit, obama just switched the seat from north carolina to south carolina. i think that was interesting. so every single seat has some different story. so it's hard to know what you propose as a reform some seats stay vacant for a long time because the president's waiting for the senators from that state to come up with some recommendations and the senator takes forever. it totally depends upon the circumstances. >> i think going back to the other part of your question, the long delay followed by a unanimous confirmation vote. obviously, that's an indication
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that republicans are trying to slow things down. i mean it's a -- you know, we've seen that across the board whether it's with the department of justice nominees or whether it's judges or other executive branch nominations. now sometimes those delays can be because a senator is working out a problem with the situation with another senator or whatever and has a hold on the nomination . what we've seen is a concerted strategy which is to slow down the confirmation process as much as possible. >> i'm glad you asked that question. because everyone focuses on the supreme court and not enough on the court of appeal. and the fact of the matter is with the supreme court deciding fewer than half of the cases that use to and chief justice, i think the supreme court decided 150 cases a year. now i think the number hoovers somewhere around 75, 76. it's these courts of appeal that
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are really important. if you think about it, they are only 200 -- about 200 court of appeals, judges in the country. for 300 million people? so these 200 people are really powerful. particularly since the supreme court isn't making most of the these decisions. some of us would say that's a good thing. but the republicans know exactly how important those judges are and those seats are. and you're right. with only a three confirmations last year. a whole year of democratic appointees and again they were not progressive liberal candidates. so they are very covets judgeships. >> i think we'll make this the last question. >> okay. thank you. you probably know or may know the uk has just established a
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free standing supreme court for the first time. so they've been looking at ways of performing the judicial appointment system. and there's been some talk of involvementing the parliament, that's never been involved before. so have some parliamentary role and looking at other reforms you haven't addressed today but including a super majority vote requirement, more prenominee. obviously, there is some now but to have an understanding that it would be more expansive. and then also abolishing nominee or simply having it in executive sessions, not getting rid of it altogether, but doing something to decharge the hearing. so interesting on your thoughts. in the end, they are not going to do that. the closest they will come to doing anything is a postappointment hearing so when there's no issue at stake. >> it would be -- that's very
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interesting. i have not followed that. but i'm going to look it up now. i mean to think about how would structure a process from track if you are constrained by the u.s. constitution and history. you know, i've never -- i've never done that. because it's never been something that was pressing on my plate. especially -- but i think certainly you wouldn't come up with what we have now. what would you come up? that's an interesting question. >> no, i think those are all interesting ideas. the super majority requirement we almost have, i think. >> right. >> because of the filibuster, yeah. i think -- i'm sure what the post appointment hearing would be? >> a meet and greet. >> well, we can all go for that. >> right. but the idea is it would have
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[inaudible] >> who would appoint the judges? >> as it is now, the chief justice and the senior associates chair of the commission that makes the judges. >> who appoints them? >> well, they are appoint the as a matter of the constitution that is it is the chief justice and most senior associates over seeing the appointment process. >> i mean i think has to the not having a hearing, -- >> nominees. >> it would be very hard for us to do that because even if everybody agreed that the testimony produces nothing useful, it feels like rolling back access to public information and eliminating some measure of public accountability and it's hard for anybody to want to do that even if we think that's not a particularly productive part of the process, i think. >> actually, there's a panel that nan and i were on together
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last year or the year before, one of our panelist -- was it it steven carter? >> uh-huh. >> gave an interesting about requiring nominees to appear in person in the united states. and it intersectioned with race relations and all of that and everything. if you haven't -- it's very interesting. >> all right. well thank you to the panel. we appreciate it. [applause] >> for those of you that are still here with you, the program on law and government is another program on the week from now on the senate filibuster. please come back. >> oh. >> yeah, sure. [inaudible conversations] >> inaudible conversations]
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>> supreme court justice john paul stevens announced today he'll retire from the bench at the end of the term. justice steven nominated by president ford in 1975 was enormously confirmed by the senate later that year. he's the second justice to leave the court since president obama's inauguration, joining david souter. >> tonight's authors jonathan krohh and "shop class as soul crash." our booktv programming gets under way at 7 p.m. eastern and continues all weekend here on
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c-span2. >> this year's c-span studentcam competition asking middle and law school students to create the -- high school students to create a video on the greatest strength or challenge the country is face being here's one of the third place winners. ♪ ♪ ♪ >> my name is zander, i am a 13 years old living in the city located in oregon's high desert. i live in the neighborhood that most would consider to be an average american neighborhood. three years ago, when the house in my neighborhood was for sale, there would be so many buyers that the house would sell for well over the asking price. people would literally fight to
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buy the house in my neighborhood. today, the same houses that sit empty. foreclosures notices, rental signs, and for sale signs replace yard decorations and kids playing. ♪ ♪ ♪ >> when i moved here 7 years ago, my neighborhood was the best place in town for the holidays. at christmas, almost every house was lit up, making a magical place. now you are lucky to see one house picture street with christmas lights or even a christmas tree in the window. it was also the best place to be for halloween. people all over bend would bring their kids here by the truckload. my mom would easily go to five industrial sized bags of candy and still have kids knock being
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of this year, we barely got through one regular bag. my neighborhood used to be full of dogs being walked and kids playing. now there's just a few of us. many left to search for work and live with relatives. those left are feeling the effects of the economy and have made cutbacks. many of my friends parents are hanging on and working several jobs or looking for work and behind on the house payments. >> it won't peak until about 2011 or 2012. we have a long ways to two. what we are seeing right now is just the tip of the iceberg. >> one thing is people forget to think about how the challenging economy effects more than just adults. according to kttz news, the number of homeless students crew by more than 2,000 last year school year alone. the majority of these homeless
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students were enrolled in the elementary school level. in just the five-year span between 2003 and 2008, the number of homeless students had already increased by 10,000 students. the federal government defines homeless students as those students who lack fixed, regular, and adequate night time resident. the federal program director says this includes families that are doubled up, students living in shelters, hotels, motels, cars, or other outdoor area or with friends for one day or more
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during it's school year. according to the bend-la pine student district more than 37% received free or reduced lunches in 2008. that number will rise as more families rely on schools to help feed their hungry children. having proper clothing for students such as warm coats, hats, and gloves it also a big issue living here in bend where ts have already dropped into the negative teens this winter. people are finding it more and more difficult in the current economy to get their kids and their own basic needs met. these dissic needs include
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shelter, food, and closing. -- clothing. i am just one boy in one town. but this is america everywhere. >> to see all of the winning entries of this year's studentcam competition visit studentcam.org. >> let's meet another winner from our c-span studentcam video documentary competition. we asked to give a five-eight minute video.
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today we meet alexander reese. he's an 8th grader. congratulations. >> thanks. >> tell us what was your video about? >> it's about how the economy is effecting children today. >> how is it affecting you in oregon? >> well, it's making it harder for people to make ends meet and making it so my friends are moving away so i don't have as many people to hang out with. >> why did you pick this subject? >> over the last year or so, i've noticed more houses going empty. p i decided to ask my friends and family about why. they told me that the economy is starting -- or is so poor and making it hard for people to make ends meet. >> what were your thoughts on your friends leaveing the neighborhood? >> i thought it was sad because on -- normally on saturday mornings my parents would get annoyed because they wouldn't be able to sleep in because the
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doorbell would always be ringing. now there's not really any people coming to the door. >> so was this an emotionally challenging subject for you to tackle? >> yeah, it was pretty challenging finding out about all of those kids without proper clothing or shelter. >> is there anything that you think the government can do to help this trend? >> yeah. i really -- i'm very hopeful that the president is making plans to help keep people in their house. >> do you think there's something else they can focus on to help stop this trend? >> yeah, i think if people are to look at this a bit more, then maybe they could help to keep -- to bring the economy back. >> how long did it take you to do this video? >> is it me about four days because i had find out about it right before the deadline. so i luckily fell on a short
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weekend. i borrowed my dad's video camera. since i make movie, i knew how to run the software. and i was able to film the video and put it all together. >> congratulations on the win. what will you do with the money? >> i'm going to keep most of it fo colge a going to keep a little bit more pocket money. >> thanks for joining us. >> thanks. >> okay. let's watch what you see and what you don't see. >> my neighborhood used to be full, now there are only a few of us left. many have left in search of work or to live with relatives or because they have lost their jobs and homes. those left are feeling the effects of the economy pretty heavily and have made cutbacks. many of my friend's parents are working several works or behind
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on their house payments looking for work. >> you can see the entire documentary and all of the other videos go to studentcam.org. >> all this month see all of the winning videos on one of the country's greatest strength or challenge the country's facing. watch the top winning videos every morning at c-span on 6:50 eastern, just before washington counselor. and at 8:30 during the program, meet the students who made them. and for a preview of all of the winners, visit studentcam.org. ♪ ♪ ♪ >> what in the world is more ridiculous than american politics? >> for the past years using clips from various media outlines, the gregory brothers
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have become viral hit makers with autoto tune the news on c-span's q and a. at today's state department briefing, topics included north korea and the six party talks the situation turn stan and the call for freezing u.s. adoptions. this is about 40 minutes. >> happy friday to everyone. good afternoon and welcome to the department of state. several things to talk about before taking your questions. secretary of state will be traveling this afternoon to louisville, kentucky where she will provide remarx on the mcconnell center for public policy at the university of louisville. the secretary will speak about why nuclear arms control, nonproliferation, and nuclear security matter to each of us and how the initiatives and
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acronyms are coming together to make our nation safer. she will explain how nuclear proliferation and terrorism endangers our forces and broader global interest. they'll outline the main elements to safeguard our country at allyies against nuclear attack including strengthening, combating the threat of nuclear terrorism, maintaining a safe nuclear deterrent and how steps like radification of the new star treaty signed yesterday by president obama of the nonproliferation of the nuclear posture review and the upcoming nuclear security summit here in washington advance that goal. the secretary will stress the urgency of the challenge and the need for bipartisan resolve meet it. in sudan, a special envoy, scott was there this morning
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continuing his discussions with the government of the southern sudan in advantage of sunday's national state and local elections. he is back in march toon this evening when he has met with heads. he met, for example, this evening with former president jimmy carter. the national elections commission has confirmed that polling will begin, beginning on sunday april 11. the sudanese and the umba national party has withdrawn some candidates but that others may continue. we view these elections as an important step of the implementation of the comprehensive agreement which end the 22 year war between the north and south. this weekend it'll be the deployment of large significant number of observers, 17,000 accredited domestic observers
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and a number of international observers 130 from the european union. 100 from the african union, 70 from the carter center, 74 from the united kingdom, 50 from the arab league and a range of other contributions by japan, brazil, russia, china, and great lakes regions as well. we want to see the elections with established plans in a way that will reflect the will of the sudanese people. the united states will continue to raise concerns where we see them and we continue to work very, very hard with authorities they are in the preparations, you know, for these elections on sunday that will continue through much of next week. but we will not hesitate to state when we think that these efforts fall sort of international standards. staying in the region, assistant secretary for american affairs,
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john carson is traveling to europe and central africa. we will visit france, republican of congo, democratic republic of congo, and he'll mt with a number of french officials. he has requested the meeting with the president, and he hopes to meet with president joseph. he hopes to conclude his trip in london where he'll meet with officials of the foreign office. we've posted on our web site, state.gov today of the remarks as he addressed the china instituted for contemporary relations. he laid out a vision for the relationship with china highlights the historical importance of the u.s.-china
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engagement. they will touch economy, global climate change, and he will participate in a forum before coming back to the united states. members of the reform committee is tackling issues like this major reform. as a friend of pakistan, we applaud the efforts taking by the pakistani leaders to achieve national consensus on reforms. speaking of pakistan, deputy secretary has arrived in pakistan. he had productive meetings today with foreign minister and foreign minister of finance. he also met to establish the
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pakistan assistance program. the ua -- usaid administrator, including the president and is part of the missions work in march. they consistented 2349 construction of buildings in which the parliament work. he also met with the usaid commission staff. our secretary for western hemisphere affairs is concluding his trip to the edge of he's in peru today and met with president and foreign minister to discuss a range of by lateral interest. he'll also meet with peruvian analyst, as well as a range of political leaders.
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tomorrow he will travel to visit usiad alternative development projects. earlier today, u.s. and russian negotiatorred held their last session in connection with the negotiation of the new part treaty which the president, as i mentioned, signed in prague yesterday. i think it's fitting to thank the chief negotiator for implementation, and our entire negotiating team. these negotiating began last april in roam where the negotiators first met after they were instructed to include a new treaty as a follow on to the star. formal associations began in may. as i said, they have just concluded. rose and her interagency team has engaged in intensity communications. the delegations guided by instructions and succeeded in
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including a treaty that meets the security interest of both sides. we will hear -- here at the state department welcome rose back into the office. i think she'll with in the office on monday. moving to qatar, we were informed this morning by the foreign ministry that it has decided to reassign it's diplomat. we expect he will be leaveing shortly. they have already indicated that there are were no explosives and he was not engaged in terrorist activity. that said we take all federal regulations. :
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there was a meeting today between foreign minister and the osce special representative. this will lead to a new election and democratic governance in
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kyrgystan. we also welcome relaxation at recent restrictions on media coverage there. at the end of the united states supports the people of kyrgystan and that remains are focused. >> back to russia before we move on to more urgent since. you've seen the comments about suspending adoptions between the u.s. and russia? >> i have not seen those particular comments. >> you have said he has said that and i wonder if i can get a response to an as order to have a response to this latest case? >> regarding this latest case we are obviously very troubled by an, they are russian citizens and we insurer, will share
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responsibility to ensure their welfare. we have been in touch with russian officials and are cooperating closely with that of the sweet rest of this most recent case. the issue of adoption is between the united states and russia, it was a subject that the foreign minister brought up with a secretary when she was recently in moscow. and we will continue to work for a closely with russia and with an accredited out adoption agencies to see how we can improve the situation and assure the welfare of children. >> using suspension is warranted? >> we will continue to work with our counterparts in russia. this is an effort that can bind russian families and american families. the russian country and america
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to gather. we obviously recognize that there are -- >> my question is, yes, on now in service iraq and on a second. there are american couples that desire adoption and we want to see these proceedings. safely in ways that guarantee the welfare of these children. where russia or any country has questions, we take our responsibilities seriously in facilitating these international adoptions and as you saw recently in the context of haiti work very hard to ensure that adoptions are legal, appropriately executed, appropriately monitored, and this is a responsibility to take seriously impaired as to what the russian government will do, at the heart of it just as we talked about in the context of haiti at the moment a these are
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russian children, russian citizens. we cooperate closely with russia as these adoptions move toward. russia has questions and they do have questions we will sit down and work through recent cases. this is not the only one, there have been a number of points in the recent past including an least one case where a child and unfortunately tragically ended at dead. so we will work hard with russia and continue to work closely with international adoption agencies, those who are accredited under the hague convention and i think this is still a potential area of importance and cooperation but to the extent that russia has questions we will seek to use them. >> that was a pioneer in search, just not the answer to the question i asked, is inappropriate or wanted for adoptions between russia and the united states to be suspended? >> to the extent that russia has
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questions we will seek to provide answers and assurances. >> does that mean you don't think it's appropriate or wanted? >> i think we understand the concern that the former minister and has about this issue. and russia and chooses to suspend these adoptions these are russian citizens. that is russia's right. we would like to see these adoptions continue but we understand the concern that russia has, we share that concern and will continue to work closely with russia to resolve the issues. >> so there is no answer to this? >> do you actually now or have any reason to believe that russia has suspended the adoption? >> as i said at the beginning, i have not seen worn mr.
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>> did you have any other reason to believe? >> again, if russia does suspend cooperation of adoptions, that is its right. these are russian citizens and we think that this is your country and options are important, there are valuable. we have parents in the united states that wants to open their homes to children from throughout the world. we think this is something that'sç are important and partf our relationship with many countries around the world but to the extent there are legitimate questions russia has about the welfare of russian children and come into american homes we'd understand my concern, we share it and we are cooperating closely with russia. in this case as with all cases we work through these issues but ultimately at the bottom both governments have an rights as
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these perceived. >> are you aware of any ammocete initials turned with a visit to the boyda hospital? there are reports that embassy employees officials went to visit the boy and were turned away and there are some reports of the physical observations. >> i'm not familiar with those reports. >> could you bring us up to speed what the embassy has on the case and what it plans to go toward blacks. >> we are working through the embassy to ensure that child's welfare and safety and to confirm that the chalice and the custody ever per progression child care services. we are coordinating closely with russian authorities and will seek to promote the best interests of this child. >> is their determination where he will go next? >> we do not now. >> how will that be decided, do
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you now? >> i don't at this point, it will be conjecture. on that and we are doing what you expect us to do. on this end we have notified authorities in tennessee marble can into the circumstances under which the child was sent to russia. >> vijay coverage you have state department people in tennessee? >> this should be a matter for domestic authority is. when will found out about the incident and attacked the child traveled to russia unaccompanied, we notified state authorities and they are looking into a. >> because of the sherrif air says that they were alerted by an the case yesterday when the state department contacted their office. >> i think we just i thought i just said that. when uyghurs learned about this case we notified tennessee
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authorities and they are investigating. i'm not aware we have our own personnel in tennessee, but as two domestic issues like this it reverts to other agencies or to local authorities. we are working to the issue whether on the responsibilities in moscow, but ask your investigation of the specific circumstances involved in this family as something that's it authority to look into. >> i want to clarify, the statement yesterday? >> i don't have a specific time i. i think obviously the child traveled two days ago and i believe we learned about it yesterday. >> on the issue of qatar, you said the diplomat would leave shortly. do you know how soon? >> every new to the embassy of qatar. >> in terms of the decision to the u.s. parent related debuts on such a move to the embassy
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before they actually made a final decision? >> we've had conversations with the government of qatar and both here and in at washington and back to the region. our assistance secretary just talked to the one ministry to thank and we are satisfied that we have a, the actions that qatar is norm façade. >> did you ask them to make a move? >> we expressed the seriousness with which we attach to this incident, the last match the individual violated an federal regulations and the people of qatar in the arm thus they would resign this individual and we welcome back. >> north korea in 30 years ago didn't npr reports showing an atmosphere for the six party talks and threatened -- any,?
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>> i think north korea and should understand -- i think that their actions have consequences and now. north korea has known for quite some time with the international community, the united states expects of north korea. we want to see denuclearization of the corrine peninsula. there's a clear path for north korea to move, to accomplish that goal. in doing so north korea can benefit from improved relationships with united states and international community but obviously number three is the failure to take that step over many years and its reluctance to i obligations that north korea itself and agreed. >> in 2005, there are consequences and ramifications or number three as a billiard to act. in our nuclear posture review,
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we have taken account of our concerns on nonproliferation and clearly you have to clear cases that replied to our global concerns. north korea being one and iran the other. if north korea has concerns about what's in the nuclear posture review they actually control what happens next. and i come back to the six party process, if they take the steps to denuclearization than they have no concern and nothing to fear from the nuclear posture review that we released. >> related to that can you confirm that iran, north korea and syria were not invited to next week's conference? >> i think that as a safer assumption. >> can you say why they weren't invited? iran and north korea obviously in violation. >> we r -- the government that will be in attendance next week
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have shown a willingness to work properly within the international committee to strengthen the security team of nuclear weapons and nuclear know-how. the three countries that you just cited, north korea, iran and syria, have steadfastly either reduce or inhaled to cooperate effectively with the iaea. so we are strengthening and the non-proliferation regime, expressly to be able to deal with those countries oppose significant challenges with to our long-term security. >> why would a country which shall remain nameless at the moment, also does not cooperate with iaea, has not signed, why would they be invited?
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>> they have a particular country, has demonstrated a track record in terms of cooperating on these issues. they have demonstrated responsibility with respect to nonproliferation issues in. and on that basis we think they are part of the solution, now part of the problem. >> are your room to pakistan? >> i reactant. >> are you referring to pakistan cracksman by iraq what country you're talking about. >> i was asked a hypothetical question. >> i am asking you a simple direct question. >> what's the question? >> were you. during to pakistan. >> now. >> you were referring to israel.
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[laughter] inglis massaleit my question was. >> i am happy to talk about. >> is that taking out sites in iraq eid. >> on the one hand, israel is not a party to the nonproliferation treaty so it has gotten by lenin's the support obligations. that said, and has demonstrated its track record of protecting the technology in its possession >> can we go to pakistan and? >> sure. >> i think it's fair to say that pakistan is the country in which the greatest nuclear proliferation and -- has ever taken place under a.q. khan and
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i wonder if you could address a wide -- what is useful or why you are convinced that pakistan and has were wheeling and future demonstrates its commitment to preventing the spread of nuclear technology and know-how? >> well, we want to see pakistan be part of the solution and future. and has been part of the problem in the past year pakistan has been a source of a proliferations and at various times in the past we have taken specific steps against pakistan as a result. that said, pakistan recently has demonstrated a rawness to help international community shutdown the a.q. khan network that work. we still have questions and pursue those with pakistan. it has demonstrated that it can
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secure a its own nuclear weapons program and we have confidence in the steps pakistan has taken. you are quite right. pakistan has been a source of concern in the past and has been a significant discussion. we have a significant discussion with pakistan on these issues here and if we are going to strengthen the nonproliferation regime going forward we want to seem pakistan invested in this process and to the extent that other countries demonstrate through their cooperation with the international community that they are willing to assume the same responsibility that the door would be open the cooperation but in the case of the three countries that were noted earlier they are noted right now for their refusal to cooperate with the international community.
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>> had north korea presented any prior conditions through china to come back to the six party talks? >> there is nothing since in in north korea's white except it's off. north korea and for whatever reason and it continues to help to see its of a conference on interest. north korea knows what it needs to do, that has been clear in many many discussions that we've had with north korea for months and years. ambassador it was worth made that clear with north korea, what they needed to do, when he met in town and in december. at that particular time north korea expressed an interest in moving back into the six party process. all the have to do at this point is finally said yes come to the
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table, have a meaningful discussion, take the steps that they pledged in the past to take, and there are lots and lots of possibilities. but we have made clear to north korea in, there are things that you need to do if you expect to reap some benefits in this process. but the ball is in north korea's court, it has to take the first ups. >> and i go back to israel for a second perhaps it's actually somewhat -- there's a report in israeli newspaper that says the u.s. is to 90 says two israeli nuclear scientists who want to come to the states. >> without commenting on individual of by visas determinations which are governed by the privacy act, we continue to issue an visas to
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israeli scientists including a clear sign to us on a regular basis. we've actually improved processing times or visas were scientific exchanges with israel, so the suggestion of policy change, there hasn't been and we continue to support exchanges with the israeli scientific and animate -- academic reduce. >> so this report is wrong? >> to the extent we've stopped providing visas to israeli scientists as a whole that report is wrong. >> is there any reaction to a iran an announcement today about the enrichment of uranium equipment that has been powerful clarkson but mack. >> well, as you now, we have an important meeting in new york yesterday regarding working with countries involved in this issue
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and and the prospect of a resolution adding sanctions. for countries involved in this process become any doubts about what we need to do everyone is kind two continue to listen and two leaders and iran. this ongoing test of about its nuclear program, iran wants the international community to believe what it says that it has peaceful intentions with respect to its nuclear program and then iran has no need for a third generation are faster center wishes to do what is to a ancaster. so iran continues to add to its own indictment of why the international community is pursuing the steps in this. >> will it affect sanctions? >> i think if we are looking to
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strengthen the indictment against iran we should just leave when iran continues to said. its comments today to us can provide a greater evidence that notwithstanding the denials that we have to conclude that iran has nefarious intentions and its nuclear program and that's expressly why we continue to work within the international community on additional measures, sanctions to show iran that this consequence or failure to meet its obligations. >> two quick questions on two different topics -- versed on egypt, was a joint letter by a number of rights groups in urging the secretary and to urge you to tang democratic reform, was curious if you have a reaction to that letter and explain what the u.s. is doing in that regard. >> well, i did glance at the
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latter and certainly is consistent with the statements that we may hear the last couple of days. we believe that all individuals should be allowed to exercise really the fundamental freedoms and try and the declaration of human rights. we think that all egyptians should have any role to play, and meaningful role to play in an open transparent, inclusive political process. that believe essential two our analysis of how much to our hard policy and we think it's also in egypt's long term interests so we continue to support free and impartial alexian's in egypt and continue to make that clear to the government. >> how are you is pressing that directly to the egyptians and and and from the podium here? >> this is part of our ongoing dialogue with egypt and was
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clear in the human rights report in the section on egypt that we recently released and is part of our ongoing encouragement moving forward egypt has to open up its political system to a wider range of players. >> one other question of little old from wednesday about the jewish recensions on getting the leaders under the kingpin in designation, canq you explain some of the concerns that the u.s. government has about toronto and sent through west africa and what this is meant new -- what this is meant to avoid? >> it's a major transit hub were narcotics from south america to europe and are credible reports that corruption specifically the complicity of arab and officials at all levels helps fuel this criminal activity. want the strenth deals corruption and inhibit legitimate sustainable economic growth and honest and effective government. the two individuals designated
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as drug trafficking campaigns have been under review by the u.s. government's interagency from in months. the u.s. department of treasury has made this designation because we have reason to believe these individuals are involved in significant international drug trafficking activity that affects the national interest of the u.s. parent. >> it was a meeting recently, totino's discuss? in tokyo? >> how recently? >> i believe it was yesterday or the day before a. >> i don't have a readout. >> can you check by. >> i. but not be surprised among issues discussed was ongoing dialogue with them regarding base realignment activity, but i don't have a specific agenda. if there's anything -- i probably would say i would refer you to the embassy and that has anything in terms of topics
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discussed. >> back to kyrgystan, yesterday you mentioned that the air bases of an, it has been reduced. there were also the demands of authority is there to close down the base. do you have a reaction on that price. >> might understand from the pentagon is that we have resumed operations, we do have an agreement in act regarding the operations on that base. it's a valuable a transit center to us, its central to our efforts to support operations in afghanistan and have a pittance to the region including two sp nine. it was an issue that came up yesterday in a meeting between
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rows of an -- and we will continue that dialogue to the extent that in this interim administration continues to raise questions. >> if this issue came up at the meeting, wasn't that authorities demanded the closure? >> now, if i understand it, she indicated that she has questions about the future of the base and it will continue that discussion. >> i thought you said yesterday and had. >> i don't think -- i don't think i said that, but i might have said it did come up. >> as you are all aware israeli officials -- >> i think i said she did and made the particular demands of us but she said she had questions and we will --
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>> [inaudible] >> israeli official said that prime minister netanyahu of time to the sun and they decided that there are concerned that egypt and turkey plans to raise israel's presumed nuclear weapons capability on the next week quote and the senior egyptian officials and kyra and other arab diplomats sinbad's egypt and other arab nations are now speaking in turkey and no intention of raising this, do you believe that egypt was going to raise these topics and mean? >> i have no idea. >> i was wandering existing department and different -- confirm having control in mexico likes. >> i will take that question, i

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