a friday. syrian security forces shot some of the protesters. at the funeral on saturday, the next day, the people got quite emotional because they had lost loved ones and they then attacked and killed a lot of syrian security people. that paradigm, that cycle is repeated over and over again. the cycle starts with syrian government violence against peaceful protests. i need to be very clear. the syrian government are saying there are armed groups up in hama. i went there. i didn't see a single gun. the most dangerous weapon i saw was a slingshot. we need to be clear about what the nature of the violence is and where it comes from. the responsibility lies with president assad and his government and let me again reiterate the call by the president on july 31st, the secretary yesterday, the syrian

government needs to stop that slaughter. would you like me to discuss briefly, senator, the opposition? >> yes. thank you. >> i spend a fair amount of my time getting to know them, inside syria. the secretary today met a group of syrian opposition members that are living outside syria and i was able to join that meeting as well. a couple of things i would say about them. it's a diverse group. they're not very well organized. that is not surprising. the syrian government for decades would not allow any opposition party to exist, much less meet and much less organize. they are trying to do that now. very frankly they have a long way to go. it is important for the syrian opposition to develop their ideas, syrian ideas, about how

the democratic transition in syria, which we think is underway. the street protests as i said in my opening statement are growing. the democratic transition is underway. the syrian opposition needs to identify how that transition should proceed. that should not be an american responsibility. this is a syrian issue that syrians should decide. >> thank you very much. and i know americans are outraged by this violence, but i'm afraid that when you open up the newspaper, day after day and it's in the context of instability in a lot of places and a lot of change in the middle east that it might be -- that the level of outrage might be more muted because it's in the context of so much other news and so much other change in

the region. it's always out of volatility you know better than i but it's that much more difficult. i think it's difficult for many americans to sustain their focus. but, look, it's my opinion that not only should mr. assad step down but he should stop trying to deliberately mislead the world where he -- his forces engage in an act of violence and then it seems it's always followed by some fraudulent promise that they're going to reform. and then that cycle gets repeated as well. how about -- and i know part of the impediment here is developing a broad enough coalition of nations, governments, to support us and i know we're trying to get an even

broader coalition. and one of the challenges we have is engaging russia and china. and they're two of the most vocal opponents. i don't know why and i can't understand it but we have to acknowledge that two of the most vocal opponents in the resolution in the security council. what can you tell us efforts to engage there and what the latest is? >> senator, there have been intense discussions today up in new york, again, about some kind of u.n. security council action. my understanding from colleagues up in new york a couple of hours ago was that the most recent syrian government repressive measures in places out in the east and in hama in the west have had an impact.

and that the members of the security council who had opposed security council actions are potentially more open to some kind of actions. discussions are underway. my understanding is even as we speak here we think it is important -- i want to underline this, we think it's important that the united nations security council take action. we think it is important that the international community recognize the courage and the efforts of the syrian people to affect change, to push for freedom and dignity. and that the international community should support them. >> one of the challenges we have when i mentioned that sometimes it's hard for americans to sustain a focus on violence -- even violence at this level and

the kind of brutality, one of the limitations we have is not just the confluence of a lot of events that interfere or prevent that focus from being intensified -- one of the challenges we have is lack of information because of the syrian government's ability to censor or limit information. i spoke of the instance of the number killed but despite that number which we're never sure is accurate, are there -- you obviously have concerns about this but let me ask you, are there ways that we can circumvent or get around the censors that are in place now,

the ability of the syrian government to prevent the free flow of information? >> senator, one of the big topics that i've had in my discussions with officials of the syrian government over the last several months is the importance of allowing in international media. i do not know how many times i have raised that with the foreign minister, with the vice foreign minister, with close advisors to president assad himself. the syrians have a refrain which i hear all the time, which is the media coverage is unfair. to which i have told them, well, then you need to have the media come in and look at it and let them draw their own judgment. i will say after my last conversations about that, cnn was invited in, national public radio deb amos was invited in and we got a couple of british news agencies in. they were still kind of tracked and monitored in the country. they didn't have nearly the kind of freedom that i would have liked to have seen, that we would have liked to have seen. and i think npr just got back in

again. but you're right. that the censorship is a huge problem. and one of the reasons that i have moved around the country is to get a sense myself of what's going on. it's terribly frustrating to know really understand. you can watch youtube videos but there's a certain utility to having grown eyes to see things. i have been encouraging my colleague ambassadors in damascus to get out of damascus and to visit parts of the country. some are quite active. the french ambassador, for example. and i think we then also need to help the syrian people themselves, the activists learn how to make the best use of technologies so that they too can use the internet to get the word out. and i have to say they're quite

ingenuous doing this. in fact, colleagues of mine at the embassy tell me that the syrians understand a lot of the internet g chat and such things better than some of us do. there's a lot of ingenuity. the problem is the syrian government will not allow the free flow of information. and that should stop. >> well, in some ways that's -- that's one of the -- at least the way i would -- the way i would make a determination about legitimacy, that's one of the measurements. if you're not allowing the free flow of information, i think that at a minimum questions arise about the implications of that. i wanted to return -- i meant to ask you before when you were talking about the opposition, and i know this is difficult to do especially in the -- you're in the vortex of this much more so than i am or people here in

washington. but to the extent that you can step back a little bit and provide a perspective based upon recent events, one of the most -- this is my opinion, but one of the most significant factors in how the transition took place in egypt, for example, was the fact that you had a military which showed some measure, not -- i don't want to be categorical about this but some measure of forbearance, and you had a number of folks who were in the ruling elite who also showed some forbearance or at least some -- were measured in the way they responded and that allowed a counter-transition compared to some places we may be hoping

would replicate itself. is there any -- in syria, is there any element within the government at a high level either within the government or within the senior leadership of the military where you see some even unrealized potential at this point for some balance and maybe even some forbearance where they might not cross a certain boundary or they might -- someone at the top, in essence, saying this has gone so far. we've got to at least stop and pause, if not -- i'm not expecting anyone at the highest levels to agree with me about mr. assad stepping down. but is there any potential for someone to -- at the highest levels of civilian or military leadership to show that kind of forbearance at some point in the near term? >> senator, i'm going to be very frank. i have heard from a number of officials in damascus messages of good intent.

i have to tell you that what matters is change on the ground. an end to the shootings of peaceful protesters. an end to these sweeps where hundreds of young people are rounded up without any kind of judicial process and held for months, often in barbaric conditions. the release of political prisoners. there's still political prisoners that have not been released. change on the ground. i have listened to these messages of good intent. and when i come back to them and say, what about changing this and changing this today or tomorrow, i don't get much back. a few things here and there, senator, but not very much. and our conclusion is that this regime is unwilling or unable to lead the democratic transition. that the syrian people are demanding now. and in a sense unwilling or

enable doesn't really matter because what we are interested in, the syrian people are interested in, the international community is interested in, is that change on the ground, the positive change on the ground. the incidents just over the past few days leading up to ramadan and then since the start of the month show that there is no positive change on the ground. >> i was afraid your answer would be very much the way you just articulated. and i think if anything that should be -- that should be testimony that equates, i guess, to exhibit a as to why we got to maintain pressure and think of other ways to provide or to impose i should say even greater pressure by developing and strengthening alliances through engagement and through efforts that are made in the way of sanctions or other pressure because my sense and i think you

just confirmed it is that this is not a regime that's going to get tired doing this. unless they have a counterveiling force against them that will make them change. i guess i wanted to explore some of that -- some of those other pressure points. there are some commentators, some with a significant degree of experience who think that we should be turning up more pressure and imposing more economic pressure by way of the -- by way of the energy sector. i wanted to get your thoughts on that in terms of another -- another approach here. >> senator, it's an excellent question. on the energy sector, we have for years had sanctions against american companies doing

business there. and so unilaterally additional american measures, unilaterally probably are not going to have that big of an impact. the big companies that are working in the syrian energy petroleum oil and gas sector in syria right now are mostly european and canadian and so we would look to find ways to work with our partners to enhance those sanctions. and, frankly, we have had discussions about that. and that's underway. european and canadians, who are watching what's going on in syria, and i think the syrian government's latest actions will help trigger action, frankly speaking. >> and how would -- a lot of what drives fervor for change can be often rooted in economics

as it is in anything else. how would you assess the syrian economy prior to maybe with the beginning of this year versus the way it looks now in terms of its significance as an issue in this conflict? >> the violence and the unrest in syria, the lack of stability is really hurting the syrian economy. it started off slow but it is snowballi snowballing. let me give you just a couple of examples. tourism is completely dead. the hotels in several places which normally would have occupant rates of 80, 90% are down to zero to 10% right now. hotels are laying off staff.

the country is draining and slowly its foreign exchange reserves. business throughout the economy has slowed dramatically, whether it'd be production of pharmaceuticals or textiles, whatever it is. the demand among syrian consumers has dropped off the table. people in a sense are afraid to buy because the times are so unsettled. and so companies are really hurting. banks are also hurting. joann just did a very good assessment of the financial sector in the way it is suffering because of the current situation. one of the things that we're trying to do, senator, and this is, i think, quite important -- joann and i both worked in iraq. we do not want our sanctions to

devastate the broader syrian economy because in the period after assad, it will be important for syria to be a strong country and a strong economy will be part of that. so we have really worked in the united states government and with our partners abroad to target the sanctions against specific companies and against specific individuals that are involved in the repression. without targeting the broader syrian economy and making the people of syria suffer. it is a different kind of sanctions regime from what we had in iraq, say. it's much more specifically targeted with the goal of sparing the syrian people themselves great suffering. >> and i know that's always the challenge to make it -- make such sanctions targeted enough and impactful enough on the regime. i know that we've seen as often happens in these situations, we've seen an outmigration in

this case, i guess, most of it -- the majority of folks fleeing northwestern syria into turkey. any -- any report you can give us on that and a related question, obviously, maybe the bigger question is what role -- how do you assess i should say the role played by syria and what more do you hope that the -- i'm sorry. the turkish government, what role can the turkish government play in creating more pressure and more -- more impact on the syrian regime? >> first, senator, may i just follow up one little part on that, economic sanctions you mentioned. >> sure. >> and the challenge of getting

targeting that works and has an impact. we really do spend a lot of time on this. and let me just give you a couple of success stories that may not have made the news here. one of president assad's cousins is named ronnie ma-athlete -- maloof. he's shall i say an unscrupulous businessman. and we have targeted him very specifically as well as his companies because we know he helps finance the regime. he applied for citizenship to cyprus. he didn't get it because working with the e.u. we made sure that he couldn't get to cyprus and he couldn't get citizenship. that's strike 1 against him. strike 2 -- one of his biggest companies so-called sham

holding, so we targeted that specifically. it had a board of directors. we went after a couple of them specifically. their board members' term expired at the end of april and they were too afraid to have another board meeting. so they finally -- the government insisted the businessmen come together and have a board meeting in july and all they were able to do was come up with half of a board and one vice chairman. no one would agree to even be the chairman of sham holding. so the sanctions do bite. maybe not in ways that are always on the headlines, but what we do see is more and more business people, and especially sunni business people, which is an important pillar of the regime's support -- we do see them slowly but surely shifting sides and that's important. so i do think our sanctions are having an impact. with respect to, senator to your

question about refugees going into turkey and the turkish role more generally, a couple of things i would say. first, we appreciate that the turks did offer refuge to people fleeing the government of syria campaigns in northwestern syria. people fled in the thousands. we estimate somewhere around 12,000 fled mainly because they were terrified of army and syrian intelligence retaliation against them. the army and especially the intelligence services have a fearsome reputation and we have seen plenty of videos on arabic satellite tv of how they beat and torture people. some of them quite gruesome. so people fled in real fear. that's what happened in the town that i visited up in the north in june. so we appreciate the role that

the turks have played. my understanding now is that some refugees who went to turkey are beginning to trickle back into syria. they think that they will be safe. the syrian red crescent has extended promises that they will watch over people coming back. that there is not mistreatment. i think most of the refugees are still in turkey somewhere around 8,000 still there. so plenty of people are still afraid and don't trust their own government in syria. but the turkish role on this has been, i think, very good and we appreciate it. with respect to, senator, to your question more broadly about what can turkey do. i think turkey has a very, very important role. and i'm often in touch with my colleague ambassador ricciardone up in ankara. the turks have a very deep court date commercial relationship that they've been building up for years.

they had personal relations between the turkish relationship is searan relationship that they wanted to fostered and build. i think the turks even yesterday, i'm sorry, president wool is very critical of the latest syrian measures. the turks have perhaps a unique capability both to talk to the syrians at several levels because over the years they've built those contacts and also were they to adopt sanctions, for example, i think those two would bite. >> that's something i hope we can continue to foster because that kind of help in the region could be very significant. i was in the region last -- in july of 2010.

and one of our second to last stop was in beirut and lebanon. and i could -- i could sense almost feel the heavy presence of hezbollah in lebanon. and i wanted to get your sense about the implications of the unrest and the violence in syria, the implications for lebanon. and how has hezbollah responded to that? >> when i appeared before the foreign relations committee in march of 2010, we spoke a long time about hezbollah in that area that i recall. we have a real opportunity with change in syria to see both iranian influence and hezbollah influence in the region diminish.

that would be a real gain for us. it would also be a real gain for the syrian people since the iranians are helping right now with the repression in syria. with respect to hezbollah specifically, the syrian support to hezbollah has continued. it has not stopped. at the same time, i think the leadership of hezbollah at first was very outspoken in its support of the syrian government, more recently they have been quiet. and my sense is that they have seen enough hezbollah flags burned in syrian protests, especially in places like hama and dara and others. and they realize their support for the syrian government is not garnering them any long-term friendship with the syrian

people. >> and can you explain that, just walk through that in terms of -- >> the protesters and i think syrians more generally understand iran and hezbollah are supporting syrian government repression against them. >> uh-huh. >> and i know that you -- when you were getting out of the -- out of damascus and i think with a lot of valor and a lot of commitment and bear witness to the truth -- when you made that journey, i know it had to be in some ways harrowing, but what did you draw from it mostly? i mean, i know you saw a lot and you had a better chance of what was happening you said on the ground but what did you draw from it other than, i guess,

what has to be remarkable inspiration when you draw upon that, the inspiration provided by these brave people? what else can you tell us about that, that journey you took? >> well, it was a fascinating experience, senator. i had a lot of interesting trips during my time in the peace corps and the foreign service but that one, sir, would rank up at the top. i came away with a couple of conclusions which i shared with the department of state and also with the media. first of all, the protesters there are peaceful. as i think i mentioned, the one weapon i saw was a slingshot. these are not gunmen. when we came up to the first checkpoint very frankly the locals checkpoint, not a government checkpoint we weren't sure whether they were going to be armed or not and we were a little nervous. but the second point i came with was they are not against

foreigners. we're told them we were american diplomats. oh, america, great, go ahead, please pass. whatever. we got kind of lost in hama. we should have had a map but we didn't. so we had to stop and ask for directions and they actually got in the car and took us to where we wanted to go. they were very nice. they invited us to lunch, et cetera. they're not anti-american at all. in fact, i think they appreciated the attention that the united states showed to their cause and that they were peaceful. when they asked who i was and i said i'm the american ambassador, some of them said, oh, come on. who are you. they didn't believe me until i gave them some business cards and the third thing i came away with, senator, is their incredible commitment. and i get that whenever i met opposition people in any city, in syria. the commitment they have to change and to freedom and to

dignity, they are not going to stop. they underline that over and over. and we have seen that. we were talking about egypt a little while ago, roughly 900 egyptians died in of the first phase of this, egyptian revolution. 80 million people. syria has only 23 million people and nearly 2,000 have died so the scale of killing in syria is way beyond what it was in egypt. but the people in hama and elsewhere are quite committed to change. and i don't think they are going to stop and so i think we owe it to them to remain supportive and to try to build that support wisely, carefully, but to build that support. ..

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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> i'd like to call the hearing to order. i first want to thank the senator for joining us today. and also greatest collaboration over many, many months as the rankinranking member of the subcommittee. and thank you very much, senator, for your excellent work. let me also welcome our witnesses.

this morning where examined the housing finance system, specifically the to be announced market. in may the subcommittee conducted a hearing on the status of the cured cessation market. this morning's hearing continues the subcommittee's examination of the secure decision markets with particular focus on a part of the secure decision system important to housing finance. this is the to be announced for tb a market in early 1970s the tb a market began as a trading be for securities that were issued by ginnie mae. ritual expanded as fannie mae and freddie mac began issuing mortgage-backed securities. this market has evolved and today it is one of the deepest and most liquid market in the united states with average daily trading volume in excess of $320 billion. a market second onto the market of the united states treasury securities. the name of the market to be announced, comes from what the market functions, unlike a

traditional marketplace, investors do not know the specific collateral or pools of loans they are going to purchase until much later. the collateral is designated to be announced at a date in the future. many argue the tba market is a vital, such as a 30 year fixed rate loan. freely pre-babel mortgages and the ability to login interest rate prior to closing the mortgage. although the only securities traded in the tba market our agency securities, defined as those securities issued or guaranteed by fannie mae, freddie mac and ginnie mae, the tva also serves as a benchmark for privately issued securities, privately issued security's are priced relatively to tba price. in addition, originated issues taking a market to purchase and sell positions to hedge the origination of loans that are not eligible for trading in tba. for example, a just all right loans and jumbo loans.

as we continue to exploit -- explore different approaches, it's important that we understand how the tb the market works and what impact in reforms will have on this market. how will any changes affect the availability of the standard mortgage products sought by consumers. what characteristics of this market, if any, should be preserved. i look for during from all of our witnesses this morning on these issues. in fact, this is a very technical but vitally important part of our securitization. we have to understand the basics before we move forward, but as all of our hearings, the point is to accumulated information on the inside so we can start dealing with them, some major issues with respect to housing, with respect to the gses. without i'd like to introduce the ranking member. senator. >> thank you very much, mr. chairman, and i appreciate your kind words as well. i enjoyed our working relationship.

and i appreciate the opportunity for us to have this hearing on the tba market. i share your view that the tba market serves a valuable role in the mortgage finance system, and we need to better understand its mechanics as we move forward with housing finance reform. today's witnesses all have a deep expertise with respect to the tba market and will be able to explain how the tba market allows mortgage originators to hedge the risk of a change in interest rates between the time the mortgage is locked in and time the mortgage is actually closed and securitized your the main components of the tba market on the standardization and homogeneity of the securities, and their market practices and government guarantee of timely payments. according to a federal reserve status report on the tba market, the deep liquidity of agency mortgage-backed securities cannot be attributed solely to the government, the implicit government guarantee of mortgage-backed securities. going forward, the question is

how the tba market might change and develop without a fannie mae and freddie mac and blessed or exquisite guaranteed, and what are the trade-offs that we need to consider. to be able to answer that question we need to understand the feasibility of creating a private tv market over time and what it would have liquidity sufficient for mortgage companies to hedge their interest rate risk. again, mr. chairman, i appreciate this hearing and look for to what our witnesses will share with us today. >> we have been joined by the senator carper. would you like to make opening statements be? no, i'm looking for to the witnesses as usual and i appreciate you calling the hearing. >> let me introduce our panel. first is the star thomas sampson, he is managing director of barclays capital. mr. hamilton heads securitized products and trading at barclays including residential and commercial mortgage-backed securities as was other asset-backed securities. he joined barclays capital in 2004 after 15 years at citigroup were using managing director.

mr. hamilton is currently chairman of the securitized products division and has held that position for seven years. paul van valkenburg is a principal at mortgage industry advisory corporation, miac, and rising investment advisors which he helped to form. prior to forming miac he worked in market research with major wall street firms including goldman sachs and company and others. he has worked extensively value and loan portfolios for the lending institutions, actively restructuring the asset liability composition, developing pricing models, and stripped mortgage-backed securities, and analyze the prepayment risk in mortgage-backed structured products. selections of his research have been published in handbook of mortgage-backed securities and interest-rate risk models models theory and practice. andrew davidson is the present of andrew davidson & company, a new york firm specializing in the development and application of analytical tools for the mortgage-backed securities market that serves over 150

financial institutions. he has written extensively on mortgage-backed securities product development, valuation and hedging. prior to the founding of andrew davidson & company in 1992 he worked at merrill lynch were using managing director in charge of financial and systems analysts. we will begin with mr. hamilton. your testimony, written testimony will be made part of the record. please feel free to summarize and make the points. mr. hamilton, please. >> good morning, chairman, ranking member, and members of the subcommittee, i'm managing director at barclays capital, i'm responsible for the securitized products trading business. i'm pleased to testify today on behalf of the securities industry and financial markets association. housing is a critical part of our economy and is at the center of a virtuous circle. housing gets jobs which gets housing. consequently, the u.s. mortgage market is enormous. for example, the mortgage market

is up roughly equal in size to the total size of u.s. bank balance sheets. given the banks engage in activities other than residential mortgage lending, their balance sheets alone cannot meet the country's need for mortgage credit. ginnie mae, fannie mae, freddie mac and private institutions use the process of securitization to provide capital that allows for growth of mortgage lending beyond the capacity of bank balance sheets. today private securitization in the agency's finest their 70 of outstanding home mortgages and it is therefore impaired that securitization continue to play a key role in any future mortgage finance system. the market for mbs issued by the agencies is approximately three times the size of the outstanding nonagency private-label mbs market. in this agency, mbs market, the tba market is the single largest component. the tba market is currently the key to funding mortgage lending, and because of this plays a

critical role in housing and the u.s. economy. the enduring liquidity of the tba market, in contrast to the lack of is what's in the private-label mbs markets, preserve the availability of mortgage credit in the recent crisis. this ability to maintain liquidity during stress periods is a key benefit of the tba market. furthermore, the liquidity and resilience of tba market, attracts a wide range of investors who provide fast capital that is cycled into mortgage lending, including retirement savings vehicles, insurance companies and foreign investors. the vast liquidity and forward trading nature of the tba market provides key benefits to consumers, such as the broad availability of 30 year fixed mortgages that may be prepaid without penalty. and significant and consistent liquidity in the secondary mortgage market. this results in a stable and attractive funding source for lenders that allow them to

provide lower mortgage rates and longer-term rate blogs or borrowers, and efficiently recycled funds back to local lenders to enable another round of mortgage lending. of course the tba market is facilitated by the guarantee of the agencies, and, therefore, the support of the government stands behind them. currently over 90% of mortgages are financed through a program of one of these three agencies. this level of support is possible because agency in bs do not expose investors to credit risk. and, therefore, the market is crowded -- that have vast sums of capital of irbil for investment. without the tba market we believe the majority of this investment capital would be directed elsewhere. reducing the amount of funding for and raising the cost of mortgage lending. therefore, sifma believes strongly that maintaining a liquid and viable tba market should be considered as congress addresses housing finance

reform. with that said, the reality is that this current outsize role of the government is not sustainable over the long term, and should be reduced. tba markets role and the government's role should shrink as the private market regenerate over time. the means of achieving this rebalancing are very complicated and consequential on a national financial and personal level. while sifma believes tb market should play a role in the future it's assuredly not be 90% of the market. there are a number of challenges to the resurrection of the private-label nonagency market. including the significant uncertainty faced by nonagency mbs investors and issuers. the rules of the road for both sides are not clear. until they are it will be challenging for issuers and investors to see eye to eye on securitization transactions. at least in the volume and frequency that will be necessary to fund mortgage credit demand.

being able to withdraw the government from mortgage markets will require a carefully planned and sequenced transition which will take many, many years. it is essential to remember that the necessary volume will not simply appear because we would like them to. they must be drawn back in, they comfortable with, private -- private-label securitization and its regulatory environment. we believe it's critical that the planning and execution of significant changes to the funding of mortgage loans be done with attention to detail, be based on sound analysis of costs and benefits, be mindful of unintended consequences, and create long-term beneficial and stable environment. why we cannot predict the future, we can use the past as a guide and apply lessons learned and mistakes made. the good and the bad, to design a system that will stand the test of time.

we hope that the testimony we presented it will be helpful in educating policy makers about how mortgage loans are funded in the capital markets, the critical of the tba market, and some of the critical issues that must be considered to move forward. thank you for this opportunity, and i'm happy to take any questions. >> thank you very much. mr. van valkenburg. >> could you turn on the microphone? >> thank you. good morning, members of the subcommittee, thank you for the opportunity to testify before the subcommittee today. i'm the current and prospective role of the tba market and our current financing housing system. in my written testimony offered detailed description of how the current tba market interacts with the mortgage industry and prospective borrowers. it's a complex process but hopefully i've made it understandable and useful to the committee. tba markets provide the exit price for long-term fixed-rate mortgages and enable the bar were to accept capital that otherwise would not be

available. today to tb market as a potential up until metaphorical cap into the current housing finance system. any proposed new solution must preserve the tb market liquidity in order to enable mortgage companies and their borrowers to access this capital efficiently. given that the keep -- gses are in conservatorship, the system is flawed. i would argue the principal causes of the failure for the under reserved and undercapitalized gses against the unanticipated credit events. required to gses to underwrite u.s. mortgage credit risk and then restricting them to only investing in u.s. residential mortgage investments, and its pricing other guaranteed fees, a loosening of the loan underwriting standards and a lack of independence of political goals. moreover, a fully functioning housing system should share the goals of the administration's option one.

to quote, minimize distortions and capital allocation across sectors, reduce moral hazard in mortgage lending, and drastically reduce direct taxpayer exposure to private lender losses. a stated concern over this option from the treasury secretary is the mortgage credit risk will be transferred to the banking system, and as a result exposed the depositor insurance fund to this risk. i disagree with this conclusion. i believe the credit risk providers could be a mix of private mortgage insurance companies, credit default swap protection writers, and if necessary, government guarantors. some of the risk of the absorbed in the banking system but not all of it. they gses currently provide thirty-year guarantees to investors in india schools. this guarantee is a particular guarantee. this guarantee is also particular case of credit default swap. when asked what a credit default swap is, i usually answer that

she is the guarantee is a classic example because it is the largest credit default protection writer. mortgage pool our company pays the gses a guarantee fee in exchange for it -- by the gnc on the mortgage pool. a significant difference between the gse guaranteed and actual cds is that actual cds trades and active market with real price discovery and real risk transference. the amount of credit risk of mortgages that have a gse guarantee is enormous, and i believe there is ample room for a private market to develop, to price and exchange some or all of this mortgage risk. i believe that private financial institutions will be able to price and trade this risk, and as result spread this risk across the financial system and reduce the exposure to taxpayers. with such a mechanism in price and trade credit risk, the tba investor will be protected, the

mortgage borrower will be benefited, and our systematic risk will be reduced. i believe that the preference of the committee should be to explore how to create privately guaranteed residential credit market that will either be solely private or if the costs are too high, as the market develops, a hybrid of private and government guarantees that the development of a solely private mark it would take time and involve continual oversight. they gses exist today and we have time to transition to private credit market and allow it to fully develop. ideally the committee should export private market or hybrid private market solutions to avoid or reduce the problems of tnt's. i believe should a private market solution be developed, the liquidity of the future tba markets would be sufficient for mortgage companies to hedge their interest rate risk and the systemic benefits would be substantial. thank you. >> thank you very much, mr. van valkenburg. mr. davidson pleased. >> chairman reed, ranking member

crapo, mr. parker, as you've heard from the other witnesses and from our written statements, the tba market places -- plays an essential role. with monthly trading totaling more than $5 trillion, it's truly incredible achievement of our financial system. the tba market helps lower mortgage rates, facilitates rate locks for bars seeking to buy homes, and made mortgages available for the financial crisis. i appreciate the opportunity to discuss this important market with you. the next few minutes i'd like to highlight some of the key points of my written statement. while we can point to features of the market that make it useful, it's not easy to predict which market innovations will succeed. much of the success depends on the confidence of the participants. a shifting confidence can lead to rapid change in the viability of a market. currently the tba market enjoys substantial degree of confidence. this conference i believe is not just a result of good

institutional design, but also a long history of successful adaptations to change. whether or not the tba market will be able to adopt to the proposed changes in the structure of housing finance market, and they gses, is difficult to predict with complete accuracy. while i can provide you with a definitive answer, i can give you my views on several proposed changes based on my 25 years of experience of the mortgage market. the most important other proposed changes would be the elimination of the government guarantee on conventional loans. why the guarantee was only implicit until the conservatorship of fannie mae and freddie mac, the guarantee played an important role in the structure of the tba market. i do not believe that the tba market could survive the loss of a government guarantee. however, if the tba does not survive, the market will develop other mechanisms to facilitate hedging and funding of mortgage loans. however, mortgages, especially fixed-rate mortgages, would be

more expensive, less available and more subject to market disruptions. of the proposal suggests increasing the number of issuers for guaranteed mbs. the idea is that multiple issues would increase competition and decreased concentration risk. while such a proposal has other benefits i believe this would be negative for the tba market in a multiple issuers will make establishing good delivery rules more complex and less workable. in the end it is likely one of two issuers would dominate the market. some proposals recognized this problem with multiple issuers and recommend a single government issuer with multiple issuers. such proposal is probably consistent with the survival of the tba market as ginnie mae already operates a similar fashion. a single government program for all mortgages, however does run the risk that the issue will be unable to adapt to changing conditions and will be less flexible and adaptable than they gses have been. many proposals require any

government guarantee be on mbs but not on other obligations of the guarantor, and this is likely a positive step for the tba market. if the gse or its successors are primarily focused on securitization, then they will likely act to continue to maintain and improve the value and liquidity of the mbs and the tba market. many proposals recommend that the government guarantee be on a catastrophic guarantee that reduces risk to the taxpayer while enhancing the liquidity of mbs. such an approach is likely to be consistent with the tba market, provided that investors in tv eligible mortgages do not face credit risk. this means the credit risk must be absorbed by private capital outside the tba mechanism, and the government guarantee must fully protect investors in the tba eligible mortgages. the approach that i favor is to provide additional private capital in the form of subordinate bonds, private capital would provide funding for the subordinate bonds by the

government would provide a guarantee on the senior bonds. the government would be protected from loss by private capital, but would facilitate liquidity on the senior guaranteed bond. such a program could be structured in a way to be consistent with a tba market. as in porton of the direction of the reform is the pace of change. given the weak state of the housing market and the lack of currently viable alternatives to government guaranteed mbs, it would be disruptive to move too quickly to eliminate fannie mae and freddie mac, and replace them with an alternative structure. even if that alternative were better designed and more economically sound. on the other hand, inaction also poses dangers as most of the mortgage loans are still reliant on government guarantees and conservatorship is not a viable long-term option. instead of either wholesale replacement of the gses or not taking any action at all, i believe it is possible to

transform the existing gses step-by-step to a new system. in particular, i recommend they gses be encouraged or even required to seek forms of private capital to stand in front of the taxpayers. even while in conservatorship, gses can experiment with mortgage insurance, subordinated bonds that could be used as templates for the longer-term restructuring of the housing finance system. thank you for your interest in my comments. i look forward to your question. >> thank you all, gentlemen, for very excellent testimony about a very important and very challenging topic. we are going to have seven minute rounds, but i would be happy to entertain a psycho and if there are additional questions. we have the luxury with excellent analysts, and three, not 33 senators to take some time. so let's begin. with a question to all the panel, you all highlight the fact that the tba market does

affect the availability of certain mortgage products, 30 year fixed mortgage loans, the ability to lock in interest rates, et cetera. and changes that we are talking about, how would they affect these characteristics? i guess the other way to ask it, is this ultimately going to be a trade off in terms of what we expect of a mortgage today, fixed rates lock in 30 years? how is this all going to interact? i just like your general comments. start with mr. hamilton and down the road. >> i think is deathly a trade off. i think one of the large benefits of the tba sector and of the agency guarantee is we are able to get 30 fixed mortgages and keep monthly payments low. i think elimination of that will absolutely force us into either a floating-rate market or

something that certainly has a shorter duration and more volatility for the homeowner than their monthly payments. >> mr. van valkenburg? [inaudible] >> the government guarantee is necessary to enable the risk to be absorbed by the investor and transferred from the homeowner. so i think it is, the guarantee is functioning that today. the mechanism that the borrowers in the market, tba serving to the mortgage companies, they're basically price takers who take the information, and if they have an outlet to sell the loans, they will use the mechanics in place. so having a liquid market and having a liquid 30 year mortgages is, the means by which they can execute that transaction. >> and your comments just in general? >> certainly without some

guarantee were likely have far fewer fixed-rate mortgages. those rates would be higher. but i think more importantly than any of those is the fact the stability of the availability of mortgage credit would be much lower. we've seen the private markets, when you go through shock to the financial system, just step back for a while. it takes a while for them to recover. so during that time period, mortgages would just be much less available. >> let me sort of ask the question again, starting with you, mr. davidson. a lot depends in terms of where we come out, what goals we have when we go into it. and if the goal is to maintain, what people assume is the american mortgage, long-term, maybe not 30 years by 20, et cetera, fixed rates, and relatively low monthly payments. can we do that without a guarantee by the federal government in some way, shape, or form? >> it's hard to say what would

happen. it's much less likely that we would have the number of, the percentage in 30 year fixed-rate mortgages without the government guarantee. it turns out there's some investors who want to buy interest rate risk and can take prepayment risk, but don't want to do in credit risk. they want to be able to engage in transactions where they can buy hundreds of millions or multiple hundreds of millions of dollars worth of security at one point in time. and without removing the credit risk, it's difficult to see how you could create that kind of market. ..

would require a fee in order to absorb that risk. >> and your comments? >> i will say the market will develop for whatever the rules are brought to them but what i would say the 30-year mortgage would be less available, mortgage credit would be less available. and the credit availability that you'd be able to access would be at a significantly higher pace. >> let me ask another question which has been alluded to by all your testimony and that is right now there's a lot of capital going into this market because of the way it's structured and guaranteed. the credit risk aspects.

and i think at the conclusion from all your comments in some respects that capital won't go there and it's guaranteed as a change in a private system and it raising the question, you know, where does the capital go? you mite not know. but is that -- is that a bad thing or a good thing? and in terms of the overall economic reforms of the country? this is speculative. >> sure. >> but feel free. >> there's a lot of foreign investment capital, insurance company money management retirement funds that are taking -- putting large amounts of dollars into the u.s. sector, u.s. mortgage market and then due to the fact that they don't want to take credit risk, is there a market for that credit risk? i believe there is. but i think we're talking about

a very large transition by a mortgage market that's by rates and investors who cares about rates and an investor who cares about credit and that transition can take, you know, to do it in an orderly fashion we're talking about 10 or 15 years. this is not an easy scenario. >> mr. valkenburg and then -- >> and anytime you subsidize anything you get more from it and when you're subsidizing the housing sector in many ways, you know, along the food chain and particularly the guarantee is this one area? we would probably get a little more access to consumer credit than we would otherwise. but it's hard to quantify these things without any real price discovery about what private institutions would have at that risk. >> and part of that transition is in a sense that price recovery process? >> yeah, if we could develop

credit markets where we could transfer that to the private financial institutions we could begin to understand what those costs are, what the parties are willing to pay for that risk and move the credit risk into -- across the world instead of just localizeing it and concentrating it. it was supposed to be there before just that if anyie and freddie really didn't have enough capital. liquidity function is a lot like deposit insurance and deposit insurance keeps confidence in the banks even when there's uncertainty in the financial system. and so that function, i think, does serve a valuable purpose. the mortgage market is gigantic. and rather than moving more of the financial system into the

banks where we have more deposit insurance, this is really another method of providing a liquidity guarantee to important financial sectors. so i think you can have an economic benefit without having significant costs to the government. >> thanks very much. >> thank you very much, mr. chairman. in your testimony you follow up the liquidity in the tba market combined with the government guarantee on the mbs serves to lower the rate on agency mbs by about 25 or 50 bases points in relationship to the nonagency alternatives during normal markets. are you able to isolate and estimate the subsidy of the government guarantee without the value of the liquidity in the market? >> yes, right now the two pieces are combined. i would say most of that benefit is liquidity guarantee rather than a credit guarantee. instead of traditional times the

actual credit risk, you know, what should have been done by fannie and freddie, just the high quality mortgages is very small. it's on the order of, you know, 5 bases points a year so that most of the advantage that we're seeing for the gse loans is due to the liquidity guarantee, not to the liquidity aspect not due to the credit aspect. >> thank you. and mr. valkenburg, could you explain in a little more detail how you feel that a mix of private mortgage insurance companies and credit default swaps and other activities could take on some of the credit risk and that the government guarantees currently provide? >> well, right now the government has absorbed a lot of risk, a credit risk in both the mortgage market. the credit default swap market has parties who want to take that risk and -- the mechanics

of it would be involving the possibly, you know, a future entity, this new issuer who now lays off their risk through credit default swaps through the intermediation process of that market and so they can go out and get price discovery on what the wholesale price is effectively on where the market's pricing this credit risk and where -- if there's no bid for the 30-year guarantee in the private sector then the government can decide well, this is -- we're going to subsidize that and because we think it has important public policy goals so we could -- we could elect to still have a 30-year guarantee but at least we know what it would cost in a private transaction. so what i'm envisioning is that we could develop a system with -- you know, obviously with sifma's leadership and developing the market practices but, you know, the gse's really can't lay off their credit risk. we could develop structures that would -- and markets where that credit could be traded.

>> for a private -- excuse me, for a private residential credit market to develop, it's got to be able to attract capital. and right now it seems to me that's really difficult given the overwhelming market share that fannie, freddie and the fha have and for any of you, mr. valkenburg, in particularly, what are some of the interim steps that can be taken to transfer some of that credit risk? to move it away from fannie or freddie. mr. davidson, do you want to -- >> yeah, i'd be happy to suggest -- so i think right now even within the existing gse structure, there's no reason why the gse's can't work to start setup these types of markets. there's no reason that why they can't be using more external private capital in the form of insurance either pool insurance or mortgage insurance. there's no reason they can't set up a credit default swap market or the solution i said which

they should set up a subordinate bond market where they sell off some of this credit risk. so as a transition we can start building private capital markets even within the current gse structure. >> thank you. mr. hamilton, you wanted to comment? >> i would just point out that some of this technology already exists at the u.s. agencies, freddie mac for their multifamily lending program already sells off the subordinate and credit tranches of the securitizations that they create. so they're already doing it in other markets. the fact, you know, there's definitely the ability to transfer some of that technology and structure into the residential market. one of the things the agencies provided to us is hoequality an to create a market to disperse the credit risk on the other side and reduce the burden on the taxpayer. >> and as the other witnesses

point out these would be ancillary new markets that would, you know, as opposed to disrupting the tba markets. there would be new ways to trade credit that would not disrupt the current tba process. >> all right. thank you. i have no further questions, mr. chairman. >> senator corker, please. thanks for having this hearing and i know everybody is kind of checked out after what's just happened and there's not a lot of folks here but people certainly care about this issue. you know if you look at the tba market it's really nothing different than a futures market that exists, right? why is it that we have to have this government guarantee there to make that work when it works so well with corn and coffee and everything else? if y'all could just briefly tell me why that wouldn't work. >> i don't think -- i don't

think any of us would say it couldn't work. i think what i would say is, you could create a tba market out of private mortgages with an industry or someone else who is creating a homogenias market. but the important thing to note is it will be at a significantly higher rate to the homeowner. it will impact the u.s. housing market in a significant way and it will take 10 to 15 years to produce the liquidity that we just spent 40 years producing. >> but it would be fairly priced? >> it would be -- one would hope. >> well, it would be fairly priced? would it not be fairly priced? >> i think the market has proven the agencies and the private market have proven that dueling market risk pricing across the credit spectrum has not been perfect. and if the private market was to take over credit pricing, i

would argue that people with good credit would get very good rates and people with average ratings would not. >> and i thought that's the way credit was supposed to do. if you have bad credit you can't get a loan. if you do, you can. >> i agree with you. but i think -- >> well, wait a minute -- >> if washington is depoliticize housing then you're correct. if there's no interest -- >> wait. >> and having credit available to homeowners then i think what you're saying is absolutely true. and only people who have very good credit and can bring 20% to the table will ever get a mortgage. i think that's right. i'm not making a judgment but i think that's the result. >> i think what you just said is a very telling thing and i

appreciate it. paul? >> i think that the guaranteed subsidizes that spectrum and it enables, you know, the 30-year fixed rate -- we don't know if there's a market for a 30-year guarantee right now because it doesn't exist. so could we develop one? it's going to take, tom said, 5, 10 years to develop, but so we could probably go out and price today but we would be fairly priced probably not but we're assuming the government guarantee is cheaper than what a fictional market that we don't have any real price discovery on. so the rationale historically, and i'm not -- to my understanding if you subsidize the borrower with this 30-year fixed rate, you're now instilling more benefits, public policy wise because now you have -- well, they have more

homeownership where they can buy that larger house but i don't know the studies and the reality of the analysis around that -- this is the message that's been sacrosanct for years that we subsidize this 30-year mortgage we create more homeownership and, you know, better communities because we have more -- bigger houses and more involvement in the community. >> mr. davidson? >> so while the mortgage tba market is essentially like a futures market, it does have some important differences. one of them is that under current sec rules you can't have a private where eats created in a tba you can create a loan that's not yet created but at least technically some rules would need to change in order to create a tba market which would allow physical delivery of loans. so in most futures market people actually don't deliver their

product. they don't deliver the corn to the exchange or to the counter-party. they usually pair those trades off and in the tba market most of the originators actually sell the loans in the short position that is they've created. in addition, what we found in financial markets is that financial markets that have government guarantees behind them so sovereign markets trade with much greater liquidity than the nonsovereign markets. so i agree that futures markets could work. many of our clients who hedge mortgages also use futures markets either treasury futures to hedge their positions, but the tba market has proven to be the most liquid and most effective hedge for the mortgages. >> i guess in september, the loan limit will go back to the precrisis levels, at least currently, that's what's going to happen. will that give us an opportunity to see if this is something that will work? >> yes.

i think, you know -- >> and what's the market expecting right now that going back to your allusion to washington and depoliticizing. what do they think washington is going to do right now as it relates to that? >> oh, i think it's -- i think it's mandated that the loan limit goes down to 16,000 at this point. i think the market is expecting that to happen. i think the market would hope that it continues to drift down in a meaningful way. i don't think we're going to be able to create a private label mortgage market without product. we can't compete against the -- >> so that's going to be -- will there be any tba activity on those upper levels? >> my belief is no, it will all go into private label mortgage securitizations or banks will just keep those loans on their balance sheet. >> uh-huh. >> my point on this is that you're being asked -- or where somebody is being asked, what's

the consequences? what are the tradeoffs on the lending limit down? what's the price and what are the benefits? and we don't have any real information to make the decision. we don't have any real price discovery as to what that cost as far as -- what would willing parties in a private market trade that risk for? and then we could evaluate what that cost would be as far as the incremental guarantee fee exposure to our balance sheet, if you will, for the u.s. taxpayer by reducing that loan limit down and then we could evaluate it with real risk measurements so that we could assess whether -- what is the effect, what is the cost? and we don't have any other price discovery mechanisms to do that today because it's all -- well, it's this amorphous blob of a government guarantee. so i'm suggesting that we can create private markets that trade and price credit, this

price information will help the economy allocate the market more efficiently and help us make better public policy as part of the process. >> i believe it's a good step to lower the loan limits. the private market used to produce, you know, a trillion dollars, $2 trillion to support a trillion to $2 trillion of our mortgage loans. there's no reason it can't support a substantially larger portion than it is right now. >> uh-huh. mr. chairman, again, thank you. i thank all of you and mr. hamilton, i was in no way critical. i appreciate the observation that we in washington have credited a mechanism where those people with good credit pay more for their mortgages and those people with bad credit pay less for their mortgages. and, you know, the question is, will we ever depoliticize and call for the market to work in a normal way where people who have bad credit pay for more their rates and people with good

credit pay less. so i appreciate you bringing that out so clearly and i thank all of you for your testimony and i look forward to you individually in our offices over the course of time. thank you. >> thank you very much, senator corker. i've got a few additional questions but i think in the line of questioning both senator crapo and senator corker is excellent. it exposes the real policy choices we have. i mean, we have collectedly for generations both republicans and democrats and everyone who said putting people in homes is key to america and it's resonated and it's resonated and as a result a lot of these programs were begun to do that. and now we're at the point where we're looking at, you know, how do we make a transition? how do we do it in an effective way. how do we price it and maintain

a market and this hearing, despite the esoteric title is absolutely central to what we're going to do going forward for all the reasons that senator corker and senator crapo have indicated. can the private market step in. will they step in? let me ask a few other questions but i will also join senator corker and invite you to come by the office because we're not going to settle this morning. it's going to be a dialog going forward. to begin with mr. davidson and a question is, again, if my understanding isn't correct, please correct it, but the tba market is not subject to the securities laws, you know. it's exempt because of the participation of the gse's, the agencies. if we move to a private market where these activities have to be performed by security private firms, would that induce sec

registration requirements and other forms? and if so, would that complicate things further or how shall we think of it maybe in its more general question? >> so currently loans that are delivered into the tba market are exempt from sec registration. so that allows you to essentially sell them before the securities are created. so on the private market an issuer can't do that. they can't say, i'm planning on securitizing next year, please buy this -- or next month, please buy the security in advance. and so that just eliminates the possibility of physical delivery into a forward sell. other mechanisms could be developed but they're just not going to be as efficient or maybe there could be, you know, some exception created for some type of mortgage issues but the sec is going in the other direction right now and sort of requiring more disclosure, more detailed disclosure about loans and longer time periods between when you announce a deal and when you sell it.

so the sec's direction is sort of contrary to what you need to create a tba-type market for nonagency. >> so one of the aspects of creating this new -- and we all understand this is not going to happen a phased adaptation going forward would be to provide investor protections, but perhaps not in the same way that is done presently by the sec and private labels. but to work both of those features in, the rapidity, the liquidity, the ease, the uniformity with the investor protections so we'd have to deal with that, i guess. >> that's correct. >> there's a one of the proposals and again, that we ensure liquidity and market with uniformity with capital markets

accepted practices as necessary. essentially separating the guarantee function from the insurance function. and the issuance function rather. and can you answer that approach from the guarantee function to the issuer function? >> are you saying separate the government guaranteeing it or someone private guaranteeing it? >> the function itself. do we need to have multiple issuers? are you reading from my testimony? >> go ahead. >> i'm just suggesting the issuance would be a single issuer so that as investors aren't confused, if it's abc issuer or x, y, z issuer it's done by the issuance and the guarantee function could be priced independently or the role could be determined -- >> and i won't put words in your mouth but if it's a single issuer that likely could be a government entity. >> yes, it could be. >> i think these are all -- they're all saying the same thing. i think that separating out the

guarantee function is what we're talking about. when we discuss selling when mr. davidson said selling tranches and credit risk in a cds or a credit default swap on residential mortgages it's all accomplishing the same thing. we're trying to separate the guarantee function and mitigate and sell that credit risk so the taxpayers aren't on the hook at the same time one issuer and a couple of issuers and maintaining that liquidity. >> he's mr. davidson. i'm not as good looking as he is. mr. valkenburg, yeah -- you know, in the current tba market, there is a perception of, you know, fannie mae has better liquidity than freddie mac. it's minor. two or three ticks. i don't know. tom knows better than i.

so name and issuer name is significant as far as liquidity. so that's -- that was basically -- i think if we get into too many issuers it's going to confuse the investors which is going to affect the level of liquidity so a single name issuer was what i was advocating and the guarantee function separated it. i think it costs us in liquidity if we have multiple issuers. >> right. but just thinking back, i think that's a way we sort of walked ourselves into the gse's which is basically if you're going to give a monopoly, it's got to be quasi governmental at least; otherwise, the monopoly profits go to someone that's not our tradition. so this approach would imply the issuer would be some type of entity either very closely regulated by the government or some quasi governmental entity and then the guarantees would be

subject to market pricing and market activity. >> exactly. and we're not going to get -- you know, the credit market established quickly but we could develop that over time. you know, the current infrastructure with a 30-year guarantee is, you know, is not going to go away tomorrow and it's going to take time for that to develop. >> right. >> you are mr. davidson. >> yes, i am mr. davidson. [laughter] >> its vision as well as -- [laughter] >> you know, one idea is that if you're going to have this single issuer or a few issuers to avoid this monopoly situation is that you can allow that to exist only as a cooperative so some sort of industry cooperative like the dtcc and so if there is monopoly profits they have to go back into the chain where it's competitive either above or below that cooperative. i do think having, you know, one or two issuers is good.

trying to get as many participants to take the credit risk is good but you do have to find a way of standardizing the mortgage products so let's say we had 20 different mortgage originators all who would go through this one guarantor but they all had 20 different like loan documents, 20 different types of disclosure, then we'd have 20 different markets and that isn't going to promote the liquidity we need. so it's just a careful balancing act between spreading the risks and standardizing. >> let me ask as a final question to all the panelists but i'll begin with you, mr. davidson. which is you have proposed this subordinated debtor approach. but i think it implications a bigger issue which is, recognizing that we should probably begin to take steps now to begin a transition, that legislative steps because it takes a long time to get

legislation through and because the potential is not likely going to happen today or even next year, et cetera. but as you suggest and i think everyone on the panel has suggested, there are things today that should be considered to begin this process, maybe even experiments which don't work out and save us the trouble of trying them in the future on a larger scale or adopting them as an exclusive remedy. so if you can comment on your suborednator approach, how it might work and is it feasible to begin to adopt it today, and then i'd like to ask the other panelists to think of either what other steps that you would suggest, again, outside of legislative but within the purview of the agencies today and as you understand are the legal framework so let's begin with mr. davidson. of -- the subordinative approach

is through the multifamily area and i believe it's something the gse's are exploring currently, different ways of adding private capital and so it's certainly doable within the -- with the existing structure that they probably do need the approval of fhsa and i don't know if they need the approval of the treasury. i like the subordinated bond approach and other people use more private mortgage insurance. i think the key factor there is sending the message to fhfa that experimentation is good. you know, that's what you want to see and you don't need to have sort of a sole focus on conservatorship of every dollar today and that finding the right solution actually adds value to the gse's over time. and the other important component is to try to move the dialog away from well, let's destroy -- you know, eliminate the gse's tomorrow because they

were bad tomorrow. the managements who did that are all gone. and are there pieces of the gse's that we would like to preserve over time? so anyway, i think it's doable. >> thank you. mr. valkenburg, please. >> yeah, [inaudible] >> wrong button. there's no single monolithic position. and all these markets are complex and they price risk differently and there's different audience of investors so the subordinated bond solution may be the best solution. we don't know you believe we actually go out and try to execute and see what the price and the cost of that credit is. so i propose the market as one avenue of exploratory thought. so i don't have a particular single solution. but i think you have to price

it, find out what the costs are and find out what's the best execution for the government's balance sheet. >> okay. and mr. hamilton? >> i think we end up with a portfolio of things we need to work on in the interim, given the likelihood of legislation in the near term is low. the fhfa can obviously play a large part in this. lowering of the loan limits is one step. we could lower them further on a gradual basis over the next 18 months would be the next step. it would enable the private market to open up. i think the fhfa could -- you could limit the amount of borrowings that banks can do from the home loan bank system. you could encourage the covered bond legislation and market to open up to be another funding vehicle. you know, i think there's a portfolio of approaches that are going to attack the u.s. housing system and be the solution for mortgage finance, and i think there's quite a few of these we can do in the next 18 months without legislation. and i think those are just a few

of the things that we should work towards to -- and i think we'll find the answer. we'll rise to the top quickly. >> well, thank you very much, gentlemen. this has been very, very helpful to the subcommittee. and as senator corker suggested, please don't be surprised if you're called again to give your views and advice because you've been extraordinarily helpful and thank you very much for your testimony and your appearance today. some of my colleagues might have additional questions. we'll ask that these questions be submitted before the end of the week. it's wednesday. and so by friday, i think, that's fair. and then we'll get them to you and ask that they be returned as quickly as possible if there's any written questions. thank you very much and the hearing's adjourned. >> thank you. [inaudible conversations]

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and regulatory reform. senator rubio, a new member of the senate was the keynote speaker for the reagan 100 banquet, the conferences dinner event. this is about a half hour. >> lady gaga. [laughter] >> but i travel in different circles. our speaker tonight's parents emigrated from cuba with the rise of fidel castro and the young family arrived in america in the late 1960s where both parents worked very, very hard to contribute to the household. our speaker tonight worked his way through and graduated from the university of florida and then the university of miami law school. he spent eight years in the florida state legislature rising to the position of speaker of the house. and wrote a book entitled "100 ways to improve the lives of floridians," 51 of those

suggestions were ultimately enacted into law, including issues relating to energy efficiency, gang violence, and health care. he also worked very, very closely with former governor jeb bush in pushing education reform which has marked the sunshine state in florida really one of the innovative educational reform states in the entire country. he was elected to the united states senate in the seminal year of 2010. he is the personification of the american dream. and as ronald reagan once said, you can go to japan but you can't become japanese. you can go to france, you you can't become a frenchman. but anywhere anyone anywhere in the world can come to america and become an american. mra[applause]

>> and we are -- and we are very honored to have him tonight with us. would you join me in welcoming the newly elected senator from florida, marco rubio. [applause] sfb [applause] >> thank you. [applause] [inaudible] >> what is he saying? [laughter] >> i thank you guys for the opportunity to speak to you and then get compared to lady gaga. [laughter] >> tomorrow i'll wear a suit made out of meat. you guys got it. some guys are looking like what is he talking about. so thank you, guys. i appreciate it. i'm honored to be here with you

today. i don't -- i doubt that i'll be able to give you the best speech you've ever heard tonight. my teleprompter got left at the office so i'm going to have to wing it. we're going to have to wing it. [applause] >> thank you. actually, i'm really excited to speak to you today. i'm excited of what you're a part of because much like this country was back in the early 1980s, america is once again in a moment of decision. ronald reagan gave a very famous speech before 1980, quite frankly, the decade before 1980 including the time to choosing and what he outlined a decision in what americans had to make what kind of country we wanted to be and what role we wanted government to play in our lives. it's not a new choice. it's a choice that virtually every american leadership has had to make. and for much of our history that choice is pretty clear. america wanted to be different. america wanted to be special. and what separated us from the rest of the world wasn't just our political system. our political system is

something we should always embrace and be proud of. our republic is unique and we should embrace it. we should always understand that we decide issues in this country that other nations have to fight wars over, among themselves. but that's not what really separates us from the world. what's always separated us from the world is that in america, it doesn't where you came from or what your parents did for a living. if you had a good idea and you were willing to work hard, anyone from anywhere could accomplish anything. for those of us who were born and raised in this nation in an era of relative peace and prosperity, sometimes it becomes easy to forget that. and to take it for granted. but the fact is that this is an exception rather than the rule. we know as life in america is almost an impossibility almost anywhere else at all in human history. there's never been a place like this. we should never be embarrassed to see that because it's true. we should never be embarrassed to see america for what it is, a unique and exceptional and set

apart from the rest of the world. but we also have to understand that that was a choice. that wasn't an accident. that didn't happen on its own. it didn't develop from one night to the next 'cause we're smarter than everybody or god loves america more than he loves other nations. it was the product of choices that were made by the people who worked in this city and across the country before us. they chose to have an exceptional america. and often that meant difficult decisions and sacrifices, but a clear and conscious choice that america wanted to continue to be different. that was a choice that america had to make in the early 1980s. in a time of a lot of uncertainty about our future, some who argued and believed that america was on the decline. that believed that soviet-style communism was inevitable to spread across the world and that america had to embrace and set the world order or somehow we would have to be second place to emerging powers primarily the soviet union.

but there was a voice at that time in the american political scene named ronald reagan who said not only was that not true but that, in fact, everything that the soviet union represented was destined to fail and fail miserably. and people literally laughed. they didn't chuckle. they didn't disagree. they laughed at him. they believed that what he said was absurd. he also talked about the notion that america could once again be great. that it could be the leading military power in the world and the leading economic power in the world. that somehow our future could be better than our history. and, again, his critics didn't just chuckle or disagree. they laughed. they believed that after vietnam and the watergate era and the malaise of the late '70s that america would never be the same. that we would still be an important and significant country but not the exceptional land that reagan knew as a boy and the one he had grown up in. but ronald reagan knew better. because ronald reagan knew that our greatness never came from our government. it always came from our people.

and that in the early 1980s, there was nothing wrong with the american people. and he knew that if we embarrassed the principles that had made us great in the past, it would make us even greater in the future. by the end of that decade, of course, history has already recorded what happened. the soviet union and its brand of communism didn't just not come to dominate the globe. it actually literally collapsed. by the way, an interesting aside. have you ever talked as i had the opportunity to do with folks that knew and worked with ronald reagan at the time. do you realize that when he gave that speech, where he said "mr. gorbachev, tear down this wall." there were people in his administration that were taking that out of the speech. they believed that language was too abrasive and too antagonistic and it didn't belong there. that it was not realistic that we could accomplish that but reagan knew a fundamental truth. and that is that this idea, this notion of wanting to accomplish your god-given ambition and your

god-given dreams was not an american principle or an american dream. it was a universal one. and the thing that distinguished us from the rest of the world is that we created a place here where it was possible. america is a place where people from all over the world would come because they couldn't be who god meant them to be in the nation of their birth. and that is literally what we are as a people. a collection of go-getters from all over the planet that could not accomplish their dreams or hopes or fulfill their god-given ambition in the nation of their birth. but here nothing could stand in their way. that was reagan's america in the early 1980s and late 1970s. it was the era that i grew up in. i tell people all the time when they ask me where did you get your center right conservative politics because i grew up in the era of reagan. i grew up in an era where i watched and believed and knew that america's future could be greater than its past. and the reagan era defined the

next 20 years. well, we're at another one of those juncture points now in american history where once again we have to choose where we want to continue to be exceptional or are we prepared to become like everybody else? it is a choice that every generation before us has had to make and now it's our turn. it's a choice that by the way that's at the core of everything that's been debated up here in washington, d.c. i'm sure you've all watched as has the country at this whole debt debate and this whole debt limit debate. but the debt limit debate was not about the debt limit. the debt limit debate was at its core about what country we want moving forward. the facts are indisputable. the united states spends $300 billion a month. it spends -- it has a government that spends $300 billion a month. 180 billion of that comes from money we collect in taxes and fees. the rest, 120 billion or so, every month, comes from money that we borrow. that ratio is unsustainable as it is.

but it's only destined to get worse. you see, the spending part of 300 billion is going to go up dramatically because we have made promises. this government and its leaders that were here before made promises that is going to increase that dramatically. medicare balloons, social security balloons. in addition, the revenue part of it will not keep pace. our economy is flatlined. it literally did not grow the last quarter. it literally basically did not grow. unemployment hovers at 9-something percent but the real unemployment figure when you add in people that are underemployed and just stopped looking for jobs gets close to 20%. 1 out of 5 americans is unemployed, underemployed or has simply given up. and that means that that revenue number as a percentage of how much we spend is only going to get worse as a percentage -- that spending is going to balloon but the revenue part is going to stay stagnant. in addition, 120 billion we

borrow, that's completely unsustainable. and we will -- if we keep doing what we're doing now, if nothing changes, we will have a debt crisis that will make the last one you saw look like child's play. because this last debt crisis was basically because we wouldn't pass a law to raise the debt limit. the next debt crisis may be one where they won't lend us money because they don't think we can pay them back. and the warnings are out there from everyone. there will come a day if we do not stop doing what we're doing now, where the world will refuse to continue to end will us money or they do lend us money, will lend us money at high interest rates because they don't see a path forward for america, the math is simple. and, quite frankly, everyone agrees that this is true. but there's a sharp disagreement about how to address it. on the one hand, you have those who believe the only way to address this is to just increase taxes. there's a group of people out there that makes too much money. and they're not paying their fair share and our job to take

money from them and i will confess to you that it is a position that enjoys some popular appeal in america. after all, most people, even those making $250,000 a year don't consider themselves to be rich. when you think of rich, you think of billionaires, real billionaires, and multimillionaires. and so there's some appeal out there in the public perspective. well, why not? why shouldn't people that are making a lot of money pay more? there is also the belief, although i think it's less significant, that the way you grow your economy is through the government. if the government spent a little bit more money, if we had more programs to do certain things, that somehow the economy would grow as a result of it. and that's one school of thought about how to approach it. now, the people in america who believe that here in washington they're no less patriotic than any of us. but their theory stands in sharp contrast with what i believe is the reality of what's made us great up to this point. and that's the second thought process, the one that i think

most of us in this room find ourselves in. and it's the idea that, yes, we need more revenue for government but that revenue shouldn't come through new taxes. it should come from new taxpayers. it should come from growth in our economy and it's a simple equation. if more people are working, that means more people are paying taxes. and if more people are paying taxes, that means it's generating more money for your government to pay down its debt. but if you use that additional revenue to simply grow your government, you're not solving anything. and so the second part of the equation has to be, we limit the growth of spending. and, yes, that means looking at discretionary spending. you know, amount of money that we spend on a yearly basis on different programs that are not required by law, but that's a small sliver of our overall budget. the truth is the big growth in spending are programs like medicare. that by the way, if we don't reform them, we'll cease to exist. fire department to save them, we have to reform them. there's another thing i would tell you and that is that history teaches us that i don't

care who's in charge, a conservative, a liberal, democrat, republican, if you let politicians spend money that they don't have, they will do it. if the choice is between spending money they don't have or cutting spending, they will raise money they don't have. they will spend money they don't have and that's why we need spending capacity on the balanced budget amendment. all states except one in this country have that. two different schools of thought. i would remiss i should step back and say when you argue about how do you create more taxpayers instead of raising taxes there are two things that our government can do right now to reinvigorate the american economy. one is tax reform, which is not simply tax increase. it's simplifying our tax code. making it simple, flat and fair so that when people go here -- the government doesn't use the tax system to pick winners and pick losers. it uses it to generate revenue

for government that doesn't destroy job creators. the second thing they want regulatory reform. i cannot exaggerate to you how onerous how this administration's decisions on regulations have been. consistently now every single day from washington, d.c., regulations and rules are being written that are literally destroying jobs in america on a weekly basis. they are trying to accomplish through rule-making an unelected agencies what they cannot accomplish through the political process, it environmental policy, or union labor policy. they are creating an environment in america through a complicated tax code and onerous regulations that are making it a less desirable place to do business. in fact, when people are willing to tell you that it is easier to do business in communist china than it is in the united states of america, you know you're heading in the wrong direction. and so for us, the equation is simple. grow your economy and limit your spending.

and if we could do that, these issues become a lot easier to manage. and that's the debate. these are very two different views of the role of government in america. two very different views of where we should be as a nation. and between those two views, there's very little middle ground. and when people talk about compromise, i'm not against it. but compromise has to be a solution. if the compromise is not a solution, you're wasting people's time. we're not deciding here whether we're going to have six judges versus 12 judges or whether we're going to name is post office after this guy instead of that guy. this is a fundamental difference of opinion about what kind of government we want to have. and the answer to that question will determine what kind of country we have. for your generation and beyond. you see, much of the world has chosen to have a government that's very involved in our economic lives. and i will confess this is kind of a simplistic view of it.

but i think an accurate one nonetheless. much of the world has chosen to have a government very active in their economic lives. that means a government that guarantees you all sorts of things. but in exchange for those guarantees, there are things you have to give up. primarily, your economic freedoms. literally, your ability to open up a business out of the spare bedroom of your home. the ability to draw a business plan on the back of a napkin and go out and max your credit card and open up a business because if you believe so much in this idea. much of the world has chosen that economic model. and they seem relatively happy until very recently when even europe figured out even their high taxes and high regulations could not sustain what they had created. but what you give up is the vibrancy of the american economy. and i think what reagan had argued and what we should argue today is that that's fine for the rest of the world to choose that. and if that's the kind of country you want to live, a

place where the government guarantees you certain economic results, there are so many places in the world you could move to. there should be at least one country on earth where you can open up a business in the spare bedroom of their home. there should be at least one country on earth where you should be able to open up a business after drawing a business plan out on the back of a cocktail napkin. there should be at least one country on earth where a worker can become an owner, where an employee can become an employer. there should be at least one nation on earth where these things are possible. for the last 200-some odd years and that country has been the united states and we shouldn't change that now. [applause] >> and so behind the noise of the debt debate is what we are arguing about. if washington is divided so is

america. this generation of america wants it both ways. we have to choose. do we want to continue to be the country that our parents knew, the singular exceptional place? or are we prepared to become just another country just like everybody else, still rich, still powerful, still important but no longer exceptional? that is the choice. and that is the debate. and i know that sometimes it's scary to think, wow, well, why not become like everybody else? why do we have to continue to be the leading this or the leading that? my answer to you is that, i'm not sure we want to live in a world where america is not the america you knew. i'm not sure i'm prepared to raise my children in a world where america's light is extinguished and new lights take its place. i'm not sure the world is better off if america were diminished and other nations that are on the rise were to increase.

who would live and speak out on behalf of the values of liberty and freedom? after all, the liberties and freedom we've known are largely the exception rather than the rule in human history. the idea that somehow people could govern themselves was almost unheard of up until 200 and some odd years ago. and even in much of the world now, people still scoff at it. who would speak on behalf of these principles? the idea that somehow you don't have to be born into the right family in order to succeed. that somehow the same businesses and the same individuals should come to dominate the economy generation after generation. the rejection of a political caste system or an economic caste system. who would serve as a living, breathing example that it doesn't have to be that way. you see all over the world, even people that don't like america admire americans. because there's someone just like them who was able to do here what they were not able to

do there. and that's what sets us apart. that's what america has meant for 200 and some odd years. you see these other countries that are emerging around the world and pulling their people out of poverty? they're not doing it by embarrassing socialism. they're doing it by embarrassing the market. and the more they embrace for the principles we stabbed for the more they're doing fine. but if america stops being america, what nation on earth are people prepared to take our place? there is no one. there is no other country. there's nowhere else to go. so the debate we are having is about whether we will continue to be that kind of country. or are we prepared to be the first americans to allow our nation to diminish? and the work you do and the stuff you're involved in politically is really about that. this is no longer an ideological or intellectual argument about

big government versus small government. conservatives versus liberals. this is literally a decision about our identity as a people and as a nation. that is what we're deciding. and we will have to make a choice faster than any generation before us has had to make it because the world moves faster than it ever has. so that's the great challenge of our time. and i find it to be exciting. and here's why. because i believe that if we embrace the things that made us great in our past, our future will be greater than our history. there are more people on earth than ever before that will be able to afford to buy the things that you invent and you build. there are more people than ever before around the world that will be able to be our partners economically. and tdiplomatically and cultura. there's more opportunities for americans more than ever to sell our goods and services if only we go in the wrong direction and

embrace the things that have brought us to this point. this is the great challenge of this generation of leadership which you will fully inherit. .. >> thank you. [applause]

[applause] >> will take a few questions. >> thank you. we are -- thank you. we are going a few minutes to take questions. someone is already lined up. >> hi, senator. first of all of want to you for wearing your life ban. >> i hope i have it on today. i do. >> my question is, recently i've been doing a lot of journalism and writing a lot of things for things that have come comments are really terrible things. in the midst of being all kinds of names and having all kinds of accusations thrown against you, how do you know or keep your, know what you're doing is right and is true? >> largely the people that say stuff about you from a political perspective, no matter what you do they're not going to like

you. the sooner you realize that the more peace you have about it. by and large, people talk about the rhetoric in modern politics today. it's always been heated. now have more places for people to scream at you from. online and so forth. are our people who will not like you know matter what. why am i doing this, am i doing this -- it's a tough decision to make and i think it sounds like you're a person of faith, hence your name. no pun intended. i would you say to you, look to your faith a lot on those things because ultimately in politics and in life you have to ask yourself, you know, am i doing this just to be loved by people or am i doing this to make a difference. i think it's important in our republic that you accurately represent and listen to the people that you serve. but ultimately you have an obligation to do what's right even though it may not be what fiber in the eyes of some and allow history to judge or were. i'm not saying i always get that

right. no one likes to be disliked, i think. if you, your decisions after having thought about it carefully, your principles about it, you been up front with where you stand and you stand on the issues, that will give you some peace. so i encourage you to continue to speak underpins both. i say this to people whose principles i don't share. i admire people who don't -- especially in our republic. very important. [applause] >> good evening. my name is roger and i'm from south carolina. i know you were very close with jim demint. my second point is, i don't believe in infighting in the party. but at the same part of town time, if they were part of congress now, congress would look a lot different and the debt ceiling debate would have been a lot further left. so what are you and all the other guys doing for 2012? >> i haven't thought a lot about 2012.

i know that senator demint is always on the look out for good candidates around the country who espouse the principles of limited government, and embrace the principles that i've outlined. let me just say one thing about the whole inviting argument that you're about. first of all i don't take for granted, you're all republicans. democrats, too, maybe. maybe not, i don't know. [laughter] but i would say the republican party is extremely diverse. there are a lot of political viewpoint. there's a lot of diversity of opinion. i think the republican party has a lot more ideological diversity than the democrat party does on many of these issues. it's normal to have these debates. the second thing i would say is the 2010 election was a very clear referendum. people -- barack obama and others who were elected in 2008

on a promise of hope and change and kind of transform the culture of politics, but then they came into office in the first two things he did was try to pass the stimulus package, and health care bill if all that up with trying to do cap-and-trade. there was a rejection for the. people to complete the stamos package work. we spent $800 billion of borrowed money and have no jobs to show for. then we went onto the health care bill which has been a nightmare. so they simply blunder with a very clear mandate, and that is stop the stuff from continuing to happen. almost like a restraining order. i think those of us who were elected in 2010 the camp in a very clear principles have an obligation to live up to those principles. iran on a very clear platform, and that is this. i don't like what's happening in washington. i intend to go up there and fight against and offer a clear alternative. i think we are doing that. i think it's silly to criticize people for carrying out what they said what they would do if

they got elected. if more people did that i think the republic would be better off. thank you. >> over the last two days we've been passing passing around a binder, people have been signing up who would either support you for president or vice president, or support you in general. [applause] >> and i'm not going to put you in any awkward situation, obviously. [laughter] but we do have 100 founding members of the students for rubio in this binder ready. you're not campaigning and you're not focusing on that, but what do we do with the energy that we have and excitement we have about your message to our generation? >> i intend to win my nobel peace prize. [applause] >> you know what? i say this with real sincerity.

i am flattered and honored that you guys would sign that, and that you guys will put something like that forward. it's flattering. and what i would say to you is twofold. number one, it's not about me. i'm literally just a person who shares your principles and to a handful of blessings and opportunities have had the chance at this moment in our history to serve in the political process. but there's a reason why any number of you can't one day a few years in a be standing behind this very podium or on the floor of the u.s. senate. it's not about people. it's about principles. the principles are the ones that are timeless. some of us get a chance are limited of time in our lives to advocate for the. i would ask you to turn your energy not behind individual goals, but by the principles we share. we probably don't agree on 100% of issues but i think we share a certain set of principles that are true that afford. they work in the past. to work in the future. that's what i ask you to get excited and encouraged, and look for candidates who stand for

those things. reward people with your votes. once they get elected they do something about. that's what i would encourage you to do. in this audience today their people that will serve in public office from school board to the united states senate. you can do to difference and i encourage you to be involved in that and take that enthusiasm, not put it young people but put him pretzels. the reason why we're still talking talking of ronald reagan is because he stood for timeless principles that i served our nation well. i think i have time for two more questions. one more, okay. >> i am from the university of wisconsin. i say most of us who would like to say about this amendment to the constitution. how close are we and how would you like to see what implement? >> i don't know how close we are. here's the truth. unique safety seven votes in the senate. we have 20 democrats have campaigned on a balanced budget and in a one time or another. so i agree on a.

i think, i don't know how close we are per se but i do believe we'll have a chance over the next couple of months to really create some groundswell behind. i think if anything good has come from the debt limit debate, has elevated this discussion about the balanced budget amendment. it's one of the things in the bill that is there. it's a kind of competent explain. basically one of two things has to happen in order for the debt limit to be increased to one point a trillion that is left that wasn't increased under this. it's either this super committee has to report at least one point a trillion dollars in cuts or deficit planning, which could include tax increases by the way which i wouldn't support, or the other isn't a balanced budget and then be submitted to the states. i don't know why it can't be vote. make it a defining and priority issue, not just over the next couple of months but in the 2012 election. thank you guys so much. i'm honored. thank you. [applause]

[cheers and applause]

>> eight, seven, six, five, four, three, two, one, zero. >> these are the stakes to make a world in which all of god's children, live. or to go into the dark. we must either hold each other, old we must die. >> vote for president johnson on november 3. spent this weekend we'll look at the history of political campaign ads with lsu professor robert mann. former speechwriter for president nixon reveal how his messages were crafted and communicated. american history tv on c-span3. get the complete schedule at c-span.org/history.

>> that figure that is moving the veil of ignorance from human understanding. it's an american invention. that's not a classical stature, but sort of classical of what everything is all about. >> if you missed the latest documentary, the library of congress, there's a preview right now on c-span you to china. become a subscriber. it's free. watch the entire library of congress documentary and hundreds of others videos online at youtube.com/c-span. >> the c-span networks provide coverage of politics, public affairs, nonfiction books in american history. it's all of able to you on television, radio, online and on social media networking sites. find our content anytime through c-span's video library. we take c-span on the road with our digital bus and local

content vehicles bringing our resources to your community. it's washington your way the c-span networks available in more than 100 million homes. created by cable, provided as a public service. >> congress has gone on a month-long break without reauthorizing federal aviation administration programs. that means the government is no longer collecting ticket and airport taxes, and a number of airport projects are on hold. senate and house democrats hold a briefing on the situation at 11:30 a.m. eastern and we will have live coverage. and tell them a look at what's behind the congressional impasse from this morning's "washington journal." >> host: we are back with fawn johnson. here to talk about this stalling of reauthorizing the federal aviation administration.orrespoh why is there a reauthorization of the faa? >> guest: like anything else we need to have a law that allows the government to gow thl forward s government forward and allow money as

it needs to. in this case, we are talking about aviation, which is heavily regulated, for a reason. you want to make sure everyone is a flying safely. that is part of the natural workings of the transportation department. there is nothing unusual about it. this particular bill has been it expired since 2007. it may not be on that special, but it has been languishing out there for awhile. host: how many times has it been reauthorize, why these short- term solutions? guest: the actual authorization for faa did expire in 2007. since then, they have been doing a series of stopgap temporary funding bills. they would go on for six months or a year. as time has gone on, those numbers have gotten shorter and shorter as members of congress

get closer to a longer-term deal. they can keep the airport running, aviation running, aircraft control without too much trouble, but what they are trying to do is fix some of the ways the formulas are set for the way people are paid, but some dates in place for upgrading of -- aircraft control systems, they try to take things that may have been out of date from the last bill and updating it. that is what has been missing, but the planes are still flying, air-traffic is still operating. that is why it has not gotten as much attention as perhaps it should. host: so how do we get to this point? how long have we been stalled? about 12 days. it was july 23 when they instituted the partial shutdown of the faa because lawmakers

were unable to come to an agreement about how to extend funding. we are talking about six-week extensions. they were not able to come to an agreement. i say partial shutdown because the air traffic controllers -- people considered essential for safety, are paid out of the general fund in the transportation department. there are other have a staff, engineers, researchers, people who approved grants, airport inspectors, they are all on furlough, or are not being paid. airport inspectors are working but they are not being paid. host: how many of them in the faa? caller: about for a guest: -- guest: about 4000. now that congress is out, it

could go out for another everywhere weeks. about 1000 of those in the washington, d.c. area. there are estimates floating around but we do not really know how many other people in the private sector that have been laid off. construction-related jobs that were funded through faa grants that have to be halted. i have seen as high as 100,000. there are numbers of floating all over the place. 70,000 sounds about right. we know there are hundreds of projects that are being halted. stop work has been put on 200 projects. at the not include projects that had already started. host: what are the sticking points on this? guest: the thing that drove it to a halt the couple of weeks ago was a provision -- there

was a temporary extension that the house passed. they included another piece of the bill that would have cut subsidies to rural airports. this is something not lawmakers generally agree, those subsidies which had been in place to keep airports in montana or nebraska alive, so that people could apply. the program has grown, so they are tried to sit -- scale it back. the house included a provision to cut back some of those airports. but they did not do it in consultation with the senate, which irritated people. it is important to keep in mind, when this happened, this is the same day that house speaker john boehner walked out on the negotiations with obama on the debt ceiling. it was an intense time on capitol hill. i think there is a lot of tension that might not be affecting the actual debate, but certainly, there is not a lot of

trust. they were not able to come to an agreement. host: republicans on the house side want to cut funding. guest: and on the senate side. they just have not come up with an agreement how to do it. what particularly irritated the senate was, the chairman of the house transportation committee had included this rural subsidy provision in the house bill, and he said, i am doing this because we are stalled on the bigger bill and i want to get something done piece by piece. his intentions were good, but it looked like a giant chip on the shoulder of his counterparts in the senate, the chairman of the commerce committee. it would cut funding for airports in his state. the senate actually agreed to some of those cuts already, including rockefeller. mica added on a few other airports.

one of them is in nevada. again, he sort of did it on his own, without the typical, chordal back-and-forth that happens in congress. and it just made people mad. host: let us show the viewers what president obama had to say on this yesterday. >> there is another stalemate in congress right now involving our aviation industry, which has stalled the airport construction projects around the country. and put the jobs of tens of thousands of construction workers and others at risk because of politics it is another washington-inflicted wound on america, and congress needs to break that impasse now. hopefully, before the senate adjourns, so the people can get back to work. so these are some of the things that we could be doing right

now. there is no reason for congress not to send me those bills so that i can sign into law right away as soon as they get back from recess. ret, democratic caller. caller: good morning. i wonder if you can pull up the numbers on this issue. senator rockefeller mention the biggest thing holding up this between house and senate is that somebody in the house is supposed to be influenced by the head of delta air lines. delta is the only major airline that is not union. they are trying to figure out a way to get the house to keep their unions non-union.

i also saw someone on tv last night -- and i am very ill. please be patient with me. he said we are losing $25 million a day in tax revenues from business shutdowns. he also said many faa workers are working right now, on a voluntary basis. host: fawn johnson touched on that issue earlier. let us talk about the human issue. guest: the reason i did not talk about this in the beginning is, this is not part of the six-week bill that we were talking about earlier that would keep these people on staff. but it is the elephant in the room, in terms of ongoing negotiations. delta is one of the airline's that is not unionized --

airlines that is not unionized. the way that aviation employees are allowed to unionize changed a few years ago. it is something that has been in the works for some time, but it was an obama administration change. the people who would count in the vote would be the people who actually cast the vote. prior to that decision, everybody who did not vote in the election, you were counted as no-votes, which made it difficult for airline workers to unionize. now is easier. the broader context of this is, you want to talk about how to stall a bill that has always been bipartisan in certain labor issues, and that is what happened. this is an arguable point, but republicans think the obama administration overstepped their bounds when they changed the

rules, so they want to put it back to the way it was before. they put a provision in the big five-year faa bill. the obama administration immediately put a veto threat on that. when you are talking about the broadness of negotiations, you have basically two immovable positions. john mica and other republicans in the house saying that i will not approve anything that makes it more difficult for these workers to unionize. then you have the administration on the other side reddening veto. it is hard to know where they will come to agreement on that. members of congress said that bute hawould be an agreement, somebody will have to give. it is true, that is the elephant in the room, and it has got members angry. what i find interesting is, there is no reason for them not to be extending the funding

temporarily, as is happening, because that was not part of the negotiations to begin with. it has just gotten difficult to talk to one another. host: part of a peace in the "the new york times" op ed -- tx. ardel. go ahead. caller: the lady that just called sort of took my thunder away. i do not know why you did not bring that up first. that is the main reason why the faa has not been approved. republicans want to kill unions. that is their attitude. they do not care about the safety of people flying. they do not care about these new

airport that need to be built. they do not care about having air traffic controllers falling asleep in their fields because they do not have enough people. and i may republican. all they care about is their agenda of busting unions. i would not be surprised if your guest was a republican. i am a reagan republican. host: let me jump in. she explained why she did not bring it up at the top. there are two legislative vehicle to resolve this issue. one is a short-term stop-gap measure which the union questions is not part of, and then there is the five-year reauthorization of the faa. we just had not gotten there yet. move on to richmond, virginia. janet. independent. caller: i feel the same way as the previous caller. that should have been discussed first.

what i am really not understanding is, i listened to the tea party when they were on the capital, with all of their signs -- i want to take my country backed. . i want the government off of my back. they saw it as the government telling you know what to do. when you get a job and is up to the individual whether or not they want to join a union, why should the government tell me whether or not my vote is going to count? host: that is your opinion, cspanjunkie tweets this -- moving onto bonnie, a

republican. caller: what i believe is happening here is we have passed a health care bill come and it is going to shut everything down. it does not matter what we need. i disagree with the president passing this bill. this health care is costing us trillions of dollars. host: you believe this is fallout from the health-care debate. this is the recent story from fawn johnson -- guest: i have been impressed with the last several callers on this show expressing their frustration, because it is a frustration that i feel as well. it is interesting to watch this train wreck over something that is very much unrelated to aviation, labor.

i sympathize with the callers who wonder why we're not talking about labor first, and we're talking about rural airport, subsidies. it is hard to know how to make the situation makes sense in any rational way. the dispute was just about which airports would get your amounts of dollars and how we would be able to go forward on this process. but almost immediately, it digressed into this labor fight. it has become a fight that is bordering on irrational, in my opinion. host: mark, democratic caller. atlanta, georgia. caller: republicans are trying to force democrats to accept concessions that they would not normally be able to in a legislative process. republicans want to overturn a national mediation board rule that was approved last year that allows airline and rare load it

employees to form a union by a simple majority. the republicans do not like that. they want to go back to the old rules, where workers who did not vote would be counted as no. so what did the republicans do? they hijacked the faa. guest: it is interesting that you say that. that is the exact terminology that steny hoyer said yesterday after the house adjourned. the house has the right to do this, but they left town without changing the faa bill. that left the senate with little options. there were several hours or the majority leader harry reid was tried to get members to just try to pass the bill. nobody liked it, but they thought it was a better option than letting the shutdown last for another six weeks. it was another concession he was making, and he was just not able

to do it in the end. it may well be some of the other issues going on with the debt ceiling. people are tired of feeling like they are conceding over and over again. in this case, i am not sure the actual concessions would have been all that much. the house and senate have agreed to some of these cuts but there is too much ill will there. host: jeff, an independent in eureka, california. caller: i was wondering how a congressman mica was targeting democrats? guest: there is blame to go around here. you know when something is not working when you immediately hear people setting up to blame the other party is something goes wrong. one of the things that john mica is frustrated about is, the house passed the bill, the senate passed, they tried to negotiate, but they have not been able to get very far with

the senate. i think there is blame to go all around. one of the points republicans have been making to me repeatedly -- and they have a legitimate point -- two years ago when the democrats control the white house and house and senate, they were not able to do this. to lay it on republicans now is a bit disingenuous. i think both parties are to blame. host: 10, a republican. kentucky. -- tim, a republican . caller: government, to a certain extent is like companies. union or nonunion. it regardless -- irregardless,

you have it a piece of equipment. you have to find a way to have it fixed. the government is a lot like that. you cannot skimp on security, faa, pentagon, military. the same way with supplies, entitlements. the entitlement programs are not the same thing. people paid into those. host: let's talk about the stalling of the faa. $30 million in lost taxes because of this impasse. guest: that is the correct estimate. $200 million or so per week that we are losing in taxes. ray lahood has tossed around a few numbers. could be as high as a couple billion dollars. and that is just revenue coming in. that does not include the kind

of growth that could come with construction projects going forward. the other thing i wanted to make clear, there are some faa employees who are working without pay. last i checked, there were only about 40. it is not a huge number, but they're using their own credit cards to pay for hotel rooms. that is a lot to ask of them. this is something that ray lahood has said over and over again. the safety of the flying public will not be compromised because of this. air traffic controllers continue to go to work. the equipment, at a certain point, does need to be upgraded. if this does go far much longer, there will be problems, but this will not cause a problem for the flying public. it may cause some problems for families who are out of work,

they have marked as to pay, college, other things. it is a huge loss for the government. it is not clear whether or not they will be able to recoup it. the finance committee chairman, max baucus, sent a letter to the administration saying it was not their intention to include a group of the tax dollars lost on this shutdown. that means that that money, $1 billion or so, could be gone forever. that is no small thing in this environment. host: joining us is transportation secretary ray lahood. if i could ask you about as bigger reauthorization bill. fawn johnson was just explain to our viewers, this is the big sticking point. union of language. do you see a way to compromise,

and if so, how? >> there are a lot of issues that need to be resolved on the larger bill. it is not just a union issue. there are probably 10 other items that need to be resolved. certainly, the nmb, national media and reporters -- mediation board, is a sticking point. central air service is another one. that is a service that provides money to smaller airports to entice airlines to fly in and out of their airports. but there are other items, too. this could have been easily resolved. this is the most unfortunate situation i have seen in a long time in washington as a result of one or two people who were just really not willing to compromise. they wanted their way. as a result of them wanting their way, 70,000 construction

workers are idle in construction projects around america at airports, 4000 faa employees are not receiving, and have not been receiving paychecks for more than 10 days. host: these one or two people include members of your own party that have insisted on money for rural airports. one of them being harry reid. >> actually, if you look at the statement that senator reid gave yesterday, he said clearly he would vote for an extension even though the republicans in the house included an airport in his state. he said, i care about that but i care more about the faa employees. senator reid stood up and put aside his own agenda, his own state, his own ego, for the benefit of 4000 faa employees,

70,000 construction workers. senator reid stood tall for getting a compromise when others would not do that. host: but is there blame to go around? >> i said there is plenty of blame to go around. of course there is blame to go around. the blame rests with people who are so stubborn, so stuck on their own agenda that they do not care about 4000 federal employees, 70,000 construction workers. that includes republicans in the house that were not willing to compromise. host: i am sitting here with fawn johnson from "the national journal." guest: you have said yesterday on the press call, there were a couple of senators that had when senator reid was tried to get his party to agree to it.

my understanding is republicans in the senate were not blocking that. so there must have been difficulty on the democratic side. >> that is simply not true. senator coburn objected to a unanimous request. we heard other republicans say that they would object if anybody stood up asking for unanimous consent. senator kay bailey hutchison stood tall in saying that she was willing to pass the house bill. where the republican that objected? yes. look at what happened on the senate floor yesterday. host: is there any way that this gets resolved before congress returns in september? >> the answer is no. it takes an act of congress, and they have gone on vacation they have turned a blind eye to 4000 federal employees and 70,000 construction workers right in the middle of construction season.

this is the time when construction workers can work. this is their season. they have been shunned by congress, who have gone on their vacation, while their jobs have been vacated. host: what is the impact? will your transportation agency be running the numbers on the economic impact? >> we know what the economic impact is. there are millions of dollars of construction projects vacated. these jobs are not going on. 70,000 construction workers. that is thousands of dollars of taxes not being collected because the people are not being paid. billions of dollars of taxes not being collected as a result of the fact that the taxes on a passenger ticket are not being collected. so for all

>> we leave "washington journal" to go live to capitol hill. congressional democrats and cling senate majority leader harry reid and transportation committee chairman jay rockefeller talked to reporters about the faa reauthorization bill. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> we've had a lot of employment in las vegas. we had the good fortune of

having a new tower to be constructed. one individual contacted the office that he was so happy to be there. he worked for three days, and then this happened. what is this? the republicans playing games with house republicans playing games with faa. we've had 20 plus extensions of this to get some of the other issues worked out but that doesn't -- was a good enough for them this time. they had to hold issues hostage. i call upon speaker boehner to end this. we can do a. they are in pro forma session. we are in pro forma session. unnecessary. we should send a clear extension to let these people go back to work. 75,000 construction workers out of work. 4000 federal employees are out of work. and then, to pour salt on the wound we now have safety

inspectors, safety inspectors paying for the own hotel bills, their own airplanes, airplane rides so they can go to safety inspections. those are the primary individuals responsible for assuring the commercial airports comply with federal regulations. they also supplied runway safety action teams, oversee construction safety plans, that's not too difficult now because there is no construction going on. investigate runway excursions and ensure correct actions are taken. these men and women are now being asked to spend their own money to do their jobs. they are not being paid. this is one of the most outrageous things that i can comprehend. so many people desperate are being told they can't because once again, the house republicans, rather than legislate the way things are director for longtime, feel they

have the empowerment to her individual people. that's what they have done. the issue here, issued here if one understands is not airstrikes. a hostage they tried to hold, they've taken a number of democratic senators, and then this was an extension for a few weeks and come back and want more hostages. that is not the way to legislate. that's what they are doing. i hope republicans understand how desperate people are out there. i command and applaud kay bailey hutchison who has been so strong on this issue recognizing what they did in the house is wrong, and ray lahood, said today he, ray lahood, -- [inaudible] i think it's so, so bad that come and airlines, how about that? about a million dollars a day they are taking money that belongs to the federal government.

i again say, speaker boehner, stop this nonsense. >> mine in the steny hoyer, i'm the democratic whip. i'm speaking on behalf of leader pelosi and myself. as leader reid has pointed out today, almost 4000 federal employees, and some 70,000 workers our contractors around this country are being held captive. they are out on the street because republicans have refused to work with us to find common ground. the faa shut down will jeopardize $11 billion in construction projects. it will cost more than $200 million per week.

it has already cost us $360 million. this is from the party that is worried about fiscal responsibility. thousands of people of critical aviation engineers, safety analysts, and key personnel. we owe it to these workers to come together and reach a compromise. we owe it to every american taxpayer to come together and reach a compromise. we need to get this done, and we should get it done today. unfortunately republicans continue to practice the politics of competition and hostagetaking. and it is severely damaging our economy and the livelihoods of people across our nation. as leader reid pointed out, we have been for months now holding 315 million americans in the entire country hostage, to the threats of taking us over the

president's into default. because of the work of the white house, leader reid and leader pelosi, and others, we avoided that. at the last minute. however, 75,000 people are now over the precipice and worrying about whether the people in washington on the republican side of the aisle are going to responsibly say enough. these are people who are responsible for modernizing our airports, building the runways and healthy our infrastructures keep pace with the rest of the world. while our competitors continue to invest in infrastructure and roads, america is losing ground. this is why. every day, because of republican hostagetaking. for the sake of more than 75,000 americans, waiting to work, willing to work, and wanted to work, and we have asked them to

work. for the sake of economic competitiveness, it's time for republicans to put our country first, and these workers, first, before themselves, before the heady politics they are pursuing. and work with those to forge a long-term compromise instep timber, but there's a bill in the house of representatives introduced by congressman that could be passed within hours, that speaker boehner would simply agree to unanimous consent agreement, and leader reid, if mr. mcconnell would agree to unanimous consent agreement, could pass this within hours. or pass the bill that is in the senate. [inaudible] >> we now hear that the senate can pass it within minutes. [laughter] i will quickly go back to the house of representatives and report that, no matter how much

my credibility will suffer. [laughter] we need to act on this issue now. 75,000 americans demanded it our country demands it, and it's very responsible to hold hostage these people and our country and the safety of our airways, pending some petty political gain that might be reached. i now yield to a distinguished former colleague of mine, not a colleague of mine but a good friend of mine, the chairman of the congress committee, senator jay rockefeller. >> ladies and gentlemen, it's very easy to solve this. it's embarrassing easily, shamefully easy. all we have to do is to have the house and us or we send it in and accept it. a clean bill of extension. the leader talked about where

and a a 21st extension to be an authorized the federal aviation administration bill. aviation exhibit large percentage of the gross domestic product. it's usually important. but that's all it takes. and virtually every day, barbara boxer was down there last night offering a clean bill of extension, and it was objected to by republicans in the senate. i was down there the day before, and offered a clean bill of extension. clean bill of extension says you will talk, but you not going to be told what you will talk about. and that's .1. it's so easy. it's so easy, and then all those 4000 people get paid or out of work now, and things get back in line. the other thing that needs to be made clear is that union

bargaining relationship between a private company come in this case, delta, and a union is not something that the faa discusses. the faa has had sometimes labor problems with the transportation security folks, but they have resolved all of those things. you cannot have in an faa bill, you cannot take it up, a union contract with a private company. can't do it. doesn't belong in a bill. can't be in the bill. please understand that. we can talk about all kinds of things. talking about that, but will never come to an agreement on it but sadly it doesn't belong in a bill. then one further thing. why are they doing this? i think personally it's an extension of the sort of things that begin in wisconsin.

the whole anti-worker type thing. i think they have fastened onto. surely they know this can't be in an faa reauthorization bill. but it's all they talk about. they send over something nonessential to their service, and then my counterpart in the house has no, no, no. , that's just being used as a leverage on rockefeller or whoever else to talk about national mediation board. well, we can't do that. and secondly, point out to you, friends, a fact. most of the big airlines are euthanized. no problem. one isn't. delta. delta wants to have this law changed so that works for their advantage. and the interesting thing is delta has four times unions have tries i can try to unionize

delta. four times they have failed. and i don't know what's in it for them, but it's an anti-worker agenda which is driving them. and the rest of us are trying to get a very, very complex faa bill past. if they did a clean bill of extension today, you know, people would be paid, we could go ahead, we could proceed. we've always done clean extensions. it's the only -- we've had 20, as leader reid said, we've had 20, now on the 21st at all the have to put attachments to it. but their agenda is very clear. my agenda is very clear. my view towards an organization of workers is that's between a company and the union. it's not a thing to do with the federal government. so back to my original point, it's so easy to solve.

the clean bill of extension that allows us to get back, if they would have concrete, we were concrete 100 days ago in the senate. they will not point, but if they go along with a clean bill of extension, we could sit down and negotiate. >> a here we are -- [inaudible] why do i say that? because 20 times we have passed clean extension of faa. we keep the issues for the regular process. you know when he went to school you learned how a bill becomes a law? house and senate may disagree, they take their disagreements into a conference committee. they haven't even appointed that so they made up this crisis because they want to get their way on a number of issues, primarily i think and act tackle

and working men and women, but this attack has already begun because working men and women are out of work because of them. and it is time that they put the interests of jobs ahead of their own petty agenda. that's what i call it a i want to see what's happening on the ground. this is a picture of a tower. you can see the smallest our which is getting more and more traffic, a large tower. in a bipartisan effort we were able to get funding for the new tower. and we warned the republicans that if they shut down the faa like this, that is, if there was bad weather, that this work could be damaged. sure enough, what happened? we had a rainstorm, unusual but it happened, the drywall was damaged. and now we see some of it ruined. we were warned that this could

happen, and it did happen. and the contractor on the tower project, private sector contractor, is losing $2000 a day in rental fees, equipment, trailers, and fencing. and the superintendent they are said the longer this goes on, the worse it affects us. and we've got now tens of thousands of construction workers already suffering because of a housing crisis, now they are suffering more. this is a made-up crisis. this is governed by hostagetaking. i want to associate myself with leader hoyer's remarks, not leader hoyer. what are your no? witthat's another thing. that's the now. [laughter] >> good denial. listen, if that was the case we would not be standing here today. let's face facts. so the fact is when you look

back at the threats to shut down entire government, remember that? tax breaks for the rich, followed by holding the full faith and credit of this government hostage to their desire to cut government spending, and now here we are, a third time. i hope the american people wake up. this is their modus operandi. government by crisis that they make up, government by hostagetaking, government by threat. and real people, the people they claim to care about, the private sector, businesses and workers, are hurting badly. i hope that my leader, senator reid, is successful, and getting to speaker boehner back here, back here to fix this problem that we have fixed 20 times before. and i stand behind my chairman.

>> well, thank you. and i want to thank all of my colleagues, leader reid, whip whole year, particularly chairman rockefeller who was just him a daunting in his desire and hard work to try to get this done. and senator boxer than one of the leaders on the committee. now, at this very moment, though you may not know it, if you're an airline passenger, the federal aviation administration is in limbo. airports are the economic engine of small and large communities across the country, and that engine is now stuck in neutral. time and time again, the gop has blocked a clean, short-term extension of the faa and the longer-term bill can be passed. they have refused to negotiate. under the cover of the debt ceiling crisis, that they manufactured, they have set in motion a second crisis, and once