from random hackers or even extremist groups and nation states when you think about russia and georgia, when you think about china? >> um, i think the issue of attribution is a very troublesome one. obviously, you know, the department of defense takes the view and rightfully so that we need a cyber command in that when they are nation-state actors, that's just another theater that needs to be dealt with. and we work with them. um, but much of what we see, of course, isn't attributed to nation states per se. at least not at this point. and we have to deal with it as an individual or a group actor that may be located in an international environment or use the resources that are located internationally. for example, you may have a

actor or actors located in one country. they are facilitating crimes in the another. the isp may be located somewhere totally different. so just the whole chain of things that are involved in cyber, in cyber crime, in cybersecurity and cyberspace very complicated, very fast. >> and one of those cyber crimes which you mentioned gets into another area, and that is the exploitation of children -- >> right. >> -- online and, beyond that, human sex trafficking of women and children. this is a problem that president bush tried the to put on the international agenda at his speech at the united nations general assembly, and it just seems to get worse. ..

>> when you look at all of these areas do you see that the essentially exporting united states standards, united states way of doing things, beyond the borders of the united states or the borders of a new multilateral standard is emerging on these issues? >> i think u.s. standards can help inform what needs to happen, but other countries have other ways, sometimes better

ways, cheaper ways to get to the same results. so when we think about this we think about it in many layers. with the bilateral and multilateral. we think about not just moving the borders of the united states out word but welcoming people and trade earlier in the global process. >> i want to ask about something in the news. the drill that went down in iran -- the drone that went down in iran. this is a technology which is going to spread by hook or by crook by the nature of technology. and represents a significant homeland security threat. do you look at that at all as the next decade of drone technology and how it might spread? do you think about that? >> sure. it goes into what keeps you up at night question that you asked earlier which is to say that we

no new technology devices are developed each day. they have been used to great effect by the united states abroad, but you have to anticipate the reverse could also be true. so we work not just among the community of nations but across the federal government as well with all of ours -- agencies with problems at the door. >> we are going to go to questions now. what i would like to ask is wait for the microphone and when you stand up to speak, introduce yourself and your affiliation. let's get some questions. we will start right here. >> madam secretary, mark question is down in the weed. reasonable european friend of mine related a horrible experience he had coming in to jfk airport not so much the

procedures themselves but the fact that only four out of 14 were functioning of all proportion to the number of travel. a year ago there was a similar experience covered by a column in the financial times related to dulles airport. all having to do -- anything be done to make this less disagreeable? >> that day he was traveling, here is the problem, simply put from a management standpoint. these airports were built and designed well before current security needs and well before the big white body plane. and what we have, we have huge rush hours. all the planes arrive around the same time. they fled area and there's a

dead period. from us staffing perspective that is difficult but we know it and we need to staff appropriately. we now get daily readouts of what the wait times are. we have worked to increase staffing at jfk, dulles, lax is another airport with wait times we think are unacceptable. so we are doing our best and we will continue to work on those. but again, to the point, when we can do clearance for example, any time we do pre clearance, anytime we expand global entry which is the international -- a card you can get which allows you to circumvent the line here and go right on through. every time we expand those programs we take pressure off of those lines and that will be the

advantage to us all. >> right here. >> good morning. david truly, senior fellow of homeland security policy institute. i wonder if you could share with us your latest sense of counterterrorism cooperation with india and the challenges going forward. >> that goes to india, out of the meeting between the prime minister agree will the president was a homeland security dialogue. so we have campaigned to work jointly on passenger travel, counterterrorism, police training, all of those developments, cybersecurity being another one. i would venture to say there is a lot of work left to be done. part of it is the nature of

india, big complicated country. different bureaucratic structure than we have. but i think as we saw with the attack on mumbai and other issues in india they have key terrorism issues that we can, i think, provide assistance from and when we talk about finding that difference between security protection and commerce, a great example where we can have a more robust relationship that we have right now. >> christopher graves with ogilvy. beyond the discipline and rigor of security it must demand more creativity and innovation. two questions to that. you may speak more freely. what country or countries do you think are absolutely leading the way in security, creativity and innovation and why? what are they doing and how do

you foster that? >> we are one of the leaders in creativity and innovation. one of the questions i get is why don't we do things the way israel does them? for example at the airport? we do some things that are common. we look at what they do. but realize that israel has basically one international airport and they process 50,000 passengers a day. we have hundreds that we process in the millions. scaleability issues are quite different. because we have a more large and complex system we have to be thinking differently all the time but in the sense of innovation and creativity, we are constantly looking at ways to better enable us to identify who may be a traveler or what may be a piece of cargo that is

at risk to us. we sponsor basic research and support it in terms of screening, sensing devices and the like. also in terms of how better to spot the haters that could be indicators of potential violent activity. one of the regrets i have in the budget process that we are in is the support for this kind of research that is consistently getting cut down because it doesn't produce an immediate effect. the research cycle is longer but i believe as we continue to knit together commercial and security issues, that technology and that kind of creativity is going to be necessary moving forward. we have really been in a fight over on the hill with congress explaining why it is that a department called homeland security has to have a heavy research budget associated with

it. >> let's go to the back. back there. >> madam secretary, your department deals -- fox news. obviously your department handles issues of fact shooters. wondering what your assessment is of the virginia tech responds yesterday and do you think anything can be done about these? >> first of all let's take a moment to extend our sympathies to the family and colleagues of the officer who was killed. a horrible crime. i saw them when i was a prosecutor and as a governor. too soon to assess the response at virginia tech. but it really goes minute by minute. at least superficially it looks

like it was very strong and very effective and i am not sure there will always be things you can do better. on the outside at least initially it looks very good and strong effective response. in terms of prevention, one of the things we constantly work on is how do you identify what are the behavior's, the techniques, things that would enable the local police officer to say is this person is getting ready to go nuts? we have for example the gun shop owner killing in texas who saw the odd behavior of a customer and what he was buying and alerted law enforcement and probably prevented another massacre at fort hood. in this instance who knows what tipoff there would have been? but one of the things we focus on when i talk in my little

preparatory remarks about shared responsibility and nationally, security is a shared responsibility with in the united states and a shared responsibility with local police officers but also a shared responsibility with the citizenry at large. that is the genesis of the see something say something machine. you are trying to at least increase the likelihood that you can pick up somebody before they start shooting. it is very difficult. >> great. >> thank you. ted baldwin with c f r. i went to second the pre clearance which very much is a big break for which is a long time coming. a lot of resistance historically from customs and border protection to expansion and pre clearance. the concern over the rest of 40. what do you do when you have

someone probing. they come into free clearance, custom's agent begins to ask questions and get nervous and i change my mind that don't want to come in to the united states and began to probe the potential weaknesses at entry. if you don't have the authority to arrest or detain that kind of person what is the level of risk or how did you get around it? it is a big concern about expansion and pre clearance despite the benefits you regulate. >> from a security standpoint if they don't come into the u.s. that may be a good thing. but part of it is exchanging information with the authority of the country of origin. and what makes pre clearance work is good information sharing their goes along with it. >> back there. >> good to see you.

i thought from what i read in terms of the u.s. canada, be on the borders action plan there were some major breakthroughs with respect to the mutual security of canada and the united states. there i say perimeter security will be enhanced. i had a specific question that is about reverse inspections at the land borders between canada and the united states. something that has been very difficult to effect to 8. i understand that is contemplated within the action plan that there will be rivers inspection where usc beat the officers will be in canada in terms of people and goods heading for the u.s. border and the canadian border agency will be in the u.s.. my specific question is how does it look in terms of actually

getting reverse inspection implemented? where do you think it might be implemented initially and what do you see as the time line? >> first of all i think the notion of perimeter security is a huge deal taking pressure off of the actual land border itself, working closely with canada which has been a great partner in this effort. in fact the meeting i will go to right after this will involve rail travel between the two countries and how to facilitate that. with respect to the particular issue you raised the vancouver quarter, that will start shortly. we will see how that goes and look at expansion in the other major moves. i hesitate even to give a firm timeline because everybody will write it down and if you don't need it you are late but got to

take it one step at a time but the vancouver area is frequently a traveled area so it is a good place to push. >> yes, sir. >> kevin shea, multiplier capital. the intelligence community, dod and the rest of government getting very well organized to confront the cyberthreat it is difficult for the private sector to achieve the same level of organization. could you speak about the private partnership programs that are in process? the i s ps and where those programs like to go? >> there is a lot going on in the cyberworld with the i s ps and other private sector partners particularly in the a -- the 18 critical sectors of the economy that have security implications and economic

implications, telecommunications and utilities and the like. i could give you the alphabet soup of partnerships. there are a lot of them. i would like to see some of these things over time consolidated because they are atomized in my judgment. what we all are striving for is again that sweet where the business interests of the private-sector merge with security interests of the department of homeland security. so we will continue to worked in that regard together because the united states like many other countries, the actual critical infrastructure of the nation is not controlled by the government but is controlled by the private sector. >> is there a special challenge dealing with that industry because of the culture, very libertarian? wide open culture? >> cyber is first of all hiring

personnel as a challenge. the and fiber -- d-backs if i can use that term, don't think about working for the department of homeland security of the first employment opportunity. i like to make it as attractive as possible. they don't have to wear a tie. they can telecommutes and all that stuff. i think right now there is a huge demand on the defense and civilian side for cyberpersonnel. there will exchange so rapidly. by the time we talk about a particular phenomenon it is already out of date. from the management perspective my number one thing right now is hiring. >> right in the middle. >> thank you. i am from a japanese

multinational. korea and panama, colombia, transports partnership for a bit of -- people and commodity and money. is named twenty-first century highest conduct. how is your department going to have a say in the standard in terms of the security commerce and also if you could, exchange with china in terms of security and commerce? >> on tpp r anticipate primarily but also t.s. l.a. --tsa will have a vital role in standards moving forward as will similar

global arrangements the united states has. with respect to china we have done some bilateral operations and bilateral initiatives and haven't reached an agreement on intellectual property protection with china. remains to be seen whether and how that will be implemented but at least on paper we have one. we have done some exchanges. we have done some things that are training exchange in nature. but i would venture to say there is a lot more we could do at the bilateral level with china. >> okay. all the way back there. >> thanks for taking our questions. after the turner conference friend about a year ago, dhs announced a goal of 100% inbound

cargo on inbound international passenger flights for the u.s.. that goal has been changed. has the goal been changed -- dean lind tend to inspect 100% of inbound cargo or screen at? will that comply with congressional requirements? >> what we are doing obviously is inspecting 100% of high risk cargo and screening 100% of all cargo on international passenger flights. we could give the exact time lines and things of that nature. the whole 100% label initially required in statute is something we have been talking with congress about not just in terms of air cargo but cargo in general because it really is not practical and there are other ways to issue the same security

objective. we have a security objective. the issue is there is 100% screening mandate actually further your way to media objective or by doing layers of security and others things, can you reach the objective more quickly? we think the latter. but it does require congress to rethinks the statute a bit. we are working with them on that. >> okay. right up here. >> madam secretary. herb richardson. let me compliment you on running one of the most complex and difficult organizations in the government. a riva is an international engine company with people all over the world. one of the initiatives is to reach out to industry such as ours and offer an opportunity to

evaluate the vulnerabilities that exist in various locations in the u.s. which is an excellent thing to do. the question i have is will that exist for those individuals bleaker still u.s. citizens we are sending overseas such as india. will you be providing or will dhs provide the same assessment from a physical security standpoint to protect our u.s. citizens in countries overseas? secondly, now that the obama administration has appointed dhs as the lead in cybersecurity will you be also providing vulnerability assessments for cybersecurity? >> the answer is i don't know. i think we are interested in doing so. i don't know that that will be the first thing that we do. right now our key initiatives are based on securing the u.s. government networks and making

sure that they can be free from intrusion or intruded upon with the ability to detect patch repair or whatever. with respect to vulnerability assessments i cannot tell you whether there will be product or initiative in that regard in the near-term. >> we have time for one more question. i would like to remind everybody this meeting is on the record. at the conclusion of our meeting secretary napolitano -- stacey did so she can get on to -- the next interview. that is it exactly. one more question. that is all we have time for. here is the lucky one. there we go. >> thank you, my name is gene. would you elaborate how the

department? >> we're still waiting for our f y 12 budget. my understanding from the appropriators is they are near an agreement for us. one of the areas that is likely to the most impacted and the grants we can provide to states and localities or things like disaster response, first responder training, i have real concerns about that because states and localities are cutting the budgets. this is really a national capacity we need to have which is to say if there is a disaster anywhere, be it mother nature or major earthquake or hurricane hits land for a terrorist incident, we need to be able to have that security safety net. but i do think the grants are likely to take a hit.

another area that i think and hopefully will be restored from the house was the whole area of research as i mentioned earlier. i believe that technology is going to help us solve some of our more difficult problems in the area where we are trying to have security and commercial operations coexist. that research cycle needs constant feeding. so i would hate to see that cut off in the name of the budget because i think that would be a little foolish. we have to do a better job educating the members of congress about why it is that this research is valuable for the taxpayer. we are working on that but hopefully the f y 12 budget will do that. with respect to f y 13, we are now in that process with omb and

those budget numbers will come out in the normal course of business and you will see them shortly but we are all under the same pressure and that is in an era of constraint, fiscal resources making sure we are spending dollars wisely and well and that goes back to the program today which is to say that in the area of homeland security, the more we can smooth business processes the more we can work globally, the more we can harmonize requirements, the more we can reduce burdens on travel and commerce but at the same time enhance our security that is a net positive in the united states. it is a new way to engage with countries around the world and i am hopeful and anticipate that the budget will support those efforts. >> quick follow-up. how much was sequestration

should it happen? >> we're not talking about sequestration. >> there you go. there it is. thank you very much. [applause] [inaudible conversations] >> a dollar now for your labor. have no health care. the most expensive elements making the cost. no environmental control. no pollution control and no retirement and you don't care about anything but making money there will be a giant sucking sound going south. >> ross perot spoke about trade issues in the 1992 presidential debate. the billionaire businessman made two attempts for the presidency

the first time getting over nineteen million votes. more popular votes than any third-party candidate in american history. although he lost he has had a lasting influence on american politics. he is our final candidate and c-span's 14 week series the contenders live tonight at 8:00 eastern. to provide other radio and see all the programs from our series go to c-span.org/contenders. >> december 7th, 1941, a date >> this sunday for 24 hours japanese attack on american military forces at pearl harbor including the 70anniversary ceremony overlooking the uss arizona memorial at 8:00 and 5:00 eastern and live call in programs at noon, 2:00 and 4 clark were world war ii

historians and december 1941 officer greg surely and first person accounts from service men and civilians. this week's national park service conference about pearl harbor. 84 of the visitor center and footage of the attack and its aftermath sunday on c-spanfree's american history tv. >> in the 2010 election republicans picked up 11 governor seat previously held by democrats. republican governors association meeting in orlando earlier this month several of those new governor spoke about the policies they have implemented since taking office. we will hear from ohio governor john k. sec and wisconsin governor scott walker and rex, and tennessee governor bill have an, mitch daniels moderates this one hour and 10 minute discussion. [applause] >> thank you for attending. and for all of you to support this greatest political organization in our country

right now. i drew the assignment but i should say the privilege of moderating the panel of four of the new all stars who you just reacquainted in that great video. i will observe not at all for the first time, i don't recall a year in which more first-class public service talent was brought to the floor in 2010 and they were all on our side and a remarkable new assortment. each one of these people is already making a mark and similarly incredible footprint on the history of their states and this country. but i am so excited about the future of our party but more importantly america because specifically the class of 2010 and you know about these folks already. we will not take a lot of time but we have several of the best

examples of what i am talking about. of the like is that by introducing a fantastic governor of new mexico, susanna martinez. she couldn't make it this morning. so you're stuck with these four homely guys instead. also i have one other preliminary. i have been reminded once that efficient are g a staff said don't forget to share with the crowd that it is scott walker's birthday. [applause] but that turned out to be inaccurate. you do have a birthday some time. we will take this opportunity to wish you one. >> with on election day. >> well then you give a birthday present to wisconsin. it is our host, rick scott's

birthday. everyone ought to congratulate him. [applause] >> scott walker. >> our format and are an end point is eleven:30, for each of these tremendous leaders in turn to share a few thoughts and reflections with you and if you will please prepare your own questions we will make that request to our fellow governors as well as to the crowd. we would like at least a large portion of the 70 minutes to be directed by you, the topics of your interest. so let's see. you have a bucket of -- alphabetical order right to left. the we better start with our host who has been so gracious to put all this together for as.

spectacular start fiscally and in terms of reform. rick is great example. each of these fellows is. i remember encouraging them at this meeting between their last election and there inauguration this meeting last year. to move quickly, move decisively, do those things without equivocating and reminded of the wisdom of one of my favorite country-western songs if i shot you when i should have i would be out of jail by now. [laughter] if anyone took that advice to heart it is rick scott. >> i think the democrats wish i had not done quite as much. they were frustrated because i did what i said i was going to do. they were shocked. i walked in with a $4 billion

budget deficit. we balanced that and for the first time in twenty years started paying down debt. we have been increasing the debt level by $1 billion a year so this year we paid down quite a bit of debt. we did what we ran on. seven steps, said we were going to cut taxes and half of the business owners that pay taxes in the state doesn't pay taxes. we probably already know we don't have an income tax. we have 5.5% and so we cut the business tax force for half of the business owners. we cut taxes over $200 million. started drug screening of welfare recipients and we said this money is supposed to be for the benefit of children. parents take the money. boca grande para or guardian but you have to be drug screen. on education reform we got rid of teacher tenure for new teachers and started merit pay. we extended charter schools.

we have 5 kids and charter schools in the state. we discontinued that. looks like that will continue. we provide scholarships for individual kids going to pour performing schools. we found 1,000 regulations we have gotten rid of. rest of them we get rid of the next session we start and doing all these things i apologize if anybody came to the city to ride got speed rail project. we killed that. [applause] some of the theories why i supported that is people would take a high-speed rail to tampa. if any of you did that i apologize. you can go to california and do that which they will never be able to fund either. we did those things and it worked. jobs have come back. we have the first ten monthly

generated 118,000 private-sector jobs beagle channel 107,000. four years running lost jobs each and every year. so just cutting taxes and giving regulation and i got rid of one agency. we not only -- we thought the state was smarter and at the state level we got rid of that. all these things have worked. jobs are coming back. our tourism is up 7% this year. the biggest thing is jobs are coming back. that is what we have done. i'm doing things every other governor is doing and some governors in advance. tried to come up with all the money michigan came up with transportation which would be nice. it is a more difficult time to do that but that is what we have done. >> thank you. don kasich, a rather quiet --

like scott walker. nobody who knew john expected anything different. you all know what i am talking about when i say one thing i always admired about the kasich is he never missed a chance to express to people that all these principles we hold dear are not about the folks doing well now. they are about the folks who want to do well in the future. it is all about preserving upward mobility. we all know this. not everybody stopped long enough to make it plain. you always have. all your different capacities. it makes a terrific spokesman, things we believe in and you are off to a great start as governor. >> isn't mitch daniels one of the greatest we have ever seen as governor of the state? [applause] that is right before i am

fixing to steal jobs out of his state. we face -- actually mitch was a great role model for me to look at the way he moves in indiana but to me it is simple. i was in congress for 18 years and was involved in the balanced budget and i got out for ten years and that was the best thing i ever did which was to get out of politics and understand how the real world works. when i came and it wasn't a matter of what politics are moving quickly but we bring in this is a ditch, patient in ohio in a ditch. we lost in the last week in years 600,000 jobs and only to state lost more. one was michigan which you understand because of the auto industry and other state is california which is filled with a bunch of wackos. we were third worst. i couldn't believe it. it was all because we did not establish a good business climate. i had $8 billion deficit.

i am not a bad one for cutting to tell you the truth. in any budget you cut, that is not my interest. my interest is kind of the steve jobs approach which is offer the customer a better product at a much lower price. you can find that if you think differently and turned the cube you don't have to be in the business of cutting. you can be in the business of providing services that are more effective and less costly. i will give you one example. in our state for 30 years the nursing home lobby basically blocked the ability to have resources for mom and dad if they qualify for nursing homes to stay in their own home. we thought that was pretty tough. they spend a lot of money trying to block me on that but the legislature god bless them stood tall and in ohio with mom and dad qualified for nursing home they would like to stay in their own home at one fifth of the cost where they will be healthier, happier and more

independent they can do it in ohio. we waited 30 years. we look at our prison system and this is one of the most vexing problems governors have. we figured out a way to not put for example last year 12,000 non-violent -- non-violent job break -- lawbreaker's into our state prison theoretically next to somebody who can be a murderer or rapist or drug dealer. we are confining them in the community setting where the public is safe and they can be fully integrated into the community because you yea close people out of their families and you got a big problem with the children. we passed that as well. it was something people wanted and we got it done. we use to do multiple contract and what we build public buildings. prime contractor for every piece of your construction. that has been in the law for 134 years. we stripped out.

there's one single prime when building a public building and it is estimated this will save somewhere between 20 to 25%. we also privatize the development. i know terry branstad did something similar. we believe economic development ought to be moving at the speed of the market, not at the speed of the statutes. i once saw a race between a statute and a glacier and the glacier won. we have created this not-for-profit entity and filling people who would speak the language to your ceos out here and for myself i engage constantly almost every day talking to ceos across the country and inside my state. we are then going to power that organization with liquor profits that have been located in state since the 1920s and transfer that into ohio so they can have high octane fuel they need to go out and do their job. i think all these governors are

doing a remarkable job. it is just kind of a twist from one state to another. we are up now over 40,000 leaving engaged in 191 projects directly where we have met with companies and in that regard by saving and creating new jobs directly we have been involved in 43,000 jobs and frankly all that matters are jobs. at the same time we cut our taxes. we kill the death tax which i wanted to do for 18 years. we got it done in six months in ohio. we had the income tax lowered but still at a disadvantage to people like rick with zero in contacts. we also provided a 10% tax credit for anybody who invests in small business in ohio and holds that investment for two years. on the regulatory side you want to do business we will figure out a way to do it. if you're a yahoo! we will set you down.

we don't have dumb and silly regulations in ohio. when we find them we change them and we move quickly. we are just trying to create an environment in the state where families are going to have work, they are going to have a career where children are going to be stronger and everything we do is based on that. everything we do is designed to do it. if there are issues we face like work force training. what does that mean? training people for a job that exists so they can have a lifelong career. those are the things we think about. we are thinking about leasing our turnpike. we studied what they did in indiana. we might lease it or we might bond against it if the numbers are right but think about the infrastructure improvements we can make in ohio if we are able to do that. that leads to greater productivity, more job creation. that is what it is about. that should be the whole focus. if it is something that can make

it easier for an entrepreneur to be successful, if it can ease the way for business to expand or we can pick them up in places like illinois or connecticut where they don't have it right, for all those that were about the country, file is in washington for a long time and when i left, as we showed results, maybe those folks in washington learn something about what really works. strip the politics out and keep politics to a minimum. that is the new model. in my opinion twenty-first century new model for politicians is truly a public service. bring your jobs to ohio. we will work with you. >> ohio was a lot of fun to

compete with before you got there. [laughter] competition makes us all better. having a repopulate it neighborhood, kasich, snider, branstad were, been on the midwest long term. now next is haslam here. in the course of our time in office we have been coming up with all these ratings. doesn't matter who does it. good place to do business. only a few states ahead. here comes scott and haslam. it will be hard to climb over tennessee. build is such a natural for this job. you just fought the minute you met him, he has shown it already. at least to an outsider, without

a lot of rain or or the kind that sometimes gets stirred up in things like teacher tenure or major education reform as well as fiscal restructuring. tell us how you did it. >> we have a lot of great help. it occurred to me as i was listening to wreck and john and the other governors throughout the week that if you are listening to everyone you think they have some sort of programming machine they put these governors in because they all come out talking about the same thing. talking about education reform, addressing tenure and charter schools availability. they talk about budget reform. everybody was anywhere from half a billion to five billion dollars. could they be relying on stimulus money? they are addressing job creation. but to be honest we are all doing that and it is because it is what works. it is how we got elected.

it is what we got elected to do. this first session for us the democrats kept saying the biggest issue is jobs and you don't have a jobs plan. we want to see some legislation addressing jobs. i don't think that is how jobs get created. fred smith, founder of fedex, one of america's great businesses has a chart he keeps in his office. in job creation, a direct reflection of capital investment. and the private sector vests capital, no government has created a new job. we attracted them to our state with good rates and the environment etc.. what we tried to sell is our job is to make this the very best place for people to invest capital because capital find the best return it can. it will go where you get the best return. our job is to make certain

regulations are the most reasonable and the opportunity is the greatest for job creation and that is what we focus on doing. within government we had a budget. ours was $1.5 billion of onetime money that mainly stimulus plan money being used to balance and we were able to basically we that out and i was proud that today's overly partisan world, actually had being about 4% lower than the year before passed unanimously in the house and senate because we got some breaks in terms of things that worked out but we really -- what the alternatives were. and why this was the right course of action and mitch -- how many people have read his book saving the republic? has anybody read it? we need a book table out here.

if you are in government it is great reading. great primer how to do state government. niche has been doing this for seven years and for me it was like skipping two grades in terms of understanding what works well. one of his favorites, how much government they don't miss. so many places we were doing the things, you just wouldn't. we started making those adjustments and changes. i asked every department head if you were starting this over again and was your own business would you organize the same way? would you do it the same way? everyone of them said no. let's figure out how we would do it. that is really painful because the end up addressing things people don't want you to address. we have fewer now than any time

in the last ten years. there are painful decisions but if you explain to people why you are doing that and what the alternative is they will get that. the final fed we focused on his education reform. one generation because the 20 years of america we have gone from being number one in education to nineteenth in twenty years and we can't compete that way. this is 40s of 50. people get sick of hearing me talk about what we're doing is not good enough and why the status quo doesn't work but that is why we address tenure and attracting student performance related to the teacher evaluation. that is what we think really works. >> amen. >> what does it say about scott?

you have done courageously things similar to what were done elsewhere. at least as tough a hand as anybody but because of where you did it and those in your state to disagree with that you have drawn more than your share of -- because of it but you prevail and you have done it with a smile somehow and you are on your way to your fourth election as governor if we count them the way we should. some sort of record. we are incredibly proud and eager to help you. tell us about it. [applause] >> we had the occupy madison movement before there was occupy wall street. we are all familiar.

i was in nashville with bill and had some protesters are and i said they were apologetic. i am used to people being busted from another state in protest. same thing happened in des moines. we are used to. any time you do something difficult it is good for your state, there will be a few who disagree. let me go back for a second. i was thinking about this earlier. it is a phenomenal process of new governors to learned from a great group of governors to begin with. we heard that from the last panel. i was thinking back a year-and-a-half ago. almost two years ago when i first started what i call the job interview to be the ceo of my state. i did an interview around the state of wisconsin telling people what i would do to take over the state government and identify it that i thought there was a crisis we face. and economic crisis, fiscal crisis and crisis of confidence in our government.

we took office. i remember reporting -- didn't even unpack yet and yet have done all these things. why is that? it is real simple. you are taking over a failed company that is in crisis. you start the very first day. you take over jobs. so we called the legislature into special session on january 3rd to tackle first of the first issue these guys did. we took on the economic crisis. we understand people create jobs, not the government. best thing is that government out of the way. we passed tax cuts and tax cuts for manufacturers was the biggest and agricultural interests and savings accounts. we did tax cuts and property tax freeze the next two years. we did these things off the bat. we did regulatory reform and put in place major reforms to cut through red tape. particularly manufacturers. that was the biggest barrier to investing capital and putting people to work. we new litigation costs were a

challenge so we passed the most aggressive toward reform in the country in the first month we were in office. we made it easier to invoke health savings accounts of people played a more active role not just as companies but workers and farmers and others in their health decisions. we said we are not just going to have a department of commerce about promoting commerce but regulating. we said throw that out. we will do what mitch did and carry and others have done and place wisconsin economic development corporation so that we could respond to the speed of business, not the speed of government. the good news in doing that right off the bat was it added results. we saw after three years before my election from 2007-2010 wisconsin lost 150,000 jobs. in the first six months of this year after our reforms weeks of

40,000 job -- we have our challenges like everybody else the last couple months we are seeing a positive net increase in growth for about 2,011. we saw not just in terms of numbers of jobs created but every year statewide chamber of commerce does a survey of jobs. you know how many people thought wisconsin was heading right direction? 10% of job creators in wisconsin heading in the right direction. this same survey after reforms in special session the actions we took that number went from 10% to 88%. eighty-eight% said some with wisconsin was heading in the right direction. [applause] >> we got focused by the issues that picked up interest nationwide as well. i would like to think someday i will be competing with other governors. you hear gary and bob and others talking about the top ten. we were at the bottom. two years ago we were 43.

last year we were 41. this year after our reforms we went up 17 spot. fastest increase of any state in the country and the reason was because people were so hungry. a lot of businesses are hungry to put people to work. they are scared to death when the government will do to them next. we see contrast with our neighbors to the south in illinois. i get what they are reluctant to add jobs. in illinois they took on the challenge of balancing the budget by raising taxes on individuals 67% and raising business 46%. we ran to chicago and i said to wisconsin -- it was like living next door to the simpsons. dysfunctional family down the block. i get a lot of tourists from illinois so i need to be more gracious. in either case, we predicted it would be a year later that -- we were wrong. it was six months. six months later in illinois those tax increases in illinois

and connecticut, they didn't build the budget out. many jobs left the state. they see the mass exodus and are back with a multibillion dollar deficit. laying off thousands of public employees and shutting down six seven facilities. that is the contrast. between what we offer and others out here offer. what our colleagues on the other side of the aisle are doing across america. we took on the economic crisis and the fiscal crisis in our state my other governors. we had the largest structural deficit two years ago the state has face. i came with $3.6 billion deficit. our budget has balance that $3 billion surplus because we made tough structural long-term changes. most people didn't pay attention to the bond rating agencies until august when the s&p lowered bond rating. in our case we didn't do as well as puerto rico or get the upgrade we did but it was stabilized and moody's called the budget credit positive because we made fiscal structural changes and didn't

rely on fundraisers or money from the federal government. we said we got to make a long-term decision and think more about the next generation that we do about the next election. these other governors in both parties face deficits. four days you can solve the budget deficit. you can raise taxes which none of us want to do or layoff thousands of public employees which in our statement to the want to reduce the number of employed in forums, across-the-board layoffs don't know anybody whether it is public or private. you can cut services or you can put in place reforms. ..

>> it wasn't just about balancing the budget. we empowered particularly our schools to balance their budgets and put more resources back in the classroom. good example, a school district just south of green bay in the world champion green bay packers, they will again after the go to indianapolis and when the several in february, -- >> how do that ohio state-wisconsin game comes out? >> about as good as the championship tour going to play against michigan state. [laughter] jon and i always love to kid about football. but in, midsize school district, they took the reforms we gave them a by no longer being enslaved by collective bargaining. and instead they were able to use those reforms not just to ask for invisible pension and health care contribution but to go to the free market and buy

health insurance. that save them so much money that they actually hired more teachers, lowered classroom size, and set aside about $300,000 for merit pay. what we do with the reform, it was about empowering our state and our schools and our local governments. to be able to hire and fire, pay based on merit, to ultimately put the best and brightest in our schools and in our local government positions all across the state. that's about making government work better. that's what republican governors -- were not just about balancing and cutting taxes, we're about saying in a few areas where government does have the role we will make a work better. >> wished you hadn't brought up illinois because every time it comes up, i have to watch my mouth. [laughter] get in trouble. i was in chicago a couple years ago, a morning of events and it

was the date the olympics decision was coming up. chicago was elected. there were bands and grandstands, people running around with balloons, we're going to win. we thought we might get a spill event -- spillover event or to. midmorning comes out, the news, going to do not when they didn't even make it out of the first round of voting. shocker. big downer. i'm speaking of some noontime thing, they crowd, they are taking questions, some guy asked what's your reaction to the olympics? i said the first thing he came to my mind, what is this will come to in chicago can fix an election anymore? [laughter] >> the crowd thought it was funny. [laughter] you know, like "newsweek" magazine thought it was funny, but the governor of illinois did not agree with me. so there was, even i'm not quite

old enough to remember this, but in the early days of game shows, groucho marx had one, i think i'm right about this, and part of the thing was if you said the magic word, the duck came down and you won 50 bucks or something, right? of somebody, two or three of these guys had the magic word. case it did. i believe everybody did, result. what we do for a living is not a game, but if it were, result would be trumped. they trump me. they trump lofty edibles, however well state. they trump personal attacks. and governors are in the results business that's what it keeps coming up here. i just thought that was will put by all of you, and it is the case i think, the reason these guys are going, already such tremendous successes, they personify something that i believe many of our republican,

some of them served in another capacity, don't always think about. and that is that if it's a tremendously solid duty to keep government to the size and shape and scope that it should become and not to waste a single dollar on something unnecessary, almost make you look at and really don't need to do at all, that's the joplin. but there's an equally responsibly, spend as well as you possibly can, and that's just what you heard and that's what you see for the balance of their tremendous careers. so i hope i.t. everybody. i don't want to end up like an author of your baking. i thought mitch was going to have to tap dance or something at the last session. so i hope we'll see a question, but just in case i will ask one. of the group. scott counties that are four ways to deal with an imbalance,

and i suggest there's a fifth. and that's gimmickry. and i know we found a ton of it when they got there, you know, bills stuffed in the drawer seek pretend, shove them into the next fiscal year, don't fund the pension programs when you, fiduciary duty, things like this. i'm just guessing that the mess that each of you came into, that you found some gimmickry. does anybody have a choice example or two that they would like to share with the group? bill, looks like you do. >> well, i actually, i call someone who's a democrat who is fiscally responsible so that's one of the things that help, they did choose the stimulus plan money for ongoing expenses. but by and large is the responsible. what i think one place where you see gimmickry happening is when

some states go in and put together and send packages. and is it okay, we're going to do xyz. will help build the road, put together a training program, but then they also give tax credits down the road. and that's really. it's foregone revenue but some people don't have that as real money. and i think you're seeing some states that now some of those bills are coming due for foregone revenue. and i think that's fairly widespread. >> it's a very big, the whole subject of how states compete, which has drawn some criticism is legitimate i think, and something i'm sure all of us are being pretty careful about. >> we just went through this. we had a company called chiquita that left. same time we had omnicare from kentucky to coming. and we have a pretty tough regiment. it's a return on investment. we really don't want to get outside the two-year window, and i think if you don't have a disciplined then you end up

creating corporate welfare, just past the money out. and sometimes with the site selected, i don't know if we have any in the room, you know, they play again. many respects they are like people, some of the of a used to work with on wall street, they are bloodless. they are just out there shopping stuff around and forcing us to compete, but i think of you all have a certain discipline and not give away the store, there may be a couple projects. we are competing for sears headquarters right now. a couple of us. every once in a while you may do something extra special, but i think you will have to have a disciplined or you're going to be taken to the cleaner. the other thing i wanted to comment on in terms of gimmicks or whatever, i wasn't one -- i was one of the architects of the 97 budget agreement. when i left in 2000 we had a $5 trillion surplus, and, of course, it was all blown and now trillions and trillions in the

hole. one of the hardest things i think you do is to change the culture, to change the culture of the legislature, to change the culture of a people, the executive branch, change the culture of the bureaucracy. because if you don't get about changing the culture, then the same problems crop back up again. and it's actually difficult. it's challenging. i mean, i think in the short term or you have a crisis you get things done and it's pretty breathtaking, everything people up here have done, but our next job is to point out. how do you change the culture? did you get a lot of that done in indiana, mitch, do you feel? >> would like to feel we did. we went to pay for performance the first recruit, this next year, and when they got the opportunity, and we both the civil service law, 70 of civil service law. there are still due process protection but basically every worker in indiana, five out of

six, six out of seven isn't that will employ. to a good job, something good will happen to. don't do a good job, and you get a chance to improve or out. we reward people aggressively, spot on -- bonus. find a creative way to save taxpayer dollars are spent better. huge emphasis on the. annual performance reviews are going on right now, and that's incredibly different than the government has tended to operate most places. you know, you're always chasing, it's still government. you're always going to chase the rabbit of truly high-performance, but no, i do think we have grounds for saying that a real improvement can happen. you walk down the corridors of our state office building, there

will be posters that show the metrics congratulations to the department of x. y. and c. for the best performance, unicom issues who had the worst. we try to instill in people that thought what we're doing here, supposed to get better. even though we don't have world when of it and don't have the competition that normally tries you that way. who else. >> it's good to hear the ongoing saga in indiana because our pay-for-performance by which is an issue because of our reforms are based on india's want to continue to see that kind of success because we want to have that success in wisconsin as well. but on your questions about the fifth point, you're right. unlike bill, i got a predecessor who was not fiscally responsible. in fact, he put several trillion, several million or about a billion plus of stimulus plan into the budget end of the medicaid shortfall. so it wasn't just a one time purposes or infrastructure.

so we plugged in the medicaid school. about as part of what drove our structural deficit to begin with. then he raided over the last two months, bill will appreciate this, a million three out of the transportation system and rated at and so i had to back to that end, not just bounce it but because transportation is key to economic development. if i don't have a vibrant transportation system i'm dead. then he on top of that rated what we call injured patients compensation fund. so we repay that on top of all that. i'm sure a lot of governors around you have similar inheritances where it was coming in kind of like having one or both of your hands tied behind your back. it does though raise an interesting larger context issue of not only what we inherited, john, kind of like you alluded, the federal government. that's largely the contrast between what republican

governors are doing, tackle the tough decision, why moody's call our budget positive because they saw force in our state in the last eight years so we came in and was honest about budgeting. we are not seen that in washington. it has short-term conference in terms of boundary which is unprecedented it has a midrange consequence in terms of the next three or four years, like paul ryan pointed out, with the wheels are strange of all. it has a long-term, and i'm talking about my kids generation impact as well. any of you read this new book by the founder, it's pretty amazing insight of the about the upcoming jobs were, talking about worried about 2% gdp growth rate right now. china is at 10. if we don't change that, 30 years out our kids are going to be living in a world dominated a china. not by freedom driven by the united states. the reason we are leaders of the free world is because free enterprise system. we have the financial might to do what's right in terms of the

larger lofty goals we have and the constitution. we don't have that in 30 years if we continue down this path, and i believe if you don't change that and to get your fiscal house in or and put up iraq into the output nodes and innovators of this world. we don't change that, so anyway what we're doing in our states is another recipe for what has to happen in washington for the short, the midrange and particularly for our kids, a long-term. >> let's figure for second that washington is going to give you cannot be able to get out of its own way. i assume that. they're going for them to fixup is like waiting for good know. but i believe the republican governors come we talked about this yesterday, we have to have a very focused demand from the federal government. you're going to continue to give us a head wind, which you are doing, give us the flexibility to design some of these

programs. we have the national press here, i assumed i don't know who the heck is out there, but federal government, mitch, if they would give us the flexibility manage medicaid, and it doesn't mean spend medicaid dollars on highway projects like they were doing 15, 20 years ago. as you know. but give us the flex go to manage medicaid. i have no doubt that we would cover or people at a lower price with a better quality out. the same is true on job training. let us manage our own job training money. we are not going to spend on highways or cover up some, but whatever string you want but give us the chance to manage these programs. if you can't do anything else, you know, let our people go. and i think we just have to keep demanding it because what they are doing by not giving us the flex builder on a program i've medicaid is frankly a result in more pain for poor people. and we have an opportunity

probably to cover additional people, if we have the flexibility. this dual eligibles i have never yet met a person in washington, nine of them, biden, sebelius, any of them who doesn't say we need to speak dual eligibles. when, when are you going to do something? and this is just, folks, this is a big, big problem for the state, for our folks at and patches, i frankly, i just can't quite get it, mitch. i know they want to keep control and everything, but they can still keep some control but they are really, really -- [talking over each other] >> okay then, forces to spend it. but give us more money. and we have to be reasonable and what we ask them for, but god darn it, this is just ridiculous because bush since they want to mandate more programs and no flexibility. >> first of federal money is free money.

you go to you first budget. this is federal money come you don't have to worry about it, it's free. then they won't give us, we have a medicaid program does work for over five years, and we get two-week extensions. every two weeks we get an extension. they won't give us a long-term extension. we can't get any response. why won't they approve it? >> occupy washington. [laughter] >> they send all these programs down with all these strings and then he tried to get special interest groups to attack you for not accepting the money. i mean, so just stop, just stop spending. either, let us keep that money ourselves. doesn't make any sense. >> mitch, you mentioned some of the things you that in indiana to change the culture. and i'd like to ask each of the governors together some examples

of things they are doing. one of the things we're trying to do is move from an entitlement mentality that we had to me agencies and departments to really a service mentality and how we can honestly serve the needs of the constituents. and i would just maybe, i would like to each of you can't share some examples of things you have done in different departments and agencies in state government to move from the entitlement mentality which we see from the democrats, i mean, i think it's kind of interesting "wall street journal" just put out the best and worst managed states. california is the worst and illinois is the second worst. and they both have the mentality of, you know, entitlement mentality, and how can we tax people more. i would just like to see what are some of the examples were even able to really move to more of a service mentality? >> out to you in small and quick wit and they will come down the road. this is one that flashes to

mind. part of that mentality or talk about this sort of use it or lose it notion. people in government, no one else will think is where the people intent want to spend whatever your allotted to spend by gosh, spend it because otherwise you might not get it next year, which is terrible, perverse way to do. we called it our fiscal year starting july, we call it the june gloom. we tell people will look and we look really carefully to make sure that the run rate in may and june is no higher than it's been. if it is we killed people. i mean, -- [laughter] state that probably wasn't the right word. >> no, i mean -- >> much better. >> in the interest of brevity. >> no, i mean, seriously of course, we just made the point in the very beginning no, no,

no. if you're a leader or a colleague in one of our departments, your job is not to get rid of every dollar. it's very first could you be judged on that, if i'd wait on that and measured on that. i think it's part of come it takes a long time but it's part of getting people to conceive. i think is what you are asking, conceive of the mission of public service in a different way. >> what we did is we took our budget and the first thing we did was we said every line has something we can measure whether we'll get a result. and then last year i the goats et cetera $15 million i said this you i will veto more because there's a measure. anything that we approve it didn't have a measurement that i thought was questionable, i said i'm going to uproot this year but i won't approve it next year. to we said on every line if we can't find a measurable result it will not be part of the budget. that's the biggest thing we're doing. in the private sector the expectation is you have to reduce your costs every year.

you have to reduce your costs two to 6% a year. every agency on top of everything else you got to come up with at least a 4% reduction just and deficiencies. no one thought how could you even think about doing that because they've never had to do in the past of the biggest thing we've done is having measurable results for every dollar we spend. >> we've done a lot of -- it's amazing what that will do or a bureaucracy. we've reduce backlogs and tax appeals. we've improved the ability to use a crime lab. everybody ought, i'm sure you all are, doing the stigma and all that. you have to look at underutilized assets. read, does that all the time. you've got to get rid of it somehow. we sold one present we privatize the operation of for others between making a huge difference in our corrections situation.

we look at the turnpike. masks -- niche already. we use and were privatize and somehow it scares people sake talk about a better word than privatize. but, you know, it's a to look at the bonuses at all those things. but, you know, you know what i think it is, try to? i think it's real simple. it's telling people in the government a chance. you know, you go to work every day and you have his career in the government, don't make it so difficult that you're afraid that somebody is looking over your shoulder and that they're going to get you if you make a mistake. i think it's an attitude i think it's telling people you're in a career, do it. feelgood. raise the bar. take a chance. take a risk. if there's a screw up of course there's going to be a screw up. i'm not going to punish you for the. i'm going to be more upset if we as a team cannot figure out a better way to do things. that's kind of hard to communicate through a 55,000

person bureaucracy. you know, i like to think we're gaining on it but we all like to think we're doing great. so that's the way we think. but i think that attitude of the creative. when people are great i call them into cabinet meeting, i give them awards and all that. but i think that's a big part of this. come with a better program thinking differently, and i think it starts at the top, that attitude, but i also think it's our cabinet heads, the people who are the leaders in these different areas. people want to do a good job. they don't want to be been counted. people want to feel good about what they do. we see it in the area of our disabled children. the program that runs the development of disabled, these folks are so excited, they are coming together, they are re-creating, their combined, saving money and giving better outcomes. i mean, you see things like that and you just believe that you

could really bring even greater and greater results. and, frankly, it's all about the folks out there, right? it's about delivering a better service for children and the poor, getting our kids educated. that's what it's all about. it's about improving people's lives. and if you can get people, i think it could become contagious over time. and figure out to give them a little money from time to time but it doesn't have to be a lot. here's a hundred bucks, take the family to get a, you know? if they do a really good job, give them some money. even governor, even governor like 15 times. you need to be telling us what works out their. >> not a lot to add. we talk about the customer all the time. we always ask can i have come either be taken care of the customer, you should do that is only should take care of someone who is taking care of the customer. >> two quick examples, and i would say ditto to the things

these guys are doing. it's good year we are on the right path. one come it comes out of something we're looking at indiana, compensation. the reforms were put in place were necessary because we couldn't do that change of pay for performance. it's not just about pay. that's a big misnomer in this debate and i think it's all about money and budget and pay. it's really about acknowledging excellence and rewarding it. and i know mitch i would watch some of it, just the recognition ceremonies that you have and things of that nature of identifying excellence and encouraging it. some of it is about bringing out ways. some of our 24/7 operations, we had overtime abuses were some will come in and called in sick on their shift and then work the next shift and get time and have 40. that shows you how out of whack things were before. using every would be upset with the. the iron is the upper seniority were upset with not getting that. two-thirds always got passed over for overtime.

they were pleased because it gave him a shot of legitimately getting access to overtime as well. the other thing is just about one particular agency, labor department equal is the department of workforce. and under my predecessor their number one objective was how many more people in my state could they get to sign up for government unemployment check. and other number i came in and we talked about that, and i said, that is a fundamentally 180 degrees different from what i want you to pick your number one objective in ages is if you how many people you get off the government unemployed check and get into the private sector paycheck. and so a lot of those things about trying to change the mindset. and, frankly, most people, that's what they can even people works using governor, that's what they want. that's what got into public service in the first place. it wasn't about more people on

the government rolls. it was to help people. i think the more we empower our employees because there's great public servants, some people in the labor union might be surprise to me say this but the passenger to people who work in our states are great public servants who got in their positions for the right reasons. they just have been be down for so many years and feel like have to do things the government way that they lose sight of what they got into in the first place. >> it was a great question. sorry, mitch. >> i have a question if nobody else did. >> this is a central question that terry asked. i'm glad ever spoke to a. none of us is smart enough. anybody has been part of a big business knows this. nobody is smart enough to make, find other opportunities and make all the calls. it's has been when a one of our departments pools of the multimillion dollar saving a percentage improvement. i get much more excited, terry, and it happens a lot when some front-line worker finds way to save a few thousand dollars and

they are proud of it and we're proud of them. when you get thousands of people moving in the same direction, they make you look smarter than you are. >> what scott talked about i did the exact same thing. we had five and 50,000 people in unemployment today i took office. today i think we have 374,000. just by changing a single, your job is, we're going to measure your everyday. if we're going to track how many jobs were filled every day. and so it's almost 200,000 now. >> i can't resist in saint one more example, but at the turn of our fiscal year, this year, we were in stronger shape even when we projected. our surpluses were bigger than forecast, and i did something i think surprise even my closest associates. out of nowhere i declared and efficiency dividend, not added

to base pay but, called that for every state employee up to the managerial level. and it was a couple percent, but it was to recognize there will come a fact, everybody operating in the generally the same direction. had produced an extraordinary result. i mean, i don't need to belabor the statistics, but we have kept spinning we blew up inflation for some years. payroll plus benefits is lower than it was when we took office seven years ago. we have fewer state employees now than the state had in 1976. and they deserve the credit for that. and so, we ask that question i think you are really going to the heart of how we do all the other things we talk about doing to get good results. bill has a question. >> i would be curious, i guess mitch is seven and everyone else one. what you know now that you wish you had known the day you first

were sworn into office? >> well, i've never been in office before. this whole process was a nightmare. [laughter] either have the committees and all that so that would have been, that would have been helpful. we still got everything done, but just a primer on all that. .. up i wish we had known but

looking back, the lesson we both learned in our states in particular was, be in a position on every major public policy that we make, that you have got to have not just how to get it done in the legislature but you have got to build your case publicly. if i look back in time and say what i have done what i did i would have done it but i would have spent january and february not just personally and publicly, it would have literally had a media campaign to go out and run ads and tell the people in my state like the example i just gave. should somebody in state government be able to get overtime when they call in on one ship? should someone get paid an extra $8000 per month just because they carry a pager because that is in the collective bargaining contract? should a bus driver in the city of madison because of overtime make $150,000 per year? all those, should the teacher of

year in the city of milwaukee be laid off the next week because she was the last one hired and therefore the first one out the door when there is a layoff out there? all those things are things that i think people knew that upfront, they'd say there's a problem. you have to fix that. there is a problem in making your government work. i unfortunately like many feel this came in with this mindset a little bit like rick you have is a business owner and said here's the problem and here's the solution, just fix it. my wife says sometimes i spend too much time fixing things and not enough time explaining things so i think the lesson learned would have been nice to gear go to say you can fix it but you have to explain what you are fixing first. >> let me talk about an issue that i think you know really lends itself to that and that is this issue of education. we created 60,000 scholarships. we had 15 and we are going to 30 and then 60. we have taken the lid off the charter schools and doing teacher evaluations but the

country is not, i mean one of the greatest national security risks is the fact that we are falling farther and farther behind other countries in terms of education achievement. i'm sure you all get companies telling you that you can't find a kind of mechanical electrical, the whole engineering, the mathematics, the science fields. it's something we are just not getting enough of our own citizens trained and there are other countries beginning to laugh us. i love the fact that people come here and get educated and they use to stay but now they are going home. and, i am not convinced that the public understands that the situation on education. i think it's sort of like congress. i hate congress but i sure love my congressman. it's sort of like i know that public education isn't working but my kids school is doing great. and it's a painful thing for a mom or a dad to have to

recognize exactly how their school is doing. and, once you do that, then once you can get people to open their eyes to it than i think you can get the kind of fundamental reforms that you need, where you would get teachers and the community and the administrators really all working together. i am very excited about potential coming out of cleveland for example because the community leaders are beginning to recognize that fundamental change is necessary and if they come with a kind of bold ideas that i hope they will which they bring to me rather than me to them, we may have a chance to set an irvine model that might work. education, you know, when i say a fundamental reform i just think we need to start getting our children to realize their passions even in the third and fourth grade and start tilting and welding and building and connecting them with real-life jobs and make education something that provides them with a skill that meets their passion and gives them a career.

this requires flexible education system, more dollars in the classroom. you know, teacher evaluation in a fair way, but it's so massive that if you cannot condense the country that we have a problem here, then do you are just going to have people fighting with you. i'll tell you it's worth the fight because it is about the future of our country economically. we are not going to make it but i don't want the googles and the that paypal send the yahoo!'s and all these great companies or the discovery in bioscience or whatever to be made overseas, and so this is something i think we all have to work on including with their democratic colleagues but you have to strip the politics out of this you know, and do it in a fair and effective way. >> in our last three minutes, which would lead time maybe for one more. >> i just want to follow-up with follow up with what john just said.

because we spend an awful lot of time this year studying education in a lot of different countries. and, what is happening here in our country? the one common denominator that we have found is most nations who have a solid educational system in says on the teachers having content knowledge of the subjects they teach, and here in the united states we have courses called educational courses. you can become a teacher i studying methods, and i think if you really study it, that is where we are really falling behind. the other thing that we are falling behind on is, and john hit upon it, is occupational opportunities that are -- at a much younger age. the kids need to have, to see,

what's available to them so they can satisfy their passions. >> i agree. >> in indiana now you can no longer get a teaching license with an education major. you can have an education minor but i'm going to say we cut to 36 to 16 hours, the requirement of the methods courses and it's on the theory that they are going to teach math you have to know some math. but absolutely, i will just say one of the things i wish i had done a whole lot more about his higher ed and the education in schools as we know them, let me just be gentle and say they're not contributing to the solution. somebody must have something to say about that. >> obviously we could talk another hour on all of this but one, and we saw this first-hand,

one of the years we honed in on early was reading. in the elementary schools. statistically the kids are not reading at third grade level in third grade. the move on. the odds are significantly higher that they are going to drop out of school and they are not going to be in school and high school and there will be of lot of big problems and areas down the road. it's very similar to what jeb did here in florida years ago and had great success with it. and a good chunk of it, we brought in a very diverse group of teachers, educators, higher ed, advocates, pta you name it in one of the things that was a fairly consistent point was that even amongst teachers they felt there was not enough proper preparation in the university system and college for reading. the skills needed for elementary schoolteachers to prepare for reading so we put a tremendous emphasis on that. we have initiative works on that and we ended social promotion in third and fourth grade for kids who cannot read.

they did it and we are tying into the whole element of school so there's a spectrum but the ideas every kid that comes out of an elementary school will be reading at grade level by the time they get out. and the same way we are doing, similar to what jeb did we are, we call of the school district assessment system where we have a comprehensive assessment both not only for the skill levels are but where the growth is in a combined factor that gives them a grade, translates into and a to f gray but there is a lot more detail to it than just that. but the third part we have been working on and you mentioned this earlier, i hear all the time employers to say i have about 19% of my workforce in my economy is manufacturing. manufactures tell me repeatedly i have jobs. i just don't have enough people who have the skills to meet those jobs are increasingly there are high school welders

with two and i in areas like that. we need to do a better job at our schools and his parents and guidance counselors and others telling our kids that while we want a lot of four-year college graduates, that's great, we need more but we also have a lot of kids who can get a great career and a great salary by working in the skilled trades and we have to do a better job of selling that. >> we have used our appointed hour plus one minute and 22 seconds so we thank everyone for their attendance. you must have the same reaction i do. is that a group of all-stars or what? [applause] >> have no health care. that's the most expensive single element, have no environmental controls, no pollution controls and no retirement and you don't care about anything but making money, there will be a job

sucking sound going south. >> ross perot spoke out about trade issues during the 1992 presidential debate. the billionaire businessman made two attempts for the presidency. the first time getting over 19 million votes. more popular votes than any third-party candidate in american history and although he lost he has had a lasting influence on american politics. he is our final candidate on c-span's 14 week series the contender's live tonight at 8:00 eastern.

congress is back in session next week and funding to keep the government open expires a week from today. that means the house and senate must come to an agreement by friday to avoid a government shutdown. in addition to the spending legislation the house of representatives is set to take up a republican proposal to extend the payroll tax cut some extend unemployment benefits and avoid a cut in medicare payments to doctors. house coverage is live on c-span. the senate begins the week considering state department nominations. they will also work on spending legislation and extending the payroll tax cut.

u.s. senate coverage as always live here on c-span2. >> federal housing administration insures home mortgages and a recent report says that unless the housing market rebounds next year, the fha could need williams of taxpayer dollars to remain solvent. housing and urban development secretary shaun donovan testified about the issue earlier this month before the house financial services committee. congressman spencer bachus of alabama chairs the committee. >> today the committee meets to review the recently released fiscal year 2011 actuarial study of the fha mutual mortgage insurance fund. i welcome secretary donovan acting fha commissioner galante and other witnesses today and i would like to take this opportunity to express to you secretary donovan on behalf of the people of alabama, they are

regards and appreciation for your efforts during the tornadoes that struck alabama. the response was excellent and we appreciate your professionalism. two years ago this committee met to hear disturbing news that the fha capital reserve ratio, which is the primary barometer for measuring the fha financial solvency had deteriorated to a level of .53%, which is well below the statuary requirement of 2%. since then things have gotten worse. the capital reserve experienced a further decline to, .5% in 2010 and then on november the 15th of this year, the independent actuarial study revealed the capital reserve ratio had fallen more than half and now stands at .24. having said that, we should also acknowledge that we have

witnessed and historic housing market correction with the largest drop in home prices in history and the worst economic downturn since the great depression. with this background, it is not surprising that the fha capital reserves has suffered. we also need to recognize that a substantial part of the problem results from legacy loans originated during the housing bubble prior to the economic downturn. current loans have much higher credit scores and a markedly better performance. i am encouraged that the fha has implemented some incremental reforms to shore up the insurance bond reserves and reduce risk including the hiring of a chief risk officer. however, and i think our witnesses have acknowledged, these reforms are not enough. i share the concerns expressed on the november 7 gao office

report that fha has yet to implement a comprehensive risk assessment strategy. a separate gao study released last week on ginnie mae which guarantees the payment of principle and interest to investors and security backed by fha insured mortgages found that ginnie mae faces the risk of financial loss due to inadequate or failed internal processes because of limited staff or substantial reliance on outside contractors instead of ginnie mae employees and the need for modernized information services. both of these gao reports coupled with an independent actuarial study all released within the last month do not paint a picture of a government agency prepared for the 21st century let alone the immediate housing financial crisis. finally mr. secretary let me reiterate i share your and the administration's opposition to any increase in fha loan limits. the new levels of $729,500 at

100% government guaranteed passed recently by congress was not the right course of action for creating an environment where the private sector can compete on a level playing field with government-subsidized entities and are housing markets. i look forward to your testimony as well as that of other witnesses, and at this time i recognize mr. gutierrez for five minutes. >> thank you chairman bachus and for holding this hearing and i welcome secretary donovan and our other witnesses. i look forward to our discussion today on the federal housing administration. the health of a single-family insurance fund and the role that it continues to play in the housing market. we are going to get the details today, talking about actuarial studies and capital reserves. these are important issues that we must understand. what we know is that the fha capital reserve ratio has fallen

and continues below the level required by statute. that is a fact that we have to deal with, but the real question that we have have to ask today are, why is it and what can we do to ensure that the fund stays in the black going forward? i think we can dismiss some theories pretty quickly. for example the idea that the fha has acted irresponsibly under this administration or that it has actively tried to grow its way out of the problem. those ideas are simply absurd despite the talking points of some of my colleagues. most of the loans that are hurting the fha were made during the bush administration. the fha with the help of democrats in congress, have tightened this underwriting standards, raised annual insurance premiums and increased our payment requirements for borrower's with lower credit scores. if anything, these are all policies that -- those are just

the facts. the fundamental problem is that we are still in the grips of a foreclosure crisis that is hurting american homeowners. the fha balance sheets and indeed our entire economy. i think that we have to discuss, think that we have to focus on the fundamental issue in order to have a useful conversation about maintaining the health of fha into the future. we also have to talk about where this congress is putting resources. are we spending the money to ensure that americans have access to housing counseling to avoid foreclosure? i think not. are we adequately requiring lenders to provide loan modifications for borrowers who are delivered on their mortgages? i think we need to ask that question even more. are we doing more to ensure principle reduction is on the table of modification process? all of these things would improve the health of our housing market and improve the

health of the fha and most important improve our economy but i can't say i think we have done enough to help american homeowners threatened by a foreclosure for underwater on their mortgages. the more loans we modify, the healthier the fha funds will be. i hope that we spend time today talking about what the fha and other agencies can do to hold servicers, server serves, and i want to ask the secretary specifically about this, server sirs accountable, encourage more successful loan modification to keep families in their homes and get our housing back. i look forward to the testimony today on how it can fix a problem and i thank you chairman bachus and i yield the balance of my time. >> thank you mr. gutierrez and at this time i recognize the vice chairman of the full committee, mr. hensarling, for two minutes. >> thank you mr. chairman. fha is likely a disaster in the making if we are not careful and

it may become fannie and freddie the sql. at 400 to one leverage, 10 times the leveraged that was employed by lehman brothers when they filed their bankruptcy, something is amiss. capital reserve ratio is almost 90% less than the statutorily required minimum. third year, working on the third year in a row than mutual insurance fund has been undercapitalized. if fha was a private financial institution, likely somebody would be fired or fined in the institution would find itself in receivership. instead what we have seen as an agency that has undertaken an expansionary strategy whose insurance in force is now more than tripled since 2008. we have an agency that now guarantees mortgages up to roughly twice of what they did

just a few years ago. certainly, an example of extra nor it -- extraordinary mission creep. it's estimated more than half of fha's current insurance in force is on mortgages taken out by owners who have negative equity in their homes. fha seriously delinquent rate for september was 8.7%, up from 8.2% in june at a time when many believe that we will see further erosion in home values. in february, 2011, and the administration's report to congress they said quote fha should return to its pre-crisis role as a targeted provider of mortgage credit access for low and moderate income americans and first-time homebuyers. before the taxpayers get soaked yet again, hope that the administration's actions will match their rhetoric.

i yield back the balance of my time. >> mr. scott is recognized for 3.5 minutes. >> thank you very much and secretary donovan it is good seeing you. first of all i want to start off by thanking you and had for the very valuable assistance you gave to me in dealing with our home for closer situation in georgia. georgia is the epicenter for home foreclosure. my district which represents the suburban areas of the atlanta metropolitan area, where so many of the huge home subdivisions are particularly hit, that comes almost two years after we had the great flood. so, our housing situation in that area is very serious. and in that regard we have the home foreclosure event with this assistance of hot and i really want you to, to say thank you

and express my thank you's to a couple people on your staff. audrey crutchfield, i think you may know her, and also ed jennings who is a regional person. when you thanked them i want you to encourage them to do it again with me, because this problem is still there. we were able to help save over 2500 homes, but that is just a drop in the bucket. we need to get help down there very seriously and if we start early enough, it if we start this year, we can save 10,000 homes. we are particularly serious with the areas of, that combined impact of high unemployment, people without jobs. we have a severe problem with a lot of elderly. there is no reason for us to have to put 90 and 100-year-old elderly people out. where are they going to go? how are they going to get help?

we were able to save one of those fellow georgians just this week as you know and we kept them in their home thanks to the good graces of one of our sheriffs there. fha was put together as a result of the depression, 1934 when it was put together and it was put together for these very impressive reasons. and we need to do that, despite the efforts from last april where i think the congress cut $88 million. that is devastating to your department. so there is a role that we are playing and these cavalier budget cuts that go straight at the heart of where the greatest need is. if there ever was a need for us to look very gingerly and avoid these massive budget cuts that help to exacerbate the very problems that i'm talking about. so we want to get into that today and i hope we can get a message loud and clear that we need to reverse this rather

disturbing trend to try to balance the budget on the backs of those areas of our service to the american people where they need the help the most, and call upon those who can't afford it, those multi-billionaires and millionaires who are not paying their fair share to help. this is a primary example of where we are. america is a great country and just as we rose out of the ashes of the depression and formed the fha at that time, surely this is a time which we can serve this great sterling purpose and strengthen the funding for hud. so i appreciate your being here and thanks again for your work and let your folks know we look forward to working with them again next year. we are putting that home foreclosure together as we speak

and hopefully we can contact your office. >> mr. royce, do you want a minute or a minute and a half? >> thank you is to chairman. i will yield back one minute. very good, thank you mr. chairman. in 2008 and in 2009 some of us were warning about the potential risk of this government agency heading towards their statutorily mandated 2% capital reserve ratio and we had hearings like this one and we were told at the time not to worry. the testimony was the fha was fine and the reforms being made were going to prevent a taxpayer bailout. i remember we had in october of 09, fha director at the time stevens was here. he came before the committee and his words were these. they were, we will not need a bailout. secretary donovan, in reviewing your prepared remarks, it's clear you are laying out a very different scenario here, and

given the actuarial report for 2011 i can see why. in that report the capital reserve ratio is now one quarter of 1%, which is a fraction of the statutorily mandated 2%. and, this leveraged ratio is really, i mean, it's about 240 four-to-one. that would give pause i think to any regulator at this point. and so the obvious question that i think we hope to get answered as you lay out your plan is what is next mr. secretary? what is your solution for preventing a taxpayer bailout of fha and i think it's clear that on a quick turnaround in the housing market, i think that rebound is not the safe way to bed. i think you need to lay out a scenario where you know, we have got a plan that moves us back from the brink that could lead to a bailout, and i very much

appreciate looking forward to your testimony here today and i yield back the balance of my time. >> thank you and mr. green for two minutes. >> thank you mr. chairman. thank you for having hearing and thank you mr. secretary for appearing today. i am hopeful that what you will present to us will help us to understand how the housing market can bounce back with the help of fha. your credit scores have gone up to 700, average credit score. you have been assisting in areas where the market in general does not receive a lot of help from other institutions. i think that we have to concern ourselves with the housing market in terms of the recovery and i see fha as a part of that recovery effort so i thank you for appearing and trust that

when you have completed your testimony we will have greater insight as to how fha will play a meaningful role and i yield back the balance of my time. >> thank you. mr. miller for a minute and they have. >> thank you mr. chairman. secretary donovan and thank you for meeting with me this morning. in a nice conversation beforehand and we need to look at ways to shore up the crisis aimed region -- and until we reform the housing system home values will continue to evolve and people will lose funding and this economy will not turn around but the housing market is a very very complex marketplace. ..

>> the towers have doubled in size, and that there are in the zone. i know it's a great area for you but it's a very serious area for the people of been impacted. i want to thank your staff for working with us on this issue but it's something we need to look at and say what's right. and people bought in good faith. they are not in a right of way but because of what the state of california's mandated has put them in a difficult situation. it's impacted them in the pocketbook. not only has the marquis had a negative impact on them with falling prices, but now what's been done to them for the betterment of the state so

called, has had a real dire impact on the finances. they are angry. been a right to be. when you have an opportunity to good -- to do good, we need to look at that. whatever help you can provide these people would really appreciate it because it's the fault of their own. they bought in good faith, they have lived there in years in good faith and now they're being impacted. but i want to thank you. it's a huge issue and whatever you could do we would appreciate it. i yield back. >> thank you, mr. chairman. i want to thank the witnesses for appearing before this committee, helping us with our work. i want to hearken to the remarks of mr. voice of california. i was in on those meetings as well when we raise concerns about the cap ratio back in 2008 and we received direct assurance from fha not to worry, we got our arms around that we were going to hit us. we're not going to go below the

statutory minimum, then again. we called you back. i had meetings in my office. we're reassurances again that you're going to handle this. and here we are, and now you have dug yourself in such a deep hole that you're going to need some fun. you need a bailout or you meet some drastic measures to dig yourself out of that hole. that's a problem. there seems to be a pattern of denial that things were going to get better and we will turn this thing around, and we didn't hear a peep to reverse this decline. and that's a problem because now the problem is significant and it's going to be more difficult to do with it now because we have allowed this shortage to achieve it. sells you know i'm just disappointed that we didn't have the acknowledges that we had raced up here, that we saw happening that was a reflected at the agency. there were things we could have done that would've been less destructive several years ago than, you know, the hand we have

to play now and there are a lot of people in this country, a lot of homeowners -- >> mr. lynch is recognized for additional 15 seconds. >> thank you. we have to work together. we can't have as raising concerns and the agency blowing us off in sync there's no problem, and then it is a mess and then we have to do something drastic to correct it. we need to work better together i guess, and i'll be interested how you will come up with this money, all these resources to fill in the shortfall. thank you. i yield back. >> ms. capito for a minute and that. >> i would like to welcome senator donovan back to the committee as well, and i want to thank the chair and ranking member for the hearing today. having sat through many of these hearings over the last several years, i think as the speaker before me said, when red flags in front of us, we need to pay

attention. i think we see a major red flag to with the decline in the capital ratio. in the secretary's defense i would say some of, he has begun, or attempted anyway, like improvements to the program like raising the annual premiums and other things that can be done but we need to work hand in hand both legislatively and through regulation to try to improve what is seriously declining and i think potentially dangerous situation. with the actuarial report saying that the mandated reserve ratio is down to .24%, it's time to more than just pay attention. it's time to make action. and so i pledge to work with you as we have in the past but we did and fha reform bill last year, i believe. it could make all the way through. some of the ideas in the bill contained i think would be very useful in helping to alleviate this situation. changes that occur in practice like tightening the under instead become increasing

premiums and enhancing enforcement i think are helping, but the statistics are shown we are still in a declining, seriously declining situation. as we have heard repeatedly and i would akamai voice in this, a bailout to the fha is something that would be an tolerable to the american people and certainly to this congress. i would like to thank the chairman for holding this hearing and welcome the secretary tonight. >> ms. maloney for two minutes. >> thank you. thank you, mr. chairman, and ranking member. and i am really honored to welcome all of the panelists today, and particularly to welcome secretary donovan, and say that new york is so proud of you. thank you so much for your public service to our state and city, and thank you also for your public service for our nation. this is a very important hearing because the fha really represents a critical leg of the housing finance. i think it is safe to say that

in the wake of the most recent financial crisis, we are all concerned about the fha's ability to continue, to insure mortgages. over the last year, the fha has ensured a 218 billion single-family mortgages, helped more than 362000 families, avoid foreclosure through loss mitigation, and helped 440,000 families refinance their mortgages to a lower rate or some of these families benefiting, live in the district i'm honored to represent, and they are very grateful. so the importance of fha's role in the housing system really must be underscored. and fha is really the only game in town right now, because the private sector has largely disappeared from the market. however, i am concerned and i

join my colleagues that have expressed their concerns that the actuarial report indicated that the fha's mutual mortgage insurance fund capital ratio fell from .50% in 2010, to 24% in 2011. and i do know that there are variety of reasons that led to the decline, including a decline in home prices, but i hope that we will see an uptick in that rate as the market stabilizes. and i believe the actuarial report with a lot of hard work and help from the economy, that we can move towards a level of 2% by 2014. in the meantime i understand the fha has undertaken a number of important steps to ensure the health of the fund by strengthening risk controls, underwriting controls, enforcement come increasing premiums, and expanding loss mitigation to avoid unnecessary

claims. so i look forward to your testimony. i particularly would like to hear your take on the legislation on average a reforms. as presented by the republican majority, and again, i think you for efforts to help american stay in homes and finance their homes. thank you very much. i yield back. >> thank you. mr. garrett, one minute. >> thank the chairman for holding this very important hearing on fha, and future viability. and in light of the actuary report that just cannot, raises real concerns. unfortunately, congress just decided to expand the role of fha been for them the opportunity to study that report in depth, unfortunately. mr. secretary can you been here in your position for about three years to feature the report comes out, each year thing shows the duration come gets worse and worse and worse with regard to capital position. as mr. lynch indicated, prior to that value can have basically

you enter supported say things are fine, good financial condition and your projection shows things will get better year after year. however, as i say we look at the root ports that come at you speak to is, things continue to deteriorate, they get worse, not improve, they even. so when you come in now and tell us don't worry, be happy, things are okay and everything, i've heard that record before and i really wonder why we should believe that and why we should not anticipate that in a few months from now, this spring, you will be coming to mr. lynch and and the rest of us and saying you need to be bailed out. one other comment. i've heard some comments after from, even with this alarming situation that fha is not really going to make any other additional significant policy changes to better its fiscal position but rather, the answer is to grow its way out of the. and i wondered then whether to grow your way out of this progress now doing more damage

to yourself but also more damage to the private sector in freezing up mortgage, private mortgage guarantors and the rest of the private sector by doing so. so i have a lot of concerns, the tracker up-to-date, and also where we're going with this. and i yield back. >> mr. ackerman for two minutes. >> thank you, mr. chairman. thank the ranking member for the hearing. mr. secretary, nt we're all proud of the. thank you for the great job you're doing. it's a very difficult circumstances. i don't think the sky is falling. unlike some of my colleagues, i think you should be congratulated, not criticize, for the fact your market share is expanding, or some people have said exploding. your agency has been vying for that purpose, to be countercyclical. to pick up the slack when the are no other lenders. that is your job and that is your role, and you are doing it and you're doing it quite well. despite the fact, or point out

the highlight of the fact is that the quality of your borrowers has increased, as the audit shows for the first time. over 700 on the fico score. that's a very good side and a very positive sign and during very troubling times your there are some reasons to be concerned, and i think your testimony that we've seen so far is very, very realistic, and we have to figure out what to do if indeed the housing market continues to decline and prices decline anyway. my second point is basically, during the years of the bush administration, they kind of branded themselves as the ownership society. everybody had to own something, especially their houses. people found ways to market houses to people that were

basically subprime borrowers, we know subprime loans. they were tricky, devious, but the borrowers with subprime. now that we've highlighted that, i thought we had gotten away from some of the causation of the problem, but i find an ad, and i see many like it, this is from one of the major newspapers in my region in new york. foreclosure, one family brick plus private driveway, full basement, ascii $163,000. no credit, bad credit, okay. won't last, call quick. why are we still selling it and working -- marketing to people have no credit and bad credit? this is not advertised as being out of your shopping anyway. i don't want to advertise it, but this is still going on.

people are being induced by lenders, not your agency, but by lenders to buy houses when clearly they are targeting to people who can't afford it. no credit bad credit, who are they asking to buy houses? what do we do about that? i'll give back the balance of my time because i do have specific questions. >> thank you, mr. ackerman. mr. neugebauer for two minutes. and let me at this time acknowledge that ms. carol galante, who is the acting federal housing administration commissioner is seated at the witness table with secretary donovan, and is accompanying him today. and we appreciate your presence. and i understand you are going to assist, if needed, the secretary eric and i have enjoyed our conversation over

the past few months. so we welcome you to this hearing. mr. neugebauer for two minutes. >> thank you, mr. chairman -- >> we're having a little longer opening statements but these are important matters and i think it's important that those dems who wish to make an opening statement do so. >> thank you, mr. chairman, mr. secretary, it's good to have you. you know, mortgage interest rate, fund report was issued, and it was a little ironic because that didn't paint a very pretty picture that yeah, the summary said that it is actually the sound. and i was pretty sure if i went to webster that an entity that had less than 1 penny of equity in fact it's not just less than 1 penny it is less than a quarter of a penny in equity with such huge out of business would not be an entity that was probably actuarially sound. and i think the other thing that

was troubling about that, and i thank my good friend mr. kerry made a point, is going to go back and you look at previous reports and to look the projections of where you thought you're going to be in vouchers. we miss those every year. and the other piece of information there is when you look deeper into the numbers here, and i'm looking that when you look at the single-family book of business, actually that reserve is even less than that, it is .12%. i'm trying to decide how much of a penny, you could show to represent that, that's like 846 to one leverage. and, obviously, that's leverage or any other entity in this country that was regulated would be in some kind of either bankruptcy or conservatorship. and so one of the things that challenges us here is how do we fix this. i think that's an important piece to the. one of the problems though i think is the fact that you're even not below being out of

money at this particular point of time is the fact that because of we've crowded the private market out of the system you that you're getting majorities of business, so it's almost a self-fulfilling prophecy here that if we were to to take action to reduce the amount of business at fh is doing, reduce your market share back to traditional levels you wouldn't have the income levels to support the activities that you're in right now. so it's going to be interesting to hear from you how we bring fha back to a more traditional levels as far as market share, and at the same time keep you from having to dip into the taxpayers fund. so i will look forward to our question and answer period where you and i can discuss that further. thank you, mr. secretary,. >> mr. hayward for one minute. >> thank you, mr. chairman. mr. secretary, you may know i'm a co-chair of the nonpartisan hurricane irene coalition here in the house, and my priority as is there is is to ensure that we

and in our case the hudson to has the fullest possible access to the federal funds that we need to recover from hurricane irene, tropical storm lead. over $400 million in disaster it has been made of the to the block grant program. but as you know, my home county of westchester is being denied this health as well as their normal funding due to an ongoing dispute with hud over what can reasonably described as minor but peter to terms of a recent settlement that was made before the current county executive took office. that's despite the fact that westchester has a short fun in good faith for over seven hudgins of afford will housing in a county that has a limited amount of land. with a lot of open space which is good for the environment. so mr. secretary, i'm asking as a member of the hurricane irene

coalition and as the representative for a good part of westchester county, that you please work with westchester county to provide the critical recovery funding that the county needs and deserves. and i thank you, look forward to test my. and mr. chairman, i yield back. >> i would like unanimous consent for the record to reflect that there is a nonpartisan caucus on capitol hill. [laughter] thank you. mr. dold for a minute and have spent i want to thank you for the hearing, and secretary donna, thanks for being here at all share a common objective which is more sustainable and more effective mortgage finance system. regardless of political party most of us would agree that such an improved system should have three primary components. first would be to promote the private sector as our primary mortgage financing source. second would be to restore long-term stability to the

housing sector. and third would be to protect taxpayers from future bailouts. after already paying for over $100 billion of fannie or freddie losses with potentially hundreds of billions more in the coming years, taxpayers also remained exposed to potentially large fha losses because the fha guarantees over $1 trillion of mortgages while maintaining only a tiny fraction of that number in insurance reserves and other resources. solving this problem i think is critical for taxpayers for current and future homeowners and for our economy as a whole. and so i am concerned when i see additional solicitations coming out, and this one over here that i just all talk about trying to get additional load with a fico score of only 580. these are concerned for me to go we have to do is come together to try to make sure we are sure this up for the american taxpayer and future homeowners. i look forward to your testimony

today. thank you so much for being here. i yield back. >> thank you. are there any other members on the minority side or any other, maybe ranking members in waiting, that would like to make a statement? okay. all right, at this time mr. schweikert for one minute. >> thank you, mr. chairman. mr. secretary, i look for during your tests were. i'm operating under two premises. one, that a shock in the fha loan system would be horrible to the real estate market, particularly when you're from arizona. but the second part of that premise is you're in violation of the law. looking at the statute that you shall maintain 2%, i look forward to learn why i'm wrong and what i'm reading the statute. second thing is also going to the actuarial report, and please forgive me if i missed it, i'm

trying to get a good definition and breakdown of properties and mortgages on your asset side, what's the breakdown of how much is held in reo properties, how much is held in paper. and as my good friend mr. dole here just mentioned, this probably isn't you, this is maybe a correspondent linda. but when you get an e-mail soliciting an fha loan with a five a.d. i could score, it makes you a little nervous if you're going to grow your way out how do you grow your will way out with high risk loans. yield back my time. >> mr. canseco is recognized for a minute and a half. >> thank you, mr. chairman. and thank you, mr. secretary, for being here today. yogi berra once said déjà vu all over again. and the latest actuarial report on the state of the fha's insurance fund is reminiscent of warning signs we saw from fannie mae and freddie mac.

even though fha has been below its statutorily required capital ratio for three years, it now has exposed taxpayers to over $120 in liabilities, and agency now guarantees almost one-third of new mortgages in the united states. even a cursory look over the latest report brings into question many of fha's projections about the health of the housing market and its ability to cope with future losses. putting taxpayers in such a risky position is unacceptable. it is a stark example of a consequence of a decades long for a of government meddling in the housing market. today's hearing is of extreme importance and i look forward to hearing from eyewitnesses on this matter, and i yield back the balance of my time. >> thank you. if there are no further opening statements -- or is there?

[inaudible] >> we could give additional time during the questions. at this time i would like to welcome doctor donovan and ms. cullen to pick the secretary has a hard stop of 1230 time it. but understand that the commissioner can stay longer if members have questions. mr. secretary, you're recogniz recognized. you're recognized -- well, without objection, anyone else, members want to submit written statements. they will be made a part of the record. and so at this time, mr. secretary, yield to seven minutes. no, or eight minutes.

>> thank you for this opportunity to testify on the status of the fha nmi fund and fy 2011 actuarial report. but before i begin, i want to say a quick word about ranking member frank who announced his retirement this week. given that he has never been exactly the retiring type, i ensure that the congressman will continue to be a passion and effective advocate for families on main street that he has always been. mr. chairman, this report arrives in a significantly different environment from the one that we face upon taking office. then our economy was shedding over 800,000 jobs a month, housing prices had fallen for 30 straight months, and foreclosures were surging to record levels month after month. today, nearly 13 million homeowners have refinanced their mortgages since april 2009 putting your $22 billion a year into the hands of families and our economy.

with recent changes from fhfa, more refinances are on the way. today, because we provided responsible for us opportunities to stay in their homes, the number of families falling into foreclosure is down 45% since early 2000. more than i put 3 million mortgage modifications have been started since that time. central to this progress has been the fha, which has undertaken commission that congress set for it after the great depression. by taking over 1 million loss mitigation actions to help families keep their homes and helping to point to 5 million for some home buyers realize the dream of homeownership. 56% of our first-time homebuyers in the last two years and 60% of african-americans and hispanic home buyers last year alone. as the report we discussed today finds while we've been through the second worst housing counter in the history of the country, fha, unlike many other institutions retains a positive

fund balance and the current book of business is strong. specifically the actuarial reports insurance on loan since janet 2009 post in economic tide of $18 billion. with a new 2012 book of business expected to add $9 billion alone. it reports of those the capital reserve account is $4.7 billion, fha's total reserves stand at $33.7 billion, $400 million more than in 2010. the fha has been able to weather this storm thus far to date is no accident. indeed, what the partnership of congress and this committee would have been able to put in place of the most sweeping reforms to credit policy, risk manager, linda is forth and consumer protection and fha history. reforms as if actual report makes clear that i produce real results. with your help we've been able to increased premium rates three

times under this administration yielding significant added revenue to the fund. we have also put in place a two-step microflora which required those with credit scores, low credit scores to contribute a minimum down payment of 10%. only those with stronger credit scores remain eligible for fha insured mortgages with a minimum down payment. this approach is based on fha data clearly shows the success of a bar work depends on the, nation of factors that include the loan-to-value but not a loan. the changes to be made significant with the quality and performance of fha loans. they are half of fha borrowers that credit scores below 620 in 2007, today the average fha credit score across all borrowers is over 700 for the first time in fha history. for home purchase loans originate in early 2011, early them default rates are less than 16 what they were in early 2008. for streamline refinance loans

they are 112 of what they were at the peak before president obama took office. we've taken other steps including critical enhancements to limit enforcement, withdrawing the approval of over 1600 lenders to participate in fha programs, more than 12 times the number during the entire tenure of the previous administration. with these actual or simulated a very clear message. that if you don't operate ethically or transparently, we won't do business with you. and we will not hesitate to act. mr. chairman, the collective impact of these efforts cannot be overstated. indeed, were it not for these reforms, many of which this committee has helped make possible, fha would be seriously in the red today. and on the strength of these new books of this is not on does the actuarial report finds the fund retains positive capital today, it projects that fha should be able to rebuild reserves to congressional mandated 2%

threshold quickly once markets across the country exhibit sustained growth. indeed, using base case projection based on moody's analytics forecast forecast, the actuary expects reserves to reach to present again in 2014 sooner than was projected just last year. of course for all this progress, very serious challenges remain. like any other organization in housing finance sector, the actuarial find the fha's finances are very closely tied to home prices which have been broadly stable since we took office, but weaker than expected in 2011. in particular it finds fha's older books of business underwritten during the bubble years of 2002000 will continue to produce substantial losses of more than $26 billion. it reports as many as half of high risk loans insured of the peak of the housing bubble will ultimately result in a loss for the fha with more than one out

of every four loans insured in 2007 resulting in insurance claim. and losses of close to $10 billion for the 2008 book of business alone. that's why we continue to pursue additional reforms to protect the taxpayer, support the housing market, and meet the fha's historic mission of helping underserved borrowers. in the very near future we expect to publish an indemnification will told lenders responsible for loans that were improperly originated. or in which fraud or misrepresentation were involved. in addition will soon publish able that reduces allowable seller concessions to protect and in my fund in my fund from risked associate with inflated appraisal values. now that we have these actual results we are carefully examining a range of additional steps to further strengthen the fund including enhancements to our loss mitigation protocol, and whether additional premium increases are necessary. we expect to announce these next steps in our proposed fy 2013 budget and to work with congress

as we have throughout. we must also continue to shrink government's footprint, a key goal of the administration's white paper on the future of housing finance and a process than pleased to report how started begun at fha to our premium increases and underwriting changes. indeed, about fha's volume grew dramatically during this crisis, in 2011 fha loan volume was down 34% from its peak in 2009. fha's current market share of mortgages is 14% and declining for the first time since 2006. during these uncertain times as we carefully manage the balance between helping the market recovered and working to bring private capital back, this represents important progress. and so, mr. chairman, while none of us can predict what the future will hold, we do know is that these new loans we are making are the strongest in fha history. but given the continued fragility of the market we must continue to be vigilant and prepared to take additional

steps to protect the taxpayer. as it has been since the outset of this administration, that remains our goal today. thank you. >> thank you, mr. secretary. mr. secretary, the obama administration's white paper, and you for i think to that without naming it, reforming america's housing finance market that was released in february, indicated that the goal to encourage a return of private capital and reduce the risk of american taxpayer, but looking at the fy 2011 actuarial report from fha, it assumes that the fha market share, it isn't a market share of no less than 20%, all the way to fy 2018. do you know why this is? and won't that elevate level of fha participation in housing

finance market discourage a return of private capital to the housing financial sector? >> mr. chairman, you're exactly right. the report laid out a series of steps not just for fha but for fannie mae and freddie mac as well to shrink their market share. the most critical steps their were to increase the costs of fha insurance and the guarantees that fannie mae and freddie mac provide to encourage more capital to coming. we have begun down that path but as you know with authority granted by this committee, we have raise premiums three times. they now stand at the highest level in fha history. and, in fact, it's began to have results. as i just mentioned we've seen our market share shrink from about 17% last year to 14% this year. and the latest quarter shows a

continue shrink. in addition we proposed in the president's proposal for the budget compromise that was reach this summer to increase premiums for fannie mae and freddie mac. i know you supported that as well, and that is a step we're working with fhfa on. in addition and we continue, we propose and we continue to believe that loan limits not just for the gses which have come down, but for fha, need to come down and return to their more historic levels so that we can ensure that private capital does return. so we have begun on those steps that we will continue to take steps going forward to make sure that we do everything we can to bring private capital back to the market. >> thank you. the fy 2012 funding bill that the president just signed, and, of course, the congress passed, we instead of the high load limits for fha -- and, of

course, i did not support that. and i don't think the president or the administration supported that, but i would like your comment on that. and second, you know, it didn't include fannie and freddie. so my real concern, or another concern i have is what effect will that have the business flowing into fha from fannie and freddie. just get your comment on that. >> we stated publicly in the white paper that you referenced that we believed that the loan limits should have been allowed to expire. and i think if you look at my public statements consistently, as i said today we continue to believe that the loan limits must come down. and i do think, you point out,

something important of which is that the affect of having for the first time in history higher loan limits on fhfa, compared to fannie mae and freddie mac, could produce the results that would have more business come to fha than we've expected, particularly on the purchase side. we will need to see what happens there, and part of what we are looking at in terms of future steps is how we should price premiums and other policies. and i mentioned in my testimony that we expect in our budget proposal for 2013 to have specific proposals about how we move forward with those loans. >> thank you. i do think that could cause problems. i think you agree. >> mr. chairman, if i just could, one important point i want to make there though is that those high balance loans, the loans above our old phone limits represent about two to 3%

of our loan volume in terms of dollars, answer, in terms of number of loans, about six to 7% in terms of dollar volume. and evidence we have, albeit early evidence is that those loans are low risk than other phones that we are making. and so, therefore, i don't think the issue is that those loans pose a significant risk to the taxpayer or the front of the real issue is about how we encourage private capital to come back while making sure that we continue to support the market through this crisis. >> thank you. i agree. mr. gutierrez. >> thank you. secretary donovan, we have seen in the press american banker, banks likely to gain fha released under foreclosure service settlements, that the fha is potentially playing a role in the robo-signing settlement between servicers and

the states attorney generals. it sounds like fha might be leading servicers off the hook for breaking fha rules and failing to work with borrowers to keep them in their home by waving the fha's right deny the claim and enforce the penalty for an improperly constructed foreclosure. can you comment on this? do you think this kind of settlement would be appropriate? >> congressman, i want to make sure this is absolutely clear. it is exactly the opposite. we begin an in depth investigation of the servicing practices of our larger servicers. we found significant problems with the way that they were handling service and, specifically their loss mitigation as well as other steps, robo-signing and other problems that you all have heard so much about. and began discussions with a

fellow agency as was other states attorney joe who also found similar problems with the way loans were being handled. and so the discussions that we've been having are about holding those servicers accountable for those practices. and first of all, making sure that the taxpayer is cover said and effect one of the things that can help the fha turned to recover to a higher capital level is to recover where, not only on servicing put on a origination and other places, where mistakes were made, where loans were originated or surfaced against fha requirements. as well as to get help to borrowers. so any relief that we would provide would be and exchange for significant penalties, as well as help to homeowners that were wronged by those practices. that's what we're doing. >> that's why i raised the

question, maybe america's bankers got it wrong. i wanted to ask you the question, because that is our responsibility, if a mortgage service or, a bank originator of the loan didn't help, the american family stay at home and did not go through all of the mitigation, and didn't do anything, let it sit out there, then you could simply say yes, you can make an insurance claim, am i right? they can make an insurance claim. but if you thought they didn't follow the rule you can still be denied the claim and penalize them three times the total cost of -- are you still committed to carrying out and having that as a powerful tool? >> absolutely. >> because i think that's

important that we all understand that the insurance is insurance but you have to follow the rules of the insurance. and we know that they didn't follow the rules come in many cases, and that's why we have the pending litigation across the country. i believe that the kind of settlement is, is important, because it sends a message that just because you have an fha insured loans doesn't mean you're going to get the money. because what we have found, i don't know if you have any evidence, i would like to hear your comment, but what i found just the normal practice of reviewing is not homes stay out on the street and the banks do nothing to keep people in the homes. they don't mitigate. they simply send you a letter and then you send them in and then they go on to foreclose. they don't help anybody. and secondly, they simply lead the homes -- in chicago, there

was legislation against the banks saying if you're just could have all these abandoned properties after we're going to charge you for boarding them up and for keeping them clean and will have to find you. did you find the same situation true across the country? >> as i said earlier, congressman, we found significant problems with servicers not following our requirements on loss mitigation. and i'm proud to say that fha has been a leader in correcting those and ensuring that we help families stay in their homes. >> and i am with you. i support you. i think you're at the helm and in a good job. i just want to raise this issue because i wanted to make sure that you are continuing, i know what you thought on loss mitigation. i congratulate you and i thank the staff for keeping america's families and homes. but also want, all the brokerage services after you will continue to penalize them if they tried to submit a claim and they

didn't follow the procedure, you will deny that claim and you're going to try to go after them for three times the amount. thank you so much. >> the gentleman's time has expired. with that, mr. miller from california has five minutes. >> thank you, mr. chairman. they should bear the loss. i'm also, i guess really to hear that my argument that the load limits of high-cost areas are safer loans. but you justify that they are. there's no doubt we want to get the private sector money back in the marketplace. the drop in recent conform to load limits identified by many because is a test for the private sector to see there was just step four and fill the void. do you have any evidence it is filling the void? >> i think there is some evidence that that is beginning to happen. certainly there have been in the jumbo loans space there have

been some securitizations, some steps forward. mortgage insurers are, some of them at least are coming back into the market more. and i do think that we need to continue to take steps that i talked about before to ensure that we encourage it. i think it's clear that we certainly have -- >> it's not -- >> twenty-eight healthy market at this point we need to continue to take steps to encourage private investment. >> some have made are going to get everybody out of the government subject to the private sector were the only game in town in 2007 without a government backed entity, what would have happened? >> i think it's important to recognize that congress establish fha to be a countercyclical force. and so the fact that our market share grew in the wake of the crisis was not, as some have suggested today, i plan on half

of this administration or something i would to affirmative steps. .org i think it's clear that have we not been able to step in and provide liquidity in the market, that the housing crisis would have been deeper. there would've been more significant declines in home prices, more foreclosures. and, frankly, more losses for the taxpayer. >> the taxpayers own homes, the last time i check. >> and to be clear, and this is a critical point in this hearing today, the loans we made from 2000-2008, actuarial predicts will display $6 million. loans we made since 2009 will make $18 billion for the taxpayers. it is very important to recognize that the threat to the fund is from those legacy books a business. and what we needed to is to

ensure we minimize losses from those. is not a problem of the new loans are making which are predicted to be profitable even under the most dire economic circumstances predicted in the various models. >> as some would like to do, we develop government guarantee today. how would that affect the overall u.s. economy? >> i think, we've been clear in our white paper, which does advocate shrinking the government footprint, that we have to do that in a careful and measured way. >> as a private sector. >> so the private sector can come in and not to expect that's going to happen overnight. and i think consistently in a range of proposals that we've seen, that is something that congress understands, and that is generally understood that this will be a process that will take place over time and not something that we could expect given the depth of the crisis to happen immediately.

>> what are the areas you see as it applies to the private capital and into markets in the secondary market for home loans today? >> clearly, confidence and a stronger economic recovery overall is a critical step. that's why the president has been so focused on getting the american jobs act as but that's what it's part of the american jobs act. he proposed a project rebuild that we specifically deal with the overhang of foreclosed properties, put 200,000 construction workers back to work fixing up those properties. but also ensure that they actually, rather than depressing home values in their community, they hope to raise home prices by getting fixed up and being resold. that's a critical step that we can take. a second one i would say is to remove some of the uncertainty that's holding back lending today. and that's another reason why we

have been pursuing these discussions around robo-signing and other problems. we have to resolve those and get clear, fair, strong rules of the road in place that require servicing and other steps to be taken that really make sure that it's clear what the responsibilities of a lender and service or are going forward rather than a lack of clarity that we had that led us into the crisis. >> thank you very much. i yield back. >> and at this point we will have ms. maloney for new york. >> thank you. obviously, saving more loans and going into foreclosure is key to reducing losses to the fha insurance fund. and a "new york times" editorial that i believed it was this weekend that i read it, stated that there are 14 points

7 million american homeowners underwater on their mortgages. unfortunately, 1.6 mind will likely lose their homes to foreclosure, but the editorial states that are at least 1.6 million who have had a temporary setback in their lives, whether it's health condition or a loss of a job. and that their homes can be saved if a loan modification is done. they key to making this happen is the servicers reaching the borrowers to advise them of their options, particularly loan modification. and i know from a recent og our hearing, and to the committee on which i serve, that the gses are doing a lousy job of barbara contact. fortunately, hud has a regulation on its books since 19 into requiring servicers to make face-to-face contact with the

borrowers after the 90th day of delinquency. and i must say in new york what has been the most helpful is when we have these conferences with the borrowers, with the people in need, with government services and try to put people face-to-face to try to help them stay in the job. stay in the hope and to help the borrowers keep their houses and really to say the american taxpayers money, what more can we do to really enforce that regulation, face-to-face contact, of working to help people stay in their homes? are you enforcing that regulation? and could you give us some insight as to why are the servicers not responding? how come they don't work to help them stay in their homes? we get reports all the time when people do lose their homes, that the servicers never even contacted them. they just came in and foreclose on them. so if you could, should we look

at time to give them an economic incentive so that they would work harder, have face-to-face contact? what can we do and why are they not doing it? are you enforcing that regulation? >> i think this party goes back to the discussion began with, which we did find substantial problems in lenders not meeting our requirements for reaching out to borrowers am for offering them the right tool to be up to stay in their homes, and so we've both through enforcement measures and through technical assistance working closely with those, we are enforcing those regulations, and have seen improved results. at this point, not only have we reached about 1.2 million homeowners to help them stay in their homes through loss mitigation activity, but we've improved the success of it to the point where two years later 95% of those homeowners are still in their home. so we are making progress.

i think we can go farther. we continue to push. we also, through this servicing settlement, discussion we're having, are looking at requiring right down to which he talked about and improved modifications that would help more families. the last thing i was is housing counseling is a critical piece of the puzzle. what we see is that recent evidence shows a homeowner is twice as likely to stay in the home if they get housing counseling assistance, if they get that face-to-face help from a housing counselor. while we were very disturbed when $88 million was cut from ads budget last year and were able to put with the appropriations committee this year to get not all of that funny but a significant portion of that funding restored. and we've been working close to come and i gave carol a real compliment year, working to improve our housing counseling operation. we cut the amount of time to get funding on the street i 83%

through our competitive processes. we already have a housing counseling out and available for the 2012 times we just got. so we are really trying, we're doing a lot to improve that process and that funding will be critical as well. >> i totally support your funny request and it has been part of our recovery. also, could you comment either in writing or in the brief time i have left come on the economic develop a program that hud has. i know the focus is housing but particularly was on the city council your 220 program would help build sort of economic models to china at the time it's even made money. can you talk on the program? is it still ran? isn't working. it is help with economic development? >> i would be happy to follow-up afterwards more specifics on the program. we do continue to have the program and fail. i would also say it's a project

rebuild of the jobs act that the president proposed. we propose to expand our neighborhood stabilization activities that have been so successful in the residential area to include up to 30% that could be used for commercial and non-residential buildings or property to support economic develop it as well, particularly in neighborhoods that have been hard hit by the housing crisis. that's an important tool as well. >> with that, mr. guerre to from new jersey spent i think that for being an want to thank the panel also and ms. galante who testified before the senate banking committee if i'm not mistaken and speaking for the administration, opposed the recent increase on maintaining the level of fha loan limits. i agree with you on the picket brennan center testimony correctly i appreciate that. my only regret is that before was the cards went ahead with this prior totally digesting the entire report as you all have. as far as the condition of the

funds right now. first of all, just a basic question. you might want to say look at the fha, you're saying to books, notebook and a new book and go book is the one where you're losing money on his bed come at the newer book is a good book and you're making money on a. so things will be good as that goes for come is that basically a summer? >> congressman poe i want to be clear about this because i think it's come up in other comments as well. we have significant concerns about the level of the resource access point. the actuary does predict that the fun will stay positive, but there is a serious risk and we need to take steps to protect against. >> i guess my question is, if things are getting better based upon the new book, nor did you're saying you will make money on the new book, why don't you just significant increase the side of your new book or why

isn't the private sector entering into that market? if you're able to make money on it, why isn't the private sector able to make money on and why are they leaving it all to you if it is such a good book? >> specifically, i believe, and it goes back to comments i made earlier, that there are series of barriers to the private sector reentering, that include a lack of clarity around enforcement, servicing, potential buybacks and a range of steps that need to be clarified and established so that more private capital does coming. >> i only have two minutes. i appreciate that. >> our market share is declining and that's an important evidence i think that the steps that we are taking shrink our footprint are beginning to have a real

affect. >> let me get into another issue, on an accounting issue. i'm a member of the budgetary and one of the areas were looking on is not the fha is score. currently end of the gses and fh are both part of the government, and you're both are taking on this, they are scored differently. is going on the gse book is scored by including the market risks of holding votes while the fha loan is on the other hand scored on the federal reform act which does not include the market risk. what this means from a practical point of view is that the gse book looks better than it does with less that all new and fha book looks better than it does with more volume. some have insinuated this has been done on purpose by the administration and oppose the changes will because it makes the gses look better and fha look better as you increase. on this accounting will do you support rectifying the difference in assuring the textures are provided some transparency as to the actual risk that you incur?

>> first of all, congressman, we follow the law in federal credit reform, and it's up to congress to determine how we -- >> what your recommendation to congress? >> i believe your target but the fair value accounting. we believe there are a number of steps in cbo's way of looking at this that are important but we have begun to incorporate different changes to our modeling in a number of those. there are portions of it, however, that really we think don't apply to fha. >> why is that? >> simply because our cost of credit and a range of other things are different from the way, essentially what you recommend is that we look at it as if we sold off fha to the private sector, and how would it be -- >> is that the fairway? >> the fact is that there are many things that are