it is hard to predict how can we reduce the risk win it recreate the broader economy how to make delayed the market's. there are the evil peoplere who will do away with it. o that is the second point* with h that we struggle with the l termath of anotherfinancia financial crisis.al rkets wo .rk . in the future we probably will have future financial crises and we will see what happens in europe in the coming days and months. hopefully we won't have another one but humility in terms of thinking about what drives economic growth and humility in terms of thinking about how you regulate capital markets or two things that i think are present in what i see in economic history during the presidency of

coolidge have to do a lot with what we are facing today. [applause] >> thank you very much. i have one question and then the moderators prerogative i think, and that is a that the u.s., we are the most productive country on earth from what i understand and in that basically means we do more for less. the criticism is often made that companies are making all this profit that they but they are not hiring anybody. where the most productive country and we don't need all those people. so can you just sort this out for me? are we going to have to go through a whole generation before people start getting wealthy again and everyone is project if and what? can you help me out anyone?

>> i would be much more optimistic than that. productivity growth since 1900 the u.s. has averaged 2% a year. we had a surge to around 4% of your during the information technology revolution and that matt was talking about but it's really surprising, if you go back and look at the historical statistics in the u.s., and they are actually actually reliable facts about 1870. 2% is the magic number and we managed to take the higher income with a more productive per person and by more. by buying more we created more demand. so it's not the notion of there is a fixed of demand and each employee is more productive and more people would be unemployed. demand keeps rising and as we are in a dative we sell not only to one another but all around the world. if you had told people that 20 years ago, looking ahead 20

years, that manufacturing jobs would be reduced by 60%, they would have said that would be a gross recession and the u.s. but in factor in that period be an employment rate in the business cycle still averaged about 5%. as you look around the world to try to understand why some nations are high-growth and some nations are loathe road on a continuum, not just year by year but over 20 or 25 years stands. what you find is that the distinguishing characteristic of bottom versus top poor tile countries and you can see it in the middle quartiles as well, is if you invest in people through education, more primary and secondary and more tertiary, if you invest in research and development and more capital goods, better machines and better tools for the people to work with, there is a perfect

correlation between the level of investment in people, machines and knowledge and the growth rate of the country. so the growth does not destroy jobs. it creates rising incomes. in the cyclical setting, how do you ask how do we manage to get out of our current problems? that is a tough one because we have got this horrible european environment of recession that is going to be a drag on us and then howard and i disagree on how rapidly we should take the cure. i am very fearful if we have a 4% of gdp, and we are talking about the fiscal cliff equal to 4% of our total outlay. for took that out and left without which is what would happen forever, we would have not a recession, not a great recession. we would have been even greater recession than we have now. europe has try that experiment. they have cut their spending by 1.5% of gdp and it has brought

them into a situation. >> let me give governor dean a chance. >> there are other panels with economic backgrounds. i rest my case on the fiscal cliff. i think at one point, 3% consecutive drop in gdp for two quarters is not great but we have to deal with the deficit and washington is certainly not going to do it so i would stick to my guns on the fiscal cliff. i think there are two things that we have not talked about. one comment i think one is good. in in the long run but it is very painful and that is free trade. my friends in the labor hate free trade in the truth is free trade is good for the world. geopolitically it stabilizes people's behavior. george w. bush was first elected, people have forgotten us, a short time after he was elected one of the fighter planes was spying on the chinese

coast in the chinese claim that it was in its airspace. one of their hotshot fighters crashed its fighter into our plane. our plane was disabled and their plane went down and he was killed. in 10 days, not just the crew came home but the plane was dismantled and sent home back to the united states of america. that never would have happened 20 years earlier. why did that happen? is the chinese are doing so much business with us that they can afford to provoke a major international incident and they will be much more careful than they would have been before. so i think international trade is a very good thing but it spread -- been very painful to manufacturing the manufacturing countries of the world. the adjustment will continue. i think we are beginning to see that you can get through that and develop different kinds of jobs in high-end jobs and i totally agree that education and so forth will be part of that. so i do think that is a permanent structural change in the american economy.

we will have to make adjustments in continue to make adjustments to make it tougher. the other thing is i believe our capital systems are not working and i think it is because of the size of banks. you can do visitors and better so big that they can't take risks. he has talked about the punishment of excesses of capitalism and failure. he can't fail you can imagine the kind of mistakes and that is what is going on to this day. the banks are too big and they are big enough that they we need to bail them out than they are too big. why do i say that's? is not just their bad behavior investing in credit default swaps and all this that doesn't do much. 85% of credit default swaps are just gambling chips were 15% is reasonable hedges. why is this a problem other than turning wall street into a gambling -- because i used to work for the biotech industry and you can't get people to invest in biotech.

they can make a hell of a lot more money feeling around with credit default swaps and collateralized mortgage. and u2's change the tax code. i'm the only democrat in america who believes we have to give get right of all taxes on all capital gains in the next five or 10 years and have no capital gains whatsoever for investments of the same people will start thinking about investing their money long-term as opposed to investing in these for is financial instruments that don't do anything but create a few jobs on wall street for kids who want to drink a lot of liquor and smoke cigars. this does remind me of the 1920s and we can do better. [applause] >> okay, i am anxious to start taking questions from the audience so again the rules are that if you can, if you are comfortable please stand back in any case identify yourselves and keep your questions short and don't direct them all to

governor dean. [laughter] >> my name is marcia reed and i live in new hampshire. i'm a state legislator. and i constantly hear the term entitlement programs, and social security is one i like to take an example of. it's not entitlement. uyghur and it. we paid into it. all our working lives, and so did our employers. everybody is worried about the future of social security for our children and our grandchildren. where's the stupid cap? why doesn't anybody ever consider just lifting the cap on it? >> a good question. roger do you want to have a quick shot at it? >> there are two answers. one is, not you personally that you the american public did not pay enough to afford the benefits on an actuarial basis.

there are sequential pieces of legislation passed by congress who grossly increase them and promised more than the tax revenues could ever justify. finally in 1987 there was a greenspan commission, bipartisan, that reduced and postpone the retirement their retirement ages but it still couldn't do enough so the next questions raised were why not just raise the cap? social security is uniquely among plans partially designed so will what you as an individual put in has relevance to what he was an individual will take out and it is true that the lower income groups get a positive rate of return on that and the higher income groups get a negative rate of return on that. so what you're proposing by raising the cap would just be having a tax on higher income groups to provide some other

benefit. let's face it, it is just a tax to finance something that we never paid for. it is a tax. >> well, why not? our fair share of taxes. >> let me move on in the speakers will be here for a while longer but let me take another question from this gentleman here. >> i am from the government department and want to thank the panel is. i think it's been a terrific presentation and i would make one comment with reference to something that are faster slaughter said that was very important which is the role of technology. one of the huge drivers of economic growth is technology. i want to know how many members of the panel know that every automobile maker in europe is introducing hydrogen powered

cars? hydrogen has no pollution. no co2. you make it by splitting water and it's in the united states that we developed the technology up using solar panels and a cobalt catalyst to split water, so use solar energy to split water, restore the energy in the hydrogen you'll sell to drive the car. that can be done anywhere so it's no huge cost of shipping oil all over the place and we are not spending a quarter of our fuel to buy gasoline or oil from people who hate us. which is sort of a stupid thing to do. so mad, we are using so much gas in washington we don't have any left which is obviously not the right answer but go ahead. [laughter]

>> no, so that innovation is, few would have said tommy which which evicted technologies would create 20 million jobs in the united states in that last 10 years, my honest answer is i have no idea. the anecdote i will give is, think the story is true that a lot of microsoft officials when netscape was created in doing a special offering did a lot of thinking internally on this thing called the inch and it. do we think this will fundamentally change what do at microsoft and their initial answer was no we don't think it does. my point is humility as i am not smart enough and i dare say most of us won't be able to predict what will be the next technology. when i hear governor dean, one of the many wise things we have heard on all accounts things that matter for growth in ways that are difficult to quantify and predictor things like can we set up a tax and capital markets system so there's a lot of risk-taking in biotech, clean

tech moguls, solar and wind and industries that i don't even know will exist tomorrow. i feel a lot better about the prospects for the future if i saw a lot of things have been washington and other states in america to support that kind of dynamism. roger statistics are great at my friendly amendment amendment is there is no love physics that says the growth in u.s. -- and a great education matters. i was born in 1969. to high school graduation rate in america during my lifetime has not budged at all. in sharp contrast to the 20 century where the high school graduation rate in 1900 was about 5% and today we are still at about 75% so is the subtle things that collectively i call called humility that matters if we are trying to create those opportunities. [inaudible]

>> can we wait for the mic? >> it is a happening now. be that may be and i'm happy to talk to it after the panel will let take another question in the back please. the gentleman and then the lady right after that. [laughter] >> not for long. better enjoy it for now. >> the gentleman's point on hydrogen is one of the things i have thought about years and years. i'd forgotten how old that technology is good half of my lifetime is how long it's been around. >> could you please identify yourself? >> my name is orrin and i live in vermont. probably 20 years ago or 25 years ago i asked a stock record to get me some stock in maybe one or two of the companies here that were doing the search on that. his reply was oh hell you don't want to bother with that.

there is nothing there for years and years. i wish our stock workers were little more industrious and a little more reputable and a little more farther seeing. it's not just the laboratory that where the money comes from. >> is there a question there? been no. i am not one for questions. >> is their question here? the gentleman right here. >> is as it might turn. >> indeed with my apologies. >> that's okay. >> we need to get to questions very quickly. >> cannot just say one anecdotal thing to matt? you have mod -- matt tiabbi to blame for -- have you ever read him in "rolling stone" about correlating these financial industry to the bloodsucking

squared or whatever. anyway, okay. my question is, i am the mother of two boys in their 20s. one just graduated from college at the atlantic and is working in farm and wilderness in vermont. both of them have no interest in voting or getting involved in the political system. i live in vermont, bedford. i have many dartmouth students, what's going on, are you going to vote? i am getting blank responses. so my question is, what would you tell the youth of america because everywhere i go i find them conspicuously absent in the concert halls, here come everywhere and my goal is is to reinvent the youth of america. i am an educator. i was educated in new jersey, excellent high school. i am fluent in spanish. i see an incredible decline.

>> my question is what would you tell young people? in this coming election what would you say? what are the reasons for voting and four getting involved in the political system because they see a complete lack of -- disassociation people at have already commented that washington -- >> got it. i'm going to give in to governor dean. >> i actually have high hopes for this generation. they are renting -- reinventing america schools and they are redesigning the way everything is done. molly katchpole's -- [inaudible] the attack on verizon to pay their bill on line. they elected obama and the only time in my lifetime and election in this country where people under 35 turned out to both. i'm not worried about young people but i do think they ought

to vote and i tell them politicians may not help you much but they can hurt you so it does matter who wins. you at least ought to vote and that is part of the price of being a citizen is voting. paying taxes and voting as oliver wendell holmes said the price you pay. but i wouldn't give a little bit long song and dance. it's repulsive what's going on in washington and i don't believe -- lame people for being disgusted and as winston churchill once said democracy is the worst form of government except for every other and i wouldn't want to try some of the others. i think they have got to vote in its part of their duty but i think they will make their mark in america doing things outside the political and reorganize the whole lot of things that need to be reorganized and won't have to worry about institutional failures of wall street and politicians because they can create. they can get on the net and find printer people to agree with them without it lyrical front.

>> i agree with everything governor said. tuck students at dartmouth foist a lot of concern and that sense. the economists respond it's kind of a mess but the opportunity for you to make a difference could be greater because the world is desperate for leaders both in the private and public are still a few your aspiration to become a person that can change the world frankly being in this impairment offers a tremendous opportunity. it's hard but a tremendous opportunity. >> and by the way i asked them to recall counting -- counting chads. remember that in florida? a couple of votes may have made a difference. see my name is many. i don't live in vermont but i eat a lot of fine organic vermont cheese. [applause] i have a question for everyone.

my question really relates to the fiscal policy in the u.s. and when i think about it the saying which comes to mind is it's not enough they succeed, your friends must fail as well. it seems that our her situation could be much worse were it not for the crisis in europe and we are the only safe haven. if you project a few years forward where people continue to see slowing down, people who buy treasuries a lot of those folks plan. how would you think of the fiscal situation of the u.s. in that context especially because i believe a lot of metrics used to judge how the middle class is faring are somewhat flawed. it doesn't take a lot of key ingredients into account. i don't have to look at cpi, can look at the price of education board here at murphy's or the price of organic cheese in vermont which has gone up fairly in excess of cpi so i would love to get all of your takes on this one.

>> why do you rephrase the question. are we benefiting from europe's problems and are we able to float our treasury cheaper than we otherwise would be? they used to be useful for people to live in vermont or new hampshire because you probably heard the story about two people who met a bear in the woods and they said this is horrible because they cannot outrun the bear. the person said i don't have to outrun the bear, just have to outrun you. [laughter] we have what is known as an exorbitant privilege because the dollar is the world reserve currency. we are the only country i dare say hesitant to say this but in the history of the financial crisis who have a financial crisis and the dollar appreciates. people buy more currency. ugoda latin america asia europe if you have a financial crisis people want to sell your currency so we are living to greenland in terms of fiscal policy and we can get away with

these deficits in and many countries could not. now how to deal with that. i think that does not change overnight because once again it will take another currency to be the dollar and people don't trust the euro any more. the japanese yen doesn't seem to be used around the world. the chinese r&d most people don't trust china in terms of their capital market and investment so we are going to an situation where i think we can afford to pay for it an dead if you will and a fairly low interest rate. that is why i was interested in hearing governor dean say we need this fiscal cliff sort of as a wake-up call and i think then the role is if we do have this fiscal contraction, the burden is on the federal reserve. monetary policy keeps economy going and that is a whole separate issue. >> let me just ask you, it is now 6:36 and we are going to finish at 6:30 but i would like to go to 6:45.

is that okay for take a few moments? in the interest of time let's take a couple of questions and bind them together, select you have a question from here and perhaps a question from back there. if that is okay with the panel. >> you just brought up part of my question which is we have been talking about this cliff and the large amount of debt that this country has and how bad it is. but what happens if congress doesn't do anything? what if we don't try to shut that off a cliff in don't try to slash the budget? what's the worst thing that happens it at that level stays as it is? as you said this that has been a problem since paul tsongas was in the senate than that was some time ago. what happens if we keep -- >> a a point of order, congress does nothing you go off the cliff. >> so if congress does just enough to not go off the cliff

but not enough to slash at down? >> okay, so let's take another question from back there. >> i have the health insurance question. it frustrates me when i see that, i don't think business has taken the opportunity under the affordable care act. and the state for don't want to put up these insurance exchanges which would then go to the federal government but it would seem to me that business in general has missed a great opportunity for hasn't forced themselves to say we want to be out of the health insurance business. is it efficient for business to decide what type of health insurance at some plays are going to have? it would appear to me with the heart -- start of the health insurance exchange while it may not be as efficient as a single-payer system which isn't going to occur it appears that the health insurance exchange would be a great way for business to say basically taking a defined contribution, giving employees the dollars for what they're currently paying and get themselves out of business a

good well-run health insurance exchange would allow the ability, portability and it would he i think if business thought about it they would be pushing parts of our political system to really back this type of approach. >> professor irvin -- irwin cannot ask you to handle the first one, going over a cliff or anything like that and governor dean if i could have you handled that insurance question. >> the fiscal cliff, world war i and world war ii where we had to cut back on federal expenditures and predictions of economists in 1945 and 46. in fact there was a mild recession and once again because there was so much pent-up consumer demand the recession was mild to once again a forget the underlying fundamentals of getting our economy going -- a major recession.

>> there was rationing and people couldn't buy cars and so that was all this pent-up demand. that doesn't exist today and we would be raising taxes by about 3% of income because you would lose the 2% payroll tax cut in half to 2% increase in average income taxes so you are going to walk 4% out of after-tax income from the household and you are going to cut government spending so there is no consumer to take up the slack like there was. normally, the federal reserve could step in and cut interest rates, simulate housing, have interest rates of zero. 1.52% has run out of ammunition to offer the fiscal cliff. >> you sound like a very good keynesian economist. also i would say the federal reserve is absolute and not out

of ammunition by any stretch of imagination. >> that leads to a whole different dollar. i want to go to the insurance exchange question. >> actually what you describe is exactly what's going to happen. i believe the mckinsey report was right and democrats want to say that because it will increase federal expenses on health care. was going to happen is exactly what you describe are go small businesses wholesale will leave for for the health insurance market because small business has no business being in health care. the employment connected system in those countries a mistake. it's a historical accident and makes her businesses uncompetitive notches with india or china over labor costs but with the germans and canadians. their health care system goes up at the same percentage as ours does which is two to three times the rate of inflation. every time the germans spend 3.5% more in health care that gets spread over the entire economy and when we do it he gets mostly spread over the

business community. this is not a way to keep our businesses competitive. what is going to happen his small businesses always struggled with this question, health care plus whatever else they do as they is they are going to pay a fine which isn't very big and they will probably give insurance -- employees insurance and guess what? if you are a restaurant and you happen to be giving health insurance which not many do they book on exchange and get a nice subsidy from the federal government to help toward insurance in they will be out of the individual market on these exchanges. ..

resurgent protectionism against the background of the international global economic difficulties. >> and another question right here, late in the third row. >> i actually work. talk. and to follow question to governor dean's remark about the reporting wellness. dartmouth helps connecting the system that president can set up before you ask. i was wondering if you knew anything about it, and if you do a fast server system you're talking about. not a fee-for-service come a patient basis done.

>> i unfortunately don't know anything about it. >> let's get a fair question. anyone waiting for a question right there in the center. hold on, hold on, hold on. thank you. >> white river junction, vermont. a day to come back to the original comparison between obama and coolidge. i'm reminded of jean hughley to decimate outcome of the close of the presidency, which claimed the american people what two contradictory things. one, they have been increasingly the opinion of the actual performance of their presidents and other national leaders, but two, they want to give those national leaders more and more things to do. and that seems to me to be a fundamental difference between coolidge. this comes back to that spotters point about humility. my question is, how do you return to a state of affairs in

which there's more responsibility for their own affairs and have less responsibility to the federal government in washington? >> so let's start with the resurgence of protectionism. anyone want to take a shot at that? >> i had a couple thoughts. >> for some outcome of "the wall street journal" op-ed two weeks ago was exactly on that issue. while i was not worried about it for many quarters that the financial crisis, there were worrisome signs others are beginning to intervene. the problem is that affects our exports. one of the bright parts of the u.s. economy during the financial crisis in there after his export keep the economy going. we always hear about imports and trade deficit, but experts have been very good at creating a lot of jobs. to the extent other countries restrict trade, they restrict export and matches with a further tent in the u.s.

economy. so it's something we have to as a country address. >> i'm very worried about the rest of protectionism in part because few countries make up one morning and say i would love to start a trade war. so what i worry about is we don't have enough leaders telling americans that a lot of that will hopefully get out of the economic trouble we're in right now is by building more jobs in america are connected to the world. part of it is imports, exports, firms growing and responding to demand and the rest of the world, assuming that demand. if you flip over your iphone, nearly everyone in the room has an iphone. there's a great symbol of globalization going on around the world because this was designed by apple in california, assembled in china. it's a lot of industries that supports the dynamism that we talked about could be realized moving in the other direction.

we talk to the clean tech earlier. by my eyes, the united states and china and other countries all over each other to do more to protect their tariff barriers and subsidies clean tech innovation. i am not smart enough to figure out what is clean technologies. i let the force of international trade and investment help our country's figure that out. but we're moving in precisely the opposite direction. >> anything on the wellness? >> i can't do the wellness because i'm not familiar, but i do have thoughts about people taking responsibility. my experience of our children's generation is that's what they're doing. they want to have a political system and they go down a mark for teach for america or teach for india or teach for china. it's an incredible generation. are they all doing a? of course not. a huge percentage of kids going over the world. one of my students they teach at yale, pardon the expression

here, one of my students from duke started a company based on solar solar chargers for cell phones for companies with no electricity and the next is they'll sell chargers so they can charge away so the kids can read. it's unbelievable. a 22-year-old woman coming-out woman. she graduates from the university of vermont, mr. romagna ancestor project which is much better than the united states because she asked that the villagers while before she sends the $3000 and they get the plane in take responsibility. the skits are unbelievable. aggregate these are not ever single tape, but it's not just people from gale and dartmouth. it's people from all over the place. it's an extraordinary thing.

they're determined to remake the world of matter what politicians do. >> one additional thought on bad is it does make sense to have people pay a fraction, a co-pay that supports a little bit of the guardian. it's good to have a health provider decided holistically. but if we have undifferentiated premiums that don't reflect whether you're engaged in risky behavior in terms of eating, drinking, smoking, you name it, we are not doing enough to prevent the oscars. so they have learned that when they put incentives with large or positive health behavior, better behavior happens in total costs are down. so is the set up these exchanges, we need to differentiate premium based on personal behaviors.

>> i was once told a good moderator never offers an opinion, but i will break that rule and offer an opinion. i think we've had an extraordinary panel and i would think if you would please join me in thanking. [applause] and we have a small gift for each of you. douglas irwin, power dean, roger brinner, slaughter, thank yo

>> good morning, welcome, everyone, to the heritage foundation. we welcome those joining us on our web site at on all these occasions and those joining us on the c-span network? . we appreciate their attendance with us today. we remind everyone in how to make sure cell phone is have been turned off as we proceed. it will be appreciated if. will post a program on our website within 24 hours. our viewers are always welcome to send their comments and questions for the panel by e- mail. hosting our discussion this morning is steven bucci. is senior research fellow for defense and homeland security at our center for foreign policy studies. he looks at special operations and cybersecurity as well as defense support to civilian

authority keith. he served america three decades as an army special forces officer. in july, 2001, he assumed the duties of military assistant to defense secretary donald rumsfeld and worked daily with the secretary for five and a half years if. when he retired, the continued at the pentagon as deputy assistant secretary of defense, homeland defense, and american security affairs. immediately prior to joining us and heritage, he served as a lead consultant to ibm on cybersecurity policy. join me in welcoming my cci.eague steven ybu [applause] >> good morning. we hope to have a lively discussion this morning. i have a couple quick plug before my introduction of our esteemed speakers. first, today is national emp awareness day.

electromagnetic pulse. it came up in our discussion yesterday and is kind of nice that this is part of our homeland security week discussion. electromagnetic pulse is something we need to worry about, because in a country like ours where everyone is connected electronically on a continuous basis, it would affect us. any of you who remember the blackberry outage we had last year for six hours and everybody in washington was in a panic, you can imagine what would happen if if we had an event where we lost all our capabilities in a city or maybe all over the east coast for a while. the other thing is today is the official rollout of this document. these are are two speakers in the suits. [applause] this paper, critical mismatch,

the dangerous gap between rhetoric and readiness in dod civil support missions. this is a critical issue. there is a problem with our capability to do our job, the job of the nation. this does not deal exclusively with the national guard, but the national guard is a huge part of this and need to be. hopefully, our speakers will touch on that a a bit this morning. this is available outside and we hope everyone will share it. it is an issue that affects each of you. if you are at ground zero when something happens, you will want this nation to have the capability to respond properly and expeditiously. right now there is some debate as to whether we have that capability or not. our subject for this morning is the price every state will have to pay: the effect of

sequestration on the national guard. i never served in the national guard. i spent 28 years in active duty in the united states army. but i had the opportunity numerous times to work with the national guard. as i became the deputy assistant secretary of defense for homeland defense i got to work with them pretty much every day. i have to tell you, if you don't understand what the national guard, army, and air guard, what they do for this country, you are missing something, because those men and women are heroes for this country. they are the lineal descendants of the minutemen. that is in their simple and it's very appropriate, because they are regular citizens. are not just weekend warriors. they are people who have real jobs in our communities. and then when the call is given, they put down that plow or

whatever they do and then pick up a musket and they are ready to help their fellow citizens and most of the time at great personal sacrifice. these folks are important. i cannot think of canada better people to discuss this with you than are two speakers. the first is paul mchale, president of civil support international, a consulting firm in washington. paul was my boss at the department of defense. >> can you say that again? >> my boss. only two people are still referred to as boss. that is secretary mckale and secretary donald rumsfeld. they are two gentlemen that i hold in high esteem, not just because of what they have done and who they are, but because i have seen them at work and i have seen their dedication to

this nation. secretary paul mchale is a former congressman from the state of pennsylvania. he served on numerous positions and the most relevant to this is the was the co-founder of the national guard and reserve components caucus in the house. he came to work at the pentagon. i will be honest, i was the military assistance to the secretary of defense at the time and i said, a former congressman, this could be painful. as it turns out, he is an incredible gentleman, easy to work with. easy to work for. he wants you to perform properly. the happiest i ever saw him was when he recruited me to come work for him and then shook hands and said i will see you in about six months, i'm going off to put on my marine uniform and he went back to afghanistan.

already retired from the marine corps reserve, recalled to duty so he could serve as an adviser to the minister in the afghan regime. he was so happy to be a marine again. they never stop being marines. he served there with great distinction and then came back and continued being my boss. his dedication to the national guard is not just professional. he also found a beautiful woman who is a national guard general, who he then married. where is martha? that's his lovely bride. from vermont. next to him as the gentleman that he was joined at the hip with the whole time we were there in the building, lieutenant general retired h. steven blum. the whole time i knew steve, he

was the director of the national guard bureau, not a very glamorous, but a very critical job. he later became the deputy commander of u.s. northern command, the first national guard officer ever to serve in that position. steve is also a special forces officer, which i kind of like, because i was too. he has served pretty much in every position you can have in the national guard. he is a man of infinite imagination, infinite energy, and vision. even before the rest of the department of defense started getting ahold of the issue of chemical, biological, radiological, nuclear, and high yield explosives response, he was the one who picked up the gauntlet and said the guard can contribute to this and the guards will contribute to this. he made to the guard a crical cog in that responsibility.

these two gentlemen fought that battle against a lot of naysayers and achieves quite a bit during their tenure. i will let you read paul's paper to get the status of it now, which is not quite as good as it was when they left office, but these two gentlemen i am proud to call both of them friends. they are personal heroes for me, because i have seen the work they have done for this nation, not for self aggrandizement and definitely not for money but for the sake of this nation. i would ask you to join me in welcoming paul and steve. i will give each about 10 or 15 minutes to make opening remarks. and then we will go into question and answer. i will tell you, as i call on you to ask a question, if by the end of the second sentence i don't hear?

, i will ask you to stop. questionon't hear a mark, i will ask you to stop. we will start with paul. [applause] >> steve, thank you very much for your kind words. i truly don't think of myself as your boss. i think of you as my friend and colleague. i was honored to serve by your side during 3 or four years of pentagon service. general blum, my good friend, and my wife, the general as well. and the colonel just back from afghanistan, sir, thank you for your service. [applause] ladies and gentlemen, there was a very fine article in

"politico" yesterday in which secretary of defense leon panetta was quoted. "i realize there are a lot of other things going on in this country that can draw our attention, from the olympics to political campaigns to drought to some tragedies we have seen in communities around the country. i thought it was important to remind the american people that there is a war going on." the only thing worse than the fog legislative strategy of sequestration would be its actual implementation. with military men and women in daily combat, 41 were killed last month, says secretary panetta. it is a deep breach of trust to put the department of defense on automatic pilot. across-the-board cuts in d.o.t. funding would severely

jeopardize the operational capabilities of our active forces, sent a message of u.s. defense vulnerability to our adversaries, and irresponsibly weaken the national guard in its ability to protect the u.s. homeland." because the sequestration cuts, totaling approximately $500 billion over 10 years are across the board, it's difficult to determine precise with the impact. but a substantial reduction in military personnel is a near certainty. recently it was reported thatbye chairman of the house armed services committee and secretary leon panetta on july 25 when buck said, "we have 100,000

leaving the military." it's expected there will be a reduction of 100,000 personnel coming aboard donnelly from the army is what he's saying, as a result of cuts that have already been approved. then he went on to address sequestration. he said, "if we will have another 100,000 if sequestration takes effect." in response, secretary panetta said, "it would obviously add another 100,000 that would have to be reduced." there is uncertainty as to what the impact of that reduction of an additional 100,000 would have on the structure and strength of the national guard. some insight into that was provided on may 17. that was when ray odierno, once the special assistant to the chairman on homeland defense

issues. he and i worked together on a daily basis. i have extremely high regard for him and his professionalism. he provided some insight into how that 100,000 production in end strength would impact the national guard when he said, "if we have sequestration, it will affect the reserve component and the active. it depends on what the balance we picked. what i talk about a lot is 70,000 out of the active component, 30,000 out of the reserve. the army could be reduced anywhere be 400,000 to 425,000 soldiers. the national guard might lose an additional 20,000 soldiers. the army reserve might lose an additional 10,000.

the net effect of all that is if we have sequestration beginning in january, it's very likely the army national guard would lose an additional 20,000 men and women. in addition to the yen's strength productions, it's reasonable to assume sequestration goes into effect in january, national guard title 32 funding account would also be reduced. the negative impact of such title 32 reductions on homeland defense and defense board of civil authorities would be immediate, both in terms of training and operational missions. over the last decade, some of which was described by steve a few moments ago, there's been a shift in dod policy. steve and i were intimately involved in that shift in policy, police in a far greater reliance on the national guard for the execution of domestic military missions. while that policy shift has correctly emphasize the role of the national guard here and

home, it has also tied the domestic mission of the national guard more directly to the variables of d.o.t. funding, including sequestration. let me take a moment to explore some history now, if i may, to give perhaps a more practical understanding of that shift in policy. if my memory serves me correctly, and i believe it does, in 1992 during hurricane andrew, when it was necessary for the military to provide support to civil authorities because of the magnitude of the destruction that occurred and the aftermath, the majority of the force that responded to provide assistance to civilian authorities came out of our active component. a great deal of that came out of the 82nd airborne. a smaller portion of that force came out of the national guard. if i remember the ratios correctly, and i believe i do, roughly 70% or slightly less of

the force that responded to hurricane andrew in 1992 came out of the active component with slightly more than 30% coming out of the reserve component. but the benchmark was roughly with an emphasis on the active component participation in the defense support of civil authorities discommission. that policy of using primarily active component forces changed radically in the aftermath of september 11 and in response to the requirements associated with domestic preparedness. i was nominated to become the first assistant secretary of defense in 2003. i met with the senate armed services commission in his office, senator john warner, distinguished gentleman. he wished me well in my new job

and we talked about a few other things of a personal nature. he reminded me that we should not use the zero defunding to support discommissions executed entitled 32 status. -- we should not use dod funding. warfightingdon't her money and use it for civil support missions domestically executed. -- our warfighting money. i thought that was probably a pretty good advice. my view of the subject changed considerably once we experienced the operational requirements of hurricane katrina. the national guard can function increase statuses. it can be in 10 states status. that is traditional. the national guard forces and states tennis are under the authority of state law. they're under the command and control of the governor of that individual state. they are funded by the state to execute those missions.

state's status. federal status is kind of the opposite end of the spectrum. when the army guard or the air guard are brought into the title 10 federal status, the army guard becomes part of the department of the army and air guard becomes a part of the department of the air force. they are fully integrated into the active component of and are subject to federal law and are under command-and-control of the president of the united states. the funding comes from the department of defense. and there's a middle ground between those two and has become important middle ground, title 32 status. in title 32, the funding for title 32 status comes from the department of defense. the law that applies is generally not federal law, but command and control remains vested in the hands of the governor of that individual state. so it really is the best of both worlds from the vantage point of the state. the training, equipment, the funding comes from the

department of defense of command-and-control. president.h the d title 32 status, national guard forces are not covered by 1878 statute that forbids the use of military personnel for law enforcement-related activities. under command-and-control of the governor in title 32, the national guard may be used for law enforcement-related functions. during operation liberty shield, which was the term we had in 2003 in the federal interagency to describe are prepared this domestically for any repercussions associated with a possible war that we thought might take place with iraq. surely prior to the commencement of ground operations in iraz, operation liberty shield provided for certain enhanced protections here at home because we were uncertain as to what action iraq might take or could

take within the u.s. in response to a combat action in iraq itself. just before we went to war in iraq my very good friend and former colleague in the house, pennsylvania, tom ridge, initiated operation liberty shield. he called upon the governors of the individual states to provide protection for their critical infrastructure, utilize in the national guard. i got a phone call from the governor of the state of arizona, who is today the secretary of the department of homeland security. governor nepal tonneau was very creative. she had the distinction of being prematurely right. -- janet napolitano. she wanted to use the national guard to protect critical infrastructure within her state and she argued persuasively that because this was a terrorist threats from outside the united states if it was a threat really to the nation and not to the state of arizona and the funding for that title 32 mission should

in fact the federal in character and that the state and state funds and state status should not be protecting infrastructure against our international adversaries. that was not policy at that time. i had to tell her, to my regret, but she cannot do that. she was not happy about it and i was not happy as the messenger and a couple had to communicate that guidance, but that was the policy. that has since changed. let me tell you how it has changed and then we move to steve for his comments. hurricane katrina occurred in august of 2005. two months before hurricane katrina, the new strategy for a homeland defense and civil support was written. when i began my talk a few minutes ago i mentioned the ratio, 70-30 in terms of the military assistance provided during hurricane andrew in 1992. we changed that in the strategy. it made no sense to us in a post

9/11 world that we would continue to use active-duty military forces for these domestic missions when we had ample strength and structure in the national guard for these domestic missions. why should we use the 82nd airborne for civil support missions when the 82nd airborne was trained and equipped for overseas warfighting and we had superbly trained national guardsmen who could execute domestic missions without impairing our ability to project power overseas? that was the rationale of our strategy until we broke into the strategy -- and i personally wrote the languages that said henceforth the department of defense would have a focused reliance upon reserve component capabilities predominately the national guard for our domestic missions. that was a direct reversal of the policy that had been in place during hurricane andrew. we did not realize just two months later during hurricane katrina that policy would be. put into be when hurricane katrina occurred august 29,

2005, most of the force, 70% 70% of the military response to hurricane katrina, 50,000 national guardsmen, came out of the reserve component and 3% came out of the active component. a change in policy and i think a good one. an amendment was passed by congress subsequently. that amendment allowed national guard forces to protect critical infrastructure in a way in which we previously would have relied upon rapid reaction forces from the active-duty army and active duty marine corps. mission transition to correctly to the national guard. that would mean the national guard forces in title 32 would defend critical infrastructure. it also meant that secretary

janet napolitano was right. the policy finally caught up with her vision on that subject. we were henceforth able to use national guard forces in title 324 critical infrastructure protection. secondary i will mention and then i will move to a conclusion. i realize i pushed the limits of my time, steve. steve blum, through his personal leadership, build, expanded, and in some cases initiated cases initiated see burn response capability that was unprecedented. that capability was located within the national guard. the national guard recognized that in the 21st century our adversaries accommodation states and terrorists, for now have the capacity to acquire incredibly destructive weapons, weapons that can be miniaturized and easily transported, that could conceivably cause great numbers of casualties within our own country. we were extremely vulnerable to that type of asymmetric

chemical, biological, radiological, nuclear, high explosive attack within the borders of our nation. the national guard under steve's personal leadership step up and said we can do something about that. under the leadership of the national guard, 17 enhanced response force packages were created. 57 civil support teams were established. ultimately, and a little later, homeland response forces got all established in title 32 status within the national guard. increasedf dod's reliance on the national guard for domestic military missions, critical infrastructure protection, any reduction entitled 32 funding will directly impact on the safety of the american people here and home. cuts would reduce the national guard ability to protect critical infrastructure from terrorist attacks, would diminish the national guard

ability to respond to vote major disasters whether natural or man-made. let me close with a quotation from craig moe tenleytown, steve's successor as chief of the national guard bureau. speaking in may, when talking about the impact of sequestration on the domestic military missions of the national guard, critical infrastructure, disaster response under very challenging circumstances, the general mckinley, stepped down as the chief said the following, "we find ourselves obviously in the midst of constrained budgets and depositions. no doubt we must all curbs spending, but not at the expense of our security. that's why i must tell you that sequestration would allow the force, would follow the for substantially and devastate our national security -- -- would hollow th force.

the national guard is already facing difficult budget cuts, cuts that impact equipment and personnel. further reductions would significantly limit the guard's ability to function as an operational force, a decrease its overall credibility, and reduce the department's capacity to protect a homeland and respond to emergencies. if sequestration is imposed under the provisions of the budget control act of 2011 and in january the d.o.t. experience is an immediate cut of $55 billion, none of the bill are power projection capability is produced overseas, our domestic security will be placed at risk because of inadequate national guard title 32 funding. that means 20,000 fewer national guardsmen with less equipment, less prepared to execute their domestic emissions.

that is the ultimate impact of sequestration upon the national guard. >> thanks, paul. that is and unintended but perfect segue to what i want to talk about. first, thanks, because i think you laid out a very good umbrella and background approach to what we are really facing here. this is a serious time, no question about it. the nation does not possess infinite resources, limitless resources. we really aren't everyday becoming more aware of how finite those resources really are and really why we have to be better stewards of those resources than we have been in the recent past or even in generations. -- we really every day becoming more aware.

this is not a bogyman that does not really exist or a threat that's not out there. this is the reality that we are facing. the national guard is not an organization with substantial discretionary budget money. it is a bare bones, underfunded organization historically, because it was a originally intended to beat it strategic reserve for so long, for 67 years, that was to be a deterrent force against a threat that is no longer out there. commission of the guard is still the same, but its utilization as an operational force in rotations overseas is well known to most of us in the audience.

if not, the u.s. military has not done anything in the last 15 years overseas without significant dependence on the national guard, so that we could expand the capacity and capability theour active forces and reduce the stress on our active duty force and an all volunteer force of professionals, professional airmen and professional soldiers, so we could expand that and actually serve when necessary or at least reinforce the forces in the field or expand the forces in the field or capability is required to utilize in the national guard. so this is no longer a national guard that sits around and waits for world war iii and is not used in the meantime, so you can afford to underresource it in terms of equipment, not trained to be ready, let it stay dormant

in a somewhat less than ready posture. it has to be ready on a moment's notice. that is for overseas missions. for domestic missions, for usage in the united states at the command and control of the governors that are the commanders in chief of the army and air national guard when they are in the service of the state rather than in the service of the nation -- when they are in the service of the nation, they fall under the normal chain of command with the secretary of defense and the president and they are entitled 10 status and are in distinguishable. the good news is the training now is uniform, the standards are uniform, so everybody is trained in the same schools with the same standards and has the same enlistment criteria, same selection criteria to become a member, and to remain a member,

so that their performance is absolutely identical to the active duty force when it is called into service of the nation. what most people don't realize is that the national guard is called into the service of the governor's each and every day. i did not realize how much that was the case until i was lucky enough to be appointed chief of the national guard bureau by secretary donald rumsfeld under president bush back in 2003. for the five and a half years i have the honor of being the chief of the national guard bureau before i went to be the deputy at u.s. northern command i kept a record of how many states call out the national guard on any given day and the daily average was 17 states had their guard called out on some level -- some as few as a few

people with a truck and water trailer going to an area where a municipality might need water where a well was contaminated or the border purification system -was purification system -- water purification. the aftermath of christina in 2005, we have the largest, fastest, military response to a domestic disaster, natural disaster, not only in the history of our country but in the history of the world. -- the aftermath of hurricane katrina. guam, puerto rico, district of columbia, and every state of the 50 states send their national guard. they were asked to comment not ordered -- asked to come and not

order. they drove and pull together in record time over labor day weekend. it happened on a labor day weekend. in less than six days we generated 60,000 citizens soldiers from members of code in this country with exactly the right capabilities and sometimes in excess capacity, because frankly we did not know exactly what we needed down there, but we guest pretty right and we really restore the faith of the american citizens, particularly the citizens of louisiana and mississippi, in the fact that their government would not respond when the local situation was overwhelmed. we were operating seamlessly with active-duty soldiers that came in later from northcom that were ordered in by the president. shoulder to shoulder, side-by- side, in distinguishable to the people that were receiving help.

they saw the active-duty forces and national guard forces actually operating in a seamless fashion to save american lives. 17,443 american lives were saved by national guardsmen in the aftermath of hurricane katrina. that was a small city that would have been lost had we not intervened. 70,000 u.s. citizens removed from an area of uncomfortable, suffering and misery to be able to reestablish their lives in new places or at least be taken out of the misery and suffering and maybe even ultimately disease or death if they would have remained in that area. today, if you check, it's almost invisible to everybody. if you really peel back who is responding to the fires in washington this morning, washington state, it's the national bar. who is responding to the drought

relief or anything that happens that above and beyond the normal ability of the local and state governments to handle, the national guard comes in. one of the good things that happened to the guard, frankly, was the decision to use the guard as a part of the operational force, because not only are they value added on the battlefield overseas when they bring civilian skills to these complex environments like afghanistan and iraq, but when they come home from that they are far better citizen soldiers and citizens airmen with contemporary, real world combat experience they can apply, the same command and control, logistics, planning, and reaction, and highly disciplined response to anything we would require them back at home. so we now have probably the very

best force of citizen soldiers this nation has ever been blessed to have. it is an all volunteer force. how did you tape people that you have asked go overseas 3 or four goore's, walk away from their family and their jobs as long as two years, 18 months, six months on the short side, repeatedly over the last decade, whether it is to appear at an airport on no notice because we did not have tsa at the time and we need to secure the airport zappos 9/11. whether it was to guard the skies pose 9/11 or critical infrastructure. whether it was to expand the capability of governors to protect critical infrastructure in the last 10 years. whether it was to put boots on the ground in places like afghanistan and kuwait, the horn of africa, iraq, and 34 other countries where the guard has been asked to serve.

and they did a superb job in the balkans, close of zero, bosnia, all at the same time. -- in kosovo. katrina hit with no notice. 50 cows and national guardsmen from every state and territory responded. at the time we have the high water mark for the deployment overseas. we were literally surging in the army to allow the u.s. army to step the army into their current configuration. we stepped up and took that rotations of the u.s. army to take a pause in the war and reorganize and refitted to their combat brigades. some of you may remember that. so you take that and take the last 10 years of what we have asked them to do. and now you have this specter

of sequestration hovering over an organization that is under sourced, is pure muscle and bone, has very little discretionary, has no big accounts like intelligence or research and development, underfunded for equipping themselves, are trying to come out of a whole that was dug in 1947, and now tell them get ready because you are going to be part of an across-the- board cuts. if you are overweight and have want toounceds and you lose 18 pounds, there's. a way you can there's. this is a couple ways you can do it. you can change your diet and exercise and become lighter and better and maybe even more attractive. as attractive.

or you could cut your head off and lose 18 pounds immediately. but i don't think that is the preferred way for weight loss. this sequestration is much like that. when i look at the audience and i seen who is represented and where you come from and hopefully where you go back to and take some benefit of our discussion today, i would like you to consider two things, and then i will turn it over to the moderator. the most successful businesses in the world today size their full-time work force that get full benefits, retirement, entitlements, health insurance, pension plans, matching 401k plan, all that kind of thing, they size that for their smallest, steady state, business day. they size their part-time force,

trained, medic professionals, salesman, distributors, transporters, retailers, wholesalers, all of them. they size that for their most optimistic market demand. and then they adjust that and let the market drive that. and they make a profit internationally in a very challenging economic time even today because of that model. the companies that are failing today are those that are failing to make those kinds of adjustments and are hanging onto an older industrial age model that predates the 21st century. they are finding it very uncomfortable and very unprofitable and are kind of melting away like an ice cube. that is one thing i want you to think about. when you are talking about a

sizing of the active component and the reserve components, particularly when the reserve component is not the same reserve component that it was 10 or 15 or 20 years ago. it is a much different reserve component. is an interval, interdependent and not interoperable piece of the entire service and joint force that fights and protect our country here at home and overseas and has great utility that reduces the burden on the active force to respond domestically to a significant degree. so anytime you diminish that force, you are actually raising the probability you'll have to dip into the already too busy actor forced to do something that they are really not comfortable doing or they want to do, nor are there really trained or resource to do, nor do they have the local knowledge, political, geographical, social, and otherwise, that the citizen

shoulders who come from that area have. not to mention it will have to live in that state afterwards. so how they deliver their capability and capacity will be quite different than someone was 18 years old and came into active duty and learned how to fire their weapons and do their military jobs and then are transplanted into an area and culture they're not familiar with and then are going to leave. the degree of acceptance and respect is intangible and is something that should not be ignored. the second thing is everyone of you lives someplace. very few of you in this room live anywhere that has a 100% full time professionally trained and paid firefighting force to protect you. anybody that lives in a place called a county does not have a full-time firefighting apparatus. but none of you sleep at night

and stay up worrying that if your house catches on fire that the fire department is not going to show up on time and they're not going to come with suspicisufficient people and trg to save your structure, your life, and your loved ones and pets that. you that. so how do they do it? they do it with either a mix of a few full-time professionals to keep the equipment ready and keep the communications and alert system ready. they depend on citizen fireman, volunteer firemen who stop whatever they are doing, get out of their own comfortable bed in the middle of the night if necessary, walked off their jobs if necessary in civilian life to respond to either a danger or alert system or just sirens in some small towns.

they go and when they show up nobody asked them if they are part-time or full-time. anybody ever ask that question? when they come, they have gear that makes them all look like a fireman. nobody comes on an old firetruck that barely runs. nobody comes with handy down fire equipment. hand-me-down. the community saves on the huge expense of having to pay full- time firefighters. so they rely heavily on citizen volunteer firefighters. i suggest that in a time where our nation is facing finite resources and a significant risk, a way to buy down the risk

is not to do the real jerk reaction the pentagon has already announced. sequestration is coming, we already have it and regardless this way. that's like hitting your knee with a rubber hammer and it flipped as a reflex action. the pentagon and the system has reacted to budget cuts like that this way for so long that it's almost an automatic, unthinking response. i am saying, since i'm talking to people who are from the think tanks and from the hill and from organizations with in this arena, that maybe it's time to look at how people do that our profits matched their active full-time force with their part- time force. we look in an area because you're going to get this is not

a business, this is the military and in the military we are about saving lives. let me tell you, if you want to talk about an organization that response on no notice, or lives hang in the balance every day, and is the fire fighting community in our country. they are putting their lives on a line to respond online, on target, to ensure that you survive and your structure survived and your neighbor's house survives. i'm thinking maybe we put away some of the old paradigms' and start looking at some new paradigms' as to how we are going to apply precious resources that we are going to be providing to the taxpayers. clearly this will allow us to buy down some risk. sequestration is obviously not the answer. sequestration will gut the

national guard. it will exist. it will survive, but it will be in under equipped, less trained. it will have less money. you will find how painful this will be because when they start closing 600 armories and shutting down 1800 construction projects that are on the books, you are going to find that these armories are in congressional districts that. people that. you will find that it will literally kill off small businesses that are dependent on and have waited for and competed for and have been awarded this contract that will no longer be there to build an army, build an annex, build a- facility, builder readiness center, refurbish some older things that have not been looked at in 40 years.

you will find that even if you start this, it's not going to be easy to recover from. the unintended consequence is that a building project in a state has state-matching funds in varying percentages. those funds have to be voted by the legislature. the states are also cash for right now. they are strapped right now. if they have a chance to take back that money through the cancellation of the project, they will. your probability of scene that money again in less than 10 years is pretty remote. if it's a renovation project, you really will be delaying that indefinitely. if it's an expansion project, you probably have lost it. you will find out how much that's going to matter because the citizens of the community, the citizens of that the code, that congressional districts will make their feelings fell to their congressional representatives.

and it will be personal. this is an unintended consequence of sequestration. sequestration is one -- you don't make threats you're not going to carry through. certainly, if you're going to carry through with this, you have to wonder, this is not just a shot in the foot. you may as well cross your feet and catch both feet, because of the unintended consequence of sequestration is walking back the most superb force that this country has fielded in its history, military force, and walking it back 30 years to 40 years back to the hollow force. as i look at the landscape internationally right now, a this, a benign landscape -- this is not a benign landscape.

we used to talk about hot spots that could be problematic quickly and there were only a few of them. virtually anywhere you look right now there are some real issues, real tough problems out there that could cause us to do things with our military that we do not foresee, nor do we desire. and that does not mention the weather patterns, earthquakes, any of the natural disasters that occur, not to mention that the chlorine tanker does not have to fall off or railroad track because of a terrorist. it could be because our infrastructure is decaying. it could be because of human error. but the effect is a release of chlorine in an urban area will be unbelievably painful. if that or anything like that

were to occur, the requirement for the guard to respond would be absolutely one of the first things that would have to happen. a guard under even minor sequestration, under minor cuts, would been slower in its response and it might be two or three states responding rather than one state. in my people of all your hours getting there or a few days before you could get everybody over there. let me give you an analogy or metaphor. if a loved one has a heart attack in your house, you call 911. three days later, five ambulances show up to your house in response to that call. you are not going to be satisfied. you're not going to feel like you are well served. what you expect is the

ambulance would be there on time to save his life. if they are going to show up late, they may as well send the mortuary unit, because they're not going to save your loved one. so time delay really translates into lives lost. domestically, you are going to get one chance to do this. i've said this over and over and i will say it one more time. this will be the last thing i said before turning over to steve. we took palfaluja more than once. in afghanistan and iraq and in almost every military operations be have had places and towns that we took it and they took it. we retook it and they retook it. that works overseas in a combat zone.

you are not going to get to redo in cincinnati or on losing d.c. or wherever you come from, wherever your hometown is. they are not going to tolerate the american military not being able to respond properly and on time here in the united states it. we saw that in spades in 2005 in hurricane katrina. that close from theme u.s. military swinging and missing on louisiana and mississippi. we were lucky to recover that. it will shake the confidence of the nation and for any administration when the american military cannot

properly respond and home. read secretary paul mchale's paper. read this and think about what i just said. you will not be very comfortable when you read this. the trouble with this paper is it's true and it's factual and accurate. thanks. >> sequestration is an irrational and irresponsible approach to national security policy. when most of us walk in here this morning we knew intuitively that a cut of $500 billion over the next 10 years, a cut potential in january of $55 billion would inevitably impact on the department of defense ability to project power overseas. i don't think it was as obvious when we walked into the room that sequestration would have a devastating impact on our security here at home. because of changes, the changes

in policy, over the last 10 years, the protection of critical infrastructure in the united states against a terrorist attack has been primarily assigned to the national guard in title 32 status. that would be subject to any reductions imposed by sequestration's. over the last 10 years, because of good changes in policy, the primary reliance for disaster response has been tasked to the national guard in title 32 status. that changed during katrina when steve and i walked down to the deputy secretary's office and encouraged him to approve the title 32 status for those 50,000 national guardsmen who had deployed in response to hurricane katrina. that had never been done before in u.s. history. to the great credit of the deputy secretary, he proved that. now we used title 32 pretty routinely for major disaster

response. that would be subject to any reduction caused by sequestration. we must recognize that our domestic security would be similarly impacted. >> i have a couple questions are listed at the beginning, but you guys have answered all of them. i don't know if i want to beat a horse or not. anyone have a question? >> thank you both for being here. i wonder if you could drill down a little on border security? if you could explain the guard's presence on the southwest border and how sequestration might affect their mission? >> i have a little trepidation

because i am not absolutely current in terms of the existing status of national guard forces on the border. but i am pretty sure that i have a grasp on that. with the risk that maybe i impartially in error, let me answer your question. i have the responsibility for civilian oversight of operation jumpstart. that was the initial deployment of national guard forces along the southwest border. we have roughly 6000 national guardsmen deployed over a two- year period along the southwest border. we spend a lot of time together, stephen drive, discussing the rules of the use of force and everything and what status the national guard would have during that order of deployment. my recollection is became to the conclusion the guard would be entitled 32 status. that's the middle ground where

gubernatorial command and control would be exercised over those forces but dodpay for tho. in general answer to your question, the type of funding used to pay for the national guard forces, traditionally along the southwest bodborder, would be adversely impacted by sequestration. >> a think that is an accurate answer. just to give you a little bit more, the unintended consequence would be -- dod would be faced with less money than it would normally have to do that mission. it was painful to dod to do it when we were better-resourced. it created frankly great thank you to -- great angst.

where were told to pay the bill and transfer the money to the national guard. so they had to reduce the number or defer it or not do it at all. it created some unscheduled reprogramming. it created angst that was not seen because everybody tries to stay professional. but it hurt the relations between the army and the army guard because the army, who was under funded at the time, had to give more money to do a mission that they did not see as important and frankly felt that the border patrol or department of homeland security should have paid for it. but that decision was made at far higher levels than even the department of defense. in answer to your question directly, sequestration might mean that we couldn't do it at all, to be zero -- to be totally

honest with you. or, worse, we would do it on the cheap and it would probably not be effective. so then you're really wasting your money because she did not quite put enough of the right capability and capacity in there because you're trying to do it basically based on a $-- a dollar sign rather than on the requirement cost. that is what i find so absurd about the sequestration peace because it is not attached to upset stomach abilities or risk that the military is supposed to put their resources against. >> this is an important footnote. in that paper that i just prepared, one of the points i a

emphasizes that the cultural aversion within the department of defense, with regard to the domestic mission of the military, including those of the national guard -- dod is heroic and has predicted our nation over many decades. but in the 21st century, september 11 being the prime example, asymmetric attacks employing weapons of mass destruction must be seen as part of that national security landscape and the protection of our cities and our people here at home must be seen in a larger context of national security and the role of the department of defense. frankly, at dod, there are some folks who are steeped in the traditional power projection who have not realized that changing circumstances. what can you do if you can fight effectively in baghdad that you cannot protect brooklyn. -- you cannot defend brooklyn?

our adversaries are likely to employ it asymmetric attacks using ever more powerful weapons for decades to come. and that recognition has not really been inculcated in the warrior the close of the department of the defense. so when sequestration hits and dollars need to be say venture -- and missions need to be chosen responsibly, the missions that are most likely to be pushed aside are those in the domestic arena. at least within the department of defense, absent a change in direction. we have made considerable progress since 9/11, but what i spelled out in a monograph is that we return to the status quo ante -- the status quo empty. i am worried that sequestration will hit domestic missions

including critical infrastructure protection and the burn response disproportionately. -- and seaborne response disproportionately. >> as of last week, the administration in formed leadership that they intend to do that. but the across-the-board cuts gone from 8.5% to approximately 11.3%, do you see potentially a hollow force to develop for the national guard to revert to a strategic reserve? >> the unintended consequence of what you just said, if you think about it, means that the only place you can get your savings is equipment, operations and maintenance, and that is critical, tempo and training and education. even if you keep the people, you

really reduced their capacity and capability in that the will be less trained. the will be far less equipped and the equipment they have will be far less maintained than what we currently have. in the 21st century, what makes us the greatest military in the world is not that we are the biggest, not the mass numbers. we don't send mass, a human wave against an objective. we have highly trained professionals that are superbly trained and educated in the use of the equipment that we give them and we give them the best state of their equipment that science and technology can deliver and it is highly maintained so it is reliable and effective on the battlefield. so everything that i just said

-- and they are highly motivated volunteers. so you take highly motivated volunteers and you start giving them less equipment than they are used to, poorly maintained equipment, and start reducing the training that they have become accustomed to, how highly motivated will they remain? or do we have less members, less quality force and a less capable force? the answer to all of those questions is yes. that is not the intent, but that will be the impact of sequestration appeared >> is it morally responsible to keep the people and then put them in an opera -- put them in operational jeopardy? that is really the net effect of that approach, which has the benefit of perhaps retaining 20,000 national guardsmen who would otherwise be cut, but then denied to them, as a result of

reductions and operations and maintenance funding, the equipment, the training, the capability they need to go forward and execute their missions? that is hardly a solution. i had to the house of -- the president of the united states called off of the house floor to tell me that i should vote on a bill. i said to the president, sir, you don't know what will happen in the senate and neither do why. i can only consider what is in front of me right now. after it comes back from the senate, i will be happy to support it. and i did. we would hope that we can protect the 29,000 national guard personnel that would otherwise be cut. but it is the height of irresponsibility to shift those funding cuts. we're talking about domestic missions. we have to make sure that when

we send those men and women in uniform for word that they have the equipment that they need to execute their mission. and that it is easy enough to protect the personnel. it is a lot harder to ensure that they have the training and equipment and capability that they deserve. >> if you think back to chernobyl, the courage of those people was enormous. the commitment was enormous. the casualty rate was horrific. they all died within 30 days, most, some a few months later. and the reason was that they were not trained and few had the resources they needed. there responded, but they paid an awful price for that. we owe our young men and women much more than that.

>> where would you take money out of the pentagon? >> if it comes in a part of the question in timing? for instance, i believe that, once we come to irresponsible resolution of our combat operations, is inevitable that we will see a drawdown of the force. i would support that. historically, we have drawn down the force after major combat. we have done that in the context of very poor judgment. we have not been very good at intelligently drawing down the force. but when u.s. were would you

cut coming the aftermath, that might be 2014 and it might be later than that, that we have essentially completed the drawdown from afghanistan. we should look at a very thoughtful reduction in the overall size of the force. we have not done that. and unless we have very significant civilian oversight come including congressional intervention, what we're likely to see is a disproportionate cut in reserve component when coming in fact, i think the drawdown should be primarily in the active component, maintaining a robust capability, but a drawdown in the active component while realizing a cost effective nature of the reserve component. we ought to retain a very strong operational reserve and draw down the enormous personal cost associated with an active component force that was correctly sized for ongoing combat operations, but is

probably too large for a peacetime or a relative peace time environment. secondly, without going into details, there are in number of weapons that i think are highly questionable and we ought to take a hard look at some of those systems that are enormously expensive. but the reality is that something like 70% of the defense budget consists of personnel costs. a drawdown in the active component would make sense in the aftermath of the conclusion -- not during a conflict, but at the conclusion of a conflict in order to right size a forced during peacetime environment. >> natalie that makes -- not only would that make sense in which he is talking about, but in a business model for firefighters and municipalities where they decide to go across the country with great success, but frankly what he just

described, and expansion -- an expansion of citizenship and only a small percentage of them serve, we don't want a candor that turns into america's foreign legion. -- a cadre that turns into america's foreign legion. when the guard reserve cents a unit from you name it, small town whatever state you're from, whatever county or from, that is your home town team going. that whole town deploys with them. that whole town tracks that unit and its record and what is going on with that unit the entire time it is gone. that whole town now has skin in the game or equity in what we're

doing and seeks to better understand why we -- why they were sent, why is the pew and be in church on sunday or at the synagogue on saturday or at the mosque on friday. -- on friday? my neighbor, why isn't he here? why is he serving? or in the classroom or the business place were fellow farmer or educator, whatever this person might be, a doctor or nurse electrician, it doesn't matter. there is a whole area business in every social gathering, at every dinner table. these people now have neighbors that have equity in this america. in other words, when you call-up the national guard, you call out america.

the only people they know that went with the local vendors in, say, fayed bill, not carolina and it will have an economic -- , north carolina and it will have an economic impact. when you call up the guard, you do in fact call out america and that is a very powerful message to send to our adversaries. and on some of these stability and operations, peacekeeping operations, more complex operations that we have been involved in in the last 15 years to 20 years -- when the people in that country coming to you and find out that this man here in the blue shirt and tie that i am looking at is wearing an american flag and the informal one of the services uniforms and realized that he has a job and a

family and this is not all he does and he doesn't have to do it, he volunteered to do this, it says more about what is right about our country than our state department and our finest ambassadors and foreign service officers could ever say. and that is an intangible that you don't want to lose. and that is an intangible, frankly, a trained full-time professional soldier, sailor, airman, or marine has a lesser message. when i go back, i'm going back to my farm. you have a farm? why are you here? i chose to be here. i am here to help you with your problem. and when i am done, i am going back. that is a very different message then and occupier or a mercenary in the eyes of the local people, that you are a personal -- a professional mercenary rather than a citizen

soldier. it is a very powerful tool. we should want to optimize. the constraints on the budget, hopefully, could have a very positive outcome. if you're going to maintain a volunteer force, you have to have the backing of the american public and the decision- influences, the coaches, the teachers, the parents, the neighbors, the employers -- all of that has to be feeding that system if it will be successful, particularly if it has to grow much larger than it has in the past. the way we are able to bring that up, our capability last 20 years has been the guard and reserve. it is a far better value for the

american taxpayer because you are paying them exactly what you would pay an active duty force when you need them. but when you don't need them, they are out earning their own living, paying their own taxes, raising their own family, building their own communities, building our country. and they are getting civilian- acquired skills so that, when they do get called by their nation nor their governor to respond, they will be much more capable and have a much greater capacity to respond than they would otherwise. >> it is worth pausing to recognize -- there is a terrific subtext your question. your question is where would you make the hard choices? making hard choices is the antithesis of sequestration. sequestration is arithmetic. it is multiplication. it is irrational. and it is a breach of trust your men and women in service. it is a way to avoid hard

choices. i am fairly sure that my views would differ from others. but it is an abdication of leadership and responsibility and ultimately democracy if we fail to make those choices. if we resort to sequestration and apply an across-the-board cut, that is a failure of leadership, a failure of government and which ought to be ashamed of ourselves. -- and we ought to be ashamed of ourselves. we can baker vigorously and have majority rule at the end of the day. but making hard choices is what the business of government on a good day is all about. applying arithmetic is irresponsible. >> we will get this gentleman right here. you too will be the last two. >> with in the dod strategy, you

talked about responsibility -- the reverse ability clause which impacts us tremendously how is that even functionable even in light of sequestration? how can you implement that? >> i am not sure you can. >> it cannot. [laughter] we have gone pretty far down the road in anticipating in irresponsible way what sequestration would mean in a responsible way what sequestration -- we have gone pretty far down the road in anticipating in a responsible way what sequestration would mean. when we move to a question of

reverse ability as a matter of strategy, that is frankly too far out in the darkness to define the challenge with any degree of regularity. all we know is that the national guard now plays a vitally important role in terms of our domestic security. that role has changed considerably and in general moved in a positive direction over the last 10 years. the reality of asymmetric warfare, weapons of mass destruction, terrorist adversaries and nation states to execute these kinds of attacks prompted policy that moved the national guard to the forefront in terms of the safety of american citizens here at home. most of those missions would be executed intel 32. title 32 is federal funding that is received through the department of defense. and sequestration would cut that funding. so the impact on domestic missions is inevitable and i think unacceptable.

>> politico. this may be a good question to wrap things up with. what do you see as the solution? this all depends upon whether congress can come up with a deficit reduction plan, which is a whole other can of worms. i know there is uncertainty with sequestration, but how do you see this playing out? them kicking the can down the road? or sequestration actually does happen? i know it is a crystal ball question, but i would like to see what you guys think will happen. >> is going to happen or should happen? i'll answer that.

i launched into my boys got description of the legislative process in the were the democracy and i talked about some of the men and women have known in the congress of the united states who are truly courageous, or willing to make hard choices -- who are willing to make hard choices and you know that this is more important than the continuing progress of their political careers. and when the people spoke to stop laughing, i press that point. there are good men and women on both sides of the aisle. i am a democrat. i take a fairly conservative approach to security policy .oul the exhibit of branch of government can strongly influence and inform policy choices that will be made and the power of the purse is in the

congress. the budgetary decisions that have to be made and it is the duty of the executive branch to provide the kind of leadership for our country and in providing recommendations, budget recommendations, to the budget -- to the congress of the united states. if you cannot make our decisions, get out of congress. it may mean that a large number people leave the congress. but this is too important. we're not talking about secondary issues. we're talking about the security of the american people in their own homes. 3000 people died on our own soil. and in our own airspace as a result of the attacks of september 11. 3000 people dead. that type of attack was not an occurrence. it was a case study. and asymmetric warfare in the 21st century. so we only to sober kilobit, --

we all need to sober up a little bit, a lot in some cases. to make hard choices, debate fiercely and sincerely, and then count the votes. we can no longer duck these issues because what is at stake is not a political career. it is the security of the american people here at home. and the images of september 11 should be burned into our memory, not as a matter of fear mongering, but as a sobering recognition of what warfare looks like when it comes to our own soil. and these issues have to be debated. budgetary constraints have to be made. and responsible judgment has to be made in kind -- in coordination with the executive branch can we decide to draw down the forest research and degree in a way that makes sense that will provide continuing

defense to our nation. i am still enough of a boy's got to believe that good men and women on both sides of the aisle in the legislative -- boy scout to believe that good men and women on both sides of the aisle in the legislative branch can do this. this generation is capable of making the same tough choices. >> ladies and gentlemen, the reason we put this panel together was that a lot of people understand sequestration if they live in fayetteville, n.c., san diego, calif., places where there are large defense facilities. but my concern is that there are a lot of folks in this country that don't understand that, if not done with some degree of , these cutsentsense

will affect every single state and territory in america and a adversely in their ability to deal with the local issues, the 1617 states today that have guardsmen called out or, god forbid those events that are describing here in our capacity to respond to them in a knee -- as a nation. the guard is a huge part of that. sequestration is cutting off the fat guys head when the bad guy really needs orthoscopic surgery counselor. we need procurements and that kind of thing, not just lopping off a chunk of the body. that is a poor way to do it. and the guard come in this case, whether we like it or not, the guard will be adversely affected

by that. this is an awareness and education session. i would ask you to join me in thanking our panelists. there have been very eloquent. [applause] and we thank c-span and abc radio for joining us and we in

firm goalstein scores. on behalf of the home for good alliance and all those who are participating, we welcome you out here on a warm august day in washington.

notably, it is five years since august of 2007 that the financial sector and the global economy began to collapse. foreclosures had jumped the year before by 75% over 2006. bankruptcies of subprime lenders had also shot up but until that summer, many commentators just talked of this as a subprime housing crisis. but in august of 2007, what had seemed isolated to the housing sector turned into a freezing up of the international financial sector. banks stopped lending to each other. wall street loan securitization stopped. no one was sure exactly who held junk securities in their portfolios and which institution would collapse next. fear and panic spread through the global markets and everyone in this room knows what unfolded after that until today. today, the legacy of the

policies and practices that led up to that systemic collapse remain painfully clear. millions of american families have already lost their homes to foreclosure. millions more are still hanging on but we don't know for how much longer, and have lost all their equity. at the same time, production of new homes and new rental apartments have dropped to generational lows, so with people moving back to the rental market and the echo generation looking for housing as it comes into the work force or looked for work, rents are rising rapidly and already, diminished supply of affordable rental housing is stressed even more. worse still, communities that could least afford to lose wealth or to see opportunity foreclosed have been the communities hardest hit. roughly 25% of african-american and latino borrowers have already either lost their homes or at serious risk of foreclosure. this is double the rate of white

families in america. sadly, this legacy of the foreclosure crisis is hardly surprising, when you consider that during the unregulated era that inflated the housing bubble, african-american and latino homeowners with good credit who should have been sold safe prime loans were three times more likely than majority borrowers to be sold risky subprime or high interest loans. naturally the foreclosures followed in higher impact. unfortunately, almost since the housing and foreclosure crisis began, many in the public arena, including many elected officials, have put forward what i would consider a skewed perspective on the underlying problems to address. it's become all too common to blame the homeowners and absolve the lenders. this perspective tries to minimize or ignore the ways in which the private sector financial community contributed to bringing about the crisis.

no one sector is to blame but certainly all share some responsibility. importantly for policy prescriptions, we are told that the biggest problem we face in housing going forward is a need to free up the private sector even more. the home for good alliance is coming together and has come together because we believe strongly that we need to look at the whole picture of the housing challenges. it's time to focus back the issues in the housing policy area on where it belongs, on the people affected. questions such as what policies are best for the vast majority of americans who are having a hard time keeping up with the rent, what can be done to help those barely holding on to their houses, where's the opportunity for americans doubting that they will ever have the opportunity to own a home no matter how hard they work or how well they save. we chose to hold today's event in mid-august not because it's the best time to hold an event in washington, but because we're entering a critical phase of the

presidential campaign for the election of president and most of congress. our speakers today will challenge the candidates and others running for national office to address in detail where they want to take us in housing policy. to accompany this, several of my colleagues have today released an issue brief. it's time to talk about housing and you'll find copies in the back and online, which asks questions of each candidate to be addressed. now, we are certainly going to hear during the campaigns that americans want equality of opportunity and this is certainly true. it's a deeply held american value. but opportunity takes on many forms. it certainly does not come from building into the structures of our housing finance system another era of leaving many behind. as the home for good open letter to the presidential candidates rightly puts it, despite the progress that we've made as a nation, unequal opportunity and discriminations by banks,

brokers and others based on race and ethnicity have meant that community of color are among those hardest hit by this crisis with historic losses in assets and savings. i'm reminded of this in somewhat personal terms. my father-in-law was a poor kid in chicago who enlisted in world war ii, became a navigator and flew many bomber missions in europe. he tells often of the fact that while he was on bomber missions, he and his crews were saved by the tuskegee airmen more than once. when he got back, he was able to get a low interest, no down payment, virtually no closing cost v.a. loan for a poor kid with no credit. that enabled him to buy a house. that house enabled him to have equity to start a business and to roll into a better house. so when my wife and i, when it came time for us to buy a house, my father-in-law had some equity that he could pass on to the next generation.

we don't know exactly who was flying for the tuskegee airmen but what we do know is largely through the policies and practices in the system at the time, that same airman probably also poor from chicago, was excluded from the same opportunity so his generation did not have the opportunity to build wealth, to pass on to the next generation, and so on. what we can't do is create a new system coming out of this crisis which perpetuates a generational non-opportunity to accumulate wealth. so to help us understand what is needed for effective housing policies and what issues the candidates need to address, we have assembled a fabulous panel of experts today. a little later, my colleague, janneke ratcliffe, will introduce and moderate the panel. first i want to turn the podium over to janet murgu of the national council of la raza.

she is more knowledgeable than many in the room and around washington on the issues we're going to address. without further ado, please come up and give us the overview. >> thank you, david. i appreciate that. that sets the bar very high. i doubt that i am more knowledgeable than many in the room. fortunately, i'm not on the panel so i won't have to prove that claim but i want to thank you and our colleagues here hosting us at the center for american progress, in particular janneke ratcliffe, john griffith, julia gordon and their teams, for all the energy that went into today's events. i also want to recognize that in the room we have manuel ochoa and mandy alvaria from a local ncr affiliate. you will hear more from them later but i want to point them out in case anybody in the room has questions about their own home loan or questions about the local housing market. throughout the summer, the home for good campaign partners have

hosted community events like this one, from detroit, sacramento, las vegas, columbus, ohio, miami. we've been hearing from homeowners that tell us that the housing market still needs a lot of work. in fact, our nation continues to face a home opportunity crisis. analysts are telling us that this year, we'll likely see at least two million foreclosures with many more at risk. this means that hundreds of thousands of senior citizens are losing their economic security. children and families are being uprooted. and neighborhoods are being blighted by vacant properties. making matters worse, unequal opportunity and discriminatory targeting of communities of color by deceptive lenders means that minority families are among the hardest hit. all of this results in a continued drag on the economy and that hurts us all. fortunately, we all in this room know that there are proven and practical solutions that can

stop needless foreclosures that can restore affected neighborhoods and preserve fair and affordable lending. we can do this while making sure that home ownership remains a pillar of american opportunity into the 21st century. over the past year, we've actually seen some progress on this front by the obama administration and certain states and by some lenders and that has actually reduced the number of foreclosures facing american families for sure, but they fall far short of what we need and they're not getting to scale, and many have not included adequate measures to address unequal opportunity or the discrimination that's happening in our communities. the home for good campaign as david mentioned calls on our presidential candidates to commit to addressing our shared concerns. you can support this effort, everybody get out your postcards, i know you got them on the way in, by signing this postcard. together, we're going to tell the candidates to come to the table with real solutions to

stop needless foreclosures, expand affordable rental and revive a sustainable path to home ownership. so far, the topic of housing has been all but ignored on the campaign trail. neither candidate has laid out a clear strategy for a mortgage system after this election, and this is troubling, considering the role that housing plays in our economic recovery. the home for good campaign partners are not coming to the table empty-handed. we have offered up our own set of solutions which we've gathered in a document called the compact for home opportunity. spearheaded by our partners at the opportunity agenda, the compact for home opportunity lifts up proven strategies for a balanced and accessible housing system. in it, we call on policy makers, industry leaders and everyday americans to commit to real solutions and implementing these in a way that are enforced and accountable to make them as effective as possible. the compact encompasses both

immediate remedies and long-term objectives. we invite you to go to my home for good.com or you can get out your cell phones now, text the word home to 62571 for more information about the compact for home opportunity and the campaign to make these solutions a reality. now, it is my great pleasure to introduce vicki schultz. miss schultz is deputy assistant attorney general for civil rights division at the department of justice. we really appreciate her willingness to stand in at the last minute for the assistant attorney general, tom perez, who couldn't make it, but vicki is fabulous. we know her well and we're excited to have her here. in her current role, she oversees the division's work on fair housing and fair lending issues in partnership with several federal agencies such as the department of housing and urban development and the department of treasury. previously, miss schultz served as senior advisor to then maryland labor licensing and regulations secretary tom perez. i would like to commend miss

schultz, assistant a.g. perez, eric halpern and others, part of the doj civil rights division, for their groundbreaking work to investigate discriminatory lending practices and bringing justice to families swindled by steering and unfair price hikes. miss schultz? please come to the podium. >> thank you. it's indeed my honor and privilege to be with you today. i want to thank the center for american progress for being the forum in which we can have this important discussion and certainly the national council for la raza for spearheading this important effort to keep a focus on this housing crisis. we know there are many families struggling and until we can address those issues, we should not rest. i do send regret from the assistant attorney general, tom perez. he was called at the last minute to be part of a delegation to the dominican republic for the

installation of a new president, and therefore, i'm stepping in, but i will tell you that i'm absolutely thrilled to be here today, because this is a critical issue and we are focused on the issues that you care about, because we, too, care about what's happening throughout our country. the promise of equal opportunity is at the core of our american values and our ideals. from the opportunity to learn to the opportunity to gain fair access to credit, to earn, to live where one chooses and move up the economic ladder, our laws seek to level the playing field and provide the cornerstone of that economic opportunity. and one of the most basic building blocks has been home ownership. as an administration, our job is to enforce the law so that every eligible person has equal access to credit and housing opportunities. free from fraud and abuses and

free from discrimination. it was the absence of such enforcement that contributed to the housing and foreclosure crisis and led to many of the abuses we are working hard to remedy. this is why in the wake of the housing and foreclosure crisis, the federal government under the leadership of president obama has responded forcefully. with unprecedented levels of foreclosures, mortgage servicing practices have not only failed to adequately address the crisis but have exacerbated the problem. these practices along with abuses in the foreclosure process prompted the department of justice in coordination with hud and the hud office of the inspector general, 49 state attorneys and state banking regulators across the country to conduct an extensive investigation into serious violations of state and federal law. these violations included use of robosigned affidavits in

foreclosure proceedings, deceptive practices in offering of loan modifications, failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages and filing improper documentation in federal bankruptcy court. as a result, the department of justice with these other federal agencies and state attorneys general have reached a landmark $25 billion agreement with the nation's five largest mortgage servicers to resolve the allegations of mortgage loan servicing violations and foreclosure abuses. the agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future. the joint agreement, the largest federal, state civil settlement ever obtained, requires servicers to implement comprehensive new mortgage loan servicing standards in addition to the $25 billion. in keeping with the homeowners

bill of rights, president obama nou announced the servicing standards require that homeowners be treated fairly. for example, establishing a single point of contact, a commitment that homeowners will get assistance before a servicer seeks foreclosure and that foreclosure will be sought only after other options fail. these standards in combination with vigilant monitoring will help transform the servicing industry. significantly, of the $25 billion servicers have agreed to pay, $20 billion will go toward various forms of financial relief to borrowers, including principal reduction, refinancing and other types of relief. since time is of the essence for a family facing foreclosure, there are incentives for servicers to provide relief sooner than later to homeowners in the agreement. while it is clear that communities all around the country have been devastated by the abuses in the housing

crisis, african-american and hispanic families have been hit especially hard. discriminatory lending played a particularly devastating role in the housing and foreclosure crisis, draining significant wealth from all communities but especially from communities of color. our enforcement actions show that too often, african-american and hispanic families paid more for loans because of their race or national origin, not based on their credit qualifications. too often, african-american and hispanic families were steered to more expensive and risky subprime loans based on race or national origin, not based on their credit qualifications and regrettably, some lenders refused to lend in minority communities, making assumptions based on the race of residents rather than their credit qualifications. to address discrimination in lending, attorney general holder created a fair lending unit in

the civil rights division's housing and civil enforcement section. since the establishment of the fair lending unit, thanks to the committed career professionals in the division, we have brought record numbers of enforcement actions in the approximately 24 months since the unit was established. the division filed or resolved 16 lending matters. i think now 17, by ways of contrast from 1993 to 2008, the department of justice filed or resolved 29 lending matters, an average of less than two cases per year. the division produced unprecedented results in 2011 alone. we filed a record eight lending related federal lawsuits and obtained eight settlements, providing for more than $350 million in relief to victims of illegal lending practices. this includes our settlement with countrywide financial corporation, the largest lending discrimination case ever brought by the department of justice,

and our settlements as well as record settlements under the service members civil relief act. no one case, however, can rectify the multitude of unlawful practices in the housing and lending market that contributed to the nationwide housing and foreclosure crisis, but as the enforcement record illustrates, the division's fair lending unit uses every possible tool to address the range of abuses seen in the market in both mortgage and non-mortgage lending. collaboration, however, is critical to all we have accomplished. much of our fair lending enforcement is done in conjunction with the banking regulatory agencies and the president's financial fraud enforcement task force, particularly its nondiscrimination working group, which the assistant attorney general, tom perez, co-chairs. in addition, from 2009 to 2011, the bank regulatory agencies, the ftc and hud, referred a

total of 109 matters involving a potential pattern or practice of lending discrimination to the justice department. 55 of the 109 matters referred involve race or national origin discrimination. a combined total that is far higher than the 30 race and national origin discrimination referrals the division received from 2001 to 2008. our enforcement efforts have been enhanced by the consumer financial protection bureau, a new and critical partner. we work closely with state attorneys general as evidenced by the countrywide case that was done in coordination with the illinois attorney general's office. from that settlement, that $335 million settlement, more than 50 times larger than the division's next largest fair lending settlement at the time, our complaint alleged that systemic discrimination over a four-year period violated the equal credit opportunity act and the fair housing act and impacted more

than 200,000 african-american and hispanic families. at the core of the complaint is a very simple story. if you were african-american or hispanic, you likely paid more for a countrywide loan than a similarly qualified white borrower simply because of your skin color and if you were african-american or hispanic, you were far more likely to be steered into an expensive and risky subprime loan than a similarly qualified white borrower. african-american and latino borrowers who walked into countrywide's door had no idea they could have gotten a better deal. nothing can undo the damage that hard-working responsible families suffered as a result of these types of discriminatory practices, but the relief for victims of discrimination will begin to address some of their financial losses and make clear that that kind of behavior will not be tolerated in the marketplace. in addition to the countrywide case, we also reached our second

largest settlement against wells fargo for steering and pricing violations in its wholesale mortgage lending. there will be a minimum of $125 million in direct compensation to wholesale steering and pricing victims and a commitment to provide additional compensation for any retail steering victims found. further, wells committed $50 million in down payment assistance to borrowers in targeted communities where substantial victims were located. this will begin to address the community harms that are a consequence of such discrimination. additionally, we have brought other pattern of practice pricing discrimination cases since the unit was established, including multi million dollar settlements with aig federal savings bank and prime lending as well as the first unsecured consumer lending pricing case brought by the division in at least a decade, and a case we filed against a regional lender, gfi mortgage bankers

incorporated in collaboration with the united states attorneys office in the southern district of new york. many of the division's pricing cases have relied in part on disparate impact analysis to show a violation of law. this approach has been unanimously accepted by the courts and the division is using all of the tools in our arsenal to root out discrimination, including disparate treatment and impact analysis when supported by the facts. we settled redlining cases in 2011, one against citizens bank of flint, michigan and the other against midwest bank center of st. louis. citizens agreed to, among other things, invest $3.6 million in wayne county and in the city of detroit. midwest agreed to, among other things, invest $1.45 million in african-american neighborhoods in st. louis. our settlements seek to expand opportunities for minority communities and individuals to

access good sound credit in areas where lenders had previously denied such services. however, our settlements never require a lender to make a loan to unqualified borrowers. the department's settlement agreements repeatedly refer to extensions of credit to qualified applicants only and we know there are plenty of qualified minority borrowers. further, the department makes clear that no provision in any redlining settlement agreement or any of its agreements including any special loan programs or loan subsidy fund commitments require banks to make any unsafe or unsound loans. we want to encourage responsible lending throughout these communities and sound products. last year, we also brought our first fair housing act case alleging discrimination against women on paid maternity leave and mortgage insurance against the nation's largest mortgage insurance company and two of its underwriters. that case is currently in

litigation. in addition to our traditional fair lending work, we have stepped up efforts to protect the rights of our service men and women through enforcement of the service members civil relief act. we've moved aggressively to protect service members whose homes were foreclosed on in violation of that law. as a result of our settlements, with six national servicers, the vast majority of all foreclosures against service members will be under court ordered review. recently, we reached a $12 million settlement with capital one that will address scra violations throughout cap one's lending arms. our fair lending enforcement has helped shape and define what access to equal credit means under the law for all borrowers. just as our enforcement continues to ensure that people have equal access to housing opportunities, the ability to live where one chooses without facing discrimination is the

foundation upon which we build our lives. the opportunity to choose where one lives is essential to enabling individuals and families across a spectrum of race, ethnicity, disability and sexual orientation, the opportunities to have a choice in the selection of schools, access to job opportunities and the ability to engage as fully equal members of their community. for example, the department settled its lawsuit against the city of new berlin, wisconsin, for discrimination in violation of the fair housing act filed in june 2011. the lawsuit alleged that the city of new berlin blocked 180 unit affordable housing project that a developer had proposed for the city center area. the city's planning commission initially approved the project but reversed course and denied it weeks later after hundreds of residents objected to it, based partly on racial stereotypes and fear that the project's tenants would be african-american.

in response to public opposition, the city changed its zoning and land use requirements to bar affordable housing in the city center in the future. our settlement requires that the city not take any further action to obstruct or delay the affordable housing project and also requires that the city take affirmative steps to provide for future affordable housing, including the requirement that the city communicate its commitment to fair housing by establishing a housing trust fund that's capitalized with $75,000 initially to assist such projects. equal opportunity isn't just about individual rights. it's about community prosperity and stability, and it's about economic growth. this administration and this department of justice has and continues to be committed to full and fair enforcement of the laws that protect people from

fraud and abuses, and keep open the doors of opportunity for all. we remain committed to addressing the harmful practices prevalent during the mortgage meltdown but will also investigate and bring enforcement actions to confront emerging discriminatory practices in the credit and housing market. we will continue to aggressively enforce the law to protect the rights of service members and all who face discrimination to ensure fair and equal access credit and to housing opportunities for all as the law requires. thank you for letting me be here with you today, and i look forward to the discussion ahead. >> thank you. thank you so much. again, thank you for all of your great work over at doj. it really means a lot to the community to see justice brought to our families. so now i would like to welcome up to the podium janneke

ratcliffe, fellow with the center for american progress, and the rest of our panelists. >> good morning. i'm janneke ratcliffe, senior fellow here at the center for american progress, and also the executive director for the center for community capital at the university of north carolina at chapel hill. since north carolina's a hotly contested state and we have a nominating convention coming to charlotte soon, it's nice to be able to get away from politics and come up here to washington today. but thank you all for coming. welcome. it's an amazing range of experience and insight that they bring to the question of sort of looking at where we stand today and how we move forward. as david pointed out, five years since the financial system really began to unravel. so for quick introductions, over here on my right, the far right,

david stevens is president and ceo of the mortgage bankers association. leading his industry forward in these challenging times, he brings an impressive career as a lender with world savings bank and freddie mac and wells fargo. in real estate, as president and coo of long and foster and most recently on the public side as former commissioner of the fha. thank you for joining us today. next we have terri ludwig, president and ceo of enterprise community partners, which provides capital and expertise to create affordable homes and rebuild communities. she's previously led merrill lynch's community development company as well as a large nonprofit lender to small businesses. "forbes" magazine recognized her as one of the world's leading social entrepreneurs. welcome, terri. then to my immediate right is jim carr, housing and finance consultant, and former chief business officer of the national community reinvestment coalition. he previously headed housing

research at fannie mae, worked at the center for urban policy research at rutgers, served on advisory boards at numerous colleges and universities and is currently a visiting professor at columbia university. jim is a deeply engaged academic serving many organizations promoting economic opportunity, both domestically and internationally. so thank you, jim. echoing the home for good points that janet has described, i would like to ask you to start us off. let's begin with foreclosures. the white paper that cap is presenting today reports 3.5 million foreclosures since 2008, notably that is less than the 3.7 million households that are currently either delinquent or in the process of foreclosure, but housing economists are starting to talk about a bottom to the market and maybe even recovery on the horizon. how does this square with what you observe? is it time to stop working on foreclosure prevention solutions?

>> thank you, janneke. i think that's an excellent way to start the conversation. i'm amazed, i have been hearing analysts, particularly housing economists, argue that we are seeing a bottom to the housing crisis going all the way back to 2007 before the crisis even really ensued. so it seems we're back there again. the fact of the matter is just as the economy has shown sporadically glimmers of greater hope, then lost steam, the housing market continues to show greater hope, then loses steam. so i think we need to be careful about being overly optimistic about the current state of the housing market, because if we do, it may lead us to taking actions that will severely hurt the budding recovery of the housing market and that is to stop actually actively working to repair the housing market. it remains in deep trouble. let me just talk about a few reasons why i say that. on the positive side, house prices appear to have stabilized and in some markets, we're actually seeing some healthy increases, but it's important to

remember that house prices are still down nationally by more than 30%, and as a result of that, we've lost over $7 trillion in housing wealth. we are nowhere near having rebuilt that lost wealth. in addition, we have more than 20%, closer to 25% of households whose mortgages are valued at more than the houses themselves. that translates into about $700 billion of upside down mortgage debt. again, we are nowhere near having wiped that out. now, one of the key reasons that foreclosures have fallen and it's one of the reasons we have to be careful about celebrating too much about the data is that foreclosures fell significantly between 2010 and 2011, by about 35%, and that certainly is something to celebrate. but it wasn't due to the fact that consumers are more economically able to maintain their homes or that servicers got more effective at modifications. the fact is the foreclosures fell because of legal impediments faced by servicers

to actually foreclose upon. now most of those legal challenges are out of the way, and as a result, one report that i just recently saw has morgan stanley estimating there are about seven million homes in the foreclosure pipeline and the servicers are now free to clear out those pipelines. in addition, if you look at data regarding say mortgage purchases, or new construction, both of those numbers again are up. mortgage purchases in particular look to be on the right path, but if you tease out approximately 7% of -- 70% of those which are refis, that's good for the economy right now but that's not sustainable over the long term. purchase mortgages are in fact still pretty significantly below what we would expect in a normal market and the same thing for housing construction, up but still anemic relative to a strong market. a couple other points i would like to make. that is, when you're looking at the housing market, it's really important to understand housing

and the economy are really linked at the hip. so for the last four years, the largest driver of foreclosure has been the economy, underemployment or unemployment, loss of income. the reality of it is that the economy is still in a very precarious position. anyone who is following the news knows that europe, for example, is each day sliding closer into an abyss and as they do it's having negative effects on our economy but the truth is, we don't need any help from europe to damage our economy, because we're en route to doing it ourselves. we are not looking at and debating in washington competitive investments in america to actually get america back to work. instead, most of the dominant conversation is around this fiscal cliff that's coming in the beginning of the year. which means the focus of that conversation is on deficit reduction. that's not to say that deficits aren't important and we don't need to address them, but we need to address them in the context of a comprehensive investment program for america because the best way to balance

the budget is to put america back to work and instead, we're really focusing on counting the numbers toward the fiscal cliff. so i think it's way too premature to say the housing market has bottomed out, that we're recovering. we really need to be very diligent in doing everything we can to mitigate foreclosures and we need to not forget the damage that was done, particularly to those communities of high concentrations of foreclosure. we need to be addressing those neighborhoods. we need to be rebuilding those communities. we need to get the housing home ownership market straight and we need to be really leveraging the fact that we have house prices now that are down by more than ten years' worth of loss in price and actually using those and leveraging that as affordable housing opportunities, particularly for low and moderate income and minority households. so i would say the bottom line is we've seen some good news and i think that that's good. i think we should accept the good news as it's better than bad news, but we shouldn't run

too far with it and conclude the market has bottomed out and now we can sit back and watch the recovery, because that won't do it. >> thank you, jim. so terri, as jim points out, families still losing their homes at a great pace, and again, according to our paper, a third of the population, some 100 million americans live in rental housing today. that's probably only going to go up as new households are either not able or not as eager to step into home ownership. but there's a growing shortfall of affordable rental and as rents are rising, it's only getting worse. so it seems like a key opportunity to reposition policies around rental housing, especially quality and affordable rental housing. what are the prospects for getting it right this time? >> let's hope strong. but i would say that the perspective i would like to bring to the conversation is just enterprise is someone who is working at the national agenda but also in local communities across the country, and so as, you know, i kind of

share our perspective today, i think it's really important to look into the local communities and think about what's really happening as we talked about, and i think that's right. so i think that where enterprise stands today and what we promote, you know, on a national level is thinking about how we achieve a more balanced housing policy. so there's no doubt today where we are in the cycle, that there's tremendous opportunities for home ownership and we think that's vitally important for building wealth and critically important. at the same time, as you said, the growing need for rental is there and i think many of us in the audience, you know, read all the statistics, whether -- i was just looking at the joint center at harvard, their housing study which comes out each year and i think what we've seen over the last decade is we've seen tremendous growth in the needs for rental housing and i think in the last six years, you've actually seen demand has more than doubled. and depending on which numbers you would like to listen to, i think by 2010, the deficit

between those who need affordable for low and moderate income folks who need affordable rental and what the supply is, there's about a gap of about 5.1 million units which is just enormous. so in the absence of any major policy interventions, we're going to see this trend continue and build, as you said, given the trend that we're seeing with rentals. and we know that we're in this process of going through not only tax reform, gfc reform and facing a potential fiscal cliff, so i think we all have to be ardent in thinking about how we're going to support the rental sector as we also look at the home ownership policies. and so i guess where we would like to put forward our ideas is to say how do we look at the programs that have really been effective and efficient on the ground and so that ones that can also help us not only produce affordable housing but also preserve the affordable housing that's out there. so one of the programs that

enterprise has a long history with and many of you in the room do is the low income housing tax credit. as we know, the low income housing tax credit has been -- it actually was a product of tax reform back in 1986 and it was a reagan policy, interestingly enough, but how do we take a program like low income housing tax credit and make sure that the efficiency that we've seen in that program which i would be happy to argue has been very effective and what it's allowed us to do is create not only 100,000 to 120,000 new homes each year that are affordable rental properties, but it also helps create jobs which is essential. 120,000 jobs along with that. so whether we're talking about housing, we're talking about economic stimulus, i think these all go hand-in-hand. they're incredibly linked. we want to make sure that low income housing tax credit remains on the agenda, remains a strong tool. it's leveraged about $75 billion worth of also private capital. so we think it's vital that we

protect some of those critical tools that have worked. in addition, enterprise has been trying to make sure that we have additional programs that also help us address issues around foreclosure. so something like the neighborhood stabilization program, nsp. we know it has been less than perfect, but we also know it's been vital in communities that have been hard hit to try to restore so what we're trying to do to restore. so we're trying to make sure as nsp dollars are used that it's used effectively and efficiently and we can take the learnings on the ground and make sure the next generation of policies continue to strengthen, and i also think we'll be in a debate. we talked about a balanced housing policy. we're going to talk about homeowner ship tax benefits to benefit more modern income people. we've seen the data out that suggests of the housing subsidies that are out there, over 50% of the subsidies go to

people making $100,000 more a year. how do we right size the subsidies that exist to make sure that folks low and moderate income are benefitting from that? we know there's not going to be more money. we know deficits will come down. how do we that in the scope of reality when we think we can make progress in the agenda? i'm delighted to be here today. the homes for goods campaign, the reason we're here, it's about coming together and crating a shared message for the issues we care about. that's vital for us to think about. how do we really come together about a message with a specific set of priorities so that we do make progress going forward? and then i think we could make some of the progress we hope for. >> great. so on the third point of homes

for good shifting for rental and to create a path of sustainable homeowner ship, there's an enormous amount of work in progress and probably more remaining to be done to rebuild the mortgage finance system. and the things we do now will change the way potentially homeowner ship is financed for decades to come. how is it going to look when we're done? what do we do? >> well, thanks. and i would start off and we would all share your opening point about escaping politics and coming to washington. it's the first time any of us heard that statement. having taken enforcement actions against institutions, starting the dialogue on the service and

settlement, which i left part way in between. it's remarkable as we look back, hindsight is perfect. to people who have terrible credit histories and who are high risk families putting them into programs that they're supposed to get bailed out of two years down the road are assumptions that are unsustainable. we wrap them in loans that are supposedly to give access to homeowner ship. the idea that homeownership wield appreciate in a rapid way in a short period of time, based on history and you could cash out, refinance and take home equity lines of credit. all fuelling the fire can cause

extraordinary damage. i grew up in the business. the same industry that i took enforcement measures against while i was at hud. and you hear that. and you hear that message repeated. it's been repeated multiple times already today. those enforcement actions are going to work their way through. the question is, how do we get hope back into the housing system? and the more we have discussions where you leave wanting to slit your wrists after you hear the debate in dialogue but there's nothing but downside ahead, it doesn't do what we need from a confidence standpoint. at the same time, we don't want to create irrational exuberance towards the future because you don't want people making decisions because of promises of expectations that are too positive as well. balance is really what we need to think about moving forward. i want to talk about a few balances.

the first would be balance in homeownership versus rental. when i worked for shaun donovan, he talked often about a balanced housing policy. clearly we have too many families promoted into the hope of homeowner ship and particularly destroyed communities of color, communities of low income levels, communities that were propped up because of 100% financed, nonam rtizing mortgages sold into the private sector label. you can look at las vegas. you can look at detroit. two different entire sets of products were originated and provided to consumers, and you have similar outcomes for different reasons. that balance has to shift. well qualified borrowers who can prove their ability to repay, that are fully documented, where it's clearly known they'll be able to perform in the mortgages is a critical component. we also need a balanced rental

policy. there's clearly going to be greater rental demand. we're seeing shortages of affordable rental in key urban markets now. what is that doing? we're seeing for commercial and multifamily institutions, they're actually having a much better year than they've had in past years, and that's great. it shows us demand for rental housing. but at the same time, how are we going to deal with affordable and rental housing? what happens to tenants who get displaced because rent prices are rising near where they work? having to move to further out locations where it's more affordable because rents go up in more rent controlled markets simply because there's a supply and demand disbalance. so these are things we have to think about together. certainly the future of subsidized housing finance, where it comes from hud or elsewhere. how we create affordable workforce housing particularly in the rental market is going to be key to this. i'm going to shift to my greatest concern, which is we

can talk about enforcement. i'm very concerned about the future of access to homeown homeownership. i'm worried in the effort to eliminate risk in the market and eliminate the unfair and abusive practices that existed over these past years that we'll move too far. and so, you know, if you think of the pendulum, small swings in economics in the way the economy functions works, we come from a large swing. are we swinging too far the other way? i look at rule makings that i participated in. it has a 20% minimum down payment. i don't have to talk about that with anybody here in this room. but we all know down payment is the single biggest barrier to access for first time home buyers. it disproportionately affects people of color, communities of color, hispanics, latinos and african-america

african-americans. it ultimately affects these communities the most and the first-time home buyer population. a recent study came out that talked about fha. for first time homeowners with low down payments, fha stands for friends of hispanic americans. not the federal housing administration. if you have a limited payment opportunity in your family because you don't have large amounts of inherited wealth from your parents, and that's due to cultural generations, you're going to be limited. it's not a matter of fha costing more. it's low level price adjustors, mortgage insurance and other restrictions on fica score, et cetera, end up costing a borrower more. if you go back a decade ago to last year, a decade ago over 80% of all loans to hispanic americans and african-americans in this country were done through conventional mortgages. last year approximately 80% of

the same populations of loans for latino community and african-americans were done either through fha, va or -- this shift is really remarkable. and when you look at the rule makings that carve out protections for the hud programs. standards coming down the path. the qm provision, which could have significant constraints to debt income cuts that are defining the ability to repay. we could end up with what i consider to this be a very desperate impact in terms of access to housing, where fha has a very unique sort of, what's going to ultimately look like a color boundary to it. and then the one percenters are going to get low grade fixed financing because they'll have all those accesses to the economic fortunes that have been passed on and generated through history in this country. and i'm not trying to make this as -- this should not be an

ethnic decision. it becomes so simply because of economics and demographics. and so while we're making certain to enforce all the mistakes made by institutions, lenders, servicers of the past, and that work will continue, and we have plenty of that going on. we can all talk about the great things that are happening. the fact of the matter for me is i'm extremely concerned about access to affordable housing finance credit outside of the fha program, and quite frankly in the fha program, depending on what happens in the political arena over the next couple of years. if we don't really seriously take a look at when do we start reverting our attention to these current rule makings in a responsible way that says we're not going to restrict access to qualify qualified sustainable homeowner ship for a large multitude of participants in the market so consumers get the best options

available to them, not ending up with what i call the barbell effect. for people on the margin, you have fha or payday lending. in the middle of the barbell where the bar is are those who aren't going to be impacted by the rules anyway. we have to be really careful about what happens on a go forward basis. to me that's the fundamental dialogue we need to all be having now. the enforcement is occurring in a very rapid way. all the day today about foreclosures, you know, it's going to be a big foreclosure year. fha only foreclosed on 50% of what they expected to. that's ultimately going to take its course. but we really need o have a serious debate about those impacted by fico, job loss, credit scores. those who need access to homeownership and shouldn't be delayed because of a down payment requirement because we think it's time to be tough on crime and we ultimately over exert the force and create a huge impact by policy, not by

lending behavior. and that's the core of concern that i have moving the forward. >> certainly. i would like to before we get into those things stay a little bit more with the question that you both talked about is the balanced housing policy and just to understand. does this imply that america is at some crossroads where we have to choose to support rental or continue to foster homeown homeownership, or is this a way to connect the dots and ideas on how to get there? >> i think dave painted a really good picture of the challenges and balancing that has to occur. there's just one thing. it's not a digs agreement. it's just a clarification for people who really don't do this every single day, and that is, i think we need to be careful as we engage in the conversation on the balancing of the housing versus rental. and did we go too far?

homeownership rates for african-americans, la too knows, never exceeded 50%, even at the height of the bubble. we didn't go too far. and the reason for the foreclosures, and they've said it, just want to write it, is a not because we went to far in pushing affordable, legitimate housing projects. low down payment well underwritten loans. that wasn't the foreclosure crisis. it was subprime loans not intended to support homeowner ship. so when we're talking about this it can get muddled sounding as if, well, they were using the experimental products and high-end financing to try to get people in who didn't know. that was not it. it was taking people who had the credit score and the the incomes and the jobs and the financial wherewi wherewithal to be good candidates for long-term homeownership and peddling off to them a subprime loan that was intended to require a refinancing within two or three

years to trigger fees for the lender that originated the loan. when house prices flattened out, that house of cards fell apart. so when we go back and started talking about the balance in homeowner ship, we need to be talking about what do we see as the potential full homeownership potential using solidly underwritten, well documented low-cost fixed rate loan products called the 30-year fixed rate loan. and since the great depression, those loans have been underwritten, largely for non hispanic white households, low-income, not really financially sophisticated because the system worked to actually make sure that they got into homes for which they were intended to own, and for which we've almost forgotten this thing called the move-up market. you would be successful in the first home because the lender wanted to connect -- have a relationship with you to go to the next home. that fell apart with subprime. it became we want to stay with you in one home where you keep churning and we keep taking

income so you never generate any real income for yourself. we just keep stripping that wealth creation from you. and so, one of the things that also amazes me is when i hear a lot of analysts, economists in particular say we need to rethink homeownership the yo ask if they're a homeowner, they'll say yes. they're really saying we need to really rethink having minorities as homeowners. so i think we need to kind of not so focus on what's the right balance? we need to focus on what are the kinds of loans that have historically shown to demonstrate that they are the kinds of products that are sustainable, long-term, wealth building. and then let's look and see what are the populations and how do they sort of matchup with the kinds of criteria required to build a strong homeownership

market. >> and just a tag to that. people will look back and say it really wasn't needed. if you look at interest rates you'll hear economists talk about it's a free put option for the consumer. this is the way they describe it. it's interesting. you're right. from 1980 until now we've seen interest rates go from 18 down to 3.5. it's been steadily with a couple of blurps, upticks along the way. if you ever need a 30-year fixed rate mortgage, it's from here going guard on the out years. that's, by the way, to your point, that's why i talk about subprime in the very beginning. seller funded down payment assistant loans on 30-year fixed rate loans, artificially inflated values. half of all borrowers who ultimately got a mortgage are also going to end up in some sort of trouble as a result.

and a third are in a foe closure rate. there's a lot of variables in how to how to determine safe and sustainable loans to make sure you're working on access and not pushing people into homes for reasons that won't be sustainable. >> i would certainly echo that from our perspective in looking in local communities i don't think i could say anything different but just echo what we're hearing. we have a study coming out i don't think it's a surprise. but how we continue is simply not flowing. and so, yeah, we have a repeat of history that's probably really threatening to come our way. we know many communities are low and minority income communities. and i believe we have a tale of two cities. so we have certainly a recovery in some places and credit

flowing. but i would say the majority of the places that we're working in are really seeing very challenges conditions. >> if you look at the multifamily environment, their sources of financing are no different than the single family environment. as you think about the demand for rental housing going forward, you know, we need to have a steady flow of capitol to make sure that we can build plenty of supply in particularly urban communities and the places of work so that there's a supply there. >> and i would also add some of the work that we're doing on the ground, i mean, what we're going to continue to hear about supply rental housing, too, is the overstock of vacancy for the families. so we have to be thoughtful about how we articulate what that means to the economy and how we start to transition the properties to productive uses. which i know all of us are

talking about. but i think there's real opportunities to convert some of the single family units to productive stock of rental. certainly rent to own and other sort of programs that we think can lead to either good high quality rental stock or homeowner ship. but there's a huge mismatch between where the homes are and where are the opportunities for jobs, good schools and the other reasons people choose good communities. how we think about the messaging and how we think about the stock in the face of the conversation as we all go to the hill to advocate for what we believe in, we have to be front and center on that as well. >> so at this particular time to add to that. we need to remember a lot of households who lost the homes to foreclosures were good candidates for homeownership. they were before the crisis. they were before they lost the homes. they still are now. they could not pay the subprime

loan and could not get a modification in an appropriate way that allowed them to keep their homes. and so as we're looking at literally seas of single family and/or townhouses, we need to be careful we don't drift to what are the challenges of converting it to rental? we need to ask ourselves what are the challenges to helping the individual who is lost the homes as a result of an exploited product become a homeowner again? failing on a predatory product is adding insult to injury. as opposed to taking advantage of the fact that we have these incredibly low house prices in many communities across the country and asking ourselves what are the products that go beyond the standard fixed rate. so lease purchase. how do we create a new lease purchase program that's national

in scale? that's overseen by federal authorities so that we know it's not a predatory market. and get people back into owning homes in which the credit score doesn't matter because they're leasing it and over three or four years of performing we well it converts to a home mortgage. so we have to think about what happens between rental and owner ship because i think that recoverying from the extraordinary damage that has occurred is really as essential as building the foe closures. millions of homeowners are just as prepares to be homeowners as current homeowners are today. this is a really important

point. it could have been an auto worker who no fault of his or her own because of an economic recession has had their credit score impacted, how do we find a pathway to get them back based on the way we're managing credit standards today? so this is a really important issue. and the current focus on financing, that's great. it puts cash in people's hands. it's not as stimulative as a home purchase. so the policymakers found the way to get more refinancing done was to eliminate the barriers to access, and i think that's a good lesson. with a lens for sustainability and safe practice. >> that's a really good point.

one obstacle from a lot of public policymakers, the resistance to doing more is the perception out there that somehow people are in the trouble that they're in financially because of their own doing. they bought more house than they could afford, et cetera, et cetera, when as dave makes the point and is a really powerful and important point, but it's not as much in the public mind as that a lot of people go into foreclosure these days, probably the mast majority are a victim of circumstance. the economy, a soft economy, and collapsing home prices and so we're looking at those characteristics of driving foreclosure, then the ability of us and the willingness of policymakers to actually legislate more aggressive foreclosure mitigation should be greater. but we have to first remove the perception that people are sort of self inflicted victims of

buying too much home. >> and economic softness was triggered by a bunch of reckless lending at the front end of all of this. and bringing that into focus and because several of you addressed this point are we in danger of losing this? are there concerns about it? what should we be encouraging the candidates to think about? >> i'll just jump in. you know, it seems almost like blasphemo blasphemous. fannie mae and freddie mac were much bigger in the marketplace. we did 30-year fixed rate loans. we held them on portfolio. we fully documented every loan and we locked in the interest late the night before foreclosing because we couldn't

edge forward into what is a vibrant tba market that allows a borrower, a family to buy a home, go under contract, 30 to 60 to 90 days in advance of the settlement and know any interest rate moves won't block them out of the homeowner ship access and keeps the economy moving. if we look at the extreme versions, in the absence of a complete elimination of a government guaranteed market and a sort of overcorrection on freddie mac and fannie mae's current important role they serve in the housing market, you would see disruption in the current structures of how these 30-year fixed mortgages are being created. the evolution, the volume is created. the securities market, the interaction that's now global in terms of how capital comes in

all the depends on this flow. suddenly herky jerk, the water will flow on the floor. it's not going to get to the cup. this is what we have to be careful of. >> and i would say i think there's risk to any policy. given what we're facing today. and i do think 30-year fixed is a essential policy to retain. i know we see comparisons to markets that have seen fully functioning markets without it. however, i do think it's really important and not only in a housing market, but as you look at the credit crisis more generally and globally, whether in housing or i used to be in small business finance, it's really important to predict the payment. and if you want to get down to

affordability and predictability, particularly for low-income families, i think it's essential. and so to have something long term amortizing and has the features that we know allow access to broader range, i think it's essential. >> it's also important for stable renting is to be able to finance the projects with long-term fixed rate funding. >> i find the whole question surreal. for half a century the homeownership was the most secure, the most stable, the most incredible wealth generating asset. and then all of the sudden in 2000 we had the explosive growth of subprime explosive products. it destroys the housing market. the wreckage of the housing market, we say how do we repair

the damage that was caused? and rather than looking at the products that cause the damage, we say, it must be the 30-year fixed rate mortgage that we have to get rid of. it was the 30-year fixed rate mortgage that we got rid of in place of subprime. and the solution is to get rid of subprime and make sure it doesn't happen again. the idea that we need to get rid of a product that for half a century proved itself to be the envy of the world in terms of building wealth is incredible to me. and you end up with conversations that are strange and bizarre and they tleed to the same products, financial engineering that could lead to another collapse of the housing market. as opposed to sign on the the line.

this is payment for the next 30 years. that's what we need. there's no reason to debate if it should exist. >> let's look back 70 years. let's look ahead several years. by 2050 the country will be majority minority, if not sooner. h hispanics lost 60% more than white. 74% homeowner ship for white households and less than 50% for black and latino households. when we look at hispanic households are accounting for more than half of the home purchases in the country today and you look ahead at the growing diversity of the country, what are the implications for how we design housing finance for the future? >> 53% of all purchases in

q3 2011 were to the households. in household formations year after year. second quarter 11 to second quarter 12, there was about 893 million households formed, but it was more than that in the hispanic community. we had a net loss in nonhispanics. so resulting in that number, the joint center fwrafts that the single biggest growth factor is from the latino community. other communities will be growing. but that will be growing the greatest. we need to think about different forms of household formation. i grew up, my parents, and where i grew up, we had single income -- mom stayed home. steady salary. pension for retirement.

we need to think about cultural differences. multiple family members that may live together in my community, cash incomes. multiple jobs. self-employment income. they may not fit well in the ability to repay definition or into an existing freddie mac or fannie mae underwriting standard. and we need to absolutely make sure that we're looking at how to include all true verifiable or real income that may not be able to be counted in a traditional sense. and so it's really an important demographic to drive the u.s. economy and the desire to own a home is extremely high in the new growth communities of the country. and we need to make sure we find a way to meet the need. >> and you talked about the low down payment market as well. >> absolutely. >> i agree. those are important trends to look at in thinking about how we design the next generation of communities to make sure that we're paying attention to cultural differences and making

sure that we have products that allow us to look at differences in communities and household formation. i think it also has to do with life cycle. and i think that we're looking at generational housing and seniors. for senior housing, how do we add more density to the housing stock that exists? so if we want seniors or intergen rational housing, how do we think about that in a more compelling way? people talk about accessory zwelizwel i dwelling communities in a really fancy way. it allows families to be together and have a productive path. it's important if you start to

look at the cultural both norms as well as demographics. >> i think probably the first time the census department -- the first estimate of the census department showing that the country would be no longer majority hispanic white. oh well, 2050. that's a long way away. you don't have to worry about it. you got a lot of people's attention when the first report came out to show the majority of babies now born in america are children of color. that large number of minority children will have a profound impact on every aspect of the economy. every aspect. so how do we integrate the children into the opportunities of america so they can pay the

bills? >> they will be a larger share of the workforce as a disproportionate share are retiring. they will be retiring as doctors and lawyers and accountants and people who had good jobs and savings and will be replaced by kids who can't get a job as a cashier. and so we need to think about that. the idea of having a healthy robust market when half the population are not able to put the foot on the ladder of economic moiblt and economic success. as david pointed out in his comments about his father-in-law, how the housing became the infrastructure to build wealth. not just for himself and his immediate family, but for his children going forward. we need to figure out how to make the ladder of opportunity work for nonhispanic whites get working. it's probably not working well

for anyone. but particularly for people of color, we need to figure out that puzzle now. because the latest data show we don't have time to wait. the future is today, right now. >> and i'll be looking for somebody to buy my house at some point as i move down there. hopefully a path will be found. it's time now to open the question up for audiences. we first ask that you give your name and affiliation m and we're here not to comment specifically on the platforms of any one candidate, because there may not be that much in the housing policy arena, but rather to put things forward that could be useful for them in thinking about their housing platforms. so with that i'm going to start with manuel -- who was introduced previously. he's going to kick us off with the questions. >> good morning.

i'm the regional director of homeownership for the latino economic development center. i'm here with a senior housing counselor, and i would like to take a brief moment to tell you about ledc and highlight a story of a real family affected by foreclosure. ledc equips latinos and other residents with the skills and financial tools to create a better future for the families and communities. we help people buy and stay in their homes. we provide microlending and help start or expand small businesses. we work for stable housing every day here in the region and more than 5500 renters and homeowners have turned to ledc to get the support they need to buy the first home and keep the rental housing affordable and fight foreclosure. so in the past year we provided 2300 hours for in-depth foreclosure to over 400 families. so just two issues that i want to highlight with you briefly

today kick off a question. two issues. one is for underwater borrowers, principle reduction is an important tool and we're glad with the national settlement there is more principle reduction taking place. however, the seemingly similar cases seem to be treated differently than we've seen in the past couple of months. we started to see some agree to reduction but it's unclear how lenders are making the decisions. and we're very disappointed with fannie mae and freddie make saying they would not allow mortgage giants to offer mortgage giants principle reductions. more than 50% of the case at ledc are fannie and freddie loans. and also foreclosure scams continue to target struggling homeowners. we continue to see this as an issue every day as folks and families come to us and they're

further behind because they tried to seek help from banks first and then fall victim to foreclosure scams. we are able to educate homeowners on how to avoid scams. yet, more needs to be done because by the time they come to us it's already too late. to divert vulnerable homeowners of emergency funds, college saving funds, and so we have a responsibility to protect homeowners by reporting the scams as frequently as we can. many are reluctant to support the scams. so rather than rush to foreclosure as we heard other policymakers suggest that we need to clear up the housing market, we believe that it's important to ensure that

deserving families -- deserving working families who through no fault of their own have a chance to stay in their home if it makes financial sense for their families. so wendy, why don't you come up here and tell everyone a little bit about one of the cases that we most recently have been working with, and we'll kick off the question. thank you for having us here. i'm a bilingual housing counselor at ledc. as housing counselors we see difficult cases every day. i want to share a story with you that just walked into the office last month. late last month actually. a few years ago the rodriguez family falls behind on their mortgage when hector rodriguez, the husband, gets sick with cancer. by the time he comes into his

office, he's unfortunately already passed away. they're about eight months behind on the mortgage. they have three wroung daughters all under the age of five. they get a letter in the mail promising to stop foreclosure and reduce payments as much as 50%. desperate mercedes caused the business for help -- calls the business for help to save the house. they ask for 5,000 to try to work out a loan modification. time goes by. now she's fallen about a year and a half behind on her mortgage payments. eventually i tell -- they tell her the loan modification was denied but unfortunately there's no paperwork to back that up.

these are the stories that we see on a day-to-day basis. certain stories unfortunately touch the heart of all of our counselors, and we all try to pitch in. months later the scamer tells mercedes the only option left is to sell her house and put the house on the market as a short sale. the scamer tells mercedes that it will be -- that they will buy the house in return -- and return it to her. to do this they ask for $60,000 to be transferred into their own banking account. mercedes wants to save the little bit that her husband left her for her children. and she make the transfer. the house is put on the market. mercedes tells the story to her psychiatrist.

who tells her to come to ledc. we tell her that the story is illegal. what they're doing to her is illegal. there is no way. what they have promised is with those $60,000 they will buy her house and give it back to her, return it back to her. and she unfortunately believes it. when she comes in as a normal client would come in and sees one of the counselors, the counselor tells her no. there is no way that they're going to do this for you. it's not legal. and they tell her to go back to this person and try to get her

money back. she tries to get her money back. they give her $40,000 out of the 60,000. she comes back to our office. kind of happy, kind of sad. at least she has 40,000. but at this point, all of our housing counselors are involved in this case. and we all feel there's no way we can settle for her only obtaining 40,000 out of the 60,000 she has already given this person. we continue forward. unfortunately this client does not want to come forward and report the case. burr we feel it's our obligation as a housing counselor, just in the case as any medical doctor would report a case of child abuse. it's our obligation to report this case.

we did so. we reported it to the maryland department of labor licensing. and this is where we are right now with the case. now, fortunately it got to the point where the third person got a little bit threatened and gave mercedes back the additional 20,000. so she has her 60,000 back. mercedes did go back to the person's office. unfortunately the office was closed. but the good thing that came about it is three other people also that wanted to know, follow up on this case with this person, they started talking to mercedes. and mercedes told them that what they're doing is not legal. out of the three people, an additional person did come to ledc, who was willing to this week, by this week was given a

deadline to deposit 45,000 into this person, the same person's bank account. it's sad. there's nothing we can do about this. the scamers are busy. they're working. so the only thing that we can do is we can come forward and we can share these stories so that more people know. and more people go back home with questions and those people might have friends and the word does get along. thank you. [ applause ] >> so we debated asking a question of principle reduction or foreclosure scam. we decide to focus on the foreclosure scamming issue. so many people come to us when it's too late. if they came to us early, the

options would be different. the importance of reporting scams, it's difficult. we debated just until yesterday on whether or not to use her name. she did not allow us to use her name because she's nervous about it. so just wanted to highlight the question and what you believe can be done at the federal, state or local level to protect homeowners scam and other homeowner scams. >> so the story really shows here at the the department of justice. there's two things alive and well. and that is scammers and people trying to rip others off on real estate but the strong desire for homeown homeownership. the drive to preserve the home to for the family. as to the scammers, what can we do? >> this is an issue the president made statements about early in the administration. it was something the secretary

has been focused on. a lot of counseling dollars flow through hud. i used to travel around the country and visit with housing counselors and certain hard hit markets. i spent time in nevada and other communities, but the thing i thought was a shortage of money. and it's one of the biggest debate debated items of the hud budget. as a result, the resources, no matter how good the work is being done, there's not enough money to deal with the need. and if the consumer who is being afgted by the scam artist doesn't have a resource and doesn't know where to turn, they're going to be exposed. at the end of the day, it's a difficult one. and looking at the department of justice representative here, you

know, it is illegal. and the president has been firm on it. the administration has talked about it. anybody who cares doesn't want this to happen. >> thank you. one thing that's always sort of mystifying is that so much of the abuse of consumers and misbehavior of consumers can be purged by having good quality testing and having the testing results turned over to institutions such as hud. >> by testing? >> i mean calling the scamming artists and establishing a case against them and bringing legal action against them. relying on the consumers isn't a good way to do it. the fair lending needs to be increased substantially. if you purge discrimination, you purge these abusive behavior from the market you have much

less federal dollars to actually compensate for the financial damage done to consumers or for the lack of economic mobility of households. my solution, one of them is just to fund greater activity around per suing scam artists of the surveys of them, the testing of them, and turning over the result an having federal agencies aggressively pursue them and put them out of business. a lot of that has been done by hud over the past couple of years. a lot more could be done. >> before they take their toll. yeah. >> i would say it sounds like you debated between talking about scams versus principle reduction. you know, it's so important to talk about the the scams and to hear this kind of feedback. what i would also want us to do as a community is to think about what is the back end process of

all of this? we have millions of homes being transferred to new owners today. whether on trading desks are are selling nonperforming loans or whether we have bulk sales going on. there's so much activity facing individuals that you touch in your office as well as communities that we serve more wholistically over the next five years. so one of the conversations whether we have it today or not, it's important to have the other part of the conversation. as we look at -- we established in partnership with tablization trust and mersy housing a facility to buy up nonperforming loans. we felt it's important to have a responsible player to come in and do principle reduction, being able to look at debt and

think about how do you keep the homeowner in the home while it's still there? we're playing in the reo space, too. we need people that are responsible players doing the activity so we're using the hardest hit funds in illinois that many states have sitting that haven't been utilized. why not take the money, deploy it, buy nonperforming loans and try to keep people in the homes and give them the training or counselling to be a productive homeowner. we're doing that in a way where they have equity in their homes. and you can restructure it in that way. at the other end, once we get through and you have property sitting there va kantd. yesterday i was with a responsible player who has been

in market for five years. they are vrn concerned, as we are, about the bulge purchases getting bought up by hedge funds and others. there may be good performing assets in 50% to 70% of the homes they buy. what happens to the other 20% or 30% of the homes bought up in bulk purchase. they're sitting in the communities. they'll be disinvested. they'll be resold. we need to think about what is the next generation of issues that the community is going to face? so let's not forget the back end and coalesce around the solutions. otherwise we'll face the issues again in five years time. >> i'm glad you opened up the conversation there. probably the best solutions aren't waiting for the legal at any rate. for example, one of the recommendations of the home for good campaign is to mandate

needuation such that this particular consumer was never in the process of losing their home if they were required to sit with the servicer and had legal representation. they would have had good advice. they would have had to discuss all the options and alternatives. the process would have been very clear to turn the house over to the lender through foreclosure. but in many cases, as we know, there would have been in fact ways to modify the loans and allow the consumer to maintain the home without ever being desperate and having to start randomly making phone calls to institutions that they had no way of valuing their legitimacy. requiring that the servicers immediate the standards of the program, which is still not done. there's a whole list of

recommendations in the home for food campaign brochure. if we follow those. zh just one point. if you lead the proposed standards, it has two obligated touch points to be made by all servicers early in the default cycle. the first is a mapd tondatory l. then there's a requirement to make an attempt to have contact with the servicer. so the forced intervention, those standards were relatively mirrored in the proposed role. it's to this kinds of provisions that can require everybody to behave the same way in the marketplace. >> so we have time for a few more audience questions. i believe i saw one. thank you.

>> yes. i'm with the national association of hispanic real estate professionals. you mentioned mediation and made a reference to principle reduction and also refinancing. there's a lot of talk out there about pushing principle reductions, including chair equity possibilities and massive refinancing at historic low interest rates available today. what you see the prospect of success for the approaches? >> personally i believe principle reduction thoub done by f should be done by fannie mae and freddie mac. initially the argument is it wasn't cost effective. according to the revised analysis which saved the taxpayers a billion dollars and still isn't done. it needs to be done.

there are other things that can be done that we haven't talked about so, for example, bankruptcy protection. this is something the center recommended four or five years ago and estimated 30% of a foreclosure crisis could be dealt with this that way. you can get brupgs protection on the luxury yacht. but it makes no public policy sense. that needs to be put into place, as dave indicated. more effective standards. that's a real piece. i think you're talking about a proposal recently floated on capitol hill. one of the problems with that is if you see how long it takes to get even a rule written, the idea that you're going to create some new financing structure to buy mortgages probably would be

at best in place at 2015, and i think we really can't afford to wait. the flip side of it is i don't think there's a need to wait when we have mediation that could happen immediately. when we have principle reduction that could happen immediately. enforcing the rules of hamp, so the real penalties and real consequences for not following the rules. these things could be done right now. we could mitigate hundreds of thousands of foreclosures, but we're not doing them. i think the things we should be doing are things we could do right now. >> i would disagree. you heard my view on principle reduction. we've seen cases where it works very, very well. and there have been studies talking about the the cost of foreclosure and why this makes sense from an economic standpoint. don't need to restate that. i would echo the strong comments

to say principle reduction is an option that i think we should, as we do -- i guess i do believe that we need to clear the housing stock in a way to get our economy and the recovery going in a stronger direction. so there's no doubt principle reduction could be a really important tool in all of that. >> just a last point. aside shouting out to alejandro, good job with everything that you do, and the thing i would suggest as it relates to the financing proposal, it does have life to expand the program to provide more access to consumers and par tticipants and probably improve interest rates and speed up the process. that's one advantage. there's some issues with it, but there's opportunities there. and then the bill that proposes

refinancing those into fha is very close to the fha short refi program that we rolled out when i was in the administration. so there are things in play, and those could happen quickly if the kinks were worked out of them. as we all know, you have to take it all or nothing. so getting this right to a point where it could move forward is one option. but harp is really working. it's having an extraordinary influence. it is clearly improving the cash flow of millions of americans, and it streamlines and it is having an impact. and it takes a village of solutions here. >> and so the sponsors of the home for good campaign are offering to bring you each up a card here to sign off, as well as members of the audience. don't forget the channel of the home for good campaign to share the ideas as well. sorry, jim. >> i want to say i was not referring to those proposals.

i thought you were referring to one that creates a new trust. i said 2015. i think realistically it would take a couple of years to put something like that into place. in addition to this that, i think it could distract the focus from doing stuff now. that's why i'm saying -- good point, jim. any last burning one, though, because we're sort of at time. if we can keep the questions and answers. thank you. >> my name is the executive director of the homes on the hill and we're a non-profit housing in columbus, ohio and the network affiliate. my question relates to credit issues. there are a lot of folks who have been damaged during the crisis by foreclosures and they declare bankruptcy. they have high medical bills. are these people are going to be able to access the homeownership

market again in such a way that they're not going to be perpetually punished for things that happened to them? we see folks every day in this situation and it may take some real creative type of innovative program, but i'm curious of what your thoughts are and is anything possible for folks like that? >> i'll just go back to something i said earlier which was i think we need to be looking at credit scores and how they're being used for practically everything these days and really understanding how we can tease out of those damaged scores the damage that's caused to a damage score as a result of an obviously exploitive mortgage product. we have enough evidence now from the legal challenges that were discussed earlier by -- this have been pursued in the department of justice and the 49th state settlement that clearly, was there a lot of

illegal behavior happening in the market. and the second thing that goes back to my point about innovative products such as lease purchase. if you're working on a lease purchase the credit score doesn't matter. in terms of ownership because your credit behavior will be determined over the three to five years of being a renter in that property and if you perform well on that, then automatically that loan should be designed to convert to a mortgage. so there are ways to deal with the credit score issue, but i believe that it is absolutely essential that we do it. >> that always raises the question of having a viable and credible place to live and that also would be part of the concern. >> absolutely. i think there needs to be products also that allows people to rebuild credit history that are very intentionally designed to be credit builder products. there needs to be policies that allows people to excuse certain things like medical, you know,

things well beyond someone's control. and i think one of the things that we try to do is think about innovation and products. i think it is a very interesting idea for a certain sort of set of issues. is there a way to think about an innovative product that has some kind of, you know, non-traditional funding that actually allows you to do some demonstration for some specific needs i think might be quite useful. >> deb, how do we set ourselves up? >> it's not like that's the direction we're going to have a marketplace that looks for these create of ideas and tries to find ways to provide home own areship and stable housing in the sustainable way. >> i think the question is key to a very important dialogue we have to have going forward. i spent the weekend in the southern virginia where the unemployment rate is close to 15%. people have lost their jobs and their credit is being impacted and their ability to get and buy a new home and they've gone

through some credit impairment and you talked about medical liens, you can talk about predatory practices and talk about simple job loss. credit impairment is a huge barrier. the two biggest barriers we'll be debating is what should the minimum down payment be and how do we deal with this issue around credit scores and those and being able to isolate periods of bad credit creation as a result of issues that were of no fault of that family and that now they're sustainable going forward and distinguish between that and someone who took advantage of the markets, speculated and walked away from everything, and we have to find a way to distinguish those because we need behaviors going forward. i think that's a very important debate for us collectively in the housing industry to talk about as we move forward. >> ending on that note and looking forward to the upcoming debate, i'd like to thank our

panelists. it's been just a fantastic conversation. [ applause ]