thing led to another. seven or eight years later i found myself at time warner and seven or eight years after that i'd done my time at time warner cable. it's been a great ride. >> host: rob marcus is president and chief operating officer of time warner cable. you're watching "the communicators." >> guest: thank you.

last year the library of congress which oversees the u.s. copyright office decided when a consumer unlocks their cell phone that could be a violation of the digital millennium coppery icac. this means consumers who try to take their phones with them when they switch wireless carriers could be breaking the law. the house judiciary committee is working on legislation to change this rule. earlier an fcc commissioner spoke about this issue at an event hosted by techfreedom.

[inaudible conversations] >> thank you all for coming. i'm the president of techfreedom. this is a first for us. its first event we have had here in our new space and probably the first time many of you have been in this building. we have walked past this building and had no idea what it was. it's an architectural treasure preserved in its historic worms in the methodist church is kind enough to lease the building to non-profits like techfreedom. we have the first, this will surprise you, the first technology policy think-tank taste at the methodist church and we are looking forward to talking about technology with organizations were trying to change the world in their own

way. this is also the first time we have had c-span coverage techfreedom event so we are delighted to have them here. it's her first time with commissioner pai and our first time with our new format which is a tech briefing, so we handed these out at the entrance. this is our attempt to adapt our motto which is richard epstein great philosopher of law simple rules for complex world a complex world something you will hear from us a lot and the tech briefing is our attempt to do simple bullets for complex issues. so we are going to do those on a number of issues in the future. this one attempts to cut to the heart of what it's about and that is is what you will hear from us at this event today. the hashtag today is unlocking so make sure to join our conversation on twitter and i will say with compliments to our methodist friends at this event, this event space space as the single best wi-fi at any event space i've been in d.c. and i know that because a rant speed test. so if anybody tells you business

broadband is inadequate i think the methodists are leading the way in this respect. so i will just mention we have another event coming up in july on july 8 or july 11. stay tuned on the past present and future of children on line privacy and protection act so stay tuned for more more net. without further ado i'm going to reduce commissioner pai and turn it over to our distinguished panel. commissioner pai is my favorite commissioner on the fcc now. and in general a great commissioner and in particular i like commissioner pai because he has realized the job at the fcc is not merely to cover telecom policy but areas like this one that intersect with telecom policy and what you will hear today is this is one example where government in some areas can actually reduce competition in markets that in other areas

complain about not being dependent enough. my hats off to commissioner pai for realizing cell phone unlocking is one of those ways we can actually empower consumers to choose for themselves, that might be better than some of the regulatory proposals people i've made for governing wireless. let me just ask you to turn off your cell phones and again join us join us on the unlocking hashtag and i will turn it over to commissioner pai and we will introduce you to our panel. >> thank you barren for that kind introduction. i really appreciate the invitation and look forward to participating in this conversation this afternoon as well as the weeks and months to come. it's a little unusual in washington to discuss an issue where republicans, democrats and independents back can find common ground. president obama senators and representatives and fcc

commissioners and the american public are reaching a consensus on a pretty simple proposition and that proposition is consumers are allowed to unlock their cell phones, switch wireless carriers without being being -- to the proverbial man on the street it's absurd that we are discussing this issue. how do we get to the point where consumer could be criminally prosecuted for unlocking a cell phone? their two aspects to the it. one involves technology and the other the law. first things first. most wireless carriers lock the phones that they sell so that they will only work on that carrier's network. so if you purchase an iphone from one carrier and you want to switch to another carrier at the end of your two year contract you can't do that unless you unlock your cell phone. unlocking requires you to access certain programming within a phone. let's say by punching a specific

sequence of numbers on the keypad in order to allow the phone to function on another network. for those of you with refined taste i should note it's not like the the scene in the movie wargames were matthew broaddrick uses a pop top on a soda can to make a call from an unlocked payphone. that's something completely different. next enter the law, specifically the digital millennium copyright act or dmc dmc eight. the dmc eight as you know was designed to prevent digital piracy such as when someone distributes on the internet the song like carly rae jepsen's call me, maybe. to do that they prohibit consumers from deactivating the drm software or other protections designed to prevent access to digital copyrighted work. it wasn't until 10 years ago but anyone thought the dmca might

apply when the consumer unlocks his phone. but the dmca swept up cell phone blogging through technicality. locking of the cell phone prevents access to software such as the mobile operating system. when it's used in the new carrier's network. and so if you unlock a cell phone technically you are circumventing a technological measure to use the dmca's word even though nobody thinks unlocking a phone is the equivalent of piracy. fortunately the dmca continues with situations like this. a library of the library of congress just down the road who oversees the u.s. copyright office is entitled to grant three year exemptions so that consumers aren't subject to those dmca anticircumvention provisions and impact they did just that. in 2006 and again in 2009. so that consumers could unlock their phones without fear of prosecution. but the third time wasn't the charm. last but sober the library

declined to extend the exemption for cell phone unlocking. as a result the consumer unlocks his mobile device now can face civil and criminal penalties under copyright law even if the contract for this carrier has been fulfilled. to me, this is a classic case of the government solving a problem that doesn't exist. the free market was working just fine before the librarians decision. for instance a bipartisan fcc report issued earlier this year found prices in the wireless marketplace were down and that investment has gone up. similarly more many fractures are developing innovative mobile devices to consumers all of us are reaping the benefits of that. and wireless carriers certainly don't need the federal government's help. they are to have contract law rights such as early termination

fees to ensure that customers live up to the terms of those contracts. and so writing heavy-handed copyright penalties including hefty criminal fine simply marries the sledgehammer to the fly. and so my position is pretty simple. the relationship between wireless carriers and their customers should be governed by contract law, not copyright law and certainly not criminal law. while there is broad support for overturning the library's decision there is in also in ongoing debate of the best way to accomplish these objectives. i've been thinking about this issue for some months now and here is where i stand. first, i don't think we should kick the can down the road. we should fix this problem permanently. we don't need to have this exact same debate three years from now , three years after that like an extended version of the movie groundhog day. i can assure you the case for criminalizing cell phone

unlocking isn't going to get any stronger over time. second, we don't need to give the fcc and the additional authority. i recognize that it's not the norm for an fcc commissioner to ask congress not to add to his power. the fcc didn't create this mess and we are not in a position to clean it up. the problem is one of copyright law. congress should fix that problem directly. third, we shouldn't interfere with the freedom of contract. consumers today can choose from a wide variety of providers, plans and phones. so we shouldn't restrict carriers ability to offer consumers better, faster and cheaper options. fourth, we also should protect those who help consumers unlock their phones. unlocking can be as simple as dialing a code on your phone but is often more complicated than that. i know that i certainly couldn't

just pull my phone out of my pocket and unlock the phone right now and i think others are probably in the same boat. so helping consumers exercise their right to unlock their phone shouldn't be a crime. fifth, this debate was inspired by cell phone unlocking but the dmca could save much wider swath to anticircumvention provisions in atlanta apply to netbooks, tablets, pdas and virtually any mobile device. consumers shouldn't be put in the position of migrating some other electronics but not others from one wireless carrier to the next. so let's make sure that all the wireless communications devices are included. six then finally let's keep our focus on the neuro-issue at hand. i know that many people and maybe some in this room favor broader reform of the copyright laws. i know that many other people oppose broader reform.

but i think that is a debate best left for another day. right now there is wide support for removing cell phone unlocking from the gambit of copyright law so let's push that proposal across the finish line. my fear is that it becomes entangled in more controversial issues. that proposal could get stuck in the starting blocks. fortunately doing all six of these things is uncomplicated. in fact congress could accomplish them right now with a one-page bill simply by amending the definition of circumvention in the dmca but that amendment simply clarifies that the definition of circumvention excludes circumvention and initiated by or on behalf of the owner for wireless communications device solely to connect that device to a wireless communications network. this basic fix would restore the common sense market-based approach that ruled the day until last the sober. so these are my brief 2 cents

and i i look forward to hearing from artists in which panelists, barin ryan chris jerry and larry. working together more generally i am hopeful that we can and unnecessary government intervention in the wired -- and score an important victory for american consumers. thanks again for having me. [applause] >> thanks so much for coming. my colleague from competitive enterprises and co-sponsor of our event as they have been for many of our events in the past. i'm sure we have will we will be from any of our events in the future. to his right is chris lewis director of public relations at government relations of public knowledge which we have worked with a number of times. we don't agree on everything but this is a rare issue where people of all stripes can

certainly agree that we should get government out of the way to encourage competition. sitting to chris's right is jerry brito from the mercatus center. jerry is an expert in tech policy and slightly more academic than we are over here on capitol hill and finally larry spiwak is covering tech and telecom policy for many years and is here to push back in a healthy way is the consensus here. let me start with larry. larry you have been a bit of the naysayer here so what is the deal? [laughter] >> thank you by the way barron and ryan. it's very kind of you i have been dealing with this since 2007 since the first race it's head with the notion of wireless

as i was preparing for the debate today, there are really three discrete question to that we need to discuss and i think they need to be sort of parsed out if we are going to have an honest discussion. the first discussiodiscussio n is that's not my phone, it's jerry's phone. the first question is is the generic concept of handset unlocking good or bad and i think a lot of people get that confused with everything else. let's assume we just have the contract. if i give you a phone that i keep unlocked for 650 bucks and i get it for $200 is subsidized rate i don't think it's unreasonable for me not to be able to unlock that phone for two years so i don't go run off and sell it on the third market. if i want to buy an unlocked bone they are fully available and if i want to get a phone at the end of mike contract unlocked any carrier will do it. so it's not really a big deal. we have actually looked at the economics of this and it turns out that because of the conflict

, complementarity of the handset what's going to end up happening and we are certain to see this is as you eliminate the ability subsidized the price of wireless services is not going to change but the price of the handset is going to go up so that is issue number one and a quick thing about interoperability. we hear talk about i want to take my phone to one network. this is a gsm phone. it will not work on verizon's first friends network so just because i can unlock it doesn't mean it's interoperable. there's a lot of confusion about that. .2, now we have the copyright decision. if you read the decision, which was done in a dispassionate rulemaking, what they found was given all the amazing choices available for consumers for handsets we don't need the convention. that raises the third issue which is do we want to have copyright as an added enforcement? are we worried about the man and

the black helicopters swooping down and -- your phone. that's a separate issue dealing with dmca but we need to put those three russians in separate categories so we discuss each one adequately. spare want to call attention to that briefing where we try to break down and simple bullets the difference between a locking jail breaking and routing. you will hear those terms thrown around a lot today. they are confusing. they really are fundamentally and technologically similar. they have to do with different purposes. try merrily today we are talking about unlocking your phones so you can use it on another carrier's network and to clarify that is something you're carrier can do for you by sending a code to your phone but it's also something you can do by replacing the boot loader system on your phone. so ryan, how do you respond to larry? can you give us a background

here on the issue? >> sure, and thanks barron for cosponsoring this event with us. this goes back to the 2006 decision by the library of congress in consultation with the copyright office to exempt the unlocking of cell phones. however any phone purchased after january 26, 2013 can i'm lawfully be unlocked because of the 2012 decision. that is by way of beat -- brief background. the findings of the library and work carriers generally let users unlock their phones when they have met certain conditions. that is correct. if you are a customer of a carrier in good standing after a period of time not even necessarily after you complete the entire duration of the contract you may be able to unlock that. however that is not universally the case. there are some carriers that restrict who have unlocked

phones. for instance some carriers only let you unlock your device if you're a subscriber so even if you have purchased a phone from someone else who has completed their contract you may not be able to unlock the device even though you lawfully owned the phone. to larry's point about preventing people who have promised not to unlock their devices and doing so i think we all agree that these agreements should be enforced, that the contract show provision between subscribers and their carriers to stay on the plan for a period of time typically two year should be enforceable but the question is what should the remedy be if one of the parties, the subscriber, brakes that agreement? week code on the one hand have the common law style approach where we allow for what is known in contract law is an efficient breach. what we have today is a regime where if you unlock your cell phone you have not only violated

the contract, you have violated the copyright act and subjected yourself to civil penalties regardless if the decision you made was desirable. like wise if you unlock your phone will fully you may be subject to criminal -- and you can't get help unlocking your device. anyone who facilitates unlocking of cell phones are themselves violating the digital lenny him copyright act. i think we agree customers shouldn't be able to unlock their device. the remedy of that early termination fee or what other remedy by carrier. if you move overseas there's no reason you shouldn't feel to unlock your phone and doing so should not violate federal law whether it's -- >> we are jargon free zone here so it etf is an early termination fee. any use another term. jerry do you want to take us back to the 90s just for a

moment here? i was trying to think of a clever musical reference to go along with latte and carly but 1996 failed me. tell us so dmca and anticircumvention, what's that about? >> so it's what the commission was getting at with his blondie referenced. if you have a digital phone or digital content which after all we are talking about copyright here and its content, whether it is music or words or video, it's copyrighted. it's difficult sometimes to enforce copyright when it's so easy to infringe. to copy files when you have an easy dissemination replication of the content files on the internet. it's very easy to breach so congress did with the dmca is to say look content creators you

can put a digital lock around your content and if somebody unlocks that lock, that is a crime. that is a violation of the law itself. so that is what the dmca is about. when it comes to cell phones is not clear to me what is the content that is being protected. so if you ask what some will say is well it's the software that runs off the cell phone that is being protected by the digital lock that you have to unlock. when americans overwhelmingly in the petition that we saw over 100,000 americans asked for the right to unlock their cell phones they're not asking for the right to unlock their cell phone in order to make copies. no, they're just asking for the right to unlock it in order to take it to a different carrier. it's very different from what the dmca was intended to do and

if i could just address some things that larry brought up. i totally agree that it's good to have different choices for consumers in the market including a subsidized phone option. so you can have an option where you buy an unlocked phone. say an iphone is 600 or $700 if you buy it or you can buy it for $200 or $100 if you make a promise to stay with your carrier for two years into subsidized model. there is no reason why that choice between subsidized and unsubsidized can't exist with simply a contract regime. there's no reason why you need to be dmca. as ryan was mentioning you make that promise and you sign a contract and you are bound for those two years, whether you have unlocked the phone or not. if you unlock the phone and it goes to another carrier let's say you're on verizon you go to

at&t verizon can keep sending you the bill. >> that can happen because verizon operates a wreck -- network and at&t operates a -- network. >> i was using it for illustration. if you move to france and take your phone to friends verizon is going to keep sending you the bill. they don't care if you move to france so if they will enforce the contract against you they will have it through either an efficient breach -- >> before you jump in here larry there are networks in the u.s. so let's take those examples to make it simple. let's say that i'm switching from at&t to t-mobile. so what is the problem? why shouldn't i be able to unlock the phone? let's say either that i want to and my contract and pay the termination fee or whatever the

termination fee might be aware want to simply stem a contract but unlock the phone when i take it overseas or in the third example my contract has expired. [inaudible] if you say i want to go to europe i've heard anecdotally if you're a long-time subscriber there isn't anything they can do. if you want to pay your termination fee and get out i don't see a problem with that. the question is in terms of bringing copyright, one can certainly make a legitimate argument and i'm not unsympathetic to it that dealing with copyright in terms of handset unlocking, to me i don't approach it as there is a fix and i think mr. pai is right. my view on cell phone unlocking is that the copyright is incidental to the overall desire of basically getting an unlocked

phone at a subsidized price and that is what this issue is all about. it doesn't have anything to do with copyright. people are using copyright when the registrar came out with his copyright decision a couple months ago people had not focused on the unlocking issue and it became sort of a celeb. over those of us have been doing this for a long time back in 2007 and again i incurred you to visit the wireless card or phone issue. this is all about trying to get subsidized, an unlocked phone at a subsidized price and that is what people are very upset about. >> let's unpack that. chris is that a fair characterization? >> i think that it's important, when the copyright office first created it in 2006 there were already entrepreneurs and individuals who were unlocking their phones and being sent notices, dmca notices that they were in violation of that time.

so you know i don't know that, i don't know that the intention was to protect, and i don't think the intention should be to protect a certain business model with subsidized phones. now that being said i find it hard to understand why the idea of unlocking the phone and having subsidized cell phone service can't be compatible together. consumers should have a choice of whether or not they want to when the contract ends or when they want to get out of the contract with the dmca they should be able to make that choice but there is also no reason why they can't actually sell their phone or keep their phone or move it to another network. to me, this issue is really about the ownership of a device and if you know consumer should have the option to own a device and use the things that they purchase how they like.

so, you know the right to unlocked doesn't change the contract rates. i think that is the point a lot of folks on the panel has been making and gives consumers greater choices. if the consumer for example enters a contract with at&t and pay $200 for the iphone, a year later maybe they don't like at&t service. i'm not trying to say anything bad about at&t but a consumer has a right to change their mind and so taking advantage of an early termination fee and switching to another carrier is within their rights under contracts and also their rights as the owner of the device. opening up a marketplace for tools and services that allow ordinary customers to unlock your cell phone seems like common sense to most consumers when they have spent money to buy the device. >> larry since we have sort of stacked the panel slightly against to let me jump in here

and your defense. let me jump in here and your defense and i say i very much agree with you that there is a larger current hear of people trying to turn this into a conversation about subsidization of phones and for some people and chris alluded to this, for some people this is about a broader issue like as chris said you should own your phone period and it's certainly true that in 2006, 2007 in 2008 there was quite a scandal or at least quite a controversy about the initial launch of the iphone. you're quite right you are quite right and you have done some great research showing actually the subsidies that launch phones not only make the phones cheaper but actually help to ensure innovative devices like the iphone get launched in the first place and in fact contrary to the assumption some people made it wasn't at&t that insisted on exclusive subsidies. it was actually apple. ..

no one is going to do that france said. you're trying to find ways to mitigate the market, and we hear about individual people off. but this is really about is is developing, you know, the black market, taking these phones, going. i can construct a mathematical example where it is still worth

it to go by the phone, pay the etf and walkaway which is what happens. so i think that the overall copyright enforcement -- i mean, i have no problem with the fakes that has been proposed. we should not be reviewing these things because it is just not worth the odds. that is why you have to parse out the difference between the question of whether we should subsidize handsets and pay for that verses copyright enforcement which is a completely separate bullish you. >> i'm just curious. if the contracts currently written, early termination fee and reselling, first of all, if you do and the carrier is getting an expensive to get them how everyone to define that and the person i don't see a problem with that. but just of curiosity, why not write the contract to know whether the penalty is higher

than buying? >> it's an option. >> and that's part of the contract. >> again, try to separate them. >> and i think everyone on this panel, i think, agrees that we don't want to subvert contract. >> absolutely. >> to and to the point about people that are buying funds then selling them in a way that is profitable, that is a problem. a business model whereby they cell phones that are subsidized and lock their network. buyers do not contractually promise to stay on. over, the device is locked. they expect the people stay on the network. some resellers are buying them up in bulk for cash, unlocking the man selling them. i agree with this is a problem, the question, i'll ever, is whether we need it in this

context. we need a lot or some act, but if you look to the cases where tracfone has sued, there's a long list with a succeeded. so if, indeed, the -- that this is happening, companies should have remedies, but i see no reason why the remedies that exist outside are not sufficient. >> do you disagree? why should legislation, whether copyright or if certain interference you alluded to above the administration and the sec tried to discourage early termination fees are trying to a incurs something that is prorated. why can't -- why can't company

sort of leverage makes sense in terms of early termination fee whenever other penalty and might be under contract? >> we must take the world we live in. i mean, it is what it is. in listing to the conversation, i mean, you are speaking in a policy perspective and asking fundamental questions. the first question that we keep going back to, we have to evacuate to its context. the first, the second question i keep going back to, was there registrar's decision correct or not under the reading of law? shore. do we want that idea? in the third issue that i am picking upon, you know, do we need that the mca at all. and you are talking about a very, very important law, a very complex issue. i spent my father's day weekend curled up. i pay for unlawfully.

and, you know, these issues are with the internet and technology where your cost and implications are zero. we are asking what they require which is a loaded question and of itself. you have to sort of think about it because those reading through your book nsa -- >> copyright unbound. >> good. when i picked up, you had to schools of thought. the first one was, well, copyright is not really awful right. we don't deal with it. the second one is conveyed is a victimless crime. you know, do we want to make copyright criminal at all, which is -- and everybody keeps being involved in the debate. everytime i get on one of these panel someone said the guys in the black killer counters are going to swoop down and arrest a mother from locking your phone.

you know, what we're talking about a year broadly, and that think that dan said issued from moment, leaving aside, it is not costly. we have copyrights to protect works of intellectual property. and and, you know, there's a lot of debate about that, but i use an example supply slopes upward. so if we don't have a way of we want more output we need more revenue, these are the balls of we're talking about because the soul copyright debate keeps going back, in my mind, to what is the appropriate important mechanism? some people say it is the cost of compliance, but there are costs involved. i think that is where we need to be starting to focus the conversation. >> this is about unlocking and not about the entire copyright debate. we did at that event last year and it is upon our website. you can read gerry's book if you

want more information on. copyright on balance. excuse me. and if one might fail to say that the book is a little unbalanced fairly. certainly there are people here, you know, who believe in a copyright you actually think that copyright should not apply to unlocking and that the larger debate about copyright should not really be the issue. before we get into the larger context of the dnc a gallon to you wanted -- and i apologize for this light on your buck. it is a great book. there's a lot to be said. actually, as somebody will leaves and copyrights one of the issues that never gets talked about his copyright at the end of the day is something that works only if we all respected and that criminalizing something like sulfone unlocking kaj even if larry is right that it has been exaggerated exactly what the practical effect of the

librarian copyrights decision would be, criminalizing copyright helps people done as the system, and that think it certainly helps to demonize a system that is really great for artists and counting creators. so i am somebody thinks that the librarian has gone way too far here. you want to respond? >> i hope that when you said this book was on balance for you mean is that it presented one side of the perspective, which is fine, because that is what the book was meant to do. i don't think that the book says anywhere that i saba that copyright infringement is a victimless crime. i think what the book says is that you have costs infringement . the same time there are costs of over regulation we can go too far. take, for example, you know, burglary. we can get rid of burglary if we have the death penalty. we don't do that.

we see a sense of this proportionality because the cost to be too high. what we need to do is strike the right balance. i believe in copyright. i believe that it should be protected, but i do think that in some cases, for example, cell phone on locking, we have gone too far and get unintended consequences as a result when will we need is a balance. we need to strike a balance better and maybe unlocking is one place to start. >> please. >> i was going to turn an overview. >> i really agree. i just want to add. a broader discussion of on locking, not just the handsets, but devices and technologies generally is a really important thing to have and actually i think i am hopeful that the congress will have to the future. with the world we live in with a digital media and new technology you can put a technological

protection measure which is wedbush was discussed with the mca. they put the p.m. on just about anything these days. and what does it mean to own something in the digital age? think one of the best examples out there right now is cars. cars are pretty much computers on wheels are now. fifth we will find it in your car. now, if you want to change your oil left in the cards you bought unknown, you should be able to do that. with a car these days you have a right that -- a light that tells your oil is low. you cannot sometimes turn that led off unless you have the codes to circumvent that lock on your car. there are -- there are a number of things now and probably a number of things in the future where we will see many factors put in blocks and ppm devices, and it is important we look at

them just as we like a cell phone unlocking right now and see if it is worthwhile to create exemptions for them. i would say that for someone to be able to change their the oil and the car they just what is a common-sense fix, and there are others out there. so i don't think, you know, we are certainly not asking to let you eliminate copyright law totally. readjust asking for targeted fixes that allow you to update the law and balance the law for new technological uses. >> how do you define the larger debate. >> you can't -- >> you can 3d printed. [laughter] >> but there is this distinction that is in very important thing. expressive works. you can duplicate as zero or

minimal cost. and the devices were you have an agreement with a company or a car manufacturer or wireless carrier. congress needs step, and thinking about how to ensure that the circumvention prevention's go to the issue of preventing the unauthorized copying reproduction of expressed works which is in many cases a real problem and seriously harmful. distinguishing the situation like the car or the cell phone call right now the house judiciary committee is taking a very careful look at, you're reform. i am sure that anti circumvention will be part of the hearing will come up and in their many session of congress. the notion of that does not mean necessarily that all eyes are bad. they need to be tweaked in a way that will make some type of

economic stress circumvention in the context of cars. striking that balance is very difficult. there are unintended consequences simply because you can circumvent this. you could circumvent 50 and sends and purposes. so there's a big debate. but that can happen over the course of the next few years were arrested a congress can address beam with without getting into the very sticky wicket. >> let's talk brass tacks about fixing the problems. when you just said that, are you saying they you think that the immediate issue of cell phone or for that matter tablet on logging should be dealt with legislatively and we still, the larger problems, how they work later? >> what does everyone else think? >> i think the answer is yes, but if you look at the loss to five bases in, the bills' 11 inches so far some of them

cannot give you what was being talked about. overturning a decision by kicking the can down the road passes in one huge of -- it does not give us the permanent fix. >> the copyright office can't -- the library of congress cannot simply reverse whenever congress might do legislatively today. >> well, but on the cellphone locking issue itself, there is no reason for this sort of bipartisan consensus in that we should not be able to have some sort of exemption written into the tnc after multiple defenses. >> including tablets. >> i agree except that think it is apparently a more urgent thing to do. right then and he, when you write into law wireless devices should be able to be unlocked seek to get to the communication network, that includes a wireless network collarless

device temecula acacias network and what about devices the committee is your car or of changer something. that is not a wireless device. i think the representative has a really elegant way of doing it with her bill where she says, you know, circumventing is a crime if it is done in order to. you don't have to the five -- that's a okay because you're not trying to infringe copyrights. >> what do you think about those options? what could you live with? >> well, tell you when i can live with. >> raises a very good point of definition. rihanna how one can fall into that trap. i have a copy of the get that

bill. and that to take a very different approach. i think it highlights were talking about on the panel. you have the good life bills. we're going to repeal the most recent ruling and then have a rulemaking. everybody seems to be generally in support of that. going back were talking about contract rates. i recommend people look at the senator's bill which is co-sponsored where it says. they shall direct mobile services, commercial and mobile data services through subscribers of such services to lock the type of device. so, in other words, we're talking about using contracts has a right. if you're to take the bill, essentially in the eviscerates the all use of contracts. by the way, a contract.

but the enforcement is gone. is a very different approaches to this. >> you want to make sure the sec is not put in charge a man you want to make sure that we respect private contracts. >> absolutely. that is where this opens. you'll find some mechanism to minimize theft. >> we talk a lot about richard epstein's concept of having samples for complex world. so one way of paraphrasing what you just said is we don't want to tables that are already complex and make them even more complex by airing on more exceptions and special circumstances. so to the point that jerry in particular was raising, how do we write a simple rule that will actually hold up we're talking about on locking lots of other sorts of devices, keeping in mind that the anti circumvention tools that should be covered.

well we're talking about is on my kayfor and drop ability purposes and for other purposes that we all agree users should be able to pursue and are consistent with the goals of copyright which is promoting innovation and creativity. how do we write that simple standard? you already alluded to that. >> again, i like the approach that the representative takes. basically says its copyright infringement. after all, that is the point of the dnc a peer reviewer circumventing the law in order to in france that is a problem. your circumventing for lawsuit purpose such as increasing the font size because you cannot see very well and want to change your lynyrd card yourself and turn off the light, these a lawful purposes. so it's of simple and elegant way to do it. >> i would agree. i think you should be a will to

rival lobby which allows for general of locking for non infringing purposes. and that should be extended to not just the individual, but the individuals agent or someone who is offering a service that helps them do that so that you don't have to be a software engineer or programmer norodom lockyer phone, like your car, get access . without that sort of law it becomes much more complicated. if we're stuck with just the current review process at the office for exemptions, you know, there are many things i could be fixed with that. the idea that the month for example, each review every three years is a de novo review and does not take into account previous decisions by the copyright office probably harm to cell phone on locking exemption when it came up in

200012. in exemption that has been there for several years. 2006, 2009, and 2012 until today, that sort of regular review can cause innovators not to want to create services and tools that allow you tom locke. >> if the cost of enforcing is zero, that is if we could make sure that everyone is circumvents to infringe punished and everyone who circumvents for non and frenchmen purposes as in the think it would be a no-brainer, but i have some reservations about it because of the enforcement cost being very high. what if a company invests to develop the service that circumvents the erm. a platform to allow you to extract a 42nd segment of

online video for fair use of either certified or using that china transformative matter. that will be the development and the use, but then let's say they come along and reid purpose that. they build upon the investment and circumvention to make a tool that actually can be used for circumvention. the point is, distinguishing between circumvention of content protection july 2:00 p.m., technology measures into effect. the protection nonsense creates challenges when circumvention can occur. one solution that the owner of the content actually enables users to make fair uses so that there is no need in the first place for anyone to come up with circumvention because there are already wasted. but we should not -- i don't think that we should embrace the

folks with open arms until we single -- carefully about the cost of distinguishing. >> just add to that rockwork, going from a policy idea ito rules, a very difficult thing. i know lots of policy eddy as i like. a rule of unintended consequences. we have to understand as we start to craft legislation, whenever it is who were going to go that route, firms are not passive recipients of regulation as soon as people now will rule there are people will exploit them. keep that -- the idea, it seemed like a good idea at the time. perhaps that was too short. renault's. the we have to be exceedingly careful in this space as we start to tread here. >> just a question. when lawful purposes for use, how does the standard applied

given how difficult it is? in your example you talked about users certifying the tool, but what they're doing was for use. how would you respond to a content owners who were concerned that the line might be drawn in such a way as to open the door to circumvention tools. >> that's a fair point. that's the reason that we should be careful by writing a law that extends far use. really i think this may well come down to a balancing, weighing of on the one hand it fair use is important, circumvention stops, and on the other, to what extent does that circumvention prevention's stop infringement. when you look at the engine as you can get a perfect copy the data comes out despite the additional money copyright act. it's relatively little. that is not the case in the

future. may not be the case as we move toward. perhaps these with which infringe will decrease. perhaps the low will do more to prevent infringement in the future. these are all things that congress is to consider. the basic standard. perhaps that is the ideal standard. it is not a question to which i have the answer, but it is difficult. a lot of tough and empirical questions. >> are you all in agreement then that there is a procedural matter. we should not be repeating the process that the librarian of congress is gone through in the past which is to say not just the fact that the issues of exemptions every three years, but that there is this fun part test that any advocate of an exemption has to satisfy. if they fail to meet that burden, the agents and disappears our's never granted

in the first place as in the case of tablets. >> this open notice proceeding. deliberately did not politicize it by chang to a popularity contest. if you read the law, one could certainly argue that there is almost a presumption of exemptions rather than circumvention. you know, the people like having to go in every three years. probably not. it is a mission that we need to discuss, but the process is what it is because it is work so far. perhaps not perfectly, but that is the system that we have today. >> i think al would say that the -- you're absolutely right. the librarian, i think, did a good job following the process that is in place. there is no reason to criticize the determination on the merits. working within that framework. that does not mean that given

the outcome and given -- given the outcome as a cholesterol and a long series of determinations that we cannot decide as a country that we don't want that process and more. and that think that is overseeing here. it is a process where, you know, every three years people who have poor eyesight have to go and request permission to use the devices in a way that makes this so that they can read them. we should not be doing that. >> talk about presumptions. trying to move into the bigger picture. so basically, what you're getting in is the general of anglo-saxon law is that which is not prohibited , you are free to do anything that is now prohibited. the opposite is true in certain continental legal systems where you are essentially free to do only what the law permits you to do. and what you just said is that

that the mca quite fairly is a profoundly unamerican presumptions that you are only free to do what the law permits you to do. no, it exists or reason. congress was concerned, quite legitimately, about circumvention of technological protection issues. so without regard to the specifics, how do we deal with that problem? how do we kraft rule that both adapts better to new technologies and does not force innovators and users to go running to washington for permission to do something innovative? >> i could not have put it better myself. this is a system where you have to get permission before you can do something. handicraft that? think the focus on what the purpose of the dnc has always been which is to address a copyright infringement while content creators protect their

works. so copyright and print run is a predicate for anything. you don't make a case by case determination. make it in the use is allowed related to not infringing copyrights. >> there are no longer need to be an exemption process because you would not be in the business of granting exemptions. you would just say, technology does not infringe copyrights and therefore it is not covered. >> and the burden of proof beyond the person who is alleging the you are using the technology in order to infringe copyrights. >> so do you think that the companies developing those technologies might actually like some certainty? in other words, today as bad as the process might be it is really clear whether you have an exemption are not, whereas in this area you are describing it

would not be clear. the bird would be on someone to say that the technology was infringing until proven otherwise are least the circumvention technology. but do you think that there is a need for some sort of cert or an advisory level or some process if an elevator is uncertain to actually get clarification that command factor but technology is not a circumvention tool. >> no. >> that was a rhetorical question. >> adelle like regulatory approaches were you have to get permission from the regular a 40 can do something. i would rather see a common-law approach for you try things and then you experiment in the marketplace and if something does not work out you can solve that through a common law process. >> i get concerned when folks talk about, -- we had a xerox

machines which could cut the any kind of but that it wanted. no one ever expected or a no reasonable person expected that you would have a xerox machine is because it can copy a but. the hard part, and i think this is the what you're getting at, the hard part is out sarah, in a digital age, deal with technology that can rapidly, be something over and over again. that is a hard question. it is a different question, but think we need to come as we look for that balance in the law, try and find a way not to outlaw the technology that brings about all of these new innovative uses. and the point about folks who cannot read it device or exempt. , you know, the ability to circumvent and allowed an have to let someone read when all

digital media is going toward digital books and fewer and fewer paper box is something that we need to make sure is there, and that is part of the balance. yes, i don't know if i have the a exact way to protect folks from those repeated, easy, perfect digital copies, but that is the sort of discussion that we need to be having a line specific technologies. >> explicitly saying that a distinction can be made between allowing users to on lock their devices for the purposes we have been talking about today to customize them for lawful purposes to change into a different carrier on the one hand and on the other hand the example that ryan gave a breaking protection measure in such a way as to start infringing actual copyrights. they're is a principle like to draw that line. >> absolutely. you can make up direct determination of what you're

doing anti circumvented was infringement or not. so that is, you know, a determination that a court could make. i would say, to brine's. -- to brian's. you could end up in a world where if you except case by case terminations of suet make none infringing uses of a circumvention technology will end up being a will to do it because the judge to do the right thing, but the criminals who are trying to rip the netflix streamer still going to do that. >> what do you think about the practical implications of this kind of provision? >> to be honest and had not thought through. one thing that just popped into my head is pat and probes.

although some were clogged. we bought it through a lot. we made a side of judgment that protecting ip is a good idea and started with the presumption. some people may disagree, but you have to start somewhere. having a resumption we have now which is the technology that has proven a exception for better or worse seems to be working. other problems? yes. can we deal with them? sure. there's a law of unintended consequences anytime you put up a rule. talking about this to my partner. here is a rule. everyone but it was a great idea and it as all these unintended consequences. firms are not there and that --

they're going to do, if you own intellectual property you're not going to supply and let your intellectual property be stolen. you're going to do action. immigrate, it is not a perfect world and we have to think very carefully. >> just like on any other event it is normally copyrights that come up. they're always in competition. i'm going to let ryan have the last word and level more question from the audience. >> fifteen years. we need to look at the history of those 15 years and led to the future. what role is did lot -- digitalized management going to play. is there a need for congress to revisit this law? , of course there are also problems if we go down the road of making its easier to develop the technology.

reduces the amount of settlements and occurs. >> think about that just for a moment. you know, as margaret thatcher said, there is no such thing as a society. they're individuals and families. there is necessary is congress. they're individual members of congress and their staffers. it's easy to laugh, but they face a lot of issues. they all have ideal policies that they want to see put in place. had we make sure they come to the ring of the right way? i have to say, while i don't disagree on where we come out here, and sympathetic about the

latest issue is being used in the sense that there is certainly a broad sentiment in the internet pose a community that they stopped, helped to derail. part of both of those efforts. but they're is a sense now that they can do anything if they get enough people to sign petitions they can get something done. the question is what that thing is and what it looks like. all of you agree that this is a genuinely difficult issue. it might be a fairly simple matter to say that mobile devices should not be covered by the de mca, but the question we have been talking about how you either change the current process for how you write a simple fix to govern what did the mca should cover in the future, how you draw that line, made is a genuine, difficult issue. my question to all of you is what you think that this issue would cover when people talk

about it. the way that they may try to bring in other issues like whether cell phones should be subsidized. what you think it says about tight policy in the ability of congress to get harder issues and marcel. people who are starting to care of a technology policy, how they intersect with congress. do you think we're going in a good direction towards writing better rules or the rules getting worse the future? >> as someone who agreed with the principles its example. >> of these internet activists. they're going to contribute policy to the debate. if they are willing to appreciate the complexity of

these issues, perhaps the answer is yes. so far the sulfone unlocking pushes been positive. but as the copyright issue proceeded, it is easy to be confused about what is good for consumers you know, mandate that every u.s. carries the same technology and network. many consumers and internet activists hello the telephone would be a very bad year. you can do more to guide them in a direction for a more positive policy change. >> more or less optimistic? >> more optimistic. >> chris. >> optimistic, but the longer answer is public knowledge. i am a firm believer in the area that the people did the

government that they demand. and so when you have a congress that is made up of citizens and they like moses is said important baseline low-level understandings of how technology works, it's so important that they have experts at the table and it that they have a process of determining laws around technology. that was not the case. i caution against demonizing. demonizing the petition efforts. >> i appreciate that other technicians around technology issues are one of the great ways in which average americans have been able to have their voice heard of an issue that is

complicated. it's just an enormously important tool. so i think it's a great addition to what the white house says. i would say, you know, it is hard to make proactive positive policy rather than to stop. so it's important that congress continues to have this on the table and a long, deliberate of discussions about sulfone on logging and other broader copyright reforms. is a difficult topic it is difficult for members of congress to read through the technology in the engineering and law without having that time and then put. >> more simply competitions are great at getting congress excited about something in creating a sense of urgency.

what happens when a sense of urgency is created about a genuinely hard topic that there is not a lot of attention span here for. what is the process going to look like to make sure that congress gets the law right? >> congress being congress. what i am optimistic about the zero is -- i'm especially optimistic about copyrights. and the reason for that is for about a century the with the copyright law has been fashioned in this country has been negotiation between the content makers and others and broadcasters and others, sitting down initiating a copyright law. and that has worked for a long time before the internet. before you could have this kind of demand on content. but now for the first time i see

the public having exceeded the table. answer for that reason i am optimistic. think that's the reason we saw soda fail in that think that's the reason why for the first time ever that i know of, reducing the terms of copyright. because we have had this initiated law making it is is a long time in a cabaret space, we have ended up with the copyright on balance. some of the public is involved we should fix that. >> write a book. >> having public engagement is always a good thing. you know, i can still being a former staff member and the only person in this firm has been both the gs1ngs15 a much greater professional accomplishment. the problem -- i mean, the work that we do, if you read the work, the four pieces to the economists of staff.

we stare at these things. we try to figure it out, but this is a political process, and by definition, a quick anecdote, noticed my dollars facebook or wish to change the page. it said stop so far. ice-cream get in here. what is that to be shipped and the internet. would you like to read the bill? was that? >> i took it down. >> that is public engagement. and so as i like to joke lazar never going to make things right. all of us were serious about policy, we try to make things is not wrong as possible and be happy with the result, but it is important to be engaged and take these issues seriously. the more we have conferences like this and try to bring it to the fore, i appreciated. >> questions from the audience. i will feel some on twitter if

anyone has one. don't be shy. i see a question in the back. please make sure to identify yourself. [inaudible question] >> the copyright. at that point but to the hca do as far as circumvention? stick to that. and in that sense the provisions of the copyright. >> you can imagine situations

where you have an on locking mechanism that serves no other purpose than infringement. those would remain illegal. >> anyone else? any other questions? twitter? anyone? i have been asking a lot of questions. we will exercise moderator's prerogative and as one final question. you alluded to the -- there is another provision that is ongoing now about revising copyright law. can you give us a little bit of background on that and tell us how you think these two debates intersect? >> boy -- >> briefly. >> briefly. well, certainly the sense of the report saying that it was time the have a new copyright act.

congress has taken the lead. the congressman has begun the process. in particular she has focused on the copyright act that the dnc a is ultimately. so i imagine that there will be taking a look at this as well. >> any other comments? >> at think it's probably long overdue. a number of issues beyond of locking. i think it will be a large part. the spotlight in the process that congress takes on with the copy read reviews that they are doing. but i think it is interesting that the coverage has said that it would be interesting to look reducing the copyright term.

it has been extended several times from its original intent. you know, it is hard to make a case to a consumer that someone who has passed away should continue to have protection of their copyrighted material that they're no longer benefiting from for decades and decades and decades. so, you know, there is a grade average into the year to rebalance the copyright law. how we deal with that, take down those damages. it is something that we should investigate. like a said before, i don't think this is something we should do quickly, but it's great that we're adding that discussion in this great that everyone is being invited to participate. >> see some of this unique bipartisan agreement. d.c. that dissipating when we get into the larger debate on the think it might at least tell

set a good tone for having a constructive dialogue. >> we have seen working to get on the bipartisan issues. privacy issues. hopefully the stakeholders in realize that there will take this and the right direction, probably not going to include provisions that anyone stakeholder is completely supportive of, but we need legislation reform that moves the ball for domestic up beranek better. that is going to grow we have to address the problem and also some of the overreaches dealing with cellphone locking in circumvention. >> one final question from the audience. [inaudible question]

>> there always seems to be a consensus. from the policy to actual law. i'm curious. what that might actually look like. it seems like their is a lot of what i should look like at the end. >> that's an excellent question we have been not -- we have not bottled it yet. i've been thinking about this issue for quite awhile. you know, i think one of the challenges of the digital age is that given the proliferation of the internet is you have what i like to call an expectation of free. it is so easy. it is an expectation. my partner, the economist was a free is never the right price. there is your problem. and you know, you have -- there are some costs involved.

actual human capital costs, and try to find that balance when you have societal expectations. i want to go online. think we have all the this. there's always an expanded use out there for something. and trying to find that balance, not indicting all little old lady who put up to lou youtube plans versus somebody you just, you know, major motion picture studio just been dogged and $50 million the next wolverine movie in the next day it's on the internet. so these of the difficult challenges that we have to do. there is not one homogeneous consumer, and that is the difficulty of the enforcement and as foul early consensus on that. >> i'm going to wrap this up. thirty seconds, big picture. >> i agree that zero is not the

right price. >> absolutely, which means we need to have copyright. the purpose of copyright is to get an incentive for folks to create what would otherwise be a public good. you know, we could not charge for it. many to have copyright. an hour to do that the question is the right amount of copyright. a very difficult question to answer. congress is is especially suited that is who has the power in the constitution. i do think, though, that we should not be worried about the grandma's to get arrested for copying a couple seconds of -- we should look at the symptom of over criminalization, poor regulation. and so we should follow the thread. >> i would just add to that, you know, i think the idea of a

culture of free ad necessarily subscribe to. i think that would vote -- generally most consumers are willing to follow the rules when rules are set up that allow them to the access goods and services. so when we saw -- in the 90's when i was growing up people or downloading of free music all over the place. itunes and all of a sudden everyone is willing to purchase something for $0.99. that is an improvement because the structures were set up for it. think hopefully it will be the same with the update of the copyright act for digital ownership. it is important that we allow for some sort of market place for digital goods. what it looks like, it will be hard to construction of will have to understand that there is an expectation that people still should be able to go and buy things and that is going to lead to more piracy.

creating structures and laws that allow for those to exist on an offline has shown that it will reduce piracy generally. now, should there be protections or infringement for the great pirates out there? absolutely. we're not saying it should not be, but that is the balance being struck from your average consumer that wants to be law-abiding. there has to be a balance between the two. it's a tough discussion. the technology is out there for you to buy and sell digital goods, buy and sell music and movies. is just making sure restructure it in a way that makes sense. >> sometimes the price for content is, indeed zero. content is screen of the year. high-definition, of course, afforded by advertisement. on the air in the internet.

that does not mean that the price is the baseline. you can launch the content. of there are some companies that are tried to stop that from being the case. in the context of cell phones the baseline is often contract law, whether the subsidies to be accompanied with the information fee or a thousand dollars termination fee or whether they should even be -- these are all questions about how to price content, how to price of funds that has to occur through voluntary transactions in the market through march in order, subject to a set a baseline rules, sometimes copyrights, sometimes copywriting contract. >> to wrap things up the merger in order that ryan talked about is exactly letting actors bill the law the best governs new technology. hear that law evolves through a mix of contract law and copyright actual copyright.

not necessarily the dca was a statutory add on to a copyright. so i look forward to having another event about the overall revision, the copyright rules later this year in you will see some of the same basis. i look forward to seeing some of the rest of you that our event about children's privacy of july and with the ftc recent changes say about children's media, privacy more generally, and about how the ftc works and builds law for governing the use of our data. having said all that, thank you for coming. delacorte to seeing you and other events here in our new headquarters and please thank your panelists and the commissioner for joining us today. [applause] >> a discussion on the home mortgage finance system. then, state and local republican officials talk about immigration legislation that the senate is working on. later, copyright laws and cell

phones. the director of the national security agency told a senate panel last week that the agency's own surveillance programs have helped stop terrorist plots in the u.s. tomorrow morning general alexander is expected to go into more detail in the house intelligence committee hearing. live coverage at ten eastern on c-span three. later in the day also on c-span three, president obama's picked to head the federal communications commission will testify at a confirmation hearing. that is live at 230 eastern from the senate commerce committee. >> up next, a former vice chairman for salomon brothers talks about the current home mortgage finance system. the part of a discussion on the government's role in housing finance posted by the bipartisan policy center. this is about 90 minutes.

>> good morning and welcome to the bipartisan policy center. i am the director of housing policy here. the bbc responded 2007 by four former senate majority leader bob dole, george mitchell, tom-0, and howard baker. along with our president and ceo . be pc currently as projects focused on the economy, energy, health care, regulatory reform, homeland security, foreign policy, democracy, and no immigration. each of these initiatives is headed by a diverse team of political and business leaders. subject matter experts, stakeholders, and academics who work closely with a policy team to develop consensus based solutions. the bipartisan policy advocacy network separately funded and

provided strategic advice and aggressive political advocacy to ensure that the bbc policy recommendations gain traction with congress and the executive branch. the housing commission was established by the bbc in the fall of 2011 with the generous financial support of the macarthur foundation and under the leader and guidance of our for co-chairs, former u.s. senators. and former hud secretary henry cisneros. charged with examining the effectiveness of our nation's full range of federal support to housing to help chart a new course for federal housing policy. our report have been america's future, new directions for national policy which released in february with recommendations on issues ranging from affordable rental housing to of meeting the nation's housing

needs for our seniors and rural families. today we turn our attention to another major focus of our work, the imperative to reform our nation's housing finance system. as we approached this anniversary of the government takeover of fannie mae and freddie mac, the government dominates the housing market in a way never seen before in our nation's history. today the federal government supports some 85% of mortgage originations while nearly all the newly issued mortgage-backed securities benefit from the government. this government dominated status quo shortchanges the american people and expose taxpayers to unnecessary risk. it limits the range for potential mortgage funding sources. ..

>> we need more focused and less inertia. this morning we kicked off the first in a series of forms to be held this summer to help us in housing finance reform. we invite you to join us in dallas, texas come on august 13, at the new george w. bush presidential library. we will host our next housing finance forum. the chairman, jeff kent serling

has offered to keynote that event. members will be joined by senator stabenow. and details will be posted on the website. we will be hearing from several important yesterday. the first director of the federal housing finance agency, the regular of fannie mae and freddie mac is with us tonight. as the housing bubble expanded, jim warned of a systemic risk the to jesse's postwar financial system. and it was during his tenure as director of this program that the gse was placed under

conservatorship 1746 days ago. jim, i think you for joining us. we look forward to your remarks. two of our commissioners will be moderating what we expect will be a lively panel discussion. rob is a former president of the bush 40 to administration. denmark has made an important contribution as well. they are the coleaders of the housing finance effort. in our first panel this morning, we will hear from the president of the urban institute, sarah ward tell. sarah and mark both bring tremendous intellectual firepower to the table and we look forward to their comments. in our second panel, we will

hear from important players in the housing industry. kevin kelly, the first vice chairman of the board and the national association of homebuilders and dave stevens, the president and ceo of the mortgage bankers association. the director of housing policy of america will also join us on the panel. berry serves on the housing commission and has been a leader, not only in housing finance reform but in crafting the commission's recommendations of affordable rental housing. kevin and dave and gary, thank you for being here today. i would also like to recognize the other members of the commission who are here with us today. i know that i saw laurie goodman and i think we also have others that are here with us as well. it is now my pleasure to introduce our first speaker. lewis ranieri. he's a wall street legend and

exemplifies a true american success story. starting in the mailroom at solomon brothers, he rose to become the bank vice chairman. while working at content at the mortgage trading desk in the 1970s, he is credited with developing the first private mortgage-backed securities. he not only recognizes the investment potential, but also view them as an important tool to reduce mortgage costs for the individual homeowner. a core view of this commission is the global secondary market that remains an essential source of funds to support mortgage financing here at home. who better to have with us today in the individual who actually saw the potential of this market and how to create it. we appreciate you joining us, lewis ranieri, we look forward to your insights. thank you. [applause]

>> thank you. i am doctor frankenstein. [applause] >> i used to think that we had done something important and good. and then unfortunately we had the last cycles that we hit and that includes the bubble. we wound up foreclosing at this point on 4.5 million families in the system that we built showed the cracks and our feet and we have been trying to fix it and make amends ever since. if you think that i come here with a preconceived notion, you are right. i was given this topic and the title before i knew what was. although the title is a good title. why the status code is unsustainable and i would add

two additional words, unsustainable and on unacceptable. there are reasons why it is unsustainable and unsuccessful. the federal government should not own the mortgage market. and the credit box is foreclosing homeownership opportunities for working families across the country jim lockhart's successor, at dimarco, is an outstanding public servant. whether you agree or disagree with his decisions, it is critical to remember that ed is acting as the role of conservator it is time that we

move past conservatorship and build a sensible mortgage system that is for the long-term that is not temporary. my first point is the federal government should not own the mortgage market. i have been doing this for 43 years. i think i started doing mortgages in 1972 before there were securities. i remember a lot of things. i remember in the 1980s and in the 1990s. there were so many battles in the limits for fannie mae and freddie mac and they were all about crowding out the private sector. today what was supposed to be a temporary adjustment, the loan limit increases included this at this point and this includes for

fha and fannie and freddie. remember, these were supposed to be for one year, long time ago. i must tell you that when i think about the fact that the fha loan limit, which was supposed to be having a loan limit of seven to nine, which is higher than that of fannie and freddie, and more trouble than the 729, is that the loan limit is not allowed to be dropped to reflect lower home prices for the meltdowns. if you look at this, it also increases as the lack of a viable alternative. and that includes the government, whether through fha or va order fannie or freddie you have nine out of every 10

that need this to be a part of the system. and this includes that the housing market going forward. [inaudible] it includes being comfortable with the status quo now that fannie and freddie are very profitable. fannie mae received $117 billion and plans to play back $59 billion in june. when you add the 59 to the other dividends in the $50 billion of the bpi, fannie mae will have paid 89% of that billion dollars. i think by the end of the year, they will pay that back and then

some. well, remember that when this was crafted in the agreement, the dividend payments don't reduce the 187. so if you pay them back 187, you still owe them 187. if you look at what that has done with some of the politics like the debt ceiling, he keeps pushing them further and further back. honestly it has helped in the budget deficit. and if you look at the testimony recently of the treasury secretary when asked about restructuring the mortgage market, he said that that was number one priority. his number one priority was money market funding. it is interesting how that is no longer the first priority of the white house.

it may very well have something to do with that. inertia is a very powerful force and there are many who will question whether the private sector is capable of replacing all or part of the government. we feel like we have new private mortgage insurance companies i think this is about a billion dollars that can be raised. someone is interested in the mortgage market. so it should not surprise you that many of us feel that you can have some private sector. you can raise a lot for the

single and double trenches. some of it has been making a modest comeback. in 2015, i believe that we will have 12 to $15 billion of this. it has been difficult. in 2012, there was so little issue and it was always oversubscribed, and it spread to lead some to believe that beyond the market, it actually got the same yields. when the tenure started to rise recently, and the mortgage rates spread out by 20 basis points, the market spread out by 50 basis points. given that there is an

additional amount of supply, we are being asked to include this market with a greater supply that we have had and it has been very disappointing. people are making the case that that is because there is not enough debt. i would tell you that yes, the depth of the market has been a big disappointment. but i would also tell you that i think the major reason for this is twofold. the fear of interest rates rising, which has something to do with the extension of 30 year bonds, which is a good thing to be afraid of. i think the fix looks more better priced at times. so this is not simply a lack of

market for those who want to keep the government forever. and it is wide and more than we would've liked you have to assume that there is going to be an education process you have to create confidence in the sector. i think that that market will continue to grow. the question is will the government retreat from its market dominance position. i take meaningful convert from the testimony. he said something that was near and dear to my heart. mark recently said that policymakers can do two different things at once. they can enjoy the economic

benefits from the gse and silver from the two companies. so that my concern may not be a black or a white issue. why can't we do both? well, if i take the market face value and the knowledge, which i'm sure is greater than mine, i would then remind us what the mortgage market looks forward like and we have to decide what we want to do. so what are we defining the mortgage market as. as an example, we have a conversation about homeownership and the homeownership rates. are we perfectly content to have a much larger permanent rental

population i just think it has to be a conversation. i really don't want anyone to tell you that somebody other than congress, the white house, and the rest of us, are going to have a conversation about who gets to buy a home. and i'm perfectly willing to have this conversation. i'm perfectly unwilling to condemn some portion of the population includes low and moderate income people for a very long time and i would welcome that conversation. opportunities for working-class families, let me try and do this one. everyone has pictures and there

are frames of different sizes. indulge me for a minute and think about the picture frame. which they rises the input. fha, it has a broader credit being focused on individuals and it was 3.5% down in the debt to income approaching 50%. i will be the first to tell you that that picture frame would result in too many delinquencies and foreclosures. in reality, the practice is those really don't exist today. if you think about that picture frame that is now about a blunder overlay. you know someone put this inside

to make this fit in this big picture frame. that is the reality of the mortgage market. you cannot tell me what the bottom line agency rule is because it is irrelevant. everything right now is a start with this and then i look at this side of the map. so the fha lender, it overlays and the context. they ranged between the highest six a.d., having nothing to do with five anything. as a result, you can see that the average delivery is about 700 fica. very far from anything the original intent that is part of the agency.

many companies say, or this is what the documents say they have a six a.d. fico score and a 45 dpi. if you put 5% down fannie and freddie put on their own overload. if you will, their own version of this to further narrow the frame. today if you are delivering 3% or 5% loans to fannie and freddie the resulting picture is much smaller. second of all, the extensive loan level, some of that i know is being mandated, you wind up with a much smaller amount. a match smaller than the fha. it requires the score of 72720.

so you really need to look at what it is. in some cases, the originators of themselves the thing i have to remember is someone of the federal reserve who has repeatedly reminded us that borrowers have typically represented a significant segment of first-time home buyers. prior to the economic downturn, this was considered a prime loan. today 680 has become the new 620. and fear litigation results in doing too many low fico loans and then you get in trouble. even if that means 680.

between 2007 and 2012, originations with credit scores between 720 and 780 go to 90%. and only 30% are above 780. the median credit score skyrocketed from 730 in 272,770 this year. in our a recent talk, the fourth quarter of 2012, 85% over 700, compared with 206450%, over 700. so i ask you the question, who is being left on the side of the mortgage credit highway. a look at this disclosure data in 2011. that is the latest year that tells an amazing study.

fha did 1,000,074, 237,000 loans. if you look out of that number, how many loans were made for african-americans of that 1,074,237? it was 9486540.4%. hispanics did somewhat better. 144,000 or 13.47%. if you think about that, you know, you are looking at the fha if you ask if the status quo is

unsustainable, it is because of the 2012 -- some of you are better at this than i am. it looks more like america in the 1950s. not the american of 2013. many of these families will be in laser color, 70%. we are giving those same people less access to fha and a smaller access to fannie and freddie another similar issue. our young people facing prospects of slower income growth? many are burdened with a higher degree of student loan debts than in past generations.

unless we are willing to take ownership with us, we will need a mortgage finance system that recognizes the importance of low down payment wonders those will be further exacerbated with regulators who suggest the so-called qualified conventional mortgage is one that requires 10% down. by the way, i was one of the people who worked on the hill with the senators and the qr and was supposed to be a good loan. not the best loan. when we think about the mortgage

markets going forward this includes the promise of foreclosures with education and training processes. in effect, the desire for homeownership and they kind of have a pass to access credit. this is what we want the world to look like, that world includes a vast majority of lower income americans. so we have to figure out how to take that group and migrate them if they want to be migrated. i believe homeownership is an important aspect. it also includes lower wealth and vigils and it is also a

strong and vibrant economy. my third and last point before my conclusion, and i am watching the clock is that this credit is limiting economic growth in the housing economy. just like in nature, there is a food chain. some have moved up. the move-up buyers purchase this home and they are looking to downsize that time. it's a cycle. we all know that the purchase that ripples through the economy, resulting in job creation and building trades and retail sales and the beneficial tax revenues of state and local governments. i think we all recognize that unlike traditional recoveries, this does not need to be part of the downturn.

almost two years after the economy went now, it is true. in the last couple of years, it was owned by 20%. my friend reminds me about this. it includes this basis and the continued recovery makes a substantial contribution further economic growth. the question is will we recognize that upsides or will the lack of it snuck up -- snuffed that out or keep it to a minimum? in conclusion when we discuss the future and the returning of the fha with a slice of the market, there are things we can and should do in the meantime. we need a broad and reasonable recognition of the critical role

of this london. i will digress here. we have the pattern of ignoring 45 years where everything worked well in most of what looked in love in those three years is now a week out. we couldn't do it even if we wanted to. so why do we keep delivering the system with what cannot be done. i am purposely happy to do it right. and we have a history of how to do it right. this is like it is not me wearing this quote. it is young people, it is old people. it is women headed households. also, we must be clear and definitive in the rules and warranties related to fannie and freddie. and regulatory rules must not disadvantage this and it must

serve a critical role. we have a very bad habit and the liability structures are not conducive to 30 year and 15 year loans. they get mismatched and we have been to this party before. so if you believe in the loans, you need a capital market and the more consistent players tend to be mortgage companies. most importantly, and i'm sure that this will get me in trouble, regulators would be attorney general from the the justice department are going to have to decide when they have

enough retribution and want an effective and functioning mortgage finance system. there is a belief in this across the country that the litigation risk continue to be as high as it is now, no one will make other than the safest loans. america, the land of opportunity and the melting pot. you can do everything that you want. but if you put a gun to everybody's head or they believe it is there, they are going to make the credit that much more to stay out of the way. this is why we are at a critical point in the status quo. and i believe that it is unsustainable. i thank you. [applause] >> we are going to start with questions from the media. there are a number of media

here. >> do you see them being merged into one? do you have anything to talk about another question? >> we are making significant progress. he is doing an extraordinary job and marching ahead and it has powerful value and it tends to lend itself to one thing instead of two things. simply because of the existence of the platform. including the operating systems and i don't think you need two of them, per se, but i do believe that can hear in my conversation that we need a private market and we need the government back from 90%, i

think that that transitions from here to there and it is something best done over a decade or more. whether two agencies are one agency. i think that's very doable. i would also tell you that it makes no difference with fannie and freddie. it is everything that they don't want to do with the fha. sometimes it is completely illogical. >> questions? >> yes, sir. >> i would like you to make remarks about the numbers of hispanics and african-americans. in spite of the numbers of the fha and fannie and freddie, in spite of the fact over the last

few years, ambassadors have pretty much increased their share of the market. many of them have accommodated the increase in can you expand the potential? >> as i said, during that time, 70% of this new family formation came from that group. families, the children of the baby boomers, as far as housing goes, people from this cannot be homeowners and later on become homeowners. but if you look at the hispanic community, it is now. it is not a migration five or

seven years from now. the fact is that that community by and large needs the type of housing that we have always provided. i think that for 19 years, you know, i am all about housing and on the other hand, it simply means upper middle income housing. we need to have a system that funds the homeowners and that they only shouldn't be, you know, middle income whites. >> yes, sir? >> since you raised the issue of what the homeownership rate

should be, we know in times of economic dislocation, renters are part of this labor force. it is part of what makes us stronger in the number of counterparties. what do you think the number should be? was a downer on 64? >> it was 64 forever. it is interesting that that number was the number for a very long time. but we have a changing demographic and the nature of america has changed. i can see that number being closer to 50. but i would one but the point i was making is that people should make that decision. not the politicians making the decision. if you remember there was a treasury consequence four years ago.

now it is a major factor in the market. but i also want at that time, and i will indicate that a friend of mine asked me which is worse. a single-family home badly rented. or a vacant house. a badly rented home is in many ways worse in terms of this ripple effect to the neighborhood. this is an experiment to which there is no history. this includes an option for

purchase. the behavior is difference. i think the homeownership rate is likely to be closer to this because of the nature of demographic change. by the way, they won't have that choice depending on single-family units. it is 10 times higher than it would be in the unit that was built for multi-families. it is really expensive. we have to make sure that we are creating enough single-family units to rent. and we are not. one of the issues, i am sorry that i'm talking too long.

this includes very expensive units in the gateway city and ignoring the smaller 5 million, 10 million-dollar rental properties across the country. the very serious argument to be made, not the you get the agencies so the banks can make the lungs. but it's certainly true that we should look at income caps to push back subsidies to what we really need, rather than what is profitable. >> please join me in thanking him for these thoughtful responses in order to. [applause] >> next, we have two individuals that are going to join us on the stage area i will briefly touch

he was part of the banking committee he was part of the home builders and realtors. there is the president of the urban institute and has been for the last 18 months or so.

this includes her position with economic advisers and that hud. sarah is a lawyer by training and also has a great deal of experience. we thank you both for joining us. we just heard a very stimulating address and many of us have thought about it. >> i worry that we are inventing a lot of risk and we paid a big price. it is important to recognize as we mentioned, about a fifth of

the mortgage market is not bad. we mention that most of that is under the 620 mark. i think part of that is half of what is not there. but i would argue we do want to come back. i know that this sounds counterintuitive, but quite frankly under no circumstances would i put a dollar my own money into this mortgage market. i just wouldn't do it. so we have to get through some of these issues. maybe i will be the only one who applauds this final point about the attorney general's. eminent domain, taking mortgages, that is one less reason for the mortgage market. the political risk is almost impossible to calculate today.

one of the reasons the government dominates the market today is that nobody else is willing to make the loans at that price with that amount of risk, which is we are doing it by hiding the cost rather than eliminating it. >> mark's view is probably not that of the average investor if you look at the viewpoint of that. the amount of capital that is available with parts of the market whose structure is well understood in the future. there is a ton of capital. and i think that the real question is whether destructors in today's but what is the structure [inaudible]

[inaudible] >> excuse me, please check the microphone. >> okay. >> i wanted to make one other comment, which i thought was generally fantastic. the one place where i would take issue is the suggestion that it is sort of desired as the gse it is the barrier to getting to a policy solution here. my gut tells me that that is perhaps some collective inertia. i don't think that is the primary factor. my sense is that we have to

necessary preconditions to get into clarity about the future. the first is the one that was talked about, which is we need to get a market that can take up part of this the government is serving. and that we can do it reliably. and i do think that the fha is beginning with its experimentation to offer this instruction to try to create models of what that would look like. when people get confident, then things will flow in their more readily and there will be more private capital available. and that will help to show the path forward to the solution. so i do think that what needs to happen, there's a lot of activity on the hill.

i think over the next few months you're going to see a lot more with people talking about this and so forth. but i'm not feeling this quite yet when we are ready to legislate this with the congress. what i think we are starting to see is a direct effect with the three hugely theoretical and different options mentioned as possible solutions. but the conversation emerging and as that happens, we start to implement pieces of that and as that is put into place, it is a lot easier to kind of make this de facto. i actually think that we are making progress.

my hope is that we can figure out a way to make sure that the budget doesn't get in the way. maybe there is a way to use the budget to help achieve that as well. >> i do not think we are going to put off this and i don't see that as the reason. my, that we can do it at the same time, it is going to be a time to sweep the profit during that time. so my point is that suddenly there is no more profit after the receivership. what i worry about when i say this, so you're not seeing

reform because you don't have to. the current system is sustainable in a very bad way. congress doesn't have to do anything anytime soon. but i think that there will be a lot of activity that will be a tough road and the solution sometimes has to be that this should pull the trigger, and you have to light a fire under congress if you want something to happen. >> is a form of sequester? >> i think it can be steps a little shy of the drama that will leave us going down this path. if you think about this, they

performed three different functions in this market. the issue security, they provide platform that is a two-part platform the hardest piece is the issue of security that is bundled in with this insurance amount and it may take some legislator doing. but i do think that the regulatory process that we are going to is starting to move us down that path. we get this from a single one. and then on the other function, there probably are reasons to have diversity of issuance there is a wide variety of institutions and i would argue at least some competition with the credit enhancement is not

complete, because there are clear skills. i can usually see a path and the regulator can start to move towards this area. >> okay, mark suggests that the current situation is sustainable do you agree? >> there is a form of it that is sustainable. but i do not think it is the right solution. i think that you can imagine this being combined and they are a single creditor hair. i think that that is whether they are operated by two separate areas or not, that is important. you can leave them in place doing that, even were part of the credit is sold to the private sector.

we pay a higher cost, but we haven't taken not as the ultimate backstop so i don't think that's the best way to go. i do think it's possible to do it if this period is comfortable. but i think that if we use this instead, and i think that this is where the secretary -- i am hopeful that he will step up and lay forward a path on how to desegregate these functions as part of the government. if we can use the regulatory process to start to desegregate functions and put the plumbing in place, then anytime you do not end up with a single government insured as the status quo and you sort of have the building blocks of the new system. >> you talk about this being the

catalyst for this area. any mention the treasury secretary. he spent a lot of time on the hill. what else needs to happen? >> i want to emphasize that this director is one of the only treasury secretaries that can unilaterally push change on us. so again, because i think that the differences are so broad and congress come at a house in the senate are very far apart and of course you have to get those out and things get ironed out. the conversations you're saying are necessary, but not in positions to get reform.

but i do think the treasury secretary really does need to prioritize. it is a higher priority than before. i don't see how you can prioritize it that way i would understand that. i would understand the budget issues. it allows you to do the things that at the micro demarco is trying to do. you don't have to do this single made platform you can combine the companies and do this. you can do good and bad things it has so much more flexibility and it is not necessarily a liquidation scenario.

i think that moves us around to having a single platform. >> i just want to mention that i think of this conversation about it being capitol hill or the executive branch, it is in some ways going to be a conversation. i am with you in believing that this is the 27 members of congress standing behind the president who is not imminent.

sec, both of the executive branch and capitol hill are starting to talk about structures that have a lot in common. so it is something that ultimately provides attention to it they will have variants in some of these details as well. if the executive branch says this is the regulatory structure they would like to be able to say, here's what we're going to see. and in some ways that will help them with the direction. that starts with this conversation forward even if we

don't have this built-in. >> there is there's an amazing amount of cream and a pair. [laughter] >> if you laughed out of come you could some points of difference. >> are there any questions? >> good morning. the comments earlier about the regulatory uncertainty, contributing there does seem to be an increase in the private capital participation and if anyone would've given thought to the size to fill this gap, we

would just make one observation or comment. having taken your point about the uncertainty in that sector, i would submit respectfully about moving into the receivership contacts is heightened uncertainty and would lead to a great deal of instability in the marketplace as well. >> if you don't mind, could you identify yourself? >> yes, i am the former jenny president. >> i'm not one to do the math. i have been partnering and me and my partners are going to have a conversation on this broader conversation. we began to look at the size and the detail there. we are so confident that the capital will be available. obviously there are differences between this and what the credit

investors are going to be when we started this it looked possible to us. >> to put myself out there and i want to say that i'm extremely for homeownership and i'm not hyper leveraged. we don't have an 11 or 12 trillion-dollar mortgage market. it would imply lower house prices for the basic necessity and i would like to see that become cheaper. i think this is a two-minute amount of capital out there.

we have this in cash in the on the balance sheet and it is important to keep in mind securitization market that was sold as part of the retail investors. the vast majority as part of this other part of the system. pension funds or insurance companies or whatever. all of these other institutions. there's no reason why you can put couldn't put a dollar into private mortgages. but the capital standard has such a disconnect. but if you have one you have to worry about the rest of them. ..

when you add on top of that the changing composition of the population to being families that are going tap -- the number of people who are to married adults living in a household with children is now down to 22% of households with the aged -- aging baby boomers and the growth of the millennial. so we will of a market that will have a very different need for housing. it is going to need different stock,