to small business is essentially restored to pre-crisis level. but we are not seeing that in the case of low income places in which, especially one which was survived in the eye and which has experienced closure. so we are seeing that there's still not really come close to looking like they're going to go back to pre-crisis level. so we believe that the impact is somewhat by a low income places which is another motivation for us to perhaps look also more closely at the institutions themselves. so in this particular study we are going to look pretty much at the financials.

and try to tease out some of the important of the different factors in terms of explaining differences in performance of mdi like failure, compared to non-mdi. so the comparison is going to be non-mdi who we have left them $10 billion in assets because most of the mdi are pretty much below that range. there's about five mdi i believe we saw that have 25 billion in assets. and that's actually quite a bit of literature on the sector, and that many of you may be familiar

with starting with the seminal work in 1970s. and so does work essentially i've always looked at perennial question, who do a minority banks serve and how efficient they are. for this particular research we clearly looked into literature. ..

can be identified, why we should see some differences in how different banks are affected and this literature is essentially saying that the differences are coming from different capital for banks because banks like any others offer capital to markets and financial banks based on their books they're not going to be able to do that as well. and this is why even during the height of financial crisis we saw different banks expanding credits at different levels based on how they were affected given how much access to capital they had and, of course, we are willing to to rely on basic models to identify some of the valuables in our models. and so basically what we did was

we began different performance measure and we see that if, you know, there's a lot of work that has come in recent years by fdic, for example, you see that mdi generally on average from left but i thought perhaps -- there's a lot that we get but perhaps -- and this is what i'm highlighting here, one of the most surprising results was we really -- when you think about, you know, difference between bank, another line of research is looking at women on banks and essentially the juirnd -- underlying difference is women

on banks essentially have different type of risks so in essence we are not seeing that translating when we move in banks. so in i sense, if you control for the basic, you know, financial in the model, you are essentially able to see difference as you can see -- [inaudible] >> so we are not seeing really establishing itself, you know, something else not able to capture in terms of underlying, you know, or something that they're risk-taking. they are not behaving differently than any other. so the same thing we saw in

terms of performance, also sort of translates when we look at bank -- all the data looks like. so at least, you know -- [inaudible] >> we can isolate and vanish once it becomes basic bank characteristics. so we are using the number of data to do this. you probably are familiar with that. [laughter] >> bank regulators, that's who are able to identify minority

status, you know, on a yearly basis because that's changed. the minority definition is fairly smooth in a sense because it can change based on the ownership of the majority of the report, et cetera, and so this is what the landscape looks like. i also have cdfi here. so essentially, it is perhaps first and foremost the bank size issue because of mdi are small banks and if you look at banks -- number of banks in the u.s., you can see -- when we talk about huge declining in banking

institution it's essentially a million in asset, so we need to keep that in mind. and is what we do see the minority -- [inaudible] >> when we talk about mgi, it reveals to be perhaps important to identify what whether we are talking about asian banks or black on banks or hispanic on banks. so as of 2015 we have 170mgi, 220mgi's and there's been quite a lot of structural changes and this is why the sector is quite interesting to understand because you see structural

changes in small banks in general. banks that are forming but also closing, you know, merge or acquire or closing to some failure which essentially happens during the last, you know, during the financial crisis and after. 2016mgi failure. so in essence we have -- if you just look at the data and you compare failure of closing, you see that mgi looks like proportionately likely to close and so the work then yo know,

these are basically finance that we can trace to see what they look like, whether in terms of equity or asset and what we are seeing, is that we see some difference at the descriptive level for super small banks, super small mgi compare today super small community banks but we do not see much difference when we are talking about, you know, one billion dollar in assets, mgi. so they look fairly close. one of the things we looked at was operating cost, major question when it comes to the sector and it does look like at the descriptive level mgi, specially small ones sort of have less efficient.

so hay hire the number based on how the institution is. clearly, one of the things i want you to look at are sources of income and liquidity and we see that -- [inaudible] >> mgi somewhat less and they have more deposit. deposit in itself is not risky but i think in recent period based on complexity of what was behind, fairly risky. and also if you look at the portfolio, we can trace that and we essentially see some

difference in terms of bank fort -- portfolio and if you look, you do see the difference in all those measures . [inaudible] >> it's looking at, you know, basically the two steps where -- [inaudible] >> this creates model that will accommodate the nature of the data and the fact that all the banks were not changing. so we use and compare, superior, so essentially when you do this and once you control for this type of variance.

you don't see significant difference in the results. the tables are pretty much your basic table that showing you here that you don't see the difference that they do not persist as we see in the test whether you are looking at bank capital ratio. now, when you do some interaction terms, you do see some differences in sensitivity based on minority ownership status in terms of nonperforming efficiency factors. and so this is the model. we don't really see results. here is sort of looking at the two stage where the capital

structure is controlled for and in this model, which is the most -- the fullest model, we again are not really seeing big difference between ownership status, thank you. so essentially those are pictures of what -- you can see the difference in sensitivity. in conclusion the idea helps shed light on what we see in terms of relative performance. we are not seeing minority banks specially nonviable sector compared to minority banks and essentially the idea is to explore the results better, to understand what the better policy response is and we believe that it's sort of dictated by -- [inaudible] >> thank you. >> thank you. [applause]

>> our next presenter is joseph guzmán, he's the interim director,chicano latino program and also michigan state university, joseph is the president of american society of american hispanic society also known as ash. they keep changing the titles on me. [laughter] >> i did didn't i. i added three words to it. well, good morning. first i want to thank our host here at the federal reserve and barbara robles for being so gracious and setting us up here. this is a unique conference for

a.s.h. because we get to decuss in a focused way papers that are of particular interest to us and that deal as the title implies, economists dealing with freedom injustice which is a great thing . in that spirit i brought here a version of what i'm working on and hopefully there's new takes on what we have been seeing a lot of in the past and that is barriers to growth for latino entrepreneurs. so about almost exactly a year ago i was approached by a group of stanford that had set up a latino entrepreneurship institute and business action

network which is an affiliate organization housed in the university and they had an ambitious goal. that goal was to not only survey latino entrepreneurs and service their professional growth and development and skill needs but to develop the exhaustive list of latino entrepreneurs. they didn't really want samples, they wanted to service and be available and understand what the whole group needed and was doing. and this was after their first attempt. they had gathered some data through various sources and they had also developed some panel data and so most of what i'm going to present is from that panel data and some of it is complemented by some of the additional sources. i always like to start with a quote and i'm sure this is well

known from some of you, we can't solve our problem with the same thinking we used to create them. most quotable guy for me. now, just a roughout line to talk about the research question and the literature is expansive on latino entrepreneurship. it's not exhausted i will say but quite a bit of literature out there. one of the best reviews was done by barbara robles with another guzmán, not me, you did a very good lit review of latino entrepreneurship with another does -- guzmán. but the stanford group what they started to do was to promote capital formation in latino community. what they observed that the businesses weren't quite making it to scale. they wanted to -- they were

asking many questions in the original survey and they were trying to get at is it a matter of industry, fans, what are you not scaling and what can we do to create among you a facebook founder or someone who discovers or develops and brings to market a new technology that will bring lots of capital to the community, not to mention to the u.s. that was the basic research question. why is it important beyond -- beyond what we might think is obvious, it's important to the latino community despite our high propensity to create jobs -- i mean, to create businesses, they're not necessarily growing and we can address it many ways. again my discussion here is qualitative and there are going

to be graphs from slei but i really want to talk about inference. it is going to expand -- in addition to being repeated it's going to expand a bit and also looking to probably expand the number of questions. so we have a lot of comparisons here of latino-owned businesses versus nonlatino owned businesses. i have to say that i was very impressed by the presentation because -- i worked in doe for four years and we had four graphics in one slide and it was data rich, of course, but you have that way beat -- [laughter] >> i have to aspire to that. we have double slides here.

but you see, of course, what we might expect is that latino owned businesses in terms of sales or gross receipts are trailing nonlatino businesses but you also see that they're trailing by a greater amount and they seem to be not really growing too much, even adjusting inflation, if you look '97 and 2012, and that's again reflected here in average sales. we have latino-owned businesses are about 12% of the total and slightly less than our proportion of the population, but that is growing. these are 2012 numbers. 12% also. this is a concept, and i'm not sure it's based strictly in economics but come from stanford of business school and this is

the potential. the potential is that what if latino-owned businesses grew at a comparable rate to nonlatino owned businesses and the gap is over a trillion dollars. if we were looking adjusting for all factors, if latino-owned businesses were to grow to -- to businesses that had similar initial parameters, we would have a trillion dollars more of revenue than is presently experienced. now, this is not meant to be a nice chart and i can share with with you after. of course, it's in construction. it's in services, general services, also administrative support, interestingly. but those are the areas where we

are more proportionately more represented than others. you can see la latino-owned businesses, by in large, tend to serve latino communities. of course, you have some that will serve a mostly nonlatino but a third and some that will serve a mixture but a big proportion are still serving latino communities, so it might be something cultural going on or there might be other things going on that maybe it's place and location, geographic issues or maybe language issues but a lot of our businesses are still serving mostly latinos. and let me just go past this one. it's a repeat but we don't see great differences here in terms of financing, but here is

something that i think is the big difference between latino-owned businesses and nonlato owned businesses. most of the businesses are started on their own and and just over an eighth started with partners and the similar started by purchasing a business from someone else. i've heard a few of those. there's a young man who bought a bakery and he named it the panaderia, named it after himself but he doesn't sell any bread. he sells tacos and other things and when i asked him how he ended up with that name, well, it was a bakery and i was a baker but it didn't work for me and it didn't work for the prior owner so i switched but i never changed the name. so you have situations like

that. again, i'm drawing to a point here. these aren't random points. the latino owned businesses are very concerned about sharing equity, okay. so you have a third that would be willing to take on an equity partner but the remainder are somewhat and the largest share are extremely concerned about having equity partners. they tend to be family-owned or individually-started businesses. now, only a third of latino businesses have mentors but overall they belief that they could use mentors so it's interesting that even though they think they would be helpful sometimes they're not availing themselves of people outside the group. and even though we see them not

growing overall, and we will see another chart about showing the -- or describing, illustrating the rate of growth, in terms of their perception, most of them think that their growth is normal, okay, oh that they're not growing or shrinking. they seem to be optimistic given the facts. again, sources of capital usually personal savings, it's not often bank loans and over half have either been declined or never requested outside loans, never requested outside loans. and again, they don't avail themselves of these working opportunities that a lot of other businesses do, both in terms of chamber. we all know about chambers but they don't enroll a fraction of

the actual latino businesses. now, this is one of the more telling slides in that a very small proportion, 3% of the latino-owned businesses have over 50 employees. so they all tend to be small and in terms of the customers, we have the similar circle that we saw earlier and you see that even those that are larger, they still have a significant proportion of latino clientele, latino customers. and to me this is one of the most telling slides here. for some that are 5 year's old

virtually none over 50 employees. 5 to 20, 20 po 30, you still have a small proportion to 5 to 20. .3%. .4% are growing to over 50. so there's a persistence in the size of the businesses and a similar story here that shows that the revenues are not really growing. and so you have the typical concern and the one most often cited is lack of finance. i think there's a story that is often told that these businesses, if only they had the financial means, only if they had access to capital they would expand, but what i hope i've telegraphed a little bit is

there's a question that hasn't been asked and that is, is it their goal to stay small, are they so family centric? again, we are not talking about the informal economy, we are talking about firms that are set up legally so there's no reason -- legal reason that they wouldn't want to pursue greater growth but are we seeing here a cultural or some other conflict with what we are trying to do in assisting businesses and what they're trying to do in building these sources of income and wealth and providing for their families, and so i will leave it there, but the broad question is limitations beyond the things that we heard before emerge and how might we address those and

accommodate them. as i said, the latino entrepreneurship institute started out with the object i have to -- object i have to help these companies go public. i see a persistence to stay small. perhaps we need to rethink our objectives in the question we have. i will leave it there, thank you. [applause] >> our final presenter for our afternoon session at the fed is jan christopher, jan is an associate professor, college of business department of accounting economics and finance at delaware state university.

jan's presentation will be on circles of influence, a comparison of student loan default rates across hbcu's and ncaa division one universities. >> okay, good morning, still. i'm the last speaker before lunch so i will speak fast and i want to thank the federal reserve for having us here today. this particular research is the second draft. i presented also about a year or so ago and i decided to expand it to include more types of groups and i typically do research as an individual because i get more out of it and i can work at my own pace. so i hope you enjoy it.

so this is called circle of influence and it's connecting not only black colleges and minority institutions to the larger realm through student athletics, so this presentation will explore the publication of a cohort default rates of historical black colleges compared with the more heavily funded early grants, public and private research institutions as well as the colleges that participate in division one sports. publication of this cohort, the thought rate is sometimes causing negative in the minority communities including reducing student bodies of schools that are already small as well as

forcing smaller institutions to shift to stem education as compared to the humanities and the liberal arts. another issue is that it's driving colleges to merge with competitors and not necessarily merge the entire school with exerts or but -- competitors and it's curtailing viable programs where they are enrollment driven and so they're trying to push towards larger enrollments. i'm only going to give you 40% of the rules related to rates. you have federal education assistance that are grappling with this cohort default rate

issue and also this default rate is on lenders. now, with the default rate, they go with the federal fiscal year which is october 1st and then it extends for three years from the date that the borrower goes into borrowing repayment. so if you are officially borrowing repayment for the first three years, then you're going to be part of the statistics if you've taken out federal stafford direct or undirect generally called ford loans. this is only for institution that is have 30 or more borrowers, if your institution has under 30, then you are not -- you're part of this calculation but you're not using the same formula.

you're using the average of all the borrowers across the board. so in this framework, you have the threshold of 30%. so if you're an institution that has 30 borrowers in repayment for each year, that's called a cohort, if you're default rate is over 30%, then you are flagged and you have to go into compliance and other types of programs. they're called default prevention programs. and the other thing i wanted to point out here before i flip the slide, is if you're a large institution that has a 15% cohort default rate, then you have special waivers that apply to you that don't apply to the smaller institutions.

so in some ways this is regressive. so what i've done here is i've created a data set and the first one looks at the early land grants, so typically there's one land grant -- at least one land grant, typically no more than than two except the state of alaska and the first ten are really the most viable today. there was also an original grant in new york but only lasted two years and then i'm going to talk about the 1890 grants which are historically black colleges and institutions, there are now 19 but originally there were 17 states that did not want blacks at the time to go to colleges with whites and so they formed the separate institutions in 17

of these states. in the 1974 when the title 4 was amended, central state and ohio was added to the 1890hbcu list. also we are going to talk about the 1862 land grants, there are about 74, some people would say about 86 and i will discuss that in a second. in addition you have the public and private hbcu's and you have the public and private ncaa division one schools. and that would also include your ivy league as one. so i have 125 colleges and universities. i'm using the public data, the education statistics data. it is very easy to use now because as long as you have your college and university identifiers, you can just click

and drag and drop your entire list into the internet and it will come out and generate you a data set really quickly. so i just had my list of 425 institutions, dropped it in and i have a data set of over about 500 observations. so it was very clever and very quick and so i highly recommend that you try that. so to get important background before we go forward, i'm going to go pretty fast pretty quickly, we need to know the 1890 land grants are your historical black colleges and institutions, they are typically state supported. you have your 17 states which said, no, we want to have separate institutions for blacks at the time. also there are many laws that have been amended since then including the 1954 supreme court decision on separate but equal

and the 1965 civil rights act, which made where there had to be equal access to all public federal programs and public assistance particularly in higher education, is the topic here and also the 1965 higher education act was amended to include title 3. now, title 3 is very important because most of your historically black colleges today depend on title 3. and in addition there are a couple of other things, whether a land grant as private, mit was as private, cornell was as private. some of the institutions have become private and also as i mentioned there was grant in every state except the state of

alaska. now, what is the issue here? by 2010 90% of all minorities are in some type of financial aid or student loan. another issue is that the dollar amount of student aid that goes to black colleges is so large that it makes the amount equivalent to a larger school than it actually is. say that you had an enrollment of 2,000 students, the amount of money that goes to your school and financial aid really makes you an institution larger than 2,000 students and so that's very important in the analysis here. so the first thing i would like to do is to show you the original early land grant and all of you are familiar with these, iowa state, kansas state,

michigan state, university of minnesota, university of missouri, penn state, university of vermont and university of wisconsin, and i wanted to show that to you just to let you know that if you look at their cohort default rates which means that the students who are in repayment have defaulted, their default rates are very low, only about 5% and notice that after the recession as we started going into recovery their default rates actually declined, and so that's a good thing. so these are the stronger institutions. and if you see here, none of them have a default rate of over 7%. and so you have your -- thank you. you have your ring and notice that the early land grant, the

10, i'm giving you the nine, plus there was one in new york that did not continue and all of these have below default rate. if i add years 2010, 2011 and 2012 the blue vining 2012, you can see that their default rates are declining as we are going out from the recession. next i'm going to look at the 1890 historically black colleges and institution that is are state supported. and in this diagram you would ask how many students are we really interested in, these 19 schools have about 300,000 black students, i should say. so that is is the size of this particular market and the entire data set, 425 that i'm working with have 6.6 million students. so we are talking about a large number of students that are

heavily in need of financial aid, particularly student loans. so in this example i'm just show yowg the -- you the cohort default rate from 2012 and 2012 is the most recent. what's interesting is that not all of these schools have had a cohort default rate as we have gotten away from the recovery after the recession. some have but most have not. so this is a picture of particular set of schools. we are looking at the ring that says 30 because 30 is the threshold for which you have to go on compliance issues and notice that we have about two or three that are outside of the 30 threshold. and what we have here are the calculation, let me go through the calculation one more time. if you are in a school that has

more than 30 borrowers that are going to start to repay, then you have an official date where you go into repayment. for the next three years, you are a part of your cohort that is use today calculate this cohort default rate. also i wanted to show you -- oh, this is the number of repayment, and notice that the average number in repayment is about 30%. this is very important theoretically because if you have your repayment around 30%, that is why your cohort default rate has to be under 30% because the logic is that you want your current students to pay for the new students that are going to be taking out student loans who are in school now. so your first three years of repayment will pay for

theoretically the people who are applying today. now, when we expand this to all hbcu's and here there are 86, they're technically 74, but then there are a few others, some have gone public or nonpublic, you can see how erratic this has become when it comes to looking at hcbu's. if you look at the 390ncaa division one schools here, again, it's not erratic but if you see the ones that are the pointy things that are going out extensive past 30%, those are your hbcu's and that's why we say that this particular scheme of the cohort default rate is regressive, because of the fact that it does indeed harm the

smaller schools and it highlights the hbcu's because it pronounces that they are the ones that are holding the other schools back and forces them to merge or to close programs or to emphasize stem and technology more and deemphasize arts and humanity. and that is a concern. i had a couple of hypotheses that i asked myself and they were answered with these particular round of questions, the larger the institution mathematically the lower the rate. that has been visualized in several of these visuals that i have done for this particular research. the second one is do all hbcu's have higher cohort default rates, the respected institutions in the state, the

one chart that i showed you about two-thirds will be higher than state averages. and lastly, what is the relationship between hbcu and the division one institutions even though the hbcu's are part of the division one institution they tend to raise average of cohort default. that's actually my phone. i was timing myself and my phone rang. okay, so since the data is really easy to pull, i have over hundreds of data, data values that i could use and so this is a time series data set, you can take it out probably about five years comfortably before the definitions change. so i'm going to just briefly give you the types of modeling that can be done with this and then i will be done with my

presentation for today. what i typically did is for variable. you can do the average cohort default rate or borrowers because the unit of analysis is the borrowers in the calculation for the cohort default rates and then some of the other things that you could do with the black enrollment, number of borrowers, changes of expenditures, number of schools and states and we have a whole list of financial characteristics. what i am working now is accreditation and whether or not some accreditors have higher or lower cohort rates and that is true. now, lastly i want to say that your institutions are divided into four classifications. you have the public, you have the private, nonprofit religious, the private nonprofit nonreligious and you also have

the four profits. those would be the types of institutions. this is the type of modeling with this data where you would have to have multiple models based on what your results are for that particular aspect of what you're trying to -- so my concluding remarks. i have two minutes. due to the recession there were nine hbcu's that were flagged as having high cohort default rates and the obama administration is rating based on graduation rates and student default rates. secondly in 2011 there were changes in the rules that hit hbcu's disproportionately, but that's also what engendered some of this. and many students lost their financial aids, a lot of schools

went on on plans, i gave you a few, st. paul in virginia closed, morris brown is no longer statistically viable and so data on these cohort default rates reveal the larger enrollments do, indeed, reduce the rate. and if you have a lower rate you have concession and so the larger institutions would be viable in the future and the smaller ones will either die out or merge programs or reduce programs. and so by 2015, the majority of the historically black colleges and institutions have major issues which actually impact their business plan and it's recommended that default measures be used consciously and also recommended that perhaps they should not be published. i know freedom of information

says they must be published but by publishing, it focuses too much on the minority institution to the detriment to what their major objectives are. thank you. [applause] >> thank you. all right, we have about 25 minutes for q&a. derrick. [laughter] >> so i guess my question is or comment is largely jill, the talk began with the quote of einstein and culture explanation for the type of firms that disparities that might exist in entrepreneurial behavior and types of firms that latinos might be in. i'm not too sure that the two are consistent because it seems like the theory and approaches

seem to be on focus on choice as well as which could be related to culture, individuals are making choices that best suit them. i mean, that contrast with the two presentations by both jan which talked about structural about why you might get disparities by minority or undeserved institutions, et cetera, versus more mainstream institutions, so i guess i would encourage us and see if there are other explanations before we revert back to the general, well, these things are that way because of individual choices ignoring the structural context. >> so is that a question or is it just a statement? [laughter] >> how do you respond? >> i would like to respond. i will take it as a question and not a statement. i understand the critique but i

think you're going too far. what i was only pointing out that we do see a lot of latino businesses and we are not going to affect all of them the same way and there is definitely a persistence in certain areas to be small and so maybe we are just not asking the right questions. i mean, so we tend to ask what's keeping you from growing and maybe we should ask, how can we keep you from shrinking or why don't you borrow, maybe we could ask how can we take advantage of your liquidity because you don't borrow. questions like that. so it's not to say that we don't want firms to grow and it's not to say that there are proportion of latino firms that move into tech and become the next facebook. i hope that stanford latino entrepreneurship and others can

promote that. but i -- i think -- i don't know, maybe i should have been careful with the use of the word culture but the observation is still there. >> can i have a quick follow-up to that. i've interviewed mexican men from a region in méxico where there seems to be the immigrant came from families who owned businesses or those immigrant were involved in the informal sector, informal economy where they were selling things. i'm curious to know the immigrant status of the people in your sample, apologizes, if you talked about that and also relationship between self-employment and lack of opportunities for jobs. how does that tie in with your analysis? >> sure, there are other analyses that point to the fact that some of the self-employment is explained by lack of

opportunities for jobs. you know, if you've ever gone to a large city in méxico, hermosillo, you drive through main streets, you see every house -- this is the main street, it's not lined up with tall buildings necessarily but homes converted to do business, you're talking about engaging in informal business, that's -- that kind of comes natural. sure, you can abstract and grow from that but in terms of those latinos who want to form businesses and don't mine starting small, we saw even that there wouldn't be a nativity issue with firms over 30 years old necessarily. >> perhaps the explanation is in capital in the first place. >> of course. >> they're undercapitalized and have limited access to resource oh to begin with.

we saw from the previous presentation that the wealth gap is enormous, so, you know, we are in a capitalist society. that might be the primary explanation. >> for the initial starting point, yes. yes. >> actually i've done work with macro enterprises in méxico and the homes that you're talking about, turned into shops, they like growth but they don't like growth when they can't control. one of the interesting questions would be what generation in terms of migration, what generation are they, are they first generation, second generation or third generation and then split your sample that way and see if you start noticing a difference. >> alberto davila was here, barbara robles was present at the summit that we had to look at the surveys, we did add a

generational status question, would be highly detailed, so, yeah. >> jan, i was wondering if it was the case that you looked at some other measures because as opposed to don't publish it, we are using a metric that is misleading, so at an earlier conference here the issue of not dlipg -- dling delinqency amount you can have 30% rate but the amount is actually smaller than a higher delinquency rate. the other issue is when we looked at student plus loan

debacle this was true, you could really look at it from a percent black at the institution so -- so it wasn't clear that other schools didn't have a problem except that since they have such a small share of black students, you know, it's conceivable that people weren't paying attention, they didn't notice that we just lost eight black students. it's not in their framework, so did -- did you also look to see what happened to the number or the share of black students at these institutions because, you know, there's a study pointing out that over the course of recovery as cut funding to their institutions, meaning the land grant schools, their drive for tuition dollars didn't mean they didn't want black or latino

students because they don't have money and they were clearly shifting to students who had money. so i mean, is that another metric that we really should be judging the schools by, are you maintaining a commitment and looking at default rates may be the wrong metric? >> well, what i did was i used default rates on everything and so i do have on the previous slides, i've taken out the slides for the time and i do have expenditures to full-time equivalent students and i have considered it and looked at default rates, i looked at default rates on accreditation bodies so i do have the ability to do all of those based on -- but i'm trying to do everything with the default rate in mind because the default rate is what

causes the sanction and causes the flags and with the flags that causes students to choose the institution or not in some cases. >> what i'm asking you is -- [inaudible] >> i know -- i'm asking you to say, look, the problem of education is default rate. are we using the wrong yardstick? should we be looking at a different yardstick and so -- so if you looked at default amount, then hbcu's might not look so bad so are we deliberately choosing something? >> i did say in the beginning ii gave you four reasons. i do think it's a bad metrics to use and should be used

cautiously. if you look at the particular default rate, this is going to be in effect until we decide something else. until they decide on something else, that's all there really actually is. now, the amount -- amount is always very important and so i will go back and i will look at the amounts of the loans to see if that will change anything. it may or may not but i will took -- look at that. i agree that it's not the best thing to use but that is the only thing -- that's what they're using and so that's what is there. >> i have a question for joseph for coming back to the discussion there. i'm wondering how much of the disparity and propensity to grow between the hispanic-owned firms and the nonhispanic-owned firms

is just to type of firm, do entrepreneurs tend to start types of firms that really wouldn't be anticipated to grow, you know, over 50 people or to grow much more than 50 people, do you still get the types of differences? >> it would be interested the control of future collections of the data in futures years, but i mean, i think that pointing out the types of firm in the more objective way kind of is a different way to say it's culture, right, it's not really culture it's the types of firms they are picking, so i think the short answer is yes, you see a lot of persistence in, of course, restaurants, other services that tend to be in small scale. >> right, but probably the nonhas pinnic firms in those categories also don't grow. so you're right it's a similar

type of choice but are they choosing not to grow because they want to be a family-owned business or are they choosing not to grow or are they just choosing a different type of business that this is where i want to be in which case if you want tone courage growth, maybe the policy implications are somewhat different, you know, encouraging them to expand the range of businesses that they are thinking about starting, the types of businesses maybe encouraging them to think about going beyond the small family -- >> my question is not to keep them -- not to say that they have to stay there, if they have chosen that, why do they have to grow if they're sustaining themselves with what they have, and barbara earlier mentioned a really interesting research from the late 70's, pretty old. it's been around for a long time. [laughter]

>> i'm sorry. it's a study that was performed over 30 years ago, right, you mentioned -- >> no, it's actually the data that i shared with you on the border. >> okay. >> what we really want to be doing is -- okay, so we know what the dynamic is, here is the data. we know that 89% of hispanic businesses are in the self-employed category and you have the tinny ones and there's 120,000 that actually have assets over one million. so it's -- we are talking small here. but the questions that you've raised in the survey, for example, i want mentorship but i don't belong to any of the chamber of commerce, so you've got a problem with geography and location and one of the things that we need to understand better is not just choice,

culture, but also the structural geographical dispersion along with we are not monolithic. there's a very different trajectory for the cuban latino entrepreneurship in florida and the puerto rican and dominicans on the east coast compare today what's going on in the border. that's another piece of the puzzle and a part of the story. some of it is about legacy immigration issues. yes, so culture does play an issue. others are very much about context and geographical dispersion and others about opportunity. and again, it's going to be, you know, like david mentioned, depending on the cohort. how many generations have you been, where are you located. do you have the mentorship that's easy and accessible, all of those things are going to play an important role. i'm not sure that you can attribute just to one issue to what's going on but i will agree

with you, sustainability and low growth context is in my mind a success metrics because the alternative, the couldn't factual is no job at all. >> it's a worthy objective. [laughter] >> and so i want to keep the focus on you -- [laughter] >> i wanted to ask you about net worth and the fact that you have such a small option of eligible businesses that should be but they're not and i'm wonder if you can see the difference of the selection -- you take your time to go into the chairve -- chamber, i'm wondering if this is a source of understanding the

importance of network and formation in terms of making business owners about financing opportunities, how -- how to use it because it's not necessarily easy to -- even if you know that banks could provide loans to actually know and navigate the whole process. >> so there's a -- not mean to go rely on the generational explanation over and over again, but there is an issue with trust of institutions, okay. institutions could be a chamber where you don't want to divulge too much of your business. again, if persistence it's a worthy goal it's well served by staying away from complications. is that getting to your question?

>> i guess my question also piggybacks off of three of yours. the stat that is stood out in my mind from your presentation were, you know, the very large share of businesses that were struggling with personal savings relative to personal borrowing and the significant large share of business owners who were worried about finance and the latino community has a large share of the population that's unbanked and putting more of an effort is into bringing the community into the banking system to begin with would really help the community grow and getting back to derrick's point, it's a capital and then also introduce them to the banking sector, build trust in the banking sector and makes them more likely to borrow later, so i think there's a big role for them to -- >> absolutely. it's clear it's part of the

market that's not being served, yeah. maybe community banks. >> yes. you made the point in the presentation about -- we talk about mdi's but in reality they're all different by ethnicity and size and even types of business lines that they focus on, so that's something that we struggle with with our partnership as we tried to provide value to the mdi's and trying to figure out what it is most value to which ones. i think it's probably in some of the charts and i was wondering if you could summarize, have you seen significant findings by type of mdi's, i'm thinking racial groups, but also size or geography, where there are distinct differences in terms of how much of an effect you saw for any of the groups? >> so how much of an effect in what way?

[laughter] >> you've been on the hot spot long enough. [laughter] >> yeah, i think that would be surprising, certainly if you're looking at -- if you're comparing with -- i mean, argument that you need to sort of compare mgi with the right comparison group. it depends on what you're trying to achieve, what your research questions are. but it seems to me that there are particularities when you think about minority ownership

so it's hard to pinpoint that one is has -- more vulnerable than others, so each of them have very specific particulars which led to perhaps the difference in the market, also that they are serving, but clearly the issue -- one thing we can say that perhaps would be universal is that it used to be very hard for very small banks like less than a million in asset whether mgi or not to sort of absorb certain shocks when those shocks come so that perhaps bank that's a larger size could sort of withstand nonperforming assets or

something, that seems to be when you're at the lower threshold, perhaps that we got less of ownership status, you're going to be somewhat more vulnerable. but in terms of location, location was actually very nuance result because it's not like when i -- [inaudible] >> being in low-income places or, you know, would be somewhat of a risk, perhaps market risk and it doesn't seem to be true for mgi, certainly not necessarily for asian mdi or, you know, hispanic mdi. it relates to the threshold of what we are talking about.

there is also a combination of the nature of the place, perhaps related to the level of the stress. if you're talking about low income in highly racial segregation places which tend to be -- there's more essentially distressed order situation, then market seems to be somewhat harder, yes. >> okay. so i had a quick comment for each of the papers. so the first for amad, one of the things that struck me was the difference in core deposits for the minority-owned institutions and they need to go out and get broker deposits which are more expensive and -- >> exactly.

>> so that would just be something that would be interesting to get pushed on a little bit more and hear more about. >> yeah. >> so for joseph, to sort of piggyback on this idea of financial constraints, i was struck by -- i think it was about a quarter of latino entrepreneurs getting denied a bank loan and i think -- i don't know if you're doing subsequent versions of the survey, but i think it would be really interesting and important to know what the reasons are for getting denied financing, so that -- that was my comment there. and for jan, one of the things that i think is pretty important also is going to be -- like what are the causes of the

differences in default rates and i'm sure this is not in the data but one thing that would be really interesting is to just know for students at hbcu's what's the overall debt burden that they are leaving college with, so if they have external debt? so i would guess that the overall debt burden would be much higher than people going to the other places and that could explain where the default rates are different. >> comments? >> yeah, i think you are definitely right on point of core deposit. it's definitely something that -- efficiencies and cost of

doing business in an environment where you have more funding source, basic core deposits. that's something we see a lot for mgi compared to banks. so, i mean, there is this program that's supposed to sort of help facilitate or increase or encourage deposit in minority institution but definitely speaks to this understanding and knowledge that there is this in terms of how they conduct business because they are serving places where deposit is lower but also more volatile in

a sense. .. caroline palmer and barbara who is with a different division as well as people who are with the division of research and statistics at the fed for graciously hosting our morning session as well as lunch. thank you.

[applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> this national economics association and afl-cio

conference taking a 15 minute break scheduled to resume at about 12:30 p.m. or so. more from the conference live at 2:30 p.m. eastern with a focus on societal inequality and then it was impact of the incarceration rate on the economy and public education. the conference is expected to wrap up at about four bp 10. if you missed any of the conference you can watch it on our website c-span.org. here's some of today's "washington journal" with a look at the campaign season. >> joining us, the website rare earth, a senior political reporter. good morning. to start how would you describe rare to other people? how do you present information? >> caller: rare is a caucus media group on website. we are interested in the way all of arbitration lives online.

where some of the positions of broadcasts from austin and they adapt it for our lunch. everything is great with an online audience in mind and with quite a robust audience. millennials and people got interested in the news but in a different take. that's what we've been doing, following the campaigns quite closely and we have an entire team that works on that. >> host: taking a look at this campaign what's been the most innocent people fall your site consumer news, what are they interested either donald trump or hillary clinton or a third party candidate? >> guest: what's interesting with online form is they want to know who these people are, what they stand for and how they differ from one another. there's an increasing skepticism it comes to every politician is based lookup on the same cloth but a thing this is effective this if campaign am a divisive election season and what we are finding increasingly is these two candidates, hillary and

donald, have been working to set themselves apart and they're doing it with an online presence. old that have taken to to and facebook respectively to attack each other, to data makes himself known and the personalities known for our audience has been respond to that because that's the same format in which we live. we all live in the digital space. it's interesting to be part of that were sometimes you feel you're cohabitating with the candidates in this online. >> host: when it comes to hillary clinton, how we should call pushing that idea of setting herself a part? what's been issues that been troubling her into scamming? >> guest: for her and this is a way for me as i've covered other campaigns, it's been interesting because it's very reactive. donald trump is a very loud voice, however you think about his politics. he's not a wilting flower. for hillary clinton it's been a lot of responding to here i think that her whole message of

love, constant and with the democrats have come together is in reaction to donald trump. i think that's been one thing far is to ensure that her voice also stands a. she's trying to be a unifier can say that the democratic party is unified in love instead of against different groups of maybe my norse or people that are different. >> host: how do you think she's doing a most millennials? competitor has been years ago as russia attracted the young but. >> guest: we asked to see, this is the only new relationship with hillary clinton has been recent. before there was a very strong following of millennials with bernie sanders, up until the day of the democratic national convention we didn't see a conceding from bernie sanders. the recent courtship between hillary clinton and the millennials has been very, very new your i think that poll numbers come out and show that of the options they have, they are more with hillary clinton than they are with donald trump

but there are also third party candidates are increasingly winning the votes or the support of these millennials. it's been interesting but it's new and we had to keep watching of the do you get a sense, going over the those wins the support of bernie sanders who support hillary clinton or the still skeptical speak with skeptical. poll numbers show their increasingly with hillary clinton but i know from speaking to millennials a bad of them are either he grudgingly going to support hillary clinton because they feel the other alternative which is donald trump is something they cannot stand behind any world. then there's the other, just when the trust and loyalty. i think something that will help them is bernie sanders has come out and even cannot in the first day and called for his supporters to back hillary clinton. sync we cannot be divided and potential is to donald trump. there's a courtship happening but i think a lot of people are very much waiting to be won

over. it's early yet cosmic the website is rare. she is a senior political reporter, yasmeen alamiri joining us to talk about campaign 2016. if you fall within the ages they can-29 -- tell me became a senior political reporter. tell us about how you came into this career. >> guest: i have been covering foreign policy and national security in politics for over a decade. i've been quite lucky where right after school i entered into the feel of a washington political reporting quite early, became a white house report at 22. for me it's been an up of bringing in this field and i

have worked mostly for broadcast organizations. this opportunity was there interesting because increasingly digital media is not new or innovative me to where we all that now. this has been an interesting opportunity for me. it's an extension of what i've been doing. i've seen a couple of presidential campaigns go through and have been lucky enough to cover them. both through foreign policy and domestic policy. >> host: our guest our bachelors at james madison university. her masters at american university. and iraqi-american. tell us a little bit about your experience testing both my parents are from iraq and i was born in the middle east but raised them lived in the middle east and europe was younger but raised in virginia. a very proud virginian. it's been very interesting. i think that's the reason why i went into national security boarding was because when i graduated from school that was at the height of the iraq war.

so for me i felt that there was a story that needed to be told not just me security perspective but from a human perspective. i know what it was like because i still have family in iraq. i want to be able to tell those stories. it hasn't been the whole iraq the american narrative, arab american has been something that unfortunately force a more negative reasons than positive, have been part of the vernacular in the american report. >> host: robert, maryland on a life of those were over 50. you were on with our guest. go ahead. >> caller: good morning, pedro. look, i'm a vietnam veteran and to to get a lot about what happens in our country. the two things that i see in our current political debate is i think mr. trump is excellent as far as -- and i'm a black

american, excellent as for economics. i think mrs. clinton is excellent as far as social things. the division that, remember, proclaimed themselves to be wise. speaking about the roman empire. if these two people decided or if our country would quit dividing each other over the economic and social issues and rather start talking to each other, i think we could accomplish a tremendous amount it has they both have something to contribute to the stability of the social unrest that exist in our country. this has got to be a mandate we've got to start talking to to begin. i'm sure it would eliminate the social unrest instead of dividing each other. lincoln said a nation divided against itself cannot stand. but both of these people have something to contribute and to start talking to each other to

bridge the gaps. we condemn become a country that socially stable and everybody quit fighting each other. >> host: robert, thank you just the thank you for the question and thank you for your service. i appreciate it. i completely agree with you. i think this is a very divisive time in our countries history to i think the agonies and between the white house and congress has been i think disappointed for a lot of people to both be a part of him to the residual respect or in my instance to report on. i think we basically end up reporting more on the tug-of-war between congress and the admissions rather than the policies that report out of some kind of bipartisan effort. i completely agree. i think when everybody can agree on especially in this election season is things not working, things are not okay. the unemployment levels need to

be alleviated. people need to go back to work and didn't have a sense when they go to school in the study and to help they could have work lined up for them afterwards, and when you inward you have the ability to maintain a. this sense of anxiety a lot of americans have where they're all living paycheck to paycheck no matter how much i they investedn both their career growth for the education, that just is not acceptable. i think a lot of people no matter what the partisanship will agree on that. yes, you're right. and through that would be lovely if we could have the two merge together and become one great candidate but here we are in election season. that's not possible. >> host: e.g., hello. >> caller: yes. i have a question for yasmeen alamiri about people, young people previous involvement in politics and awareness to support hillary clinton because i've voted in every primary and every election i could since i

was 19, and i'm a very ardent supporter of hillary clinton and i know what she stands for. i wondered if you had some sort of metrics, is that something you look into? >> guest: we look at the numbers quite a bit but also think it's quite fluid because usually polls measure against two candidates. so now when we are asking, the forum bernie sanders was in the race that was abnormally high numbers of people supporting bernie sanders with them when the hp. now that he's out of the race people are recalibrating. there's numbers if you don't mind that i can find them. there's a reasonable i found quite interesting that clinton is leading among voters under 30 which i think is your age group, with 41% followed by gary johnson, the libertarian candidate 23% and trump at 9%. i think this is again as were discussing earlier this is a

matter of millennia voters are very much interested that they're not interested in voting in the interest in politics but i don't find it to be the case. there are a lot of people very much involved and this is their future defying their usual in school come and get or with newly appointed and they just want to make sure there's some job security. thebut i very much invested in personal and professional level in politics. right now, appointed election season, what they're looking for is a candidate that they can trust, a candidate they feel like will fight for them and have the best interest at heart. for some people that's hillary clinton. some people with bernie sanders and they wonder whether hillary clinton or donald trump are made with these third party candidates is the candidate for them. >> host: thomas, you are next up. >> caller: thanks for taking my call. the democrats are taking our money, proposing huge tax hikes that will ruin my family.

i make $80,000 a year. they would to take away that money from my family and my kids. sorry, i can't because i'm being so tax a heavily. i can't even afford it. eventually it's going to turn to the point where i'm making the same amount as a landscaper. i may as well be a landscaper. these people want to provide services i don't want. i don't want universal health care the i think he can dollars an hour minimum wage would be terrible because it's going to put more people out of work and make jobs less competitive. they want to solve everything that is not based country fishing the issue. >> guest: i think your concern something i've heard echoed. that's not my area of expertise but all i can speak is the fact i spoken to a lot of people along the campaign trail and they have a similar sense of anxiety. for the than the politics of ths election cycle are very real. affecting their paychecks on what the founders are able to

have or not have in their daily lives. >> host: as far as moving a voter, talk to hillary clinton, we hear concerns about in god see, e-mail service. do those resonate much among younger voters? >> guest: i think so. i think trust and the ability to trust your candidate is a big thing with millennia voters. they are waiting to be won over. battled in the policies but that this is some of the airline, someone who is clear policies that will not change from day to day and the thing they're being told is really a reflection of the authentic policy standpoint of the candidate. i think that's a reason why someone like bernie sanders appeals to a lot of young voters. because he is had the same message some would argue for decades but certainly throughout the campaign cycle. from the beginning he started with job equality and income inequality issues, and also a

student something which for young people was very much an issue they need to do with. for them they appreciated that level of consistency within. with hillary clinton they also felt there was a certain issue, along with donald trump but they just want to know that once made a controversial statement is made that it will be walked back. i think something i can speak to the dnc issue because i was there when we were on the ground covering the dnc when the e-mail leak happened days beforehand. a lot of people felt like the system was rigged and it was rigged against maybe because particularly the candidate and wanted to know maybe when they cast a vote that the vote would be reflected of the will of the people i'm not the will of an institution that wanted their voices to be heard more than actual voters. i think that since a certain class of distrust around the dnc

and the whole process, and i think that needs, the anxiety of trustworthiness needs to be quelled. >> host: from taxes on online for over 50, care in a dark -- karen. you were on with yasmeen alamiri. >> caller: i have more of a comet an observation than a question. i've noticed that a lot of common sense has been lost in the area of voting and trusting people. one i at one time did support hillary clinton are diverse and she ran for president. i even -- i'm disabled, racing to disable grandchildren and i thought she could help. then when she didn't get the nominee, i would have been voted for obama. obama didn't do anything he said

he would do. i did not vote in the second time around. i will not vote for hillary. i don't trust or. she lost all that e-mail. she got our boys, our people killed in benghazi. if i had a son in the military right now i would be scared to death for him if she won the election. simply because all she cares about is filling their pockets. too many people have turned up unavailable after speaking against her. i don't trust her. >> guest: i think that speaks to the exact issue we were just discussing where people really feel like the system is not reflective of their voices. i think that is a real issue that needs to be overcome because there is an institutional candidate, and

that's what hillary clinton is competent there's a whole antiestablishment movement which bernie sanders and donald trump are part of. to analyze the issue. >> host: one of the stories in the "new york times" talked about donald trump about republican women stepping away from the nominee. we've seen other republicans step back. how much of the problem is this for the top campaign? >> guest: i think it is a problem right now. the people that supported will support him throughout, i think he has quite a loyal fan base. of other people that we spoke to at the rnc include said they support him from day one. they are really excited and a lot of those people were historically democratic voters. that was interesting that they were not people who are tied to the conservative party. they were people that were really, believe in him and his message and his waitress talking. i think it's presented a new way of thinking about the political structure. i think that the people that are

mostly alike with the conservative party are not, in fact, as big on trumpet i think a lot of people are trying but maybe it's not sitting well with them. i think what the top campaign has not done well is allowed for people to be neutral and then they went over. i think it's been a little bit aggressive with the help of the rnc in trying to win people over that maybe work ted cruz supporters onto win the loyalty to the trump campaign to the rnc did not help. >> host: statements about mr. khan in the last few weeks. can the trump campaign get over this in your reporting and talking to the campaign? can they get over these issues? >> guest: a kenya to make statements like this and continue to recover somehow. i don't know if indi india thatl prevent people from showing up at the polls and voting for them. that i don't know but the trump campaign has shown me something that i would surprise of the

continued use surprise that we always watch this happen with is a tweet or statement made any camping and music this is the end of the. this will end the campaign and to find a way to recover whether it's walking back, apologizing. he has a good communication staff. i think it really comes down to the people that will support donald trump to support him throughout and they understand maybe he is like truth telling or brash in the way he speaks and they dismissed the comments as of that. some people believe in the same he believes, and they don't mind the comments he's making. the second amendment one is a big one. that's what a lot of people had to take cause, and the trump campaign's response was to blame it on the media. instead of saying this is something we take upon ourselves and maybe mischaracterize the wording. they always find what. >> host: here is robert in virginia. go ahead.

>> caller: thanks for taking the call. >> and then take your seats. at because we all know there's no such thing as a free lunch. we ask them to hostess but, of course, that means they can speak. so i'm very happy to introduce to you our luncheon speaker, our luncheon speaker is dr. karen parents, an adviser in the division of research and statistics here at the federal reserve board. her research and policy work are in the area of housing markets, mortgage and consumer finance and the synchronization of those markets. her research has appeared in the region of economics and statistics, the journal of monetary economics, the journal

of urban economics and the brookings papers on economic activity, among many other places her work has been presented. she's also working on the boards initiative to increase diversity in the economics profession, and that includes outreach to the public high schools here in the district which she has a beer and your affection for since she is a graduate of wilson high in the district. so she and i have two things in common because i attended public elementary school in washington. and she joined the board in 2001 because she's a fellow badger, of having earned her ph.d in economics from the university of wisconsin-madison. go, bucky. so have to put in another plug.

phil jefferson is not here but he would be upset with me if i didn't mention that she's a graduate of swarthmore. dr. pence serves on the board of overseers of the panel study of income dynamics, that the dataset that is near and to to the heart of those of us who look at racial wealth inequality. it's a major source force have an understanding of that. we are very happy that dr. pence is going to share with us some of her work, and also share with us some of the vision that the fed has here about diversity. so thank you very much. [applause] >> thank you. it's a real pleasure to be here today and be a part of these are important conversations. many thanks to bill spriggs, and my federal reserve colleagues, to other people.

i have no doubt forget have made today possible. this will is a special event. just to clarify, it is true my salary is paid by the fed but i'm not speaking for the fed today. so these are my views so please do take note of the disclaimer that the views of his presentation online. i'm going to talk about the mortgage boom and which also increased their borrowing during the boom and i'm going to do that for two reasons. one is a federal reserve economist have done a lot of extraordinary important work in this area both about what happened during the mortgage crisis and which good for affected. i will touch will but on the work today and talk. this quite a bit of it but we welcome questions about it after the talk into the june touch with some of the authors of the work that were in the room. the second reason i'm going to talk about it is i think part of our understanding of what happened during the crisis is still evolving in some of the parker nerd i think actually,

well, maybe incorrect is too strong but a minimum at incomplete or i'm going to suggest a folder narrative of what happened that i think may come as news to some of you. i'm going to start with three facts i think are incontrovertible. the first one is the rise in mortgage debt. there are giveaways to measure it. the survey consumer finance as the poor produces measures mortgage debt, though funds are produced by the board. they also pretty much the same pattern. i'm showing data from credit bureau records collected by our colleagues at the new york fed. these numbers are adjusted for inflation to even taking into account inflation, between 1998, 1999-2008, we'll mortgage debt more than tripled. i'm sorry, more than doubled in trillions of dollars. from about $5 trillion to around $1120 that's after taking into account inflation. that reflects a lot of things, the rise in house prices, people

buy more homes and people extracting more equity from their home. it was an extraordinarily large change in the depth those in the u.s. the second main factor was the deterioration in mortgage lending standards that contributed to this rice into. it wasn't the whole reason but part of it. this is an advertisement from the time period by today's lending standards really quite extraordinary. but it's worth reading some the specialties of this particular vendor. all applications are accepted. rates as low as 1%. no proof of income needed. bankruptcy programs and lines of credit, credit repair, we size to one of% of value. 100% investor program. so there was a lot of creative thinking going on during this period and in what the. >> knowing how the storyline ends, it's kind of a sad advertisement. then, of course, here we now

have a store into. and credible search of mortgage delinquency is appointed by cashman to the point of 2010 all the ousted mortgages in the u.s., about 10% were delinquent. an enormous number. these three facts i think are in controversial that debt increased, the lending standards deteriorated, and to a lot of delinquency is and defaults as result. but people have different narratives for why this happened. our understanding as a profession of why this happened has evolved as well as new data sources have come online. i call the first generation of studies and will be very similar to many people in this room, more than even, has to do with the predatory lending, the predatory flows to low-income and minority communities. that was part of the story. the second wave of papers including one i our colleagues at the boston fed that emphasizes it was a broad-based phenomenon.

it was increase in funding flows to these communities but everyone across the income and credit score distribution took on a lot of debt. i'm going to emphasize a third strand of the scared and that's the role of investors. that's the part of the story i think really has not gotten a lot of play in part because we have had the data to really recently understand you. that's what i'm going to talk about. my work is heavily drawn from the work of an economist at the fed was not here today. i'm going to be giving a very broad overview of his work i recommend it to all of you. you've got an article in the journal monitor economic as well as our website. he outlined his broad taxonomy of how do you think about increased mortgage debt. roughly speaking there's three types of ways you can increase or its debt. you can be a rancher and they do that in your parents basement

and then you go out and buy a house and you finance it with a mortgage. that's one very dramatic way to increase your mortgage debt. you go from zero to the purchase price of a house. on the second way can you homeowner but maybe you do a cash out refinancing, maybe a second lien, maybe you by your neighbors house down the block and decided you're going to get a more expensive house. you are still owning that only on the white house but your debt is more. the third way is to be an investor. i've talked about a very particular form of investor. we are not talking about corporate investors, not talking about some of the firms that have emerged recently and bought houses in both. talking to people who bought a vacation house, a second house, a couple properties to flip and finance them with household mortgage debt. this is a household level of the phenomenon, not a corporate phenomenon. just to make that very clear.

so neil shows what happened to these groups during the mortgage them which i'm going to described as being from 99-2007-2000 a. the first group, the people who were not home owners and got a mortgage to buy a house. the interesting thing about this is that he starts in 1999, so the way to use this, from 1999-2001 there were 70 million borrowers who didn't own a house who got a mortgage to buy a house. went up a little bit of than 17 million, again the next time period, and then this echoes the early work about how the homeownership rate actually start peaking in 2004. the number of households who became homeowners for the first time started to fall. if you look at the dollars, but dollars are still kind of going up because house prices are going up. in terms of the number of household who are making that transition like to visit that is

getting into the market who wishes funding to the house prices and industry is vibrant and ramping up their mortgage debt, it's obviously a lot of these people but it's not a the group that is really going in terms of number of households. vendors this second group, the equity extractors if that's how you like to think of them. these guys also pete earlier than you might have thought. huge increase in the beginning part of the period. so in the 1999 period there are about 9 million people who increase their mortgage debt by giving a second lien or what have you. interest rates fell a lot and they cash out refinancing went crazy. it went up to almost 17 million people during the 2001-2003 period that we're taking out a second lien. the net started to wane. it stayed high, people kept taking a cash because their house prices was to go up by the

interest rates were not quite as favorable. if you look at the dollars going up a little bit more because house prices are going up but again it isn't like in the late stages of the bubble, the people who are going all in who are contributing to the fraud was on 2006 or seven, there's a lot of these people do not the extra people coming in. so it turns out the extra people coming in are the investors. you should think of this as someone who buys a home to flip, someone who buys a second home. you start the beginning of the period, there were 3 million investors to increase their debt. it's not clear in the data except have increased the debt but i think it's a safe statement most of them are buying additional properties because you don't tend to refinance existing property. roughly speaking, two or 3 million people are buying a second home, a house to flip. rises to about 4 million people in the next period. 4.5 indy 300 after that.

by the 2005-2007 period, almost double. there's 5.5 million people who are out there who own more than one house are increasing the debt reason we for the most part by buying extra properties. this one is a very different trajectory. as the bubble progressed, this is the group that was really intriguing to the extra little bit of froth. 5.5 million is that a lot of borrowers? maybe you're convinced by this graph that went up but physics significant, is a large? this shows you in response to other groups that are often singled out by policies as contribute to the housing bubble. so the 5.5, the investors, during the 2005-2007 period 5.5 million investors increased their mortgage debt. the next bar is first-time

homebuyers with low credit scores here defined as being less than 680. you can see during this period roughly half as many of these people come about 3 million the first time homeowners with low credit scores to increase their mortgage debt significantly for the first time. and next bar shows a large group of homeowners. think of these, the extra people that also includes the 3.1 like maybe on the house in one city, you move to a new city, debated and in the white house. that's the people we are adding. it's still 5.3 million about the same inside as the investors. then you might say no one was buying houses, maybe it was the subprime people who run extracting all the equity. so they were almost 6 billion of those people, about the same size as the investors. then you might say low credit scores but i'm not going to make the error people make and say

low credit score equals low income. that's something that gets lost. people use them -- there's lots and lots of low income people who pay their bills on time all the time. if you look just a low income neighborhoods, this is a fine as having beaten income in the truck run $40,000. these flows are even lower. there were 2 million people who became homeowners during this time in the low-income neighborhoods, about the same number who extracted equity. the point of this slight is that relative to the groups you hear a lot about in the popular discourse, these investors are comparable in size. that is true if you look at it in dollars closed i've been showing you the number of households since the interest is likely the people who got involved, but the investors tend to buy bigger houses. if you look at in dollar flows, into 2005-2007 period they

increased their mortgage debt holdings by close to $900 billion. every other group with the exception of the any homebuyers with lowe low credit scores are nowhere near that magnitude in terms of the number of flows coming to them. i hope i convinced you this is relatively large group of borrowers, a group that was increasing especially towards the end. i guess the question is are there mortgages risky? what i'm going to try to argue next is these were mortgage flows that were very risky. i'm going to use risk into particular ways. one, thes these are loans that a high incidence of fraud and these were known for high incidence of default. turning first to the fraud. owner occupied fraud, what i mean is you get about and you say i'm going to occupy the property. for a purchase will it's a relatively hard type of fraud to

discover because it's about intent. no one is living in a house they haven't purchased yet. where there's been lots of research of income fraud, there has been much work into owner occupied fraud. owner occupied fraud of course is lucrative in the sense you can say your own occupied you get a lower interest rate and get to put down a much lower down payment. it's very profitable said upn owner occupier. but the economic profession hasn't paid a lot of attention to this to a lot of the reason why is it's hard to detect in the data. it's a development of this credit bureau data that i started the talk talking about, really has allowed us to identify owner occupiers and investors with a fair amount of accuracy. this is relatively recent data that we've developed. these results are from my colleagues at the federal reserve bank in new york, and

let me tell you about it. it's a complicated graphics the first thing you should notice that these are not all mortgages in u.s. the specific sample there looking at our kind of the worst of the worst. looking at subprime loans and alt-a loans the incident and privately placed goals. this is what you think the 2/28, the negative amortization, kind of the mortgage buzzwords, that's what this is. that top line, the green line is what they found in their credit report data. that's by the year alone originate. the start of the far left. it tells you in the year 2000 about 22% of these loans come again the worst of the worst, we're going to investors. that rose sharply throughout this period and you can see by the end it is close enough. so of the worst of the worst, half of these are going to investors. the bottom line, they match

these with what the bar was total lenders and was ultimately reported in the documents of the mortgage-backed securitization pool. these were the data we have the federal monitoring during the financial crisis. two things to notice about this line. first of all it rises but not that much. it rises from 12% to 17% so which relatively flat. it's much lower and the special by the end of the time period. if you look at these mortgages that were originate in 2007, up to about 17% were reported as going to investors while in fact half of them are going to investors. not only did investor share go up, the fraud went out. this is another paper by a different set of authors using the same basic technique. it's a different sample. the numbers are not going to quite line up.

they have a fair number of prime loans. you don't want to look at these numbers and compare them per se to the earlier slide but i'm showing it because it makes a geographic point about where this fraud was concentrated. anyway, dark red color means high fraud, and to talk to do what it means, for example, in california and nevada, areas with those a lot of house price volatility, a lot of speculation, what that means is of all loans that set their own occupied and again this is a sample of better loans, seven-9% were going to investors. florida was even worse. roughly speaking out of every 10 loans of this particular sample in florida has said they're going to owner occupiers, approximate 10% were actually going to investors. so not only were these flows large and increasing over time

but they were also concentrated areas of the country where there was a lot of house price speculation, house price depreciation and then decline. the final point is that these loans were incredibly likely to default. this again is based on neil's work. let me talk you through it. it's a little bit complicated. this is based on tabulations of the number of borrowers who went into default any given period. so the first column tells you of all loans that went to default during that time period, 17% went to investors. you can see that stayed pretty constant. for the first four bars, all about 17%. this is a time when house prices were rising and when defaults were no. 2007 the picture change the house prices are falling dramatically, defaults are rising dramatically. the number of loans in default is rising dramatically. the sheer of those going to