to make this the norm at hud. hud's role is one of the most critical in government because it directly impacts american families. from enforcing fair housing rights to revitalizing distressed areas, from assisting veterans and finding permanent housing to helping communities rebuild after a natural disaster hits, the department is making an impact in small towns, big cities, rural communities and tribal communities across the country. the 21st century is shaping up to be the century of cities. and i believe there's a reason for that. in america's local communities, partnerships and pragmatism are the key drivers to success. that perspective has guided my efforts. if confirmed, i look forward to working with you to strengthen opportunity for americans through hud's efforts. once again, thank you chairman johnson, ranking member crapo, and members of the committee for your consideration of my nomination. it's an honor to appear before you, and i look forward to answering any questions. >> thank you.

ms. wertheimer, please proceed. >> chairman johnson, ranking member crapo, members of the committee, thank you very much for the opportunity to appear before you today. i am honored to be president obama's nominee for inspector general of the federal housing finance agency. and before i begin, i'd like to introduce my family, who has accompanied me here today. my husband, andy pincus, our daughter, kate pincus, my steadfast mother, sidelle wertheimer. my in-laws walter and ann pincus. with that, let me get to the meat of what i'd like to say in my statement. the fhfa plays a crucial role in our financial system as the safety and soundness regulator of fannie mae, freddie mac and the 12 regional federal home

loan banks. to ensure they operate in a safe and sound measure and serve as a reliable source of liquidity and funding for housing finance. and as senator crapo mentioned, since september 2008, almost six years now, the agency has acted as conservator for fannie mae and freddie mac, to protect and conserve the assets and property of those enterprises and protect the taxpayers' investment, which is currently $187.5 billion. currently, fannie mae and freddie mac guarantee more than $5 trillion in mortgages in this country. three out of every four. congress can mandated strong independent oversight of agency programs and operations by the fhfa oig to safeguard taxpayer dollars.

to carry out this oversight, the oig conducts and coordinates audits and evaluations of agency activities and investigations of the agency and its regulated entities. much of my professional career has focused on leading investigations into alleged wrongdoing and counseling clients on improvements to internal controls and processes to prevent and detect violations of law. i have deep experience running independent investigations for audit committees and committees of independent directors of public companies. these investigations have looked into a wide range of areas. financial statement reporting and disclosure errors. alleged accounting irregularities. misconduct by corporate officers and employees. possible improper payments to foreign government officials. whistle blower claims.

and other significant issues identified by a host of stakeholders. in each of these investigations, we followed the facts wherever they led without fear or favor. we developed remedial measures tailored to the facts found. we monitored implementation of that remediation. a number of these investigations led to dismissal or resignation of high level company employees and adoption of significant new policies and internal controls. if confirmed as fhfa inspector general, i will exercise my duties aggressively, independently and fearlessly. i have a deep appreciation of the critical importance of conducting rigorous, fair and thorough audits, evaluations and investigations. of communicating the results to stakeholders clearly.

and holding individuals accountable for their actions. i pledge to be responsive to this committee and to congress as a whole, and to develop a good working relationship with the fhfa director. after more than 30 years in the private sector, i'm honored to have this opportunity for public service. my father was a first generation immigrant who came to this country with his parents in 1938. they escaped with the clothes on their backs, and they spoke only german. my grandparents had to reinvent themselves in this strange new environment. my grandmother found work as a domestic house cleaner, and my grandfather was employed to scrub out cocoa barrels on the new york docks. together, they earned enough to rent an apartment in kew gardens, a community populated with german and austrian refugees. my father enrolled in new york city public schools, learned to

speak unaccented english, and graduated as valedictorian of his high school class. america has given so much to me and to my family. i'm eager to give something back to america. thank you and the committee for your consideration of my nomination. i look forward to answering your questions. >> thank you for your testimony. if any member has written questions for the record for the nominees, i ask you please submit them by noon this friday, june 20. i also ask that the nominees respond to the written questions quickly so that we can move the nominations forward. we will now begin asking questions of our witnesses. will the clerk please put five minutes on the clock for each member. mayor castro, in your opening statement, you mentioned some of your priorities if confirmed.

would your priorities also include working to address the vast housing needs in indian country and engage in consultation with tribes? >> thank you very much for the question, chairman johnson. and i appreciate your -- your very strong advocacy for tribal communities. absolutely. i'm committed to ensuring that we work closely with our tribal communities. i look forward to at hud being focused on that. i fully understand that in my experience as a big city mayor, however that as part of hud's mission, we don't just serve big cities or urban areas. we also serve rural communities, small towns and our tribal communities. i look forward, if i am confirmed, to working with -- with you and with your staff and other committee members as the

nahasda reauthorization perhaps moves forward, and on issues related to our nation's tribal community. >> i have been handed a note that representative joaquin castro is here. mayor castro, a 2012 hud report found that san antonio had not administered 2008 neighborhood civilization program grant in accordance with program rules. can you tell me what happened with that grant and how the city addressed this issue and what your involvement was as mayor? >> yes. thank you very much for the question, chairman johnson. the -- the hud ig did issue preliminary findings with respect to the neighborhood stabilization program in the city of san antonio. after consulting with city of san antonio staff, the city of

san antonio staff provided backup documentation to clarify those preliminary findings. at the end of the day, about $125,000 was paid back with nonfederal funds. city of san antonio funds. as soon as the counsel and i learned about that issue, we were supportive of corrective measures that were put in place. there was an nsp checklist, for instance, that was created. compliance was strengthened. personnel were removed who had had authority over that program. and i look forward if i am confirmed to ensuring that we're vigilant with our grantees with the nsp program and other programs as well. >> ms. wertheimer, we have discussed the steps you plan to take if confirmed to address potential conflicts of interest relating to your past work on behalf of clients as well as

potential conflicts with respect to your husband's work. can you please describe these steps to the committee? >> absolutely. thank you, senator. when the president -- when i was advised that the president sought to nominate me, i appreciated the need to get ahead of potential conflicts of interest. and so i spoke at length with the designated ethics officer of the federal housing finance agency and explained my strong interest in avoiding either actual or perceived conflicts of interest, or the -- or even the appearance of a conflict. so to that end, the designated ethics officer of the agency, in consultation with the office of

government ethics, and i agreed that i would recuse myself entirely from any matter in which my law firm, wilmer, cutler, pickering hale and dorr, appears before the agency or before the fhfa oig. so not just limited to oig matters. and that i would also recuse myself from matters in which my husband's law firm, mayer, brown and platt, appeared before the fhfa or the fhfa oig so that there was no appearance issue with respect to my husband's law firm. in addition, i agreed to refrain or to recuse myself entirely from any matter in which clients of mine, with whom i had worked on matters, if they were represented by another law firm, for example.

if they were to appear before the fhfa or fhfa oig, even on matters unrelated to matters i had advised them on, that i would recuse myself for a period of -- i believe it's two years. and, last, there were several items in our portfolio that because of potential appearance impropriety issues we agreed to divest within 60 days of my appointment, if that is to occur. >> senator crapo. >> thank you, mr. chairman. mayor castro, the fha insurance fund has been undercapitalized since 2009. at the end of fiscal year 2013, fha announced that it would need 1.7 billion from treasury to cover an increase in anticipated costs of loan guarantees. this marked the first time that the fha needed funds from treasury to cover an increase in expected future losses in its single family mortgage program. last year this committee moved legislation, the fha solvency

act, with strong bipartisan support. to get the fha back on stable financial footing. if confirmed, will you commit to help us move this piece of legislation and to move the fha toward solvency. >> thank you very much. thank you very much for the question, ranking member crapo. and i want to commend you and the committee for, as you said, very strong bipartisan work on the fha solvency act. i am committed to helping to ensure that if i am confirmed, that the fha is on a good track and to support legislative efforts to that effect. it's my understanding that in the independent actuary has said, at least for fiscal year 2015, the fha is on a stronger track. that it will not need another draw. but i -- if i am confirmed at hud, i look forward to working with you and to the committee to support legislative efforts as well. >> thank you very much. and that is good news to hear.

will you assure us that the fha will not do anything to reduce its incoming capital before it has met its statutory obligations? >> thank you for the question. of course, i'm hesitant to commit to things specifically, not having been at hud and seen all of the details. however, i will say that i share with you a commitment to ensuring that the fha has a positive capital reserve ratio, that it is on the right track, and that it does not need another mandatory appropriation. >> well, i thank you for your attention to that. second, to change issues quickly, as we did when we met privately, i want to discuss with you the housing finance reform legislation that this committee has put forward. secretary donovan has worked very closely with this committee in helping to develop this legislation and negotiating and advocating for its passage. if confirmed will you commit to helping the committee move this important piece of legislation

so we can get our financial housing market back on track for long-term stability? >> senator, you and chairman johnson, committee members, are to be commended for the work that you have done on this issue. and i share your goals in ensuring that we have a housing finance system that both protects the taxpayers in a stronger way than we have had in place and also balances access to credit for folks of modest means who are credit worthy. and so i look forward, if i am confirmed, to being an active participant as the committee and as the senate continues to work on this issue, this legislation. absolutely. >> thank you. do you believe there are any negative consequences to our inaction on reforming fannie and freddie and resolving the conservatorship? and, if so, what are they? >> well, i do believe that -- that the status quo is not in the best interest of americans.

i believe that -- that if we can resolve these issues that i know the committee is still very much discussing, even though this has made it out of committee, that it would be preferable for the taxpayers not to be in the position of first loss. and that the current conservatorship of fannie and freddie is not sustainable for the long term. i know that there's litigation already that has arisen, for instance, out of this. and so there have been some negative consequences. i will say, finally, i know it's a balancing act. that there are concerns in terms of access to credit. and having represented san antonio and seeing these issues on the ground level, i can understand those concerns. and if i am confirmed, i would look forward to being an active participant in trying to come to a resolution on that. >> thank you. ms. wertheimer, i'm about out of time.

so i'm going to have to submit most of my questions to you and some additional ones to mayor castro in writing after the hearing. but one quick question to you that i do want to ask is, another unique situation for the fhfa ig is the fact that the treasury department is a party to a preferred stock purchase agreement which set the conservatorship terms for funding and repayment for fannie and freddie. how do you envision the fhfa ig interacting with treasury or the treasury ig to ensure adequate oversight, given this unique situation? >> senator crapo, my -- the predecessor in this position, mr. linick, devoted significant effort to developing collaborative working relationships with igs in other agencies, including the treasury department. and the igs through cross-agency work, worked extremely effectively in oversight responsibilities where there was

shared oversight. and i would envision continuing the -- that cross-agency collaboration with igs in treasury as well as with igs in other agencies and with the u.s. attorneys across the country. that's the way we're going to get this job done. because there's cross-agency responsibility for enforcement of the laws. >> thank you. >> senator reid. >> thank you very much, mr. chairman. welcome, mayor castro and ms. wertheimer. mayor, can you share or elaborate on your envision of housing and urban development, particularly based on your experience as mayor of san antonio? >> thank you for that question, senator reid. well, as a local elected official, of course, my viewpoint on this was -- was from the other end, working at the ground level. and what i've found absolutely essential to ensuring that folks have good opportunity by what

hud does is to work across agencies. that's what we did in san antonio. very early on in my tenure, we got together our housing authority with our transit agency, one of our urban course school districts, one of our universities, the united way, to figure out how we could make better use of resources. and understanding from being at that local level that housing is an important component of overall quality of life and providing opportunity, but it's not the only component. when we tackle these issues in a more holistic way along with education, along with transit, i believe it has a bigger impact. and i'll be looking for opportunities to do that. secondly, one of my significant takeaways from my experience in san antonio as it relates to housing is that we need to -- we need to measure the outcomes. we set a goal early on, for instance, in san antonio of trying to create 5,000 housing units in our downtown by the year 2020.

later we increased that to 7,500. it's been my professional experience that when you set a goal and when you're measuring results, you're much more likely to stay on track to try and achieve that. and then finally, i see out there the urgency for more affordable housing opportunities in our urban community in san antonio, but throughout the nation. and i would work very hard if i am confirmed to do what we can to create those opportunities. >> thank you, mayor. shifting to another issue that's going to be vitally important, and that is the administration committed to end veterans homelessness by 2015. and we're close in some parts of the country. rhode island is -- we think we have 97, approximately 97 homeless veterans at this time. we want it to be zero. but can you tell us, what are you plans to help states, rhode island particularly, to reach this goal of no veterans homelessness?

>> and i commend you for the work you and members of the committee have done. this, i believe, is a real bright spot for your work, for the administration's work and for the work of secretary donovan. and a very laudable goal. to effectively eliminate veterans homelessness by the end of 2015. one of the primary ways that we have supported that -- that hud has supported that is through the vash program, vouchers, in close collaboration with the v.a., to help ensure that homeless veterans have the opportunity to get housing in local communities. and if i am confirmed, i look forward to bringing a ton of energy to be supportive of that and to meet that goal. i know how important this is that we make right by our veterans. and hud, if i'm confirmed, will be a key, key driver of that. >> well, thank you very much, mayor. ms. wertheimer, you have an incredible record.

and your career has been distinguished by a great intelligence, great integrity. and i was impressed with your response to senator johnson, the chairman's, question about maintaining the appearance as well as the reality of independence. and all i wanted to say is that's going to be a continuous effort on your part. because as you pointed out so succinctly, many times you'll have firms that you've worked with on the other side of the table, clients on the other side of the table. but i just want to, again, emphasize the notion of not just the reality, because i have no doubt you're going to be scrupulous in your conduct, but the perception that, you know, that there are conflicts. and let me just reinforce that point again, if i may. >> thank you, senator. i agree with you. i think an independent ig is

only as credible as the -- not only the actual independence, but the perceived independence. so it's critical to me that this office, if i am confirmed, maintain both actual and avoid any appearance of -- of lack of independence. >> thank you very much. thank you, mr. chairman. >> senator shelby. >> thank you, mr. chairman. mayor castro, for years i believe the problems of the fha have been well known by this committee and probably a lot of other people. during the housing boom, the fha unwisely, i believe, guaranteed a lot of risky mortgages with low down payments to borrowers. they weren't the only ones, now. these mortgages have resulted in billions of dollars of losses to the taxpayer. in the interest of stable and -- you know, fortified housing market, could you speak to your perspective, if you have one

yet, on the reserve ratio of the mutual mortgage insurance fund, what it should be? and what about the minimum down payment levels? do you have a perspective on that? >> thank you very much for the question, senator. i want to commend you for your work over the years on this issue. of course, the health of the fha has been subject, i know, of tremendous scrutiny and debate. i believe that -- that be there can be action taken to ensure that the fha stays on a positive track. my understanding, my preliminary understanding, is that it is on a much more positive track now than it had been. of course, the reverse mortgage program and also some -- some loans from the 2007 to 2009 time period were problematic. as you've mentioned and other committee members have

mentioned this was an unprecedented event for it to need a mandatory appropriation. so i believe that as we move forward that -- that there is reason to believe, to have more confidence in the fha. i'm also aware, on the other end, that the credit quality of borrowers for the fha is stronger than it ever has been. with the fico score of just under 700. and so my perspective, whether it relates to the requirements for down payments or other measures, is that we achieve this balance to stay within the mission of the fha, the historic mission to ensure that first time home buyers, that folks of modest means who -- who are credit worthy, that they have the opportunity to reach the american dream of homeownership. but at the same time that we have policies in place that ensure that what happened a couple years ago does not happen again. >> i want to get into the section 8 area.

in the fiscal year 2014, which we're in now, funding for the section 8 programs totalled nearly $29.1 billion. of the $45.47 billion in outlays for the department of housing and urban development. i believe that's about 64%. that is a heavy outlay. could you talk about what, if any, plans that you would -- have you thought about as policy to try to rein in spending for this program? we know this is an important program for a lot of people. but i also serve on appropriations committee. we have to deal with real numbers, too. >> well, thank you very much for that question. i'm fully aware that, as you say, the section 8 program does consume tremendous amount of hud's overall budget and that rents rise every year. and so we face that continuing challenge. i look forward to -- to delving

into more of the details to look at what ways we can achieve some efficiencies and hopefully streamline. i know that under secretary donovan's leadership, hud has looked at ways that it can be more nimble and achieve cost savings. and if i am confirmed, senator, i would look forward to visiting with you about this issue. >> in the years leading up to the financial crisis, fha's mortgage insurance market share went from less than 5% to more than 30% in 2008. that were the boom years. and continues to hover -- and i believe levels around 20%. are they -- what do you think of -- have you thought about the area of spending in the private mortgage insurance sector and, ultimately, moving toward a fully private sector mortgage insurance market? or is that too far out for you? >> thank you for the question, senator.

well, i believe that -- that the fha does have an important role to play. of course, it played a countercyclical role during this downturn. as you mentioned, what we've seen is that as the housing market has gotten stronger and we see more private capital in the market, we've seen that market share go down. and so i believe that there is a strong role for the fha. and if i am confirmed, i'll look forward to visiting with you and the committee as we set that. >> ms. wertheimer, my time is running short. it's out, i guess. but i'd like to ask you one or two questions. what's your view of the level of independence needed between the ig and the director of the fhfa and its senior staff? and how important is it for the inspector general, which you have been nominated for, to not only have adequate resources, you've got to have those, but also unfettered access to all of

fhfa's records and data? >> we'll take this question, and then we'll do senator menendez. >> go ahead. you can answer. >> thank you, senator. i think independence is at the core of the ig mission. the -- and i have deep experience leading independent investigations. i value the importance of a working relationship with the fhfa director, to report to him on what has been found in a collegial matter. but it is not a collaborative relationship. because the ig reports not only to the director, but to congress. and, therefore, in terms of reporting, what the ig has found, either in its evaluations or its audits or its

investigations, will be communicated respectfully, but there will not be a collaboration on the reporting -- on how to formulate a report. with respect to access, access is at the core of how the ig can fulfill its mission. if there isn't unfettered access to the materials, the output will not be worth anything. >> senator menendez. >> thank you, mr. chairman. mayor castro, i must tell you, there aren't too many castros i like. but i do like you and the congressman. so look forward to working with you as the subcommittee chair on housing. >> thank you. >> you know, as you and i had an opportunity to discuss, the new jersey case of the worst natural disaster in its history.

if confirmed, you'd have an important role overseeing approximately $15 billion in community development bloc grant disaster relief funding appropriated by the sandy emergency relief act, which i fought to pass. i'm glad to see we deviated from an original attempt to spend $2 billion of that money on the national resilience competitions to 1 billion and new jersey will be eligible for that competition, which originally we were told we were not, so we are moving in the right direction, but there's a lot still to be done. many people are hurting in our state and in the region. so i would like to invite you to join me on a tour of new jersey to see both the work that's been done, but more importantly, see the work that's not been done as left still to achieve a full recovery and rebuild stronger. could i get your commitment as you move upon confirmation to visit with us in new jersey, especially as the national

resiliency competition is going to take place, to inform you of what challenges we have? >> thank you very much for that question, senator menendez. i enjoyed our visit yesterday and want to commend you for your could strong and effective advocacy for folks impacted by superstorm sandy. of course, i would appreciate the opportunity to understand these views better by visiting new jersey. >> now, the state has some well-publicized issues with administering cdbj grants, in this context, particularly with contractors and the approval process. as hud awaits new jersey's amended planned for the third tranche of funding, will you committee to working with me and the state to ensure proper contracting procedures are put into place and that the housing application process is as efficient as possible.

all these funds could nothing if it doesn't make its way to affect the people. >> i agree. as a local official this has been my concern ensuring wherever resources come from, whether local, state or federal, that the rubber hits the road and the lives meant to be impacted positively are impacted. if confirmed, i certainly will work with you to ensure we do our best job on our, that hud does its best job on its end to ensure success. >> you know, the subcommittee held a hearing on section 8 rental assistance voucher reform. and its initial priority for affordable housing advocates, public housing authorities, housing developers, according to the national low income housing coalition in my state of new jersey alone, we have a shortfall more than 200,000 units affordable and available for most vulnerable, extremely low-income households. nationally the shortfall is

greater than 7 million. so voucher reform, while some elements of this have been done by the congress, there is so much work left to be done. do you consider section 8 voucher reform legislation to be a priority? and will you work with us to help move the remaining elements of reform? >> i appreciate the question. i certainly do understand the importance of looking at reform and as was mentioned earlier, the significance of this as a line item in hud's budget. of course i look forward to getting more up to speed on all the details of what's being proposed. however, if i am confirmed, i certainly will work with you and members of the subcommittee and this committee to do what we can. >> i appreciate that. for me, it may be a line item, but this is about millions of people's lives. >> certainly. >> i may see it different than some of my colleagues at the end of the day. from whence i came from and who i represent, i don't look simply

at line items, i look at the lives affected. i hope when you become hud secretary you are going to look at the lives affected, not simply the line items. >> of course, senator. i certainly will. i have done that throughout my time in public service. as a local official have been primarily concerned with how the residents of my community are impacted by the actions we take in public service. so i recognize that overall we want people to have good housing opportunities, and if i am confirmed, look forward to working with you on that. >> i'm sure you will. i sometimes need to be the counterveiling force here. >> senator corker. >> thank you, mr. chairman. thank both of you for your willingness to serve in this capacity. i'm going to help get you back on schedule here. be very brief. to the mayor, i know that as a former mayor there's no job that is more gratifying personally than being mayor of a city.

as we change jobs sometimes we have impact in different ways that maybe are not quite as up close and personal. this certainly is a very important role. part of what you'll be doing and you discussed this with members as you answered questions, you will be part of what happens with freddie and fannie. it ultimately affects fhfa. people seek your guidance. we had a conversation about this. i'm going to ask most my questions in writing to move along with this hearing. it's my understanding that you do believe that the due oppose list particular nature of the way things are today with two enterprises basically being it, relative to the secondary market, that you believe that that has no place in the american society, and you would work with us to end that type of arrangement. i know that you were a little vague on support of the bill and you should be at this point.

relative to that one point, it's my understanding you agree with that 100%. >> thank you for the question and visit we had. i do believe there are alternatives with this conservatorship. i agree with you on that point. i know as with any legislation that the devil is in the details and finding that common ground, if i am confirmed, i look forward to being an active participant in that. >> to both of you, we will have some qfrs. mr. mayor, subject to those coming in appropriately, i look forward to supporting new this nomination. i thank you both for your willing to serve. mr. chairman, i turn over the rest of my time and hopefully get some points for this. thank you. >> senator brown. >> points from senator tester for that. since he can now ask questions. >> thank you for joining us. mayor castro, nice to see you. two local concerns i want to

raise just not as a question, but to thank you for the discussion we had, and what hud has been doing and what i assume from our conversation we will continue. one involves city gospel mission in cincinnati, religiously affiliated men's home. homeless shelter. operating in hud land. and the work that city gospel has done. and a way to meet hud's fair housing expectation. we are close but not there yet. they serve an absolute critical need for homeless men in cincinnati without restricting access to service and employment. i appreciate the work you've done there and thanks for your interest in moving that along. second was the issue of streamlining multifamily operations. i understand 50 offices will be consolidated into just 12 as of 2016 there will no longer be multifamily operations in many states including ohio, the

seventh biggest state in the country. i support efforts to make hud more efficient. i share the concerns of ohio's community leaders so eliminating on the ground supervision could lower the quality of multifamily residences and reduced compliance. secretary donovan was highly engaged. we had perhaps three maybe four conversations about it, my staff and his staff worked on it. since the plan was announced, your predecessor committed to ensure the transition does not negatively impact millions of families and employees who are affected by these local multifamily offices. taking care of the service they provide and the workers that are employed there, and i appreciate your commitment on that. let me ask one question. a year ago hud proposed updates on a rule to ensure recipients of hud funds are living up to their commitment to affirmatively for their fair housing goals. nine months after comments were

received, hud still hasn't released proposed data tools included for public feedback, nor has it finalized the much-needed changes it proposed last july. just tell me, if you would tell the committee, what steps you'll take to make sure state and local recipients of hud funds engage in meaningful discussions about providing equal housing opportunities for people in our country. >> thank you very much for the question, senator brown and for the visit we had the other day. i, of course, had not been part of the rule-making process before now. however, with regard to affirmatively furthering housing, i do believe it's important that there be that kind of guidance and comments from local authorities. i know that the san antonio housing authority, for instance, provided comments and so what i can commit to right now, whether it's this issue or another rule

on the table is that we will diligently proceed and take in the comments and consider them and more generally, that i consider this something of importance for our local housing authorities. >> thank you. thank you, mr. chairman. >> thank you. staff tells me we'll wait until ten after 11:00, but i apologize for this, but if you could abbreviate your questions. senator toomey. >> thank you, mr. chairman. i will try to abbreviate my question. thank you, ms. wertheimer and mayor castro. good to see you both, and i appreciate the discussion we had in my office,s mayor castro. i do need to follow up on one of the topics we discussed. many members of this committee

alluded to the ongoing work to reform housing finance. while we have a range of opinions about how best to do that, i believe there is a unanimous agreement on this committee that however we do it, it's got to involved bringing private capital into financing residential mortgages. at the same time we are having this discussion, as you know, there is a movement under way to attempt by certain communities, to attempt to use eminent domain as an argument to justify confiscating mortgages from private lenders at a discount some, who knows what discount to what they're actually worth. first of all, i think it's a blatant violation of contract sanctity if they do this. it's a taking of private property for private gain, which our constitution clearly forbids, and it cannot but have a devastating impact on the ability to attract private capital if private lenders know

they run this risk. my question is, as hud secretary, will you take active steps to deter this kind of activity, and specifically, would you forbid the fha from participating in the refinancing of mortgages that were confiscated using eminent domain? >> thank you very much, senator, for the question and for our conversation the other day. as i mentioned the other day in our conversation, this particular device that i know a handful of cities have employed was issue of first impression for me. this is not something the city of san antonio has tried. i understand, in fact, it hasn't been put into effect actually in any city and there is litigation surrounding it. i can understand why communities with a whole bunch of folks under water might think of this method. however, i do see your point on why it causes concern among mortgage lenders.

at this time, i would say if i am confirmed, i would look forward to visiting with you and committee members on what hud's programmatic response ought to be. >> i appreciate the ongoing discussion and visiting. i really think senators ought to know what your views are about using eminent domain to confiscate mortgages. and would you intend to allow the fha to participate in that? >> thank you, senator. i can certainly see your concern. as i said, it's not something the city of san antonio or under my leadership we ever proposed or drew up. i would like, however, if i am confirmed, the opportunity to get a little bit more detail on the issue, understand it a little bit better, then take that up with you and members of the committee. >> so i see i'm not going to get an answer to my question, mr. chairman, and i will yield the balance of my time. >> senator tester.

>> it's good to have you here, mayor, along with your wife and brother. appreciate your being willing to serve. you talked at an earlier question about taxpayer should not be in first position of loss with fannie mae and freddie mac. don't let me put words in your mouth, but that's what i heard. do you believe taxpayers can be protected without reform of fannie mae and freddie mac? >> thank you, senator, for the question. i believe that reform would be preferable to what we have in place now if the nation were to experience another down turn, another housing crisis as we just experienced. for that reason, i commend the committee for working toward housing finance model that takes the taxpayers out of their position of first loss and puts the private sector in that position.

i fully understand though, as well, the concerns of folks with regard to the other part of the balance, which is access to credit, and that we have had a housing finance system in place that seeks to ensure opportunity for americans of modest means who are credit-worthy borrowers. i can understand the very real concerns. if i am confirmed, i would look forward to hopefully bringing some fresh energy to this and to working with members of the committee who are willing to work to find a resolution. just to answer your question, i don't believe that the taxpayers are nearly as protected as they could be under this different model. and that's a positive of the legislation. >> okay. do you think access to credit versus taxpayer protection, do you believe we can have both? >> i absolutely believe we can have both. i know and i commend the members of this committee for working toward those dual goals.

if i'm confirmed, i look forward to working with you to achieve both those goals i believe need to be a part of any legislation. >> housing conditions are in terrible shape. we visited about it when we were in my office. i appreciate the work hud has done in indian country. there is some word that the agency might be looking at different data sources and could potentially change the funding for tribes, would have a negative effect on the tribes in montana. could you give me assurances a new formula at the agency would use in the future to allocate tribal housing funds would not unduly disrupt the ongoing tribal housing programs? >> thank you for that. i want to commend you for the strong advocacy you've shown in our conversations and more generally with tribal communities.

i would agree what we want to do is provide more actions or hud wants to provide more housing opportunities and not less. what hud would seek to do is work with our tribal communities as we traditionally do. and also with you, senator, and the committee to achieve balance. >> i look forward to that. ms. wertheimer, could you talk about what exactly would be required of the federal government if additional assistance were required and what obligations the enterprises would have to the taxpayers? >> you mean worthy enterprises to operate at a loss and draw down? >> yes. >> the formula for when additional monies can be accessed has been set in the agreements that are in place. i think the taxpayers are

already invested to the tune of $187.5 billion. additional draws would further increase the risk to those taxpayers. it seems to me the mission of the inspector general's office which is independent, rigorous, thorough oversight doesn't change because of the fact that the taxpayers' burden has increased heightens, if you will, the mission of the oig, but it doesn't change what it will do in terms of its audits, evaluations and investigations. >> thank you very much. >> senator water, we have a couple of minutes. >> i will be as brief as i can be. i want to make sure senator warren gets her two cents in. thank you for your willingness to serve. i'm going to ask you in a written question about the recent fha/oig report.

on the common securityzation platform, how we move forward on that. mayor castro, great to see you, i enjoyed our visit. i would commend you under secretary miller's recent comments, pointing out that the comments pointing out that the current profitability of the gses are unsustainable with their shrinkage requirement of 15% portfolio on a regular basis, the small amount of profits making is disappearing. it would take 20 years to recapitalize them. we have the same debate, are they going to be for profit, not for profit, as we discussed the current status quo which has particularly access to credit to african-american and latinos at an all-time low, and the question that senator tester asked wane as directed toward ms. wertheimer, the recent stress test shows potential vulnerability up to $190 billion of additional. now we need to make sure credit box and senator warren and

others have been working how we improve this legislation. so i would simply ask again maybe for the fourth or fifth time. my hope is you will be confirmed that you will get up to speed very, very quickly and that gse reform will be first out of the box on your list of priorities. do you want to add a quick comment so that we can move to senator warren? >> thank you, senator, for the comments and as i mentioned, if i am confirmed, i do look forward to working with you and with the committee to hopefully bringing some fresh energy to this and to helping to move housing finance model that i think works for americans. >> and i will just add, there are improvements on the legislation that senator warren and others of ours have been working on. i would commend the urgency how vulnerable taxpayers are as well as some of the just awful access to credit for low-income people at this moment in time. thank you, mr. chairman. >> senator warren.

>> thank you very much, mr. chairman, and thank you, live senator warren, for your speed. thank you both for being here for your willingness to serve. i'm going to submit questions for the record but i want to make a point. you've been asked about gse reform repeatedly because it is so important. important to our economy. we've talked about different problems we face right now. i would emphasize the problem of access. that many people are being cut out of the housing market. you know, in 2001, before the housing bubble, when fannie and freddie were operating normally, the average credit score for a borrower receiving a fannie or freddie-backed purchase money loan was 711. by 2013 the average credit score had jumped to 756. so, in the wake of the financial crisis of 2008, more american families are struggling with damaged credit, but fannie and freddie have raised standards by nearly 50 points.

keep in mind that nearly 50 million americans lie between those two points on the credit score continuum. the story is much worse for african-american families, for hispanic families. we have got to change what's happening with fannie and freddie. we have got to make reforms. and a large part of that is because of access. any kind of reforms we do have got to be reforms that make mortgages accessible to middle class families, that make mortgages accessible to families who are trying to build the american dream for themselves. i'll stop there and submit the questions around that for the record. thank you, mr. chairman. >> i thank all the nominees for your testimony and willingness to serve our nation. i will remind members to submit questions for the record by noon this friday, june 20. nominees, please submit your

answers to the written questions as soon as possible so that we can move your nominations forward in a timely manner. this hearing is adjourned.

monday, gm recalled an additional 3 million plus cars for ignition problems. wednesday, general motors' ceo mara barry testifies on capitol hill to discuss the results of gm's investigation into the delayed ignition switch recall.

live coverage starts at 10 a.m. we were on c-span3 and join the conversation on facebook and twitter. so the idea behind 200 and 250 is that instead of trying to tell the entire his of st. louis as a time line or sort of like era by era we would absolutely miss vitally important things. so instead of trying to do that and failing we decided what if we just gave snapshots of st. louis history that would give people a glimpse of all the diverse things that happened there and they could use their imaginations to fill in the rest so we chose 50 people, people place, 50 moments, 50 images and 50 objects and tried to choose the most diverse selection we possibly could. we're standing in the 00 objects section of the 250 and 250 exhibit right now. this is what most people would

call the real history. this is where the object is right in front of you. brewing is such a huge part of st. louis' history. it's an amazing story with lots of different breweries and, of course, the most famous became anheuser-busch when they -- were the largest in the world. and in the era of anheuser-busch talking about millions of barrels produced each year, you know, we think they're producing so much beer, this is from an era when things were a little bit simpler and it's fun to show people this object and kind of gauge their response in the days before they had cans or bottle caps, they put corks in the top of bottles and somebody had to sit on this thing and do it by hand. you can see it's got foot pedals on the bottom. that's where the operator would push down with his feet to give the cork enough force to go into the bottle. and it's got three holes for three different size bottles. >> this weekend, the history and literary life of st. louis, the

gateway to the west on c-span 2's book tv and c-span3's american history tv. >> with live coverage of the u.s. house on c-span3. we compliment by showing the most relevant congressional hearings and on weekends it is the home to american history tv with programs that tell our nation's story including six unique series, the civil war's 100th anniversary visiting battlefields and key events, american art fact, touring museums and historic sites to discover what artifacts reveal about america's past. history bookshelf with the best-known american history writers. the presidency looking at the policies and leg cyst of our nation's commanders in chief. lectures and history with top pledge previousers delving into the past and real america featuring archival government and educational films from the 1930s through the '70s.

c-span3, created by the cable tv industry and funded by your local satellite provider. like us on facebook and follow us on twitter. coming up tonight on c-span3, two panels from the american conservation forum on national security. the first looks at the situation in iraq and the second examines cyberthreats. then former national security director john negroponte talks about u.s. options in iraq. later a confirmation hearing for julian castro. >> next, foreign policy experts discuss the escalating violence in iraq. national security, and how the u.s. should respond. the american conservative, the american prospect and the institute for security and conflict studies hosted the event. it's just over an hour.

>> good morning. thank you all for coming. welcome to our conference on the new internationalism. i'd ike to thank george washington university and the institute for security and conflict studies for hosting this event and thanks also to our co-sponsors, the american conservative and the american prospect. my name is daniel larrison. i am a senior editor and i'll be moderating this morning's panel. this will be a discussion on threats and responses with the focus on how to manage threats without resorting to military action. we'll be addressing some of the following questions, what are the real threats to u.s. security and u.s. interests more gem, which u.s. interests are truly vital and take priority? how should we best respond to the threats that do exist and how can the u.s. ensure long-term security without resorting to military action and

what will aid us and what should we avoid. each panelist will begin with their own remarks and with a little bit of time for questions at the end. joining me, william lind, expert on military affairs and columnist for "the american conservative" seated opposite me on the end, dan dresdner, professor of international politics at the fletcher school of law and diplomacy. n nonsenior fellow at the brook igz institute and contributor to "the washington post" and author of "the system worked." and matt dust, policy institute at the center for american progress where his work focuses on u.s. national security, policy in the middle east with a concentration on iran and the iranian/palestinian conflict and co-sponsor of "the american prospect." to begin the conversation i'll say a little bit about how we in america tend to discuss threats and our interest in foreign policy debates and.

then i'll try to answer the questions i just mentioned. in general american foreign policy debates suffer from an overexpansive definition that purports to find it in every crisis enconflict and the interests are often wrongly taken to be of vital importance. the overall number of u.s. interests is exaggerated so is the significance of the interests involved. and that reinforces another unfortunate tendency to overstate real threats and to purr receive threats to the thaus respect there. the u.s. does face real threats from terrorism and nuclear proliferation. but these are the minor or manageable ones. however the more manageable threats, the more inclined we seem to be to overrate them and overreact to them. the more grand yost and ambitious role we imagine for the u.s. and world the more we will be alarmed by crises and conflicts that have little or nothing to do with american or even allied security. that means perceiving threats to the u.s. where none exist and

exaggerating the ones that do. senator john mccain was the latest to indulge in this overkill last week when he described the advance of isis forces in iraq as a threat to america. as long as the u.s. considers t itself to be global hegemon americans will be encouraged to conflate dangers limited to hey particular range with dangers for the u.s. and entire alliance built up since world war ii but the u.s. and its allies are far more secure than that. it is a dangerous habit that need tons broken but there is an alternative. it requires us to focus on the few truly vital interests that the u.s. has such as the stability and security of europe, and that of our major allies in east asia. and to distinguish them from peripheral concerns that don't require a substantial american commitment and requires us to give priority to the threats that jeopardize our vital interests instead of attempting to respond to each new conflict

as if the u.s. had a huge stake in the outcome. we'll be hearing much more from professor barry posen ott the subject of his new book "restraint" but i'd like to quote from it to give us an idea of what this foreign policy of restraint might look like in practice and how it would address threats to the united states. he writes "the united states should focus on a small number of threats and approach those threats with subtlety and moderation. they should do that because the world is resistant to heavy handed solutions and because america is strong and well endow the and well defended by nature and possessed of an enormous ability to regenerate itself." any effort to reorient u.s. foreign policy away from the current overreliance on military action will have to include the rejection of preventive warfare. dismissing the role of deterrents and as if they cannot be contained.

prevention makes sense as a policy only if one accepts that some governments cannot be deterred but there is no reason to believe that such governments exist. the u.s. would also need to be extremely wary of cause to use force to intervene whether it is being asked to do it for a sensible humanitarian reason or some other purpose. while the u.s. has been successful at defeating toppling regimes it is demonstrated it shouldn't be used for that. if we are not able to stabilize the countries affected it should have no part in further destabilizing them in the first place. one thing that the u.s. can very easily do to contribute to international stability is not to undermine it through ill-conceived and unnecessary wars for regime change. neither should it indulge ail light or clients that wish to destable laze their rivals. i'll suggest two other possibilities for what the u.s. can do to promote long-term stability before turning things over to matt.

the first is to minimize tensions with the other major powers in order to reduce the chances to great power conflicts. one of the greatest dangers to long-term international stability and peace is the resumption of that kind of great power conflict that caused so much devastation and death in the previous century. armed conflict between great powers would not only be hammful to all countries involved and global economy but also has within it the potential however remote of nuclear war. to reduce the chances of this the u.s. ought to avoid pursuing premature or unnecessary policies of containment directed against any other major power. and it should focus on those aspects of their relationships whether potential for better ties and improved cooperation with the estates. another possibility is to invest more resources and attention into efforts to mediate and prevent conflicts before they escalate into major crisis. that might involve submitting outstanding disputes to international arbitration or offering direct u.s. mediation for frozen conflicts or

political crises that have the potential to turn violent. in order to be perceived as a neutral mediator the u.s. can't be backing any of the parties to a conflict. appeals for military intervention are frequently successful because they seem to provide a quick response that other method, diplomacy, economic sanctions through international institutions necessarily can't have. that is all the more reason why a foreign policy that seeks to find nonmilitary solutions to respond to threats should make a more consistent effort to defuse crises before they deteriorate and refuse to encourage sudden political change that adds to conditions for instability to conflict. it follows from this what the u.s. should not do. the u.s. should get out of the business of regime change whether arming injure sents or encouraging uprisings. in recognition the sudden changes of governments produce tremendous instability throughout the affected region. the u.s. should generally avoid military action when it is not

strictly necessary for the security of u.s. and its treaty allies. that doesn't mean fighting a war just because one or two allies wants the u.s. to do it and definitely doesn't mean taking sides in another country's conflict because they would prefer to us do so. the u.s. shouldn't extend is halfhearted commitments to clients -- they can be interpreted as promises of military aid or direct involvement. and it shouldn't be willing to ignore its basic obligation under international law for the sake of affirming nebulous norms. we shouldn't enable what the professor calls reckless driving which the u.s. does when it provides unconditional support to clients that behave in an unduly or aggressive way and discourage them from treating our guarantees as an opportunity to take provocative actions towards neighbor that could trigger hostilities that would

draw us into new conflicts. as professor posen notes in his book, restraint is not a panacea and will not eliminate the need for that in certain cases however it is much less expensive and more sustainable politically and less destabilizing approach to foreign policy that would contribute to maintaining peace and security in the decades to come. thank you. now continue with some remarks from matt. >> hi. good morning, everyone. thanks so much to the american conservative and american prospect for putting this on including me. it's a real privilege to be part of this event all the panelists with whom i'm familiar and with some of whom i'm permanent friends i was asked to address america's role and the negotiations with iran. you know, with the goal of the conference being thinking about ways to or panel think of ways to maintain stability without military action with methods other than war. i'd say in light of the

re-opened apparently iraq debate of the past week, i did not plan to have to come here and kind of restate that one of the best ways to maintain stability in the middle east is not to start dumb destabilizing wars. [ laughter ] but it apparently needs to be repeated and will continue -- >> ho you spell destabilizing? >> i think it's on google. so rather than kind of take hey more abstract approach i think as i was thinking through this, you know, just looking at the way the obama administration has handled the middle east, and i think, you know, i and others would have some criticisms about the way they've handled a number of anythings but i say let's look at afghanistan and iraq. iraq withdrawal first of all. very much based and this is really, really important for the administration is basing this in democratic -- in legitimacy both in term of domestic support. this is something the

administration is conscious of constantly. it seems to me but also in terms of international legitimacy. what john kerry referred to as the global test and was widely mocked but guess what, i think he was correct. that, you know, we are stronger when we act within what is seen as an international consensus. now there is a whole raupg of questions of how one establishes or cultivates or, you know, understands that consensus. but i think, you know, the understanding internationally was that occupation should end, the united states should withdraw from iraq. it was certainly democratically supported by the iraqis themselves and overwhelmingly supported by the american people. you know, just speaking as a progressive, i think this sense of legitimacy is possibly, you know, a defining characteristic of the way that progressives understand foreign policy. i'm thinking of ray quote from josh marshall talking points memo back notice early days of the iraq where where he said

legitimacy is one of the ultimate force multipliers that we'll be able to achieve our goals much better to the extent that we're able to bring allies along and be seen as acting in a legitimate fair and appropriate fashion. and i think another key word here over the last few years is pragmatism. it is thrown around a lot. it is not a doctrine in and of itself. it is not a principle of foreign policy in itself but rather a lens or tool that we use to view theories, principles and approaches and ask the very important question of what can we actually realistically achieve and at what cost? now, as someone who actually believes that the united states should look for ways to support freedom, to support democracy, to support, you know, the self-actualization of people and people kind of determining their own destinies both individually and their communities and in their countries, you know, i think that should be a part of mer foreign policy but don't see

any contradiction between saying that and how can we realistically achieve that. i think we've seen over the past decade some very good examples how we don't achieve that or don't invade and occupy other countries and set up new governments and then, you know, then leave people to figure it out. i would say, however, that those lessons, you know, hard ones certainly for us, most definitely for the iraqis with estimates of well over 100,000 civilians killed over the course of the iraq war, i think that this skepticism toward foreign interventions certainly on the part of the american people toward a large part of the american foreign policy establishment, though i don't know if it's yet large enough that i think this is one of the goals of this event to expand that circle of people who see skepticism toward military intervention as an appropriate base line but i think that skepticism deserves to be put in the plus column of the iraq war. there are very few benefits that the iraq war provided and one of

them was we're just not super crazy about large-scale military inventions anymore so i thank the neocons for that. [ laughter ] i mean, looking at iraq and then turning to look toward iran i think they are very, very useful, you know, example and counter example of how american power should be used. i don't want to overstate it but i actually do think obama's iraq policy has been a fairly judicious and effective use of american power. we're seeing the slow undeniable policy of a two-tract policy, some elements of which were in place during the bush administration to be fair but i think it's important to determine the importance -- before he came into office let's remember he started and won a pretty vigorous debate even within his own party with his democratic party opponent hillary clinton about the usefulness and appropriateness

of gauging with enemies specifically iran sitting down and talking with iran and advancing american security toward talking to our enemies. ainge i think he handily won that debate. i think the consensus was well on his side by the end of the campaign with five former seconds of state all endorsing his idea before election day. he took office and made clear both to the american people and to the iranian people his goal was to reach out to try to find some new, you know, new level of a relationship, try to overcome the tensions of the past decades. a huge challenge no doubt. it was frustrating, there were rounds of talks that went nowhere. there was another round of sanction, again the most important and effective sanctions being ones we were able to bring allies on board with us, european partners both in terms of the u.n. and broader u.n.-backed sanctions but individually, you know, the eu and other country, countries like china even though, you know, they're not going as far

as maybe some people would like them to do but they are taking very important steps in lessening their reliance on iranian oil, russia i'm sure everyone here can have some, you know, can have criticisms of what russia has been doing. i probably would agree with them but i don't think there's any doubt that the iran issue has effectively been sort of siloed, you know. the iran negotiations have not been indexed to u.s./russia tensions over ukraine or other things and i think that deserves to be recognized as a victory. so, yeah, i can see -- you know, look at this counterexample. on the one hand you had a massive military deployment, military occupation, a destructive war and expensive war and recognition it is in the united states' interest prevent an iranian nuclear weapon either for just -- some people would claim iran would use that i don't find that very convincing. i think that's a minority war. somewhat more plausible that it

would emfwoelden them to, you know, acting to destabilizing ways in the region and i think there's reasons to doubt that but i think it's a somewhat -- not an unreasonable claim. and then there's also the proliferation issue, the question of whether countries in the region would feel compelled, saudi arabia, egypt, turkey would feel compelled to obtain their own nuclear deterrent so understand nuclear nonproliferation is in the united states' interest that less nuclear weapons is better than more, you know, i would say on the whole even though we haven't reached the goal, we are on track, i think, to achieve something pretty significant for american security. and i think that that agreement goes to what i would see as really underpinning, you know, something in the region that could be and obama has articulated this, others have but i think the idea that iran can be sort of encouraged induced to be a more reasonable, responsible actor in the region.

now, you know, they say and do things that i think give reason force skepticism but understanding iran as, you know, as a state with interests rather than a cause that is going to act ideologically if you looked at their behavior over the past decades, iran has had lots of opportunities to commit suicide to further its ideology and has tak not taken those. it has interests as it sees as legitimate and pursues those h say bet that obama is making is, whether those interests can be brought within a broader framework sort of, you know, whether iran can use a foreign policy buzzword a responsible staying holer in the region and i think the jury is still out. the move toward coordinating or talking to iran over iraq formally i should note because we've been talking to iran in various ways about iraq for decades. i mean that is actually one of the other pluses of the iraq war it caused the united states and

iran put them in very close proximity and got to know each other in ways not always good but not always bad in which we simply hadn't before. so, again, the jury is still out on this question of whether iran can be brought into kind of, you know, a regional framework that adds to regional stability rather than regional instability and in this way, you know, obama, this administration has really acted, you know, over the protests of some of its closest allies and partner, saudi arabia, the gulf state, israel, all of whom have problems for some of their own reason, some difference, some the same. who are made very nervous by the idea that the united states might be willing to see iran and treat iran as a more rational actor with legitimate goals and concerns in the region. so, you know, i'll just finish up by noting once again how glad i am to be part of this conversation. it's one that i'd really hope

continues and will have more events and talk more but as we -- as progressives and conservatives, some of the views that we share about the role that the united states should play, the ways to use nonmilitary tools to advance our security, but i'm really interested and i hope to engage on this more, as again speaking as a progressive, one of my beliefs as i said about my, you know what i think about democrat a enfreedom, these should be a part of, you know, the overall how we approach foreign policy, i do believe we are in this together. it goes to, you know, both my own -- my local community, my state, my country but i think globally, i think that's something progressivism does bring to the table. so but, begin, the question should always be and i think this is where we'll all agree the question is with what tools and at what cost, so i'll finish up there. >> thanks, matt. now dan. >> thanks. i would like to thank the

american positive pect for organizing this and mazie who i think would have moved mountains to get me here and figuratively did move mountains. i have a built in excuse if any of this sounds incoherent i came in on a red eye from seattle so i've gotten two hours of sleep. that's the reason it's not coherent. i'm also in task to talk about asia-pacific, pacific rim and talk about both in terms of the economic side and security side, because as dan noted die have a new book out and it does address this somewhat. if you take a look at what's happened sort of on the one happened and on the other hand security in the pacific sphere you see two discoordinate narratives because on the economic side, on the whole this sort of institutions that were responsible for what you're supposed to do in the wake of a financial crisis actually work

surprisingly well. there were many excellent reasons to believe this sort of great power concert and the institutions they created pre-2008 were going to crack up in the fall of 2008. i'm old enough to remember when a lot of people were saying that in the fall of 2008 and yet that didn't happen. but you can't say that on the security side specifically with respect to the pacific rim and want to explore why. so on the economic side, you know, there were a lot of fears we would be revisiting the great depression and you know that in the midst of an economic crisis in some ways crises metastasize into depression the moments they sort of eliminate openness. and that was why the great depression became the great depression, it was not just because of the stock market crisis in 1929 but it was in 1931 when there was a credit stalled banking crisis and no one cooperated and in 1933 when the london economic conference

collapsed due to u.s. unilaterals among other reasons. but what happened after 2008 was different. most of the sort of key global public good, you know, think about it wwkd, what would kin e kindleberger do in terms of a crisis. most were provided. makes for goods was provided. no return to protectionism. the one tinge that even skeptics post that time would agree upon there were significant injections of liquidity into the system. there was by historical standards a surprising degree of macroeconomic policy coordination. there was provision of exchange rate stability as well despite a lot of very loose talk about currency wars. and international institutions actually functioned reasonably well. whether it was the case of the world trade organization, the imf providing monitoring or the g-20 or other informal mechanisms providing a reassurance mechanism or blunting domestic pressures for protectionism.

and it also should be pointed out on the economic side the u.s. also acted like, you know, a surprisingly confident leader. you know, whether you talk about the federal reserve endaying in a whole variety of both domestic actions and international actions in the form of currency swaps and opening up its lending window to european and japanese banks or the u.s. taking a lead in terms of imf reform and the only thing stopping that is the united states congress. or reforming the basel supervision rules or rules regulating sovereign world funds. so that in fact you're operating in a world where in fact the global economy has been surprisingly resilient post-2008 to the point now where people in the fed and elsewhere are concerned not about market volatility but the fact that markets seem way too calm in response to a lot of geopolitical shocks which i find amusing for a variety of reasons but it does suggest that perhaps there's been more resiliency built into the system post-2008

like almost the system worked. [ laughter ] i'm sorry. on security, though, it's obviously a more disturbing message if you take a look at the pacific rim. if you look at the broad indexes like the global peace index or human security report you don't see a major spike in sort of instability and so forth. but there's been an undeniable ratcheting up of tensions in east asia and pacific rim. you know, just rattle off south china sea or north korea and get the point. and it's worth pointing out international institutions have been spectacularly unhelpful as these things go. the u.n. security council hasn't done anything on this issue. the east asia summit and the forum basically serve as a forum where the choose and americans are accuse each other of acts and asiana has been split as they used cambodia of a way to provoke dissent within that group.

the u.n. conventional law notes it's adorable people think it will work but it's not really going to work because china doesn't seem to want it and china's interpretation of things like the exclusive economic zone are very much at variance with sort of traditional customary international law on this. and the u.s. response on the security in the pacific rim also seems not necessarily more ham-happened but less sure of itself. there was the pivot that started in the fall of 2010 and that was certainly embraced about by a lot of countries in the region to perceived chinese provocations in 28 and 009, indeed it was embraced in some ways too warmly by some. you could argue the pivot emboldened philippines to take a more bellicose position on scarborough shaw which led to the situation where the united states said we won't go to war on it. but the u.s. has actually committed to basically going to war over the san calcoo aisles

but recognize it is a disputed issue and we have said our alliance commitment would get us into a war in that should china actually challenge that. so, you know, you can talk about two different narratives. even realists that tend to argue the u.s. should retrench in various parts of the world. when you start asking them about china they actually their eyes light up because they do think people like john think that's where the next big conflict is going to come from. but why is there such a discordant relationship on what's happening on the global economy and security sphere on the pacific rim and there's a good answer. if you take a look at least in part in the distribution of power you realize that despite a lot of perception in this town, the u.s. still retains significant amount of structural power. you know, post 2008.

susan strange wrote a great article back during the last debate about sort of waning u.s. and gemny pointing out the ways in which the u.s. has structural power distinct from things like gross domestic product or economic growth or things like that. you know, military power, financial power, ownership or production and production of ideas. on all four of these metrics the united states still retains an overwhelming preponderance of power. the u.s. is still the military superpower in terms of finance, the u.s. is actually a more central part of global financial networks now than we were before 200le which is really extraordinary when you think about it. but nevertheless true. in terms of ownership or production as well and production of ideas also despite a lot of loose talk about challenging the washington consensus what is striking is the absence of any counterveiling ideas on that on the other hand what did happen the traditional u.s. supporters namely the european union and

japan were devastated as a result of the 2008 financial crisis and really did suffer serious dramatic declines in some cases because policy own goals and there's no need to go into details but the important thing most sort of theories of hegemonic stability or leadership tend to acknowledge at this point, yeah, you want a leader but leaders need supporters an followers. it's not enough to have one big state. so what's happened is that in the wake of sort of waning european and japanese power, you now have the rise of china ras a great power and china's done something interesting with respect to the economy, to repeat what something matt said they acted like a responsible stakeholder and actually done just about everything that you would have expected them to have done in the wake of the 2008 financial crisis ranking from provision of liquidity to eventually letting their currency appreciate to not engaging in new bouts of protecti protectionism. i won't deny they engaged in

espionage but that was a constant. that's not unique to a sort of post-2008 situation. so they've been perfectly willing to act as sort of, you know, a supporter to the u.s. created what bob kagan used to rerefer to as the liberal economic order for quite some time. on the other hand when it comes to the security sphere, you know, china is perfectly willing to act in a newly assertive manner on a whole variety of things and, you know, you can argue about why they're doing this and the extent to which there's a reach, you know, is this because they actually care specifically about chinese sovereign territory and that's it or is it a case of they're just trying to get influence over this sort of inner island chain with the idea eventually they then want to expand their influence to the outer island chain so the question is whether -- the chinese side whether they view it as a border issue or sort of the first step of what they see as regional

hegemony. it's worth pointing out there are a lot of debates about military interventions with idea if you use power that implies the use of force. in the pacific rim i don't think it quite works as well there because there is a way in which the use of extended deterrents meaning, you know, pledging to commit to use force in case there is a conflict has the potential to reduce conflict. or reduce the actual use of force if it deters another actor. so in the case of the seaen calkoos, it's worth noting that china's responded to by focusing energies a little more on the south china sea than eastern china sea and worth asking whether or not those sorts of actions do potentially act to tamp down great power, actual great power war even if it ratchets up tensions in the short term. but i do think the more interesting question to ask is that despite the sort of rising tension in the east china sea

and south china sea and so forth there's not a lot of evidence that those are actually affect patterns of economic exchange. you know, if you go back to sort of the pre-world war i era, last great era of globalization, one myth is it broke out despite large amounts of interdependence and as a constraint on state action. but if you take a look at the history, you start to see that, you know, from 1890 on states actually did start to take significant efforts to try to weiner them s wean themselves off and the least independent states that wind up launching the great war and what's interesting sort of post, you know, 2008 and despite recent tensions there's no real shift in trade or finance suggesting china or the united states is trying to divorce themselves from what they see as other security rivals, indeed what is striking despite the ratcheting up of tensions there hasn't been significant moves in

the way of economic responses, the transpacific partnership has not been secret sell rated. tpp has slowed down to a crawl because of domestic issues and by the way it's also true in europe, you know, edward snowden has been more of a break on tea tip than it's been an accelerant so there are two ways to think about it. it's possible this disconnect is temporary and eventually we will start to see some sort of economic segmentation. which in some ways in and of itself is useful because it's a useful trip wire to think about when we are shifting to real great power tensions that could lead to a great power war. but, you know, you could also suggest a more heretical thought that maybe great power rivalry ain't what it used to be or operating in a case, where, yeah, there's disputes over islands and don't mean to diminish it but it's possible that the great powers in the region recognize it's not worth

going to war over these things and it's not worth sort of destroying the sort of global engine of prosperity to claim a bunch of coral reefs in the south china sea or in the east china sea and leave it at that. >> okay. thanks. now you. >> i'm bill lipid with the american conservative mack and our thanks indeed to all of our sponsors once again for this opportunity. my message this morning is that too often foreign policy debates particularly that between interventionism and what is intentionally misnamed isolationism, the united states only pursued a policy of isolationism for three years under president thomas jefferson, his embargo which was such a disaster we have never done it again. [ laughter ] that this debate unfortunately too often occurs in a vacuum. it occurs without reference to war. obviously foreign policy and war are intimately related in the

real world because war -- foreign policies often lead intentionally or unintentionally to war. the fact of the matter is, that the choice between interventionism and a policy of a defensive grand strategy which i'm going to talk about is at this point not just a matter of, well, which one is nice? it's a matter of which one is consistent with where war is going? and war is at present undergoing the biggest change it has seen since the piece of west fail ya with the rise of what i call fourth generation of war. with the peace of westphalis did was give the state a monopoly on war and we think of that automatically. but before that, many different kinds of entities fought wars not just the state, the state

was rather a new thing at this point. religions fought war, races fought war, tribes and business enterprises fought war, dynasties fought wars and they used many different means not just formal armies and navies. the fourth generation means that the state is now losing the monopoly on war it established with westphalia. again, this is the biggest change in war in 350 years and it is going to affect foreign policy. as the israeli military historian martin von creffelt says who fights and what they fight for. and these are larger changes than changes in how war is fought. at the root of this change in war is a crisis of legitimacy of the state itself. a crisis which is present

virtually everywhere although it varies enormously in degree. but all over the world including in the united states a growing number of people are transferring their primary allegiance away from the state to once again a wild variety of other entities. to, again, tribe, ethnic group, races, religions, sects, causes like animal rights, business enterprises, legal and illegal, gangs are one of the principal elements in a fourth generation world and the same young men who have no interest in fighting for the state are often very enthusiastic about fighting for their new primary loyalty. four times in recent years in the last few decades the united states military which proclaims itself the greatest in the world and certainly in terms of the

amount of money spent on it is the greatest has come up against fourth generation nonstate forces, lebanon, in somalia, in afghanistan and in iraq. those forces had no fighter planes, no tanks, no artillery, no body armor, they were armed primarily with rusty ak-47s and improvised bombs and four times they have defeated us. the measure of success in a fourth generation situation is whether when we or the other intervening great power leaves, we leave behind a real estate. in none of those cases were we able to do that the pretense that we left behind a real estate in iraq has just dissolved within the past week. as we have seen historically over and over, a vichy government disintegrates when faced with literally any opposition.

this is a very profound change and, again, to try to carry out the debate on foreign policy without regard to the fact that our military can no longer win against forces which by any measure of physical power are incredibly weak compared to us, and if we graft their resources on the same scale as our own, theirs wouldn't even be visible. the fact that our military and the militaries of other states which are designed to fight other state militaries cannot win against these nonstate forces, this is a revolution, folks. this is enormous change, and it changes virtually everything else. now, when we look at foreign policy, obviously the first thing it says is an

interventionist foreign policy guarantees failure. because you find yourself in a war with nonstate forces and the nonstate forces beat you and so a pretty basic rule of foreign policy is you probably don't want to start wars you know you're going to lose. to many foreign ministries have done that but it certainly doesn't meet the conservative test of prudence. another meaning perhaps even more profound because the foreign policy establishment utterly doesn't get it is that you don't want to fight wars with other states, why? because the losing states legitimacy already shaky in many cases will disintegrate and with it that state will disintegrate. we saw this, of course, with libia. i warned before we started bombing libya that the outcome would be the destruction of the libyan state and another big victory for the fourth generation as libya became a

stateless entity. well, surprise, guess what happened? if you go to war with another state, regardless of which state wins the war, we will lose because the losing state will disintegrate and the real victor will be the forces of the fourth generation, nonstate forces will have another petri dish in which to breed and grow and from which they will spread. the distinction that will drive international relations in the remainder of this century is not some kindergarten level between democracies or laces that are free and dictatorships. it is between places that will be centers and sources of order and centers and sources of disorder. and when we go to war with another state, almost certainly the outcome will include the creation of another center and

source of spreading disorder. furthermore when we intervene in these places we will import the disorder here. it is not just that we fail to bring order to those places, when the root problem is a crisis of legitimacy, what chance do we have when we go in and create a government? a government created by foreigners, what legitimacy is this going to have? beyond that, we are going to import the disorder here. we will import it in the form of refugees, we will import it in the form of veterans coming back who have learned how to build things like ieds and some of whom will now be among other things gang members, again gangs are very important entities in fourth generation war. we will import it in the effects on the legitimacy of our own government of another policy failure, usually at very high

cost not only in money but in lives. so the first rule of foreign policy at this point is don't go to war with other states. the second rule is don't go to war with nonstate entities, now you put those two together and it somewhat suggests going to war isn't the terribly good idea. the absolute worst war we could get into and there is a substantial element in washington puffing the dragon to try to create this situation is a war with china. we desperately need china to be a center and source of order and it is naturally inclined that way because confusion culture is naturally orderly and supposed red china is now paying a great deal more attention to confucius than it does to carl marx. a defeated china to disintegrate into another warring state. what a catastrophe. a billion people nuclear

weapons, a lot of high technology and it becomes an enormous source of disorder. we could not imagine a worst outcome. the pentagon, of course, likes to puff the dragon because it's desperate for a symmetrical opcw when it says we can beat these guys because they're like us, yes, but what's the consequence if we do and that's not asked. what we need therefore is a change in grand strategy. the largest change in war in 350 years cannot be accommodated with changes in tactics or weaponry or various other small things. it requires a very large change at a very high level and that is a change in grand strategy, specifically we need to abandon the offensive grand strategy we have been following particularly since the end of the cold war where we attempt to dictate to the rest of the world what their internal arrangements shall be and threaten them in a variety

of ways all of those ways weakening the state by the way if they do not become like us the great conservative man of letters russell kirk rightly wrote there is no surer way to make a man your enemy than to tell them that you are going to remaim him in your image for his own good. [ laughter ] we need to return to the grand strategy that we followed successfully through almost all of our history which is simply a defensive grand strategy. we don't go to war with other people unless they attack us. it's pretty simple. their entirnl arrangements are their own business. we relate to the rest of the world very actively. but through nongovernmental means through trade and by serving as an example not through playing the great power game with diplomacy and military force. it was said unfairly of wilhelm and can be said fairly of the

washington establishment that its worst nightmare there is a car rell somewhere in the world in which we are not involved. [ laughter ] the defensive grand stage says those are other people's problems. you have these two wonderful oceans east and west that provide a lot of distance. we are going to use that distance and, yes, we are going to do everything in our power to isolate ourselves from disorder, disodd means the disintegration of state and, yes that, can happen here too. it is a very real possibility in this century that the american state will not survive it particularly if it keeps engaging in failed wars. the defensive grand strategy served us extremely well. it cost very little. it made us popular worldwide. it gave the united states tremendous moral power and as colonel john boyd argued, the physical level of war is the least you powerful and it is the

policy, the grand strategy that is in accord with the realities of the 21st century. the tragedy is that the washington establishment will not see this because it is made up primarily of people whose most important thing is their personal career and if you are a member of the establishment and you suggest any change, you instantly cease to be a member of the establishment. so the question i will leave with you is which falls first, the foreign policy establishment or the country? >> thank you. so we'll start with a few questions that i'll pose to the panelists and then if we have a little bit of time at the end, i will turn over some time for questions from you all in the audience. since we've all touched on iraq or at least most of us have touched on iraq at the recent

developments there in our remarks, maybe we'll start with asking is there anything that the u.s. could constructively do in response to the latest events, the advance of isis in iraq or is it rather the case that's it's time to cut our losses and recognize we don't know what we're doing in iraq, we never have known and then we should not try to remedy a situation we don't know how to fix? >> you know, it was my understanding there would be no math. [ laughter ] yeah, a good question and a tough one. i think what we -- you know what we've seen over the past couple of day, normalizing the idea we'll try to formally discuss the situation with iran, iran, you know, i don't need to remind they walked behind the tracks of the u.s. tanks. they have a much broader and deeper understanding of iraq than we do and certainly their

foreign policy, their national security policy over the past several decades was a raid toward preventing iraq emerging as a threat after the iran/iraq war so i think trying to work with them and what we're doing right now to say to maliki one of the roots is you're not governing and in an inclusive way, listen, what tools do we have to make him do that? we couldn't do it with 100,000 troops in the country. the idea that we could have done it with 5,000 to 10,000 troops that we didn't leave, i think, is kind of fantastical so i think what we should do is, you know, more of what we've been trying to do with syria is, you know, see -- work with the surrounding countries to see how we contain it. definitely try to work to deal with the refugee flows because i think those are something that get more and more destable lyzing down the road but at the end of the day if the root problem as i think a lot of people recognize here is

political, we unfortunately have very few tools to change that reality. >> well, would we be really in the best position to coordinate with iraq's neighbors when our relations with several our relations with several of them with quite bad. >> well, yeah, they're tense and they're also working at cross purposes. it is. it is. it's been stated. it's overstated. let's state it again. it's a cold war between the saudis and the gulf states and iran. it's a cold war within the sunni community with much more extreme islamist elements and less extreme but islamist elements. you have the muslim brotherhood crowd. you have the saudis working against the muslim brotherhood and their allied organizations. so giving all the cross cutting conflicts, again, the question is what tools, what influence does the united states really have? i think, you know, continuing to

stay engaged. i think t you know, the idea that the united states is pulling out of the region is just wildly overstated. but i do -- i do see it as a kind of right sizing of american interest in the region because we do still have interest in the region. we do have an interest in doing whatever we can to prevent global jihaist organizations from creating small states here to plan whatever they would. but again, i'm at a loss for what real steps we can take right now to change the reality. >> well, the professor will be speaking in a few minutes. just had an article come out in politico last night where he made the argument, the case for doing nothing in iraq. does that sound like something that's plausible for the u.s. to do? do you think it's plausible for

the u.s. to refrain from some sort of activist response in the face of what was happening there? >> i was told that matt was going to answer all the math questions. so i would say that particularly with respect to the middle east, what you probably want to do is eliminate the moral hazard problem for u.s. foreign policy which is the notion that if, in fact, there is a deteriorating situation in terms of security that is unfolding there that the u.s. would be the actor of first resort. so i would say in that sense there is incentive to not necessarily take immediate action because in some ways, this has a much more profound effect on iran than it does on the united states. there is not a bad argument. and here, this is also question of what do you rank order of threats to the united states? do you think that isis having an actual safe zone of territory in which they can do whatever they want is a bigger problem than the iranian state expanding it's

influence and that's a debate that needs to take place or whether or not you think either of these things are actual threats to the united states, also. but i do agree that i think there's something to be said for not doing nothing necessarily but making it clear, we are not doing anything unless we're acting in concert with others. we're not going to be -- this is not going to be 2003 -- or not even 2003, it's not going to be any unilateral accident for the united states. you guys are going to be effected a lot worse than we are. >> well, everything having to do with diplomacy and relations between states, et cetera is completely irrelevant to what's happening in iraq and syria and a growing portion of the middle east. the forces behind these wars are far more powerful than the states of the region. we're looking at a war of religion. we're looking at the middle eastern 30 years war.

the very long standing war between sunnis and shiites rekindled. one of the very few is that we helped rekindle it and they're going to fight it out. it's going to be like the 30 years war in europe and that's to our advantage. if you look at the demographics of this region, you see that it is filled with young men with no prospects, no jobs, and nothing to do. well, what do young men do under those circumstances? they fight. you are going to have wars where you have those demographics. what we want to ensure is that we are isolated from the disorder that causes the proper policy for us is to stand on the sideline and say fight fiercely fellows and let them absorb their energies with each other

instead of directing them against us which is what they do when we intervene in their region. we can't stop it. we benefit from it. and the single most important policy action we need to take is make sure we admit not one single refugee that will be fleeing by the millions from these conflicts because if they come here or to europe they will bring the same conflict with them where ever they go. >> yeah, just a couple of points. one on the moral hazard point, it's a good one. there was a few months ago when saudi arabia was throwing it's big temper tantrum over the u.s. iran reproach, i think it was -- who was it that wrote an ad in the new york times, one of the saudi princes, they had just withdrawn from the un human rights council and he was, the ad said if the united states

continues to behave in this way saudi arabia might have to take action to deal with security in it's own region in it's own way. this was intended as a threat which i found really interesting. the idea that they might have to act more -- >> the saudi military is perhaps the most worthless in a region of worthless military. >> my first response was, a, that will be the day. and b, okay. i don't perceive that as a threat. that's kind of what we'd like you to start doing. like the middle east, the 30 years war, i take your point. we may just have differences. clear through key concern of the united states government is the concern of the united states but i'm not willing to say we should just stand back and let this region consume itself. i do feel that because what we're talking about when we're talking about letting these young men fight it is out is massive instability, massive suffering, massive displacement

and i am really not willing to support a policy that says let's just stand back and let it burn out. >> problem is nothing we can do will change it. >> yeah, you know, that's a point. i'm just not sure i completely agree. >> can i say that your theory of states as we know it are totally dissolving is a crock. i understand your argument with certain states to the middle east and africa but telling me that the irani state or israeli state or variety of other states are dissegoing away i don't buy. you're right they're not necessarily going to endure but i'm not sure i buy this argument that this is a more general problem. >> as i said t intensity of the problem, though it's probably everywhere, switzerland is a

exception, japan, a handful of others, the intensity varies greatly, however, the examples you give, first of all, iran. iran could very well break apart because the iranians are only a relatively small portion of the population in iran. the iranians have important separatist movements going on. they're very concerned about those movements and are very much subject to the fourth generation threat. as far as israel, one of the things i learned when i went there was how incredibly bitter israeli internal politics are and to the point where i had a secular israeli say to me, speaking of the orthodox, we should put them in the kind of camps where they only come out the smokestacks. that's the bitterness of israeli domestic politics so i wouldn't be too quick as to say that

fourth generation war is just a problem in a few limited place where is the state is particularly weak. it is cropping up everywhere including here where we have seen the interesting fact of the united states trying to bring order to afghanistan, somewhere where nobody has ever been able to bring order while being unable to maintain it a thousand yards from the u.s. capitol building after night fall. >> well, i think we have time for maybe one question from the audience. we're just about out of time. there should be mics there in the aisle. yes, sir. >> when i saw the title of this, the new international i was very hopeful that we would talk in terms of well, internationalism. instead i hear us talk in terms of the 400-year-old framework of

competing nation states. the same framework that lies behind the united nations. there's so many problems that the world faces that seem to require a global response. shouldn't we be talking in terms of an internationalism that emphasizes globalism versus this prevential discussion. >> to have that kind of initiative that you're talking about requires, in some way -- and here i'll agree with bill, it requires a shift in identity. it requires that people think of themselves not as citizens of the united states or a global citizen or recognizing -- you would need shifts in public opinion that would require people to think of this as a situation where, in fact, cooperation would be required but you aren't seeing that. if anything you're seeing the reverse. look at the european union for