prevented this energy to be used for the purpose of peace, and a positive direction, actually. recently, they should be statement to justify the possessing nuclear bombs. actually, they adopted a number of measures and made a number of policies. all of those policies were against peace and humanity, and in line with nuclear proliferation. first of all, the production of nukes itself. if a country possesses nuclear weapons, will it actually stopped further progression or no? it will, ironically boost them. .

,,,, >> the stockpiling of nuclear weapons is the greatest incentive towards nuclear proliferation. why are you stockpiling nuclear

weapons? are you want to use them against other nations? they say no. they are keeping them only for deterrence. please, pay attention. what does deterrance mean? if nuclear-weapons are a deterrent, why should and others have it? everyone should like to have a high deterrence capability. secondly, this policy will lead to intense nuclear arms race between rivals. why? because every country wants to get the upper hand. otherwise, it would not be a deterrent. if they want to have a deterrent possibility, this will

lead to a nuclear arms race and could lead to upgrading more nuclear weapons and building more nuclear weapons and all that. recently, you saw that they have used nuclear weapons as a threat. if somebody uses nuclear weapons as a threat, will this bee causing proliferation? if you threaten some nations, what are they suppose to do? will they said back and watch you? of course not. you are actually encouraging other nations to get their hands on this tool as well. when you say that you were going

to work towards non proliferation, this is a great light. -- great light. -- great lie. they have more than 9000 nuclear warheads by their own admission. of which, 2100 our strategic ones, which means they are weapons that are very determining and important in case of a war. out of this 2100, they say they will cut it to 500. a number of atomic bombs in nagasaki and hiroshima made the catastrophe and killed hundreds

of thousands of people and now you have 9000 and you want to reduce them by 600 over a number of years? you're just reminding other nations of that. iran may or is accused of possessing one nuclear bomb in the next several years. if one nuclear bomb is so dangerous to the world, how about these 9000 bombs? you say that your arsenal can decimate the earth for several times. why are you stockpiling these arsenals? is that for human rights?

on these policies -- all of these policies are against humanity. the greatest betrayal of nuclear weapons has been that they have equated nuclear energy with nuclear weapons. who says that nuclear energy means nuclear weapons? they, themselves, have defined it that way just because they are going to monopolize that prevent other nations from acquiring clean nuclear energy. this is the greatest betrayal to humanity. they are depriving humanity of a great blessing which can be used in industry, agriculture, medicine and other sectors.

of course, the betrayals and treasons of arrogant powers and totalitarian regimes are not just a few. it is more than that. on the economic front, they are like that as well. however, our topic is nuclear energy. we are opposed to the atomic bombs. we have announced it time and again. of those that seek atomic bombs lack human logic. we do believe that the relations between humans and nations should be based on friendship, justice and happiness and nobody should seek to dominate another

one. no government should seek to go -- to humiliate other governments and dominate their resources. all nations should enjoy a peaceful coexistence with equal rights. we consider nuclear weapons against humanity. of course, i have said repeatedly, those that are seeking to stockpile nuclear weapons, it shows that they would like to hide their true activities. they say that because of threats that we face by some nations, some nations may later achieved nuclear armament and we are just keeping nuclear weapons for that purpose.

this is just false justification. we believe that those that are seeking nuclear weapons are under developed a political elements. where are they going to use them after all? against whom? against which nations? who has the courage to use nuclear weapons against others if you believe that this gives you some kind of domination? you should know that gone are the days when nuclear bombs would give some nations of the edge. gone are those days. it depends how much you are committed to human values. at this is the argument, not the atomic bomb. some behavior like the savage

past. all of their reliance and dependents is on their weapons in all of their relations. they cannot get their points across through logic, so they just show their weapons. it is history, now. they issued statements that we will not attack any other nation. this is another big line as well -- big lie as well. they use depleted iranian against the iraqi people. did they have nuclear weapons? you have not lived up to your commitments so far.

they are going to justify their position on nuclear weapons. there are some fabricated versions around us that have a stockpile of nuclear weapons, however they are supported by big powers. your point to work towards nonproliferation? -- you are going to work towards nonproliferation? then you should allied with those that are not operating under international organizations. it is clear that you are not telling the truth. you think that nuclear weapons will give you the edge, but gone are those days. today is the era of logic, culture and humanity. actually, having more does not

bring down the nation, but brings french ship. -- does not bring domination, but brings a french ship -- brings freiendship. those that possess nuclear bombs, we should tell them to set aside their bombs. this has been going on for 60 years. have they done that? six years ago, they had a number of bombs, but how many do they have today? in a statement, they have said that we will be able to work towards nonproliferation. this means handing over the security of a town or city to burglars.

it means that you can lose everything, easily carried -- easily. disarmament is not possible. nations should get together and form a global will and determination. they should form a global determination. impartial parties and those that are committed should disarm possessors of nuclear weapons. they say that they will cut their nuclear weapons by 600. they would not allow impartial

party is to go and oversee that. they announce it and then they report it themselves. who is going to believe that? >> we need a global determination for disarmament. we favor talks and be a cooperative. we have announced, time and again, and we have shown in practice that we are a man of our word. we have shown that we are moving in the right direction. however, they should know that if anybody is sitting there and believes that with the language of a brandishing -- language of brandishing weapons, you should know that this is a mistake.

their behavior will make the iranian nation more resolved. until four months ago, we did not have the intention to actually produce 20% in wrenched fuel, but to use -- enriched fuel. however, due to the threat against us, i advised them to stop it. and enough is enough. stop this behavior that has been going on for 60 or 70 years. they have armed themselves and the whole world and they have discredited themselves. enough is enough. i advised them to come and experience humanity a little bit. respect others.

remain committed to morality. the iranian nation is moving full steam ahead on its path and is as strong as ever. with god's grace, no power can threaten the iranian nation. all of the statements that they have made, they were going to find a justification so that they could achieve nuclear weapons. now that they are going to threaten the iranian nation, they know that any hand of aggression against the iranian nation will be cut off. >> the guests are chanting slogans.

there is one to be a conference in iran in a matter of days. it is a disarmament conference. -- there is one to be a conference -- there is going to be a conference in iran in a matter of days. it is a disarmament conference. we will work towards disarmament. we hope that they will come to their senses and stop mischief making. at the end, i would like to appreciate efforts by all of those who are working tirelessly in the nuclear field.

they are unknown soldiers. we cannot show them in front of cameras. they are little known, but they are rendering great services which would bring dignity upon the iranian nation. i thank them all. all of those that have been working tirelessly in this field, our academics, different companies, they are active in the field of nuclear technology. i thank them wholeheartedly. the way that you look to the nuclear technology should be to

the last possible point, or the peak. you should have the last possible point in sight. you should get to the point where we would tap into our full potential in the form of nuclear energy to improve our welfare. secondly, in the near future, we should actually turned into a nation that can export nuclear technology. once again, i thank you all. i hope that a brighter future is a head. -- is the head -- is ahead. >> coming up next, a look at possible replacements for john paul stevens. bart stupak has announced that

he will not run for reelection. and in speeches from the southern republican leadership conference in new orleans. >> tomorrow, on "washington journal," amy howe, been a smith -- ben smith, kevin mccormick lee and dan glickman. "washington journal," live at 7:00 a.m. eastern here on c- span. >> this weekend, deborah amos after the fall of saddam hussein'. her book is entitled "field

notes on democracy." ralph peters will look at u.s. foreign policy in his latest collection of articles. find the entire weekend schedule online. >> too big to fail is a harder issue. my own view is that we are past the days of exclusively small banks and institutions, at the new at c-span video library, you can search and share. over 160,000 hours of video from yesterday or 10 years ago. every a c-span video since 1987. this is cables latest gift to america. our content is available on television, radio and on lined. you can also connect with us on

line. >> supreme court justice john paul stevens has announced that he will step down when the court finishes its work. he is about to turn 90 years old. he was appointed by president ford in 1975 and has been hinting that he would agree -- would retire soon. we talked with eight supreme court reporter about possible replacements. ,, >> what has been said about replacing justice stevens? >> the president spoke about that this afternoon. he wants someone who will be respectful of law, but the most

significant thing is he is looking for someone who understood the needs of average americans and would uphold their rights to participate in society, suggesting he would sound of the fame -- the same thing as indian state of the union address. >> who are some of the potential nominees? >> the president went through this last year. the white house has some experience with it. the three names at the top of the list are three appellate judges and the solicitor general. as solicitor general, she represents the supreme court. the justice that she clerked for, justice marshall, she was

the dean of the harvard law school and age 49, she is relatively young and she could be expected to serve a long time on the supreme court. the judges under consideration include diana wilson. she knows the president from his time when both of them were teaching at the university of chicago law school. she worked in the justice department and the clinton administration. and the third nominee is a judge in the district columbia circuit court. he was prosecutor in the clinton administration to rid he, like other judges, has a lot of national security and federal cases. >> senator leahy said he would

like confirmation by next summer. >> there is one less democrat in the senate, and that means that the power to stop the filibuster is no longer present among them. republicans feel far more and older than they did last year -- far -- far more emboldened then they did last year -- than they did last year. republicans are much more emboldened. the vacancy question plays well with their supporters. this motivates their side and it might bring over some independents.

republicans and conservatives will get more motivated than democrats or liberals. >> will he be burman as a liberal judge? >> he will -- will he be remembered as a liberal judge? >> he will. he was nominated in 1975. his patron was another justice. the court has moved to the right around him. in relative terms, he will be remembered as a liberal justice and somebody who came to embody some of the liberal things that dominated much of the 20th century. in his last years on the court, he often wrote descends, trying to uphold what he viewed as the

president's and doctrines. >> covering the retirement of justice stevens, thank you for joining >> our interviews with the supreme court justices included a discussion on retirement. here is what some of the justices had to say. >> and this term, i think we were divided 5-4. one might get a false impression from the degree of disagreement.

justice scalia once commented that in his early years, there was no justice with whom he disagreed more often than justice brennan. he considered justice brennan on the supreme court. he felt that the feeling was reciprocated. the public would not know that from reading an opinion by justice brennan. these were men that generally liked each other and enjoy each other's company. >> as far as the composition of the court, you are bringing in a family member. it changes the whole family. it is different.

it is different from when i first got here. i have to admit that you grow very fond of the court. when we were gone, we had a long run together. you get comfortable with that and then it changes. it is changing again carried the institution -- is changing again. the institution of law should tune to to know each other. the chemistry is different. >> this week, on america and the courts, a look at the life and career of supreme court justice john paul stevens. america and the courts, tomorrow at 7:00 p.m. eastern on c-span. >> president obama has promised

to nominate a supreme court justice with similar qualities to john paul stevens. the president said that he hopes to have the new justice by next term. the president also commented on the coal mine explosion in west virginia. this is just after his return from a trip to prague >>. >> i want to say a few words about the tragedy in west virginia justice john paul stevens will retire from the court at the end of this term. when president ford was faced with a supreme court vacancy, he wanted a nominee that was brilliant, not ideological, pragmatic.

he found that nominee in john paul stevens. justice stevens has done this since the moment he enlisted from the day before pearl harbor. during the tenure, he has stood as an impartial guardian of the law. he has worn the judicial will -- broke with honor -- the judicial robe with honor. he will soon turn 90 this month. his leadership will be sorely missed. i had an opportunity to speak with him and i told him that on behalf of a grateful nation that i thank him for his service. justice stevens expressed to me in a letter that it is in the best interest of the supreme court to have a successor

appointed and confirmed before the next term begins. i will move quickly to name a nominee as i did with just a sudden my door. -- with justice sotomayor. while we cannot replace justice stevens' experience or wisdom, i will seek someone with similar qualities. an independent mind, a record of excellence, integrity and acres dedication to the rule of law and a keen understanding of how the law affects the lives of the american people. it will also be someone who knows that, in a democracy, powerful interests must not be allowed to drown out the voices of ordinary citizens. much like they did with other justices, i hope the senate will move quickly in the coming weeks to debate and confirm a nominee so that the justice is seated in time for the fall term.

let me say a few words about what has happened in west virginia. this has been unimaginably difficult this week. 31 workers were inside when an explosion ripped through the mind. two were saved, and 25 were lost. for the four remained missing, we are praying for a miracle. i want to offer my deepest condolences to the friends and family and the fathers and husbands and brothers and nephews and signs that were killed in this accident. i am in alwe of the rescue teams that risk their lives over and over again for the chance to save another. they have had little sleep in the past few days. we owe them a debt of gratitude. mining has a long and proud

history in west virginia to rid for many families and communities, it is not just a way to make a living. it is a way of life. the jobs that they do help bring heat and electricity to millions of americans. it is a profession that is not without risk and danger. the workers and their families know that. their employer knows that they owe it to these families to do everything possible to ensure their safety when they go to work each day. when i was in the senate, i supported the efforts of other senators to try to improve mine safety, but it is clear that more needs to be done. that is why i have asked my secretary of labor to give me a preliminary report next week about what went wrong and why it wants so badly is so that we can take the steps necessary to prevent such accidents in the future.

because mining is a tradition that is often passed down through generations, it is not uncommon to see an entire family choose this line of work. when a tragedy like this occurs, it is not unlikely to lose almost an entire family all lot once. i spoke to the surviving members of one such family yesterday. joshed his age 25 and corey is age 20 and they were killed in the explosion. rescuers have reported that they were all found together. two members of their families that work in the mines were able to escape unharmed. before he left for the mine on monday, josh wrote a letter for his girlfriend and young daughter. in that, he said that if anything happens to him, he would be looking down from heaven.

just take care of my baby girl. reflecting on that letter and the loss that she endured in just one week, josh's mother said that it is just west virginia. when something bad happens, we stand together. for the tragedy and hearty, that is the spirit that has sustained this community and this country for over 200 years. as we pray for the souls of those that we have lost, and the safe return for those who are missing, we are sustained by the words of the song that are poignant. thank you very much.

>> and now, congressman bart's tupac announces his retirement. the recently told the detroit free press that he loved his job but travel was beginning to wear on him he is a former state trooper. he is known most recently for using taxpayer dollars -- for fighting against taxpayer but dollars for abortions. >> bart and i met on a blind date the product when 37 years ago. i had just met. we were married one year later.

he is also one of the largest, most diverse districts in the nation that covers 31 counties.

the borders a foreign country and encompasses two time zones. he loves the issues and carefully studies legislation and he loves helping, advocating and fighting for his constituents. he is not afraid to cast the tough votes. he stands up for what he believes in. he stays true to his convictions. he is a man of outstanding integrity and he never backs away from a fight. he loves serving as chairman of the oversight investigation subcommittee. his background in law enforcement, investigative skills and dogged determination to make him perfect for the job. the american people are better off because of it. as a right to life democrat, he is not as rare here in northern

michigan. but he has always held firm with life, from conception to naturalduring the recent health care debate, our offices and homes or deluged with calls. many are in favor and many were against health care reform. unfortunately, some of those calls were vulgar, cruel, profane and threatening. we were saddened and disappointed by the cruelty and hypocrisy of some of the callers. over 95% of those calls came from outside of michigan. they were from people who did not know, or who had never met bart. he has always been pro-life, pro-gun, and pro health care.

the people of northern michigan know that. he has never sought the limelight international fame. he just did the best job he could possibly do for his constituents, at the people of our great nation, and the people of northern michigan. public service has always been a family commitment. i served on the the city council for four years. our sons were involved in student leadership and other public-service organizations. we travelled to this district as a family. we shared each other's sorrows and joys. we have met some wonderful people along the way, and we thank them for their friendship and support. we are truly honored to have been given the opportunity to serve. now, please, let me introduce my husband, my congressman, your congressman, of whom i am

very proud, bart stupak. [applause] >> i told them not to let her go last. she does a great job, and it is hard to follow her. thank you to all of my friends and supporters throughout the years who are here today. the people of northern michigan have provided me with the honor of representing them in congress for the past 18 years. i am truly grateful for their support. i have the distinct honor of serving four years -- serving as your congressman for longer than anyone else in the current times. . . before the last 18 years i have

i promised the people -- i promised the people that i would not accept the insurance that members of congress received, the federal employees health benefits package, and tell all americans could have access to the same quality of care. for the last 18 years, i have kept that promise. since the day i took office, i have fought to improve the quality of health care for the people of northern michigan, and throughout our great nation. despite many setbacks, i never gave up hope, and i never gave in. as a result, we made significant progress. here in northern michigan, we have 11 community-based clinics to provide veterans with the care they need and deserve. broadband accessed for northern michigan hospitals serves as a model for the country of how to improve the quality and efficiency of health care while lowering the cost in rural

areas. we have provided updated diagnostic technology, leading to improved medical treatments and critical prevention services. last month, we finally accomplished what i set out to do 18 years ago. we passed comprehensive national health care reform. throughout the past year, i have worked alongside my colleagues to achieve health care reform, and i am proud to have helped bring it across the finish line. as a result of that work, today we are on a path to provide health insurance for 32 million more americans, including 38,000 people living here in northern michigan. today, because of these

reforms, all american families, including 197 families here in northern michigan, will see their costs lowered, and received important consumer protections. they no longer have to live in fear of being one illness or one injury away from bankruptcy. today, children can no longer be denied care because of a pre-existing condition. no insurance carrier can rob you or your family of care, or cap your coverage, due to a serious injury or chronic illness. today, because of reform, syria -- seniors will be able to afford their per ascription of drugs -- their prescription drugs. today, small businesses will receive tax credit to make insurance of employees more affordable. after 18 years, together we have accomplished what you sent me to washington to do, health care for all americans.

my friends and family know that during the last several election cycles, when it seemed like health care reform was impossible in washington, i considered retiring from congress. i wished to spend more time with my family and begin a new chapter in my career. but in each of the past several election cycles, i chose to continue serving the people of the first district because i felt that we still have work to do. into the sun for, after i voted against the -- in 2004, after i voted against the war in iraq, i worked alongside john kerry to bring the immoral war to an end. i became chairman of the oversight and investigations committee, the most fascinating sub-committee in all of congress. over the past four years, on our committee, we have launched investigations into high-profile issues such as a border security, nursing homes a free, security breaches at our nuclear weapons labs, food and

drug safety, discriminatory practices in the health insurance industry, and the recent toyota sudden unintended acceleration problems. but two years ago, i saw of the opportunity to finally enact health care with the election of a new president. i thank president barack obama and speaker pelosi for finally making health care and reality in this country. while legislative accomplishments have been a significant part of my career, perhaps the thing i am most proud of over 18 years is helping you, my friend, my neighbors, and my constituents. my staff and i have helped tens of thousands of constituents

resolve problems and cut through the red tape, problems such as helping secure benefits through the band -- through the veterans or social security administration, or helping with a tax problem at the irs, or securing the middle of a service member who badly served our country. we help people obtain passports, secure local mail delivery service, and obtained funds to weatherize their homes to save money. these may seem like little things, but to me and my staff, there are some of the most important things we do. i want to thank the members of my staff, past and present, both here in northern michigan and in washington, d.c. i especially want to thank those who have been with me since the beginning, my chief of staff, my district director, suit mccarthy, and others. i thank them for their dedication, loyalty, and hard work. i have spent more than 30 years in public service as a police officer, a police trooper, a state representative, and now a

u.s. congressman. my service to the people of michigan has been one of the greatest honors of my life. but it is time to begin a new and exciting chapter. last night and early this morning, i informed democratic leaders and key supporters of that i would not seek reelection to the congress. i will always serve the people of the first district, but i have chosen not to continue to serve as their congressman. i am committed to helping the democrats retain this seat, as i believe we must continue to fight for working families and small businesses, for economic and national security, for our great lakes and quality of life. i am announcing my intention

here today, the potential candidate will have ample opportunity to organize a campaign and collect the necessary signatures before the may filing deadline. i want to thank the people of northern michigan for putting their faith in me. for 18 years i have travelled this the district, from day to day, and all of the points in between. i have shared your concerns and disappointment. i have enjoyed almost every minute. i fought for you and your families each and every day. but now it is time to spend a little more time with my wife, to whom i have been married for 36 years, and whose love has sustained me through the years, and to my son, and his family, and my extended family and friends. thank you. thank you all for being here today. thank you very much. [applause] >> dana. >> what was the final moment that you said, "i'm done" ?

>> that really came within the last 36 hours. i wanted to leave a couple of times, but i always thought, there is one more job to be done. health care was a major issue. some of my friends will remember a pamphlet from my first election that said, "health care reform right now. i believe every help -- i believe every american has a right to health care." we did it. my main goal was accomplished. i have spent 30 years in public service. i am now at a crossroads where i can do other things. i look forward to those new challenges.

it was not one thing. it was a combination of things. you can imagine, when i come home, my biggest regret now, maybe it was exciting years ago, but now i see my wife for maybe 12 hours and then i jump in a car and i am gone. it just came to a point where i said, i have accomplished what i wanted to do. i there i run again and i will be here forever, or i make a break. it is time for me to make a break. it is time for me to move on. >> was there a conversation you had with laurie when you said that you had made your decision? >> yes. we spent this last weekend at the n.c.a.a. final four. my son was friends with the general manager of the basketball team that won the championship. my family had a lot of windshield time, 144 mi. to be exact.

we had a lot of time to talk. we do it every year. we compared notes. what do you think? should we go again? is it time to step aside? my dad told me it was time to step aside. you have put your time in. you have been here longer than all of these guys. do something else. after the disappointment in indianapolis, it took me awhile to get over it, made the final decision. >> [inaudible] >> really, wednesday night, i said, this is it, let go. we have been struggling with this for years. >> you have been under extraordinary pressure these past few weeks because of your vote on health care. can you talk a little bit about

that and how it may have affected his decision -- and this decision? >> in 1993 when we did president clinton's deficit reduction package it passed by one vote. al gore had to break the tie in the senate. we had the impeachment vote. we had -- i know i have taken on the national rifle association, and i was not a real popular when i did that. i voted against the war in iraq which was not popular with a lot of print media in my district. you get all this outside noise. as laurie said, these 3:00 a.m. phone calls threatening us, things like this, that was people outside the district.

that's not my district. if you look at my elections, a win by huge margins. i know these people. you sort of just ignore it and move on. it did not really play a big part. this was a decision we made about what was best for us. i am at the crossroads. i want to do new things, new challenges, new opportunities. >> republicans are very happy with your announcement, and are only too happy to take credit for it. >> everyone is going to take credit. i wish they would take credit when i do not do things exactly right. everyone wants to take credit for this and that. if i get a challenge, i am going to be there. many times, i am the last

person standing. i do not run away from a battle or a fight. but for me, as much as i love the people of this district, getting back to and around it has become a chore. when i get home on a thursday night -- do you know how long it takes me to get here? eight hours. i have an eight hour commute, so i get home at 1:00 a.m. or 2:00 a.m., and i have to get up at 6:00 a.m. and hit the road again. i finally said, is the benefit there? is it the pleasure there? the traveling has a really run me down. republicans can take credit for it, but they are wrong. i am not looking for a fight. that is not who i am. i am comfortable. i am at peace with the decision i have made. it is the right decision for us.

they know they are wrong, i do not have to tell them that. >> [inaudible] >> no, i still have eight more months in my term. i plan on the finishing up my term. there is legislation i would like to get it done. we do not want to worry about our sheriffs and others who would like to run for office being disqualified because they have received as a federal grant. i want to protect the great lakes. i want to finish up my 8 month and see what happens after that. >> you talk about future opportunities. do you know what you will do? olympic boxer, baseball player? >> all of the above. no, i have no plans. we will see what happens. maybe i will sit on my desk and look at lake michigan and what

the sailboats go by. our olympic coach is nodding his head. he knows exactly how that is. >> there is going to be a lot of concern that this district will go to a republican. do you feel you are handing deceit over to them? >> no, i feel i am emboldening the democrats. we have a large majority in the house, a large majority in the the senate, and a democratic president. i have seen the republican field, and i am not impressed. it is one of the weakest feel i had seen in some time.

there are many democrats who could hold my seat. unfortunately in michigan, we have term limits. the voters should determine the length of a term, not some arbitrary law. we have good state democrats who are in their second or third term, and they could hold this seat. i am excited about the democrats' prospects. i think they can do well. i think we have shown this district that democrats should get more than a second look. they can hold this seat and provide greater representation in washington, d.c., for the first congressional district. there are all kinds of people who could do it. one more question, and then i have to go. i just want to say, there are some frontier, and we did not try to build a crowd or anything. i just want to say, thank you for coming out. it has been an honor to serve you. on days when you think the drug is extra hard, you look at the people you represent -- you think the drive is extra hard, you look at the people you represent, and how much you mean to us, and i just want to thank

you for being here today. thank you. [applause] >> up next, from the southern >> coming up next, from the southern louisiana -- from the southern in new orleans, sarah palin, bobby jindal, and governor rick perry of texas. tomorrow we continue our republican leadership conference from new orleans. speakers include rick santorum, congressman ron paul, and rnc cheered rncrnc chair michael steele.

live coverage begins at 1:00 p.m. eastern here on c-span. . . >> hello. thank you, new orleans.

thank you so much. it is so good to be here in the big easy. [applause] thank you so much, and please have a seat. i am so honored to get to be here with this nice crowd of friends. good to be here in the big easy. enjoying getting to know the people of new orleans. last time i was here was for an oil and gas conference. and now being here, hearing of the inspiring stories and people who have rebelled and revitalized and restored after katrina, it is very inspiring. i want to take a moment to thank this amazing city, especially the people who represent new orleans who are working here with public safety and the wait staff, making us feel so at home. thank you, new orleans, thank you. [applause] good, patriotic people, too.

i knew i should say you betcha after that. but who dat? there you go. good, patriotic people here. and i know this crap, too, patriotic people, and do you love your freedom? [cheers and applause] >> did you love your freedom? then we think of that. in other people here who have served in the past, may be serving today in uniform. raise your hand. we want to thank you from the bottom of our hearts. thank you, sir. we salute you. god bless you. thank you for your service. yep, last time i was here, and oil and gas conference. now it is april 9 on america tax freedom day. have the tax freedom day. there is a good piece written in "usa today" about this, explaining that american citizens now spend about 100 days of the year working for

their government before they start earning our own money that we get to spend. that just does not sound right to me. it sounds like we're working for government instead of government working for us. trying to reverse that. but we have the american tax freedom day here on april 9. well, folks, it seems like we're really learning what the president met with this slogan, yes, we can. when huge in the sunlight into a sentence, you did, yes, we can -- spread the wealth around. yes, we can -- spend the money that we do not have on programs we do not need, and we're going to stick the next generation with the bill. and yes, we can, put our country back on amtrak that is not a good track because this track is going to quadruple our national debt. and yes, we can let the government take over 16 the the private sector economies with the mother of all unfunded mandates, c, are.

these are just a few of the domestic policy accomplishments and informed policy. now we have the makings of the obama doctrine. the obama doctrine. which is toddling enemies and alienating allies. the administration it sided with chavez against honduran democracy. they will not bring up human rights with china because they "they already know what they're going to say." they offered tepid conditions and sanctions on north korea and gold stars and cookies to the sudanese president. they sent letters to iranian morale laws that can barely muster a word of support for the green movement, those in iran seeking freedom and women's rights, barely a uttering a word of support for that. now the president, with all the vast nuclear experience that he acquired as a community organizer --

[laughter] [applause] and as a part-time center and as a full-time candidate, all that experience, still no accomplishments today with north korea and iran. meanwhile, this administration alienates our friends. they treated the afghan president karzai poorly, and then they seemed surprised when he reacted in kind. they escalated a minor decision into a major breach with israel, our friend, our closest ally in the middle east. let's remind our president, jerusalem is not a settlement, and israel is our friend. [cheers and applause] and the critical nuclear concerns of our time is north korea because they have nukes and iran because they want nukes.

so yes, we can, criticize allies, vacillate -- yes, we can, but somebody needs to tell the president just because we can does not mean that we should. [cheers and applause] now they are revising the 2008 slogan for 2010 and having ran through more than a $2 trillion health care take over, flying around the country now on the taxpayer funded victory lap, proudly saying yes, we did. well, you know, i would not be so quick to slap that on a bumper sticker, not just yet. a lot of common sense conservatives can relate the slogans that the majority of americans like a lot better than that. like repealed and replaced. [applause] and the bumper sticker -- how was that hopey cahngey thing is

working out for you all now? but my favorite, do not retree, reload. and that is not a call for violence. [cheers and applause] that, of course, meaning, take an opportunity to engage in debate and vote is not a call for violence. no one is calling for such a thing, and the media is a desperate to discredit the people's movement and the tea party movement that they will make that up. but nobody is calling for violence. whether breyer talking about foreign or domestic policy, the obama-pelosi-read agenda defies logic and common sense and will leave as less secure and more in debt and more be sold to foreign

countries and under the thumb of big government. it is out of touch. it is out of date, and they are running out of time. [applause] because americans across this great country, they're standing up and speaking out for common- sense conservative solutions. and they're telling washington to just back off. some of us, registered republicans, some from the tea party movement, some used to be called reagan democrats, and some are like my friends and family, independents, lovers of this great country, so proud every day to be americans, and very, very concerned about the path we're now on. all of them deeply concerned about our country. and frankly, some of them are little bit skeptical, concerned about our party, about our own gop. for years, the federal government grew and individual freedom shrunk for americans to

believe dying conservative first principles. this was quite concerning and disheartening to watch some republicans stopped putting the first. i lived through that. i vetoed some of obama's stimulus funds in alaska that had strings attached that violated the 10th amendment to our constitution. my veto of those funds was overridden by republican-what legislature because too many people did not want to believe this is all free money. somehow it will all magically work out, the words of bill clinton. remember, he kind of paraphrase did well. if this ain't the biggest ferry tell i have ever seen. [laughter] of course, that was before obama was elected. so we do not know what context -- well, i will take it in the context that i want it in. [laughter] [applause] today, the grand old party has its eyes wide open. do we not? and we are realists.

we know now. we know. we know. [applause] we're getting back to our grand old roots. and when the other party is wrong, we're stiffening our spines, and we're saying so. because there is no shame in being the party of no it the other side is proposing an idea that violates our values, our conscience, violence our constitution. what is wrong with being the party of no doubt? we will oppose it. [applause] or better set by the good governor of this state. he said, well, you know, we're the party of hell no. [cheers and applause] now going board, we have to keep supporting those republicans in congress or leading the loyal opposition. let's help them. they're putting the liberal elite on notice. government overreached did not begin with the obama administration, but it will end

with the obama administration. [applause] because, friends, surely the party of abraham lincoln, the party of reagan, is back, and we have our eyes wide open going into these midterm elections. we're not just the party of no. we're the party of ideas. with articulate our turn the tips, we will prove a better way for america. let me hit on something that has been making headlines lately. i know it well. it is very important to all of us, and it is energy policy. energy is not just about heating our homes and filling our rigs in keeping the lights on. it is an issue that touches every challenge that we face from the value of our paycheck to the interest abroad. there's an inherent link between energy and security and energy and prosperity and energy and freedom. [applause] we need affordable, domestic, reliable, environmentally sound

energy, and there is such a big difference between how the republicans and democrats want to accomplish that goal. there was a much different war on conventional resources. and this administration proposed billions, tens of billions of dollars in new fees on domestic production because they evidently think we're overproducing oil and gas. liberals in congress want to stop things like hydraulic fracturing to produce cleaner- burning natural gas. the administration is locking up even more federal lands that are filled with this god-given huge reserve of oil and gas and uranium. even if a producer is lucky enough to finally be prevented to drill and mine, well, good luck transporting that resources to where it can do the most good. want to build a pipeline? it can take years to get a federal permit. in the transmission line to take a decade. when it tends to consumption, the laughs plan is very devastating -- the left plan is

devastating. it is simple. at least they are honest about this. they do want you to pay more so you will consume less. they called it, this new scheme, cap and trade. i, cap and tax. whatever you call this scheme, it will kill jobs. it will kill production and productivity and work at the guy in this industrious america that we have grown to love. it will pass an even greater burden on to the next generation, on to our small businesses, on to our working families today. that sounds like a bad idea in a bad economy. well, yeah, the left thought he would think it is a bad idea. so what they want to do now is just skip the legislative process and go right to the regulatory agency. let the epa, which some are calling the economic punishment agency -- [laughter] let the epa do the dirty work then. like so much of the left agenda, the have decided what is best for us. even if we do not like it and

cannot afford it and it makes no sense, they are going to do it anyway because, yes, they can. now if you watch some of the news or may be on the white house e-mail list, it might all come as a big surprise, all this energy staff. the smoke and mirrors is going on. but we know it is because the president can give some pretty nice speeches,@@@@@@@ @ @ @ @ @s

certain amount. we did not expect the administration to back him up on that for purely political reasons but not safety, not environmental, or a geological reasons but political reasons. they cannot have it both ways. if you can akron to support development -- a development of clean nuclear security and then got our options at both ends of the fuel cycle. [applause] likewise, the left me tell you that they are for renewal resources like wind and solar power and hydro, and that is just great. i got for did -- god forbid you try to put a windmill in nantucket sound or a solar panel in the desert somewhere. because somebody may see it. or a lizard may run into one. oh you , my. last week we saw this bait and switch, and had to do with offshore drilling. you have to pay attention to

this one. the president gave a big speech at andrews air force base with all the fanfare you come to expect at this time with his speeches. the only thing missing from the ceremony was the soundtrack from "top gun" and joe biden in a flight suit. [laughter] that is next. since then, the spenders have been spending that one is a huge victory for energy security. anything sounds good when you say it in front of a fighter jet. the stop and think about what really happened that day and then the next day when we cut through the hype and talk about what really happened. after inheriting a good pro development gop plan that open up both coasts for drilling, the obama administration halted development. the last week they opened virginia's coastal areas for offshore drilling. but mostly delayed until 2012. you know the environmentalists who have more time to sue, up

until 2012, in our mail list source of concern about the world's environment that they would rather see less responsible countries develop resources and ignore our stringent environmental regulations. they would rather see the other countries develop. this gives them more time to sue. meanwhile, the northeast atlantic coast is closed. the number alaska rich area is cancelled. drilling along the pacific coast with 10 billion barrels of oil and 18 trillion cubic feet of cleaner-burning natural gas waiting to be tapped, now that is prohibited. now we're going to study the south atlantic in parts of the gulf of mexico and a couple other areas. my goodness, these areas have been studied to death. apparently, the interior department reviewed almost 50 studies and decided government needs even more to collect more dust on the shelves, more studies.

as a governor and as an oil and gas commissioner a desk chair of the nation's oil and gas compact commission, i have seen so many studies. i say, let's send the white house this message that -- no, we can sit taxpayer time, said monday, and announced there is oil and gas in down there, and we can produce it safely and responsibly. we do not need more studies. we need more actions. [applause] because energy produced in america is security for america, and it is jobs for american workers, jobs that cannot be outsourced. let's drill, baby, and drill. not stall, baby, stall. [applause]

and i had to remind myself that when i had to throw that one in their one last time to remind you guys. .

>> it is more the status quo. reagan said that is latin for the mess we are in. when a comes to energy, as some total -- the stakes are too high to wait for the next presidential election to get it right. our country needs the jobs, we need a security. we rely on these domestic sources that production here

will provide now. that is why republicans need to hit the road in 2010 and show americans what a real energy policy looks like. a gop plan puts all the options on the table. relying on foreign regimes to meet our energy needs makes us less secure and it costs us billions of dollars, hundreds of billions of your dollars circulating in these foreign countries. we have to say no more. we need to give it all we've got. that means drill here and drill now, and the ocs must be open for development for revenue sharing for the state. [applause] and on short, it is time to stop ignoring the obvious. that includes my home state and

the people in alaska want to see drilling. i love the way ann coulter put it. she says they are breeding and thriving. the caribou are fine, but she said we are in a time of war. you may have to take one for the team. [applause] no matter where the drill bit is, we have to streamline the permitting process and cut the red tape and licenses needed to deliver this to hungry markets. as we produce more here at home, yes, we must waste less. we can encourage people to use energy efficiently through tax incentives and consensus standards with companies and

consumers understanding that need. with a renewable, let's encourage innovation. washington should not be in the business of picking winners and losers in this energy debate. they have technologies we should allow to compete against each other for the best projects, instead of competing for washington's affection. let's empower states to find the best solutions. they need flexibility. they need respect for the 10th amendment and the flexibility to see what works best. i said shoot, i'm sorry. [laughter] look at texas. [applause] that approach in texas is already paying off. can you believe they are home to the world's largest windfarm? the largest producer of wind energy. they are doing it right in

texas. [applause] finally, we can create a competitive climate for alternatives that are doable. nine of the snake oil science stuff based on this global warming his stuff that came down where there was a revelation that the scientists were playing some political games. i sued the heads of governor for some bogus listing and almost got run out of town, but now we feel a little bit vindicated because we have seen there was some snake oil science involved. a green energy that will replace conventional resources is not here yet, but it will be someday. until that day, we need domestic resources to meet our needs. when the alternative is discovered it will be here and

it will be americans who will find it. [applause] because we invented the modern oil well. we invented the telephone. we invented the airplane. we put a man on the moon. we invented the internet, unless that was another goregate thing too. it was the american ingenuity that made this country the envy of the world. it will be americans pioneering a new era. we have the resources and best workers of the world. now all we need is the political will. in other words, there is nothing stopping us from achieving energy independence. nothing that a good old- fashioned election cannot fix. [applause]

[applause] >> and the election is only seven months away. [applause] the time to articulate the alternative is now. and from now until november when they say yes, we can, we say no, you don't. [applause] when they tried to restrict freedom and grote government, which will prove that the republican party has a better way, because this is a party of lincoln and reagan. [applause] this is the party that put an end to slavery. this is the party -- [applause] that declared it is morning again in america. this party let us to victory in

the cold war with the firm directives, we win, you lose. this is the party in knowing that america's men and women in uniform, america's finest, this is their source for good. that is nothing to apologize for. we realize frieden is a god- given right and worth fighting for. -- freedom is a god-given right. [applause] this is the party that stands for competition and responsibility and respect for life and liberty. this is the party that will usher in a new era of prosperity, new opportunities for all. this is our party and we are writing a new chapter in this proud history. it starts with us, and it can start today. we need to stand together and take our country back. thank you so much for being part

of these solutions. god bless you. god bless the united states of america. thank you, guys. [applause] [applause] [applause] [applause] [applause]

>> i will not say another word. [applause] >> thank you very much. thank you very much. thank you. thank you for that very warm reception. thank you very much. thank you. conrad, i want to thank the generous introduction. i appreciate his work in louisiana. i want to welcome our guests from all over this great country and the great state of louisiana, home to the eworld champion new orleans saints. -- home to the world champion new orleans saints. we invite you to enjoy this beautiful weather and are great food and culture. spend a little bit of extra money in our hotels and restaurants. we have a warning to rnc

staffers, you may want to stay away from bourbon street. just a word of advice. i want to speak candidly about the situation our country finds itself in. here is the good news. i want to make an important announcement. as part of my family's concern, i am not running for president of united states. i have the job that i want. [applause] i am happy to report louisiana is doing better than ever before. since i am not running for president i can speak directly to you without fear of offending you. i am under no pressure to make anybody happy, other than the people of louisiana. [applause] all i have to do is be the best governor of louisiana that i can be. [applause] people who know me know that i

like lists. i started off with the top-10 list of things that i need -- things that need to be shared in the open. it is only a top eight list today. the first item -- the first thought is that bill clinton is wrong. i know you probably are surprised. bill clinton was wrong. he said the era of big government is over, but the era of big government is over, it is upon us. america is suffering through its worst recession since the great depression. in the face of this crisis, the obama administration with the help of nancy pelosi and harry reid, are making problems worse. let's be honest, president obama ran a great campaign. it was brilliant. it had rhetoric that intoxicated millions. the promise of the change we need and change you can believe

in caught on fire. they spoke relentlessly about bottom up solutions, involving people in those solutions. people bought it. here we are over one year into it and boy, are we paying the bill for it now. the change they had in mind was the largest expansion of the old industrial age top-down government any of us has ever witnessed. we need to bring truth to bill clinton's words. we need to end this era of big government. [applause] the second thought i want to share with you, power breeds arrogance. one of the most important jobs at any leader is to listen to the people. it means from time to time, you may have a notion that makes sense to you but the people don't agree with.

when that happens, you try to persuade the people, but if you fail you accept the will of the people. it is basic civics class 101. [applause] this group in washington may have failed 63 it they completely failed to convince the american people that there health care overhaul was a good idea. they know they failed. they do not care. they did it anyway. it to me, that is the arrogance of power. failing to listen to the will of the people is not leadership. it is arrogance. they basically told the voters, we know better than you. you small people who do not realize the genius of our health care plan, you did not matter. we're going to do it anyway and there is nothing you can do about it. we may not be able to take away

their arrogance, but in november, we can take away their power. [applause] the president is very wise and he is not up for reelection this fall. but he has -- nancy pelosi is from san francisco. she might actually get votes for bankrupting america. harry reid, he may just be collateral damage to the white house. my third point is this -- there is a debate going on. i have heard this debate in these very rooms, to repeal or not to repeal. one of the things that got the republican party in trouble in 2006 and 2008 was the failure to stand on principle.

[applause] railing against the growth of government while you are actually in fact growing government was not such a good idea. it turns out that the american people are not much for hypocrisy. the american people said to the republican majority, it basically fired us. the republican majority got fired and the republican majority got caught -- got fired because. the started defending spending we never would have accepted. let's go back to the debate we are hearing today, to repeal or not to repeal. we've spent the last year doing everything we could to try to stop this experiment with their systems health care system. we filibustered, we rallied, we protested, we presented alternative ideas. we have done everything we could. now they passed it. there are some in our party who

do not want to repeal this government experiment. we spent a year working and rallying against this bill and some actually asked the question whether we should try to repeal it. only in washington would this be a hard question. [laughter] it is pretty simple to me. let your yes b yes and you're no be no. -- be yes and your no be no. this health care experiment was a bad idea the day before they cram it down our throats. it was just as bad the day after. this is no time to the tenant. -- tended -- timid. timidity is not leadership. we cannot give up, we cannot give in. we must repeal this bill. [applause]

that brings me to my fourth thought that i want to share with you. nancy pelosi likes to call the republicans the party of no. some of us do not like the way that sounds. it hurts our feelings. let's be honest. elections have consequences. we control approximately nothing in washington right now. our ideas are not going to get a fair hearing until november. in the meantime, we are the loyal opposition. we have a duty to stand up to what -- stand up for what we believe in. the republicans need to be the party of a. he is right. when it comes to real-world solutions based on conservative principles, we have to be the party of yes. we have offered many ideas for real health care reform. without cutting medicare or

jeopardize think the quality of our nation's health care. those ideas have been pushed aside by the democratic majority. a bad idea is a bad idea, shame on us if we are free to say so. when it comes to this experiment, i agree. we should not be the party of no. we should instead be the party of hell no. [applause] the debt we have accumulated as a nation is an immoral concept through it this is an inconvenient truth if there ever was one. as individuals, you have to borrow money to give you an opportunity to get ahead.

there is a difference between an individual being willing to take risks in order to pursue his dreams and the government that endlessly borrows money cannot repay. we're not his burgeoning our children, we are burdening their children as well. every generation of americans had left to their children more opportunities than we had inherited from our parents. we must not become the first generation that leads to our children fewer opportunities than we inherited from our parents. where is building our children's and grandchildren's inheritance today. -- we are spending our children's and grandchildren's inheritance today. [applause] enough is enough. it is time to cut up washington's credit-card credit is time to stop this debt. -- a credit card. it is time to stop is debt. it is the spending.

it is the economy, stupid. i know you've heard from the better half yesterday. the famously said it was the economy, stupid. today, it is the spending. and it is certainly stupid. politicians talk about slowing the rate of growing government. that is not enough. that will not work. to make america prosperous again, we will need to have leaders who have the courage to order to find words -- cut government. -- two fine words -- cut government. this course of action will cause me some popularity. it would give my opponents opportunities to attack me. there were only three options. we thought about printing money

like they do in washington d.c. turns out that is not legal. we cannot do that the state level. we were not going to do that anyway. there is always the option of raising taxes. if you hear nothing else, i hope you'll remember this. as long as i am the governor of louisiana, we will not raise taxes in louisiana. [applause] if you come from a state today that is considering raising taxes cut i hope you move down to louisiana. we would love to have you here. what is our plan here in louisiana? we thought of forcing government to cut back, just like families have to do. this is the way to go. have you ever noticed that the government wants you to adjust your life? it wants you to do more with less will it continues to grow.

no state, no country has ever taxed, spent or borrow its way into prosperity. america will not become the first country to disprove that. the spending has got to stop. [applause] states are being crushed by the federal government. as a governor, i can tell you about the hidden cost in this health care that they have just passed that are being shifted to the states. this is just the beginning. we have a crowd in washington that ignored the second amendment. i do not think they have even read the 10th amendment up here we did up there. they have no problem trampling on individual and states' rights and they are not going to stop with health care. even the governor schwarzenegger has spoken out and said the ramifications of this bill are completely unsustainable for his state or any state. it was a clever way of shifting the burden.

they want the state to do with it. many state will deal with it on -- by raising taxes on their citizens. move here. we have great food, whether -- weather. it is about 70 degrees year- round in louisiana. my final thought is that the growth -- the entitlement spending threatens to kill the american dream. medicare is in the near state of -- is a state of near bankruptcy. washington passes a brand new $2 trillion spending bill. what we have well over time more for itself into a new federal entitlement program. do not worry. nance is below sea -- nancy pelosi assures us that the bill will save us money.

if anybody here believes that, please raise your hand. we have a couple of louisiana and bridges that i would like to sell you. this growth in spending will lead to more taxes, less liberty. it is another kp@@@@@@ @ @ @ @ facing challenges. every government has a fundamental choice to make. do we make the hard choices, the hard decisions within government or do we transfer the burden into the working families, the businesses in our states and in our great country? we have made the decision here in louisiana. we're not going to transfer this burden. instead, we will make the tough

choices within government. [applause] make no mistake, that is the fundamental challenge that everyone of us faces. we proposed a balanced budget current 18% smaller than last year. we will have 6000 fewer government funded positions. we have set prioritize. we have consolidated functions and agencies. we're finding the things that need to move our state forward. there'll be some that would argue that there is another way. that we do not have to make these hard choices. there is an example of how you avoid making these hard choices. it is called the washington way. they continue to print money, borrow money from china. the national debt will exceed $14 trillion. by the end of this decade, $26

trillion. what does that mean for us? that is $45,000 for every person in this room by the end of this year. it will almost double to $26 billion. we cannot keep printing money and borrowing money from china. we know what will happen. we will see interest rates go up. we will see inflationary rates up. we will see the value of our dollar go down. this is not a sustainable path. here, we're doing everything we can to adopt a different way. we're not going down the washington way. we're also fighting for people's rights, despite what they do washington bridge we have filed -- what they do in washington. we are supporting legislation to search our peoples and our states 10th amendment right to object to this federal health care bill that has just been

passed. [applause] let's not doubt what is at stake. for the first time, our federal government -- that has never been done before. the 10th amendment -- the commerce clause is not going to be allowed to be construed to allow the federal government to do whatever it wants, we must challenge this legislation. we're not stopping there. we're supporting legislation to make sure that louisiana's tax dollars are not used to subsidize elective abortions. [applause]

we must take a stand for innocent human life. we must respect the several decades -- it is not right to take taxpayers' dollars to subsidize abortions that they disagree with. we will continue to work -- we will continue to go forward in our state with a conservative solutions. our state is recovering from hurricanes. we did go from -- women from being 44 the worst -- we went from being 44 worst to being best in the country. [applause] we have sent who you know must not be more important than what you know when it comes to being

-- doing business in our state. i have sent dozens of bills. we signed the largest income tax cut in our state history in our first two years of office. [applause] we revamped our workforce training programs, offering a guarantee. our students will be ready to work on the first day or community technical colleges will train them for free. what has been the results? louisiana was the third best state in the country for creating jobs last year. [applause] portfolio.com said we had the second best economic performance during the recession. our unemployment rate has been lower than the southern and national average every single month of this recession.

i could give you a long list of numbers and statistics. they just upgraded our credit ratings. here is the number that means the most to me. after two decades, after 20 years of our people leaving the state, we have now had three years in a row of more people moving into louisiana rather than leaving willies -- rather than leaving louisiana. [applause] that means our children, our grandchildren are returning home. others are coming home as well, realizing their opportunities to pursue the american dream. the reason this is happening is that we have started with the recognition that government does not create wealth or jobs.

it is our job to give our people a new louisiana. if conservative ideas can work here at home in louisiana, i know they can work in every state across this great country. [applause] we have great challenges, but we have great opportunities. i know there are skeptics out there. to the skeptics, i would say this, just look at what our own at new orleans saints have done. [applause] after 43 long years, we had never even been to a super bowl. most of those years, we did not even go to the playoffs. despite the skeptics, despite the odds, the st. show that through hard work, perseverance, timor, they could come back and make it to the super bowl and win the super bowl to become

world champions. if they can do that, louisiana can continue to help lead the country in economic development. we can come -- we can become number one in education and in quality of life and health care. if we can do that in louisiana, every state can adopt these kinds of conservative solutions. we live in the greatest country in the history of the world. [applause] if i -- i want to thank you for coming to this conference. i want to thank you for your support. i wanted thank you for your enthusiasm, your time, your hours of effort to make sure that this november, which puts our country back on the right track so that we continue to be

the greatest country in the history of the world so that we leave even more opportunities for children and grandchildren they got continue to bless each and every one of you. maine continue to bless the greatest country in the history of the world. -- may he continue to bless the greatest country in the history of the world. thank you very much. [applause] ñówñtns you

are going to be having great fun. it is good to be back in the big easy. i tell folks that last time i was here, it has been a little while. there was a certain republican governor who was being sworn in for the first time in louisiana. o be here. it he is a guy with a bigger vision for a remarkable state. we're all celebrating the impact that bobby has had on louisiana. i am not giving him credit for the super bowl victory. i am sorry, bobbie. i cannot just give it all to you. when you think about it, it is hard to believe that it has been five years since our states experienced a 1-2 punch of hurricanes katrina and rita.

i remember that telephone call very vividly. knowing that the people of knowing that the people of louisiana were being displaced. a@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ by bus.

i'm sure that some of them hitchhiked into the state of texas. what they found there was a state with open arms, a state that by the grace of god, it could have been on us. it could have been the governor of texas calling the governor of louisiana say, can you help us? that is what makes this country great. having men and women like that. all those folks came over and many of them went back to louisiana. it is amazing how many people who came over and saw how things are in the great state of texas. you are fixing to get a state of commerce -- a chamber of commerce speech about how great texas is. to get ready because here it comes. i want to talk about why that is important from the standpoint of having people like bobby in office. an individual who really

understands the importance of competition between states, why it is important that on your eastern border, where you have a great governor who is putting in some powerful changes in that state over there. we love to compete against each other. i want to give back to bobbie. i truly admire him. he is one of these leaders who proves that a great things can happen when you cut problems down to size and then you address them with common-sense. you devise solutions that are based on the essential conservative concepts. you refuse to compromise on them. that is the type of leadership that we look for across this country in the republican party. this state is showing that type of principled conservative leadership. i think one of the roles of the governor, and one of the roles

of people who are engaged in this business of governing, we remind folks on a regular basis that the role of government, what the government's role is is as servant, not as master. it is as protector, not as provider. as the citizens of our country work to feed their families and pay their mortgages and set aside something for the future, they are being told today that big daddy government has all the answers. that is what we are hearing from a washington d.c. that is absolutely out of control. they are saying, do not worry your pretty little head about it. we will take care of all your needs. you just sit back and let us take care of it. washington is telling us, we will let you know what medical procedures you can have, how

much of your earnings we're going to take to pay for it and we will tell you how to educate your children. that is what we are hearing out of washington d.c. today. there is this endless struggle going on. he gave you a great example of its. between the left and right. the conservatives and liberals, between socialism and democracy. that is what is going on in this country today. i will tell you, this country is definitely tilted in the wrong direction and we need to be staying focused on what really matters. [applause] i want to make sure i have this out. type in the words "fired up" and text into nine once -- 95613. we will keep you into earned in how you can continue to fight

what is going on in washington d.c. americans need to -- here is what has happened. let me put this into some perspective. america is finally -- is starting to emerge from a fog that it found itself in. i was a pilot in the united states air force in the early 1970's. one of the great and beautiful things was flying out of that fog and falling those instruments and saying that runway show up just like it was supposed to. that was a very comforting feeling. america has been flying in a fog for two long. listen, -- too long. republicans got frustrated. they got frustrated because we elected men and women who said, elect us and we will go to washington d.c.

we ended up not being able to tell the differences between them being a republican or if there were a democrat. that is what happened to the republican party. [applause] we should not be -- we should not sugarcoat it. we need to identify men and women today who really understand what the republican party is all about. now tell people -- i tell people, governing is pretty simple. i think. there are some people in washington d.c. that they think they need to do a whole bunch more than what i think they need to be doing. a republican needs to be about having a strong military. let me tell you, one thing about it, we got that right. we have the finest young men and

women defending our freedom around the world than we have ever had. my father was part of that group that they called the great generation. we have young men and women that are every bit as sacrificial, every bit as good every bit as selfless as those who came back in the 1930's and 1940's. secure our borders and deliver the mail on time. [laughter] that is it. those three things. one out of three is all we're getting right now. that is for sure. until you can get those three things right, how about leaving everything else alone? [applause] i want to get back and talk

about texas. the reason i want to do that is because i think there is a great story to tell here. as you look across this country today and part of my job is to make other governors uncomfortable. think about it. i believe in the 10th amendment with all my heart. it is a powerful part of the constitution. what it says is that the federal government was created to be an agent for the states, not the other way around. the 10th amendment says we ought to compete against each other. those principles, those conservative republican principles that have been put in place in the state of texas have created a powerful economy there. i think it goes without saying that in the state of texas, we are at the epicenter.

we are at the apex of the states when it comes to the economy. when you look at what we have created their -- there -- i get it. i did it about the principles of governing. you do not have to be a ph.d. from harvard in political science to understand the principles of governing. number one, do not spend all the money. have a tax and regulatory policy that are fair and predictable. have a legal system that does not allow for over suing and then have accountable public school system. it says to the job creators that this is a place that has a skilled workforce. those are the four things. heavy tax structure that is fair.

a legal system that does not allow for over suing and an accountable public school system. then get out of the way, government and led the private sector do with the private sector does best. create jobs. to create wealth. that is how you do it. [applause] in 2003, we had a $10 billion shortfall in the state of texas. the first time since reconstruction -- that goes back to the 1870's. we had in texas for the first time all republican leadership. we had a major issue with the resources coming in the did not meet the previous budgets level. we had to make hard decisions.

they were calling for state income tax in some of the major media markets. twe said, we really believe that ronald reagan knew what he was talking about. we believe that ronald reagan and his economics worked. if you'll cut the spending, the job critters will flourish. that is exactly what we did. . .

i go to california on a pretty regular basis. the governor of california is tired of seeing my mother in california. arnold knows that i am going out there to recruit businesses to bring them back to the state of texas. [applause] i want that type of competition all across the country. i will suggest to you that the governors that have that type of principles -- let me share this with you.

that is a very small economics 101 book. there is a hard part about this. the hard part is finding men and women who have the courage to implement those principles. that is what we have been blessed about in the state of texas. today, we have men and women who understand and we have proven that, if you will have the courage to implement those principles, your state will flourish, your street can -- or state can grow. i don't stand up and tell people that we do not have challenges. you cannot have the type of economy that we have, this international scope, and not be affected by this economic crisis. it is an all-consuming thing. you bet we have been impacted. but if there is a place in the country that will help lead america out of this recession,

it is texas. it is those principles that we put in place. i challenge governors all across this country. if you believe in this country, if you believe in the principles of the free market and capitalism, put those principles in place and help lead america back to the principles of promise that we made to the people. [applause] we can be preeminent in the world again. but it is going to take principles, leadership -- is going to take men and women going to washington, d.c. and saying no. i hope there are a host of men and women who will stand up and run for office in 2010. those are incredibly important elections. one of the things they say is, "elect me and i will go to washington, d.c. and make it as inconsequential in your life as i can make it." [applause] i am thinking that maybe a good

thing. it takes principal leadership -- it takes principled leadership. don't tell me you are a republican and then go and spend all the money. do not tell me you are@@@@@@@@@á

would you do? i would tell you what mine would be. i tell you what one would be. it would be to pass a constitutional amendment to the u.s. constitution that requires a balanced budget. [applause] there is nothing more powerful to this country than to say to those in washington, d.c., "this is how much money we have and this is all you can spend." this is what needs to happen in this country. people are starting to wake up. thank god. we have come out of the fog. we have not landed it, but we see the airport down there. the work that you all are going to do -- and these 2010 elections are so powerful. there has never been an election that is more important to us as a people than 2010, let the men and women who are going to go to washington, d.c. and say no to this administration, men and women who are going to be

principal followers of those simple -- to be principled followers of those simple principles. americans just want you to keep our tax structure low, our regulatory climate fair and balanced, a legal system that does not allow for over-suing. as a matter of fact, those things need to happen in the states. let the states compete against each other. if there is some gov. or legislature somewhere that thinks that it is important to raise their taxes high, they need to have a regulatory climate that is burden some, you need to halt the trial lawyers to shoot at every whim -- you need to help the trial lawyers to sue at every whim, and an

educational system -- i should not talk about california in a regular way like that. [laughter] you need to call them up. people do it. they do it because they vote with their feet. people are moving out of those states that have high taxes. boc what the detroit, michigan looks like today. -- go see what detroit, michigan looks like today. they're moving to states that has an environment that allows them to be free. that is what 2010 is really about. it is about freedom and about men and women will go to washington, d.c. and tell washington that we will know longer take the freedoms away from the people. and get back to the constitution. have a strong stand on republican [unintelligible]

the momentum is building. ralph, if you had told me a year ago that we would see this powerful resurgence -- let me tell you, in january 2009, i had my head under my wing. i was feeling unwell whether, politically. i thought we were in deep, deep trouble. and something really interesting happened. on april 15, t parties all across this country, men and women saying, "read the constitution." [applause] i want to say thank you to everyone of you who went to every tea party were involved in. you're bringing back america to its rightful place.

that is what this election is about. god bless you and, through you, may god continue to bless this great country that we live in. thank you. [cheers and applause]

to stand and be sworn. do you saw me swear or affirm under penalty of perjury that the testimony you're about to provide the commission will be the truth, the whole truth and nothing but the truth to the best of your knowledge? thank you very much. now gentlemen, we do have your written testimony. but as you know we would also invite you to make comments today, coming to us today. and in that regard we would ask that you make an opening

statement of no more than 10 minutes. and i think what i will do in kind of chronology of service to this country, i will start with you, mr. falcon, nasty to go first and mr. lockhart, turn to you. so mr. cochran. proceed. >> thank you, mr. chairman, mr. vice chairman, members of the commission. thank you for having me here today. the failure of fannie mae and freddie mac will be a case study in business schools for decades. how to operate a business with the most generous government subsidies which convert very powerful market advantages and run the business into the ground? ultimately, the companies were not unwitting victims of an economic down cycle, or flawed products and services of theirs. their failure was deeply rooted. the culture of their goods and read. i should be clear that this was a failure of leadership. there were and aren't many good people in the ranks of both companies.

i would address the issues raised in your invitation letter by explained activities of ofheo and overseeing fannie mae and freddie mac and the challenges we faced. i remain proud of what a small and dedicated group of people at ofheo accomplish. we stood up to the full political on spot of fannie mae and freddie mac and rallies all over town and we did our job to the public servants. we accomplish much despite the fact that ofheo was structurally weak and almost designed to fail. ofheo like the same statutory powers as every other safety and said his regulator, and the key area such as enforcement powers, capital requirements, funding mechanism and receivership authority. at one point we attempted to stop bonus payments to the part of executives responsible for the accounting misconduct. only to be reviewed by federal judge for exceeding our authority. from the beginning to end of my tenure as director i took every opportunity to press for legislation to fill these important gaps in ofheo's a story. the lacks of flexibility on setting capital requirements was

especially troubling. i statute the enterprises minimum capital requirement was set at 2.5%. which permitted them to operate at a highly leveraged level with very little margin for error. we never received the discretion to raise the standard. our only opportunity to increase capital and reduce leverage was in connection with the supervisory agreements to remediate the accounting violations. only then was i able to oppose a 30% cap surcharge on both enterprises. in addition ofheo is the only safety and soundness regular that was required to update it's funny to the appropriations process. this was despite the fact that our funding was provided but assessments on fannie and freddie and not derived from taxpayer funds. the result was that the agency was starved for resources for many years. to illustrate this point i recall that when i first took office i received briefings from the exam step on their work

schedule and laid his examination size. when i inquired about some key areas that they had omitted they respond that due to staff limitations, a review of that particular miscarry was put off until the following years exam cycle. in response i ask exam staff to conduct the study and tell me how many examiners would be assigned to examine fannie and freddie to. if they were raided by another regular. their conclusion was that the other regular with their funding outside the appropriations process would maintain a team of at least 30 or so examiners her enterprise. by contrast, at the time ofheo a total exam step of less than 20, perhaps less than 15 to cover both companies. despite that kind of dated to support us can we had a very difficult time getting meaningful budget increases. but ofheo's budget request went to congress for consideration the agency's request first went to the office of management and budget for review and approval. we receive very large budget cuts at only be until about 2003, when i request begin to

receive more favorable consideration. a few years later when ofheo need additional resources to conduct a special examination of fannie mae's accounting practices we encountered more difficulty and delay. fannies lobbyists were on the hill spring misinformation about my motives and asserting that special exam was unnecessary. we eventually received the funding and finally had the resources to dig deeply into fannie mae's accounting. it wasn't long before we realize that fannie mae's problems were even worse than freddie mac's. the enterprises -- manifest itself in their many efforts to abstract the regular process. let me describe just a few. the first involved circumstances around my forced resignation unfair for fourth, 2003 on a year and a half before the expiration of my term. at that time the agency was preparing new research report that analyzed the systemic risk created by the enterprises growing portfolios, debt, and role in the mortgage market. we need to be sure the agency

and others in government fully understood the nature of their systemic risk, have to minimize it and have to deal with that if the companies ever expect financial problems. the enterprises did not want the agency conducting such a study and certainly did not want it released to the public. at the time they were doing everything possible to convince the public and policymakers that their operations did not pose any systemic risk to our financial system. a few days before the agency was good to release the systemic risk report, the chairman of fannie mae, franklin's, kolbe to protest about the release of the port and his conclusions. he urged me not to release it and when i reaffirmed my plans, he threatened to bring down me and the agency. our call was over and soon received another call from a church official who said that fannies lobbyists were calling other agencies to urge them to press ofheo not to release the systemic risk report. he asked for a copy, which are provided, and she respected my decision not to delay its release. a few days late on february 4,

2003, i was in new york to give a speech on the findings of the report, which was being released that day. in the morning as i was waiting to give my speech, i received a call from the white house personnel office to inform me that the white house was issuing an announcement on the nomination of someone to replace me as director of ofheo. by the way, it was not director lockhart. someone in between. i informed the personal official that there announced it would seem odd since it was not a vacancy in the position. i asked the official to withhold announcement for a day while i considered my options. a decline and a issued a resignation letter later that day. the next day's news emphasize coverage of the personnel change and a very scant coverage to the findings of the systemic risk report. this was of course exactly the result intended by those who engineered the timing of the announcement of my replacement. the white house withdrew its nominee and i remain in office for two more years.

in 2004, as ofheo begin its accounting of fannie mae the political attacks and efforts intensified. and he was with document requests and engage supporters for assistance. as described the indie ofheo special ag@@@@@@@ @ @ @ @ @ @ @a that provided money for ofheo's budget in 2005.

the bill included specifically which getting that 10 million of the agencies 2005 budget could not be spent until i was removed from office. the language was later removed from the final appropriations bill. also in that same month, ofheo release its first report on the accounting misconduct at fannie mae and we took supervisory action to correct the problems that i was summoned before the house financial services committee to testify on the findings of the report. it is a vast understatement to say that i was met with a well orchestrated effort to discredit the report and my character. one number of the committee even accuse me of conducting a code political lynching. it was a shameful day in the committee's history which i worked at the committee for ages. and another example of the dangers of political power of fannie mae had amassed. while all this political power satisfied even as of fannie and freddie executives, and totally serve one primary purpose, as the accumulation of personal wealth by any means that a court

we also put the american dream of wealth accumulation as long as it is done within the rules. fannie mae begin the last decade with an admissions goal. double earnings in five years, to $6.46. a large part of the executive compensation was tied to meeting that goal. the internal auditor of fannie mae made a famous quote which was detailed in the ofheo specially report examines which advised chairman thomas mentioned our little i will not repeat but it just what part of how much 6.46 and these armies were so important to the personnel within the companies and the compensation that they would receive as a result of meeting those goals. and they did receive a great deal of compensation. in the case of ceo franklin raines he collected over $99 in total compensation from 1998 to 2003. of that about 52 month was directly tied to achieving earnings per share goals.

however, the article turned out to be unachievable without breaking the rules and hiding was that fannie and freddie executives worked hard to persuade investors that mortgage related assets. while at the same time covering up the volatility and risk of their own portfolios and balance sheets. the ofheo reports go into great deal on how this was done over the years. one very to speak can you wrap up? i know this is your written statement but did you could quickly just very quickly make the point of the bows of your statement so we can stick your schedule. is that okay? thank you. >> sorry. one very tiny example of the accounting violations was a $200 billion would have a the fourth quarter of 2004. by shifting to an billion dollars into future years, they were able to obtain 100% of their bonus compensation in that year as opposed to zero if they had properly accounted for the 400 million properly. >> your letter also asked me to

talk about the impact of the afford a house and on their financial problems. in my opinion the goals were not because of the demise. firms not engaging in activity, or otherwise unless the was a prophet to be made. in the in despite management turnover at both companies, problems persisted. the companies could not accept the role in the mortgage market in the reduction of the profitability. so they make a fateful decision to make big investments and subprime and transferred assets. in summary, the fannie and freddie model was privately chartered companies inherently flawed. the market and political power that it confers breviary goods, greed, excessive risk-taking and abuse. if any every are not to continue in any creation of their current form, another commission at some future date will again be asking the question of what went wrong. that is why the work of this commission is so important, and i appreciate the opportunity to be here to testify today.

>> thank you very much, mr. falcon. mr. lockhart? >> thank you, mr. chairman, for inviting me to testify about fannie mae's and freddie mac's role in the housing market. the flaws and the regulatory structure and the actions we took prior to considering i didn't conservatorship. i served as director of ofheo in the fhfa from may 2006 to augu august 2009. the enterprise's mission is to provide stability, liquidity and affordability to the housing market. despite having over 4.3 billion in debt at that point in being some of the larger financial institutions, fannie mae and freddie mac were both very troubled as they were unable to produce timely financial statements and had serious deficiencies and systems risk management and internal controls. ofheo was finalizing its special examination report of the fannie mae, and also a consent agreement as i arrived. we find them $400 million impose about 80 remedial action items. very importantly, we froze the

growth of fannie mae's mortgage portfolio and continued the 30% in the capital requirement. the report quoted an e-mail from ben fannie mae ceo -- coo dan mote at that point of and the quote is the old playground was that we always want to we took no prisoners. we used to be able to write or have written rules that work for us. that was really the key flaw as the week legislation that created ofheo in 1992 was a product of that old political reality. i endorse strongly in three congressional hearings recommendations from the report that we move the caps to freddie as well as fannie. we support legislation to fix the agency, and we need to strengthen our regulatory infrastructure. in june i met with freddie's board, and ask them to voluntarily freeze their portfolios. the portfolios as you know has been a major target of gse reform because of their interest

rate risk that required extensive use of derivatives. their portfolios were a major source of income, even though half of their portfolios were in their own mortgage-backed security. the other half were in aaa private labels the goodies and hold those, and that compounded the credit risk that we have heard. at the freddie board meeting, i went to a long list of issues, and mention credit risk. and on credit risk the pushback was explaining intense. but they did agree to the freeze. in retrospect having the growth on the portfolios prevented tens of billions of dollars or more losses. president bush has been pushing for gse reform for many years, a need for the legislation was obvious and so ofheo is wrigley to of the the largest systemically import financial institutions, which would require extraordinary powers for the regulator, and we had just the opposite. the key components we asked for finally got into law only 38 days before we had to put them into conservatorship.

first issue is the capital, both minimum capital and risk based capital requirements were weak and outmoded. the minimum capital standard actually allow them to get leverage over 100 to one. the definition of capital itself was in flexible. but exclude large losses. just one month before the conservatorship, both fannie and freddie published financial statements that show that they were in excess of the legal adequately capitalized standard. even though in the case of friday they had a negative fair value of equity. the portfolios as mentioned compound of the mortgage credit risk and introduce large interest-rate and derivative counterpart risk. there was no mission related reason why the performers had to be $1.520. hud was the enterprise's mission regular. in retrospect hud push the housing goals too high, and aired by giving credit for the underlying mortgages and

private-label mortgage-backed securities. both seat oh oh still that one of the first worst beers fears was missing their affordable housing goals. the high goals plus their drive for market share and profits were major reasons why they lowered their undivided standards, but i must add that they were still much higher than the marketplace. if you look at danny's acquisitions from 2001 to 2007, the% of subprime mortgages remained militantly stable at 16 to 18%. even though the subprime market was tripling or more than that come and represent about a third of the market at the end. however, as mentioned the sport of their purchases of the alt-a went up dramatically. they also indirectly encourage lower standards by purchasing those private-label securities, and also by not aggressively forcing originators to repurchase noncomplying mortgages for fear of offending major customers such as

countrywide. as ofheo's budget was subject to congressional political process, ofheo's growth was constrained in subject of annual freezes. the other issue, major issue was receivership. we did not have that in the original legislation. we guided in the new legislation. however, at the end we did decide to put them into conservatorship rather than receivership because we felt it was critically important to keep the enterprise is going to prevent a total collapse in the mortgage market and potentially the u.s. financial systems. without treasury authority to fund the enterprises, which was inserted into the legislation and really the last few weeks, is my belief the conservatorship would have failed. the company's opposition to legislation for so long was a major mistake. the board focused on maximizing sure holder profitability of they failed both the shareholders and taxes that article was to strengthen our regulatory oversight. we had large teams of fannie and

fit and we continue to add a skilled examiners. i met monthly with the ceos. we sit in and report to congress on the enterprises which detailed the many problems and remediation efforts. in the 2006 report, we rated them significantly supervisory concerns. we met with the board and the to discuss the reports and at other times. in midyear 2008, we lowered the rating to our lowest category. although the enterprises never violated even a ofheo directive extra capital requirements as the market began to deteriorate, they hit triggers and/or brought regulation. ofheo mate escalating request to its curve capital including detailed capital plans, dividend constraints come and increased capital requests. ofheo create the first government regulation on mortgage fraud. in 2008 we adopted a new rating scheme called government

solvency earnings and enterprise risk, market credit and operational and we reorganized our operation examination teams around those areas. on the compensation sigh, our three was wrote every week but we did successfully pressured the boards for some moderation and created broader performance metrics. the enterprises management and the credit miles they relied on failed to identify how badly the mortgage market was deteriorating. many other failed to understand how bad the toxic was. booming and then falling house prices, low underwriting standards, disappearing financing and wall street's destructive creativity. the enterprises believe that they could save the troubled market that began to erupt in 2007. we constrained fannie mae from construction and combined less than aaa private-label securities. i made 2007 they were putting

extreme pressure on ofheo backed by members of congress for us to remove the portfolio caps and the 30% extra capital constraints. ofheo turn down their request as it would embed a critical need to support the conforming mortgage market. from the fall 2007 to the conservatorship's, it was a tightrope with no safety net. house prices will continue to fall to the liquid foreclosures were rising and mortgage credit was drying up. we encouraged the enterprises to cut their dividends, and they raised $17.5 billion in preferred stock in 2007. they represented about 75% of the market at that point. but sitting on over $5 trillion of mortgages and raises in capital it was critical for their country financial future at the mortgage market stabilize. they are withdrawal would have created a self fulfilling credit crisis. as the enterprises struggled with a mounting losses, our

communications with him, treasury and the fed grew. in february we published time the financial statements, and has agreed we remove the portfolio caps. we also mention at that point that we would look at lowering the capital requirements, and we did in march slightly, and also did in march slightly, and also did tha to raised significantly more capital and to keep capital well in excess of requirements and support gse reform. fannie mae actually did raise capital, but freddie was unable to. and by august, it was obvious that they could not. by august the conference of the enterprises plunged working with a treasure an before concluding, i would like to thank the team for their extraordinary work during that timeframe.

the warned repeatedly of the systemic risk that fannie mae and freddie mac presented to the market and did many steps to prevent the damage, everybody including them could have done more. there was a strong emphasis on the operational risks and monitored other risks that the credit risk was not monitored as much as it should have been. we did acquire them -- require them to get the sub-prime guidance. the foremost failing was a legislative framework, especially the capital rules. the structure allow them to be so politically strong that they resisted the very legislation that might have saved them. eventually it was passed and the conservatorship was allowed to continue smoothly.

thanks. >> thank you. i am going to defer to the vice- chair to start this session. >> thank you, mr. chairman. chairman. >> thank you, mr. chairman. mr. falcon, when did you come to washington? >> it was in 19 -- >> yes out. >> 1989 i believe. >> 1989. mr. lockhart? >> 1989 as well. >> 1989. i am reminded of a movie which basically has a story, but then it is seen from various participants as to what they saw. so your testimony is one view of what happened, and if you were

privy to the panel in front of us, decidedly, it was somewhat of a different view in terms of attitudes and relationships. i just have to say, i was there for the movie as well, and i think your version tends to have a greater degree of credibility about relationships than the one i heard earlier. to bolster this, and we are trying, i say we, staff and commissioners, are trying to work out a timeline with specific events, some of which are public, others are much more private, including e-mails between individuals, and statements from individuals, and we're going to continue to work on the veracity of it. but i eventually, mr. chairman, plan to place it in the record,

to let people in a relatively brief, almost a visual way, take a look at those events. and the first day we have done is september 19, 2007, with a press release on portfolio caps and liquidity. where i think, would you agree, that the significance was basically the recognition that safety and soundness is probably more important than the liquidity mission, based upon the circumstances that we were in? >> what i was try to say and that is safety and soundness was critical and liquidity was critical as well. and they couldn't provide liquidity to all the housing market. they didn't have the capital to do that. >> and then we pass through the end of '07 into february of '08. and then some of it is interesting, but for the sake of

time, move on into early march, where things start to happen fairly quickly. on march 7, we are a winner of an e-mail exchange between mr. mudd, ceo, and mr. deal who is the undersecretary at the treasury. and my understanding is that mud rights to steal that ofheo, having unrestricted capital authority will as ever be the sticking point. mr. mudd rights to 11, quote, it is a timed game, whether they need us more, sooner to show administrative action or if we hit the capital wall first, be cool. . .

>> they were still shareholder centric at that point. the discussions that i've had the with board over the years, they were focus as what

who they were and fundamental underlying goal, notwithstanding, making a profit is always nice. >> as i said in my written testimony, the boards were focused on profitability. they felt that was responsibility to the shareholders and the mission was a distance, not even second. that was my view and i had many conversations with the board. >> my assumption was there was no discussion about taxpayers rather than shareholders? you don't have to answer that. obviously background into that first week in march, march 11, the barnes article comes out. suggesting that fannie mae is insolvent in predicting that the government will bail the company out. march 16, undersecretary steele

e-mails to others at rash re, lockhart needs to eliminate -- that's you -- lockhart needs to eliminate the negative rhetoric. i have e-mails and called and waiting to here back. i was leaned on very hard by bill dudley, official at treasury, to harden -- huh? >> he's with the new york fed. >> to harden substantially, i do not like that and it has not been part of my conversation with anyone else. i view that as a very significant move. way above -- we've heard this before, my pay grade to double the size of the u.s. debt in one fell swoop. since it was directed toward you, what do you think was meant by eliminating the negative

rhetoric? >> well, i think it's well known that i was pretty strong against some of the things the two companies were doing. i was very strong in supporting the legislation. and was, you know, as id -- said in my testimony, we had a fine line. we have to force the companies to get more capital. the legislation of the flawed. i was using the press occasionally, but more often talking about the need to raise capital. >> same day, march 126,bear sterns collapses. >> certainly i did talk to the treasury and bed. our concern was fannie and freddie could be next. we thought it was critical to raise capital. to do so, we basically, as you

know, did an agreement with them in return to raising the capital and committing to keep the capital above the minimum standards that we start to lower their carr capital. >> on march 17, that was the subject of an e-mail from -- talking about releasing capital surplus in the gses commitment to invest $300 million in market to raise capital. what was your opinion of that particular deal? >> i did the deal. so -- >> i understand you did the deal. but what was your opinion of the deal at the time? >> i thought it was necessary because we needed to stabilize. >> a number of us take out garage. but that doesn't mean that's our ideal. >> we had to play the cards we were dealt with. we had capital structure that didn't work. we had a gse structure that didn't work, and we had a $11 trillion mortgage market that

could have catered if we hadn't done something. >> okay. then obviously after that which you did, which you felt was absolutely essential not perhaps ideal, march 19, ground fisher gse analysis joshua quoted any capital is a comment not on the current safety and soundness, but on the verge of panic in washington. and that quote, we believe the failed director, lockhart took this action in the destabilizing of the gse. a fail to go from the only regulator who had prevented their charges to getting into trouble. a textbook example of why regulators should be shielded from outside political pressure. do you feel that the decision that arrived at was substantially based upon the outside political pressure that you received? or in your professional

judgment, absent any pressure that was okay. >> in my professional judgment, it was the necessary step. i had run the pension benefit, made a lot of life and death decisions for corporations at that point. so hi a lot of experience. twa, pan am, so i had a lot of experience in working with financial markets and in my professional judgment, it was necessary. now i would have loved to have more capital. i would have love to have counter capital so they would have had the capital to do what was necessary. they didn't. so they had to raise it. >> mr. chairman, full disclosure, i worked with mr. lockhart on the pbgc, we ended up relying the structure which allays them to not sure of the commitment that they make. but it would have been useful to have capital at an earlier time,

i believe your testimony and others indicate there was great resistance because you'd have to go through congress to achieve that. and we've heard from mr. falcon's testimony, that there was constant pressure from congress. and i just want to reform the argument that sounds a lot more like the washington that was in for three decades. especially when they had have the ability to communicate to you through the protections process. thank you, mr. chairman. >> all right. let's do this. i'm going it to defer for a moment. ms. murren. >> thank you. and thanks to you both for being here today and for your testimony. i have in an interest of looking more broadly at the regulatory processes and the framework that really are the basis for which

shareholders and taxpayers rely on the ability for the financial systems to be transparent. i'm interested in the some instances in the mechanics and practical realities of that. so i'd like to ask a couple of questions to begin with on your daily interactions with the people or that of your staff at fannie mae. and the way you describe the relationship, obviously, as it seems very tense, certainly at the senior levels. could you talk a little bit about whether that type of tension was also evident when you carried out or when your staff carried out the daily duties in interacting with the line staff there? maybe if you could comment on it. >> okay. certainly. on the daily level, there's much interaction between the examination staffs, legal staff, basically there's a lot of interaction done at the staff level of both entities.

part of my responsibility is leading the agency and trying to make sure the people in the agency had what they needed to do their jobs properly. and so i was often in position of seeing the deficiencies with our structure and funding. so taking the responsibility as a head of agency to try to seek broader policy changes to help the agency. and those were certainly in the realm of what i tried to accomplish among other things at the agency. and if there was tensioning, and there were between the senior executives and myself and my senior staff on those issues, i wouldn't say that filtered down below us to the people doing their job day in and day out at the agency. >> could you say that the people that worked for you found that when they reached out to did this sort of resistance the

issue described filtered down to the lower ranks over at fannie mae? >> yes, many times, we did have difficulties in the lower ranks as well. i recall one of the early meetings with my stuff. there was an issue where we needed some data. i was told that it could be difficult to get the data, because we get resistance from the companies. we had another request and they did not like to have a couple of requests at the same time. they said, we do not know if we can do it just now. there were some cultural problems. i had to try to change all of that. we are going to get this data. if they have to find more people for the agency's reporting days, then they need to do so. there is always a deep

relationship issue about the agency not having problems getting full cooperation. something as minimal as a data request, that had to change. ething as minimal as the data request. that had to change. >> from my stand point, we put a lot of that into the consent agreement. we write it in that they had to cooperate and change the tone at the top. we really worked hard with the board and management team to do that. and they did make progress in a lot of that over that period. in fact, they really by the end of the period actually complied with the consent agreement. there always has to be some tension between a regulator and regular lay tee. in this situation where you had two firms that couldn't produce financial statements on a timely basis that didn't have good internal controls, you had to have a regulator that was in there all the time working with them, trying to fix the problems. on the staff level, the cooperation was good. i would have meeting with, you

know, quite a few of their people down three or four levels occasionally on a topic. and i always found it cooperative, you know, occasionally, there was an issue that we just disagreed on and we couldn't come to an agreement on. butt key thing to me was that we had to have a professional approach in my team really did. >> so would it be fair to say then that sometimes if the response that you get from one of these entities that you supervise or that your requesting data or information from that says gosh, the nature of your request is too vague or it's just too much for us to do in a particular time frame, really that reflects the resistance at the top to the work that they are doing in producing this information. >> i think there was the resistance as i pointed out. now i agencies that i was dealing with were much different than the agencies that professional lockhart had to deal with. perhaps, he didn't encounter the

same times of the issues that i had as director of the agency. but we did have those problems. >> i think that's right. it changed because of the consent agreement. there's still arrogance at that company, and certainly, they are fighting the legislation over that period was probably the worse set of arrogance and the biggest mistake that they made. >> general respeaking, how did you convey any concerns that you might have to the management of fannie mae? was everything documented or did you attempt to have an oral discussion beforehand before you would seventh send an e-mail or formal documentation? >> i was meeting with the ceo's monthly. we tended to have the frank conversations about the key issues or i would give them some heads about examination reports about ready to put out and really tried to work with them to help move the organizations ahead. at the time we were there,

fannie mae probably had 5,000 employees and 2 or 3,000 consultants trying to fix their problem. it was a major, major problem at those companies. so we were all working to try to fix those operational and financial and accounting problems. >> you both mention the fact that you felt that your own resources and ability to manage this was -- it was less than ideal. you didn't have necessarily the greatest amount of resources to be able to address the problem that is you just described. how then did you allocate your resources? how did you think about the way that you would take what was fairly precious and make sure that was physical indicated properly to be able to perform the duties with which you've been entrusted. >> you prioritize. that's a painful process. when the list of many priorities, all very important to fulfilling your mission and you realize that you can only fund a handful of them, it's not

an easy thing to do. but you have to prioritize. and hope that you can at least give some amount of coverage to the other issues. one on the same as others, and you of try to sketch -- stretch your resources as thin as you can. >> we were -- we had less problems with resources because director falcon had made such a big issue of it that congress had backed down and we were getting, you know, our request through. the real problem with us was the every september there was a freeze. so you go through three or four months so you could never build up to the staff level that you wanted. and -- but we set priorities. we put the resources on the examination side as much as we could. but we also had a capital team. we had the risk-based capital model team. there was a lot of things that needed to be improved in the company at that point.

the companies. >> this is the final question. and in reading your testimony and listening to what you have to say, it sounds as though this doesn't sound like an especially enjoyable position to be in. sounds like there was an enormous amount of pressure. could you talk about why did you continue to do what you were doing? a lot of people, i don't know would have made that same decision. >> well, in my case, i had worked for the house banking committee for eight years. i was at the committee when the law created was enacted and understood the motivation behind it as the same loan crisis. so i did understand and believe in the agencies commission and why he was created. so the agency was struggling at the time that i was approached about running this agency. and given my background with the banking committee, i thought

here's an opportunity to take on the challenge and try to help build this agency and help its fulfill its mission. because it was struggling very much. so it was a challenge. and it's something that i believed in because why it was created. i would echo that. this is my third major job in the government. but i'm really from the private sector. each time it was a challenge, social security and oheo. fannie and freddie for struggling, i seized the challenge. sometimes it was fun, sometimes it was very difficult. but we made progress until the housing market just fell apart. >> thank you. ive exceeded my time. >> thanks. i'm going to take the

opportunity to ask a set of questions. because i want to build on a little line of questioning that mr. thomas engaged in with you. i really want to -- i think, set a context here. it's march of 2008, obviously the housing markets are in substantial trouble, bear stearns has collapsed, i think it's fair to say liquidity is diagnose up in the housing market dramatically. there was a big challenged posed here of the safety and soundness and solvency of the corporations and liquidity is the larger mission. in a sense, there's probably no time when this dual mission collapses or comes together so dramatically. it clashed -- >> and it didn't clash. because when they were sitting on $5 trillion of mortgages, and if we couldn't stabilize that mortgage market, the safety and soundness was not going to work. i mean basically, they were going to fall if we couldn't stabilize the mortgage market.

there was the tight rope that we were walking. >> i do want to ask you a couple more questions about this. mr. thomas laid out a timeline. he referenced on march 17th a press release that was proposed and then there was one other item. you actually did respond to the first press release. i want to get your thinking. because you are there on the ground. y'all have a follow up. when you responded, i think, on march 17, to mr. mudd, who sent you a draft press release. i believe there was a quote where you -- they had a proposed quote for you that said let me be clear, both companies are well capitalized and have adequate reserves. they had a quote from secretary paulson, it was important the housing in the gse step up to provide liquidity. they must be a key part of the solution. you wrote back, at first it appears the failure was being asked to be first, last, and

only. that's in brackets to raise capital. and the idea, quote strikes me as perverse as it would seem perverse to regulator would allow a regulator would allow, 2-1 to 1-1 to 0-1. obviously you were not comfortable with. now a press release is issued three days. your quote as changed, both companies are prudent above the failed directed capital requirements to increase their reserves. i'm trying to probe to see as a regulator what kind of pressures you are under and how you were balancing this need for national liquidity with obviously some pretty grave more thans you have about the condition of these two entities, fannie and freddie. i have a larger follow up question. >> well, it was definitely a balancing act. but the press release you quote was a draft one. it did not reflect the deal that

we cut. that's why i responded the way i did. they had to commit to raise capital. that's the only way we would have ever lowered that capital requirement, failing them meaning the con sent agreement which was the test for the whole 30% to come off. so from our stand point. >> can i ask you a question on that, mr. lockhart. the ultimate deal or agreement was that you would low the capital standard for fannie in their exchange or willingness or commitment to raise new capital. freddie, was there any capital relief without a money raise? >> there was 30% to 20% without the money raise. but with a promise from the board of directors that they could do it. so for both it was a commitment fannie mae fulfilled it commitment. freddie mac did not. >> correct.

>> go ahead. i interpreted you. >> from my stand point, we wanted to stabilize the mortgage market and two firms. the only way we felt we could do that is to get them to raise significant capital and agreed to keep capital well above the minimum levels. they did do that and agree to it. that's the reasons we lowered from 30 to 20%. so in the large picture, here's what i'm trying to understand. so it's march of 2008 was the view. because obviously you are a participate was the view of the depth of the crisis in subprime lending was that if would stabilize. if you viewed it could stabilize, i understand the transaction. the hope was it would. in normal circumstances, as mr. thomas said, a normal business may have acted differently. they probably wouldn't be lowering capital, move into the breach like this. in fact, everyone else was

retreating. they didn't lower capital. fannie had 30% extra capital. we lowered the requirement, but the capital didn't come down because they raised more capital. >> it i remembers of real capital? >> yes. >> freddie? >> freddie's capital came down. they were still above the 20%. probably about 25%. >> okay. but was the view at that time that we think the market will stabilize or was it also the view that there was an acknowledge at some point, at some point these institutions might have sob to -- to be seized? >> we were hoping to stabilize the mortgage market. we were not assuredly that we were going to do it. but we felt the combination of bear stearns purchase by

jpmorgan and this would help stabilize the market and we might be able to get through it. it didn't work, as we all know. >> all right. a couple of other quick questions about your reviews. you did mention you noticed credit risk in 2006. did you know credit -- but at the time i think you'd said there's credit risk but i think you felt responsible, is this fair interpretation about the quality of the assets? i think at that time, high-risk loans were about 20% of the book. but they were still pretty darn substantial in terms of the percentage of capital for alt-a loans, 750% of the capitalling -- capital. the amount of high-risk was 750 to 1,000% of the capital. they were substantial. in 2007 and early 2008, at least my recollection is you didn't focus much on credit risk. i guess my larger question is

you've said you didn't do it enough. looking back on it, do you feel like ohfeo missed? >> we started a task force of freddie and fannie creditors to look at credit. we were continuing working with the companies, looking at their credit risk models and@@@@@@n# we spent a lot of time on the credit risks of those. other than temporary of paris, we had another approach to that. we were focused on credit risk. i think the fire was -- they did not know how bad it was going to be. the models never really got to the downside in the models.

we really did not forecast what was coined to happen. >> did you ever ask them to cut back on their level of high risk lending? did you weigh in and say, enough is enough? >> we did ask them to freeze their portfolios. >> the total cap? >> right. that stopped a lot of the private label securities. the private label securities. we certainly looked at their fannie expanding authority and my examiners were able talking to them and asking them to try to slow it down. >> in writing? >> probably main linn -- mainly verbally. there were some reports though. >> i think the memo from mr.

dickerson to you is dramatic. it's very stark. and it doesn't quite comport with the other examinations that i see along the way. >> well, as you heard mr. mudd say, there wasn't anything new in that report. he knew it all. i think that's what heisted -- he said this morning. what we were trying to do is make a case to the board of directors that they had to voluntarily agree to a consent agreement. we wanted that to happen rather than to have the regulator have to do it and all of the nasty lawsuit that is might happen. so we made -- we pulled it all together to make a strong case for the board of directors did not have a choice. >> all right. last question before i go to mr. georgiou, what did you see in terms of the ramp up of -- why did each of you, just very quickly, why did you see fannie in particular move into the subprime breach? competitive pressure? if you were to weigh these on a

scale, competitive pressures, affordable housing goals, what were the driving forces? you said profit? >> in my opinion, i think, it was driven by a desire to want to regain their dominance in the market. and to try to increase profitability to what it had been in its hay day. and given this is where the market is going, this is where they thought they had to go to achieve that. >> from my stand point, it was combination. partially because the goals had increased so rapidly since director fall don had left. the 55% goal was almost impossible. partially it was hud agreement. also, it would have incurred the path of congress.

profit and market share was important. >> so the trifecta. you've heard the high-risk loans as imprudent, unsafe, and unsound. did you ever flatly say this is beyond the level of risk that you should be taking? >> certainly we talked about some of those loans over time. whether we put it in writing or thought, i've been in way too long. i haven't been able to see the papers. >> all right. we may follow up and ask you further questions on it. mr. georgiou. >> thank you, mr. chairman. and thank you, gentleman for joining us this afternoon. i want to ask you a provocative question right out of the box here. and i'm giveing you a little warning. as of 12/31/09, these cost the

taxpayers $100 billion and another 15.1 from fannie and i'm not sure what the number is for freddie. it's against $126 billion, can you give us any estimate of how much money ultimately the taxpayers will have to pay to back up the loss that were suffered -- that will be suffered by these two agencies? >> the losses will be significantly more than that. what we'll see actually is because the way fanny and freddie had their investment portfolios and their investments were different. also because fannie is about 1/3 larger than freddie, we will see higher losses at fannie and

freddie. i will think over the next year, we'll see higher losses. hopefully it will trail off. >> can you give me any estimate? >> i've been away too long. i can give you a year-old estimate. i don't think that would be relevant today. a lot happens on the mortgage market. can we stabilize? prevent foreclosures? that will have a dramatic impact on how big the losses will be to the taxpayers? >> it doesn't appear that we are preventing foreclosures right now, does it? >> the administration has the hamp program and it's starting to take some transaction. but it was lower than anybody wanted. you know, it's going to take time. it's -- there is going to be many million more foreclosures. >> okay. do you want to has a guess, mr. falcon? >> i don't -- i can't give you an estimate of what i think the number would be. obviously, $1 is too much. i think it's unconsciousable.

>> $126 billion is $126 billion more too much than $1. do you have any thoughts? >> i think it will go up. i think the trend in the prime book is certainly indicates that given that's a much bigger pool of assets than the subprime and alt-a pool, the trends in the subprime and prime assets they have are showing deterioration. so it may be one indication from people on the inside was treasurer decided to lift the $200 billion cap on capital assistance to both companies. probation office that was concern or it would go over that amount? >> okay. let me try to see what you did to beef up the capital as the

respected tenure. mr. falcon, could you outline what you tried to do and what you were prevented from doing in that regard? >> well, we -- the capital standards are hard wired in the legislation it's 2.5% on balance sheet, 45 basis points off balance sheet. that minimum capital requirement, they didn't give us discretion to increase it from any way. from the very beginning we thought the flexibility and statute just the same kind of authority that every other safety and soundness regulator had to have full discretion to raise that amount if we thought it was negative. we could never get that authority and as i said in my testimony, finally we -- after the accounting scandals, we were able to get the companies to agree to hold it 30% capital cushion in reaction to that. that wasn't based on any clear

statutory authority, but they agreed to it. and so we did it. >> okay. mr. lockhart. >> well, certainly what we tried to do is we had a very large campaign going really basically to make it clear to everybody that their capital was too low. and we were working to get legislation and the -- so that was the key thing. because it was hard wired into the legislation. we did work somewhat on the risk capital model. but unfortunately, the legislation that built that was too weak as well. so we really didn't have a good tool. and which we kept telling congress repeatedly. and unfortunately, uni, by the time the law passed in july 30, 2008, it was much too late. >> right. and of course at that point, it'd be almost impossible to raise the capital under the

circumstances. >> well, it would have been impossible to put a new regulation in place. it would have taken six months to a year to do it. it was much too late. >> and you took him over to a couple of months over after that. >> yup. >> did you have have any issues of capital arbitrage when things were moved off-balance-sheet to have the reduced capital associated with off-balance-sheet as opposed to on-balance-sheet treatment? mr. falcon? >> i think at point the enterprises would come us with some novel ideas about treating some new kind of product as capital as tier-one capital. and they wanted us to -- i guess they were sold some innovation about how to better receive more return on their capital. and they wanted us to be able to

account that as poor capital. i think that would have throughouted the quality as poor capital if we had agreed to do that. we always told them no. but they were coming to us with ideas on some innovative kind of product that should be counted as capital. and we never agreed to it. >> they really didn't, despite what you may have heard, they really never thought they didn't have enough capital. in my experience. they could have very easily raised capital by -- they had $700, $800 billion of their own mortgage-backed securities. they could have reduced their capital requirement by 80% by selling them. so they had the ability. they just didn't do it. >> right. but if you keep them on and they are earning a nice spread, if you're getting credit at a government -- effectively government-guaranteed rate, you're making a nice spread,

then you are making more profit and earnings on the capital that you have which leads to bigger bonuses does it now -- not? >> that's certainly one way to look at it, yes. >> vice chair? >> would you mind if you yield? >> i'm sorry. i was trying -- i invite the vice chair to enter. >> i was trying to figure out what the other one would be is all. you ran through my mind. i couldn't come up with one. >> back on your time, mr. georgiou. >> i think that would be the main one, mr. vice chair. i want to ask you about a few accounting issues. because both of these institutions were at one point in the past cooking their books or so they were found to have done. i understand from your testimony that part of the reason why you didn't have the opportunity to evaluate credit risk as well as you might otherwise have done is that you were spending a lot of

time cleaning up the appropriateness of the accounting. is that -- wasn't that your testimony mr. falcon? >> i think that was my testimony. >> i'm sorry, mr. lockhart. i apologize. >> what i was saying in 2006, that first six months i was there, we were so focused on market risk and operational risk that we were only starting to focus in on as much as we should on credit risk. we set up a task force to potentially look at the credit risk. >> right. let me ask you a few things that have been brought to our staff's attention. fannie wasn't recording losses until they were 24 months delinquent; that correct? >> that's not correct. let me explain. fannie when a loan became delinquent, they had the option to take them out after 120 days

and rework them and modify them. if they did that, they would have to write it down. so they changed their approach to leave them in the securities until they had to modification ready. and that meant anywhere from 120 days to two years. they did not take that fair value yet. they still had to look at it from a credit stand point though. >> but they didn't have to mark down their books to recognize the loss on that particular delinquent loan? >> that's how the accounting worked. the accounting was changed. now they would have to do that. >> right. weren't they also lending, providing uncollaterallized loans to some of the people who were delinquent to extent it and then treat it as a performing loan to extent the deadline for its recognition as a loss?

>> they had the home favor, i think it was you wrap up the principal and interest that has happened paid back into the palace. it said that amount and gave an unsecured loan for that. -- they took that amount and gave an unsecured loan for that. >> they wrote down the advance alone. >> right. the idea is they would make their payments again. >> those are relatively modest loans. >> right. it was a process that was delaying the inevitable. we needed to start modifying those loans more realistically. when that happened, there was

less at fault. >> did you ever speak to the fed about this practice? >> i did not. by the time that they came in august 2008, i think the practice may have been lessened. i cannot remember exactly. from our stand point, they rode down the and secured a loan to a value that we were comfortable with. value that we were comfortable with. >> okay. and the practice as you understand it has been modified by the legislation effective 1/1/2010. >> the way that you account for securities now, they are all on their balance sheet. they have to count for them as if they were a loan. >> right. okay. let me ask you -- let me turn if i can beliefly to this lobbying

business which everybody seems to think. i take it that was equal opportunity, bipartisan lob lobbying push. that is there were well conducted people who were either former legislators or former staffers and others from both parties who were retained by these institution to lobby. would you characterize it in that way, mr. falcon? >> yes, i would. >> mr. lockhart? >> yes, they had big groups of lobbyist on both sides of the aisle, yes. >> were you -- did you? obviously the experience that you had, mr. falcon in connection with your -- which they announcement of your successor before the vacancy was

an extreme example of the influence that was exercised, was it not? >> yes. it was one the extreme examples. absolutely. >> can you tell us about any other efforts that were significant by these two agency ies? >> at one point they worked hard to try to kill our risk-case capital role where with designed a very detailed cash flow model to come up with a risk-base capital requirement. and while it was at omb for review, they worked very hard to try to kill it and have omb send it back and your role that relied on the models for setting risk-base capital. ultimately, that omb rejected your position. and we were able to get that rule out. but at the peak of their

political power, they weren't shy about flexing their muscles on not just big issues but small ones. they gave no quarter on any issue. >> i mean, isn't this a particularly egregious lobbying abuse in that at least when the private sector is lobbying, theoretically, if they are putting at risk their own shareholders returns by spending -- advancing lobbying expendtures which may or may not advance their interest. here you had the taxpayers institutions that were spending taxpayers money to lobby the administration and the congress who were responsible for their oversight which ultimately redoubted back to the detriment of the taxpayers themselves. it strikes me as absolutely

astonishing. >> yeah. and i think it is astonishing. especially -- and of course we all respect individuals right to voice their opinion. but the tactics frequently involved misinformation, markets attacks, questioning people's motives. just brutal tactics that none of us would think was acceptable. i think that's what made it very obscene. >> from our stand point, as you know one of the first when we announced the conservatorship, we closed the shops down. we also had in our consent agreement -- >> i'm going to add. how much time? >> two minutes. >> thank you. that would be fine. two minutes is fine. >> in our consent agreement in '06 we had them do a study of best practices and institute it. i think they instituted most of it. but -- so where we saw the lobbying from our stand point was they drug their heels on the

legislation, they -- and, you know, that was a fatal flaw as i said before also in the summer of '09 when they felt they could save the market, they were lobbying very hard against us from the stand point that they wanted us to remove the portfolio and also to lower the capital requirement. and, you know, we resisted. >> but that's the point that others have made as well. i want to reit late,, -- reiterate, why would you go into a market that's creates risk, expect for the purpose of essentially making more and more money on the spreads between the your cost of capital, which is effective taxpayers subsidized and the returns that you can get in the market? >> to be fair, they thought they had the power to do it. they use to quote to me

long-term capital where they came into the marketplace and stabilized it. they thought their ability to come in there, their big balance sheets, unfortunately, they didn't have the capital to go, could stabilize the market. and summer of '07, it was really starting to happen. so it wasn't at end that they were talking about this. >> they were really able to postpone the legislation for almost two years were they not? >> i think you could go five years. >> five years. >> four. >> four years. well, that's an awful long time. thank you very much, gentleman. i appreciate it. >> thank you very much, mr. georgiou. mr. -- yes, mr. holtz-eakin. at the end of three days, i was confusing myself. >> thank you, mr. chairman. and thank you mr. falcon and lockhart for both your service and coming here to talk to us today. i think this is of interest not just because of the particular business model that these institutions followed which i

had to openly fairly opinion on that. i'll come back to that. but also their role in the larger crisis where their failure occurred during that window, september 6-15 when we saw the transmission of this crisis from what was the housing event and financial crisis that spanned all financial markets and ultimately the economy as a whole. so i wanted to ask a couple of questions about both. you know, i think today has been pretty great in painting a picture of narrow housing-related product line that suffered from poor internal controls, that had risk management systems that were below the industry standard that were poorly capitalized. and i guess my question is if you have institutions like that, how did they get so big?

mr. falcon? >> well, i think the growth really began in the late '80s perhaps. >> how could they do that given the flaw that is both have con chronicled under your guidance? >> the growth and mortgage as long as we did not have discretion to stop them from building the mortgage portfolios as long as they were hedging the risk of portfolio. we paid close attention to issues like the duration gap as you understand. so -- but it was that growth of that portfolio under the ability to earn the spread. and so the more they grew those portfolio, the more spread profit they made off of the spread. >> and they were able to continually access credit markets despite these poor characteristics and risky portfolios. >> well, until the bubble burst

everyone was willing to buy their debt, whether it's the straight bullet debt or mortgage-backed securities. >> the -- they were -- had a triple a. i talked to the rating agencies, asking them the exact same question, actually. and their answer was that they had such a large market -- almost turning the question on the head. they had such a large market share that the triple a was very strong and besides the u.s. government had the support because they couldn't let something that big fail. >> mr. falcon could you agree the implicit guarantee was part of the business model? >> absolutely. the panel before you disputed this. i wanted to get you on the record for that regard. >> yes. was the large portfolio part of their public service mission to provide liquidity and adjust

that as the panel argued before? >> they tried to argue the portfolio was essential in order to promote liquidity in their products. >> that the only purpose it serves. >> there was -- it did serve a very small portfolio, i think, was essential. basically to warehouse mortgage loans until they were able to turn around securitize them. but for that kind of a function, they did not have to grow anywhere near the side that they did. i think the overwhelming amount they had were to earn the spread. >> mr. lockhart? >> i'd have to agree portfolios didn't need to be large. they didn't need to buy the private-label securities at all. the reason they did primarily was the spread and affordable housing goals. my view is that the portfolios

in any going forward structure should be minimal, if at all. >> we have the fundamentally flawed institution that is are allowed to become systemically dangerous. why as the regulator did you not stop this? >> we had the mission and safety and soundness regulation. hud was not of the opinion that the portfolios were improper. as long as they were managing the risk of the duration between their asset liabilities in those portfolios, we were not in position to be able to tell them no. and that was oversight structure. >> and you're on record you tried to impose. >> yes. >> they stopped you. >> mr. lockhart, do you agree? >> we certainly leaned in their growth. dividends, raising more capital. but the key thing again was the legislation wasn't there. we couldn't get it through congress to give us the power

and particularly the capital. we keep talking about the portfolios. the mbs was also a very tricky situation and certainly they had gone through that. >> let me now turn to the moment when the legislation actually finally does pass and in the course of the debate over the legislation, secretary paulson says something to the effect of, you know, i want to have a bazooka coo, although i'll never use it. i believe you mr. lockhart with ohfeo issued a letter saying they were well capitalized. >> i think they were legally, adequately, and they were. >> why did you send out that letter? >> i'm not sure if this was a

letter or public statement. when we capitalize and grade them, we send off a letter what we're going to grade them at. and the numbers were that they were adequately capitalized. i also said in that letter, and this was a primarily letter that we had the right to downgrade them so that we put them on notice on that letter that we might downgrade them. >> just for the -- >> and this was always 22. and that is a fair characterization of the letter in the works. my -- thank you. my question then is now shortly thereafter on september 6, it is apparent that they are failing and they are a danger. when was this recognized? were you the first? >> we were work all through august through that period. and we were particularly looking at the reserves. but we were also looking at the issue of the