capital. by august 22, our view was it was going to be very difficult for them to make it. they were adequately capitalized based on the numbers that put out. >> i understand that. from the 22nd to the 6, somewhere in there was the realization that this cannot go on. >> the realization was happening before the 22nd. >> but of like to ask next is they go into conservatorship. as lifetime participants in financial markets and experts in this area, what is the impact of having these two institutions which the secretary of treasury

said he has a look but does not want to use it -- what is the impact of seeing them fail? >> my view for the first week before lehman brothers said, it actually helped. you could see the spread come in a dramatically. the foreign investors and their securities were putting a lot of pressure -- >> the securities of of fannie and freddie? >> yes. i cannot make a judgment on the market more generally . . >> and helped the markets? >> i can't make a judgment. there was some stablelation and the lehman weekend. >> that would be because the guarantee have been hardened? >> yeah. >> mr. falcon. >> i would concur with what director lockhart said. >> thank you, mr. chairman.

>> i'd like to take a moment on my time to follow up on the line of question. because i am struck. i don't know if -- i'm trying to get to the essence of happened here. is there a little -- remember when we were kids we had the little toy guns that would shoot out the darts that had the rubber tip. were in the position of trying to bring down the elephant or wrestling with the matres. in '05, '06, '07, there were exams done. you did issue letters. but it's not as those the alarm bells are going off in visible ways that danger is coming. you know, there's an issue when the conservatorship occurs whether it's a claude reigns moment. i'm shocked, i'm shock,ing there's gambling going on here. you didn't, you just couldn't,

didn't frankly had the political heft to move this ball or much of what was happening on wall street, no one calibrated the magnitude of risk. when mr. holtz-eakin asked us questions, what's the sissens of this story from your perspective, each of you? >> my belief if no one had really call -- calibrated the risk. they continued through the march period we were talking about and through september. people lost faith in fannie and freddie. there was a lot of speculation that they were insolvent. there was a lot of articles written. they were going to announce all of their mortgage-backed securities on their balance

sheet. people were afraid the capital requirement. there was a lot of things happening that really caused spreads to widen dramatically. in august they couldn't borrow along anymore. they had to borrow short. everything started to pile up. but by the summer of '08, it was obviously they couldn't make it in august. >> i know you were around. >> the one thing that's really hard for people to appreciate, for example, the reference to cast -- casa blaca, when you think you have to fall back while others around you are looking at the world as it falls apart, you're slow to come to the realization that it's you too because at some point they

are still thinking they have this reserve available to them. which has always pulled them out. :

>> they didn't realize how big the downside was. >> another important thing is when you look back at it and you can only sort of do this in retrospect, but i don't who could have put them in conservativeship before legislation passed on july 30. >> we could have legally but there would have been chaos. there was no fcic to back fannie and freddie. >> i guess and may they raised seven like is that some market indication that some people do believe that this would survive. unless, and this is not an accusation, unless the representations made by the entity in doing the rays were not accurate, which i cannot speak nor would i allege. >> they had sophisticated investors. that were buying it and they exercised the green shoots of the got the extra 15%. they had people that did believe at that point. >> let's not go to ms. born. >> thank you very much, and thank you both for appearing

before us. and i personally would like to thank both of you for the public service that you gave the american people during your years as the director of ofheo in trying to do your best against a very powerful interests that were aligned against you. i noticed that mr. falcon, you say in your testimony that fannie and freddie political machine resisted any meaningful regulation, using highly improper tactics. and i'd like to discuss how fannie and freddie use their political power to resist meaningful regulation. you've testified as to a number of steps that they've taken

resisting reform legislation, for example, which was a really put into place in a timely fashion in order to save the organizations. these institutions had an implicit government guarantee, so they were benefiting financially in their dealings in the marketplace from that guarantee. they were getting very low cost money, because of the guarantee. and they were then turning around and putting an enormous amount of their resources into making sure that there was really no effective government oversight to protect the american public here i know that you are both doing the best you

could with the powers you had, but it raises a question in my mind of this undo political power that a financial institution can obtain. and how it can be used to resist the actions that government needs to take to rein in excesses and to make sure the institutions are safe. i wondered how we can protect against this in the future. and i would like each of your observations. i'm sure, because of your situations, you have thought about this. >> thank you. thank you very much. i do feel strongly that we cannot go back to any kind of a model where you have a privately

held and publicly traded stock company that hasn't these kinds of government subsidies. i think that kind of a model is just prone to the abuses as we saw with fannie and freddie. and so there's going to be any kind of government subsidization or role in our housing finance going forward, i think it should be with a clear separation of a government role by entities fully -- be full government entities. and the private sector. and have any government subsidies be through government entities and not through some institution like fannie mae or freddie mac. i think that's a very clear lesson, otherwise you do get the kind of abuses we saw with these two companies. >> mr. lockhart?

>> well, certainly the power that they had from and lobbying standpoint was abused and abused a lot over the years. the gse models thought, it didn't work, and it needs to be totally restructured. but i have to tell you, i've also run some other government agencies and models that were flawed over the years, and that is a problem. legislation can be a messy process, and we don't always get the best part of it. so i think we need to take some of this and put it back into the private sector. at the moment, 100% virtually of our secondary mortgage market is in the government specter and we have to do that. we have to get the right answers back into the marketplace. there was no debt discipline for these two companies. people didn't care that they couldn't put out financial statements for five years. people didn't care, they were starting to lose money. until the very end. so we need to restructure the whole mortgage market in this

country, and that's where we should start. what do we want the mortgage market to look like, what do we want the new mortgage-backed security to look like, and to me that is critical. then you decide the future of freddie and fannie. >> i wonder if you have any views as to whether this problem that you faced of an institution that has government subsidies in effect, government support, but ineffective government regulation a cousin of their political power, has any broader relevance to the financial services industry as a whole. you know, for example, banks get the benefit of deposit insurance and other support by the government, certainly they are getting a lot of support now. and yet, i think they, too, have

been very ready to spend resources on lobbying, campaign contributions through pacs and other activities, that has given them over the last decade or so a great deal of political power in resisting regulation. >> i think the difference with the bank, banking system and their regulation is that if there were any flaws in the regulation of the banking system, i would say, whether there are or not, i would say it's the result of policy judgments made by regulators. in the case of ofheo, we didn't even have the authority to make poor policy judgments. we were forced to do the best we could with the authorities that we had. i think that's a very key difference here. >> well, you certainly did not

have anything like the powers of a banking regulator, and that you can't really be a safety and soundness supervisor of an enormous financial institution like each of the gse's were, without significantly additional powers. mr. locker, do you have a few? >> that's very true. you know, lobbying per se is not a bad profession to the extent that they are informing members of congress about what's going on. what happened was that they were using it to constrict what should have happened. and a baking case at least the fdic is prefunded that at least there's money there and have already paid for some of the injured. in this case they're getting the implicit guarantee for free and the taxpayer was paying the holocaust. but going forward, given the model is flawed and we had to re-create something.

>> mr. lockhart, you testified that the mortgage portfolios of fannie mae and freddie mac were a concern because they posed interest rate and prepayment risk, and other risks, and that those risks required an extensive use of derivatives, and that some officials, including i think you said federal reserve chairman greenspan, expressed concerns about the large derivatives positions. and i understand that fannie and freddie held about $2.8 trillion in notional amount of derivatives during the summer of 2008. what were they using these of derivatives for? >> they were hedging their portfolios, and as interest rates started to fluctuate

pretty widely, especially the spread between their borrowing costs and treasuries, they really beefed up the derivative activities. we didn't close them out. we just kept them in place. it would just keep growing. historically, they used to claim that the use callable debt and they did need a >> they had very sophisticated risking management on the risk side and they tightly managed the pre payment risk that mr. mudd talked about a lot and that required. very sophisticated approach and lots of derivatives and we were concerned and had market risk teams and we were concerned about the credit risk as well as derivatives grew and grew. >> i was going to ask you were they adequately hedgeing the credit risk.

>> would you like a couple more minutes? >> they didn't hedge the credit risk and they didn't hedge their counter party risk. the only thing, as was mentioned they used mortgage insurance because by law they couldn't make an 80 percent loan for value so they used mart dpanl to cover up that gap. >> despite the fact they were hedging some of the risk this can the fort folios the risk that really hit them the most - credit risk - both on the underlying in the portfolio and on the credit and on the derivatives part were not hemmed, and - that's where they have suffered. correct? hedge, and that's where they suffered. correct? >> yes. that's what they suffered. whether they -- they probably could not have had a $5.5 trillion housing mortgage credit risk. i mean, they represented so much

of the mortgage market at that point, it was probably not possible. as soon as they went into the market to start hedging it probably would have tanked the whole market. so they're in a position that they were too big to fail. >> well, there weren't $60 trillion worth of credit default swaps out there, but even for the enormous market, this would have been a very significant, had a very significant impact. >> manspeed? thank you very much. >> a quick comment on that mr. baucus because i was a, if there is one thing, that was to hold more capital. they chose not to do that. >> good point. thank you. >> mr. hennessey? >> thank you, mr. chairman. mr. lockhart, can we talk all little bit about the failure of fannie and freddie, and specifically why you felt they had to be put into

conservatorship, in particular could you talk about what might've happened to mortgage markets had you not done that, and why you drew the line with secretary paulson between equity and debt? >> okay. that's a good question there. we put them in to conservatorship because we felt, and as we really laid out in those various reports, which i think you all have seen copies of, that there capital was it really extremely quickly. we saw credit losses that were significantly more than their capital. we saw the deferred tax asset was not going to be worth anything. we saw that the low income housing tax credit would therefore not be worth anything because they would be losing money far into the future. and that their private-label securities were really suffering badly spirit why not just let them feel?

>> why not let them fail? we felt that if we let them fail, that what happened after lehman would have been very small compared to these $5.5 trillion institutions failing. so we felt that the best thing to do, and we actually, i've gotten some questions about why he conservatorship versus receivership, and we made the decision, there were some legal reasons but i think also market reasons, we wanted to keep some faith in those institutions. we had sovereign governed in their security. we had a lot of the banks in this country invested in their mortgage-backed securities, and their preferred stocks. which gets me to your second question of where we drew a line in the conservatorship. one would have thought that we would have let this subordinated debt go. and that's what i thought we were going to do it.

the preferred stock and the common stock, in my my, if you're an equity owner and your institution fails you should lose it. and they are worthless at this point in my mind. but the issue was subordinated stock, for many years people talk about the subordinated stock as being one of the -- >> subordinated debt? >> sorry, sorry. they talk about subordinated debt as sort of being a cushion and would actually get some market discipline. has we looked into the structure of that debt, and the intertwining with the law, if we had let that get go down it would have defaulted all their debt. and that would have pulled out the whole institution. so we have to keep it in place. >> okay. just a follow-up on the. as i understand if i'm running a bank, i cannot hold all of my assets in the debt of ibm or general motors or caterpillar.

as i understand that there are banking rules, you can't put all of your eggs into one basket what that basket is in the debt of a particular company. but the same is not true for so-called agency debt, is that correct? >> yes. agency debt which i never liked that term because they were not government agencies. they were enterprises. they were treated very much like a ginnie mae, had a full basic of the united states on a. they had owed very little capital against it, and unfortunately some of the buyers of the preferred stock were banks, and they took a 100% hit on it. >> okay. we talked a lot about lobbying. capital standards, minimum capital standards to risk based capital standards, and then the ability to consider systemic risk in the fires under and size of the portfolio. do have knowledge of fannie mae and freddie mac lobbying on any of those points, either from

legislative standpoint or from a mandatory standpoint? >> i do not have direct knowledge, but i have indirect knowledge that they certainly had people up at capitol hill talking through the issues of legislation and the harm it might do to the housing market. >> okay. were you then indirectly aware that they were lobbying against you having the authority to raise capital standards and against the authority for you to be able to speak in our monthly raise with the ceos we often talk about legislation, needless to say, and certainly to me they resisted some of those and especially the capital wants. so no doubt in my mind that they were resisting to me that they were probably resisting up on capitol hill. >> mr. falcone that you are considered to be an aggressive regulator when you're in this job but you are limited in terms of the authorities that you had. as you look at the legislation that was enacted in 2008, which

provided now at a café with significant authorities, can you give us a sense of what you think you might have done with those authorities had you had them in 2004 at 2005? i know you have the benefit of hindsight and knowing what happened, but based on the kinds of things that you are pushing for, can you give us a sense had to have the ability to set minimum capital, risk based capital, even if active size up or post them what would have been consistent with your actions at the time? >> i think in 2004-five type it up with those authorities, i think we would have had some more flexibility to deal with the capital issues and try to deal with the leverage issue. i think we would have moved towards having to increase their capital, have a plan to increase capital even above the 30% that we impose on the. we probably would have moved aggressively to begin to shrink that portfolio, the portfolios that both of them had.

and we might have moved more aggressively on even considering some form of a conservatorship to deal with the cultural issues that continued to exist at both companies. >> good. if i could, i would like to ask a couple of questions that asked mr. mudd this more. the alt-a mortgage that they purchased in all five, '06, '07, do you believe that there was a public purpose of mission related purchase for those, arguably they were primarily driven by profit motives or market share? >> happy to. i would say it was both. they certainly did not want to be left out of that segment of the market. there was certainly a portion of them that admission affordable housing. i'm not sure that on average that they met the 55%.

i would have guessed that there is probably less than 55% of the alt-a is that they had that would met their mission go. citi of these was the profitable. and the market share component. you know, they would've seen some of their biggest suppliers go elsewhere in the private label marketplace or whatever. i think that they felt that they wanted to be a player. >> okay. and mr. mudd, i didn't raise the issue. he seemed to be suggesting that one of the reasons why fannie failed was that they were in effect a monoline firm that lack the ability to diversify risk. and i was asking, it seemed to me that it is more a realistic explanation is they didn't have enough capital and they were poor at managing the risks. can each give us a sense of your perspective on the monoline argument that we heard this morning? >> i will start. first of all, they were a monoline interns come to.

that's really what they were, mortgage-backed securities. they were ensuring. they doubled up at risk, unlike the other monoline insurance companies by having giant portfolios. so they actually doubled up the risks, and that was a problem. but the key problem, they did not have anywhere near, capital as they needed, and in retrospect i think we all understand, we talked about it today, that no one understood how bad the mortgage market was going to be. when you really think about, congress when they set ofheo with only 45 basis points a risk on credit mortgage risky just have to scratch your head. >> mr. falcon? >> i think it's a convenient argument to make now, but throughout the existence of these companies, they often touted about how their opinion, they were the best risk managers of any firm out there. and to now say that they could have managed a single risk,

monoline risk, i think it is just contrary to what they were saying. the fact is they had the ability to control the risk that they took. took. they set their underwriting standards. they didn't just buy what ever their servicers sent to them. they sent those guidelines themselves. and they had a ability to better hedge risk. they had a billy to voluntary hold more capital, if you thought those essential to manage their credit risk. they had the lowest cost of funds of anyone in the private sector. i think this was clearly a failure of management to properly run these two companies. >> thank you, mr. chairman. >> thank you, mr. hennessy. by the way, the claim to be the best risk manager in the world was a shared prize apparent from what we've heard in our heads today. yes, mr. thomas. >> a quick follow-up. you said that you thought it was

basically the management and their failure to run the company properly. it depends on a profile or the understanding, or the assumed purpose of the company. and if you're a private company in terms of profit, and the argument about the shareholders and the rest, i'm trying to see if you could focus on the fact that they came to understand, for them, the basic value and purpose of the company. and in that score, notwithstanding the failure, they really did a pretty good job of managing it, up until it became as with everything else in that market segment, unmanageable. i mean, i see a pretty clear movement toward the self-interest that may have been one of the reasons they were structuring the operation the way they were. work with a pretty successful in that regard for quite a while? >> well, except for the fact

that through their accounting misconduct, they were masking many problems within the companies. >> well, then you ask yourself, what would motivate someone to mask some of the problems? because it would get in the way of their focus of what they were doing, wouldn't? >> well, they were trying to mask a volatility. they were trying to mask some of the risk in their balance sheets, and through the process trying to@@@@@@@ @ @ @ @ @ @ @ >> they finally got that actually in pretty good shape after the consul at that particular times i mentioned. the fatal flaw was the

legislation. the management team answered the board of directors could have got ten legislation through quickly if they wanted to and they didn't. >> understand your point and i agree with you. mismanagement implies that the competently. they didn't know what they were doing. they knew what they were doing. >> that's the point. >> mr. chairman, just, if i could. >> no, you can't. i'm sorry. [laughs] >> mr. george george you hado question. the operations of fannie mae and freddie mac would have a total budget cost of $389 billion between 2009-2019. >> thought the budget cost was

$219. >> that's the subsidy. credit subsidy model. subsidy for budget experts. it's a credit subsidy model. i'm sure doug patel is a lot more about it. >> i will await the tutorial. >> i just want to follow-up on that point. i can make it later but i just want to add to what commissioner hennessey said. which is that in addition to the dollars that were lost, there also were and are significant investments in both the preferred securities, which mr. lockhart has told us a few things may be never be worth anything, that the treasury has purchased 75.2 billion of fannie preferred stock. and in addition, the federal reserve has been purchasing mortgage-backed securities and has purchased 1.0 to 6 trillion of fannie and freddie mbs and treasuries purchased 254 billion

of mortgage-backed securities. of course, hoping that they won't reduce in value, but certainly there is a service question whether they will. >> they are backed by that preferred stock effectively, so if there's further losses the u.s. government is effectively backing those mortgage-backed securities. but they have put another one and half trillion dollars to help solve this problem. it's just amazing how bad it got. >> go to mr. thompson. >> you have a next-door notation. yield the gentleman an additional five minutes. >> i don't think i will take that long. as you well know, gentlemen, our mission here is to try to explain to the american people what caused this crisis. what almost brought our economy to its knees and as such we are asked to look at the issues and institutions.

and you, mr. falcon, said fannie and freddie are failed enterprises. and you also don't that you're outmaneuvered politically, your budget was inadequate, your staff was too small, you are understood for the task that was before you. you were the fifth regular we've had before us in the series of hearings that we have conducted. why do you exist, as opposed to this mission being within the sec or occ or one of those other regulators, if you are in such bad shape? >> i think, ofheo was set up as an independent revelatory entity. i think the idea was trying to make it independent and not subject to the political influences of being part of the treasury department or some other government entity. i think that was sound, except for the lack of authorities and resources on par with every other safety and soundness

regular. >> could another safety and soundness regular done this work? >> you got outmaneuvered publicly as you are understood and understaffed that i just don't get why you exist? >> the agency was created along with a 1990 to act that created the agency. so by the time speakers i understand that, but couldn't someone else had done this work? >> someone else had done it before, the federal home loan board was responsible for freddie. and the s. and l.'s. and so out of that they decide that they needed an agency that could focus on these two giants and, you know, fannie and freddie didn't want it at the time and they made sure that the legislation at the time was very weak. and that was to me again the problem here. actually makes a lot of sense. i think the new legislation that gave us a responsible and not only for fannie and freddie, but

federal home loan banks, does create a regulator that has the power to really oversee the whole secondary mortgage market in this country. >> but the answer to question is yes. congress could have decided to not fail and give this a story to the occ or the federal reserve or some other safety and soundness regular. that was always a possibility. >> it seems as if you were inadequate and skills and capabilities that there is a heck of a lot more capability for similar instrument to be in value is an assessed sitting inside the sec or the occ. but be that -- >> most of our examiners came from the occ or the ots. so we actually did read that talent plus that there are economies of scale to be derived from consolidation of organizations as opposed to fracturing and splintering organizations throughout an enterprise. >> commissioner, if i might for just a minute. >> mr. thomas on his own time.

>> none of those other regulatory agencies would have been subject to the appropriations process. >> maybe that would have helped. >> let me explain this. i was new to the ways and means committee, and i came up with the proposal to make this adjustment that president reagan had asked for all in one year. it was a 30 billion-dollar proposal. i was taken aside and explained, you don't do things that way. we will make it in three, 10 billion-dollar amounts. because then they will have to come to us three different times. >> and that's supposed to be good? >> from the position of the chairman of the ways and means committee it sure was. [laughter] >> well, mr. lockhart, you described the future of this industry industry, and you get a very rational view of what might

happen. i then asked the question what happens to ofheo when, if, in fact, a war to evolve? is this a regulatory body that in a repackaged industry we really need? >> depending how the repackaging goes, no. it could be depending, if we re-create new gse's, yes. if we go to some other structure, maybe not. i think the key thing though is what ever we have, we have to have a group that really understands the mortgage market and has oversight of it. the mortgage market was very fractured from a regulatory standpoint. the nontraditional mortgage guidance that the bank regulatorregulators put out, we weren't even involved in and get we were the biggest player in the mortgage market. so the key thing in regulatory reform to me is you've got to pull people together. how many agencies you end up with is not as important as you have to have those agencies worked very closely together. >> it certainly would cost the american taxpayers a lot less

money if we aggregated the infrastructure that underpins these agencies that oversee the financial soundness of our economy. >> one could argue that. on the other hand, i think actually our ability to work on just a few agencies has actually helped in some areas. i mean, you know, a big bank regulator may have a thousand different entities that have to regulate and i can be cumbersome as well. >> it's all about organization. i yield my time. >> thank you, mr. thompson. just one observation. i was going to ask a question, i am going to ask a question related to mr. thompson's questioning about the need for this regular. and it really does go to 2008. just in all candor, did the federal reserve in the occ when they came in, i believe in what, july, august? >> yes.

>> did they find things that you have not found, or where they offer me what you had already found? >> some of both. they found some things that we hadn't bought. >> and you had counted because of their capability, the depth of their bench? or why is that? >> well, one thing is the actually, the bank regulars had a somewhat different approach to reserving than fannie and freddie did. and when we wrote, read the portfolios through their approach, the losses got bigger. >> so they did have a deeper perspective that you did not have? >> guesstimate okay. mr. mudd earlier today noted the delinquency rate of fannie and freddie loans versus the wall street or private market was definitively less. he noted that the risks of coming by being a big monoline insurer, and i do wonder, and i would say this because i'm picking up on your comment, in the end, you know, so many

monoline indies went down. monoline ensures, large thrifts went down because when the market turns against you and that's your only business, it's very hard to sustain a. he made the observation that even if they had been extraordinary well-capitalized, at some point you have to a return on equity for investors. there is a bouncy. you can't be so well-capitalized there is no return. he says he made the point we would have needed levels of capital such that there were not feasible in the marketplace to have sustained this. do you agree with that? >> at some point too much capital does not serve the entities. but that level is 2.5%. very, very high leverage. >> so they were -- there at a 61 -- they were even 2.5%. they were effectively at 1.5, 61, 70 to one ratio. but the only reason i mentioned it it reinforces your observation that is part of this

market that can legitimately be served by the private markets and some that cannot be, and therefore we should not have a false promise that it can be. because what turned out here it was a massive false promise to the american people that somehow that these activities could be sustained without subsidy in the end. >> if you look at the number, commissioner hennessey just put out, that would have been well less than 10% of the risk. and we are now asking us to put out capital around 10%. what really happened here is we subsidized homeowners by that very low capital charge. >> and also -- >> we subsidized homeowners, shareholders and executives. >> i agree. >> is that if their status request that if there. >> it turned out to be a relatively inefficient way to subsidize low. >> and now that taxpayers are paying on subsidy back. >> there were some articles on the well. >> mr. chairman? >> i was that we know for the record that cdo broke apart who got the subsidy.

and homeowners got a de minimis part of the subsidy. the vast majority would to shareholders and management. >> mr. holt aiken, would you be willing to provide information for the commission under oath or under subpoena or voluntarily? >> one can get from the websites that i want to talk just a minute as we wrap up your about the affordable housing goals, because i want to understand a little bit about how the process worked. hud would propose them. how -- was a process in which fannie and freddie would say here's what we legitimately can meet or do they really flow out of hud? what you look at them for safety and soundness? >> i was not -- the ofheo director is not directly involved in setting the goals, but we do playable and i am a little familiar with alan burks. and from my understanding, it was a sort of a back and forth,

that the goals were frugally proposed by hud. there was pushed back by fannie and freddie. and eventually they came out with a number where hud thought it showed investment and higher goals and fannie >> and that's typically the way the negotiation happened, as i understand the process. >> because in our interviews with fanny's staff. nobody of the fannie mae folks we interviewed, recalled that they raised concerns. i guess there was an interim process but at the end of the day no one said this will compromise safety and soundness. did you comment on them? >> hudd would run the goals by fail and we would examine them and an apply whether or not they could be met. >> under your 10-year in 2005 did you voice an objection on

safety and soundness ground? >> no. >> go ahead. >> but we also told the enterprises that if situations ever changed and they thought that they couldn't meet the goals without taking on excessive risk we made it clear they should not take it on. >> did they circle and say we have a problem here. >> mr. lock heart the same set of questions. >> the goals were set for a four or five year period. >> did they escalate. that's the first time i think they began to nudge above 50? >> they kept pushing them and pushing them. but that whole set of decisions was made in 2004, i think. we never got involved with the goal setting while i was there because they were about ready to be reset. >> so they with respect analyzed renewals of that. >> it was cast in concrete if you will and not market relate

which really was the fatal flaw. >> did you have the ability. statutorily to like in 2005 or six to express safety and soundness objections. >> i could have talked to the hudd secretary but i didn't have authority. >> i'm trying get to, how parties felt about them and of course i can see in enough up market everyone feels we'll get there but i'm cure you whether or not you expressed concerns about them? >> internally but i don't think we talked to about them. fannie mae talked to us a lot about them. >> in what regard? >> about how tough they were. as i said before, the ceo's were very afraid of missing them. they missed part of them in the seven. they missed them by a mile in 202008. '08. part of the legislation you know, we did get authority for

that, and while i was there we have change that structure pretty dramatically speck said they were expressing concern that we're going to get there? >> yes. >> okay. because i understand hud lowered standards at the request but we look at the record. >> i think what they did was when they missed them, they allowed him to miss. >> they missed them and they in a sense excuse them? >> guest. >> mr. chairman? >> guest: was it on safety and soundness? what were the grounds on expressing concern? >> what -- the underlying with safety and status but the concern was they were just not going to meet the goals, it was just not possible. there was some years, you can look in the historical record that they did transaction right in december to make those goals, the goals were not only single-family but multifamily added a lot to the goals. so you can see some years they do some very large multi-family transactions just medical.

>> so they know what the targets are and they sometimes shape their behavior to meet the specific targets be? yes. >> all right, thank you all very much. let me just conclude this meeting by first of all thanking the witnesses. thank you for your time. thank you for your public service. thank you for being here today. i want to thank vice chairman thomas for his continued work with me and the other commissioners, as we as a bipartisan commission with a nonpartisan mission really tried to do the best job of examining what happened here, this event of tremendous consequence or series of events of consequence for this country. i want to thank all of members of the commission. i want to particularly thank the league commissioners on this research and investigation project on subprime lending securitization. mr. wallison, mr. georgiou and ms. murren, i want to thank our staff who have provided an exceptional amount of information, literally hundreds of interviews to date, hundreds of thousands of documents for

their excellent staff work and the very long hours. and thank you, the public, who has joined is that i also want to remind everyone as the vice chairman, reminded me that folk should go to our website at fcic.gov. we have posted papers on that website, background staff reports, preliminary staff reports that have not been adopted by this commission, and they are available for comment. we encourage comments, or would like comments by may 15. mr. thomas? >> continuing the bipartisanship that we have displayed, on behalf of the commission, i would like to thank the chairman of the energy and commerce committee, mr. waxman, and his staff for providing us accommodation. i would like a couple more degrees down on the thermostat, but understanding what our options were, we do appreciate and thank them. for those who have never tried to run these kind of hearings outside of a congressional hearing room, it's really,

really hard to do. and i want to thank them for their courtesy. >> thank you all. i would like to ask if the commissions would gather extraordinary briefly in the anti-room right after this meeting. thank you all very much. >> thank you. [inaudible conversations] [inaudible conversations] >> too big to fail is a harder issue. my own view is that we're passed the days of exclusively small bank institutions. looking for more about the financial crisis at the new c span video library, search, watch, flip and share. over 160 hours of video from yesterday or 10-yearsing a. every c-span program since 1987. the video library.

cables latest gift to america. >> this years c-span studentcam competition asked middle and high school students dealing with one of our countries greatest strengths or the challenges it faces. here's one of the third place winners. >> climate change - and the bottom line is they don't care about that but the policy. >> i don't want anything in my old life. - [multiple voicesvoices] >> in america, it seems we're always facing new challenges. our recent challenges seem to be more complicated than ever. they all need solutions yet sometimes finding an answer that makes everyone happy with this can be difficult.

time and time again, i see and feel the tension between the different sides of issues. not sure what to think about this, i started asking questions like. are the apposing sides really as divided as they seem and more importantly do people know how to resolve conflicts between conflicts. >> take the vast majority of people and they don't know. they get their news from t.v. and it's a passive, okay i know what's going on. no sports and weather. what's to like about that? >> they want to hear something not only that has a perspective that you can react to but they want something they agree with. that's kind of sad. >> people need the information from a good journalist. >> i wish that people would watch things just to be informed and to be - spoon fed a point of

view - not a big fan of that. >> if people had some knowledge about things, more people could listen to them. >> you know, i don't agree with president obama on a lot of things either, but you know, i'm certainly not going to shia way from watching his speeches. i want to know what's on his mind and what he's thinking about and what direction he's taking country. you know, i know some people disagree with him as soon as state of the union address comes on or one of his televised speeches, they'll just shut him off. they just don't want to know. to me, that doesn't make a lot of sense. >> there's a pathos in television dialogue that fail to find the issue like ships b passing in the night. rather than which opinion is holding. it seems knowledge is most

important solving conflicts, but what can we do to solve our differences. how do we resolve our differences when we disagree on the conflict? we have to have dialogue conversation. >> somebody says wait a minute. you have good points and you do, what if we take two of you and three of you and create a solution. that's kra zoo. >> the west has been called the civilization. it's prop er to resolve differences by discussion. >> in attempting to solve through conversation it's important to understand a risic rhetoric and a debate or argument that ends in winning rather than reaching the truth. dialectics are the art of discussing the truth of opinion. >> i've seen some stuff lately on t.v. about the role of

journalism and the search for truth. they lament the strong journalist role, in really digging into issues as apposed to just reporting what's going on. new relates to a fun da men philosophical question of belief in truth. if you have two parties and neither believes in truth. what your engaged is in a procedure or a technique to see who wins the debate. and winning isn't defined as any kind of relationship to truth, but it's simply defined as who's sharper, with ittier and intelligent and educated. to the extent america has lost it's grip on truth, it's lost the ability to resolve differences. >> perhaps by moving further from conversations and take winning closer to conversation

to define truth we can reach satisfactory again. >> logic the study of reasoning. it's defined as a rule for distinguishing between what's true and false. two or more people having a discussion and finding out, in the discussion, what is true and what's not - i think the skill - the skills of logic and dialectic, have been lost. in large measure. >> there's seven liberal arts that can be divided in two groups. the trifium that has grammar logic and dialects. the science of communication. the ancient greek where is the first to practice free speech. they were eager to listen and learning the ideas of others. greece gave birth to the first

philosophers. his loyalty was to the truth no matter where it pre sided. the core of our democracy. perhaps we can learn from the ancient greeks as our forefather's did. >> or sta aristotle said it's l to love learning. we all learn our entire lives and the older we are, ideally, we should be learning more. >> jefferson justified spending public money for education so citizen's would be educated as citizens but we've given that up. so if you go down to the high school and say do you still teach civics or government? not very much. we've got a lot of conflicts going on. a lot of issues. there's a little bit too much competition instead of collaboration. >> it's imperative to the well being of our nation that we learn to solve our issues

through logical dialogue. these days, it seem as thorough logic of reasoning could be hard to fine. relearning the skills will be challenging but by taking responsibility for our own education and teaching ourselves to learn truth. solving and coming up with creative solutions is more likely. if we can find a way to cancer this challenge we'll adhere to the greatest strength. >> that is what i'll try to do today, speak the truth as best i can. humble by the past before us, firm in my belief that the interest we share as human beings are far or powerful than the forces that drive us apart. >> to see all of the hining entries in the studentcam competition visit studentcam dot org.

>> coming up next, live on c-span your calls and comments on today's "washington journal" followed by activism from the left and the obama administration and at 1:00 profit margins eastern. live coverage of the southern leadership conference in new orleans. tonight, first lady michelle obama white house meeting with students to talk about preventing childhood obesity and studentcam film makers from around the country including the middle school winner who's documentary focused on childhood obesity in america. if the first lady answered students questions tonight at 9:00 eastern on c-span. this morning we'll talk with the editor of the scope blog