wrong. that's the best way to send a message to washington, d.c., just go out and prove them wrong. go elect folks. let me say this in wrapping up, we are at a consequential time. there are times in our lives that we recognize are more important than others. and there is no question that this is one such time. everybody always looks, and my father is part of this greatest generation of american, but i remind you that the greatest generation of americans, as great as they were, did not go out and seek to be the greatest generation of americans. that the situation was thrust upon them and in most cases, in many -- for a long time they did not step up to the challenge. i remind everybody that in 1940, as britain -- as france fell, as all of europe was dark, the united states did nothing. united states did nothing. . winston churchill pleaded with

the united states and we did nothing. the bombs dropped on our closest allies. we sat and we did nothing. it is because we like to think that things will be ok. we just need to live our lives. we need to take care of ourselves. there is a movement within our party to do the same thing. just focus on us, do not worry about anything else. we can not do that. we can not do that. i remind everybody that in the summer of 1941, the congress came within one vote of appealing to the draft. as unprepared as we working -- of a retailing and the draft. -- opposed repealing the draft. as unprepared as we were in 1941, we would have been a more

unprepared without that. we having -- we have bigger -- this is one of those times we cannot afford to do that. this is one of those times we have to step up, and engage, not just in your own community, but all across this country where there are traces. we need to focus on november, and we will change the course of this country. god bless you.

my last time here was almost one year to to date after that car break-in day in 2005. not that one. i am talking about katrina. i walked the streets of us all the recovery and i have to tell you that it is so inspiring for me to see that because of the resilience of these people and the generosity of the american people, new orleans is coming all the way back. [applause]

like about new orleans. [applause] all right. see you next year. [laughter] you know, i am really honored and humbled to address the largest ever gathering of the southern republican leadership conference. thank you for making that a reality. [applause] to be honest with you, i am a little nervous. it is not used to addressing crowds of this size. i was running late to a meeting the other day. i was about 20 minutes late. i came running up the steps of the auditorium and the fellow organizing it was standing there nervously. i looked down, and there were about five people sitting in the seat waiting for me. i said, "there are only five

people in there?" he said, "yes sir." i said, "didn't you tell them i was the speaker? " he said, "no sir, but i am going to find out who did." [laughter] thank you for coming anyway. all you really need to know about me is that i am the father of three teenagers, and the white hair. i am married to a proud graduate of a butler university preposterous depicted -- butler university. and the most important thing is this, i am is a christian, a

conservative, and a republican, in that order. [applause] what a difference a year makes. following our election losses, most republicans were pretty certain about our principles, but we were a little uncertain about the future. only a year ago, people were allowed by the glamour and appeal of the american left. barack obama had a 120% approval rating according to msnbc. [laughter] seriously, though. his approval was over 65% in all 67 states. [laughter] [applause]

unprecedented democrat majorities in both houses. unchallenged liberal dominance in the media, our courts, our public schools, our universities, extraordinary. it was a forced that seemed indomitable to everybody but you. and look at what we have done. historic elections for republicans in virginia, in new jersey, and the state formerly known as taxachussettes has a republican member of the united states senate. [applause] look at what you have begun appearing as we say where i have come from, who would have thunk it? your enthusiasm is contagious. even republicans in congress are

returning to their commitment to disappear -- to a fiscal discipline and a reform. let's be honest. three years ago, republicans in congress and did not just lose their majority, they lost their way. when i chose to oppose no child left behind and the wall street bailout, i knew that if we did not stop acting like liberals, the american people would go with the professionals, and that is what they did. we lost our way, and the american people walked away from us. but after a year, we saw every single house republican vote against that failed stimulus bill, that the budget busting the budget, that a government takeover of health care. let me tell you here in the

south, republicans are back in the fight, and they are back in a fight on the right! [applause] especially when it comes to obama-care. i know that democrats think that is over. they passed their bill and it is time to move on. let me be clear about one thing. democrats may have had their way on the third sunday in march, but the american people are going to have their say on the first tuesday in november. [applause] i pledged to use this -- to you

this. house republicans will not rest until we have a repealed that a government takeover of health care and lock, stock, and there'llbarrell! [applause] i know the president does not think we can. [laughter] on his first stop for the obama-care world tour 2010, the president actually said to advocate of a repeal, "go for it." well, mr. president, i count on it. [applause]

we cannot repeal and replaced obama-care with a lot that grows health insurance without growing government. we can allow americans to purchase assurance -- insurance across state lines. we can have lawsuit reform to encourage the end of a junk lawsuits once and for all. for those who say it will be too hard, i say this. we will repeal the pelosi congress in 2010, and we will replace the obama administration

in 2012. [applause] we have made great strides in the past year. the men and women of the southern republican leadership conference have a lot more to do. it is only half time in this locker room. we are ahead on the freedom's scoreboard, but there is a lot of time left on at the clock. as the hoosiers assault on a monday night, you can fight them -- as hoosiers saw on monday night, you can fight them all night long, but when the clock runs down, you have to be ahead. we cannot rest until we win back the american congress and for the american people. [applause]

so, how do we do it? a couple of thoughts. first, we have to stay focused. destruction is the enemy of success -- a distraction is the enemy of success. the politics and the airwaves are always filled with speculation, who is up, who is down, who is perfect, who is next? we have to look past the temptation to look past the next election. as the coach said right before the championship game, we have to focus on the the next possession. the next possession for the republicans and the american people is election day 2010. men and women, we have got to take that hill.

[applause] secondly, to win back america, to win back the american congress for the american people, we needq)4 to campaign s conservatives. [applause] to face the enormous challenges ahead, we do not just need a majority of republicans on capitol hill, we need a conservative majority on capitol hill. [applause] we need men and women committed to fight for a strong defense, for limited government, and for traditional american values without apology and without acrimony. i am conservative, but i am not in a bad mood about it.

-- we need to find happy warriors. men and women that will go into every neighborhood regardless of race and creed and color. our idea is no boundaries in america. jack kemp taught me that. [applause] lastly, we have to show the american people that we know what is at stake. we need to offer a compelling vision for a better america, grounded in the timeless principles of the declaration of independence. as well as the constitution of the united states of america. [applause] despite the political gains of the past year, america is changing. she is not changing for the better. a nation conceived and liberty

has come of age in bondage to government. we have lost respect in the world. we are going broke our social and cultural fabric is unraveling parted i am told -- private. " managing america's decline." let me say this from my heart. as a student of the history of this great land, the job of the american president is not to manage american decline, the job of the american president is to reverse it. [applause] in the face of their failed leadership, our party must produce a vision for a better america that will return our government to the common sense

and common values of the american people. what will that look like? first and foremost, it means rededicating ourselves to doing what is necessary to defend this nation at tom and abroad, giving the american at -- at home and abroad, giving the american soldier everything they need to come home safe. [applause] defending the nation means keeping all of our options on the table to deter our enemies and protect our friends, including nuclear weapons. [applause] history teaches that week this arouses people. telling our enemies but we will

never do with our most powerful weapons makes no sense at all. it means giving our intelligent communities in the tools they need to fight our war on the terror of like a war. we must ended the era of putting a public relations ahead of terrorists should not be tried in our civilian courts. they should be tried in the guantanamo bay where they belong. [applause] you know, it also means being good to our friends and tough on our enemies, not the other way around. you know, the recent controversy over israel's construction of

apartment buildings in jerusalem was an appalling thing. i never thought i would live to see the day when an american administration would denounces the jewish state of israel for building on its land. let the world know this if it knows of nothing else, america stands with israel. [applause] [applause]

>> usa! usa! usa! >> closer to home, we also have to offer a better vision for america. the vision for a better america begins with offering the american people and effective at pathway to restore true fiscal discipline to our national government. since world war ii, our government has operated on an average of 20% of our national economy. but after a runaway spending by both parties, federal spending is nearing 25% of gdp. in the years ahead, without any new spending or programs, we will reach 40% of our gross

domestic product by the middle of this century. yesterday, the director of the congressional budget office and put it well. he saidzk5 that in the nation's fiscal path is an unsustainable, and the problem cannot be solved by minor changes. well, we have done a minor tinkering in the past. we tried a line item vetoes, and we tried other things. they all failed prepared the time has come to limit federal -- they all failed. the time has come to limit federal spending to 20% in the constitution of the united states of america. [applause] only a spending limit amendment will be powerful enough to curb

this explosive deficit that is facing our children and grandchildren. if god can get by on a 5%, the federal government ought to be able to get by on a 20%. [applause] while we must and in this era of a runaway spending, fiscal discipline enough. we also need to renew incentives in america, the incentive to create, to build, to achieve, to excel. permitting people to enjoy the fruits of their labor build our cities, conquered our frontiers, and it is what made america the most powerful economy in the history of the world. we must renew incentives in our american policy. [applause] but you know, that is not the president's approach. i was with him in baltimore on a

state like this at the republican retreat. i had to ask him twice whether he would support a across-the- board tax cut the way john kennedy did, the way ronald reagan did. as near as i could tell, he said he would, as long as they were not across the board. [laughter] you know, they have a phobia on that side of the aisle about tax cuts for the rich. it reminds me of a story of a ronald reagan when he was campaigning in 1980 in ohio. a man walked up to him and said, "i heard you have a been getting a lot of trouble over your tax cut for the rich. i want you to go ahead and do those tax cuts, because i have never been hired by a poor man." [laughter] [applause]

to reverse economic decline in this country, we need a fiscal discipline in washington. we need tax relief for working families, small businesses, and farms. get government under control and out of the way, and america will come roaring back. i promise you. [applause] finally, to win back america we must recognize that our present crisis is not merely economic and political, but moral in nature. at the root of these times should be a realization. people in positions of authority have walked away from the time- honored principles of honesty, integrity, an honest day's work

for an honest day's pay, and the old-fashioned notion that you ought to treat the other guy the way you would like to be treated. the truth is we have to get back to basics. we will not restore this nation with public policy alone. it will require public virtue, and that emanates straight out of the traditional values of the life and family of faith. we must renew our commitment to that. [applause] i believe that ending an innocent human life is morally wrong, but it is also morally wrong to take the taxpayer dollars of millions of a pro- life americans and use them to promote abortion at home and abroad. [applause]

this administration has opened the floodgate to providing and promoting support for abortion overseas. let me say from my heart, the largest abortion provider in america should not be the largest recipient of federal funding. the time has come to deny any and all federal funding to planned parenthood of america. [applause] if you are taking notes, that is how we win back america. stay focused. elect a conservative congress. win back the right to govern for the better vision of america.

this is our moment. now is the time. it is time for us to do all we can to preserve of what makes this country great. i say to all of you gathered here in new orleans, if you can give palm give. if you can give, give. if you can speak, speak. if you can right, right. and if you can run, run it. now is the time to do all that we can to win this country back. as you take to that field in the next seven months to freedom of's work -- to do freedom's work, you will not fight alone.

engraved on a delivery fell are the words, "proclaim liberty throughout the land and to all the inhabitants thereof." that is from a book that also says, "where the spirit of the lord is, there is liberty." when we proclaim liberty, when we do freedom's work, we have truly made his work on earth our own. you will not fight alone. [applause] men and women of the southern republican leadership conference, we must not be afraid. we must fight for what has always been the source of american greatness, our faith in

god and our freedom. if we hold that banner high, i believe with all my heart that the good and great people of this land will rally to our cause. we will take this congress back in 2010, and we will take this country back in 2012, so help us and got it. ♪ ♪ >> thank you.

i am does going to tell the truth. -- i am just going to tell the truth. for me, the governor of mississippi, to be back in new orleans this weekend is a bittersweet occasion, as it reminds me of what we and our neighbors in a louisiana shared in th20052005. -- in 2005. i want to say to all of you, our sister states or great partners to us. @@@@@@@ @ @ @ @ @ @ @

>> the federal government was very generous to us after the storm. i want to say thank you for that. i also want to say that there is something to be learned for that. one of the problems that we have and our country is that people do not think that there is any need for stewardship for the public's money or the taxpayers' money. i am proud to tell you that in mississippi, where we received $27 billion of your money, that the federal government's auditors think that the air raid in spending is less than 1%. wouldn't it be nice if the federal government did something where the error rate was less than 1%?

i apologize for it taking the time to talk about the natural disaster, but let's face it. we are here today because we need to talk about a man-made disaster. the policies of this administration and the pelosi- read congress and are a disaster for our country. everyone here recognizes it. you are concerned for your children and grandchildren. you may not note that the first southern republican leadership conference ever held and was held here in new orleans in 1969. you would be interested to know that there are three times more people registered today than there were then, because you understand what the stakes are for our country. you know this is the place to start to take our country back. [applause] if i only get one thing across

to you today in my brief time, it is that we have to stay focused on the election of 2010. do not worry about 2012. the election we have to be focused on is the election of 2010. we cannot wait until 2012 to start taking our country back. [applause] probably most of you all are not old enough to remember "the ed sullivan show," but to be here in the hilton hotel in in your lens -- in in your lens -- in new orleans remind me about when conrad hilton was on that show. he was the bill gates of that today. he had created a new business of a luxury hotel chain.

ed sullivan had him on in the show and turned to him and said, "mr. helton, if you could tell the american people only one thing, what would you tell them ." conrad hilton never blinked. he said, "put your show or curtain inside of the tub -- your shower curtain inside the tupb." [laughter] there is a man who knew how to keep his eye on the ball. one thing matters to us in the next six months, and that is winning the critical 2010 elections. do not take your eye off the ball. [applause] of big part of this of course, for me, as chairman of the

republican governor's association, is the fact that there are 37 and governor's races this year. i will tell you, as somebody who was chairman of our party the last time we were similarly situated, in 1994. governor races matter. more of you see your governor, and get organized with your governor's people, then any other politician in that you have to deal with. governors matter. governors deal with real problems. while the obama administration is on a spending spree that is out of control, so much that it gives an drunken sailors a bad name, what are governors doing? i can tell you that i became governor with david massive

deficit. -- with a massive deficit. we balanced the budget without raising anybody's's taxes. [applause] we did it by controlling spending. this year, since our legislature passed our budget, i have had to cut the budget 9%. you can do it. businesses do it. families and do it. the government can do it. bobby jindal has cut his budget. mark sanford, charlie chris, and others have cut the budget by more than $10 billion. the governors and step up to the plate and make tough decisions. at the same time, in washington, the idea that you could cut

spending it drives cold chills up their spines, those of them that have spines. [laughter] [applause] think about, isn't this administration has been in the, stimulus reported think about it, since this administration has been in -- think about it. since this administration has been in, every month they were spending trillions of dollars. now the president has produced a new budget for this coming year. it has a $1.6 trillion dollar deficit. do you know that when newt

gingrich was speaker of the house, the entire federal budget was 1.6 trillion dollars? now these people are proposing that as a deficit. our children, our grandchildren, and our grand children's children will have to pay it. it is going to make our debt harder to sell to the chinese or to anybody else. some people say this is just the kind of inflation we had under jimmy carter. the american people know it is wrong, and they want to put a stop to this. [applause] they want to put a stop to this, and the place to put a stop starts here.

we have a tremendous candidate. you are going to see around the country, obviously the gubernatorial candidates. there are people with outstanding records, the kind of people you can be proud of, the kind of people that will step up to the plate and bite the bullet the way they have done in new jersey and virginia. they got elected to control spending. they made the cut. they are getting their states back on the right track. of course come up many of us still have health care reform on our -- of course, many of us still have health care reform on our minds, because it is another gigantic spending bill. they used gimmicks to act like

it is only a trillion dollars spending bill. it will be twice that. but more importantly, it is going to drive up to the cost of health care. it is going to make your premiums go up. . . -- costs are more to go up because of the obama administration bill. we are going to see lots and lots more shoes fall. we see what happened if the bill passed. it was announced three days later that social security, and other gigantic in parliament, it is underfunded for this year. they are going to spend more than they take in several years earlier than was predicted just a few months ago.

big companies will have to take $15 billion in losses because of the health care reform bill. caterpillar just announced that they will have to cut back health insurance spending for their company because of the losses that they are going to take because of the health care reform bill. the democrats keep telling us that the more people learn about the health care bill, the better they will like it. i think that just opposite is true. when they need 16,000 new irs agents and to enforce the health care bill, how can that be the case with the american people are going to like it? [laughter] [applause] my hat is off to our friends in congress and to mike pence, who

just spoke. it is in the great? -- isn't he great? kyl, lamar alexander -- that we're going to keep focused. ron paul, sure. [applause] the ones in congress who are replace this law with good policy that need to have our support. i hope you will support us governors who are litigating this in the federal -- in the federal courts. [applause] any of you that have the opportunity to study history and the history of our constitution understand that, in our constitution, we have limited government. the constitution, which comes from the people, through the

states, gives whatever powers the federal government has and no more -- and no more. it is a matter of limited government. i believe, as do a number of my colleagues, that there is nowhere in the united states constitution, including the commerce clause, that says that the federal government has the power or authority to force every citizen to buy certain products, whether it is health insurance or any other product. [applause] and we are going to litigate that in the united states supreme court. and no matter what new liberal the president appoints to take justice stevens place, i like our chances in the united -- in the united states supreme court, that we have a constitution that requires limited government, that our government is a people

with the government, not a government with a people. [applause] that the power comes from the people in america. we're going to keep working hard on this. the good news is much of it does not taking effect four years. -- for years. the bad news is that it got past. i did not get your congressman's to back's announced that he was not going to -- congressmen stupak's announcement that he was not going to run, but i will be set i am sorry. the energy policy is predicated on the idea that we ought to drive up the cost of energy so that americans will use less. every time that has ever happened in the american economy has been because of a recession or depression we use less energy than we used to -- depression.

we use less energy than we used to, but we still have an economy that runs@@@@@@@ ú,@ @ @ @ @ @ -- a electricity rates will skyrocket. the secretary, in september of 2008, made a speech in which she said that what we really need in america is to get the price of gasoline up to where it is in europe. well, we do not need that in mississippi. of $4 gasoline brought us to our knees. these policies are predicated on enormous government spending and no worry about what it costs. what energy cost you, what

health care cost you, it is all about more government power and more government spending. for myself, i believe that the bright enemy -- the right policy will make america work. reiterating what i said to you. i hope nobody here at spends one with the time -- one whit of time thinking about the 2012 presidential election. we can take care of that after the november, 2010 elections. [applause] the critical issues i have touched on tiptoe -- i have touched on, tiptoed on -- we have to start fighting those now. we have to win this election.

what ought @ @ @ @ being from mississippi, i am -- being from mississippi, one mississippian i am proud of is fred smith, the founder and ceo of fed ex. fred has an expression i want to share with you. the main thing is to keep the main thing the main thing. [laughter] [applause] the main thing is to keep the main thing of the main thing. it did not get distracted by 2012 is what he is saying. do not take your eye off the ball. remember what matters. how do we win in 2010? we stick together. [applause]

we werork, we work, we work. we organize. we give it. we campaign. some of you will run for public office. we welcome every single one of you. that conservative unity has to be part of the conservative energy. i can tell you -- [applause] the democrat's fondest hope is to see tea party or other conservatives split off and have a third party to split the conservative bas upe. barack obama -- a split the conservative base. barack obama has been down on his knees praying for the conservative vote to be split in

2010. we cannot let that happen. we cannot let that happen. we have to stay unified. [applause] we have a tremendous opportunity. as you know, i was chairman of the party the last time we were here in 1994. and i am very proud, and i think republicans have our right to be proud of newt gingrich and all the people involved in 1994. i will tell you about this fact of which i have no fear of contradiction. the political environment in america of april 2010 -- april, 2010, is better for republicans than it was in april, 1994. [applause] i say that to you -- and i will tell you, that has been primarily driven by policy --

bad policy. it has been driven by what the obama administration in nancy pelosi and harry reid and the democratic majority -- by the policies they have tried to cram down the country's throat. people are energized people up -- people are energize your people are agitated. -- people are energized. people are agitated. people are also scared. are there children and want -- are their children and grandchildren going to inherit the same opportunities that we have benefited from so greatly? that energy -- the wind at our back is far greater today than it was in spring, 1994. but the election is not today. the election is nearly seven months away. how are we going to keep the environment like this? how are we going -- this wind

that is at our backs -- how are we going to make sure it fills up our sails? first of all, we have to work. we have to work. we have to work together. we have to welcome everybody that wants to work with us. we have to recognize sometimes somebody that has never been involved before may run in the primary and beat the incumbent republican. when they do, they become our candidate. they become our candidate. [applause] we got to -- we got to say to people in the tea party or any other group of independents or people who have never been republicans, or four republicans, or democrats, for that matter -- people that think like us at, who believed in what we believe in -- we have to

welcome them, and not just make them feel welcome. they have to be welcome. they have to have an opportunity to participate at. they need the same time in the batter's box that i get in the batter's box. [applause] that is what it takes. it takes unity. now, in a two-party system, both parties are necessarily coalitions. not everybody in the republican party is as conservative as haley barbour. i will tell you something else. you cannot elect haley barbour governor of vermont. [laughter] we have to understand that every state is not as conservative as mine. if you're going to put together a majority, if we are going to put together a majority, we need to be sure that people -- as ronald reagan used to say, a

fellow who agrees with you 80 percent of the time is your friend and ally. [applause] we, as a party, need to welcome the people who want to get rid of the folks who are in office now. we need to make them feel welcome and we need to make them be welcome. give them something to do. give them a chance to participate. and with what they are doing. i can tell you, in my state that tea party has tremendous energy and have been great partners for republicans in putting a ballot initiative on with conservative ideas. [applause] i am here today more as a former

party chairman then as governor, because i am so focused on winning. if we did not win, we cannot fix things. [applause] you cannot be a statement until you hold an office of state, we used to say. [laughter] and we all need to, yes, we have to stand up for what we believe in. we have to let the things that unite us be the things that we emphasize. with conservative unity, we will start taking this country back, with there were majority of republican governors in november -- with a majority of republican governors, a majority in the house of representatives in november, a majority in the u.s. senate in november. this is within our grasp. [applause]

this is within our grasp. but this message of unity is so important, and we cannot let it -- we cannot let ourselves be torn apart by the idea of purity. in a two-party system, both parties are necessarily coalitions. we want our coalition to drive our policies of conservative spending, borrowing, debt -- go down the list, from national security to the social issues that mike was talking about -- we have to get more than 50% of the vote for our policies to become the policies that will save the this great nation --

will save this great nation for our grandchildren. please lea [applause] >> thank you. good afternoon. y'all can do better than that. good afternoon. that that sounds like we're going to win in november, 2010.

that's what i am talking about. we hold these truths to be self- evident -- that all men and women are created equal, that they are endowed by their creator with certain inalienable rights, that among these are life, liberty, and the pursuit of happiness. it did not say anything about a guarantee. [laughter] and i do not know and i have not been able to find anywhere in the constitution where it says, in washington, d.c., we are supposed to have a department of happy. [cheers and applause] it is not there. life, liberty, and the pursuit of happiness. i love when i get callers who

say, the pursuit of happiness is under attack. the american dream is under attack. i say, you're absolutely right. they say, what can we do about it? i say, you take that same document and keep reading. because if you keep reading, you will find out that it says, when any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it. we have some altering and abolishing to do. [cheers and applause] we have some altering and abolishing to do. and did you notice that i said that second paragraph without a teleprompter?

maybe somebody else carshould read the declaration of independence and the constitution. [cheers and applause] as we say on my radio show, if they read the constitution and the declaration, they just might learn something. [cheers and applause] this country was founded upon the american dream. my dad was the greatest example of that. that is where i got my passion. he walked off the farm at the age of 18, with the clothes on his back. he and my mom and dad a settlement in atlanta, georgia, where they raised my brother and i. dad used to work three jobs -- barber, a janitor, and chauffeur -- all at the same time >> -- dad knew that he had to

use the only kind of equity that he had which was what equity. -- sweat equity. he did achieve [applause] his american] now, -- he did achieve his american dream. [applause] now, our president wants us to spend our sweat equity for the government and we have to alter that scenario. [applause] so, i believe that even though the american dream is under attack, the american dream is not dead. we have got to defend it. that is why many of you are here. that is why i am here. the that is what you do what i do and why i do what i did. we need to defend the american

dream. how do we do that? i will give you three ideas that i want you to remember. i could not agree with my friend haley barbour and more. our focus has to be on november 2010. we have to change the balance of power in washington d.c.. that is job one. . . three things we have to do. we have to stay connected. stay connected. we have to stay together. that is what the liberals and dems want us to do. they want to pick the rubble of an party against the tea party -- they want to get the republican party against the tea party. you have a right wing constituency, a left-wing constituency -- the are trying to put a face on conservatism in america. if that does not work, they try to find another face the book on it. they are trying to divide us and

we have to stay connected in order to win. stay connected. [applause] secondly, we have got to stay informed. you see, if you do not stay informed on the issues, you just might be tempted to bring some liberal kool-aid by accident. you just might be tempted drink some liberal kool-aid by accident. we have got to stay informed. i could not believe what i heard nancy pelosi say about the health care deform legislation before it was passed. we have got to pass it, so we can then tell you what is in it. [laughter] i wrote a book titled, "and they

think you are stupid." i need to rename it. nancy believes we are all stupid. this is why we have to stay informed. their strategy is to take in vantage -- take advantage of the misinformed and under-informed, and people who do not have a clue who can connect the dots. we have to stay informed. [applause] when people have the right information, thomas jefferson said, they will make the right decisions. that is our job. that is our job. i am glad that i am a radio talk-show host and had the opportunity to follow the health care bill ever since they introduced it in all of the -- ever since the introduced at and all the different modifications.

you have the house version, the senate version, the reconciliation bill. because i am on the radio five nights a week out atlanta, i needed to follow it to help people understand. many people are busy trying to run their lives. they are busy trying to take care of raising their children and pay for their education. we have to stay informed as to what is going on. i am glad that i did. when they were passing this health care deform legislation, one reason i am so passionate about this -- not only about the health care deform legislation, but also about the cap and trade and tax and kill bill that they passed on a party-line vote -- is i have personal experience. if obama care had been in place, if you would be listening to somebody else in this time slot. [laughter]

back in 2006, i was diagnosed with stage for cancer -- stage four cnceancer in my colon and liver. my first surgeon said that was as bad as it gets. i got another surgeon to give me a second opinion. [laughter] the second surgeon at least said, you have a 5% chance of even being alive in three years from now. i said, doc, what is the game plan? that is the business dna kicking in. how do we solve the problem? he said, we want to give you chemotherapy and see how that works to make sure we have isolated the right one. then we will do surgery. we will take out 30% of your colon, 70% of your liver. you'll recuperate and then we

will give you more chemotherapy. and then, if you are blessed, you might have a chance to be around for awhile. you see, as of january the first, 2010 -- 2007, for three years, three months, and 10 days, i have been totally cancer-free. [cheers and applause] there are two reasons for that. two reasons that i am standing here today. . the number one reason is god said, not yet, herman. you got some work to do. not yet. and number two, we do not have a

health care crisis in america. we have a health care cost crisis in america, and obama care would have killed me. i would be dead. [applause] we have got to stay informed so we can fight the battle. you know, one thing when you are dealing with fighting liberals, they love to shift the subject, ignored the facts, and call names. uc get all the time. i call it -- you see it all the time. i call it sin tactics. janine rafah low -- garofalo. when she accused the tea baggers and conservatives of being racist, redneck, tea

baggers. i had to go look in the mirror to see if i missed something. [laughter] they name call. they cannot defend this bad legislation on fact, because to paraphrase jack nicholson, the cannot handle the facts. so they name call and shift the subject. first, stay connected. second, stay informed so that you do not drink the kool-aid. third, state inspired -- stay inspired. they want you to believe that we cannot take back control of congress. we have to stay inspired and believe that we can take it back. when my dad walked off of that part at the age of 18, he believed that he could achieve

his american dream. one of his dreams was to give his sons a little bit better start in life than he had. and he did. that is one of my dreams -- to give my kids and grandkids little bit better start in life. that is what you are fighting for, to be able to protect and defend the american dream, so that you can give your kids and grandkids a little bit better start in life in the greatest country in the world. [cheers and applause] so, we have to stay inspired. state inspired. the way we stay inspired -- we have to have bumblebee power. when i was a student at morehouse college, i majored in mathematics and minor in physiced in physics. ability is not supposed to fly -- a bumblebee is not supposed

to fly. but we see them fly all the time. physics and mathematics students have been trying to prove that of a bumblebee can fly, even though we know that it can. they will take equations of motion, the same equations that designed of those airplanes you flew here on and will fly back on, so they take those equations and take bumblebees and put them on a wind tunnel and get their critical measurements. the measurements of their wings and their aerodynamic properties. they put them into the equations of motion and run the program. the program says, the sucker can't fly. [laughter] so they think they made a mistake. then the next year, a professor would find another ph.d. student who said to another student to

do the same thing. they do it again. they put it in a bigger and faster computer. the bigger and faster computer comes back with another message -- the sucker still cannot fly. there is only one reason that the ball being -- the bumble bee flies. the bumblebee believes he can fly. [applause] he believes he can fly. i believe we have the greatest country in the world. and i believe that in november, 2010, we're going to take back our government and i believe that america is not going down -- not now, not ever.

and i believe in the deaths of my heart -- depths of my heart into the bottom of my soul, that the american people -- some people call it the tea party movement, some call it the intelligent thinkers movement, the americans for prosperity movement -- the american people are sending a very clear message to the people who are controlling our house of representatives, controlling our united states senate. the message is clear. we're going to send it today. we're going to send it in april, march, june, july, august -- all the way up to november. we, the people, are still in charge of this country. [cheers and applause]

i forgot one thing. we have a lot of things to do and i agree with haley barbour. stay focused on 2010. you have a lot of great speakers. we have a lot of great people who are going to try to help us take back the white house in 2012. but we do not need to focus on that. keep one thing in mind when you get to 2011. there are a lot of people that might be interested in seeking the republican nomination, but i want you to remember one thing --kzñ there might also be a dark horse candidate you do not know about. [cheers and applause] government, dr. ron paul. [cheers and applause]

♪ >> thank you. thank you. thank you very much. thank you. thank you. >> ron paul! ron paul! ron paul! >> thank you. [cheers and applause] thank you. it sounds like a freedom rally. thank you very much. [cheers and applause] well, it is great to see so much enthusiasm for the freedom movement and limited government. i want thank the host of the convention for and by now. i'm delighted to be here among friends.

my wife is here today and i'm very pleased with that, too. [applause] you know, this last week, our report came out on friday -- a report came out on friday from the treasury. it shocked even me, even having s@@@@@@@@@@ cr@ @ @ @ @ @ @ @ @

will -- who will waste it even more than congress will. earmarks are the responsibility of the congress. we're supposed to designate every single penny that we spend. we're not supposed to let the president do this. i do not like a strong executive branch. i want a strong congress that exerts its prerogative. [cheers and applause] what we need is not to tinker

with earmarks, but to vote against the entire package, the of preparation bills, until we get the budget under control -- the appropriation bills, until we get the budget under control. also, the definition of an era armark is very important. it is when your congressman says, why do we not get some of our highway funds back and spend it in our district. when it comes to earmark for building an embassy, which we are now doing in london, which is a fortress, it is going to cost as $1 billion. what are we doing that? it makes no sense whatsoever. we're tinkering around with some spending bills here and trying to build a highway. we have spent $1 billion on an embassy in baghdad. we're spending and another $1

billion on an embassy in kabul, which does not make sense unless you think we have unlimited funds. we do not. this is the message that is coming today. [cheers and applause] the reason why the american people have awoken and are so upset and annoyed and are acting outside the party system is because the country b isroke and the people in washington -- is because the country is broke and the people in washington will not admit it. we have two good choices, if you think we should have a balanced budget. one, we raise taxes. i have not met republican that wants to raise taxes, then goodness. the other side of the coin is, cut spending. now, if we were so good at cutting spending, where were we when we had that chance? we have created -- [applause]

as republicans, we have created a credibility gap. we talked a good game. but when we get the chance to do something, we have not done the job that we should have. i will tell you what, though, we are doing a better job now, in opposition. the credibility is -- when we get the chance again, which i believe we will, how credible are we going to be? how well are we going to stick to our guns? how significant are we going to -- are we going to take our oaths of office seriously? if we did nothing else but to let individuals who you could trust that what all obey the constitution, -- that would always obey the constitution, we would get out of this mess in no time.

[cheers and applause] the question has been raised as to whether or not our president is a socialist. i am sure that some people here believed it. i know that this concord -- this conference has talked about that already. he deserves a lot of criticism. in the technical sense, in the economic definition of what a socialist is -- he is not the socialists. what he is is a corporatist. we have corporatists in the republican party, meaning you take care of corporations and a takeover and run the country. we see that in the financial institutions and the military- industrial complex. [cheers and applause]

and now, we see it in the medical-industrial complex, who runs maedicine. think of how corporations gap between the doctor and the patient -- got between the doctor and patient. . the simple answer would have been to reject it.

the next thing would be to throw it out. that is not going to happen. there is going to be one piece of legislation i will introduce. it will probably be only one page long. [ears and applause] it will be to remove the mandate that you have to participate if you do not want to. [applause] i have a belief that if we always retain the option to get out, no matter how bad the government bears down on us, we can survive. have you noticed education is a mess since the federal government got involved in it?

do you remember the old days of the republican party when our platform said to get rid of the department of education? [cheers and applause] fortunately, we have had the private auction protected. you still have the right to opt out, educate your own kids, or send them to private school. [applause] in medicine, we need that same option. you need to be able to opt out of the system. they talk about the public option. everyone knew that was a term for a total socialized medicine. they did not win that fight. the corporations won the fight and benefited. if we allowed the people to get

out of the system, this means you could have medical savings accounts and deducted from your taxes. this would be so much better. they talked about the public option semi-times. how many times did they talk about protecting the private option? [applause] if we are going to get back to a balance, the constitution would get us there. we have to decide where to cut. when have we cut anything over the last 34 years? -- would have to cut anything over the last 30 or 40 years? we have accepted the notion that government should be doing all of these things. government really does reflect the prevailing attitude of the people. if a politician wants to run for congress and says i am going to

vote against all of the spending, traditionally, that guy lost. something is stirring now. in this election this year, that does not hurt your chances of being reelected or elected. [applause] we only have two problems in washington with spending. we have conservatives and liberals. they both like to spend. they spend money on different things. they like embassies, occupation, the empire. they like to be in 135 countries and 700 places. did you hear the news? just this weekend, there was a revolution in kurdistan -- kyrgistan.

we have bases over there. we are running out of money. no matter how badly you like to have them, all empires anend for financial reasons. that is what things are telling us today. [applause] if you want a strong national defense, it should be designed for defense and not to support preventative wars. it should not be to support wars better undeclared. it is rather conservative to say that it is good to follow the constitution except for war. let the president to work anytime he wants. if you want to the war, only congress can declare the war. the fight it. when it and get out of there.

-- go fight it, whenin it, and get out of there. [cheers and applause] ron paul, ron paul! >> politically, it is much easier and makes more sense to cut the militarism and the bases overseas than to cut child welfare here at home. i do not hesitate for a minute. i know we would be stronger for it. when we went to korea, i was in high school. that was 60 years ago.

we're still there. it costs us a lot of money. what we have to have troops there? we do not have troops in vietnam. we came back to vietnam. people were embarrassed about that. the imam, in our feet, are better friends and more capitalistic the north korea. north korea is not our friend. 20 years of the french and american trying to tell the vietnamese have to be westernized failed at a horrible cost to us. we have won more in peace than in war. they are our trading partners now. we can do better with peace and with war -- thank wit with war. if there is a need to go to war,

it should be done properly. the rules would be quite different. if you are an advocate of personal liberty, we are advocates for limited government, small government. small government is one thing. it is easy to say that we want less taxes and regulation. that is fine and dandy. but do we want to make sure that every individual has a right to life and liberty? i would say yes, everyone has a right to life and liberty. [applause] when we talk about protection of all life, i mean, the protection of all life, not just life designated by liberals. i believe premature life is just as valuable and should be protected. [cheers and applause] it also means that if you are

going to protect liberty, you will protect personal choices. we have no trouble protecting personal choices when it comes to our churches and intellectual interests. people are allowed to read, study, and what they want. as soon as it comes to something that we want to put in our

but why have we lost our confidence in ourselves that we can deal with this? dangerous things for our children should be handled by the parents, just as education is. [applause] we have a long way to go. we are in a very difficult situation. the reason we face the crisis is because we are bankrupt. no one can come up with a solution. everyone is arguing. the fact that so many people consider themselves conservatives and champions of limited government -- they are

not acting within the party system. they are frustrated. they want to see the credibility regained. it will involve cutting spending. you cannot pick and choose. you need to cut spending every place and get back to a balanced budget. [applause] more specifically, why are we in the financial crisis? is this something that just popped up and there is nobody to blame? we have this commission in washington studying it. they have this whole commission with a bunch of guys. they had a bunch of witnesses come in. not one single person who is a member of the commission and not a single witness endorses free market economics. that is where you will find the economic answers. [applause] the free-market economists

understand the business cycle. they predicted the breakdown in 1971. they predicted all of the events since 1971 with the destruction of the dollar. we are rapidly moving into an inflationary stage. we are not over the financial bubble and problems. it just started. i hope i am wrong on this. but as time goes on, we are going to work our way into a situation that is going to combine the vicious downturn of the 1930's with the vicious upturn of prices and inflation of 1970. that will be very devastating. that will be a threat to all of our liberties and institutions. medicare and medicaid are bankrupt. you cannot save medicare and medicaid by creating another $1 trillion medical program. [applause]

in the 1930's, they have a similar commission. they came to the conclusion that the problem was that the fall of the gold standard, which they did not. they also did not have enough regulations. we already have too many then. what did they do in the 1930's? they got rid of the gold standard and piled on all of these other programs and prolonged depression. that is what we're doing. the conclusion looks like it will be a lot more regulation. i am for a regulations. the number one regulation is to regulate the federal reserve system. that is what we need to regulate. [cheers and applause]

the beginning of the tea party movement came a year or two ago during the financial crisis. they knew about the tarp funds. those were appropriated by republicans and democrats. the money was wasted to bail out friends. nobody knew where the money was going. this upset a lot of people, rightfully so. when they found out the federal reserve created to dollars trillion out of thin air -- created $2 trillion and passed it on to friends, that created a lot of outrage. the federal reserve can loan money to other central banks and government. creating money out of thin air and making deals like that, it can be involved in foreign policy and who knows what. i will tell you what they cannot control.

they can think that they are improving things and get some gp numbers to come up, but they cannot protect the value of the dollar. that is what you need to watch. that will be the consequence of excessive government. that is what destroys nations and republics. it is up to us as the party right now of limited government. you cannot be for limited government halfway and rejected on the other way. the whole way has to be limited government. [applause] that is the only way we can regain our credibility. that is what is necessary. what we do as a party will not suffice. what we do between now and november will make the difference. they have to believe that we believe in what we're saying. we can say it, but are we going

to do it? that is why we have people drifting outside the party. if you want the people back agaiin and if you want the young people, you had better look at these viewpoints. about 100 years ago, freedom was divided into two pieces, economic liberty and personal liberty. personal civil liberties or the same as economic liberties for the town fathers. if you believe in civil liberties for personal choices, you ought to believe it for economic choices as well. we need to put that back together. in makes sense to the young people i talk to. there is a revolution on college campuses right now. [cheers and applause] they are not looking for handouts. they are looking for freedom so that they can get a job and take

care of themselves. [applause] the ultimate goal of all our political action should be to strive for liberty. that is what i am dedicated to. i have been doing it for a lot of years. there is a lot more interest right now, mainly because the country is in trouble. our goal should be for seeking liberty. why do we seek liberty? the purpose of a free society is so that individuals can be responsible for ourselves and take care of ourselves and our families. it is also there to seek excellence and virtue. that should be the ultimate goal of what we are as individuals. if you have an authoritarian government, that is what we are

approaching. we do not have our privacy. we have intrusion from government on everything we do. if we allow the government to take over this role, if we allow the government to promote economic equality like the liberal do-gooder's want -- they say it will make the economy better and fairer for everybody. we know that socialism fails. it might make them equal, but they will all be equally poor. [applause] the same argument can be made for those who say that will make you a better person by writing a lot of rules. the only person you have endangered by making mistakes is yourself. governments cannot do that. governments cannot protect you from yourself. that is what we're trying to do. i would say to give up on it.

why not look to the rules and regulations we have been given? they have been written down. it was the best document ever written. is just too bad that we don't ever follow it. i have a lot of young people come to my office. i am delighted to see them. frequently, the college and high-school students come in. they've gotten wind of the freedom philosophy. the command and their parents readily admit it. i will ask to discovered the freedom philosophy first. it is usually the teenager. they have made the parents listen to it. that really pleases me. when the young people come, i have a habit of passing out constitutions. the constitution is pretty thin. there are not a lot of words in there. everybody in this room could read it.

i could not understand a lot of what was in the 2000 page medical government -- document. it only took one page for me to discover i did not like it. the constitution is understandable. it is so great. the tragedy is that we do not follow it. i hand a copy to the youngsters and tell them i hope that they will read it. they will get a chance. a crisis is coming. your generation will make a decision on what the role of government ought to be. should the role of government be there to protect your liberty? should be there to run the economy, run your life, and police the world? the reason and give it to you is because i have not been able to get anybody around this place to read it. [applause] i know a lot of people in here do a lot of thinking for themselves. h.l. mencken said the most

dangerous man to government is the man who thinks things out for himself herself. that is what really counts. that is why a free society is so important. you have this privilege and access to the material. in the 1950's when i got interested in studying the freedom philosophy, i could not find the literature. it was not in my schools. it was not on tv or on the radio. it was not with politicians. you could find some books about economics and the foundation of economic education. the miracle for the freedom movement is the internet. the internet, the information is spread. they will never put it back in a jar. you cannot do it. people know about it. this movement is demanding liberty and limited government. it is growing by leaps and

bounds. let's hope and pray it changes the country. right now, we're in deep need of change. i thank you very much for the opportunity to visit with you today. [cheers and applause] ♪ >> thankf the national republic committee, chairman michael steele. [applause] >> thank you very much. how is everybody doing? are there any workers in the house? we need workers.

we need you out there working. god bless you. it is great to be here. congratulations to our host. thank you for the great effort. this is been a wonderful opportunity for republicans, conservatives, and like-minded souls to come together and get ready for the fight ahead. are you ready? let's get busy. i am going to bring it on. before i bring it on, i must share with you one thought. this is one lesson i want everyone to take when you leave here today. in life, you realize very quickly that you cannot please everyone. you can certainly make them all mad at you the same time. [laughter] that is a lesson well learned. it is an opportunity as well.

folks have been added us in the past -- have been mad at us in the past. we have learned from that. we're ready to move on into a brighter future as leaders, as republicans, as conservatives. you are on the front line of this new surge to take back our country. country. [applauk@ @ @ @ @ @ @ @ @ @ @ @

its teeth deeper into the pocketbooks of every american citizen. the sad fact is that we live in a time when the constitution has lost its wsway over those who would govern us. there is a small elite in washington who views the years between elections not as a time to earn the trust of the public, but rather as their opportunity for unchallenged social experimentation. as i meet with you, the grassroots of america, i had never seen the kind of anger growing right now. [applause]

smart people who study this kind of thing tallis that anger -- tell us that anger is usually a mask for fear. why do the citizens of the greatest nation on earth have reason to be fearful? it is because we love our country. we love the first principles of liberty and opportunity. we love the american dream. we want it for ourselves and for our children. this is the promised land. this is the place that people have always come to buy land, by sea, by hook or by crook. when people living under tyrants are secretly planning their escape, this land is the preferred destination.

[applause] why is that? is it because our soil grows better corn? is it something in the water? are we just nicer here? if you have spent any time in rush hour traffic, you know that is not necessarily the case. america is supposed to be the place that you come to so that the tentacles of big government no longer reach you. this is the place where as long as you do not hurt anyone else, you can pretty much do we want. you are free to work hard, saves mark, and pass on the left -- your free to work hard, save smart, and pass on a legacy. prosperity is not something we punish. this is the one place where

prosperity is a real possibility every single day for anyone who wants it. in america, no one weeks up in the morning and looks in the mirror -- no one gets up in the morning and looks in the mirror and says all i want to be today is poor. that does not happen in america. no matter where you come from, no matter who your parents are or where they came from, folks of all stripes and struggles have made it here. that is the point of america. our enemies have never been the wealthy or the strong. our only enemies are those who would threaten our lives and liberties. the whole point of the constitution was to keep the government from becoming an enemy of the people. that is why our constitution- shredding president and his

accomplices scared the pants off the american people. at a time when americans are losing jobs with no end in sight, when great american companies are under siege, congress should be focused on nothing else but restoring economic growth and stability for our job-creating sector. instead, every single piece of legislation the democrats in washington have past have been a job-killer. from cap-and-trade to the so- called stimulus. with the government takeover of health care, democrats are committing the worst kind of malpractice. americans are fed up and ready to throw the bums out in november. [applause] let me ask you a question. are you inspired by america?

are you inspired by america? are you moved by her story? you should be. that inspiration comes from you. her story is yours. they do not understand it that way in washington. we all want to be inspired. we want to be inspired in the right way for the right reasons. barack obama inspired america last year, but he did it the wrong way. he talked about hope without an action plan, change without telling us what it was he wanted to change. now we know. america says, "no way, no how."

[applause] america says no to government- run health care, government- owned car companies, and no to bigger government. no, no, no. [applause] let me just offer this little warning to our friends in washington. when america says no, you had better listen. just ask art stupack. when we say that it is a new day of accountability, we mean it. mr. stupack is trying to claim

he is not the first casualty of americans saying no to bigger government. well, sorry. you are. there are many more to follow. [applause] bye bye, stupack. you need to understand something here. we're not in a nanny-state induced, like europe and canada. -- we're not in a nanny-state in duduced coma like europe and canada. we organized. when they passed the bill to tax energy consumption, we raised of principled, conservative candidates to run to defeat

them. [applause] when democrats saddled us with controlling shares of car companies that union bosses had driven into financial ruin, we did not complain. we drove ourselves to a tea party. [applause] when democrats started counting down to the end of the bush tax cuts with glee, we did not give up. we started counting down to this november with glee. . .

that is what you get for putting your trust in democrats. [laughter] we saw the switchboard meltdowns and the outcry and we thought it would require it -- we thought it would remind the democrats who they work for. instead, they passed the most radical power grab in this country's history. at a time when our country's leadership should have been focused on creating jobs and kick starting growth, they passed out joggling government takeover of 1/6 of our economy. at every level, democrats in power have proven to be the greatest hazard to our national health [applause]

-- greatest hazard to our national health. [applause] april has been declared national financial literacy month. i bet you did not know that, did you? i bet you did not know how literate you were. they seem to think you are. they have called on americans -- that would be you and our neighbors -- did not laugh at this. this is the serious part -- and do not laugh about this. this is the serious part. educate themselves about basic concepts, how to balance a checkbook, save for a child's education, steer clear of deceptive financial products and practices, a plan for retirement -- and i like this one -- avoid accumulating excessive debt. [laughter]

get -- i ask you all not to laugh at that. there are serious. -- they are serious. the president who broke a world record by raising the debt ceiling a few short months ago by $1.90 trillion tells us he wants to educate us on how not to create excessive debt. now, all i want to know is, what part of the $14.30 trillion debt he has created does he not think is excessive? [laughter] we clearly have a lot more to learn. [applause] you've got to write this stuff down. you cannot follow it. you have to write it down. in place of this administration's wrong priorities and economic ignorance -- and this is the serious part -- the american

people are asking, how do we get our country back? how do we stop this craziness? >> vote. >> i love the people. i will tell you how we get our country back. fired nancy pelosi -- fire nancy pelosi. [cheers and applause] fire her. i will tell you how to repealed and replaced the government-run health care system they just tried to put on us -- replace harry reid. [cheers and applause] it will take your help, your leadership, you're activism --

your activism, in order for us to take back our country from the brink of financial and social chaos, to take it back from the brink of economic rigidity. we can write her course, ladies and gentlemen, and prevent the cradle of future generations from being rocked by the hand of an opportunistic and materialistic government. washington cynicism needs to be replaced by the people's aspirations. that will only happen when you replace the people in washington. [applause] now, the electoral march is already on. for massachusetts, new jersey, virginia, the freedom agenda is winning the day with a winning message -- shrink government, lower taxes, give people back

their freedom, their choices, for their families and their future. empower the job creators, instead of the political class. let's tap into that competitive spirit. let's tap into the confidence that is@@@@'áe@rád@ @ @ @ @ @ 'y

straining all across this land. it is a headline that families are confronting at their kitchen tables every night. that is the headline small business owners are opening their doors to every day. that is the headline you and i will change by empower america to take their government back. [applause] d that are looking for those distractions -- they are looking for those distractions. lord knows, i have provided a few. i understand the difficulty sometimes of balancing all of these challenges. but democrats also know they have some explaining to do.

they would love nothing more for us to keep pointing fingers at me and others, instead of their radical, and american agenda -- unamerican agenda. we should not fall for that trap. and the first year to unmet i have made mistakes. it is incumbent on me to take responsibility, shoulder that burden, make the necessary changes, and move on. we have all had to do that from time to time. [applause] but the one mistake -- the one mistake we cannot make this november is to lose. the one mistake we cannot afford to make is to lose. [applause] i also know that some in our movement are questioning whether our nation has what it

takes to recover from the burdens of this congress and this administration, whether to much damage has been done to the american character. they worry that the enemies of liberty and of american exceptional aism have had the last word. as we watched the assault on our countries, we wonder if we will come out of it on the other side with our freedoms intact, with the american spirit and brounbr. i know that the american soul as been through some dark nights. the city on the hill is still shining brightly and you can see it by the ferocity. sometimes, it is only by the lights of the rockets bursting around you that you can see the banner still waiting, still flying. every time we have had the stfaith, the sun rises on

liberty once again. this is the morning of america. i assure you that, through the light of this coming dawn, our flag, our freedoms are still there. [applause] that is why we fight. that is why we fight. that is why we fight. that is why we fight. that is why we fight. every single day. [applause] we do not want america to be confused right now. we want to speak with clarity. we want to speak with understanding. we want to speak with hope. we do not want america to be confused. so, let's tune out all the background noise and go on

offense. let's take it to them. let's take it to the streets. let's take it to the neighborhoods. let's stick it to the workplaces. let's take it to communities we of never been in before. let's take it to the back alleys and upfront alleys, the corner drugstore, the board rooms, and share a message of empowerment and opportunity. let's tell america we are alive because we are free and we're free belly -- free because we believe in the principles grounded in the constitution that protect us every single day. we are free because we fight for that freedom. [applause] it is going to take a lot of work, a lot of support, a lot of time, money, late work, and phone calls coming yard signs, facebook, twitter -- you all tweet, don't you?

if you don't, learn how. serious. call me, i'll help you. we have to talk to america. we have to spend time with america. we have to help the fog be removed from their eyes. we have to drain the kool-aid from their veins. we have to help them understand what freedom is all about and that they already have it in their hands -- they build their businesses, they educate their kids, they create an america for tomorrow. [applause] if you leave this conference with nothing else, take this with you -- it is never too late in america. it is never too late in america. president obama talked about "yes, we can."

we're going to go talk to america about what we will do. there is a big difference. [applause] what we will do. what we will do is rely on the ingenuity and the commitment of the people of this country, not the programs and the bureaucracies of government. what we will do is engage america anew. we will speak to her with truth, speak to her with vision, speak to her through action. ronald reagan noted famously, when asked about his strategy for the cold war, "we win, they lose." [applause] with your help, with your

support, we can restore the strength, the growth, the birthright of liberty and prosperity that generations of americans have always passed on to their children. that is the legacy we leave. that is the legacy of the greatest generation has passed on to us. that is the legacy we must now fight to pass on to our kids and our grandkids. it is worth the fight, f olks. we will be the generation to keep that promise. come november, we win, they lose. thank you. [cheers and applause] ♪

ooking at how subprime loans were originated and packaged for sale on the market. >> do you solemnly swear or affirm under the 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. this panel is about subprime origination and securitization. and we're going to ask each of the panels come here submitted to us via written testimony. 1c1çñ 1c

>> subprime lending company from the years, 2005. additionally i am author of confessions after subprime lender, insider tale of greed fought in ignorance i currently publish several housing finance, real estate periodicals. securitization could be single greatest innovation come into the world of mortgage lending. before loans were securitized. consumer relied on bank to supply funding. process stayed with the same

institution. since banks owned every aspect of the loan and heavily regulated motivated to manage risk and treat borrowers fairly. in addition to creating a renewable source of cap mortgage securitization also fragmented industry. instead of one institution that functioned in true cradle to grave capacity. functionality became diversified. this fragmentation gave each player a claim of what i like to call applauseability deniable. any original race about the loan. lender underwrote the deal using guidelines provided by investment firm so they merelied final products investors wanted to buy. the wall street firms securities and investors who purchased them claimed to beholders in due course which proited them from any liability when lenders and protecters act illegally. while entire food chain contributed to the problems. fragmentation allowed the players to point a cuestory finger at everyone else.

with minimal barriers to entry and historically low interest rates, loan originators entered business by droves. by some estimates number of new loan originators working for mortgage brokers increased by 100,000 between the years of 2001 and 2006. during the early years in subprime lenders, subprime lending very few states had licensing requirements which meant barriers to entry were minimal. even when states began requiring licenses prerequisites were easy to meet and passing multiple choice tests and having no felony convictions. level of fraud reviewed by lenders was unprecedented in my firm's experience between 2003, 2005, more than 0% of all brokered loan files submitted for initial review were somehow deceptive fraudulent or misleading. issue was further complicated by the fact little could be done to rid system violators.

for example if the lender found a broker was acting i am brotherly, in fact committing fraud, the options for enforcement were minimal. many states did not have licensing requirements. those that did have weaken force standards. assuming there was a state licensing authority a lender could submit documentation in effort to rescind a broker's license. in many cases path of least resistance for the lender to place the broker and do not do business with list which meant the broke was effectively barred from doing business with that firm leaving them to go somewhere else to do business. determining a property's value pose ad number of challenges for firms like mine. subprime lenders usually conducted second party review for broker ordered appraisals, frankly majority of appraisals were considered unrelikeable. to put things in perspective nearly half of all the loans we underwrote, that we underwrote were originally overvalued in our opinion by as much as 10%. interestingly our experience 10% was most an appraisal could be overvalued and be

purchased. another quarter of appraisals were overvalued by 11 to 20% and remaining 20 5% of appraisals we initially underwrote so so overvalued they defied all logic. throwing a dart at a board while blindfolded would have produces more accurate results. if multiple properties in area overvalued by 10% they in turn are comparable sales for future approgramsals. the process repeats itself. we saw this on several occasions. we close the loan in january and see subject property show up comparable sale in the same neighborhood six months later. except this time the new subject property was being appraised for 10% more than comparable sale six months earlier. in end i believe subprime industry willingness to consistently accept overvalued appraisals and significantly contributed to run-up in property values that were experienced throughout the country. to complicate matters further the mortgage industry experienced a

gradual shift between what was not and not an acceptable form of risk. credit score had been compel indicator of loan performance its lee ooiblt was predicated holding other credit factors constant. concluding but not limited to borrower's rental history, job stability and cash reserves. unfortunately the industry's ability to apply logic underwriting a loan file would serve as its undoing. no other example more prevalent illustrating a point. identifying how a row ear's payment history history was verified. they moved from requiring a borrower to provide 12 months canceled red checks or verification from rental management company allowing for private verification. in other words a note from borrower's mother became acceptable form of rental history there should be no surprise loans defaulted at alarming rate. >> thank you very much. there will be plenty of time for questions, thank you. miss lindsey. if you can pull those mikes towards you and put them on, thank you.

>> good afternoon. thank you inviting me to participate this afternoon. my hope for today's session is that i can bring a unique perspective to the, into subprime lending. i have a unique background. i grew up in the subprime industry. my father was a hard mon lender. i learned what fannie mae@@h ;@

we had three cs we looked at credit, collateral capacity. borrowers didn't have credit. later on in subprime they didn't have the credit but yet they didn't have collateral either. then we found out they didn't have the capacity. they would, they switched state the income loans. and they would just state whatever would qualify them for the loan. usually led by brokers because the brokers were the professionals in the industry who would know what they needed in order to qualify for the loan. those loans were submitted to lenders like new century mortgage who then sold them to investors on wall street where they were packaged and resold into securities. i joined the new century as wholesale underwriter in 1997. i was kept on as part of a skeleton crew after we declared bankruptcy in april of 2007. i was kept there to help wind down part of the bankruptcy. i found the lending

standards at new century significantly different than what i had grown up in the subprime lending industry. also i worked at beneficial mortgage from december of '99 6 until i was hired on as new century in december of 1997. beneficial was one of the original subprime lenders. they too would work with borrowers who had poor credit history and, they would offset it with the protective equity. so in other words, if the borrowers were going to detall -- default they would protect the portfolio so borrow could get out by selling property or refinance or, possibly do something else in order to get out of their loan. as mr. bitner mentioned the growth in the subprime industry grew because of securitizations on wall street. before the banks like, beneficial, like some of the other local banks, they kept their loans on portfolio or would sell them off to

fannie mae or freddie mac if they qualified for those loans. with the advent of the securitizations, loans were just sold in droves to wall street. there was a huge deman for the product because of returns. the problem with the returns though is they were based on a product that if anything hiccupped like the property values, they were going to potentially default. new century, was not able to originate loans without the use of warehouse lines of credit. we didn't have our own funds to loan. we were not a banking inches. we didn't take deposit. so we got our money from warehouse lenders. these warehouse lenders provided us the ability to make loans and they were usually provided by the same people who would purchase our loans on wall street. there was such a huge demand from our product our loans were forwarded two or three

months ahead of time. we had approximately, we were making at peak, approximately 20,000 plus loans per month. about $5 billion in product every month that was being sold and those loans were forward fold. one of the other things that changed was the originate to distribute model. a definition of a good loan used to be a loan that paid. it changed to a definition of a loan that could be sold. we did track the performance of the loans that we could because we would always say our loans performed better than the others. the problem with that we couldn't track all the loans because like i said most of them were sold and we didn't know what happened to them. unless we were at the repurchase. one of the other problems was the loose guidelines. we had layered risk. we had people who didn't have credit. they didn't show the capacity, and they didn't have the collateral because they were at 100% financing. and then we added the

interest-only loans. then teaser rates that would readjust of after two years. and it finalize my opening statement, this basically at end of the day we had a system that went into a ward spiral because of layering risk rather than mitigating the risk. and we just need to go back to core values of. thank you. >> thank you very much. mz mills. >> chairman angelides, vice chairman thomas. members of the commission thank you for inviting me here today. my name is sues mills. head of mortgage group of citigroup global market group. securitization and underwriting mortgage back securities within citi investment bank. commission asked me to address the securitization activities of my group including our business model

and our due diligence activities with emphasis on securitization of subprime and alt-a residential mortgages. i have done so in greater lent in written statement for the record. let address a few key points for you now. first while mortgage trading and securitization activities were part of intermediation business. we purchased mortgage loans from originators and sold the securities to sophisticated institutional investors. our objectively in purchasing mortgages, securitize them and distribute resulting mortgage bonds to meet demand from fixed income investors. secondly, citi's rmbs business was smaller than the rmbs business at many other wall street firms. publicly available tables show we ranked 7th in underwriting mortgage-backed securities in 2004, 10th in 2000 five. 11th in 2006. and 10th in 2007. significant reason for this, was that unlike many other firms, in the period leading up to the market dislocation in 2007, we did not operate

what is known as mortgage conduit which is entity used to apply our mortgages on ongoing basis to established relationships with originators. in addition, citi's investment bank did not have a direct relationship with affiliated mortgage originator from which we had the ability to directly resource mortgages for our securitizations. this meant that instead of originating and servicing mortgages in-house the securitization business, as many of our peers did, we exclusively purchased loans from originators in the marketplace in arms length transactions. as a result we underwrote our own rmbs according to the guidelines of the loan originators and not our own set of guidelines. our due diligence had two principle components. first, before ever purchasing loans from a particular seller we would evaluate the seller and their operations typically through an on sight review. if we were not comfortable with a particular seller we would not do business with them. secondly, with respect to pools of loans that we were purchasing, we would perform a due diligence review,

focused on insuring that the loans met the originator's underwritingfied lines. to conduct this review we engaged third party diligence providers we actively supervised. once we aggregate ad pool of loans of sufficient size we would then securitize those loans. as a part of this process we submitted loan level information to credit rating agencies. to determine the dollar amount of bonds in each rating category for the rmbs we would market the rmbs bonds to investors, solicit feedback from those investors regarding the transaction and finalize the structure and pricing. our offering documents described underwriting standards of originator or originators of the loans in the pool and also provided extensive nate tiff strattifications concerning the loans themselves. i understand that the commission is particularly interested in our efforts to monitor the mortgage market and detect fraud. our diligence review served as primariliry and i believe highly effect testify means we evaluated loans we purchased and securitized if

we identify issues in loans of pool of mortgages we agreed to purchase including concerns about potential fraud we would perform additional diligence until we were satisfied that our level of diligence was appropriate. we would not purchase loans that failed to meet the applicable underwriting guidelines of the originator, or that violated any compliance regulations or that appeared fraudulent. we also monitored the performance of the loans that we purchased and we typically negotiated the right to require the seller of loans that experienced early payment default, an indication of potential fraud, to repurchase those loans. to assist us with these efforts starting in 2006, we established a unit within finance to monitor the performance of the loans we securitized and to manage our repurchase requests. unfortunately, our diligence practices did not detect what we now know to be the most significant downturn in the u.s. housing market in generations. results of unprecedented housing collapse which led to the decline of value of all mortgage loans, many of our rmbs have not performed

as well as expected. however, we continue to believe despite the financial crisis and collapse of residential home prices the securitization of nrn agency mortgages plays a vital role making capital available to institutions to enable individuals to purchase homes and we are encouraged we're slowly starting to see the mortgage securitization market return. for our part we at citi committed to applying diligence practices as we adapt our business to the changing mark place. i appreciate the opportunity to discuss some of those practices with the commission today and i look forward to answering your questions. >> thank you very much, ms. millions. mr. bowen. >> thank you, mr. chairman. i'm very grateful to the commission. the light is on. i'm very grateful to the commission to be able to give my testimony today. if it wasn't for this commission, if it wait a

minute for you, then my story could not have been told. my name is richard bowen. i was promoted to business chief underwriter for citi in early 2006. i had responsibility for underwriting for over $90 billion annually of mortgage loans. these mortgage loans were not made by citi. they were made by other mortgage companies and citi purchased them. and it was my responsibility to make sure that these mortgages met citi's credit policy standards. during 2006, and 2007, i witnessed business risk practices which made a mockery of citi credit policy. i believe that these practices exposed citi to substantial risk of loss, and i warned my business

unit management repeatedly during 2006 and 2007 about the risk issues i identified. i then felt like i had to warn citi executive management. i had to warn the board of directors. about these risks that i knew existed. on november the third, 2007, i sent an e-mail to mr. robert rubin, mr. dave bushnell, the chief financial officer and auditor of citigroup. i outlined the business practices that i had witnessed and had attempted to address. i specifically mr. ruben about the extreme risks and unrecognized financial losses that existed within my business unit. i also requested an

investigation and i asked this investigation be conducted by officers of the company outside of my business unit. my warnings to mr. ruben involved two different areas within my responsibility. the first one was called delegated flow. the delegated flow channel purchased $50 billion annually of prime mortgages. these mortgages were purchased one mortgage at a time. these mortgages were not underwritten by citi before they were purchased. but the underwriters reviewed a sample of the files after they were purchased. this was to make sure that citi's credit standards were maintained. most of the mortgages were sold to fannie mae, freddie mac or other investors. even those citi did not

underwrite these mortgages, citi provided warrants to the investors that purchased them. these reps around warrants guaranteed to the investors that the mortgages were underwritten to citi credit guidelines. in june of 2006, i discovered that over 60% of the mortgages in delegated flow were defective. and by defective i mean the mortgages were not underwritten to citi policyfied lines. citi had given reps and warrants to the investors that these mortgages were not defective. and the investors could force citi to repurchase many billions of dollars of these defective mortgages. this represent ad large risk of loss to shareholders of citi. i attempted to get management to address this critical risk issue. i started issuing warnings in june 2006.

these warnings were in the form of e-mail, weekly reports, committee presentations and discussions. i even requested a special an investigation from the management that was in charge of internal control. and that investigation confirmed that we had very serious p@@@@rrrrrr

and the underwriters were responsible to make sure that the mortgages in those pools met the citi credit policy standards. beginning in 2006, i witnessed many changes in the way that credit risk in these pools was evaluated. as an example, the credit decision on purchasing a pool of subprime mortgages was based upon the numbers of approved decisions given by the underwriters. in some subprime pools, large numbers of underwriter decisions were changed. the decisions were changed when turn downed or approved. the pools were purchased. there were many other variances to citi policy. beginning in 2006, i issued many warnings to management. and many identified pools were purchased anyway, over my specific objections.

thank you, mr. chairman. >> thank you very much. and there will be lots of time for questions. i really appreciate the brevity of all the witnesses. let's do this now. i'm actually going to start with mr. thomas, to see if you have questions you would like to lead with. i will defer my till the balance of the commission members. >> thank you, mr. chairman. first of all, thank you all for coming and, for anyone who grew up in california through the '50s, the '60s, the '70s. '80s. '90s sets, a lot of this stuff is pretty familiar with us now especially following the last several years. and i'll address my initial questions to mr. bitner. ms. lindsey. what was the last straw? what made you walk away?

was it kind of like the cannibals, start with the cold water in the pot and starting getting a little hotter and then eventually, you realized circumstances you were in? >> i think for me it was combination of a couple things. >> is your mike on. >> i believe so. >> closer then for me it was combination of couple things. starting a as early as two three. forget about the fact that have a subprime business model. we had a model, which makes wigets and, every month you're making more of them and making less and yet you're also noticing quality of wigets you're producing is of a decreased quality. you're watching this trend. hey, can you tell them. what's that? >> can you sell them. >> we can sell them. . .

or could you still do those but not at the volume that you could do these? >> what i referred to is acceptable level of risk by looking at the matrix that was put out, whether with the citi financial or whichever group saying in order to get a 95% loan-to-value loan, the loan must now be meeting this criteria, so it wasn't a case of whether i had more or less of

those that were available to me. it is just that the decision-making capabilities--. >> your targets change. >> targets change absolutely. what ultimately happened was a couple of things occurred. when we had record-setting month in terms of volume in terms of the number of loans we close. number 2 we also found ourselves in a situation where as we were looking at it from a risk perspective and analyzing the volume of loans that we did, we noticed we had also hit a record level members of state income loans, record number of hundred% finance loans which was different from when we started. when we started in 2000 much as chairman greenspan alluded do we had a business model that was more of a minor part of the business center mortgage lending where the average down payment was 10 to 15%, stated income loans were only--. >> mr. bitner i have a a time limit as well you. what i want to focus on those of us who grew up in southern california were well aware that the first thing you try to do was to get get enough money to borrow from your parents to do

whatever you can to get into a home because the home would appreciate. and that was one of your principle forms of saving. and that over time, you could then get equity out of that house and buy another one. these events were occurring because that was just the climate we were in. do you feel you have got into a point and i notice you are from texas, and there were savings and loan problems in california and savings-and-loan problems in texas and there was a way to apparently make the machine work faster. did you see a level of what i guess we could call fraud at some point get the appreciation higher by virtue of the relationship between the appraiser and the real estate agent in terms of buying and selling homes or flipping them as it is termed? >> it was one of the greatest problems we had what i talk about this in some great depth

in the book there is an issue in the relationship between the appraiser and the agent. what we are really talking about is the fact that the appraisal is direct hit from the broker in this particular case, not the real estate agent and one of the things i concluded in my belief is, let me finish this, the broker did not need to apply the direct pressure to an appraiser. the way the industry worked with simple. you placed an order in front of the appraiser and he said . you did n sell your product and that is how you've made money, so people conform to a certain business practice to make sure they could sell their product? was there a degree of uniformity on how you begin to produce these mortgages? >> could you be a little bit more specific? >> there is a slow way, there is an old-fashioned way, there is a ccc way or the quickest way to

get it done under the new rules. was there a general understanding that your job was to produce these so you could make money? and therefore you do it in the fastest, most convenient way possible? >> well, the easiest way to answer that. >> why did you get out of the business? >> why did i get out of the business? because my house caught on fire. you are going to go what does one have to do with the other? you have moment in your life when you look and start watching the house and interesting the house had the-- he start questioning the validity of the work that you have an doing overtime and whether or not his parting value that it provided five years ago when he started the business and the answer to me was pretty clear, that it wasn't. >> do you think much of the self-examination and frankly what we used to call guilt was evident on wall street in terms

of the continued desire to purchase whatever it was you were producing because when you step aside there were others who felt-- filled your shoes fairly quickly. >> i can't speak for all of wall street but i know when i left it certainly met-- meant that it was a little easier to sleep at night. >> okay. let me reserve my time and i will come back on the second round so everybody gets a chance to get into the questions mr. chairman. >> ms. georgiou. >> thank you. my first question is for mr. bitner and for ms. lindsay. you reference the fact that some of the requests from your customers for the types of products that they wanted had evolved over time and i was curious as to whether you could comment on whether they are due diligence practices also in-- he fault overtime?

>> i was primarily in charge of the fraud detection and prevention and i will say i did try to keep up with that piece of it. one of the problems that i had specific to fraud prevention was the advent of stated income loans, so in other words, if you couldn't prove the fraud, it became a business decision. the only time we had any teeth, risk management on the backend, was when we could groove defrauded when we had something in writing, when we could hand productions something and show them otherwise they would seek-- say prove it. show me it is a bad loan and then you couldn't and therefore it was a business decision and it would moveon. did that answer your question at least somewhat? >> it does. >> i very much agree with what ms. lindsay said. i would add to that point. let me is the example of the stated income loan because i don't think our processes and

procedures changed any. it just became very much the sort of the same challenge. you get a particular documentation or file that comes in with the person who claims to be, to make an income that appears to be relatively reasonable for that particular occupation. there were ways we could check that. we could go to salary.com and other ways you could make sure you didn't have the strawberry picker who is making $450,000 a year. >> to the person purchasing the loans from you, they are due diligence when they came to look at the products you generated did they change their due diligence practices over time? the city banks of the world? >> i don't think so. for what it is worth, i felt we had strong due diligence practices and didn't change relative to those types of loans in terms of what we were looking for because we still felt one of the reasons why those of us who have been lifelong in the mortgage industry and i came from the side of working from the investor before was at the

end of the day the one thing that drove our opinion was our belief, can this person make islam? can this person make this payment at the basic level. if the answer is that we probably don't have a reason to be doing this loan. >> one short question, when you look back on this to think that there should've been some sort of regulatory supervision of your business activities and that of your industry specifically that segment that was not necessarily monitored by the federal reserve as a bank would he? >> i think the person who is investing the money should know what they are investing in. as a hard money lender myself i love my personal funds and i grew up in the industry. i need to know the risk that i am taking, and know what it involves. i don't think the people ultimately invested their money in this new any, had any idea what the risks were involved, so i think that there should be some regulation to the effect of showing the investors, who at the end of the day are the ones who are purchasing the loans, the bond buyers or the retirees

who are investing, i think everybody needs to understand what the risk is, so they can make an informed decision. in that respect, yes it definitely. >> there is a little bit of a conflict in that you both just dated you felt that the due diligence practices that were exercised by people that ultimately were either passing through these loans or they were end-use investors were adequate, but yet, clearly as we have seen, they didn't fully understand the risks that they were taking, and i guess-- is that correct? >> that is correct and they had a set of underwriting guidelines so they were kind of following the guidelines but they didn't understand what the underlying risk was. i think we would run out of product, we would run out of customers with a certain product and they could no longer qualify because the property values have gone up so much so here comes the interest-only loans. it just kept layering the risks and the people-- it wasn't the

wall street investors who are purchasing these who were taking the losses. they were passing them along, passing them down the line five or six levels, and that is where the money was coming from. so i just think the person who is ultimately investing in these needs to be aware of what the risk is. i think there are too many levels that it went through. >> thank you. >> you are welcome. >> to follow up really on that topic which is risk in the assessment of risk, both i guess from mr. bowen and ms. mills, perhaps ms. mills he could talk a little bit first within your unit, what contribution or what importance did risk have in the way you ran your business? >> risk meaning the department risk or just the evaluation of risk? >> the evaluation of risk and then in particular where i'm headed with this is to try to determine to what extent your ability to understand the underlying risk of your business was related to your performance

in your duties within your unit, so was your performance review based on your ability to determine risk? >> when we bid on pools of loans from originators, so people who r@@ @ @ @ @ @ @ @ @ @ @ @ @ @ @ our due diligence was -- had two components when it came to loan file diligence. we looked at evaluation and looked at credit and then we looked at come phraoeupbs to make sure the loan didn't violate any state or local lending laws. more often than not we would use a sampling methodology where we

would use randomly select and adversely selected loans. the randomly selected loans were to get a snapshot of is the pool as described on the honor level data file you got from the seller. the adverse was to identify the riskier hroerpbs and spend more time focusing on the riskier loans to make sure in fact they were as described. >> when you get to the end of the year when compensation is determined -- >> my own personal compensation? >> yes. >> i don't know exactly what factors go into my own personal compensation. i know the people who worked for me, their compensation was based on the way they did their job, whether or not they were performing adequately and up to the standards that i maintained. it was based on the profitability of the business and profitability of the firm. the standards i maintained. it was based on the profitability of the business and it was based on the

profitability of the firm. >> was there a revenue component to its? >> yes, that is what profitability is. >> a arguably profitability is after you take losses or any kind of responses-- expenses related to the revenue stream. >> there was a can't often we knew how much money the business made at the end of the year and there was a bonus pool allocation amongst the various businesses, and my management decides the final word on who got paid what. i didn't have the final word, i just made recommendations. >> was risk discuss with you during a time of your performance evaluation, risk to the firm, riggs to your unit? >> i can't remember specifically. because their business model is one of intermediation and that we buy loans and we distribute von tinley think that we disclose the risk to our investors and offering documents, which we believe are compliant with all required

securities laws and we sold bonds that had ratings, there was risk that was monitored and maintained on the trading desk itself. i am not a traitor so it was not my responsibility to manage the risk of the firm. >> when you interact, you have had some interactions i believe with the sec and federal related to your business unit as part of the fact that the regular dated body that hotties the investment bank would be the sec and not so much the federal reserve. is that right? >> i've only had interaction with venrock. >> could you talk about your interactions with regulators in terms of the kind of interest they might have had when they were evaluating your business and its importance to the of-- parent company? >> my interaction with venrock was related to some inquiries that they made, transaction specific so they had some questions on some securities that we had issued off of our shelf, and i had some meetings with our council and then i had

one and face meeting with finra where they asked me questions about the deals that they had questions about. they were specifically related to issues with the reporting of delinquencies and was i aware of situations where delinquencies may have been misreported on remittance reports. >> when you think about the regulatory regime that governs the investment bank, is there any discussion within the firm about how that relates to the overall safety and soundness of the parent company? was that discuss? >> those are not discussions i would be involved in. >> thank you. mr. bowen if i may? you stated in your testimony that there were a number of practices that you had raised with regard to the quality of the loans that were being generated in your unit. if you could talk a little bit, a similar line switches to what what extent was there regulatory

oversight of this issue to your knowledge and to what extent they can do to feedback to management or did management relate to you the importance of that to the parent company in total? >> i did not interface with any regulators. underwriting was considered to be a part of risk and i escalated all of my concerns up through the risk structure as my manager did. as it relates to the quality of the loans, again, as i indicated when i took over this responsibility in early 2006, i was charged with ensuring that the mortgage loans that came through my area were underwritten according to citi policy guidelines, and i attempted to follow through on that.

and identified those that came through my area that did not meet that criteria. >> and, do both of you report up to the same risk management unit? >> i reported up through-- i ultimately, they met at the chief risk officer at the citigroup level. i was in a completely different part of the organization. >> so the concerns might not have been shared within your two divisions than, if there were any concerns about the quality of the underlying assets? >> i do not know. >> i don't know if if there where risk intersected between the two business is. >> thank you. thank you. >> thank you ms. murren. mr. wallace in. >> thanks mr. chairman. i have a lot of questions for

all of you, and i would like you to be as concise as you can be. i will try to make these questions that don't require a lot of expansion. but we start with you mr. bitner and then i will try to go along the line. what you describe in your testimony was an industry engaged in what might be called mortgage fraud, defrauding lenders and possibly investors with the quality of the things that the industry is selling and not you personally. did you ever come across predatory lending? >> i would say, yes i think we experienced it in terms of watching loans that i knew that we denied, which i thought was a blatant effort on the part of the broker to act in a predatory manner within subsequently taken to some morals and eventually gearing it was closed with another lender, yes. >> but in terms of percentage, of what i would call making,

taking advantage of the naïveté perhaps or the greed of the lender or the investor as compared to predatory lending, that is taking advantage of the borrower, what relative percentage would you see there? >> i don't know that, given the microcosm of the world that i live than that i would be accurate. i could give you a best guess, 10 to 20%. >> when you sold a loan did you make warrantees? >> absolutely. >> did loans get returned to you? >> yes and it was required for repurchasing. >> what percentage of loans were returned to you and can you generalize between the kind of institution that did return them? >> absolutely. the repurchase requests were fairly small. they were consistent in terms of guidelines. the first payment default, borrower did not make their first payment. in the case of countrywide they had our worst of that at the bar

went as late as 90 days in the first one near the loan was on the books but in most cases it was because of some sort of a case of fraud. typically if a borrower was behind on their loans and loan would go through a strict quality control process and it was usually the next level of investor so specifically for me that was gmac and household finance, city financial and countrywide. >> they would return those loans to you. what percentage were returned? >> small, maybe two to 4%. >> despite the fact that they were poorly underwritten. >> no, no, no know you are talking about my underwriting qualities. remember i was the broker. >> i accept your correction. but these were risky loans. >> the were sub-prime loans, of course. >> nevertheless the returns were relatively small. >> the repurchase requests. >> they probably weren't as risky from the point of view of

the underwritten qualities of the loans? >> i don't believe they were necessarily any more risky. i believe we had a strict diligence process. trying to make sure that they were vetted out for that. >> you talked about loans to wall street, a lot of the loans i think he said went to wall street. are you aware that fannie and freddie were buying loans? did you ever come or were you aware of where your loans ultimately went when you sold them? >> i don't know i would say my phones directly went to wall street. i guess you can call citi technically you could call that a wall street firm. so i apologize, what was the second part of the question? >> were you aware if any of your loans went to fannie mae and freddie mac? >> know i was not aware once they got sold to the investor. >> were you aware that fannie mae and freddie mac plus fha actually help more or guaranteed more sub-prime and all-day mac

loans in 2008 that is to say on their books in 2008 in wall street? >> i was very familiar with that or can this be how did you become familiar with that? >> i run a somewhat respected media outlets that reported on that. >> were you aware of the time you were making these loans? >> you are talking about 2008? i had exited the industry at that point. >> when you were in the industry were you aware? >> by 2006 it came to my attention. what i left my organization and joined a different firm i notice things like the community homebuyer program which if you look at it from fannie mae's underwriting, we underwrote to our major investor's. >> thanks very much for your time on this. ms. lindsay, can i ask you a few questions? were you aware of what companies were buying new century loans and you know what the loans went to wall street or the gse's? >> we did have some that went to the gse's. i went with-- met with

representatives to show them what we were doing in order to prevent fraud. but, yeah we have pretty much every wall street investor who was securitizing buying our loans. >> did you actually sell loans directly to fannie and freddie or was it to a conduit that eventually went to fannie and freddie? >> i believe they bought them directly. i believe they put them in a security specific to our loans. that was my understanding. >> that is to say your loans. >> new century, sub-prime. >> new century put them in a pool and they eventually got to fannie and freddie? >> yes. >> through some intermediary or directly? >> i believe it was directly. i read in one of our sec filings that we completed a securitization to freddie mac. i believe that was in 2002 or 2003 and then i met with fannie mae affably around 2003, and i'm

not sure, but i know they were buying our loans and i don't believe it was there a conduit. >> now, you spoke during earlier testimony about the fact that as prices increased it became much more difficult to make loans to people who are at least to sub-prime borrowers and maybe even prime borrowers. i suppose you are aware of the expression of the affordability gap. >> yes. >> is that what you think you were in countering at that.? >> yes. >> in other words, would you explain the affordability gap to us? >> basically the housing prices soared so much that they exceeded the normal income. i am not sure what it is called, the income allocations for specific areas. and i can't remember what it is called, but. >> you are talking about fannie and freddie though right? they had a certain loan limit.

>> i am sorry. >> i'm talking about the affordability gap, that is to say prices got so high for loans that many people could no longer qualify for a 30 year loan amortized over the 30 year period. they wanted interest-only loans. >> yes, exactly so yes that was the advent advent of the interest-only and just kept expanding the limits. we also started doing a 40 year loan to stretch it out a little bit more, so yes we kind of accommodated the snowball started going down the hill and it got bigger and bigger. >> let me ask you the same kind of question i asked mr. bitner and that is most of what you are describing in your testimony and in your prepared testimony and so forth is something close to misleading investors or possibly the buyers of these loans or the lenders that were buying the

loans. >> it was my understanding that the people who were buying the loans were the ones who approved the guidelines and said we will take that risk, we will buy that 100% interest only loan. for whatever reason, i have no idea why someone would want to do that but apparently they did. >> but did you encounter any loans in which there was advantage taken of the borrower rather than the lender or the investor? >> we ran over that occasionally. >> how often would that be? >> it was pretty rare. as mr. bitner said if we saw it we would decline it. once in a while we would have someone from a local law enforcement agency contact us regarding predatory lending or we would contact them if we knew it but a very small amount. >> were they high interest or normal? >> they were subprime so higher than a traditional bank loan.

>> do you recall how much higher? >> at least two or 3% depending on the product. there was one time in our history that the subprime interest rates were lower than the prime interest rates so we had a lot of people coming to us for loans because we could get them quicker. >> and there was a lot of competition for them? >> there was. >> tremendous amount of competition, that's right. i'm sorry i can't take more time with you. maybe there will be additions to the question period later but i would like to talk to the other person. you were at the same institution but your descriptions of the risk management in that institution are wildly different. can you explain that? descriptions of the risk management in an institution are wildly different. can you explain that in any way? >> i can only explain it in the context that we worked in businesses that had have different business models, and

being a part of the investment bank and working for a broker-dealer and working in the fixed income division, our job was to meet demand from our fixed income investors and there was tremendous demand from our investors to buy mortgage-backed securities, prime or all-day mac or sub-prime, so in the context of us being a market maker, and an underwriter of securities which is our primary business, we either underwrote securities or we bought whole loans and issued than. >> your investors were? >> our investors were institutional investors, sophisticated institutional investors typically pension funds, money managers. >> they bought rackley from you? >> fannie mae and freddie mac? what percentage to fannie mae and freddie mac? >> i don't know. >> can you give us a ballpark? >> i would have to follow a. >> can you provide that later?

i would appreciate it very much. you said in your testimony you underwrote to originate standards not citi standards and this is interesting because mr. bowen's group wrote to citi standards. why was there this different business model? why would a customer want to loans underwritten to the originator standard instead of citi standards? >> we mostly bought from large low capitalized originators, who were known in the market, and so there was an acceptance of new century's guidelines or america west guidelines or wells fargo's guidelines to so when the offering document for the prospectus we would be technically the issuer but we would describe the originators guidelines. >> you mentioned three companies that were largely sub-prime lenders. >> they were large counterparties of hours a. >> you brought from them? they were the originators but they were largely some prime, at least they were.

>> the pools that we bought were sub-prime pools. wells fargo originates many different kinds of loan so we don't want to stay. >> your buyers were actually perfectly happy with the originators, standards of underwriting? >> i don't know i would use the word happy. >> they were accepting about the what what they bought were securities, so they bought aaa down to bbb and then. >> you had gotten the ratings, but the underlying loans they understood to be sub-prime loans bought from these well-known sub-prime originator's. >> as did the rating agencies. >> okay, thank you very much. ai go on now to mr. bowen? what percentage mr. bowen of the mortgages that were improperly underwritten where prime mortgages and what percentage were sub-prime? or could you make a distinction between them? see there were different

channels that originated each. the largest volumes were on the prime side. >> so, let me ask this. win the ms. miss underwriting, like ms. underestimating, wendy ms. miss underwriting occurred, did it occur more frequently with the sub-prime or with the prime, or did it not matter, it just happened generally? >> i virtue of the larger volume and the prime side, the absolute numbers were certainly greater. >> okay, so the percentages would have been about the same but the numbers were greater because there were more prime loans. >> i cannot make comparison. >> understood. that is perfectly good. do you know of any difference between the reactions of the gse's, fannie and freddie and the reactions of the wall street firms to improperly underwritten

loans? >> i did not interface with any of that area a. >> so you would know if investors forced citi to repurchase or whether the gse's for city to repurchase? you were aware of the risks that citi was taking because of a possibility of repurchase but you don't know whether it actually happened to? >> no, that was a different area of the organization. >> do you know the actual delinquency rates on these loans that were improperly underwritten? >> on the prime side, there was reporting that was developed at the end of 2007 that did indicate, and this was the first reporting to my knowledge that had been developed, that did indicate a significantly higher delinquency rate. >> that was the first time in 2007 when that seemed to be occurring? >> this was as of 2007 what it looked at all of the loans that

were underwritten from 2006 to 2007. that was solely on the prime side. >> thank you, thank you. that is interesting. mr. chairman i only have one more question and that is, your memo to robert rubin. >> let me yield. >> i just need them in a. >> i will give you to. >> thanks. your memo to robert rubin, an extraordinary document that we have the privilege to see, and that was quite candid. did you ever receive a response from anyone? >> at what point commissioner? >> that is a good question. from that time until the time you left the institution? >> from the point, and i am attempting to clarify, from the point at which i sent the e-mail to mr. ruben? >> right, that e-mail.

>> i sent the e-mail on november the third. i received a very brief phonecall on tuesday, november the sixth i guess. from a general counsel within the company. he said that they had received my e-mail, they take it seriously, they were doing some background investigation and they really didn't need to talk to me at that point in time. i sent to follow up e-mails to general counsel. one in november and one in december of 2007. .. when you were contacted in 2008 what were you told?

>> we initiated a series of conference calls. i spent over five hours in conference calls with the general counsel, and he involved another general counsel over internal investigations, going into the details underlying my e-mail to mr. ruben. >> as far as you could tell was any action taken? other than contacting you was any action taken with respect to people who were involved in the underwriting process? >> i do not know. >> when did you leave the bank? >> physically or from their empl employ? >> wow! are you a lawyer? i would say their employ. >> i left the organization officially january 23 of 2009. >> so you were there about a

year after the point where you had the conversation with the skwrpb counsel's office? >> i was not there physically. >> oh. please you enlarge upon this a little bit so we can understand what you mean by this? were you sent somewhere else? >> can i make an observation? i do not believe that a subject that we should be discussing or specific employment matters, wallison. >> all right. i won't ask any further questions. thank you all for your indull skwreps in answering my questions so quickly and with such precision. concision. >> mr. georgiou. >> thank you. i guess to initially to mr. bitner and ms. lindsay, what

incentives were there on the part of the originating brokers and others involved in the origination to deliver higher interest rate loans, if any? >> it was standard operating procedure that a broker could become as it is one of two ways. they could either charge the borrower an origination fee, and/or they could sell at above market interest rate that by doing that they would be paid a yield spread premium. typically up to a maximum of 2% of the loan amount in most cases is the maximum upside for them. >> when you say he'll spread premium, that is above the amount that they would otherwise receive as a brokerage fee for originating the loan? >> that's correct. a quick example, today's rate may be 7%. if they sell 7.5 present, they may be paid an additional%. >> who pays that additional about? >> that come strictly from the

letter. in this case companies like myself and news into doing business directly with a broker. and would you then pass that additional cost on to the ultimate purchaser of the loan? >> well, that would have been factored in, yes, to the ultimate the i would have been able to obtain by selling the loan than in bulk to the larger investors in the food chain. >> now, let's assume for the sake that the broker gets a higher fee for originating a higher interest rate loan. say at the high end where they are getting 2%. would there ever be any circumstances under which the broker, anybody would go back to the broker in the event that that person who signed onto that loan were not able to perform under its? >> well, boy, i wish we could have. that's where the rubber meets the road to pick the average broker typically meant that a net worth of an organization of around five to $25,000.

good luck getting blood out of a turnip. so the answers we would have loved to, but the practicality is it couldn't have been done. >> and now did you charge a differential fee going up the chain basically from your company to whomever it is that's reselling them to? did you charge a differential fee for having originated alone that charged higher interest? >> i'm not sure if i do than what you mean. >> i mean, did you -- u. buffalo, you sold alone. did you get an additional amount for having originated higher interest rate loan? >> certainly the end of the day, they would be of greater value to myself or any letter that was trying to some in the open market, yes. >> and now, there's been discussion that some of the

wires had recourse back to you in the event that there was an early payment defaults, or fraud. and was it your testimony that 2% of the loans were repurchased? >> roughly in that range. less than 5%. >> okay. turning to you, ms. lindsay. did you in seven mortgage brokers to provide loans at higher interest-rate? >> yes, we had a rate sheet. so the brokers could basically pick their rates that they were doing there supposed to discuss it with their clients, the borrowers, and they would have what's called pardon, meaning the broker doesn't pay -- the barber doesn't pay and the letter doesn't pay the broker. and then in the same token, the borrower can also buy down the rate at a discount. so it can go either way. if it is a lower rate the borrower would pay for the. if it was a high rate the lender would pay the broker for that.

>> the lender in your case being new sentry? >> correct. >> and would you in turn, of course, al qaeda had a price from whomever you sold it to? >> yes. how we had our loans were in bulk sale. -- e@,b%&'rrg >> we would panic them in one big bulk. so some investor would pay us 1% or 2%. in the early days we would get 6% or 7%. >> you would get that as an up-front fee? >> yes. so if we had $100 million the investor would wire us a check for 2% over the $100 million. >> you would be able to sell the higher interest rate loans? >> yes. >> at a higher price? >> yes. and the investors would look at that and evaluate what price they were willing to pay us. and that was probably the

difference between the 1% and 2% they would pay on the whole package. >> commissioner wallison asked if there were predatory lending practices, which would be practices that were intended to take advantage effectively of the borrower as opposed to mortgage fraud, which was by the borrower against the lender or the investor at the end of the day. >> were there practices that could be characterized as predatory in that they attempted to steer borrowers to higher interest rate loans who might otherwise qualify for lower ones? steer borrowers to higher interest-rate loans who might otherwise qualify for lower once? >> not that i'm aware of. i'm sure it probably happened that we had about 7500 employees in our organization at one time so i'm sure that some people did. it was discouraged. we had our policy and procedure. we had our fair lending grew.

we had a compliance group, and we would talk about predatory lending, and for example, we would look at somebody's income potential. so somebody was of retirement age, for example, we would not put them in interest only loan, or in some sort of an adjustable-rate mortgage. so we did do things to discourage anything that would appear to be predatory. >> mr. bitner, can you respond to that? >> i can give you an example of that. i think an example, the use of a specific mind that a 620 or 640 credit score. we would question to ourselves why did the broker not take this long and perhaps run it to fannie mae or freddie mac's automated underwriting system because it appeared it is very possible they could of got a slightly better rate and a better deal for the borrower to do. what we so i think with such a large influx of new originators who came in who are so heavily

called upon firms like mine and others that i think the path of least resistance for people are nazis in any in the industry was happy to say i'm going to send to whoever i am, and they will take it and turn it quickly for it. turned alone quickly around and we will close it and will make our money and go down the road. i think we started seeing a lot of that type of thing where a borrower may very well have gotten an industry that could've been three quarters of the point or a point that even better with a little greater diligence on the part of the broker. >> how is it that you capitalize your company be buying all the huge volume of loans? did you have any warehouse last we were? >> idea. when energy industry, the dollar amounts that were used to fund the coming like mine were substantially less than they were maybe by the time i exit the industry in 2005. loans from parents and a right of other things to capital is a company where several hundred thousand dollars that got me

into the business. >> but you had a line of credit available to you from somebody to actually provide the loves. >> correct. through cities warehouse division and gmac, great. >> what do they charge you for that privileged? >> i would have to go back and remind myself but i think it was one was a libor based, plus a couple points. and typically 50, 25 to $50 transaction fee per loan. >> would they then by the party that provide the warehouse line of credit customarily by all the loans that you originate pursuant to its? >> well, it depended. in this case with the gmac which was our largest investor, they were also our larger warehouse line. they offered us better terms if we were able to use both the warehouse line and sell the loans to them. >> okay. i guess turning to ms. mills, if i could.

how often did you require parties from whom you bought the loans to purchase the loan back because of early payment defaults or any other provisions that you had any agreement? >> initially when we first started to purchase large blocks of loans in 2005, we saw about 2% of the loans, the early pay defaults. and the last number that i remember in 2007 is about five or 6% early pay defaults. >> so and then you would go back to institutions like mr. bitner's? >> no, we don't with larger institutions. we would never bought loans directly from a firm like mr. bitner's and we did not by loans from mr. bitner's firm. so in the example of wells fargo, just because they are still around, if we bought loans from them and we had early pay defaults, we had a system that track them. and we had a unit inside of my

department that works with all of the firms that we bought loans from. and it was somewhat of a process. we would send a notice that said you sold us these loans and they did make a payment and you need to buy them back. >> and they were happy? >> it was a fair amount of back and forth. >> i know this will be difficult to answer, and maybe you can't, but how often we able to actually enforce these buyback provisions? i take it you can only enforce it for people who were left with an adequately capitalized down the chain from whom you have bodies loaned? >> it was a very purposeful and our business bottle that we only dealt with will capitalize institutions. for a lot of the reasons we're talking about today. we place a lot of value on the wraps and warrants that we got from the source when we bought the lowest degree also felt that was important that they have capital to back up those reps and warrants. and so we were very successful

in getting firms to repurchase early pay defaults, and tell the firms went out of business. >> right. and then you were stuck. somebody was talking waste. >> we were stuck. >> tell me, were you involved in the securitization thereafter? i mean after collecting all these loans, were you involved in the process of structuring them and selling them as ari be a? >> my group was involved in preparing the offering document. so that i did we perform the diligence on the loans when we purchased the polls, then once we owned the loans, we work with our trading desk in decide what loans would be securitized, and it was my group to work with the rating agencies and the lowest and the accounts to put together the prospectuses that were used to sell the seekers to our investors. >> so you're the perfect witness answer the question i'm about to ask. that the last year and when we had some of the heads of these organizations before us and recently, i have been sort of

reflecting that perhaps the system might have worked better if a variety of people along the way had additional skin in the game, if you will, or had to beat their own cooking was the term that i use, where maybe rather than take all their fees in cash at every step of the process, including the mortgage brokers, the intermediate purchasers, the purchasers, yourselves, you know, the lawyers who wrote the prospectuses, the investment bankers who got paid on the underwriting, the credit rating agencies, that maybe they ought to take any actual security themselves a portion of their fees so that they are actually long in the security. and that maybe under those circumstances they would have a greater incentive to do a appropriate diligence and to be certain, more certain, that they would perform in accordance with the representations that they made to the investors. have you given any thought to

that question, or anything similar? do you think that citi could operate your securitization of these mortgages if you got paid at least in significant part in the security and self? >> in the context of when we purchased loans as a principle, and then securitize of those loans, there was always a risk that we would wind up not being able to sell all of the bond. and would have some of the bonds left in our position. also when we did subprime securitizations, there's a component of the securitization where it's an equity piece that there was no market for, that we wound up owning in almost all of the transactions where we bought homegrown. >> would that be in cbo's? >> no. >> the first round can you still couldn't sell a portion of those. >> it's called equity off of the name. ninjas net interest margin security. >> but isn't that like 2% of the offering.

it very depending on the loans that are in the particular securitization. >> but you would charge maybe 7% underwriting fee off, just these issued a billion dollar art in bs. i mean, you customarily get a 70 million-dollar fee. >> i'm not sure where those number are coming from but in the context of us by call loans and selling bonds the only way to business makes money is if you sell the bonds for more than you paid for the loans. >> okay. all right. so you're saying that your pricing -- so openly, but i thought the impression i got was that you have pretty ready and willing buyers for these bonds, is that not her? >> we did, but dependent on market circumstances or investor appetite, it is possible that we would have bonds left interposition. but we are a market maker and we bought interposition all the time and bonds that would buy on the secondary market. >> you wouldn't acquire them

without the intention ultimately of selling? >> it was always our intention to distribute. >> okay. i guess -- >> we like some additional time? >> just a minute or two of. >> i will yield you too many. >> thank you. >> three minutes. >> and i take it your compensation or your groups compensation i guess somebody touched upon this already, probably heather, but dependent to some extent on the amount of revenue that you generated through the securitization process for your group, is that right? >> i believe that is a component, yes. >> deed you ever -- did any of these securities ultimately fail in the hands of the investors? if you know. >> failed is a difficult word to use, because it's not a pass/fail said no. >> how about lose i? >> i can tell you they've lost five and a performed worse than we expected. >> now i any time did they come back to see? >> as a market maker, you always

have the possibility that someone that you sold bonds to comes back to you and says i don't like this bond that i want you to buy it back from the. >> but how often did that happen? >> i'm not on the trading desk. i couldn't answer that appropriately. >> let me ask you this. if you are country and your incentive compensation of your group was dependent on the origination fees of creating the securities, do you ever have an occasion when they didn't perform as well as expected of any clawback optimization that went to the group? >> that's not a citi policy as far as i know. >> i guess, mr. boone, i guess i'm not entirely certain i understand, thank you very much, ms. mills. i'm not certain i understand the different area that you had. you had an area that was

reviewing the acquisition of loans and for what purpose that's a? >> i was business chief underwriter of the correspondent area. we actually purchased loans. that part of the organization did not originate mortgages. other mortgage companies originated those loans, and they were purchased by citi. >> for what purpose? >> again, it was my understanding on the prime inside, most of them were sold off to investors. >> with a securitized? i guess they were. >> i was not on that side of the business. >> well then, i think thank you very much, all of you. you have exhausted my questions here. >> thank you very much. mr. thompson. >> thank you, mr. chairman, and good afternoon ladies and

gentlemen. mr. bitner, it's not often that someone would have and epiphany quite like yours that would cause you to change your career. and so i applaud you, not so much for the disaster that you had, but the fact that you chose to take some action as a result of that. i'm struck, however, by the fact that they would appear to be no state regulations over this part of the business. but you yourself and many others who participate in this could see where there were obvious flaws that action should have been taken. so in your opinion, whether obvious steps that state or >> i always felt it is very interesting when you look at people in the financial world who are responsible for managing money, people that have to get series 7 licenses. most people see they go through

pretty strenuous testing and it amazes me to become a lender or broker, which arguably is the greatest investment that humans will ever make, often it requires nothing more than a fingerprint check and multiple choice test. i use the state of texas which has the most stringent and is just a pass-fail 70% multi-choice, not exactly rocket science for the purpose of entry. i would have liked to have seen stricter standards to get into the business as a baseline for both lenders and brothekers. >> so you saw up the food chain and that is the people buying the loans from you. what would you say about regulations in that sector? >> well, i'm a very big believer -- and i realize this panel is not focusing on the rating agencies. i have a strong belief in --

>> whoa, whoa. we will. >> i'm sorry, for the purposes of this discussion. i know you will but -- >> you are in line ahead of him. that is the only difference. >> i'm sorry. >> you are in line ahead of them. that is the only difference. >> the reality is this. we talk about the originate and distribute model where one institution used to hold all the responsibility. security skaeugsization -- securitization broke that up. the only impartial group were the rating agencies and it still continues to boggle my mind that three years later nothing has been done and this is not a sign of this commission because you are not tasked with doing anything to get back to when we could create an arm's length distance between the agencies. >> we are going to try to do a little bit about that down the road. that has nothing to do with the

bottom of work. >> we are going to try to do something with that down the road. >> that surrey is an area as mr. georgia says, has come to our attention and will certainly look into it a little later. ms. lindsay, can i move to for just a moment, please? >> yes. >> don't take this question the wrong way, but given the class a new century, it literally imploded. wouldn't be fair to say that the risk management function as it existed within the organization was more window dressing by senior management to keep this fraud perpetrated on as many people as they possibly could? >> with respect to my department, i strictly was in charge of fraud detection and prevention. so i would like to think that we did a pretty good job. as far as the rest of the business unit does come as far as producing loans, that

borrowers couldn't afford, the guidelines that were created, yeah, i think it was a mess. one of the problems was sense of values kept going up, one of the questions, for example, i dealt with repurchase request as part of my job. and when i started seeing some of the repurchase request comment specifically the 100% financing, it would bring that to the attention of senior management, and they would say, that's just one loan or to loans. we make 20,000 loans last month. you know, so there were no significant numbers because the values kept going up. and all of the fraud was masked, and production always wanted to see the numbers to show me the numbers that show me where we're taking a loss. that was the big thing. we couldn't show anybody that we were taking a loss because we were in such an upswing again another time we figured out that there was a problem, it was too late and new century exploded, or imploded.

>> so would be fair to say that you were pressured by senior management to ignore those things that your normal barometer would have said are problematic? >> we were basically told to stick to the fraud. if we had concerns about a loan, we had risk managers that were put throughout the country to review loans. and some of their requests were ignored. some of the production teams would override their decisions. and other groups were really good and would sit down with them and figure out why they were making the recommendations they were. part of the problem was the lack of depth or knowledge in the industry. and so the sales people -- says it was such a new industry, we have so many new employees throughout the country and subprime that had never been in mortgage lending before. so i think part of it was just

their inability to understand what the problems were to make informed decisions. so they did ignore the more seasoned professionals who may have had a better insight into what. >> so how much did the competitive pressure, particularly between new century and countrywide, contribute to the level of risk that the organizations were willing to take? >> it was huge. i mean, the account executives would come in and say if we don't do this low, if we don't get this pricing i make this particular bone, arjun, countrywide, and they would name off in other of our competitors who will do it right now, can we do it faster, better, quicker at a better price. so yes, it was huge. >> ms. mills, the vernacular is all about a proxy for market share in your business. and in my experience with wall street, that's everything. every investment bank, every

corporate loan officer, everybody who looks at themselves wants to compare themselves favorably against industry league tables. yet you are proud of the fact that you were sliding. that seems counterintuitive to me to the culture of wall street. what am i missing? >> i won't say that league tables were not something that people talk about, but i can say that there was never pressure to do business just to gain league table position, in my business. so my management was focus on being profitable and being a presence in the market. but there was never any pressure to be one, two or three. it was, as you know, do business that makes sense. by little you think you can make money and distribute the bonds. and i'm not aware of any pressure to just do business to

be higher in the league table. >> so you are an island in the sea of wall street, or an island in the sea of citi? because other parts of the citi certainly had pressure split i cannot speak about my business and my interactions with my management. >> thank you very much. ideal, mr. chairman. smack thank you very much. ms. born? >> thank you very much. mr. bitner, you have just spoken about the inadequacy of state regulation, or oversight of mortgage lenders and brokers. you also say in your written testimony that there were two statutes in the early 1980s that you think laid the groundwork for subprime lending.

and i wonder if you could comment on those. they are the depository institutions deregulation, and money control act of 1980. and the alternative mortgage transaction parity act of 1982. what role do they play in laying the groundwork for subprime lending? >> well, i would be remiss if i said, or inadequate if i said i was truly experts on these winners researching my book and attempting to try to find were sort of a foundational point for the industry began. several different scholars have pointed me to these particular acts as sort of starting point for we saw a foundation for that. the depository -- the monitory -- the money control act, excuse me, was by and large allowed businesses and lenders to charge higher rates in future borrowers that have not been in place.

so there was structure that was put in and around that. the alternative mortgage transaction. act in 1982 also really gave rise to the use of variable interest rates, or what we really now referred to as arms or adjustable rate mortgages. those two in and of itself are certainly a very starting point. i think what really started to kick the industry into gear although those were very minor come the third sort occurred in the early '90s when they came out of a refinance weight in 93. and subsequently like most originators when you find yourself, this time i was not originate in the industry when interest rates go higher and there's no other way to do loans because people stop refinancing. you look for alternative. it wasn't until a few years later until we saw the securitization of these products initially that was just more portfolio lending at that time specs are basically the role that those two statutes played was to give the flexibility to

design new kinds of mortgage products because correct. at that time we just saw people dipping their toes in the water. it was not any sort of major entry point. >> thank you. go ms. lindsay, may i ask you about new century. it was, we avert, the third largest subprime lender in the country from 2005 to 2007. and i wondered what, in your view, caused it to go bankrupt? >> that's a good question. we just -- we grew too fast. it got really competitive. and then that coupled with a repurchase requests starting to come in as the market kind of flattened out, as the values stopped going up, to mask any

fraud or any problems. we started seeing repurchase requests. we had rats and worms with all of our invention as well. and the primary reason to repurchase loans were fraud or first payment defaults. we also a compliance and missing documentation, but the first payment defaults started growing exponentially. it was pretty, pretty busy. the middle of 2006 we create a specific repurchase desk to handle all of the repurchase is. and i just think we couldn't keep up with them. >> so in other words, you just, because a larger number of the loans that you were selling, were slow in payment for not paying. you had a lot of liability with respect to them? >> that's correct, yes. >> and wasn't also because the

mortgage market itself was slowing down, the originations were slowing down the? >> originations were slowing down. i think we pretty much exhausted all of the products we got out as far as we could, and there were no new borrowers out there. i think that was part of it as well. >> thank you. ms. mills, you describe in your testimony how diligently your operation has been doing due diligence on the underlying loans for your mortgage-backed securities. and also how you cut back on purchases when you saw problems in the housing market. did your operation and kurt any losses relating to the implosion of housing markets? and if so, what were they caused

by? and how great were the? >> i can give you a specific lost numbers. i will tell you that whole loan prices started to drop because of the dislocation that was occurring in the market. we had loans in our position that we owned that suddenly were worth less. just by virtue of the fact as to what was happening in the market. we had loans on our books that were supposed to be repurchased by companies that had gone out of business, and there was no one to go to to repurchase those loans. we also had a large book of hold loans that we bought at district values, and those loans also lost value. so the business lost a lot of money. we can follow up on the exact dollar amount, but as the securitization market went away, there was no venue for us to sell the loans and securitize them. and because our business is already a portfolio, you know,

we spent a lot time the last couple of years managing the whole loans that we owned. >> so has that been a primary focus of your group in the last couple of your? >> yes. >> i would appreciate it if you could provide the information on the losses to the commission. >> okay. >> mr. bowen, you described the significant problems with citi's implementation of its -- and it's -- of its underwriting standards for mortgages. and you said that you saw significant number of defective products. being purchased in 2006 and 2007.