statement about afghanistan. i am certain that the house will join with me to pay tribute to private jonathan munst and another soldier who have both died in afghanistan. our thoughts and our prayers should be with them, and their sacrifice for this country should never be forgotten. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] . .

we will publish much more information on the progress we are making. this will include updates on the security situation, on afghan security forces, on programs for supporting district government, and development work, including health and education, but our main focus will be on the security situation. in the six months of 2010, the afghan army grew, but at present, the afghan police are essentially barely able to operate. good news or bad, we want to take the country with us in the

top foreign-policy priority. let me address the question. why are we in afghanistan? our forces are in afghanistan to prevent afghan territory from being used by al qaeda as a base for attack. they are not yet strong enough to look after their own security, and that is why we are there. al qaeda is now under pressure on both sides. 18 months ago, the then prime minister told this house that three-quarters of the most serious plots had links to the border areas. i am advised that the threat

from al qaeda and from pakistan has reduced, but i am also advise if it were not for their current president of u.k. and coalition forces, al qaeda would return to afghanistan, and the threat would rise. the next question is, how much what -- must we say? they do not want foreign troops on their soil longer than necessary, and the british people are impatient for progress. our people will not remain a day longer than necessary. the key to success is training and equipping the afghan security forces at every level to take on that task of securing the country so afghans can chart their own way in the world without their country posing a threat to others and our forces can come home with their heads held high. that is why we back the strategy put forth by general on

the crystal -- general makers all. -- mccrystal. includes building of the afghan security forces. we want to transfer security responsibilities to afghan control as soon as they are ready, but this must be done on the basis of the facts on the ground and not a preannounced timetable. the current year is the vital year. we are six months into a military surge, and we must now redouble our progress. this has been the heartland of the taliban. it is from here they gain safe haven to the al qaeda network. that is why the operation is crucial to the success of the nation. we went into homeland with 3000 troops. i do not think anyone argues that was sufficient.

-- into helmland with 3000 troops. i do not think anyone argues that was sufficient.+ we have more than 10,000 troops in the country as a whole. with the continued growth of the afghan security forces, we are evening out the presence in the main areas. this is an absolutely crucial point. in the past we have not had an of soldiers. it is much improved. the force in addition to contributions from other partners have given a huge boost. for example, the marines have arrived with 80 helicopters of their own, which are available to support, and it is clear we have made real progress this

year. a degree of normal life has returned to places, where the bazaar has opened and people are going about their daily basis. the progress is not irreversible. there will be tough fighting and afghan forces will push the insurgents out of villages. during my visit, i was able to announce 67 million pounds to double the number of counter i.e.d. teams to counter the mmst serious threat. many of the shortages which hampered us so severely initially have been dealt with, but i do not pretend every quick man shortage has been resolved. we will need to adapt and deal with problems as they arise. the whole country is incredibly proud, and i believe we need to

do more to recognize the remarkable men and women and place them front and center in our society. that is why i recommended doubling of the service allowance. that is why i believe it is right that we reaffirm our commitment to the new military covenant, that crucial contract between our country and those that risk their lives for our security, but i do not pretend we can succeed by military means alone. insurgency's usually end with political settlements, not military victories, and that is why i have always said we need a political surge. we need better to align our development spending with overall strategy, and i have asked 200 million pounds to be spent in training and government institutions. we need a political process to help bring the insurgency to an end. as the first step, this means

giving individual taliban fighters to reintegrate into afghan society. wason naval that process to move ahead more swiftly, but it means for that. everyone in afghanistan must feel it is there government and that they have our role to play. as i agreed with president karzai, we must start working to a wider reconciliation process, leading to a political settlement that works for all the people of afghanistan. we're seeing a good example in canada are canadakandah -- kandahar. it includes several hundred local elders, and it includes a major drive by the afghan government with ur support to improve public ervices and the

rule of law. from now on, what is happening there should reflect a deeper understanding of the influence of trouble sections in afghanistan. we have not paid enough attention to this and to the unintended results of some of our policies. i want you to take a look,ensuro the local economy from the huge contracts has a positive impact and does not help fund local militias for the insurgents. this is a vital year. we have the forces needed on the ground. we have our best people, not just military, but on the diplomatic and development front as well, but i do not pretend it will be easy. we must be ready for further casualties over the summer months as the sole guard -- so- called fighting season resumes. i say what i said to our young

servicemen and when then on friday. they are fighting thousands of -- young men and when then -- women on friday. they are fighting thousands of miles away from home. they have the support of the entire nation. when we have succeeded, our troops can begin to come home, but even after they have left, britain and afghanistan must continue as a strong and close one. we must continue to build our relationship with pakistan. i commend this statement to the house. >> mr. speaker, can i join the prime minister in paying tribute to the soldiers who have been killed? the private from the second battalion, the prince's royal regiment, and one from first

battalion regiment. our thoughts are with their families and the grief of their loss. i thank the prime minister for his words today. all those who are serving in afghanistan should know they of the whole country and all sides of the house. will he continue with armed forces day on the 26 of june? can i restate our support for our troops in afghanistan, which is first and foremost to protect our national security? can i am sure the prime minister since this is his first statement to the house on afghanistan and the first occasion on which we have responded as the official opposition, that as he proceeds to take difficult positions in the best interest of our mission in afghanistan, he will have our thoughts.

in that spirit, i welcome the 67 million pounds he has announced to tackle the i.e.d. threat. will he inform the house in more details what this will be spent on? we understand there will be 13 extra vehicles. we welcome that. will that be in addition to the 67 million pounds? there is also a need for well- protected vehicles with maneuverability. will the president -- the prime minister confirm that they will proceed with the protected patrol vehicles? he has reaffirmed that despite the challenges, progress has been made. can he confirm the government is continuing the strategy, which the u.k. has pursued, that it has not changed? if it has changed, can he tell us in what respect? it is common grounds that our work in afghanistan needs to bring together security,

development, and diplomatic efforts breyer will the prime minister of state the house on the -- diplomatic efforts. will the prime minister of state the house? canion sure that -- can i am sure that they will have full support until they are strong enough, i welcome the money for building of the afghan police and civil service. can he reassure the house this will not be at the expense of vital existing development programs elsewhere in the world? can he updates the house on discussions he has had with u.s. defence secretary gates and whether the address the proposed withdrawal of canadian forces in 2011?

on the question of the families of our troops, can i ask if he will follow through on the important work the defense secretary was doing with my support to back of the partners and families of our armed forces. turning to the strategic defense review, will the prime minister reassure the house that the front line will not be weakened? in opposition, the prime minister and his defense secretary argued for a bigger army and for the expansion of the army by three battalions. will that go ahead? will the prime minister finally explain the reason for the departure? will he confirm they will both play a role and remain until it is completed. can i ask you to join me in paying tribute for their service

to this nation? >> pennine thank yo -- can i thank the lady for her supportt but on the issue of afghanistan, there is great unity. i think it is important. our troops want to know. in terms of the specific questions, the armed forces day will go ahead on the 26 of june. she asked a question about 67 million spent on countering the i.e.d. threat and whether that was in addition to the patrol vehicles, and i confirmed that it is. just a question about the strategy -- can i say this?

we are six months into the obama strategy, so there is continuity in that regard. we must be clear in our focus of the perspective of what we are doing. that is not to say that it is not important that is to say our route home is to put security first. in terms of the questions about development aid, can i very much agree with what the rightful lady says about asking the wireless -- thanking the wives, families, and partners of those

who have served. we have put initial pressure on them, and we have to do all we can to support them. it is all those issues -- the schools their children go to, the health centers they use common -- they use, all the issues around military families, we want to give a real focus to that. finally, she asked about the strategic defense review and whether that would cover the size of the army. i find it quite right that she paid tribute. i would join her in paying tribute. they're extremely strong and dedicated public servants. as she knows, he extended his time before the last election because he wanted to see continuity, because he wanted to

see that service continue, and i was pleased that happened. she was standing there at the end of october. that would give the new government time to put in place a proper transition for a new chief of the defense staff. let me say i think he has done a superb job as chief of the defense staff. he came with me on the trip to afghanistan. he deserves the gratitude of the house of commons. >> does my right hon. friend agree there is a risk of conflicting messages? we are saying on the one hand to the taliban that we will not cut and run, that we will stay as needed, but on the other hand to the afghan government that there is an urgency to sort out your government's -- governance.

as my right hon. friend gives priority to leaving as soon as possible or to stay as long as necessary? >> can i congratulate my hon. friend on his successful reelection as chairman of the defense committee, and i look forward to reading his reports. i do not think there is a contradiction, because i think people in afghanistan want to know foreign troops are not going to be on their soil for an extended time, and i think it is right not to set an artificial deadline but to do all the work we can to build a fence and put pressure on the afghan government to do all they can to cut corruption and to put in place good government. i think it is important we get on with this work.

>> several right hon. members are seeking to catch my eye. single short questions and economical reply is. >> the prime minister referred briefly to afghanistan, and he did not take the opportunity to answer the questions about how terrorists keep assessments about role of oil across the line and a political solution and regional stability involving pakistan. >> the role is vital. in all the conversations i have had with president karzai across the last five years, i have never heard him be so positive as now. clearly, a stable pakistan and a stable afghanistan are two sides of the same coin, and the

encouraging thing is the pakistan government and military are pursuing al qaeda in parts of the tribal areas, and that is making a difference, but we have got to convince both the pakistan government and the afghanistan government that we're there for the long term, not long term with troops of the long term with developments so they do not think we are going to leave them in the lurch once again. >> may i commend the prime minister once again for confirming our only justification is not corruption of the poppy trade but national security? will he also confirm when we start withdrawing our troops it should be based not on the afghan army being increased, but when we are satisfied they have reached that level of training to assure a title will not return? >> it should be a focus on

national security, and when we can safely leave the job to afghan forces, that is about capability. >> in the queen's speech, asa -- may i say we need to assert the authority of this house? we have had too much. i wish you well in what is clearly a change of strategy of a politically-elected government. >> i was once told the first time it was from one of your old speeches. i agree a lot with what he said. i think it is important that the military feel they can give

unvarnished, clear advice to ministers, but it is also important that ministers challenge that advice. that is how policy should be developed, and that is how it should be done in future. >> one problem has been mission creeds, and i thank the prime minister for his clarity. he pointed out it was still in the united states military search phrase. can he assure me once they have already begun to talk about a drawdown that we keep in constant touch with them to make sure we operate on a consistent timeline? >> can i congratulate my hon. friend on his election, and i look forward to the work they are going to do. you are actually right. making sure we work together with our allies is vital to success. one thing that strikes you when

you see what our troops are doing is just how close that work is. some people wonder if it is right that british troops work under american command, and it is right to point out of the american troops in cantar -- kandahar are under british command. >> could the prime minister talked about the progress being made? >> there has been progress. the province with the worst record in terms of opium production has been significantly down. there is a question about how much of that is due to poppy blight and how much is to do with the substitution program the government has been

supporting and how much is due to security efforts. i think it is important that as we see a more secure afghanistan, we see more farmers pursuing alternative livelihood's, but we need to get the order of priorities the right way around. >> simon hughes. >> mayor join him in paying tribute to the soldiers who have lost their lives -- may i join him in paying tribute to the soldiers who have lost their lives and those who served? i just ask one question about the implication of the policy. will he review the work of our domestic government departments to make sure returning troops have the full support for their mental, emotional, and physical needs, including the housing after they served in afghanistan. >> we have said we are going to examine every part of the military covenant.

housing is clearly a key part. we need to go on improving housing. when you think of the combat stress that has been placed on the cnn year after year -- on the young men, year after year, we need to recognize this is something we need to go through the rest of our lives, and we need to learn from countries like america, and actually, the hon. member is working between the ministry of defence and the department of health. >> can i ask if you would meet with a small delegation sometime in the future to discuss this issue. i am on a panel looking at this very issue, and why so many people are returning -- so many

people and opened a criminal justice system. could you spare some time for this in the future? >> i or the defense secretary would be happy to meet with him and other colleagues. i think he makes a good point. the whole problem of mental health issues, because it has not received enough attention, we are seeing former soldiers fall through the net and ending up other homeless on the streets or in the criminal justice system. >> does my right hon. friend agree if we are to achieve lasting security in afghanistan is imperative we observe the maximum pressure on al qaeda and the telethon on both sides of the border, and that being the case, -- taliban on both sides of the border, and that being the case, will he say if it is the policy to continue the program of bilateral terrorism?

>> it is our policy to continue that work. the vital role is going to be played by afghanistan, to eneneneneoing on, driving them out of the bad lands in the tribal areas. that is taking place, partly because there is a good military cooperation, and i think the sense amongst the government and military that whether it is the british are the americans, we're there for a long-term relationship to help them with ttis work. >> does the prime minister share with me the real anger of how this was announced, made in an interview between the defense secretary and the national newspaper? >> as i said, the chief of the defense had for some time been

intending a vital piece of work i think it is a good moment to pay tribute to the work he has done, which has been genuinely good. i saw it in afghanistan and to give leadership he has given to our armed forces. >> i join with my right hon. friends and the right hon. lady to commemorate our fallen heroes. since some of us on both sides of the house have been pointing out ad nausea since 2006 that this was an under equipped army, how does he think it came about that excessive labor -- four successive labor defense secretaries were so under

informed? >> the hon. gentleman does take a strong feel about this issue, and i have heard him talk about it many times. he is right that we went into helmland province was far too few soldiers. we also did not have sufficient helicopters, did not move fast enough on vehicles and other equipment programs. we have to take from where we are and ask what it is right to do now. it does seem to me it is right to give this new strategy time as having a correct number of forces on the ground to build of the afghan army and police force so we can bring those troops back home. the point in the end is what will make our country safer, and our country will be safer if we can leave behind an afghanistan that may not be perfect.

>> thank you, mr. speaker. next year the british and american troops will have been 10 years in afghanistan. it has cost the lives of hundreds of coalition soldiers and afghan people. is he utterly convinced that this strategy and long term military engagement is not the cause of future problems and that we should be thinking about some alternative that relies on negotiation rather than constant military activity? >> let me try to find some common cause. i do agree that we will not solve this problem by military means alone. there should be a political process for the taliban to lay down their arms and rejoin afghan society, a process led by the afghan government of engaging the taliban, but there have to be some red lines that

mean excepting the constitution, accepting what has to be done, and severing any links with al qaeda, so a political process, yes, but let's not pretend that will come if we walk away militarily. >> does the prime minister accept that al qaeda as an international terrorist organization, if it is suppressed in afghanistan and pakistan, will begin to operate with half a dozen other potential harboring states, given that it is out of the questiin that we could other region we could ever try to tackle that problem in the it -- that we could ever try to tackle the problem in the expensive way we did afghanistan? will you undertake the solution which i hope to have an opportunity to discuss presently. >> i thank the hon. gentlemen,

and he is right to say there are other parts of the world where al qaeda are quite strongly established. it does seem to me that does not negate the need to do what is possible to deliver a basic level of security in afghanistan, so that country cannot once again come home to al qaeda, and doing that at the same time as working with the pakistan government can help stabilize the region from which huge amounts of terrorism have come. in terms of this idea, i am happy to look at it and discuss his ideas, but i do think a military surgeon must be given time to work. >> mr. speaker, in accepting that security and what was important, will the prime minister be mindful of the need to advise in afghanistan?

will he confirm [unintelligible] in the following years? >> i think there is some progress that has been made.e. when i say we will not end up with a perfect democracy, that does not mean it does not matter. they do. i believe it is 20% or more of representatives, and i noted at my press conference with karzai that while the british press was made up of young men, all the answers were from young women. >> you recognize how important the military operation is and trying to achieve security for afghanistan. does he therefore have the commitment of our coalition

partners that they understand this message that we can only leave when it is established and that the population in afghanistan has to believe we have the commitment to get the job done to the end. >> all partners remain of to the task. particularly this year, the number of troops have increased. when they deliver a proper strategy that protects people, that pushes the taliban out and delivers that level of stability. >> the prime minister will be aware that it includes many

constituencies. he quite rightly said the military efforts must face the highest priority in the campaign. there is no doubt that while it helps with the military effort, it also helps build a communications, and those communications can in turn helped the government of the countryy >> i think the hon. gentleman makes a good point, and i do not think we would have made as much progress as we should have done. if you take the instance where they should be delivering a lot more electricity to a lot more people, progress has not been anywhere near as fast as we would have hoped it should have been. that is the sort of tangible progress people in afghanistan

want to say to demonstrate thaa life is now better than it was under the taliban, and we have to deliver that as part of the message of security. >> may i commend and support my right hon. friend's determination and commitment to take responsibility for what our armed forces are seeking to achieve in afghanistan? is he aware that there's been a widespread perception that while we are fighting a war in afghanistan they have not been on the same wartime footing with the urgency that our armed servicemen would expect. what will he do to put them on the right footing? and will he appoint a secretary of state who will drive things forward? >> my right hon. friend, we put whitehall on more of a war ffoting by having a national security council and adviser who

met on day one, and that is driving the policy. i think that is a difference. that as gotten through to the ministry of the defense. there are a timeline to getting the people back to the front lines. we are doing everything we can to make sure the commitment is really there. >> i wonder if i did ask him to say a little bit more about the development strategy in afghanistan. in particular, what changes to the development strategy? how he feels about afghanistan strategy, which looks beyond kandahar, how he feels about the use of instruments like the afghan trust fund, and finally, can he extend to the report from nearly two years ago, which

i think still has some messages to give about strategies in afghanistan. >> i agree about what he says. we have to be careful not to be over focused on helmand province. in the end, progress is going to bebebebebe campaign -- how the whole campaign will be judged. in terms of what is changing our strategy, it is to make sure it is focused on security and helping to deliver that. i have to say, on too many occasions, the people working very hard have not been able to get out into afghanistan to deliver a project because there is not enough security. you have to get that right first. >> one of the many problems is there has been confusion over the key objective.

i welcome the statement today, but i remain convinced to see if it can be achieved. given there has to be a political solution as well as a military one, how worried is he about the resignation of the chief of intelligence and the interior minister and his support of karzai seeking that compromise? >> i discussed this with president karzai, the resignation that he spoke about, but also the prospects for political settlement and reintegration, and i think this is combined with the military surge. this is going to be vital to securing the future of afghanistan and enabling us to bring our troops back home. in the end, people in southern afghanistan have to feel this is part of the government, that it represents them, and that his the lines that have been laidh

down, that is a vital part of making in more secure. >> i am grateful for his commitment not just to this house but also to afghanistan, and it has been clearer our forces were in demand. we have been fighting 51-year awards, and the british troops that now are taking down the flag is, this is a repeat of fas road, -- basrah, and now we have been leapfrogged by the americans. >> i am grateful to the question. i know my right hon. friend has great experience with afghanistan, including having travelled there himself. i do not agree thise is basrah. what has happened is making sure we have the correct number of

forces spread across afghanistan to deliver counter insurgency, and that does mean in some cases moving from one place to another to make sure they are low to the ground. it is welcome there are 20,000 marines there. worried or ashamed. any wawawawa ->> i welcome the statement. any statement on the equipment. -- in his statement, the prime minister did not mention unman vehicles. would he give a commitment that there would be part of the

equipment program? >> i can give that reassurance. i have had proper information about this. they are incredibly impressive. we will make sure they can be deployed as quickly as possible. >> i recently spoke to soldiers who have just returned from afghanistan. they made the point that the afghan police see goodman has been incredibly pour. >> i am grateful to my hon. friend for that question. i think the problem has not been just the equipment. i think there has been a problem with recruiting and training and retaining.

it is an area, and this is a cause that has come out on all sides, but not enough focus was given in which training was key. the effort has been going on. they are turning out now for a good police officers, but until now this was ignored. >> as the prime minister agree that the mine clearance vehicles available to our troops are the best in the world? >> i have a presentation about the equipment now being used and the training undertaken, and it is incredibly impressive what our troops are able to do. the truth is you have to keep investing and keep catching up with the technologies being used

by the enemy, because they are incredibly cunning in trying to find new ways of making these harder to find. >> today president obama began a two-day three-state visit. he met with political leaders and residents affected by the deep water horizon oil spill. the president's remarks are next. after that, the british house of commons on the oil spill. we will hear from the british secretary of energy and climate change. >> see what your member of congress said. search the congressional chronicle as c-span') video library. every word from every appearance since 1987. and c-span's congressional directory, available at c- span.org/store. [applause] >> president obama made his

fourth trip to the gulf coast today following the explosion of the oil rig. the trouble to mississippi and alabama before landing in florida. then he will return to washington, d.c. for an oval office address. >> good afternoon, everybody. i just had the chance to tour this facility. a number of our elected officials are here. it is from this staging area and 16 others like it all across the gulf coast that our response to the oil spill is being carried

out. i saw and many of you had an opportunity to saee what is beig done to train and help with the cleanup efforts. there is purpose on behalf of the people as well as the gulf ccast that is inspiring. i had a chance during the discussions with state and local officials to reiterate to them what i have been saying across the coast, and that is that we want to coordinate on every level to make sure we are leaving no stone unturned in our ability to respond to this crisis. what i have heard from a number of local officials during my trip today is what i have heard from each of the visits i have made to this region since the deep water horizon explosion happened in april.

there is a sense this is not only threatening our fishermen and trappers -- shrimpers, not only in estuaries and waters that are part of what makes the gulf coast so special. there is also a fear that it can have a long-term impact on a way of life that has been passed on for generations, and i understand that fear. the leaders and officials who are with me understand it. governor riley understands it. he has been a regular presence on our daily calls of the relentless advocate for alabama, and we are absolutely committed to do everything in our power to protect the gulf way of life for our children and grandchildren

and great-grandchildren. everybody here has had experience dealing with disasters. as we were flying over, you could see the footprints of buildings that had been decimated from katrina, but in some ways what we are dealing with is unique, because it is not simply one catastrophic event. it is an ongoing assaull whose movements are constantly changing. that is what makes this so challenging. it has to be constantly watched. it has to be tracked. we are constantly having to redeploy to make sure they are having maximum impact, and we need to make sure we are constantly helping folks who have been hurt, even as we are stopping the oil from spreading into more areas. that means this response effort has to happen on a bunch of

different tracks. it means containing as much as we can as quick as we can. after seeing the initial reaction, we said they needed to act faster and more aggressively. they have taken steps to contain over 50,000 barrels a day by the end of june, two weeks earlier than they originally suggested, but my plan also includes steps to feel better prepare against extreme weather events and unforeseen circumstances of the months ahead, addressing another concern, and we're going to continue to hold bp and others responsible for the disasters they created. dealing with the aftermath also means protecting the health and safety of the folks who lived and worked here in alabama and here on the gulf coast. as part of this effort, i am announcing a comprehensive and more by agency initiative to

insure that -- multi agency initiative to ensure that seafood is safe to eat. we want to make sure the food industry down here as much as possible is getting the protection and certification they need to continue their business, so this is important to consumers who need to know their food is safe, but it is also important for the fishermen and processors who need to be able to sell their products with confidence. let me be clear. seafood from the gulf today is safe to eat, but we need to make sure it stays that way. that is why the fda and the national oceanographers -- oceanic and atmospheric administration are increasing inspections of seafood processes, strengthening surveillance programs, and monitoring fish that are caught just outside restricted areas.

we are also coordinating our efforts with the states, which are implementing similar plans. these are on top of steps we have taken to protect workers involved in the cleanup effort. part of this involves making sure workers are sticking to the protocols put in place so that when they are out there on the water or year on land working with potentially toxic materials, that they are taking that seriously and that they are not cutting corners on safety, because we do not want tragedies on top of the tragedies we have already seen. officials from occupational safety and health administration are affected areas like this one. they are making sure bp is complying to save the obligation of. if they see a problem, their work will be to resolve it as quickly as possible. we are also monitoring air and water across the gulf coast that

has followed since that could endanger oil spill workers or anyone else, so we should act swiftly should any health risks arise. this health and safety measure is part of our overall efforts to deal with the spill. we are confronting the largest environmental disaster in our history with the largest environmental response and recovery efforts in our history. over 27,000 personnel who are working to safeguard our clothes and protect endangered wildlife. more than 5400 vessels, some of which you saw as we came into the facility, are currently responding to the silvery and over 2 million feet of containment boom is bbing used to contain the spill, and millions more are available. we have authorized the deployment of 17,500 national

guardsmen and women. so far only about 1600 have been activated and stand ready to help whenever the governor's call on them. across the gulf coast, guardsmen are supporting local, state, and federal authorities and a number of ways, from reconnaissance to materials. aircraft are also helping to coordinate the vessels that are on the water. here in alabama, about 200 of roughly 450 guardsmen have received specialized training for two assists in claims projects. this is all multi-purpose force prepared to handle in a chalice is fluffy and i hope our governor's the full resources -- to handle, and i hope our government puts them to full use for. it is not only important for everyone from the federal government to do all that we

can. it is also important to work together to make sure our efforts are well-coordinated. that is why the governors have been on a daily call with my administration who seven days a week, since the disaster occurred. that is why we are going to continue to work with state and local authorities on every front, from containing as much oil as possible until we put this tragic ordeal behind us. i cannot promise full oil will be cleaned up overnight. it will lobby. it is going to take time for things to return to normal. there are going to be harmful effects on many local businesses, and it is going to be painful for a lot of folks. folks are going to be frustrated, and some are going to be angry, but i promise you

this, that things are going to return to normal. this region will bounce back like it has bounced back before. give we are going to do everything we can, 24-7 to make sure they get back on their feet, and in the end, i am confident we are sorry to believe the gulf coast investor shave than it was the fourth. i appreciate see efforts furious favor ship was due each and every day, and let me make one last comment about our -- i appreciate your efforts each and every day, and let me make one more comment. ted allen was about to retire, and he has answered the call on behalf of this country, and is working as hard as is the one in this country to help deal with this crisis for members of the coast for have been doing outstanding work each and every

day, -- of the coast guard have been doing an outstanding work each and every day, and i want to say to them that the country is proud of you, grateful to you. keep up the good work. thank you very much, everybody. [applause] i want to take just one question, because there have been some reports in the news. i am going to meet with the bp chairman and the number of officials on wednesday. we have begun preliminary conversations about how to restructure a mechanism so the legitimate claims that are going to be presented not just to laurel as not just the fifi but over the coming months are dealt with -- not just bp but over the coming months have been dealt with. i hope by the time the chairman and i meet on wednesday that we

have made sufficient progress so we can start seeing a structure that would be in place. it is too early at this point for me to make an announcement. by wednesday my hope is that we have made progress on this. all right? >> [inaudible] >> i am going to that had alan -- ted allen addresses, because we talked about it during our meeting of first, we have a number of different types of skimming -- during our meeting. >> first, we have a number of different types of c.m.e. = mystery of we have shallow water skimmers that are employed. they become the major reason for us to try to fight this battle of shore. we know what we're doing near

the well head. we have to push the enemy offshore. we have over 400 skimming vessels that are actually for gannett. our goal is to take the smaller equipment that is flexible, and to coordinate better with our partners including local fishermen's associations and so for if, for as disappointed as to the national central sector of the sensex did all levels. -- who can attaches to the national center to attack iffat all levels. >> this has come up across the gulf. keep in mind this could range from a big shrimp boat to a little recreational boat filled the has brought of, so each of them are going to have different facets. some of them are going to be a

will to take the skimming e equipment and actually placed it on the vote. some are not going to have that capacity, but maybe they can fact to stop the oil, or maybe some of them reading maybe they can act to stop the oil, or maybe they can shuttle supplies. we are taking inventory of all vessels that have presented themselves to determine which one can go out. .

politics and issue in the news. first, an update from campaign 2010. >> today we areefocusing on alvin green. he'd be down a south carolina state representative spite never having a radio ad or speech. some in south carolina, including jim clyburn, are calling on green to get out of

the race. what is the status ofhe inveetigation? >> on frida he assembled a team of expts to go over the voting. they have turned up what they are deribing as a fewed flags. discrepancies where the absentee vote went one way in pre- eltion numbers, but then the other ay. in any way, they have the right to protest th ha until noon to submit a protto the south carolina democratic process committee. if they accepthat, there will be a hearing on thursday to see

if there needs to be a revote, and then they will move on from there. >> how long could that take? >> not that long. it is a court process, from what i understand. they tried to show a body of evidence, but the burden is on the campaign to prove there is something nefarious going on. this was not a close election. a 30,000-vote that alvin green won by. >> what is the reaction of the green? >> he says he is going to stay in the race. we tried to call his home over the weekend.

he has done some television interviews. you can tell in tse interews that even he is surprised that he won. some people a saying he was the first name on the ballot and thatelped him. others say that' the fact he is african-american help him. some believe he is a republican plant, altugh, there has been approved to that. >> the washington post said that this was a $10,000 filing fee. >> he said that that was money that he put up himself.

whether or not it was his money, we do not know. nobody can really recl him doing a campaign speech. >> sme are around the country might be surprised that some are accusing republicans of planting someone in the race. but south carolina has a history of this? >> yes, they do have a history of meddling in races before. the radar of state officials. the winner would have to go up against jim demint, so ther is a question as to much effort the

republicans would put into this, and untile know more about that, i do not tnk we can say that republicans are behind this. >> it does not sound like mr. greene as much of a chance in the general election anyway. >> yes, that is why you are t hearing more about this. you have the state party chair asking your presumptive nominee to step down. that should tell you quite a bit on c-spanble networks. the british secretary of energy and climate change was on the floor of the house earlier today. rise in oil explosion and the consequent oil spill on the gulf of mexico.

from london, this is about one- ha hour. >> statement secretary of state. >> thank you, mr. deputy speaker. i welcome you to your pition. the house will wish join me inexpressing our deepest sympathy for tse three very injured in the explosion in the gulff mexico. and for all individuals and communities affected by spilling oil or fearing that thhy wl be affected over the days and weeks to come. our thoughts must be fit with

them. on the 20th of april, an explosion and subsequent fir on a drilling rig operated by trans ocean under contract to bp in the gulf of mexico effectivel killed 13 workers. it sank. substantial quantities of oil were leaking into the ocean. the blowout preventer, which should have sealed the leak, failed. the causes of the accident and now -- of t accident are now subject to u.s. presidential commission of inquiry and to civil d criminal investigation. ther has never been such a large fleet of oil so deep in the ssa. attention of the -- attention b bp and the direction of the u.s. authorities to seal the leak have been unsuccessful. it is also no fault that the league is worse than previously believed.

the u.s. government estimates the daily flow of the leak is now 3000 barrels to 40,000 barrels a day. bp hop to increase significantly the amount of oil is capturing. moreover, the league wil not fully be stopped until august at the earliest, when the first relief well should deniable the original well to be plugged. there's also an enoous operation to help the impact of the oil on the wer. admiral thad allen and more than two thousand boats have been involved in skimming

- in skimming the water and using dispersant chemicals. thousands of workers and volunteers on sure are removing oil and maintaining coastal defenses. the house will wish to join me in paying tribute to those involled in this work. we spathiz with the u.s. government's frustration that oil continues to leak at the

re rate that it does. to appreciate the scale ofthis environmental disaste each week, the quantity of oil equivalent to the total spillage of the exxon valdez is escaping into the gulf of mexico. th u.s. administration has said that bp is doing everything asked of it in the effort to combat the spill. we have looked to the compa to continue in this and we will do everything that we can to help. the k priority muste stopping the environmeal damage. in a telephone conversation, president obama reassured the prime minister that he has no interest i undermining bp's value and the frustrations america have nothing to do with national identity. hon. members willemember that, in 1998, the also rig in the

north sea exploded with 167 fatalities. following that disaster, our own regulatory regime was significantly tightened and we split the fctions of licensing and health and safety in the u.k. the u.s. has announced that, in the fute, tseunctions will be held by a separate organization. we hope that we have some experience in operating such a system. my department and the health and safety executive he been discussing thisith the u.s. counterparts its my responsibility to make sure that the oil industry remains with the highest possible standards. i have thursday his review undertaking. the industry's record in the northern sea is a dish -- is strong. but with the beginning oo exploration in deeper waters, we must be vigilant. initial steps are already on the wa inclung doubling annual inspections from decks to

drilling rigs. we are building on the work already begun by the newly formed oil spillage d response adsory group. i will also ensure thatessons relevant regators and erating companies. mr. speaker, iow turn to the position of bp. it is usually regrettable that to the company's tactic efforts to sto the spill have, to date, been only partially successful. but acknowledged the company for its strong public commitment to stand by its obligation, to hold this bill, and to provide a remedy and payment of all legitimate claims. as a bp chairman has said, an these are critical test for bp and bp must complete them in

orr to rebuild trust i the company as a member of the busiss community in the united states, in the united kingdom, and around the world. bp remains a strong company. prices --ts share although its share prices have fallen sharply since april, the company has the financial resources to put right the damage. it has exceptionally strong cash flow and it will continue to be a maj employer and vital investor here and indian states. in many ways, bp is effectively an anglo-american company with 39of its shares ownedn the u.s.gainst 40% in the united kingdom. thereas been much speculation in the pre about the impact on u.k. pension funds and whether the company will pay a quarterly dividend. this is highly a matter for the

bp directors who will weigh all factors and make a recommendationo their shareholdees that is in their best interests, which also includes t bt interest of many u.k. peion funds. many citizens have real and legitimate worries about their pensions. but i would like to reassurthe house that, not only is the bt financial sound -- not only is bp financially sound, but pension funds that hold bp shares generally also hold a very diverse portfflio o assets. their exposure to a single company, even a company as economically important as bp, is limited. in concluding my stomach, i wish to express my government's profound sympathy to those in the .s. affected by this accident and by its aftermath. the priority must be to address the environmental consequens of this bill. our concentration is on practical measures that can help

in this cris. this disaster is a stark minder of the member mental dangers of oil and gas production in ever-more difficult areas. coupled withhe effect of high carbon consumption, this highghts yet again the importance of improving the energy efficncy of our economy and the expansion of low-carbon technologies. we must and will learn the leons of these terrible events. >> mr. deputy speaker, let me start with a tnk-you for the secretary's statements and keeping the house informed on the development on the gulf. let me also join him in the regret over the people who have died in this tragedy. we shall never forget the people who lost their lives in this accident. can i also join him in the deep oil spill that he mentioned in his statement? i believe it is in the interest of the environment and the

employee shareholders, and be a coordinated response of the governments of the u.s and in the u.k. sector companies of all thi accident, of but does he agree with me that all of the involvied in the deep water horizon project should be subject to investigation and that finger-pointing at the peak in paicular is not helpful? secoly, on the issue of regulation, does he agree that

any process of learning lessons need to look at not justhe cident that private companies but the regulators of the u.s. minerals management? [applause] [unintelligible] could he also, in his response on the specific understanding of the level of regulation in place in the u.s. compared to the united kingdom? can i welcome what he said about the licensing of drilling in the deep water of u.k.? does he agree with me that its essential that we look at any lessons learned befe beginning the process of that deep water drilling? fourth, very importantly for the long-term future, mr.eputy speaker, does he agree with me that the central section of the deepwater horizon is that he cannot dig deeper and deeper for oil -- is that we can dig deeper and deeper for oil, of

plundering the world' resources? i dohink that the opportunity should be seen on both sides of the atlantic by the prime minister and the president may need to send a clear message [unintelligible] it will take decades, but it is a transition that needs to start all around the world. fifth, in the context,oes he agree with me that, out of the tragedy of deep water, the best thing that we can -- the best ing thatan happen is a push toward low-carbon energy around the world? america passing the climate in energy bill and in the securitization of the national tree [uninlligible] does he also agree with me that domestically, we need to play our part and that also means maintaining support for the local transition? looking for the budget next

week, i do say to him that it is important that, if we are to make the low-carbon transition oursels the investments being promed by the previous government will need to go ahead as soon as possible. this is an environment wake up for the world. this disaster must chae the rules of the game acro the world. this requires stng leadership, including being toh with our allies. if the governor provides that kind of strong leadershipor bp emplooees, for pension holders, and the enviroent, we will have crossed the port. >> i am grateful to the gentleman for the manner with which he has approachedhis. the truth is that there is not a lot of difference in our rchase. i think we have seen more examples of what can happen if people attempt to slam up

ratherhan deal with these issues in a measured manner. trans ocean is a well-respected united statecompany and it was usintechnology which was deed produced in the united states, the blowout preventer produced by cameron and was produced to american petroleum industry standards. a love that's it, think it is crucial that the full vestigation take its course. we simply do not know. so many of the people who could have told us what happened are no longer alive. we simply do not know exactly what events werehat happened on the dee wer horizon and we

need a proper process of investigation if we are going to learn thoseessons. i havelready said something about the difference in a regulatory regime between us and the united states. the most important features the decision we took a the piper alpha disaster to separate the licensing and regulation from e health and safety side. but that is certainly not the only lesson that we be -- that will be learned from this disaster. when we have more car understanding of exactly what went wrong, i am certain there will be a technical and other regulatoryesponse required. in the interim, we have made that step of improving inspections. because we have already announced the increased number of that it uld be appropriate to stop the drilling going on west of shetland. i think the regime has been shown to be robust. but we do not need -- but we do need to gon learning the lessons.

on the final point that the hon. gentleman mas, i very much agree with them and that we do no need to accelere the process of the move toward low- carbon economy. whatever else the risks are, for example with the offshore or onshore wind, t tal stream, the future generatio of wave technology, they are not in the same order of magnitude with the sort of risks we are currently running in the drillg and increasingly hostile of environments -- creasingly hostile environment in the wod. i think that message is an important one. this is an environmental wake-up call. hydrocarbon oil and gas will play a part in the transion period from economic history,

-- aart in transition. from our economic history, we know that we cannot simply switched off steam power and move on to electrici. these things do take time. but it is an iortant -- but it isn important -- but it is an important timeor us that there is no time to lose.

>> we will have reassurance that we are operating in two dierent envinments. weeneed to recognize that these mistakes in a difficult environment are the responsibility of the whole industry. the whole industry will have to solve them in partnership with the regulatory authority. tennessee to him that we have to ensure that 25 million barrels of oil we got out of the north sewe need to get out and environmental energy need to work together? >> is absolutely right. this is a crucial industry force. not least those of those working in the environmental safety and health and safety should be as highs we possibly can make them. i can assure him that we intend to make the case. >> [unintelligible] things seem to of calmed down. i am glad to he that.

it partly has to be because of the bp itself, along with its partners, knows what we need to do, knows what the responsibility is with regard to clean up, and understands and is able touantify just how much it will cost for those people. >> the gentle ladys absolutely right as the guest today with bp's tony haywood and i spoke with another board member. -- tony hwa and i spoke with another board member. i hhd not realid until those conversations the cooperative efforts across the country t find a solution for this. it is in the interest of all oil companies to make sure they can reduce its and assure the public

and peopleho are affected in lisiana and other coastal states thht there are genuine and tenical solutions. >> i reenforce the secretary's recognition of the human tragedy involved in this disaster. on the president was reassuring that he did not intentionally want to affect the finances of bp, he may have an intense -- he may have unintentionally done so. we can ensure eective cooperation across countries to ensure solutions.

>>

[unintelligible] blowt preventers are subject to rigorous inspection ando ensure rigorous inspection -- and to ensure that it does not happen here.

>> my hon. friend is absolutely right. it is in fact e case of that, and a regime and and in the u.s. regime, the blowout is checked on a regular basis. hear, the blood pressure had been checked within two weeks of e disast. it still failed. clearly, tt is one of the thgs that the investigation will have to geto the bottom of and one othe things that

we will need to learn about opering at these steps add at this sort of pressures, whether the blowout preventers are fail- safe or if they need to be yet further fail-safe mechanisms built into the we will certainly look into that. i think he is certainly right again to draw attention to the human tragedy and the importance of maintaining safety foall of tho who work in the industry. statements? it is not just the technology that is important. bp has identified that, the seven policies of the disaster, so far, people were ignoring warning signs. that tends to happen when people inexperienced or they are afraid to challengtheir superiors. we have learned from the tragedy. that we have made huge progress in the north sea. there is a major problem in the attitude toward public relations. unl that issue is sorted out in the north sea, will continue to have problems. p> thank you. i would certainly be happy to look at the issues he raises. i personally believe that it is important to havtrade union oversight in these matters, in cases where the companies are unionized. and a guarantee totherrspective

employees that safety wille given e attention it deserves. >> [unintelligible] coanies to outsource environmental and safety critical processes failed to take their responsibility seriously when it really counts, fore disaster strikes. they lost their very license to coopere. what this session will his department have with businesses in the energy sector to get a grip on their direct environmental responsibility instead of simply balancing the rhetoric of corporate responsibility? >> i think my friend for that question which is very cute and well directed. i think there isn issue of but come out of the inquiry, about the extent of outsourcing -- extent of outsourcing. however, there is another side to wait. -- syed to it. the oil majors -- there's another side to it. the zero majors will argue that sometimes the level of expertise oilbb higher than -- the majors will argue that sometimes the level of exptise can be higher than they have. all of the big o companies will be enormously more aware of the potential reputaon all -- reputational damage possib. i would hope that ll provide an additional incentive to make sure that corporate governance is strengthened and that the ethical of corporate governance is strengthened. >> can i draw his attention to a helpful answer from the minister from -- from the minister of energy in? two raids mar in panama and three in liberia and two in [unintelligible] in given the public concern abt where they are registered, has he ordered a review of the safety of those rticular rigs? ifot, why not? >> that is precisely why, when we conducted the - review of our existing regime, w thought

it was -- conducting the immediate review of our existing regime, we thought it was imperave that the rules and regulations that set out safety and environmental procedures are directly applied. at is actly what we have do. much of the shipping of the world is registered in what often seems to be exhausted -- seems to be exotic jurisdictions. whenever the basis of registration in u.k. waters, they have to be of two u. regulations and we will not take any risks. that inspection is under way. the increase in the pace -- there is an increase in the pace of inspection as i speak. >> on a more positive note, can i ask him if heas [unintelligible]

>> i am grateful for his suggestion. some of the reporting back that i have heard from the united states suggests at ather british lawyers turning up on this screen may not help. e of the things that have had happened is that bp efforts are being directed by one of the american executive directors. we do not want any elents o national ideity to creep into this issue. bp is effectively an anglo- american company. it was previously bp amoco, amoco being an american company of.

this companys going to go on playing a very important part in the economy of the u.s. as well as the uk for many years to come. >> congratulations to you. i think the minister for his statement. thank you for bringing some calmness and oer west of waters. -- in an otherwise choppy waters. deep water drilling is partiall a direct result of america's insatiable demandor more and more oil. the commentary against bp is doing intolerable damage to a company here and it is grossly unfair. there is recognition in northern ireland that america cognize that those comments are doing damage to your companies.

>> if there were no oil spill of the scale of deep water horizon ofthe coasof northern ireland, i think that he would bamong the first people who would be insisting thate do whatever we possibly could to stop that and it would be absutely enormous. thskill of this -- the scale ofhis, in terms of trying to compare to valdez, it is not exactly the same. you'reooking at 200 barrels a day of oil escaping. hear, the latest estimate is 50,000 barrels a day. the sheer ale, frankly, we have to ask fellow politicians to understand the reaction we would be making his was going on in our waters.

>> i wonder if i can press the secretary of state for a more full answer to my hon. frid's question in regardo investment in other technology. -- other technology? it needs to be matched, particularly in the context of sheffield, by ending the uncertainty. wouud the secretarof state support a wishing to see a eedy end to that uncertainty and a confirmation of that support? >> when i was doing politics, philosophy, an economics at oxford, i was told that socialism involve the language

of pralities. on the basis of public expenditure commitments undertaken by the government in the last six months, including sheffield forgmasters, i did recognize a government that was making choices about hard earned taxpayers' cash. as we just hea from the ancellor of the exequer, the treasury s nciled in 44 billion pounds -- $44 billion pounds in cuts witho finding a sine one. this government, having inherited the legacy that we have, to scale the deficit of what we ve to review and we have to see the crucial projects that must go ahead. that is the process that w >> given that we are very neil peak oil and a capacity and -- very near the peak o capacity

and given that and conventional oil, like cadian [unintelligible] and evolve an acceptable climate change costs, what plans do we have to move e process flow toward as i am suree wants to diminish oil nsumption dstically before there is another horrendou catastrophe for the that the price of oil spikes horrendously? >> i think we share a lot of the same in stis -- a lot of the same instincts. in the next year, we will intend to accelerate their move to low-carbon.

saving energy is by far and away the most low-cost means of closing the gap between our energy use and energ production. we also intend to a accelerate -- to a accelerate to the production of low-carb and sources of energy. that is something we will be bringing forward measures. this is a te ofransition. nothing can be done overnight. we're talking about enormous investment that cannot be others suddenly switched off. but we have a route map to a low-carbon economy which really

does reduce our carbon emissions by the amount called for by the climate cnge act. i think we intend to make sure that we are credible foraking d,

available at c-span.org/store. >> and now, david cameron on the militaryfforts in afghanisn. he broke he -- he spoke at the house of commons in london for about 5 minutes. >> thank you, mr. speaker. i would like to make a statement about afghanistan. i am certain that the house will

join with me to pay tribute to private jonathan munst and another soldier who ve both died in afghanistan. our thoughts and our prayers should be with them, and their sacrifice for this country shouldever beorgotten. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] . .

we will publish much more information on the progress we are making. is will include updates on the security situation, on afghan security forces, on programs for supporting district government, and development work, including health and education, but our main focus will be on the security situation. in the six months of 2010, the afghan army grew, but at present, the afghan police are essentially barely able to operate. good news or bad, we want to take the country with us in the top foreign-policy priority.

let me address the question. why are we in afghanistan? our forces are in afghanistan to prevent afghan territory from being used by al qaeda as a base for attack. they are not yet strong enough to look after their own curity, and that is why we are there. al qaeda is now under pressure on both sides. 18 months ago, the then prime minister told this house tt three-quarters of the most serious plots had links tohe border areas. i am advised that the threat from al qaeda and from pakistan

has reduced, but i am also advise if it were not for their current president of u.k. and coalition forces, al qaeda would return to afghanistan, and the threat would rise. the next question is, how much what -- must we say? they do not wan feign troops on their soil longer than necessary, and the british people are impatient for progress. our people will not remain a day longer than necessary. the key to success is training and equipping the afghan security forces at every level to take on that task of securing the country so afghans can chart their own way in the world witht their country posing a threat to others and our forces can come ho with thr heads held high. that is why we back the strategyut forth by general on the crystal -- general makers

all. -- mccrystal. includes buildin of the afghan security forces. we want to transfer security responsibilities to afghan control as soon as theyre ready, but this must be done on the basis of the facts on the ground and not a preannounced timetable. the current year is the vital year. we are six months into a military surge, and we must now redoubleur progress. this has been the heartland of the taliban. it is from here they gain safe haven to the al qaeda network. that is why the operation is crucial to the success of the nation. we went into homeland with 300 troops. i do not think anyone argues that was sufficient. -- into helmland wit3000

troops. do not think anyone argues that was sufficient.+ we he more than 10,000 troops in t country as a whole. with the continued growth of the afghan security forces, we are evening out the presence in the main areas. this is an absolutely crucial int. in thepast we have not had an of soldiers. it is much improved. the force in addition to contributions from other partners have given a he boost. for example, the marines have arrived with 80 hecopters of their own, which are available to support, and it is clear we have made real progress this year.

a degree of normal life has returned to places, where the bazaar has oned and people are going about their daily basis. e progress is not irreversible. there will be toughighting and afghan forces will push the insurgen out of villages. during my visit, i was able to announce 67 million pounds to double the number of counter i.e.d. teams to counter the mmst serious threat. many of the shortages which hampered us so severely initially have been dealt with, but i do not pretend evy quick man shortage has been resolved. we will need to adapt and deal with problems as they arise. the whole country is incredibly proud, and i believe we need to do more to recognize the

remarkable men and women and place them front and center in our society. that is why i recommended doubling ofhe service allowance. that is why i believe it is right that we reaffirm our commitmto the new military covenant, that crucial contract between our country and those that risk their lives for our security, but i do not ptend we can succe by military means alone. insurgency's usually end with political settlements, not military victories, and that is why i have always said we need a political surge. we nee better to align our development spending with overall strategy, and i have asked 200 million pounds to be spent in training and government institutions. we need a political process to help bring the insurgency to an end. as the first step, this means giving individual taliban fighters to reintegrate into

afghan society. wason naval that process to move ahead more swiftly, but it means for that. everyone in afghanistan must feel it is there government and that they have our role to play. as agreed with president karzai, we must start working to a wider reconciliation process, leading to a political settlement that works for all the people of afghanistan. we're seeing a good example in canada are canadakandah -- kandahar. it includes several hundred loca elders, and it includes a major drive by the afghan government with ur support to improve public ervices and the rule of law.

from now on, what is happening there should reflect a deeper understanding of the influence of trouble sections in afghanistan. we hav not paid enough attention to this and to the unintended results of some of our policies. i want you to take a look, to ensure that the money going into the local economy from the huge contracts has a positive impact and does notelp fund local militias for the insurgents. this is a val year. we have the forces needed on the ground. we have our best people, not just military, but on t diplomatic and development front as well, but i do not pretend it will be easy. we must be ready for further casualties over the summer months as the sole guard -- so- called fighting season resumes. i say what i said to ouroung servicemen and when then on

friday. they are fighting thousands of -- young men and when then -- women on friday. theyre fighting thousands of miles away from home. they have the support of the entire nation. when we have succeeded, our troops can begin to come home, but even after they have left, britain and afghanistan must continue as strong and close one. we must continue to build our relationship with pakistan. i commend this statementto the house. >> mr. speaker, can i join the pri minister in payg tribute to the soldiers who have been killed? the private from theecond battalion, the ince's royal regiment, and one from first battalion regiment. our thghts are with their

families and the grief of their loss. i thank the prime minister for his words toy. all the who are serving in afghanistan should know they of the whole country and all sides of the house. will he continue with armed forces day on the 26 of june? can i restate our support for our troops in afghanistan, which is first and foremto protect our national security? can i am sure the prime minister since this is his first statement to the house on ghanistan and the first occasion on which weave responded as the official opposition, tt as he proceeds to take difficult positions in the best interest of our mission in afghanistan, he will have our oughts. in that spirit, i welcome the7

million po he has announced to tackle the i.e.d. threat. will he inform the house in more details what this will be spent on? we understand there will be 13 extra vehicles. we welcome that. will that be in addition to the 67 million pounds? there is also a need for well- protected vehicles with maneuverability. will the present -- the prime minister confirm that they will preed with the protected patrol vehicles? he has reaffirmed that despite the challenges, progress has been made. can he confirmhe government is continuing the strategy, which the u.k. has pursued, that it has not changed? if it has changed, can he tell us in what respect? it is common grounds that our work in afghanistan needs to bring togethe security,

development, and diplomatic efforts breyer will the prime minister of state the house on the -- diplomatic efforts. will the prime minister of state the house? canion sure that -- can i am sure that they will have full support until they are strg enough, i welcome the money for building of the afghan police and civil service. can he reassure the house this will not be at the expense of vital existing development programs elsewhere in the world? can he updates the house on discussions he has had with u.s. defence secretary gates and whether the address the proposed withdrawal of canadian forces in 2011? on the question of the families

of our troops, can i ask if he will follow through on the important work the defense secretary was dng with my support to back of the partners and families of our armed forces. turning to the strategic defense review, will the prime minister reassure the house that the front line will not be weakened? in opposition, the prime minister and his defense secretary argued for a bigger army and for the expansion of the army by three battalions. will that go ahead? will the prime minister finally explain the reason for the departure? will he confirm they will both ay a role and remain until it is completed. can i ask you to join me in paying tribute for their service to this nation?

>> pennine thank yo -- can i thank the lady for her supportt but on the ise of afghanistan, there is great unity. i think it is important. our troops want to know. in terms of the specific questions, the armed forces day will go ahead on the 26 of june. she asked a question about 67 million spent on countering the i.e.d. threat and whether that was in additio to the patrol vehicles, and i confirmed that it is. just a question about th strategy -- can i say this?

we a six months into the obama strategy, so there is continuity inhat regard. we must be clear in our focus of the perspective of what we are doing. that is not to say that it is not important that is to say our route home is to put securi first. in terms of the qstions about development aid, can i veryuch agree with what the rightful lady says about asking the wireless -- thanking the wives, families, and partners of those who have served.

we have put initial pressure on them, and we have to do all we can to support them. it is all th issues -- the schools their children go to, the health centers they use common -- they use, all the issues around military families, we want to give a real focus to that. finally, she asked about the strategic defense review and whether that would cover the size of the army. i find it quite right that she paid tribut i would join her in paying tribute. they're extremely strong and dedicated public servants. as she knows, he extended his time before the last election because he wanted to see continuity, because he wanted to see that service continue, and i

was pleased that hpened. she was standing there at the end of october. that would give the new govement time to put in place a proper transition for a new chief of the defense staff. let me say i think he has done a superb job as chief of the defense staff. he came with me on the trip to afghanistan. he deserves the gratitude of the house of commons. >> does my right hon. friend agree there is a risk of conflicting messages? we are saying on the one hand to the taliban that we will not cut and run, that we will stay as needed, but on the other hand to e afghan government that there is an urgency to sortut your government's -- governance.

as my right hon. friend give priority to leaving as soon as possible or to stay as long as necessary? >> can i congratulate my hon. friend on his successful reelection as chairman of the defense committee, and i look forward to reading reports. i do not think there is a contradiction, because i think people in afghanistan want to know foreign troops are not going to be on their soil for an extended time, and i think it is right n to set an artificial deadline but to do all the work we can to build a fence and put pressure on the afghan government to do all they can to cut corruption and to put in place good government. i think it is important we get on with this work. >> several right hon. members

are seeking to catch my eye. single short questions and economical reply is. >> the prime minister referred briefly to afghastan, and he did not take the opportunity to answer the questions about how terrorists keep assessments about role of oil acrosthe line and a political solution and regional stability involving pakistan. >>he role is vital. in all the conversations i have had with president kari across the last five years, i have never heard him be so positive as now. clearly, atable pakistan and a stable afghanistan are two sides of the same coin,nd the encouraging thing is the

pakistan government and military are pursuing al qaeda in parts of the tribal areas, and that is making a difference, but we have got to convince both the pakistan goverent and the afghanistan government that we're there for the long term, not long term with troops of the long term with developments so they do not think we are going to leave them in the lurch once again. >> may i commend the prime minister once again for confirming our only justification is not corruption of the poppy trade but national security? will he also confirm when we start withdrawing our troops it should be based not on the afghan army being increased, but when we are satisfied they have reached that level of training to assure a title will not return? >> ishould be a focus on national security, and when we

can safely leave the job to afghan forces, that is about capability. >> ithe queen's speech, asa -- may i say we need to assert the authority of this house? we have had too much. i wish you well in what is clearly a change of strategy of a politically-elected government. >> i wasnce told the first time it was from one of your old speeches. i agree a lot with what he said. i think it is important that the litary feel they can give unvarnish, clear advice to

ministers, but it is also important that ministers chalnge that advice. that is how policy should be developed, and that is how it should be done in future. >> one problem has been mission creeds, and i thank the prime minister for his clarity. he pointed out it was still in the united states military search phrase. can he assure me once they have already begun to talk about a drawdown that we keep in constant touch with them to make sure we operate on a consistent timeline? >> can i congratulate m hon. friend on his election, and i look forward to the work they are going to do. you are actually right. making sure we work together with our alls is vital to success. one thing that strikes you when you sewhat our troops are doing is just how close that

work is. some people wonder if it is right that british troops work under american command, and it is right to point out of the american troops in cantar -- kandahar are under british command. >> could the prime minister talked abouthe progress being made? >>here has been progress. the province with the worst record in terms of opium production has been significantly down. there is a questio aboutow much of that is due to poppy blight and how much is to do with the substitution program the government has been supporng and how much is due to security efforts.

i thinkt is important tt as we see a more secure afghanistan, we see more farmers pursuing alternative livelihood's, but we need to get the order of priorities the right way around. >> simon hughes. >> mayor join him in paying tribute to the soldis who have lost their lives -- may i join him in paying tribute to the soldiers who have lost their lives and those who served? i just ask one question about the implication of the policy. will he review the work of our domestic government departments to make sure returning troops have the full support for their mental, emotional, and physical needs, including the housing after they served in afghanistan. >> we have said we are going to examine every part of the military covenant. housing is clear a key par

we need to go on improving housing. when you think ofhe combat stress that has been placed on the cnn year after year -- on the young men, year after year, we need to recognize this is something we need to go through the rest our lives, and we need to learn from countries like america, and actually, the hon. member is working between the ministry of defence and the department of health. >> can i ask if you would meet with a small delegation sometime in the future to discuss this issue. i am on a panel looking at this very issue, and why so many people are returning -- so many people and opened a criminal

justice system. could you spare some time for this in the future? >> i or the defense secretary would be happy to meet with him and other colleagues. i think he makes a good point. the ole problem of mental health issues, because it has not recved enough attention, we are seeing fmer soldiers fall through the net and ending up other homeless on the streets or in the criminal justice stem. >> does my right hon. friend agree if we are to achieve lasting security in afghanistan is imperative we observe the maximum pressure on al qaeda and the telethon on both sidesf the border, and that being the case, -- taliban on both sides of the border, and that being the case, will he say if it is the policy to continue the program of bilateral terrorism?

>> it is our policy to continue that work. the vital role is going to be played by afghanistan, to encourage them going on, driving them out of the bad lands in the tribal areas. that is taking place, partly because there is a goomilitary cooperation, and i think the sense amongst the government and military that whether it is the british are the americans, we're there for a long-term lationship to help them with ttis work. >> does the prime minister share with me the real anger of how this was announced, made in an interview between the defense secretary and the national newspaper? >> as i said, the chief o the defense had for some time been intending a vital piece of work

i think it is a good moment to pay tribute to the wor he has , which has been genuinely good. i saw it in afghanistan and to give leadership he has given to our armed forces. >> i jn with my right hon. friends and the right hon. lady to commemorate our fallen heroes. since some of us on both sides of the house have been poinng out ad nausea since 2006 that this was an under equipped army, how does he think it came about that excessive labor -- four succeive labor defense secretaries were so under informed? >> the hon. gentleman does take

a strong feel about this issue, and i have heard him talk about it many times. he is right that we went into helmland province was far too few soldiers. we also did notave sufficient helicopters, did not move fast enough on vehicles and other equipment programs. we have to take from where we are and ask what it is right to do now. it does seem to me its right to give this n stregy time as having a correct number of forces on the ground to build of the afghan army and police force so we can bring those troops back home. the point in the end is what will make our country safer, and our country will be safer if we can leave behind an afanistan that may not be perfect.

>> thank you, mr. speaker. next year the british and american troops will have been 10 years in afghanistan. it has cost the lives of hundreds of coalition soldiers and afghan people. is he utterly convinced that this strategy and lo term military engagement is not the causeof future problems and at we should be thinking about some alternative that relies on negotiation rather than constant military activity? >> let me try to find some common cause. i do agree that we will not solve this problem by military means alone. there should be a politic process for the taliban to lay down their arms and rejoin afghan society, a process led by the afghan government of engaging the taliban, but tre have to be some red lines that

mean excepting t constition, accepting what has to be de, and seveng any links with al qaeda, so a political process, yes, but let's not pretend that will come if we walk away militarily. >> does the prime minister accept that al qaeda as an inteational terrorist ganization, if it is suppressed in afghanistan and pakistan, will begin to operate withalf a dozen other potential harboring states, given that it is out of the questiin that we could other region we could ever try tackle that problem in the it -- that we could ever try to tackle the problem in the expensive way we did afghanistan? will you undertake the solution which i hope to have an opportunity to discuss presently. >> i thank the hon. gentlemen,

and he is right to say there are other parts of the wor where al qaeda are quite strongly established. it does seeto me that does not negate the need to do what is possible to deliver a basic level of security in afghanistan, so that country cannot once again come home to al qaeda, and doing that at the same time asorking with the pakistan government can help stilize the region from which huge amounts of terrorism have me. in terms of this idea, am happy to look at it and discuss his ideas but i do think a military surgeon musbe given time to work. >> mr. speaker, in accepting that securit and what was important, will the prime minister be mindful of the need to advise in afghanistan?

will he confirm [unintelligible] in the following years? >> i think there is some progress that has been made. when i say we will not end up with a rfect democracy, that does not mean it does not matter. they d d deyeyey d d deyeyey d f representatives, and i noted at my press conference with karzai that while the britishress was made up of young men, all the answers were from young women. >> you recognize how important the military operation is and trying to achieve security for afghanistan. does he therefore have the commitment of our coalition partners that they understand

this message that we can only leave when it is established and that the population in afghanistan has tbelieve we have the commitment to get t job done to the end. >> all partners remain of to the task. particularly this year, the number of troops ve increased. en they deliver a proper strategy that protectseople, that pushes the taliban out and delivers that level of stability. >> the prime minister will be aware that it includes many constituencies.

he quite rightly said the military efforts must face the highest priority in the campaign. there is no dot that while it helps wh the military effort, it also helps build a communications, and those communications can in turn helped the government of the countryy >> i think the hon. gentleman makes a good point, and i do not think we would have made as much progress as we should have done. if you take the instance where they should be delivering a lot more electricity to a lot more people, progress has not been anywhere near as fast as we would have hoped it should ha been. th is the sort of tangible progress people in afghanistan want to say to demonstrate thaa life is now better than it was

under the taliban, and we have to deliver that as part of the message of security. >> may i comme and support my right hon. friend's determination and commitment to take responsibility for what our armed forces are seeking to achieve in afghanistan? is he aware that there's been a widespread perception that while we are fighting a war in afghanistan they have not been on the same wartime footing with the urgency that our armed servicemen would expect. what will heo to p them on the right footing? and will he appoint a secretary of state who will drive things forward? >> my right hon. friend, we put whitehall on more of a war ffoting by having a national security counc and adviser who met on day one, and that is

driving the policy. i think that is a difference. ministry of the defense. ere are a timeline to getting the people back to the front line we are doing everything we can toake sure the commitment is really there. >> i wonder if i did ask him to say a little bit more about the development strategy in afghanistan. in particular, what changes to the development strategy? how he feels about afghanistan strategy, which looks beyond kandahar, how he feels about t use of instruments like the afghan trust fund, and finally, can he extend to the repor from nearly two years ago, which i think still has some messages

to give about strategies in afghanistan. >> i agree about what he says. we have to be careful not to be over focused on helmand province. in the end, progress is going to be a whole campaign -- how the whole campaign will be judge in terms of what is changing our strategy, it is to make sure it is focused on security and helping to deliver that. i have to say, on too many occasions, the peopleorking very hard have not been able to get out into afghanistan to deliver a project because there is not enough security. you have to t that right first. >> one of the many problems is there has been confusion over the key objective.

i welcome the statement today, but i remain convinced to see if it can be achieved. given there has to be a political solution as well as a military one, how worried is he about the rignation of the chief of intelligence and the interior minister and his support of karzai seeking that compromise? >i discussed this with president karzai, the resignation that he spoke about, but also the prospects for political settlement and reintegration, and i think this is combined with the military surge. this is going be vital to securing the future of afghanistan and enabling us to bring our troops back home. in the end, people i southern afghanistan have to feel this is part of the government, that it represen themand that his the lines that have been laidh down, that is a vital part of

making in more secure. >> i am grateful for his commitment not jt to this house but also to afghanistan, and it has been clearer our forces were in demand. we have been fighting 51-year awards, and the british tops that now are taking down the flag is, this is a repeat ofalls road, -- basrah, and now we have been leapfrogged by the americans. >> i am grateful to the question. i know my rig hon. friend has great experience with afghanistan, including having travelled there hielf. i do not agree thise is basrah. what has happened is making sure we have the correct number of forces spread acss afghanistan to deliver counter

insurgency, and that does mean in some cases movg from one place to another to make sure they are low to the ground. it is welcome there are 20,000 marines there. we should not be iany way worried or ashamed. ->> i welcome the statement. any statement on the equipment. -- in his statement, the prime minister did not mention unman vehicles. would he give a commitment that there would be part of the equipment program? >> i ca give that reassurance.

i have had proper information about this. they are incredibly impressive. we will make sure they can be deployed as quickly as possible. >> i recently spoke to soldiers who have just returned from afghanistan. they made the point that the afghan police see goodman has been increbly pour. >> i am grateful to my hon. friend for that question. i think the problem has not been just the equipment. i think there has been a problem with recruiting and training and retaining.

it is an area, and this is a cause that has come out on all sides, but not enough focus was given in which training was key. the effort has been going on. theyre tning out now for a good police officers, but until now this w ignored. >> as the prime minister agree that the mine clearance vehicles available to our troops are the best in the world? >> i have aresentation about the equipment now bei used and the training undertake and it is incredibly impresve what our troops are able to do. the truth is you have to keep investg and keep catching up with the technologies being used by t enemy, because ty are

incredibly cunning in trying to

. >> good afternoon ladies and gentmen. we are about to start if people could tke their seats. thank you all very much for

coming to our conference on preventi the next bubble. preventing the next bubble is a very easy thing to think about and a very hard thing actually to do. historically, financial legislation is frequent. emergency financial acts of one kind and another in the crisis, and ten reform act expanding rules and regulation of financial markets afterward in the bust. both those kinds of legislations are quite frequent historically speaking. and yet, the crises keep happening. plus, you can draw lessons from onecrisis, imposed the lessons and that will lead you to another.

kling has a wonderful par on this abut the 19 '80s showing, in the 1980s where a seriouand really big financial bust for those of you who may not remember them, vividly enough, as rnold says the thr big lessons of the980s where the need for securitization, how we had to have risk-based capital and have we had to have mark-to-market accounting. all of these things were drawn as lessons, were forcefully applied and implemented and the three together took s righ into the frenzy of the housing bubble and a swamp of the bust. now cycles are natural and inevitable. i don't think we are going to escape cycles per se a while ago i came upon an interesting prediction made in 1997 bas on the author's view that there is a, an 18 year real

estate cycle that goes back to the early 1800's, which he traces. this was his predictionade in 1997. quote, the next major bust will be around 2008. a pretty good call. if we can't get away from cycles , nonetheless can't we be clever and at least moderate the cycleswe ought to be able to do that. surely, the extent of debt against asset values, the an-to-value ratio or ltv as we call it, has something to do with this. we all know that the bubble, e were willingo lend more and more against the current mket prices of assets or higher loan-to-value ratios. we might contst this with the following following loan-to-valulimitation or mortgage loans, tken from some pass legislation in the united

stes. quote, no loans shall be made for an amount exceeding 50% of the value of the property. is is fromhe federal reserve act of 1913, governing national banks. we probably can't go back to limitingoan-to-value ratios to 50%, but we can introduce counter-clical ideas and adjustments into financial markets, and perhaps into loan-to-value ratios. one of the tngs we will discuss toay. there are many procyclical elements in finance ad economic that is why weave cycles, and these ocyclical elements of course include the psychology of markets, a whole series throughout history f new era theories, which always of course improve the oppote that there

was in aw era and regulation and accounting also important procyclical problems to them. on a broader scale, how do we think our way out of bubble thinkingwhen the bubble is on? another thing that is easier said than has been done. how do we prevent the next, as opposed to only thinking about the last bubb, so we avoid the problems that arnold kling discussed and our outstanding panel is going t enlighten us of these and other related issues. let me introduce them in the order in which they will speak. first we will have congressman bill foster, who represents the illinois 14th congressional district. fore being elected to congss in 2008, bill worked as a researcher at the national

accelerator laboratory whe he was on the team that discovered the heaviest known form of matter. he led a team th designed and built detectors still in use there, including the recycle ring. he is a fellow of the american physical society, received the rossi prize for cosmic ray physics, received the particle accelerator technology prize for the institute of electrical and electronic engineers. he was awarded an energy conservation award from the u.s. department of energy, and now as is appropriate, to a member of the house financial services committee, he has turned his mind to some really tough intellectual problems, namely financial bubbles. our second speaker will be jay brinkmann, the chief economist and senior vice president of research and economics for the mortgage bankers association, where his responsibilities include economic forecasting,

mortgage industry analysis, benchmarking industr profitabilitand legislative and regulatory issues. jay has been with the mortgage bankers since 2001 and is head of the resear grup and was named chief economis in 2008. before the nba, he worked at fannie mae and jay rks onall aspects of mortgage fance as well as bank regulation and capital requirements and is frequently and widely quoted on real estate and real estate financing topics. next will be allan mendelowitz, who is a founding member of the commite to establish the national institute of finance, which in fact looks like it will likely get established, althoh under anotr name as allan will discuss. previoly, allan was on the

federal housing finance board from 2000 to 2009 and shar that ward in 2000 and 2001. he was executive director of the trade deficit review commission, vice president of the economic strategy institute and executive vice preside of the export-iort bank as well as being a managing director at the gao, which was the government account team office at that point when it had an older and more honest name. our fourth speaker will be mark zandi, the chief economist of moody'analytics where he directs research and conlting. marks research interest include macroeconomics, financial markets and public policy. he has recently focused on the determinants of mortgage foreclosure and personal bankruptcy, analyzed economic impact of tax and government spendi policies and asess e appropriate policy responses to bubbles. he is ten quoted in national and global publications and is the author of financial shock,

and exposé of the financial crisis as well as the forthcoming book, paying the price, which provides a roadmap for addressing our dating fiscal challenges. mark has advised both sator mccain's presidential campaign and the obama adnistration on these kinds of issues. our final speaker wll be john makin home we have strategically placed in the middle of the panel. john is a visiting scholar at aei and al a principle of caxton associates. he has been an adviser to numerous u.s. government agencies, the federal reserve system and the bank of japan. john joineaei in 1984 after a diinguished career i academic search. he is the author of numerous books and articles onfinancial monetary and fiscal policy and he writes aei's monthly insightful and incisive economic outlook, which you should all read every month.

each panelist will speak om 12 to 15 minutes come except congressman foster who gets 15 to 18 minutes. [laughing] he got a special extension for coming over and jning us toy. after the presentations from the panelists, we will give the nel a chance to react to each other, it any disagreements are extensions of thei comments. we will then open the floor to your questions, and we will adjourn promptly at 4:00, unless you run out of questions before them. you have the floor. >> thank you andy thanks also to the american enterprise institute. it is actuly after reading a book by one of your scholars that i decided to leave physic and get into polits, s-- i really enjoyed e liveliness of intellectual debate that comes

out of this organization. the counter-cyclical down payments is the simplest scheme that i could come up with that really had a shot at kilng the next bubble. and i would like, before forget, to also acknowledge the voice of polly cleveland, mason gaffney, alex holick who contributed lot of the ideas to this. so the basic concept is fairly straightforward. you automatically increased down payments when hoing prices start to rse rapidly. the ideashat this is a feedback mechanism that will dampen or eliminate housing bubbles. its not an attempt to regulate the absolute value of asset doubles. simply the rad osciation in them. that is is the point i will return to so this is not a form of price control. nothing in this will keep san francisco housing from being more expensive than detroit and so on but it should i hope get d of the very destctive boom and bust cycle we are suffering through right now.

so this is a feedback loop. this is well-known from engineers control. there are some examples of this that you are all familiar with. the thermostat is one where you monitor the temperature and if it is to love you turn on the furnace, and turit off if it is warm enou. the governor on a lawnmower engine. when you listen to a lawnmower going to the deepgrass, it pops back so the reason that ps back to the original speed is there is their mechanism in there that senses the drop in the speed of the lawnmower an opens the throttle and it goes back t its correct operating speed. that is an example of the so-called governor feedback loop. so one othe possible titles for this talk is simy to have a new governor for the federal reserve. [lauter] another example of this is that we are all familiar with, the cruise control in an automobile where you regulate the speed. this is an example of where the cruise control exhibits an

opinion of what the orrect speed for the car should be and that is not actually what this is right now. it is more like another thing you are familiar with though not as conscious of is the mputerized excelerator control in modern cars. it used to be if you take your foot off the gas, everyone would lunge forward but it s not like that anymore. what happens is that the excelerator is programmed to very gradually limit the acceleration or deceleration of the car for the comfort of the passengers andthat sort of control does not exhibit any opinion about what the best speed the car should be opering at that will illuminate the big accelerion and deceleration cycles that butcher face through the windshield. so why dampen housing bubbles? why specifically housing? first off that is where the money is. hoing dominates hustled network. we have se in the last decade or so that we can survive a bursting stock lel but not a bursting housing bubble.

develop over months or years and so there is time to have a look at tm and identify them. there is a relatively intrinsic volatility in the intrinsic net worth of housing. this s in contrast to stock evaluations, which derive from opinions on future dividendand obviously those opinions can change raply. and the other thing isthat housing demand changes on a demographic timescale in general, absent a gold rush or something like that, it changes fairly slowly. finally they are reasonably good statistic measures for feedback. there are a large number of publicly recorded transactions so you can get your hands on a lot of theumbers. and this is just the point about the net worth and a huge bust we are going through. in approximately a period of 18 months, $17.5 billion of

household net was destroyed and it is recovered, 6 trillion h been recovered since the massive intervention of ou ecomy that happed a little morethan a year ago but this is the largest destruction of wealth in human history. it is a huge-- it is hard to overstat what we are living through right here. it is fact worse than the great depression. if you compare to the fractional drop in household net worth, te peak value of 0 is plotted on there and it is dropped by 20% in this period of 18months. just an enormous thing. if you compare that to the great depression over a period of four years to (192)019-1933 household net worth only droppedby 12%, so this is a cataclysm that we are livi through. so if there's any way to even mitigate a recurrence of this comet will cause a huge reduction inhe human misery that this causes. another thing hich startled me

the first time i saw it is that housing is not that great a long-term investment. if you look at the inflation corrected housing prices, the top set of curves there are the inflation corrted housing prices from 1972 today, and you compare that to the nominal ones. if youook at a nominal curve, the lower curve you can see a house purchased in $197,425,000 could be sold for 250,000, which led to the generally held concept tat housing is a wonderful investment but actually if you look at long-term values, the housing only goes up at half a percent above inflation. there were ripples on the orde of 20%, but it is something to be awaref. the other thing is if you just look at the inflation-adjusted price, it shou've been mpletely clear to everyone that there was a massive bubble. i was in physics at the time, so i wasn't reading the economic

statistics but it makes me furious when i see people come into my office with their lives destroyed cause they have refinanced and destroyed their retirement at the peak of e boom. >> bill, just to be clear, you have a haf percent or so real compound growth rate and the nominal with the about three? two or 2.5% inflation? >> there is a web reference to this. here is the simplest scheme that iould come up with to avoid this sort of cataclysm, and it is simply to say the minimum down payment would be a consta number that i have taken to be 10%. there will be along socioeconomic argument about what that the numbers but add to that a term that is the percentage increase in the real regial housing prices over the last three years, or some fraction thereof. you might decide to add half of it or a quarter of it or some number like tat.

then there's a whole set of fine print behind that simple idea. one of them is that if th housing prices negativyou have to treated as zero. you can't go below 10% in this case. and you could use in a fixed of is. it is not clear you want to have 100% of thehoug price rising, would you apply to the down payment, and from an engineering point of view that controls theain of the feedback loop that is doing the thing. finally, there is nothing magical about using a three-year difference to determine the housing price rise. i played around around the spreadsheets and it seemed like a pretty good way. the housing bubbles tend to rise on the timescale of three or four years and so that is why at was the difference taken. obviously this would have to applied on the loan-to-value limi on home equity for any kind of refinancing as well as just down payment on new purchases. is could be thought of as, in several different ways. i think of it is as a feedback

mechanism. havebuilt dozens of feedback mechanismsor analog circuits. my last big project was to make a giant feedback mechanism to keep a very intensbeams in a particle accelerator centered in the beam pipe as the intensity went up so the feedbactheory is very well evolved from gineering controls very and there is a lot of things o be learned there. this is the simplest possible one, chapter 1 and all of the feedback looks. it c be thought of a feedback mechanism, also prudent counter-cyclical principle that all mortgages have to make sense even if housing prices were where they were a few years o. thatfanciful would also save us from this last disaster. it can be thought of as a simple underwriting rule,f which i will basically give you a mortgage based on 90%f the long-term value of the property, but only a small fraction of the recently appreciated value, so you basically treat skeptically the value of recently appreciated assets which i tnk

ishe principle that is important, to have this mechanism work. specifically how that would have workedn the last houng bubble, and i have a set of plots i will be showing yo which are how this formula would have appliedo down payments during the price bubbles in different regional markets over the last 20 years. in reality of corse, if you put in a mechanism that turns up the down payments so as the housing bubble starts, that'll squelch the housing bubble and you won't have to turn it up as high as these plots will indicate. and there are also igher order psychological effects. when you have a feedback mechanism like ths, if someone knows they a thinking of flipping a house, even if they succeed and that the house goes up in value, that at the same time someone, some mechanism will turn up t required down payment they know that tt will restrict the number of tires available to buy the house they are flipping and it will discourage them even from

getting into the business of house-flipping. to begin with data use for these curves is the sdk schiller numbers. seasonally adjusted to avoid little ripples that ar annoying to look at i regional, since the markets have individual characteriics. i also use the inflation-adjusted numbers excluding the food and energy becausthey seem to generate noise. the plots look nicer. this is an example of one of the more pathological of our real estate markets and you can see this is las vegas. the top curve there is simply the inflation-adjusted housing price from 1991 until today, and you casee for the first decade or so, it just follow the inflation. it was a well-behaved housing market and then for reasons that can be talked about forever, enormous bble developed where housing prices more than doubled in a period of three years. and so than the curves bew that, the red curve there would

be the down payment that wuld be implied by the rule i just deribed, that you simply say however much the housingrie, whatever percentage the housing prices have risen you just add that to the down payment. in the lower line, the lowest line, the eeone is just a 10% fixed down payment. on the intermediate line, if you only take half of the housing price rise of that is the mber you adjust, the gain of the feedback loop to depend on how much damping of these bubbles you want. if you look at other markets, there is miami wherehey also more than doublebut it took more than just three years for them to go so you ill would ha had a very high-rise in the down payment but if you tke the most aggressive of these, the ones where you just say i want 100% of the rise and add that to the down payment than that would haveade a down payment of 53%, which of course would have sucked all the speculative capital out of the system than that double never would have developed anything like that.

seattle washington is an interesting one. it atually had a dole bubble having to do probably with the dotcom boom followed by the national housing boom. minneapolis had a more midwestern bubblebut it's still increased significantly and you can see that the maximum down paent there would have peaked at about 34% if you had let the full formula take effect or a smaller fraion if you have less aggressivedamping. cleveland barely had any bubble at all in the formula would have d no effect there. it would not have saved them in and when there was a drop in housing prices but yet there would have been fewer people is heavily underwater as they are, even n places like cleveland. the 10 cityaverage, the simplest thing to do is to take national numbers and have one national number for what you have to do, not attempt to do regional justman of this formula. if you do that you can see that would have forced natnally a very substantial down payme on

the order of 43% if we had that very aggressive rule which nationally would have pulled a lot of the money out of the down payment, out of the speculative money out of the market. so, one of the features ts is that you don't have to argue too muchinto long about whether the fixed amount is 5% or 10% or 20%. this gets very quickly in sociological things that i thik -- that can dinate the discussionore than they should what is important here is that you have a mechanism so when the markets go crazy, you squeeze them off and if you have that in place, the then you can actually be more aggressive in having a smaller minimum down paynt. i am not goingo go through is, but this table here, it makes the obvious point that if you have this counter-cyclical increase in the down payment, at that will prevent flipping

from being a lucrative business. if you continue tflip housing prices where you always have 10% down you can very rapidly flip yourself to a very lrge house whereas if you have the counter-cyclical payments in fect, then they get eaten very rapidly. the increased down payment eats up the speculative gain that you just had, so you can't-- it makes flipping a much less lucrative busness. there are a number of things-- is is the simplest mechanism that i can think of that has a decent job of working but there are a number of things you can do for possible improvement. the question of whether housing prices should be natnal, regional or sectoral, multifamily and single-family done separately. you could have questions but regulate the volume of housing sales. one of the most disruptive things ishat you have realtors that are underemployed. we had a big army of realtors in housing constrti crews to

feed the bubble and now they are sitting on their hands. that is all very destructive and you might feedback partly on the housing volume there. whether you use inflation adjustment or some other long-term trends there, whether you use price to rent ratios. this is the economist magazine's david mechanism for bubbles going on and that may be a better variable sense of feedback. incomes and basically income to price rats are another variable and geographical smoothing so that you don't want to be in a situation where someonacross the street has a veryifferent down payment just because he is in a different zone foraveraging. and the other variables that you look at from an engineering point of view are what actuators you are using for feedback. i talked about changing the loan-to-value limits on mortgages. you can also very other underwriting requirements counter-cyclical he and oer one that was in the amendments that i got into thehoue passed

version was to look at securitization skin in the game. that is another thing which affects the total amount of money that will be available in a housing bubble and that is something which could be very counter-cyclical. there is the whole slide here bui won't go into it in great deil. what is the right up the the amazing of a gain of the feedback loop? what should be applied to the next down payment and that is something that is partly experimental. the only comment i want to make there is that this i being done sort of on an ad hoc basis in china and israel right now, and so there will be data to know how a housing market response to step function and loan-to-value, so you will have some idea what the feedback loop would do before you activate it. ..

all right. i think that will work well. ok. all right. that will work well. and so, you know, this is what the chinese -- are doing. a formula has advantage of being more transparent, simpler and probably less prone to political interference. life inside the feedback, you'll see stories inside the newspaper, that says now is a great time to buy house because interest rates are low.

there will be another class of stories that says now is a good time to buy a house because -- a bad time to buy house because the down payment is higher. mosl things is no o wants o be the dumb guy in the room who missed out on the big price run-up. and the instance of this negative feedback will tell you to not evenry and then you wot come and ithink that will have a very powerful second order effect, and allow you to have a very small gain on the feback loop and still tell the bubbles. legislative implementation could be an underwriting standard using, for example, the fed authority to set mortgage origination reqrements tionwide, or simply condition on goernment-backed mortgage backed securities. and there re some downides and this is actuallymy closing site. you know, on to is the mechanism like this will slow the redeployment of the capitol and sponse to changes in the

economy. but the misallocation of the cattle to to this one as a gold rush, you know, housing stock will not be built quite as quickly and the gold rush now as it would be without this. but this misallocation i tiny, tiny compared to the misery that we are going through right now from the bursting of this double. it will also destroy another -- it ould start some punishing one sector for the bubble in a nearby sector that basically gary is not chicago in some way of saying this, and so that is true but it's still it should be small if youhave a well regulated market that is not going crazy. and of course but itposition of the housing industry's now will be inevitableut at is all pretty true of lots of other industries that areout there. okay. well, and so this is the end of it. thank you so much. >> this is the big problem right here. we have to prvent this $17.5 trillion from after disappearing from our useholds again. thank you. >> thank you, bill, very much.

jay? >> when alex first told me and suggested the session and and with durham would participate i loed at thtitle in by said after i accept i said ge is this taking on perhaps too much? and i actually equipped to talk about how to prevent the next bubbleso and of the washington fashion, i decided perhaps to redefine the question and say well, but we talk about how we could have prevented the last bubble and then see if there are any lessons then to be learned. the other one first is ick your bubble. housing of course was the most structive aspect of the bubbles that we saw during the past decade but it's by no means by itself resolve similar bubbles in commercial real estate, stock market averages,

oil, agriculture, metals. some of th is a timing issue. it did the housing bill will in fact proceed some of these others? but in fact we saw a number of lls taking place and there are two keys to keep in mind in terms of just how destrtive the bubble ca be and i wuld dee dee to -- foster elude to this and that what are the factors that are taking place in terms of t supply and demand for driving the sort of equilibrium to seek suddnlythe price so much higher thanwhat has been experienced in the past and yousort of ve to understand what is underlying thelasticity and that of course is the effect of the ltv government mechanism to address at least on th demand side. but al keep in mind that leverage bubbles are mucmore deructive than pure equity bubbles andso carmen reinhardt in her book this time is different goes into that pit and it's important to keep in mind it's not actually controlling

the prices that controlling the amount of leverage than that is this slide is something i. sometimes ferred to as my standing in front of a bunch of arging ledings screaming clift ahead. i was using the starting presentaons during 2006 that showetwo things. one that repesented the inventory of ne homes that were on the market. and if you look at how that line has increased from 2002, 2004 up to at thispoint going into early 2006 we were at all-time levels. we had never built that many housest that big of an inventory of houseson the market. well why would people doing this? wait completely irrational? if you look at the bottom green ne, that represents the inventory. and what was being said was we are selling the bins as fastas we can build them and my question was aays wear is that

demand coming from? who ctually is buyingthis? what are the facto that can suddenly cause the demand to choke of because if it does stop that's going t be a pretty expensive ventory tory to carry going forward into the futu. and where were they being built one of the questions than it is housing, bubbles and housing destroyed the economy. no only that but housing in california, florida, arizona and nevada, but largel then destroyed the economy what took ple what was special in the states that differed from the rest of the united sates. underwriting standards were essentially the same ltv requirements were essentially the same, loan pricing was the same but wen you look at levels forecsures, levels of the price structure what caused this to take place in those states? th also ithink has t be examined in terms of the cause of the bubble. now, if it is a demand problem,

at then led some of this big increase in dmand, and i don't know that i have got a good answer to some of the california florida issue but i think some of these you can think of in terms of the states. suddenly te announce of the high ltv loans as the down payment requirements got thinner and thinner as we went to 100% or more loan to values the industry has done that in the past, usually without a good outcome but it's one of the cyclical things that learned the lesson and theeneration passes on, the new group comesin with a better idea in fact the same idea. so certainly the high loans were a factor. also, crit spreads tighted sparking the price forechem as a prime and other lenders. but when you look at the risk wajust taking on therisk but what was the pricing of that risk? so if you look at companies like america west,option one, new

century, they were in a war with each other driving down the price is trying to cture market share that people were nopaying for the risk that many people said were truly in those mortgages because of how this is being passeon and then certainly a bigfactor was the low were documentation stdards. telling how much you make or how much you would like to make or how much you would like to say how much you made iorder to get this loan. certainly then increase the availability of demd. the other issue was to an extent bone structure. all loans to play an imprtant role. all loans don't play a ro when you've got the market as we saw in california and to a lesser extent florida but certainly in nevada, dominated by the 228, pay option on some interest on the loans, etc., were the teaser rate loans which again are not bad because they're being passed on to the bar were some of the savings, some of th earnings the lender gets but the customers don't understand how

the teasers' will reset the essentially allow people into these mortgagewith low paymes for the period of time that are not sstainable in a long run witht ooking at what the combined macroeffect of what happened when the payments then i just. you also have to keep in mind e degree of fraud that was in the system whether that was from lightning abt their income. keep in mind, during this period of time it was also possible to buy your fico. you could go on with a certain amount of money, if only it yourself with other people's credit history and depending how much you want to pay actually artificially inflateour cred score to be used goingnto buying a loan to purchase after stopping then you'd have reversion to the means s that there was actually some fundamental fraud taing ple in terms of the rdit scores gng into tese models. a tremendous amount of fraud in terms of occupancy.

people claiming they were going to occupy property and then was turned outhat it was for flipping purposes largely not for rental. theyidn't want to be in the rental business but thy were buying a many as they could to take advantage of price escalar and then the plan of financial fraud that would bar the whole chain of people involved in a between the originators, realtors, appraisers, anyone else tht was in the process. you also had brokers and loan officers aain coaching lenders in terms of the stated in come that lead to just a lot of people in loans that could not be supported. incompetence. i don't think we can downplay the role of incompetence in this whole mess, and again, how then do you deal with that going forward? but sudenly the credit model starting thus whether from the credit rating agencies, s&p, moody's, fitch etc, feeney and reddie, the essentially were backards looking at loan level performance to get a look at how did individuals historically performed with this particular

ltv, this particular credit score and really ignore the macrofactors tt should have been examined in that market. can we fully expect 8228 mortgage to continue to rform this way if x% of the market also has to and that's driving whatev pcent of the sales are taking place. theriskased capital models for fannie and freddie. it's not well understood but those models that were put forward by the regulator did not include credit scores. they did not include documentation. so that if fannie and freddie r to make a 90 fio or vantage score alone with no income documentation, the risk based capital standing on that loan was exactly the same as making a 80 kert is core loan fully documented. and that is still the case in the regulation of the state so that capitalstdards with fannie and freddie aga did not increase the way that one would

have expected them for creasing additional risk and finally, the risk culture in the institutions ere appalling in many cases. the mba published a paper couple of weeks ago to read it goes into detail aboutow the credit culture in some of these institutions did ot hold up and look at housing ad america.org for a copy of that paper for a good review. now, what is the issue that we uld face e countercyclical down payment proposal itelf. fit of alli think that he would run into political and economic problems in trying to get something through. the first would be the cra exceptions. having tgo into institutions to allow to say this is the overall down payment requirement but with cra perhaps we still need to have a very low down payment requirement. i remember a few years ago, probablybout five years ao now thrift called me at bedle

new williamson's what information do you have on pay off some alarms being made in the market? because the c.o.e. regulator was here asking why are you not making so my the option arms for the competitors? we think it is an important cra the on the side they are trying to push loans and i think we could run into that here. i'm always cognizant of the political part of the realstate agents, home builders etc., and iemember the fight we had over the down payment assistance on fha program that clearly and we are still fighting that to some extent for the fight to come back. so the death by anecdote oftv reporters, local news reporters coming up with example of why is it so and so in this town has to pay the down payment of this amount whereas across the river or another area they can get by

ying this, is that something fa but ultimately defeat the purpose? how do we put something together to try to respond? and i think also been to get the argument of higher ltv and clining marks if you think about the market where prices are ill the going down, does it make sense to require the high year ltv's in the market is showing the pposit of the bubble butore long-term crime and also as i get into the mechanism i tnk it would cause certain ings and unpredictability and the demand for the family units an hw yu finance these departments would sort of occupancy driven by the rapid changes and down payment requiremens to get a feel that therare some other technical issues we would have to look a. all of the home price measures i don't care who it is they are flawed in some way and that users of those understand some of the limitations. and nothing is in to be perfect but you always are gog to run into a problem as these things are built into the reglations, who is chosen to any o these

then come out to the forefront that need to be addressed that even with the moving average component when little bit afid of is that as you then get the drop and you've got this whole body of potential dmand sitting in departments that he all of a sudden now the ltv requirement, down payment required is only 15%. if theyalthen rush out, does that then calls an artifial demand given the limited supply to shoot back up and you end up with of the equilibri level of your the one ltv wheas others wod tend to operate from here. maybe not but i just -- thinng about the mentality ofthe buyers and how they would react to these sorts of changes. and also, it would be a ver difficult issue for lenders if theye newest changes adds up in terms of compliance they he a hard enough time trying to comply with changes in the low limit going forward. so in nclusion let me just start i think the good point

abouthe proposal is tht it really opens the door to the concept of the lcation based differences and pricing that one of the montrose of fannie and freddie over the yars is worth equalized credit costs and interest rates acrossthe country which was true in terms of differences when we had locally based markets, locally based supply money for mortgages not true when you've got differens in credit i think looking a proposal like th it opens up that entire debate that credit is not the same across the whole country and also with opens the door tothe countercyclical regulation that looks athemacofactors to take a look at it it's not just w a particular loan performs or articular ltv but look at what is in the context of the ovall situation, the supply of homes coming in, who is demanding that, what are the types of mortgages behind that and address someof the issues there. so one of the recommedations i guess it to build on ts will be not necessarily concentrating just o te ltv butperhaps

lookout in the cltv impact the investor site. there is a way of dealing with owner occupied differently from those driving the demand for purpose of flipping. how then does that fit with other credit factors and ju sort of fm a larger view than that in terms of building the government that we. so with that. >> thank you, jay. alan. >> i have to say if this were a session of house of representatives at this point i would be saying something along the lines of then i will be happy to see my time to the honorable gentleman from illinois. [laughter] i thought i would get a little better laugh than that. [laughter] anyway. the ne bull can there be a policy response and -- how do you change -- basically i think

there are four questions with respect to responding to the bubbles. one is what is the bubble and licymakers. secondly why do they occur. third if you can leave for flake enzi -- [laughter] associated rise to the level of meriting the policy reonse and forth, can the government intervene effectively to respond to a bubble and those questions are not necessarily self-evident because if you remember the defense that alan greenspan mounted against the fact tha said during theeveral major bubbles was how it is impossible for the licy makers to spot a bubble. well i would disagree with that. the bubble rises when there is a significant diversion between the market pce of an asset and fundamental value is value that is determined by, you know fundamentals in the case of

equities, it is reasonable to understand and understand that there is a bubble when share prices became unhinged from any reasonable expectation of value future cash flows and pofits. it is perfectly reasonable. in the internet bubble the only way the pric on th.com stocks would be described bynalysts is if there was a new valuation basis and the valuation basis was oddballs. i decided to test the thesis. i ry to pay one mortgage payment with a check made out and i lost dee dee for-- eyeballs a my mortgage servicer did n even see the humor in it. in the case of housing in terms of the housing price. i mean, basically we know the housing price is worth. what someone can afford to pay. with somne can afford to pay, how much they can borrow and how much they can borrow is usually determinedy things like income, interest rate, credit

and available collateral d when you have housing prices that require loans that are sically unsustainable for the bar where you know yo have a bubble. commodities dependent the alternative ues are and can the bubble be seen i think it is pretty clear that the folks who didn't have blinders on dustin there's a double in the case of the equity during of the dot com doubleand with house and the years following e dot com bule. in fact, i have to say with respect to equity, when a ll brought time warner, the aol inveors were getting upset because the were not going to get benefit of the do om advante of pricing and my reaction was these people are unbelievable. you have a stock like a ll whch is an artifice of the dial-up year of whenthe world moved to

broadband aol was pretty worthless entity. that was thelong run. and they were able to treat worthless stock for real assets and real value. and why the shareholders got upset is beyond me so why did the bubbles occurred i think that is to understand why the ocher you have to understand the fundamentals between the slow market and the stock market and i put quoes around slow and stock because i didn't want you to confuse stock market with the stockmarket, the stocexchange. basically the market i dominated by production consumption, production to supply, consumpon is demand. the stock market on the overhead is a market where you basically have fixed supply. and when the demand changes you get a different response and flow market. the flow market when you get a change in demand the shift apes up and to get a shift in price and in quantity supplied

and the dynamic will over time you get an ncrease in pro supply curve as well and in the stock market ere the supply is fixed and ousing basically the stock market because in any ven year you only add to the housing stock is very minuscule percentage of what's outstanding to be a so from all intents and purposes to the stock market in the stock market the supply is injury as demand increases practices gop how much prices go up dependent on how much of the increase in demand there is and what the elasticity of the demand isn't so notwithstanding what price spikes and low markets like the cabbage patch dolls, remember when 18-dollar cabbage patch doll could be brought on ebay maybe they didn't have t day, but people were sellinto the cause selling cabbage patch dolls for $100. those are no flow markets are instantaneous. if the demand for the cabbage patch dolls spike it's going to take a few weeks to give extra

protection to the stores sell you wind up with a price spike that you don't get a bubble of the cabbage patch dolls. the view can get the bubble in the market stock market. do the bubbles meredith was a response? i think someo and some on't. does a bubble in tulips merit a policy respo in gold negative policy resonse? does a doubl n the d com equities and housing? and there i think the issue with respect to whether the level to the goebel represents a balanced response is what the risks, what the cost of the risks realize and i think whether in fact e bubble rises to a system like a tent or threat ani don't think to lips rose tothat level. i don't think gold does. if you look what is going on now it is really quite amang. you have peopl out there bodyingold because they thk it's worth sething and then you have the great investors of the world announcing they are

buying gold, too bu because the people don't really understand that it's not wort anything. it's got to be worth something that gets reinforced by the fact but investors are buyng gold because others are buying gold. it doesn't rise to a policy level but i think that when we look at the destruction of wealth congressmanfoster mentioned you have a situation where cleay in the housing sector the macroeconomic consequences and the destruction of all the rise to a systemic level and did merit intervention i might say tht five years ago i stard predicting there would be a major credit in housing a is based on readily available data that was pretty simple to understand. what was the change in house prices of the to to the change in income. house of income was going to present and ousing prices 20 or 25% to have a major problem and certainly wasn't on sustainable, and itaslso based uon the judgment that there was cearly

a collapse in the credit underwriting. expansion of creditnow we could expand credit without ing down the credit scale and was cleared by things goin on th there was a collapse in the credit underwriting so when you mix the great expansion in credit with the bubble in housing prices and the collapse in credit underwriting standards, you know, you have a major crisis brewing. as an economist i hae to give anecdotal evie but in 2003 my daughter bought a house, and at the time she was single, fresh out of school. shwas a nurse working for a year and i made sure she had a good down payment and she went off and bought a house that required her to borrow five times for income and when she was going through this ocess i said to her now have o tell you no one is going to give you a mortgage. you don't qualify. and so when the time comes i will have to flow yet out and cosigned a note for you and she said okay. and by standing by the pho and

i did this call and she says saigon. i said what you mean you're done? she said got the house, got the mortgage, everything is done to read the real-estate mortgage compangive me a 20-dollar gift card for home depot and a truck so i could move into the and it was clear to me that that was a loan that wasn't made on the basis of the usual standard ofredit that was known, that s based on one onsideration only and that was she had enough equity in the house if they had to foreclosehe bank would be made whole. the was a major problem when i really began to focus on the fact that ere was a problem with credit underwriting when it comes to housing finance. so, th government response given the fact that bubble is created by the cnge in demand operating on a fixed quantity available for sale obviously we the we want to respond from a policy perspective is with an effort to reduce demand.

we go to the examle of the housing sector there are any number of things that can be done to effectily redue demand and reduce the pressures that might build up. you know, looking back on what ppened in is las crisis, like looking back we stopped the last crisis, one thing we could ve done is we could have reduced the availability of credit by having regulators have credit rating under standards and that could have been done at the nancial institution level, it cold have been done at the fannieand freddie level. i have to tell you i know the staff at fann in 2007 wen to the director fomc there's a collapse in cred undwriting taking place we have to do something. and the director says don't go, i don't want to see these people again. simply to reduce the availability of creit by reducing the demand for the

rtgage asets. one of the things that helps fuel the internet bubble is th fact that faie and freddie have affordable housing goals. that the affordable goals by providina maket fo the aaa charges of some prime private-label mortgage bked secues. if they were not ermitted any coverage to buy l of those mortgage-backed securities the ability to lay off the sub prime mortgage backed securities in the market would have been significantly lower. third as the congressman foster talks about great length, in a much more sophisticated way than mentioned here, you can reduce the supply of available financing by raing downpayments. and inact this was done in isra last month. the bankf israel understood -- and many of you probably know the your governor wpm stan fier. stan was faced with a real conundrum because the macropolicy variables with the macropolicy should be, did not

ll for the rise in interest rates. however, it was clear from the date of the recollecting there was a bubble in housing and last month it was to announce no crease in interest rates they did raise the minimum downpayment from 20 to 30%. publicly that is tough tdo. i would say te time when he did this the papers were fuf massive outcry is about the poor young married couples who couldn't afford housing held there had to be exceptions for these people and everything else so politically tho things are tough. and then lastly you can reduce subsidies to housing that are built into the tax system, and by the way i'm not even talking here about things like mortgage interest property tax reduction. those have long been factored in and capitalize into the value of housing. i'm talking about the thig that got introduced not very long ago in the 90's that provide

incentive for flooding. they basically told every homeowner every three years they werentitled to $500,000 in tax-free capital gains if they sold their house. and th is one of the i think one of the things that fit into the housing double that i haven't heard anybody mentioned. but these were changed th psychological outlook that people have of their homes from the so of long-term investment to a short-term ebt quick type of investment. so is it possible to respond to the bubble? i'm using this picture here because the year-ago i used this slide in the presentation i made here we have a program that alex organized and chaired on systemic risk and to present the first time the proposal but we are putting ogether to create thnational institute of finance and we considered such a jor challenge. i and the presentation with the

slide and i hato pay for the slide but i figured at some cost should get maximum use to lowr the average cost per slide and it shows the picture of a penguin flapping his wings flying while the pain when sitting on the ce floe and the line if you havn't been flopping them hard enough. and that is the common carrier on the ability of government respond to bubbles in the future. i think that it is possible to spot the bubbles. i think that with the creation of the office of financial research and regulatory reform legislation that's currently in th conference committee of the government will have an entity within the capability and ability to in fact assess bulls and whether they represent systemic threats rising to a level that woulwarrant a policy response. as dn fisher felt when he raised minimumown payments from 20% to 30% in the context of the israeli housing markets

it is really tough because the very same people who are today criticing the government policymakers for not intervening to reduce the double would be criticizi the freezing policymakers ifearliein this decade the had intervened to prevent a double because everyo wldave seemed an opportunity to make quick gains ick cash and they would find that unforgivable offense. thanks. >> thank gentlemen, mark. >> while market is getting set up i'm going to suggest that if office of financial research -- yeah, push the button. if it does set up it could conduct a pain when flying as its mdel. >> thanks, alex and for the opportunity to be here today. i'm going to make too broad

plates in my remarks. point number one, acid bubbles can be ientified but it's not very eas. certainly not in el time. thinthere are three coitions for a double to occur. first, the price of assets, the price of the ssets have risen consistently strong the above the rate of growth of the underlying economic fundamentals volume. in the case of stocks the earngs of housi -- in the case of the economy more broadly i think gdp would probably be a pretty good proxy, and you can see here a meare of the value of total household assets to gdp since 1950. thers data from the federal reserve fund. you can see the general ability in the rtio in the 30, 35 years after world war ii througthe

early 1980's and then the rise in the ratio and of course th two spikes are consiste with the technical and housing bubble. the general upward slope of this ratio does create difficulty to interpret when thebubbles to cur and i will come back to that in a few minutes. what criteria number onesthat obviously e price f t asset has to rise quickly relative to the growth in the underlying economic value. condition number two there has to be a lot of actvity, a lot of transactions, a lot of flooding. that is easily seen in e housing market and housing bubble this is the housing turnover rate back to 1980. it is the number of newand existing home sales of housing stock. the average to the entire period

is about 6so that means 6% of the housing stock changes hands in any given year. you can see those in the piece of the housing boom and bubble in the mid part of the last decade the housing turnover rate peed at over 9%. that was in the thd quarter of 2005. in a market speculators people are purchasing th assets within cent of quckly selling profits so wit another condition for thebubble is a lot of it t become a lot of transactions. heceded in the equity tat arou the time of the volumes of the stock transactions it is clearly vey high. the third criteria is leverage. not necessarily the case that have lots of leverage and the eqty double the was use of marg to finance purchase of

stock but learly in t housing bill leverage as akey compnent and i think one of t easons why the bursting of the bubbe was so significant for the macroeconomic perspective was that in fact it was driven by leveraging to can clearly get a sense of that year and this shows the ratio o residential mortgage debt to the after-tax income from 1970 to the current -- again this is the the based on the federal reserve flow of funds. the ratioose steadily and consistently close therend through 20 and then took off peaking at the height of the bubble. so the third criteria is leverage. rapidly rising prices to become sconnected from the growth in the fundamental value of the asset. number two, a lot of transactns indicative of flooding, people trying to make a quick buck and the market, and

number three, leverage. those three conditions are essential to the development of a bubble and they are evident in that is a clear indiation of, fairly clear indication bubbles are developing in the nascent market. to a point bubbles can be identified it's not ey to get certainly not in real time its just for fundamental good reasons why the prices should rise quickly relative to underlying fundamental economic dalia this goes back to firs slide. the green line is the ratio of households, assets to gdp, and i've overlaid on top of that the five-year treasury which is about aerage of the household asset to consider all assets and you can see as you expect strong inverse relationship between the two. e steady risein the asset t

gdp ratio over the last 2530 years can be explained ateast in part by the steady declie in interest rates. the other is the risk premium one what attached to the interest rate to the this is the trsury free. one could gue another reason for this steady rise in share of assets to gdp over the last quarter-nturis this decline in the risk premium. now obviously that risk premium got a very low probablyan ardent lovern the housing bill would never the less you can still make the cethe economy generally is most volatile than it was hiorically as t returns are going to beess volatile and therefore a lower risk preum andherefore higher asset price relative to the fundamental economic value. so my point is that it's asy to say i can see the bubble, there is. prices are rising quickly with

lotsf transactions, people are borrowing heavily and those are all in the gift that the same time there are other forces at work that complicatematters quit significantly. >> the point number one the bubbles can be identified but particularly in real time it's tricky. this was theoint number two and that this be given i feel we can reasonably identify the bubbles with caveat i think that there is a -- there is room for a pocy responsewhen the bubbles seem to be developing in our economy, n there are the different approaches that think are reasonable to take. approach number-one, introduced into the monetary policy there has been a general view the federal reserve should not respond to he acid dubles the deral reserve should only

respond towhat'seen on with respect to ination and a broad economic conditions. and that aet bubbles are influencing inflation in general ecomic conditions than yes come responsive but not directly it is changing and probably shouldnge. and to give you a sense of what that might mean is this particular graphic. why ha done here is estimated the federal reservereaction futionespecially tayler's rule that is expandein the traditional rule you have a asure of inflation, measure of the gap or the emoyment rate gap and that is expanded t reaction function better iude a number of other variablesone of which is a measure of acid bubbles and that is high-yield corporate bond spread over

treasury and thahas done historically pretty well markg different bills that have occurred. if we ue house prices will only get the housin bill, if we use stock prices will only get the stock doubled. the highest yield spreads have risen quite significantly as narrowed quite ignificantly during the using board and narrowed three significantly during the stock market bubble and very significantly in the early 195s in that period of the s&l crisis and others begin the activities. so i've included that in the equation as well to round out the others the gross assets account for credit easing and the issuance have structured bonds to account for the functioning ow well functioning to t credit markets are which affect the efficacy of monetary policy, high interest rates are influeing the economic

conditions this graphic represents the ntribution to the appropriate taet federal funds rate derid from the reaction function and to concede that would suggest that research should have been steadily rising. increasing interest rates, the federal funds rate more agessively as the housing bubble continues to develop, and by the end of 206, erly 207, the fund re at last by this metric would have been 100 basis points higher than it would have been otherwise than it actually occur. you see the metricunlike the current policy where policy makers don't respond aggressively but dorespond when the bubbles to bur his ws arg the federal reserve should be very aggressively when bbles arebursting. one of the qck points you well know the last data points out we don't have a double problem that at least by this measure where they are on a basis mobile and

therefore no efft on monetary policy. >> that bottom point there in 1909, and you're talking about the difference. >> 2009. >> good heavens. the trouble with studying history. [laughter] >> is your proosed said note at that point there? >> that would be met firmly negative in 2019 even without the bib given the reaction i just described it still arges the negative federal funds rate target. accounting for ftioand employment, a credit easing and the structured finance market. the second thing policy maks can do is adjst capital in the financial system ore broadly and this gives you a sense how the mechanism might work. it's called the cyclically adjusted capital, sohe bankin system has to old of the certain level of capitalif the

environment is such that you begin to think he system is becoming speak with and credits, eckert it is expanding too quickly, then you can require regulators to require financial institutions, banks to hold more capital against the possibility that things are getting a little frothy. and you can see how that mechanism might work here in the slide to the left that the blue line dollar line represents represents total credit to gdp, adjusted measure kind of leveraginghe ecoomy. the red line, dotted line right hand scale is the difference tween the credit gdp ratio nd long term trend, so it givs you the sense of whenleverage is high relative to the long-term trend and there are too obvious. that is very clearly the case. back right before the s&l crisis

and more less since the beginning of the past decade because of the technical level and housing bubble. the slide to the right translates the slide to the left into what it might mean for capital. the capitol buffered. soas the credit gdp ratio is rising and the leverage is building io the system, you would see that adjusted capital ben to crease. and as you will not here i am not making any distinction whether it is residential real estate or commercial real estate or loans or whatever it might be i'm not making that distition because thnext bubble isn't going to be like the cut, it's going to be omwhere else and so this would account for that possibility. now of course this would have to be implemented at a regulatory level. it's not somhing the u.s. banks or fancial institutions could do on their own we could but it would be i think much more workable if this ws

adopted a more global conext basil iii or another approach. finally the response the most obvious is better the plight of origination. i think we lo sight of this and you can see why we might want to regulation bette origination here. this shows the growth in securitized said prime mortgage from really over the past decade beginningin 02. you can see theeak in 07. just to read the numbers to you in o2 there were $200 billi of securitized subprimal and alt-a jumbo debt outstanding by the peak five years later, only five years later, it was one play $8 trillion. the she of the total mortgag outstanding it went from about 4% ostanding in 02 to abot 16% five years later.

a banker once told me that if it's growing like a weed it is probablya weed. [laughter] and this was strongly argued we have to moe tightly regulate at our origination. and through this in the context of the congressman proposal oly to plan now that the lv is only one underwriting criteria. there are many, and if ou regulate the ltv and on' regulate all underwriting criteria the banking systm will adjust, and we will get those other criteria blown out. so it's very important to regulate better across-the-board, and therefore one final point that's why im always suspicious or nervous about a rule that is focused on a meaure that is hard coded

because the system is very flexible and we will figure out a way around anything that is hard coded. with that, i will stop. >> thanks, mark. john? >> thanks, alex. this is -- i feel a bit like a teacher here, because i've learned more thai will be able to in part as te final spaker. and please, don'tassume because i'm the final speaker i'm going to wrap it all up, because i'm certainly not. there's three points i want to make about bubbl. having been in the middle of the financial markets for the last 20 years, after having spent ma years as an economist, but me briefly mention the points. first of all, bubbles will always be with us as well the dream of effortless wealth and enhancement because that is what bubbles are about. bubbles are in accelerating.

people go home after a bubble. you are on the planet next to them a remember in the dot com goebel sties i would hear about it started with 20,000 p to 700,000 the next year i will be yet to 3 million. this is heavystuff. when it iolves the place you happen to be living and or flipping it is even eavier. so when you are dealing with bubbles you were dealing with human nature and dealing with a -- >> excuse me. mark, could you put your slide of the- i think it would be perfect for john's comment here. >> it'too late -- >>o, the one called asset the bubbles can be identified -- >> there is. >> now, those double peaks a listed what you're taling about. >> that's the generatos of a lot of airplane onversation. [laughter] but it's human nare exit the rating when the bubble is under way ople tend to be extrapolated and so, when you

are thinking about bubbles you have to think about dealing with that and as stan fisher discovered and other policymakers discover that when you start to prick the bubble you are going to get into trouble, so my basic point is you have that problem to dea with. i know that the easiest way to prevent bubbles or mitigate ad that is simply do not have the central bank announced they cannot identify a bubble but they will clean up after it's over. [laughter] i think thattatement was made about perhaps ten years ago was one the big double enhancers. i was in an audiee with the statement was made and was basically an audience of people in the financial wreckage of look at each other and say oh boy. time to go. [laughter] so the policy mar of the central bank and workg policy

about the central bank does not have to or cannot issue their ability to identify a bubble. thfederal bank is in the business of trying to stabilie e past of economic activity and particularly the price level. that is a judgment callas well. how do you know when t tighten or when to ease given the in precision with which the pri level is determined? what we have learned in the past four or five years or have been powerful we minded is that the financial sector and fnancial marke, ices of assets, the stock market, the market for the stocof assets plays on is simultaneously determined with real economic activity. so the entral bank ca't say we are t going to worry out what happens in a market where we determine the price of tulips or houses or gold or other things but we are going to worry about what happens to the