dawn. with that, i will send it to you, general, or any opening remarks. then we will take questions. >> thank you. i will keep my remarks brief. first of all, let me thank those who are here today for coming out and asking questions. i really appreciate your participation in this conference. let me begin by saying that, although the role for u.s. troops in direct combat operations here in iraq ended on the first of september, the united states commitment to iraq and its people has not ended. our work continues every day under operation new dawn with three primary mission sets. those are advised, train, and assist the iraqi security forces, to continue to conduct counter-terrorism operations, to support the government of iraq, u.s. embassy, and u.s. agencies in improving iraqi civil

capacities, and, of course, inherent in all of these is a level of force protection for all u.s. forces and civilians as they go about their duties. as the deputy commanding general for operations, i focused on several subsets' within this mission set. first, strengthening the iraqi security forces to help continue to build their capacity for providing security in iraq. this includes a wide array of tasks associated with devising -- advising tactical units in the conduct of combat operations across iraq. equally important is the emphasis we have placed on helping the iraqi security force developed complex systems such as intelligence and logistics functions that will be essential to their future success. i would also add that we are focused on working with the iraqis to ensure they are both learning and adaptive as an

organization, with the practices necessary to professionally grow and improve in the future. the second part of my job is keeping pressure on the extremist networks, in close partnership with the iraqi security forces. in this area, i can also cite significant progress on the part of the iraqi special operations forces community. the capability to conduct counter-terrorist operations is essential to maintaining the security environment over the long haul here in iraq. let me be clear, the nearly 650,000 security forces are released -- are fully responsible for maintaining the security environment in iraq today. we are supporting them in our efforts -- in their effort and are proud of how far they'd have come. despite several high-profile attacks, the iraqi security forces have created an environment where violence is 20% below the 2009 average. it should also be noted that october of 2010 has been one of

the lowest months on record for violence since 2003. sadly, iraq still has extremists attack innocent civilians to try to stay relevant. but iraq and the iraq people have rejected extremist ideology and sectarianism. we still have work to do here. the just under 50,000 brave men and women i have the pleasure of working with are focused and committed to ensuring that iraq becomes a sovereign, stable, and self-reliant country. with that, i am happy to take your questions. >> general cone, i am from bloomberg news. how do you see the iraqi security forces' expertise currently and how was it currently and how was it involving -- is it evolving to protect the u.s. security forces in iraq right now? it will have to be turned over

after december, 2011. counter ied capabilities and so forth -- what are some of the counter -- what are some of the areas that you feel they may be able to take on? what kind of expertise to they have in those areas? >> the iraqi security forces are a capable c.o.i.n. force. we have seen, as a result of their efforts, a tax at a level -- attacks at the level of 14 or 15 per day across the nation. they have work to do in a number of specialty-type capabilities that it will continue to need work on. have an emerging explosive ordnance detachment ability. they have some emerging forensic capabilities. they have some route clearing capabilities. these are all things that are on

the glide path in the next 14 months as we continue to work with them and assist them. but they are emerging in carrying on. to your question, we will always have a requirement to provide some level of security for americans that are in this country for the foreseeable future. i think it is important to understand that the proposals we are talking about post-2011 have provisions for security -- personal security detachments, etc., as we transition the responsibility to the embassy. good progress. a lot of work to do. i think a good plan ahead. >> captain? >> i am from stars and stripes. the political stalemate has gone on much longer than anyone had expected. it has to have some sort of effect on your mission, particularly training your counterpart in the iraqi forces.

where does that stand out for you guys? are you at any level of frustration? are you completely immune? i cannot imagine you are. how does this affect your job? >> i view this as a real opportunity. the iraqis that we work with on a day-to-day basis, particularly at the higher levels, we're not certain there want to keep their jobs. guys like the minister of defense and the interior have traditionally turned over. what has been inspiring is how hard the iraqis have worked in this environment, not for a single individual or for a particular party in power. they have done it based on an emerging understanding of the role of military forces in a democracy -- an emerging democracy and under constitutional law. many of them will point out to you that what they have done in the last eight months is really about the iraqi people and the constitution. i think if you look at some of

the polls that show the acceptance of the iraqi security forces by the iraqi people, i think they recognize the fact that a lot of these iraqi policemen and soldiers, frankly, have carried on in this post- election time and performed some of their best work. of their best work. a lot of people speculated that -- about how the government would work. it has really caused the iraqis to do some self-examination in some ways and step up, particularly in the senior leader ranks. it has been a positive development overall. i think they have had some modicum of success. certainly, attacks like we saw at the end of october and beginning of november are upsetting to them. the fact of the matter is, overall, the security situation has been maintained. a big difference is, of course, a year ago, it was a u.s. -- the

u.s. assisting them -- actually out in the streets with them. this year, they have done better. it has largely been exclusively through their efforts and with us in an advisor role. >> i am from cnn. you spoke several times about the lessening of violence. you mentioned the coordinated attacks last week. could you speak in more detail about how you react to them, what impact they have on the overall security of atmosphere, and what you see as their purpose? >> well, first off, i am in a sort of learning and teaching mode at this point. i think, as i talked about the iraqis been learning and adaptive, one thing i give them credit for is that they ran and national review on saturday at the ministry of defense and did a very logical and rational

assessment of the attacks. they were quite critical of their own performance, i think in a healthy way, in terms of improving for the future. so, i think, again, they worked tirelessly. i can tell you that, in terms of them being on alert for extended periods of time and looking hard at how they're doing checkpoint operations and whether they're getting intelligence to the right places they need to get it to -- our job is to coach, teach, and support them as they work through that analysis. this is a very healthy analysis. we assess, i think, it is no secret that al qaeda has taken credit for both of the christian church bombings and attacks on 2 november. we have analyzed the that as part of the al qaeda campaign. since -- we have analyzed that

as part of the al qaeda campaign. we have seen these attacks targeted against the christian community. the ayatollah has condemned that, as have other sunni leaders in the country. again, i think the iraqis are working through very hard on the productions of minorities, both ethnic and religious minorities. they recognize their responsibility. i think they are upping the ante as we continue. there are a series of meetings going on today. they are on high alert. they have taken everybody back from leave. there at 1 under% and focusing on improving -- at 100 -- they are at 100% and focusing on improving security. >> are you seeing any potential interference from other fundamental groups, from neighbors like iran, for example?

>> well, there is a history of some influence here from iran. again, you know, this is a very complex region. iraq has to develop a positive relationship with its neighbors. i think that is a very important -- that is very important that iraq moves in that direction. we've seen all sorts of iranian influence. some of it positive, in fact. we believe, some of it is- -- we believe some of it is negative. it is hard to get that across to other sources. in the last couple of months, in this period of government formation, we think that the iranian influence has diminished somewhat. i think, overall, that is probably appropriate for where we are, at least on the violence

side at this point in the formation of the government and in the current delicate political situation we're in. >> al qaeda @ activities in iraq -- do you know if a cadet in iraq appears to have become increasingly -- al qaeda in iraq appears to have become increasingly disconnected from al qaeda in pakistan or afghanistan? >> there is a belief that, since the major attacks in april, al qaeda has been under significant to rest -- at least the leadership of al qaeda in iraq has been under beenduress -- under significant arrdurress. i would argue they are still effective, as evidenced by the attack we saw on november 2.

this is a different form of lower-level, cellular formation. there have been some interim leaders, we believe, that have been named. the level of productivity between those leaders -- connectivity between those leaders and the al qaeda senior leadership is uncertain at this point. >> general, i am with the military times. i wondered if you could give me any insight as to what the deployment schedules might look like next year. general odierno said something about the possibility of a six- month deployment schedule. as you look into 2011, to you see any changes on that timeline? -- do you see any changes on that timeline? >> the army has a plan on sustaining the 50,000. when we reached the point when we will begin the final drawdown, some other units are

coming in. as we analyzed it, we plan on a 12-month rotation. that is prudent. there may be some pushed and -- puts and takes as we go. in fact, what the soldiers are being told by their army leadership is pretty much on- task. the 50,000 force has worked out well for us. we have been in that set for a couple of months. we did an assessment across-the- board to make sure we had everything we needed. in fact, we have managed underneath the 50,000 number some minor, minor changes, probably less than 1000 in terms of adjustments to little things like aviation or mp's or civil capacity teams, and then identifying some excesses and sending them back. by and large, the current rotation of one-your sets will continue -- one-year sets will

continue. >> general, it is david cloud of the "l.a. times." i want to talk about the path you talked about for the next 14 months. i am curious whether the iraqis that you deal with speak to you about a desire to have u.s. forces at some low-level continue in iraq after one year from december. obviously, that question has kind of been in abeyance for a while because of the political situation. i assume it is not on the question that there would be some agreement that would -- not out of the question that there would be some agreement that would allow for that. what do you say about the iraqis desire to see that? >> it they were to say that to me, i would take it as an opportunity -- if they were to say that to me, i would take it as an opportunity for learning. they should leave that to

politicians. i tell them to make sure they give their best military advice when asked in regard to what capabilities are needed, etc., certainly not trying to buy as the situation in any way. i think it is very -- to bias the situation in any way. i think it is important they learn what the role of the elite -- role of military leadership is in giving advice. i presume that will be a decision between the iraqi government and the u.s. government, based on higher- level objectives. right now, we have a security agreement that says we will be out of here by a the first of january, 2012. -- by the first of january -- by january 1, 2012. for the credibility that we get by making it an agreement with another nation and honoring it and self-enforcing-- i run a

committee that basically track down violations of the security agreement. in my time here, a little over eight months, we have not had a single incident. we have had accusations of violations. when we investigate, we find there are none. we hold this meeting to say, as the united states -- literally, the iraqis have to step forward. they say no. we move onto other issues. this is important to credibility, the fact that we said we would be at 50,000, and the fact that, barring a political change, we will be at 0 on january 1, 2012. >> leaving aside the politics, which i understand, in your military judgment, will the iraqis need continuing partnership and assistance after 2011 to fulfill the security requirements they face? >> we have a comprehensive plan

right now to work with the iraqis. that is why -- i will tell you, frankly, we are very busy right now, working with the iraqis. when you focus on sort of, their 19-major -- when you focus on sort of -- there are 19 major conditions we work on. we have a plan. we're working. we could leave here as scheduled. there are things that someone might like to do or think could be done better, but, again, i think those things will come into the political negotiations. >> general, larry shaughnessy from cnn. i want to ask about your role at fort hood. after the article 32 hearing for major hasan is done, and the other pretrial matters are taken care of, command will have to decide if there is recommendation for a court

martial. there might well be a recommendation for the death penalty -- the death penalty. will you be involved in that in any way as the commander of 3 corps? >> i will not from here. it depends on the timing of all of this. when i left, i signed over the legal responsibility of the court martial convening authority to my deputy. i have been over here. it will depend on how far this all progresses and it will depend on other legal considerations that will be assessed at that time. again, right now, i have removed -- and removed from the fort hood case. i have legal authority here over a like number of soldiers. again, we will deal with that in the future. >> there was a legal fight over whether or not you should be deposed in the hasan case.

did you ever set for a deposition in the case? -- sit for a deposition in the case? >> i did not. i was in the process of deploying when that came down. given the technology we have, we could have done it from here. to my knowledge, there was never any request for me to be deposed since i have been here in iraq. again, these are all, you know, important legal processes that we follow the procedures exactly, to the law, to make sure the case is fairly tried. >> ok, general. it looks like you have exhausted the pentagon press corps. i will send it back to you for your closing remarks. >> again, i would just like to thank everybody. veterans day is coming up and that is really important. for so many who have served this country, the are an inspiration

to everyone. there in our thoughts and prayers here in iraq. here, we continue to grow capabilities and capacities for the security forces of iraq. things continue to move -- all the trends are moving in a positive direction. i am proud to work -- of the work our service members are doing in iraq. i can tell you each and every one of them is making a difference. again, thank you for coming to the press conference. i appreciate the opportunity to speak to you today. thank you very much. >> general, thank you again for your time. h[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the supreme court heard oral argument on tuesday on whether to strike down a california law banning the sale of violent video games to miners. the california law passed in tel

doesn't 5 -- passed in 2005 prohibits the sale or rental of violent video games to anyone under 18 years old and fines retailers for each video game and sold to a minor. they ruled that the law was too vague and discriminatory. now, the oral argument. >> we will hear argument first this morning in case schwarzenegger versus entertainment merchants association. >> mr. chief justice and may it please the court -- the california law at issue today before the court it differs from the new york law in only one respect. where new york was concerned with minors access to her full sexual material outside of the guidance of a -- harmful sexual

material outside of the guidance of a parent, california is no less concerned about the violence, which can be harmful to the development of minors. when the court of ginsburg crafted the law that permits states to regulate a minor's access to such material outside the presence of a parent it did so for two fundamental reasons that are equally applicable in this case. first, parents have the authority to direct the operation of their children. secondly, this role promotes the state's independent interest in helping parents protect the well-being of children in those instances when parents cannot be present. this morning, california asks this court to adopt a rule of law that permits states to rustics -- restrict minors' ability to purchase -- >> what does deviant and a violent video game -- what is a deviant and violent video game as opposed to what, and normal

violent video game? >> deviant would be departing from established norms. >> there are established norms of violence? some of the grimm's fairy tales are quite grim. >> agreed. [laughter] >> are they ok? are you going to ban them, too? >> what is the difference? if you are supposing a category of violence materials, dangerous to children, then how do you cut it off with video games? what about films? what about comic books? fairy tales? why are video games special, or does your principal extend to all deviant, violent materials in whatever form? >> no, your honor.

california inc. the three prongs of the miller standard, so it is not just deviant violent. it is just -- it is violence that meet all returns -- >> i think that justice ginsburg's question, which was, why just the video games, why not movies? >> the california legislature was prevent -- presented with substantial evidence that demonstrated that the interactive nature of violent video games, where the young adult is the aggressor is the individual acting out this obscene level of violence, if you will, is especially harmful to miners. >> do you have studies that showed that video games are more harmful to minors than movies are? >> i believe it is the genteel and genteel study regarding violent video games as exemplary teachers. the authors noted that video games are not only exemplary teachers of pro-social activities, but also exemplary

teachers of aggression, which was a fundamental concern of the california legislature in enacting a statute. while the science is continually developing, it appears that studies are being continually released -- >> suppose a new study suggested that movies were just as our land. presumably, california could regulate movies -- that were just as violent. presumably, california could regulate movies. >> there is media -- studies out about the impact upon the media on children. many groups have been uniquely concerned with the level of violent media available to move minors that they have ready access to. >> i do not know what that is answering justice ka -- if that is answering justice kagan's question. is it the same for bugs bunny as it is for a violent video? can the legislature now say they

can outlaw bugs bunny? there are people who would say that the court has variable -- that it has very little social about you. i am not suggesting i like the video at issue -- the by-minute clip you provided. it is not entertainment. to some, it wamay well be. >> if cartoons do not depart from the established norms -- the level of violence to which children have historically been exposed to. the level of violence in these video games to go that argument could have been made when movies came out. -- the level of violence in these video games -- >> that argument could have been made when movies came out. every time there is new technology, you can make the argument. >> that is the duty of incorporating the three prongs of miller's standard. it is ensuring that a very narrow standard of material will

be covered. >> how is this different than what we said we did not do in the first amendment, where we said we do not look at the category of speech and decide that some of it has more value? we decide whether a category of speech has a historical tradition of being regulated. other than some state statute that you point to, some of which are clearly the same as those struck down in wynn, where is the tradition of regulating violence? >> california submits when the rights of minors are at issue and not adults, the standard should be more flexible. the constitution should recognize when the audience is minors the same standards should not apply to the question should not be whether or not historically -- should not apply. the question should not be whether or not it was historically regulated.

t have been sung about killing people and about other violence directed to them in >> i would agree -- >> the state -- >> i would agree it's egregious, justice, however -- >> why isn't that obscene in the sense you're using the world or deaf i can't. >> i'm not sure it's directly harmful to the minors in the way that video games can be. we know violent and sexual material appeals to a base instinct in especially minors. it's presented in a manner -- >> when you talk about minors, what age group are you talking about? a video game manufacturer has to decide where its game stands. what age of a child should the manufacturer have in mind?

a 17-year-old, a 10-year-old? >> your honor, i would submit just like in the context for minors similar to ginsberg those california's law has not been applied, consider minors as a whole and in california that's under18 years old. they instruct mors -- >> how did they do that? isn't the average person thinking what's appropriate for a 17-year-old may not be appropriate for a 10-year-old or an 8-year-old? >> your honor, i think juries and judges do this every day in the -- >> the state of california doesn't do that. california has in big letters, 18, so it's not -- is it okay for a 7-year-old? is it okay for a 12-year-old? part of the statute requires labeling these video games in big numbers 18.

it's 18 in california. does it make distinctions between 17-year-olds and 4-year-olds? >> justice, i think rightfully so. i think a jury would be charged with perhaps the standard of what the community believes an average minor, so the manufacturer would consider -- >> an average minor is halfway between 0 and 18? 9 years old. [laughter] >> fair point, justice scalia. i think a jury could be instructed to the typical age group of minors playing these games. >> why wouldn't you say a video game that appeals to the morbid interest of those 18 or under, let's take 18, and it's not suitable in the community for those 18, and it has no redeeming importance of any

kind, no serious literary artistic, political, or scientific value of those 18, that at least as to those you can't sell it without the parent. the parent can buy it, but the child can't. you can't tell a 12-year-old something that would be horrible for an 18-year-old. are we willing to accept that if necessary to make this okay on its face? >> justice, breyer, absolutely. >> could i take you back to justice scalia's original question about deviant violation? i read your briefs, and all i found you said is clearly covered by the statute and presumably the statute applies to more than one video game, so what else does it apply to? how many video games? what kind of video games? how would you describe in plain english what morbid violence is? what you have to see in a video

game for it to be covered. >> okay, justice kagan, i go back to the language of the statute, and the statute covers video games where the range of options available to the player includ maing, killing, dismembering, torturing, sexually assaulting, and those types of violence. i look to games where -- >> so anything that has those kinds of violence counts? >> no, then you move to the three prong of the miller standa, your honor. >> how do you separate violent games covered to violent games just as violence that are not covered? >> well, your honor, i think a jury could be instructed with expert testimony, with video game clip and to judge for themselves whether -- >> i'm not concerned about the jury judge, but the producer of the games who has to know what he has to do in order to comply with the law, and you're telling me, well a jury can -- of course, a jury can make up

its mind, i'm sure. but a law with criminal penalties has to be clear, and how is a manufacturer to know whether that particular violent game is covered or not? >> well, your honor -- >> be his own jury and try it before, you know, a -- [laughter] i, i don't kw what to do as a manufacturer. >> justice scalia, i'm convinced the video game industry knows what to do. they rate their games every day on the basis of vims, the intensity -- >> so what's covered here, the mature category and ratings, is that what the statute is meant to cover? >> i believe some ma clur rated games are covered, but not all. your honor, just like with sexual material. can trust individl panders of sexual material to judge whether or not it's -- >> let me make a comment on that point. it seems like all, or at least a great majority of the questions

today are designed to probe whether or not this statute is vague, and you say the beauty of the statute is that it utilizes the categories that have been used in the obscenity area, and that there's an obvious parallel ere. the problem is that for generations,here is been a societal consensus about sexual material, and sex and violence have been around a long time. there's a consensus about what's offensive for sexual material, and there are judicial discussions on it. now, those judicial discussions are not precise. you could have had the same questions today with reference to an obscenity statute, and we have said that with reference to obscenity, there are certain materials that are not

protected. those rules are not precise at the margin, d some would say not precise in a more significant degree as well, but you're asking us to go in an entirely new area with no consensus or traditional opinions, and this is -- and this indicates to me the statute might be vague. i thought you'd like to know that reaction. [laughter] >> justice, kennedy, as with the regulation of sexual material and obscenity, we had to start somewhere. california i choosing to start w. we can build a consensus as to what level of violence is in fact offensive for minors just as the case law has developed overtime with sexual depictions. your honor, i believe the key is that the similarities violence has with sex -- is is material -- >> what about excessive glorification of drinking?

movies that have too much drinking in it? does that affect minors? i suppose so. ion not concerned with the vagness, i am, but i'm concerned with the amendment that they can't bridge the freedom of speech, and it was understood that the freedom of speech does not include obscenity. itas never been understood that the freedom of speech did not include portrayals of violence. you're asking us to create a whole new prohibition which the american people never ratified when they ratified the 1st amendment. they knew obscenity was bad, but what's next after violence? drinking? smoking? movies that shows smoking? can't be shown to children, will that affect them? i suppose it will, but is that

-- are we to sit day by day to decide what else will be made an exception from the 1st amendment? why is this particular exception okay, but the other ones i suggested are not okay? >> well, justice scalia, i would like to highlight the fact the material issued in ginsberg was not obscene. the partial nudity allowed -- >> i think what he wants to know is what james madison thought about video games. [laughter] did he enjoy them? [laughter] no, i want to know what james madison thought about violence? was there any indication that anybody thought when the first amendment was adopted that there was an exception to it for speech regarding violence? anybody? >> your honor, as for minors,

looking at the historic statutes at were enacted in the past, there was a social recognition -- >> what's the earliest statute? >> pardon? >> what's the earliest statute and what's the enforcement? >> your honor, i don't know the earliest on the top of my head, t i believe theyo in the early 1900s or later. i apologize. it' principle and it's been quite some years, hasn't it since this court held that one instance that courts, that the country legislatures can regulate are fighting words, and we regulate fighting words, don't we? because they provoke violence, and the american psychological association and the american pediatric association says certain kinds of video games here create violence, then children are exposed. there's people who think to the

contrary. there's two huge things of studies that think not to the contrary. all right. what are we supposed to do? >> well, justice breyer, i think going back to justice scale yew's question, i find it hard to believe, and i know no historical evidence that suggest our founding fathers in the 1st amendment enacted to guarantee -- >> what justice breyer was asking because this court with respect to the fighting words in your face provoke immediate reaction. the court has been very careful to cut that off so it doesn't have this spillover potentl, so you didn't latch on to fighting words. you're analogy is to obscenity for teenagers as i understand it.

>> yes. with regard to fighting words, the final interest in preventing acts of violence is different than the concern here at issue today. >> so, could i just make sure i understand that mr. morazzini because they gave up the argument the interest in the law is preventing minors don't go out and commit these acts themselves. instead the state says the intere in the law is in protecting cldren's moral development generally? >> justice kagan, we welcome that as an affect of california's regulation, but the primary interest with the internal intrinsic harm to minor is is what the state of california is deeply concerned with in this case. >> a point of clarification. we talked about the labeling parts of this act. the circuit court struck those

portions. youave now challenged that ruling. there are two sections to the act. one is a criminal act for selling to a minor, and the other is a requirement that you label in a certain way each video, and this say -- i think the kir cut said both were unconstitutional; correct? >> yes. >> you brief doesn't address the lailing requirements at all. >> we didn't. one holding on the 9th circuit hinged on the other. on the bid of the california's law, the restriction on sale the court found since it's not illegal to sell the games to 18-year-olds that the purpose behind the label itself was in fact misleading, so under the case law, i don't have the case before me, but regarding lawyers advertising of services, the government can require a labeling so long as its

necessary to prevent misleading the consumer. the 9th circuit found because they struck down the body of our law, that the 18 label would be misleading. >> that's an interesting concession on your part that the labeling doesn't have any separate from the restriction on sale. i would have thought tt if you wanted a lesser restriction that you would have promoted labeling as a reasonable scrutiny restriction to permit the control of sale of these to minors, but you seemed to give that argument up all together in >> i didn't intend to concede that the ninth circut's opinio was correct in any sense. >> you have conceded it by not appealing it, but okay, your case on labeling rises and falls on the sale to minors. >> at this point, i would agree,

your honor. >> i gather that if the parents of the minor want the kid to watch this violent stuff. they like gore and may may like -- they may like violent kids, then the state of california has no objection as long as the parents buy the thing, it's okay. >> they are entitled to direct 9 upbringing of their children in the manner they see fit. it's important to the state of california that the parent involves themselves in these important decions. >> that's basically all this is is a law to help parents? >> there's two fundamental interests served by this law, yes, ensuring parents to involve thermses. california sought to have a barrier between a sales clerk and a minor with regard to violence like sexual material.

california sees the developmental harm caused to minorss no less significant than that recognized by the court in ginsberg with sensitive material. the material issue -- >> i don't think there's a barrier in california to minor's access to sexual material? >> i believe california has a law, section -- >> califora has a beginsberg law? >> yes. >> did you spend time enforcing that? >> i'm not aware, but there is a presiption on the sale of sexual material to minors. it's defined as harmful to minors similar to california's act. in fact, california's act incorporating the three prongs of miller goes even further than the law at issue. >> is there -- you've been asked questions about the vagueness of this and

the problem of the seller to know what's good and what's bad. does california have any kind of an advisory opinion, and office to rie these videos and say, yeah, this belongs in what did you call it? deviant violence, and this one is just violent, but not deviant. is there any kind of opinion that t seller can get to know which games can be sold to minors, and which ones can't? >> not that i'm aware of. >> you can consider createing such, call it the california office ofensorship to judge each video one by one. that would be very nice. [laughter] >> your honor, we asked juries to judge sexual material, and it's appropriate for minors as well. i believe that if we can --

>> let the government do that? juries are not controllable. that's the wonderful thing about juries, also the worst thing abt juries. [laughter] do we let government pass upon, you know, a board of censors? i don't think so. >> justice scalia, california is not ing that here. the staard is quite similar to that in the sexual material reel. . california is not acting as a censor. it is telling manufacturers and distributers to look at the material and judge for yourselves whether the level of violent content meets the prongs of the definition. >> even if we get past what i on difficult questions of vagueness and interpreting this law, suspect there a less restrictive with a vie-chip? --

v-chip? >> your honor, that's the parental controls available in the new machines? >> yes. >> as we submitted in the briefing, a simple internet search for bypassing parental controls brings up videos on how to get around that. >> that doesn't work? >> i believe the v-chip is limited to television, mr. kennedy. could i reserve the remainder of my time? >> thank you. mr. smith? >> may it please the court, the california law at issue restricts the distribution of expressive works based on their content. california does not seriously con tepid it did satisfy the usual 1st amendment statutes to the law. they are asking for a free pass to thest endment that would deny constitutional protection to some ill defined subset of

expressive works, and not just video games, but necessarily movies, books, and any other work that pore portrays violence in a way some court some way decide is deviant and offensive. >> what about the distinction between books and movies in the video games, the child is not passively watching something. the child is doing the killing. the child is doing the maiming, and i suppose that might be understood to have a different impact on the child's miranda le development. -- moral development. >> it might, there's not a sled of evidence to suggest it's true. >> what was the state of the record that was present before the court in ginsberg? >> they were aware on science on both sides that made a judgment that as a matter of common sense they could decide that obscenity even somewhat in large obscenity obscenity -- >> the court acted on common sense? >> yes, as long as there's science on both sides, in that

particular area which is an exception that goes back to the founding. they field it was proper to adjust the -- >> if the material wasn't obscene, they were girly magazines, i imagine today's children they would seem rather tame, the magazines involved, but they were definitely not obscene with respect to doesn'ts. >> your honor, that's true, but one of the things to recognize about the case is they didn't pass the material before the court. they said it is a somewhat larger definition of -- >> we're talking about common sense. why isn't it common sense to say that if a parentments his 13-year-old chilto have a game where the child is going to sit there and imagine here's a torturer and impose painful, excruciating, painful violent on small children and women for an hour or so, and there's no social or redeeming value, it's

not artistic or literary, ect., why isn't it common sense to say the state has the right, parent, if you want that for your 13-year-old, you buy it yourself which i think is what they are saying. >> well, your honor, the state has have to -- >> it does have a reason. i looked at the study, perhaps not as thoroughly as you, but it seemed to me that dr. ferguson and dr. anderson are in a disagreement, not that much actually, but they've looked in depth, you know, in a whole lot of video games, not movies or other things, video games. and both groups come to the conclusion that there is some tendency to increase violence and the american psychological association, the american pediatric association signed on to a long list on i think it's the anderson side that this does hurt children. i have to admit that if i'm supposed to be a sociological

expert, i can't choose between them, but if a legislature has enough evidence to have harm, the answer is yes. >> it's whether parents need help to exercise their role -- >> yes they need help because many parents are not home when their children come home from school. many parents have jobs, we hope, and when their children are there, they do what they want, and all this says is if you want that torture of let's say babies, make it as bad as possible, what you do, parent, you buy it. he's 13 years old. what's the commosense or science of that? >> two aspects. with respect to parental controls, there's a series of things parents have available to them and are using today to deal with any concerns they have about what's appropriate -- >> any 13-year-old can bypass

parental controls in 5 minutes. >> that is one element of about five different elements, your honor. in fact, talking about them, there is the rings. parents are doing the purchasing 90% of the time. the child brings the game home and the child can review it. the game is played on the television or computer. think harm is supposed to take place over a period of years, not mines. the parent has ample opportunity to supervise on what games are played in the house and there's control that is similar to the ones the court found to be significant in the playboy case and a variety of cases. >> h much do the videos cost? >> $50-$60 when new. >> not too many 13-year-olds walk in with a 50 dollar bill. >> if there is kids buying without parental permission, they are very likely in the

16-year-old category. >> you're away from the common sense. if you're going back to the common sense of it, what common sense is there in having a state of the law, the state can forbid and says to the parent, the child, the 13-year-old cannot go in and buy a picture of a naked woman, but the 13-year-old child can go in and buy one of these video games as i've described. i've tried to take a bad of one i could think of, torture of children. okay, now, you can't buy a naked woman, but you can go and buy that, you say to the 13-year-old. now, what sense is there to that? >> well, there's various aspects of this that's important to understand. first of all t, violence is a feature of works that we create for children that encourage them to watch throughout the history of this country. we have a very different sense of whether violence per se -- >> love is not something that people hav tried to encourage children to understand and know about? i mean, what is the difference

between sex and violence? both, if any? >> there's a huge difference. >> thank you. >> we do not -- [laughter] >> the difference is we do not make films for children in which explicit sex happens. we make films for children in which graphic violence. >> there's a difference. we do not have a tradition in this country of telling children they should watch people actively hitting schoolgirls over a head with a shovel so they are messyless and shooting people in the leg so they fall down. i'm reading from the district court and pour gas hen on them and set them on fire. we protect children from that. we don't actively expose them to that. >> parents have been doing that. the question for this court is if you will create a new exception under the 1st

amendment and whether if you're going to do it, you could figure out what the scope of that is. >> is it your position, i know this is a facial challenge, mr. smith, so is it your position that t 1st amendment could not prohibit the sale to minors of the video game that i just described? >> my position is that most people would think that's an inappropriate game for minors. we do not try to sell it to minors -- >> well, i know you don't, you're avoiding the answer. does the 1st amendment protect the sale of that video to minors, a minor? >> there is not a violence exception @ minors, and there should no be. >> your position is that the 1st amendment cannot, no matter what type of law whether this is vague or not, that the state legislature cannot pass a law that says you may not sell to a 10-year-old, a video in wch they set schoolgirls on fire. >> and the reason for that is there's no possible way to draw an exception to the constitution

to t 1st amendment -- gr what is the state passed -- what is california took the list of video games that your assoation rates as mature, and said, there's a civil -- and you apparently don't want vend res selling those games to minors, isn't that right? >> exercising our -- >> you don't want that, and california said there's a civil penalty attached to that. >> what i do is transform the esrb, the private voluntary system that exists into the censorship commission that this court struck down in interste circuit. when the government does that and you have to go to them for permission to allow kids into movies or these it's a licensing authority thats 1st amendment allows. >> there's really no good reason to think exposure to video games is bad for minors, expoture to really violent video games is bad, is that right?

>> it's important to draw a distinction between harm under the law and appropriateness. families have different judgment they make about their children at different ages and with different content and family values -- >> mr. smith, do they say that's a sufficient law to go guard? i understand the current studies dowght suggest harm but are there studies that would be enough? >> well, i imagine a world where expression could transform to murders, that's not the way the miewm mind works, and here the reality is opposite. dr. anderson testified in the record that the vast majority playing the games will grow up to be fine. he acknowledged the effects of the game anot different from watching cartoons on television or reading violent passages in the bible or looking at a picture of a gun. picture of a gun. >> you really don't

this courts of last year it does not have the free will of 42 not have the free will of 42 we have here a new medium that cannot possibly have been envisioned at the time when the first amendment was ratified. it is totally different. it is one thing to read the description, as one of these video games is promoted as saying, what is black and white and red all over?

perhaps the answer could be dispensing of your enemies in the meat grinder. seeing it is graphically is doing that, and doing it is still a third thing. this presents a question that could not have been specifically contemplated at the time when the first amendment was adopted. because descriptions in a book of violence were not considered a category of speech that was appropriate for limitation at the time when the first amendment was ratified. >> we have a new medium, but we have a history of new medium's coming along and people vastly overreacting. it started with a crime novels in the 19th century, which introduced this legislation. comic books and movies in the 1950 costs. social scientists came in and told the senate that half the

juvenile delinquents seat in the country was because of comic books. there was enormous pressure to self-censored. >> mr. smith, d you think all video games are speech in the first instance? you could say that the modern day equivalent of monopoly sets are games. they are things people used to compete. when you think about some of them, the first video was pong. how is that speech at all? >> the games we're talking about have narratives. victim and doing it in a way that they find offense eve, we're going to regulate it. >> are we going to separate video games into narrative and nonnarrative video games? >> you don't have to as long as the law is limited to narrative. that's what the law says. now if the law says you shouldn't play videoames with

red images in them, that might be a closer case. >> well, what about a law that says you can't sell to minors a video game, doesn't care what the plot is, but no video game in which the minor commits violent acts of maims and killing. what about that? is that regulating speech? >> of course, your honor. >> it's not speech. saying you can't let the kid maim, kill -- >> i'm sorry -- >> or set on fire. >> what the lay would be directed at is not the plot, not the video game, itself, but the child's act of committing murder, maiming, and so forth. >> the events of the video game, what happens in the plot is a come combination of what the game gives you and what the player adds to it. there's a creative aspect frpt

other side referred to as a dialogue between the player and game. i submit both are protected by the 1st amendment just as a -- >> the person i speaking to the game? >> no, helping the plot and determining what happens in the events that acts on the screen like an actor. you are acting out certain elements of the play and contributing to the events that occur and adding a creative element of your own. that makes them different. >> your challenge is 5 facial challenge in >> yes, your honor. >> if you use the tests if there is one or any applications that satisfy the constitution, it fails? >> theests don't apply to the 1st amendment context. >> i thought we referenced them that last year in the stephens case, and why we didn't decide what applies because we adopted an approach that looked it over and said this statute is

overbroad, and specifically didn'tecide whetr it could be applied in that case to cross videos. >> well, tt's correct, your honor, but i think -- there's no argument here, i don't think, that if there's one game out there that this is constitutional applied even though it's unconstitutional applied -- >> well i understand the question, i think, is there games or minors, maybe a less violent game sold to that 17-year-old, but something like postal ii sold to a 10-year-old migh well not violate the first amendment to apply that law to that. the way we approach the issue on hunting videos say it's too broad to apply the law to everything, we strike it down, but we've opened the possibility that a narrowly drawn statute might pass mster. why isn't that a good approach in >> you could do that. certainly the key thing is you

strike down this law because this law is broader than any one game. i would submit to you though there's no way in fact that anybody's going to be able to come back and draw a statute gets who they they claim because the english level is not susceptible -- >> it's not susceptible. you've been arguing your point and that's fair and you have experts who favor you, and you make that point strongly, and your points a good one and serious one that it's hard to draw this line under traditional 1st amendment standards. but dealith their point for a moment, and i take it their point is there is nos new 1st amendment thing here. there is a category which really are involving things like torturing children, ect.. maybe you don't like to sell them to anybody, you have an x or some special thing, but they exist, and they fit within a miller-type definition. they are much worse than the

simple girly magazine involved there, and they will use traditional 1st amendment tests that is to say there is speech at issue, that speech is being limited. it is being done for a good reason, compelling interest, namely this problem with the x videos and the torture and bleeding it through, and there is no less restrictive alternative that isn't also significantly less effective, i want you to deal with that directly because what you've been doing for the most part is saying we'd have to be in some total new area, ect., but their argument is you don't have to be in a totally new area, ect.. apply tditional 1st amendment standards, and we win. that's their argument, and i'd like to hear what you have to say about that specifically. >>our honor, they do not suggest there's an existing exception to the 1st amendment

applying -- >> this is not an exception. it is the traditional, strict, scrutiny 1st amendment test. >> well, they make a -- >> well, to get you to focus on it i'll say i made the argument. >> there you go. okay. [laughter] >> i think if you apply scrutiny here, it's not close to the showing required under the 1st amendment. first of all, they have not shown any problem, let alone a compelling problem, requiring regulation here. in a world where parents are fully empowered already to make these calls, whererime including violent crimes since the introduction of the game is plummeting in the country, down 50% since the day doom went on the market 15 years ago, in a world where parents are fully aware of what's going on in their homes and aware of the rating system and can use all the other tools # that we have talked about -- >> why couldn't you make the

same arguments with respect to the obscenity? >> because obscenity didn't have strict constituteny applied to it. >> why shouldn't violence be treated the same as obscenity? >> we don't have the same history of it or pedigree of that exception, and as i was suggesting earlier, there's a fundamental difference in the facts. ginsberg works because we take everything explicit and say over here it's not appropriate for minors. violence would require you to draw a much different line between acceptable protective vims and unacceptable unprotected violence for minors, and given the lack of historical pedigree and the nature of what you're trying to do -- >> wells courts struggling for years and year, with obscenity and we have the miller standards and the state has said this

gis us a cat goir that we can -- category to work with reference to violence. >> you take out explicit sex and nudity, what do you have left? you have a structure with no apparent meaning. there's no way to know how a court would apply a standard like deviant viements, morbid violence, let alone decide which video games have a redeeming social, political, artistic value. the value of a video game is completely in the eye of the beholder. some say they are beautiful works of artistic creation. >> you can make that art with reference to obscenity sen ?i >> except that we know, we all know at least with respect to ginsberg rmt obscenity is a difficult line, i acknowledge. ginsberg works well because if it has sex in it, naked people having sex in it and it's designed to be appealing to people's interests, you don't

give it to minors, and you don't have a lot of cases out there about that. >> when you started ginsberg with something prescribable with regardo adults, and you know there is obscenity proscred even to adults, where as in this case, i don't know there's such a thing as morbid violence which could be eliminated from ordinary movies. >> i think a little history is helpful here. this court has twice dealt with lawings attempting to regulate violent works in the past. one is winters versus new york with law applying to magazines and books, and the other was in 1960s the ginsberg came down and the city of dallas had an ordnance with a commission to review each movie -- >> les be clear about your argument. your argument is that there is nothing that a state can do to

limit minors access to the most violent sadistic graphic video game that can be developed. that's your argument. >> my position -- >> is it or isn't it? >> it could be applied and given the fact and record and given the fact is the problem is well-controlled and parents are empowered and there's alternatives out there gives basis to scrutiny satisfied. >> just to be clear your answer is at this point there's nothing the state can do? >> because there's no problem to be solved. the answer is yes, yo honor. >> there's nothing -- >> there's plenty ofroof children go into stores and buy the games despite the voluntary rating system, the retailer restraint by some, there's still proof out there, and a lot of it that kids are buying the games, anthere's proof that some

parents as well-intentioned as they may or may not be, do not supervise that starting from the proposition there is a problem, it's a compelling state need, why are you arguing that there is no solution that the state could news to address that problem? >> the existing solutns are perfectly capable of allowing this problem to be addressed aseeming it is a problem. >> it's 20% of sales going to kids. >> that's when they send out someone who is 16 to test the system there's no record at all that kids are secretly buying the games, bringing them into the home and playing it without their parents knowing. there's no evidence of that at all. >> could you have a law that says t state has to put, the dealers have to put the violent video games in a particular area

of the video store? >> there's -- >> that is not, and you know, minors are not allowed in that area? >> well, what you're saying is you're going do have a limit on the ability of minors to buy them. >> yeah. >> i don't know how that differs from the curnt law, your honor. >> your answer to the first question of justice d chief justice was yes, that you are saying there's nothing they can do, so now am i right about that am i not right? >> yes. >> i am right. >> okay,hey can't say for example all the highest rated videos have to be on the top shelf out of reach of children. can they do that? >> i think that's -- >> what about cigarettes? >> cigarettes are not speech, your honor. >> i know that cigarettes are not speech, mr. smith. [laughter] cigarettes are something we determined are harmful to children. the question is you say the record doesn't support the idea

at these video games are harmful to children. some of us conclude that it does. >> well, the record doesn't support it. the record says that if you take the studies at face value that are not more harmful than watching cartoons. that's what the record shows. >> on tat score, mr. smith, there is a study by the fcc and the question is whether violence can be restricted during the hours when most children are awake just the way pornography is. i don't remember what are the hours, something like from 10 in the evening or -- i don't know, but didn't the fcc say, yeah, we could do the same thing for violence that we're doing for sex, except we don't

think we ought to do it, but congress should do it. >> they spent several years coming up with a definition to allow anybody to figure out what violent tv shows have to be put into the adult category and which don't. they punted and said we have no idea how to do that. congress asked us to do it, and we can't, they gave it back to congress to get a definition. this is 5 difficult task to use language to differentiate levels of violence in a matter to some way tell people what the rules of the game are. even if you think there's a problem to solve, you need to think carefully whether or not you authorize the creation of a new rule authorizing regulation in the area when no one knows the scope of it. >> you say there's no problem because 16-year-olds in california never have money available to b a video game and because they never have tvs in their room and their parents are always home watching what they do with their video games and pants and the video games

have features that allow parents to block access, to block the playing of violent video games which can't be overcome by a computer savvy, california 16-year-old. that's why there's no problem? >> what we're going to do is judge the law based on what 16 and 17-year-olds are getting and whether that would be harmful to them. i think the problem there is the line between 16, 17, and 18 is so fine you're not able to identify any real category of games that fits into that cat goir, and it's important, by the way, to note that california hasn't told us whether we should judge, 5-year-old, 10-year-olds, 17-year-old, if it's 5, that's errestrictive. if it's 17-year-olds it doesn't restrict anything. nobody can convince a jury that this is an 18-year-old game, not a 17-year-old. we draw that line in the death penalty, don't we?

with you're over 18, you can be sentenced. we do it for drinking and driving. >> here's it's for expression what age they correspond to. you can't cut it that finely and say this is an 18 game and this is a 17 game. i don't think that works. if that's the test, the test justice breyer suggested it ought to be, then the statute restricts nothing. if the test is 5-year-olds -- >> maybe it's restricting torture, and if that what it restricted, why is that terrible? they expreemented with other things, maybe you could limit it to that. >> i think it's telling, your honor. justice scalia in manufacturing a game you have to know the rules in advance. subject to hundreds of millions of dollars in penalties just for a game. >> you have your rules, so why wouldn't the first step be to follow your rules, your rules,

the x things are limited to people who are over 18, we'll see if we get prosecutorred for a different one, and you might never. >> our rules don't help you at all. they say the only restricting a smaller seb set of n rated games which are appropriate for 17 -year-olds. these rates conflict with the ratings on the pacges used by parents every day to make these judgments, so it's actually interferes. the prospect interferes with the information already on the packaging. >> thank you, mr. smith. you haveour minutes, mr. morszini. >> new games cost $60, but parents regulate and minors can't afford them and can access them. i wanted to draw out the point

that california's law really is not an ordnance directed to a plot of a game. it's directed to games wth essentially no plot, no artistic value. this is the helpful nature of the miller standard. it's going after the nature of the game where the child -- >> if it has a plot, it has artistic value? is that the test for artistic value, anything with a plot? >> it's a factor to consider. >> well, one factor to be considered, sure, but you're not telling us that so long as there's a plot, it's okay? >> no, your honor. a single quotation from voltaire is not going to make that work nonobscene. >> can't have artistic videos that include maiming and cutting off heads, so long as it's

artistic in >> i the level of the violence just as an obscenity caus the game as a whole to lack the artistic -- it's a balance like sexual material. that's why violence and sex -- >> forwhom? a 5-year-old would appreciate is great art, is that the test in >> again, those under 18 years old. >> you think mortal combat is prohibited by this statute? >> i believe it's a candidate, your honor, but i haven't played the game and been exposed to it sufficiently to judge for myself. >> it's a candidate means yes a reasonable jury could find that mortal combat, an icon game that pass the clerks who work for us spend time in our -- [laughter] >> i don't kno what she's talking about. [laughter]

ju by candidate i meant the video game industry should look at it, a long look at it. now, i don't know off the top of my head. i'm willing to state here in open court that the video game would be covered by this act. i'm guessing games in the brief like mad world is covered by the act. i think the video game -- >> would a video game th portrayed a voluntary as opposed to a human being being maimed and tortured, is that governed by the act in >> no, the act is only directed towards the range of options that are able to be inflicted on a human being. >> so, is the video producer says this is not a human being, it's an computer simulate the person, then that doesn't -- all they have to do is put a little harder feature on the creature and sell the video game? >> under the act, yes. california's concern -- i think this is one of the reasons that sex and violence

are similar. these are base physical acts we're talking about, justice. limiting, narrowing our law here in california, there in california, to violent depictions against human beings -- >> so what happens when the character gets maimed, head chopped off, and immediately after it happens, they spring back to life, and they continue their battle? is that covered by your act? they happened to be maimed and killed forever, this is just temporarily. >> i would think so. the intent of the law is to limit thoseinor's access -- >> you think so? isn't that feedback for justice scalia's question? >> well, your honor, this is a facial challenge. this statute is not been applied or been construed by a state or federal court below, but -- >> thank you, counsel. the case

and and and and >> president obama is in a hit this week. today in new delhi, after his address before the indian parliament, the president and first lady will attend a dinner in their honor. tomorrow, he heads to indonesia and then to south korea. he will be there -- he will be there on thursday. the g-20 summit continues on thursday and friday, where he will hold a closing news conference, and wrapping up his tour, he travels to japan to participate in meetings. [captions copyright national cable satellite corp. 2010]

[captioning performed by national captioning institute] >> a forum on renegotiating loans posted by the federal deposit insurance corporation. these portions run about three hours 20 minutes.

we have three very good paper said a. they did a good job picking papers that are connected to each other. we'll have an interesting session on trigger events. this will go in order, so we will take away with our first paper on credit redefaults. >> thank you. the usual disclaimer applies.

any opinions i may express up here are mine alone. they do not necessarily represent the federal reserve board. the paper i will be talking about is different than a lot of the other different papers in this session. one way it is different instead of being worried about mortgage loans, we will put that aside. the broader question, what orrowers?o bar wors what happens to them themselves? one. what -- one area we know is the effect on credit scores. it may lead to lower credit scores and this will lead to reduced access. what few people know is how

large those declines are likely to be and how long it will be before people can recover. what we will do is to take advantage of a new source of data to look at what happens to the individuals involved in foreclosures. the new source of the that we have is constructed from an anonymous sample of records acquired from equifax. the entire database we have has credit record information on roughly 11.7 million individuals, observe quarterly from 1999 to the time this paper was written in 2010. from these 11.7 million records, we identified almost 350,000 people whose mortgages entered foreclosure between 2000 and 2009. what we will do is walk you exactly to how their experiences have been affected by

foreclosure. there are two definitions of will make right up front so you can follow more closely. the first is what i will call for closure. . a lot of the numbers we will look at and one of the ways the papers will differ from is we have no complex map. i will not put up anything out. that is harder to understand than average, because the date is set -- is telling a compelling story and off. there is a new version of the paper that is coming out. what i want to police simple today. we will identify the foreclosure period. it is the time. where each mortgage entered for closure. we will identify the. before that where each credit record was classic classed

entered before the legacy. one, when death mortgage entered for closure. we will categorize them bluntly in terms of the other night they had prime or subprime-level credit scores in the pre delay with the. . if i had a credits corp. lore -- credit score below 650, this will be subprime. one of the things concerning about using data to examine foreclosures is the data is individual based. a lot of the other work you see on foreclosures, a unit of observation is a loan. this is different. if you have to people on the mortgage, the mortgage goes to the foreclosure, that foreclosure information will

reflect on two people's credit reports. that might cause concern. the data shows the number of foreclosures was the overtime. i have divided into two colors based on this predelinquency credit score. the blue is the number we see going into foreclosure that had subprime scores before, and the red area is the number of people who had prime credits course. around two dozen 7, -- and around 2007 b.c. a dramatic increase in the number of foreclosures, but you also see unprecedented share of those four clauses involving people who had crime level credit scores. a point of comparison, one of

the concerns of the individual based comparison numbers is they may not necessarily attract other sources. the plot line represents the number of new foreclosures starts from the national survey. what we see is the bureau data does track the numbers closely. the first thing we will look at, what do we know about the fried cracked -- about the credit score decline? credit scores go down, people -- few people know what those declines will be. they have released little information. somebody who has a score of 680, if they have a foreclosure, this will go by 80 points. there is going to be a variation. these credit score declines, largely stimulated base. you take somebody had a record,

they pretended that a foreclosure, and you rescore them. when people going back on a whole series of things, not only are they late on mortgages, but credit cards, that will not take that into account. we will look at what happens to people's credit scores between the predelinquency period to look at how the foreclosure affected them. that is this craft, -- graph. what you tend to see is for most people accept the people with at dismal credit scores, you see most people experience large declines. the declines get larger as you have higher credit scores. it have an 800 s credit-card

credit scores, you will have a big hit. if you look at these numbers, regardless of what scored these people start with, they are below 620. if you started with 800, once your mortgage enters more closure, you are effected lee subprime. that will be a meaningful hit. in a slightly differently, if you look at the share of people after foreclosure who had a score that was the prime, even at the highest levels, you're talking only about 12% of people. your mortgage interest foreclosure, and any effective way of making sure your subprime. may not be so surprising. where do youook likat go from there. this will restrict their access to credit, but we know little long -- little about how long

it'll last. they could recover in as few as nine months. both numbers are indications of what people could do. after you are in foreclosure, if he straightened up, he might be able to recover in two years. we wanted to know what exactly happens to people. do they recovered this fast, but t seems to be whatever defense, occurred, did have a fax that lasted over time? the graph on the left shows individuals led subprime scorers in the period, and the next graph shows those who had prime. we'll take those 350 dozen

people that we observed entering foreclosure and will break them down. the blue line is those people whose mortgages entered for closure in 2000, to the des moines, and all the way through 2006. what you see is is there is a lot of similarity over time. in different economic environment, you see a consistent picture. for subprime borrowers, you see a deep drop. then you dazing tibet -- they seemed to bounce back. when you talk about crime or worse, you see different story. you see a drop that is much sharper, and a recovery that is noticeably slower. this holds once again for the prime borrowers.

the other things that we want to use this analysis to do is we have the experience of foreclosures. what can this tells about what people who are now going through foreclosure are going to experience? does the experience to enter the foreclosure in 2007, two dozen 9, how does that line up with what we have seen historically? we are looking at the new cohorts, and for reference, i will put this blue line up here, the average of the seven that we have shown on the previous page. you see once again the reasons cohorts follow a pattern similar to what we have seen historically. higher credit scores, same type of decline, and for the subprime are worse, they seem to be

tracking pretty close. the prime borers, it is different. higher credit scores, everything tanks, and now the prime borers are recovering more slowly than they were historically. one of the things we can at is a more focused definition of what credit score recoveries. we can look at the level of credit scores. we can look at the share of people who return their credit scores to the pre the lead with 2 level. levels.linquency once they return to their levels, we consider them to be

recovered. the blue line represents the experience of the historical subprime cohorts. two years out, for most borrowers, more than half of them recovered within the first two years. with prime borrowers, you observe much sloer recovery. 76, we see an increase. the link was the information be

removed after seven years. clock starts running the day that mortgage becomes delinquent. by the time you get to the foreclosure. , that caught has been running for a few months. one is seeking to seven or eight years, you are talking about recovery rates that are only 60%. a good 40% of these individuals still have low credit scores after all the information about the mortgage foreclosure, the the lindsay, or any other delinquencies that may have taken at the same time have been removed. it cannot be explained by that. if you compare the recent experience which is the green line for the subprime are worse, what you see again is the recent cohorts are recovering slowly.

there are reasons why we must expect the recent cohorts to recover more slowly. the recent cohorts have higher credit scores within the breakdowns. it seems to be the case that the higher the credit score, the longer time it takes you to recover. it also be made -- it also may be the economic conditions are such that it is longer to recover it. the result of the analysis in all cases will be consistent with what i have shown up here. a lot of these findings seemed to be robust with regard to economic conditions. the reason why we get these slow pattern of credit score recovery is hard to understand. i have spent a lot of time

working on this data. this is not what i expected to see. the reason it is hard to understand, the information about the mortgage foreclosure itself is gone. what exactly is driving this? if you have ever read about the studies -- happiness -- he asked them if they are as happy as they were before hand, that is my view of how credit was going to work. you had some people who knew how to handle credit, they would be knocked off their game, but with time they would get back to where they were, and their ability to handle credit would allow them to come back where they were. this is not seem to be what is happening. the most likely candidate is payment delinquency. the reason for the most likely

candidate is that the lunacy is the most important factor these models. we also looked at the share of mao -- the share of our worst who were delinquent on credit. here again what d.c. is to start with the level of the lindsay is -- which is constant -- of the legacy that is constant over time. a spoke at the foreclosure period. if you look five years after the mortgage enters foreclosure, this is a rate of 50%. five years after the mortgage edgers foreclosures, there still delinquent. if you look at the prime are worse, the numbers will be lower, but you will still look

at the delinquency rate 1/3. even if we go out to those are worse than we can follow for 10 years, you're looking at rates that are above what you observed for the same individuals in the prix de linwood si. . it appears to be driving the slope credit score recovery, systematically high levels of delinquency. if we look at other types of credit, we find the same pattern. this is the recent cohorts, which we see higher levels of delinquency. if we see higher levels of credit, for the prime borrowers, are patterns.

credit card delinquencies, you're still looking at high levels of delinquency, and it does not return to the level it was prior. one of the patterns you will observe for prime or worse, the recent experience is dramatically higher than the recent cohorts. these people are being more delinquent on credit cards than they had been beforehand. automobile loans, the same thing. one of the possible driving factors in this is that all the lead with the rates i have shown you so far borrower based. those who did not have a credit card or not included in the calculation. my expectation going in would be that people after foreclosure who did not have credit cards are going to be more likely to

have a worse credit risk, and that means that it actually could see rates would be understated somewhat. it is possible after foreclosure that what you get is a better credit quality individual, so it may be that the lead with the has not caught up, but you have a changing composition of borrowers who are choosing to use these credits. the key difference here is what are we going to do with people who do not have credit. now we will calculate the rates and treat those people who did not have a credit card like somebody who had won and was not the link on the dips. what you see is a pattern that looks similar to what we observed previously. this is credit card delinquency, where you see with individual defense, much higher levels of the legacies. it seems to be a changing composition of our worst that we

see are driving the rates. -- of borrowers. these higher delinquency rates may not reflect a fundamental change. and maybe you had people who tended to be the lead with every few months, and now the same people are going delinquent more often. we wanted to see if this was a fundamental defect at included everybody, or it might be limited. we wanted to identify a subset of the population who had fallen -- flawless payment history. there's no indication on having missed a payment. they must have had at least three years where they had a payment that was due. these people had credit, they had a long history of credit, or longer, and they had demonstrated ability to pay

those bills on time. this is what you see. in the years leading up to the foreclosure, they were selected because they had zero selling wednesday. you get a spike. what is interesting is you do not get positive to live with steep rates after that. the actual levels of delinquencies you observe are consistent with what you observed with the entire population. it seems to be that what ever happens here, these people who had a demonstrated ability to handle credit, once they had a foreclosure seemed to have a very tough time. it lasted for very many years. it also happens on their credit

card, seven, eight years after, they're still being delinquent at a high level. i am running out of time, but i want to do this because there has been talk about strategic the fault. one of the reasons that the recent cohorts have been worse than historical, given attention to it should he fall, it is an unexpected finding. if you're somebody who has- equity and you make a rational decision to walk away, there is no reason to believe that that is going to change your willingness or your ability to pay your bills going forward. the recent cohorts would have actually performed better than his start all. we cannot identify in the data those individuals who are

defaulting. i do not buy what they are coming up with. we identified the portion of the population that had experienced a high level of depreciation using an index. based upon the data when the mortgage was originated. what you see, and this is hard to see, we had to have two reasons cohorts. the red line, representing the price decline cohort, they are not performing that much differently. it does not seem to be in the

subset of the population we designated, people most likely to be strategic defaulter, that they are performing that much differently. i will leave that up keep you to decide what that means. i am out of time, so i will conclude here. [applause] [unintelligible] >> using the countrywide experience. hello? thank you for having me here.

[unintelligible] we have an unprecedented foreclosure crisis. we have for me meant it -- 4 million people who have already lost homes. more worrisome, one-third of borrowers are under water. it means the principal amount due is larger than the current house value. one of the goals of the current administration, to modify mortgages, and that is what they came to washington left, and one of the biggest problem -- programs was in 2009. surprisingly, like many policies, there is sound

economics behind this. when house prices decline, there are arguments that say -- there is a significant evidence showing that -- the stability of the financial system and other things. it is not bad policy to push for a modification. at the same time, when we look at the performance of current efforts, the success is mixed. the guys in washington are disappointed. [unintelligible] on the other hand, there is a lot of evidence out there that

the modification we see seem to be not as high as you expect, given these losses. the question is, why did we do not see as many of modifications as some policy makers would like us to see. there's debate about it. and there is conflicting evidence with securitization, that could have been done if these laws were held on the back balance sheet. in particular, it is difficult to identify to whom to offer modification. the majority of underwater borrowers are making payments. i might have some stigma going

down. all these things make the fact that -- is a predictor of default. a lot of but people continue making payments. the question is, i want to modify loans, but i do not want to make people could live with because of the program itself. there is a number of couple million people with continuing making payments, and we do not want that a lot of borrowers pushed into delinquency. the idea is if i cannot sing out who is at risk of the lincicum i will offer modifications to both -- to most. one of the problems, this is can in these behaviors.

despite these concerns, you have many policy makers targeting or worse, the idea that it limits the is costly, modification might be more expensive. they discourage this behavior. at the same time little is known whether this is important or not. whether they offer a modification program, whether they respond, or the cost is so high that it is irrelevant. we want to provide some evidence that will shed light on this question, and i would like to see whether the mortgage

modification program is doing this. in cross section, looking at the combined loan to value ratio, as long as -- something about credit utilization. we had a rich data set that allows us to compete value ratios, we know secondly in dallas, fleur-de-lis in balance, credit scores, and i can see -- in the countrywide settlement, it was announced in 2008 they agreed to modify subprime loans. if you are not 60 days delinquent, you will not get the benefit of this program. what is the extent of strategic

behavior used by this program? therefore borrowers, he said they would be -- countrywide was a big borrowers being affected by this program, and the requirements and certain features of this program made it similar to other modification programs that have been listed as dangerous. in some sense they're looking for one particular experience and the lessons could be applicable to other programs. what is the settlement about? in 2008, attorney general sued

countrywide, followed by nine other states. what was the main reason? they were engaging in deceptive practices that could fool borrowers. in 2006, they agreed to settle the lawsuits. what was the main eligibility for the program? you have to be at least 60 days park -- past due on the payments. two types of loans that were particularly targeted which was a notorious products, a hybrid arm. in terms of -- if you are

seriously delinquent, you would be considered for some interest rate reduction. the objective is to measure the announcement on the behavior of the borrowers. we look at transition rates. we will see if over time once the program was announced -- the delay was the rate is changing all the time of this country. things are getting worse so the bar was go more delinquent over time. it will be a macro effect when delinquency rates are rising. how will i know this is a program effect? we will have a control group of loans, loans that are similar

but that will not affected by the program. we would want to see whether increasing to let quincy's after the program announcement -- increasing delinquencies after the program announcement for the control allows us to take care of the macro trend. the control group is the same type of loan service. we just exclude indy mac. at fdic we were busy modifying loans. oneon't want to compare modification to another modification program. did countrywide kill equities increase relative to the control group of services immediately after the program announcement? do bahr was care? -- to borers care.

--do borrowers really care. the announcement of the program was in october. it grew over time. there is a very big increase in interest in modification programs. it cannot be only certain areas. there is really an interest in this country. before i go to the result, let me talk about the identification. i don't have time to go into all the details. let me just give you a little bit of a flavor. you might be concerned that countrywide was sued while other guys were not. maybe that is different from our control group.

we picked countrywide because it was taken on by bank of america. they could be liable for what countrywide was doing. there is a lot of anger among its subprime bar wars. for political reasons, this had to be chased by someone who had enough to pack. this is politically motivated. i got a call last week from someone up for reelection and the guy from the opposing campaign staff called maker they are using the paper as a reason why they should be reelected. this is partly politically motivated. the settlement was larsa about disclosure. it creates a legal liability but it does not change economic behavior. there was some footprints that were smaller than usual.

this made countrywide liable to these losses. the bar wars don't pay that much attention to the disclosure statement. -- the borrower's down payment that much attention to the disclosure statement. in our identification scene, it allows countrywide to be significantly worse or better when the control group -- as long as this does not change over time, the identification is fine. in terms of the borrower's control, the market was very competitive. there was a lot of automated underwriting. these borrowers are quite comparable. and we really have a very large database which goes by long files with credit bureau data. we have information about bar

wars. we have your current credit score and origination. we can actually computer york complete loan to valuations. we have a fairly precise formula for this. we don't use case is still apparent -- case-seller. shiller. we have all these controls. what is nice about this settlement, a lot of work done on modification has the issue that the bank can be selected on who is offered modification. this is not an issue in our control group. subprime borrowers are eligible. everybody could think about himself and think they were eligible for the program.

we will be very carefully measuring the effects locally. we looked in this period of three months after the program was initiated. in march, two dozen top -- in march, 2009, we announced hamp and we will look at borrowers who are the least likely to default, borrowers with lowe credit you civilization. -- utilization. if we see a strong response among this group of borrowers, there is something driving that. we look at loans and which netted by countrywide. we look at the prime fixed-rate mortgages. we would not expect to find an affect for countrywide loans that were not affected by the program.

we matched our data with the credit bureau data. it is a roll over regression, tons of controls but it is the action -- interaction of countrywide. this measure is whether there was [inaudible] these are quite comfortable. this is the interest rate over time in these two groups. the blue line is countrywide and the other is the control group. they have a comparable credit score. this is the graph that shows the role of the rate of countrywide relative to the control group are the countrywide is the blue line and the red line is the control group. they are increasing the defaults

for countrywide after the program was announced. part of this increase could be the acceleration of the individual group of countrywide are worse. the settlements were going in the 11 most popular states prior to the announcement of the program. part of this increase could be the effect of the settlement if you are worried whether we are identifying the effect of the program, for the two groups of borrowers who are the most interested, there would not be any increase in the program. i have one minute to go. in the old sample, we find that there is about 9% increase in the delinquency rate relative to the control group. they are a little bit smaller guerrilla i cannot show you all the results.

generally, if i say something is significant it will also be significant in context. this shows the effect among people who have utilization and. these are the guys when they went delinquent, the amount of credit availability "was more than six times larger than the mostly in mortgage payments. they might use six months to pay for the mortgage. they don't have a liquidity constraints. the effect is 25% increase to. prior to the program, there is no increase. there is no difference between statistical differences between country right and a control group prior to the program announcement.

among people have the who have the lowest cotv, there is a substantial increase after the program announcement. we find the biggest program response among the people will normally expect to be the least likely to default. people have to equip liquidity available and people don't have much of a negative credit score. let me show you the results for subprime mortgages. among subprime mortgages, we find about 40% increase in delinquency rate. these are the loans that are ineligible for the program.

there may be a way for folks to be ineligible. it does not explain why the hamp program is so slow. thank you very much. [applause] >> we will go from the federal reserve to talk about mortgage defaults. >> afternoon.

thank you for having me here. this is based on joint work. before i begin, i need to state the usual disclaimer that i am only speaking for myself and not anyone from the federal reserve board. why are we here? we are here to answer the question -- how ruthless are consumers? i will give you one answer and i acknowledge that there are many different possible answers. we will know that between 2006- 2009, house prices fell dramatically and mortgage defaults increased tremendously. the question that we ask in this paper is how important is strategic to fault which we define as having the resources to make mortgage payments but choosing not to.

the second question that we gaskin the paper is how deeply under water must a barbie before he decides to strategically default. you can think that the policy response to strategic defaulters will be different depending on the the answer to the question which is 10% under water or 60% under water. in case i don't make it to the end, they're only two numbers you need to remember first, in our unusual sample of borrowers, we find that 19% of that devolved can be characterized as being strategic. in our sample, the medium are walks away when he is 62% under water. this is a longstanding question in the literature on mortgage default. generally, there are two views about why underwater bar were in default. one is that our words can't that and you can think of this payorrowers being unable to

or they choose not to pay. previous research in this area shows that both explanations are important. one shortcoming of this literature is that we do not know which one is more important. like our paper, previous research is limited and stymied by the availability of there is no holy grail of mortgage default data to the best of my knowledge. if you have some, please give it to me. for an ideal study of white borrowers default, -- of white borrowers default, you would need to look into the heart of borrowers. given that the average economists can't do that, we will have to return to the data on mortgage defaults. you want to observe the fault,

equity, and that life events or liquidity stocks over time for a large ideally random sample of borrowers. these data don't exist. what do the previous studies do? many of them use [inaudible] for the ability to pay. they also use credit card utilization rates. you might think that these variables are correlated with the ability to pay but they're also likely correlated with borrowers willing to pay. that is kind of problematic. some of these earlier papers do hand waving. we face these limitations. we impose some structure. we borrow an old trick that has been around in a mortgage

default literature for at least 25 years. the first part of this is describing the type of structure that we imposed. we acknowledge that borers have lots of different types of a strategic motors -- motives. there are many different ways to identify this behavior being an economist, we take a step back and ask what is the most brain-dead thing you can write down about this behavior? if we assume that borrowers default if they're negative equity accede some threshold amount captured by the total cost of defaults? tci. that is where the total cost of the default includes damages to one -- once credits course, the legal liability that one may occur from defaulting on a mortgage, the stigma and the world cost of the origin of default, and ford on capital

gains. -- and forgone capital days. we try to learn something about these total costs and whether they are large or small. we try to learn how the total cost of the fall differs for different types of borrowers. the data that we used are from core logic and these are data on non-prime tie) we limit our sample several ways. we limit our sample to first lien mortgages that were owner occupied, single family purchases. the mortgage is that we looked at were originated in 2006 in arizona, california, florida, and nevada with 100% financing. i would like to note that using 100% financing was both the median and mobile decision among

borrowers with first lane mortgages. we can track the payment status of these borrowers over time he. we and the observation sample in september, 2009 very we measure equity in the data because by observing the loan balance and how it evolved over time and the house price index that we used to deflate of the house value that we observe that origination is from the core logic zip code price index for the definition of the fault that we used is 90 + days delinquent for two consecutive months and the default decision happened in the three months prior to observing a long going 90 days delinquent for two consecutive months. we felt around the different deval definitions. this is the variation on house

prices that is generating the variation in equity. over time, there is substantial variation. the green line shows that for a visit could experiencing the largest house price decline between 2006 and in the middle of 2009, house prices fell by nearly 60% the blue line shows that in as opposed with the most modest declines, house prices fell by much less. there are many default decisions made when borrowers have close to 0% equity and a handful of decisions to be made when borrowers are deeply under water. looking at our sample, 78% of

our borrowers default by the end of the observation. period, by september, 2009. you can look at the% equity on termination. that is either when the borrower defaults or the end of the observation. . period. you can think of this average around 34% under water as indicating a naive estimates as to help borrowers -- how far under water they are. some borrowers don't default and some default for reasons other than equity. this is generally the basic idea. in the day to, there are two types of borrowers. there are borrowers who don't default. and we infer among these

borrowers that the total cost of default is high. some sort ofceed threshold. then there are bores into default. -- then there are borer is that do default. there are bar wars who experience the liquidity shock. we don't say anything about their level of equity at the time and a deep fault. there are borrowers who don't expect this -- experienced liquidity shocker we infer that the total cost of the fault is low. it is bounded by their abnegated equity in the period that the default and their negative equity in the prior period. in order for our estimation strategy to work, we need to know among the bar were is the duty faults, that the borrowers who default because of a liquidity shock and the bar wars that the fault -- borrowers that

default even though they did not experience liquidity shock. this is where the old idea comes in. we estimate a discreet time of default. this has been done in a mortgage default literature for quite some time. it is nothing new. in the first step up our estimation procedure, we run and model where we include the following variance like equity dummies in order to be fairly flexible about how we -- how equity affect the default. we include a host of aggregate proxy's for liquidity including time and dummies which we measure in quarters, interest rate changes that happened over the life of a loan, particularly for adjustable-rate mortgages, we include changes in the county unemployment rate and

changes in county credit card delinquency rates. these are captured in x. the other thing we do is include [unintelligible] to include the age-specific default rate and the coefficients because we are controlling for equity. in order to show flexibility, we interrupted these aging dahomey's with -- aged dummies with county group dummies. we divide loans into three groups depending on how large the unemployment change was between june, 2006 to june, 2009 so we are able to estimate three different sets age specific hazards rates. based on the coefficients' that

we estimate, we impute the likelihood of a quick to predict a liquidity-driven the fall and diesel equity level. -- at each equity level. we have coefficients from the equity dummies and coefficients from these aggregate proxy's for liquidity. we could compare the sizes of the coefficients but that comparison does not really tell us anything about how deeply underwater bar wars are when they choose to defaults or forced to default. this is a graph depicting the relationship between the fall and equity. there is equity and we plot the fraction that default. the blue dots are the raw data that have been worked into

equity groups. this represents a default group. these red dots are what we at -- estimate as a default occurring at each equity level due to a liquidity shock. for borrowers who are not particularly deeply under water, the two dots lineup suggesting that the defaults here are primarily driven by liquidity shock. the deeper underwater bar wars are the distance between the blue dots and the red dots suggesting that equity is playing a more important role in driving borrowers to default. there is a second part of estimations strategy where we are imposing some distribution assumptions on the total

possibility of default to learn something about its magnitude. we assume the total cost is drawn from distribution with a scale parameter. we choose this distribution because it is fairly flexible and bounded up above from zero. there are two parts to the likelihood function. there is this part, there is a second party over there which is a combination of the borrowers who don't a default and among those borrowers who do default, we use estimates from the first stage to draw the signal from borrowers to default for reasons other than equity. i'm sorry, for reasons other than liquidity shock.

this is the main result in the paper which is the distribution of the total cost of defaults. what you can see is that at the 50th percentile, the medium bar work is 62% under water at the time of default. hear, what we are showing you on the blue line is the second thing as what i showed you before. the red dotted line is the distribution of the total cost of defaults. if we ignored the first stage and pretended that everybody defaulted on their mortgage because of strategic motives and quite rightly so, this would suggest that the total cost of defaults are much lower at the 50th percentile, you concede that if you ignore liquidity shock, the medium bar work is

about 35% under water. this is a table summarizing additional results. based on this estimation, we can infer and characterized the defaults that are due to strategic behavior overall among borrowers who are under water, 19% of the faults are strategic review look between 0 and -10%, it is less than once equity falls below -50%, half of the faults are characterized as strategic. michael authors and i have presented this paper numerous times and people don't like the paper a lot. [laughter] one of the objections that people have to the paper is that we don't observe individual

level liquidity shot. our data is not well suited to entering the question. that is correct but the bottom line is that nobody else has the holy grail of data. the other thing that people say is that these aggregate proxie'' for liquidity schock do not do a good enough job of capturing an individual probability of experiencing a liquidity shock. we agree with that view. we also note that if you run the first stage using equity dummies and loan-age dummies alone, the fraction of the faults that we characterize as being strategic goes from 100% to 31%. without using these aggregate proxies' for liquidity, and using low-age dummies to proxy for liquidity shock, we can

reduce the proximity of defaults. the more co-variance you add including time dummies or interest rate changes and filing including these measures, you can reduce the fraction of the faults that to characterize as being strategic from 31% down to 19%. the marginal impact of using these additional variables is quite small. finally, we have done a number of robust tests. i don't have time to go through each one but we have the distribution of total cost which is the same depending on how you further narrow the sample. an interesting result we found -- we can also characterized some of the heterogeneity.

arizona and california non- recourse states pretty green and yellow lines are the distribution of total cost for florida and nevada. you can see that those two distributions live below the distribution for arizona and california suggesting that at least borrowers seem to be internalizing some of these total costs. bar wars with high fico scores have higher default costs. this is not too surprising in the sense that higher fico scoreboards have more to lose by walking away from their mortgages. we discussed the 620 and we also look around this threshold noting that lenders give

borrowers under 620 more than borrowers who are just above that cut off. we find that screening matters. it could potentially have some effect in the sense that our words or more heavily screened appear to have higher costs of default. maybe lenders are doing something in order to find less best route list of borrowers. the comparison shows that borrowers who provided little documentation have lower costs of the fault. -- of default. it is important at this point to end with the conclusion of the extra no barletta tiberi the sample that we have is an unusual sample. these bahr was originated mortgages in only four states in one year.

what did we learn about borrower's overall? on the one hand, our estimates may provide an upper balance for the average borrower strategic the fault of behavior. the bar was bought their homes in 2006 and seven have not been in their homes for very long. they have -- may have a little attachment to their home or have little attachment because they put no money down these are bar workers who used 100% financing. it may be the case that non- prime borrowers have little wealth that lenders can pursue. finally, they tend to have lower credit scores than the average borrower. they may not fall -- they may not find default as stigmatizing. equity as measured are very

noisy and wallets of. it might be more difficult for non-prime borrowers to borrow again in the future. non-prime borrowers may on average be less sophisticated and over estimate the cost of defaults then prime borrowers. maybe these two sets of reasons cancel each other out maybe we have arrived at something close to the truth. to conclude, we estimate the level of negative equity at which borrowers defaults accounting for some of the liquidity shock. overall, 19% of our defaults are strategic and that increases to about one half when borrowers are more than 50% under water. the medium or walks away when he is 62% under water.

this is my last slide and i look forward to the discussion. [applause] [no audio] >> great, so, to start the session, we have three very the papers that are all related to the idea of the notion of having trigger events verses a ruthless default. the first paper i looked at that

as being a paper about the aftershocks of foreclosure and what happens to borrowers will go through a foreclosure even. t. i believe this is the first paper that has ever looked at this. i don't know if anyone has this kind of data as to what happens to these people. we always focus on the foreclosure event itself. the other two papers are closely related to the notion of do we have people who default because of a trigger events or is it a strategic or root + default decision? -- or ruthless default a decision? the idea trigger a burst as rootless default is an old debate. it stems from the notion that comes out of the option pricing models where we tried to create model that indigenously describes the borrowers'

decision to make the payments to default or three pettitte. everything is indogenous and it is a clean constructs for looking at the contract. it does not match with all the messiness of reality but it is a nice way to frame a discussion in thinking about the contract. there are many papers that have looked at this. this goes all the laid-back. there is the notion of trigger events. this notion of bar wars -- a false being given by a trigger events is based on liquidity. there are a number of papers that looked at that. there was a big debate back in the 1990's about this whole event of whether these were strategic defaults or trigger defaults. out of that debate, they developed a number of what i

call hybrid or empirical models that tried to link both series. the idea that you could have people who were defaulting strategically as well as people who face a liquidity event. there are a number of empirical studies that looked at those as well. it is important to know whether we have strategic or trigger defaults. it is important because we want to control the moral hazard issue. if you are going to do a loan modification to help people who are having a trigger event or liquidity shock, you have now singled -- sing -- signaled that the default cost is lower. everybody would then jump on the bad wagon and start defaulting. i looked at freddie mac many years ago we had to control for the fact that we had a small

hazzard issue that you lower the cost, you will have more defaults. here is a schematic that shows this. this is a graph from an earlier paper or on the two taxis, xand y, look at these as default costs. if we go from left to right, [unintelligible] on the other side we are reducing default costs and the z axis is the probability deval per this is a rootless default model when you reduce the default costs, you end up with greater the fall probability. if you are talking about doing a mortgage moratorium and that is the delay, you'll end up with higher defaults. and a strategic point of view. what do we know from these

previous studies? one thing that is important to keep in mind is that when we try to match the current studies with the previous studies and there is confusion in the literature that the fault does not necessarily mean foreclosure. the two are not the same peri=. . it appears that strategic the fault is the drive for many defaults. however, we also have evidence that this is caused by a trigger events. there are costs for foreclosure. when you try to separate the two of them between defaults vs foreclosures, you can show that they're both ruthless as well as trigger even happening. one of the problem is that the previous studies were from a period of relatively stable house prices.

very few borrowers had negative equities in these studies for it was often difficult to test whether they were truly rootless verses of trigger. we now have an update to these studies where you have a severe house declined. there is an atom -- anecdotes from a professor who did these to fall models. he said he would love to create -- he said he would love to have a depression because it would create more data. he got his wish. comments on the specific papers -- we have the foreclosure after shopper this is a very nice paper that studies the credit scores of the foreclosure event from 1999-2010. the major findings are that the credit score declined prior to disclosure which is not

surprising. these people approaching a mass of credit event, you would expect their credits course to show that. otherwise, why are we paying fico for all these scores. it reflects the delinquency. before the foreclosure event. foreclosure is the taking of the house preceded by extended periods of delinquency. it also shows the credit scores tend to recover after the foreclosure in event. one thing they point out is that prime borrowers are not recovering as quickly. they don't go back to their pre- event level. that is an interesting finding. the implication is that it's possible that there is a role of trigger events that have these divergent credit scores have different recovery rates.

that is the link between the two. they point out alternative use of foreclosure and try to make some statements about these. the first view is that for closure could be a shock that alters your risk, your future credit risk. therefore, it is not surprising that we have a decrease in future access to credit and therefore, it is destroying well and that is why from a public policy perspective, you might want to try to introduce -- intervene to help people. if foreclosure results from some kind of trigger event, a liquidity shock, the trigger is the underlying cause of the decline of the foreclosure event. that is picked up in your credit for and is not actually the foreclosure itself that causes the drop in your credit's corporate the implication would that be we don't really need to

disclose the foreclosure problems at all. get these done quickly and people will recover. the third view that they propose is that while foreclosure could alter borer preferences and therefore reduce the stigma associated with the credit schock, as a result, they have a lower credit score in the future the version of the paper i had did not have all the metric models in it yet. they were not able to distinguish between these three. what are some of the possible reasons for the differences that we observed in the credit scores by a court after foreclosure? these things they will have the control for going forward. there's our differences between our words. we want to know as much of the borrowers as possible to control

for their future credit scores. we would want to control for differences in macro events. that would impact the ability to recover from his credit shock, if you will. there is also changes in the bankruptcy law and for corp. -- and foreclosure process over this time. . it is not surprising that you may say differences in different credit scores by different cohorts thinking that remembering that law of foreclosure has changed. there may be changes in the calculation of score as well. we don't know all about that. in that sense, for empirical study, we would need to design some econometric designed for that. we would create a matched sample design where if it's possible to take it characteristics of the boer war is over time and try to control for the difference as

much as possible to create a matched sample from one colewort to the next, you would be able to attract borrowers as they go through this event to see if their scores to recover different light. in a different way. on to the second paper. the quote is basically my take away from this paper there is a careful empirical study of the countrywide settlement for the foreclosure you that. they find that there is an increase in defaults on countrywide mortgage is after countrywide announces a settlement.

lower the default got, you have an increase in the probability of default or an increase in the actual default. this is the death -- is the effect caused by settlement or recess? one thing that was not clear in the study -- they are studying the 228 loans. they have other types of loans but the 228 have a reset date. that is where the fault usually occurs. if you look at the statistics would impair their control group with countrywide, the countrywide loans are more likely to be originated 24 months prior to the announcement a fact which would be right

around the time of the reset date. i did a study where we were looking at 327 loans and we found a 77% jump in the hazard rate of defaults at the reset the date. that is consistent with the idea that the 228 are getting a big bump in their default because of the reset. it happens to coincide with the settlement date as well. we have to control for that a little bit. and also in that debate may want to consider is to go back and try this hazard great technique which explicitly controls for time variation. that said, their study is very carefully done it conforms to what my briars would be that if you reduce deval costs, you

would raise the probability of defaults. we suspend the foreclosure process and the default rates go up there this is consistent with all the theoretical work in the literature. it confirms the intuition of the option pricing model. we now get to the third paper. this was a very carefully done empirical exercise where we take a two-stage approach to estimate the negative equity drive to fall for their art two models. the first stage model is the hazard model which is classic paren. we use that to feed into a second stage model and estimate the costs based on a negative equity prior to a default event.

the model is focused on the level of negative equity. there may be an issue in that the theory they used to construct the empirical study did not acknowledge the fact that you could have functionality in the mortgages. as a result, there empirical approach does not include some of the classic options variables that we would normally think about. the results are very consistent with the literature. using fha data from the early 1990's, we did the same kind of study where we focused on foreclosure instead of self- curator there is evidence of strategic as well as triggers. we found that the borrowers had a high loan to valuation and were more likely to default than borrowers with lower hlv.

we need to incorporate the idea of these options, the value of the default options. the way i think about this from a theoretical standpoint is the default value in the basic is made up of alone-the property value plus the premier and adoption which is embedded in this contract plus the current payment that is due. that you have two necessary conditions for default. the first condition is you will default today f. the default value today is worth more than the default value you expect the future. the second condition is that you have to have negative equity. these two conditions are necessary in order to have a true ruthless default, if you will. the implications are that the

borrowers who will exercise this will have house prices that have declined so that the bar were as negative equity. -- so that the borrower has negative equity. we have to control for the house price movements. more workers will default when they expect house price movements to be small credit that will default when you hit the bottom of the cycle. interest rate changes during this time. , will have a significant effect on the value of these options. the magnitude of the house price change will have a huge effect that interacts with the amount of interest rates. a couple of the erratic -- the theoretical concerns the one thing we have to worry about is you have to incorporate into

your empirical model not only the value of negative equity but also the volatility in house prices. that is one thing that is missing here. that impacts the probability of negative equity going forward. you have to know if house prices are slowing at some point. that is a need for a two-stage mass -- method which is what they have done for the first stage is the probability of default which is the hazard model per the second stage is the high rate value of default incorporating these measures of originality and default. i did a real simple simulation. i went and took some of the coefficients from the model i had estimated hadfha data from the mid-1990's. i simulated the option value at the fall for a bar or in

california in 2006 with an interest-free love. the value of the default option rises significantly which is consistent with the observed the faults we are seeing now. i will and my discussion in time to have questions and comments from the audience. i'll give the author is an opportunity to respond to my comments, as well. [applause] >> i will add one thing we are pretty much spot on, time b wise. , timerent's comments were spot on. at the very end of my talk, at a slide that i neglected to show. brent actually reporters almost the exact same slide which could

possibly explain this. it is important to it knowledge exactly what brent said that i think the data conclusively shows that once you go through the door of foreclosure, the way you behave after that will be very different what we cannot say from this data, i can't say how much of that is because of the process of foreclosure itself or how much of it is because if a trigger event not to the door, that keeps you tumbling years after the fact. one of the nice things about my job, i am an extreme senate. the third possibility is that maybe these people were always but that fold of the world. after the foreclosure, they stopped attending pare.

that is not an explanation that i can buy but it may not be correct. >> i would like to thank brent. i want to make one remark about the teaser rates. we currently have a much larger sample. we have more data from equifax credit bureau. this is the largest among the people who entered into the program. we are really picking up the program effective we found significant defects. .fetxts fixed-rate mortgages don't have a date and the results are there

as well. that is a very well tech in point. we have been thinking about this as well. additional data would find a the same results. >> thank you for your thoughtful comments, brent. i thought you did a nice job of describing the paper. i will take many of your suggestions. >> we have a couple of minutes. anybody in the audience want to ask a question? in the back? >> i have a question for tomas. your paper was convincing that you found evidence of strategic defaulter it might take away from that is that what your

paper shows is that strategic default is not there but it is not an important phenomenon. that is because your paper is about a program at countrywide which was badly designed and did very little to stop strategic default and was quite generous. your paper shows that results of that almost worst case program is that the default rate went from 6% and-a 6.5%. you find creditworthy borrowers that goes from 1%-2% if i was a policy maker designing a mortgage modification program or a lender it seems to me that the right take away has to be strategic defaults don't matter because many people do it.

what am i getting wrong? >> thank you for the comment. by the nature of the identification design, we looking at that the neighborhood of the dates. it does not look at the increase of defaults but what is the relative increase. the relative increase is quite substantial. it is 30% test 40% higher around the mortgage modification program announcement. this is an open question and i agree with you. if you told that delinquencies increased by 40%, i would say that is economically significant. i can also said that only increased the three months after the program announcement. it is a well taken point.

i would not dismiss them up front. the countrywide program was not very well designed especially having the obvious requirement to be delinquent many programs had similar requirements like the j.p. morgan program. it seems the fdic was targeted with delinquent loans. there is some validity to this experiment. . .

>> i wanted to ask you a question about the cycle recovery. and i just want to get some other information in there. >> i would have liked to look at the short sales, but the problem is it's sort of it's a little bit unreliable with the major derogatory activity once you

enter into foreclosure. at focus on entering into foreclosure because that seems to be reliably reported. in terms of the people -- we did identify who had a major mortgage delinquency but did not seem to go into foreclosure. we did that comparison. they have somewhat of one, but much less. the problem is i am not sure how to interpret that. i do not know if that is an interpretation of the foreclosure process itself that is making things worse, or the fact the trigger event that hit the barrowers was not as severe and that is what allowed them to escape foreclosure. we did that to get at is, but shows there's less of an impact of that population but interpreting is more difficult. >> [inaudible] >> the actual exit in terms of the characterization -- i am not

using a specific bicoastal ffic. it is on the same scale. it seems to glide up reasonably close. it does not distinguish between that short sales in foreclosures in terms of the hit you take to the book wars are predict the foreclosure. -- in terms of the hit you take on the foreclosure. >> [inaudible] i was wondering whether or not you look to see what other types of leverage the barrower might have. did they have really high credit-card balances before the leisure events? >> if there will be a follow-up paper that looks like what happens to these people before the foreclosure even end. what you particularly saw as far as leverage, i do not remember

looking at credit card balances, but as far as amounts of mortgage debt these people have, it blends in the years going up. -- it balloons in the years going up. there is definitely a lot more debt going into this, but a lot is driven by the mortgage side. >> anyone else? thank you very much. it has been a nice session. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we will bring you another panel from this fdic panel coming up. meanwhile in continuing election news, republican tom foley has conceded to democrat dan malloy in connecticut governor's race.

that, despite questions to it that remain in the election process. his legal team had to tamarins' -- determined further challenges would not change outcome. congressman dave walton is heading a team of representatives that will help republicans transition into leadership of the house. -- greg walden is heading a team of responsive a representativest will help republicans transition into leadership of the house. you can get more information about the transition at c- span.org/politics. check out the resources section for links related to news and whether site. tonight on the communicators, joe barton on the future of telecommunications and technology policy under our

republican-controlled house. that is that it o'clock eastern on c-span2. >> this year's student kicam vio documentary is in full swing. upload your video to see saddam before january 22 when $5,000. -- to win $5,000. >> we will take a look now at home ownership policies with the panel hosted by the federal deposit insurance corporation. we will hear from officials with the fdic, federal reserve, and real-estate executives. this is one hour 40 minutes.

this is the last session of the last day. we have three papers today. my name is bob avery. i will not give any of the background details on any of authors. we're going to go in the order of the presentations, and we will start the first paper. it is of affordable housing goals and single-family mortgages acquired -- acquired fisby the gfc's. ñç

there has been a lot of discussion in recent years about the role of fannie mae and freddie mac in the foreclosure crisis, and particularly in the possible role played by the affordable housing goals that fannie mae and freddie mac were subject to under h.u.d. we have been trying to do research at my agency to try to put out basic facts about the kinds of mortgages and other assets that animate and freddie mac acquired that counted

towards the goals and performance of those assets. the paper i will present today summarizes preliminary work that i and others that have done. there is no publicly-available paper because has not been released yet. the views that are expressed here are my own and not those of f.h.a.a. the analysis is limited to single-family mortgages that fannie mae acquired by cash purchases funded with debt for his comeback mortgage-backed securities that they guaranteed. we basically call those activities where they are taking market creditors directly to their credit guarantee business. we will need about affordable housing goals and their impact on that business and not about him rigid portfolio investment business -- and not about the

portfolio investment business. that is a significant limitation of the business. we're also not born to be talking about multi-family credit risk bearing. this is a descriptive analysis. it does not provide a sufficient basis for reaching conclusions with respect to very complicated relationships between what fannie mae and freddie mac did during the later half of the last decade and either contemporary in this or subsequent developments in financial markets for the real economy. i want to do a little bit of a summary of the affordable housing goals that were applicable in the years we are talking about, which is 2004 through 2008. the lower-modern income goal targeted units that were finance

for barrower is -- at the lower and moderate-income goal. the special affordable goal targeted barrowers are renters earning more rigid earning no more than 60 percent of ami or residing in low-income tax. then there was finally at geographically-particle, the underserved areas gold that targeted are worse or lowers residing in lower-income areas. -- then there was finally at geographically-oriented goal. óññññññññyññññóñm

what you can see is the goals were stable in the first four years. 50% had to be eligible through 2004. 20% of units had to be qualified for the special affordable gold and 31 for the underserved areas bowl. then there was a change in the regulation that gradually increase each of those three goals, alternately in 2008 to 56%. units had to count towards the low moderation goal. the other change that occurred in 2005 was the imposition of

seven goals -- sub-goals. essentially what they did it said debt of the qualifying units that counted towards the three main goals, a certain share had to be refinanced with a purchase mortgages on owner- occupied units in metro areas. that gradually rose to 47% of units. the underserved areas to 34%. this slight provide some summary statistics about how fannie mae and freddie mac finance the units they finance. there is a column that says on average we're looking at their single-family credit guarantee business, either cash purchases or envious guarantees, finance

and the 5% of all the units that financed and all their various activities. acquisitions up securities and single-family mortgage revenue bonds financed 10% sen. acquisitions of the commercial- backed securities and multi- family multi revenue bonds finance an average of 4%. and you can see a spike in 2004 through 2006. essentially over the period, the averages are shown at the bottom. again, we're focusing on the part of their business that financed 75% of their business. the key research questions we're trying to answer here are how have mortgages they acquired performed over this five-year period/

? how is it different from those loans that did not finance gold- qualifying units and what accounts for those differences? we essentially have almost a complete sample of all the single-family loans they acquire. 4.8 trillion dollars of mortgages over the five-year period. our performance measure is the percentage of each origination- year coal porhort that was ever0 days delinquent or entered r.e.o. status. the time period between origination in 2009 differs by origination year debt at least you are controlling for this time differences. just to summarize the basic findings, the average 90-day lead going whicdelinquency ratee

between 2005 and 2007 and gets better in 2008. for each origination, the delinquency rates are worse for gold-qualifying loans than other loans. the performance is the worst for mortgages at units that were located in the low-income and high-minority tracks. the basic reasons for the differences are that there was differences in each year and how much house prices continued to rise before the boom after origination. there was a deterioration across origination years and the credit profile of the loans they were buying.

finally the census tracts in which the underserved areas was targeting had worse house price bust. the basic data summary here is in this chart. these are the ever-90 day delinquency rates by origination year. the dark blue line shows that despite the fact of the 2004 loans have been outstanding 4.5 years by the end of the period they basically have a default rate of 4.3% that is less than 1/third of the 03 of the 2007 c.

they all drop in 2008 because of the quality of the loans improves. this light acrid is the goal- qualifying units into loans - thi- this slides is the goal- qualified units. this is non-goal units still. this is all loans. these are loans that financed either low-mod units or combinations. particularly you can see that the yellow far, the orange far, and the dark blue bar show much higher rates of ever-90 day delinquency. those are bars where the units

either met the underserved areas goal or a combination of that goal and other goals. an interesting question is why? we will talk about that a little bit more in the minutes. what explains these patterns in the past to supply its? versus the timing of the house price best. -- first is the timing of the house price best. in the later origination years, less money was accumulated and therefore, people were much more exposed to negative equity when house prices started dropping. then there was a broad deterioration in the credit profile of mortgages acquired by fannie mae and freddie mac through the single-family guarantee business. the most striking part of that was as their public disclosures

have reveals, there was a rise in their acquisitions of non- traditional i.o. loans over the period. acquisitions accounted for 18.5% of the business through the single-family guarantee business that combined those groups, they reach 28% of the business in 2006 and 26% in 2007. as i will explain in more detail later, they made it harder for them to achieve the goals but easier to achieve the purchased a set of goals. -- sub goals. the sec debt aspect was the worsening in the distributions of the psycfico scores.

we call those baseline activities. the distribution shift was easily noted in an increase in ratios above 95% those changes were not dramatic but you can clearly see them in the data. there was modest growth under targeted programs that are often well-publicized. as part of this targeted program, a set of initiatives, they made adjustments to their automated underwriting system to accept more loans that except gold-qualifying unit -- goal qualifying units. those units were never very large.

6.4% in the peak year 2007 and 3.5% over the hofour years where we have the ability to fight the loans. those programs focus on low- income and minority borrowers, particularly home buyers. therefore were especially helpful in meeting the new purchase goals. many of the loans had high ratios of of a 95% these settle loans that are clearly comparable to sub-prime fixed- rate loans. at the mention, -- as i mentioned, the area goals performed worse. one reason is the low-income and high-minority census tracts have experienced more severe house

price depreciation. my colleague estimated these national repeat sales that are both based on purchase mortgages only and you can see the dark blue line is estimated using data on census tracts that ever counted during the decade towards the under-served areas. it shows a drop of 25.6% between the beginning of 2007 and january -- the first quarter of this year as a percentage drop in the index. other census tracts decline from the peak was 16.5%. the idea is that negative equity was much more prevalent in these under-served areas. the basic question that this data enables us to get our hands on is how did the increases in

the affordable housing goals of fact the composition of the loans that they may and freddie mac bought during the -- loans that fannie mae and freddie mac bought during the period. as i said before, these targeted program loans accounted for 3.5% of their acquisitions in 2005 through 2008. and those loans account for less than 8% of all of the mortgages over the five-year -- of those four-year periods that have ever been late.

about 80%, it represents an of all the loans they acquired where acquired under baseline activities. they had underwriting standards, wrote contractors and were required to meet underwriting standards. under the base line activities, three-quarters of the loans came in. those loans account for about 53% of the ever-plate delinquency notices. they are in the business of providing liquidity to the whole mortgage market, and it might not have done exactly the same composition of loans, but they would have done that volume. of the 53 percent of the loans that have ever been more than 90 days delinquent, 31% were financed-qualifying units.

it is safe to say the higher goals were among the factors that contributed to the deer attrition -- deterioration of the baseline acquired loans, and therefore to a degree to the ever-90 day delinquency they experience. finally, 18.5% of all the loans acquired were alt-a and nontraditional mortgages. they acquired those primarily to increase market share and profits, not to meet the goals. this made harder to achieve the goals. the reason is they're less likely than other schools to be market-qualifying, but easier to

achieve the goals. so they helped with the suckles but not with the goals. -- helped with tehhe subgoals and not with tehe goals. we're just doing descriptive work rather than trying to look at causation in terms of economic activity. they do. and-- thank you. >[applause] >> thank you, robin. the next paper will be presented by tracy turner from kansas state. >> thank you.

ok, excellent. can you hear me? good. i like to move around. this is joint work with christian helfer. we're very interested in looking at the extent to which the mortgage interest adoption played our role in affecting home ownership outcome. as an overview, how are we going to do this? record to use household level panel did at that allows us to follow households overtime and exploit what turned out to be large variation in the mortgage interest deduction across states. we will look at a combined state and vedra measure. over it -- as well as, --

i am not being heard. is their problem? -- is there a problem? it turns out the deduction of the state level, the federal and state level, some states have no income tax. not all states will have a state-level mortgage interest deduction component. for the ones that do, there is extreme variations. and the beauty of the data we're working with as we can follow households over time better able to exploit variation from their move. 5% of our sample move between cities and states in any given year.

an important part of our paper is something that has not been looked at pryor, which is their roles that halocal housing conditions play. our main proposition is that the impact of the mortgage-interest deduction depends on local housing supply conditions, in particular markets with flexible controls or elastic housing stock we expect a positive homeownership impact. in highly-regulated markets where the supply of housing is very limited, we will expect no impact. possibly a negative impact for some groups. why should we care? , a very important topic and timely at the moment. let me point out a couple of things that are very well-known.

it is the largest federal tax expenditure which roughly 100 billion at president -- present. when we look at our data, what we have served as a combined state and federal on average tax subsidy of 26 cents per dollar of mortgage interest. the mortgage interest deduction, why should we care? because it is costly. in the paper, the newest addition is on the paper. the newest version is available. and that version reduce some simulations to ask the following questions, what is the annual cost of four groforgone tax rev? what we find is a lower-bound

estimate of 54,000. i have to keep my head turned. why else is as an important topic? for more timely reasons. additional reasons. fiscal responsibility and reform will soon come in fourth with recommendations on how to help balance the budget by 2015. understanding whether this feature of the tax code, which is potentially going to be eliminated or let me rephrase that, the commission charged at the moment is looking at such formerly sacred taxes and whether they should be used to help eliminate the deficit. this particular feature of the tax code is being discussed. understanding or not whether it is effective does not boost home ownership rates is affected.

important to this feature of the tax code was highlighted yesterday and chairman bernanke's comments to this group. by the way, did anyone notice -- the commission on fiscal responsibility and reform has acrosomthe acronym c.o.f.f.e.r.r coffer? continuing, there is related research. and some have looked at fundamental tax reform. there is additional papers in

the 1990's that are interested in looking at how the changes in tax law will affect housing markets. there is additional papers that look at the distribution of federal tax benefits to homeowners such as the mortgage interest reduction then there is more recent work that is looking at the extent to which it there was not the mortgage interest deduction, what household use equity financing? basically what the studies tell us, we can come away from the studies understanding that there is not a big impact in mortages likely. the impact on home ownership rates is likely going to be small. as i noted before, our addition to this literature, is to focus and on the housing stock affect and the extent to which we

interest reduction in highly-interest places in comparison where it is difficult to expand. the basic impacts. just the usual stories that economists will tell. the subsidy, the annual subsidy, will increase the willingness to pay for owner-occupied housing buy the discounted value of the subsidy. in our sample as we're following households in the subsidies berry because of changes in the tax cut at the state or federal level. short run response, housing stock fixed. the question is, can the housing stock expand in response to having had your prices? -- to having higher prices? the subsidy lead to expanded housing stock in the long-run.

in the other extreme, in a market where the markets cannot readily expand in response to higher prices, then of course the subsidy is fully capitalized and reserve no change in the home ownership rates but there may be a change in the composition of homeowners. there has been evidence that have looked at the extent to which demand shock generate higher house prices and the important role that housing stocks play and that. analysis in the paper as well where we observe that we signed a stronger impact looking at regressing house prices on different controls, including looking by regulatory status.

we find the stronger impacts on house prices and more tightly- regulated markets. so, in this paper to altamonte and look at the question of whether or not mortgage interest deduction brings up about higher detainment, we study dynamics. i will tell you we begin our city in 1984, because that is when the panel begins collecting walz data. we have 19 observations for most households. -- i will tell you we began our research in 1984, because that is when the panel began collecting wealth data. we observe them at roughly 19 points in time. that breaks up to 53,000 household your observations. the house sold for which we have the regulatory data to be able

to allow us to control for the extent of regulatory restrictiveness 4 inelastic housing stock, we have 2600 households. i will explain that in a moment. we have variables on 10-year status -- tenure status. in addition we have confidential data indicating the tract and mrssa where the household to reside. sources. most importantly, our measure of the subsidies to homeowners combined state and federal subsidies is generated by the m.b.e.r. -- n.b.e.r.

we use an extremely large sample of taxpayers with income distribution helpe fix. the changes in the subsidies at the state level over time picking up the combined federal and state subsidy is being driven just by tax law changes. what is the subsidy picking up? i gave you the 26 cents figure before. on average the subsidy is 26 cents for a tax savings. there it is. let me tell you, it does very a lot. the highest combined state and cross subsidy is 41 cents per dollar. -- the highest combined state and federal subsidy is 41 cents per dollar.

and at the state level, some states is as high as 10 cents. then we have other data. this is a regulatory restricted indexes that is compiled by and published in facts and it measures are restrictiveness of plant-use regulation. -- land use regulation. she uses six different sources. some of these measures that go into the index are picking up the use of growth management policies. some pick up very specific things such as the percent of zoning permits approved and so on. in this paper she generates this index. there has been some studies that

indicate regulatory restrictiveness is a good proxy for housing elasticity. in addition we have extra data that we merge using the confidential census tract location. and we have track-level data on composition of the housing stock. we have data from when i made mention of capitalization evidence earlier it was using the upper fhfa data. i am sorry. excuse me. and the debt housing price indexes. -- these are the housing price indexes. he will estimate the probability of home ownership -- we will

estimate the probability of home ownership at time t. all of the possible household characteristics that vary over time that we can control for to pick up life cycle of sex and education and permanent income of sex. s we will also have the application-specific controls to control for the stock composition of the housing stock. and then we have a whole set of fix. we have individual a fax. -- individual effects.

we have various things we cannot observe about people and places that might affect their likelihood of becoming a homeowner. ok, so why fix effects? we get a list of why it is important to get. we want to be able to control for the since we cannot control. six defects for the m.s.a. will pick up neighborhood, different levels of geography. in our sample people to move across states and we observe them moving. as a result, we can control for the location factors also in addition to the fixed effects. extended model looks and actt -s

there any effect on the likelihood of home ownership? does it increase the likelihood that a given households will own? then we look at what about income status? does have an effect for higher- income households? one thing we know for certain is a higher-income households tend to save it rejected and a bit more, proportionately more from the mortgage interest deduction. we look for this affect my income. we look for a regulatory status, asking maybe the subsidy has this affecte by regulatory status. then we asked by all three. is there an effect by regulatory status? if so, does that vary by income status? let me show you our results. i am not sure how much time i have it. a few minutes.

if you look at the paper, you will see on the full sample -- i am reporting our key findings with respect to the subsidy. for all other controls, the models are well specified, but for the purposes of this presentation, i am sure you when you look at the data it was first the mortgage subsidy and than the mortgage subsidy interacted with incomes. in these columns we first-run it with household level controls. then we add six sx for the year. -- then we add the year fixed effect.

the next step is we aske does te impact of the subsidies barry by regulatory status? indeed we find that it does. notice -- i'd better just hold this in my 30 seconds remaining. look at this impact, which i will interpret in a moment. this says that mortgage interest deduction has less of an impact on the likelihood of owning a house near the regulatory status of the city. as we get into more and more of an impact. let me come back. and then we look for interaction by regulatory status and income status. while we detect here is that --

what we detect here is that it matters. how do we interpret these findings? just interaction on regulatory status that i pointed out, suggest that in the least- regulated places we observe the subsidy bringing about an increase in the subsidy brings about a 3.6 percentage point increase. in the least regulated place as the subsidy or as it is expected to increase is homeownership rates. i wanted to tell you who are these least-regulated city's? nacional, tenn., a twinsburg, kentucky, a joplin, missouri, cities that tend to fall in the index on the least-regulated. when we look at the most-

regulated, who are those cities? that includes places like new york, san francisco, charleston, south carolina, baltimore, boston, new work. -- newark. we find that subsidy brings about a decrease in the likelihood of owning by 3 percentage points. we find that there is no effect at all on low income households. were the effects are happening are for moderate and hide income. in the least-regulated places, effect on higher income. other controls are sensible intuitive and robust. what do we conclude? the mortgage interest deduction has no impact on the

probability opponent which a common share for the full sample. and it-- the mortgage interest deduction has no impact on the probability opponents for the full sample. where does have an impact? the impact this by regulatory and income status. it increases the probability of higher-income household and least-regulated places owning. it decreases the probability of owning in highly- regulated plces. aces. this is picking up, for example, the possibility of down payment constraints. that for a given level of regulatory status, moving from city a to city b, it will be

more capitalized and housing prices. in city b the mover will be less likely to own. one more thing, important distributed impacts, which we're all aware of in general. an increase in the subsidy boost of existing owners and tend to keep low renters. it is certainly showing up here. let me refer to the things that chairman bernanke referred to yesterday. and the places where the potential for externalities' our greatest, the subsidy actually has a perverse effect. we conclude it is costly, and effective, and has had at first

distributional consequences. been here. -- thank you. [applause] >> thanks, tracy. our final paper is constructed credit, revisiting their performance of the community reinvestment act during the crisis. presenting it is carolina read. >> thank you. thank you. one of the problems with going glasses over the day and that half i have plenty of time to get nervous as all of the truly great people have shared such interesting ideas, but i really grateful to all of you for sticking around for this last session, because i'd think it is a very important session. almost all of the sessions have a focus on how can we reformed

the housing finance market? toso that we do not have such a global crisis as we have in the most current period. what i want to talk about and the other papers have also or reformed housing finance sector in such a way that is also equitable? there has not been much discussion about equity over the last two days, but one of the most important questions is going forward how do we ensure that lower-income and minority communities have access to fiar, air, responsible credit? issing, the community reinvestment act is an important parts of that answer to those questions. -- i think the community reinvestment act is an important

part of that answer to those questions. how did this fair and as time of unprecedented housing price growth and complete change of the mortgage market and institutions within the mortgage market that we're doing mortgage lending how did those changes affect lower-income and minority borrowers in particular. i wanted to put on my hat and say this so strongly that everyone believes it is true, but c.r.a. did not cause the subprime crisis. if you need any further evidence, the fact that over the past 33 papers you have heard, there is only one paper suggestedevoted to the success s not important the best evidence is done by bob avery.

overall the lending constituted a very small proportion of subprime lending. very few subprime loans and lower iincome communities were made by a mortgages of the c.r.a. looking specifically at california we found that loans less likely to be in foreclosure than loans made by independent mortgage companies, which are not subject to cra. i think there is other evidence, but those are very compelling studies that showed it did not do this. this paper represents an attempt to go beyond our california paper. one thing is that california is a little bit of the beast and to itself. it is a really strange state,

especially when we look at housing and mortgage markets. we are curious to know whether we found who did what we found in california would hold true brother parts of the country. -- we were curious to know whether what we found it would hold true in california and in other parts of the country. you might think there is some kind of strange economics on why we picked ohio and pennsylvania. we were invited to get this paper at the philadelphia federal reserve conference. we threw in ohio because it is close by and there the poster child of the mortgage mess, particularly within the community development world. we wanted to make improvements to our methodology over california paper. some were prompted in this room. to see if improving the methodology might change our findings in some way. let me start really quickly and

show you that we really are talking about three very different housing markets and these three states. the orange line is california. and california will state orange throughout the presentation. -- will stay orange throughout the presentation. pennsylvania saw a slight increase in housing values over the time period. ohio was basically flat. we see significant differences in the foreclosure crisis. if you look at 2006, which is right at the tip of california were the orange line gives its close to the axis as possible we see quite elevated foreclosure rates, not only in pennsylvania at 3%, but certainly in ohio where they were already experiencing 5% foreclosure rate for all loans. however, calif. outdid itself

and you can see the incredibly steep and rapper -- rapid rise of starting in 2007. we have these three different states, and what we will do is we're going to ask two questions. one, or loans made by cra it more likely to be good, responsible loan products, and we're defining that as not higher-priced loans? second, where loans made by cra more likely to go into foreclosure? how do we do this? we use the matched-proprietary data set. we look at a large database of lorton performance -- melloan performance. this allows us to control for more barrower characteristics

including races and income. -- for more borrower characteristics, including races and income. we break it up into separate categories. i do not know how many people are familiar with the cra, but the categories we use our cra- regulated institutions. these are all banking institutions. wheat break that up into -- we break that up into two categories. the assessment area corresponds to the regulations emphasis on oversight over those loans being made. banks are given more regulatory scrutiny over their loans within their as assessmeassessment are. and the definition we use is

whether or not at bank has a if they have one within that and have a loan, we say it was made by a cra-regulated biggs within the assessment area. we also considered two other categories. one was whether it was a subsidiary or affiliate. banks had wide latitude over this time period to choose whether they are affiliate's or lending whort considered as part of their cra. the fourth and final category is independent mortgage companies. these were not subject to cra over this time period. so all of the analysis will look at those different institutions.

our assumption is that cra loans or regulated institutions generally provide more responsible credit to lower income and minority borrowers and those loans perform quite well. . .

i want you to focus on two things. loans made by a regulated institutions were six sickeningly -- were significantly less likely to be declined. getting a mortgage from a cra regulated institution reduced the likelihood that somebody would get a subprime mortgage by about 25%. what is most striking about this figure is that this protective effect was much stronger in low and moderate neighborhoods than in middle and high income

neighborhoods. if you got your loan from a regulated institution would then its assessment area, you were 35% less likely to get a subprime loans. this holds true across california, ohio, and pennsylvania. this is pretty compelling evidence that cra did help provide some pretty constructive credit for lower income borrowers. nevertheless, we find that the cra was not perfect. we found that bcra was not strong enough to eliminate the dual mortgage market that we talked about yesterday. in this slide, we look at the proportion of subprime loans that were made by each of these

different categories. what you can see on the left ensign is that cra made a very proportion of subprime loans in california, but the affiliate's and subsidiaries made considerably more subprime loans. about 20% of their origination. independent mortgage companies are on the right side. they dominated the subprime mortgage market. i want to read you a quote. this was one of the commentators. it is substantial number of boston neighborhoods, a bank mortgages are 50% of the home sales that take place in that neighborhood. bank financing is clearly the easiest and least expensive way of purchasing a home. using a -- is much more

expensive. why are individuals choosing to go to private mortgage companies rather than going to banks? this is one of the motivations for the cra. to ensure that lower-income individuals or people living in and lower income neighborhoods have access to the same credit as everybody else. this is clearly still not occurring. the implication of this is quite considerable. this is a subsample of our data. it is african-american borrowers only. those of the credit score of over 640. four african americans with a

relatively high credit score, only about 2% of them got a subprime loans. it's a way to a cra institution outside of the assessment area, the risk of getting a subprime loan was higher. but they went to an affiliate, 6-8% got a subprime loans to read it into an independent mortgage company, 12-14% got a subprime loans. these are borrowers that had close enough to a prime credit score. we see a real equity impact of the different undulations strugglers -- regulation at structures. this makes me really worried about the wall -- long-term impacts, right? if these borrowers would have been able to stay in their homes with a prime loan, they would not necessarily have that same impact on their credit score.

we certainly do not know the answer to that and whether or not that is occurring. but it is important for further investigation. how have these loans performed? loans made by cra regulated institutions are must -- are much less likely to be in foreclosure. that holds true across the board. we see much higher foreclosure rates are around -- within the independent mortgage companies. an interesting thing happens when we actually did a model. in california, we find exactly the same a fax with their first paper. having a loan from a cra regulated institution reduces

the likelihood of foreclosure by about 50%. about half. when we look at ohio and pennsylvania, we find the converse. we see a slight increase in the foreclosure rate in the states. we have to working hypothesis for why this might be true. we see much stronger market presentation in california than we did in ohio. you can see that in california, cra almost made note subprime loans. they pushed all of that lending activity to their affiliates. in ohio and pennsylvania, we do see some lending in those types of neighborhoods by cra regulated institutions. the second reason is that the drivers of foreclosures are different.

december 2008 -- in california, those early foreclosures were driven by the housing boom and bust. in ohio and pennsylvania, they were more likely an overall weaker market and a weaker labor market. a bank making a loan cannot control that environment. the other thing i want to point out is that i am not emphasizing very much today -- the role of the mortgage market -- mortgage broker is really important. overall, significantly increases the likelihood of foreclosure. we have been doing a lot of subsequent studies to examine this intersection between a mortgage brokers and historically underserved areas and is proving to be a really important channel issue. it deserves further research.

what are the policy implications? there are a few is that -- there are a few that i want to propose. all consumers should have equal access to the benefits of regulatory oversight, regardless of what door they went into for their loans. it seems criminal that these people were able to walk into a door and got that door influenced what kind of mortgage product they had and even the sustainability of that mortgage product. i know that the dodd-frank bill goes into this. i think it is a very important lesson for cra, too. how do we ensure that all the institutions have equal federal oversight? the second thing is that we need to consider more carefully how

we define assessment area. there are a lot of discussions about removing assessment areas altogether. banks are doing fewer and fewer loans within their assessment area. why do we see this protective effect of the assessment area? is it because those loans have more federal oversight? is there something important for the branch lending? is there something important about having a bank in your neighborhood that has connections with the local nonprofits that protect borrowers and helps them access more responsible loan products. depending on what mechanism is more important, it has different policy implications. we need to reconsider the role of mortgage brokers. i think it's important to be considered the role of race and all of the papers we have done, we have seen racial disparities in outcomes. i do not think we identified why

does disparities are there. i think it is really important discussion to have as we move forward and realize that there are aquia issues both by income and by race. -- equity issues both by income and race. there is no doubt that a large part of the problem was people who either had poor credit scores or knowledge of finance or ability to repay their loans. helping people make a connection with a financial services industry, helping to rebuild their credit score, all of these steps along the path to homeownership need to be better supported. finally, i want to say that it is really important that any policy changes that move forward, we make more data publicly accessible about loan performance, about communities, about all these different aspects to the housing and mortgage markets. there just needs to be more

research into these areas, more understanding of what is going on. certainly, it is not necessarily always a priority of researchers with this type of access to the data. having data for academics and having data for advocates who can really look into these picture than we can do here would be really important. that is it. thank you. [applause] >> thank you, caroline. >> i have the honor of being the last speaker in the last session in the last day. if i spoke too long, he would and call me off the stage. i want to with that. -- i want to avoid that. these are my comments, not those of the board.

i want to look at the commonalities. we are trying to assess the effect of law that has a very widespread effects, but in fact, really only at the margin doesn't really matter. and the case of the mortgage interest rate deduction, anyone with a mortgage essentially gets the mortgage rate deduction.

a major part of the business affects people. what happens at the margin? his behavior is altered because of the existence of these laws? these create -- the three papers look at this issue. two of the papers look at the effects of the goals. blakney -- you can read this. the crisis has its roots and the u.s. government efforts to increase homeownership, especially among minorities and other underserved or low-income groups. he is on the financial inquiry commission on. the question is, is that true? at the evidence.

this is taken from a paper that i did. let's just plopped right here -- this is the end, -- this is the 90% level. this is where the gst and gold kicked into the left. -- gse goals kick into the left. clearly, a downward sloping. the delinquencies are concentrated disproportionately in low-income tracks. both of which are -- apply to both of these goals. what about loan growth. this is the loan growth looking between 2001 and 2003.

same pattern. downward sloping. for peter, that is enough. this is hard significant data. he can conclude and start giving speeches that b c r a goals caused the crisis. let me look at the next slide. this might give him a little pool. this is the% of loans sold to the gse's. it does not slope downward. the upward sloping. matalin, and higher in, loans are more likely to be sold. -- middle income and higher income. let's not at -- let's look at the next graph. these are loans that originated by a cra covered lenders in

their assessment area. the upward sloping, not downward sloping. that might give us some pause into thinking that superficial conclusion is true. if that is true, why do we get this reverse effect here? in an earlier -- my new england mother would be very irritated with me. we looked at the law and performance in two sets -- we looked at the loan performance in two sets of tracks. they're within the same msa. you're looking at loan delinquency, people in the track at 2008. what is the composition of the lenders that served about trapped during the middle part

of the decade? -- tract. they were disproportionately served by independent mortgage banks not covered by the cra. they have higher delinquencies. those served by cra-lenders in their assessment areas have lower delinquencies. we control for lots and lots of things in that experiment. at the end of that paper, the final line says, are evidence was in direct and that was really needed was direct evidence on these particular clause. it turns out, robin and caroline -- what they have done is provide direct evidence on exactly the same issue. let me talk -- if you take one

away from this conference, this is an incredibly important paper. it is the first direct evidence on the gse goals. this paper does the right thing. it takes the actual loans generated and sold -- it puts the file together, an incredibly rich data sets. he looks at the performance of those loans. in particular, the key group that he looks that are the targeted affordable. these are loans that the gse were not passive.

these are not passive. if you will argue that there is some impact of the loan, it is in that group. the targeted affordable. the point that robin it calculates -- these are 3.5% of the total loans. i do not care what the performance is. it could be the worst loans made. they did not caused the crisis. there is only 3.5%. you can stop there. you do not have to stop there. what are the other possibilities? he also looked at all -- alt a. it peaked at 18.5%. they had twice the delinquency rate accounted for almost 40% of

the delinquent loans. these were not clearly done it for gold purposes. their goal-pork. this is the wrong group to look at. that is the right group. this -- we have not known this. it is an incredibly important finding. unfortunately, for robin comment he put the pieces together, but i think he needs to put the finishing touches on the paper. what i would like to see is first of all, how did these loans perform relative to what would have been predicted? they did not pay the same amount for the same set of loans. did they perform better or worse? they are not random loans.

that is point number one. there are reasons to believe that they may perform better than you would have expected. they do not go through the normal process. if i'm going to spend -- said john, i am not going to do it in a program there there is manual overriding. that is the wrong program to use. these loans cost more than the goals cost more because there is a lot of labor involved in evaluating the programs l loans. those are not credit losses. their losses of overhead. it is maintained 8 -- a maintaining a group of economists. on likely to be the case that these particular loans have higher credit risk. i encouraged him to go through the experiment. have beenwhat would the total losses? how would have been reduced?

what what happened if they had -- made no targeted affordable loans at all? completing those exercises, control for all the other things that had, its immense the case that this program did not cause a crisis. let me shift to -- this is an extension of an earlier paper. i want to commend them. the denver very careful job. -- they have done a very careful job. they have gone to some metrics to their representatives. usually, that is not something that is seen as useful by the typical author. in california, but not ohio, cra loans perform better than the

independent mortgage. in ohio, they get this relatively interesting fact. they appear to perform worse. i found this result kind of surprising. if the do not control for anything, bill loans in ohio that are issued -- builds in ohio or less as likely to be delinquent as loans that originated by independent mortgage banks. you wonder what happens in that regression. a lot must be happening in that progression that you get this change in size insignificance. -- change in size and significant. we also use the same data looking consensus tracks. we just pulled out ohio.

is there a difference in the performance all loans that were disproportionately served by independent banks versus cra- covered lenders? we did this for ohio and california. the negative signs in the middle road their implied that the performance there is less likely to be delinquent in ohio. in california, you get the opposite of fact if it is a depository in their assessment area. they're more likely to be delinquent. we get almost the opposite effect. that suggests to me that maybe we should do some more work. this is a little unsettling. there's something going on here that we have not fully captured. let me turn -- they do an

incredibly careful job of putting together a data sets. they use this to test the impact of the mortgage interest rate deduction. they come up with -- they get this relative reverse impact that it has an impact in the areas that are lightly regulated. it reduces homeownership and the areas of her highly regulated. the question is important. but to me, the real issue is that is this the right data set to use? there are about 4000 people anin the psid. there may be 3% of the population which is at risk,

whose tenure can be switched from renting to owning more vice versa. everybody else -- not in & out of the people in this room, you are what you are. most people are not going to change no matter what happens. it is a small group that is the margin. if 3%, 180 million households, that is about 5 million households. it looked at the first-time homeowners program, there are about 2.6 million people that used the program. that is about half of that 5 million. that may be a very effective program. they got about half the people who could have been renting to move into ownership. how many people would that be in the psid? they have less than a hundred people per state.

if we did the math on the first- time home buyers, it would about 50 people. we will run a regression. how many degrees of freedom do think we will have to identify the state level a fax? we're just not going to find it. the power of this data, it is the wrong data to use for the question. it is too few people. when they decide to move from renting to owning, when they move, they downsized or upsize, they retire or change jobs.

at that point, they could make a decision. they are huge transaction costs. the liquidity constraints. when i moved to ithaca, i had to buy a house. i had to go over my capital gains. the house prices were outrageous and i knew i was being ripped off. bills become very relevant when you are looking at people over time and their transition from renting -- from all into renting. they're really not 50,000 degrees of freedom here. it is simply too small to looked at in effect that is driven by a state. what is a better choice would be the cps, you get 63,000 people

amonte. if you really want to run this experiment, look on the right- hand side. their age, their income, employment, see if there's a state level impact on home ownership. that is a more direct test on what the authors are seeking in this paper. the question in my mind -- if they put all this effort and end date -- have the wrong question for the data. for the data can be useful is looking at precisely these transitions. what is the choice? are there people who switch when they move from one environment to another? what do people do when they downsize? they control for the census. arguably, but that is endogenous. when i transmitted to ownership, i move to a college

town. i would have been a not to buy a house. i am not going to buy a house in college town. it is not a very good place to be a homeowner unless you're renting it to people. the housing stock composition is very much -- if you choose to rent versus own. my basic points -- the choice of sample should be different. what effect they do get is that it appears that the interest rate deduction decreases homeownership and highly regulated areas, but increases it in low regulated areas. all of you have to do is think of the two examples they have in the paper. higher regulated is new york and san francisco. low regulated days champagne of

data. high-income people in new york city are not going to own houses. there are apartments. it is nowhere near the difference between owning or renting a single-family home. it is not surprising that there are rich people in new york city to rent. on the other hand, in indiana, you have lots of student renters you really do not count. they are renting because they are there for transfer purposes. but you have any kind of thing, and you are in a college town, you are going to want a whole. calling is cheaper. -- owning is cheaper. the results they get are not surprising. i do not believe that they are driven by the mortgage interest rate deduction direct when i was in graduate school, i had no income. that is not why i bought the house. my suggestion would be that this issue is important, wrong data,

use the psid for other purposes. did i do ok? a little bit late. it is after 5:00. that is the end. i am going to give the audience a chance to respond. >> thank you for the suggestions. but will pursue them. >> i want to reply briefly. it is longitudinal. we can control for unapproved characteristics about people. i do not find the statistics very helpful. about 97% of folks -- 5% move between cities or states in any given year. we have a long line of research

that does showed cure existed about people and places matter a lot for outcomes. the degrees of freedom -- we find no effect -- that there was a problem that allowed us to not pick up the fact that we would not have found dead on finer cuts -- found it on finer cuts of the data. if you look at the paper, nearly all of our controlled statistics matter. while i agree would be interesting to pursue additional research and i do appreciate roberts comments, my first inclination is to put forth a

bit of a defense of the longitudinal data and its value before examining this question. thank you. >> i want to at go. thank you for the comment. but the interesting thing about bob's analysis and mine and the fact they did not align is that in both of our cases, we are finding geographic variations. the results are not holding true in the same way for each place that we're investigating. this has incredible implications for consumer protection policy going forward. how do we designed federal policy that will work equally well for somebody in california as somebody in ohio? i think this has implications for federal preemption. it has implications for our party terri lending laws.

i do not think we have an answer. -- predatory lending laws. there is a lot more that we need to learn. >> ok. on the degrees of freedom, when you have a very small numbers -- there is something of there. but the sample is too small to find it. [inaudible] you do not find it in the normal aggression. we can argue this later. art -- we have about 10 minutes. yes? >> i have one question. on the goals and be cra comment you made pretty clear cases storewide the cra is not to blame. why do we hear the counter

stories so often? >> below and contracts took a disproportionate share of the losses. >> i think you should ask peter that question. >> [inaudible] part of the situation has been that the data has not been available. to look at the issues in detail. we are trying to make it public slowly. >> i am speaking for myself and is then not a direct representative of the federal reserve. the people your luncheon that argument are pretty much anti- government anything. they are complaining things like the cra and -- if you do not

believe in government intervention, and you are constantly hearing that what the government is doing is promoting homeownership and you have a situation where you have very high foreclosure rates, it is easy to make those jumps and link those things together, even though the data does not show it. some of these regulations are quite complications -- complicated. the cra is not easily understandable. it does not set any quantitative targets. there are different levels of regulation, depending on what bank you are. it makes it very difficult to tell a story about what happened. it is easier to say, affordable -- promoting homeownership = affordable housing = bcra = bad.

there is no real data to justify that. >> if i could just add something. there has been a assunderstanding of gse's sources of innovation in mortgage lending. generally, freddie mae and freddie -- fannie mae and freddie mac were good at disturbing across the system innovations by others. they are not the source of the innovations in primary mortgage origination practices. the types of loans that were originated, those came from on regulated sectors. emphasizing the role of -- it would not be consistent with the ideology that is trying to press the idea that government is the source of problem.

more questions? >> fannie mae and freddie mac -- what do you see as source of them making such ill-advised investments? d.c. any role for the regulatory environment directly or indirectly having contributed to the bad investment decisions that they made? or do think it was because their profits book -- they just followed what the securitized market was doing? >> everything i have said today

has been my views. the director of fhfa was passed and he said there were three factors that led to the decisions. one was effort to maintain market share and volume great said it was profit. the goals were another factor. that statement, and generally speaking, is true. i would support that. and it is consistent with the data that i presented today. >> i think we have reached the end of the day. i would like to offer a round of applause to the organizers. [applause] in the announcement, paul?

-- any announcements, paul? >> [inaudible] i would just like to recognize michelle [inaudible] [applause] >> the conference has come to a close. have some good conversations. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> house energy and commerce committee ranking member on the future of telecommunications and

technology policy under a republican controlled house. 8:00 on c-span2. >> an update on the situation in iraq. he briefed reporters from iraq via satellite on the state of stability operations involving the training of security forces, counter-terrorism operations, the u.s. troop deployment schedule, and the upcoming fort hood shooting trial. this is about 20 minutes. >> diaz and his duties -- he assumed his duties in iraq this

year. this is the first time he has joined us in this format. he is speaking to us from baghdad to provide an update on current operations and a new mission profile. general, with that, i will send it to you from any opening remarks. >> thank you very much. i will keep my remarks brief. let me thank those that are here today for coming out and asking questions. i appreciate your participation in this conference. the weekend by saying that although the role for u.s. troops in direct combat operations here in iraq ended on the first of september, the united states commitment to iraq and its people has not ended. our work continues every day under operation at new dawn. advise, train, and insist --

assist the security forces. to support the government of iraq, u.s. embassy, and u.s. agencies in approving iraqi civil capacity. inherent in all of these missions is the level of forest protection for all u.s. forces and civilians as they go about their duties. as a deputy commanding general for operations, focused on several sub tasks within this mission set. strengthening the iraqi security forces to help continue to build their capacity for providing security in iraq. this includes a wide array of tasks associated with devising iraqi tactic units in the conduct of operations. equally important, it is the emphasis that we have placed in helping the security force develop complex systems, such as intelligence, logistics

functions, that will be essential to their future success. i would also add that we are focused on working with the iraqis to ensure that there are a learning organization with the practices necessary to professionally grow and improve in the future. the second part of my job is keeping track shirt -- pressure on the extremist networks. i can also cite significant progress on the part of the iraqi special operations forces community. the capability to conduct counter-terrorism operations is essential to maintaining the security environment over the long haul here in iraq. let me be clear, the nearly 650,000 iraqi security forces are fully responsible for maintaining the security environment in iraq today. we are supporting them in their efforts and i'm proud of how far they have come to date. despite several recent high- profile attacks, the security

forces have created an environment where violence is 20% below the 2009 average. it should also be noted that september and october of 2010 have been to the lowest month on record for violence since 2003. sadly, iraq still has extremist that attack innocent civilians to try and stay relevant. but the people have rejected extremist ideology. we still have work to do here. in the just under 50,000 brave men and women, i had the pleasure of working with, they're focused and committed to ensuring that iraq becomes a sovereign and stable country. with that, i will be happy to take your questions. >> general, i'm from bloomberg news. how do you see the expertise currently and how is it

evolving backs on some of the capabilities that you provided to protect the u.s. civilians working in iraq right now and double have to be turned over to someone else after december 200011. -- to cause 11. what are some of the key areas you feel that they be able to take on? what kind of expertise did they have? >> the iraqi security forces are they capable force. it is focused on counterinsurgency and internal security. as a result of their efforts, we have seen a tax at a level -- a tax at a level of 14 or 15 attacks per day across the nation. they have work to do in a number of specialty type capabilities that they will continue to need work on.

they have been emerging -- have some emerging forensic capabilities. they have some clearance capability spread in all of these things, we continue to work with them. they are emerging and during on. we will always have a requirement to provide some level of security for american sadr in this country for the foreseeable future. -- that are in this country for the foreseeable future. good progress, a lot of work to do, i think a good plan ahead. >> the political -- it has to of

had some affect on your mission, particularly the training. where does that stand now for you guys? are you at the level of frustration? how is this affecting your job? >> i view it as a real opportunity. the iraqis that we work on a daily basis -- we are not certain that they will keep their jobs. what has been inspiring for us is how hard they have worked in this environment. not for a single individual or for a particular party in power, they have done it based on emerging understanding of the role of military forces in a

democracy, an emerging democracy, under constitutional law. many of them will point out to you that what they have done in the last a months is really about the iraqi people and the constitution. if you look at some of the polls that show the acceptance of the iraqi security forces by the iraqi people, they recognize the fact that a lot of these people, policemen and soldiers have carried on in at this post- election time frame and performed some of their best work. a lot of people speculated, what happens if there is not a government? how does this work? it has really caused the iraqis to give themselves an examination in some ways and step up. particularly in the senior leader ranks. it has been a positive development overall. they have had some modicum of success. certainly, attacks are upsetting

to them. the fact of the matter is, overall, the security situation has been maintained. the big difference is a year ago, it was the u.s. assisting them were out in the streets with them. this sure, they have done better and it has largely been exclusively through their efforts with us in an advisory role. >> you spoke several times about the lessening of violence, but you just mentioned those attacks last week. those coroneted attacks. could you speak a little bit in detail about how you reacted and what impact they have on the overall security atmosphere and what you see as their purpose? >> right. i m&a learning and teaching mode at this point.

-- i am in a learning and teaching mode at this point. they ran a national review on saturday at the ministry of defence. they did a very logical and rational assessment of the attacks and they were quite critical of their own performance. in terms of improving for the future. they worked tirelessly. in terms of them being on alert for an extended period of time, and looking hard at how they are doing checkpoint operations, whether they are getting intelligence to the right places, our job is to coach and teach and support them as they work for that analysis. there is a very help the analysis. it is no secret that al qaeda has taken credit for both of the attacks.

we have analyzed that as part of the al qaeda campaign. we have been without a significant attack and we saw these attacks targeted against the christian community. i think the iraqis are working very hard to protect minorities, both ethnic and religious minorities. the recognize their responsibility. there are upping the ante as we continue. there are a series of meetings going on today and they are on high alert. they are at 100% focusing on the security. >> are you not seeing any

potential interference from other groups, from the neighbors, like iran, for example? >> there is a history of some influence here from iran. again, this is a very complex region. iraq has to develop a positive relationship with its neighbors. i think that is your important that iraq moves on in that direction. we see all sorts of iranian influence, some of it is positive. we believe some of it is negative. it is you're a difficult to attribute that to the iranian government or to this lethal aid coming across from other sources within iran. in the last couple of months, it in the. of government formation, i think

that the think that the iranian influence has diminished somewhat. i think that overall, that is probably appropriate for where we are. >> regarding the qaeda, -- regarding al qaeda have they become increasingly disconnected from pakistan? >> there is a belief that since the major attacks in april, out qaeda -- al qaeda has been -- has struggled to reconstitute its height and authority.

-- high-end authority. i would argue, they clearly are still affected as evidenced by the attack we assault on the second of november. this is a form of lower level cellular formation and there have been some interim leaders that have been named. but the level of connectivity between those leaders and senior leadership is uncertain at this point. >> i am wondering if you could give me any insight as to what the deployment schedules might look like heading into next year. i think the general had said something about the possibility of a six month deployment schedule. as you are looking into treat -- 2011, d.c. any changes in the time line? >> -- do you see any changes in

the time line? >> the army has a plan in terms of sustaining the 50,000. when we reach the point where we will began the final drawdown, some of the yen sadr coming in, we did some of the units are coming in. plan on a 12 month rotation here. that is prudent. what the soldiers are being told by the army leadership right now is pretty much on step. the 50,000 force has worked out well for us. we have been in not set now for a couple of months. we did an assessment across the board to make sure we had everything that we needed. we have managed underneath that to be thousand number. some minor changes, probably less than a thousand terms of adjustment. little things like aviation or civil capacity teams and identifying some excesses' and

sending them back. by and large, the current brigade rotation of one year will continue. >> general, i want to explore the glide path you talked about over the next 14 months. i am curious whether the rockies that you deal with -- the iraqis that you deal with -- after a year from december. obviously, that question has been in the advance for a while because of the -- is not completely out of the question, i would assume, that there would be some follow-on agreement that would allow some continuing small levels u.s. presence. but this say about their desire to see that? >> if i were to -- if they were

to say that to me, i would take that as an opportunity as a learning point about the fact that there are soldiers and they should leave political decisions to politics. make sure that you give your best military advice when you are cast in regard to what capabilities, what are needed. i think it is important that they learned what the role the soldier is or the military leader is in terms of providing advice. that will be a political decision and it will be at some point between the iraqi government and the u.s. government. it will be based on higher level objective. right now we have security agreements that say that we will be out of here by the first of january 2012. it has been interesting from my