the ability to go appeared to appear, -- peer to peer, we ought can now have this free, interconnected communications platform. >> let me ask you this question. in the spring of this year there was an interesting op-ed piece about toyota, when they had the scare about the acceleration petals. >> you have done your homework. >> i was interested in that story because it created real problems for toyota, normally associated with good, consistent engineering. do you think this idea of the mesh network could have been something that could have helped this company gets the message across and salt. in a better fashion? >> -- solve it in a better

fashion? >> these days, all of your personal driving data is available. if we think of the crash test crashing cassirer, if we think of any kind of car, -- crashing sphere, if we think of any kind of car, toyota could of seen those problems in real time. they could have said, these cars are not acting the way we expected, in small ways, if we had opened up the data and if toyota was able to get my own data, and if we had these devices that could talk to others. and we can really transform what is possible. back to the iphone example, which really has revolutionized things, 500,000 aps that steve jobs and his team of engineers

would never have thought of, and i do not have to be an engineer, i do not have to make a certain amount of money to devise this, all of these specters have found a really interesting purpose and that is how innovation for me, if we can open up cars, open up networks, open up radio frequencies, it means that for innovation, i do not have to be expert in many things and we can have this wealth of creativity and excess capacity in people's minds out in the world, if we give them the opportunity, it is enormous. >> it would be like trying to find a pork chop in a synagogue before? [laughter] >> and now think of the applications being built on iphones. we have this huge demand. how are we going to fulfill that demand? i think we will fulfill it by letting devices talk to each other instead of having to go

someplace else. >> cheryl, we have not been ignoring you, but we have a really been trying to talk to a fellow bostonian. one of the things we heard yesterday and this morning when we introduced some of these social entrepreneurs, is this something that distinguishes what will be a social order nor of substance? and i know that you have come up with a new calculation, a formulation that you give an interesting monicker to, you call it the seq. what is that, and how you determine if someone has it? if someone has a good idea, they have to have moxie, determination, drive, believe, , support.ity >> a disclaimer here, there is

no science. we have been in the business for a long time as practitioners of identifying early space leadership. over the past 20 years, we have gotten some sense of who is going to succeed and how they're going to fare through their social change journey. it is built on the concept of emotional intelligence or eq. we look at the things we have funded over the last 20 years. there's a common set of traits. there are nine or 10 qualities that we keep as a mental framework in vetting and looking at these young people who come to us for support. i will not go through all 10, but needless to say we think there are a couple of buckets of characteristics under which some of these characteristics fall. the first one is something we call, what is in your soul? what is your relationship to the

world? one of the trades under that is something called core identity alignment. it is like authenticity. it is the alignment of your purpose with how you walk through the world. there is really no daylight between their purpose, their reason for walking through the world, and the way they act in the world. it is a very interesting alignment and focus and north star that guides them each day. when i leave here i am heading across town to meet with one of our on durbin yours. he is from new orleans and spent 18 years -- one of our entrepreneurs. he is from new orleans and spent 18 years in a prison in angola for a crime he did not commit. through the good work of the innocence project, he has founded something where he works with those who have spent

incarcerated long term to help them enter society. there is no daylight between what is in his soul and how he shows up in the world. it is very interesting. when we got to know him, he received these extraordinary letters of recommendation for the fellowships from his fellow inmates, all handwritten kamal holon crumpled paper basically saying that they were still -- all on crumpled paper, basically saying that they were still alive because of what he had helped them with. he said that he knew that if he could get out, he knew what his message and mission would be for the rest of his life. >> people say that execution is the dirtiest word in the innovation dictionary. >> sure, the other but it is something that we call

"transformational aloutlook." at the end of the day, these problems are too big, too complex, too difficult for one person. it is about the cult of personality, the individual in the wilderness doing it alone. that is not true at all. what is underneath that is the realization that in order to really tackle these problems, it requires a social movement. it requires the mobilization of resources, human capital, financial resources, and that requires being as dickie kind of leader. can you attract resources -- a sticky kind of leader. can you track resources to your call? another characteristic we talk about this power source. how do you get done what you need to get done? there is something that plays

out with the folks we work with that we call resources magnetism. this is very different from charisma. many people we work with would not fall under the traditional vein of charismatic. but this is the ability to turn your supporters into evangelists. how do you bring people to your cause? they have an interesting, amazing capacity to reach out to people and say, yorkists and talent can be turned toward the cause we are all -- your gu ifts and talents can be turned toward the cause we're all supporting. >> as a these are people who rise above the strata. what adds to this is that there also seems to be an intrinsic sense of social responsibility. >> absolutely. if you use the phraseology of social entrepreneurs, they do

have an explicitly social mission. the people we work with use a variety of business models and a variety of methodologies, some for-profit, some non-profit, and some hybrids. at the end of the day, they are driving large scale and social change. >> do you still have this drive? >> absolutely. as we were touching on at the end of my part, i really think acceleration of the process -- once you have approved an idea that is doing some good, i think we are responsible for trying to maximize the benefits you can get from that, or that the world can get from that, and i am looking at any and all variations of how to get this up to scale, how to do what i have done in the last 20 years in the next year, and to boost the numbers. it is just so logical.

>> it also makes good business, and it gives a real acceleration to innovation. >> exactly. >> in the next 6-12 months, what would you like to try to achieve? >> a tipping point in africa. i would like to get that as a leading adopter of despthis technology. i am quite happy to open the doors and allowed the movement of logical health care to proliferate among those people who do not know any better at the moment. >> rabin, from your standpoint are you finding -- robin, from your standpoint are you finding and otheris the zipcar forms of transportation are

having a resonance? >> absolutely. the movement toward more openness is happening. in europe, i am winning my way in. >> the austerity drive that they all find themselves saddled and could benefit you. >> this could be answered. >> so sharing, combined resources, it is almost as if you are a subset of the political system. >> that is my impression. >> do you agree with this non-

political film? >> we think of our world in a non political terminology. there is a ground swell powered by optimism of 75 million millennial. it is a really interesting force and moment in time. >> there are 75 million note millennial in the united states. there are 200-300 million in india. many had met with president obama just a couple of months ago word -- many who met with president obama just a couple of months ago were saying the same thing. is the future's so bright we have to wear shades? >> i think it is people taking things into their own hands. >> people power, people skills,

seq! ladies and gentlemen, please give a big round of applause to our panelists. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> i look forward to the day when the "rust belt" becomes a positive connotation. >> they are pragmatic visionaries. >> if somebody has information that could put me or one of my soldiers at rest, that is very upsetting. >> [unintelligible]

>> when it comes to kids and making decisions about children, we do not looking poll numbers. we look at the faces of the children and we do what is right for them. >> i was dealing with hard core gangsters, and i said, what would happen if the girls did not want to date you? they said, and the you know what would end tomorrow. >> you have to understand, our greatest strength is people. >> no one is more committed to capitalism then we are. >>, a woman is a woman everywhere.

>> well, this is the biggest wrap up session where all of us say in what has really hit us between the eyes. we have been soaking in the primordial soup of new ideas. just remember that you heard it here first. i will introduce the panel in just a minute, but first of all, let me tell you a few of the things that have really hit me. we have an insurgency in our own back yard. that ideologyectly oc is a luxury reserved for congressmen and senators. you remember you heard it here first that we always should listen to those elevator pitch is, those kids that we heard from last night really proved that you have to listen to what the kids in the company or the kids that you hear from our right to you, that you do not put them in the slush pile.

they may have a good idea that will change the future. the greatest ideas are going to come to us from the margins. the vanguard of innovation is really going to come from the social entrepreneurship movement creating new paradigms'. that is where the action really is, not in traditional business anymore. failure is a growing tool. we heard that as well from the general when he told us that he believes in rebuilding step by step, block by block. we have to decide to build a nation, not a business. we cannot succeed in india without political will. the internet is the perfect tool to efficiently allocate scarce resources and excess capacity. one person reminded us for the need -- of the need for checks

on even the most inspirational of our leaders, in fact, perhaps a more inspirational and they are the more they need to be checked. i was just handed a note that i totally agree with. if anyone ever doubted the limitless creativity of human beings, those doubts have been eliminated here over the last few days. thank you for that [applause] here on the stage, you have our business better, our political commentator, our intellectual gadfly, another political commentator, and a writer. i will start with you. >> can you hear me? one thing that hit me,

innovation conference. you think of pixels, i think of pixies. the overwhelming thing i take from innovation conference, what struck me was the overwhelming morality, the message of morality coming through here. from the airline to anywhere else, if you want to get on, do good. we know we are just being meddling. you can do that and get a lot of money, but financing idea of a moral driving which seems to me to animate so many of the social law entrepreneurs and others, that is the overwhelming. if you came in the room on friday despondent about america, you cannot exit in the same

mood. i go out more optimistic because of the fertility of the people and the overwhelming sense of morality. >> i started out being very frightened. the power point we saw was the scariest power point since al gore's, in terms of showing what a all we are in. but i left a very optimistic -- we are allt a wholhole in. but i left very optimistic. sean parker talked about how to be destructive and how to take advantage of chaos and create good out of bed.

-- out of it. 10 out of 10,000 can be a success. that means the rest are failures, and that is good. that is out change happens. in the education panel, it was all about taking chances, making mistakes, and turning what we have now, which is a crisis, into an opportunity. i actually left very optimistic. >> i was struck by the sense that politically, being here for a couple of days, you realize that the dominant theme in american politics is decline. so much of the nature of politics is defined by the sense that either or both sides believe that the other side is leading america into a situation

where we will never get back into the good days again, and that produces a lot of the extraordinary nastiness in american politics today. there is a hyper-fear that the country is never going to come back. but it is comforting to remember that we, as a country, have gone through these cycles again and again, at least one or so in every decade since world war ii. if we had been here in the early japan and germany would have been the future and we would have been the past. we would have been talking about the craziness of american politics and how bill clinton represented such hope and was a failure. then you think about the extraordinary boom of the second half of the 1990's. it was not because our political leaders the came so much better.

-- became so much better. we did it in the midst of impeachment, the silliest politics of all. i think there is a difference, i think it is going to be that america has a memory of the post-war years been the golden era. strong labor unions, of a big pensions, a culture of women and tom, no gay people, that kind of thing. the reality is that that was a time when america was much, much more insulated from the world when it bought -- vanna was -- than it is today. the 1990's were a time of globalization, but globalization in terms of what america does to the world. if we have the time of rebound

now, it will be america coming to terms the globalization will be about what other people are going to do to us and being receptive to that. so much of the rhetoric on the american right is that if america does and, therefore it is the best. the rest of the world is not free. our future is going to depend on our ability to look honestly and what other countries are doing and take from that just as they have been doing from america. >> i have two broad take a ways from this summit. the first has to do with leadership and the second has to do with american exceptional as them. to the first point, i think this has been as much about leadership as it has been about innovation. i think what we have seen from the various presenters, be they generals, be they captains of industry or business, may ours,

fighters of crime, is that espy -- mayors, fighters of crime, it is that absent quality leadership, an evasion cannot thrive. -- innovation cannot thrive. other people are getting to be as prosperous as confident as other americans. the other aspect of exceptional as some that i am glad to see is alive and kicking is the sense that americans can still do it. americans still have their ability to punch their way out of the corner. they have an almost irrepressible sense that within

america there reside solutions. i was delighted and relieved to see that. >> the overarching themes i took away i think had to do with the optimism and opportunities that come from confronting the challenges we face. i think that a lot of the people who are preaching malaise, ripping off the idea of american decline, to feel acted upon it rather than proactively acting. a lot of the people we have seen speaking, especially the social and entrepreneurs, someone who is taking responsibility for solving problems -- and that requires a degree of optimism. if you look to the global challenges we are facing, that they're different, but certainly no worse than the challenges we have faced in the past. we are dealing with the rise of

china and india, but that can produce great things as well as a down side. we need to be comfortable with that change and turn the challenges into strategic opportunities. american exceptional a son is alive and well, but in some ways, it is expanding -- exceptional led some is alive and well, but in some ways it is -- exceptionalism is alive and well, but in some ways, it is expanding beyond america. those are very hopeful signs. i am fundamentally optimistic of thisng out conference. there are great opportunities when we confront challenges. pennsylvania is a place where someone is trying to push off against next to nothing in terms of the civic infrastructure, but the determination to do it, the cooperation the comes from the

private and public sector working together, that all of a sudden gives you a real foothold where you might not have found there was one. i think that the idea of innovation -- america always solves problems by innovating our way out of them. the one guarantee is that hand- wringing and absorbing the rhetoric of decline does not solve problems. >> i have been probably most struck by the caliber of extraordinary individuals that i have seen on the stage talking about their experiences here. what has struck me is that innovation is primarily a byproduct of individuals who simply decided that they were not going to except the status quo. whether it is deciding that ordinary passengers who should not hate flying, or that kids

coming out of iraq and afghanistan should not have pete gst levels. -- ptsd levels equal to the soldiers. to me, this is innovation checked by social responsibility. that is something that is one of the best things america produces is this notion that we serve ourselves, we serve our communities, and this is, i think, a type of individualism checked by social responsibility. >> thank you so much. that was really excellent. >> all day today on c-span to, the national oil commission holds a commission on preliminary findings regarding

the blowout. witnesses testify on the cause of the rig explosion and what can be done to prevent future disasters. the commission is getting ready to return from lunch for more testimony, and you can see the testimony live on c-span2. president obama continued his trip through asia this week. earlier today, he arrived in indonesia, where he is expected to give remarks later. he will give a speech to the troops in korea and then he returns to washington on sunday. student cam s documentary competition is in full swing. upload your video to c-span before the deadline of january 20th it for your chance to win the grand prize of $5,000. for all of the rules, go online

to studentcam.org. >> the c-span network is available to you on television, radio, on line, and on social media networking site. we take c-span on the road with our digital bus and local content vehicle, bringing our resources to your community. it is washington your way. the c-span networks are now available in more than 100 million homes. created by cable, provided as a public service. >> even though most of the 112th congress has been selected by voters, there is still work to be done in the 111th congress. members will return to session next week where they will work on federal spending for the whole budget year. they will also vote on extending some or all of the bush administration tax cuts that expire in january.

watch the house live here on c- span and the senate live on c- span2. now, more about the recent midterm elections and what the republican winner will mean for the 2012 elections. for thepdate. >> thank you. host: joining us at the table isred barnes. you wrote a piece in "the wall street journal," democrats can't blame the economy. making the argument that this is a realignment for republicans and this will have a long-term impact down the road. why do you believe that? guest: well, i'm not sure how long the impact will be but it certainly is a reversal of the last two elections in a stark way. you could argue that the people shifted the most independents are quite fickle. voted democratic in 2006 and 2008. republicans now, they have one benefit. they're in line with what the

public wants. the public wants smaller government. the majority has rebelled against the spending policies of the obama administration. and the public wants smaller government and less spending. they want to reduce the defici they want to bring dn the national debt and republicans are in line with that. but they've got my one concern about republicans is whether they can sustain this or not. if you remember back in the 1990's -- i remember it, anyway, after the big republican landslide of 1994, republicans were very good on spending the next couple of years. it then diminished in the 21st century. by 2006 and 2008, of course, they were being accused of spending way too much. so we'll see. host: your piece got some reaction online when you wrote this on november 2. media matters, fred barnes ignores lling really, really well saying this was about the

economy. the number one issue is the economy was by far the biggest issue and that's what impacted independents to swing and others to swing toward republicans. they also said that according to the recent kaiser health tracking poll, the health care reform isn't drawing voters not upcoming november elections either. that it wasn't the health care reform bill, as you argued in your piece. guest: i think every other poll on health care shows tha it was an issue. it was -- it particularly agered independents. look, wh independents first moveaway from democrats, it was in april of 2009, not this year, not in the runup to the election on november 2. it was a long time ago. it was spending and the health care bill. in other words, first it was spending in the spring and then in the summer, so-called health care summer of 2009. that's when independents abandoned democrats and moved to the republican side. and we saw it manifested in the

virginia and new jersey governors' races. we saw it in the election of scott brown in january earlier this year and stayed that way all the way through the election last week. host: acrding to exit polls, independents and republicans said, ok, republicans, we're going to give you another chance. but if you mess this up again, as you alluded to, we're going to vote you out again. are you concerned at all there's not a change in leadership when you have somebody like john boehner who is a psumptive speaker of the house, and he was back in power in the early 1990's as well? guest: well, i happen to think that john boehner has learned the lessons from both his experience in the tom delay era just a few years ago that he's going to have to do something about spending. he's going to have to do something about the way the house of representatives operates. and republicans ar getting a second chance and won't be a

third chance. so they have to do it now and they have -- there were a lot of conservatives in the parties they need to satisfy. certainly the tea party people that decided to throw in with republicans now. if you remember last year, there was a lot ofspeculation that the tea party might form their own party. if they had it certainly would have drawn votes away from republicans. right now they're in wi republicans. they're going to have to be at least satisfied. so i think john boehner understands this. i know eric cantor does. it will be number two. i think kevin mccarthy does. but most of all, the person who understands it the best is paul ryan who will be chairman of the house budget committee and he'll write the republica budget. host: on this issue of spending and tackling the deficit, the president deficit commission comes out with their report in december. should republicans, like you said, paul ryan, compromise on tackling this deficit and look at the idea of increasing taxes

in order -- and combined with cutting spending in order to get at the deficit problem? guest: well, i don't know exactly what paul ryan's going to do wit tom coburn, also a big spending cutter, who is also on that committee -- that commission. i think it would depend on the ratio. spending cuts to t increases. if it's 1-1 i think the republicans will vote against it. if it's 3-1 spending cuts to tax increases i think they might go for it. this is a recommendation. remember, this is just a recommendation of a commission. it's not actually something that congress has to adopt or will adopt. host: first phone call here for fred barnes. lithia springs, georgia. caller: it's l-i-t-h-i-a, like

lithium springs, georgia. i'm a republican. host: you have to turn the volume down. florida. go ahead. caller: yes, good morning. and by the w, mr. barnes, we followed you through the years and you were up on it. i only wanted to mainly point out that and think you may concur that i think the party of no aligned themselves -- you have the various aspects and component of the republican parties, the neocons, you have the conservatives in general, then, you have the religious rights who basically infiltrated by way of the dixicrats. by saying no, now you have the house. will they be able to get anything done and why the backbone of the independents were not strong enough to stay

consistent and give the chance that was needed because there was some good legislationoing down and the president did give tax relief and breaks? i think there are aparticular lakes. i need you to kind of concur on some and point out what you think down t road may happen. host: all right. guest: well, they don't call them independents for nothing and they proved to be quite fickle, as you were pointing out. they certainly voted in a sizeable majority r democrats in 2006 and 2008, including for president obama. but a majority of independents, there's one huge issue for them and that's if you want to combine it in one issue, and i think you can, that's the spending and the deficit and the national debt and the size of government. and when it comes to that, when there was such a surge in spending and the national debt and deficit and so on, that's

when they turned away from president obama. now, they might like him more on other things, although they didn't on the health care bill, but there was so much of what they didn't like early on. didn't like the stimulus. they didn't care for the health care bill. they might have liked president obama otherwise. they turned away. the fact is they're expecting a lot out of republicans look, if they could switch so dramatically between 2008 and 2010 they could switch back pretty dramatically between 2010 and 2012 and vote for president obama, assuming that he -- the economy gets better and he per sues different policies in the next -- pursues different policies in the next couple of years and run for re-election. i sume he is. he'll let him decide that. host: what do they need to do

to prove that they can govern? guest: two issues are important to them. one is spending cuts. the large he shall issue of spending cuts. and the size of government and the deficit and debt. that's one. anthe other is health care. and there are two specific pledges in their pledge to america. one, of course, we're going to cut $100 billion out of the budget the first year and the second is we're going to have a vote to repeal president obama's health care bill. so they have to do both. whether they can -- look, there's no expectation that they're going to -- that congress is going to repeal the health care bill. i think there's probably not much chance it can get through the senate. certainly if if did so it would be vetoed by president obama. when they draft the budget i think they'll get some democratic support, paicularly in the senateof senators who were up in 2012, and they can send that to the president. we'll see what he does. the budget reduces spending a

lot more than he wants to. host: one writes today in a piece, boehner and senate minority leader have set their sights much too low. they talk about controlling government spending and slashing the deficit but they have no plans to accomplish these goals, none in specific detail, at least. they won't say how they will cut ordeal with entitlements. guest: we'll find out when they take over. have more senator 47 now, and we'll find out. think gene robinson is a little bit impatient. i'm impatient, too. but they want to know. this is why paul ryan is such an important guy who understands the budget i think better than almost anybody in washington and that he's gng to draft a budget that obviously is one that the rest of theouse republicans are going to have to agree to. he's not going to have some far

out budget. that won't work. host: let's go to mary in lithia springs, georgia. caller: thank you. thank you for c-span for having your sessions. ok. number one. what's next for the democrats? fickle independents, tea party crazies, relingous rights, those are not the i shall -- religious rightsthose are not the issues. the issues is we have too many issues. a major one is non-american influence in the spending finances in this country and sending $10 million a day to pakistan, to harbor terrorists. health care and tax cuts are not going to solve the issues that are -- what we were voting for. host: ok. fred barnes. guest: i'm not sure what the queson was. host: comment on her commentary, i guess. guest: i will. particularly the point about

pakistan, which was a fair point, you know. in sending money to pakistan, a country that's almost out of control and has a huge islamic radical element there, it's a tradeoff. and the tradeoff is that we're going to support t government there, we're hoping to get their help against al qaeda and the taliban and we have to some extent, and that outweighs what mit happen if we pull out. and al qaeda and the taliban that might take over the country with nuclear weapons and we don't want that. u can raise questions and there are legitimate questions about this policy toward pakistan but i think it's in bipartisan support. it was one for the bush administration and obama administration because they think for all the problems of supporting pakistan it will be worse if we didn't.

i think it's as simple as that. host: fred barnes is executive edityor for "weekly standard." have you read about -- guest: there are not a lotf surprises there i covered president bush pretty closely. and presidential memoirs are usually -- i haven't read the book either. i don't mean to criticize it. it's normally not the best place to look for -- the best assessment of how a president did. but i'll have to wait and read this one. i like the way that matt lauer did it. picked out decision points. and i think one is more important than all the others and that, of course, was his decision in favor of the surge in iraq. a decision made in early 2007 which changed the course of the

war in iraq which -- and he'll probably be remembered for what happened in iraq and afghanistan, success or failure , and iraq loo like it's headed toward success with great difficulty, that's what he's going to be judged by. host: last night matt lauer was asked about that issue and the mission impossible banner. i want to sh the -- sorry -- "mission accomplished" banner. >> it sent a very strong banner. >> no question it's a mistake. >> your words were used against you over and over again. >> that happens when you're president. and if i had to do it over again, which you don't get to do when you're president, you know, get going, men and women. great mission. or something. i don't know what it is but -- host: fred barnes, what do you think about his thoughts

looking back on that banner and having that up? guest: i think he was very wise to say it was a mistake. it was used against h. it was probably a mistake for him to fly in the way he did on a jet ple as i did, on that aircraft carrier, as i recall. and it was, as we know, then, of course, one reason it was a mistake is the mission hadn't been accomplished by then. so, look, i think political leaders from the president on down don't realize how much it's appreciated by people when they admit mistakes and they rarely do but when they do -- of course, president bush is no longer president, and i do have to say that people at the white house defended that sign there and that whole episode right through the end of president bush's administration. but it's nice to hear him say it was a mistake because it so manifestly was. host: he talks about

waterboarding and that comes out before t interview. what do you make of him? guest: of course, the treatment of al qaeda prisoners have become a huge issue. i happen t think waterboarding is wrong thing. lives were saved. i think it's defensible. i'm glad to hear that the decision was made by the president himself. host: and matt lauer asked about the legality. >> the lawye said it was legal. it doesn't -- it's not in the

anti--you have to trust the people around you and i do. host: back to the phone calls and we ask about what's next with the republican geopolitical realignment. steven on the independent line. go ahead. caller: good morning, fred. guest: hi. caller: i'm one of those independents that got swayed right and i voted for obama. i had the pleasure of talking to david stockman and i agree with him that i don't want to paraphrase his words but tax cuts is just another keynesian economic move to forgo. i can understand why they would do another tax cut tput it on the credit card but as far as spending money. we spent $14 billion to protect our troops from i.e.d.'s and german shepards won in the end. i want to put a plug in for ted

kennedy jr. versus joe lieberman. i think that would be a good race for our state. an i'm very -- i'm -- i'm very concerned that the g.o.p.'s take my votes seriously. i know they got deconstructed by the tea party movement, but it's all about the economy with my vote. i'm extremely worried about the -- even paul crodman's projections for 2025 are very concerning to me. i want to talk about the g.o.p. alignment and where they should go from here. guest: well, in the first place, if you agree with david stockman you're probably not going to agree with what they want to do and that is maintain the bush tax cuts and not let them expire at the end of this year and that means all the tax cuts from theealthy a the way down to those who pay practically pay no tax.

i heard david stockman, forr budget director under president reagan, at lea in reagan's first term, the things that those tax cuts have to be allowed to lapse. republicans don't agree with that. i don't agree with it either. i think it would be harmful to the economy and ultimately to the generation of revenues if you did raise taxes on everyone or even the top brackets. it would be economically counterproductive and i think it would be a mistake to do that. the first thing we have to do in america is get the economy moving again and that means, look, the recession ended in june of 2009 officially but the economy's dragged along since then. we know the job creation has been -- has bee very meager. it's not even up to the level that we'll cover the people just entering the economy. look, if you're going to raise taxes, if that happens if you let the bush tax cuts expire, then that's not going to help

boost the economy at all and certainly not going to help on job creation. and that's what's important. hostnew poll out today, front page of "usa today," i want to get your read on this. split on how to govern. they found that 49% choose congressional republicans. 41% obama but also about how they should govern. republicans are more than twice as likely as democrats to say it's more important for political leaders to stick their beliefs even if little gets done. how do you read that? guest: well, if they stick to their beliefs, if republicans do, then a lot will get done, or at least they'll try to get it done if they stick to their beliefs, they'll cut spending, they'll reduce the size of government, they'll get the bush tax cuts fully to be continued for two or three or four years. whatever they can find an agreement with with the president. and democrats. so a lot will happen. if you -- for instance, if they have tagree with democrats and president obama then they

could get a lot done but they wouldn't be sticking to their principles. look, republicans ran on principles. if you see the 22-page pledge to america, i mentioned earlier, they have a couple of specific things. mainly it outlines their principles and their principles are to have lower taxes and less spending and a smaller government. if they're doing the opposite they're going to get in real trouble. host: those independents that you talk about will sng back towards democrats because they will not like republicans are sticking so much to their beliefs. the polls say 49% say it's more important to get things done. est: i'm not sure what they mean by that. independents swung to republicans because of the issue of spending and the issue of health care. are republican going to be successful on repealing the health care bill? no. but they can be successful in getting a lot of spending cuts through, i think. host: connecticut. democratic line. you're next. go ahead caller: thank you for c-span and thank yofor taking my

call. i'm very concerned about all of the stuff the republicans are talking about, cutting spending, cutting back government. this is going directly contrary to what we're hearing from ecomists about the role of government in a recsion. d i don't hear very many people talk about this directly. let's say the republicans' dream comes true, they cut way back on government spending, they cut way back on all this stuff and the country winds up in a depression, i haven't heard people talk about this possibility. and we go back t bush when he was bailing out -- when he was bailing out bear stearns, i guess it was, and i guessll this and boehner was pleading with republicans back then to support those bailouts. host: fred barnes. guest: democrats, including then senatorbama, voted for tarp and the big bailout as well. and a lot of candidates this

year ran who had not been in congress back then ran against bailouts. i suspect a good number of them would have supported in the crisis back in the fall of 2008. but, look, economists are divided. you have some more liberal economists who want to spend more. they think that's the answer. spending more money by the federal government and that will get us out of the first recession and then a weak economy. now, it hasn't worked. that's for sure. i mean, the economy is just crawling along the bottom. what ronald reagan did, if you recall, was to cut taxes. cut taxes across the board, income taxes. it had a huge impact. this is what john f. kennedy did. his tax cuts that were passed under lyndon johnson. that's what calvin coolidge did. it's what countries did all over the world. the record is, and a couple of harvard economists looked into this, about 30 examples around the world, what worked?

was it the government spending more to boost the economy or did tax cuts work? and in almost every case tax cuts worked, not more spending. i think we need less governnt and tax cuts that will spur -- offer incentives and spur economic growth and job creation. that's what's worked in the past. host: republican line, fort smith, arkansas. good morning. caller good morning. what is the chance of republican reforming the health care bill? the democrats should have stepped down the american people's throat that it's going to cost more than anticipated on. guest: well, that's certainly true. but, look, republicans want to repeal it. they are going to have a vote on repealing it. a lot of difficulty getting that through the senate which after all voted for the health care bill before and democrats are still in charge in the senate and president obama. it's his health care bill.

you know he said in his press conference last week that he -- maybe they could tweak it a little, but repeal it, thas not something he's being to go along with. if you talk to republicans they'll tell you one thing, they cannot really repeal and then replace the health care bill until they won control all of congress and, two, the white house in particular. they'll have to elect a president in 2012 andhen there will be a chance of realing it. i would say it's going to be an uphill fight. if they do have a republican president they'll be able to change it a good deal anyway. host: it sounds like a lot of action could be on the state level. "the washington post" reports this morning that new g.o.p. governors will steer this alth care law saying that the states are given a lot of leeway when it comes to administering many key provisions. guest: that's exactly right, gretta. what govnors can do in about, oh, half a dozen or more republicans elected as governors said they'll slow it

down, they were against it, they were not going to help speed it along. it's supposed to come online, the healthare bill, in 2014. stes need to set up the state exchanges through which health insurance will be sold. and they can -- and they can make it difficult for president obama and -- in doing the things to help implement that bill. you know, half a dozen of these governors have said they will do that. host: and so the federally funded expansion of medicaid. a lot of states will have control over that aspect of the bill as well. new orleans, henry on the independent line. good morning. caller: good morning. i just got a viewpoint take. i think the war on drugs have been lost. i think people who are on drugs need to be helped and we can create more jobs for people here and take the people that are attacking the people and locking them in prisons, costing us so much money to keep people in jail. we have more people in jail

more than anybody in the world. it's time to start locking up some of these politicians that are breaking the law left and right. host: fred barnes. guest: i'm all for locking up politicians that are breaking the law and we could probably use more of that. the war on drugs, you know, i think the only thing worse than this war on drugs is decriminalization or giving up on the war on drugs. i'm not willing to risk legalizing marijuana or even more hard drugs in this country because i think it would lead to a situation that would be worse, that would be much more widespread drug use. i can see that the war on drugs is not -- has not worked all that well. and if you talk to people about mexico they say the demand for illegal drugs in the united states is what has fueled these huge criminal cartels in mexico that have reduced that country

to in some parts the start of a civil war. again, like supporting pakistan. it's a tradeoff. and the tradeoff here in my view, anyway, and there are lo of people who disagree with me, including a good number of conservatives who think that the war on drugs is so -- has been so unsuccessful that in their view we need to get rid of it and try legalization. it would be better and particularly better for mexi as well. host: fred barnes is executive editor of "weekly standard." go to their website, weeklystandard.com, for more information. we'll go to dennis. caller: yes, mr. barnes, good morning to you. i watched u on various talk shows throughout the last 30 years. guest: that makes both of us. caller: yeah. i as a democrat am not discouraged by what happened a week ago.

in fact, i have an address inco@democratz.com. i am going to disrupt my friends of the democratic part i have decided that any liberal who wants to get a $10 minimum wage or more startalling up when these corporations in ohio -- you know, that's where boehner has power -- and also call smuckers, the people that make peanut butter and jams and say to these two company c.e.o.'s, we're not going to buy your products until boehner gets a $10 minimum wage passed. we're going to disrupt the marketplace. corporations have taken over the legislative process and citizens of a liberal persuasion, we're going to sock it to them by disappearing.

host: ok. we'll leave it there. guest: i get the point. i think you're wrong on this one. i'm against any minimum wage because what it does is reduce jobs. particularly at the entry level. and companies, anytime you raise the wage, and particularly if you did it to $10, what would the first thing they do? they'll reduce their number of employees. they'll hire fewer entry-level employees. and that's what happens. it particularly hurts minority youth who don't get hired. they'll have to say i'm against your plan trying to force smuckers and wendy's to raise their lowest wage to $10 an employee and i think it would be -- basically i don't think that whole ideaf a minimum wage, and yours in particular, is particulay counterproductive. host: john on the independent line. you're on the air. caller: hi, fred. guest: hi. caller: i have to say i'm a

republican because i can't say i'm a democrat. i'm moderate. i'm almost like right down the middle. guest: ok. caller: i'm watching these things going on and, you know, it's hard to put it all in words in 20 seconds here but my thought is, you know, john boehner, he would be my last choice for this job. i like eric cantor. there's a bunch of them out like like michele bachmann. i wouldn't want her to be my senator but i think she's great. so, anyway. you know, on health care, i can't believe that, you know, they're trying to tell us that it's going to get cheaper and, of course, it's already going up and, of course -- if they had just dealt with immigration they wouldn't be dealing with health care. i mean, that's the way i see it. that's a personalpinion, probably. don't you see it -- i watched it for years and i think you're great. guest: thank you.

caller: tell me your real personal opinion on john boehner. guest: look, i think john boehner -- you hear things about john boehner. he's not well-known. i have been told, anyway, by a number of republicans who dealt with him over the years and, look, you're going to have trouble believing this, beneath his partisan republican is the heart of a real reformer. look, we're going to find out. the reason he's moving up to speaker, everybody moves up a notch. eric cantor moves from whip up to majority leader and congressman kevin mccthy, who has been the deputy whip, will move up to whip. and michele bachmann, the number four job -- host: isn't that how the establishment works? guest: ok, that's the way the establishment works. host: what about anti-establiment and especially the tea party folks that they wanted things to be mixed up a little bit, so

should michele bachmann and rand paul get leadership position? guest: well, i don't know. republicans can't just rely in their leadership role and in their leadership councils people that have been there 10, 20 years. .

question but a couple of calls ago about economist saying how detrimental it would be for the united states down to pull back spending all of a sudden. your answer was a typical political answer. there are conservatives, economists, and liberal economists. but they did not have a gun in this political fiasco. i would like to mention that the person appointed under a republican president, i

believe, comptroller had said that cutting spending as well as raising taxes is the only way we will get out of the deficit that we are in and on the pathway to correcting our whole deabt. guest: you have characterized david walker's view. that is what he is for. in the short run, we could cut spending and we could cut taxes, or at least not raise them. i do not think republicans are proposing new tax cuts in the near future. they do want to continue the bush tax cuts. if they are allowed to lapse, it

would be harmful to the economy. as the president said last week when the new jobs numbers came out, we need private sector jobs. we need more. 155,000 or something like that is a big improvement, but it is not nearly enough. still not cover the new people, the younger people coming into the economy. we need investors and people who are going to create incentives to do that, to create more growth and more jobs. you are not going to do that if you have a big tax increas host: kentucky on the independent line. caller: there is a major difference between economics and mathematics. i do not know if people who call this program can discern that.

you have so many variable theories floating around. mathematics is an absolute science. i know something about mathematics. i have taught it for 27 years. what they do is they form an artificial perimeter and the do all their equations inside the wall of the perimeter. it is an unclear picture. they take a series of variables and they make a series of projections. in mathematics, a projection is a guess. it doesn't matter so much when you're dealing with low-budget items. when you're dealing with trillions of dollars, you can

forget about scoring this bill. guest: it comes down to someone economic projections are mere guesswork. they are often wrong. projections on how much some bill will cost. somebody pointed out that when medicare first started, the projection was that by 1990, it would increase from $3 billion to $12 billion. it turned out to be &107 billion. -- $107 billion. host: we are with fred barnes "weekly standard." caller: i am against tax cuts

and i'm against corporate welfare. i don't think any of the tax cuts should be passed. i do not believe in trickle- downconomics. i don't believe you can give it to the corporations and they will give it to us. there is money sitting on the sidelines. we are scared out here. the economy is bad. do not need spending. we don't the people who come on and talk real fast who contradict themselves. guest: are you referring to me? caller: yes, sir. we need people who will tell us the truth. guest: i agree with that. mostf the people i talked to favored spending cuts and tax cuts. they are in favor of smaller government.

maybe i misunderstood you. you haa little bit of a different take. the economy is in trouble in lots of places, particularly california. next to nevada, california s the highest unemployment rate in the country. california did not used to be in this situation. people of california would set political trends for the country. now, the once it said have not been good ones, that is for sure. host: greg from florida. caller: good morning, mr. barnes. increased reagan deficits massively? could you answer that first? guest: he did -- deficits did increase, but the economy

increase. as the economy grew -- the economy grew incredibly. and then jobs group. the economy grew at a fast rate under president clinton, and we t to a balanced budget. we need to have that kind of experience again. bt did go down. there were a couple of years when there was a surplus. caller: you talk about the deficit -- or the economy growing with the deficit. that deficit never goes away. it becomes part of the national debt. every republican has increased the national debt. republicans talk about the de bt and the rally around the cause. i am a youngster.

guest: what you're making is a fair point. host: mhigan, sharon, independent line. caller: i am a first-time caller. i have two questions. would the one -- you say that in order to grow the economy you have to grow the debt. i have heard nothing but the republicans talking about the debt left for our children. this has nothing to do with -- it has to do with home owners losing their homes. i would like to know what you think of a proposal that would force mortgage companies to have a 50-50 mortgage plant where 50%

of the mortgage payments went to principle and not all of the money to interest. 50% to interest, a 50% to the principle on people's homes so that they would be able to stay in their homes, gain more equity in their homes quicker, and pay them off quicker, thereby solidifying the home basis. guest: you can do that by having a shorter loan. my house in virginia, i had a 15-year loan. thateans you pay off the principal much sooner than if the was a 30-year loan. but did you want to require banks to do that? i am not sure. i don't think we want to tell banks to do that. it would make it harder for an awful lot of people to buy a

home the people who would be buying them would be the upper crust who could afford the loaned where they are paying off the principal in the shorter period of time. it sounds nice, but i would not be for that. the housing industry would go nuts. host: lake mills, wisconsin. caller: hello. i keep hearing the democrats say we have to fund the tax cuts if we make them permanent for everyone. funded wheny be production ramps up? guest: if the bush tax cuts are extended, nothing would change. all the tax rates would stay the same, rather than refer to what

they were before theyere passed in 2001 and 2003. the problem is not that they will not cate any new incentives for people to invest and promote econic growth and job creation. the tax on dividends would go from t 15to 39.6%, and the tax individual incomes would go up. that would be counterproductive in times of high unemployment. i think it would be a mistake. i am for reducing the capital gains tax are now, but the republicans are not calling for that. they want to keep all the bush tax cuts. host: bob in the bronx, new york. caller: i have a question and a

statement. where was the tea party won the bush administration was running up the debt like drunken sailors? please bring aunt sarah palin. she is the gift that keeps on giving for the democrats. guest: sarah palin has something that other politicians do not have. she is a star. she could be more of a conservative and a divisive force them democrats and some republicans like, but she is sort of a magnetic figure. whatever she does, it is always going to be covered by t media. she holds no office right now. if you do not like her, she is still going to be around.

the other question -- where were the tea party people earlier? it might have been nice to have them around earlier when the deficit was going up and so was the national debt. this huge surge in 2009 of increased spending and dead and the -- and the debt and that is what prompted them. they tend to be conservative people. when spending surged as much as it did and government grew, that is what prompted them. i wowould have liked to have >> 7 season u.s. house have yet to be officially called.

as of now the toll remains 189 democrats, two of the 39 republicans with six non-voting delegates for a 280 is the number needed for control the chamber which shift back to republicans after a four-year. under democratic control. the u.s. house may belong to republicans next session but the senate is a different story democrats remain in charge in the chamber. one race has yet to be called. right now, the official number of members is 51 democrats, 46 republicans, and two independents. at one outstanding races and alaska. among incumbents lee said mark caskey who is running as a write-in candidate and republican joe miller and scott mcadams. their wedding on right in boats to be counted and that process began earlier today. -- they are waiting on write-in votes to be counted and that process began earlier today. >> experience american history to be starting saturday at 8:00 a.m. eastern.

48 hours of people and events telling the americans started here historic speeches by national leaders and eyewitness accounts of events that shaped our nation. visit museums, but historical sites, and college campuses as taught history professors and leading historians tell into america's past american history tv, all weekend every weekend on cspan 3. with most election results file and the winners preparing to govern, use the cspan video library to see what the winners set on the campaign trail and during one of the 40 debates cspan covered research, what, and share all free, washington your way. >> last month, the federal deposit insurance corp. posted a conference on housing finance issues. we will hear about how mortgages are packaged by 4 cents -- finance companies a securities and government-backed companies like fannie mae and freddie mac. this is one hour, 40 minutes.

>> we will try to keep things moving so we have time for some questions at the enddwight -- i am very pleased to be here. as you can see from the title i have given this talk "the mortgage market after the gse's" i am talking not about tomorrow but a longer term, perhaps two or three years from now and it

is an optimism and i will try to make the case why i would want that to be the reality. let me start with the title of the recession which is "the future of the housing gse's. and the evaluation has to start with the question -- have a cell that market failures? if they have, we would want to find a substitute that would allow that to continue. they have not solved any market failures, i think we cannot say rest in peace and move on to designing a new mortgage market. the way to evaluate if they have done any more -- rectified any market failures is to look at their mission statements. there are three key components. i will run through these quickly. in my opinion, they have done little if anything in rectifying potential problems in any of these three areas one area is low income housing. they had housing goals.

most of the academic literature shows they have very little effect on real activity, increasing homeownership rates, or other realities in the zip codes or census tracts where the housing goals applied. for the most part, the gst's did cherry picking. they did mortgages so they would get credit of their mortgages that the private market would have otherwise made. in my opinion, there is little benefit there. the second factor in their mission statement is to stabilize the mortgage market. again, there is a whole history of academic study that finds very little if any stabilization role. most dramatically, if you look in 2007 in which the gse's purchased 50% of subprime mortgages, i would not say they create the subprime crisis but there is no doubt in my mind that they created the worst exigeses by piling into the worst moment.

can i give them much credit on stability. in terms of the third factor which is the one that would probably get the most credit in many circles, let me switch to a second slide and show you the history of securitization. there is a perception that they did a lot. if you look over this time line, you will see that there is only one moment in which the huds it and roper in 1968, created the first mortgage- backed securities. this was obviously based only on government-insured mortgages. the main contribution of the gse's was to convince the marketplace that they have an implicit guarantee, not one that was in the legislation, that investors could buy their securities which were not government-insured and have the confidence that the treasury would sell them all out if worse came to worse. that is a reality that came true. the major innovations in the

mortgage-backed securitization then followed without any role of the gse's. markets,80's, private as solomon brothers created structured finance, 1990's it was expanded to all different kinds of asset backed securities, credit cards, mortgage backed securities, and in the 2000's, the final leg of the innovation was to get into lower income subprime mortgages. the gse's played no role and there is no market failure that they have solved and they have created some of their own. i have a proposal -- we have a time limit here. debra as that i have to create a good example for the rest of the panelists. i will try to stick to it. i'll give an executive summary and i will backfill with details as much as i have time. my key proposal is that we

should cancel fannie mae and freddie mac and assume they have been eliminated and we should reorganize the u.s. mortgage market on basically private market principles. the principle here is simple, that most activities, and that the mortgage credit markets are an extreme example, the private market will do better than the government. the one exception that i would leave and i want to make it clear that i support the fha and hud program for low-income and first-time home buyers -- first- time home buyers. if we are no longer subsidize and fannie mae and freddie mac, congress might even want to transfer some of those subsidy funds over to these lower income programs. the trickiest part of a proposal like this is how do we get from here. here means we have a mortgage market that is 90% government- controlled through the gse's to the fha in a private market. i have a full crew scheme which

as recently announced at a time a plan by which we raised -- will lower the conforming loan limit by a fixed amount, let's say $75,000 until it reaches the zero. once the conforming loan limit as that 0, the gsa no longer exists of it would not be carrying out new activity their existing portfolio will simply run off overtime anyway. within a five-seven-year horizon you would have smoothly and dependably privatized market. the private market would have full force of this. it would be an announced plan and they would simply enter each tier as the conforming loan limit went down another $75,000 for the private market would enter and you would see it work before your eyes. there's always the possibility of a crisis either in this market or in other market. we need a safety net but i think we have that, the fha and ginnie mae mechanism already exists.

if there ever a time in the future where we felt the private market was failing us, you simply expand that program a little bit, very easy to do. let me doubt dussek -- let me now to some backfill. i will run my own q &a program. i get to ask the question and answer. i should get the extra time because i am doing this but i don't expect that. let me give you what i think are some of the critique centel i would answer them are the first one is -- government is running the mortgage market, 90% is government run, what happens if we let go of that? the answer is this is crowding out 101. when you have a subsidized government program in any field, the credit market is an extreme form, the government will dominate. we know for example in the gold days say 2003, fannie mae and freddie mac dominated 50% of the

market because 100% of all conforming mortgages went to fannie mae and freddie mac because they were subsidized. all you need to do is remove the subsidy and in my opinion you will see the private market arise. the current situation is an aberration created by a government subsidy program. the second question is -- who will fund all these mortgages? where will the investors be? a simple answer is it is the same folks who are currently buying all the gse agency debt and mbs. these investors will need to place their money in something and either they will directly by the new private mortgage securities or the will be a transfer from one investor to another very the funds are there. it is not a cash flow problem in any sense. the trickiest question is -- what will happen to mortgage interest rates and what will happen to house prices if we move to a private mortgage market? the answer in the short run as

mortgage rates will probably rise. we know how much this subsidy is worth. deborah has done as much work as anybody in evaluating it. maybe 25 basis points, maybe 35 basis points, will it have a short-term depressing effect on housing prices? quite possibly. this will be transitory. the key thing to keep in mind is that if we move to privatize mortgage market, the mortgage contract will change that will become a much safer contract and mortgage rates and said mortgages are much lower than they are on risky mortgages. you are looking at longer-term and saying what is the overall impact, the mortgage rate will be equal or lower than that are currently and house prices will have stabilized under market principles in what is necessarily an affordable level. next question frequently is -- what about the american dream? doesn't this country advocate an increase in home ownership? we have done it. we produced 12 million single-

family homes during the decade of the 2000's. they are sitting there. many of them unfortunately are vacant. i cannot see their be -- being any continuing argument for subsidizing home ownership beyond the level that we have already achieved which effectively is enough homes for 70% homeownership rates. this is a graph of home ownership rates across europe. it is incredibly talented it is hard to pick out the u.s. on this because there are four or five european countries that have higher ownership rates that we do. there is also australia, canada, the u.k., spain, there is ireland. they all have extremely high all moderate. the punchline is, none of them have any significant government intervention in the mortgage market. that is a revelation to americans to come to realize that we are the only developed country in the world that things

the government has to control 50% or today 90% of the mortgage market. if you look country after country in europe and canada and australia, the government intervention is either literally zero or minimal. the evidence is that it does not hurt, it helps. what goes on in europe? or they have achieved consensus between the government, the mortgage lenders, and the mortgage borrowers and the consensus is that we need to create said mortgages. once that is recognized, they are all on the same page. the borrowers and lenders peak -- realize the government will not want to what the -- will not want to bail them out and will not want to as long as the laws are saker the bar wars realize that will i get bailed out to the with only undertakes a plot and the banks the same period it is a very self fulfilling excellent system. default is the extremely rare event in all of these european countries.

i will show you a graph of the current fact of the crisis conditions, they still have default rates that rounds to zero. there is no evidence of homeownership rates. what makes it work is that they said underwriting standards much higher than ours. i will come back to that in a minute. one key word is they allow recourse, that is to say, a bar were in sweden knows that if they fail to make their mortgage payments, not only do they lose the house, but they will lose the volvo and the family jewels. it never happens because they know it will happen and therefore they all operate in a very safe and sound basis of a don't get to that stage. it is a different world and it is one that has huge advantages. i have done other research in terms of the house price volatility, housing starts volatility in these countries. there is no evidence that a

great and more volatility than we have. for many of these countries, is much less. i don't see anything wrong with the results they are getting. i have not been able to get all the data i want. this shows you just the 30-day delinquency rates in europe. the top number here is 2.5%. it is systematic across these countries. that rate is light zero compared to what we have. if you look at the default rates, they truly do round to zero. the other aspect and maybe the real conclusion of a privatized mortgage market is the market itself will have to redesign the mortgage contracts. that is where i think we have failed. that is where the government has sort of put us into a shoehorn

into a very specific format. my idealized private market would allow the lenders to be offering a menu of choices. there would be adjustable rate mortgages and fixed-rate mortgages and you see these in europe. the u.k. has adjustable rates. the danes have fixed rates. many other countries have both. you have all kinds of amortization schedules. some councils -- some countries have short-term or long-term and they have different maturity. one of the key things that is a hallmark of most european countries is an enforced recourse. that is probably the trickiest issue that comes up in a proposal like this. under what circumstances would the u.s. be prepared to what is truly opposed on borrowers and lenders of serious and that you are taking on a debt and expected to repay it. it is fine to think of that is a revelation but i do think it is where we are at. my own view would be that you make an option.

allow borrowers to come into the bank and give them a choice. do you want to give us records for all your assets? in that case the loan is 4%. if you don't, the loan rate is 6%. pay your money and take your chance. the commercial mortgage market for commercial properties has always done this parade and a bar were on a building can go in and say that i want to give you recourse to you can come after my personal assets or all you get is the building and it works. people make their choices and the lenders adjust for the rest. a u.s. mortgage market under these principles would operate in a very safe way. i think we would find that all loan to value ratio systematic it would be lower than they are today 90% plunge would be priced carefully.

underwriting standards that would require alternative forms of credit enhancement.

>> deposits have been a common use for funding mortgages in the past. advances from the federal home loan banks and something that has kind of died at the moment which we need to get restarted, this securitization in the private-label market. as far as origination, we have bad underwriting standards that were not uniform across the marketplace and that has been a significant problem. we have had incentives for lenders to make loans.

we would argue that the incentive structure, particularly in securitization have been skewed by way that created some of our problems. i would note that one of the most important things moving forward is to have underwriting standards that are consistent and uniform across the entire marketplace. one of the problems that led to the crisis from our view is that you had quite a number, upwards of 50% of the mortgages in the subprime space being originated by standalone mortgage originators which operated upon under the original mall using securitization. they have every incentive to turn out to mortgages to keep operating. underwriting standards deteriorated rapidly during the middle part of the decade as it began to run out of borrowers that could meet the standards for that drove down the underwriting standards and the banks got into the market? extensively as they could.

the last element is looking at performance. we're talking about things such as servicing standards and the quality of service provided through securitization or portfolio loans are for laws that are in some type of gse secure as a separate what type of incentives are provided? a truism of the marketplace that we have seen collapse has been that servicing was not adequately funded. servicing was not adequately funded for the special service and that was needed to be performed when there was any type of minimal level delinquencies. the problems that we have seen through the servicing problems has been that servicing never caught up with the size of the problem. last but not least, the credit rating agencies, what type of avenues are there but the surveillance over time and how the credit rating itself evolves

over time. one of the difficulties is that we have seen the marketplace in fall of 2008 and later that many times there were cliff effect. it's a gimmick -- made a larger number of downgrades when the rating had been continued at a high level for a long period time. how does this relate to the dodge frank act? one purpose of that act is to and the expectation of government bailouts. the important part moving toward for the mortgage finance structure is to two and the expectation of bailouts for financial companies but also for financial markets. we need to reexamine the role of government support under the dodd-frank act that would restrict some options available to support open firms, we really have fewer opportunities to do a bailout of an open firm

and open financial company under dodd-frank and we need to reexamine what that role is with the mortgage market. chairman sheila bair said yesterday morning, an important point is to look at the role of go over bench in the mortgage market. we should move away from the implicit type of guarantee we have had in the past. if we're going to have government support, the first question is whether we should have government support at all. it needs to be explicit and publicly acknowledged. need to be resting-priced and limited in the amount of coverage it has been. . .

cranston the marketplace, we think it is vital to get started again in the securitization market. it needs to be based upon the context of the u.s. markets. there was some discussion about the context and the structure.

we need to make sure that they need to cover the bond program that we offer is consistent with the structure of the u.s. marketplace. there are certain key differences. mortgages tend to be different. you would have to change the types of mortgages that would be available. there has been, and i think it was acknowledged, there has been quite a bit of what some would argue is explicit, but more often implicit support in europe. we need to make sure that in the u.s., it needs to be explicit, but certainly, the idea that the europe bonds performed without government support needs to be reexamined.

one of the ways that have been supported implicitly that is that a great degree of government involvement in the regulation and essential potential -- protection of investors for government bonds. that is to be looked at very closely as well. we also need to take into consideration, and this is easy for me to say coming from the fdic, the important role in the structure and stability of the banking system of having a strong deposit system. that is something that has also been missing by and large in the european countries. there are systems, but they do not have the capability, and they're working hard to solve this problem, to making sure that you could provide protection overnight, or very quickly. the standard that they were held to was the you had to be able to

make payments to depositors within three months. i do not think the ftse could survive with three days, or least three weeks, if they were to be paid three months down the line. that is an important factor. as a result, many countries have had a tendency not to close banks at all. a few years ago, i would like to be able to say that we had worked very hard that has been proven somewhat false. in the european countries, even the closing of a smaller bank has been something that has not been considered. again, there were conforms that -- reforms are seeking to do deal with this issue, but it has not been an issue. the structure of the programs in europe has been one where the regulator of the banks is responsible for the benefit of investors, not the safety and soundness of a particular institution. there is a danger that you could

have an implication that the government regulator is standing behind the government bonds integument becomes greater and greater. there has been quite a bit of discussion about the legislation in the u.s.. we certainly support strong covered bond legislation. we think it can be an important source of liquidity, as i mentioned on the funding side of the three-party equation. covered bonds can be one source of the funding. this is to be a variety of sources. they will have some limitations. they will have limitations based on the balance sheet size of the institution, since they are on the transactions. -- they are held on balance sheets. there would be limitations to the size of the market. we can not expected to replace the other sources of funding. certainly, not securitization,

which is one reason we think that market needs to be strengthened. . we need to make sure we avoid and infrastructure that transfers investor risk to eight insurance fund by restricting the authority of the fdic when the bank closes, to both protect the investor, which we would do under the protection provided by their status, and also make sure that the over-colorization amounts would be available to pay back the deposit insurance from other creditors. our basic point is we should not be shifting their reinvestment risk from the investors the important thing to note about the bond market is there is not a single model. the debate assumes there is a single model. even the models that have been used in europe have quite a bit

of diversity. the most recognized is that in germany, which is the most protected, or one of the most protected in year. there are other models that have functioned quite well. there are models in canada that have a function quite well. without quite the level of investor protection or implicit guarantees. the ftse has -- supported covered bonds. we have worked very closely with the first to issuers, back in 2006, to provide clarity about the rules the fdic would use its receivership operations for covered bonds, and certainly adopted in the summer of 2008, a policy statement to help set standards which we think are going to help promote the development of the covered-bond market. that was followed by the

treasury department -- what i would call the gold standard -- to create a high standard of cover-bonds would have limited credit risk. unfortunately, after that, september of 2008 happened, and the covered-bond markets never really got off of the ground. we would support certain legislation to help develop the recovered bond market as long as it is balance. in my last minute or so, i like to touch on one issue, as far as restarted stirred -- securitization. we think one of the most important things is to insure that securitization is reformed from the format that it used prior to the crisis, and helped lead to the crisis to a degree. the problem in the lead up was a misalignment of incentives.

the fed had a model used by a number of distributions, including many banks, and we have the goal of turning out the mortgages to fill the securitization there seemed to be a complete breakage of the rest of the loan from the originator so they felt they could a -- any product as long as the market would buy it. as we saw through the repurchases that the risk has come to roost. what we think is very important is to realign the incentives. in september, our board adopted a safe harbor. it was originally opera -- adopted in the year 2000. in september, it was designed to

provide special protection or special grace in any failure of the day, as long as you meet the standards. the standards are simple. they are basically to say let's have a more clear, more transparent capital structure, disclosures, down to the loan level, and make sure the documents of the transactions clearly laid out the authorities let's say the servicer has the responsibility and authority to do the job they are charged with doing, and let's make sure the compensation is structured in a way that does not create the trench warfare issues. there is compensation provided making sure that modifications and other actions are done for the benefit of all investors as a whole. we then include a 5% credit risk provision in the safe harbor. i think that all of these things

combined, and sometimes we focus too much on the risk retention elements of securitization reform -- they all need to be combined so that the marketplace can have a much more clear view of the product in the structure, so that the investors themselves could be an effective and monitor on what is going on in the structure, so potential investors can look and say "should i invest in this securitization? then, we would see a much tighter relationship between the originator, lending, the investor that is investing, and the ultimate performance of the mortgage utilization by having them all aligned. we are also looking at an inter- agency group.

those will be the standards that will be applied to our safe harbor. we certainly think that the standard will be devised by the interagency group. they need to make sure they are setting strong standards, standards that would be lowered risk retention for better quality, and incorporate elements that would be important to creating that -- to making that effect. thank you very much >> thank you very much. [applause] >> thank you very much. i will talk briefly about a proposal that i put forward with donald, at the current institute, and also teaches at georgetown about gse reform. that is mostly what i will talk

about. i'll start with my own brief history lesson, which is in july and august of 2008, when i was at the treasury department. obviously, there is a lot of work being done in preparing for the conservatorship. one piece that my staff economists did was think about the future of the gse's, recognizing that from july until late 2009, there will not be reformed, but to at least think about the pathways for the future. this is to insure that the actions that ultimately took place were not inconsistent with desirable futures. this is something that i have been thinking about for at least that long, if not longer. the other broad point, before i go to the specifics, -- action this is what andrew said yesterday -- in a sense, the

discussion is a microcosm of the larger debate in our society about the role of the government, the size of the government. this is the key question, since it is part of the larger debate. in thinking about the future, a start with the observation that i think in the next crisis government intervention is inevitable. i think whenever it is, the government will intervene to make it to -- to make sure that it is available at reasonable interest rates. i might not like that, but my sense is it is inevitable. this is not a problem to be solved, but a fact of life to be lived with. given that, the government support is lifted. that is what was said as well. it is better to make the support of explicit and priced, put it on the table, rather than

keeping it under the table. try to think about whether it is there or not. i understand the other point of view that says you would rather have the price b zero, to preserve the rest of -- the possibility that during the next crisis, the government support will not come. in essence, holding out for that solution, holding out for a fully-private system, my worry is that is a choice of conservatorship, and that would really mean the conservatorship would continue for several years. it looks stable, profitable to the taxpayer, but obviously, there are distortions. i think it is better, given that interest rates are low, to move expeditiously with the gse. that is my view. the next step is to have a very limited role for the government, and to make that an explicit. my proposal is along the lines of several others -- it is that

the government essentially becomes a model line, sells a secondary insurance product, and this attaches at the mortgage level. there is substantial private capital ahead of those. in a sense, if the firms fell, the government is not guaranteeing any particular firm. it is not guaranteeing fannie or freddie. it is not guaranteeing any of the other firms said will enter and compete in the industry, but it is taking the credit risk of the mortgage-backed securities. this goes to the philosophical questions. is the best pricing -- will they get it right? of course not. that is the history of federal insurance. my sense is that whatever price they set will be better than zero. again, if you go back to the question of do you want it to be

zero or not. i would say they sell this catastrophic bat -- backstop, and take their existing obligations, and move them on to the government balance sheet, as the cbo has long said across directors. taxpayers already own those losses, so let's make it explicit. it is on my one i was at treasury, and we were worried about the effect of moving $5 trillion on to the balance sheet. markets understand that it is on both sides of the balance sheet, and it should have no impact. so, the government is selling a backstop. the history of all programs is that they are underpriced. what do you do about that? it is a subsidy. it might be implicit tom -- , but it is a subsidy. the question is, who gets the subsidy? our proposal is to allow entry

into the business of securitization and guarantees. other firms, presumably large banks with substantial origination, would be allowed to enter and purchased the same federal backstop insurance, on the same terms as the future gse's as fannie and freddie, and this would be the competition that would drive any implicit subsidy, rather than having the subsidy captured by the shareholders, and management of the gse's, as was the case in the past. it would drive that implicit subsidy down to homeowners, people looking to buy a home, or looking suit refinance a mortgage. the same thing would apply to the new entrant. just use specific names, the shareholders of wells fargo would go to zero before the backstop kicks in for -- in.

>> for the gse's, it would be focusing on that. again, they compete with private firms. there would be no affordable housing goals, no huge portfolios, just a little white house while they are assembling mortgage-backed securities. affordable housing activities are very important. they would have no special status. there will be no line of credit. no government board members. the ethics form and get a special role to gse securities. no more of that. there would have to be actions taken to support the pools, but those would apply to all firms, and not be specific to the gse's.

i think one huge improvement of this is that failure would have consequences for the management, and for the shareholders. in a sense, this is why entry is so important. in the future, if one of the firms makes a mistake, or mistakes, and is insolvent, that firm could be allowed to fail. the government is no longer in the position of having an institution that is to big to fail, and we had a couple of firms have entered into this business, and i this is the top three or four would be the most likely candidates. that would be announced to allow one of them to fail. the future of the gse's could be that eventually fannie and freddie purchase or are acquired by other large institutions. i think we all think that parent the ideas large banks would be the candidates. -- i think we all think that. the obvious candidates would be

the large banks. that is the plan. let me speak briefly about some of the pros and cons. i want to start with the cons. i had to teach yesterday afternoon, but i was here in the morning. when someone says it is so simple, you guys in washington did not get, which usually follows is a violation of finance 101. everything has pros and cons i let me tell you what is wrong, and then what is right. the first up is government involvement. the brain part of me does not what the government involvement. i have told you why. number two, this puts huge stress on conforming loan quality. everything will have an incentive to take their least good loan, and ask for a government guarantee, and a fair price. it is inevitably a problem of

any insurance program at least this puts a huge spotlight on them. the staff knows with the bank served -- supervisors that the first job is to police conforming loan standards. the third problem is and regulation. we left substantial capitalization. that is always a problem. how much is enough? what the pros and cons of capital? that is the usual discussion about capital regulation, and that is entirely the same issue here. the fourth drawback is a liquid a -- the liquidity of polls. imagine that we have entry. a century, you are chopping up one are now two large pools. you are not required to chop them up, and presumably there would be if entry only if the benefits outweigh the cost in

terms of potentially lower liquidity, but that is a possibility to ensure that we, as a society, derives most of the benefits of the existing structure through standardization and rule- setting. that is obviously a concern. the next drawback would be making sure that the federal insurance is not of use. -- abused. you want to make sure that wells fargo does not take a guarantee on this part of their balance sheet, and engineered to cover their entire balance sheet. -- engineer its to cover their entire balance sheet. the last drawback is a traditional one. in the past, basically anyone who has proposed reform of the gse's was attacked as being anti-housing. how is that? you are saying they need more

capital and interest rates are going up. basically, any reform would inevitably be connected to higher interest rates, and therefore anti-housing. the idea that this conference can happen and this debate can happen is a huge step forward that none of us are being attacked as anti-housing. i think that is good. if there is more capital, interest rates will be higher. there will be an offsetting in fact, since in the past, shareholders and management in a sense skimmed off a good part of the government subsidy, so presumably that would pass the future through homeowners. there would be offsetting effects, but it is possible that interest rates will be higher, and that, in a sense, is a societal discussion -- what is the role of the government in subsidizing housing? that is the drawback. let me quickly recapitalize the

benefits. the number one benefit is where we started -- providing stability in a crisis -- having the government backstop would provide the stability that we have seen during the recent financial crisis. having the private sector structure, i think, would allow for the usual benefits of an elevation, and just having private capital at risk ensures that some measure of prudence is taken. the government risk is explicit, ltd., and priced, and eventually, we will move away from having firms were too big to fail. the other thing that i think is very nice about our proposal is on the affordable housing side. there is a funding source. it takes some of the insurance premiums, and double-dip to affordable housing activities. it provides an opportunity to

focus the federal support the very squarely on the people who society deems should be supported. somebody buying and eight -- $80,000 house, that is not who we envision the government's apart -- supporting. it might be more effective to better target that, which would provide an opportunity to do that to the. -- through this. fannie and freddie have multiple operations that as far as i can tell are very successful. the only thing they really share is a cafeteria. those activities could be separated. we have two very successful multi-family activities, and if they needed an explicit government subsidy, that is a separate discussion. the transition would probably take a while.

it would be the existing assets. as taxpayers, we own the losses. we would need to take the balance sheet, and from that off over time. i would say the next step is to really think carefully about these choices. what is the role of government, and who benefits from subsidies? especially on the affordable housing side, there are now many specific proposals for gse reform. i think the next important step is to have specific proposals for housing subsidies, which is not to say everything should be more, but we should make choices in and what specifically should be done with public support for affordable housing. thank you very much. [applause]

>> i have a presentation, and i will need to walk around a little bit. i'm from the federal reserve bank of philadelphia. i need to make the traditional disclaimer here that these are my views. excuse me. ok. -- and not those of the federal reserve bank of philadelphia, or the federal reserve system. can everybody hear me?

>> i cannot get it down. the suit is a little too thick. my tie. great idea. ok. [laughter] >> we are talking here about the mortgage insurance industry, and a very good question is why talk about the industry, after all, is a win 10% or less of the market. one reason is, as we say, the green shoots. the industry has been able to raise private capital. in the federal reserve system, we are just to begin anytime or anywhere they are able to raise private capital -- we are excited about that prospect. odyssey, the affordable lending programs are generally -- obviously, the affordable lending programs are generally low down payment programs. the competition is and then toward public policy issue. it was actually a response to

insurance. we have a lot of debates about low down payment requirements. the industry is an artifact of the gse structure, as i will describe shortly. let's first talk about green sheets. surprisingly, to many people, the industry has been able to raise capital since the onset of the crisis. i document the equity capital and convertible debt reached close to $4 billion. we only -- we even have this for the first time in over 20 years. why would there be capital for an industry that capitalizes in low-down payment mortgages, the riskiest end of the spectrum? when, of course as the shutdown of the private label marked a big reason -- market. the reason we have an industry is the statutory requirement for any loan behat

credit-enhanced, and that is created a number of frictions and competitive responses that i will detail. ultimately, it is part of the story about the downfall of the gse patel, which makes this an interesting story. let's first do a little background. there are seven mortgage insurance companies, four of them i described as pure. three of them are in the insurance business, which seems to be the surviving diversified model. i should point out that one of the surviving diversified models is aig. let's just talk a little bit about how mortgage insurance is structured. the best way to think about it is as a percentage of coverage. i highlight this. that is actually a big deal. it is about a 35% coverage ratio.

mi's charge premiums in the form of cool-paid or seller-paid. beyer-paid has been the dominant form. an important aspect is that when the mortgage industry took shape, there was a conscious decision to separate mortgage banking from mortgage insurance. we will return to that subject at the end. another point about this is that the industry -- their maximum credit rating is aa. the rating agencies actually got it right this time. they basically put the capital requirements, because of their risky position, they would be too onerous to take on a aaa rating. ok. let's look at where the

challenges came from the mortgage insurers. said theall, the gse's underwriting standards. i will argue that they actually adversely syms -- selected the mi the gulf for the automated underwriting systems, which means many were improved because they have insurance. the other thing is the affordability of requirements increased overtime. increasingly, they tried to take on these loans to meet the affordability requirement. there is a lot of competition from junior liens. that was the bankers response. the competitive response, again, there is this requirement. the response from the mortgage originators, from the mortgage lenders, was to really expand the junior lien market. i will show you some graphs to show you how the competition

evolves over time. let him make one more time -- let me make one more point. the lenders here actually pressured for approval. the way it worked is you sort of have uniform pricing. the issues which to do business with. if the ones that are closest to conforming with their underwriting standards, or miti underwriting standards are the one that they work with. know they 2000's, we got quite loose. that is the constitutional framework. let me mention that they were not necessarily happy with this one -- this particular arrangement. in fact, the one stick they had -- was the right of rescission. this is something they need to maintain.

ok. let's see how the industry evolves in response to this. what you see here, in the blue line, is the growth of the second lane market. the red is the mortgage insurance industry. yellow -- these are the three competitors. look what happens between 2002 and to 26 -- 2006. junior lien market more than doubled in size. over this time, the mortgage insurance market was basically flat, growing at about 1% per year. if the goal back further, it declined very dramatically in size. 2007 to 2008, we almost got the story. the mi's grow by about 30%.

the second lead market, basically about 5% growth -- growth. nma exploded. a huge change as a result of the credit crisis. there are analysts -- i think those at ubs, pointed out that the gse's were effectively the takeout for the private-label market in 2007. let's look at that. this is something i was interested in. you will see right here, and i will read these numbers to you, 45%, 46% -- the private-label market. this data is from supplied

analytics, so it represents the servicing portfolios of the biggest servicers. this is kind of where the action is. you see this very large growth. in 2007, it starts to decline pretty dramatically, especially by the end of 2007. gnma growth was not substantial. so, the professor had a great point in that a lot of the business shifted over to the gse's and ultimately the mi's. the biggest increases came in 2007, and it was actually even in early 2008. i see the first quarter of 2008 was one the underwriting standards essentially tightened at the gse's. substantial growth in the

greater than 95. this does not look like a large share, but as an example, 40% of the largest's business, was greater than 97% in all of 2007. so, it was a big increase. why did the gse's take on so much of this high business? it was partly because for the credit enhancement and the hud goals. those were two big factors. what you would expect to see, if you saw this, is a big difference in 2007 versus other years. we do see a difference in 2007 and early 2008 in terms of the delinquency rate. when we did is start to track

the performance. this reflects seriously delinquent loans and bonds attended in some kind of volos. you see the 2007 book is clearly the worst. this is a big part of the story of the gse's. it is not as big a gap with 2006, as i would have expected. are a couple of things that could be going down. it does look like it is not as clean a story as you think, because it is obviously partly a house price story as well. so, anyway, where does that leave us? actually, this brings us to what is the mystery. why are they still kicking, and have reasonably positive share prices, but why did the gse's go bust? the big reason is statutory

capital verses regulatory capital. the mortgage insurer's were required to set aside contingency and hold it for up to 10 years. that might potentially be a model for a future climate. then, they actually did get some oversight from the rating agencies in terms of stress tests and the like. another factor we cannot discount is recisions. it is a critical element if you're going to separate lending from insurance. recisions' rates normally about 5% to 10%, or less, and according to moody's, it is 20% to 25%. there aa minus rating requirement -- there is a

unique reserving regime, if you will. they are only required to reserve after a notice of default, which is 45 days to 60 days of delinquency. if they are not reserving suit modified loans, they are probably getting a little break. the reason this is important to recount it is because we have to think about how we want to restructure this housing finance system. we have seen pretty clearly how the market response. he put a government requirement in there. we have not talked a lot about that market. that is a highly-problematic market. in any event, we sort of have to ask ourselves, is this the way you want to run an insurance business? it is really a largely, pure play, double a rated mortgage insurance industry concentrated in-lending.

is it effective? it had its benefits paid to have reasonably conservative statutory capital requirements. but, it is an industry that is subject to adverse selection. it is partly driven by the separation of mortgage banking and insurance, as well as the current gse structure. of course, the right of rescission by the mortgage insurer's tends to be exercised most during times of stress. we are going to have to reform the system. let me mention some other issues. one is to deal with the recision issue. short-term, they're dealing with it through more control sped the lenders are clearly gearing with it. -- controls. the lenders are clearly dealing with it.

a defender of the industry recently wrote that separating insurance from banking might have been a mistake. that would require a radical restructuring of the industry. a couple of other ideas -- drop the borrower-paid mortgage insurer. there are other alternatives. there are state-based premium structures. how does that fit into a reconstituted gse system? in the proposal we heard, probably not well. the lenders, or whoever takes it on, will probably not want to share the profits on a statutory basis, so they would opt for something else. it probably fits best into wayne's proposal. they could become a big player in there all right, but i cannot believe the industry is going to want to give up a certain benefit for an uncertain gain. that is enough.

see why. >> well? [applause] we have a few moments for questions. i used to think the gse's were about the scariest thing out there, now what i think it's scary his thinking about opening up everything for reform because there is all this downside risk. i thought i might start by asking the panelists, of all of probability of a caring, what do you think would actually cause the most damage that we should avoid? lever wants to comments can jump in. -- whoever wants to comment can jump in. in a first-loss position on providing guarantees. the nisei couple of other things. -- let me say a couple of other things.

michael on the covered-bonds. larry, i think private mortgage insurance fits in perfectly with a competitive market. it either has a place, or it does not. that is what markets do. if i do not have a problem with it. if to really answer the question, i think both wang and select used the term "catastrophe insurance." i used to study catastrophe insurance, and i have worked on lot on a terrorist and risk insurance act. let me take one minute to say what it does, and why i do not think their program is a catastrophe insurance. if there were another terrorist attack, the private industry is responsible for approximately 50% of the first lost position. is it is bigger than that, the government backstops the second 50%.

if true catastrophe insurance -- the system works. they are not worried about bankruptcy rest. and enough capital to be the first loss, and they know the government takes the second loss. my fear was calling it a catastrophe insurance is that it has the government in the first loss position. if the program amounts to saying we will have securitization in which the government has the triple a trench, i am with both of you, but i fear that is not what it is. >> so, i do hope that is what it is. i agree with you. and there are many problems associated with government insurance programs and that is but i think the experience of the crisis shows that it often ends up on the government's doorstep, no matter what.

my biggest concern is that nothing happens. debt and the mortgage-backed securities, where the holders of that debt and security tizzies to have -- combining that tension with a view that government should not have that role is not going to get resolved. large part of the financing of the government deficit depends on the wide distribution of those securities i think that the question of whether or not this is government-backed or not is a serious problem for the future, and needs to be addressed sooner, rather than

later. our proposal also has the government in a second-loss position, and how far back depends on the parameters. i agree that in a sense, staying in conservatorship is at the downside, and i would add that one more reason is that it appears -- out d.c. this is superficial, but the gse's are funding the government added that is a downside. the longer you stay there, the harder it is to get off of an easy source of funding. the same thing applies to the possibility of the federal reserve and by and large scale asset purchases. it would be a substantial downside. i would say that the positive is that we cannot go to the solution -- one of the proposals we have here is the utility model, which i think is better

than conservatorship care there is no danger ship -- there is no danger of the government ordering to doing it. i think i have that, the acting director deserve substantial credit for holding back those proposals, but that is another danger of staying in conservatorship. >> i was just comment on your question initialling. i think it is important that we reform the prior structure, but one of the things i would caution is that in our desperation to make sure we restart the private market, which is essential, we make sure we do not ignore the lessons of past in the private market. think would be a mistake. ok. >> i share the concerns of this thing will linger on, and there

is this explicit government guarantee that will continue. i want to point out a couple of things. i'm very sympathetic to many of the proposals from the professor. it is a case that a lot of the mortgage lending, at least in europe, is done by insured depositories. i do not know there is a pure, private solution, or a pier, private response. you can certainly correct me if i'm wrong. people are bringing up these big constitutional issues. an important point we should not lose sight of is there is a very practical things -- do we want a 30-year fixed rate mortgage without pre-payment penalties? i do not think there is a private sector out for that type of industry. dodd-frank apparently wrote in,

no pre-payment penalties. clearly, if that is what we want, we are going to do it. there are many other kinds of mortgage products. those are all consistent with private ownership. a 30-year fixed mortgage -- that does mean, of course, that the interest rate risk will get borne by this government entity. i do fear, as was pointed out, this will ultimately resolved -- results in this pricing to >> there are thousands of questions. you are in the front. >> michael made an important statement -- "protection from a brisk breeze excessive risk- taking."

my question is, how do you address this very valid point that michael makes in these government insurance schemes that you are supporting? >> should i go first? i would say two things -- have substantial private capital ahead of the government, and second, not to extend this to other assets. if so, you could say why stop at mbs. there are a lot of other letters. i would start with the recognition that the government's involvement in housing is inevitable, not necessarily desirable, but inevitable. i do not think that is the case in other things. i say let's hold the line where we can, so that is my answer.

>> i think government insurance is a fact of life across many types of products, whether it it be flawed, the fdic, fha, or the whole list of other types of programs. the body politic would generally be better served if financing an economic professionals said that as a fact, and work on the product -- problem of how to do it well, rather than continue with a view that somehow it will go away. >> let's take one last question. >> personally, i would like government out of housing, but the reality is, in the meantime, you cannot generate the loans anywhere near the levels you can right now in the private market. the question is, in the next 10

years, do you want to move to the policy? that will be the debate, but it is not practical right now. the single lot of people this is who will buy all of these bonds? and the right -- the reality is most money managers like ourselves, 70% we invested in is supposed to be rate product, not risk product. this becomes credit product. [unintelligible] >> you also have a problem which is overseas will not take them. if you look at the bank's right now, some people have said rates will only go up 25 basis points. that is not. think about this. the banks are buying 3.3%. -- 3.3% fannie and freddie

paper. they can make three and a quarter forming loans could there not keeping the loans at 4 and 1/4, and they are making 5% + jumbo loans. they are way over 100 basis points on conforming. so, the banking industry has said we will not take them. from the credit point of view, there is just not enough credit to investors. there are plenty of interest rate investors and worldwide who do not want the credit risk, but i did not see where you place them. this ignores the fact of the rating agencies are a huge problem here. they got us into the problem, and now they will be a big problem because most people will not take the ratings. nobody believes the mortgage insurer's work at the point you need them. how do you guarantee a multi- trillion dollar problem with $4

billion of capital? if the services remain a problem. we do not functionally see how any time soon you solve this problem. who would buy all of these? >> i have the answer. [laughter] >> and i think it will be you. [laughter] >> you are assuming that the mortgage risk remains more or less as we see it today. i think it privatize the mortgage market will create a much safer mortgage products than we have today, and the answer is in europe. those mortgages are issued, a lot of them, through a covered- bonds, which are purchased by european insurers, pension plans, mutual funds -- the system works as long as the mortgages are safe. you have a tier of more risky ones perdu may not want those.

[unintelligible] >> we are talking 25 basis points in the short run, but since mortgage rates, the rates go down, not up. >> this is so painful. i was under orders to stay on time. i feel the engagement of the crowd. >> pressing government insurance is a difficult problem. the theme in the panel yesterday morning was the sixth locality of the system -- 6 fatality. that means that any kind of catastrophic insurance or banking would have to confront the problem of pricing counter- cyclically. i am curious if any of our panelists would favor the adoption or want to comment on it? . >> that this sort of a point.

the reason you are involved in the government is that when you have a systemic event, or a recession, the government is going to be involved in some sense. so, now, you get to the question of what is the best way to try to mitigate that risk. so, the government is supposedly going to be trying to smooth over the cycle, and trying to price for the systemic event. alternately, you have to realize that if the shot is big enough, it cannot fully priced the systemic event. will always be on their price. the hope is that you will engage in some building of reserve funds and maintaining pressure. the problem is the political pressure to cap the premiums. where you -- you try to set up as additional

mechanisms. we have had some success. the fdic, while not perfect, has had some success in maintaining a reserve fund, and premium structures in the face of a lot of desire to dissipate them. so, you need to look at those institutional structures, and say how do we design and solve these problems within the context of the white government works? >> i need to ask -- ed, there is also a policy lever. the higher the pricing is, the smaller the share of the government back -- backing. in some cases, i think that would be desirable to set the premiums at a high enough level that it does not foster an 9- government-backed -- non- government-backed support.

>> thank you. let's thank the panel. [applause] >> every weekend, on c-span 3, experience american history tv. 48 hours of people and events telling the american story, your historic speeches by american leaders, eyewitness accounts of events that shaped our nations. visit museums, historical sites, and college campuses as top history professors delve into the past.

>> saturdays, landmark supreme court cases on c-span radio. >> there is nothing in the united states constitution concerning birth, contraception, or abortion. >> argued in 1971 and ruled on on 1973, roe v. wade is considered one of the court's most controversial decisions. for the next two saturdays, listen to the arguments at 6:00 p.m. eastern on c-span radio. >> today, president obama is in jakarta, indonesia. tomorrow, he travels to seoul, korea where he march veterans day on thursday by speaking to troops there. a closing news conference is planned for friday. the president will wrap up his asian trip in japan for the

economic cooperation meeting. he will return to washington on sunday. next, the state department spokesman c.j. crowley talks about president obama's trip to india and remarks to the parliament where he endorsed his bid to become a permanent member of the u.s. security council. other topics at the briefing include the middle east peace negotiations, north korea multilateral talks, and the elections in burma. this is 30 minutes. >> good afternoon and welcome to the department of state. we have some cadets at the back of the room visiting from egypt. welcome to the state department

briefing room. we look forward to the meeting tomorrow between secretary clinton and foreign minister gates to talk about a variety of issues, including the status of our efforts on middle east peace. to begin in haiti, we obviously continue to work very closely with the haitian government and its ministry of public health in the aftermath of hurricane tomas. they have 16 treatment centers established in port-au-prince by the government of haiti. they are doing an effective job, as we indicated yesterday, while increasing the haitian government's surveillance efforts to evaluate both the on going cholera outbreak and the potential impact that the range from hurricane thomas is having.

we can confirm at this point that roughly 8138 cholera cases have been identified thus far. 544 people have died from complications of cholera. obviously, the haitian government is establishing the street and centers -- establishing these treatment centers. that said, the aggressive response by the government of haiti, in cooperation with international partners, we think we should help to contain the outbreak. tragically, we know that people will die from cholera, even though it is a very treatable disease.

the combination of the improved surveillance and the pre- positioned stocks that are on hand in haiti, haiti is well positioned to contain the outbreak and we expect the mortality rate relative to the number of cases has gone down very dramatically. i would also tell you -- you have had some questions recently about the status of the supplemental funding that was approved by congress. we have completed the process that was laid out in the supplemental appropriation. a spending plan has been approved and cleared. we have transferred a tranche of money, $120 million, to the department of treasury.

the department of treasury will be transferring that to the world bank in a day for haiti. having completed the process outlined in the appropriation, we are now moving aggressively to commit that money to haiti's reconstruction. the second topic, they have confirmed and indicated to us that iran has in fact responded to kathryn ashton's invitation. iran has proposed a couple of tentative dates. i would expect there will be complications within the p five + one within the next day or two. i believe there will be a

political director's conference call tomorrow. we will work to try to nail down, with iran, a specific date and location for this meeting. lastly, yesterday, you asked about iraqi christians and whether there has been any specific request for asylum in the aftermath of the recently.ble attacke the answer is no. we have not seen any reports of widespread displacement or resettlement. we are in close contact with iraq. programs are already established and functioning since 2007. more than 53,000 iraqi refugees

have been resettled in the united states. we have a program that is available to anyone who has these concerns. but in this immediate aftermath, we have not seen any requests. since 2007, 53,700 iraqi refugees have settled in the united states. we have aggressively worked this over the course of years. of course, we will be of further assistance. >> on the iranian response to the eu invitation, are we talking about a meeting of the p five + one with them or we talking about a smaller be and a group meeting? -- smaller vienna group meeting? >> both in the context of the p

five + one and the context of the iaea. we want air and engaged in both channels. bernau, capt. ashton -- katherine -- right now, catherine action did propose a meeting and iran is prepared to move ahead and we will look to lock in a date and location. but to the extent that iran wishes to pursue the pteron research reactor proposal, we are open to that -- pursue the tehran research reactor proposal, we are open to that. there are obviously some technical aspects that have to be fulfilled for that to go forward. including the status of the

material that is shipped out of iran, who controls it, and so forth. >> but the meeting we are talking about is a p five + one meeting? >> we are prepared to move forward with ap 5 + one meeting and we hope that might occur as early as this month. we will consultancy had to move forward. we are prepared to have a piece of + one meeting at a mutually agreeable time and location. >> someone else said they would be hosting the stocks. do you know anything about that? >> i do not believe that we have arrived at either a date or

location. that is what we will be consulting with our partners. our media focus is the p five + one. it occurred just over a year ago. we would like to see a series of meetings in different locations. we are open to a variety of ideas. we focus on one side ap 5 + one meeting. our major concern is iran's nuclear intention. obviously, in any kind of engagement that would occur, with the a i eia, there's

potential for that kind of a meeting as well. we want to get not just one meeting, but a process through which we can address our concerns about iran's nuclear program and any other issues that iran would like to bring to the table. >> they think it should take place in turkey. >> again, we would like to have a meeting in the context of the p five + one. we want to see a return to the kind of meeting we had just over

a year ago. we thought it was a productive meeting and we like to see it be a series of meetings, not just one. these are difficult, complex issues and, clearly, none of these issues can be result in a single meeting. >> are they talking about a broader group? >> iran appears in its response to be open to a meeting and relatively soon. we will try to lock down a date and location and then begin to work the details. >> you are looking for a p five plus one meeting. >> we were talking about having a p five plus one as soon as possible. >> is a u.s. willing to go to

the meeting if they're not willing to talk about the nuclear intentions? >> that is a speculative question. last year, when we get together, the nuclear issue was paramount importance in that meeting. >> not so fast. >> you just said you believe that might be a hypothetical issue. but officials say they will talk about anything but their nuclear program. >> we want the meeting and, at that meeting, we plan to talk about the nuclear issue. i am not certain that is

actually the iranian position either. >> for the turkey aspect, do you have any opposition to meeting in turkey if iran wants? >> first and foremost, we want a meeting. we want to put it together as soon as possible in a location that is convenient for all other participants. we will consult tomorrow and then respond with our own answer to the iranian response. if we are successful in getting a process going, not just one meeting, but a series of meetings, a series of engagements on the nuclear issue and other issues, we can envision that there will be many potential locations for these series of meetings. but we will consult in the next day with our partners in the p five plus one process and we

will respond formally to iran through high representative ashton. we will consult with our partners. >> do not need to have an agreement about the agenda? >> these are all good questions. we want to lock in a date and location and then talk about what we want to talk about. iran will also have their issues. in the last meeting, it was predominately about the nuclear issue. but we are open to talk about other things. we will come to the table prepared to talk about a range of issues. >> we are talking about a meeting between ashton and the

iranians. >> if you go back to prior meetings, they were preceded by a meeting between an iranian representative and a european high rep. it depends. iran offered a couple of dates. we have a couple of dates in mind. it may well be that this preliminary meeting may well be that we go right to the first meeting. i am not prejudging what we're prepared to do and what iran is prepared to do. we will consult with high representative hashed and in the next day -- how representative ashton -- high representative ashton in the next day.

>> do you know how far along in the talks would you plan to presenting a proposal? >> in the meeting last year, we put the trr proposal on the table. that is something we're prepared to offer, an updated version of that. it is possible that this is something that will be discussed again if and when the meeting takes place. ok. >> yesterday, you said that someone in israel has made this known in order to embarrass the prime minister and undermine the process. >> i suggested that as a possibility. >> today, the israeli prime minister's office has issued a statement defending the announcement, saying that jerusalem is not a settlement. israel sees no link between the

peace process and this development plan in jerusalem. what is your reaction to that? >> there clearly is a link in the sense that it is incumbent upon both parties, as we have insisted all along, that they are responsible for creating conditions for a successful negotiation. to suggest that this kind of announcement would not have an impact on the palestinian side is incorrect. we do understand that israel has its own position on these kinds of announcements. that said, we have indicated that we think these kinds of announcements at this time, even if the process will carry over four months, if not years, are counterproductive to our efforts to get the parties into direct negotiations. so we have not changed our view.

>> very soon after, the president had his own criticism of the settlement. do they not seem to be hardening their position or explicitly rejecting the u.s. stance on this? >> again, the secretary looks for to a meeting with the prime minister on thursday. i have confidence that this will be among the subjects discussed. i am confident that there will be meeting. just on that point, we are still working on the venue. the meeting will prole start somewhere early in the morning, probably 9:00 a.m. with a 2% -- we're trying to pin down precisely where the meeting will be held. there are other possibilities to broach. >> if the israelis will take

unilateral action, the international community should create a state for palestine. >> we want to avoid unilateral actions that prevent progress toward negotiations which, again, is the only means through which we can resolve these issues once and for all. >> is there any process? >> there is absolutely process. we're looking for making progress. that is something that we continually seek. >> the announcement of the transfer of funds to the palestinians, will this be new money or from the 900 -- >> we have been the leading

contributor to the palestinian authority in the ongoing efforts of president abbas and prime minister fiat to make a difference on the ground -- prime minister fayad to make a difference on the ground. we will have an opportunity to make an additional contribution to the palestinian authorities. that will be discussed in the secretary's visit tomorrow. >> so is this from the $900 million? >> again, we have contributed a significant amount of money to the palestinian authorities to support its ongoing efforts at building the institutions that will be vital to a future palestinian state. we are in a position with the new fiscal year to make an additional contribution. i will leave it there as a sort of keystone and there will be more details -- sort of t stone

and there will be more details tomorrow. >> are there more efforts on the arab league and what they may or may not be doing in the next couple of weeks? >> i would anticipate the meeting tomorrow with the prime minister will cover bilateral issues. each is approaching important elections coming up. we will talk about the middle east peace. the egyptians had their own meeting in recent days. i'm sure there will give the secretary an update on their perspective. clearly, what happens in terms of regional support for ongoing efforts is it critical dimension of that. >> since the launch of the president obama initiative for

peace in the middle east, we have seen nothing from the israelis but lip service from the prime minister concerning peace. on the other side, they are building faster than ever, new settlements along airlines. what they hear from secretary clinton is her determination along with president obama about pursuing the peace process. but do you have any new strategy to deal with this lips service, a policy -- lip service policy when it comes to the middle east. it shows they do not have sincerity pursuing this. >> let me clarify your question and perhaps challenge it. we are committed to

negotiations. it is vitally important for the is still israeli -- for the israeli people and the palestinian people. the only way forward, it is not a valid service. it is about a negotiation. it is about the means of tackling the very complex issues and on one in the difficult history in the region and focusing -- and unwinding the difficult history in the region and focusing on progress. this is why the secretary has been intently engaged. the president has been engaged. george mitchell and others have made many trips to the region. we appreciate the efforts of others, including senator kerry who has had his own discussions. recall that we're talking about

multiple contacts here. not just peace between israelis and the palestinians, but between the israelis and the syrians and israelis and the lebanese. we're trying to make all paths towards a comprehensive goal. we knew this would be difficult. but we are determined and we're continuing to work with the parties to try to find a way to make progress. >> i just want to make sure. israeli lip service -- >> again, if you're in a direct negotiation, i recognize that, outside of the negotiation, there can be just the back and forth of public comments. that is why we are pressing both sides because, in citing negotiation, you're dealing with ithe substance. that is where we want the parties to go. >> senator kerrey has had good

trips. president obama's efforts are intended for peace in the middle east. >> i am confident that we have received a back brief from senator kerrey. i have not. there were important meetings that had, both in damascus and beirut. it demonstrates that we are in search of comprehensive peace and that remains our focus. >> thank you. >> senator kerry this weekend -- it was announced this weekend that sudan would be taken off of the terrorist list. have you had any sort of response from the sudanese? >> general grecian and ambassador princeton lie some remain engaged with the former south african president and the

parties. we have had a series of discussions with sudanese officials, both over the weekend and since then. we are continuing to do everything we can to have the parties live up to their obligations under the comprehensive peace agreement. we are focused on the fact that we are now two months from the scheduled referendum on south sudan. we have no time to waste. a lot is being done. there are preparations that are underway with legislation and training poll workers who will be vitally important to carry off a successful referendum. discussions continue and we will continue to hold the parties to

their obligations to a referendum on rba on january 9. >> will this change of all the atmosphere on these discussions? >> i think it has had the desired effect. it represents a further commitment by the nine states. we are putting real, tangible benefits to sudan on the table. i need to emphasize that, what we put on the table this weekend is contingent on successful referendum, and respect for the results, constructive work during the post-referendum phase, and

meeting the legal requirements to have a country removed from the state-sponsored terrorism list. it is important to follow up aggressively on a path to a different kind of relationship with sudan along with south sudan meeting its obligations. >> it has consistently committed -- it sounds like you're saying implementation of cpa. is that a change in tact? >> i think it is a recognition of the calendar. the parties have agreed on many of the details on the referendum on south sudan. they have not agree on the details of the referendum on rba. while it is theoretically possible that the referendum could still go on and scheduled

regarding rba, we recognize that that is increasingly problematic. today, they are obliged to cooperate and schedule a referendum on rba on january 9. we're not taking it one off the hook. but given that there is not agreement between north and south on the details of that referendum, if they are able to arrive on a different course of action, that is up to them. but it has to be mutually agreeable alternative and that is part of the discussion that is still going on. >> is it your view that the likelihood is increasing and maybe able to reach a deal without a referendum? >> the responsibility here is on the parties. they have an obligation today to hold a referendum on rba on

january 9 and we are holding them to that requirement. if they're able to agree on an alternative, that is up to them. >> is the foreign minister suggesting a consistent referendum between the north and the south? >> the right of the people of south sudan to decide on the future, we will see how the people of south sudan decide on the referendum for january night. and we will respect that as well. >> with that abrogation of the rba, would that require derringers of the cpa?

or will north and south sudan just decide between the two of them? >> the guarantors of the cpa, including the united states, we are working cooperatively with the international community in supporting this process. it is up to the parties to decide, to arrive at a mutually agreeable solution to rba. it is their responsibility first and foremost. we have the white house briefing coming up in a couple of minutes. >> the japanese government announced it would start negotiating on the trans- atlantic partnership. >> japan may be considering taking steps that could help pave the way for its eventual membership in the trans-pacific partnership. japan is a critical part of the

trans-pacific economic system. the tpp has a regional trade agreement that is negotiated among the apec economies. they share our views of high standards for a 21st century agreement. but we encourage japan's interest and movement toward liberalization. thank you. >> today, president obama is in jakarta, indonesia. tomorrow, he travels to seoul, korea, where, on thursday, he will speak to troops there. on friday, he will attend the g- 20 summit. he returns to washington on sunday. next, the heritage foundation hosts a discussion on new members of the house of

representatives. posting a discussion this morning is michael frank. -- hosting our discussion this morning is michael frank. he previously served as director of communications in texas and, prior to that, he was the director of congressional relations. he is legislative counsel for former representative william dannemeyer of california.

please welcome him. [applause] >> thank you, >> where does the tea party go from here? this is something we wanted to do not immediately after the election, but give time for the results to come in and think about the significance of what happened last tuesday. want to invite three folks who will set an awful lot of light on a historical collection. we had a couple of markers for discussion that point to the significance of were the two party has come from. if we did this a couple of years ago, people would ask what tea party? now everyone has an opinion about the tea party movement. there is very little trust in the major parties.

approval and disapproval of the democrat and republican parties were both negative 10. the tea party was 39 approve, 32 disapprove. the rest were neutral. they actually had a net positive. at the state level, there were some cases where there were more questions as the bulk ked e tea party and the other major parties. teh tea parhe tea party is net e in 17 states. also interesting to me is that there were 11 states where the tea party had and a higher

approval rating than one of the major parties. in california, ohio, washington, and orgaorigen the tea party was more popular. having it is obvious that where we are at is -- i'd think it is obvious that where we're at is a major for. we will look at major prospective scope of questions relating to the sustainability of the two-party movement. how will the two-partea party ey and passion find its way in washington? we have three terrific speakers. billie tucker, executive director of the first coast tea party in florida.

she served as ceo for 20 years and her former role as executive vice president of tec florida. she has spent her entire career working with ceos and executives, earning her reputation for the teen understandings of motivations to become more effective. we need a lot of that here. she will be our first weaker. billie is representative of the leaders that have emerged. there is really no one leader of the tea party movement. it is the spontaneity that came out of almost nowhere to have their voice heard. billie does a great spokeswoman for that dynamic.

our next speaker launched a political blog in 2003. he helped create a model for success and expansion. his pieces have appeared in "the daily standard" and "the new york post." his commentary is widely sought after. 25,000 daily visitors to his daily readings. he will address some of those aspects today. our cleanup speaker is byron york. he provides conservative commentary once a week for the examiner, which is a terrific column. i encourage you to read it. he previously was a white house correspondent for "the national review."

i want to read the title of his book that i thoroughly enjoyed. "the vast left wing conspiracy." that is the title of a great book. you could start off, and we look forward to going ahead. >> thank you. i want to take this moment for saying i am here to represent a lot of people that set up on november 2 and before that to take our country back. everyone says they get back to waake it back to what? i will do my best to represent each of you. there is no leader in the tea party movement, and that is what makes us unique and so different.

most of us did not know we would be in this movement. that is exactly my story. it is really interesting because we are all being asked what now? it is like we're setting up a secret room. it did not happen that way. we were all call to this through a movement inside a parked at that told the sunday and was seriously wrong in this country. -- we were all called to this movement through our gut. during this election campaign -- when the movement first got started, we were really focused on the issues. that is what the tea party is all about. we have a lot of issues. we are in serious financial trouble.

we are in a lot of ways we are in a decline that we have never seen in our history. this is why people are waking up, because we know it. there are a lot of smart people in america, and i am so honored to have worked with them. i have worked with ceo's that have brought huge organizations to our country, and i thought they were smart until i started working with people in the tea party movement. americans are very smart people. they have known for a while the something was going on in our country. what happened last tuesday night was so great. our founders created this whole process by which we could do that. we put it into action. it was so cool to be a part of that. it was so phenomenal to be a part of it. listen, we are not smart enough to figure that strategy out.

our founders did it for us. and it worked beautifully last tuesday night. i am here to tell you that people say what now? we do not know. we did not know what was now for the tea party when we got involved for it. we know one thing, we're not going away. we did not give our lives of foufor two years -- and that is what most of us did. a lot of people gave up careers, walked away from any kind of financial way to create wealth for them, and they created an organization of loosely- connected groups all over the country without any big money. there was no big factor. -- big backer.

we paid our own airline ticket to comee here and say no to this. we wrote our congressman. we activated our citizenship. we did this in a robust led by paying for it at our own pockets. we are all grow. -- broke. we are all trying to regroup. tuesday night we had a great night. i am from florida, we had a super night in florida. marco is coming to washington, d.c., because of the tea party. we are all about telling the truth. the gop did not get behind him when it first came out. there were standing behind our governor who ended up being -- we do not know what he was. they did not stand behind marco.

he showed up at the tea parties. he had no money. i remember hearing a radio show where he was talking about he had no money. the gop did not get behind him, but the tea party did. all of a sudden, the gop realize we have put our faith in the wrong person. they had to scramble. that is who is coming to washington. the gop let him do his address on saturday. he has not even got here. after obama's address, she did his address. we have a governor in florida that the gop did not support at first. the tea party did. we're not blaming the gop, we're

just saying we stood outside. we kept saying no because we are smart. we put fpressure on both parties. now they are saying now what? we're saying we're going to keep pressuring you. we're going to make sure the democrats take their party back from the progressives. we have to come back together to our parties. that is what we want. we are so thrilled about it. i am not the expert. i am not the queen of the tea party. i am just one person in america that is standing up. before i came, i said i am going to go to heritage, tell me what you want me to tell them. i am disappointed quickly go through this. -- i am going to quickly go through this.

we had 90 people telling us what you can do. i am going to share a few of these things with you. this is america. number one, we're not going away. if you think we are, we are not. we have to have garage sales to fund this. [laughter] we will watch each and every new member of congress to make sure they are not going to be corrupted when they come to d.c. something happens when people come up here. they seem like a really great people, and after a while they do not look like the same people we sent here. heritage, you are up here. we are born to ask you to keep an eye on them. -- we are going to ask you to keep an eye on them. i cannot tell you how much i have learned in the past few years. here are the issues we are concerned. the decline of the dollar. the over-reaching federal

reserve is another one. the debt. out of control spending. they want you to balance the budget. hello? this is common sense. we do not want any more pork, earmarks. we want you to keep taxes low. tax reform. keep it simple. repeal the health-care bill and finance bill. we want congress to get back to working on the constitutional ways. this is craziness that went on. how about reading of bil a bill? we did. they said read the bill? what are you talking about? it is all just craziness. somebody put something in the

water. [laughter] national security. it is a big deal. we do not feel safe. we do not feel safe with our money. we do not feel safe with our security. our borders. we of terrorism going on. when of terrorism with our money. -- we have terrorism with our money. we went to algor builcreate a nd of communicating. and it is important that the people we send up here stay connected to those of us back home. we also want you to check on the regulatory agencies, make sure we know what they are doing. we did not trust the epa, the department of energy, any of the bureaucracies. there is a huge level of stress going on. we will stick connected.

there is no big organization, no big leader or board that tells us what to do. we like it that way. we have done a pretty good job without being managed from the top down. one thing we are doing, and this is florida. the florida groups -- how do we communicate? we google. we were divided. we were divided when we had our governor's race as to the gop candidates or the tea party candidate. we came together and we said we're going to get behind mr. scott and we did and he won. in florida we decided we will create our own organization so that whenever we want to talk to marco and our governor, they

will hear from all of us as a coalition. it will be a coalition of tea party. we are organizing in a little way, but not top down. we are encouraging people to run for office. we will fight the liberals. we will focus on education. ithese are little things. we will use technology. and we will broaden our base by using other organizations. we use heritage last year. we love heritage. other organizations that helped us, liberty central helped us understand the issues that were going on. we have a lot of partners out there. and i know i am talking too much. the other thing we want to focus

on is the media. they probably will not like me for saying that, but the media really did not tell the truth. not all of the media, but there were a lot of lies out there. the people in the grassroots movement knew it. we want the media to be held accountable as we move through the process. are we going away? no. do we know what we're going to do? no. but we didn't, and we won. [applause] thank you very much. >> first off, i want to tahnhan heritage for inviting me share. this has been an amazing couple of years. mostly because it really reinforces the special nature of

american politics. it is incredibly dynamics. american politics are incredibly dynamic. sometimes we forget that because we operate with a paradigm of a two-party system. in most cycles this tends to cover most of the basis. with some people they feel the two-party system is constructed and does not allow for honest grass-roots movements. the last two years proved that. i think the american system is healthy and really worked in the last two years. you had a mass of people who were very dissatisfied with not just the way washington was working, not just the way the economy was working, but the options that were being offered by both political parties. instead of checking out of the

system, instead of staying home and being silent, what you had was a nationwide movement of people. it was really started by -- inspired by a two-minute rant on nbc. it energize people to go out and demonstrate -- it energized people to go out and demonstrate and demand change. i have been on the side of being part of that, of watching it in writing about it. incredible movement. it is really like iunlike anythg i have seen since 1978 in california when the tax revolt began. and that was a grass-roots- fueled citizen movement to

increase tax rates in california. it was on a specific issue, but it with a grass fire that went across the nation. it said not every solution should involve taking more of our money. in some ways it is very similar to what we've seen but thwiththa party. i think you have to look at the proposition 13 fight in 1978. that is really an analogy. that was not a moveon.org type of organization. there was an organization that formed in created organization thought got people out in the street. the people went out in the street first and then u.s. leaders that emerged.

provincial you have ronald reagan and republicans in the 1980's. -- eventually you had that ronald reagan and republicans in the 1980's. it did peter out when we got othe idea that thae era of big government was over. then people got comfortable. the anti-tax movement, which was an insurgency, became part of the establishment, became part of point in but what we didn't -- became part of what we didn. this is the same type of dynamic. you are seeing people get out in the street and looking for leadership. they are not going out in the street because people told them to go out into the street.

they are not going into the street because someone created an organization that had a nice website and was pushing back against an unpopular congress. this was a populist revolt in the clear sense of the word. without organization -- obviously there will be some limitations, i will not even sit limitations. there will be some issues that the movement has to overcome, organization being one of them. it is very easy with a grass- roots movement to simply peter out. especially after an election. this was an extraordinary set of circumstances. you had an extraordinary

economic upheaval. a congress that absolutely refuse to listen to the people that sent them to washington. in such an arrogant manner that i am not sure that even has a parallel. it was an incredibly arrogant congress. at the same time you had this encroaching regulation that was being part of that arrogance. all of those things tend to motivate people into action. now what you have is a republican congress, at least a republican house, that will be able to address some of the spending issues. hopefully as a consequence we will see economic improvement. hopefully we will see a reduction in the regulatory environment. the question is, how much success will it take to take the steam out of the tea party movement, if you can?

success may be the big issue here. let's say the republicans get into congress and do not do what they promised, do not slowed down the regulatory expansion, spending the -- i do not think there is much of a chance of that with the people we elected. john painteboehner will force ud alona stand-alone issue on whatl be the debt load. it will be very easy for the tea party to maintain momentum, but also grow momentum. once again you have more arrogance, people who are not willing to listen. the question for the tea party in the next year will be as the tea