visit where he will lay out key points of the 2011 budget and discussed the importance of education to prepare children on the america of the outdoor initiative. on thursday, the president looks thin meetings at the white house. he will leave in the afternoon to travel for the west coast. on friday, the president will visit intel corporation in oregon. he will tour the world's most intense semiconductor manufacturing facility as well as learn more about the science technology, engineering, and

math and education programs. it has been a tremendous honor and privilege to do this over the past more than two years. i wish you good luck. i will miss you. i had a lot of fun and i hope as we covered some serious subjects and watched the world changed, i hope you had some fun to. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> next, remarks from timothy

geithner and alan greenspan. in remarks from mitt romney at the conservative political action conference. tomorrow on of an " washington journal," an outline of what could be next for egypt. a tea party chairman talks about the effect of the tea party on the 112th congress. and a discussion on federal funding of abortion. "washington journal," live at 7:00 a.m. eastern on c-span. >> i think that is not only one of the major challenges facing higher education in this country but also our country. how we maintain a healthy lifestyle and get kids to have the strength in the judgment to say no. >> r. gerald turner is the president of southern methodist university in dallas. sunday he will discuss college

students. his school is the side as the -- is the place for the george w. bush memorial library. >> treasury secretary timothy geithner unveils the obama administration plans for the future of the home mortgage companies fannie mae and freddie mac. speaking at a forum hosted by the brookings institution in washington, d.c., he talked about the future of fannie and freddie over the next five-seven years and reducing the government's role in the housing market in the future. the administration offers -- also proposes requiring a 10% down payment on home mortgages. this is about 30 minutes. >> 10 needs no introduction. he has been one of the key

players with ben bernanke and larry summers and henry paulson in stemming the tide of this financial crisis and starting to turn the economy around. he also has been the architect of financial reform proposals that became the dodd-frank bill, and one of the piece is not included in that was what to do about the gses. today, they have released a white paper describing their plans on that issue. we're very delighted that you chose to come here to brookings to talk about it. let me ask you first of all if you would give us a brief description of what the plan is and how it will be implemented. >> thank you, martin. thank you for letting me be a brookings. i am glad you took a chance to come in at the beginning. we obviously got a lot wrong in the housing market in the united states.

it is a complex system, and reform requires a careful strategy that includes a number -- let me lay out the basics of what we think are a credible reform plan. the first is that we need to wind down fannie and freddie and substantially reduce the government's footprint in the housing market. that is a process that has happened gradually since they are the dominant source of housing finance and we want to be careful that that process happens in a way that does not interfere with or impede the process of repairing the housing market. it still has a long way to go. for the private market to take on a greater share of the burden for housing finance, we have to have in place, outline, and understood the new set of rules in the game for all players in the mortgage market. that means clarity on the

capital you hold against mortgage risk. it means stronger underwriting so that homeowners have to hold more equity in their homes. it means better protection for consumers, comprehensive oversight of servicers, and all others involved in the basic chain of housing finance. it means better incentives for securitization, clarification on risk prevention, that comprehensive set of reforms that we laid out has to be put out to the market to give investors and banks time to adjust or understand what will be the new economics of making mortgages in this country. the third pieces to define a substantial or more targeted role for the government in supporting affordability, both for people who want to own a home and people who want to rent. the paper lays out a series of basic elements of the reform

role for the government, concentrating on the fha in helping support those basic objectives. and finally is the endgame. taking advantage of a lot of work that many of you has done, we have whole spectrum of future reform. we try to narrow the field to a more credible set of altman reform options. the three we lay out in the paper to summarize them briefly are an approach that is limited to the rule -- the role that fha provides. roleementing the fha's with an emergency backstop mechanism that would only be deployed in crisis. and a third option is an fha alongside every designed and much more limited but standing guarantee or insurance mechanism that would be available for a broader class of homeowners. those all had different implications for the nature of

the government support for the vulnerability of the market and future housing crises and recessions. it is important for the broad set of stakeholders in the country and on the hill to spend time fully understanding the implications and the relative merits and disadvantages of those mixes of options. in line those out, we take the view that it will be fundamental for the country to adopt a model with the government plays no role. it and make no sense for the country to be in a position on an ongoing basis of guaranteeing 80%-90% of the mortgage market which many people have suggested. we start this process of legislation with a white paper, we think it is a good way to do it. it will be a long process of hearings on the hill. when we get further in the process, then congress should be in a position to legislate and we will at that point provide

what final set of options make sense. but there are a lot of good ideas out there and we try to draw on those in this paper and we will continue to work with the stakeholders in this process to take advantage for the best ideas for reform out there. we need to proceed carefully and gradually. as you know, we are still living with the dramatic damage -- the scars caused by this recession. you see that in housing as powerfully. >> in the plan, you retain an important role for the government in helping affordable housing, helping people -- helping people rent or own houses. with a range of interesting papers for the contras -- conference that cover the spectrum. there is a view that the effort to provide affordable housing is really what brought down the housing market. do-gooders that thought they

should get everyone into a home and we ended up cra and these affordable housing goals that that brought down the global market. could you comment on the affordable housing in the role it may or may not have played in the crisis? >> i think is absolutely the case of the federal government provided too much support for housing. two strong incentives for investing in housing. we took that too far. alongside that basic set of mistakes in the senate -- in the incentives we created, we allowed the system to take on too much leverage. we allowed a huge amount of mortgage businesses to shift where there was no regulation or oversight. we allow the market to build up terrible incentives around underwriting securitization.

underwriting servicers eroded dramatically and those things -- i think there were avoidable mistakes. it is a born recognize that this was not the -- it was about how much more systematic set of failures in the system. absolutely the government did too much. and what it did, did quite poorly. a lot of the subsidies provided were not really targeted to people who are at the lower side of income across the united states. our general view is there is an important role for the government not just in providing access to affordable housing, but in getting the incentives better, oversight better, underwriting more conservative, and that is a critical part of this reform plan. >> in the other direction, there

is a view. let me take this part, which is that inevitably there will be a huge mortgage market. we have 10 trillion dollars or bigger in the future. some future time, maybe 20 years from now, there might be another housing crash like this one, ok. that risk then, who will bear that risk? is that we put our financial system under stress even if we have no fannie and freddie? is there a role for the government to provide emergency assistance when you get that kind of pressure off the housing market? i think there things that you're trying to build and which would make such a crash less damaging. in all financial crisis at their center this combination of real estate bust and bank mistakes.

we are not unique in that context. to make sure the system is more stable in the future, more resilience against the risk of future recessions or house price booms and busts, we need to have a system where, again, banks hold more capital against risk, people have more equity in their homes. and the government is not creating incentives that magnified the chance you have these huge imbalances in housing over time. i think it is worth noting, my view is that even if you get that stuff substantially better, and we will, i'm very confident that we can do that, we will still have recessions in the future. we want to be very careful that you do not leave the country vulnerable as we were in this crisis to the risk of a shot that causes a recession.

that there be some capacity for the government to step in and protect the country from the collateral damage that could come from that crushing deleveraging of private capital that happens in prices. doing that is terribly difficult. governments do not do that well. people think guarantees are cool and interesting but they are very hard to do in a way that does not create risks that political forces and of making them too generous, too cheap, and undermining the incentives to get a better balance in risk- taking. this is why we laid out the options we get. it is very important for people to think through the design question so we do not end up recreating some of the same risks that got us in this mess. >> could you say a word about the role of securitization in this?

historic plea for at least for the last 20 or 30 years, the u.s. has been a large capital importer. probably you and i would like it better if we had a smaller trade deficit and less of a capital imports. >> capital was at its peak, of what to say. our current -- that is a good thing. >> definitely. but we are reliant on inflows of capital and securitization can supply an important role it that in float will support the housing market. we got into a lot of trouble with securitization. non-transparent securities and that sort of thing. should we revise securitization? how we revised securitization or to mark how we stop to get into trouble the way it got into trouble in this crisis? >> my view is that we should preserve the financial system in

which banks are substantial sources of credit but not the only one and their role is complemented by capital market including a securitization market that can complement the classic role of banks. we are somewhat unique in that design of financial system. making sure that works over time it requires the types of reforms i let out, the major incentives are better in the securitization market, and that the design of capital marmots -- capital requirements are better calibrated to take into consideration the risks at the extreme crisis in the future. but i think those are achievable reforms. i think it is pretty clear what we got wrong in the basic securitization market and there is a lot consensus on changes that could make a big difference. i would not support trying to create a system where banks are

the overwhelming dominance source of credit. i think that would lead economies more vulnerable to the problems that come with banking, the familiar problems about banking. but to go back to one, there are a lot of mistakes in how we designed the housing market. at its core, this crisis was called by -- caused by a whole range of people, lenders, homeowners, investors, policymakers. they were not imagining the possibility of a severe recession that would include a very sharp housing crisis. central to anything about reform is that you make sure that the capital regime, the oversight regime, the credit rating processes building in more care and caution about the risks of this severe event in the future.

>> in the paper coming to talk about wanting to move to a 10% down payment regime. two questions -- is 10% enough? some say that we need 20% like other countries have. and how do we deal with the second mortgages you? people say that they are getting 10% within a primary mortgage under does not know that there is a second mortgage on top of -- on top of that. i think we need to get the roads -- the loan-to-value ratio in the right place. how're you going to enforce something like that? >> we agree with the fundamental proposition that homeowners need to hold more equity in their homes. we want underwriting standards and whatever role the government place to reinforce that basic process. but the report says is that we think that -- let's talk about

fannie and freddie for the initial stage of this transition. there could -- there should be a combined limit at 90%. again, there is an overwhelming case for moving the system gradually over time to a world where homeowners much done more equity in their homes. there are cost to doing that. there are hundreds of stores of businesses starting in this country, financed by people being able to borrow against the value of their equity at conception. not just on their credit cards, but on their homes. we will have to figure out how to make sure we do not good to far in the other direction. again, ultimately what is the critical test of the financial system? you want to make sure it has the possibility of channeling the savings of americans and investors around the world to finance innovation, including at

that initial level in the garage possibly or somewhere else. we have to be careful we do not push the balance too far. >> we have been already rental housing. what are you saying in this white paper, maybe we went too far on homeownership and we need to make sure that people who want to rent, it is better for them to rent, they have the opportunity to rent. what the plans to improve assets around housing was a margin my colleagues will be in charge of safety net. i will leave it to them. we make some suggestions in the paper. too much of the assistance the government has provided to individuals with two homeowners. there is of fundamental unfairness in that. we think we should alter the balance with the government provides a subsidy in a way that addresses the basic

unfairness. >> you have laid out some options. could you clarify for us what the options you are laying out for congress to consider for smart >> i want to start by making one observation. if you look at cost country. people did this in different ways. in a simple way you could say there was our model where you had a variety of quite broad based and very poorly designed guarantees by the government, alongside a private market. and yet at the other extreme, and lots of countries, a system where banks or -- hold an overwhelming share of mortgage risk. people think about this in a world where there is a guarantee. there is not a guarantee that that is not the way to think about it. in the alternative model where banks hold all the risks, the government's providing

guarantees but doing it through the classic broad support for the banking system. they do not charge for it. it is not explicit. and it has a lot of other risks when you think about than instability in this contest. you can manage risk in banks more carefully and more easily, and you can understand the risk that there may be better. it is not as easy as people think. the choice is to really between providing a guarantee or not. it is in designing it to where is the explicit and you're not creating that incentives for investment and risk-taking, and that is a helpful contest. but the three options we lay out our what we called the fha-only model for the government's role is limited to guarantee mortgage that would only be available to people up to the

median income. the second option as a complement to that, what you might call an emergency backstop framework that would be deployed only in the context of a crisis. a good example of this is the suite of facilities that the federal reserve put into place in 2008 and 2009 to provide a backstop for markets. the way that that would work is that it would set up this mechanism whereby a market would be more willing to provide financing to mortgages because there would be a backstop in place temporarily. and you get the pricing in that right, as things improve, demand for the backstopped will receive and wind down these facilities. a third option, and there are a lot of proposals in this arena, a fundamental redesign and much

more limited guarantee or reinsurance mechanisms were there be a lot of cattle ahead of the government. -- a lot of private capital ahead of the government. it would be explicit by the government of the taxpayers would be behind a lot of private capital. if the government was exposed a loss, that would be recouped in the form of a fee on the broader market over time. it has some similarities to the deposit insurance regime although it is much more complicated to do in this process. that is a credible set of options. but you cannot think of them in isolation and it is possible in the in to decide on a mix of those options. you have to think about them in terms of what risks they pose to the taxpayer, how difficult it will be to design the guarantee in a way that does not again get the incentives wrong and the

country to expose. what kind of protections you want to build into the country in the next crisis. and whether they can be provided for just an annoyance inert -- an emergency backup system for it requires the government taking in normal times some of the extreme risks of the credit mortgages off the burden of the private market. we are in the, i would say, a lot of ideas and just to emphasize the challenge, for this to be done right, you have to take away from politics. [laughter] you can take anything away from politics, but we have taken monetary policy away from politics. it is hugely important for this fundamental reform in central banking. if you are going to do this, if

you get this mechanism of design in guarantee and make sure that people charged with doing it will be more independent from political affection, enthusiasm, then our system proved to be before. >> you started talking about a pretty stage doubt wind down for fannie and freddie. i think that is inevitable that you have to do that. but someone could look at that and say, you know, on both sides of the aisle, people complain about fannie and freddie but at the end of that they want -- they want the mortgages because they are so important to the constituents. you can put it off for three years or six years and this will never happen. what will be your answer to that? >> i think it is a good question. in the framework for you think about fiscal policy, where you are a promising future virtue,

there will be credibility issues. but this is the only way that you can do it. we lit up the first page of more economic pricing, a sensible set of initial reforms to get the economics better, and we suggest that the fhfa which has the legal authority over fannie and freddie, have the fhfa layout the market and a traditional path for comments and feedback, then the market can figure out what that path is. we have to revisit over time because we do not know how long it will be. that will help reinforce momentum in change and make it harder for people to step back in that transition. again, the important thing working in our direction is that the system is untenable.

we do not want the taxpayers exposed to loss in the future. they recognize that we have is fundamentally unacceptable. the option of doing nothing, leaving ourselves only with the legislative authority which exists, which would put this in the system to recreate the flaws in the system. one of the virtues of doing this -- we did financial reform when the crisis was still burning in the united states. we did that in part because the process, you want to act when there is still a substantial amount of political will. i would say the same thing in housing. you do not want the process of reform to wait until things are fundamentally better and memories received, although it will take a long time for this to receive. we do not want legislation to be too far deferred. we can do this in some cases without legislation.

but ultimately we have to explain to the market what the endgame of the and we cannot wait long to lay that out. >> fannie and freddie will remain as government-held utilities in this transition period? >> they will, and they have to. >> let's take some questions from the audience. >> i am for broken. your paper lays out several alternative proposals and we're going to see more alternatives laid out over the course of this conference. all told, it seems like we might be days away from a plan. i was wondering when your last response. you think this lack of a plan is entering mortgage market recovery, while at the same time continuing the government's exposure to risk? >> the things the way a broader recovery are the economics of

what the government is doing now. but the government does now in mortgages is more attractive economically than what the market is willing to do. you was right. that is what we want to begin the process of changing pricing and conforming to limits. the second is the lack of clarity about the broad rules of the game. dodd-frank for cars of a comprehensive set of rules riding across the board. the responsible agencies are starting to lay that out. but until that is in place and people conceive them, the final rules that people can see, it will be harder for banks to define how much capital they want to put against it in for investors to decide -- to decide what role they want to play in it. and the third is to realistically it will take a little bit of time. we are three years into the process of adjusting the housing markets. we probably have three more

years left. we are still pretty close to a deeply damaging financial parent. we need to have a little bit more time for that uncertainty about the future to be reduced. i think those things require a little bit of time. i think that you lay out at least notionally a three-phase plan, the first deaths in walking back the government's role -- the first step in walking back the government's role, putting these rules in place over the broader market, and then i think we would take two or three years because we think the market needs that time to recover. and in the second stage would explore the process of translation. ultimately our suggestion is the government legislate the next two years even though you do not have to lockean that successive

regimes until probably five or seven years from now. we're going to drive west. everyone wants to go west. we know where we want to go. but somewhere around salt lake city, we will make the decision about the ultimate list of options. [laughter] >> if you could wait for the microphone. >> alice rivlin, brookings. your paper basically supports the role of government in affordable housing, both rental and homeownership, and suggests that we do it on budget, we appropriate balance for this rather than try to hide somewhere. that all seems to be good. but in a moment of great budget austerity, when everything will be facing cuts, will it be a hard sell for new kinds of

programs that are oriented toward affordable housing? >> i think that it will. but as you know better than anybody, our long term fiscal sustainability problems are fundamentally about long term entitlements, particularly the cost of health care. i think we are as a nation can absolutely of ford to make in commit to a set of targeted levels for low and moderate- income americans and i think the challenges to do that in a way that is more targeted and transparent and on budget and more fair. i think that is something we can afford. as you know better than anybody, we're not going to solve long-term fiscal problems

just by spending less on what we call non-defense discretionary spending. we will spend less in those areas and demonstrate financial restraint in those areas but we have to make sure we can sustain the capacity and we can afford to make sure we are making investments in things that are critical to our growth in the future and to make sure there we are providing opportunity for americans across the income spectrum. i think it is affordable, but the politics may get that much harder. >> thank you very much. [applause] >> we really appreciate your coming here. >> also speaking at the brookings -- and then, former federal reserve chairman alan greenspan. he said that corn prices would have to rise by 10% or more to signal full fledged housing

recovery. he took questions on the state and future of the housing market. this is an hour. >> it is with great pleasure that i introduce alan greenspan. as you know, alan became chairman of the board of governors of the federal reserve in 1987 and served in that position until 2006. he had an extraordinary amount of stable, relative inflation- free growth during that period. he is now at greenspan associates, and i can attest that he's still pretty he is still extremely active in economics and economic research. he gave a panel at the brookings institute recently. i have the privilege of talking to him regularly and hearing what he is working on. he is very much still part of the world of economics.

alan, welcome. [applause] >> thank you very much, martin. you did not say that i have been around here for 40 years and one of the early members of the brookings panel on economic activity. >> i apologize for nothing. [laughter] >> if you go into one session today, with what the sessions were 40 years ago, you know how little we have learned. [laughter] >> you have not been coming often enough. that is part of the problem. >> all the rest of the seminar is devoted to the structure of mortgage finance. i thought it might be useful to spend a few minutes on what mortgage finance is ultimately all about. home building. the last 20 years have exhibited the longest

uninterrupted rise in single- family housing starts and by far the sharpest collapse in the post-war years. starts in recent months have languished at little more than 400,000 annual rate, less than 24% of where they stood at the top of the boom in early 2006. nothing resembling this collapse has occurred in the six decades following the war. to find such data we have to go back to the 1930's when single- family housing starts were between 1925 and 1933 fell by almost been the%. housing starts -- by almost 90%. they did not regain their levels over the next eight years prior to the war. starts did not recover to 1925 levels until 1947. i do not expect a similar hiatus

this time, but to -- the trudge uphill is not going to be easy. during the recent boom years, the third man -- the demand for single-family units and their financing was predominately demand for owner occupancy. the level of this was significantly driven by the rates at which households chose to own rather than rent and could afford to do so. the ownership rate in turn was fostered by rising home prices in the implementation of affordable housing goals. after a protracted period of stability, the ownership rate at 64% in 1964 began its historic rise to more than 69% a decade later, producing from 2001-2004 an average annual increase in new single-family owner occupied

dwelling units of approximately 1.2 million. it absorbed all and more of the gain in household formation. in addition to the demand for owner-occupancy was the significant demand for single- family residence by investors. according to the home mortgage disclosure act data, the share of total investment and second home purchases rose from 9% of home originations in 2001 to 14% in 2004. that combination coupled with a 200,000 annual rate of demolitions and some loss of single-family units to multi unit conversions supported over those years an average annual level of single-family unit completions and mobile home placements amount to 1.5 million.

the demand for homeownership peaked at the end of 2004 as the limited backlog and higher prices began to take their toll. ownership rates turned downward in the fourth quarter of 2006, ultimately poland -- fallen below 67%. single-family housing starts in early 2006. but it took another 7 months for starts to turn to completions and not before adding an unstoppable and unprecedented 430,000 units to the inventory of single-family homes for sale over the four quarters of 2006 on top of 170,000 added during 2005. by the end of 2006, the level of vacant single-family homes for sale had reached 1.8 million.

a staggeringly historic overhang of more than 700,000, the equivalent of 6 months of sales. for years prior to the surge, but -- completed homes available for sale had been relatively stable at a little more than 1 million units. following the topping out of demand late in 2006, home prices proceeded to fall for 3 years and the largely futile endeavor to uncover enough demand to absorb inventory. homeownership by then no longer seemed the irresistible profit- making connections of earlier years. owners of newly constructed but vacant homes have been able through price discounting to fully liquidate their share of

the overall inventory excess, about 200,000 of the more than 700,000 for sale excess. the remaining vacant homes offered for sale by investors were still hovering around 1.5 million, less than 6% below their all-time peak reached at the end of 2007. the level of home completions have climbed by more than 67%, but the man almost fell as much. it placed new supply only modestly below demand. even at current depressed levels of new single-family construction scum of the inventory overhang cannot be credibly absorbed quickly. a stabilization of the homeownership rate would help in the sense that a falling home

ownership rate severely undercuts single-family unit demand. the ownership rate moving from nebulous to 0%, it is in that sense, i guess, a part of it. nonetheless market pressure is keep completions below demand for much of this year or longer, as excess inventories are gradually brought under control. new demand creation must come from either an increase in the rate of household formation or an increase in the share going toward owner occupancy. tipperary tax credits rarely do either. -- temporary tax credits rarely do either. it is no surprise that the recent first-time buyer tax credit produced little if any permanent higher demand. certainly the current more than

2 million single-family units in foreclosure has not helped. recent history suggests that approximately 2/5 of foreclosed properties on completion of the foreclosure process will be sold. possibly into a still troubled market. they would amount to an additional several hundred thousand overhang, bringing total excess to more than 1 million units. home prices after falling almost 30% from their late 2000 peak stabilized by most measures between early 2009 and the spring of 2010. by the summer of last year, however, they began to soften again largely as a consequence of the pick-up in distressed foreclosure sales, especially in december.

there was however some evidence of price stabilization at the end of 2010. seasonally adjusted corelogic prices excluding stressed sales rose at the median price. stabilization is important not only to the housing market but economic recovery as a whole. approximately 8 million homes were financed with conventional conforming mortgages during 2005 and 2006. most of their 20% or more original down payment plus recent of more visitation of the debt has been eaten into by the 25% decline since origination. another 5-10% decline in home prices that many are forecasting would place a significant part of the 8 million homes

underwater. to be sure, the propensity to default on underwater conventional conforming mortgages has been much less than the more vulnerable subprime and alt-a mortgages. nevertheless, a price weakening itself could set in place the contingency for further decline. however, with the rest of the economy currently recovering rather impressively, i am hopeful such an outcome can be avoided. but it would be unwise to fully rule it out. as a consequence of the new 30% decline in home prices, equity in homes by the end of the third quarter last year had retraced all of the $7 trillion rise between 2000 and 2006. but its composition had changed.

currently it is highly concentrated. subprime and alt-a financed homes are net underwater. there is some net equity in prime jumbos, and surprisingly in the niche market of homes financed only with home-equity loans. nationwide, well over half of home equity is currently in homes free and clear of debt. conventional conforming financed homes are running a distant second. prior to the crash in 2006, they had similar shares in net equity. but that was a time when virtually all homeowners had positive net equity. with home prices after their crash landing having flattened out over the last year, the number of homes underwater has stopped writing -- rising. the number of foreclosures has

also stabilized at approximately 2.3 million seasonally adjusted, at least for now. but they presumably would move higher should home prices slide again. the rapidity of the housing recovery when it gets underway is going to depend in large part as it has in the past on trends in what we used to label equity distractions. -- equity extraction. the raising of cash by borrowing against the equity value of homes has faded as a key positive determinant in economic activity. but it remains important to the housing and mortgage markets and it will surely reemerge as a factor driving the household saving rate and personal consumer -- consumption expenditures in the future. today equity extraction is negative as debt write-offs and

the new owners add equity to the natures -- the nation's homes rather than extracting it. despite the flat home prices, equity has risen by $500 million by 2009. the overall stock of home mortgage debt is in a constant state of turnover and revaluation. the changes in home prices depend to the degree of refinancing and debt. but to understand the equity extraction process better, we can use fully separate quarterly debt change into two components. one, that part of the increase or decrease that is solely the difference between mortgage originations on newly built homes and the scheduled amortization of debt that exists at the beginning of each quarter.

in short, the amount of debt accumulation that incurs which occurs solely from the financing of newly built homes and two, the remainder of debt changes that holds wholly to actions that is measured as equity extraction. equity extraction is capable of being fully accounted for in three buckets. first, debt changes owing to the sale -- turnover -- of existing homes. the buyer of an existing home will almost always add more debt on that home than the seller will repay as part of the transaction. secondly, cash out refinancing. the difference between the balance on a refinanced mortgage with the mortgage balance being refinanced. and finally, three, unscheduled repayment of debt, unrelated to

a property transfer or representative financing, including especially delinquent scheduled amortization that may or may not more than offset burgeoning write offs. in years past, jim kennedy at the federal reserve and i went through a set of detailed calculations to separately estimate each of these three components. but equity extraction in total can be approximated more expeditiously from a simple regression in which equity extraction per capita is regressed against the refinanced share of total home mortgage originations and a cumulative moving quarter-year change in home prices. i must say that the latter is by far the most potent part in determining the issue of equity

extraction. the results of the past 15 years are statistically highly significant. moreover the regression accurately traced equity extraction in boom years as well as its small negatives during the past year. but the price variable suggests it takes four years of cumulative capital gains on homes on average before homeowners endeavor to extract equity. mainly through a sale of the home or cash out refinancing. the regression coefficients along with the calculated amortization rates and the value of home originations estimated as a product of an #of family completions and the average price of sales in newly constructed homes, they estimate the change and hence the level of 1-four family mortgages.

those of the numbers that you look get against lines of credit. this simple model suggests that home prices will have to rise by 10% or more of before signs of a full-fledged recovery in housing, and the mortgage finance that goes with it, becomes unambiguous. thank you very much and i'm open to your questions. >> excellent, thank you. [applause] >> we have some -- yes. we have some microphones, so let's get some questions. somebody needs to get started. yes?

can you identify yourself? >> i am on of keene, -- arnold king. how did they play a role in the u.s. markets customer you said rebalancing had fallen following the housing crisis. >> i do not quite get the question. >> at the balance sheets play a role -- household balance sheets. >> very much so. they were a way of looking at the equity extraction issue. recognize that that is the foremost important determinant of what the equities are in household balance sheets. " we were beginning to see all

through the period of the boom was a very dramatic rise in the market value of real estate, matched only in part by a rise in the liabilities and the effect was to very significantly augment the equity -- meaning households, the nonprofit organizations, and in some places corporate business -- there was a big surge going up on the asset side, and an almost comparable surge on the liability side. it went into full reverse on the downside. a goodly part of the decline in the level of debt was actually write-offs and effectively was a very significant part of the

housing starts going into foreclosure. and that moves it off of the individual balance sheet. >> can i ask you a question? the treasury paper that just came out has raised three options that they gave to congress for the role of government going forward. one was an fha-only option, a small, narrow role for government. the second was that the government would provide a backstop to the mortgage market any time of crisis. in the third was more extensive, the role for the government -- as a reinsurance vehicle for the market. you may not want to answer this question but i am asking a. do you have a preference or do have a different view of of government going forward? >> i declined answer the question. [laughter] i am aware of what tim said, the

secretary said. i thought it was a good presentation, frankly. the problem i'm having is that we have gotten the housing market into such a state where as you know virtually all mortgages are in one way or another government-financed, government-guaranteed. we get the impression that because of that, private market is dried up. of course it has. the difference here is that we do not have any good sense of what is out there x the actions of fannie, freddie, if ginnie, and other organizations. i like to see an academic simulation -- simulation, what the yields -- you spreads would look like if the government was

not there. this may not sound like -- this may sound like ancient history, but i served on the saving in loans board in 1962. all we had to finance mortgages was savings and loans. it was an incredibly effective market. we had a huge amount of home construction is because baby boomers were building up. you have all the other operations going on. but aside from the very chronic concerns that those of us as economists or finance people who were in the s&l industry feeling very uncomfortable about the fact that this savings and loans institutions constructed at that point was not a viable institution. it required that inflation was low and therefore interest rates

were low. and you could play the yield curve, which was indeed how a lot of those holding companies had stock prices at 50 times earnings. it was really extraordinary what was going on back there. but it struck me especially after the s&l debacle many years later that there is nothing wrong with that particular model if we could get the people to swap their short-term overnight liabilities into longer-term debt. and it would have cost another hundred basis points, i am not sure, but the shortsightedness was something we could not get around. and when we look at northern iraq in the recent crash, it was basically the same thing. rock, in the recent

crash, it was basically the same thing. how would be very curious to get a basic sense of what the current housing market would look like if the government were out. i know there are several things. mortgage rates would clearly be higher. but the question is, how much higher? the size of the market would be smaller because of that. is that all bad? we went through a period of hyping up housing in every conceivable respect. i think the general consensus that we were putting too much of the nation's capital into home ownership. we erased all of the run-up. in home ownership. and a very short period of time. it tells you how unstable it is. in any event, before we get into the notion of which of

these various different pockets we wish to wut the new sets of regulation in, it would be useful to get a sense of what the alternatives are. to start merely saying i'm going to start somewhere in the middle, presupposes a degree of subsizidation, the size of which we do not have the slightest clue about. and i think we get a much broader notion of what would work and what would be to the nation's interests if we first had some view of what level of degree of subsization we find desirable and acceptable. and i don't think we're getting into that discussion. it sounds to me as though we sort of starting somewhere in the middle. working our way backward and forward. and i've been looking at this market for generations. and i don't have a clue what we have here.

i do know that a home mortgage, am torized 30-year mortgage has a value to an investor. the only question is at what yield? i mean, i have no doubt that you could probably sell subprime mortgages at almost any value if people wanted to take the risk that was implicit in the mortgage and accept the 13% yield or whatever the number would be. risk that wod be implicit in the mortgage and accept the 13% yield or whatever the number would be. >> right. >> but let's get a sense of what it is we're trading off here, rather than making the key decision before we go to square one. >> thank you. that was the best pretend answer i've ever heard. bob post has a question. >> so actually some of the

papers here try to answer that question and give you some modeling and i think it's a fair statement that if you looked at those papers, the sources, and the sources, that there would be some increase in interest rates, decrease in the supply of mortgages but i think that my sense is politically we could handle that. there is a second argument and that's what i'd like know at your view is because it's essentially that that's a normal but the reason why we need insurance all the time or as a backup is because, one, there is a liquidity crisis whether it's every 20 years or 30 years, whatever you want to define it. at that point t notion is that even at a higher price that people walk by and implicitly the notion must be that the fed doesn't have powers to deal with it, so i guess i would just like to refine your excellent answer from before and try to get you to take one step further,

because i think that when that work is done, actually people might be willing to accept that as normal times and then it's the second argument that seems to motivate people to say, we need either back up insurance or full-time insurance and that implicitly assumes that the pricing mechanism you've just described won't work and also implicitly assumes the fed doesn't have other tools to deal with it. >> well, 13.3 essentially gone the fed doesot have the tools it did have. but this is more a nonhousing question, because it rests very critically on the issue of how unusual this rect crisis was. from what i can gather, this crisis was the greatest financial crisis ever.

it was not as large an economic crisis obviously as the great depression, but the short-term money markets did not go out of business during the great pression. money rate went up to 20% but it still traded, but in this particular one, we had major aspects of the shortened of the market collapsing and that is the -- the short, overnight rate is the ultimate determination when it goes how bad the crisis is. the last time we actually had a shutdown in a short-term market as i recall, i wasn't there but some people think i was, was in 1907. >> remember it well. >> the cold money market shut down for one day. and going back in history, it is very difficult to find anything

like this. now, i grant you that when you get a structural breakdown of the type which we had, you have no substitute for other than substituting sovereign credit for private credit and that's indeed what was done and i happen to have been a strong supporter of t.a.r.p. i think it was the right thing at the right time and i think it worked. the question of whether the repayment was out of the capital gains, they all got as the stock market went up is a secondary question. what it did do is when the market was going down, it stabilized a lot of institutions. i think we have to do that periodically because the stem has human nature associated with it and human nature is a remarkable tendency to do very punitive things. i first say if you're going to make it every 20 years we're going to have a problem like this, then i'd have to agree with you, but i don't see it

that way. i see this is a much rarer event and i think the critical issue you have in the catastrophic insurance issue which is basically what everybody is talking about is how in the world do you price it? i mean, we know that if we actually had a probability distribution of potential outcomes and we had a full measure of the tale risk we would probably calculate the costs of the subsidy. in fact, almost by definition, at the margin where people who are borrowing money would be indifferent as to whether they would be getting either one or the other. and i will tell you, however one does this catastrophic insance calculation, the numbers that come out really implicitly only refer to, quote, normal times. and so it is a degree of subsidization and i think you have to ask yourself, is it worth while or not?

and this is where the issue comes in from your point of view you would say it is worth while. from my point of view would say i would agree with you if i agree with the underlying premise of how often w have these crises. but that's the type of discretion we need to have, just not parading out a whole series of different ideas unconnected to anything in particular. >> there's another question coming but can i just sneak in, you mentioned the 13-3 is gone and that the t.a.r.p. was helpful. though t.a.r.p. was very hard to get, took a lot of political effort to get congress to pass it. do you thi with 13-3 gone we still have enough tools to deal with these rare but very severe crises? >> i don't think that if you have a committee of diverse

people that you could get 13-3 acted in a timely manner. i mean, don kohn is sitting there. don probably could tell you that it wasn't self-evident to everybody that that was the desirable thing to do and the reason why that happens is that we all ha this very unusual psychological problem. we believe we can forecast. and we can't. and in a financial cris, by definition, is a dramatic decline in asset prices virtually overnight, and if that were anticipated by the great majority of the people, it would be the way. and indeed, i don't know how many crises we never even were aware are in the process of brewing which got arbitraged

away before we knew it. the only one i would say we were clearly aware of was my recollection that the trigger of the crisis that was going to occur after say 2005 whenever it happened was going to be a collapse in the dollar because of our current account balance being out of whack. everybody agreed with it. so what happened? the dollar basically moved down very sharply over a number of years and arbitraged the crisis. and the only thing that had nothing to do of any significance with the crisis was the american balance of the dollar. so i think that there is this just general implication that we can have committees which can somehow anticipate events. good luck. it will not work that way. i sat in meetings for years and years and years and it is remarkable what amnesia ovcomes you after the fact.

you forget how little you knew, and i just question how successful we will be in setting up some of these thing >> dwight? i'm one of the researchers that have actually looked at the question of what might be the level of u.s. mortgage rates in a priva, nongovernment market. the key evidence we have is of course most of western europe has mortgage markets with very little government intervention with a wide rangef fixed rate and variable rate mortgages and the evidence is that by and rge their mortgage rates, the spreads of their mortgage rates to their treasury rates are lower than ours. and of course the immediate question is what are they doing that makes it work? and i think there's two answers. first, a lot of the options that are free in our mortgage such as the prepayment option, are actually priced there, and that's wheorth 50 basis points immediately you've knocked off

50 basis points if you make the borrower make a decision whether they want a free prepayment option or not. >> used to be able to do that. >> advocate going back to that. and then of course a lot of those countries have recourse, which means that in a sense the borrower has a much more difficult process of default and the bankruptcy laws do not allow bankruptcy to be an alternative to the recourse. so i think the question -- i think if we move to a safer mortgage market and a safer instrument, we actually would probably end up with lower mortgage rates. the question in a way is, is this political system up to creating of mortgages and allowing the consumer the ability to make a choice among them and pick the one they actually feel is best. >> well, there is double entry bookkeeping. if you find that some structures whic help one group disadvantage another and vice versa. and the whole purpose of getting

market prices is this is supposed to be a nonpolitical, anonmouse way of making choices among democratic societies. i,ou know, i'm usually arguing on your side but there is another question here. in fact,societies. i,ou know, i'm usually arguing on your side but there is another question here. in fact,among democratic societ. i, you know, i'm usually arguing on your side but there is another question here. in fact, a quasi-implicit guarantee in europe that banks will not be allowed to fail. when you've got that it is almost the equivalent of fannie and freddie not being allowed to fail. >> we had this argument earlier. i'm glad you're on my side. >> it's made a much easier job when the underlying mortgages are very safe. in other words their mortgages are like double-a securities so it's a much less of an onerous task on the banks and the

regulators to have them than if you have a system where the underlying mortgages are bs. >> they've been having covered bonds for generations. but they don't have nfdics. for those of you not aware of the problem, what we ha on covered bonds in the united states is the sequence of where claims fall in a bankruptcy proceeding and the fdic insists it not only be on the top but on top of the top and that's not going to work in this context. >> you talked about the recovery of housing. your main part of your speech was about what's happened to housing. you said the economy is recovering impressively. where do you think the growth is coming from? your discussions about housing suggested that that's going to be a slow road. now, investment tends to do well

if everything else does well, business equipment and software is doing okay. but that needther things to keep growing in order to grow. nonresidential construction is still fairly weak, sohere is this impressive growth going to come from? i agree with you by the way but i'm a little nervous about where we're going to get this growth from, exports or consumption? >> well, martin and i have discussed this previously so i'llust repeat it, but -- >> i wanted t give the world your --. >> my view is that one of the consequences of the extraordinarily long period of virtually no contractions in the american economy from the early 1980s forward, very little, and indeed it was interspersed with 1987, stock market crash, which

historically would almost always have brought economic activity down because the wealth effect was dramatic at that time. and then we had the dot com boom. we had a soft landing in the process. and the consequence of that is that all the vast proportion of capital investment w for a longer lived market expanding type investments longer lived market expanding type investmen longer lived market expanding type investments and the result was a dramatic change in capital stock and activity but it did create i should say an unexploited backlog of cost saving invements. when the economy went into the sink, all of a sudden you had this large amount of potential, very, fairly safe investments,

and the result of that was that we have had, up until very recently, an extraordinary rise in cost saving investments, which largely of course boosted labor oductivity but also shows up as significant gains in energy productivity and materials productivity and the result was without any increase of significance in sales, margins opened up wholly because of the productivity changes. this created a surge in profitability which under ordinary circumstances would have created a major increase in investment in long-lived assets. but if you take a look at the ratio of fixed capital investment, illiquid capital

investment, as a share of cash flow, you find very quickly that what you are looking at is the willingness on the part of corporate management to convert liquid cash flow into illiquid fixed investment. their propensity to do that is a very importt measure of their sense of confidence or lk therf and data show that what has happened in this particular period is looking at the lowest ratio of fixed capital investment to cash flow up until, i should say maybe 6 to 9 months ago, the lowest since 1940. now, i want to just parenthetically say i'm not talking about liquid makets. liquid markets are very

different. baa corporate ten-year note, for example, is highly liquid and therefore s an effective maturity of five minutes. you you're looking at effective, short-term instruments which often happen depending where the maturity is, highly volatile interest rate risk and credit risk, but not liquidity risk. this is theeason i might say parenthetically that a nonfinancial corporation keeps capital at 50% of its assets or as a financial institution like commercial banks it's 10. and what i'm raising here is the fact that something very significantly dampening is occurring on the american economy, which is suppressing

it. i'm just finishing up an article, which will be published by the council on foreign relations on this. i did an op-ed piece for "the financial times" a while back in which i tried to explain this. but i think this explains something very unusual. it's the reason why the -- best way of putting this -- it's either price earnings ratio or, more importantly, equity premiums are at the highest level in a half century. and that means that with a surge in profitability in the context of a very high degree of risk premium, stock markets have been going up very gradually against the pressures of extraordinarily high equity premiums. what this means is that we have

a very significant backlog in which we have been getting a major wealth effect, which has been spilling all over the place. remember, what energized the financial markets from their lows in the early months of 2009 was a dramatic rise in equity prices, which essentially created for the banks a big increase in the market value of equity and it is the market value of equity which determines what level and risk type liabilities you can sell. and with the market value of equities doubling in the banking system, all of a sudden they didn't quite open up for lending but the issue of solvency disappeared. and this is true as it spills over into the nonfinancial

sect and to make -- and to end this answer on a more positive note -- what it's now -- in the process of what we are seeing is a fact of the weah effect in consumer markets. in the last four or five months, these markets are beginning to look very much like they used to prior to the crisis. personal coumption expenditures, last quarter was up 4.4%. annual rate as i recall in real terms. the monthly running data say that the first quarter of 2011 are really quite strong. and this is mainly consumption. and it is mainly the fact that part of the whole collapse in the home market and stock market

induced a dramatic rise in the savings rate as one would expect. and i think we're now working in the other direction. so i think this thing is just building and if we somehow could get beyond this very heavy overhang in the ridential markets, itwould be very helpful. but remember, with 400,000 single family completions, and no vibrant multi-family construction, we're getting nothing out of home construction and the nonresidential construction part of capital investment has beenlat to date. all of the incrse that has occurred has been in short-lived assets. in fact, one of the calculations and i think i mentioned this to you the other day -- >> yep, yep. >> -- that if you take, reconstruct the gross domestic

product by age of the type of elements within the gdp, what you find is that if you look at the gdp of on those assets which are 20 years of prospective life or less, since i guess the last three years the gdp has been growing one percentage point more than the official numbers. if you translate into the total gdp, we didn't have the collapse in these longer lived assets, mainly construction, we would have had a gdp going up enough to have pushed the unemployment rate, if you just, you know, do something which i hate to do, leave everything as though it were, you get under 8% unemployme rate. just merely by the growth rate using the same productivity levels and all the vario other

elements. it turns out that the equivalent of that accumulated 1% over three years translates into well over a percentage point in the unemployment rate. and so you can -- this is a very unusual situation and i think there are so many things going against it, that it's very hard not to start to pick up because we are beginning to see a degree of lesser activism, which i think has been a major contributor for the suppression of the level of illiquid risk and the numbers are just gradually now beginning to soften and look somewhat better and ordinarily i don't sten to businessmen when they're complaining because it's usually why they can't get a subsidy. but when they tell you that they

are very much at sea as to what the future is going to look like, if that is true, what is happening to the degree of illiquid risk in the economy is precisely what you would expect if that were their view. so without taking what they're saying at face value, they are behaving as though they really believed that. >> other questions. one at the back there. >> hi. i'm with the pew economic mobility project. running through the discussion so far has been this undercurrent about how attempting to help the disadvantaged creates in its own way a lot of problems for broader macro economic policy. in his recent book there is this

idea i wanted your thoughts on, which is that the united states has a relatively thin social safety net and that in turn puts pressure on fiscal policy but also monetary policy to stimulate the economy more aggressively perhaps than might be best, which he argues in this case led to the housing bubble. in your view is there any merit to this idea that broader safety nets or the thinness of them does actually translate into impact on monetary policy? >> i doubt it very much. let me just say with respect to the argument about easy fed monitoring policy, i'll refer you back to the paper i just wrote for the brookings annal, and i addressed that subject. while i acknowdge the

possibility it could have been, the data showed that it was not. and the fact is, what we're looking at, is the real world. were we dealing with something in which monetary policy was a major contributor to the bubble? and i would say you look at the evidence as to what was going on in these markets and the evidence iyou can't find it. now i will grant you that there's a tendency for somebody sitting in the middle of the federal reserve to come up with that conclusion, but i do have a wife who tells me, you know, be careful. the question is, the data have to stand on the own. if i am wrong in that, i wish somebody would take a look at the brookings panel paper that i wrote which relates to that issue. if they can find a hole in my t-values or biases in my

regressions, i will change my mind. i'm waiting for some to do that i'm preparedo change my mind. but no one has tried it yet. i don't know if they'll succeed, but have fun. >> there is a slightly nuanced version of that, though, which is not around monetary policy, per se, but that is all these incentives for housing which we either kept or strengthened were a way for -- to provide additional wealth to middle or low and middle class families that weren't getting much increase in their labor income. so i think that's part of the argument as well, that this was a policy conspiracy of let's buy off these folks. they're not getting any money. so let's generate a housing bubble. i don't actually believe that but that's, i think, part of the

story. >> if that were the -- i mean, one of the rare advantages of sitting at the hd of the federal reserve system is you are right where all those conspiracies are supposed to happen. 18 1/2 years, i don't think that i recall a single instance of that sort of thing going on. you know, i always used to argue that when the congress would say you guys do everything in secret and so conspiratorial, and they were pressing us to open up our minutes and this and so i finally invited down a couple of senior staff people from the congress to sit in and listen to the actual oral transcript of a

meeting. they went away. i never heard from them again. one of them actually said as they were going out the door, you know, you ought to play this for high school students and they would see the way our government functions. now that is as far away as you can get without naming names some of the conspiratorial views of what goes on in government. it's not that bad. >> question here and then i think we'll -- >> nyu. i just want to pick up on that fact about stagnating incomes for all but the highest parts of the distributioand come back to this issue of housing prices. because you talked a lot about factors that may be contributing to an excess supply but we didn't talk a lot about what people are going to be willing to pay for housing going forward giving the stagnation of income, increases of medical costs, energy costs that housing not going -- at least in thehort

run going to be viewed as a great investment. how much will people be willing to pay for housing? how will that affect the evolution of housi prices until we get to some new floor? >> yeah. this gets down to the critical question of what proportionat propensity of buyi homes during the boom period was attributable to the expectation and in fact the need to get a capital gain? the data do show some significant part of it is there. what you have to essentially do i guess is try to separate that factor out and you've got a normal markeor as close as we can get to it. i've actually not seen that done. i'm sure that people in this room have done that. but i think it's important to realize the extent to which housing is a very critical investment vehicle for a very substantial proportion of the

population. it's their sole major source of increased wealth and decreased wealth. and we should be able to ferret out from all the various surveys that we have where the dividing line is between adding to the owner occupancy capital stock as a function of price expectations and not merely the desire to live in your own home. >> alan, thank you so much for talking. that was just terrific. [ applause ] >> we have a few minutes where people can ke a little break, finish their lunch, and we will reconvene at 1:30. 1:30 sharp.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> next from the conservative political action conference being held here in washington remarks by former gotches mitt romney and tim pawlenty and texas congressman ron paul. >> every weekend listen to historic supreme court cases on c-span radio, saturday from 1987, the court considers government employment and free speech. in rankin versus macpherson. >> the core function, that is of enforcing the law of promoting respect for the law and teaching the public about the law. and her speech demeans that.

undermines it and is inconsistent with the functions of the agency is attempting to perform. >> listen to the argument on c-span radio, in washington, d.c. at 90.1 f.m. and national on channel 132 and online at c-span.org. >> the pea trot act passed after the 9-11 attacks made it easier to conduct surveillance on terrorism suspects w provisions of the bill ending this month lawmakers are trying to renew expiring provisions. follow the history of the bill through today, online, with c-span's congressional chronicle where you can track the daily floor arks in the house and senate with time lines and transcripts of every session. and find a full video archive for every member at c-span.org/congress. >> the conservative political action conference also known as cpac is holding its annual conference this week in washington, d.c. among the speakers, former massachusetts governor mitt romney, former minnesota gotch

tim pawlenty -- governor tim pawlenty and former texas congressman ron paul. we'll hear first from mr. romney. >> david keen has been a special friend to us all these years. as we say thank you to him we look forward to many things we can do and expect. and our friend. next month mitt and i will have been married for 42 years. [applause] you know him for a lot of things. he has done as a businessman, an olympics leader, and a governor. but the most important things

he has done have been as a husband and a father. when the children were young, mitt would call home from a business trip on the road and he would often hear a very tired and exasperated young mother. overwhelmed by our rambunctious five boys. his consoling words were always the same. and your job is more important than mine. my work is temporary. you're building a family that's forever. [applause] later in life, we faced another challenge when i was diagnosed with m.s. as we stood together, fearing what diagnosis we would hear from the doctor, mitt simply said this.

we can handle anything as long as it's not terminal. i will love you no matter what. i know mitt. thank you. [applause] i know mitt as a person. a very good person. i have also seen him as a leader. and i for one would like to see him lead the country as president of the united states. [cheers and applause] >> hey there, how are you doing? wow.

thank you. thank you. thank you. cpac. i've been in that woman's shadow ever since our first date in high school. and over the years together she's waged some pretty impressive battles. but among her many accomplishments, there's none been more important and rewarding to us and frankly to the country than her accomplishment as a very successful mother of five sons and grandmother of 16. thank you, sweetheart. thank you. [applause] the other night, from opposite coasts of the country, ann and i were watching the president's state of the union address. and she figured out pretty quickly what was going on. she sent me an email saying that what he was saying sounded just like he was reading my cpac speech from last year.

[laughter] now, what we were hearing was not just a new and improved barack obama. it was an entirely different barack obama. sliwinski, he was out. jeffrey immelt, he was in. the president went from change you can believe in to can you believe this change? [laughter] [applause] it sounded like he was going to dig up the first lady's organic garden and put in a bob's big boy. [laughter] but as the speech went on, it became more and more clear that this was the appearance of change. his answer for americans out of work was more government spending. and a $50 billion high speed rail project. he replaced his chicago politician chief of staff with a fresh face from chicago. named daley. make no mistake here, folks.

what we're watching is not brache new world. -- brave new world. what we're watching is groundhog day. [applause] two years ago, this president faced an economic crisis. and increasingly uncertain world. an uncertain world has been made more dangerous by the lack of clear direction from a weak president. [applause] the president who had touted his personal experience as giving him special insight into foreign affairs was caught unprepared when iranian set zens rose up against oppression -- citizens rose up against oppression. how did that nobel peace prize work out by the way? iran is arming hezbollah and

hamas and is rushing toward nuclear armament. north korea, fired missiles, tested nukes, sunk a ship and shelled a south korean island. and then there was his reset program with russia. that consisted of course of our abandoning, our missile defense in poland. and in signing a one-sided nuclear treaty. the cause of liberty cannot endure much more of his they get, we give diplomacy. [applause] the world and our valiant troops watch in confusion as the president announced that he intended to win the war in afghanistan as long as he didn't go beyond august of 2012. and while the taliban may not have an air force or sophisticated drones, they do have calendars.

[laughter] [applause] it is my sincere hope that at some point in the near future, this president will finally be able to construct a foreign policy. any foreign policy. that will be a change. now, here at home, the president's response to the economic crisis was the most expensive failed social experiment in modern history. he guaranteed that unemployment would stay below 8%. as he watched millions and millions of americans lose their jobs, lose their homes, lose their hope. his response was this -- it could be worse. it could be worse? this is the free world leader's answer to the greatest job crisis since the great depression? what's next, let them eat cake? [applause]

excuse me. let them eat organic cake? [applause] it's often said that the presidency of the united states is the toughest job in the world. fair enough. undoubtedly true. but how ditch is it to take office -- difficult is it to take office in the middle of a raging economic crisis and understand that the economy should be your number one priority? the president who took office on january 20 of 2009 should have had one central mission, put every american back to work. fight for every job. because every job is a paycheck. and paychecks fuel american dreams. without a paycheck, you can't take care of your family. you can't buy school books for your kids. you can't keep a car on the road or help an aging parent make ends meet. president alabama -- president

obama has stood watch over the greatest job loss in american history and that's one inconvenient truth that will haunt this president throughout history. [applause] today, there are more men and women out of work in america than there are people working in canada. and in the month of january, canada created more naoup jobs than we -- new jobs than we did. when ronald reagan ran for president, remember, he hung the misery index around jimmy carter's neck. today's misery is real unemployment, home foreclosures, bankruptcies, this is the obama misery index. and it is at a record high. and it is going to take a lot more of the new rhetoric to put americans back to work. it's going to take a new president. [applause]

[cheers and applause] let me make this very clear. if i were to decide to run for president, it wouldn't take -- [applause] it sure wouldn't take me two years to wake up to the job crisis threatening america and i wouldn't be asking timothy geithner how the economy works or larry summers how to start a business. i know. [applause] 15 million.

15 million americans are out of work. and millions and millions more can't find the good-paying jobs they long for and deserve. you've seen the heartbreaking photos and videos of the job fairs around the country. where thousands show up and stand in line all day and just to have a chance to compete for a few job openings that probably aren't as good as the job they held two years ago. these job fairs and unemployment lines are president obama's hooverville. and they got to end. make no mistake about this. this is a moral tragedy. a moral tragedy of epic proportions. unemployment is not just a statistic. 15 million people out of work is not just a number. unemployment means kids can't go to college. it means that marriages break up under financial strain. the young people can't find work and start their lives. the men and women in their 50's

in the prime of their lives fear they will never be able to find a job again. liberals should be ashamed that they and their policies have failed these good and decent americans. and so president is trying to show that he finally gets it. that he really isn't a liberal after all. but his idea of conservative economic policy is to invite some corporate c.e.o.'s to the white house for an evening of table talk. i'm sorry, mr. president. but that's not a policy. it's a dinner party. [applause] we've seen the failure of lebral answers before. -- liberal answers before. liberal welfare policies. condemn generations to dependency and poverty. liberal education policies fail our children today.

because they put pensions and privilege ahead for the union bosses ahead of reading scores for our kids. [applause] liberal social policies. those have failed to protect the unborn. and now -- and the hollow promises of liberal economic policies have failed to provide millions of americans with the dignity of work. now, under the pressure of a crisis, people turn to what they really believe. with our economy in crisis, the president and his fellow liberals turn to europe for their answers. like the europeans, they grew government. they racked up bigger and bigger zists. they took over health care. they pushed cap and trade. they stalled the production of our oil and gas and coal. they fought to impose unions on all america's workers. and they created over 100 new

agencies and commissions and hundreds of thousands of pages of new regulations. theirs is a european style solution. to an american problem. it does not work there, and it will never work here. [applause] the right answer, the right answer, isn't to believe in european solutions. the right answer is to believe in america. to believe in free enterprise, capitalism, limited government, federalism, to believe in the constitution as it was written and intended by the founders. that's the right answer. [applause] my father never graduated from college. he apprenticed as a plaster carpenter. and he was darn good at it.

he used to brag that he could put a handful of nails in his mouth and spit them out nail or pointed nail end first. and then on his honeymoon he and mom drove across the country and they sold aluminum paint to pay for gas and dad believed in that america, and he could work his way up to running a little car company called american motors and governor of the state where he once sold aluminum paint. [applause] for my dad, america was the land of opportunity. where free enterprise and small business and entrepreneurs were encouraged and respected. the spirit of enterprise propelled america's economy and our standard of living past every other nation on earth. i refuse to believe that america is just another place

on the map with a flag. i believe that america is an exceptional nation of freedom and opportunity and hope. we are an exceptional land. [cheers and applause] the america that you and i believe in has a goodness and a greatness. that creates a unique american genius and that genius has blessed the world. led the world. even saved the world from the unimaginable darkness that could have occurred. we didn't originate the concept of liberty. but our founding fathers redefined it and shared it with the world. from the sands of omaha beach to the dark valleys of the hindu kush, we have fought with an unmatched courage and

determination. not to conquer territory, but to give others the chance to experience the liberty that is hue -- humanity's destiny. given all that america has done to lift others from poverty, given the millions of afflicted we have helped to heal and comfort, and given the hundreds of thousands of america's sons and daughters lives that have been sacrificed and are today sacrificed to demand freedom, i will not and i will never apologize for america. [applause] i don't apologize for america

because i believe in america. we believe in freedom. and opportunity. we believe in free enterprise and capitalism. we believe in the american dream. and we believe that the principles that made america the world's leader, yesterday, will make america the world's leader forever. we love this land. we believe in america. this is who we are. these last two years haven't been the best of times. but while we've lost a couple of years, we have not lost our way. this is fundamentally what conservatism is all about. we sing for god to bless america. he already has. he does now. and thanks to the goodness of the american people, and the principles that guide us, he will do so for generations to come. believe in america.

our freedom depends on it. thank you. great to be with you. thank you. ♪

[applause] >> do we have wisconsin in the house? [applause] all right. hey, thank you all very much. again, i'm sean duffy. freshman congressman from the seventh district of the great state of wisconsin. [applause] now, wisconsin's also home to our r.n.c. chairman rines priebus. home to a budget committee chairman paul ryan. but most importantly, home to our super bowl champions, the green bay packers. now, now. let's not get rowdy. just quickly, i ran for

congress when dave obey, my congressman, authored and help pass a nearly $1 trillion stimulus bill. i knew that government borrowing and spending won't lead us to economic growth, prosperity, wealth or sustainable jobs. that comes from the private sector. people who invest in their businesses and ideas. and from there, they expand and grow and that's how we create jobs right here in america. it was that -- it was that stimulus bill that helped bring us to a $14 trillion national debt. we are projected to borrow $1.5 trillion this year alone. and to put it in a little different context, in the 11th congress controlled -- 111th congress, they increased by $682 billion. now take the republican-controlled 112th

congress, and we have cut spending by $600 billion. and so the conversation is not about how much we are going to spend, the conversation is about how much we're going to cut. and we do face challenging times. china is on the rise. radical muslims are plotting against us. and our people, they're suffering from unemployment, and a lack of opportunity. how we respond to this crisis has implications for generations to come. will we model ourselves after europe and ten down the path of dependence on a ever more intrusive government? no. which will also lead us to more economic decline. or will we return to our founding principles. of free markets, free enterprise, american capitalism.

limited government and personal responsibility. will we put our faith in people in -- and not in government? will we be a nation who understands that economic prosperity doesn't come from bureaucrats and politicians? but it comes from the ideas and hard work of individuals. this is the greatest battle of our generation. it is my honor and privilege to introduce our next speaker who all too well understands this great battle because for eight years, he was fighting that battle in the great state of minnesota. [applause] now, this is no conservative state. they were the only state that never voted for ronald reagan. i know. they haven't voted for a republican candidate in over 40 years. but listen, governor paw lnty

over his eight -- pawlenty over his eight years balanced his budget every year without raising taxes. that's right. . minnesota $7.50 billion. he cut taxes by $800 million. he moved and minnesota out of the top-10 tax states in the country. he cut spending in real terms for the first time in minnesota history. the reduced government growth and got rid of wasteful spending. i have to tell you this. i always a great things about

governor 10 pawlenty. -- governor tom pawlenty. -- tim pawlenty. he is proof positive that our conservative principles work. we can cut spending, cut taxes, we can balance our budget with innovations in education and health care. he is a great midwestern art with a sunny disposition. he is a happy warrior. it is my great privilege to introduce to you the best governor of minnesota has ever had and one of the greatest governors of this country, governor tim pawlenty. [applause]

>> thank you. i appreciate it. thank you very much. i want to thank john duffy, a rising star in the conservative movement in our country. [applause] i know this crowd, and i want to ask you one big favorite with your lumberjack background -- when you come to stay in washington, d.c., bring that big budget ax and swing it hard, baby. [applause] i want to give a special cell al to my minnesota college republicans. where are they? [applause] these guys drove over 20 hours in a bus. thank you for coming. [applause] are you fired up and ready to

take this country back? [applause] that is great. we really need you. do you know why? president obama has succeeded in doing the impossible. he has proven that somebody can deserve a nobel prize less than al gore. [laughter] now, i am not one who questions the president's per certificate or the existence of his birth certificate, but if you listen to his policies, do you not at least wonder what planet he is from? [laughter] [applause] i mean, really, on what planet do they create jobs by taxing the daylights out of the people who grow jobs?

on what planet do they reduced the deficit by spending even more? on what planet do they make healthcare better by putting the bureaucrats in charge? [applause] i do to get the cat to president obama in one area -- he has been really good at duping the mainstream media. [applause] in fact, you may have noticed by some of them have been reporting that he is behaving like ronald reagan. [catcalls] can you believe that? ronald reagan knew how to stare down our enemies.

ronald reagan understood the price of freedom. [applause] and ronald reagan also understood that putting our people back to work means the u.s. has to be open for business, not open to more taxation, more regulation, and more big government strangulation. [applause] ladies and gentlemen, barack obama is not behaving like ronald reagan. he is behaving like jimmy carter. [applause] the individual mandate in obama care is being paid -- is a page out of the jimmy carter playbook. the left simply does not understand. the individual mandate reflect

completely backwards thinking. they, the bureaucrats, do not tell us what to do -- we, the people, tell the government what to do. [applause] we are blessed to live in the freest and most prosperous nation in the history of the world. our freedom is the very air we breathe. make no mistake, the policies of the left anchorage -- encroach every day on the very freedom that has made this country great. we will never, ever stop fighting for our freedom. [applause] if we compromise on this bedrock issue, we are in danger of losing our age. for some, there is a real

concern that we are losing our edge. did you know there was a recent survey of americans were they asked the question which country will be the dominant country in just 20 years. guess what the answer was. that is right. china. begin the what i say to that? no way, no how. [applause] not the america we note and not the america we love. america's rightful place is not lagging behind china. america's place is leading the world. [applause] my friends, we need to restore american confidence. we need to restore american optimism. we need to restore america's

"for the future. we need to restore the american dream by restoring american common sense. [applause] as a washington bruce time and time again, not everyone is born or elected with common sense. we need a leaders to remember where they came from and what made this nation the greatest country the world has ever known. [applause] for me, that is a real world experience that started in my hometown. it was a place with good hearted people, strong families, and a rock-solid -- and the rock-solid values of the heartland. when i grew up there, it was all to some of the world's largest stockyards and meatpacking

plants. many families in my hometown rely on those big plants for their paychecks, for their family's well-being, and for their future. but those plants shut down and so did a big part of the spirit and the soul of my home town. my mother died when i was 16- years old. not long after that, my father lost his job for a while. the foundation of my hometown and my family were shaken really hard. at a very young age, i saw up close the face of loss, the face of hardship, the face of losing a job, and i saw in the mirror is something else -- the face of a very uncertain future. so i know americans are feeling that way today. i know that feeling. i have lived it.

but in those moments, we learn some things. we see some things. we remember what is important. one of the most important things that we should always remember is the motto of our country -- in god we trust. [applause] we should stand on that foundation as our founders intended. a few weeks into the constitutional convention in 1787, benjamin franklin addressed george washington and the other convention members, speaking to the bedrock importance of seeking dodd's guidance as they pursued the sacred task of creating our nation. he said this, "i have lived a long time. the longer i live, the more

convincing proof i see of this truth that god governs in the affairs of men." he went on to say, "if they spero cannot fall to the ground without his knowing it, is it probable that an empire can rise without his aid?" ladies and gentlemen, we as a nation need to turn towards god, not away from god. [applause] the solutions to our problems are not easy, but they are not out of reach. we need to remind each other what made this country great and restore america's greatness by restoring american common sense. we need more common sense and at

last obama nonsense. -- and less obama nonsense. [applause] let's start with this one. this one is kind of complex. there may be some democrats in the room, so i will say it real slow so everyone can understand [laughter] ] are you ready? we cannot stand more than we take in. [applause] you cannot do it as an individual. you cannot do it as a family. you cannot do it as a business and we cannot let our government do it anymore. [applause]

the big spenders in washington, d.c., have us on a course of a trillion dollar deficits as far as the eye can see. the federal government spends our money the way keith olbermann talks -- too much and without a point. [applause] 8 leaves the whole country confused. -- he leaves the whole country confused. it is not a matter of right versus left, it is a matter of sixth grade mathematics. it is not going to work, it is irresponsible, it is unsustainable, it is reckless, and just because we followed greece into democracy does not mean we need to follow them into bankruptcy. [applause]

of course, we have these big spenders on the other side of the aisle. they come with all of their excuses. "governor, how do you do that? it is really hard. the politics are difficult in the interest groups are tough." i know something about the big spenders and i know something about difficult. i come from the state of mccarthy, mondale, humphrey, wellstone, and now, united states senator al franken. [catcalls] but we cut government in minnesota and if we can do it

there, we can do it anywhere. the naysayers say, "we cannot cut spending. we cannot prioritize. we must raise taxes." i drew a line in the sand and said, "absolutely not." [applause] we are going to live within our means just like our family, just like businesses, just like everybody else. it was not easy. as shaun mentioned, i set a record for most vetos in my state again a year. i was second overall. i vetoed billions of dollars of tax and spending increases. we had the first government shut down in my state in the 150 year history of my state. [applause] we took one of the longest in

transit strikes in the history of the country to get public employee benefits under control. [applause] in the last budget. , we cut spending in real terms for the first -- in the last budget period, we cut spending in real terms for the first time in minnesota history. i hope you'll agree with these things. we'll see what you think. we should not raise the debt ceiling. [applause] we should pass a constitutional amendment to finally balance the budget. [applause] here is one i know you agree with. we should repeal obama care.

[applause] while we are at it, let's do one more thing. let's through the tax code overboard. [applause] let's start that last one by doing this -- i do not mean any offense to you personally on this one, shawn -- but let's require under penalty of perjury that every member of congress complete their own tax returns without the help of a tax preparer, accountant, or lawyer. [applause] let them experience fully first-

hand the moronic, burdensome, intimidating piece that our tax system has become. -- intimidating beast that our tax system has become. [applause] here is another common-sense principle from the heartland that president obama clearly needs to learn. it is best -- people spend money differently if this is their own money. -- if it is their own money. maybe in your busy life you have time to read papers, go to seminars, stay up all night and watch tv, read public policy journals -- i hope you do. it is valuable and important. but if you do not, here is all you really need to know about government reform. you can do it in one weekend. do this -- go to two weddings. but to one where there is an

open bar. -- go to one where there is an open bar, where the drinks are supposedly free. [laughter] on the next night, go to another wedding where they have a cash bar where people pay for their own drinks. you will see a very, very different behaviors. [laughter] [applause] i said this on wall street not long ago and somebody yelled out on the back of the room, "to the hat has a cash bar any more -- who has a cash bar anymore?" that question from a wall streeter tells you all you need to know. if you have a system where

people can send stuff without any scanned in the game at the mirage is created that the bill and manages to go on somewhere else, that is a system that is doomed to fail. [applause] unfortunately that describes most of our government. whether it is education, health care, housing, or anything else, we need to put people in charge. we need to give them the power to make their own decisions, not government. the best thing we can do to empower people is to make sure they have access to a good job. that means remembering this next common-sense principle -- the private sector, not the government, is the answer to job creation peri.

we should not be looking to washington, d.c., for how to create jobs. we should be asking the people who actually provide the jobs. when you do, they give you some pretty clear answers. they say this -- reduce my cost and get the government off my back. [applause] by the way, in minnesota our unemployment rate was significantly lower than the national average. since the crash, we have helped lead the economy toward recovery. america needs job growth, not government growth. [applause] this and next and last one you may have learned on the playground. you may have learned it in

sports. you may have learned it at work. you may have learned it in a back alley somewhere. but no matter where you learned it, it is always true. bullies respect strength. they do not respect weakness. [applause] when the united states of america projects as national security interests here and around the world, we need to do it with strength. [applause]

[crowd chanting u.s.a.] we need to make sure there is no daylight between us and our allies around the world. this current administration does not seem to understand this important principle. we undermine israel, the u.k., poland, czech republic, colombia, amongst other of our friends, meanwhile we appease and accommodate iran, russia, adversaries in the middle east including hamas and the muslim brotherhood -- mr. president, might makes right. [applause]

we need to get tough with our enemies, not our friends. one more thing -- mr. president, stop apologizing for our country. [applause]

the terrorists and tyrants of the world have a lot to apologize for, america does not. [applause] my friends, this is not going to be easy. prosperity -- at prosperity was easy, everyone around the world would be prosperous. it freedom was easy, everybody around the world would be freed. if security was easy, everybody around the world would be secure. they are not. it takes an extraordinary effort. it takes an extraordinary commitment. it takes extraordinary strength to stand up to those whose opposed -- who oppose these principles, but we can't do it -- we can do it. [applause] valley forge it was not easy. settling the west was not easy.

winning world war ii surely was not easy. going to the men was not easy. this is not about easy. we have had enough of the height and speeches filled with rhetoric that takes the country in the wrong direction. this is about rolling up our sleeves, standing tall, and getting the job done. [applause] this is the united states of america. we are the american people. we have seen difficulties before and we always overcome. we can and we will do it again. we will rise up as our forefathers did with the assurance of our time-tested conservative values, the wisdom of the american people, and the

courage of our convictions. thank you, god bless you, and god bless the united states of america. [applause] ♪1

♪ >> well, ladies and gentlemen, i

am proud to come before you as the leader of the largest growing conservative news organization in the country -- young americans for liberty. [applause] like the generation before us, another anti establishment republican candidate, barry goldwater, inspired a generation that led to the reagan revolution. today our next distinguished speaker has lost a revelation of his own. he has given a voice to a new generation, a generation ready to rise up against government takeover, bailouts, unconstitutional war. [applause] infringements on our similarities -- and frenchman's on are similar -- in first men on our civil liberties. rise to your feet and join me as i introduce a champion of the

constitution, congressman ron paul. [applause] >> thank you very much. it is great to see everybody. i am black tuesday the revolution is continuing. -- i am glad to see the revolution is continuing. we saw some results of this revolution in november. we at youtube thank you for it.

i want to take a moment to say we also have a new senator from kentucky. we like that, too. [applause] there is a lot of exciting things going on. there is truly a revolution going on in this country. we have been dealing with this and encouraging it because i believe we live in a time where we need a change in attitudes and ideas. we do not need to just change the political parties, we need to change our philosophy about what this country is all about. [applause] this past week we had a pretty good victory for the freedom movement. we had something to do with the patriot act. it has nothing to do with patriotism. they always blame it opposite of

what it is. the patriot act is literally the destruction of the fourth amendment. that is what it is all about. [applause] the one thing in washington they do not understand is what is happening in grassroots america. they assume that everybody loves be paid yet act. they will pass it automatically. we did not get a majority vote, but they did not pass it automatically, sending a message that the country is waking up and we want to protect our civil liberties as well as our economic liberties. [applause] this week i was scheduled to be on a financial program. i had been on a few of those

lately talking about things like the federal reserve and a few other things. i never got around to talking about this program about the federal reserve because, all of a sudden, there is a speech given by mubarak about his potential resignation. of course, he resigned today. that was the subject. a lot of people say, "what should our position be about fighting the next dictator of egypt?" we need to do a lot less a lot center, not only in egypt, but around the world. [applause] some people want to argue and say we have a moral responsibility to spread our goodness around the world.

it is our obligation to do this. but let me tell you, fiscal conservatives should look at this carefully. how much should we invest in that dictator over the past 30 years? $70 billion we invested in egypt. guess what? the government is crumbling and the people are upset not only with their government, but with us for propping up that dictator for all of those years. [applause] to add insult to injury, would you think the money went? a swiss bank account. new baruch's family has $60 billion -- mubarak's family has $60 billion of your money stashed away in other areas. it used to be the conservatives were against foreign aid. i am still against foreign aid for everybody. [applause]

i have a saying i used to describe foreign aid. foreign aid is taking money from the poor people of a rich country and giving it to the rich people of a poor country. [applause] and there cannot be a better example of that than what we did in egypt. we made people poor and contributed to our debt -- billions and billions of dollars and all we get is chaos and instability. there is nothing wrong with what the founders talked about. they talked about having -- getting along with people and staying out of the internal affairs of foreign nations when it is not of our business .redicte

[applause] we have been doing it for a long time. you have periods of relative stability. there was relative stability we were propping up the shot. we ended up with the ayatollah. all of the middle east is unstable because of this. it is going to keep going because all the problems are there because the people do not like us propping up their dictators no more than we would like it if a foreign country came in here and prop up a dictator in our country. [applause] but the real danger is that this will most likely spread.

when a guest to saudi arabia and there is a destruction there, we'll have a big problem. there will be a partial boycott events -- partial consequence of our policy. we just flat out do not have the money and we should not be doing it. [applause] just remember the soviet system did not collapse because we had to fight them. they collapsed for economic reasons. guess where their final plunge was on their empire? it makes no sense for us to think we can keep troops in 135 countries, 900 basis, and think we can do it forever. no matter how badly we want to

do that, it is time to reassess our politics. we have troops in japan and germany. why are we paying for their defense? [applause] you know, there has been a lot of talk about the budget deficit. that is something i was concerned about just a few years back, like 1976. [laughter] that is why i have not voted for any appropriations bills. it is bad. we have to do something about it. unfortunately, even in spite of the improvement in the economy right now, we do not have the votes. it is tragic. it is going to continue. we will continue to bail out and spend the money. nobody wants to cut. i am sure half the people in

this room will not cut one penny from the military. the military as not equated to defense. defense spending is one thing. military spending is what is here -- eisenhower called the military industrial complex peri. [applause] government, as you would all agree, is out of control. it is hard for us to get a handle on it. let's say a miracle happens and we balance the budget where we are today. it would still be a disaster because we are spending too much money. it would not change a whole lot. when a crisis comes, guess what happens? guess who does the bailing out? the federal reserve eased $4 billion with al congressional --

without congressional approval. it is our job to check up and find out what the federal reserve has done, audit them, and find out who their buddies are they are taking care of. [applause] the federal reserve creates money out of thin air. they can loan to other governments and international financial institutions, and we are not allowed to know. they resent the fact that when i ask these questions they do not have to give the information. that is why a bill to audit the fed is the first step to ending the federal reserve. [applause] the federal reserve will

distillate the dollar. -- will destroy the dollar. they had eliminated 98% of the value of the 1913 dollar. believe me, there is an economic law that says you just cannot continue to do this. congress has the responsibility. they need to protect the value of the currency. that means we have the moral and legal authority to put checks on the federal reserve system. [applause] there has been a lot of talk about bipartisanship after the election. "we need bipartisanship." in some ways that might be true. i tell you what i think about it. i think and i believe that we have had way too much

bipartisanship for about 60 years. [applause] we have of bipartisanship on medical care. the current administration is a given medical care, but what has happened with the other administrations? it is the bipartisanship of the welfare system, the warfare system, the monetary system, the challenge to our civil liberties -- it all goes through both parties. this should be a challenge in the issue of philosophy -- good philosophy versus bad philosophy. [applause] agree oncan't something you should make coalitions with whoever agrees with you and come together, but i would like to see it is the

big conservatives to like to spend money and get the big government liberals and let them get together and say, "it is time. let's have a little bit of bipartisanship and cut both." [applause] there has been talk lately about american exceptional ism. we like to talk about that. we certainly will in an exceptional country. we have been blessed. we had the most freedom and those prosperity. my concern is i am afraid we are losing it. we have given up on our devotion to liberty. that is where our problem is. where i think we go astray on is thatceptional as soism there are people who are neo

conservatives who believe we have more responsibility to use force to go around the world and tell people to do it our way or else. force does not work. it never works. [applause] the best way to get people to act more like us if we are doing a good job is for us to have a sound economy, a sound dollar, treat people decently, have a foreign policy that makes common sense, treat people like we want to be treated and maybe they would want to emulate us as a free and does work and we ought to try it. but you cannot force it on other people. [applause] there is one general rule about what we should expect from government. the first amendment is a great amendment. freedom of expression is protected. the government shall write no

laws in reference to our freedom of expression. it does not say that we can only have the expression of the noncontroversial ideas. it is freedom of expression. [applause] most people are pretty good on the first amendment, but where they slip up is they say government should write no loss about the freedom of activity. the liberals want to talk about how to regulate your economic activity and how you spend your money. others want to legislate your personal life style. government should not be regulating us. we should adapt one other principal for that to work. we should swear off the use of violence against our neighbors. [applause] the purpose of all political

activity from my viewpoint is to promote liberty. liberty is the most important element. liberty comes from our creator, it does not come from our government. if we have a free society, we can go about our business and do our very best, work towards a virtuous things, and work towards excellence. when government takes over the role of making us virtuous and excellent and redistributing wealth, they only do it at the expense of liberty. that is why we are in such terrible shape today because we have allowed the government to be so much involved. government should never be able to do anything you cannot do. [applause] if you cannot steal from your

neighbor, you cannot have your government steel for you. there should be no redistribution of wealth. [applause] the exciting things that are happening today get me energized. coming to events like this and meeting with young people and going to campuses and finding out what the young americans for liberty have done. if the ideas and principles of liberty are alive and well in the next generation. there is every reason i did it -- in the world for us to be optimistic about what is coming. [applause] i would like to make one suggestion before i close for you to think about. it is not a perfect solution. what if i could if i had the authority to do it -- what if i said we are not doing such a

good job. we make promises and we do not know about the future. but would you consider opting out of the whole system under one condition -- you pay 10% of and you take care of yourself. do not ask the government for anything. [applause] tragically, you'll probably have the opportunity because government is in the process of filing and they cannot deliver on the goods. we will have the same problems and that russia had. we face serious economic problems. let me close with comments from sam adams. "do not worry about it if we are not in a majority, all we need

is a minority came on spreading the brush fires of liberty." that is what we need to do. believe me, the brush fires are burning. they will not be able to squelch the brush fire. they are burning and they are spreading and people are getting excited because they are starting to separate out what true liberty is all about, what personal liberty is, and what it means for the american tradition. the constitution confers and confers with what i am same. there is nothing in the constitution about having a federal reserve system, no authority for the welfare state, and no authority for the police state. it is not there. [applause] we should all assume personal

responsibility for promoting the ideas of liberty. one thing that samuel johnson always advise when we were in the dire consequences of the problems of the revolution, "we cannot present long faces to the people because it will make them realize how tough things are." we should not have a long faces. we do not know exactly what tomorrow will bring, but i do know that you can have a lot of fun extending liberty. if you understand liberty and understand it is the only humanitarian system that has existed since mankind -- if you study it and fight for it, i can guarantee you will sleep better tonight. you enjoy your life and feel like you are doing something worthwhile. defense of liberty. -- defend liberty.

[applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> next, the egyptian's vice president's announcement. a statement by the head of the ruling council and reaction by president obama. >> this weekend on booktv, george friedman offers his predictions for u.s. foreign policy of the next decade. also this weekend, donald rumsfeld talks about his memoir.

the director of the iranian studies program at stanford on the shell of iran. find the complete schedule at booktv.org and have our schedules e-mail to you. sign up for our booktv alert. >> president hosni mubarak has stepped down. the announcement came from vice president omar suleiman courtesy of aljazeera networks. >> president hosni mubarak has decided to waive the office of president of the republic. the armed forces will run the affairs of the country.

may god died our country. -- may god guide our country. [crowd cheering] >> following the announcement that egyptian president mubarak was stepping down and handing power over to the military, the leader of the egyptian armed forces council gave a statement

on state television. known as the supreme council, that group is currently rolling egypt. this is courtesy of the al jazeera network. >> statement no. 3 from the supreme council. ... cents, at this defining moment and after handing down the resolution from president mubarak to give up the post of the president of the republic and addressing the supreme council to run the country's affairs, the gravity of this matter in the face of the demands of our great nation, and

nationwide to implement radical changes, the supreme council is examining this matter, taking support and assistance from god in order to support the aspirations of our nation. defining the measures and actions to be followed, emphasizing at the same time that there is no alternative except what is acceptable for the people. the supreme council and armed forces extends congratulations to hosni mubarak for what he has delivered in his career. his priority -- and his stand to give priority to the supreme council -- [unintelligible]

we extend our appreciation and salute the memory of all of the martyrs who have fallen, who have sacrificed their lives for the freedom and security of their country and to all the nations worldwide, we seek guidance and assistance from you all. >> president obama praised anti- government protesters in egypt for using non-violence to end the rule of president hosni mubarak. if the president called on the military to conclude the transition process saying nothing but democracy will carry the day. the president's remarks came several hours after president mubarak's decision to leave cairo. >> good afternoon, everybody.

there are very few moments in our lives where we had the privilege to witness history taking place. this is one of those moments. this is one of those times. the people of egypt have spoken. their voices have been heard and egypt will never be the same. by stepping down, president mubarak responded to the egyptian people's hunger for change. but this is not the end of egypt's transition, it is the beginning. i am sure this -- there will be difficult days ahead and many questions remain unanswered. i am top dead that the people of egypt can find the answers -- i am confident that the people of egypt can find the answers in the spirit of unity that has defied these past few weeks. egyptians have made it clear

that nothing less than genuine democracy will carry the day. the military has served patriotically and responsibly as a caretaker to the state. they will now have to ensure a transition that is credible in the eyes of the egyptian people. that means protecting the rights of egypt's citizens, lifting the emergency law, revising the constitution and other laws to make this change is irreversible, and laying out a clear path to elections that are fair and free. above all, this transition must bring all of egypt's voices to the table. in the spirit of peaceful protests, perseverance the egyptian people have shown serves as a powerful wind at the back of this change. the united states will continue to be a friend and partner to egypt.

we stand ready to provide whatever assistance is necessary and asked for to pursue a credible transition to a democracy. i am also confident that the same ingenuity and entrepreneurial spirit that the young people of egypt have shown in recent days will create new opportunities and jobs that will allow be extraordinary potential of this generation to take flight. i know egypt can advance its role of responsible leadership not only in the region, but around the world. egypt has played a pivotal role in human history for over 6000 years. over the last few weeks, the real history turned at a blinding pace as the egyptian people demanded their universal rights. we salt mothers and fathers carrying their children on their shoulders to show them