collect and analyze rate filing data. finally, more than a third reported that their states have taken steps, such as introducing or passing legislation in order to obtain additional legislative authority for overseeing health insurance premium rates. mr. chairman, this concludes my statement. i will look forward to answering any questions you or other members of the committee may have. >> thank you very much, mr. dicken and thanks for getting the report out in a timely manner. ms. miller. >> good morning. distinguished members of the committee, for the record, my name's teresa miller and i'm the administrator of the or began division and i'm honored to be here today and appreciate the opportunity to talk to you about how federal grants available through the affordable care act are improving our health insurance rate review process in oregon. oregon has worked very hazard over the last four years to strengthen our state rate review law and open our proelse is. because of these efforts,

oregon's rate review process is one of the most transparent in the country. as we continue to improve our process, the federal rate review grants have allowed us to hire the staff necessary to conduct more in depth reviews of rate filings and have provided the funds necessary to solicit meaningful public comments. in my written testimony, i've included more detail about the key features of our rate review process, but just briefly those include posting all documents contained in a rating fu -- rate filing in their entirety, emailing policy holders who signed up to be notified of rate filings, opening a 30-day public comment period and issuing a plain language summary of our decision and then emailing policy holders with a link to that decision. i want to focus my remarks this morning on the improvements that we've made to our process with federal grant dollars. first, the funding that we've received as part of the cycle one rate review grant allowed us to solicit more detailed and

meaningful public comments. we have a 30-day public comment period. initially that public comment period attracted few comments. and those who did comment generally simply said that they couldn't afford the rising premiums. but they didn't address the statutory factors that we review as we review rate filings. so this is why we used $100,000 of our cycle one grant to contract with a consumer advocacy group to weigh in on behalf of consumers. this group used the funding we provided to hire an act wear and has been provided very detailed analyses focused on the factors contained in our statute. unlike many states, oregon has a competitive health insurance market. we have seven oregon-based insurers who actively compete in the small group and individual markets that we regulate. because of our competitive process, we review approximately 40 rate requests a year in these markets. the first round of federal grants enabled us to add an act wear to our staff and -- actuary to our staff and we're preparing to add another one in our next

grant cycle. this will allow us to dig deeper in rate filings, to address issues brought up by the consumer advocacy group and to hold public hearings so that those who want to watch or participate in our process can see the scrutiny first hand that we provide with regard to these rate requests. federal grant dollars have also allowed to us communicate better with consumers about rate filings. we created a new web page devoted to health insurance rates with a search engine that allows consumers to more easily find a rate filing as well as information about how we review health insurance rate filings. we use grant dollars to create a seven-minute animated story about health insurance costs that breaks down the premium dollar and describes how we review health insurance rates. we also use federal dollars to conduct a public hearing on a recent filing. so how have consumers benefited from the improvements that we've made? aside from the transparency efforts that help educate consumers about what's driving health insurance costs and give them opportunities to weigh in

on requests, the changes that we've made have saved consumers money. in the year that followed the strengthening of our state's rate review law, we lowered insurance company requests 50% of the time, saving consumers more than $25 million or just under $10 per person on a monthly insurance premium. of course that doesn't solve the affordability of health insurance but every percentage point of a rate request matters to us because it matters to consumers. at the same time we understand that we must control health care costs to stabilize insurance rates. that brings me to the study that we're cuggetting -- conducting with first year grant fund. ultimately the key to stabilizing health insurance costs is controlling medical costs. in oregon considering all insurance markets an average of 89 cents of every premium dollar goes to pay health care costs. to try to tackle health care costs we used $150,000 to contract with an act warle firm for a study. the study which will wrap up in the fall is exploring whether

there are opportunities within our current rate review process to deliver the -- to control the growth of health care costs or improve the health care delivery system. as i mentioned earlier, we're applying for a second round of grant money to hire another health actuary and to allow us to conduct public hearings for most of our rate requests. in conducting a public hearing on a recent rate filing it became clear that even with one of the most open processes in the country, consumers are unaware of the scrutiny we apply to rate filings. i am proud of the work that we do and i want oregonians to see the rigor of our reviews. the federal grant funding available through the affordable care act is helping states improve their review of health insurance rates. it is giving states like oregon the resources needed to solicit detailed and meaningful consumer input, conduct more in depth reviews of rate filings to prevent excessive increases and improve rate filing information available to consumers. in oregon the next frontier in rate review is finding ways to help lower medical costs so that

we can make insurance more affordable for consumers. thank you for the opportunity to share oregon's experience and for the funding that enables us to strive for continued improvement. i'd be happy to answer any questions. >> thank you very much, mrs. miller. >> ranking member and chairman and senator, thank you for inviting me today to testify on health care, the efforts to the power of the states. my name is dan, i'm the president of c.s.s. distribution group headquartered in louisville, kentucky. behind me sits my beautiful daughter and i apologize, i might be a bit nervous because i'm testifying in front of my biggest fan. i'm honored to be here and thank you for your service to the united states. in 2006 after working in the packaging and distribution industry for decades my wife and i borrowed nearly a million dollars from friends, banks, credit card companies to open c.s.s. distribution group. at our company we approach

everything with a challenge of building trust and partnerships by doing the right things right. we've worked hard to grow our company but to date c.s.s. has not made a net profit. although we projected this year be a breakout year, it's now hard to see how new regulations will impact our business. we did reduce our work force from 16 to 10 full time employees in order to retain as much flexibility as possible and we're paying our full time employees overtime instead of hiring new employees. we're trying to hedge our bets. one element of our business that continues to be unpredictable is the cost of health care corge. and we've offered our employees health care coverage ever since we opened our doors. as a small business, our employees are like family to us. so for the past five years have offered all employees a choice between p.p.o.'s and h.s.a. health savings accounts. at this time half of our employees take up the offering,

three participate in our h.d. -- hdhp, two are enrolled in the p.p.o. of the employees who do not participate, three are covered under their spouse's plan, one has elected to purchase a less expense sks, more basic plan and that leaves one more and that's my wife. the premium increases we have seen are beyond what we can afford and even more worry some, it's beyond what my employees can afford. each year we have seen at least 30% premium increases except the summer after health care -- health reform law was passed. last summer, after the enactsment of the patient protect and -- enactment of the patient protection and affordable care act, we reported an increase of 4 %. i've done everything to mitigate the increases and the only way to curtail these increases is by restructuring the plants. increasing deductibles, revising co-payments. these changes have helped produce a premium but they really do nothing to impact the

out-of-pocket cost that we all have to pay for. these year over year increases in my opinion cannot be blamed on my plan or the insurance industry at large. i believe health care costs are what drives this, not the insurance companies. each year i spend between 30 and 45 days researching other plans and insurance options. i'm in the middle of that research right now. despite my repeated efforts i have not been able to find any other options that i can offer to my employees at lower premiums and unfortunately i'm an optimist at heart, i don't think this will change. the reason premiums are increasing is because the cost of coverage is increasing. it's pretty simple economics. additionally, plans are now required to cover a laundry list of services, many at no cost to the enrollee or the participant. the thing, is merely requiring a review of premium increases in my opinion will not stop that from happening. restructuring the insurance market while also mandating plans cover exhaustive list of benefits will also not redules the cost of coverage. if you want more, it's going to

cost more. a product cannot be sold for less than it costs to create or offer. this business principle applies to the pallets that i sell or the coverage for health care services that my plan provides. in conclusion, i know this may not be what you want to hear, but the new health care law has made it more difficult for small business to compete than you may realize. i hope what i've shared today is helpful and i urge you to repeal the costly parts of the law on behalf of thousands and thousands of business men and women in america, please listen to our concerns. thank you for allowing me to testify and i look forward to taking your questions. >> thank you very much mr. withrow. we'll start a series of five-minute requests. i was reading your testimony last night and you're talking about what you did, you used $100,000 to make a contract with a consumer advocacy group to

weigh on behalf of consumers, the oregon state public interest research group as you said keeps us on our toes and reminds us of the questions consumers want answered. you also made a contract with an actuary firm also. i don't know of any other insurance commissioner in the entire country that would do something like that. i applaud you for that. not many insurance commissioners want to contract with a consumer advocacy group like the pergs who are usually a thorn in your side. but i compliment you for that because i think as you mentioned, that gives you input from consumers. and what they want. so i think you have shown some great leadership there. one of the other things you mentioned, you're looking at different ideas on how you can affect health care costs and you mentioned in your testimony, you said, one idea we are exploring

is to deny rate requests if the insurer reimburses providers for specified medical errors that should never happen. i find that very intriguing. you can flush that out a little bit more for me? >> mr. chairman, thank you for the question. it really gets down to the contracts that insurers enter into with providers and when i reach out and talk to the insurers in oregon, one of the things i heard for years was that they have a difficult time negotiating with providers, particularly hospitals, and getting all the provisions in the contract that they would like to see in the contract and they raise this as a specific issue and said, we would really like to include a provision in our contract with hospitals that essentially says if you amputate the wrong arm, if something happens that we can all agree should never happen, who should bear the brunt of that expense? should policy holders pay it,

should it come out of the provider? and what i heard from our carriers is that they had a very difficult time getting providers to agree to those sorts of provisions. i understand that today it's more common for those provision visions to be included in contracts but that's one of the ways again we're studying this because i don't know exactly how we get at these underlying costs. but i think as state regulators we may have an interesting opportunity to get at these costs. so trying to look at, can we influence that insurer-provider contracting process, that might be an interesting place to look. so i hope that's helpful. >> that's very helpful. i also -- are you looking at things like readmission rates, for example, in hospitals? now, we know there are some hospitals in this country that are doing a great job in keeping the readmission rates extremely low, other hospitals don't. but then when you have all these readmission rates time and time again, who bears it? should policy holders bear that? or not?

so i hope you're also looking at readmission rates, too. since you're looking at the -- at never should happen events. >> mr. chairman, part of what we ask the actuary who's looking into this and performing the study is, let's look at everything. i don't want anything to be off the table because if there's a way for us to address health care costs and make a dent in those costs, i think we want to do it. so i think everything's on the table for that study. >> i compliment you for what you've done. i think you set a very high standard for insurance commissioners around the country. >> thank you. >> mr. withrow, welcome again. is that haily or hallie? hallie. >> hallie grace. >> all right, hallie grace. welcome. are you enjoying washington? >> yes. >> you know one thing i can tell, you're having a great summer. you haven't been swimming,

right? thanks for coming. mr. withrow, you said something during testimony about the health insurance exchanges which will be up in 2014. since i come from a state that has a lot of small businesses and i met with them on this issue many, many times, when 014, when the insurance exchanges come up, because of your -- you have -- the number of employees you have, you'll be able to then go to an exchange and you'll have more competition, have more people competing for covering you and it will be open, it will be transparent. won't that help you in terms of both your premiums and the quality in coverage? >> i really don't know, senator harkin, thank you for the question. because there's no definitive information about exchanges at this point that i can read about. i can't really comment on what

the exchanges will do for me. i've done my best to try to research that. and even working through the chamber of commerce, it's difficult to find that information. >> states are setting up the exchanges now. i don't know where kentucky is right now on that. but states are in process of setting up exchanges right now. but i think the law basically sets out how those exchanges are to operate. again, i don't know kentucky. i can only tell you that in our state where we have two insurance carriers that have 80% of the market there's not much competition and there's not much transparency. so that when the exchanges come up, a lot of small businesses that have fewer employees will be able to go on that. let me also ask you, right now small businesses can get a tax credit for the purchases of -- for what they put in for their

employees, right? how many employees? up to 50 employees. so if you have -- and you don't have 50 employees. >> no, sir. >> are you taking advantage of the tax credit? >> no, sir, we pay our employees too well. so we don't qualify for the tax credit. >> oh, you're over the $50,000 -- >> yes, correct. >> cutoff on that. so you don't get the tax credit. but you will be able to shop on the exchange. according to the law -- be >> we try to plan business in one and two-year increments and not having information on it is very difficult to plan for it. >> my time has run up. thank you very much. >> i think we're still short about five rules yet on the exchanges for the states to even begin working on it. so i don't think there's much out there that any of us can comment on exchanges yet. but, mr. dicken, i want to thank you for the work that g.a.o. does.

tremendous help and i appreciate the reports that come out. in looking at the states' authority to review rates, did any of the states provide evidence that because the rate review process burdened or the review results that any of these have pulled out of the market in that state? is there any evidence to suggest that the tighter rate review policies for states will decrease the number of policies available to consumers or at least decrease the types of policies available for consumers? >> thank you, senator enzi. we did not specifically ask as part of our survey as to whether there were any changes in the market share or carriers in the markets. certainly your point is very fair. we have looked in the path at the market shares of carriers in the small group market and many states only have one carrier that may represent half of the

market or more. many states, i think 23 states had five or fewer carriers that were representing 90 prgs of the market. -- 90% of the market. >> thank you. i still think the small business health plans would have increased the number of companies that were out there participating. and i'm hoping that this health care reform does, too. congratulations on hiring an actuary firm. only thing better is an accounting firm. i assume the actuary was used to find the rate. >> just to be clear, we have act wears on staff that do the review of -- actuaries on staff that do reviews of the rate findings. we hired an actuarial firm to conduct that study which is a

separate study from our rate review process so we have actuaries on staff. we added an additional actuary to deal with work load issues with the federal grant funds in addition to hiring the actuarial firm. >> ok. concentrating a little bit here on the regionents company -- regents company. if they're selling a product for less than what the people pay, that wouldn't be a sustainable business model. so if their costs are higher than the actuarial chart it's apparently say, how long do you think regents will be able to take in less premiums than they pay providers in their medical claims? do you have an adjustment for that? >> when we consider surplus and an insurers' overall profitability as a result of the rate filing process we do so very carefully and we understand that long-term products need to be priced appropriately. so with that said in the

regent's case, we reduce the initial requests which was a 22.1% request to a 12.8% increase and there were additional concerns that caused us to have them dip in, potentially dip into their surplus. the companies' enrollment in their individual plans have been a concern for us and was actually a concern pointed to by the consumer advocacy group. their plans have dropped from enrollment of about 100,000 members in 2007 to less than 60,000 members today. so the key concern here was that if we had approved a 22.1% increase that would result in further enrollment losses, typically your healthiest people are leaving and that would drive up claims resulting in even higher increases down the road. so part of what we were trying to do in the regent's case by potentially having them dip into surplus was to try to stem those enrollment losses. >> thank you. mr. withrow, i thank you for bringing your daughter on this experience to washington.

i did that when my kids were young and they have a lot of memories from it. getting back to the insurance, though, did you know that in 2014 the small businesses will not be able to buy health insurance plans that have deductibles that are more than $2,000 for individual plans or $4,000 for family plans? so do you think this new requirement will increase your premiums? >> senator, thanks for the question. no, i did not know, but i can tell you from the work that i've done in the last 30 days that the only way we can stem the increasing cost is by raising the he deductibles. so if we have a cap of $2,000 and $4,000, then our monthly premiums should rise. >> my time has expired. i'll submit other questions to all of you. >> thank you, mr. chairman. first of all, i can assure the ranking member that minnesota is hard at work in setting up its

exchange even though the final rule isn't out and know many states are as well. my former l.a. law ren gilchrest is now deputy commissioner of health and -- in minnesota and keep in touch with her and she's very, very hard at work in setting up that exchange. the fact that the final rules aren't in hasn't slowed that down. >> is the information out to the businesses, though? >> i think it's available but i can't speak to that. but what you said was that you don't know if they are workingen to and i just wanted to assure you that they are. mr. withrow, in your testimony, first of all, you have a beautiful daughter and, hallie, you don't have to stand up again. [laughter] you at one point in your testimony said there was a laundry list and then i can't

remember what you said of new medical procedures or care that were required. >> right. the lifetime maximum, the children through 26 years old, the insurance companies having to cover for anyone that does not get insurance because of a pre-existing condition. those benefits are what i was referring to, as we're adding cost stot system, we add cost to the system premiums are going to rise in my opinion. >> ok. and that's anyone that has a pre-existing condition, any adult? >> what i know of the law -- >> i don't think that's part of the law now. i think that kicks in 2014. >> right, right. i'm not sure i understand the question that you're asking. >> well, you imnumerate what had you said were the requirements that increase the costs and you

stated one that i don't think exists now. >> then i stand corrected. >> ok. and you're representing the chamber of commerce. >> yes. >> ok. i just think it's very important that we just -- >> absolutely. >> when we testify in front of the senate that we be accurate. or not we, you. i'm in the senate. so, now, i think that's very important. are you aware of what the medical loss ratio is? >> no, i'm not. i sell pallets. i'm not an insurance person. >> it's part of the law. in oregon, for example, mrs. miller, medical loss ratio is about 89% is that it? ok. and the medical loss ratio is the percentage of premiums that are paid into a health insurance company that must go into --

that must be actual health care. so it's 85% for large group in this law, there was no law before, and it's 80% for individual and small groups which -- and small groups have typically been much, much smaller and when you're on the exchange you'll be in a much larger group and the medical loss ratio will be 85% and above which means that 85% of all premiums will have to be spent on actual health care and not an administrative costs and not on advertising or marketing and not on c.e.o. salaries, etc. that's why in certain markets already we're seeing, in kentucky, aetna, we're seeing them cut premiums by 10% on an average. is that right? do you think that medical loss ratio is going to bring down

health care costs or the cost of premiums? >> in just speaking for oregon, in oregon, since we have such high medical loss ratios, i don't think that medical loss ratio will make a big difference in oregon but i'm not as familiar with other states and what's happening in other states in terms of medical loss ratios. it could have an impact in other states. >> yeah. in other states that aren't dish mean, minnesota has an over 90% medical loss ratio. that's because oregon and minnesota are high value states and part of the -- part of actually -- one thing i believe is going to bring down the bend in the cost curve is that we're going to increase the value of health care, that we're going to reward and incentivize states who have high value care. my time is up but i did want to

point out that earlier senator hatch said that the purpose of health care reform was not to reduce the rate of growth of premiums but to reduce premiums and i don't think that's the case. i don't think anybody ever said that the purpose of health care reform that we were saying we would reduce premiums ant sometimes -- and sometimes i hear that from opponents of health reform who say, like, well, premiums went up. and we were told they'd go down. well, no, we didn't say that premiums would go down, we said that the rate of growth of premiums would go down. that at least was the goal and whether that's been achieved

everywhere, we will have to see if that's the case. i just want to clarify the goal and i also want to clarify, the senator from alaska was talking about no children -- children only plan because children now are -- do have pre-existing conditions covered. if you have a pre-existing, you're allowed to get care. and in minnesota while we don't have a children's only plan, that's beingen care of by state plans -- being taken care of by state plans and that is the reason for an individual mandate , that everyone will have to get care. that's the whole purpose of the individual mandate is so that we cover people with pre-existing conditions. so i just wanted to just clarify a couple of things. i apologize for going over my time, mr. chairman.

>> excuse me, senator murphy. >> thank you very much, mr. chair. and it's a pleasure to have you all testifying today. it was in 2007 that the oregon legislature passed a bill that made the health insurance rate filing process public and then 2009 it expanded on that by creating more protocols for the interaction of the public and then it was just this spring or a couple of months ago in june that you hosted this public testimony on the rate increase and i believe that was the first public testimony on rate increase in 20 years. were you required to do that by law or did you just say, this would be an interesting experiment? >> this was the first time in about 20 years that we conducted a public hearing on a rate filing. we of course have had the public comment period so people could comment for a couple of years but this was the first public hearing and we were not required by law to do that. >> so if i recall, are you a little skeptical about how that would unfold? how did it unfold?

was it value snble >> i have to say it was -- i didn't know what to expect going into the hearing, i didn't know if consumers would find the experience helpful or valuable and i didn't know how the company would react to it and have to say, i found it to be, and i think everyone who attended found it to be a very valuable experience. i heard from consumers that they so appreciated the opportunity to be heard and to come testify and make their views known and have somebody listen to them. we also had a lot of comments about the way we structured the hearing, we had the company present the rate filing, i asked the company about 10 questions and then we had the consumer advocacy group that we contract with present their thoughts on the filing and then we took comments from the public. and we got comments from people as they were leaving, they left comment cards and what not that said thing like, i have a lot more confidence in the work that the oregon insurance division

does having witnessed this hearing. that meant a lot to me because i know behind closed doors that we are doing an excellent job of scrutinizing rate filings, but if people don't have the opportunity to see that, they don't necessarily know that and they don't have the confidence in our process that i certainly do and have for years. so, i think it was a very valuable experience and the company i think also found it to be a valuable experience. >> so, i think it's just absolutely terrific and part of this process was to create a plain language strategy so the public could understand the documents before them. you can share a little bit about that? >> i will tell you that over the last three years that i've been at the department i think our single greatest challenge has been to try to find a way to take what otherwise is a very technical process that historically has been actuaries speaking to actuaries, our department actuary speaking to the company actuary, to try to take that process and turn it into something that you and i

can understand and the public can understand has been one of our biggest challenges and it's why we did take some of our grant funding, as i mentioned, and created the animated story of the health insurance premium, we've tried to do everything we can to make this more easily understandable. we spend a lot of time and staff time developing our plain language decision summaries because we want people -- that's all we have holding ourselves accountable but we want people to understand why their rates are going up and why we approve the rate we approve. >> could you bring that expertise to bear on our legislative language? i want to switch to the health insurance exchange. you've set up a public corporation, a health insurance exchange corporation, and are hard at work designing the elements of that. house that going? >> -- how's that going? >> rocky king is the -- i think his title is administrator or interim executive director, whatever it is.

and i will tell you, they are just starting to do things like try to find office locations, some of the things they're doing right now are very basic in terms of seth up a corporation. so -- of setting up a corporation. so i would say it's a little bit slow only because there are things that we don't necessarily think of that they've had to focus on like finding buildings, figuring out where their office is going to be located, giving workers comp coverage for their employees. >> in general, the vision of the exchange which is to have all the policies in kind of one computer site where a consumer can compare them to see what features would best fit their family and so forth, is that resonating, is there a lot of interest in that? a lot of support for it? or do people see that as unnecessary? >> well, i think especially in a market like oregon if you go to health care -- healthcare.gov now and look at your options, the last time i did it for an individual like myself, i think there were 77 options that came up and sometimes i think too many options -- options is difficult for consumers in terms of figuring out which is the

best plan for them. so i think the exchange, i think particularly in oregon i think there's a lot of excitement because it will make it easier for people to compare plans. we so many options today but they're not necessarily plans that are easy to compare. >> so i just have one last request. my colleague from minnesota likes to point out that oregon has medical loss ratio of only 9% while minnesota is at 90%. you can do something about that? so that i don't have to continue to hear this? >> we will work on that. >> thank you very much. thank you. >> it's 91% in minnesota. [laughter] [inaudible] >> i'll submit those to you in writing. >> may i just thank mr. withrow for coming here and bringing

your family and for having us -- a small business and i love pallets. i do. palletizing things, that's a great thing. i've been on a u.s.o. tour where they palletize everything on the back of that plane and i love pallets. so it's a good business. >> a friend of mine and a former colleague of mine who is in minnesota by the name of richard nolan, a former congressman, went into the pallet business. >> you got to put stuff on pallets. if you go to any factory, they have stuff on pallets. food, all food goes on pallets. >> would you mind if i collarified something i said earlier? >> yeah. >> and i'll never forget again. >> ok. >> the areas that i mentioned the additional cost is what's concerning the -- but also the preventive costs and also the

addition it's added to the health and human secretarysy billous, that add additional -- sebelius that added additional costs on women's lack toes, a lack tigs, excuse me, breast feeding and also birth control. those additional costs is what i was referencing when i said there's additional costs here that i think is really going to hurt us from a small business perspective on the exchanges. so i appreciate you correcting what i had said before. >> yeah, well, i don't think also the preventive kicks in until 2014 either. and so i think that when you attribute -- and i don't know what's going on in kentucky, but when you attribute the costs going up because of provisions that are in the affordable care act, that have not kicked in, i

just think that, you know, as you say, you're a small businessman who pays attention to his business and you obviously care about your employees and you're obviously doing what we need americans to be doing which is, you know, working -- working to build businesses and working to create economic opportunity for people and you pay your employees too much to qualify for tax credits,, so i credit you on that, so you're not i think, you know, you're not expected to know every detail of the law which is over 2,000 pages long. >> it just speaks to the coon fusion of it. >> thank you. >> some of those provisions have already gone into effect. so some of the -- >> some have, but i'm saying that some that were mentioned as having gone into effect haven't. and i just wanted to make that clear. >> thank you all very much.

the record will stay open for 10 days for further submissions or questions. and, senator americaly. >> i wanted to fol follow up on your lacktation point. because that was something i was very much involved in oregon. i championed companies providing the space at work and the flexible for women -- flexibility for women to express milk and here in the senate, dr. coburn from oklahoma partnered with with me on the senate side because it was basically no cost, in fact, it turned out from the experiment in oregon that they had much less absenteism because -- and a much higher speed of core of women returning to work after childbearing because of that stress over whether they're doing the right thing by their child or not. so you mentioned the cost associated with lacktation and i'm not sure what costs you were referring -- referring to. >> i'm talking specifically about the coaches, the breast

pump, having had four kids, i certain lino the cost that we had to pay in order to either buy or rent breast pumps and also birth control. those costs are what concern me because we just seem to be adding more and more to the ticket of benefits and as we add benefits typically in business you add benefits, the more you add, the more it's going to cost. so it concerns me from a small business perspective that we keep -- we seem to keep adding more and more to the party. >> my understanding, i could be wrong, but my belief is that those features that you refer to actually are not a mandate in the law. they're not required. many companies are putting them in because they have a very strong appeal to the customer but that's a market decision, not a mandate decision. i'll check on that and close the loop with you. >> would it be to everyone? is it something that has to be part of the entire mandate that

everyone has to have that available? >> no. that's my point. my understanding is those services are not mandated, that that is an insurance company decision. but let me check on that and close the loop. >> ok, ok. >> actually, everyone has to pay for all of those for free. >> as long as everyone is weighing in, i guess the chairman will weigh in on this. being the basic author of the prevention section of the health care bill, i would say it again that we keep paying and paying and paying and paying to fix, to mend, to cure, to patch. we spend precious little on prevention. so one failure, one big failure of our health care system in america that we've not put enough into prevention about. four cents, less than four cents

of every dollar even goes into prevention and your mother was right, an ounce of prevention is worth a pound of cure. and so as we're making this shift we are putting more out there for preventive services. and in some cases they do cost a little bit more, they're added on but every single study i have ever seen indicates that the amount that you have put into proven preventable services approved by the united states prevention health task force of the center for disease control and prevention pay off huge amounts in the future. in terms of cutting health care expenditures to patch and fix and mend later on. so, we want to do more in preventative health care. a lot more. companies, a lot of companies are stepping up to the bar, some have proceeded this with prevention, weapon of p we were

just talking about safeway that did a great job in this in the past and was one of the -- one of those companies that we looked at and how you device preventive health services and interventions. and also as the chair, former chair one time of the national breast feeding coalition, it's been a life-long goal of mine to change societal's attitudes in this country on breast feeding. it should be available easily, we all know from pediatricians that the first months of a child's life is enhanced immeasurably by mother's milk. there's no substitute for it anywhere. now, again, some people can't, i understand that. there have to be replacements and infant formula and stuff but we should make it as easy as possible for every mother to be able to nurse her child.

as easily as possible. in the workplace, in traveling, no matter where, it ought to be the norm, not the exception that we do this. i don't know your business from anything, mr. withrow, on any other businesses here, but i have seen small businesses that really go out of their way to provide time to apply whatever modicum of support they can give to women and young women who are in their childbearing years to be able to nurse their children. to those i say, god bless you. keep doing more. and i hope all businesses will do that and i hope we do that on the government level both federal, state and local governments. this is one of the best things we could do for the health ofy this country.

>> i was very interested in oregon that we had an exemption for any company that applied and said, you know, it's just not feasible to provide privacy and flexibility and break time in our setting and so we assumed that a number of companies would take advantage of that situation and what actually transpired was that not a single oregon company has asked for that exemption. some have explored it and asked what was rired of them and they've gotten advice on how other companies have tackled it and i think it's a testimony to the fact that when people pause they realize what profound value it is for women to be able to express milk. there is no substitute for it, for the child, and it's not only good for the child's self, it's tremendous for the mother's health. we had testimony in this very committee from dr. coburn who

said, when i first introduced that amendment, all the advantages to it. i think it was a tremendous -- >> i think we better close now before we're accused of practicing pediatric medicine without a license here. thank you all very much. the committee will stand adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> after signing the debt ceiling bill yesterday, president obama is traveling to chicago tonight for a couple of campaign fundraisers. first, an event featuring performers jennifer hudson and herby hancock. the donors reportedly paying

anywhere from $50,000 to $35,800 to attend. we'll have live coverage of the president's speaking there at about 8:15 eastern here on c-span. and a little later in the evening the president will attend the private dinner for about 100 donors. >> eight, nine, nine. >> eight, nine, eight, seven, six, five, four, three, two, one. >> these are the stakes. to make a world in which all of god's children can live. or to go into the dark. we must either love each other or we must die. >> vote for president johnson on november 3. >> this weekend we'll look at

the history of political campaign ads with l.s.u. professor robert mann. also former homicide detective on the day jack ruby killed the man under his protection, lee harvey oswald, and former speech writers for president nixon reveal how they were crafted. get the complete weekend schedule at c-span.org/history. >> at the white house press briefing today, transportation secretary ray lahood called on congress to come back from vacation. he spoke with reporters about the partial f.a.a. shutdown and blamed congress for not compromising on temporary financing. white house press secretary jay carney spoke with reporters after secretary lahood. >> hello, everyone. back by popular demand.

because we're grooming him to be my successor. we have the transportation secretary, ray lahood, who will talk to you again about an unfortunate situation where because of a refusal of congress to compromise and do something it has done without any problem 20 times in the past how many years? five years, seven years. they're now -- there are now 70,000 americans out of work. at a time when we should be creating jobs, growing the economy, decisions by congress are throwing people off the job. and with that i give you the secretary of transportation, ray lahood. >> good noontime, everybody. i think all of new this room know that the last thing the administration wants is a republican to be their spokesman so i'm not auditions for jake's job, ok? when it comes to creating jobs,

members of congress give a lot of great speeches. we've heard a lot of great speeches from members of congress. about creating jobs. they talk the talk, but they have not walked the walk. their speeches ring very hollow. to 4,000 f.a.a. employees who are furloughed, their speeches about jobs ring very hollow to 70,000 construction workers who are not working right in the middle of the construction season on construction projects all over america. i was at one of those construction sites a few days ago at laguardia airport. and i met with these unemployed construction workers. they're ready to go to work. they're ready to complete the work, taking down the tower at laguardia. and there are construction workers all over america that are ready to go to work. this is their season. this is the time when they make their money. for their families. so they can pay their house

payments, they can buy food, they can make their car payments and for members of congress to give speeches about jobs and then go on their vacations while construction workers have vacated their jobs rings very hollow. members of congress could easily have put 74,000 construction workers and f.a.a. employees back to work. but instead they went on vacation. congress turned a blind eye to these workers and their families. the shutdown of the f.a.a. is now in its 12th day. with members of congress on vacation, this means they are leaving these 74,000 workers without a paycheck, without an ability to pay their mortgages, to pay their rent, to make their car payments, to take their own families on vacation for at least six weeks.

airport construction projects around the country worth $11 billion are sitting idle and as i said, we're smack dab in the middle of the construction season. this is no way to run the best and the safest aviation system in the world. and it's no way to get america's economy moving again. i want to just say, in addition to the $11 billion worth of construction projects, $1 billion in had uncollected taxes will not go to the federal treasury. now, you've heard all the great speeches on debt and deficit for the last how many weeks about how we -- everybody's concern thed about debt and deficit -- concerned -- concerned about debt and deficit. well, the way to tackle part of the deft and deficit is to have this $1 billion in taxes collected. which it won't be. congress needs to come back,

resolve their differences, compromise and put our friends and neighbors and colleagues back to work. they should not leave 74,000 people hanging out there without jobs, without a paycheck until september. and i'm happy to take questions. >> secretary, you noted you were a republican member of congress. and speaker boehner's office, one of your former colleagues, said today they're ready for a deal but it's the democrats, it's rock feller in the senate who is blocking there. why hasn't the president gotten on the phone to him and figured this out? >> i'll let jay talk about what the president and president does or does not do. ivene been talking to members of congress. i've been talking to them for the last two weeks since this started. and one of the things i've told them, which they know, this is the thing that really makes the public mad. that congress can't do their

job. when ordinary citizens around the country hear that their friends and neighbors ought to be working on a construction site at an airport and they're not because congress couldn't do their work, this is what infuriates the american people. congress should have passed a clean bill, could have plassed a clean bill, i urged them to pass a clean bill, they can still do it. congress can still do it. the adjournment resolutions that they have passed allows them to come back every four days in the house and pass legislation. they could do it. i'm asking congress to come back and do for the american people what they've been talking about. put 75,000 people back to work. in good paying jobs. that's what congress should do. take a little detour from their own vacation, come back to washington and pass a clean bill. yes? >> house republicans are very clear that they will not change

anything to do with union organizing, what senate democrats see as union busting. and basically a payoff to delta airlines. what do you say to that? >> what i say is do what you've done on 20 other occasions. in some instances in a very short period of time. pass a clean bill. that's what they've done on 20 other occasions. look. when the house passes a bill and the senate passes a bill there are always these disputes, there are always these controversies. on 20 other occasions congress did not hold hostage 75,000 people. what they did is they passed a clean bill. congress could come back, they could come back today or tomorrow or next monday or next tuesday, pass a clean bill as they've done on 20 other occasions, people go back to work, they resolve their disputes whatever they are, whatever the disputes are. that's the way legislation gets passed. it gets passed by compromise. it gets passed by people sitting down at a table, working out

their differences. you've heard me say this long time, there's been a long, rich history in this town of compromise. that's what needs to be done. compromise, pass a clean bill, work out your differences. >> is there anything that the president can do, is there any executive action that the president can do, any emergency action that he can do? >> we'll have to see about that. i'm working hard right now -- >> do you know as secretary of any emergency action that can be taken to remedy this situation or to help all these people who are out of work? >> i'll let jay answer that. >>ky follow up on my question? >> let me take a question from mike and then i'll come back. >> panelists have told our transportation reporters which is that the president can grant you, the secretary, the authority to shift funds and that would help out the f.a.a. is that something that you would do or would consider doing? >> what i want done -- >> president's authority. >> what i want done is what

congress has done on 20 other occasions. send 75,000 people back to work, pass a clean bill and work out your differences. they've done it. they know how to do it. they've done it in a short period of time. that's what they need to do. this is not fair to these people. these are people that work hard. these are people that are right in the middle of the construction season. there's no reason that congress can't do this. >> would the president be willing to give you that authority? >> i'm not going to speak -- >> i can -- >> let me get a couple other people. >> we talked about the impact on the 75,000 people and their jobs. the american public trying to follow this sort of sees this as a labor dispute. i'm wondering if you can put this into terms for the american people, how does this dispute affect them in terms of flights in terms of safety? does this have a broad impact on the american people? >> yeah. the way it affects the american people is this -- their friends and neighbors are out of jobs.

now, look, i used to represent a rural district, my home town is peoria, i still have a home there. people on main street in peoria get this, they know that when their friends and neighbors are out of work, that hurts everybody. and for politicians to run around washington as they've done for the last seven months and talk about creating jobs, putting people back to work, this is not the way to do it. the american people see the fallacy in these very hollow speeches. if congress really believes in the words that they're saying about jobs, creating jobs, putting people back to work, stop your vacation, come back to washington, pass a clean bill, people get this because it's hurting their friends and neighbors. to me people understand this. they really do. and it's easily fixable.

it's been fixed 20 times. it's easilyicsble. -- it's easily fixable. >> the president gave a lot of ground niece debt talks, -- ground in these debt talks. do you think the republicans should -- -- >> i think what congress ought to do is pass a clean bill. yes, sir. >> isn't -- i mean, with how republicans have been i guess from your perspective unwilling to compromise, why not have the president give the authority to do -- to move some funds around on your own? does that make sense? >> all of my efforts are to persuade congress to pass a clean bill. and to try and keep the morale in at the f.a.a. high and when i went to laguardia, i met with unemployed construction workers. these people are hurting. they really are. they can't apply for unemployment yet and they're

without paychecks. they don't know at the end of the day whether they're going to be able to make their next mortgage payment, car payment, their kids in about 30 days are going to be starting school, there obviously are costs incurred by people with their children starting school. shake hair heads. >> congress leaving when they did, doesn't that mean they can't compromise? >> there is a way for congress to pass a bill today. i'm calling them back. come back to washington. leave your vacations. just for a couple hours, come back, congress. help your friends and neighbors get back to work. yes, ma'am. >> if your message is that

whatever action is necessary should be taken to bring those people back and if congress isn't going to do this, then would you accept the authority or would you accept an order by the president, presidential authority to take this action? >> i'm thinking 24/7 about how to get our people back to work and how to get congress back here and i'm thinking 24/7, people without a pay check now for two weeks and that's where my time and energy is. >> you said you urged the senate to pass the house bill. is that still your position? >> my position today is since both houses are in pro forma sessions, is congress come back and in pro forma, they could pass a clean bill. yesterday, it was different, sam, because the senate was still in and i was trying to persuade them to do something

different. today, both houses are in pro forma. come back, pass a clean bill. that's the easiest way to fix this. bill. >> the leader of the house is john boehner and the leader of the senate is harry reid, have you called them? >> i talked to senator reid probably half a dozen times yesterday. i talked to barry jackson, the speaker's chief of staff more than half a dozen times. >> your request to bring them back, what is your response? >> you can call their offices and ask them. >> safety won't be compromised. can you guarantee that? >> i can guarantee. we would never compromise safety. the people that are involved in safety inspections at airports that work for the f.a.a., many

of them are using some of their own money to do their job, to pay their expenses. you know why? because they're dedicated federal employees who believe in their mission of safety. i can say without equivocation, safety will never be compromised. flying is safe and passenger schedules should not be compromised by this issue. >> mr. secretary, many are out of jobs and there are many congressmen must be getting heat from their constituents. and you said safety is not compromised. are you hearing anything from around the world about the debt ceiling going on in washington?

>> we are hearing people, primarily we are hearing from our employees. but i have not had any calls from any other transportation ministers around the country. let me take the second one here, and then you, mike. >> on the question of compromise, we saw through the debt ceiling debate there were members in the republican caucus who were not willing to compromise, what makes you think they would be willing to compromise over this? >> hopefully the cloud of debt and deficit has been lifted. hopefully they are hearing from their constituents who are laid off, whether they are f.a.a. employees or construction workers. many of these members of congress have these projects going on in their states and we are going to keep up our drum beat and hopefully constituents

will hold people's fight to the fire that love to give great speeches about creating jobs and then send people home off the job sites. >> can you realistically safety inspectors to work through labor day without pay? >> we have a core of dedicated safety people at f.a.a. and i'm proud of them. they are doing their job and making sure airports are safe and making sure the safety inspections they do are done by the book and i hope the american people are proud of these people. >> are they on payroll? >> yes, sir. but look it. they're doing this spending their own money to travel to airports and do their safety inspections out of their own pockets. >> they are still on the payroll

and essential employees like the air traffic controllers. so why wouldn't they be reimbursed? >> they will be but aren't right now. they are taking their credit card and taking a flight somewhere, inspecting an airport with the hope that they are going to get reimbursed. northward nearl they would be using a government credit card to do these things. they are using their personal credit cards. how many of us can do that for very long? these are dedicated federal employees. >> if you say the difficulty on the house side or senate side -- >> the difficulty is when congress -- i'm focusing my attention like a laser beam on congress. we need both houses, end your vacation for a couple of days, get off the beach, get out of

your mobile homes or whatever you are traveling in, come back to washington, pass the bill -- [laughter] >> maybe i should have said r.v.'s [laughter] >> come back, pass the bill. is that it? >> president obama's call with the president of russia. russian president called him to wish him a happy birthday and talk about negotiations. the presidents noted the siggets progress that had been made since they spoke last a few weeks. president obama stressed the need for russia to work with other w.t.o. members to close out the last remaining issues

and bring it to a successful conclusion. i will take your questions. >> did you talk about calling secretary lahood in the debt negotiations? if not, why not? [laughter] >> he does have a full-time job. you can see he feels passionately about this issue and going to actions that the president may or may not be able to take and i trust your transportation reporter may be highly qualified and knowledgeable, i'll leave it to the experts to decide what other actions to be taken. all of this would not be necessary if it were not for a political dispute that has been inserted into this process that has gone off without a hitch for 20 times since 2005 and it has created this stale mate, the result of which, over an ideological political dispute is that 74,000 americans are out of work at a time when we need every possible working to be working.

and it is inexcuseable and as the secretary made clear, if you want to fight about union measures and have that kind of fight later, that would be fine, but it is wholly within the capacity of congress to pass a clean measure as it has done many times in the past to extend this authority and allow people to continue working because you don't get the paychecks back or month back in the construction season. it's very important that congress take action and do what it has done in the past and what americans expect them to do, which is -- they want washington to be figuring out ways to help the economy create jobs, not figuring out ways to fire people or lay them off, which is what they have done in this case. >> the house and senate do stay away for august, is there anything the president can do?

>> we will address that. the simplest thing because they decided to do these pro forma recesses to come back in a moment's notice and the mechanics of this, i'm not that familiar with, but it is quite easy for members to come back, vote on this and leave again. we would anticipate that if they did have interest in ensuring that these 74,000 americans had work, they would come back and do it. >> if you had time to move the funds -- >> again, we can talk about that issue or maybe talk about it with secretary of transportation further, but i don't know about that. what is not acceptable for congress to say, it's not my business to take care of my business. this is a process that congress has done in the past, should do and because of decisions they have made, there are 74,000 people out of work.

i can tell you from august 15 through the 17 and it will be through the midwest. further details will be forth coming later. that's all i have for you now. >> in terms -- >> he will be out very happily getting out in the country again after a sustained period here in washington and he looks forward to talking to folks about growing the economy, creating jobs and we'll have more details as i said about the specifics of the trip later on. >> wherein the country? >> midwest. >> the bus tour, it's certainly a visual but what are the tangibles? >> we'll have more specifics about this trip itself.

the air of sin sism is quite thick. the idea that the president of the united states should not venture forth into the country is ridiculous. but you implied it in your question and it is absolutely important for the president, whoever that person is in the past and in the future, to get out and hear from people in different communities and the president, this is a trip that we had on our books for quite a long time and he looks forward to taking it. >> is it more a listening tour? >> i know the people want specifics of what he may be announcing or what proposals he may have. it will be very focused on the economy and jobs. beyond that, you know, you'll have to wait for when we are ready to provide more specifics. but he will be listening and addressing these very important issues. >> you have spoken to this a

little bit, but obviously there are some people who wonder what kind of options he has, what kind of realistic options, some of the things he has laid out seems like foregone conclusions. >> anything a foregone conclusion in washington, the foregone conclusion that 74,000 people would be laid off. most things are difficult. collectively congress and the president can take different actions to enhance growth and create jobs and the president has identified a number of things that have bipartisan support that are already in the congress' lap that congress can act on quite quickly and there are other measures we should support like extension of the payroll tax credit, essentially a tax cut, a tax cut for working

americans, everyone who works is pays a payroll tax. and everyone has helped this year and needs to be extended so they have that help next year and that money is important because unlike a lot of things you can do, this is money that will likely be spent and therefore help the family spending it and have add-on positive effects on the economy because that money has been introduced into the economy and helps and creates jobs and this is a very important measure that he supports. >> i want to ask you about the tax cuts that were uncovered by the security companies. could you tell us which agencies were affected -- [inaudible] >> let me start at the top, we

are aware of the report and where we do not comment on outside reports. working across government and with the private sector. cyber threats to information and communications, infrastructure posed and economic and national security challenges for the united states and our partners, which is why the president has made cybersecurity one of his top priorities. as with all intrusions, we employ a quote, all of government approach with the appropriate agency in the lead. we refer to d.h.s. and f.b.i. on more information. on which agencies were affected, we are working to deploy defensive tools such as the einstein prevention and intrusion systems. refer to d.h.s. >> when did you become aware? >> i can only tell you we were aware of it. i don't have a date for you.

>> the president has repeatedly pivoted back to jobs. why is this time any different? why should americans have confidence? >> let's be clear. the president has been focusing on jobs and the economy since the day he was sworn into office during a month that saw the loss of 800,000 american jobs in just one month. and that was the situation that he encountered when he took the oath. and that has been his focus since he became president. there is no question that as president, you have to deal with other problems and in this case, the debt ceiling crisis, if you will, was a manufactured crisis. it was a self-inflicted wound, the linkage between something congress absolutely has to do, which is extend the borrowing authority of the united states government to specific

legislation that one half of one body of congress wanted passed. we worked through that and reached a compromise and averted a catastrophe. and that was a good thing. it was not a crisis that needed ever to present itself, but we did through compromise achieved good things for the economy, for jobs, a package that lifts the cloud of uncertainty of whether or not we were going to extend our borrowing authority for a significant period of time and has some significant initial different reduction attached to it and creates a path for more deficit reduction. it is an element of an strategy that is agreed upon by democrats and republicans. there are other things we need to do. and there are measures that can be taken right away if congress is interested in growing jobs

and the economy, there are things it can do right away in addition to the 74,000 people thrown out of work. they could move quickly to pass the free trade agreements, the three of them that are thrup that will support 70,000 additional jobs, patent reform done and move forward. the president will continue to promote and put forward ideas for things that we can do to create jobs and grow the economy, but there is certainly a number of things we can do working together already. >> at the risk of appearing cynical -- >> that's not you. surely not after all these years. >> if the president is interested in getting those 74,000 people back to work why don't you switch the funds over so they can go to work? >> bill, this is a fascinating process where the party with the responsibility -- the party that created this problem is out of town and the reporters here are

blaming the party that wants the problem fixed. the fact of the matter is -- look, we are obviously looking at the different options that we have -- that the president has. the simple reality is because of a political dispute this is what americans loathe about the process here, justifiably and understandably because of an eyed logically-driven decision made, there is a stalemate over a measure that has never been a problem in the past. we need to and can have fights over these issues that divide us, but we should not have these fights in a way that throw 74,000 people in ways that throw 74,000 people out of work innocently. this is not their fight. and so secretary lahood made clear, it is wholly

inappropriate for members of congress to go on recess, go on vacation, and leave this issue hanging and take away from these hard-working americans their paychecks for at least another four, five, six weeks when they can resolve the issue right away. >> the goal is to get back to work, then get them back to work within the president's power apparently. >> apparently, you are hearing from one reporter who is hearing it from another reporter. >> do you dispute that? >> we are looking at things that the president might be able to do. this is a matter that crisis that congress created. >> are we going to ask this question again? >> i wanted to ask you why the president can't call the senate

majority leader and democrats i'm told blocked unanimous consent agreement in the senate to push the bill forward. >> the house measure has a provision that is politically motivated and we can have that fight. the way to -- in the name of achieving that, getting that, we are preventing the 74,000 americans from working. but the way to do it -- i mean and the house refused to pass the bill, which the senate would pass. that is the issue. >> if you want to put the people back to work, come back in a month -- >> that's how it works? >> top priority is to put people back to work. >> we get what we want.

that's not how it works. if you are creating a logjam that would not allow this provision to pass and preventing 74,000 people from working, you remove the problem and take the splinter out or whatever is causing the problem and pass the clean bill and have the fight on the other issue. that's what we believe. >> if the president is saying let's focus on jobs. he has said that over and over again. one in january, 2010, jobs must be our number one focus. year and-a-half later, unemployment is still at 9 and-a-half -- 9.5%. why do you think the president is going to create jobs? pat interest reform and the trade -- patent reform and the trade deals. >> i said 70,000 jobs could be

created or supported. there is no magic bullet that lowers our unemployment rate to where it would be and it's certainly not -- you know dismantling medicare is that going to put people back to work, is slashing clean energy investments put people back to work? i don't hear a lot of jobs planning coming from other quarters. this president, from the day he was sworn into office has focused aggressively on the need to first prevent a great depression. second, stabilize our economy. begin to see it grow again as it has been. begin to see it create private sector jobs as it has been, 2.1 million jobs, more private sector jobs that were created in that period than in the eight years of the previous presidency and then keep pressing forward to do that.

everything we do that's related to the economy is related to economic growth and job creation. what the president is saying now and what he will be hearing him saying, you have heard a lot of talk in washington about debt ceilings and deficits and while those are important issues, very important, and they are important in relation to our economy and they are important in relation to jobs that they are addressed appropriately, there are other things we can do directly that affect jobs and economic growth. and that's what he is saying. i think pivot is not an appropriate word. it's refocusing and continuing the focus that we had and not allowing us to focus more intently in the compromise that was reached with congress couple days ago. s&p announced it was giving the united states a negative outlook. what is the white house's

reaction? >> we focus on things we can control, which is why we worked so hard with congress to reach this compromise to avert a crisis that would have unquestionbly resulted in bad news from the rating agencies. we believe the measures we have taken to lift that cloud and avert that crisis to ensure that we have borrowing authority through 2012 should send a reassuring message around the world and we believe that the deficit reduction that is embedded up front in the compromise reached with congress should send a positive message that washington is beginning to get serious and the way we approach further deficit rezucks should be approved as well. we should assume that if we do our work and do it well, that the rest, if you will, will take care of itself.

>> yet wall street doesn't seem to be reassured. what's the level of concern that maybe this compromised bill didn't go far enough or isn't having the impact you wanted it to have? >> we believe we could have done more and the president worked very hard to try to get a grand bargain, a significant $3 trillion to $4 trillion package over 10 years that would have dealt -- the real thing that drives our debt which is entitlements and revenues. so and he will continue to work for a balanced package that raises that number higher, at least the additional $1.5 trillion that has been the target for the committee, the special committee when it's set up and beyond that. and again, we focus on the things we can control. we believe that if we make the right decisions about dealing

with our debt, dealing with our deficits, taking measures that are responsible and effective to help create jobs and grow the economy that other things like markets will take care of themselves. >> there has been a lot of discussion that you just indicated might be signs of the economy continuing to stagnate or dipping back into a recession. do you see it that way? >> we do not believe there is a threat of a double-dip recession. we believe the economy will continue to grow. there is no question that good growth has slowed over the past two quarters. there is no question that job creation has slowed. but there are reasons for that. again, some of them beyond our control. but the head winds created by them like the earthquake in japan have subdecided. we have to contend with high

energy prices, situation in europe. we have to focus what we can do to ensure that our economy is strong and continues to grow and create jobs and we don't have any projections to make from here, but i would note that the ourds consensus among forecasters is that the u.s. economy will continue to grow in the third and fourth quarter. >> larry summers announced in the "washington post" and "financial times" there is a one in three chance that the u.s. will slip back into a recession -- [inaudible] >> is that a question? >> what is your response? >> the same response. [inaudible question] >> the white house has made clear -- does the white house have a preference in which

baseline the committee should use? >> i think what is important is that committee address the need to achieve further significant zifflet reduction in a balanced way and that's -- because, this will be an important and clarifying process because to achieve -- we have now, if you will identified and removed from the table the roughly $1 trillion in discretionary cuts that we agree on and to get bigger, we now have to deal with these difficult issues, entitlements, for example and tax reform because otherwise to get bigger, you have to make very specific choices about on whose back these issues will be resolved, will it only be the middle class and seniors that have to ensure our deficits and debts come down because that's the choice you have to make when

you say no to revenues and you say no to cuts in our pentagon spending. so you really have to focus -- this will be a clarifying process because in some ways as we led up to this compromise, there was some understandable confusion about what deficit reduction could be achieved and where is there disagreement and this president wanted to reduce deficits to cut spending. he identified through negotiations with speaker of the house, through the vice president's negotiations in the group that he led with house majority leader, that $1 trillion you see in the agreement represent cuts that we all agree on. beyond that, you have to make some really hard choices and this will be a clarifying and we think a great debate in the fall. >> jay, i just want to make sure, getting back on the f.a.a. thing, did you leave the

impression that the president will not take any action? >> we will look at the measures that the president may be able to take. i'm simply not saying one way or the other whether i agree with what action may be available. we are intently interested in ensuring 74,000 americans who had jobs get them back and that the simplest path to that since they were thrown out of work by congress failure to act, bring congress back, pass the clean extension which they have done 20 times in the recent past and put them back to work and we can have the political fight later, not at the expense of 74,000 americans. >> you are looking at the measures, but you want congress to take care of it? >> congress has it within its

capacity to quickly fix the problem it created. >> not on the f.a.a. sort of relates to kristen's question, the stock markets have been going down for eight days, which is the longest downswing in quite some time. >> since you are a business reporter, where was it when he took office or in march of 2009? >> last time i wrote about it, 50%. >> close to 200%. >> but it's been down for eight days now, what message does the administration take from this? a lot of the market commentators said there is less optimism about economic growth and some debate whether we are going to go into a double dip recession and you don't see that. what message do you take eight

days going down in the stock market? >> again, we don't spend a lot of time focusing on things we can't control. we spend things focusing on what we can do in a positive effect on people's lives and economic lives. markets go up, markets go down, it's not for me to judge why. the fact, broadly speaking, is that there have been a number of headwinds this year that have affected, we believe and economists believe have affected growth in america and job creation and they include the arab spring, the uprising in that part of the world that affected the energy markets. certainly the earthquake and tsunami and terrible devastation that caused in the global supply chains and other issues concerning the situation in europe. and then, obviously, the

uncertainty created by this debate in washington whether the united states would for the first time in its history default on its obligation. having resolved that, we move on to other issues and we deal with what we can deal with. and if we get our part of it right, working with congress, the economy will grow and we will create jobs and the markets will appreciate it. yes? >> did why didn't the president sign the bill in public yesterday? >> he wanted to speak about it after the passage. no reason, except it's a matter of signing a piece of paper and needed to be signed quickly to ensure that we didn't inadvertently default on our olingses and took care of that piece of business. >> who gets the pen? >> i think there are a number of people including the leaders of

both houses who will get pens. >> important bills pass -- >> look, the president believes this was an important compromise. but make no mistake, the bigness of it in terms of the attention that was paid to it was because of a crisis that was wholly manufactured. he does not believe that we should be popping champagne bottles or celebrating. the fact that we averted a crisis that was never necessary in the first place. he does think it's important that congress came together and compromised to avert the crisis and a.m. comprise the deficit reduction. he does not believe it is enough and he is not impressed with the process, just like every american who watched it who was appalled by the three-ring circus that was created down here that caused some of the

uncertainty out there and whether or not the greatest nation in the world could get it back together, but he believed it was significant. and we have a lot more work to do. >> the white house is not going to be making recommendations about the lawmakers who serve on this committee of 12, but what would the president like to see in terms of those selections? mitch mcconnell said he won't appoint anyone who will have tax cuts on the committee and nance pelosi said something similar. what are the president's guidance? >> that they take it seriously and that they serious choices have to be made as we figure out ways to accomplish further deficit reduction. i would note in terms of the comments you said, you attributed to the senate majority leader, that creates a problem in his caucus since a

substantial number of republicans in the senate have supported and endorsed the proposal of gang of six, which takes a very balanced approach that includes $2 trillion in revenue. so it is simply -- as we saw after the passage of the house republican budget, there is explaining that has to be done by the leaders in washington, if they want those members who believe that we should achieve deficit reduction only on the backs of senior citizens and vulnerable americans and the middle class, they need to explain that. and that will be ever more stark if that's the approach they believe is the right approach as the super committee gets started. as i said earlier, the discretionary cuts have been moved off the table and we are dealing with the tougher issues

and there is a choice, dramatic cuts, further cuts in the discretionary budget, is it going to be ending medicare or balanced approach that includes modest reforms to strengthen entitlement programs and changes in our tax code tax reform that simplifies it and ends preferences for the oil and gas industries for example or jet makers or hedge fund managers, billionaires who pay lower rates of taxes than their secretaries. i think that is the debate that we look forward to having. we believe that the preponderance of the american public supports us in that and we believe for this super committee to accomplish something there needs to be a committee that appreciation needs to be there. none of us here starting with the president -- we are not shy

about making our opinion known about the seriousness we think the members of this committee should approach the task and i'm sure we will continue to express that opinion. >> been a long time. since the president and president medvedev discuss syria? >> not that i'm aware of. >> the administration is having increasing pressure on the hill to do more to punish syria in the latest escalation of crackdowns. is the white house considering further sanctions to punish firms that are in syria? >> we are looking at ways to increase the pressure. the images coming out of syria of the syrian government's brutality against its own people

have been appalling and demonstrate the true character of the regime. president assad has shown that he is completely incapable and unwilling to respond to the legitimate grievances of the sirenian -- syrian people. president assad is not indispensible and the u.s. has nothing vested in assad remaining in power. we don't want to see him remain in stability and he is the cause of instability. through his actions, assad is ensuring that he and his regime will be left in the pass and the syrian people who have demonstrated in the streets will put forward syria's future. we will call on the regime to halt its campaign of violence and arrests and release the many detainees and respect and act upon the clear demands of the

syrian people for a clear transition to democracy >> [inaudible question] >> all i can say is that we take this matter very seriously. you just heard what i said about attitude towards what is happening in syria and the regime's actions. we will continue to look at ways to take further steps to put pressure on the regime to end its violence. and we think frankly that it's safe to say that syria would be a better place without president assad. >> did you see pictures of mubarak today in court? >> not that i'm aware of. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> the president's campaign said

it canceled or postponed 10 fundraisers in the last month because of the debt ceiling talks. the president signed that bill yesterday. but "the chicago sun sentinel" writes that the state chairman while national unemployment remains high. the president travels to chicago tonight for a couple of campaign fundraisers. live coverage of mr. obama's remarks at one of them at 8:15 eastern here on c-span. >> that figure that is removing the veil of ignorance. that's an american invention and it is classical for what it is about. >> if you missed "the library of congress," there is a preview right now on youtube. become a subscriber, it's free. and watch the entire library of

congress documentary and other videos online at you tub.com /cspan. >> witnesses before a senate banking subcommittee that 30 years fixed mortgages at low interest rates could be a thing of the past. since 2008, lawmakers have explored ways to reduce the government's role in home mortgages. those issues issued by freddie mac, fannie mae, companies controlled by the -- partially by the federal government. >> and thank you for your excellent work. and let me welcome our witnesses. this morning, we are examining the house finance systems, specifically the 2-b announced market. in may, the subcommittee conducted a hearing on the securitization market. this morning's hearing continues

the subcommittee's examination of the securitization markets with particular focus on a part of the securitization system on the finance and this is the t.b.a. market. in the early 1970's, the t.b.a. market began in a trading and its role expanded as freddie mac and fannie mae began shoeing mortgage-backed securities. it has trading in $320 billion a market second to the market's trading securities. name of the market to be announced comes in the way the market functions. unlike a traditional marketplace, investors do not snow the collateral or pools of loans they are agreeing to purchase until months later. the collateral is designated to be announced at a date in the

future. many argue that the t.b.a. market is vital in preserving key products that consumers have come to rely upon. freely prepayable mortgages and lock in an interest rate. although the only securities traded in the t.b.a. market are agency securities defined as those securities issued or guaranteed by freddie mac and fannie mae, the t.b.a. serves as a benchmark. they are priced relatively to the price. the t.b.a. market to hedge the origination of loans that are not eligible for trading in t.b.a. for example, adjustable rate loans and jumbo loans. as we continue to explore different approaches, it is critically important that we understand how the t.b.a. market works and what impact any

reforms will have on this market. how will any changes affect the availability of the standard mortgage products sought by consumers, what characteristics of this market, if any, should be preserved. i look forward to hearing from all of our witnesses this morning on these issues. in fact, this is a very technical but vitally important part of our securitization and mortgage industry. we have to understand the basics before we move forward. but as all of our hearings, the point is to accumulate the information and insight so we can start dealing with some major issues with respect to housing and the g.s.c.'s and i introduce the ranking member. >> thank you and i appreciate your kind words as well. i enjoy our working relationship. and i appreciate the opportunity for us to have this hearing on the t.b.a. market. i share your view that the t.b.a. market serves a valuable role and we need to better

understand its mechanics as we move forward with housing finance reform. today's witnesses have the deep expertise with respect to the t.b.a. market and will explain how mortgage originators to hedge the risk of a change in interest rates between the time the mortgage is locked in and the time that the mortgage is closed and securityized. the main components are standardization and the market practices and government guarantee of timely payments. reports on the t.b.a. market, the deep liquidity cannot be attributed solely to the implicit government guarantee of mortgage-backed securities. going forward, the question is how the t.b.a. market might change and develop without a fannie mae, freddie mac explicit or implicit guarantee and what are the tradeoffs?

to be able to answer that question, we need to consider a private market over the time and whether they have the liquidity sufficient for mortgage companies to hedge their risk. i appreciate this hearing and i look forward to what our witnesses will share with us. >> senator, would you like to make some opening comments? >> i'm looking forward to hearing from the witnesses. >> first is mr. thomas hamilton, managing director at barclay's capital. he is in charge of commercial and residential mortgage-backed securities. he joined barclays capital at 15 years at citygroup. he is the chairman of the securityized products division and has held that position for seven years. paul is a principal at miac, an

investment advisor. prior to forming miac he worked on wall street with goldman sachs and he has worked extensively valuing loan portfolios and restructuring asset composition and pricing models for home loans and analyzing the prepayment risk. selections of his research have been published in the handbook of mortgage-backed securities. and andrew davidson, president of a new york firm specializing in the development and application of analytical tools for the market that serves over 150 financial institutions and written extensively on mortgage-backed securities and hedging. prior to the founding of his company in 1992, he worked at

merrill lynch in charge of 50 securities and systems analysts. we will begin with mr. hamilton. your written testimony has been made part of the record and feel free to summarize and make points. mr. hamilton. >> good morning, chairman read and members of the subcommittee. i'm responsible for the securityized products trading business. i'm pleased to testify on behalf of the securities industry and financial markets association. housing is a critical component of our economy and is at the center of a circle. housing begets which begets housing. the mortgage market is enormous. it is equal in size to the total size of u.s. bank balance sheets. given they engage in activities other than residential mortgage lending.

the balance sheets cannot meet the need. freddie mac and familiar and provide capital for growth of mortgage lending beyond the capacity of bank balance sheets. today, private securitization and the agencies finance 70% of home mornings and it is imperative that securitization continue to play a key role in any future mortgage finance system. the market for m.b.s. issued by the agencies is three times the size of the outstanding nonagency private label m.b.s. market. in this market, the t.b.a. market is the single largest component. the t.b.a. market is the key to funding mortgage lending and because of this plays a critical role in housing and the u.s. economy. the enduring liquidity to the market and preserve the

availability of mortgage credit in the recent crisis. this ability to maintain liquidity during stress periods is a key benefit of the t.b.a. market. the liquidity and resilience of t.b.a. market attracts a wide range of investors who provide vast capital that is cycled into mortgage lending including retirement savings vehicles, insurance companies and foreign investors. the vast liquidity and forward-trading nature of the t.b.a. market provides key benefits to consumers such as the broad availability of 30-year fixed mortgages that may be pre-paid without penalty and consistent liquidity in the secondary mortgage market. this results in a stable and attractive funding source to provide lower mortgage rates for borrowers

including the significant uncertainty faced by nonagency m.b.s. investors and issuers. the rules of the road for both sides are not clear. until they are, it will be challenging for issuers and investors to see eye-to-eye on securitization transactions. at least in the volume and frequency that will be necessary to fund mortgage credit demand. it will require a carefully planned and sequenced transition which would take many, many years. it is essential to reremember

that the necessary volume of nonagency investors will not simply appear because we'd like them to. they must be drawn back in, made comfortable with, private label securitization and its regulatory environment. we believe that it's critical for the planning and excuse -- that the planning and execution of significant changes be done with attention to detail, be based on sound analysis of cost and benefits, be mindful of unintended consequences and create long-term beneficial and stable environment. while we cannot predict the future, we it use the past as a guide and apply lessons learned and mistakes made. the critical role of the t.b.a. market and some of the critical

issues that must be considered to move forward. thank you for this opportunity and i'm happy to take any questions. >> thank you very much, mr. hamilton. >> good morning, members. >> could you turn on the microphone? yes, sir. >> thank you. good morning, members of the subcommittee. thank you for the opportunity to testify before the subcommittee today on the current and perspective role of the t.b.a. market in our current housing finance system. in my written testimony i offer a detailed description of how the current t.b.a. market interacts with the mortgage industry and prospective borrowers. it's a complex process but hopefully i've made it understandable and useful to the committee. the t.b.a. markets provide the exit price for long-term fixed rate mortgages and enabled the borrower to accept capital that it wise -- that otherwise would not be available. today the t.b.a. market is the principal mechanism for the flow of capitol into the current housing finance system. any new proposed solution must preserve the liquidity in order

to enable mortgage companies and their borrowers to access this capital efficiently. given that the t.b.a.'s are currently in conservatorship, the system is flawed. i would argue that the principal causes of the failure were the underreserved and undercapitalized g.s.e.'s against the unanticipated credit events, requiring them to underwrite u.s. mortgage credit rissing and then restricting them to only investing in u.s. investments and mispricing of their guarantee fees, a loonsing of the loan underwriting standards and the lack of independence from political goals. moreover, a fully functioning housing system should share the goals of the administration's option one to, quote, minimize distortions in capital allocation against cross sectors, reduce moral hazard in lending and reduce taxpayer exposure to private lenders

losses. a stated concern over this option from the treasury secretary is that the mortgage credit risk will be transferred to the banking system and as a result expose the deposser to insurance fund to this risk.

as it already operates in a similar fashion. a single government program for all mortgages however does run the risk that the issuer will be unable to adapt to changing conditions and will be less flexible and adaptable than the g.s.e.'s have been. many proposals require that any government guarantee be on m.b.s. and not other obligations of the guarantee or and this is likely a positive step for the t.b.a. market. if the g.s.e. or successors are primarily focused on

securitization, then they will likely act to continue to maintain and improve the value and liquidity of the m. sbmplet and t.b.a. market. many proposals recommend that the government guarantee only catastrophic guarantee that reduces risk to the taxpayer on enhancing the liquidity of m.b.s. such an approach is likely to be consistent with the t.b.a. market, provided that investors in t.b.a.-eligible mortgages do not face credit risk. this means that the credit risk must be absorbed by private capital outside the t.b.a. mechanism and the government guarantee must fully protect investors in the t.b.a.-eligible mortgages. the government would be protected from loss by private capital but would facilitate liquidity on the senior guaranteed bonds.

such a program could be structured in a way to be consistent with the tab market. as important as the direction of reform is the pace of change. given the weak state of the housing market and the lack of currently viable alternatives to government guaranteed m.b.s., it would be disruptive to move too quickly to eliminate fannie mae and freddie mac and replace them with an alternative structure. even if that were more economically sound. on the other hand, inaction also poses dangers as most of the mortgage loans are still reliant on government guarantees and conservatorship is not a viable long-term option. instead of either wholesale replacement of the g.s.e.'s or not taking any action at all, i believe it is possible to transform the existing g.s.e.'s step by step to a new system. in particular i recommend that the g.s.e.'s be encouraged or required to seek forms of private capital to stand in

front of the taxpayers. even while in conservatorship, g.s.e.'s can experiment with owner insurance, bonds that can be used for templates for the long-term restructuring the finance system. thank you for your interests in my comments. i look forward to your questions. >> thank you all for very excellent testimony about a very important and very challenging topic. we're going to do seven-minute round buzz i would be happy to entertain a second round if there are additional questions and we have the luxury with the excellent panelists and three not 33 senators to take some sometime. -- some time. you all highlighted the fact that the t.b.a. market does affect the availability of certain products. 30-year fixed mortgage loans, the ability to lock in interest

rates, etc.. and changes to this that we're talking about, how would they affect these character statistics? i guess the other way to ask it too, is this going to be a tradeoff in terms of what we expect of a mortgage today, fixed rates, locked in, 0 years? how is this all going to interact? >> we were able to keep monthly payments low. i think the elimination of that would force us into either a floating rate market or something that certainly has shorter duration and more volatility for the homeowner and their monthly payments. >> [inaudible].

the government guarantee is necessary to enable the risk to be absorbed by the investor and transferred from the homeowner so i think it is -- the guarantee is functioning that today. the mechanism that the borrowers and the market, the t.b.a. is serving for the mortgage companies, they're basically price takers, they take the information and if they have an outlet to sell the loans, they'll use the mechanics in place. so having a liquid market will -- and having a liquid outlet for 30-year mortgages is the means by which they can execute that transaction. >> thank you. and your comments. >> so, certainly without some guarantee we're likely to have far fewer fixed rate mortgages, those rates would be higher. but i think probably more importantly than any of those is the stability of the availability of mortgage credit would be much lower. we've seen, you know, the

private markets when you go through a shock to the financial system just step back for a while. it takes a while for them to recover. so during that time period mortgages would just be much less available. >> let me sort of ask the question again, starting with you in saying that, a lot depends in terms of where we come out is what goals we have when we go into it. and if the goal is to maintain, which people assume is the american mortgage, long-term, maybe not 30 years, but 20, etc., fixed rates, and relatively low monthly payments, can we do that without a guarantee by the federal government in some way, shape or form? >> it's hard to say it wouldn't happen, it's certainly much less likely that we would have the number of -- the percentage in 30-year fixed rate mortgages without the government guarantee. it turns out there are some

investers who want to buy interest rate risk and can take prepayment risk but don't want to deal in credit risk, they want to engage this in transactions where they can buy hundreds of millions or multiple hundreds of millions of dollars worth of securities at one point in time. and without removing the credit risk it's difficult to see how you could create that kind of market. >> i think if we said tomorrow, hey, let's start a market for -- it would obviously fail to transfer the risk involved in a 30-year mortgage. but if we could develop a process where this credit piece could be transferred into private holders of the risk, everything comes down to a price, what it's worth. we don't know what the price would be at this point because the government's basically assuming that risk and subsidizing that risk. so the market would have to take years to develop in order for that risk to be priced and

risk takers and markets to develop before we could understand really what the potential investors would require and a fee in order to absorb that risk. >> and your comments? >> the market will develop for whatever the rules are brought to them but what i'd say is certainly the 30-year mortgage would be less available, mortgage credit would be less available and if credit availability that would -- that you'd be able to access would be at a significantly higher price and would have a significant impact on the housing market. >> let me ask another question which has been alluded to by all of your testimony and that is, right now there's a lot of capital going into this market because of the way it's structured, to guarantee the credit risks aspects and the presumption, i think, the conclusion from all your comments is that in some respects that capital won't go

there any longer if the guarantee is changed significantly or it's a private system. and it raises the question, you know, one, where does the capital go? we might not know. but is that a bad thing or a good thing? and in terms of the overall economic performance of the country. this is very speculative, but feel free. >> there's a lot of foreign investment, foreign capital, insurance company, monday management, retirement funds that are taking, putting large amounts of dollars into the u.s. mortgage market and it's due to the fact that they don't want to take credit risk. is there a market for that credit risk? i believe there is. but i think we're talking about very large transition from a mortgage market that's determined by rates and investors who care about rates to an investor who cares about

credit and that transition can take, you know, to do in an orderly fashion we're talking about 10 or 15 years. this is not an easy scenario. >> any time you subsidize anything, you get more of it so i think the government is subsidizing the housing sector in many ways, along the food chain, in particular the guarantee is this area, so we probably get a little more access to consumer credit than we would otherwise but it's hard to quantify these things without any kind of real price discovery about what things are traded at or what private institutions would pay for that risk. >> and part of this transition phase would in a sense be that price discovery process. >> yeah, if we could develop credit markets that -- where we could transfer that to the private financial institutions, we could begin to understand

what the costs are, what willing private parties are willing to pay for that risk and move the credit risk into -- across the world instead of just localizing it, concentrating on the government's balance sheet. >> your comments, please. >> i think it's important to separate the liquidity function of the guarantee from the credit function of the guarantee. so on the credit function i think the credit risk should be moved into the private market. it was supposed to be there before, fannie mae and freddie mac didn't have enough capital. the liquidity function is a lot like deposit insurance. and deposit insurance keeps confidence in the banks even when there's uncertainty in the financial system. and so that function i think does serve a valuable purpose. the mortgage market is gigantic. rather than moving more of the financial system into the banks where we have more deposit insurance, this is really another method of providing a liquidity guarantee to important financial sector. so i think you can have an economic benefit without having

significant costs to the government. >> thank you very much, gentlemen. >> thank you very much, mr. chairman. and, mr. davidson, to follow up on that, in your testimony you indicate that the liquidity of the t.b.a. market combined with the government guarantee on the m.b.s. serves to lower the rate on agency m.b.s. by about 25 to 50 basis points in relationship to the nonagency alternatives during normal markets. are you able to isolate and estimate the subsidy of the government guarantee without the validity of the liquidity in the market? >> yes. right now both pieces are combined but i would say that most of that benefit is liquidity guarantee rather than a credit guarantee. in sort of traditional times, the actual credit risk on what should have been done by fannie mae and freddie mac, just high quality mortgages, is very small. it's on the order of five basis points a year. so most of the advantage that

we're seeing for the g.s.e. loans is due to the liquidity guarantee, not to the liquidity aspect, not due to the credits a peck. >> thank you. and did you explain in a little more detail how you feel that a mix of private mortgage insurance companies and credit default swaps and other activities could take on some of the credit risk that the government guarantees currently provide? >> right now the government has absorbed a lot of risk, a credit risk, as well as the mortgage market. the credit default swap market has parties who want to take that risk and the mechanics of it would be involving the possibly a future entity, this new issuer who now lays off their risk through credit default swaps, through the

mediation process of that market. so they can go out and get price discovery on what the wholesale price is effectively, on where the market's pricing this credit risk and where -- if there's no bid for the 30-year guarantee and the private sector, then the government could decide, well, we're going to subsidize that and because we think it has important public policy goals so we could elect to still have a 0-year guarantee but at least we know what it would cost in a private transaction. so what i'm envisioning that we could develop a system with, you know, obviously with the leadership and developing the market practices but right now the g.s.e.'s can't really lay off their credit risk. we could develop structures that would -- and markets where that credit could be traded. >> for a private -- excuse me, for a private residential credit market to develop, it's got to be able to attract capital and right now it seems

to me that's really difficult given the overwhelming market share that fannie mae and freddie mac and the f.h.a. have. and for any of you, what are some of the interim steps that can be taken to transfer some of that credit risk? to move it away from fannie mae and freddie mac? mr. davidson? >> yeah, i'd be happy to. so i think right now even within the existing g.s.e. structure there's no reason why the g.s.e.'s can't work to start, setup these types of markets. there's no reason why they can't be using more external private capital in the form of insurance, either pool insurance or mortgage insurance. there's no reason they can't set up a credit default swap market or the solution i said which is set up a subordinate bond market where they sell off some of this credit risk. so as a transition we can start building private capital markets even within the current g.s.e. structure.

>> thank you. mr. hamilton, you wanted to comment. >> or just point out that some of this technology already exists at the u.s. agencies. freddie mac, for their multifamily lending program already sells off the subordinate and credit trauverages of the securitizations that they create. so they're already doing it in other markets. the fact that, you know, there's definitely the ability to transfer some of that technology and structure into the residential market, you know, one of the things the agencies have provided us is information, transparency and we spent 40 years and the agency spent 40 years building that up. there's no reason we shouldn't use that same information and that same thing to create a market to disperse the credit risk on the other side and reduce burden on the taxpayer. >> and as the other witnesses point out, these would be ancillary new markets that would -- as opposed to disrupting the t.b.a. markets. they could be new ways to trade credit that would not disrupt

the current t.b.a. process. >> all right. thank you. i have no further requests, mr. chairman. >> senator corker, please. >> again, thank you for having this hearing and i thank all of you for being here. i know everybody's kind of checked out after what's just happened and there's not a lot of folks here but people certainly care about this issue. but if you look at the t.b.a. market, it's really nothing different than a futures market that exists, right? so why is it that, you know, we have to have this government guarantee there to make that work when it worked so well with corn and coffee and everything else? if you all could just brief littell me why that wouldn't work. >> i don't think any of us would say that it couldn't work . i think what i would say is you could create a t.b.a. market out of private mortgages with an industry or maybe someone

else who is creating that market, qualified residential mortgages that exist. but the important thing to note is it will be at a significantly higher rate to the homeowner, it will impact the u.s. housing market in a significant way and it will take 10 to 15 years to produce the liquidity that we just spent 40 years producing. >> but it would be fairly priced. >> it would be -- one would hope. >> it would be fairly priced. why would it not be fairly priced? >> i think the market has proven the agencies and the private market have proven that the -- doing market risk pricing across the credit spectrum has not been perfect. and if the private market was to take over credit pricing, i would argue that people of good credit would get very good rates and people with mediocre and bad credit would not be able to get a mortgage.

maybe they should be renters, maybe they should be. but that's certainly how -- >> i thought that's the way credit was supposed to work. but go ahead. if you have bad credit, you can't get a loan. if you have good credit, you do. i agree with that. >> i agree with you. but, listen -- >> wait a minute. >> if washington's willing to depoliticize housing then what you're saying is correct. if there's no interest in homeownership rates or having credit available to homeowners then i think what you're saying is absolutely true and only people that have very good credit and can bring 20% down to the table will ever get a mortgage. i think that's right. i'm not making a judgment. but i think that's the result. >> i think what you just said is a very telling thing and i appreciate it. paul? >> i think that the -- you know, the guarantee subsidizes that spectrum of the borrower and it enables the 30-year

fixed rate, we don't know if there's a market for a 30-year guarantee right now because it doesn't exist. could we develop one? it could take five, 10 years to develop, but -- so, we could probably go out and price it today but there would be no liquidity in the credit so we would be fairly priced, probably not. we're assuming that the government guarantee is cheaper than what a fictional market, that we don't have any price discovery on, but -- so the rationale historically and to my understanding is that you subsidize the borrower with this 30-year fixed rate, you're now instilling more benefits, public policywise because now you have more -- they can buy a larger house or whatever. but i don't know the studies and the reality of the analysis around that. but this is the message that's been sank sant for years, that

we subsidize this 30-year mortgage, we create more homeownership and better communities because we have more -- bigger houses and more involvement in the community. >> mr. davidson. >> the mortgage t.b.a. market is essentially like a few turs market. it does have some important differences. you can't sell a private security before it's created where in the t.b.a. market you can sell loans that will go into a security that's not yet created. so at least technically some rules would need to change in order to create a t.b.a. market which would allow physical delivery of loans. so in most futures markets people don't deliver their product, they don't deliver the corn to the exchange or to the counterparty, they usually pair those trades off and the t.b.a. market, most of the originators actually sell the loans into the short positions that

they've created. in addition what we found in financial markets is that financial markets that have government guarantees behind them trade with much greater liquidity than the nonsovereign markets. so agree that futures markets could work. many of however clients who hedge mortgages also use futures markets, either treasury futures to hedge their positions but the t.b.a. market has proven to be the most liquid and most effective hedge for the mortgages. >> i guess in september the loan limit will go back to the precrisis levels, at least currently that's what's going to happen. i think it's an opportunity to see if this is something that will work. >> yes. i think, you know -- >> and what's the market expecting right now, going back to your illusion to washington and depoliticizing, what do they think washington is going

to do right now as it relates to that? >> i think it's mandated that the loan limit goes down to 625 at this point. i think the market is expecting that to happen, i think the market would hope that it continues to drift down in a meaningful way. i don't think we're going to be able to create a private label mortgage market without product. we can't compete against the u.s. >> so that's going to be -- will there be any t.b.a. activity on those upper levels? >> it will all -- my belief is no, it will all go into private label mortgage securitizations. or banks will just keep those loans on their balance sheet. >> my point on this is that you're being asked or somebody's being asked, what's the consequences? what are the tradeoffs to lower this lending limit down? what's the price and what are the benefits? and we don't have any real information to make the

decision. we don't have any real price discovery at to -- as to what that costs as far as what would willing parties in a private market trade that risk for and then we could evaluate what that cost would be as far as the incremental guarantee fee or exposure to our balance sheet, if you will, for the u.s. taxpayer by reducing that loan limit down and then we could evaluate it with real risk measurements so we could assess whether this -- what is the effect, what is the cost and we don't have any other price discovery mechanisms to do that today because it's all, well, it's this blob of a government guarantee and so i'm suggesting that we create private markets that trade and price credit, this price information will help the economy allocate capital more effectively and price this risk and help us make better public policy as part of the process.

>> i believe it's a good step to lower the loan limits. the private market used to produce $1 trillion, $2 trillion. support $1 trillion to $2 trillion of our mortgage loans, there's no reason it can't support a substantially larger portion than it is right now. >> mr. chairman, again, i thank you. i thank all of you and, mr. hamilton, i was in no way critical. i appreciate the observation that we in washington have created a mechanism where those people with good credit pay more for their mortgages and those people with bad credit pay less for their mortgages and the question is, will we ever depoliticize and cause the market to work in a normal way where people who have bad credit pay more for their rates and people with good credit pay less. i appreciate you bringing that out so clearly and thank all of you for your testimony and look forward to seeing you individually in our offices over the course of time.

>> thank you very much, senator corker. i have a few additional questions but i think in the line of questioning, both the senators have been excellent, it exposes the real policy choices we have. we have collectively for generations, both republicans and democrats and everybody else has said, putting people in homes is key to america and it's resonated and it's resonated and as a result a lot of these programs were begun. to do that. and now we're at the point where we're looking at, you know, how do we make a transition, how do we do it in an effective way, how do we price it correctly, how do we maintain a market and this hearing, despite the esoteric title, is absolutely essential to what we're going to do going forward. for all the reasons that senator corker indicated.

account private market step in? will they step in? so let me just ask a few other questions but i will also join senator corker in inviting you to come by the office because we're not going to settle this this morning. it's going to be a dialogue going forward. i begin with mr. davidson and the question is that, again, if my understanding isn't correct, please correct it, but the t.b.a. market is not subject to the securities laws, it is exempt because of the participation of the g.s.e.'s, the agencies. if we move to a private market where these activities have to be performed by susie private firms, would that induce f.c.c. registration requirements and other forms and if so, would that complicate things further or how should we think about that? maybe that's the more general question. >> so, currently loans that are

delivered into the t.b.a. market are exempt from s.e.c. registration so that allows you to essentially sell them before the securities are created. the private market, an issuer can't do that. they can't say, i'm planning on securityizing next year, please buy this -- or next month, please way into security in advance. and so that's thank just eliminates the possibility for physical delivery into a forward sale. so other mechanisms could be developed but they're just not going to be as efficient or maybe there could be, you know, some exception created for some time of -- type of mortgage issueed. the s.e.c. is going in the other direction right now and requiring more disclosure, more detailed disclosure about loans and longer time periods between when you announce a deal and when you sell it. so the s.e.c.'s direction is sort of contrary to what you need to create a t.b.a.-type market for a nonagency. >> so one of the aspects of creating this new and we all

understand this is not going to happen next year, this is a phased adaptation going forward , would be to provide investor protections but perhaps not in the same way that is done presently by the s.e.c. and private labels but to work both of those futures in, the liquidity, the ease, the uniformity with the investor protection so we'd have to deal with that, i guess. >> that's correct. >> there's a -- one of the proposals and this was again, it was proposed that we insure liquidity in market, a sing shool -- single issue, essentially separating the guarantee function from the insurance function and the issuance function, rather. and you can comment on that

approach of separating the guarantee function from the issuance function? >> are you saying separate the government guaranteeing it or someone private guaranteeing it? >> i would -- >> do we need to have multiple issuers? you're reading -- you're reading from my testimony. the issuance should be a single issuer so that investors aren't confused if it's abc issuer, xyz insure, it's always the same issuance and guarantee function can be priced independently or the role can determine it. >> i won't put words in your mouth, but if it's a single issuer that likely could be a government entity. >> yes. it could be. >> i think these are all -- they're all saying the same thing. i think that separating out the guarantee function is what we're talking about. when we discuss selling, whether when there mr. davidson selling selling subordinate trauverages off of agencies --

traverages off of agencies, it's all accomplishing the same thing. we're trying to separate the guarantee function and mitigate and sell that credit risk so that taxpayers aren't on the hook yet at the same time maintaining one issuer or a couple of issuers and maintaining that liquidity. so i think it's all saying the same thing in a different way. >> mr. davidson, your thoughts. do you want to he lab wait? -- he elaborate? >> -- elaborate? >> thank you. in the current t.b.a. market, there is a perception of fannie mae has better liquidity than fred iny mack, it's minor, two or three ticks, tom knows better than i, so name an issuer name is significant as far as liquidity, even -- and so that was basically it. i think if we get into too many issuers it's going to confuse

the investors which is going to affect the level of liquidity so a single name issuer is what i was advocating and the guarantee function separated. so i think it costs us in liquidity if we have multiple issuers. >> right. just thinking back, i think that's the way we sort of walked ourselves into the g.s.e.'s which is basically if you're going to give a monopoly or -- it's got to be quasi-governmental at least otherwise the monopoly profit goes to someone, you know, that's not our tradition. so this approach i think would imply the issuer would be some type of entity, either very closely regulated by the government or some was request governmental entity and then -- some quasi-governmental entity. >> exactly. and we're not going to get a credit market established quickly but we could develop

that over time. you know, the current infrastructure with a 30-year guarantee is not going to go away tomorrow and it's going to take time for that to develop. >> right. mr. davidson, your comments. you are mr. davidson. >> yes, i am mr. davidson. [laughter] >> excuse me. >> you know, one idea is that if you're going to have this single issuer or a few issuers to avoid this monopoly situation is that you can allow that to exist only as a cooperative. so some sort of industry cooperative like the dtcc and there is monopoly profits, they have to go back into the chain where it's competitive either above or below that cooperative. but i do think that having one or two issuers is good, trying to get as many participants to take the credit risk is good, but you do have to find a way of standardizing the mortgage products. so let's say we had 20 different mortgage originators,

all who would go through this one guarantee or, they all had -- guaranteor. it's a careful balancing act between spreading the risks and standardizing. >> let me ask a final question. to all of the panelists but i'll begin with you, mr. davidson. which is you have proposed a subordinated debt approach. but i think it implicates a bigger issue which is, recognizing that we should probably begin to take steps now to begin a transition, legislative steps because it takes a long time to get legislation through and because the potential is not likely going to have to -- going to happen. today or even next year, etc. but as you suggest and i think everyone on the panel has

suggested, there are things today that should be considered to begin this process, maybe even experiments which don't work out and save us the trouble of trying them in the future on a larger scale or adopting them as an exclusive remedy. so if you can comment on your sboord nate approach, how it -- subordinate approach, how it might work and is it feasible to adopt it today and i would like to ask the other panelists to think of other steps would you suggest, again, outside of legislative but within the purr view of the -- purview of the agencies today ands you -- and as you understand the legal framework. >> the subordinate approach is the thing that the g.s.e.'s have done in the past and sort of in the multifamily area. i believe it is something that the g.s.e.'s are exploring currently, different ways of adding private capital and so it's certainly doable within

the certain structure, with the existing structure, that they do need the approval of fafh. i think they can move in that direction. i think they should try several things. i like subordinated bond approach, other people might think private mortgaging insurance and i think the key factor there is sending the message to fhfa that experimentation is good, that's what you want to see and you don't need to have sort of a sole focus on conservatorship of every dollar today and finding the right solution actually adds value to the g.s.e.'s over time. and the other important component is to try and move the dialogue away from let's destroy -- you know, eliminate the g.s.e.'s tomorrow because they were bad before. the managements who did that are all gone. and are there pieces of the g.s.e.'s that we'd like to preserve over time?

anyway, i think it's doable. >> thank you. >> i proposed one idea but there's no single monday live solution and all these markets -- monolithic solution but all these markets are complex and they're priced differently and there are different audience investors, so the subordinated bond solution may be the best solution we don't know until we actually go out and try to execute and see what the price and the cost of that credit is. so i proposed the market just as one avenue of exploratory thought. i don't have a particular single solution but i think you have to price it, find out what the costs are and find out what's the best execution for the government's balance sheet. >> thank you. and mr. hamilton. >> i think we end up with a

portfolio of things we need to work on in the interim, given the likelihood of legislation in the near term is low. the fhfa can obviously pay a large part in this. lowering of loan limits is one step, we could lower them further on a gradual basis, over the next 18 months would be the next step, it would enable the private market to open up. i think the fhfa could -- you could limit the amount of borrowing that banks can do from home loan bank system, you could encourage the covered bond legislation and market to open up, to be another funding vehicle. you know, i think there's a portfolio of approaches that are going to attack the u.s. housing system and be the solution for mortgage finance and i think there's quite a few of these we can do in the next 18 months without legislation and i think those are just a few of the things we should work towards and then i think we'll find the answer, we'll rise to the top quickly. >> thank you very much. gentlemen, this has been very,

very helpful to the subcommittee and as senator corker suggested, please don't be surprised if you're called again to get your views and advice because you've been extraordinarily helpful. thank you for your testimony and appearance today. some of my colleagues might have additional questions. we'll ask that these questions be submitted before the end of the week. it's wednesday. so by friday i think that's fair. and then we'll get them to you and ask you to return them as promptly as possible. if there are any written questions. again, thank you very much. the hearing's adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> in about a half hour from now, president obama speaks at a fund raiser in chicago for his 2011 campaign. one day before his 50th birthday, at jennifer hudson and herby hancock will perform at an event hosted by obama for america and the democratic national committee. you can see it here live on c-span at 8:15 eastern.

and tomorrow afternoon a hearing on federally leased properties as senate homeland security subcommittee is looking into the cost to taxpayers for the approximately 635 million square feet of leased building space. it will be live starting at 2:30 p.m. eastern on our companion network, c-span 2. senator marco rubio spoke on the recent debt limit compromise at the young america's foundation's national student conference. he says there needs to be a limit in spending in order to grow the economy. as senator rubio was the keynote speaker for the reagan 100 bank wet for the conference dinner's event, this is 30 minutes. >> please continue to enjoy your dinner but our guest speaker is here tonight and i don't want to keep him waiting for a moment and i want to you hear everything that he has to say. because he is really one of the

dynamic up and coming young conservatives in all of america today. as a matter of fact, in the circles that i travel, there's more buzz about him than there is lady gaga. but i travel in different circles. our speaker tonight's parents immigrated from cuba with the rise of fidel castro and the young family arrived in america in the late 1960's. where both apparents worked very, very hard to -- parents worked very, very hard to contribute to the household. our speaker tonight worked his way through and graduated from the university of florida and then the university of miami law school. he spent eight years in the florida state legislature rising to the position of speaker of the house and wrote a book entitled 100 ways to improve the life of floridians,

57 of those suggestions were ultimately enacted into law. including issues relating to energy efficiency, gang violence and health care. he also worked very, very closely with former governor jeb bush in pushing education reform which has marketed -- marked the sunshine state in florida, really one of the innovative educational reform states in the entire country. he was elected to the united states senate in the year of 2010. he is the personification of the american dream and as ronald reagan once said, you can go to japan but you can't become japanese. you can go to france but you can't become a frenchman. but anywhere, anyone anywhere in the world can come to america and become an american. [applause]

and we are very honored to have him tonight with us, would you join me in welcoming the newly elected senator from florida, marco rubio. [cheers and applause] >> thank you. what did he say? thank you guys for this opportunity to speak to you. i don't usually get introduced and compared to lady gaga. [laughter] but tomorrow i'm wearing a suit made out of meat. you guys got it. some people look at me like, what is he talking about? but anyway, thank you guys, i appreciate it, i'm honored to

be here with you today. i doubt that i'll be able to give you the best speech you've ever heard tonight, my teleprompter got left at the office so i'm going to have to wing it. so we're going to wing it. [applause] but thank you. actually i'm really excited to speak to you today. i'm excited of what you're a part of. because much like this country was back in the early 1980's america's once again at a moment of decision. ronald reagan gave a very famous speech before 1980, a decade before 1980, called a time for choosing and what he outlined was a decision that americans had to make about what kind of country we wanted to be and what role we wanted government to play in our lives. it's not a new choice. in fact, it's a choice that virtually every generation of american leadership has had to make. and for much of our history, that choice is pretty clear, america wanted to be different, america wanted to be special. and what separated us from the rest of the world wasn't just our political system, our

political system is something we should always embrace and be proud of. our republic is unique and we should embrace it, we should always understand that we decide issues in this country that other nations have to fight wars over. among themselves. but that's not what really separates us from the world. what's always separated us from the world is that in america it doesn't matter where you came from or what your parents did for a living, if you had a good idea and you were willing to work hard, anyone from anywhere could accomplish anything. for those of us who were born and raised in this nation, in an era of relative peace and prosperity, sometimes it becomes easy to forget that and to take it for granted. but the fact is that this is an exception rather than the rule. in fact, what we know as life in america is almost an impossibility almost anywhere else at all in human history. there's never been a place like this. we should never be embarrassed to say that. because it's true. we should never be embarrassed to see america for what it is,

as unique and exceptional and set apart from the rest of the world. but we also have to understand that that was a choice. that wasn't an accident. that didn't happen on its own. it didn't develop from one night to the next because we're smarter than everybody or god loves america more than he loves other nations. it was the product of choices that were made by the people. they chose to have an exceptional america. and often that meant difficult decisions and sacrifices but a clear, conscious choice that america wanted to continue to be different. that was the choice that america had to make in the early 1980's. and a time of a lot of uncertainty about our future, some who argued and believed that america was on the decline . that believed that soviet-style communism was inevitable to spread across the world and that america had to embrace and accept the world order. or we would somehow have to be second place to emerging powers, primarily the soviet

union. but there was a voice on the -- at that time in the american political scene named ronald reagan who said not only was that not true but that in fact everything that the soviet union represented was destined to fail and fail miserably. people laughed at him. he also talked about the notion that america could once again be great? that it could be the leading military power in the world and the leading economic power in the world. that somehow our future could be better than our history. and again this critic didn't just chuckle or disagree, they laughed. they believe that after vietnam and the watergate era and the malaise of the late 1970's that america would never be the same. that we would still be an important and significant country but not the exceptional land that reagan knew as a boy. and the one he had grown up in. but ronald reagan knew better. because ronald reagan knew that our greatness never came from

our government, it always came from our people. and that in the early 1980's there was nothing wrong with the american people. and he knew that if we embraced the principles that had made us great in the past, it would make us even greater in the future. by the end of that decade, of course, history's already recorded what happened. the soviet union and its brand of communism didn't just not come to dominate the globe, it literally collapsed. by the way, an interesting aside, if you ever talk, as i've had the opportunity to doworks folks that knew and worked with ronald reagan at the time, do you realize that when he gave that speech where he said, dare down the wall, -- tear down this wall, that there were actually people in his administration who kept taking that out of his speech? they believed that that language was too abrasive and not presidential and didn't belong there. that it was unrealistic to expect that we could accomplish that. but reagan knew a fundamental truth and that is that this idea, this notion of wanting to accomplish your god-given ambition and your god-given

dreams was not an american principle or an american dream, it was a universal one and the thing that distinguished us from the rest of the world is that we created a place here where it was possible. america is a place where people from all over the world would come because they couldn't be who god meant them to be in the nation of their birth. and that is literally what we are as a people. a collection of go-getters from all over the planet that could not accomplish their dreams and hopes or fulfill their god-given ambition in the nation of their birth. but here nothing could stand in their way. that was reagan's america in the early 1980's and late 19 0s. it was the -- 1970's. it was the era i grew up in. when people ask me, where did you get your center-right conservative politics, because i grew up in the err reagan. i grew up in an era where i watched and believed and knew that america's future could be greater than its past. and the reagan era defined the

next 20 years. well, we're at another one of those juncture points now in american history where once again we have to choose whether we want to continue to be exceptional or are we prepared to become like everybody else? it is a choice that every generation before us has had to make and now it's our turn. it's a choice that by the way is at the core of everything that's been debated up here in washington, d.c. the debt limit debate is at its core about what country we want moving forward. the facts are indisputable. the united states spends $300 billion a month. it has a government -- the rest every month comes from money that we borrow. that ratio is unsustainable as

it is but it's only destined to get worse. you see the spending part of $300 billion is going to go up dramatically. because we have made promises. this government and its leaders that were here before made promises that is going to increase that dramatically. medicare balloons, social security balloons, in addition the revenue part of it will not keep pace our economy is flat lined. it did not grow the last quarter. it literally basically did not grow. unemployment hovers at %-something but the real unemployment figure when you put in people who are unemployed is close to 20%. one out of five americans sun employed, underemployed or simply given up. and that means that that revenue number as a percentage of how much we spend is only going to get worse as a percentage of our -- the growing -- the spending is going to balloon, but the revenue part is going to stay stag nabt. -- stagnant.

in addition, $120 billion we borrow a month is completely unsustainable and we will -- if we keep doing what we do now, if nothing changes we will have a debt crisis that will make the last one you saw look like child's play. because this last debt crisis is basically because we wouldn't pass a law to raise the debt limit. the next debt crisis maybe one where they won't lend us money because they don't think we can pay them back. and the warnings are out there from everyone, there will come a day if we don't not stop what we're doing now, where the world will refuse to continue to lend us money or if they do lend us money will lend us money at high interest rates because they don't see a path forward for america. the math is simple. and quite frankly everyone agrees that this is true. there is a sharp disagreement about how to address it. on the one hand you have those who believe, well, the only way to address this is to just increase taxes. there's a group of people out there that makes too much money. and they're not paying their fair share and our job is to

take money from them and i will confess to you that it is a position that enjoys some popular appeal in america. after all, most people, even those making $250,000 a year don't consider themselves to be rich. when you think of rich, you think of billionaires, real billionaires and multimillionaires. and so there's some appeal out there in the public perspective, well, why not? why shouldn't people that are making a lot of money pay more? there is also the belief, although i think it's less significant, that the way you grow your economy is through the government, if the government just spent a little bit more money, if we had more programs to do certain things, that somehow the economy would grow as a result of it. and that's one school of thought about how to approach it. now the people in and americans who believe that here in washington, they're no less patriotic than any of us, but their theory stands in sharp contrast where what i believe is the reality of what's made us great up to this point. and that's the second thought process.

the one that i think most of us in this room find ourselves in. and it's the idea that, yes, we need more revenue for government but that revenue shouldn't come through new taxes, it should come from new taxpayers. it should come from growth in our economy. and it's a simple equation. if more people are working, that means more people are paying taxes and if more people are paying taxes that means it's generating more money for the government to pay down its debts. the second part of the equation has to be we limit the growth of spending and, yes, that means looking at discretionary spending, you know, the amount of money that we spend on a yearly basis on different programs that are not required by law but that's a small slisker of our overall budget. the truth is that the big growth in spending are in programs like medicare, but by the way if we don't reform them we'll cease to exist. if we want to save them we have to reform them. there's another thing i would