nderstand politics and my side put policy wonks on. and so what i was constantly trying to do from the fdic perspective was to explain politics. it is easy. i gave your definition, you go out and look for it. but you hear it in various ways. congress never ask, they only react. well, bureaucracy never ask, they only react. people are not going to stop doing what you have told them not to do unless it is at least equally painful or more painful to stop what you are doing. the idea that somehow obama care is going to solve the health care problem by imposing ome nickel or dime fine if you

don't get insurance is to weigh the costs of the fine first is the cost of insurance. this is going to be ongoing. you can never stop failure. ou can try to stay up with the measurements stress test, which is a great term, as to where failure might occur. had we had stress tests on most of the bridges in the u.s. over the last 50 years, we would not be crossing them. so you have got to realize that politics is the beginning of the end permeated that decision to deal with the problem. those agencies, the alphabet they ran off, the federal deposit insurance corporation of fdic, ok, i will put my money there, they were all created for a reason. they are still around, notwithstanding the reason for their creation is not necessary in some instances, and they have a life that they want to continue to live. >> i want to come to the

defense of the fdic in articular. e did not have a function -- first of all, dodd and shelby worked closely. the idea for this whole pproach came in part from hank paulson, and in the execution, a republican george bush appointee, great regulator, had a major role in it. i want to be your opinion, what about too big to fail -- here is the deal, first of all, the eople who say we did not resolve too beg to fail are the best friends of the doctrine, because this is a matter of perception. and when people read that too big to fail is still there, some of them are going to invest their money that way. legally in fact, it is very clear, no secretary of the treasury, no federal official

campaigning the debt of one of these institutions without first abolishing it. the secretary of the treasury would commit a felony. no, he won't. especially since we have provided a way to do it that is systemic impact by advancing the money, wiping everybody out as we have noted, and then testing the large financial institutions. moody's is now apparently going onto this, and it is talking about reducing the ratings of the very large financial institution. quoting them makes me very unhappy because they think they now -- they were the biggest screwup. >> we're never going to get through it -- >> i think they will catch up. here is what we are told. the argument we get is oh, yeah, but here is the deal.

if a major bank or investment house was about to fail, yes, your horse says they fail and then you deal with the death, but there would be overwhelming political restaurant -- political pressure on the administration to bail them out anyway. in what universe? were these people want here the last five years? just remember the tarp. bill said it took us two strikes. you had george bush, barack obama, the democratic leadership of the house and senate, the leadership of the committee working as hard as we could and barely got the thing through. the notion that some point in the future, despite the law, they were be an overwhelming public demand to bail out one of these institutions and keep it alive is nonsense. >> everyone was for it, no one had an alternative, and you still had to pull heat to get the vote. >> a lot of people voting, no one saying yes.

>> oh, barney, barney -- >> and so they could vote no -- >> don't talk about our secrets in this forum. >> doug is recalling the suspense of the campaign amid that vote. >> i did peek when he suspended, to be honest. >> there'll be an extra session afterwards. >> barney, did you feel that tarp was going to go down any system with it? >> i didn't. and by the way, bill had mentioned people said this could be as bad as the great depression. it could've been worse for this reason. seven years ago, you had geographic particularly cared things can happen in one part of the world that would not necessarily destroy the other. by 2008, we were on one grid. so people afraid that they would not get paid -- i mean, that had a global shock. that is why we knew we had to do it, though we had some

differences about relief and compensation. when we lost on the floor of the house, i was sure it would be turned around. two factors. first of all, bill knows this, when a measure is coming up, the people who are for it tend to take for granted that it will happen, and the people who are against it scream and yell. you hear disproportionally from the antis. we heard from all the people who thought it was errible. after the vote, people started hearing from other people who thought that not doing it was terrible. and of course -- and i would say this is not purely hindsight here. hank paulson will verify this. we talked that night, and hank, who had done a great job, was in despair. the day the vote was going on, there was a gathering in the well of the house of the bipartisan leadership ready to

go into the usual drill of trying to change members vote. i will take credit for going to steny hoyer and others if they do not do this, this is too serious, don't win this by these kind of tactics. we will pay a big price. i called hank that night and he called me and i said -- don't orry about it. sometimes the kid gets really mad, you have to let him run away, go a few blocks away, get hungry and cold and scared and then he will come home again. >> what is the alternative? >> when the market drops 700 points -- but i was at the airport the day after the vote, and a couple of people from north carolina came up and said that was terrible. i said, how did your representative to vote? he voted no. they got right on the phone. he voted yes this time. the people who are opposed, you hear from them more. so i knew we had to do it, and

i was confident it was going to pass. >> you gave an interesting economic history lesson earlier, and i wanted to see if you would be amenable to my amendment to that, which is we talked about innovation, a kind of lurch forward, and in a need for regulation to catch up. there is often a piece of that, which is innovation, lack of crisis, and the regulations get lax. ou look at it for a long time, and suddenly disappears, it is ot there, you cannot see it. there is something that economist call a ulysses act, which is the idea that ulysses strapped himself to the mast so he will not heed the call of the sirens and orders the

shipment not to listen to anything he says. there is a big of that any legislation, there is a bit of that in any legislation. and bill was getting at this earlier. this notion that ultimately politics determines the quality of regulation. what stops us next time when the markets are booming, everybody is feeling at this good times are here again, and as happened somewhat during the pre-crisis period, regulators come forward, try to slap on the banks, they get slapped down again by congress, and are told back off, these guys. what keeps that from happening again? >> nothing. memory will retard the process, but memories fade. part of it is this. i think -- there were ups and downs, but there was also a trend. clearly, intellectually the 1980's and the 1990's, regulation became credible. academic theory was to be critical. it has made something of a comeback, but nobody can redict that going forward.

i do think now there is more of a sense of regulation and how to do it well, but that is the problem of democracy, you will always have the people most rectally involved more engaged than the general public. > i do not think it is a democracy necessarily. >> america is not a democracy? i'm talking about in america. >> that is not the problem. to me, the problem is -- i think a lot of people, you talked about the desire to deregulate. it was an understanding of relationships over things. deregulate the railroads.

in this situation, we all spent a lot of time looking at booms and busts in history, and we lived through a dot com, and i heard people talking about, can you imagine the stupid dutch? they started buying tulip bulbs, and it is that crazy, they were paying enormous amounts for a tulip bulb. i said maybe they're not crazy ecause of their athletic turns worthless, at least they can eat it. and that is not the case with -- >> i agree with some of what you said. there was a good case we may for deregulation where the government had committed -- had created monopolies.

and airlines, where the government had interfered with the market. what happened was deregulation became non-regulation, as i said, because we did not deregulate derivatives. we had not regulated them in the first place. what happened was the whole philosophy of the regulation or not the regulation got so strong that a kind of jumped the phenomenon where it was not as reasonable. many people make bad mortgage loans and sell them off and having no responsibly for it is not the same as opening up airlines to competition. but there was a philosophical kind of semantic carryover. >> i agree completely on that, and especially when you have people who are paid to estimate the value of it, and they give you a value that is not accurate, and then they flip t. there was so much blue sky involved in everything that everyone was doing, i and all the fun, they will go to the blue skies. >> i have one quick semantic difference -- >> hold on, barney, it you pick the panel, -- >> once it is to bill -- one sentence to bill. i think you are right about the word, and it begins with a b

and an s, but it is not blue sky. [laughter] >> a couple of points. number one, the history lesson i think is important. a lot of the stuff is just the same as before in new clothing. here is the thing we learned on the commission that is the most triking. the dot com bubble destroyed welcome and we remember that in the late 1990's, and there was a little recession afterwards. the housing collapse destroyed wealth. the decline in the housing rate and the decline in the dot com were the same. one produced the great recession because it was deafening, the other one with quity finance. the lesson is control levers, and you should never forget that. that is important. that will inflate in the future. >> didn't the great depression have something to do with leverage?

> i will stop there. you can integrate a little bit with smart design, and mistakes still being made in the u.s. and elsewhere are too much arrogance about our ability to identify specific risks and somehow hedge against them. that is going to be impossible. i prefer stress tests, which are on the bus tests, and too much institution specific stuff because financial institutions work all the time, and the labels on them are not important. i do not think we are out of the woods yet -- >> on the institution specific way, what would be your example? >> we still have labels for things that are banks -- >> i said this what you want to have risks. >> basil 3 goes a long way. >> if you look at what we do -- >> a lot of legacy --

>> i understand, but in the bill, we regulate this and that any other, no matter who does it, precisely -- >> ok, i will raise your grade. >> government institutions were created for a specific -- >> i really can't think of any. which ones? can merge the sec and the fdic -- >> one that comes to mind is the credit agency. >> the government editions. >> 12 fed employee to suffer greater oversight in the money market. >> that is not what i asked bill. by the way, what happened, one

of the problems we had, a ghost of his west of how do you deal with the regulators. i wish there was some way to tell the senate that appointment of the commissioners on the sec and the others was not part of their charter. we had a system that were the president gets to appoint the chair of the commission, but then the senators of the committee of jurisdiction get to appoint the democratic and republican other members. there is a quote that said you do not have any chairs the directing ability, and too many of those commissioners are now there as special interest representatives to the senators -- >> yep, barney and i will agree on anything to say about the sense -- >> it is a time-honored tradition in the rayburn house building. >> we have about 40 minutes

less, 38 minutes or so. i have questions that have come to me over twitter. if you want to send questions, it is #5afterthefall. i am monitoring it here. let me start with the audience and ask questions here. >> i am david christie. my question has to do with the title ii of the so-called bail and policy. i understand as you guys have admitted, the ballot is lyrically hard -- bail out is politically hard. before, the bailout was enforced by a threat of martial law from the bush dministration. so i see the political difficulties in it. i guess my question is as terms of the bail in, as we have seen in now, and cyprus and detroit, the financial institutions

where the deposit can be included to bail in the derivatives. given i had just came from the program last he go, five years -- pro-glass-steagall, though you dig it would be better that we enact it, bank of the wall street instead of fleece the american citizens by stealing their savings under the liquidation authority of just being able to bail in the derivatives of the -- >> the question makes no sense. >> normally, i would think that is a radical question, but i do not think he is too far from the public and how they think about what is happened. >> i understand that. >> and there are factual issues -- >> let me start with this

nonsense about martial law. i do not care what the chairman thought he needed to do to get reelected, but this notion about martial law, that is a very serious thing. there is no threat to democracy. that is a silly rhetoric that drives people -- secondly, as far as the glass-steagall is concerned, we are not the anti-glass-steagall panel, most of us thought it was not relevant. aig would have done it everything it had done whether there had been glass-steagall or not. glass was a lot smarter than steagall, but that is getting into the senate there, bill, but they had never heard of derivatives. derivatives did not exist in 1931. they never heard of the subprime loan. so it was a relevant here the notion that an acting glass-steagall would somehow bankrupt wall street is nonsense. it is not make any sense. you may feel that things are

too big from the political sticker -- say why, and there's an argument to be made, but it is not relevant to what happened. i voted against the repeal of glass-steagall for a number of reasons. country right was a -- countrywide was a bank. they could've gone all of their loans if the glass-steagall was in effect or not. as far as getting rid of the pensions of people, no, that is now we do. all the liquidation says if the bank -- if the financial institution cannot pay its debts, we will put it out of business. he first people to get hit are the shareholders, the executors, the people below the money. and that, i think, if the alternative than to have it come from the taxpayers, and we don't want to do that. >> a quick response, and i do want to get these out because one of the fun things of focusing on this five years after the crash is that there have been some publications talking about -- here is one, what has changed since the lehman failure five years ago,

the crisis, the response, and the responses since? carolyn bowman, this is a really a fun one, five years after the crash, what americans thinouks, enterprise. the appendix is a whole series of an examination of past polls from the 1970's, 1980's, 1990's. and the fact is that virtually no opinions have been changed about the role of business, labor action went down a little bit, and government and the rest. you heard about barney's -- i just want to say, for the record, i have two children, and the treatment of the child in my opinion is not to let them run off unsupervised and it will come back. i guess your position is that if a runoff, you should lock the door. and that would guarantee they don't come back. when you talk about all these people who are victims on the

sideline, i may be point briefly, i want to go back to it. the old pogo, we met the enemy, and he it is us. it is not wall street -- it is mainstream. it is not the bank, it is the people writing the value of the home. it is not those people, it is the people who believed that in buying shelter -- it is their greatest investment and it will always -- a multitude of reasons why it happened. it is always fun to gather around those people who over the years have been the ones you pick on. wall street, banks, business, free enterprise, as though the enemy is a masked cartoon of

this overweight banker with his top hat on with the dollar bill signed and a big cigar and if we could just stop that, then we could deal with it. it is far more fundamental than that. or more difficult. i will turn my time back. >> in the free market, you want the government to back up the wall street derivatives behavior. >> it is exactly the opposite. it requires them to put margins. we try to put them on exchanges. we do introduce competent and in the derivatives in the industry. >> and i believe in free enterprise, and i believe in what ronald reagan said when he said trust but verify. it is the verification of the relationships that really makes free enterprise work. it is not darwinian. >> point that are grounded in the facts. >> here we go. >> i think good policy has to become good politics. number one, size of and institutions are not simply a political choice -- they are driven by economic forces. we have large banks, small

banks, a whole range of scopes of activities. those are economic forces at work, and to pretend otherwise is a mistake. second, i 100% agree that glass-steagall had nothing to do with this. there is no evidence that proprietary trading with the problem. indeed, if you want to look at risks and what is risky out there, it is making loans. everyone has this beautiful vision we are going to go back -- these banks just make loans to their customers. that is where the risk was. that is where we lost money. mortgages went south. >> i think everybody forgot the savings and loan crisis -- >> sure. >> everybody says we needed to hold again -- >> we did that. >> during that time. >> the last please, let me just finish this, i understand all the concern about the solvency and the wind down these largest editions, but - >> i understand the concern and the wind down of these large institutions but a fair reading of the crisis is that it was more a liquidity fireman on -- a liquidity phenomenon than anything else.

when the fed stepped up to liquidity, the financial system turn -- return to solvency pretty quickly. i think the bigger threats are liquidity. >> it was the role the fed played with the money coming in that created a comfort level. the old western where the banker will only loan money to people who don't need the loan -- if we had continued to practice that, we would not have the problems we encountered but we also would not have the economy and the lifestyle and quality of life. > one of the arguments against error view that we have done away with too big to fail -- we have done away with the legal ability of officials to keep alive an institution that is in fact insolvent. some of these arguments are that won't work if one institution has that problem ut the pattern is for them all

to have it and that is not the pattern. that was not the pattern in 2008. most of them were not in that situation. >> the payment system, the system by which money travels within the country and around the world is in private hands. even though it is effectively a public utility in the sense that the public requires this to go to the atm to get their money back. as long as that is the case, there is going to be a nexus for government involvement. the body politic will not stand for the payment system to shut down. that is where the quandary is. it is a bit like how private can your water company be? how private can your gas company be? the body politic demands the service at a cost that is reasonable. >> and they recover it from the large financial institutions. >> this first question on twitter -- very simple -- why

is no one in jail? >> because being stupid is not illegal. >> even worse, being an moral is not illegal. we had to pass a lot of laws because some of the things that people did were not illegal. one argument i heard from the administration is you don't want to prosecute an institution but i accept that, go after the individuals. some of my friends need to remember that one element of due process is that you cannot be criminally prosecuted if you did not have good reason to know that the activity was illegal. ambiguity is the enemy of due process. you also have to be able to prove beyond a reasonable

doubt. a guards of the law is no excuse. if the law was there and you did not know about it, that does not help you. if the best informed person in the world could not have known that was a legal, it is hard do a criminal prosecution. that's why insider trading is what you see in criminal prosecutions because it is illegal. there was great ambiguity and going forward now, we have made some things illegal that i hope will lead to greater prosecution if those things are done. >> an example of something that was done during the crisis that if it was done now would be criminal? >> some of these sub rime loans hat people made. >> giving the loan to somebody who you know does not qualify. >> the falsification of some of the documents. you would think it is illegal but in our system -- in our

system of law, things are not illegal just because we think they suck. somebody has to write down it is illegal. a lot of these mortgage practices were not terminally prosecutable but will be in the future. >> a lot of people run for office on the part that sucks, that will be their platform. >> my platform t when we voted through harp because i knew people were unhappy but you don't get credit for disaster averted. i wanted to make a big bumper sticker that said " things would have sucked worse without me." >> which is true. >> i wanted to counter a little of what has been said about the orderly liquidation authority. in fact, it does insure for the stealing of depositors accounts and is completely unconstitutional and has been cited by the bank of england and the bis as the model for the global approach to the systemic crisis.

the point that senator warren as made about glass-steagall is that for over 60 years, there was no major financial crisis and since 2007, the large banks have increased their indebtedness and only glass-steagall would create the firewall where derivatives would have no federal insurance allowing for an actual reorganization of the system and allow for human progress. what's being done now is an attack on human creativity saying there is no way to the future and no other solution and these are lies. just as obama is lying and should be impeached. >> no, this is totally wrong. deposits are not only protected but the legislation increased the amount of deposit insurance from $100,000-200 $50,000 for the smaller banks. there is nothing in our legislation that in any way

weakens deposit insurance. if you deposit in any fdic insured institution up to 250 thousand dollars for any individual, you are completely and legally protected. that's what the public might think. you mentioned glass-steagall and the savings and loan crisis which was a terrible problem. it cost the federal government much more than this in terms of ayout. that happened while we had glass-steagall. here is just no rationale to this argument -- the shareholders lose. >> the shareholders are not depositors. >> the shareholders lose, the the alternative is maybe they want the taxpayers bail them out. the notion that depositors are at risk is completely and

totally not true. depositors came out of this legislation that are protected because the amount went from $100,000 to $250,000 permanently. >> in terms of the actions and how it changed the legal landscape, the most important thing it did was it nationalized a lot of the rules. people forget that much of the mortgage origination was state regulated. the states were very different in their oversight and different and their standards and we had very different housing problems as a result. >> i'm glad you made that point. yes, the states were the ones that had dealt with this and in 2004, the comptroller of the currency, gated a regulation preempting the regulation of national banks not by saying

this is a bad regulation but they tempted it with field preemption. some of the states started to regulate mortgages and in 2004, the rule came in that said mortgage practices of nationally chartered banks are none of the states this was and that was part of the problem. >> to other areas we need to cover -- fannie mae and freddie mac and the international aspect. barney, i think people would say it is a huge failure five years after the collapse. i guess it's five years in one week that fannie mae and freddie mac were taken over by the treasury department and there is still no plan and they remain wards of the state. they are doing better, obviously they are not bleeding money and returning some money to treasury. fundamentally, we have not come up with a plan for how to resolve fannie mae and freddie mac and get it out of

government ownership. and then getting the subsidy right for housing in the united states. first of all, why hasn't this happened? are there any prospects for to happen soon and how would you do it? >> first, nothing had happened with fannie mae and freddie mac for a long time. the house passed a bill in 2005. the senate under republican control rejected that bill. oxley said george bush gave him the one finger salute. paulsen in 2006 become secretary of treasury and says we have to fix it. he says if you become the chairman, will you do that? i said yes. i knew we needed to do something by 2004. in 2007, we gave the bush administration most of what it

wanted with regard to fannie mae and freddie mac. paulsen use that power in 2008 to put them into receivership. we were then planning to do something about it and then the financial crisis hit and we made the judgment in the congress that trying to restructure housing, finance going forward at the same time as you are doing all the other financial reforms which were more backward looking, it was too heavy a lift. if we had maintained the majority, i promised we would look at fannie mae and freddie mac going forward. the republicans took over and this is the dilemma -- there is a genuine split ideologically as to what we would do. there are a large number of people who believe, including people in the housing business,

that you cannot have 30 year fixed rate mortgages unless the lender who was ultimately responsible for that can get some guarantee against interest rate fluctuation. they say people will not lock in. unless the initial interest rate is so high that you can make money. i think there is a consensus, i hope so, that fannie may and freddie mac, that was not a good model. there were to alternative approaches. one that the chairman has and the conservatives have is it is time for them to phase out and let the market do it. on the other side, there is a minority of republicans and the home builders and realtors and others saying that you need to do something. you have the proposal that says somebody should be able to sell a lender who is a 30 year fixed

rate mortgage a guarantee against interest rate fluctuation, a hedge, which should not be a bad word in general priced to breakeven. my own view is the flipside of banning the bad mortgages which we did is to put more money into rental housing. we should get poor people into rental housing and not homeownership. there are two conflicting views. one is to build a house and get he government out of the business. the alternative is getting some kind of guarantee again to -- against interest rate fluctuation. >> the problem is, and it's one of the reasons it went worldwide, other places that used to rent got into buying and picked up some of these securities.

when you take a social desire like everybody should go to college and you create a system in which everyone should go to college and therefore everyone gets to go to college, and you then say what good is it to go to college? if you start out believing veryone should own their own home and it turns out to be the primary asset which generates money, and then congress passes the tax code change that says certain interest cannot be deducted and so you play gimmicks and that is your mortgage was being paid down. the lending institutions provided you with a sample check of what you could cash out from your home ownership to use to pay off the suv and the other things. you never built up that equity. in the old days, you built up the equity to wait for the

burning of the mortgage. now you whittled it down every bond to pay for those things that the government used to excuse on the interest adoptions and it does not. the problem for me with fannie mae and freddie mac was they tried to play both sides of the street. if it's focused narrowly on a social policy -- the whole savings and loan came from people who did not have money to get into a home. at some point, we have to reassess homeownership, its value, and its cost. frankly, i don't know why a rental cannot get a deduction if somebody who can afford a mortgage gets the payment of the interest deducted. if somebody wants to live on a boat, why can't they get a deduction? white is a mobile home or manufactured housing depreciate and homes don't? it just needs to be a fun to-month-old -- a fundamental reassessment. freddie mae and fannie got carried away playing the market to make money and still wound

up holding the bag on those 30 year mortgages. >> they made money on their multifamily housing. the other disadvantage is you can build up a good credit score by making your mortgage payment but you can pay your rent faithfully every year for 40 years and you get zip in terms of credit. >> first i get to say we told you so. in 2003, there is a study that said the structure of these gse's will cost the taxpayer a lot of money. we testified and it happened faster than anyone dreamed. it was a known problem. fannie mae and freddie mac did a couple of things. they provided a guarantee. going forward, you could provide that guarantee but it should be explicitly charged. that will raise the cost of mortgages. or you cannot have the

guarantee and that will raise the cost of mortgages. one of the thing stopping this is going back to the good old days when mortgages were that cheap. the whole housing industry will have to come to grips with the fact that mortgages will be more expensive. the second thing they did is they had a large taxpayer acked hedge funds and we all lost our shirts bird they should not be allowed to do that again. it was a disaster. the third thing they did which is a source of disagreement is affordable housing goals. essentially, off budget activities to promote shelter whether it's multi family or single-family. >> i think i have been the biggest for rental housing. no more goals are telling the

private sector what they need to do. >> i'm with you. >> what we had in the bill and worked on it in 2005 and 2007, we created an affordable housing trust fund on budget. when you are building housing, you don't do on annual appropriation. it was to be funded out of the profits of fannie mae and freddie mac. fat chance. we talked about pricing that guarantee per home mortgages 50 basis points would give you enough money to build the affordable housing. it was a mishmash and it should not be off budget. it is an on budget appropriation. >> not everyone is with you. >> one of the goals of fannie mae and freddie mac was the concept of promoting homeownership and that was something that contributed to the crisis.

>> very much so. " the new york times" had an appalling article a couple of weeks ago on the front page of the business section. it said that rental housing is ruining neighborhoods. it was this vicious attack on renters saying look what is going on in the financial crisis and investors are buying these properties and letting them be rented and isn't that terribly unfair to the owners? that was beyond what i would've expected. homeownership is a good thing. when we were younger, you expected to pay 25% of your income for shelter and then it became make 25% on the appreciation of your home. it should not be the way that poor people built up equity. for many low income people, rental housing is a better fit for their status than all the questions of homeownership. >> we come full circle to politics because that defines any number of areas where desired social policy gets under government control and

you lose complete site of what you are doing. look how long we paid farmers subsidies to grow crops based on parity. some magic amount they made back in 1914. >> that would be still. >> we knocked a lot of that out. i come from non-subsidy state. we are currently in this mess of subsidizing the making of ethanol principally from corn. ethanol has a lower btu rating than gasoline. cows eat corn. the price of corn has gone up because government is subsidizing the making of ethanol. it turns out, e-85 more than

10% corrodes many working parts of cars. you get into these policies that are written into government determining what the outcome should be rather than the market and housing probably is the single best example of how much we got carried away believing that home ownership is so important. >> i partially agree with you. we have all agreed about glass-steagall. all of us agree that one of the things that did not contribute to that was the community reinvestment act. >> i agree with that. >> i want to make that explicit because some say that's what you got out of the cra. >> it goes back to the business that if you want something, incentivize it. > i just wanted to make it clear that we all agree that

the community reinvestment act was good. >> let's see if the panel can go further. if these government incentive programs created distortions -- fannie mae and freddie mac admittedly came to the game later but they propelled it further -- would wall street have done quite as badly as it did in the absence of the political incentives that were out there? >> qualitatively, yes, quantitatively, no. fannie mae and freddie mac help them do it more but they did not do it because they were told homeownership was a good thing. they did it because it was a good way to make money.

>> they existed because we thought homeownership was a good thing and a people could not finance it -- >> how much of this blame from the beginning of the conversation goes to the government center -- a sector and how much goes to the private sector? it seems the government sector propelled the private sector to some of its excesses. >> fannie mae and freddie mac were propelling that. >> let's go another step. >> the mechanics of that -- one of the great ironies is that fannie mae and freddie mac were created to securitize so we could get away from the regional mortgage markets that were supposed to be good. >> if the government political process propels the private sector to access as it would not have otherwise gone to, is dodd-frank too tough on the private sector and somewhat unnecessary if we don't have

these government policies that propel the private sector to its excesses? >> you don't get to go first because you are biased. >> you respond first. >> the root of all evil is money. bright people get attracted to money. wall street is a manufacturer of a way to make more money. some people resent that. if we come back another five years for the 10-year reunion and then the 15 or the 20, dodd-frank was not a shot in the dark at a shot in the misty evening. like all the other stuff government does to stop behavior, if it is not on oversight and review and adjustment as what we per pose to regulate continues to change, i imagine some french

thought them maginot line was a good buy. it constantly has to be reviewed. vigilance and the willingness to be transparent and educate people making choices is our only alternative and from an historical point of view, we will make the mistakes over and over. >> i'm glad you asked that question. fannie mae and freddie mac got off. the first thing we got under my being chairman was to put fannie mae and freddie mac out of business and put them into receivership. we shut down the problem and stopped the bleeding. what you do going forward is still there. you are too pessimistic about fannie mae and freddie mac. once we stopped it, there is the value of the housing inventory. i did not think it would cost as much as you predicted in

2003. >> putting him out of business was a good idea. >> it now will be a breakeven. >> so far. >> it looks that way. had we done it we would have been better off. nothing that we did in the financial reform bill whether you approve of it or not was punishing them for fannie mae and freddie mac. someone would have to tell me specifically what we did. we made it illegal to give bad mortgages. that's the only prohibition in the bill. there were other things that we said to increase your margins and capital. i think it was market oriented. >> you also saw wasn't nstitutions but the leadership and the direction it takes under the rules they play had changed. you had some go-go guys running the place making money. >> you were too tough on wall

street is one question and none of them went to jail. can i debate the winner of that argument? >> we will have semi finals. >> nothing we did i think penalize them for fannie mae and freddie mac mistakes. the harshness of it essentially said, except for the subprime mortgages, we did not stop them from taking any risk they wanted. we try to increase two things. the people who took the risk should bear the responsibility and they should have the money to back it up in terms of capital. >> that's after the fact because that's all you can do. >> we have just a few minutes. doug? let's go out with this question -- what remains significantly

undone and do you emerge optimistic about five years on now or are you as scared as you ever were? >> i certainly think we are in far better shape than we were in 2006. part of that is simply cultural nd memories will fade. one of my striking observations from the commission is markets failed the price risk. spreads were notoriously narrow. internally, attention to risk management fell apart. the number of times we had hearings with executives and talked to them about internal risk management, it was a disaster. some of it was dealt with legislatively but most of it was cultural. i am very worried about the future of housing finance. this remains untouched and on

result is a terrible thing in my view. it is the single biggest domestic peace -- the international coordination remains problematic. it is way too expensive and complicated for what we are getting so we are exposed there. when i worry, i worry about the europeans banking system and the ills it can visit upon the u.s. >> do you want to take his? >> to come full circle, many imes we look at the symptoms and don't deal with the causes on a fundamental basis. dollars times politics, who gets what when and how and one of the fundamental rule structures is the tax structure. just as we outdated the earlier laws and you could repeal them but they almost don't apply

anymore is the change. i think we need a wholesale reevaluation of what we have in no way in which we separate people from their means in the tax structure and begin an equitable rewarding of investment in various ways that people can utilize their dollars and to let somebody put it into a mortgage expecting it to be building equity is crazy. to tax things that should not be taxed -- i think it is a good step but i think a lot of the problem is that this society is not addressing fundamentals in terms of a safety net or the tax structure or how people and the government coordinate pay for their senior years. you've got social security as a financial structure and medicare as a senior healthcare structure.

nobody looks at the fact that the healthcare structure is primarily acute-care and is not long-term and we should combine combine social security and medicare to create a long-term assistance to health care. we need to look at fundamentals because the world has changed. >> i have another question. 70 years from now after the next financial crisis and whoever has managed to water own frank -- down. frank, will they say we should go back to dodd frank? is a piece of legislation that you're proud of? >> a quick semantic point. the way from which we separate people from their meanings, that is why we are called the ways and means committee. the international one -- whatever we think about what we have done, we have done a better job than most of the rest of the world on the international side. one of the dangers is the business community -- and going

back to our family analogy -- the business and financial community has come to some extent, adopted the mode -- adopted the mood of the teenage parent -- the teenage child against most parents. "england let me do it." we have to talk to each other bout this. hy i do think -- if you have been to a national airport legally there is a racist quote from carter glass and he was in the constitutional assembly, explaining why it is terribly important not to use the -- not to let those "black people" -- i don't think that's the word he used -- don't let them ote. we are going to use these regulators to do with the problems we don't know about

yet. he have a margin for this, risk retention there. i believe we have given the regulators the broad powers hat are going to make it work. on the other hand, i don't think it is going to be all that relevant. >> i would like to exercise my prerogative and thank my fellow panelists. > this could have been something completely different ut it was fascinating.

generally in the television business the viewer quick -- viewer clicks the channel between financial and reform. what is interesting about this from my perspective is this is not something ordinary people had to listen or think about five or six years ago. now what happens to the banks and bank regulation is a matter f public policy debates. click some of our former colleagues will probably want some record of you telling me when we could talk. >> what you don't know, can't hurt you. >> exactly. >> thank you very much, folks. [applause] [captions copyright national cable satellite corp. 2013] [captioning performed by national captioning institute]

>> today on c-span, your calls and today's newspapers live on "washington journal," followed by a hearing on homeland security threats with testimony from former secretary tom ridge and others. and later, former homeland security secretary, michael chert off. in a moment on "washington journal," the day's headlines and your calls. then threats to the united states with al qaeda groups with a former country country on the part of tough, followed by immigration and what law enforcement says is missing from policies proposed in washington, with "usa today's" alan gomez.

and later, george mason university professor talks about people in washington who move between careers and business consulting, politics, and government. ♪washington journal" is next. . "thegood morning washington post" just posting that agreement between russia and the u.s. lays out the seizure of serious chemical -- of syria's chemical weapons. democrats sitting on the senate inking committee have come out against larry summers as a replacement for federal chairman ben bernanke. and other financial news, 40,000 federal workers did not get paid on friday because of the mistake