the trees are here today. >> permanently transforming the capital city. what else do we need to know about this story? >> taft was not pro-japanese in his foreign-policy. he was tilted more towards tr had been more pro- of this was a by the japanese a test by the japanese government. taft would say, your mother's work is making it better than it has ever been. >> it was a very busy and momentous time in american

history. here are a couple of important things. most of it seems to be about the tariff. the 16th amendment came into being. there was the oil decision in 1911 and more states admitted to the union. taft's role, how long was stroke? that she had a 15 -- >> may 15 they went on a cruise, and they said, there is something wrong with ms. taft. realized she had a seizure.

president,ked at the seeing hisuch pain wife have a seizure. >> she had some temporary , and it came back shekly that was her voice. lost that articulation, and it took a long time for it to come back. earlier that morning her son had surgery. she was a nervous wreck that and worried about

the operation. she was quite tense to begin with. >> he had blood and stuff. he was her favorite son. she said, i will never have him again. the nice thing, there are stories of him sitting on the , saying, say the. say it again. he was running a rehab for his was also being

president. >> was he able to do his duties? i think he carried forward the duties, but what was striking was the emotional stress. thatnk there is an element i do not think i gave it a enough importance. hubley -- he loses her input, and this was a highly stressful for him or her.

>> he had no close friends. veryof his brothers were good at giving advice. there was no structure at the white house, no aides. there was just a secretary and a clerk. intimateis most adviser, and in an afternoon, she is gone. >> he is not a natural politician. exactly a profile .oor pr -- four pr about a tell more person from their likes and art and in theater and music.

i am wondering -- some of the luminaries -- i would like to get a better picture. name drop if you would. >> you list what she brought to washington. >> she had charles coburn. had performances of shakespeare on the white house lawn. were full-blown productions of shakespearean plays. she had artists and fannie bloomfield, the great female who's who of classical music moved through

the white house. it was as stunning a group of artists that would later come with the kennedys. >> didn't have a cultural or political impact on the city? >> it was cultural. it was what the first lady ought to do to bring the finest music to the white house. i think generally that is what cultural aspects do. >> we have video and audio and of jackie kennedy's concerts she had, but we don't have that with taft. not developed was to know what the concerts

were like in the white house. >> president taft like to listen to records. he enjoyed going to musical performances. one wishes -- 30 seconds of helen taft laying the piano i would certainly listen. the president had a military aid in those days. archibald butt who was the military aid, and he is famous because he wrote his sister letters. there are three volumes, one from the roosevelt years and three from the taft years. he recorded everything everybody said. some of it may be right. some of it may be wrong. recorded that for years. >> his amazing story is how did he die? .> he died on the titanic

>> a great loss for taft. >> it crashed him. -- it crushed him. he created a certain dependence. when he went to europe, he did not want to be around. he was supposedly quite heroic. >> despite the illness, it was the celebration of her anniversary. learn more about it in this video. >> mrs. taft enjoyed being the first lady.

she was not able to attend to those things. was a little disappointing. they celebrated their wedding anniversary. they had a big party. thousands of cap came in. received tons of silver, and embarrassing amount of silver. we have some of the silver here they would have been presented. they would have little inscriptions on them. this has the taft inscription here. we have a very large silver

tray. it would have the dates. some of the pieces are very large. in addition to the gifts, many telegrams are sent from all over the world. this showcases all of those telegrams. they cap those and collected those.

we hope your happiness will be it exceeded by the happiness of your 50th 50th anniversary. this is in recognition of all the people who appreciated the president and mrs. taft. it was a strengthening for mrs. taft as she moved through the white house. >> they come out of it asking, how did the stroke affect the marriage. they talk about how he attended her personally. what do we know? and alreadythened powerful union. he doted on her and constantly

solicited. they would have passed on it if they could have, but it did bring them closer together. wrote to her every day. these are hand written letters. he was taft. that's devotion. >> she was recovering. >> she could not be in washington in the summer. he would dictate some letters. >> from massachusetts, what is

your question? am two towns over. my grandmother wrote some andies about seeing taft heading over to see him. he returned for a couple of summers while they were in the white house. i want to say i enjoyed your show. >> thank you very much. on her influence, even with her a comment.e is she wrote, it is no uncommon theme to take part in --

she attended almost every conference at the white house -- >> it's interesting. in 1964, andght up her daughter wrote a letter to time magazine saying this is overdrawn. i could who for is a known ver is a- ike hoo memoirist, and he did not like helen taft, so take it from what he says. >> the observations of how she was involved in policymaking is what? role, butnplays her it seems to me she had more of an advanced role than a lot of first ladies of two that point

but not nearly as advanced as today. she was very washington centric. making stops in different parts of the country. >> in no sense they were copresidents? >> no. >> how did it all play out for the party and the two men? that still disaster echoes to this day. one reason republicans compose more than democrats is the trauma they went through until

1912. will saw it developing in a more but by 1911 it was clear roosevelt was being pushed very hard. she kept saying, i know he is going to do it. , in she announced he said think you are happy your prediction has come through. minute not trust him one through their relationship. >> his decision brought woodrow whatn to the white house.

were the last months of the taft residency like? withft took his defeat unusual grace. when the press says, do you feel disappointed, he said, the american people gave me the gift of the presidency for four years, how many people have had that gift given to them? i would be and in great and the happy.f i said i was you have to put up with the vagaries of democracy. the american people have made their decision. it.nnot be angry about he was disappointed, but he was not embittered. i think that is to his credit.

>> that makes sense. the people had spoken. he could accept that. on thestine, you are air. >> i was wondering if you could tell us about her three children and what became of their lives and families. her oldest son robert was a successful senator. taft's great-grandson the governor of ohio. the granddaughter married and had children, and the youngest son was the mayor of the kennedy. -- the mayor of cincinnati. >> robert taft was mr. republican, and the daughter is a very influential educator.

charles tried to move up to be governor. it did not work out. he was probably the most liberal, between him and robert haft, and helen was pro-suffrage at the time her mother was not. the president eventually becomes pro-suffrage. , butd not like prohibition the american people wanted it in force. >> we have a list. helen taft was the first to ride and the president inaugural parade. she was the first to attend a political convention but not of her husband's party. >> the democrats met in baltimore, which made it a road trip for her. she went with democrat at women. most of washington society went to see that convention.

it lived up to its willing. ling.l the drama lasted a week. she went there. william jennings bryan withdrew it because he did not want to embarrass the first lady. >> she was the only first lady who attended the opposite political party. >> she was the first to donate her inaugural gown to the smithsonian and started that practice. she brought automobiles to the white house. she was the first first lady to

publish her memoirs and the first to be buried at arlington cemetery. i want to take a second to tell you about our book. we are doing this in partnership with the white house historical association, and they published a book that contains a biography as each of the first ladies. you're making it available at cost, which is $12 95 on our website. aboutis a way to read each of these ladies. that's a resource available to you. video about the inaugural gowns. let's watch that. >> the smithsonian has very few pieces that the long two helen taft, but the peace we have --

that belonged to helen taft, but the peace we do have is one of the most significant. first.aft was a woman of helen taft was a woman of and thisons, symbolizes all of that. this is her inaugural gown. the inauguration was very important. she saw it has her husband coming to the white house and herself coming to the white house. occasion andis mark for the united states. be one of theo founders of the first ladies , and they met helen

taft at a lunch commemorating dolly madison. they asked if she would be interested in this exhibit they were putting together. they were trying to acquire something from every administration. she finally donated her inaugural gown to the collection. she is really the founding patron, and she established a tradition that first ladies could donate their inaugural gown to the collection. every first lady after helen taft to had an inaugural gown has donated it to the smithsonian. many of you have been through that exhibit. cannota problem that he practice law. yale daily news.

>> how did he become chief justice? >> he played things very carefully for eight years, hoping the republicans would come back in. he was very disappointed in wilson. he had come to hate wilson. wilson and the democrats repudiated. in 1920, taft is in ohio. like tosays, would you be in the supreme court? taft says, i can only be chief justice. harding says, we will work it out. taft said he was going to make anyway, butpublican

taft was appointed chief justice on july 1 of 1921. >> for how long? >> he served until his death in early 1930. >> he was responsible for giving the supreme court its own home. itunderstood how to get done. he is the one that gave the court its own place. he goes on to say, what was her chieffter he became justice? what was her life like? becomes reallych quiet. they did not have a public role. stirred.y

he issued opinions. he promoted the law. it was about society as far as the supreme court is concerned. >> being first lady is what she always wanted to do. ambitionot have a big other than to live a quiet life. i think that's why. you don't see that as much. >> i came upon your program. wonderful. congratulations. i will be tuning into all the episodes. keep it going. >> thank you for the call. >> she was a lucky lady healthwise. she lived to 81.

how did she spend those years? >> they continued going to marry murray bay. it grew into a taft complex. the president in those days could not leave the continental united states during the time in office. >> can you imagine the political fallout of having a summer home in another country? yes, it was impossible. he loved it so much he waited to get out of the heat. >> she did write an autobiography, and that was the first to be published.

lisa adams wrote an autobiography, but it was not published in her lifetime. if you are really interested have hyperlinked her autobiography. you can read it if you would like more of her details. provide more to resources. >> its unique. she did not think it was dignified to write it herself. >> you brought a letter of her white house years. ?hy did you find this charming >> i bid on ebay.

i was lucky to get it. they were moving back to new haven. >> she was invited back to the white house by eleanor roosevelt in 1940. >> yes, she was. cleveland,d frances and they were only three years apart in age. they got married the same year. club of firsttle ladies, and to invite her back was a nice tradition. on may 20 second, 1943, and she was one of the buried at arlington national cemetery.

as we close out, i want to go back to where we started. i think because of her role in making taft president, she was a consequential first lady in the cultural and political and marital cents, and i think -- enjoys -- marital cents sense. a woman to it ok for have interest in politics. we see she was ahead of her time. more of them have that natural

instinct as well. >> thank you for helping us understand about one of the more obscure first ladies. we hope you interested them in learning more. thank you for joining us. ♪

wilson. ellen they wrote passionate letters and were married for 27 years before moving into the white house. she died of kidney disease after being first lady for less than a year and a half. resident wilson wrote, god has stricken me almost beyond what i can bear. met theirwilson mutual friend. they fell in love, had a secret courtship, and got married. edith wilson is best known for looking after president wilson when he suffered a stroke during

his term. her stewardship of the presidency and the level of power she wielded remain among the most controversial efforts of any first lady. we are offering a specialty dish and of the book, "first ladies of the united -- a special edition of the book, "worst ladies of the united states of america." there is a discounted price of $12.95 plus shipping. about firsthas more ladies. qing --bling at the whiteife

house. find out more at www.c-span.org /firstladies. you in secretary-general ban ki- moon called a report on the use of chemical weapons in syria chilling and declared their use of a war crime and a violation of international law. here is a portion of his remarks. >> to investigate allegations of the use of chemical weapons in has concluded -- in syria has concluded chemical weapons are used, causing casualties, particularly among civilians.

this morning i submitted a eport. we have put it online for the world to see. they deserve high praise. they faced dangerous circumstances, including a niper attack. for thewith exports prohibition of chemical weapons and the world health shows the united nations at its best. for chillingkes reading. the testimony from survivors,

medical personnel, and first responders. they collected evidence and soil and environmental samples. they have provided an account. the results are indisputable. of the samples tested positive for sarin. a majority were fragments recovered or found to be carrying syrian. -- sarin. the findings are beyond doubt and beyond the pale. this is a war crime and a grave violation of the 1925 protocol and other rules of customary

international law. it is the most significant confirmed use of chemical weapons against civilians since saddam hussein used them in halabja in 1988 - and the worst use of weapons of mass destruction in the 21st century. the international community has a responsibility to ensure that >> we are doubling prize money. create a documentary on the most important issue you think congress should include. varying pointsow in january.are due >> in a few moments, a discussion of the congressional agenda. the 2008utes a look at financial crisis with henry paulson and barney frank. later president obama talks

about the economy. several live offense to tell you about tomorrow. will bee minority whip at politico to talk about debt ceiling debate. 3. can see that on c-span --c-span 2 secretary treasury secretary jack lew speaks at the economic club of washington. then governor mary fallin of atahoma will be on c-span2 1 p.m. eastern. now a look at the upcoming congressional agenda. journal, this is 45 minutes. >> we are back in two with the

political editor of washington times. they have returned from their first recess since august. is howimmediate question congress is going to deal with , basic spending for education. every year congress has to reauthorize. big debate.ere is a the big question is what extra stuff do republicans tie on to that?

there is essentially the issue of the funding obama care. they want to see all of it funded except obama care. want to see it shut down if they give a bill that funds everything except for the health care law, they think they theforce him to do that. question is who is going to blink first. you have the question of who is going to blink first. is the big fight going on. the house realized they could not get the deal through the house. they went back to the drawing board.

house was supposed to be on nottion next week. they are in washington working on the things they are supposed to be working on. they may have to cancel if they do not get it done. >> tell us about the deal that fell apart last week. they talked about how they would like to delay the affordable care act. week was a crazy parliamentary move that would but wouldolic votes not produce final action. it gets complicated. specialll comes under rules for how it is debated. leaders come up with the way they will allow their members to vote for the spending and to vote for d funding

obama care. both would be sent to the senate. the senators could then vote. they would have to hold a vote on the funding obama care -- and thenobamacare, they would vote on basic spending. then the government would be and we wouldrly, essentially skip to the next crisis. >> and avoid government shut down. the republican rank and file said, that is not good enough. we need to see action here. first the health exchange

happens to coincide with the september 30 deadline. republican lot of that say if the changes go into effect, we cannot allow that to happen. perfect leverage, and we think the american people dislike this enough they will blame democrats rather than republicans. not the suggests it is case, and they think they can get there for the next couple weeks. there is a growing sense of may be this should have been done on the next crisis we face on the debt limit, which we are about to bump into government. government shutdown is tied sort

of to the cr. if the government runs against it are owing limit, that's a different situation. the government can only take in has taken in. you are talking about instantly eliminating 40% of government. now because the economy is doing better, the financial picture is not in great shape but is in much better shape than it was. republicansme inking, we would be willing to take defunding of the health care law if if we win in that deal or to see a cut in government. they would get lame for those cuts, just like sequesters have not turned out as bad as folks thought.

out, whatl that laid did the republicans here are -- hear this week on stephanopoulos. >> the president is adamant he does not want to deal with either of these things. this has been his position all along. now we are in the negotiation stage. there have the deals in the past. some of them have been big deals that have reduced our spending, which is part of the reason government finance has been better. debt toans allowed the flow, basically said no specific debt limit.

forced a voteey on the budget, which the senate has not done in three years. sometimes there are substantive spending changes you can get out of it. >> we have seen a test of the president's leadership with serious this past week. some are saying -- leadership this past week. some are saying it is a test for john boehner. syria fading into the background as an issue for congress, it is a major issue for the president. it has to remain something congress is going to keep watching and will talk a lot up a, and that will take lot of oxygen in in washington. there is no specific vote facing congress. two things happened.

first we saw the president's approval rating stagnate and drop, and he suffered his own base there. led to its highest approval rating in the year. is that related to their reluctance to approve military strikes in syria? >> and happened to coincide. whether it was causation or not, we don't know. are two things that happen. ie was that congress was out. don't think it's a surprise to say you have bipartisan agreement to fight another branch. they are getting together to do

something very popular. we will have to see what happens with approval ratings, whether the president regains approval and whether congress will be able to get anything done. he has three big test coming up. limit he has said a dollar on spending cuts. that is why we have sequesters. that's why we have spending cuts. in the last go around he did not have the spending cut. whether he will be able to stick to that is one test of his leadership.

you have the question of what happens with immigration and whether he brings that to the floor. his conference does not want to see that bill on the floor. fight. thoseessy three together. on the approval rating, americans evaluate secretary kerry's job performance positively with 60% approval. what is going to be happening on the floor of the house of the senate this week? >> the senate is in the middle of energy efficiency debate, but they are doing very little. been bumpings along with doing some big things

they came in in june. immigration was such a hot topic, and there is a lot of escher to get a bill done. of pressure to get the bill done. you had read months were there .ere a lot of policy debates amendments such as stopping obama care. there are also amendments dealing with energy. the other thing that actually happens in the senate is president obama starts using

regulatory. takeys i am going to executive action to do what i want to do on my agenda. says, that is not our job. they offer amendments to . aapprove the president number of other amendments say, we disagree with the president on this, this, and this. in the house you are likely to see normal measures. whether they do the resolution, whether they do spending. i guess the big things will happen in committee. about those, but i want to get our viewers involved. a lot of moving parts on capitol hill as they come back for their second week. jack, a democratic

collar. -- collar. -- caller. >> i would like to remind everybody ronald reagan's first budget borrowed $.25 for every dollar he spent, and republican parties never looked. bush won and bush ii added $6 trillion to the national debt. i don't like republicans. six republican recessions i lived through. 71 years old. these people are crazy. you have got to be nuts. >> his numbers are correct. had valid budget from 98

that you1, and before have to go back to the 1960's to find balance budgets. it has absolutely gotten worse in the last 10 or 12 years. oute is some financial news there. we are about to have the first year of under trillion dollar deficits. have the second year in a row where the government overall will have spent less than it did the previous year, and the last time that happened as we gear down from world war ii. the only time since that was 52, 53 or 53-54. we are talking nearly 60 years

since we last had two years where government spending actually dropped. some good news finally. >> independent caller. >> my question is with all this , a dividedfighting house will not stand. something is going to happen. if all these things you are as opposed to spending being cut the way it afford to be the world police?

the second question is this. what component is gerrymandering and redistricting laying in this , ift, because those opposed we were a government by the people, for the people, we could ot do that. >> those are good questions. we will take care of the issue of gerrymandering very quickly. i think that has a lot to do with this. both questions tied together very well. for the last two decades or so, maybe even longer, we have essentially been playing with monopoly money. democrats have gotten the spending they wanted. all sides of been able to get

we papered ated. lot of money on all these issues. the tea party movement in 2010, the push back on the bush years and the first couple years of the obama administration, we all agree that we have to live within some sort of limits. it has made all the fights on capitol hill more pointed. once we decided we could not just paper over differences, that is the reason we have these fights and, because suddenly those issues are a lot more pointed. going back to the point about gerrymandering, for the last 2 1/2 years the speaker of the house has talked about the american people be ready for an adult conversation on spending and deficits, but i have not seen the evidence of that. american people still want social security, they want education spending, they want the spending comes out of washington and they like low tax

rates. the american people are not ready for this conversation on spending. members of the caucus are beginning to have that conversation, that is why you get the gridlock, when they said they want it all. gerrymandering is where you stick a lot of one party into the same district so that the competitive for primary elections rather than the general elections, when you do that you do not have this conversation in the middle. you have the democratic conversation going on in 200 house districts. i would say that that winds up hurting the chances for an adult conversation, spending and lower taxes on the democratic side, the wealthy can pay more, there is no middle ground debate. host: let me add to that dynamic with this tweet --

guest: that is interesting. i do not know that i agree with that. i mean health care was certainly them working for the president. he got a lot of what you wanted in the first two years of his presidency. he got a lot of the smaller parts of his agenda. what the last year and a half have showed is the honeymoon is over. he will no longer get what he wants just by being president. but that happens to every second term president. there was a point in the bush administration, right? 2003, when president bush ordered congress to pass a

prescription drug bill as part of medicare, a tough vote for republicans who did not want to do that, that was sort of the last free vote that president bush got. president obama is now in that position as well. the same thing has happened and it is interesting to watch.

it gives them enough ammunition to say that this guy will not do what needs to be done. he is still trying to push through his agenda, which would be wonderful if we had unlimited money, but we do not. guest: the key question there is what sort of deal he is willing to deal at the end. his arguments are two fold. first, if the spending levels that were agreed to in the previous year, those are in law, so the question is why should we attach other political fights to that? he made it clear that he had won the obama care fight and did not get unseated in the last

election, the senate remains the autocratic and the argument was your votes have not gone anywhere. if you want to stop obama care the way to do that is to win over the mind of the public and win more elections, not to hold hostage the rest of government spending. on the debt limit, there are a lot of capitol hill folks that make the same argument, that is money that has already been contacted. they have already decided they are going to spend at and they have already set the tax levels to give the funding that comes in for less than what they are spending. it is simply a matter of saying that we will pay the debts we already ran up. he says there is no reason to negotiate with that. one of the thing that should have mentioned is the problem for the leadership, the bill but they put on the floor last week

came in $20 billion higher than where it was supposed to be set with sequesters. that was another problem out there. it was not just that they had this tricky way of allowing evoke, but they also had different funding levels that angered a lot of republicans. senator tom coburn last week issued a letter to his colleagues saying -- we made a commitment in the debt deal on the level that we would be at. if they will not do that, they will have a major fight. host: here are some headlines about what is going on with the republican party and capitol hill.

guest: what you're seeing there is sort of the perfect storm. leadership always has this problem. their job is to get the basics of government done. in this case it means spending and keeping the government moving at some level. the rank-and-file, they want to win and are not necessarily as interested in process as they are in victories.

we have got to do some basic things to show the -- show the we can govern this place. showing our conservative voters that we are succeeding in stopping the president's agenda and are rolling it back. that is the crux of the fight you're seeing right there. host: remind me how to pronounce your town, caller? caller: [indiscernible] host: go ahead. caller: congress, the way they are acting in the constitution, their political agenda as far as republicans and democrats, do you think this congress will be like the 112th? as far as this benghazi thing that they are going back to on their agenda, is it going to be just for the way in the side they just do not want to get together to make america strong

echo >> benghazi is an interesting issue -- the mayor to strong? guest: benghazi is an interesting issue. congress trend -- challenging whether the consulate was safe enough. there were a lot of questions in the beginning about something bad happening. these arguments have frayed as the questions get more political around unfortunate mistakes.

when congress acts together, that is when congress is thus popular. real quickly on the first point, putting partisanship aside, that is not in the minds of many of the folks up there, but they were elected they put their politics behind them. they believe that they were elected to see it through and elected to do those things. i run the utility index, which tracks how much it's done. we are on track for another win here. host: this tweet --

guest: i think it is his second term. he has absolutely become the face of those who are challenging their leadership and president obama. he is one of the biggest challengers around going to war and the nsa. something that he has taken over for ron paul, the former congressman, who was known as dr. noel for voting against policy. he definitely has a strong stance that is getting him noticed. host: "the wall street journal" has pictures of the remaining contenders. what do we know about when this announcement will be made? how's it looking?

death a clearing this up a little bit, he has been a part of the president's team several times before. he was seen as the president's favorite. as the other candidate, it was seen as this big debate. did he go with the person he really wanted? or who his base wanted? the question now is does he choose janet yellen or go for one of these dark horses? guest: -- host: what do you make of a democratic president with dry candidates that everyone says he really wanted because of

where the nominee had to go first? guest: i have a lot of friends remember his comments when he was a guest at harvard about women and their role in academics. i guess there are two sides to this. there are folks who think he is an economic genius around the president's policies, but a lot of folks first what do not like those policies with personal style that has turned into a lot of problems. he could not continue to fight his own party on that. host: good morning.

caller: you mentioned that you track the progress in congress, but i wish someone would track the bills that cannot get past and what it costs the american people. no president has reduced the deficit faster than this one since 1950. the tax rate is at the lowest ever since world war ii. people do not remember their history. the rich were paying a 95% tax rate. in congress someone said the bipartisan should be both sides.

their starting point is that this is the line and it will not cross it. i am not blaming the president, but the whole direction that this country has gone, it is all about meat, meat, i get a tax break, should my jobs overseas. we have no industrial manufacturing base. i can take any job the one in the repair shops. people that were willing to train me. nowadays everything is made in

china, india, pakistan. people call this an exceptional country, but the only thing exceptional about it is the disparity between poor and rich. host of this story is in "usa today." 90% of these expenditures going to the individual. what about his comments? guest: both sides are what i talked about earlier, with the american people never -- not allowed to -- not ready for the conversation. his argument is that the government should be able to afford more. that is of course because he had the highest deficits by far.

bringing them down was maybe not necessarily difficult. tax increases earlier this year absolutely helped with that. one thing that was interesting, this changed at the beginning of the year, the congressional budget office, the chief scorekeeper for congress and the government basically said that if congress cut out a picture, if the spending cuts that were built into logic affect, the spending picture would be different from where they started, keeping tax rates low and spending high in her. -- spending higher. if congress did not do anything, we would be in better shape. it is a classic fight. the question is, how far along

are voters? host: on the front page of "usa today." "goodbye easy money." host: on health care, we have this e-mail, "since when should be governed by opinion polls -- host: on her point about the polls, let me show the front page of "usa today." health care exchanges at the part of the region started the exchange,-as they have never been, disapproval over the handling of health care has hit a new high."

guest: there was a supreme court case that found most of it constitutional, and the individual mandate was constitutional. i think that both sides were surprised by that. i think that they were all caught unaware. the administration, all evidence, they have been

surprised that congress has not made a significant dent in it. talking about how far behind they are and what is missing, they are in danger of falling into the job for the administration being a lot worse. this is was energizing them to say that they're winning this fight, that it is getting less popular if they just stick to their guns. having said that, chuck schumer last week made an interesting point and i think he is correct, those who believe that all of government spending should be held hostage to that is probably

only 5% of the people. republicans looking at the overall level of unpopular, yes, but there is a basic federal health spending stop. how far can they push that without getting blamed? host: florida, democratic caller, go ahead. caller: these republicans are crying about obama care, i am tired of them cry about obama care when they do not have a plan. at least you have more people in a split district. they should have a district where it goes either way either time. america works better when we work together. we are always try to politicize everything. by next thing is about tax

reform. they talk all the talk, but now i would like to have all of you people in press puts them on these issues. let them have a tax cut.

guest: i will start with the first one on health care, the republican plan is a good point. the president in his town halls made the point that the republicans keep talking about eliminating obama care, the promise to repeal it and replace it and we still have not seen the replacement plan. it is a good point. we have republicans saying to get rid of it with nothing to replace it. the president says he has something on the table, maybe the people do not like it, but it is better than 40 million uninsured. the question is whether the voters agree with that. when we tip past that point and they say it is so bad, so confusing, we would rather be where we were, then the president is in real trouble. that there may be a government shutdown to get rid of it, they are not there yet.

this problem has played republicans. it is tough to come up with a consensus. they had 50 votes in the senate with an overwhelming majority in the house. they cannot unify on a solution, they are left with no alternative. host: the report coming out of geneva is that the head of the panel on war crimes is investigating 14 suspected chemical attacks, this coming reassume from the un inspection report given to the u.n. security council being briefed on it this morning, the un secretary-general is expected to address the media this afternoon.

the chemical weapons report is supposedly one to assign blame. guest: we will have to see what that does for the debate. a number of folks in congress have called for and are pushing for a resolution calling for the syrian regime high leaders to be held responsible in the international criminal court, to be put on trial for war crimes. i imagine this would put pressure on all sides around syria, but it could raise the issue again, that could be the spark that brings this issue back and dominates again. host: for the viewer is joining us, the deal that was brokered, according to "usa today," "could not be a worse signal for another country saying that the u.s. needs to go farther." a republican from wyoming rights

in "the wall street journal," about why the russians cannot be trusted in syria and that we should be ready with a plan be if this deal falls through. guest: if you view international politics as a zero cut -- zero sum game, it is clear right now that russia and syria are winning right now with u.s. policy makers losing, if you view it as a zero sum game, which is exactly what mccain does. we had essentially given the regime in syria legitimacy, by saying we will deal with them. it could be seen as a boost. host: stephen dinan, appreciate it. coming up next we will look at our partnership with kaiser >> we will talk about the impact on u.s. foreign-policy.

discuss the united nations in syria. the recent u.n. report confirmed the use of chemical weapons in the country. later, bloomberg senior economist looks at the role of the federal reserve and possible replacements for ben bernanke, whose term ends in january. washington journal is live at 7:00 a.m. look backw moments, a at the 2008 financial crisis with henry paulson and barney frank. in one hour, president obama marks the fifth anniversary of the financial crisis and talks about the economy. >> several live events to tell you about tomorrow.

about ther will talk budget and debt ceiling debate. you can see the conversation on c-span. lew speakswo, jack at the economic club of washington. oklahoma.y fallin of she talks about education and workforce training. this weekend, look for book tv's full-day coverage of the national book festival. , andailey hutchison looking ahead to october. >> young people say, how can you be in congress, you have been arrested? you violated laws.

>> i say, they were bad laws. they were customs and traditions. bettered america to be and we wanted america to live up to the declaration of independence and our creed. make real our democracy and make it real. arrested, i've felt free. i felt liberated. more than ever before, i feel free and liberated. ago,am lincoln, 150 years freed the slaves. it took the modern-day civil rights movement to free and liberate a nation. >> john lewis will be our in .epth the guest

also scheduled is kitty kelley. december 1, christina hoff sommers. in.ary 5, mark live back --k >> a look back at the financial crisis with henry paulson and barney frank. this conversation was moderated at the council of foreign relations. >> good afternoon. i am from the wall street journal and i'm honored to be sitting with barney frank and hank paulson, of hank, the new documentary. two rock stars of the financial crisis. welcome to the council on foreign relations meeting. this is part of the history makers series. and features individuals made a critical contribution at

junctures in u.s. policy. the crisis qualifies. the series is made possible by the continued generosity of hbo. let me start with a question that is on the minds of many people in the public. when you look at the entire picture and a number of prosecutions, the sec charges, executive compensation, the public statements of contrition, or lack thereof, do you think the people who were responsible for these decisions that led to this crisis have been held accountable? >> wow. i know that is a question on the public's mind. i will say something that may not resonate with a lot of public. my explanation of the crisis, the excesses have aen building for years, that

, thatcredit bubble burst a definition of a bubble is something that the market never fully understands until it burst , and my explanation that every financial crisis in history has its roots in flawed government policies and manifest itself in the financial system, no matter how it is structured, then, you may except my answer, which is that the banks made a lot of -- if weand there is should focus on those mistakes, we should correct them, but the men who are running these banks and the people who are running these banks were dealing with a 100 year storm. something they had never seen

before. you have to go back to the great depression to see something like that. blow upe trying to their entities up. -- entities. given all the investigations that have gone on, when people broke the law, they are being held accountable. i understand that that view out there exists. >> he is not the justice department. we had an important job. preventing things from falling apart totally and trying hard to keep them from reoccurring. i speak you from direct involvement and i want to talk to my liberal friends about this , one of the reasons we had to pass a lot of new laws is because a lot of things that

were bad were not illegal. in due processnt is that you do not currently prosecute someone unless he or she had good reason to know that that conduct was illegal and there was ambiguity's. -- there were ambiguities. >> is it still around? that's a major reason. -- youeople doing things had people doing things that were against the law. hand, i'mer disappointed. i think they are acting like we hurt their feelings. if you look at the law, we do not stop them. if people want psychic income.

making a a lot people lot of money by saying that they said such mean things about us. >> as a former banker, i was disgusted by the things that i saw. disgusted by the mistakes that were made and the behaviors and so on. you can be disgusted and still take thed basic view that barney and i take. systeme that the legal is working. >> barney frank. lehman brothers. hank paulson has said that he tried to save it and could not. they do not have legal authority to do that. a line that was, this is national free-market day. what ever to,

bipartisanship and where did it go? it was a live in well in september 2008. you had a republican president come to a democratic congress and say that we had serious problems. we were cozy den. -- then. hate friday afternoon at 5:00 because the phone would ring and hank paulson would tell me about a new disaster after the markets were closed. we're talking about lehman brothers and i knew he was doing everything possible to keep it going. husband, barclays is going to buy lehman brothers. then, the fsa pulled the plug. he tried to do that and my comments was to mike

conservative friends who said they should go bankrupt. mimi was about to fall and the consequences were so terrible that a consensus came that we could not have that happen again. i said it was national free- market day. barneyother thing which andwed me to tell the story it came out with the reissue of "on the brink." it wasn't too long after bear -- again, withwn bear stearns, only been saved by jpmorgan. we had the fed assisting that buying. we had learned that we did not have the necessary authorities to save a failing investment bank without a buyer.

bernanke and i went and talked with barney. haveplained that we do not the powers for investment banks to wind them down and take them -- wind them down outside of the bankruptcy process. we were not going to be able to get those authorities from congress. the only chance of getting them was by saying that we would have a huge crisis if we did not get them because we meant would have failed and that would have -- lehman would have failed and that would have been disastrous. was comingsition from the republicans, rather than the democrats. you had republicans saying, let it happen. that if anced me

institution failed, we had one of two choices. we can pay all the debts or none of the debts. lehman paid none of the debts. ig paid all the debts and everybody is in a bad mood. bill e did in the was to give them the authorities. we had death panels for big banks and our bill. not a health-care bill. the banks can pay as much of the debt as they think is necessary to avoid further contagion. that was in the bill because hank and ben bernanke had asked us to put it there. it was all or nothing.

we said do as much as you have to do. n we did not have it all. they could not guarantee are putting capital. the fed was able to make a loan because it was secured. >> that was the other thing. a bill hoover had signed that gave the fed the power to give money to anybody that they felt they needed. that was repealed. you do not have that power anymore. saidizabeth warren has that we get a lot nice things -- we did a lot of rank, butgs in dodd-f we haven't solved the problem. >> too big to fail has to and.

-- end. this is not what i'm concerned about. result of this legislation, regulators have the twill's -- failure ofnage the large financial institutions and keep it out of bankruptcy. that too bigaid is to fail is a misnomer. it is not just size. it is complexity and interconnectedness. that's, nosay that, , no bank is too big to liquidate. we had in other global one, is a system set up? with what we have in the u.s.

we have much better tool is to work with. if those twill sub and refined globally, i would say that more needs to be done. tools have been refined globally, i would say more needs to be done. we do not have a perfect regulatory system in the united states. we have five different regulators are doing and fighting with 20 other -- with one another. is it perfect? no. required thes living wills and plans to liquidate these large institutions and has given regulators the authority to do so. -- a laws that we did the reasons they were unpopular

institutions that are failing should not be propped up in their current form. that is what we were forced to do. ,> here's how the bill works institutes are too big to fail and eight nor the consequences. ignore the consequences. nobody the federal government can do was done for aig. advance an institution that cannot pay its debts money and keep it alive. , thee are fired shareholders are gone, the board is sold and the sec taken over as the resolver. financial terms, resolve

means dissolve, i don't know where they came up with it. treasury may of find out there is not enough assets in the bank to pay all of the debts and the secretary treasury is mandating them to financial institutions over 50 billion. -- one group says that there will be overwhelming political pressure to keep it going. in what country? in america, with george bush and barack obama, we were barely able to get it through. the idea that the american people would come to the rescue of a big bank is fantasy. else -- bank somewhere

that still has to be addressed. a global failure or a massive failure, our scheme work in 2008. lehman was in trouble and a couple others were. hank had to force jpmorgan and chase to take the money, so as not to stigmatize the others that needed it. -- and there is a , whate -- he was asked unionr plan if the soviet attacked israel? me, where politics could , -- iin, i grew barney

agree with barney, the banks are better regulated. my focus is on other issues. not that banks are the big problem, but, i am more focused on any in frederick -- fanny and freddie. we will know how these things work when we have a crisis and people use the authorities. the place where politics could come in, ok, is my making. the things we did were so unpopular. really unpopular. there were poles when i left office that showed torture scrolling -- scoring higher. >> and you are up for reelection.

it aree who voted for more concerned about the polls that i was. is, i think regulators have the twill's they need. -- tools they need. everything that i think they .eed there may be a bridge pressure -- pressure to liquidate these is, whatthe question .f too many of them fail other ones arehe in stronger positions. >> if you could have added one more title, what would it have been?

> i would have merged the sec with the fotc. coast farmers in the east and west coast financials. veryuld have been difficult and you would have had shays rebellion. >> it would have been in congress. >> there is no rational way you would've set them up. when it started, it dealt with pork.mand then, financial derivatives came to the floor and caused confusion. ftcoposed that we give the jurisdiction over everything edible. the agriculture people would not give it up.

>> you mentioned fannie and freddie. we have a nationalized mortgage market. what should we do? >> i will get to that but, i want to say that barty and i and democrats and republicans worked these extraordinary authorities for fannie and freddie done. they have not gotten as much attention. these organizations were larger than lehman brothers and were auctioning $20 billion of securities. people bumping the securities, it would have been terrible. number ofagine the defaults we would have had if those institutions were put into conservatorship?

anything we did during the crisis -- that is the biggest untold story. i'm concerned because, right now, 90%, not quite, roughly 90% of mortgages in america, residential mortgages, have some kind of government support and i argued that that means that government subsidies are setting the price and not the private marketplace. am nought is that i longer treasury secretary and i do not have a come up with this proposal. what i say is come up with principles. bureauthe corker-warner -- bill. i'm not someone who says that they should not exist.

i would phase them out. roadmap for a clear what succeeds them. anything they do should have private market participations and government guarantees should be explicit. the government should be paid for the gilt currencies. the price should be sufficient for the private mortgage market and i would limit the mission the income of the borrower and a first-time homeowners. but they are doing all the things you wanted to do? >> i have been very skeptical of home ownership. , we are going to have to make a factual part. 1994, the homeowners equity

protection act said that we need to regulate mortgages and not let them be given up improperly. he rejected that authority is said it was an intrusion. he said he did not think it would go out of control. from 1995 to 2006, i was in the minority and the republicans controlled the congress. i became persuaded that thinks you to trade -- change will stop -- i became persuaded that things needed to change and i wrote the first major legislation in 2007. we did it and it is a solution that i agree with. tension.oo much someis the policy debate, of the free market and conservative purists believe in

getting rid of it altogether. people in the housing businesses say that if you want 30 year fixed-rate mortgages available, there has to be a guarantee. there should be an availability for people to buy interest rate risk for 30 years. .riced to clear that is what we're talking about. that is what corker-warner does. i think people have oversold the see ance and i want to housing fund set up. mortgages.et up mortgages.tlaws bad question think the bush and obama and measures and get as much they could to help people who were underwater? >> it was not the bush

administration or the obama administration. it was the none of the above administration. we had a serious problem to deal with during the presidential transition. talked about this. the first 350 billion went out and we argued about that. another 350n draw if obama oks it. i asked the administration to ok it's. they said that they were not in charge. bush and obama were not ready to get engaged. is -- the obama administration said one president at a time and i got in trouble because i overestimated how many presidents we had i one.

>> i would say one thing, in seriousness, i think george bush was a great president during this time. he dealt with the fact that he did not worry about public sentiment and was right.ined to do was wri housing is weak and we can spend a lot of time talking about housing finance. i was not able to limit the way of foreclosures. i regret that. it alluded the obama administration, as well. angst i felt during

the transition, as i look back at it, the policy continuity was extraordinary. because, president obama picked timothy geithner and ben bernanke was still there. barty was still there. chris dodd was still there. ,e picked him at the geithner who had worked hand in glove with us as we designed this. picked tim geithner, who had worked hand in glove with us as we designed this. there was pressure and i have no doubt there was pressure. because, with every new president, there is pressure from the base to get rid of what the other guys did. >> i agree. ed his ideologues.

we had mortgage relief written into the tarp bill. i know that there was such urgency. they could not wait for some that money to go out. he was asking for the second tranche of money, which would have been used. >the money had to come from somewhere. somebody had to come up with the money. we could force the banks to take where the that is transition fell through. i have to be critical of the secretary. we took $1 billion of the tarp money and said i'm a use that to relieve the mortgage distress of the people who are unemployed. he got so bureaucratic, only half of that was spent. we gave authority and it was not used. >> i will ask one more question

before we go to the audience. the fed. how much has been public and contentious fight her the fed? >> look, i remember when alan greenspan was german -- chairman and i was a dissenter from the people who said that everything wonderful and i found myself being a defender of the fed from a left-right coalition. the fed would have been the logical one to take it away from. doenspan said that we cannot monetary policy without insight. i hope people will look at this. been the which have

recipient of $165 billion of largeoney, when they gave bonuses to people, the pitchforks were out. worried that we were going to lose the capacity for coherent government. that is when the fed got demonized. the money tove these people and then they gave some bonuses. chris dodd got in trouble because he had tried to lift them retroactively. the fed was weakened. i think it happened from the reaction. they get little blame for the bailouts. >> do you think the fed has been hurt? >> by? >> by the storm of who should

replace ben bernanke. >> it has been accentuated by the fire and storm and unpopularity of the actions we had to take and the fed took. the american people never understood that we did this to prevent a disaster. barney and i both understood it. barty was the first one to a splendid to me -- barney was the first one to explain it to me. ,e used the word counterfactual. you are never going to get credit for the crisis you avert. this infuriated the american people. to get your specific question, i hate it. i hate the turmoil that we have seen and the politics around the

appointment of the next chairman of the fed. i do not like the way this is been handled and i would like to have a decision made quickly. we have good people. larry summers is a good man and is highly regarded. know, janet we yell and key thingellen, the is that we have some good candidates and this is an important decision that president obama has to make. thate always argued president bush made some important decisions and ben bernanke was a good one. this one is important. what bothers me about washington is that people disagreed with your policy and go after you on all kinds of other issues and

personalize it. i'm saddened by this. >> one of the distressing things to me is the finance committee. what you've seen -- >> the financial community? under and ons been fair assaults. ssault and the is, -- what has happened the most ideological people, some of the life and some on the right, have turned against the fed. the financial community knows better. their failure to defend it is discouraging and is coming back to hurt them. they have a responsibility to not allow the fed to be as

damaged.ed and >> you may be right. wonder if the financial community speaking up for the fed would help or hurt? >> it would. i don't want to make public speeches. they need to say, here is $5,000. >> with that pragmatic recommendation, i will turn to questions. a question and it is?

. .

constant, adding a net of $40 billion. that is what the consensus of the marketplace is -- that they will do that and slow the purchases of treasuries. they could still keep adding to their portfolio but at a slower pace, or they could stop adding to the portfolio and replace amortization. or they could slow the purchase and not replace amortization. where they could stop the purchase of treasuries. treasuries hold constant and the reach of those things with mortgage backed securities. or some combination of all of those options.

they have a lot of choices of how they do this. the consensus in the marketplace, based partly on a paper that was delivered at the whichn hole conference, said that the purchases of mortgage-backed securities had been more effective in providing economic stimulus been treasuries, has led to the view that they are likely to act on the treasury side by slowing purchases of treasuries rather than or more than they change purchases of mortgage backed securities. our economic forecast has it thed and that -- in expectation that they will start slowly the purchases of treasury securities in the tens of 15 billions of dollars a month. they will also slow the purchase of mortgage backed securities and stop with net additions to their portfolio by may 2014.

that is what is embedded in our forecast. to be straightforward, some people say if you want to know realan economist's forecast is, ask them what they are doing with their own money. last year, i told you i bought a house in florida. this year, i have been boosting the floridian economy by remodeling it. i asked last year how many people had remodeled -- it is still underway, it is dismal. you would expect that, what your? you?at you -- wouldn't this is a snapshot from the first of january until today, what has happened with the 10 year treasury yield. mortgage rates are spread about that yield. goes up, year treasury

so do yields. those are the statements that people may. you can see in that bottom point, there were some comments by chairman bernanke in a q&a session that suggested that they were going to start tapering somewhere. then there were strong job reports for a couple of months. those two things together lead tapering would start, they the markets to conclude that the marketding into what the rise in rates was going to be as a result of that. rising, theto rates volatility in the trading increases. that risk gets priced into interest rates. impetus to push up.s up stop -- push rates on the left-hand side is the portfolio. in the flat part -- that would be the normal relationship, that

goes back about seven years. the normal relationship of the fed's balance sheet to the u.s. economy. to the right side is the expansion of their assets -- agency mortgage backed securities and treasury securities and other securities -- that has occurred in the postcrisis. . to get back to normal, all of that has to go back down to the flat part on the far left part of the chart. that will take some time. there are estimates -- it might be 2020 before they return to normal. whatransition to normal -- constitutes normal -- that is probably normal. it will take us a while to get there. on the right-hand side, that green part is the reserve balances that are being held on bank balance sheets that have to be worked off in a way that does not generate inflation. the fear is that those funds

could flow into credit markets rapidly and generate inflationary pressures. there is no evidence of inflation in the market today, but that is a concern. purchases of mortgage-backed securities, net 40 billion dollars a month. in october 2012, they actually bought 72 .1 billion dollars of mortgage backed securities because there were $32.1 billion pre-payment, or default. to add $40 billion net, they had to buy 72 billion dollars. the same thing applies on the treasury side. the pasthappened in when rates rose? not panic, whiff of that is an overstatement, but concern about housing being on a rates rising,ut a

potentially reversing that and bringing house prices down. time periods with a rapid rise in mortgage interest rates. i wanted to talk to folks about what happened. 1994-995.period was rose 2.4rates percentage points, home sales fell. house prices went up, just not as fast. of mortgages, adjustable rate mortgage share, spiked. are the spikes in the adjustable mortgage share in each of his time periods. prices went up, just not as fast. was 1998 toriod 2000, over 19 months, mortgage

rates went up over an 80 basis 180 basis over points. house prices rose, just not quite as fast, arm share spiked. does that mean that we should expect that because the interest rates spiked again about 100 basis points, if they should go up for, that we should accept this game -- expect the same response. not necessarily, two important things are different. in neither of those periods was balance sheet anything like it is today. the actions they are taking are more to normalize the balance sheet relative to the economy than they are to slow the downmy, to tamp inflation or anything. this is a normalization of their balance sheet. we have never experienced that because their balance sheet has never looked like that since the

depression. that is the first unknown. the rules for underwriting adjustable-rate mortgages have been changed. to issue you are going an adjustable-rate mortgage, you have to underwrite the borrower and their capability to make their payment at the maximum interest rate that that alone could reset to in its first five years of life. clearly, interest rates are in an update -- upward rate profile. you will be underwriting that loan at a higher rate than the start rate on that mortgage. we have been watching to see -- there has been very little response so far in terms of adjustable rate mortgages -- that underwriting changes affecting the ability of households which in the two prior periods use that pool as an affordability tool to adjust to a change in interest rates. that could lead us to a

different result in this period from what happened in those last two time. periods. aboutory and housing -- five more minutes. i want to leave plenty of time for questions that i can avoid -- i am sorry, but i can answer -- that i can answer. in washington if they ask you a question you don't like, you just answer a different one. surprise,ice -- no coming out of the crisis, the first thing that happened as we saw expansion of employment and new household formation, which is not back to normal, is that multifamily building activity picked up first. a quick review of the relationship between renting and owning. the homeownership rate has fallen from 69% to about 65%.

we think it might hit in little lower than that. some people have asked -- are we becoming a nation of renters? our response is no, we are rebalancing to a more normal relationship between the share of households that rent and those that own. in the long run, adjusting for demographics, they boomers, a is65% homeownership rate about right. households that want to own and are financially capable would result in about a 64-65% homeownership rate. we have surveyed our consumers -- the out -- throughout the crisis, the aspiration to own a home has been unchanged. no desire on the -- no impact on the desire to own a home. the tumors have become realistic, it is harder to qualify for credit -- consumers have become realistic, it is credit.o qualify for they also recognize that is not

just your financial strength to qualify for the mortgage to white house -- to buy the house. it also requires resources to maintain a -- to house. there are two parts. the group that sees housing as the best investment potential is the youngest age cohort. i am not sure how this place,-- today we have the highest share of 16-24-year olds living at home. i don't think either party is really happy with that. the younger cohorts have seen a decline in house prices making the potential for long-term appreciation stronger for them going forward. that will eventually play out as we see employment picked up and household for mission pick up to more normal levels.

the multifamily piece picked up first. there has not been a lot of pick up in the construction space. we took some heat at the beginning of this year with our forecast that said this year, some where around 950,000 units multifamily,ily, and manufactured housing would be produced. this chart shows our belief about what is normal. i mention that i would comment about what i thought would be a normal level of construction, because it is the most important contributor to gdp growth. a little bitbout more than 1.7 million units should be produced annually, based on longer-term stable demographics. we think we will get to that from 2016 to 2020. this year, we will produce about 950,000 units.

we were well below consensus on that, so why? crisis,ourse of the public builders had to release both land options and sell landholdings to survive. their supply of developable land had to be rebuilt. just buying the land is not enough, you have to get the permits for construction. that takes time. you also have to hire labor. the people that would have been working in this space, for four years, were unemployed. we were producing about 2.2 million units prior to the crisis. we dropped to about 600,000. outflow. they were not sitting for four years waiting for the market to come back. the homebuilding industry is going to have to encourage them out of wherever they were, that probably means that labor costs might rise for them to encourage them to come into that space. they also have to attract

materials. our view was that that would almost -- all take some time. that has borne out, the monthly annual isaac numbers -- the monthly annualized numbers have been pretty accurate. to get to the us -- to this measure, the 1.7 million units, it means that each of the next three years, the construction business will have to add about 220,000 more starts easier to get there. that is pretty aggressive. we feel pretty good about that forecast, we would like it to be better. it is what i think will happen. it is on the right track, ind,ing will be a tailw but we have a ways to go. the net supply has only just picked up from the lowest double of available homes for sale since world war ii. existing home supply is moving up.

recently, partly because one thing that was not normal -- is thetowards normal -- number of households who were underwater. they owed more on their house and it was worth. there are still some, by some estimates about 5 million households out there, who own more on their house than it is currently worth in the marketplace. go back to our question about -- is it a good time to sell a house if you're underwater, not a good time. of households say it is a good time to sell a house, less than half. there is still a way to go to rebuild the optimism and the financial wherewithal to be able to offer for sale the house that you have. areher reason that we modest in our expectations of growth. that tight supply, driven by the fact that there are a lot of people underwater, low levels of new construction, the fact that

there are still about six percent of all the mortgages out there seriously delinquent -- 90 or more days. in some markets, institutional investors have come out and swept off the low price points and turned them into rentals, all of those are supply restraints. our view is that the reason prices have been rising on the supply side, not the demand side. five out of eight households who are going to buy a house have to sell one first. if it is a bad time to sell a house, they will not be on the demand side of that equation. are just to show the differences in some of the local markets. forward to real estate finance rates. a little perspective -- the average 30 year fixed rate mortgage since world war ii is about 6.5%. about 4.5%. are at

still a very good deal from the long-term. the problem is it is coming up from an extraordinarily low level driven by policy choices. the normalization of the return to normal is going to see rates rising going forward. that is a question -- how much of a head when will that be - -a a headwind will that be to the housing market and the economy. lending standards still very tight. moving a little bit, but not very far. there are still lots of roles to affectin place stronger underwriting standards going for. point, onesis percentage point increase in interest rates, has curtailed refinancing activity. there are still about one million households who are eligible for the home affordable refinance program, the harp

program, that can still see benefits. with the drop-off in overall activity, lenders are turning to those household as an opportunity to keep audience up -- to keep volumes up as total volume has dropped off. seriously delinquent loans are declining, that is the left-hand chart. they are down significantly from that very high peak, but they still are significantly higher than what would be normal. normal for that would be about 2%. isthe full market today, it about 6%. states that have judicial partnership -- processes that marriage foreclosures are taking much longer. florida had something that like loan throughtake a foreclosure, that is about three years. those which have an administrative process, they are moving more rapidly to normal levels of delinquencies. the number of households who have had or have underwater

loans -- what does that mean for the mortgage space?\ see a job ofwill an total production. you have seen companies announcing layoffs and their mortgage business as that has dropped off. the troubling thing is that the applications to purchase a home have fallen about 17% since that ray rice. -- since that rate rise. whether that will hit house prices is an important question. past evidence is that prices might slow or not fall. we will see. 2% growth this year, rates ending the year for mortgages at about a little bit further from where they are today.

next year, economic growth at about two point five percent. still not anything close to request -- to robust. mortgage rates up to maybe five maybe 5.5%. we will learn about that on thursday with the announcement their fed at the end of meeting on the 17 and 18. the market is stopping, waiting for that announcement. -- i am sorry -- that was all dismal, right? there are some tailwinds. housing is a tailwind with that caveat. energy is a huge bright spot for that well.anage that has a strong relationship to manufacturing if we execute on that well. technology leadership, we are still the world's leader in technology development. have demographics -- we

good demographics. immigration is something we want to think about there. long-term, a good place to be. how about that? stay there. there were go. note, i want to thank you. last year i read your slides, i hit the bottom on my refinance. thank you for that. >> excellent. layout inthese groups. labor market questions. what about the shift to part- time employment, how does that impact your outlook? i will read a few off, you can pick one. the amount of baby boomers retiring over the next five to 10 years, where do you think the labor participation rate will bottom out?

is it possible for the labor rate participation to get down to the 1950's level of 16%? some suggest that there is a paradigm shift, i don't know who the some are, in the nature of work and the result for -- and the decline in demand for human workers. does that have an impact? theeen technology and labor market. is there any data projections saying that the effect of baby boomer retirements on the labor force, what will be the effect? >> let me start with the part- time question. recent data have shown an increase in the share of job additions which have been in

part-time employment. that is out there. that is notuse of clear in the way that the data are collected. there has been a lot of discussion of it being a result of the rules for the health care implementation. firms not wanting to cross a oftain threshold in terms share of their employees who are full-time because that invokes a change in the cost. i believe in incentives. i think if you put in place a to theirl component cost shock sure, which is triggered by changes in employment levels, they will react to that. i learned about marginal tax rates in high school. worked at the local gas station, he would get in his worker,, he was a hard

they would ask him to put in overtime. at that time, marginal tax rates on overtime pay or in the 50% range. his question was, is this going to be cash? taxalled this the people's cut. if that was going to be in cash, he was a good fisherman. he would make a labor leisure trade-off involving fishing when marginal tax rates got too high. i believe businesses are rational. some of them have spoken publicly about the fact that they will alter their limit practices. -- their employment practices. if people want to work full-time but can only work part-time, will they pick up another part- time job? probably yes. will the combined benefits of those two part-time jobs equaled the financial strength that one full-time job with its benefits

would be? that we do not know the answer to, i am doubtful. that is just an opinion. what about the boomers and their retirement? ae one age group who has seen pickup in labor force participation is the over 55 year group. i am all for that, that is good for the economy and that they and that of experience generates higher productivity gains. replacing them is going to be a costly exercise. in reason for the increase that participation rate is undoubtedly related to the loss of equity wealth in their homes. then having to go into retirement, they want to rebuild. triggersee that as a for increased consumption. i see that as a trigger for increased saving. thate view that folks see pushing implement forward and tying that to consumption, i am

not in agreement. i think they are not going to be increasing their consumption, i think they will be increasing their savings rate. that is another reason we are more conservative on the consumer spending side. with regard to the impact of technology on the level of employment -- . if you alter the relative costs of labor to capital, you will incent firms to shift run direction or the other. if you increase the cost of labor relative to capital, there'll be a shift to capital. if you decrease the cost of label relative to capital, there'll be a shift to labor. our fiscal policy will have an impact on the relationship of the employment of technology in the implement of the people. the should be -- and employment of the people. that should be a consideration when we are altering the role of employment.

the health-care bill is one of the things that well impact that. the returns to labor have fallen relative to the returns to capital. part of that is shifts in the structure of the tax code and the shift in the benefits compensation. balance,were kept in the improvement in technology will drive productivity gains. it is productivity gains that drive real income gains. there should be a healthy, positive relationship between the two of them. this policy will affect that. -- fiscal policy will affect that. >> i got a question on health care reform. you kind of answered that. >> other thoughts on health care reform? this is a completely personal point of view. for me, the most important thing

that we can do as a society to share ofr reduce the gdp that goes to health care to encourage people to be healthy. the health-care bill did not have any of those incentives in it. incentives for people to get in shape reduce obesity, make healthier choices in food and in their recreational activities, that would be the place we could make the biggest changes in reducing the cost of health care. >> personal trainers for everyone. -- a lot ofo questions about real estate market. a couple odd things first. can you comment on the economic impact of fracking on our economy?

do you save is providing a competitive advantage for the we are seeing the uptake and -- the uptake and manufacturing. >> i have a brother that lives in north dakota. he recently came to washington dc .. dc, he said that the plane was noisy from bismarck to minneapolis because it was all southern drawls, then it was quiet. the oil field having migrated to north dakota for the development of the shell piece. -- shale piece. just an idea of my brother. when the 2000 census data came out. nor'id, i see that

dakota, that is how you pronounce that. it is one of the two states that did not increase in population. grownf his daughters are and out of state. he feels ok with that. the influx of labor to develop that shale deposit is causing some really interesting questions. one of them fannie mae has had to think about. there is a different between the development of the oil source and the extraction. we get requests for financing to build apartment buildings. how long-lasting will the labor in the development of the fracking process -- would you make a long-term investment in an apartment building, maybe

there is only five years of that. extraction may have a different pace of employment. toeither case, this is going add to the employment side of the economy. it is just an little different whether you are talking about development or extraction. that is the first plus. if you think about that expansion, somewhere in the 2020 range, we will be energy independent if things go well. that has a lot of implications. clinicalcal -- two applications, this could have national applications in that way. political implications. this could have national implications. forould lower thae cost households. upts fall, it frees resources for other areas.

a reduction in transportation costs in the energy piece offers advantages to our manufacturing. can lower the prices of crude prices of produced goods because it is cheaper to get them to market. if there is a component of the printersng reduced -- that are petrochemical related, that reduction in production advantage provide an in relative pricing to others around the globe, giving us an advantage in global pricing. it is likely to lead to an increase in employment and manufacturing. there is a relationship between household consumption patterns, because of their energy costs. between the relative value of any fracturing here versus somewhere else, and price advantages, which feeds back to our consumers and makes us globally more competitive.

this is potentially a positive story. it will take us time to get that developed. taking care of the environmental factors of that will be a consideration. if managed well, it is a positive talent for the economy going forward. >> we touched on this earlier. of historically high levels college loans impact consumer spending going forward? >> we are concerned about the fact that college debt is four times higher than its previous peak. part of that is because the crisis and both the slow economic growth has made job prospects for college graduates tougher and less available than some previous cohorts. they have extended their time on toch they borrowed to add

human capital. the most important factor going forward is in congress. if we generate -- is income growth. and realerate jobs income growth, they will handle that although it will take them longer. it will probably delay certain other forms of consumption, like buying a house. if, ultimately, we get a stronger path of economic growth, they will handle that. one of the things that has change in the mortgage space is that we have put in place through regulation a fixed ratio between debt and income in the underwriting process. to the extent that these households come in with a high level of debt relative to their income, it will keep them out of the housing space longer until they get that ratio back in balance. is real income growth. this expansion has been the slowest pace of income growth of

any expansion since world war ii. >> is there any anticipated a fact from eminent domain actions like richmond, california, to seize underwater markets, mortgages, any kind of concern in your organization around that? >> our regulator has made a public statement in opposition to that particular theory and its application in the mortgage space. we have filed a formal document in support of that -- under my name -- it is public, you can read it. we provided some metrics from our perspective. it is an ongoing legal case. we have not put forward the suit ourselves, we are an investor on -- on of the trustees

behalf of the trustees who filed the suit. i cannot comment much. >> let's get onto the real estate market. do you think that home prices in the next 10 to 20 years. rise the chance to same way they did the last 10 or 20 years? or was that a once-in-a-lifetime opportunity? a bubble.s hopefully what is being put in place are a series of changes which will prevent the reemergence of that bubble. the bubble had a number of sources. it was not just the mortgage space. i commented earlier that one of the positives for the u.s.'s demographics. the global population is aging rapidly in important ways. theu.s. come in canada,

u.k., and australia-new zealand are the only western developed who have reasonable expectations of labor force growth through 2050. all of western europe is currently or will within a year or two be seeing declining population. russia is rapidly declining in population. japan is a long-term demographic disaster. the birth rate for replacement to whole population constant is 2.1%, japan is at 1.3, they don't allow immigration. what a lot of people don't realize is that china, because of their one child policy, they actually have a rapidly aging ovulation and a very -- a rapidly aging population with a very little social support

network. as you age, you should shift towards fixed income. the demand for fixed income instruments was growing at the same time as u.s. monetary policy it was very easy. investors in fixed income securities, specifically real estate or mortgage related investments, would take a aaa facie evidence that this was a safe investment. that was a global phenomenon. -- u.s., through technical through technological development, had created a mortgage machine. if there was an appetite of the demand side, it would be produced irrespective of quality. it was a combination of multiple factors that led to this bubble

expansion in credit. clearly, credit standards were used throughout. being the things that is changed is the underwriting criteria. i said two things -- one is adjustable rate mortgages have to be underwritten at the maximum interest rate they can reach in their first five years. there is goingt to be a fixed relationship between debt and income for households to qualify. there are some changes that have been put in place regulator rily whose intention is to truncate those easier underwriting criteria which contributed to the crisis. >> until we forgot. were a couple questions around the relationship between the increase of mortgage rates and the negative effect on housing values. don'tstorically but we really know what is going to happen. i don't know if you went to comment on that further?

>> let me make one related to the comments. if interest rates are rising because the economy is expanding and real incomes are growing and this takes place over time, that the rise in interest rates and the monthly payment from borrowing the same amount of money is offset by the growth in household real income. and it has no impact on the pace of housing. if interest rates are rising because inflationary thentations are rising, households tend to view housing as an intermediate term and they hedge, will continue to participate in the housing market, there is no impact. if interest rates are rising because inflation -- because the fed has decided to get ahead of rising inflation expectations

and therefore slowing the economy, employment growth and income growth slows and home sales slow. none of those impact prices. one of the things about housing is that households have a nominal impact in their decision making from the asymmetry of tax treatment. 20you take out $250 -- $50,000 or 500,000 dollars of capital gains, there is no tax consequences. if you suffer $50,000 of loss, you cannot do that. housing is treated asymmetrically with regard to taxes. house prices are sticky downward. recognize loath to orchid value if it does not work well in their tax situation -- to recognize current market value if it does not work well in their tax situation. that is why the relationship is not what people think it is. >> a couple questions on

regulation of the mortgage market. how big an impact with the ability to repay rules on housing in 2014? roles,e a new cfpb how does that factor in? >> it certainly is a contributor to our more conservative forecast. ability ofstrain the lenders to ease credit criteria to some degree. and while that, we had observed public officials making statements about underwriting criteria being too tight. if there are two male married economists walking down the street and one asked the other how is your wife, what is the proper response?

compared to what? [laughter] a warning about economist cocktail parties. the reason i say that -- when we talk to some of these officials and say when you say underwriting criteria are too tight, what is your compareati ve? comparing itu are to something. what we did is take out of our portfolio data from different time periods and show that there is a relationship between the business cycle and the credit cycle that accompany staff. if you put -- that accompanies that. if you put six floors under underwriting criteria, what relationship between housing and the macroeconomy, depending on how households adjust to those fixed floors. --

typically, as economic expansion -- underwriting criteria has eased and are not allowed to ease, some of the institutions which lend have multiple executions and different credit products. it is possible that they shift their appetite to lending in his other spaces relative -- in those other spaces relative to housing. you could see a shift in the behavior of housing relative to other credit products. alternatively, households could adjust by bringing more equity to the table. know.not this is an experiment we have run. there is not really a history. theelieve that, at least in near term, underwriting criteria will be more conservative as a result. therefore, our forecasts are lower than others. >> a lot of good questions. we will have to keep going. certain real--

estate markets have picked up with prices. historically, we have had conversations around how there is not one market, there are lots of different markets. anything interesting from your perspective in terms of other bubbles or local markets that you want to make a comment on? from the my keepsakes ise price bubble days -- was in a meeting with the secretary of commerce. bubble?n a house crisis tinyd, i have in the bubbles. it turned out to be a little bigger. there was another person in the room that lived next door to his sonnet minneapolis, -- to his son in minneapolis, he got me an

of don ho'scopy greatest hits. not that you care. i made the comment that our that the bulk of the increase in house prices to date has been a function of supply restrictions. if you want to know where the risks -- at least one place where we think there are some risks. it is in those markets which have been influenced by institutional buyer bulk purchases. those buyers, if they are a hedge fund, for example, their business model is not a buy and hold for 30 years housing model. if there were a group of them that had been dominating a particular market and they suddenly changed their point of cashon capital gain and

flows from that investment and the properties back onto the market in bulk supply, you could see a reversal. that is one risk. with rising rates, that change is absolute and relative yields in their investment strategy. you may see that. we think it is unlikely that -- they have not got enough properties in reality to be housebased to drive down prices. in some markets, they may have that impact. it is also a question whether organic demand will pick up enough to offset that change. thele are uncertain about huge share of purchases that are ashed, wehed.-- c don't know as much as we would like to know. >> we are in overtime, i don't care, i am having fun. a series of questions here. ,around the future of gse's

the future of fannie mae and the like. historically, you have not had a lot to say, we have legislation that is drafted -- i will leave it to you to to comment in that area as you see fit. >> i have been jerking a lot of water. i am relying -- i have been drinking a lot of water, i am relying on natural forces to bring this to an end. [laughter] one of the uncertainties in the marketplace is what happens to fannie mae and freddie mac. sometime in the past year, i was introduced at a speaking event as the extinguished economist from fannie mae. that is not the kind of and i am envisioning. first is the

sustained, bipartisan attempt to lay out a change in market structure that would replace the gse model. that is the first stage, it is bipartisan. discussion.serious there are a series of questions that any legislation will have to respond to before he takes shape. the first thing you have to ask is, should the succeeding market structure contain the elements which will support a 30 year fixed rate level payment, self ortizing, paris payable mortgage. all of those elements are part all of those elements are part of that. a level payment, self amorti pre, pretty payable --

payable. .t requires certain structures the structure that it requires is the element of a bond market to be announced. that allows a lender to sell to an investor a commitment to deliver it to them in the future mortgages with certain users rates and a certain amount. that allows that lender to go back and lot that -- and lock that interest rate to the beforer 60 days they close. that is required. you have to think about -- what are the elements of that structure. after you have thought about the elements of that structure, think about how well-capitalized does that have to be. that will imply something about who is going to own the elements

of that structure. obviously, the fact that fannie mae and freddie mac were taken into conservatorship means they were undercapitalized. capital across the entire financial services industry has been increased. that is likely to be the case for the capitalization of the in theent structures secondary market. that implies higher costs to consumers, by j mandate -- that capital will demand a return. as we saw in the crisis, the government and taxpayers became the lender of last resort. care iftion is, do you it is remote from the taxpayer? if it is going to be remote from the taxpayer, should the government have an expose it role of a remote? how you willecide put that in place. all of those things are things

that the legislation will have to wrestle with. it is part of the reason that it has taken as long as it has for there to be more serious discussion. and warner, credit to them for bringing the discussion to the table. we would like to see it resolved. our view is, for the people that work at our two agencies, a lot of uncertainty about career paths. you don't know what kind of a structure you are going to be operating in current professional perspective. it costs employees who get tired of waiting, our ceo has spoken several times saying that we would like to see motion on this to get it fixed. quickies.couple deficitelieve the omb's icitmate of 3.5% def gap is reasonable?

>> the omb -- that is their short term. they also see that rising going forward, we would agree with that. that no one inn washington is addressing is entitlements. they are not affordable at their current structure, nothing is being done. >> the administration's forecast has been rosier than yours, don't you guys share data? please discuss. i thought that was funny. >> talk amongst yourselves. mark in the words of twain, production -- prediction is difficult with respect to the future. no longerrry summers in contention for fed chairman, will janet yellen be picked? what are your chances? >> zero would be the latter. that would be an interesting --

it is interesting that that has become a political discussion. janet yellen is the leading current member, but the administration could have sanctioned that if they had wanted to, they have not. we will see. --in terms of percentage this is about you. in terms of percentages, how confident are you when you are forecasting when you're out, two years out, three years out? we want to know how reliable this is, we are accountants. i was teaching statistics while i was working on my phd, i student who came in, he was a smart young man. he said he was frustrated with having to take a class in statistics because it was so uncertain. he was an accounting major because he likes certainty. , asked him to bring in a 10q

we talked about book versus market value and things like that. i am not sure, he may have gone into medicine or something. [laughter] my forecast that i act on my own forecast. the future is uncertain. thank you. [applause] >> please join me, a great round of applause. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> in a few moments, a look back at the 2008 financial crisis. " is live injournal an hour with segments on syria and the role of the federal reserve. several live events to tell you about today. oyere minority whip steny h will talk about the budget and debt ceiling debate. you can see that conversation on c-span 3.

at 8:15 a.m. lewern, jack real -- jack speaks at the economic club of washington. later, the national press club hosts mary fallin. eastern.at 1:00 p.m. >> 15 years ago, book tv made its debut on c-span 2. >> love, death, and money. we are keen students of love. we are fascinated by every aspect. >> we brought you the top nonfiction books and authors every weekend. more than 9000 authors have appeared.

>> i wanted to give a chance to understand the process by which i made decisions, and the environment in which i made decisions, the people i have listened to as i made decisions, and this is not an attempt to rewrite history. it's not an attempt to fashion a legacy. it's an attempt to be part of the historical narrative. >> also supreme court justices. >> every single justice on the court has a passion and love for the constitution of our country that's equal to mine. then you know that if you accept that as an operating truth, you understand you can disagree. >> and nobel prize winners. >> for me what is interesting is negotiation of a moral position. do no harm.

love somebody, respect yourself. all of that has reduced simplified notions. philosophers have spent a lifetime trying to understand what responsibility is. >> we visited book fairs and festivals around the country. >> live at the annual "l.a. times" festival of books at ucla in west los angeles. >> there is our signature programming in depth. >> if you say to a child -- i have been to schools all over the country, more than 600 -- once upon a time. now you better cash the check. that phrase is still magical. >> every week afterwards -- >> my father's job in belgrade.

my mother wanted me to be born in prague, where her mother was, so i was born in prague. and we moved back to belgrade. then my father was recalled, and he was in czechoslovakia when nazis marched in. >> since 1998, book tv has shown 40,000 hours of programming, and it is the only program devoted exclusively to nonfiction books. throughout the fall, we are marking 15 years of book tv on c-span 2. >> a look back at the 2008 with formerisis treasury secretary henry paulson and former representative barney frank. "the wall street journal"

>> good afternoon. i am from the wall street journal and i'm honored to be sitting with barney frank and hank paulson, of hank, the new documentary. two rock stars of the financial crisis. welcome to the council on foreign relations meeting. this is part of the history makers series. this features individuals and made a critical contribution at junctures in u.s. policy. the crisis qualifies. the series is made possible by the continued generosity of hbo. let me start with a question that is on the minds of many people in the public. when you look at the entire picture and a number of prosecutions, the sec charges, executive compensation, the public statements of contrition,