immediate across-the-board cuts and important investments, like transportation, education and science and research. and the congressional budget office recently said, if you keep those lower, depending levels in place by this time next year, you will have 800,000 fewer jobs in the united states of america. so that is a self-inflicted wound that we don't think the country can afford and so we want to replace those sequester cuts with an equal cut -- with an equal amount of deficit recession -- deficit reduction. >> again, that interview with commerce mendenhall and 6 p.m. eastern on c-span's newsmakers. mccrory signed new voter id laws.

>> this is eleanor roosevelt's typewriter. this is the typewriter on which she read her "my date was code column. i have some that i want to share. -- "my day" column. i have some that want to share. she is talking about here about the comings and goings in the white house after getting back to a regular schedule after the holiday season. from november 6, 1940, election day, she talks about how, at midnight, a larger crowd than usual came in from a hyde park. the president went out to greet them. this is a tradition on election .ight care >> first lady eleanor roosevelt, monday night, live at 9:00 eastern on c-span and c-span

three. also on c-span radio and c- span.org. >> next coming discussion on the state of the u.s. housing market and what the federal reserve is doing to prevent another housing bubble. reckoningthe enterprise institute, this is a little less than two hours. >> it is my pleasure to welcome you. in a post-bubble and does bernanke world. post bernanke world. at the peak of the infamous housing bubble in made 2006 -- in mid-2006 is already more than seven years ago your extended

crisis and accompanying panics 2009 ended foreign half years ago. in the inevitable cycling of believes, the burning of collapse is auditioning to fade. we had a clip today, "investors turn attention to flipping high- end houses." years of falling house prices from 2006 to 2012. and now a strong rebound over with, of course, different views on how that will continue. then is overble but it's living effects move on. as we alll reserve,

know, has practiced an unprecedented and previously unimaginable credit allocation monetization of mortgages. i want to look at house prices in a much longer perspective. i hope you can see some of this chart. fromis a 60-year history 1953 to 2014. it is a slide of the consumer price index versus average u.s. house prices, both indexed to

1953 equal 100. what you can immediately see is that there is an extremely strong correlation and meaner version of house prices to general inflation, which makes .ense if you think about it ve y obviously, with the bubble, we went far-off that underlying trend and then with the shrilled house prices, it came back. if you look to the right-hand side, he it came back and touched the trend but now has bounced up, well over the trend again. indeed, as far over the underlying inflation trend as house prices were in 2001. here's another way at the same underlying data. over the same 60 years, the

percent deviation of house prices from the general inflation, and other words, the previous slide expressed those percent differences. the trend deviation is about zero. but now, as i said, we are back to the deviation of 2001. the bubble being stoked by the fed was taking off. , if you look at the very end of that line, in terms of this deviation from general inflation over the previous house price peaks of the 1970s and the 1980s, as we are about to enter the post- bernanke world.

first will be jay bricklin, the chief economist and senior vice president of research and education at the mortgage bankers association. he joined in ba in 2001. he has also been deputy chief of staff to the governor of louisiana and taught financial institutions and regulation at the university of houston. we wonder cometh in teaching coming you ever imagined the extent the regulation that you would eventually expense later. next would be mark fogarty, the editorial director of source thans mortgage group

national mortgage news. he has cover the mortgage business since 1984. so he is now on his fifth real estate cycle. and he brings us wisdom accordingly. the and his team that won george polk reward for journalism and is a toros have one awards from the american society of business press editors and the native american journalists association. third is desmond locklin, a fellow at aei. accuratelys pessimistic forecasts. [laughter] was a deputye director at the monetary fund policy development fund. -- posted a government department. u.s. housing bust, u.s. dollar,

and the strains of the euro area, which he will touch on again today for us. whalen,l be chris managing director for carrington llc, a wide range of real estate buses. cofounder of the lord whalen, which provides customized mitch -- customized risk management tools. he is the author of the book "inflated, how debt built the american dream" and he is the cofounder of the shoes global cards as the go back to march 2007 when the bubble was just starting to turn into a shrivel. finally, you will hear from john makin, a resident's carter at aei and former consultant to the u.s. treasury. john specializes in international finance and financial markets, including the

u.s., japan and the european economies. the author of numerous books and articles on financial policy, john also writes aei's monthly and insightful economic outlook, which i recommend to you. each panelist will speak from 12-15 minutes. it will give them a chance to respond to each other or to clarify points. and then we will open the floor for europe exchange unless the russians run out sooner, we will probably at 4:00. >> when i was looking at the title of this conference, the post bubble, post-bernanke world, i was thinking it was five years since the gse loss were put into conservative ship -- conservatorship. that just goes to show the accuracy of my forecasting ability, which has marked my entire career as a chief economist.

let's see. so what i wanted to talk about really was for topics generally that skipper out a little bit, the impact of the fed's buying of nbs purchase program going forward. give you a snapshot of what we are seeing in the current lending market, show you a new tool that we rolled out the mba looking at the mortgage credit, the availability of credit in the market and then just a discussion of a new bubble since bubble is in the title and i thought i should come up with something on that and. first of all, in terms of the federal reserve's dollars she, just the massive growth that we continue to see, not only in the total balance sheet, but the makeup of that object, this goes back to that sort of gray-blue area on markets backed securities, something that did not hold prior to 2009, but an increasing influence in that market. and if you look at -- this is a

chart from nomura. if you look at the top lines, monthhange is an 11- change, 170 billion outstanding is the total growth in nbs. of that, the fed over this time 480 billion dollars. that meant that other sectors had to give up their holdings. and the jobs that we saw were among banks. certainly the gse portfolio runoff, which is part of the plan, drops in the holdings of overseas investors, mortgage reits pulling back from their holdings of mortgage-backed securities and other money managers. so a variety of some of the different investment firms investing for pension funds or other portfolios. actually than the fed pulling us out of those or folios, forcing them to look to something else to deploy that cash.

so when you look at the growing footprint of the federal reserve in this market, what then is the application for crowding out private capital? fed notpoint is the assisting the market but is the market? they have purchased about 30% of all the mortgages originated since last summer. goodis not securitized that is total mortgages originated. unless we see some tapering, through 2014, they will be by more than half of all the mortgages originated, get not just securitized, but those originated. --t raises the question then what happens if the mortgage market tapers and the fed doesn't? do we want the federal reserve to have that outsized role in purchasing this many of the

mortgages that originated? i would defer to my colleagues here and say what would happen if we saw similar behavior in greece are some of the other countries if the central banks save we will step in and make these purchases for such a large share of the lending that takes place. finally, what is the feds exist -- what is the fed's exit strategy? will they be selling at some point with upward pressure on interest rates? i don't think so. that would defeat some of the purposes of what they're doing. but there has been discussion that, to the extent they need to begin withdrawing some liquidity, they could do it in another fashion, such as what we pose. and if recently saw something in millionr of faith $500 -- order of a $500 million or a $6 billion republics, what will that do further dealers rely on this form of financing? 2009. purchase market has not inclined

as precipitously because we do not see the same run ups. the difference here, if you look at the blueline that represents existing home sales, that has continued to go up even though purchase applications have gone up very slightly. a couple of drivers behind that -- >> let me just clarify. the main applications for mortgages to make a purchase. >> application for mortgages to buy a home. jargon.into the we really think this market come in terms of the mortgages to purchase homes, will continue into next year, not as sensitive to interest rate changes. if the realtor numbers are correct, there are a lot of people buying homes without a mortgage. what do the applications look like? there are a lot of numbers here.

let me walk through it quickly. --ust 2011 come august 2012 august 2011, august 2012, august 2013 good the shift in share in the jumbo market, a lot of concern about what is happening with the jumbos is the gse market, the be-all end-all of what is taking place. in fact, when we look at the demand for mortgages, this is to buy homes. this is just to riches homes between 2011, between 2012, and between 2013, some of the fastest-growing segments is in the jumbo market the jumbo market is now up to 12.5%, which is right in the range of the 15% that we10% to have seen in that market year in and year out.

sort of a vector index, we can take the inner product and get the measurement of how this thing would expand or contract and many different things. my staff looked at and said, well, what if we just count? i said, yeah, that will work, too. we get pretty regular fees from

all of the major correspondent lenders in the country and if you look at it, we had generally been going up -- the index sort of peaked in june-july, that period. the downturn coincided exactly with when the qualified mortgage regulations were finalized. people were sort of speculating up to that point very what would it do and what with the regulations beyond the debt to income ratio? as soon as those regulations came out, we immediately started to see this downturn and we expect to see continued type thing as we approach the effective date of january when all of these will go into effect. we also look at builder application, builder affiliated mortgage companies can what is going on with their applications for new construction. where is the new construction taken place? notably new is a index, we don't have adequate coverage in maybe -- in a number

parts of the country. but in the states where we do have the volume, the states in the green really show the highest activity in terms of new construction taking place with loans to finance those new homes. -- thoseas that's the areas that have still held back. what is going on in nevada? nevada is still running a fairly high percentage of loans in foreclosure. as well as florida. yet we are seeing fairly decent increases in loans being made to build new homes. but if you look at some of the inventory of the loans that are in foreclosure, the loans that are 90 days or more past due but haven't really entered compared to the actual number of loans for sale, as we had a tick up in sales and new home building has come back, that inventory of homes actually listed is dwarfed by those in foreclosure. does that make sense in this

sense? if you have long-term demand and supply and if you have regulatory constraints that limit your ability to get those ofeclosed loans to get out the legal system and get back on them --et, you expect you would expect new distraction to be lower in those states that still have higher foreclosures. the problem is a potential buyers can see what that inventory is. they go out and buy house and say what is available right now? delimited for sale supply. reallybers come in a knowing what the inventory is. so they have been buying new homes. but the longtime equilibrium, once those foreclosures come onto market, there may be a case that long-term demand will be less than the supply that is on that market. could we then see a price

decline? line totted the red what are the states in terms of their loans in foreclosure and then plotted what is their rank in terms of the year to date harness for new construction. i guess it comes out of commerce and homebuilders and i would have parted something of a crossing pattern. in fact, it's random. if you try to plot a line, it is just flat. but if you look at the lower left-hand quadrant, there are states that have high percent of loans in foreclosure and a high percentage of new construction. potentially an area where you would see a bubble. so i am not sitting here predicting that now we have a bubble in the states. what i'm saying, if you are looking for one, you have to get beyond the state numbers. you really have to look at local communities because it could be , maybe theew jersey

foreclosures are in newark and new construction is along the beach where hurricane sandy took it out and similar stories and other states. but simply on a state level, the states that are in that circle are states like oregon, nevada, new york, states that have traditional foreclosure systems, systems that have this regulatory impediment to clearing the foreclosure inventory out of the court system and being delivered into the market. you have high levels of new construction. are we now seeing a negative effect of the judicial and other regulatory holdups to the system? in nevada, it was a new law that put additional restraints on foreclosures. in comparison, i would say that states with high foreclosure high foreclosure rates would not see new levels of construction. i'm not saying these are bubbles. but if one to literary

quotes to shine a light. your children's story dr. dougal, the doctor who can colts -- who consults there is a combination of a facility unicorn. could talk and eat at the same time without being rude did but the heads did not always agree on which direction to go in. beenthink that the fed has a little bit of a push me pull you in recent months. a little does he go that they have done in interest rates. i think there's a epochal economic term. i'm in, i'm getting out, and getting back in. something along those lines. [laughter] anyway, we have seen the

effects of the talk about up andg and rates going the third-quarter numbers are in jpmgpm and chase -- jason wells. i think a few of the smaller regional banks reap ordered -- banks reported yesterday. those numbers certainly give you pause your why? -- give you pause. why? that, with hoping sales prices increasing, that purchase mortgages, where you actually buy a house, would replace the lost volume in refinancing. that hasn't really happened. the fed started talking about

saying that they would taper, signaling an end of buying down the market, rates went up. why am i suddenly annoyed at this? the result is that, at big companies, thousands of people got tired. at the -- got fired. at the top of the market, the mortgage market employ just over 500,000 people. at the bottom of the market, less than 250,000 people. so you can see what deterministic the station that has been. in more recent times, the bottom has come up to somewhere around 260,000 very but now we are seeing lots and lots more firing. this kindat is just of a whipsaw where people lose their jobs. i think it is a bad thing. when i first started in the

business, i referred to something called morgan city -- called mortgage city. i would plot how many people work in the business and what city with a population it would correspond to. it used to be all the cricket, new mexico. now, the most recent one that i have done is use lands in, michigan, the closest match to the point that i was plotting at that point. [laughter] student and i'm thinking, if we ever get down to fort ms. saskatchewan, we will be in big trouble. but i hope we won't go that far. so what can the fed do? it can reverse course. it didn't actually begin anything, but it said it would give out doing it sooner hearing so rates dropped -- doing it sooner.

the freddiepped. mac number today was 4.23% on the 30 year. so it's lower than the recent high. so that will indicate we will see more refinancing in the fourth order. -- fourth quarter. what to see about that. but to me, this is the classic push me pull you whipsaw in the industry. the stop -- let's talk a little bit about the mortgage business. i was at a conference this summer in detroit i have been thinking about a little bit about detroit and new orleans. a few years ago, i don't think i could have awesomely conceived -- could have possibly have conceived that the greatest damage to two of our greatest cities. but it did. in new orleans, it was the storm

came in detroit, it was more of an economic storm. so you have seen some recent green shoots there. detroit was number two for home price increases. it was up 4.3% for the quarter. 23.3% for the year. of coarse, that is up from historic lows. and prices are still down two thirds from the market highs. the average price of home sales is $107,500 which is really low. sales indicates to me that there will be more home sales in detroit and around country and that will lead to an increase in the purchase mortgage market. doas thinking what could we in the mortgage business to help the city of detroit. the thing i came up with was there was a group that invited

me to come out and speak called mortgage builder and they were based just outside of detroit. they decided to have their meeting downtown. i wanted to give a shout out to kevin smith, the ceo, and .uggest as a model let's meet in detroit. it is a beautiful city. really one of the crown jewels of america. i hate to see how much it has been hurt. so the purchase mortgage , rather than the refi business is the key to success. the waxing and waning every five , the jackpot is, when you have the markets. could that happen? refi's could come up again if rates dropped study or do

dropped from what they are now. and prices are up in just about every msa in the country. you,ere is no rush me pull there might be a small chance -- no more push me, push you, there might be a small chance. got a cut of the hound the numbers -- of the hmda members. down slightly from 17% in 2011. i think it was 16.7% in 2010. any might say, well, yeah, those are really low numbers. in the kind of markets we have had in the last few years, treading water may be a good response to that. so who knows. the total mortgages for 2012, the hmda numbers are always a

little funky. i think it's a lovely the refi effect going on. reportust got a yesterday afternoon of loan approvals and denials. i haven't been able to analyze these yet. so watch for next week's newspaper. a final thought on the metaphor of the fed and the push me pull you, i think this is quite wise. if an animal has two heads on either side of its body, it must sometimes talk out of its rear end. yield backt, i will the balance of my time to the chair. >> thank you.

>> thank you, alex for inviting me. what i want to talk about is europe. i will start by saying that there is a great sense of complacency about the european prospects among european policymakers. and in the marketplace. in fact, this weekend, the median of the imf, there is a sense on the part of the europeans that the meeting was dominated by problems in the united states with very little mention about the problems in europe. indicate ind to is my remarks why i don't share that complacency and why i think that basically certainly in the markets what is happening is the liquidity being provided by the federal reserve cost printing,

the bank of japan printing, together with the outside monetary program from the ecb that the markets think have returned -- have removed the tail risk that have made people not really focus on europe's what i think are very poor economic or as important political fundamentals. and i and the process still goes on. at previous seminars, the fundamental reason why i don't think european works in the end is because basically the economics doesn't make much sense and the idea is that there are two kinds of to sit calabria that they are trying to deal with -- two kinds of disequilibrium that there tried to deal with. public debt level is too high so they have to engage in fiscal austerity.

the other is because they lost competitiveness, they have to an internaley call devaluation, which is basically complicating their fiscal albums. so i don't think that the austerity can really work and that is where they headed going forward. so i think it is good to take stock of where we are and see how much damage has all ready been done by those kinds of policies. the e first indicates -- is the united states recovering from the downturn, the lehman crisis of 2008-2009. the united states has recovered production. it is not particularly strong, but they are above where they 2009. the europeans have yet to recover that. the

situation gets a lot worse when you consider the individual countries. germany seems to be doing ok. germanyreen line is above where it was 2008-2009. but forget about small countries like greece or portugal or ireland. just take a look at italy and spain. we see that they are now something like 7% below where they were at the peak of the crisis some five years later. so the upward gaps in italy and spain are really very high. the point that i am trying to make is that, even if you can get a recovery, less the recovery is very strong, it won't change how badly those economies really feel they are faring.

we see this in terms of the unemployment numbers that unemployment overall in europe is now 12%. but in places like greece or spain, we talk about unemployment levels of 28%, already heroyment in this in europe, something like 24% overall. a place like greece and spain, you have more than 50% at of work. in short, don't think that yesterday has really worked. that has caused. deep recessions. public finances still aren't in very good shape. you have is a clinical process that has been going on. and it's right to me that across the european periphery come he can take whatever country you wanted to look at and we get an erosion of support for the centrist base pairing we have the populist parties rising, extremists arising, which means

that it is very difficult for these countries to stay the andse of budget austerity structural reform, which they still have to do. a couple of reasons why one could be optimistic and i think that these are the reads on which the european policymakers are already hanging their case. the first is that, finally, after the longest recession and overall europe has come to an end after six negative quarters, we had a little bit of a bounce in the second quarter of 2013. , they'dook at the pmi show a modest increase. so there is hope that there may out, thatttoming there is some recovery. givest think that it support for very strong growth.

the second reason on the optimistic side, if you look at the bottoms reds, they have really come way down from the peak. but as i said, that is really a function of a lot of liquidity monetarycp's transaction program. when that comes to an end, something might change your let me just list the reasons that i am skeptical about the outlook in europe. the first point i would make is that, basically what they are doing is they are touring very much the same policies as before . this is the case after the german election. the germans are making it pretty clear that they are wanting to stick to the playbook of budget austerity economic reform not

too much of a hurry to get a tanking union going. so the problem that i have is that budget austerity, banks cutting credit and deleveraging of the private sector really got us into the deep recession. why do we think that application of the same policies will lead to a meaningful recovery? so i don't really see the basis for a strong recovery in the periphery and i think that is really very problematical. harms --, justin's just in terms of the credit restrictions, and spain, banks are cutting credit by something like 6%. italy is cutting credit by 4% and there is no sign that the germans will move toward banking union or allowing use of the esm money to prop up banks. they are not really rectifying

the problem. so what you see is high interest rates for those who can borrow in the peru free countries like italy and spain. they are paying something like three percentage points more than you would in germany for a loan which is hardly the way to get an economy moving. imf has really got negative growth forecast for all of these countries for 2013 of sizable amounts. italy is now at something like 1.8%. spain is negative on .6%. in hoping for some recovery 2014, which, as i say come i don't see -- i'm not sure that i see the basis for that. the second reason why i am very outtical about europe being of the woods is, if i just look at the debt to gdp ratios of the sovereigns, forget about greece,

which is a special case, which they will ask by turning out the ireland,that, italy, portugal, all of these countries are above 125% of gdp. they are running very large budget deficits that are driving it. that oneot one that has is that, if you look at the price data, europe is disappointing at a very rapid rate. european inflation come over inflation is now 1%. but places like greece, prices are falling. faces in ireland, prices are basically flat. if you don't to recovery, you will get into deflation. you know, if you have deflation and no growth, it is very difficult to get out of those high debt levels. as soon as the liquidity dries up, i think that we could see something that has occurred with many of the emerging markets right now as the talk of

tapering occurs in europe. reason for skepticism is that much of the improvements in becomeernal accounts has through import compression because the economies are very depressed. but if you look at the competitiveness size of places that isly and spain, the purple and the redline, they haven't gained much against germany during this period. so they have a lot of disinflation in store. i think that the main problem of the euro will come from the .olitical side you do not get a recovery. i think that process continues and problem will come from the peripheral countries just not being able to do the adjustment

that the germans are requiring of them in order to get the loans. the ecb, the backs up they have put in place where they will buy as many of the bonds that they need with the maturity of one to three years, that still has to be tested. what markets are not paying attention to his those commitments by the ecb were made conditional upon the countries applying for economic programs. italy and spain are not in a political position to buy fried missile programs that would allow the ecb. and what we also have to watch is the constitutional court in germany that is supposed to be delivering a ruling soon as to

whether an unlimited amount of purchasing by the ecb is consistent with the bonus banks s in germanysbank and could put limitations on what the ecb could do. so in short, where i think we are headed in the period ahead is, once again, for crises to show up in the european periphery of on the political somethingher it is and portugal, the government falling there or greece or the italians not able to get their act together. but what we have seen is very strong commitment on the part of the europeans to try to hold this together. but they show absolutely no signs of trying to get ahead of the crisis with something like a banking union or something like a fiscal union.

so my view is that europe will continue to constitute the primary risk to the global economic recovery for the year ahead. and i simply don't buy -- i can understand the reasons why they want to be optimistic, but i don't think that there is a real basis for being as optimistic as the europeans are on the -- on their economic outlook. winky. he usualyou for your jovial and mary notes. [laughter] chris. andhink you very much, alex thank you again for sponsoring these interesting sessions that we have been having for a few years. i think it is extremely important to note how much time has gone by since the break in the housing bubble. today, i am going to talk a little bit to connect some of the comments that jay and others ve release loan-

loss reserves back into income and help with their earnings over the past three years or more. but i would suggest to you that you need to dig down a little bit a low the surface to understand what is really happening. city is the case shiller 20- composite home price index. if you take the stress are based out of the case shiller numbers, we are really only of sex -- only up 6% to 7% year-over-year. the distress fire was driving a lot of the price increases in the market early on, particularly in areas in the country that have gone down a lot. so the southeast, the southwest, nevada, all of the sand stays, if you will, california particularly. these markets rebounded very nicely and they came back. now you see the secondary cities that did not go up as much, didn't go down as much, they are also participating in the

recovery. but remember that there were two factors driving this recovery. one was a shortage of supply. there were not that many homes available going back to the earlier point. and the other was a cash buyer. just because there were ready buyers of the market who did need to go out and get a mortgage in our current revelatory environment, they were able to go out and act immediately. indeed, now we have a direct connection between the equity markets and the home price markets simply because of all of the companies that have gone public in the last 12 months or more with an exquisite strategy for purchasing 1-4 family homes. this next chart tells part of the story in terms of the availability of houses. this shows past-due assets from banks. what this really tell even though you have seen a good

improvement from the lows, it is still not nearly enough to get most homeowners to the point where they kenexa go out and voluntarily sell their house. the one thing you'll notice at the very bottom, the purple line going up, that is mortgage servicing rights. when interest rates go up, when prepayments extend, the value of a mortgage servicing asset goes up as well and this is headed the influence on earnings and banks for the last couple of orders, for non-cash transactions, the nuances that analysts think about. one of the things that i always like to emphasize only talk about home prices is one of the two main drivers of the housing market. jobs and consumer income. in both cases, we are seeing a fairly weak recovery in the includingrket investors, excluding cash buyers. when we were talking about that purchase, that personal family, hy this summer may be

the peak in home prices in the united states. not in general. i think you will see the averages continue to move up at a decelerating rate. but when you look at the number of cities, the number of metropolitan areas that are improving month after month come i think they will dwindle. eventually, you will see the really hot markets as it was a couple years ago pulling most of the weight in terms of pulling the 20-city case shiller index up. i think this is probably the most important one in my presentation. this shows the change in owner householders versus the change in renter households. if you look at the green line, that is the homeownership rate in the united states. it is down to about 65% right now. it is actually a little lower than that. if you go back to their previous chart talking about distressed assets, real estate known, etc., once the banking industry works

through all of that, that homeownership rate will be down around 621%, perhaps even lower. here ishe reason several fold. lack of income growth, lack of job opportunities. in other words, a good implement market, and also the inability of borrowers to get a loan. those commercial banks today will not touch you unless you 700 costs ind terms of fica scores. in many in this -- 700's terms of fica. how many in this room have that? we have really swung the pendulum radically from the period of 10 years ago when you could get a mortgage if you are breathing to today when getting a mortgage is extremely difficult. not only do you need to be employed by a third party, in other words not self-employed,

but you also have to have a number of other documentation points which frankly there's people out of the market. you have to submit tax forms when you get a mortgage in this country now. and there are some americans who can't do that. this chart shows mortgage originations, some of jay's data. what i like about this chart, is the purchase market and you can see what is going on here. the purchase market really hasn't moved. it's not so much that we are seeing a poor housing recovery percent, but we are kind of reverting to the mean, to go back to alex's earlier comment. this is a normal market where we don't have excessive credit creation and where you do indeed have very strict credit standards in relative terms. at lunch today, house was reminding us that there was a time when national banks were

allowed -- were not allowed to make real estate loans at all. after world war ii, we had a terrible fight in washington about making real estate loans with a 50 loan-to-value ratio. we have the hearings from that particular period. it is fascinating reading. so today we have 20% down that is a standard that has been set up i the dodd-frank law. importantly, if you look layoffs, withat the banks are telling you is that they will really pare back the resources that they have devoted to mortgage finance in the future. the reason why they are laying off people, transferring assets, getting rid of facilities is that they are having to make medium to long-term plans about what business they will be in going forward. and i don't think i shall get out of the mortgage business entirely. that's wrong. but over time, it will be a much

smaller piece of their overall business. this is another striking chart which shows a couple of things. it shows you both the portfolio holdings by all u.s. banks of mortgages, and then what they are selling into the securitization market. top lineu can see the that is the total portfolio of all u.s. banks and it is flat and it is slowly trending lower. it has been about 20% historically of the total bank loaning. of a $13 trillion out trillion industry balance sheet. is theou can also see one-for family category, the red line, which is a little less than $2 trillion. and the sales, the purple on the very bottom, they are slowly trending lower. they just don't have the volume to show -- to sell the mortgages and they are keeping them. banks are actually bidding for nonagency, large jumbo loans

because these typically have low value ratios. and they will keep them on balance sheets even though they will penalized for doing so. so let me just finish off by talking a little bit about the regulatory environment. going back again to the theme of our talk today in the fed and everything else, when president obama nominated janet yellen to be the next fed chairman, i wrote about this. when i talk to my former colleagues at the fed, they really can't give me a straight answer in terms of explaining why they are doing what they are doing. all of the old rules for monetary policy have been thrown out the window. so the only thing they can think of to do is to keep interest rates low in an attempt to generate greater activity in the housing market overall. so what did we accomplish by keeping rates low? consumers with good credit have

been able to refinance. our corporations have also been able to issue an awful lot of debt. maybe too much. but they have also refinance and the word are credit costs. but we have an enormous amount of who are pretty much law out of this. this is your typical mortgage. twos going to have a percent risk weight. they have to put normal -- 4% on the capital. when she start going up the risk up, it is this goes 100%. this is a long maturity asset. it is going to get a capital charge. bring -- bank treasurer is looking at 120 or 130% risk rate. that is very expensive.

they can buy three times as many with the same amount of money. what we're really saying is don't make real estate loans. you have to go back and say why is the fed doing what they are doing? only thing they are really doing is encouraging banks to make agency loans. point is that we have skin in the game. ifs is where they have said you want to do this outside of this agency market that has and keeped for us you have to extra skin in the game, retain more of the deal. the only problem with this is if you know anything about the we also secured

many of these loans. we both been more than 5%. it is the nature of the this and this. loanyou make us a prime you typically reserve most of your profit. right off the bat it is a different business. when you look at the way the agencies have them plummeted dodd frank, -- dodd/frank,/fran they are the same. the least of our our workers have to pay the tax. if their mortgages included in ae of the deals it is worth year in terms of apr. the one that is also being worked is them. tax.are going to pay the

we have been and this little playground. they pay nothing. what is the policy purpose of that? will end my remarks. >> chris gave us a slightly different version of marks "push me, pull you." severelyt regulation constraining mortgages at the same time the fed is buying up mortgages, trying to expand them. it is a curious contradiction. that nobody knows all of the things that are happening in the financial system as a result of the fed intervention.rket my guess is that the interest probably in some

extremely large fashion and we will find later on when it comes back to bite us. thank you. an evocative phrase. panelists was ,iscussing the post bubble time we have not talked yet about the post bernanke fed. i will talk a little bit of that in terms of the fed. one of the things is basically looking at global financial crisis and wealth accumulation. put in a veryen difficult position. if i look at this roughly, i for of see and also ration

american households that are trying to preserve it and they are running from it to the stock market to the housing market back to the equity market. if you think back to the last, 20 or 15 years, the late 90s. we were building a tech bubble. how everyonel thought that stock prices would only go up. we burst the tech bubble. in 2000. in the aftermath, the fed was very accommodated. we started to build a housing bubble. created or ate

least started to create another areas bubble that in some is turning into a bubble. new york city, toronto, other urban centers, especially those attractive to foreign buyers. areas, how do we raise funds to this and what does this tell us about the future? teams that has emerged here is that the financial and real estate ofkets have developed a kind uncomfortable codependence with resolve thisank.

in recent weeks. all the handwringing talking about we're going to default. calm aboute pretty it. the minute there was a ralliednt, stock prices to the levels where they had been a month ago. no one thought we would have a debt ceiling crisis. part of it is this codependence. the prospect of a problem that might cause problems of wealth

accumulation just does not bother most investors now. they continue to be pretty a fedced that there is put out very that the fed will not let anything bad happen. it is really hard to gauge. oft parts of the level equity markets and recovery in some of the real estate markets that have been chronicled here are dependent in a sense on the fed put on the notion that there is not a lot of risk in terms of accumulating assets and the fed will be there to rescue. put theme of a fed experience a bit of a recall over the past quarter. you all recall thatthe math.

you are looking at a couple hundred dollars a month. for many households this is a problem. here was the fed inking about ending some of the codependence. post binning key world. -- bernanke world. and wishing they could get out of this qe circle and wishing they could get away from it. there is a lot of dissension about it. they are taking a lot of heat. it is probably not doing a lot of good. it does difficult to do simulation it here in on the fact. we only have a few years of data. it is clear that if we look at

average growth rates for the we are atve years about 1.9% in the u.s.. with inflation drifting lower. extent renting money to buy mortgage backed securities has an undertaking, it does not put the economy on fire. partly because the demand for in aremains quite high world of a lot of policy uncertainty and event risk. companies holding lots of cash. reasons, onebasic is the option islet see that cash gives you. if things go badly and opportunities arrive -- arise, if you have cash, that is good. afford to do that,

that is an attractive idea. background, i look thehe real net worth, series that the fed maintains just to try to scale the housing bubble collapse. yearrns out that in the trough which the would have been around at the end of 2000 eight, households lost 20% of their net worth. which is substantial. efforts to recover have become e.asonably

is become about 98% of pre-2007 levels. it is good. most american households have developed the notion that they should be getting better off in seven years without retaining the old level of net worth. it is problematic. one is in terms of consumption. if you look at a cyclically adjusted consumption pattern consumption is very weak. this is a macro number.

some people are doing very well. consumption is running way behind a typical postwar expansion on the order of over a standard deviation, below the typical point at which we find conception this far into a recovery. june ofvery began in 2009. probably a reasonable enough date. things got so bad that they started to look a lot better by the middle of 2009. into this macro background. another thing that is happening here as we move further past the we are having a recovery.

it is starting to reach the average length of recovery in a postwar u.s.. i postwar recovery in the u.s.. somewhat of a central bank, the last 58 months. one of the problems that we face here as we are raising questions , how how the central bank aggressive they can be in supporting real estate values in words values, we have x suggesting that there may be some signs of overly stretched valuations. played right investors and cash buyers in the market

probably, the data is suggest it is getting less pronounced. partly because the investors have pretty much it driven up the prices of the unit they want to rent out. financing costs are a little higher. that portion of the real estate recovery, which is not a matter it is aone going after matter of investors saying this is what they bought. they bought a huge portfolio and securitizedt and it. there are the gone from the gate. isnwhile the flow demands gone from the market. the pattern will be fairly familiar.

support the more fed is in a somewhat difficult position. they have pretty much offered as much as they can. year ine indicated this the second quarter that they were a little it easy about the major instrument they are using that entails who had the picture of the fed's balance sheet? the fed owns a lot of treasures. they have to hold it at least. is that they may not sell any of it. when they stopped vying, that is what tapering is all about.

that may be a problem. we may be in the as good as it gets stage of this modest bounds in the real estate to her -- sector. in the equity market, i will leave it to the equity experts. certainly valuations based on bob shiller's yardstick are adequate to slightly high. it is not as it the stock market is a screaming bargain. years plus into the post we have thrown a great deal back of getting back to where it was. we are almost there. the vehicles have been the

equity markets, the asset market and the real estate market. and the applied codependence has become more and more office, ined by the fed's recent experiments with abandoning tapering. i am except dust getting they do not want to get this tapering policy. at this point it is so sensitive. >> you have one to two minutes. >> i never run over. i can't believe it. yellen i think does need to get a big speech after she is installed as fed chairman.

she needs to establish at least two points. would dothink anybody this, the fed cannot do anything. they have certainly been asked to do a great deal. going to have to somewhat lower expectations about what the fed can do. secondly, i am very with the fed's commitment to keep interest rates low and so the unemployment rate goes down to 6.5 or lower. there is no empirical relationship between interest rate and the unemployment rate. it is not clear that the fed can produce a long run effect. they're in this odd position of an odd position that may not be

fulfilled but they will be politically held to continue to try to reach the goal without being able to do that. continuessinflation in europe. .e are seeing more disinflation japan is struggling to overcome it. they have not gotten there yet. policy fading.y is school -- fiscal policy consolidating in most places. five years on. i think this post bubble recovery is getting a little long in the tooth. central banks are playing and it is becoming problematic. janet yellen has a lot of

challenges. i will leave it there. want to get each member of the panel one or two minutes max to either respond or clarify something? a coupleanted to make of points to emphasize what john just finished saying. ofn you look at the efficacy the fed's actions, what is the actual benefit in terms of of tapering rates as opposed to one of the problems with drawing the taper. he cannot see that it is necessarily doing that good in place but we know what the pain is of withdrawing. it reminds me of that old joke about coming upon someone hitting themselves in a head with a hammer and send why is he doing that and the answer is because it hurts too much when i stop.

pain no gain, are we supposed to be in a painless the site or breaking theept circle of codependency will result in a reversal of some of the wealth game. that is the policy at the moment. [indiscernible] >> not off the top of my head. >> sometimes in the 90s? that sounds about right. i also wanted to ask you a

question. this might be too obvious. we talked about the factors that discourage lending. fordo not mention the cftb the scourges. >> i was focused on lenders. i would say that it is probably the obstacle to americans getting loans. it is protecting them from getting loans. that is really the bottom line. >> that is all. thank you. good questions. i guess i take a somewhat different view on quantitive easing and that i think one can not say that it has not been effective because it has not asked the economy to grow very rapidly. they got a look at what it would have been. without quantitative easing, we could or he will have to back into recession. i would have thought that if

they brought down interest rates it it boosts asset prices would have had some effect. chris? >> i wanted to pick up on a very important point john made that is already been mentioned. there is no imperial connection between interest rates and jobs. one of the central fallacies of the fed's policy mandate going back many years is this notion that they can manage employment and stable pricing. up until the bernanke year at the fed, the taylor rule deposited a trade-off between inflation and job, was the operative model. that has been thrown out the theow. if you talk to

people at the fed about why they are doing what they are doing, they cannot offer you a rational, intellectual construct. there is none. if you look at what has, and every one of the asset classes, and you do see bubbles. you even see institutional investors running around, buying 1-4 family homes to essentially run the properties from the mid or low single-digit yields. my firm is one of the biggest managers of rental parties in the country. we are very good. it is a business you do not want to see a lot of leverage underneath. that is why it has traditionally been a mock -- mom and pop time -- mom and pop kind of business. fed has managed to convince wall street that this is something they put a lot of money into. i think when you look at the third world and other asset classes that have an effect, even the market you have to ask

yourself a question. is this a good thing? my answer would be no. we're living in an anomaly. when it changes it will be an extremely painful process. the last point is inflation. does anyone in this room think the cost of living is going down? i think the fed has already hit their inflation target and they need to admit it. comments, they asked to put your last slide up again. >> a quick response to two points. i should've distinguish which we marginal and average impact. quantitative easing has had a supportive impact on the economy and not even been attempted. i ask -- suspect we would have had slower growth. i am really thinking about it janet yellen, let's suppose the economy slows down for whatever reason. asqe4 going to do as much

qe3? i'm concerned that it is not. i am concerned about the digital marginal impact. i think i should add to her speech that she needs to be very clear that the fed will be both sides.on if there appears to be a bubble, they will take that into account. that is a very delicate discussion. is the 1999 testimony where he said we have a level and we are not going to try. everyone said that is great. here we go. of bubblesresence alternating bubbles and stock , the fed really does have to pay attention to that.

it has to be explicit that they are watching it. they have to be sure that in reality -- in reacting to a that they aree not really just inflating a bubble further. .t becomes a bigger challenge janet yellen takes over at a tools havehe new probably been pretty much used cases are some counterproductive. >> inspired by the focus, the adjusted well of american

we just looked at a series of numbers, a nice 60 year history. trendlineut that the through this history is unsurprising. does the growth rate of gdp. 3.1 or 3.2% per year on average. there are two huge diversions from the trend. bubble and then the housing bubble. the danger is that in both of the cases he wealth evil thought they had was in fact completely illusory.

it is a psychological illusion honest about what wealth we have. bubbles are extremely insidious. you the rules.nd please tell us your name and your affiliation. i will get you second. yourve to log a preface to question, the chair will remind you to get to your question. >> this is an excellent one. i have a two-part question. of articlesng a lot

about the fact that we still have a lot of banks that need restructuring in europe and a suggestion that there is potentially some more ink and solvency is coming along very even though we seem to have passed the hearing. i wonder if you could comment about the manufacturing restructuring you still face. related to that, you talked about public debt restructuring. can you give us a sense of what that might in terms of where and how it might occur. >> i think the two are related. this is going to further aggravate the debt problem. that give you an extra 10

seconds to ink. >> there is absolutely no question that this is going to moneyo be quite a lot of put into the banks, particularly in the periphery. going they are undercapitalized. and about places like italy, portugal spain, reese. money will have to be put there. something that is very important is that the germans have made is that they are going to be bailed in. tapping not going to be

taxpayers. we have a model of that from the separate case or they really depositorsuninsured above 100,000 euros. beings a lot of money thrown at this by the various governments. the roles involved right money. i think that this seems to be that this should be done by the added togovernments the debt burden. that this is rising. you are going to get restructuring of the debt.

i think it would be very high on the list. the get this in terms of greece. yous somewhat of a disk between the funds in the european governments. they would like to see debt write-downs. that would mean the taxpayer would have to recognize that there were losses. the proposition that would work in the end. turn out except for the greek loans will be made into 100 year loans. and ridiculously low interest rates so even though you might have a debt ratio that has not it is the same thing of writing down the debt you're at >> the economic write-

down by which you try to avoid an explicit write-down. betrayed is extend and pretend. >> i will come right here to you. >> >> thank you. we talked about the relationship between interest rates and employment growth. there is such a relationship to the investment question. does this mean the fed is rethinking the classical models? what does this mean? i guess classical and the neo-keynesian sense. i wrote about this in my book second 2010. since the 2000 80s when we first encountered a drop-off a have

used this to boost consumption. this is how we tracked this. we have lost some credit criteria for housing particularly. housing was the great driver. distortion. it was a price stability rule. that was thrown out the window. we have always had a modest two relatively high rate of inflation. week jobhy you see a market. bayer and makes it difficult.

going back to the earlier comment what we're doing now to make up for the excesses caused by these policies. to penalize this and take their income and force them to essentially take a real rate of return. i think this pretty much discredits what i will call neo- keynesian socialism. it is likely lost the cold war. i think this is the case. we have adopted socialist policies. it keeps people out of the street. you are killing them in real terms.

that is a very stimulating point about the relationship between interest rates and employment. in normal times, if you can get interest rates down, people invest more and if they invest more waiver will go up. we're in a situation where real interest rates are zero to negative and we still have substandard net investment. that is this classic textbook case where for some reason or other we are out of the eventment projects eerie if -- projects. even if we keep interest rates negative we cannot keep companies wanting to add to the i am concerned about saying we're going to hold interest rates until the unemployment rate goes down to

6.5%. that is going to be difficult. >> two is the most you get answering a question. couple of myk at a charts, the thing that is is credit grow. uptick, you have been a credit in housing. that manyzes so markets are still in tight supply. you have that with homebuyers. i think we're going to see fun home prices going out over the horizon. yet so many on your families. if you lower interest rates and you do not hit it, obviously that relationship is broken. wearc has a comment and then

will go on to the next question. >> the relationship between employment and the lower rates is that the lower rate on the market, the mortgage housing is a great driver of employment. you get construction jobs. you get retail jobs. >> thank you. right here. thank you. >> thank you. considering where interest rates and the constraints that some of you have alluded to, is there any connection between the

credit tightness in the interest on the reserves. is that a further reason to hold back? >> the fed, let me give a little background. in a point dollar trillion balance sheet of almost with 2 trillion are in excess reserve. "as a reason to try to avoid them. you get the money market investment. >> part of the problem is that the banks are not serving as

financial intermediaries for toe reasons that are related the overall weakness of the economy and the reluctance of the fed to allow them to expand. i want to assert the question. you had a bold process. is this flat nominal or real? >> that is one house price forecast. him what is the forecast? factorsre are certain

that were some of the worst hit markets. i think we are looking at the that we are going to see some. see demand. we see the big increase in rentals from married couples with children who have been going into rentals that they have been going into single- family rentals. at some point once they get the credit of and they deal with down payment issues that they will affect be converting to buyers. i see that picking up.

>> other questions. >> why is the economy growing so slowly? when you mention a trend growth rate we are not there. we have record low interest rates. had for five years. we're growing so slow. housing has been one of the biggest drivers of employment and income growth. think that consumer income is flat, what they're really saying is go to the home depot, get a credit court and spend money. where do not have this

else is the and a man going to come through. it is a long-term issue that i think all countries around the world are facing. you have a lot of the alleged location of the united states. more productive to. we are in there for different reasons. i do not think that is surprising. it is up to her the financial price with 2008-2 thousand nine with a lot of people highly indebted. the expectation was that it would grow very slowly. part of the reason why we have her own so slowly is that this

is school tightening has to do with a fiscal cliff sequestration and so on. strong headally that would otherwise be a recovery. you could get somewhat more of the pickup. there is no single reason. it depends on the year. i would list or things. we have a lot a fiscal drag in the united states. finally the global economy is

slowing. not a lot of good things happening. one reasons is the quantitative easing was supposed to produce the kind of results the gentleman is referring to. >> and he talked me into adding this. i go around and talk to bankers. i asked them what is holding your customers back here at the dig issue is uncertainty. regulatory uncertainty. do they want to have a big and new investment?

i would like to hear the use -- use on the issue of where high income inequality slows growth? this is an interesting question. goodnot know of any empirical work in the area. obviously somebody can jump in. if anyone has done it, the world bank at the imf ought to have done it. i do not know if there is any reliable empirical relationship between the two. i cannot think of a theoretical reason why rising income inequality would slow growth. be theyment would

consumed for higher income inividuals and a reduction overall spending with rising incomes. far in this post bubble recovery, high income individuals are certainly pulling their weight when it comes to spending. times has this biweekly session on how to spend it. the new million and billionaires in emerging markets are big spenders. it is interesting. on a empirical basis i cannot come up with a good answer. >> thank you.

part of the narrative. you hear that a lot and income disparity. the always come back to our tendency to understate inflation with the statistics. ailmentsfrom cancer and this is less than that should be to really reflect inflation, we are not getting any growth. if anything, it is a drag. same thing with the are. they have had to adjust the competition from outside the country to all sorts of other factors and they see the cost of living going up much faster than wages. this is why income growth is that -- flat. we have an invisible tax. you do not want to pay for all the services provided by our government. the cost is that we slowly erode

good purchasing power. we also make it much harder for employers to hire new employees. i think the causation is in the opposite direction. where we have low growth economy's greater income equality. we wouldaster growth see incomes come up across the board. >> thank you. other questions? all right. seeing none, i want to thank you all for coming. let's all express our appreciation for this excellent panel. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013]

>> what did you find? >> it has to have an impact on us. whethers curious to see you have had an impact. one of the famous stories is michael handing wrote a book about poverty in west virginia. to affects supposed that. he is one of the famous new yorkers. he said to go look into policies that could be used to alleviate poverty. he died in november 63. >> two years of popular culture in the white house tonight at 8:00 on c-span.

is known for his role on star trek. he spoke of some of the issues gtportant to the lb community. this is one hour. [applause] thank you. thank you very much. it is wonderful to be here at the national press club. the feeling i have is that it is like a very elegant star trek convention.

that reflects on your good taste and high standards. it is wonderful to be back in washington at last. is wonderful to have washington to be back in working at last as well. rob over that. i love washington. when we arrived in the early evening, i saw all of the things that i love about washington. we were greeted by the national monuments and that dusky light. it was glowing light and luminous. i visited all those monuments. i have been inspired by the words written by it. there is one new addition to that collection of memorials here in washington that i have not visited here at that is the

newest one, the memorial tribute to dr. martin luther king jr.. the first thing we did this morning was grabbed a cab and we went to the martin luther king jr. memorial. we walked up to it. there was dr. king looming out of the white stone. he had his arms crossed. he was standing strong. sawoked at that face and i the gentleness and the compassion there. he is the only one of the american heroes memorialized that i have met and shaken hands with and conversed with. that is a very important and powerful, meaningful monument for me. while looking at his face i thought of the famous words, his dream.

i have a dream speech. . have a dream it is a dream that is deeply rooted in the american dream. i have a dream that on the red hills of georgia, the sons of slaves and the sons of slaveowners will be able to sit together at the table of brotherhood. i have a dream. i have a dream that my two little children will live in a four children he said will be judged not by the color of their skin but by the content of their character. those were inspiring words. with them marching and raising our voices in song with them. words from the "i have a from" speech were spoken the weekend memorial. we went to the lincoln memorial and climbed those steps.

there was president lincoln looking majestic in his seat. words that alle high school kids memorize, the gettysburg speech. government of the people, by the whole, for the wall shall not perish from the earth. people, for by the the people shall not perish from this earth. i went to the kennedy center for the arts. one of the things i enjoy going to see a play at the kennedy center is during the intermission i like to stroll along the river terrace and read the quotes from president kennedy out of the marble wall there. i have memorized one that particularly struck me. after theain that dust of the centuries have passed over our cities we will be remembered not for the