congress is able to influence what fannie and freddie do because they have control over fannie and freddie. fannie and freddie are not on the budget. they don't go through and appropriations process, but powerful congressman can induce them to do certain things that those congressmen want, do projects in the district, in their states, get the benefit of the expenditure of fannie and freddie's funds which are borrowed under some sort of explicit or implicit support from the government, and helps the congressman, senators on one hand, and on the other involves some fannie and freddie solving their political problems in congress because they are doing things very effectively for these lawmakers. in that case, however, there isn't any market discipline, and it will be much less market discipline in the future now that the market has seen that they were right all along. this isn't just an implicit guarantee by the government. this is as close as you can get to an explicit guarantee of fannie and freddie's obligations by the government, because right now as we speak, as we sit here, the governme

congress is able to influence what fannie and freddie do, because they have control over fannie and freddiefannie and freddie are not on the budget. they don't go through an appropriations process. come a powerful congressman can induce them to do certain things that those congressman wants, to projects in their districts in their states, get the benefit of the expenditure of fannie and freddie's funds, which are borrowed under some sort of explicit or implicit support from the government, and helps the congressman, the senators on the one hand on on the other involves fannie and freddie solving their political problems in congress because they are doing things very effectively for these lawmakers. in that case, however, there isn't any market discipline and there would be much market discipline in the future now that the market has seen that they were right all along. that this isn't just an implicit guarantee by the government. this is as close as you can get to an explicit guarantee of fannie and freddie's obligations by the government because right now, as we speak, as we sit here the g

then in may and freddie mac essentially doubled in size every five years. -- fannie mae and freddie mactially doubled in size every five years because of that the nominee. only when you make capital standards equivalent across institutions can reduce that dynamic. the second problem with a gst is that they live or die according to their charter providing get congress to tell me that i could get lower capital and higher leverage and my competitors, that is worth more than knowing anything about the marketplace. if you read the g s e annual report, they talk about political risk. they hire their ceo's to manage political risk, people who are well-wired on capitol hill and will do whatever the administration is currently in power will do. they are not more capable to manage a multi-trillion dollar institution. that is what we saw when they went down, they made systematic bad decisions. they doubled down on their best as everybody else was backing out of the market. these people simply did not know how to manage an institution of this size. everybody talks about government agencies being in

the fannie and freddie should not be there. 'm disappointed in my friends on the other side of the aisle when they were in control of the congress they did not do more to regulate fannie and freddie. we missed a golden opportunity that would have avoided a lot of the problems we are facing now if we had not had such a firm of ideological position at the white house and the treasury and the fed. i hope we can come together, republicans and democrats, to explore good policies this year. i've always felt the financial firms receiving taxpayer assistance should receive the most scrutiny with respect to their executive compensation practices. one example involves a large celery for a lot -- a large salaries for fannie and freddie executives. i joined chairman frank and others to vote to stop the unfair tarp pay practices unfair recipients. -- unfair pay practices of tarp recipients. finally, for firms to have repaid tarp, i do not think the government should go in and set levels. the government does have a role in looking at the str

the fannie and freddie should not be there. 'm disappointed in my friends on the other side of the aisle when they were in control of the congress they did not do more to regulate fannie and freddie. we missed a golden opportunity that would have avoided a lot of the problems we are facing now if we had not had such a firm of ideological position at the white house and the treasury and the fed. i hope we can come together, republicans and democrats, to explore good policies this year. i've always felt the financial firms receiving taxpayer assistance should receive the most scrutiny with respect to their executive compensation practices. one example involves a large celery for a lot -- a large salaries for fannie and freddie executives. i joined chairman frank and others to vote to stop the unfair tarp pay practices unfair recipients. -- unfair pay practices of tarp recipients. finally, for firms to have repaid tarp, i do not think the government should go in and set levels. the government does have a role in looking at the str

in your view, do the pay packages of fannie mae and freddie mac executives, most particularly the $6 million awarded to each of the ceos adequately link pay and performance? >> i have been a consistent critic of the pay packages that fannie and freddie, going back before the financial meltdown. again, they have a corporate governance nightmare. you cannot be both a public and private enter side -- enterprise at the same time. >> does that need your definition of outrageous? >> they are not as outrageous as the previous pay plans at fannie and freddie, but i think they are wrong. >> ok, ron, but how about outrageous? -- ok, they are wrong, but how about outrageous? [laughter] >> if i'm calibrating the word outrageous, they are nowhere near the category of outrageous -- >> may be a class for instead of a class by the outrageous? >> exactly, they are troubling. how was that? they are troubling, but not outrageous. >> i appreciate it. >> i would like to take 15 seconds to say that my friend from alabama continues to ignore the fact that there were two bills, one on the private sector and

but fannie and freddie certainly didn't help. they allowed, the government said it was okay, therefore it must okay. fannie and freddie were too big to fail. does as a whole other area that goes along with inappropriate government distortion. thanks, ray. >> janet norman. how do you see citibank's future? >> i thank. >> i used to work at citibank. citibank's future -- they cannot succeed without market discipline. and right now they operate without market discipline. and just as importantly, they are distorting what other firms do, because they have got to compete against it actively a government-subsidized bank. so again, this is a place just like aig where you've got great business lines, great people at some places, but you've got to unlock these people and put them in the hands of managers who know how to manage the company. and you've got to do that at the expense of bondholders, who freely lend money to the company, and should take a loss when their prospects turn out to be not with the lenders have thought. there's no justi

you hear from republicans, if you're going after the banks this way, why not also go after fannie mae and freddie mac, the government enterprise? >> oh, we are going to have to bring very substantial reforms to fannie and freddie, absolutely, and we are completely committed to that and we are committed to propose a detailed set of forms beginning this year. i don't think we're going to be able to legislate that-- that process can start until next year. it's a complicated thing to get right. we are completely supportive and agree completely with the need to make sure we take a cold, hard look at what the future of those institutions should be in our country. >> woodruff: treasury secretariry tim, thank you very much. >> nice to see you. >> woodruff: for another view we turn to scat garrett from new jersey, a leading republican on the house financial services committee. he's helped draft membership of his party's alternative recommendations for reform. thank you for being with us. tell us, overall, your take on the president's proposals today. >> i wanted to say that was a fascinating interview. i

one other thing about the fannie/freddie bailout going on. they had that christmas eve extension on the fannie/freddie -- how much money they could buy from the banks and they just raised the capital over $400 billion on christmas eve. we have to let house's job, let the market settled, then everyone will come in to buy and will correct themselves and the banks will go out of business. host: baltimore, on the line for democrats. caller: hello? yes, the article you read some like it was specifically geared toward americans who can afford to pay their mortgage even if. their home is under if now not their fault, the individual american if their house is under water. it is the way the system is run. all lot of people want to blame minorities and people they feel like could not afford these houses as the reason we got into this mess. no, the reason is there were praising those homes of false values. i have been in bet the mortgage and the car business. when they are pushing those loans they don't care what you can afford. it was not my preference

they did do that fannie mae freddie mac thing and people disagree with arguably whether they did that the right way but they actually did something. >> host: they had to do it. >> guest: the question is whether they could have -- the had a problem, is all a planned and executed it. they didn't get ready for another bear stearns. they didn't go to congress and say we don't have enough power or money. the of the equipment we need to cope with a fire like this again. it is a paulson and bernanke have we asked we would have been turned down it was an election year and that would have been worse than not asking but neither did a prepared internally they don't do what we do if this happens again. there's a little discussion about options but not a lot, so i feel they are not well prepared for lehman. lehman gets into trouble. paulson to some extent bernanke are very reluctant to do another bear stearns. they've both been pummeled by their colleagues for bailing out there stearns -- >> host: and by the public. >> guest: and by the public and they say there are three issues here. one, wall st

there was the rescue of fannie mae and freddie mac come and bernanke was participating in all of these things come and then there was lehman brothers which was in some ways all like bear stearns. it was also an investment bank. but they let it fail. why did they do that? >> guest: the first thing important is i think they wasted the time between march and september between bear and lehman. they did to the fannie and freddie and the was preoccupying and you can disagree and argue about whether they did at the right way but they actually did something. >> host: they had to do it. >> guest: the question is whether they could have -- they saw a problem, had a planned and executed. they didn't get ready for another bear stearns. they didn't go to congress and say we don't have enough power or money. give the equipment we need to cope with a fire like this again. they said paulson and bernanke had we asked we would have been turned down it was an election year and that will have been worse than not asking all but neither did they prepared internally. they didn't do the web to the debate this

studies, they show only 10% of the sub prime mortgages had anything to do with freddy may or freddie f- fannie mae or freddie mac. this is a private sector phenomenon. 90% of the mortgages were sold on wall street. so it was a private sector phenomenon more than anything else. my theory, as i say, is a said, this is basically an enormous market failure, and a failure of ideas and misapplication of market ideas. the way i frame it in the book, i start off with alan greenspan, who -- appearing before congress this time last year, and admitting he did have an ideology and it was free market ideology, anybody who has read any of my stuff would know that i make links to ayn rand. he said, this was my ideology, and in this instance it failed. i relied on the bankers and other people in the financial community to not get us in this mess. and the financial market is self-regulating because it's in the interests of bankers to avoid this blowup we have had. it ultimately failed. so, my book is an attempt to explain why it failed, and i -- the way i do this, seeing it as ultimate lay failure of ideas, i

reiterated in the report we released is that fannie mae(kd freddie mac are financed and controlled by the federal government in a direct enough way that we believe they should be viewed as parts of the government for budget purposes. we do not in the end dictate the way administrationt( records th budget for yearsq that are passed. we are continuing including based on discussions with the committees to to project finances going forward. >> so you concluded that for the reasons you laid out that was a reasonable conclusion to place them on budget is basically what you are saying? >> absolutely. and the relationship changesç over time and we will revisit that. >> right now reasonable interpretation would place them on budget and it is contrary? >> that's correct. >> thank you. and this is not an inconsequential decision as to whether it is on budget, is it? >> well, it matteredw3 most for the budget numbers last year because by our assessment taking on board -- absorbing the companies/+ the federal governt was on the hook for the risk the companies bore. the biggest difference was for

fannie and freddie use the most leverage any institution that issued mortgages or held mortgage-backedonds in the crisis. at one point in 2007, fanny was over 95 times leverage to its statutory minimum capital. with just 18 basis points set aside for loss. that's right, 18th 100th of 1% set aside for potential loss with 95 times leverage. they must not be able to put humpty dumpty back together again. if they're going to exist going forward, fannie and freddie should be 100% government owned and the government should simply issued mortgages to the population of the united states directly since this is a sense of what is happening today. with the added burden of supporting a privately funded argument and saw the capital structure. i will conclude my testimony there, and leave it for questions. >> thank you very much, mr. bass. mr. sulliva solomon to. >> thank you chairman. vice chairman angeles and vice chairman thomas and members of the commission. thank you for asking me to appear before the commission. before i begin i want to commend the leadership of the house and senate for creati

are calling toxic assets, which are securitized subprime mortgages that was facilitated by fannie mae and freddie mac, two government-sponsored enterprises that reflected the political policy of this congress. it's our responsibility to oversee fannie mae and freddie mac and to make sure that they were doing what was appropriate for our economy. but what happened is the criteria for lending went away. local mortgage companies could make almost any loan they wanted to anyone whether they could afford to pay it back, using easy money from the federal reserve and low criteria for giving these loans. and they sold them all to fannie mae. if fannie mae had not been there to buy these loans, these irresponsible loans would not have been made in the first place. but to make matters worse, fannie mae and freddie mac bundled these subprime mortgages up into packages we call securities and sold them, sold them to banks as assets, sold them all over the world. these are the toxic assets that brought down our financial institutions once the housing bubble burst. so, folks, for the president, for ben bernanke

responsibility, how about those members of congress, including the president, who protected fannie and freddie, who, before it is all said and done, will need for a big bailout. christmas eve, they announced they were lifting the cap of tax exposure to fannie and freddie while at the same time giving them multimillion-dollar bonus packages. what people do with their money is their business. what they do with the taxpayer money is my business. it sounds punitive, political, and will not create one more jump. host: thank you for being with us this morning. on our next segment we will focus on health care. "usa today" writes -- here is what he had to say. right after that we will be joined by fred kaplan of new jersey >> as temperatures cool, and i want everyone to take a look at the plan we proposed. there is a reason why many doctors, nurses, and health care experts, who know the system best, consider this a vast improvement over the status quo. but if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen medicare f

>> oh, we are going to have bring very sstantial reforms to fannie and freddie, absolutely, and were completely comtted to that and we are cmitted to propose a detailed set of formbeginning thisear. i don't thinwe're going to be le to legislate that-- that process can art until next ye. it's a complicat thing to get rit. we are cometely supportive and agree completely witthe need to make sure we ke a cold, hardook at what the future of those institutionshould be in our untry. >> wdruff: treasury secretariry tim, thankou very much. >> nicto see you. >> woodruff: for anotheriew we turn to scat garrt from new jersey, a leading reblican on the house fincial serves committee. he's helped draft membship of his party's alternativ recommendations r reform. thanyou for being with us. tell u overall, your take on the presidt's proposals today. >> i wanted to sayhat was a fainating interview. i appreciated so of the questions thatou posited and the lack of answers onhe other side oit. and one other coent-- i was thinking, your lead-in to e story talked about theact that thstock market tanked to

. >> what about fannie and freddie? have not heard the president mention them in any of these financial proposals. why is that? >> i do not think it is accurate to say they have not been mentioned. it says they are going to work on the broader market as the hole, which includes fannie, freddie, and a broad expanse of things and what we do in the mortgage market. it was not mentioned today because it is not a commercial banks. >> since the white paper, nothing? >> i do not have a comment on the specifics. >> often you have taken pains -- [inaudible] >> the spirit of this, which is trying to eliminate some conflict of interest and which is about trying to limit the amount of subsidy or backing from the american taxpayer getting translated into their bottom-line profit. those are themes they tried to pass back in the depression, but the specifics of glass-stiegel, underlying securities -- underwriting securities are no longer in the current financial system, but they pose the most risk. i think if you reimpose glass- stieg

decline, secretary paulson, fired the bazooka and the federal housing finance agency placed fannie mae and freddieluded fannie mae and freddie mac should now be included -- this is the important point, they should now be included in the federal budget. and accord to a report, you arrive at the conclusion after considering the following questions, who owns the agency and who supplies the capital, and, who selects the managers, and, who has control over the agency's programs and budget. and, ultimately, cbo, concluded this answer to those question, was... well, the federal government and each one of those. and since then, the treasury continued to purchase preferred shares in the gses, the means to provide them with enough capital to cover their losses. initially, congress put up $200 billion, as one -- 100 billion for each entity and last year the treasury raised the potential commitment to 400 billion and of course, on christmas eve lifted the cap altogether and now it is basically, unlimited. in the latest report, fannie mae said we expect for the foreseeable future the earnings of the company, i

from the recent government guarante guarantees, and decide how they're going to proceed with fannie mae and freddie mac. would you agree with that? >> i do agree with that. fannie mae and freddie mac are particular problems, had to be addressed. but under the current situation, the t.a.r.p. was used about companies and make all creditors whole, except for the shareholders, under a well-designed resolution regime, you know, many creditors could, would, should lose money which would create market discipline going forward which is what is desperately need to of what the moral hazard problem you're referring to. >> the recent sigtarp quarterly report states that there is $317.3 billion of on obligated t.a.r.p. funds available right now. do you support allowing the t.a.r.p. of three to expire on december 31, 2009? >> i think it's very appropriate to begin winding it down. you know, i think we should begin clarifying what additional need, if any, are still remaining to make sure the financial system is still stable and will not, you know, run into any new problems. but i certainly think the t.a.r.p. has

it just expanded the amount of fannie mae and freddie mac. cause what we need to do is get rid of fannie mae and freddie mac. if they are going to subsidize housing as they almost certainly will it should be on the budget. that is the white democrat governments are supposed to run. fannie mae and freddie mac are open to corruption and there has been corruption. >> host: this article notes the hostility that this increase towards the federal reserve and the chairman, ben bernanke, and so but before this hostility turned on the federal reserve when alan greenspan was heading up the federal reserve, there seemed to be admiration or reverence for what mr. greenspan would say. how can this institution be both re-aired by some people and have disdain from others? >> guest: that is easy. when times are good and things are going well, people like them. when times are bad, as they have been, people say look why is the public angry about what the federal reserve is doing? they don't like the bailouts. they don't like the fact that they are dancing money

"the washington post" this morning talks about the role of fannie mae and freddie mac. open-" the obama administration has promised -- "the obama administration has promised to rollout new ideas for fannie and freddie this year. a liberal think tank with ties to the administration has proposed new entities called charter mortgage-backed securities, a privately owned firms that would package mortgages into securities and sell them with an explicit federal guaranteed. securitization fees would go into an insurance fund to protect taxpayers against defaults." this is a editorial this morning from "the washington post." open-" this proposal grapples with the fundamental problem -- "this proposal grapples with the fundamental problem of the old fannie and freddie -- an immediate an implicit government guarantee permitted, then cheap access to bar of funds, which they gambled in pursuit of maximum returns to shareholders. it also wisely emphasizes that the new organization's was held rebalance federal support between rental housing and single-family homes. this seems not only

freddie mac. if they are going to subsidize housing, which they most certainly will, it should be on the budget. that is way democratic government is supposed to run. fanniemae and freddie mac running around the democratic process and open to corruption, and has been corruption. host: of this article notes the hostility that has increased for the federal reserve and the chairman ben bernanke. but before this hostility turned on the federal reserve, when alan greenspan was heading up the federal reserve, there seemed to be admiration or reverence for what mr. greenspan would say. how can this institution be both revered by some people and have distain for mothers? guest: that is easy. when times are good and things are going well, they were great and people like them. when times are bad, as i have been, people say, look, why is the public angry about the puppet of reserve is doing -- they don't like the bailout. they don't like the fact that they are advancing number, the example, ford general motors acceptance corp., they did not like that we advance money to general motors and chrysler and hundreds of billion dollars to aig. they say, why of giving all t

at the studies they show that only 10% of the sub-prime mortgages had anything to do with fannie mae and freddie mac. they did not buy any more or guarantee them. this was overwhelmingly a private sector phenomenon. 90% of the sub-prime securities were originated by private companies, sold on wall street to private investors. it was a private sector phenomenon more than anything else so i don't find that persuasive the there. my theory as i have party said this this was basically an enormous market failure and a failure of ideas really, ultimately the failure of misapplied free market ideas. so the way i frame it in the book is, i start off in alan greenspan who came to be the sort of apotheosis of this free-market ideology. start off with him appearing before congress at this time last year remitting that he did have an ideology and that was a free market ideology at least in one would know that because i've written extensively about this link to ayn rand etc. said everybody has an ideology. this was my ideology and in this instance it failed. relied on the self-interest of the bankers and othe

best a mismanagement of money and why did we get into the subprime cries because we pushed fannie mae and freddie mac to get into the subprime loan area at monstrously low rates and of course the housing market exploded. and here we are again, 870,000 and i'm shocked the american public is not up in arms and they should be after the segment. >> i'd like a house, $870,000, eric! >> you know why it isn't work -- >> you live in jersey! >> nothing wrong with jersey, tobin, here's the problem and what it is. they'll pay the mortgage mitigator, the mortgage servicer a thousand dollars and give them a thousand dollars every year for three years and they make a lot more money charging late fees and legal fees and throwing everything into the mortgage and certainly, they'll lose a lot of money, a lot of money if they drop the mortgage rate and there is no incentive for the banks to do it. but the point here is, isn't what they are doing or not doing, the point is why did they spend $27 billion so far, where is all the money and there's a lot of fraud and corruption there somewhere. we should find out. >>

decline, secretary paulson, fired the bazooka and the federal housing finance agency placed fannie mae and freddieac into a government conservatorship and then, beginning of last year, 2009, cbo concluded fannie mae and freddie mac should now be included -- this is the important point, they should now be included in the federal budget. and accord to a report, you arrive at the conclusion after considering the following questions, who owns the agency and who supplies the capital, and, who selects the managers, and, who has control over the agency's programs and budget. and, ultimately, cbo, concluded this answer to those question, was... well, the federal government and each one of those. and since then, the treasury continued to purchase preferred shares in the gses, the means to provide them with enough capital to cover their losses. initially, congress put up $200 billion, as one -- 100 billion for each entity and last year the treasury raised the potential commitment to 400 billion and of course, on christmas eve lifted the cap altogether and now it is basically, unlimited. in the latest report

they're going to be made whole -- >> this does not include fannie and freddie, right? there has been an awful lot of teeth gnashing and there has been an awful lot of hand wringing about the way these banks have acted. we will see if the people that have their comments be known about the irresponsibility of their actions, we will see if that is backed up by ensuring that the american taxpayers are made whole for what they have lent these bankers. >> the president pushed these bankers very hard to lend more money when they were here. isn't this $117 billion that they won't be able to lend? >> if you believe that, then you should get an interview with one of these bankers and ask one bank why their bonus pool is $28 billion. it strains any common sense to assume that their share of $9 billion in a year would somehow preclude them from loaning money to a small business when they have set aside $20 billion for bonuses. i do not know how math works on wall street, that is not the way it worked in alabama. >> i have a quick one on haiti but i want to follow up on chips and q

. >> what about fannie and freddie? do you guys not think they are part of the problem or -- >> no, they haven't been mentioned in the regulatory white paper. their are going to look at whole which includes fannie freddie, fha, and what we do in the mortgage market. obviously it wasn't mentioned today because it's not commercial bank in this circumstances. >> but you haven't come up with any proposals since. >> i dentistry any comment on that. >> you have taken pains to say this is not re-imposition of glass-key gal. why not? >> the spirit of this -- which is separating risky activities from banks which is trying to eliminate some conflicts of interest and trying to limit the amount of subsidy or backing from the american taxpayer that's getting translated into their bottom-line profits. those are themes that people were trying to address back in the depression when they passed glass-steagall. but the specifics of glass-steagall which were created in 1934, underriding securities and trading insecurities are no longer in

so why not tax the car companies, fannie and freddie?because the government largely owned it. host: next phone call from ohio. guy on the republican line. caller: one thing that could help people who do not have the money to be able to afford health care insurance would be to bring their wages up. maybe make them are around $15 an hour. that would help all lot of people before the insurance we need. it would also -- thank you. host: we will leave it there. we are going to go to josh in rome, georgia. caller: is it generally recognized in the government, and the federal reserve, treasury, that it was a mistake to let lehman brothers go into bankruptcy? the second part is, if lehman bros had not gone into bankruptcy, when the economy have been better now than it is? guest: the joy of hypothetical. i think most will say that it was a mistake, but they did not have a choice. the mechanism did not exist to rescue them. that is one reason the administration is pushing for the power they are asking for. it would allow them to wind down a compan

so for example, fannie, freddie, lehman, all had big events with deeds numbers as of offsetting, butclearly people are taking risks. they settled and cleared. in the benefit of hindsight those that means people were able to hedge their risk, lay

faneuil and fanie and freddie is perfectly solvent. >> i think fannie mae and freddie is fundamentallye prospects going forward are very solid. >> please! >> to your favorite married couple? >> tiger woods. if that is not a marriage made in heaven, you know. swedish supermodel and ahh, hookers and stuff on the side, too. then we have congresswoman chikowsky and robert creamer. married. i don't think he took her name. hard to pronounce. and then that is good. tough corruption of congress. they can lay in bed at night and say hey, i stole a bunch of money. the other one can say i did too, in a completely different way. anita dun and her husband, whatever -- he's the attorney now for the white house. by the way, i thought that wasn't happening. i thought when we broke that story we were called crazy, that that wasn't going to happen. hmm. >> your favorite couple of the year, i think, has to be clara pittman. >> i don't think they were technically married. >> yes, they were married. >> were they? >> yes, they were married. >> two names they will never say, cloward and piven. if you don't k

fannie and freddie or two-thirds of all -- are effectively the nation's mortgage lender.portant that we address that issue. we can talk about how to do it. i am more optimistic about this than most people, because i think there are some logical, sound, economic responses to the fiscal crisis. in my mind, is about getting the political will to do its. if history is any guide, we always figure out a way. i think we will get the will to address the fiscal situation. having said that, a necessary condition for addressing the long-term fiscal situation is to get the nation's economy growing again in a clear and definitive way. the economy needs a little bit more help to do that. >> your last point was the most optimistic i have heard in a long time. with that, let's turn over your rudy. >> mae west once said that too much of a good thing can be wonderful. i don't think she was talking about stimulus at the time, or at least not fiscal stimulus. we start with a situation here, obviously the unemployment rate is too high, the national debt is too high, so what do we do? because

decline, secretary paulson, fired the bazooka and the federal housing finance agency placed fannie mae and freddiemac into a government conservatorship and then, beginning of last year, 2009, cbo concluded fannie mae and freddie mac should now be included -- this is the important point, they should now be included in the federal budget. and accord to a report, you arrive at the conclusion after considering the following questions, who owns the agency and who supplies the capital, and, who selects the managers, and, who has control over the agency's programs and budget. and, ultimately, cbo, concluded this answer to those question, was... well, the federal government and each one of those. and since then, the treasury continued to purchase preferred shares in the gses, the means to provide them with enough capital to cover their losses. initially, congress put up $200 billion, as one -- 100 billion for each entity and last year the treasury raised the potential commitment to 400 billion and of course, on christmas eve lifted the cap altogether and now it is basically, unlimited. in the latest repor

i've always looked at fannie mae and freddie mac as being part of the issue and how it grew over timem for the bad behavior of our underwriter banks but i think they were part of those problems. >> let me ask you about my limited time available -- in my limited time available, what is in your view proprietary trading? >> the rules of the federal bank, the national bank, are such that -- but that around. we conduct our securities companies much like our colleagues. >> that is not the bank. >> is part of the holding company. you can talk about it and try to define it, but i think when you all set a position, if you're doing it for the firm, it is managing the risk. the challenges of about regulating proprietary trading in some of the bank holding companies -- what is proprietary and what is customer-driven? if we delay interest to help a metal customer, we have to offset that, because we cannot carry one side of the trade. we have to offset that. on the other side of the trade, it is proprietary. at the end of the day, is to manage risk so that we can provide that middle-market customer

freddie mac. if they are going to subsidize housing, which they most certainly will, it should be on the budget. that is way democratic government is supposed to run. fannieae and freddie mac running around the democratic process and open to corruption, and has been corruption. host: of this article notes the hostility that has increased for the federal reserve and the chairman ben bernanke. but before this hostility turned on the federal reserve, when alan greenspan was heading up the federal reserve, there seemed to be admiration or reverence for what mr. greenspan would say. how can this institution be both revered by some people and have distain for mothers? guest: that is easy. when times are good and things are going well, they were great and people like them. when times are bad, as i have been, people say, look, why is the public angry about the puppet of reserve is doing -- they don't like the bailout. they don't like the fact that they are advancing number, the example, ford general motors acceptance corp., they did not like that we advance money to general motors and chrysler and hundreds of billion dollars to aig. they say, why of giving all th

> i was not sure exactly what the right way to use the money -- my thought was give it to fannie mae and freddiemac and get them to start buying up some of this bad paper. i don't know. but the point, is it's an option that was never considered, so we'll never know whether things could have been done differently. but the within thing we do know is that the rebate didn't work at all. host: we next go to e ri e. greg, missed you earlier. caller: thanks. mr. bartlett, you just mentioned the bad paper. it really strikes me as sort of disingenuous of the right and the conservatives to complain about our deficit and the problems that the government's going through right now with financing all of these things, when you compare the deficit that the federal government has with the obligations that business has due to all of that bad paper, all the debt that they created, the trillions of dollars. i mean, credit default swaups are like $43 trillion. i mean, it's unbelievable the insurance that the business took out on itself against its bad decisions. and now all of that's coming due. but when you compare

and fannie mae and freddie mac and all of this and it's government that is the problem. it might be a -- it's not -- i'm not suggesting that government is the answer, but a bankruptcy court system that has evolved from our constitution has proven to be a very effective instrument of helping people and at the same time being fair and equitable. that's my concern. i want your program to work. i really do. i think you need a little bit of a hammer hanging out there. go ahead. >> two things. i just want to be very clear. hope now doesn't really go on or off for what legislation should pass. with all the rules and the tools that are in the arsenal, to today hamp is a dominant part of what we do. if it fails hample, we do other mods etc. my personal background is a capital market background for the first 15 to 18 years of my career. i would share today we have a broken market still in a mortgage security market and the trading market and the government is unfortunately for all of us investing in those. what i do now is i don't know what a bankruptcy on a first lien mortgage wo

i've always looked at fannie mae and freddie mac as being part of the issue and how it grew over timedo not blame them for the bad behavior of our underwriter banks but i think they were part of those problems. >> let me ask you about my limited time available -- in my limited time available, what is in your view proprietary trading? >> the rules of the federal bank, the national bank, are such that -- but that around. we conduct our securities companies much like our colleagues. >> that is not the bank. >> is part of the holding company. you can talk about it and try to define it, but i think when you all set a position, if you're doing it for the firm, it is managing the risk. the challenges of about regulating proprietary trading in some of the bank holding companies -- what is proprietary and what is customer-driven? if we delay interest to help a metal customer, we have to offset that, because we cannot carry one side of the trade. we have to offset that. on the other side of the trade, it is proprietary. at the end of the day, is to manage risk so that we can provide that middle

fannie and freddie did a lot of good things.they got larger and moved into direct lending, then they were the source of some of that problem. but the responsibility of making those loans were on the lenders, and some -- not most -- made loans that were not well-underwritten. once that started happening to a large degree and sold to wall street, that is where the problem started. as far as blame, you have to put that on the lenders and on the borrower's, knowing they could not repay the money. a lot of it, also, is on the regulatory system. they did not step in to regulate this for safety and soundness. i have to say, even trade associations, like mine, did not catch this. there is blame enough to go around, but a big source, as you said, was making mortgages without their ability to pay. it is fixed, but all the horses are already running around in the pasture. host: president obama proposed this responsibility fee. what responsibility do financial institutions have to be prepared for future instances of failure? guest: we agree

we watched fannie mae and freddie mac be taken over by the federal government and then by an executive order right before christmas have them open up the debt ceiling on fannie and freddie where every american is a guarantee-or of the debt which can be as many as $-- 5.5 trillion. we watched negotiations take place behind the scenes which told the bankruptcy court how to push our automakers through there and both of them nationalized, taken over by the federal government. then we watched the $787 billion economic stimulus plan be passed in an urgency that hasn't produced a product and a result except the debt that's going to drag down this economy for the american people. and then behind that out of this house came hurry up and rush cap and trade, cap and tax, pass it, and it passed out of the house and went over there on the docket of the senate. and the american people began to realize what was happening. they couldn't first believe it. they didn't think at first the $700 billion tarp was really real. somehow they trusted that we knew what we were doing here as a majority. the majori

large financial institutions, including especially the government sponsored housing finance, fanny mae and freddy mac were too big to entail. i don't expect to discuss these at length. but i mention them as a warning against mono causal explanations for what we've been through. the recession just ended ranks as one of the deepest on record. it was led, as i suggested, by the plunge in housing construction that followed the boom. during the boom, housing prices almost tripled. but by 2005, evidence was emerging that the run up had gone too far. they can see rates began to rise in late 2005 and hit record highs. measures of home construction and sales activity began to fall. home prices also began to decline. that reduced equity values and household wealth. it led to rising defaults and foreclosures. the layoffs in residential construction dampened growth and thus dampened growth in overall household consumption spending. that caused the rest of the economy to slow and then the expansion officially ended in december 2007. we turned into contraction mode. the recession that followed was longer and d

"the washington post" this morning talks about the role of fannie mae and freddie mac. open-" the obama administration has promised -- "the obama administration has promised to rollout new ideas for fannie and freddie this year. a liberal think tank with ties to the administration has proposed new entities called charter mortgage-backed securities, a privately owned firms that would package mortgages into securities and sell them with an explicit federal guaranteed. securitization fees would go into an insurance fund to protect taxpayers against defaults." this is a editorial this morning from "the washington post." open-" this proposal grapples with the fundamental problem -- "this proposal grapples with the fundamental problem of the old fannie and freddie -- an immediate an implicit government guarantee permitted, then cheap access to bar of funds, which they gambled in pursuit of maximum returns to shareholders. it also wisely emphasizes that the new organization's was held rebalance federal support between rental housing and single-family homes. this seems not only

i've always looked at fannie mae and freddie mac as being part of the issue and how it grew over time. i do not blame them for the bad behavior of our underwriter banks but i think they were part of those problems. >> let me ask you about my limited time available -- in my limited time available, what is in your view proprietary trading? >> the rules of the federal bank, the national bank, are such that -- but that around. we conduct our securities companies much like our colleagues. >> that is not the bank. >> is part of the holding company. you can talk about it and try to define it, but i think when you all set a position, if you're doing it for the firm, it is managing the risk. the challenges of about regulating proprietary trading in some of the bank holding companies -- what is proprietary and what is customer-driven? if we delay interest to help a metal customer, we have to offset that, because we cannot carry one side of the trade. we have to offset that. on the other side of the trade, it is proprietary. at the end of the day, is to manage risk so that we can provide that mi

denunciations of the community reinvestment act that introduced affirmative action in lending or fannie mae and freddie mac whose irresponsible decisions were a fairly significant factor in all this but all the same there is the elephant in the living room. the factor that more than any other contributed to the crisis but never gets mentioned, is never mentioned in a negative light, certainly in political circles where to the contrary we are encouraged to not even think about it and that is the federal reserve system. most americans here that and don't even know what it is. i am never going to know. this is too complicated. i had better just what the experts take care of this. the experts are a bunch of quacks so it is important for us to learn this material. to know what is going on so that we can have an informed opinion so that we won't inadvertant we enlist in the army of drones who say the solution of the crisis is to give more power to our wives overlords. the federal reserve system is in charge of the country's money supply as i am sure i don't need to tell people in this room. it has the abilit

. >> what about fannie and freddie? correct me if i'm wrong but i have not heard the president mention them in any of these discussions. why is that? you think they were part of the problem? >> i do not think it is not accurate to say they have not been mentioned in the regulatory white paper. they're going to convene to look at the broader mortgage market as a whole which includes freddie and fannie and think about a broad expanse of things and what we do in the mortgage market. it could not mentioned today because it does not -- it is not a commercial bank and in this circumstance. >> have you come up with any proposal since that white paper? >> i do not have any comment on the specifics of that. >> you have taken pains to this point to say this is not reimposition of glass-steagall. one not go for the whole? >> the spirit of this, which is separating risky activities from banks, which is trying to eliminate some conflicts of interest and which is about trying to limit the amount of subsidy or backing from the america

we know what he is doing with fannie mae and freddie mac. compared a document for escrow yesterday, there were four loans on that with no payments for two of them. he has got all of the communists, acorn, all of these people lined up. he was smacked down in massachusetts and he will get smacked down again and again. he said that this was not about him? this is absolutely about him, personally. host: you are seeing the majority of america still liking the president, personally. they like what he is saying. what they do not like are the policy implications. what you will see during the state of the union is him trying to reach that middle-class, trying to reach that anger and frustration and giving people a reason to be hopeful again. . guest: i don't think you will see much of a shake-up. the thought of ben bernanke not getting confirmed to, wall street had a rough week last week. host: baltimore, maryland, you are feeding back, turn down your television or radio and we will go on to lafayette, louisiana this is our democrats lied. -- line. c

let me just say one thing in common with the following firms, fannie and freddie, the largest investmenthey all had one thing in common, which they were not subject to a set of sensible rules to constrain the risks they had to take. what we pros to in financial reform is to change that. it is a simple imperative. that's not enough, though. because people make mistakes in the future. so we need to make sure when they make those mistakes that we can let them fail and failure can happen without catastrophic damage. we need to be able to contain the damage, isolate it, draw a line around it, put them out of their misery, put them out of existence without the taxpayer being exposed and we need to make sure that we don't have a system where the taxpayer is exposed to the risk of loss where investor and creditors live with the expectation that the government will be there again. and, again, that's something that is a -- i think we all have a huge obligation, responsibility. it was the laws of the land that allowed that to happen. the law of the land that made it impossible for the government to

maggie was to give it to fannie mae and freddie mac and get them to start buying up some of this bad paper. the point is it's an option that was never considered so will never know whether things could've done differently. but the one thing we do know is that the rebate didn't work at all. >> guest: >> host: rag, sorry mr. earlier. democratic color. >> caller: good morning. it really strikes me as sort of disingenuous of the conservative to complain about our deficits and the problems that the government is going through with financing all these things. when you compare the deficits of the federal government has with the obligations that business has do to all that bad paper, all the debt that they created, the trade installers. what credit default swaps are $22 trillion. it's unbelievable the insurance that business took out on itself against its bad decisions. and now all of that is coming to. or when you the federal deficit worse is the deficit of the big mistakes that everybody made or the illegalities that people made here in i'll take my answers off the tv. thank you for having