we have had a discussion about the gse's. we have seen enormous engagements of the government currently in this cyclical role. some debate about whether that role in guaranteeing mortgages should be pulled back, or expanded, but given your perspective, what would you say about what that rule ought to look like. what should that role look like? >> i thought you were going to ask me if the phillies were going to win the world series. let me make two points. it is clear the government should play a larger role in the housing market. that involves two things. it is clear the government needs to provide a significant backstop to the housing market. the entry into the housing market after the great depression was motivated by that fact. millions of people lost their homes as a result. the government entered into provide that backstop. the necessity is evident in recent avevents. had the fha not stepped in, the housing crisis would have been much worse. it is on the gun, house prices are down 30%, but it is easy to say the price dec

i have been grappling with this question of the future of the gse. we concluded that a carefully designed government guarantee is critical in maintaining and creating a stable, liquid system that provides long-term, safe financing for borrowers. that said, guarantees are tricky business. it is pretty clear that the implicit guarantee that was provided by the government in the past to gse-debt encourage excessive risk-taking and an overbuilding of the portfolio. the key challenge is how to do this careful design. how do we structure the guarantee so that liquidity is andntained, but moral hazard i taxpayer risk are minimized? we could talk about that all morning. i want to offer a few ideas for things that are simple. the guarantee could be structured to minimize the risk to taxpayers. first, limit the scope of the guarantee. i seen no policy reason that it should be provided for the corporate debt of any entity, as it was in the past. we ought to, going forward, limit the guarantee to the mortgage-backed securities themselves, or perhaps the underlyi

we have had a discussion about the gse's. we have seen enormous engagements of the government currently in this cyclical role. some debate about whether that role in guaranteeing mortgages should be pulled back, or expanded, but given your perspective, what would you say about what that rule ought to look like. what should that role look like? >> i thought you were going to ask me if the phillies were going to win the world series. let me make two points. it is clear the government should play a larger role in the housing market. that involves two things. it is clear the government needs to provide a significant backstop to the housing market. the entry into the housing market after the great depression was motivated by that fact. millions of people lost their homes as a result. the government entered into provide that backstop. the necessity is evident in recent avevents. had the fha not stepped in, the housing crisis would have been much worse. it is on the gun, house prices are down 30%, but it is easy to say the price dec

-- there would be no gse's . >> fha would do what? >> i said they had bet -- been here since 1934. it would focus as it needs to on the soundness of its mutual portfolio. and they may try to get them financial statements that people could understand. i was just that as a good project. >> ok. do you want to add anything to this debate? >> i think there needs to be a continuation of fha as we just discussed. in a going forward to have the role of the federal government not only there but also all mortgages in terms of catastrophic risk. as the secretary said, in a recession, the government will step in, otherwise this nation will become a depression. the government will step in to ensure we have reasonable rate. so the government must actually oversee the risks that the government bonds. i think with wet ingrid said,wh theawhat ingrid said, government could be very limited. outside the government, in a limited role for a government guarantee with private capital in the first loss position. private and public entities are needed. private

the reality is that for the banks, gse were considered capital. now the banks are undercapitalized. the argument becomes one of whether or not to pass legislation to bail out those banks. i was in favor of them going through a process of bankruptcy. expediting bankruptcy just like airlines and railroads go there. i am not a fan of the big banks, all right? the consequence of the not going to the process is that now a new bill comes forward. i think you and i agree and not voting for this legislation that just went out. what that bill does is it provides permanent bailout authority from the federal government for these large institutions. you have to be significant. here is the problem. if you are a small community bank competing with a big one, your cost of capital is now 100 basis points lower. it is a four point lower in interest. you can borrow because the perception that you will be built out upon the -- bailed out. fannie mae and freddie mac of out a staple -- borrowed at a full 100 basis points. the big banks are going to get bigger. the small banks are going to be crowded out

separate and apart from the gse question that they had been the treasury about. it was at that point that we said that if this is about one united, first of all, tarp is new and we don't know anything about it. the chairman of this committee, you talk to them, i am out of it. i just feel that things -- and this is how our government is. things work on a fast pace. where work -- we are in a point in time where the meltdown was going on and conversations go on. oron't think i was fed up use. this is just the way things unfolded. >> were there any red flags when you were thinking, there are past connections to one united? that maybe there'd be a conflict of interest at that point? >> trade associations have representatives. most trade associations usually have representatives of one of their member companies to speak to them, particularly if they don't have ongoing lobbyists of some sort. not only do these associations use the offices and personnel of various other members, but this is how associations work. i took it for that, and that is who i had a meeting for. >

second, we're going to move forward on reforming the gses and our broader housing finance system. we will bring together at the treasury department leading academic experts, consumer and community organizations, industry participants, and other stakeholders for a conference of experts focused on the future of housing finance. we will explore various models of reform and seek input from across the political and ideological spectrum. chairman frank plans a series of hearings on housing finance reform this fall. i suspect german dog will, too. and we are required under law to submit a plan by january of next year. we're going to move quickly to begin shaping reforms of the derivative markets. to start the process, we will work with the fed, the sec, and the cftc to outline specific quantitative targets for moving the standardized parts of the over counter derivatives business onto central clearing houses. and we have to accelerate international effort to define common global standards for transparency, oversight, and the prevention of manipulation and abuse of these critically import

community bankers association began to get engaged in this issue saying that 22% of the respondents g holds gse preferred stock. there were up to 40 institutions that could possibly be impacted by a section1036. let's talk about what the assistance that has been identified by the committee on my behalf. we have two e-mails sent to a barney frank staffer saying that they were in trouble. we have one e-mail to the chairman alleged of thenba. --of the nba. the committee reads this as if this is something our office drafted. unsolicited the mel's. -- you have two unsolicited e- mail. s. this is a treasury p draft draf but the committee is reading this that i drafted this. the sky was falling into the as a maid and the treasury department can up with a three page bill the requested $750 billion to buy up troubles assets. this was this bill. this was not drafted by our office. it was a widely available draft of treasury department bill. let me get to the question of appearance. grace case, they found that no other standard of conduct prohibits the creation of an appearance of conflict of interest. th

the reality is that for the banks, gse were considered capital. now the banks are undercapitalized.he argument becomes one of whether or not to pass legislation to bail out those banks. i was in favor of them going through a process of bankruptcy. expediting bankruptcy just like airlines and railroads go there. i am not a fan of the big banks, all right? the consequence of the not going to the process is that now a new bill comes forward. i think you and i agree and not voting for this legislation that just went out. what that bill does is it provides permanent bailout authority from the federal government for these large institutions. you have to be significant. here is the problem. if you are a small community bank competing with a big one, your cost of capital is now 100 basis points lower. it is a four point lower in interest. you can borrow because the perception that you will be built out upon the -- bailed out. fannie mae and freddie mac of out a staple -- borrowed at a full 100 basis points. the big banks are going to get bigger. the small banks are going to be crowded out b