mr. lockhart of you on this. everyone seems to agree that we need to get private capital back into the housing finance system, with fha and fannie and freddie in the game making, funding the lion share of u.s. mortgage. the question i have for you to respond to at this point is, can private capital come back without gse reform? >> no. i think as long as you've got holders of six and a half trillion dollars worth of mortgage residential mortgage credit, the future of those holders is uncertain. are we liquidating fannie and freddie? is that the gameplay? will we engage in a ritual slaughter? are we reorganizing them to send it back in the world as private mortgage insurers? until the question is answered i think it would be risk takers around the edges, but you're not going to have a massive resurgence of private capital into the system because it's too risky. that's too big a pool of debt, the fate of which and the future of which is uncertain to suggest to anyone in his right mind to step in and start providing

mr. lockhart has a point. in terms of the effectiveness of qe, i would simply point out that when qe-1 and qe-2 ended, over the past year and a half to two years, that the stock market went down by 10% to 15%. so it seems that credit markets for one reason or another, you know, seem to require a constant and consistent input in terms of monetary ease. and that has been the quantitative easing aspect over the past three years. >> do you feel, then, the fed is essentially painting itself into a corner here? i want to bring up something another friend of cnb nrkcnbc s earlier today. the market doesn't want goldilocks. do you agree with that? >> i think to a certain extent toy. the fed is looking to stimulate the company to a 5% nominal gdp growth rate. that speaks to 2.5% to 3% real growth and perhaps 2% inflation. what did we see, you know, earlier this week? we saw about 3.8%. to the fed's way of thinking we're a little bit too cold. at some point, you know, according to my view, at some point perhaps not at th

mr. lockhart, is there anything that makes you at all optimistic when you look at the political landscape? and i would like you to answer the original question. is there any thing that makes you optimistic that congress is willing to take their reforms required? >> not at the moment. we have a divided congress. there is a group that wants to kill fannie and freddie no matter what it does to the housing market. there's another group that was to keep them exactly where they are. unfortunately. it will take the november elections to break the chains. congress did raise the gp, but it did not go to fannie and freddie. aid.ent to the payroll lai we need a government system that -- that will take congressional action. we cannot do it without congress. the administrator -- is not the administrator -- the director is starting -- if the director is starting to raise the gp dramatically, he will have the hill come down on him. because the guarantee is underpriced at the moment, if you will, the private sector will not come back until we figure out a mechanism to encourage the private sector to come

mr. lockhart's view on this. everybody agrees with me to get capital back into the housing system. the question i have for you to respond to at this point is, can private capital come back without form -- reform? >> as long as you have holders of 6.5 trillion dollars worth of residential mortgage credit, the future of those holders are uncertain. are we liquidating fannie and freddie? are we going to engage in a ritual slaughter? are we going to reorganize them and send them back into the world? until that is answered, there will be risk takers around the edges. you are not going to have a massive research as a private capital into the system because it is too risky. it is too big a pool of debt, the fate of which is uncertain to suggest to anyone in his right mind to step in and start providing mortgage credit. you can have a radical interruption in the provision of mortgage credit which would have a disastrous impact on house prices. if the government stays involved where it is without properly pricing credit, the returns to private capital are going to remain low and not attract