tv U.S. Senate CSPAN November 10, 2010 12:00pm-4:08pm EST
>> one of the themes that is in my paper is, is transparency. and one of the problems with the whole securitization business and the financial sector overall has been was the lack of transparency. this idea of just putting a simple one page piece of paper in a folder saying that the loan originator assigned, you know, the underwriting guides were followed. if the penalties are too stiff, i can buy off on the concept. but being able to identify for
the loan officer was, who the original loan underwriter was, that in the spirit of transparency i think that that's a very interesting and even a terrific idea. and this time around, as we reemerge as securitization reemerges, there's lots of focus on this, this whole thing, and will do a much better, i'm confident this conference, you know, everybody in the room is proof that particularly with residential mortgage-backed securities that we will do a much better job. next time around in terms of getting things right. but again the point is that it wasn't, the first time around it was not an idiotic process, some like the media has presented it as if it was a con game right from the start. and that simply is just not true. lots of talk yesterday, particularly about foreclosure
and special servicing. again, i want to remind everybody that these rigidities that were set up, set up with securitization was a consequence of tax and regulation laws. and not having servicing in place the way it should have been was basically, in my view, in part related to this automated process that was set up because of tax and regulations. okay, and there's no question that having this structure in place, what you need ex post, when you do with problems and implement contracting is flexibility can be inefficient. when you don't have that with securitization, that can create some issues. and so having, you know, building in some discretion right off the bat next time around i think would be a very good idea. but i think this also, it's also
very, you know, even with that discretion, will it really make that much difference in the end because there are certainly strong private market incentiv incentives. this hole foreclosure issue is really deep and complex and very much bound up with legal institutional issues, as well as social contract issues here in the u.s., and it's not going to be easily addressed. but it certainly is not unimportant the whole risk retention idea, i'm skeptical of the covered bonds. india guess it's week tried covered bonds in the late 1800. it's been tried before. it didn't work. it looks like we are going to try it again. i can see why we are trying it, but the big concern on my and is that it concentrates risk instead of spreads it around. and it certainly is not a panacea. and the comparison with european model i think the big thing we have to keep in mind is the
recourse, nonrecourse thing. part of the bouts between the supply demand side of the market and the borrower side is that recourse with mortgage lending really reduces credit risk. and so keeping this risk on the balance sheet of financial institutions is not as big a deal that in this country where there's nonrecourse, keeping these bonds on the balance sheets of financial institutions is a really big deal, and is going to concentrate risk. so we need to put close attention that there are viable substitutes for risk retention. the commercial mortgage-backed securities market, and till the end, nearly into for the financial crisis there was a dedicated bb spider murder. people bought them healthy high risk securities as separate from the securitizers. that's a nice subsidy, and other
basic substitutes, other potential insurance mechanisms other than risk retention. transparency, i'm a big fan of transparency. there's been proposals to create, maybe even many fannie and freddie but create new clearinghouses. for example, for derivatives. i am skeptical of great new gses to replace old gses. they become large and hard to control. and i think there are private options to clearinghouses that i would like to see explored. the bigger issue is people is gushing people a focus on information disclosure and the security going up to us like five minutes. the big problem, i mean they were certainly problems at origination. with the recession and so forth where lenders did not follow the underwriting guidelines as
closely as they should. so when you look at the prospectus, the issue is a prospectus, some of that information was not perhaps accurately stated. but i think the bigger problem, and it has gotten much less focus, his information production after the fact. these loans, things changed after security issues. if you have sat down and read security's perspective, there's a terminus of out of disclosure at issues. the problem was that there was no tracking post issue is that there was no system step up to track credit quality of the securities after issuance. and that's where clearinghouses can come in that other mechanisms hopefully will arise to address this. and the problem was when you have a negative shock, everything of the mortgages in security as being in a bag, we did know what was inside the bag. you had to peek inside the bag
to see what was happening, and that's costly. and so one issue going forward, and one of the speakers on the prior panel alluded to this, is from a policy standpoint bigger might be better with securitization. bigger securities if you're going to have to track them after the fact, scale economies to information production. so bigger securities may be better, more economically efficient from an information production standpoint. and again, challenge going for, how are going to do this? my preference is to try to see if this possibly more of an emphasis on the private market to see if these, some source of entities can arise for information production because investors hopefully will demand it. in the last session, the question was asked by deborah
lucas, what lack of reform, which is your nightmares at night. and my answer to that question, the shadow banking system, not doing anything about the shadow banking system. this conference is focused almost exclusively on regulating and monitoring the formal banking system. and again the fact that all of you are in no and there so much focus on these issues suggests to me that the next problem is not going to come from the formal banking system. we're going to address a lot of the problems that were caused. the problems will come from outside the formal banking system. the more rules within the formal banking system, the more that risk is going to migrate and innovation is going to migrate outside the formal banking system into the shadow banking system. and thus far we have not seriously addressed taken on is very, very difficult issue of how to control the shadow
banking system. and so let me just, i'm running out of time, and i still have a couple more sluts. i will talk very quickly. so just to get a sense of how difficult this is, goldman sachs settlement has gotten a lot of play, but as a less well-known case of my guitar which was a hedge fund out of chicago. and what they did, what the allegations are that they did, starting in early 2006 as they started buying cdos of the risky pieces of cdos, big player, 50% of the market buying the bp ceos of subprime mortgages. with that as an exit that kept our agreeably kept housing market going. because it had an exit if they were bidding high prices, that kept subprime mortgage rates lower than it would have been
otherwise. and kept the housing, housing market checking on and it publishes state. and then so there was this understanding that these guys were taking a long position in housing, but what people did know is that it more than offsetting positions in the cds market where they were long cds, short housing, so that when housing market crashed, they made millions if not billions of dollars. but they took, undertook the strategy to prolong the housing market. and so when i tell this story to my private market, my private sector friends, their emea reaction is, why didn't i think of that? [laughter] when i tell to my public sector friends, they said oh, my god this is the scariest thing of all time. this is the challenge of dealing this in a nutshell is because
new ways making money. another example is, this goes into my next topic of investor responsibility which is almost not been talked about at all, which i was on the board of a commercial backed securities outfit, firm, it was a shadow banks, fortunately i rolled off the board before things blew off. the basically, the shadow banks we've talked about. they buy -- they are funding mortgages by buying low rate of securities. how do they finance themselves? they finance themselves with repos, long-term debt and some equity. is the focus on the repo market. gary gordon in particular has focused on this and has characterized shadow banks as basically only having a basically recalled the only part of the picture. and i want to emphasize with equity came from in our firm,
and a lot of these shadow banks is from pension funds. and other sophisticated investors. there has been almost no focus on the sophisticated investors side of the market. and my contention is, until we focus more on this issue of investor responsibility we will not solve anything. and i'm particularly concerned about the pension fund world, because the pension funds do and i believe will continue to invest in risky securities. they have incentives to do so, through private equity firms, shadow banks. and the pension fund world is all about if you're going to fail, it's best to fail with a good coming. that is what i miss a senate that if you read the erisa guidelines, and it causes hurting and grouping. and given the underlying problems with pension funds, i
think this is the next, this is one the next big accident waiting to happen that hopefully we will address in the not-too-distant future. i'm going to skip this one. last, almost lastly, credit default swaps. personally, credit default swaps are like the atomic bomb. they are the greatest and worst invention of all time. but at some level they are a great invention. they are a traffic hedging mechanism. yesterday susan and made other statements there's no way to short the housing market. not anymore. cds is a great way to short the housing market. i've got a slider of what happened in the cds market. the cds markle was way head of the equity market, and i guarantee you going forward, it didn't start going down into early 2007, when a just be a
start having problems. but the top of the s&p hit a peak in i think october 2007. by that time, much of the value or less. market will be way head of the housing market if the housing market gets frothy. it will anticipate the problems. that will feedback and that's actually a great public good. because the existence of these kinds of markets, the ability to short things like housing, will keep housing in line, will keep it from voting and busting as much as it has in the past. and i think that maybe one of the really great benefits of things like cdos. okay, i'm out of time. i was going to talk for a moment about systemic risk, but i think it was addressed at least to some extent last time and we can maybe pick it up next time. so, stop there. thank you.
[applause] >> our next speaker, my yan chang, ashlyn nelson and ashlyn nelson will be presenting. >> hi. i would like to thank the fdic and federal reserve system for the opportunity to be here. it's a great honor. today i'm presenting joint work with my co-authors. this research is funded with the generous support of the national science foundation. so, we have two papers that examine agency problems in the mortgage market using micro data from a single mortgage bank that was among the top 10 mortgage originators in the mortgage crisis. so in our first paper just to give you an overview and background of a we've been
working on, our first paper, lifelong, liars alone, we examined the misalignment of banks and third party originated brokers. who originate loans on the banks behalf without having to they are the long-term consequences of issuing poor quality loans. and we digested of italy was the differences between banker originate and brokerage in auditors which are largely explained by broker penetration of lower quality barber pulls. on all of the activists collected at loan origination. we for the doctor agency issues arising between the mortgage lender and its borrowers and loan documentation market. differences between full doc and low doc, no doc to get and present evidence of information falsification among low documentation mortgages. not surprised. but we estimate an average incoming exaggeration level of 20% a month low doc mortgages. so in the second paper that i
presented, securitization and present intriguing contrast highlighting incented province on the part of banks. so while we find a banks apply lower screenings to loans with a higher ex-ante probability of being securitize, we further show that the loans remaining on the banks balance sheet exposed loans sold and offloaded into the secondary mortgage market. just a little bit of background and motivation. there are a number of benefits to loan sales that have excited repeatedly during this conference including the reduction of the impact of banker specific shocks, the enhanced benefit of bank liquidity there's been some cost to loan securitization that we've talked about as well, including reduced incidence for monitoring loans by the lender. if they think that they can offload to the second warm-up
mortgage market. and as well as inefficiencies and ex-ante, and inefficiencies and ex post renegotiation in the case of distressed borrowers. it's often cited as a major cause for loosening lending standards in the run up to the mortgage crisis. at the macro level the existence of the secondary market led to rapid expansion of low doc and broker to loans which are quality on average and at the micro level you might think that lenders would lower the standard on a particular loan if they think it has a higher likelihood of being securitize and offloaded. so this paper close the somewhat counterintuitive finding that while those with a higher ex-ante probability of being sold have higher delinquency rates. the loans -- i'm not on the. the loans action sold by the bank post origination exhibits worst performance in loans that remain on the banks balance sheet. so this paper reconciles some
mixed evidence in prior research and explain to the irony that the moral hazard on the lending base price part in it up during the banks the most. -- ended up hurting the banks the most. so conduct this analysis it is absolutely essential that we have an accurate calibration at the entire information set of origination. which we have. so we employed a unique data set from a single mortgage lenders that contained all loan, barber, property additives obtained at origination and wizard monthly performance data for each of these loans. importantly we observe performance for both loans sold on the secondary market and loans retained on the bank balance sheet. so i data set contains more than 700,000 mortgages, originated between january '04 and figure it '08 by a top national mortgage bank. and this medication is the distribution of these loans
which are distributed roughly proportional to population distribution. we see a slight overrepresentation in southern california where the lender is, or was based. [laughter] >> okay. so to provide you with a lot of context, this chart compares the sample data from our particular mortgage lender to data on loans in the market overall during the same sample. our sample is pretty similar to the market overall for key economic indicators. we have higher proportion to low doc loans because this particular event was a low doc shop. so here we illustrate just conceptually what we demonstrate in the paper. so suppose there's just some state variable that affects the probability of loan sale but does not affect delinquency. so the absence of moral hazard we should find that those with
both high and low probabilities of loan sale have similar telepathy probabilities. so in the case of moral hazard ex ante instead we would observe that loans above some state variable cut off have both a higher probability of loan sale and higher delinquency propensity. and we confirmed this in our paper. in our paper we didn't contrast actual performance among sold and retained loans ex post, and what we find is that investors are able to cherry pick relatively high quality loans with lower delinquency rates from all loans offered for sale. so the ex post allocation of loans means worse quality loans on the bank balance sheet and spite of the x. and the incentive problem. so we first examined whether ex post retained loans exhibit worse performance than salt
amount. this provides a comparison of delinquency rates between sold and retained loans in our sample. we partitioned it into bank issue full documentation loans, bank issued low doc, broken issue full doc and broker issued low doc loans. the result are just in the final column on the right hand side. we find that loans retained on the banks balance sheet have a higher delinquency rates and loans sold in the secondary mortgage market. the difference is 4.7 percentage points. it is about a third of the sample. and then among mortgages that were sold in the secondary market we see about 28.2% delinquency rate. that's delinquency as justified as pastor in our analysis. so this delivers a difference holds for all subsamples with the exception of bank issued full documentation loans. so what we do first in a paper is examined the ex-ante relations between loan sale and low-quality.
so we need to find some sort of state variable that affects loan sale but not low-quality. so what we do is extend the methodology that achieves identification through discontinuities at a certain credit score threshold values. mainly the 620 about which more loans are likely to be securitize. while a loan associate with a six or 20 credit score is more likely to be substantial more likely to be sold than a loan with a 619 credit score, there's little reason to think that a lengthy probability between an individual bar with a 619 or 620 credit core would vary substantially. so we don't claim any innovation in this portion of our paper, but rather what we doing is extending the methodology by controlling for a complete set of observables. at origination, and we also allow for other jobs and all the other covariant at the same credit score threshold values.
and i'm confused. why is this going backwards? sorry. so, importantly we think there's very little probability that an individual could many to their credit score around this threshold, and the reason we argued that this is the case is this particular vendor files thy practice of following each borrowers credit scores from each of the three credit reporting bureaus and uses the medium score. so while an individual may broadly sorted engage in credit enhancing activities, it's very unlikely to be able to precisely gain their meeting credit score around this particular credit score threshold value. so here's the plot showing the probability of loan sales these are the credit score.
so we seek to discrete jumps in the probability of loan scale. these are the conditional likelihood of loan sale. so what we see here is we say statistically significant jump in the likelihood of loan sale at both the 620 and 6-under 19 credit score. it is a cutoff between credit quality while the 6-under six is regarded as the cutoff between sort of okay and good quality. and the next examined whether we see jumps in delinquency rates at these exact same credit score threshold. so here's what we sort of tester eyesight by looking at this raw data. what we find is there's a 5.6 percentage point increase in delinquency at this 620 cut off and the 2.9 percentage point increase at the 6-under 60 cut off. if we conduct a regression, on
each of his partitioned by these different thresholds we find that the liberty job at six oh 20 becomes insignificant but they're still a significant jump at the 660 threshold. other covariant may be also jumping at the same time, particularly out of three thresholds which were also used for underwriting guidelines for different types of loan products. so indeed we confirm that other covariant jumped also at the same breschel. so for example, we saw a significant jump in a just war it mortgages at the 620 threshold level. so to address this issue we apply a partial in your model which we described in a paper that basically allows other coverage to jump at the same credit score threshold. here's what happened. once we got for the jumps, we find ashley the delinquency jumped at the 660 threshold
disappears. while a jump at the 620 threshold is strengthen. so the jumping to language at the 660 threshold is explained by observable, and the bank lowers screening standard for loans above this threshold based on observables. but in contrast at the 620 threshold, attribute. okay. so now we move to examining ex post relation. we estimate this joy system of loan delinquency and loan sale, and we're mostly interested in the correlation between the air disturbances in both models because they point to three distinct possibilities. so the first possibility is that the correlation between the eras is zero indicate that neither the bank nor the investor possesses any additional information beyond the observables obtained at origination.
the second possibility is that the correlation between the heirs is positive, indicating the bank possesses soft information beyond the observables and uses it to someone strategically to sort of offload poor quality loans into the secondary market. so in the senate investors do not possess additional information. and example of soft information could be bar were demographic data collected under the home mortgage disclosure act, which banks are prohibited from using in pricing, but it could in three potentially to decide which ones to offload onto the secondary market. we think this is very unlikely. the third possibility is that the correlation between the air is negative, indicating that investors possess better information at the time of loan sale that the banks possessed at origination. so an example of this information is just market information such as changes in local home prices that occur between origination and loan sale.
so we find that the correlation is predominantly negative meaning loans with the higher the link with the probability have a lower probability of sale. in other words, loans retained on the banks balance sheet are lower quality on average, if this is the case across all loans of examples. so in this slide we resort to that report economic magnitude to each of these effects. if we look at the average partial for the third column for the broker issued full documentation loans, we find that in one standard deviation increase in the shocks to loan sale is associate with a to .46% point decrease in the link with the. so it also find that the average partial facts are two times higher in the broker issued subsamples as compared to the bank issued subsample. this is unsurprising that the bank is even less like a that its brokers to possess any soft information to predict loan delinquency.
slick possible explanation for the delay with the difference ex post is that many investors have put back options alike and to put back a delinquent loans onto the banks balance sheet. so early delinquent loans are loans that become delinquent within six months post-origination that after we exclude any loans that did go bad within six months, we find no delinquency differences between retained and sold loans among bank issued loans. a magnitude are happy and compared to the results for the prior slide. last the most important piece of information that investors have relative to the bank is changing and housing prices post origination. so investors can use this information to take relatively high quality loans from the pool offered for sale while the bank obviously cannot do the loan origination or loan the mortgage terms and expose. after we control for both early delinquent loans and changes in
housing price indices in the six-month period post-origination we find we explain all of the selection effect. so we explained the delicacy differences between both sold and retained loans. the correlation between the terms are zero and allocation between sold and retained loans is close to delinquency probability. so in sum, we find the opposite x. anti-and ex post relation between loans and loan quality. we find significant deterioration nation and low quality when the public of loan sale jobs up discreetly at the 620 threshold. we also find that retained loans have significantly loan quality based on information obtained at loan origination. when we account for early delinquent loans it changes and housing price indices post origination, we explain the selection of relatively low quality loans on a banks balance sheet. this is a final point i would like to emphasize, investors and ex post cherry-picking approach
and high quality loans did not mitigate or refute the ex-ante problem on the part of the bank it off on its credit to the secondary markets around the ex post relationships would reveal this irony that the bank is to find a victim under all of these layers of agency issues. thank you. [applause] >> great job, thank you very much, ashland. yan is presenting. >> hi, everyone. thanks for having me here. i get to present the joint work, at the federal reserve bank of chicago. you can tell from the three of
us here that we have, we present three different areas that we have academia. we federal reserve bank and then from gse. that we should note, and alter your motives besides the common interest in this topic. [laughter] so here's my disclaimer that i'm here as a researcher a loan and do not represent freddie mac or the board of directors. the motivation for this paper is really from this crisis, and i don't think i need to expound further on the importance of securitization or default risk. i believe we're all still here that i donated been president on this, but i do want to clarify that our paper does not try to provide postmortem sort of on the crisis and try to attribute particular factors to causing the crisis. instead we are focusing on a very specific topic of adverse
selection in mortgage securitization. and specifically, we want to test whether lenders sent to the secondary market are riskier than the loans they chose to retain on their portfolio. adverse selection comes from information asymmetry and i think we know pretty well that lenders originators enjoy information advantage into aries. one is that securitizers or investigators -- or investors cannot direct answer the quality of loans, originators to keep in their portfolio and the comparison with those, that they securitize. so that the originator can cherry-pick and keep the best ones for themselves without anybody necessarily noticing. the secondary has to do with soft information that the loan lender may know more about the riskiness of the loan and what is revealed on paper. for example, you can have to
loans that are identical on paper in terms such as fica scores or ltv, but the lender knows more about the local market conditions are the prospect of the bar was employers. such that they can differentiate between the two loans and securitize the one that is considered riskier. and of the three types of mortgage risk, we investigate prepayment risk and default risk, because we don't believe in subject of adverse selection. the secondary mortgage market is usually, there are two channels and can go to for a securitize alone. you have gses and then you private-label securities. the main differences are, one in terms of riskier tea, the gses guarantee against a default risk for their investors while private-label securities to the investors. second for the loan product, they securitize, for the longest
time gses have been purchasing mainly fixed rate mortgage logic for private-label securities purchase alternative products at a wider range and for a longer time. and then third, for the securitization product, usually the private-label securities have more complicated payment structures in their security. recently there have been a lot more research is looking into the impact of securitization on different aspects of the mortgage industry, particularly the quality of screening and servicing. and the papers we cited here all made significant contribution in this field, but the ones that most related to our research is the topic on securitization and default risk. first of all, he looked at the data from lgf its covers an extensive range of lenders and
mortgages, and also that time period throughout the bubble. and he did find evidence of adverse selection in the prime market, especially at the securitize loans in the prime market have a higher probability of default than the ones kept in the portfolio. but they're not so much evidence in the subprime market. the securitize ones don't necessarily perform more. but on the other side providing contrary evidence is the paper by ambrose and sanders. they use the data from one lender, a large lender nevertheless, and found out this bank did not or is more likely to securitize loans with lower default risk than keep in his portfolio. so this is part of a country evidence to adverse selection. and in our paper we use data that is most similar, but our methodology is most similar to
ambrose. and we have an extensive data set that covers more than 4500 lenders. we investigate both prepayment risk and default risk. we also considered the difference between gses and private-label securities. we look out the behavior between large lenders and small lenders. and we also consider alternative models, lender forming expectation. data source is the lps data. it's an extensive data, comprehensive data set. again it has origination information as well as dynamically updated performance information. and further, by merging we have additional information, more characteristic, demographic characteristics and more distinction a long the lenders. the issue with data one is coverage. it has changed over the year. so one caution is against
drawing too much time on the day because the couch is fair enough, is not imply. another issue is new services report to this data they bring in the new origination and season origination and there's some problem so we get from our data that inner lps past one year after i origination. and a second concern is the representative of the market because we know that it's mainly large services report to lps, and for this we check against long-term performance data as well, and repeat our analysis and compare with long-term performance data just to make sure that we do have a representative coverage of the market. a second is this issue of merging with, and we do check before and after merging for the credit quality have changed for example. and our conclusion is that not
really. the data chart here for comparison, we do see that they closely do resemble each other. our methodology has four steps. in first have we randomly selected for each prime and subprime sector, for each origination here, we selected 75% of the population at the estimation sample and leave up 25% as the holdout sample. and then we construct a competing risk, based on the observed of prepayment and default event from the estimation sample. in step two we apply the coefficient ,-comfrom step one to the 25% sample and get an estimated or expected default payment rate for the holdout sample. in step three we for the control for the over or under of the holdout sample by constructing a
mortgage yield spread model. the fourth step is where everything comes together that we observe the actual safety station outcome of a 25% holdout sample, and that result are estimated expected default probably prepayment probability over under pricing indicator from the previous step in addition to other market characteristics. so this approach, and this approach we tried to capture the ex-ante expectation from the lender at the time they make the decision to securitize. instead of confusing transit and exposed it can also we consider two types of expectation. one is perfect for site that we assume lenders have perfect foresight on how long on the same origination year with similar characteristics will perform. and the second time we caught adaptive expectation, now invalid only had information
absolutely origination here, that they learn from cohorts originated earlier to form expectations about new or reconditioned. and we take a segment approach to our data that we condition our data first to prime, subprime and thereby origination so that we ensure that the population most care about, the securitize and portfolio ones, are closely aligned. and here is some summary statistics here that you can see that we partitioned our data right, at the prime portfolio loans closely mimic the prime securitize loans. so it is the same for the subprime loan. we see the prompt -- subprime sector has a lower all tv, much higher mortgage rate. in addition i want you to know that for the no documentation sure that the lenders, we do see that they securitize a higher proportion of loan no doc loan
they keep in the proposed so there is certain evidence of trying to utilize soft information there. and this is our competing risk model results, our step one results for the estimation data. this is for the default risk. and you can see observation one is that for the subprime in the lower panel, the coefficient on income has taken a reversal from 2004-2007. first is default risk then it became insignificant, and then they became increasing default risk that we presume there are two factors in there. one is that higher income coincides with more expensive area that took a more severe hit later such as california. and the second issue is that probably the reported income has become more included in later years and that the more you have
to stretch to qualify for the loans, the riskier the mortgage becomes. second of august comparing between prime and sub prime, we see the default risk in the prime market is more sensitive to ltd and fica than subprime market. but in the low know doc has much larger impact on the subprime defaults than the prime market. for the step to results, here are the results from the scoring that we took a step one coefficients and applied to the holdout sample. the upper panels are prime market, the ones are subprime. these are the default rates year, which we define as 24 -- in 24 months, i kid you probably. the left panel is perfect foresight. 2007 loans are observing 2007 originations follow through 2009. so we know exactly what their
brothers, what happened to the brothers. and on the right panel is the adaptive expectations that we formed, expect patient about 2000 origination by observing what happened to the 2005 origination, followed through 2007. so everything is ex-ante stricter. and the two observations here, one is that any prime market gses, the cohorts have lowered default rates than private-label securities and the portfolio loans with a gses being in yellow. the bottom panel we see the private-label securities in gray have lowered default risk probabilities than the one in part for that in our data with a gses holding subprime loans. the second observation, using the perfect foresight model, we have much higher and to spare default risk than using the adaptive expectation model. they have very strikingly
different. so in 2007 for example, the subprime loans, if we know what's going to happen to similar loans from the 2007 cohort, they would assign 40% default rate in two years for those lose the war is only looking 2005 experience they would've outside 20% default rate. not that 20% is a small number either, but the to do give different results. and i want to say that although the cohort default rates are different, the ranking between the two institutions are the same, and overall, our results remain the same so that our result is robust to the type of models that form expectations. and the same goes for the prepayment, now we see having had prepayment probability and that is a subprime market, the private label once have i prepayment probabilities. coming to the last step, the main conclusion or the main results here, here we see the
probability of securitizing with gses or private-label securities. and we see charged here is the coefficient on the punitive default rates on the left hand them and the cumulative expected prepayment rate on the right hand panel. here we see the evidence against adverse selection, or stronger is not -- there is evidence of adverse selection, but in the default risk it is really anti-adverse selection or the opposite. here we see strong significant negative coefficient, there committed default probably with respect to securitizing with either gse or private-label securities. that means they are less likely to securitize those with higher default risk. and although we see the significant and magnitude of the coefficient gets smaller as we go from 2004 to 2007.
on the right hand side we do see an adverse selection with respect to repayment risk that we have increased probability of securitizing along with higher prepayment risk. under different, and this is again, this is robust with respect to my expectation models that we have. over on the subprime market we found similar evidence that lenders have loans with lowered default risk, although the coefficients are smaller and getting, diminishing over these years. and we don't see significant prepayment probability factoring into a securitization decisions. and lastly we take a look at the difference between large and small vendors. we take special interest in small vendors because they are more likely to have soft information, they're more likely to be local lenders and have more information advantage.
and second of all, because their portfolio is less diversified, to increase the defense risk means a lot to them, or and not to them than with large vendors. and thirdly, because they only originate small volumes of the repeat or the cost of reputation risk any secondary market is small for them. here indeed we do see adverse selection in both default risk and prepayment risk, especially in years 2006 and 2007, they were sending ways to gses and private-label securities, loans with higher anticipated default risk. and then turn the prepayment risk their securitizing with gses and those with higher prepayment risk as well. so coming to our conclusion, we found the opposite of adverse selection in default probability
that their securitizing loans with lower expected default risk. and the result holds for both prime and sub prime market although that subprime effect is smaller. we do see support for adverse selection with respect to prepayment risk. that's because loans have a higher expected prepayment probability. and then lenders became less and less likely to securitize or to hold higher default risk loans from 2004-2007. we all see evidence of adverse selection in the small lender space. then we compare the performance of gses and private-label securities, we found that private-label securities are less likely to have higher prepayment risk. and the relative we -- further discussion is we want to understand the reason behind the phenomenon differs about the
reputation risk of loan doesn't explain this phenomena because the lenders want to simply keep a good reputation, they can just use their selection instead of giving up the good ones. and also the swap program doesn't explain this is low because there is a difference between holding a security or holding it for long. the conclusions that we rest on is, when, that gses and private-label securities have higher underwriting standards. and they are loans that do not quite meet their standards are still acceptable for the banks. and second of all is the enforcement of the repurchase of the violations and the punishments associated with it that make it very costly for the lenders to securitize loans with higher default risk. and thirdly it is a trade off between prepayment risk and default risk. we saw in high refi years holding loans with lower default
risk. and if it helps them to make a good reputation, to uphold underwriting standards and to appease the gses and the private-label securities, then why not do it at all? so that's our conclusion. and we have some further next steps, but i will skip them here and stop here. thank you. [applause] >> thank you very much, yan. i too would like to thank the ftc for having here today. what i'd like to do is comment on having the three papers in reverse order. after i comment on the first two papers, i'm going to give general market reaction. general sort of what this means to the market going forward, and
then i'm going to do the same after commenting on the third paper. i'm sorry, on the first paper. i'm going to start with adverse selection and work to securitization, the paper that yan just present come and true confession here, from someone who's been in the market a long time, beating there is no adverse selection, kind of gave me the creeps. so i tried very, very hard to find flaws in this paper, and i may have gone a little bit overboard. so let's actually start with my first slide. that's where you wish you were. [laughter]
>> so this is basically, so what i'm concerned about is the results were important driven by the choice of private, fixed-rate loans only which were in every decreasing share of the market over this period. and second, that perhaps there was not a representative sample. but before i make this point i just want to, this was the characteristic. when you look at the characteristics table, you see they are not that much different that, in fact, as yan pointed out, the banks were much more apt to sell stated doctor loans, low our no-doc comprise 5% of bank overload, 24% of private-label securities asian love. you will also knows if i go score was higher in later years on retained loans, 734 rather than 726 for private-label come and 724 for gse loans. furthermore, i was a little bit bothered by the fact that the coupon rate, the thought was,
g., banks are more concerned with prepaid risk than they are with the default risk and, therefore, they can to retain loans with lower prepayment risks, estimating a regression on prepay risk without including an interest rate of able very much bothered me because the coupon rate is clearly lower, particularly most pronounced in the later years on the loans that the banks retained. i was also somewhat bothered by the authors don't have the complete universe of loan. a number of loans they have in each category is at the top of this page and within the table. they are report may 2850 private-label loans in 2005. 51,000 in 2006. around 31,000 in 2007. we screened the low performance securitized prime database only looking for fixed rate amortizing loans and found roughly the same numbers they did in 2005.
82000 in 2006, and 7200 72000 in 2010. so their numbers, the later years, were way understated by the subprime side, they only have data on about 4000 loans in 2004. 7500 loans in 2005, 10,000 loans in 2006, and 2000 loans in 2007. so clearly lds is under representing the subprime database. moreover, the authors lump the gse and fha va loans together. separating them would have shown the relatively stronger performance of the gse loans. finally, the methodology this paper by a little bit. it's complicated for what it. is a two-step modeling process. jamal prepay's and default and then use this model resolves as an input into a second model. they introduced the possibility that the model airs in step one promulgate the estimation of the
mom and step to. and to throw off the results. so it is a subset of loans for which their default model over predicts, and the zones tend to be retained, that pushed their conclusion toward lenders retained loans with high default rates by choice. moreover, there are multi-issues which are particularly acute. that is, higher spread loans have more default risk. overall, i think there were enough methodological problems in this that i'm not prepared to disregard my priors that there was adverse selection, even within the prime fixed-rate market, although i went to graduate that it was much, much less than otherwise. and furthermore their definition of prime is not my definition of prime. their definition of prime come if you look at the% conforming versus non-performing, also include a lot of alt-a loans, and that is very clear when you look at aye scores as well. because what i consider prime,
private label as if i go score of around 740. the article securitization and low performance contrasts of transit and expos relations in the mortgage market looks at the transient expose behavior of a single bank who originates to distribute this bank sells off 89% of its loans. they find ex-ante, those lump that will be more difficult to sell, more carefully. ex post the loans that are retained are worse than those sold, and new information has come out after the loan is originated and before it is sold. . .
label broken down into prime, and then all day subprime. 6.6% seriously late on government guaranteed loans. 4.6% on gse loans, 9.8% in bank port foal lows, and prime is 9.1% and all subprime and option arms are around 35%, just a huge, huge difference in terms of adverse selection in the private label space. this is true for a couple of reason, and we all know this. first you can see that securitization rates went up as home prices went up. if you look sort of on the top line from 2001 until 2007, the percent securitytized went from 63% in 2001 to 74% in 2005 to
76% in 2006 to about 85% in 2007. the increase in the securitization rate reflected the increase in the subprime and all face factors which were more heavily done on the originate to distribute practice. moreover you notice prime jumbo securitization as a percent of all private label securitization declined very, very dramatically in the 2001 to 2007 period. you can see it declined from about 59% to about 22% of the total. this basically shows -- this chart is basically the same figure that was used yesterday. it shows you the -- it basically divides the world into the same three categories,
gse securities, issues and continuation. you see the 2004, 2005, and 2006 the huge ramp up in agency i siewns. that is with a decline in issup. we'll talk about the last couple years in just a second. this talks about statistics by representation year by fannie and private label total and private label nonprime which is all day option arms and subprime. you'll notice that the fannie late rates are prime in pls. this is the fact there's more fixed rate loans. when you correct for those two
things, the delink went sigh rates aren't that bad. the real issue was in the subprime market. you notice non prime there's very, very few fixed rate loans in the 2005 to 2007 period, there's loans, io loans and ficos and the rates reflect that. we know that risk layer loans are far more apt to be in plf, and i think that's a very, very important point that the adverse selection occurred in the types of loans that were securitytized and the extreme rise of the model of that period.
it's difficult to think there was no adverse selection while an institution may not have done adverse selection which i have trouble believing in most cases, the entities that specialize in risk layer loans channeled in plf ramped up substantially in 2005 to 2007 period. now, let's go back to where we are now. where are we now? first you got very, very little in the way of private label securitization. furthermore, you got very little origination outside of government guaranteed space. look how much bank portfolio has gone done over the period. it's not just the depth of securitization or scaling back of nonsecurityization, it's a bank portfolio lending that's very, very muted. even within the agency market,
you've had a huge shift in issues. when this shows you is what happened to high credit io i shoe wans. it's 60%. this is actually, this is just the purchase market. freddie mac and fico less than 700 less than 2%. basically the -- basically freddie and fannie have gone into the high quality business element exclusively, meanwhile prime jumbo origination as we saw on the previous table is down to almost nothing. the bottom line is there's no credit availability outside of
agency space, and gse credit has tightened very, very substantially. what does this mean? this leaves fhada as the only outlet for purchasing a home. this shows the jenni share for agency volume and the top left hand side is about 35%. it's 60% of purchase volume and 20% of refinanced volume. when you look at the share of the total, you see purchase volume is 70% and fannie and freddie volume is 30% of total fannie and freddie issueance. it's primarily in hsa and in
other words the taxpayer. basically, we've got an issue here because we got a huge number of homes that have to be absorbed over the next couple of years, and the only outlet for credit right now is basically fhava and the question is how we absorb the supply, the huge number of homings that are going to come on the market with this very narrow source of credit availability on which the taxpayer has the ultimate expense, and that kind of -- that should be the topic of conversation, how we simultaneously address credit availability and how we deal with credit availability issues when the credit availability channels are largely closed except for hsava.
now i'd like to shift gears entirely and talk about tim's paper on can securitization work, economic, structural, and policy considerations. i too worry as tim worries that the pendulum has swung too far. tim has a number of policy guidelines, and there's two i'll point out. he argues we need leverage management. i too agree that leverage was a huge issue, but i lay the blame partly on the rating agency shoulders. internal leverage was kick tainted by the rating agencies and it was dictated by market participants based on the rating agencies, so i think overtime you certainly have to reduce the role of the rating agencies in future securitizations and actually, i very much applaud the idea of allowing the agencies to do unsolicited
ratings, and then about four items down he has the more emphasis on investor responsibility. i agree, but right now under present structures, that is very, very difficult to do. ultimately in these structures, you need a fiduciary responsible for the investor's interest. i want to talk from my perspective why we haven't seen residential mortgage backed securitization. i would like to point out that as i was scanning yesterday's market rag looking at which of my friends dhaing changed job, wells had an nsbs deal and vokes way gone was out with a 750abs deal and yes, three of my friends have changed jobs by the
way. i remain very positive that securitization can work. sort of the depth of the rmbs market reminds me in many ways like the imposing of the market of 1994. if you recall, and i realize most of you are too young to have done so, there was a huge rally in 1992 and 1993. it was becoming evermore complicated. there was 50-60 tranche deals, and i analyzed them and to this day i don't know what a pac-56 is. all i know is it was not a pac at all. there was no issue for 2004 -- i'm sorry, 1994 and 1995. in 1996 the market begun to revive and investors learned.
i think the same thing will happen here. i would argue we vice haven't seen new securitization because it's not economic. there's three changes. first, existing securities which is currently happening in size. second, securitizations of loans purchased below par. there's a number of these deals including loan star deals and dan is in the audience, and securitization of newly originated loans, and i con tepid these are current -- i contend these are not economic. since 2009 there's 82 billion of reruns, deals in which you take usually a formally aaa piece and corvee it into a new senior piece and junior piece. what's the motivation for depth? basically you have a huge
collection of securities. this is the rating agency's track record. in 2007, for 2007 origination, 91% of issues have been downgraded, all day fixed the number is 99%, subprime, 96%, so basically ccc cash flows don't fit investors well and it's rerated at investment grade and the bottom part provides credit support for the new bond. this is currently happening inside 8 # billion of new originations since the beginning of 2009. there's been securitization of loans purchased below par, and the final stage of the process is new securitization, so we ran an arm a couple weeks ago and said is there new securitization because it's not economic or because there's too many
regulatory and other barriers? the answer is it's not economic. we figured to acquire a 5/8 mortgage right to have a par price at 4.5 yield on a senior bond. what rate do we need for a profitable securitization. we took collateral, divided it -- assumed top quality fixed rate collateral, with a 7% subpiece and the senior price has a yield of 4.5% at par, we gave the subs a 12% nonloss adjusted yield, we gave the io yield, the servicing a yield, and all together we figured you need a 5 and 5/8 rate to make the economics.
for a jumbo deal we're 50 basis points away from a profitable securitization, so i think the main reason there's been no securitization of rmbs to date is the economics just don't make sense. once the economics make sense, we can then begin to solve the other two problems which are some the conflicts of the interests and transparency issues and impediments that i'll talk about in a second. i got a list of conflicts of interest on one of the pages of your handout, and there are three of them that i want to focus on. first, investors who are portfolio lenders are insented to select loans for securitization. the thought is well, we have risk retention, doesn't this help? no, i don't think risk retention helps in this case.
i got a choice of holding 100% of a bad loan or 5% of the bad loan. i think i'll choose 5% of the bad loan. andy davisson had the right answer yesterday is rent and warrant risk protects investors against this. this brings me to item three. trustees are responsible for the enforcement of the warrant issues, but the services only have the information to detect the violation. they are going through contortions to get the loan files. what you need is a fiduciary to get access to the loan files, and i think that will be there with new securitization in some shape and form. item number four want to address. this is a huge, huge conflict in our reform. servicers are often second lien
investors. this shows the top four servicers were actually, i guess, number four position, four of the top five servicers command 56% of the one-to-four family servicing. these entities hold about 433 billion of the trillion dollar second liens, so basically they own, they directly own on their portfolio about 43% of the trillion dollars second lien markets and it's 751 of the trillion dollar market. when you have a servicer who services the first lien which is in a private label securitization and owns the second lien, you have a huge conflict of interest, and that has not been dealt with in any way, shape, or form. let me also mention that we're going through contortions on the
regulatory side to determine what is a qualified morning, and it's going to be, it's probably going to be a mortgage in which the borrower put down a fair amount, fixed rate ring -- fixed rate, or a long adjustable period. we vice haven't done anything about second lien so the borrower with reposition that tomorrow and it begs the question what a qualified mortgage really is. sort of my biggest gripe with the financial overhaul is it fails to even recognize second liens as just a tremendous problem, and then what iefd like to do is briefly talk about the regulatory impediments. the private label market will be much smaller consistenting primarily of qualified mortgages because once a qualified mortgage is defined, there's 0% risk retention. meanwhile the fdic has gone ahead and said there's risk
retention on everything until qualified mortgages are defined, and then we'll comply with everyone else. the problem with that is you move securitization outside the banking system. you move securitization into reeds and insurance companies, and those companies buy the loans from the banks and will be the securityizers. well, the first 5% is bad when banks are raising capital, and second, remember it's not just 5% plus you own the services, you may end up with consolidation issues under faf156-157. with that, i'll stop and there's 5 minutes for questions. questions?
>> i'm sorry -- [inaudible] i'm a financial consultant. one is there's that deal back in april with pristine jumbos, was that a model or an aberration of -- >> that's the redwood trust deal and it's important to realize redwood trust is a rate. it was done by a nonbank. it was an aberration in the sense that securitization was actually a little bit away, but who did the deals were willing to cut their fees and redwood was willing to hold the subordinate tranches tighter than most investors would have. we figured securitization was 25 basis points away, but with each entity giving a little bit, it worked out. >> and one other question.
would the bank sale of real estate owned to a greater extent do anything with the credit of availability issue for mortgage lending? >> could you repeat the second part of that question? >> yeah. is the fact that banks hold a significant amount of real estate owned holding back the valet of credit -- availability for purchases of new mortgages? >> basically the only new mortgages they are originating by and large are those they can sell. i'm not sure it's an alternative thing of not taking up bank funding to securitytize the mortgage or originate them, so i'm not sure that relationship actually exists.
>> hi, i have a question for ash -- oh, stand up. i didn't see any cuts by vintage, and particularly what interests me is the affects of the vintages particularly the later years as the private label markets started to shut down and that originate to drint model -- distribute model started to fall apart and wind up on the balance sheet. overall, i'm not surprised to see this issue, but i'm interested to see how it broke out when the model was fluid and worker versus the later years. >> no, i appreciate the feedback, and that's the next step in the paper as well as breaking it dop by agency and nonagency.
>> we have time for one more question. richard, i knew i could count on you. >> just one quick question. what is your perspective on modified loans and new production, genuine new production? should they be in the same pools, and do we need separate pools for mods? >> we need separate pools for modified loans. modified loans clearly don't behave like loans that never before defaulted. their default behavior is much, much worse, and it's a particular problem -- i mean, it's actually -- this is actually confined to being a jenni mae problem because freddie and fannie don't repool the modified loans, but
jenni does and the behavior of the modified pools and it's just atrocious. you see 70-80% speeds reflecting all defaults after five months. it just cheapens the tba buckets so dramatically that originators ought to be demanding a separate prefix. okay. well, thank you very much. lunch break. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations]
>> the federal deposit insurance corporation hosted a conference last mop on housing finance issues. one of the topics was home ownership. this is an hour and 40 minutes. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> why don't we get started so then we can finish.
can't finish until you start. this is the last session of the last day, and i'm actually surprised that many of you are still here. you are the really dedicated. we have three papers today. i'm not going to -- i'm bob ave riskry. you can read the introduction of the panel is -- panelists in your handout. the first paper is affordable housing goals by gses by robin syler. [inaudible conversations] >> try to go the other way.
[inaudible conversations] >> okay. thanks to the organizers of the conference for including me in the program. there's been a lot of public discussion in the last couple years about the role of fannie and freddie in the mortgage crisis and particularly about the possible role played by the affordable housing goals that fannie and freddie were subject to under hud, and we've been doing research at the federal housing agency to put out just basic facts about the kinds of mortgages and other assets that fannie and freddie acquired or financed with guaranteed mbs that counted towards the goals and didn't and about the performance of those assets.
the paper i'm going to present today summarizes preliminary work that i and other staff at hfa have done. there's no publicly available paper because it's not relesioned yet and the -- released yet and the views here are my own, not hfsa. the single family mortgages that fannie or freddie acquired by cash purchases funded with debt, or that backed mortgage-backed securities that they guaranteed. we basically call those activities taking mortgage risk directly their credit guarantee business, and we're going to be thinking about the affordable housing goals and their impact on that business and not about acquiring mortgage backed securities, and commercial mortgaged backed securityings.
that's a significant limitation here. we're not going to be talking about multifamily risk credit bearing. as i said, this is a december -- description analysis. it doesn't evaluate cause relationships and what they did in the last decade. i want to do a little summary of the affordable housing goals applicable in the years we're talking about here, 2004 through 2008. there's three. the low and modern income goal targeted units that were financed for borrowers and representers owning no more --
owing no more than than the median income. and the special affordable goal that were residing in low income tracts and had no more than 80% of the ami. the other targeted bars and renters in lower income renters and they tracked 90% of ami in retro areas and nonmetro areas, or these were higher minority tracts at or above 30% as long as the tract ami was no more than 20% of the area tract median income. this next slide shows the goals applicable between 2001 and 2008, and the purchase subgoals
also applicable in 2005 and 2008. if you can see the numbers, the goals were stable in the first four years, 01 to 04, and 50% of all units financed were eligible or qualify for the mod goal for 2004. 24% of units had to be financing or qualifying for the special affordable goal, and 31 for the underserved area goal, and then there was a change in the regulation that gradually increased each of the three goals, ultimately in 08 to 56% low-mod unit. units counted towards the low-mod goal and 39 for underserved areas. the other change that occurred in 2005 was the imposition of subgoals that applied to owner-occupied units in metro
areas with mortgages. essentially it said that of the goal units counting towards the three main goals, a certain amount of units had to be financed with purchase mortgage in unoccupied units in metro areas, and the low mod subgoal rose to 47% of units, special affordable to 18%, and then the underserved areas to 44%. this slide provides statistics on how they financed the units they financed. the first column says on average during the five year period we're looking at, their single family guarantee business either cash purposes or mbs guarantees financed on average 75% of the unites they financed in their various activities.
multifamily credit guarantees financed 11%, acquisitions of private mortgage securities and single femme bonds financed 10%, and then accessions of -- acquisitions of mortgage securities and mortgage bonds financed an average of 4%. you can see a spike there in 2004 and 2006 with pofs, but essentially over the period the averages are shown at the bottom, and again we're focusing on the part of their business that financed 70% of the units. the key research questions we're trying to answer here are how have single family mortgages acquired performed by origination year over the five-year period? how is the performance of the mortgage with goal qualifying units different from those of
loans that didn't have goal qualifying units, and what accounts for the differences? essentially we have a complete sample of the family loans they acquired, $4.8 trillion of mortgages over the five year period, and the performance measure is the percent of the origination cohort that through the end of 09 that was late or entered foreclosure processing and so that the time period between origination and the end of 2009 differs from origination year, but by cohort that you're controlling for those time differences. just to summarize the basic findings, the average late rates get worse between 2004 and 2007, origination year cohorts and
improves in 2008 after the collapse of the private label market and the pricing changes in gc pricing that the energy pricing imposed in early 2008. for each cohort, it's worse for goal qualifying unit loans than for other loans, and the performance is the worst for mortgages that financed units that were located in these low, particularly low income, high minority underserved goal census tracts. the reason for the differences is there's dirchs in each year -- differences in each year in how house prices rose before the boom. there was a dee deterioration and the census tracts in the underserved area was targets had
worst house price bust. the basic da family mortgages summary here is in this chart. these are the 90 day late rates by origination year. you can see the all loan is the dark blue bar on the right that shows december piet the -- despite the fact the 2004 loans are outstanding by the end of the period, there's a default rate of 4.3% that isless than a third of the default rate of the 2007 cohort. what's happening is these are defaulting in a much smaller time period more frequently. thal light blue bar as long as the finance goal qualifying units and there's it's higher and the other loans is going up to 10.9 in 2007 and all drop in
2008 because the quality of the loans improves. here this slide has the goal qualifying units into loans that financed mortgages that were for units that qualified for each goal or combination of goals. this is nongoal units still. this is all loans, and then these five are loans that financed either low mod units in underserved units or combinations dlofer. -- thereof. you can see that the yellow bar, orange bar, and the far right dark blue bar have higher rights of 90 day delinquency. they met the combination of
those goals or other goals, and the interesting question is why. we'll talk about that more in a minute. what explains these patterns shown in the last two slides? well, first is the timing of the house price bust. in the early years, 2004 and 2005 particularly, bars would be accumulate equity in their homes and refinance before the bust whereas in the later origination years, less equity was accumulated, and therefore people were much more exposed to negative equity when house prices started dropping. then as i said earlier, there was a broad deterioration in the business between 2004 and 2008. the most striking part of that was as the public disclosures have we viewed. there was a rise in their acquisitions singses of all day
and nonparticular, particularly io runs and other loans over the period. acquisition of nontraditional loans counted for 18% of all their business through the single family guarantee business in these five years. that combined those -- those two groups combined reached 28% of their business in dwix and 26% in 2007, and as i'll explain later, these loans made it harder for them to achieve the goals, but easier to achieve the subpurchase goals. second aspect of the worsening of the credit profile was worsening in the distributions of ltv ratios and fica scores of loans acquired through their every day activities and have underwriting guidelines called baseline activities, and the
distribution shift was easily noted in an increase in ltv ratios above 95% and the shared borrows. they were not dramatic changes, but you can see it in the data. there was acquisitions of mortgages under targeted programs that were often well publicized and freddie's home possible program, and as part of this targeted program set of initiatives, they made adjustments to their systems to accept more loans that advance goal qualifying units sometimes with lower gps being accepted. they were never very large as a percentage of the loans flowing in. 6.4% in the peak year of 2007 and 3.5% over the four years of
2005 through 2008, the years we have the ability to flag these loans. those programs focused on low income and minority buyers, burglarly home buyers, and were helpful in meeting the subpurchase goals with high ratios and low fico scores and arguably these are the loans that are clearly comparable to subprime fixed rate loans at least. then as i mentioned, the underserved area goals performed worse. they aaccounted for a larger share of the area loans, and that the other is the low income and high minority census tract experienced house price deappreciation. my colleague estimated these two
repeat sale indexes both based on purchase mortgages only, and you can see what one is the dark blue line estimated using da to on -- data on census tract in the underserve areas, and it shows a drop of 25.6% between the beginning of 07 and january the first quarter of this year, a percentage drop in the index and other census tracts the peak at 16.5%. the negative equity is more prevalent in the underserved areas. so, this is a basic question that enables us to get our hands on is how did the increases in the affordable housing goals affect the composition of fannie
and freddie bought during the period and is there a causality and what share of the loans have ever been 90 days delink or more and ramping up to the subgoals. as i said before the target loans accounted for 3% of the acquisitions in 2005 through 2008, and those loans account for less than 8% of all the mortgages over the five year period over those four years, excuse me, that have been been late or more. only those problem mortgages are clearly attributed i think to the increases in the goals and the subgoals, and about, let's see, 80%, 75% of all the loans acquired during the period were
under the baseline activities. they wrote contracts and lenders were authorized to pay certain fees that met the standards and under those baseline activities, three quarter of the loans came in. those account for 53%. fannie and freddie would have done that volume of acquisitions without the goals or the subgoals being there. they're in the business of providing liquidity to the whole mortgage market, and nay might -- they might not have done the same character of loans, but they would have done that volume . 31% finance goal qualifying units and 22% did not. i think it is safe to say the higher goals and the new subgoals were among the factors
that contributed to the deterioration of the profile of the baseline acquired loans, and therefore to a degree to the deling qent rates. io and alt-a loans that were seriously late or in foreclosure or reo to date and the enterprises acquired those loans to increase their market share and profits, not to meet the goals. acquiring alt-a made it harder to achieve the goals because they were less likely than other goals to be goal qualifying, but easier to purchase the subgoals. so they helped with the
subgoals, but not with the goals and premarely -- primarily acquired for other reasons. in conclusion, i'll stress the analysis looking at the single family guarantee business and not the pls which has gotten a lot of publicity or the multifeat business. -- multifamily business. we're looking at causization and economic activity. thank you. [applause] >> thanks very much, robin. the next paper, how sensitive are home ownership decisions to mortgage income tax subsidies, and it's presented by tracy turner from kansas state.
tracy? >> okay. thank you. can you hear me? excellent. i like to move around. this is joint work with christian hillber. okay. right, we're very interested in looking at the extend to which the mortgage interest plays a role in affecting home ownership outcome and the probability that households own. as an overview, how are we going to do this? we're going to use household level panel data to follow households over time and exploit what turns out to be large variation in the mortgage interest deduction across states, so we look at a combined state and federal measure and over time as well as because we're following households over time, we're table to -- i'm not being heard? am i heard now? is there a problem?
i'm heard now. yes. well, thank you. i'm glad you didn't let me get halfway through. so, turns out that this deduction at the state level so there's a federal at state level for many states, some states about a third have no income tax, so not all states have a component, but for the ones that do, we do even within states observe god variation in that -- good variation in that sample period as i'll point out. we can follow households over time and we're able to exploit variation from their moves, and about 5% of their samples move between cities or states in any given year. also, an important part of our
paper is something not looked at prior to the rule that local housing conditions play. our main problem cigs is that the impact of the mortgage interest deduction depends on local housing supply conditions. in particular with markets with flexible land use control or elastic housing stock we expect a positive home ownership impact, and in highly regulated markets where the supply is unresponsive to demand shocks or inelastic shock we expect no impact and possibly a negative impact for some groups. a very important topic that's timely at the moment -- let me point out a couple well-known things. the mortgage deduction at the federal level is the largest tax expenditure with 100 billion in
present with tax revenue. when we look at the data, what we observe is a combined state and federal on average in the united states tax subsidy of .26 cents per dollar of mortgage interest. the mortgage deduction is costly, and in the paper which by the way, the newest version is out on the table. apologies if you picked it up before this session, it was the earlyiest version. we have asked following question. what is the fore gone tax for a homeowner because of the subsidy? what we find is sort of a lower found estimate of 54,000. i have to keep my head turned so
you can hear me. why else is this an important topic? well for more timely reasons, additional reasons. the commission on fiscal responsibility and reform comes forth with recommendations for how to help balance the budget by 2015. understanding whether this feature of the tax code which is potentially going to be e eliminated or i'll rephrase that, the commission's charge at the moment is looking at such formally say cree cows and -- sacred cows and whether they ought to be removed to help the deficit and move towards a balanced budget. this is being discussed and understanding whether or not it's effective and does it boost home ownership rates is a first order of importance. the importance much this feature of the tax code was also
highlighted yesterday in chairman frances bienecke comments with the long history of home ownership in this country. by the way, did anyone notice -- has anyone -- am i the only one that noticed the commission on responsibility and fiscal reform has the acquisitions cro acronym of coffr? okay. well, so continuing, not going backwards, there's related research and a number of papers, some that have looked at fundamental tax reform and choices in housing demands and papers in the 1990s looking at how removing the tax law
reflects the housing markets and distribution of tax benefits to homeowners such as the mortgage interest deduction, and more recent work, for example, work looking at the extent to which if there was not a mortgage reduction, would household substitute financing? basically these studies tell us -- we can come away from the studies understanding that not a big impact is likely. the impact of removing the mortgage interest deduction on home ownership rates is likely going to be small. as i noted before, our addition to this literature, apologies, is the focus in on the housing stock effect and the extent to which we observe effects in the mortgage reduction in highly regulated places versus places
where it's difficult for the housing stock to expand. basic impacts, just the usual stories that economists will tell is that the annual subsidy increases the willingness to have occupied housing and its demand shock, so in the sample following households and the sub single subsidies vary. short run response, housing stock fixed, house prices in response to a demand shock rise. the question is can the housing stock expand in the response to the higher prices? it's possible through new construction or rental units. in two extreme cases of perfectly elastic, the subsidy leads to expanded stog in the long run and increased home ownership rates. in the other extreme of
perfectly inelastic where the housing market can want expand in response -- cannot expand to higher prices, the housing stock is fully capitalized, but there may be a change in the composition of homeowners. so there's been evidence, these papers listed here looking at the extent to which demand shocks generate higher house prices and the important role that the housing stock plays in that and whether the housing stock is elastic or inelastic, and what we do is a simple analysis in the paper as well where we observed that we find a stronger impact just simply readdressing house prices on different controls incoming regulatory status, and we find a stronger impact on house prices in a more tightly regulated
market. so, in this paper to ultimately look at the question of whether or not the mortgage interest deduction brings about higher home ownership attainment, we studied income dynamics, and we began the study in 1984 because that's when we started collecting welt data with 19 observations from households. it's an unbalanced panel. we have observed some households for less than 19 years, and there's two sets, a full sample and an extended sample. the full sample is 42,000 households observed at 19 points in time, and that breaks out to 53,000 household observations. in our extepidded model -- extended models to allow us to control for the extent of regulatory restrictiveness or
inelastic housing stock, we have about 2600 households that i'll explain in a moment. we have time varying variables on tenure status and age, marital status, children, and unemployment data. we have psid data indicating the tract and msa used to emerge in a number of secondary sources. he's the secondary sources. most importantly our measure of the subsidies to home owners from the mortgage interest deduction is generated by the mber and they generate it using soi data, and subsidy data. we muse for a -- we use for an extremely large sample of taxpayer with the
income distribution health fix is how these are generated so essentially the changes in the sub single family day at -- sub singlesubsidy at state level over time is being driven just by tax law changes. where's the subsidy picking up? i gave you the figure before that the average on the sample the subsidy is 26 cents for every dollar of mortgage interest. okay. there it is. let me tell you, these data are in the paper. it does vary a lot by state. the highest combined state and federal subsidy in the sample is 41 cents per dollar in tax savings.
supply elasticity. so we cite them there. in addition, we march into the psid using the confidential track location and other locators. we have data from when i made mention of some evidence at the start, are there, it was using the fhfa avail from the fhlb data on the high spouse indexes. -- high price indexes. these are the house price indexes. so we going to estimate in this paper a probability of homeownership for individual i, track j. and state al at time. will model that probability that they own as a function of, times
t. all the possible household characteristics that vary over time we can control to pick up life cycle affects an education and prominent income, income effects. we will also have those location specific controls to control for the stock, composition of the house stocked. then we have a whole set of different kinds of effects. we do control for. we have individual six affects, state, year, and then the newest version of the paper, some of you saw an earlier version, the newest version we look at state, state overtime that affect homeownership. we don't want that to be affecting things showing up in our mortgage subsidy measure. we have serious ways in which we are trying to control for what economists observe, so things we
can't let you about people and places that might affect their likelihood of becoming a homeowner. y. six? we get a list why it's important. i just mention we want to control for those things. we know probably matter. to the extent people don't move, msa are going to be picking up neighborhood so-and-so, all these different levels of geography. time and very location characteristics. people to move across space and we observed the moving. as a result we can control for these locations doctors also in addition to the fixed effects. extended model on the smaller size would have about 2100 households. our extended model looks at, first the full sample.
does increase the likelihood that households will own. then we look at what about by income status, does the mortgage have an effect for higher income households of one thing we know for certain is the higher income households tend to, they benefit more proportionally more if i from the mortgage interest deduction than lower income houses who own lower valued properties and have lower income. we look for my regulatory status asking, maybe this has an effect by regulatory status or elasticity. doing asked by all three. is there an effect by regulatory status, and if so, does that vary by income status? so let me show you just our results. i'm not sure, robert, how much time i have. a few minutes? three minutes, okay. so if you look at the paper you'll see on the full sample,
i'm just reporting the key findings with respect to the subsidy here for all of the controls, robust, sensible result do we find. the models are well specified in the paper we describe it, but for the purposes of this presentation i'm showing you when you look at the data you see first we run it with just the mortgage subsidy. then the mortgage subsidy interacted with income. in these columns we first run it with household level control. then we added household level controls with location control plus msa. then we had year six affects. doing take out the year and state effects and we put in the state time trimmed. outside in the full sample there's no effect been detected. having no impact on average on homeownership, likelihood. the next step is we ask, does
the impact very by regulatory status it and, indeed, we find that it does. notice, sorry, apologies. i better just hold it in my 30 seconds remaining. noticed this negative impact, which i will interpret in a moment but which effectively says that mortgage interest deduction has less of an impact on the likelihood of owning. the highest the regulatory status of the citi. so as we get into more and more regulatory restricted citi's in terms of housing expansion, then it is having less and less of an impact. let me come back. and then we look for interaction by regulatory status and income status. what we detect you and i will interpret this in a moment is that it matters by status. we pick up an effective just for
moderate and high income households. how do we interpret these findings? just in a genre to status as i pointed out, suggest in the least regular places we observe the subsidy bring about a one standard deviation. in the least regulated places the subsidy works as it's expected to increase as homeownership rates. i wanted to tell you, who are the least regulated citi's. normal out what. national tennessee. pueblo, colorado. dallas, mother. there's a list of them. citi's that tend to fall in net index on the least regulated, among the least regular citi's. when we look at the most regulated, who are those citi's?
new york, san francisco, charleston, south carolina, san jose, baltimore, boston, newark. we find subsidy brings about a decrease in the likelihood of owning by three percentage points. we will come back to when we think that is so anymore. interacted by income status. in fact, what we find that these results, there's no effect at all of the mortgage industry deduction on low-income households. where the effects are happening are moderate and high income. the least regulated places, somewhat stronger effect for high income. in the most regular places, a somewhat more negative effect for moderate income.@3 other controls as i mentionedx our sensible and robust. so what do we conclude. the mortgage introduction has no impact on the profit of homeownership for the full sample. on average we don't detect an
effect. this is pretty much consistent with a lot of the recent research that i refer to early. there's reasons to believe why we would believe there would be no affect. where does it have an impact? its impact is by regulatory and income status. it increases the probability of higher income households in the least regulated places owning. it decreases the probability of owning a highly regulated places. why is this happen? are data, the unique thing is we're identifying the impact of regulatory status by subsidy status from movers. this is picking of the possibility of, i want to use a cost at the moment, but down payment constraints would be the intuitive thing. that for a given level of regulatory status, moving from citi a two cd with the subsidy is higher it will be more capitalize in house prices.
so in be we will be observed that move or be less likely to own. to move from owning two ranking status. what else do i want to say? one more thing. i know i'm done. important impacts which are all aware of it general, about the mid. and increase to existing owners and keep the low renters, it is certain is showing up here. let me just finish by referring to those externalities that chairman bernanke mentioned yesterday. our paper is picking up that in the places where the potential for externalities are greatest, the subsidy actually has a perverse effect of diminishing the likelihood of owning. we conclude it is costly, ineffective and has adverse distribution of consequences thank you.
[applause] >> thanks, tracy. our final paper is constructive credit reducing the performance of community reinvestment during the subprime crisis presenting it is carolina. >> thank you. thank you. so one of the problems of going last is that over the last day and have i've had plenty of time to get nervous with all these really great people have shared such interesting ideas. but i'm grateful for all of you for sticking around for the last session because i think it's a very important session. almost all of the sessions to this point in time have focused on how can we reform the housing finance market.
to ensure that it is safe and sound and that we don't have such a global crisis imitating from housing and credit markets as a have in the most current period. what am i what i think the other two papers on the panel have also sort of touched on is how do we create or had we reform the housing finance sector in such a way that it is also equitable. and it has been much discussion about equity over the last two days. but to me one of the most important question is going forward, how do we ensure that lower income and minority communities have access to come equal access to fair responsible credit? and how do we stem the disinvestment of lower income and minority communities that we all know exist? i think the community reinvestment act is an important part of the answer to those two questions. well as in previous papers that myself and my co-author have done, has been to understand how
the cra interacted with the subprime boom, how did it fair any period of unprecedented housing price growth, and mortgage market and institutions within the mortgage market that were doing mortgage lending. and how did those changes affect lower income and minority borrowers in particular. so i want you for a second put on a hat and say this oh so that everybody unequivocally believes that what i say is true. but the cra did not cause the any further evidence of the fact that over the last 33 papers that you have heard there's only one devoted to the cra suggest that overall it wasn't a very important player in this mess. some of the best evidence that has come out to show that see a rate was not responsible was done by bob adrienne his
shows that overall cra lending constituted a very small proportion of subprime lending. or choose it more concretely, very few subprime loans in lower income communities were made by institutions regulated by the cra. in the paper that my colleague and i did, looking specifically at california, we found that loans made by cra institutions, particularly with in their assessment areas were significantly less likely to be in foreclosure and loans made by independent mortgage companies cra. i think there's other evidence but those are i think to very compelling study says sort of show that cra didn't do this. so this paper represents an attempt to go beyond our california paper and in two ways. one thing is california is a bit of a beast unto itself, right? it's a strange state especially look at its housing and mortgagu
market. we returned to know whether or not what we found in california would hold true for other parts of the country, particularly in areas that had weaker real estate markets. so in this paper we extend our analysis to look not only at california but also ohio and pennsylvania. jim i think there's some kind of strange voodoo going on economio why we picked ohio and pennsylvania, has nothing to do with it. we were invited to give this paper at the philadelphia fed conference so we thought let's look at pennsylvania and throw in ohio because it is close by and and ohio is where the poster child of the mortgage mess, particularly within the community felt that world. the other thing we want to do was make some improvements to our methodology over our california paper. some of them prompted by people industry like marcia to get very good comments on the previous paper. to see if inputting a methodology might change our findings in some way. so let me first to start really quickly, and show you that we
really are talking about three very different housing markets in these three states. the orange line is california. california will stay orange throughout the presentation. pennsylvania is blue. and ohio is green. so what you can see is the real effect of the california sort of housing bubble over this time period. pennsylvania i slight increase in housing price over the time period. ohio was basically flat. we also see pretty significant differences in trends in sort of the foreclosure crisis. if you look at 2006 which is sort of right at the death of california where the orange line gets close to the axis as possible. we see quite elevated foreclosure rates that are in pennsylvania at about 3% but certainly in ohio where they already were experiencing about 5% foreclosure rate. this is for all of those. however, california outdid itself and you can see the incredibly steep and rapid rise of foreclosures in california
starting at about 2007. quickly surpassing pennsylvania in 2007 and then by early 2008 also surpassing the foreclosure rate in ohio. we have these three different states and what we are going to do is ask two questions. won, we're loans made by cra regulate institutions more likely to be good responsible loan products. and in this case were defined as not higher price lows. and second, where loans made by cra regulate institutions more are less likely to go into so how do we do this? we use match proprietary data set. what we do is we take a large database of long loan performance and we add data to the. the data is important for two reasons. what is it allows to control for more armored characteristics including race and income. but it also lets us identify who
was the regulating institution, regulating agency for the lending institution. we break it up into four separate categories. i do know how many people are familiar with the cia, a baseline knowledge, but the categories we use our cra regulate institutions, these are all federally depository banking institutions. and we break that up into two categories. we break it up into those that are making loads within their assessment area and those loans that were made outside of their assessment area. and if assessment area corresponds to the sort of regulations emphasis on oversight over those loans being made. so banks are given more regulatory scrutiny over their cra loans within their assessment areas and with the loans made outside of their assessment areas. the definition that we used to operationalized assessment areas whether or not a bank as a
branch within the msa. at the brink has a branch within ms and they make a low within the msa, we say that loan was its assessment area. if it's made in msa what they don't have a branch it outside of their assessment area. we also considered two other categories. one is whether or not it was an affiliate or subsidiary of a cra regulated institution. banks had wide latitude over this time period to choose whether or not there affiliates and subsidiaries planning activities were considered as part of their cra exam. the fourth and final category we consider our independent mortgage companies. these were not subject to cra over this time period, nor with a subject to a host of other federally regulated depository institutions are covered under. so all the analysis will look at those four different institutions. our assumptions is that cra
loans or cra regulate institutions within the assessment areas generally provide more responsible credit to lower income and minority borrowers and that those loans performs quite well. and that's lik like a single evt in a paper on california. we limit our sample to conventional first lien occupied loans that are originated in metropolitan areas. we construct post sampling weights to hopefully make it so that our data set is more reliably sort of matching the universe of loans in case there were any sort of bias is in the matching process itself. we sort of improved our modeling strategy, particularly for the second set of models where we set it up at the foreclosure modeled as a computing risk with prepayment, which we hadn't done show you any models become not going to shoot any fancy math. our math was not as fancy as
other papers presented at this conference. so the first thing i'm going to show you is whether or not cra regulated institutions made a large percentage of subprime loans that this is the result of the model. this control for a wide range of barber housing and mortgage market characteristics including neighborhood characteristics and for the people bought loans. i want you to focus on two things. one, that loans made by cra regulated institutions were significantly less likely to be subprime. even after controlling for all these other characteristics. in fact, getting a mortgage from a cra regulated institution within its assessment area reduce the likelihood that somebody would get a subprime mortgage by about 25%. what's most striking about this figure, i think about our finding is that this protected effect was much stronger and low and moderate income neighborhoods and in middle and high income neighborhoods. so you can see by the blue bar
in california that if you were a borrower and you getting a loan and a low and moderate income area, if you got your loan from a cra-regulated institution within its assessment area you were 35% less likely to get a subprime loan. and if you're going to an independent mortgage company. that this holds true across california, ohio and pennsylvania. this i think is pretty compelling evidence that cra did help provide some pretty constructive credit for lower income borrowers. or at least in low income neighborhoods. nevertheless, we find that this year a wasn't perfect. and in particular we found that the cra was not strong enough to eliminate the dual mortgage market that martinique talked about yesterday. so in this slide we look at the portion of the subprime loans are made by each of these different categories. what you can see on the left
hand side is that cra in their assessment area made a very small proportion of subprime loans, especially in california. but the affiliates and subsidiaries of cra-regulated institution made considerably more subprime loans that about 20% of originations. where the originations were subprime to an independent mortgage companies on the right side clearly dominated a subprime mortgage market. so i just want to redo a quote. in preparing this paper i read the 700 pages of testimony that they collected before a 1977 passage of the community reinvestment act. this was one of the commentators are one of the hearing things. they said, in a substantial number of boston neighbors, bank mortgages are less than 50% of the home sales that take place in that neighborhood. that is very interesting because banks financing is clued the easiest and least expensive way of purchasing a home. using a private mortgage company with shorter maturity loans an
is much more expensive. the question then comes into why are individuals choosing to go to private mortgage companies rather than going to banks. this was one of the motivations for the c. array, right? to ensure that lower income individuals or people living in lower it income neighborhoods had access to the same credit as everybody else and access to the same credit institutions. this is clearly still not occurring. considerable. very small slice, usf of what i think the indications of this are. is this is a subsample of our data. it's african-american borrowers only. those are the credit scores over 640. we play with different threshold. you can look at 700, 740. the results been much stay the same. the percentages changed a bit. what we find for advocate america's with a relatively high credit score if they went to a cra institution, only about 2%
of them got a subprime loan. if they went to a cra institutions outside of its assessment area, the risk of getting a subprime loan was higher. if they went to an affiliate or subsidiary, all of a sudden six to 8% of them got a subprime loan. if they went to an independent mortgage company, all of a sudden 12 to 14% of them got a subprime loan. these are borrowers that for all intents and purposes had close enough to have prime credit score. so we see a real equity impact year of the different regulation structures of the different mortgage market institutions. after the presentation on fica scores and the evocation of foreclosure on ficus course afterwards, this make me really worried about sort of the long-standing, long-term impacts. if these bars would have been able to stay in the home with a prime loan and not gone into foreclosure many would necessarily have the same impact on their credit score, and sort of the long-term effects,
long-term ability to access credit may have been change. we don't know the answer to that whether or not that is occurring, but this is something i think is important for further investigation. so the next question we had was how have these loans performed? what we find, and this is the descriptive statistics before we do the model, we find a california study loans made by cra regulated institutions are much less likely to be in foreclosure. that holds true across the board. sorry, i thought he was waving at me. that we see much higher foreclosure rates around, within the independent mortgage company loan originations. however an interesting thing happens when we do the model. in california we find exactly the same effects as in a first paper. we find having a loaf of -- from a cra-regulated institution within your assessment area reduces the likelihood of
foreclosure by about 50%, about half. would look at ohio and pennsylvania we find a conference. we see a slight increase in the foreclosure rate in those states. we have to working hypothesis for why this might be true. the first is that we see much stronger market segmentation in california than we did in ohio and pennsylvania. if you go back to this one, you can see that in california crh within assessment area banks almost made no subprime loans. in ohio and pennsylvania we do see some lending in those types of neighborhoods in subprime lending i cra-regulated institutions. the second reason we hypothesize is that the drivers of foreclosure are different, particularly in the tiebreak we are looking for, december 2008. in california those early
foreclosures were really driven by the housing boom and bust. whereas in ohio and pennsylvania, the drivers of foreclosure might be more likely over that time period to be an overall weaker housing market and overall weaker labor market. and a bank making a loan origination can't control that environment in with his own performance and the long performance. the other thing you want to point out in our mouth that i'm not emphasizing very much today just because of time limitations is that the role of the mortgage market channel, the mortgage broker is really important. and overall significantly increases the likelihood of foreclosure. we've been doing a lot of subsequent studies at the "san francisco examiner" this intersection between mortgage brokers and particularly historically underserved areas and is proving to be a really important market channel issue that i think deserves further research. so what other -- what are the
implications of this paper? there are a few i will propose. one is to level the regulatory playing field. i think all consumers should have equal access to the benefits of predatory oversight, regardless of what do it they went into. it seems criminal really that these people were able to walk into a door and that that door influence what kind of mortgage product they had and ultimately press given the sustainability of that mortgage product. now, i know that frank-dodd bill so goes into this. but this is a really important lesson going forward and it's an important lesson for cra, too. to think about how do we ensure that all the different financing institutions that play into these types of committees had equal federal sort of oversight. the second thing is i think we need to consider more carefully how we define assessment area.
there's a discussion about sort of way moving the assessment area consideration altogether. banks are doing fewer and fewer loans within their assessment areas. my question is why do we see this protective effect of the assessment edited is it because those loans have more regulatory oversight, or is there something really important about local branch lending for low and moderate income communities. is there something important about having a bank in your neighborhood that has connection with the local nonprofits that protects borrowers have historically been disadvantaged and the mortgage and credit markets and helps them access more responsible mortgage products big and they candidate depending on which mechanism is more important, that has different policy implications. i think we need to reconsider the role of mortgage brokers that i won't go into that more here. i think it's important to reconsider the role of race and all the papers that we've done we seek we as racial disparities and outcomes. i don't think we have certainly identified by this disparities are there, but i think it's an
important discussion to have as we move forward and realize that they are equity issues both my income and by race. and i think we should reconsider the emphasis of the cra on mortgage lending. there's no doubt a large part of the problem was people who either have poor credit scores or knowledge of finance, port ability to repay their loan, helping people make a connection with the financial services industry, helping to rebuild their credit score, all these steps along the path to homeownership needs to be better reported if we hope to homeownership will be sustainable for lower income and minority families going forward. and then finally i want to say that i think it's important that a policy changes that move forward that we make more data publicly accessible about loan performance, about communities, about all these different aspects to the housing and there just needs to be more research into these areas, more understanding of what is going on in these communities, and
certainly it's not necessarily with this type access to this kind of data. so having data for academics from having data for advocates who can we look into these questions and provide a richer picture that we can do here would be really important. and that's it. thanks. [applause] >> thanks, carolina. so i had the honor of being the last speaker in the last session of the last day. and my ribs that if i spoke too long he would come up and haul me off the stage or so i want to try to avoid debt. so usual disclaimer, these are my comments, not those of the boards, also said by carolina earlier.
they redo. so i want to look at the commonalities. of the three papers and other of the word mortgage, and public policy which is certainly run through all three papers, one of the comments i think essential commonality is we're looking, trying to assess the effect of a law that is very widespread effect but, in fact, really only at the margin does in the wall really matter. so in the case of the mortgage interest rate reduction from anybody with a mortgage essentially gives the mortgage interest rate deduction. in the case of the gses, more than half of the loans, from, for cra covered lender, about a third of their loans are in their assessment areas.
so arguably a major part of the business, the normal baseline business, in each of these three regulations affects people. the real critical public question is what happens to the margin, whose behaviors altered because of the existence of these laws. and these three papers look at that issue. to other papers look at the effects of the cra and gse goals. and let me just, you can read this, but let every the first one. the crisis crisis has its roots in the u.s. government efforts to increase homeownership, especially among minority and other underserved or low income groups. that's mike peters will -- peter wallison from aei who's on the so the question is, is that true? certainly it is true. well, let's look at the evidence. this was taken from a paper that i did, but let's just plot right
here, this is the income, looking within msas. this is a 90% levels. this is where the gse goals take into the left. this is 80%. anything to the left counts for cra. what we've done is plot the legacy rates by track. it's within msa. clearly downward sloping. the delinquency's and the current crises, these are measure at the end of 2008, are concentrated disproportionately in low income tracks. both of which are applied to both of these two goals. now let's look at loan growth. this is the loan growth, the same experiment looking between by track between 2001-three, same pattern. downward sloping.
so for peter wallison, that's enough. in fact, this is hard wallison. speeches that the gse and cra goals cause of the crisis. but let me look at the next slide. this might give him a little path. this is the percentage of loans by track sold to the gses. notice it doesn't slope downward. the same track, same horizontal axis. upward sloping. middle income and higher income loans are more likely to be sold to the gses, not less likely. and this holds when you do it more than just a simple graph here. look at the next graph. these are loans, loans that were originated icier a cover to vendors in their assessment every. the same group that carolina was document in the last paper.
upward sloping, not downward sloping. so that might give us some pause in thinking that superficial conclusion is true. if that is true, what are these things? why do we get this reverse effect here? so in an earlier -- this is my doing the mother would be very irritated with me that in discussion and talk about any of my papers, but a paper presented earlier this year, we look at the loan performance in two sets of tracks. these are tracks could want for what they look like in year 2000, within the same in a, but over in a, will deliver these within the track of mortgages, people and the track at the end of 2008, what you're looking at is what is the composition of the lenders that serve at track during the middle part of the decade, the buildup of the bust
and boom in 2004-2006. those tracks all else equal, weren't disproportionately served by independent mortgage banks, not covered by the cra, have higher delinquency's all else equal. those serb icier a lenders and their assessment areas all else equal, have low delinquency rates. we control for lots and lots of things in that experiment. at the end of the paper, the final line says, that our evidence was in direct. and that what was really needed was direct evidence on these particular laws. and it turns out robin and carolina must have actually read our paper. maybe only two people besides can and i pick what they have done is provide direct evidence on exactly the same issue. so let me talk with robin's paper. this is, if you take one thing
away from this conference, this is an incredibly important paper. it is the first direct evidence on the gse goals for all that we have talked about. this paper does the right thing. it takes the actual loans generated, sold to the to gses, with the files together, it's an incredibly rich data set. and he looks at the performance of those little turkey controls for cohorts, looks at the performance of those loans and identifies as was the difference of performance, depending on whether the loan counted for the goals or not. and in particular, the key group that he looks at are the targeted affordable. these are the loans that the gses arguably were not pass a. for the most part they are passive. you present them and own and pay you by phone you what that loan is called for. these are not passive. so if you're going to argue that
some impact of the loan of the g. is eagles, it is in that group. the targeted affordable and the point number one that robin calculates, we have been able to see before, these are three and a half% of the total loans of up to gses. i don't care what the performance is that i don't guys but they could be the worst loans made. they did not cause the crisis, if they are only 3.5%. you could stop there. but you don't have to stop there. so what of the other possibilities? he also looks at alt-a. and alt-a, which beget 18.5%, i had that number wrong. 18.5% of the loss, had twice the delinquendelinquency rate account for almost 40% of the the linc what loans in the gac
for photos at the end of 2009. these were not clearly done for gold purpose of their goal poor. they are not going bridge. they are goal poor. this is the wrong group to look at. that is the right group. so this is just -- we have not know this until this point. it's an incredibly important find. he put the pieces together, but i think we need to kind of put the finishing touches on a paper. so what i would like to see is first of all, how do these loans perform that are not targeted affordable relative to what would be predicted. they gses didn't is him about for these two sets of loans. so did they perform better or worse than you would've expected? they are not random loans. so that is point number one. it's reason to believe they may
have performed better than you would have expected. they don't go to the normal process. if i'm going to send junk to the gses i'm not going to do it in a program in which this maniañ over writing, underwriting and look at what some scrutiny, that's the wrong program to use. what's arguably likely to be the case is that these loans cost more and the goals cost more because there's a lot of labor involved in a valley to programs and evaluate the loans.ñ those are not credit losses. they are losses of overhead. it's maintaining a group of economists that look at nation. that's the cost of the goals. but unlikely to be the case of these particular loans have higher credit risks. i would also encourage robin to go through the experiment of what happens if they had not made any of a local particularly in say, 2007. what would've been the total losses for the gses. how it had been reduced. what would've happened if they made no targeted affordable
loans at all, euro, what with the total losses have been? completing those exercises, making a statement about the targeted affordable, control for everything else he has, i think simply cements the case that this program did not cause the crisis. let me shift to lives and carolina's paper. this is an extension of an earlier paper. i want to commend them. they've done a very job in matching home today with a large service and database. unlike virtually everybody else that uses these data, they've gone to some effort to see if you represent. usually that is not something that is useful by the typical author. they conclude that in california, interesting, but not ohio, the cra loans performed better rather than worse for the independent mortgage bigger.
but in ohio think it is relativelrelatively interesting the fact that they appear toí? control, perform was one shooting to other characteristics. so i found this result surprising, particularly sense, if you don't control printing, the loans in ohio that are issued by cra government are about as half as likely to be delinquent as loans that arew rigid but independent mortgage banks. and you wonder what happens in that regression? and not must be happening in that regression that you get this change in the sign and significant? indeed. so why did, ken and i, we use the same data actually ken randy regression, looking at census tracts. we just pulled out ohio and asked in our day which is very similar to carolina scott is there a difference in the performance of loans in tracks
in ohio that were disproportionally serve but independent banks versus cra covered lenders. we did this for ohio and california. the negative signs in the middle row their and five at the performance their they are less likely to be delinquent in ohio, all else equal if they are issued by depositor. interested in california i see it somewhat the opposite effect if it is a depository in their assessment area. they will more likely be deliver. suite get almost the opposite effect of caroline. so that suggests to me maybe we need to do some more work. may be ken and i need to do more work. but this is a little unsettling about both carolinas -- or something going on here that we haven't really fully captured. salami turn finally to the paper. they do a really incredibly careful job putting together,
very difficult to use what they'll bunch of other data sets. the uses to test the impact of the mortgage interest rate direction. they come up with, their overall effect is it doesn't appear in their simple test. it doesn't appear to have an impact. and they get this relatively perverse result i would say that it has an impact in areas that are lightly regulated, but it reduces homeownership in those areas which are highly regulated. the questions important, but to me the real issue is this the right data set to use.í? there are about 4000 people in the psid. now, i think typically what most people believe is that at any point in time to maybe 3% of the population which is at risk, whose tenure can be switched tow either renting to owning or vice
versa. virtually everybody else is that 90% of the people in this room, you are what you are, and you are what you were last year and you will not change. so most people are not going to change no matter what happens. and it's a small group that really are the margin. 3%, 180 million households, that is about 5 million households. if you look at the first time homeowner program, at about 2.6 million people that use the program, that's about half of that 5 million. so that may be a very effective program that got about half the people who could have been ready, could have been owning, to move into osha. so how many people would that be in the psid? so if you do the math, the psid has about 100 people less than 100 people per state. the question is being looked at here is really using state level data. and if we did the math on the
first-time homebuyer credit would've been about 50 people in the psid. now, we're going to run a regression with fixed effects for people, for msa, time trends, state, we are going to put a bunch of variables. how many degrees of freedom do you think we're going to have to identify the state level affects of something that might affect 50 people? my guess is which is not going to find it. the power of this data, it's the wrong data to use for the question. it's too few people. most of the data is run with 19 observations for each person. but most people are at risk to make a decision only at a few points in their life. when they decide to move from renting to owning, when they move, when they downsize or upsize, they retire or they change jobs, at that point they can make a decision. and perhaps when they get
divorced, but there's very few points in one's life in which it's really a decision that's really open. so we would have to take humongous changes to get people to change their behavior. huge transaction cost, liquidity constraints, capital gains tax. when peter and i moved to it when i moved to ithaca i had to buy a house because i had to roll over my capital gains and house prices were outrageous and a new i was being ripped off but i still had to buy house otherwise i would've paid a very large capital gains tax. those detained are irrelevant when you're looking at people who, over time in the transition from owning to renting. so there really are not 53,000 degrees of freedom you. there may be seven, 8000 degrees of freedom. that is something to mind. what is a better choice invite you with the same data would be the cps, cds you get 63,000 of people a month, stack them up
everything because for transitory purposes. if you have any kind of income and your in a college town you will want to own. it's just cheaper. owning is cheaper. when i was in graduate school, i had the money to pay the down payment. so i think the results they get are not surprising. i do not believe that they are driven at all by the mortgage interest rate deduction. when i was in graduate school i had no income. that isn't why i bought a house. so i think that my suggestion would be i think this issue is important, wrong data, use the psid, or other purposes.
did i do okay? a little bit late. it's after five. [laughter] so that's the end. i'm going to give the authors a chance to respond, and then take any question. >> thanks for the suggestions. [laughter] >> i'd like to reply just briefly. i think the strength of the psid that can't be matched by any of the previous imaging data set by robert is indeed the fact it is longitudinal. so we can control for unanswered characteristics about peopled that make some people become homeowners and others not become homeowners. also i don't find a system is that very helpful about 97% in the decision, our sample 5% move. between cities or states in any given year. then he continued to say that we will long, long line of research that the shows characteristics
about places and people matter a lot for outcomes. the data sets mentioned that a cross-sectional don't allow to get at the. let me say about degrees of freedom, psid, concentrated in urban states. we find no effect on the sample is was a degree of freedom problem that was allowing us to not pick up the fact that it exists. we wouldn't have sounded on even finer cuts of the data. so we find it by regulatory status. we find significance there. and if you$ look at the paper, nearly all of our controls statistically significant at household level, six effects and so on. so while i agree it will be off interesting to pursue a additional research, and i do appreciate roberts comments, and i will think more about them, but my first inclination is that we put forth a bit evidence of
the longitudinal data and its value, for examining questions. thanks. >> so i want to ask the, thank you for the comment, and i think the interesting thing about bob's analysis and mine is the fact of the line, is in both of our cases we are finding geographic variation. the results are not holding true in the same way for each place that we are investigating. and i think this has incredible implications for consumer protection policy going forward. because how do we design federal policies that will work equally well for some in california as somebody in ohio? i think this has implications for federal preemption. implications for state anti-predatory lending laws and other mortgage regulation. i just don't think we have an answer. i want to see what this looks like in texas, in colorado and
in florida. so i think there's a lot more that we need to learn to really understand what happened during this time period. >> okay. i might just add on the degrees of freedom, when you have a very small number of degrees of freedom, the real issue is that there is something there that the sample is too small. [inaudible] >> but you don't find it. so if it is there, it is on there in new york city.@ we can argue this later. are there any -- we have about 10 minutes.a yes. >> hi. i've one question and hope we get at least three answers from the two presenters and the moderate on the question is basically on the gse goals and the cra, you made it pretty clear cases for why cra is not to but and why the goals are not to blame. might basic question is why do we hear the counter stories so
often? >> i will set my end is the first two graphs i showed. low income tracks have disproportionate share of the losses. and the goals targeted low income tracks, period. >> i think you should ask peter wallison that question. >> part of the situation has been data has been available. to look at the issues in detail. we are trying to slowly make it public. >> so, here i'm speaking for myself and not as a representative of the federal reserve, but i think part of it is that the people are launching that argument are pretty much antigovernment anything. and they are conflating things like the cra and a formal housing goal with an overall ideological push by the federal
government to promote homeownership, particularly among lower income and minority households. and so, if you don't believe in government intervention, and your costly hearing that with the government is doing is promoting homeownership and we have this situation where we see very high foreclosure rates, it's easy to make those jobs an( link those things together, even though in actuality and the data don't show it. i also think some of these regulations are quite complicated. the cra is not easily understandable. it does is it any quantitative targets.% it's defined on a performance context and an assessment area and there are different levels of regulation depend on what kind of bank you are. which it very difficult to tell a story about what happened. so it's easier to say affordable, promoting homeownership it goes afford the housing goals equals c. are eightb that. while there's no built-in it to justify that.
if i could just add on to what carolina said of the gses as sources of innovation and mortgage lead. i think joey fannie mae and freddie mac were especially good at distributing across the system, innovations like others, for example, automated underwriting. they were not the sort of the innovations in primary mortgage origination practices, the types of loans that were originated. those came from basically unregulated sector. and emphasizing the role of largely credited institutions would not be consistent with the ideology that is trying to press the idea that government is the source of the problem. >> more questions.
yes? >> fannie and freddie in the whole question of the gses, what do you see as the source of them making such ill advise investments? do you see any role for the regulatory department directly or indirectly having contributed to the bad investment decisions that they made? or do you think it was because they are very profit focused and they just followed what the securitization, the securitize market was doing? . .
to thank michelle rose and her support. she really worked hard. so i would just like to recognize michelle rose for her tireless work. [applause] [applause] >> this conference is coming to a close. hopefully everybody marks this and had some good conversations. maybe we'll see you next year. you did a great job. and i finished on time. [inaudible conversations] [inaudible conversations] >> republicans have gained control of the u.s. house following last week's midterm elections. but votes are still being counted in seven races.
new york and california each have two races and one each in illinois, connecticut, and texas. overall, republicans are leading in four of our seats and democrats in three. for now the makeup of the house looks like this. 239 republicans and 189 democrats. again with those seven races outstanding. votes are still be counted in alaska senate race while initial returns showed right in balance leading candidate joe miller ahead. it's not sure how much were for lisa murkowski. and a recount is likely in minnesota's governor race. republican tom emmer, trails about 8700. a recount is automatic if the margin is less than half a percentage point. as it is expected to be when the results are certified later this
month. >> how to end child hunger, one the topics that we talked about on washington journal. this segment features jeff bridges is about 45 minutes. >> our guest are bill shore, and jeff bridges, actor and spokesman of share or strength, no hungry kid campaign. thanks for being with us. >> thanks for having us. >> host: how did you first get involved and interested in the issue of children who are hungry? >> this is back in 1983. i helped found an organization called the end hunger network. i was made aware of the enormous problem of hunger and how there's enough food, we have enough money, we know solutions to end it, but what's missing is creating the political will. and so i asked myself, what can i do to help create that
political will? i said well, i'm involved in the entertainment industry. and i deal with the media all the time. doing like what we are doing here. so i can help, you know, spread the word about this problem and try to get people involved in it. and my organization is, you know, done -- i don't want to give you the long list. but some wonderful things. but this campaign that billy shore and show our strength has come up with is so exciting to me. no kid hungry campaign. it really feels like we could end hunger in our country by 2015. that's what this campaign is all about. and it's not about creating new programs, and experimenting on things that might not work. we have programs like the snap program, which is formerly food stamps, the wic program and
school and meal programs already in place. the problem is they are not getting to enough kids. that's what the no kid hungry campaign is all about. working with governors and mayors to see that these billions -- literally a billion dollar is available to states that it's not being used to feed our children. not only feeds the kids, but it also stimulating their economy. so that's what the no kid hungry campaign is about. >> host: billy shore, 2015, ambitious goal? >> this is an ambitious goal. one the reasons that we set it is unlike a lot of other issues that we face and you discuss all the time whether it's terrorism or climate change or joblessness, we know what the solutions are. this is solvable. i think it was right to set the goal at 2015. it's something the obama administration has endorsed. as jeff said, when you look at the percentage of kids who are participating in programs that already exist, it's so
disappointing to think that after 30 years of bipartisan support, and well crafted programs that we know work, school lunch, school breakfast, summer feeding, s.n.a.p., take the summer time. we just recently finished the summer. of the 20 million kids that get the school lunch because they are from families that need that type of support, only two million of the 20 million because the schools are closed. so you have to rely on other sources. we know the programs work. we have to get more kids involved in them. >> host: we're talking with billy shore and jeff bridges about hungry children, in particular the no hungry kid campaign. the goal that the organization has to end childhood poverty in 15 years. the numbers to call. 202-737-0001, democrats, 202-737-o 0002. we think about the issue of food
and children. often we actually think about childhood obesity. the first lady, michelle obama, has speared a campaign to make kids healthier. we don't hear as much as children going hungry. why are children going hungry? >> two things you referred to. kids are hungry and obese because their families strength the resources and the information to make the healthy choices that we need. we live in a country right now where 44 million americans live below the poverty line. 41 million run food stamps, half of those are kids. when you have an economy that leaves that many behind, and even before the recession, 36, 38 lives in poverty. when you have a country that leaves that many people behind, you are going to have kids that are hungry. there are solutions. jeff and i yesterday had the fantastic opportunity to visit the school in northeast washington. 85% of the kids were on preor
reduced price lunch. they brought the chef in who goes out and sources all fresh produce. they brought in all of the equipment to cook meals instead of having processed or a central kitchen deliberating. we'd walk in and thought we'd like to sit down and have lunch. these kids are healthy. >> and the surprising thing is that they make better use of the dollars that are allotted to them than the regular schools. >> yeah. >> so they actually save money by doing it that way. >> one of the things jeff and i were talking about. jeff had the idea to make a documentary or get other chefs and pair up chefs in schools all across the country to share our strength is well positioned to do. we worked with chefs and restaurants for many, many years. >> host: next reality. chefs in schools. >> that's not a bad idea. good work, libby. > host: thank you. you mentioned there's programs
in place to help states and local stricts get food to kids. often times schools are the places where the kids get the biggest meals. does the education have to happen in the schools? what has to happen at home? >> you know, the barriers in these program that is are already in place that have to be looked at. one of the smart tactics here is to work with the governors and mayors who are really, you know, in touch with their people and find out where those gaps are and, you know, surgeryically deal with them. each one is very different. some -- it could be a problem of just transportation. you know, that the kids bus doesn't get them there in school in time to, you know, take part with -- in the meal there. or it could be this is a, you know, i think a major problem is the stigma. it's embarrassment to be the kid that needs -- you know, the free meal.
you don't want to be the poor kid. and the same thing goes with the parents. you know, the pride issue. not wanting to sign up with, you know, programs that kind of acknowledge the i can't provide for my kids. we all need help at certain times. you know? but these issues have to be in -- have to be paid attention to. so the programs while they are in place is -- there are reasons why they are not getting there. we have to look at those reasons and deal with them. >> host: billy, i certainly know teachers who food -- who bring food to school to sneak it to children that aren't getting enough nutrition. how do you connect the communities that know they need better programs and with the infrastructure that can help. >> i glad you mentioned teachers. we did a survey where 65% of the public school teachers said hunger was a problem in their
classroom. interfering with the ability to educate kids. i think the key is when you think about these kids, they are not only vulnerable, they are voiceless. one the things they bring is a voice that people listen to. when people understand, we've been going around meeting with governors. we met with governor o'malley, who made maryland the first child to end childhood poverty. when the governors are doing they are saying to the school superintendents, cabinet officers, let's figure out what the barriers are. why aren't more kids getting summer feeding and school breakfast. let's bring the dollars in. and, you know, this is -- although the government is part of the solution, the government is not the solution. this is really about public/private partnership. the government plays a role. local businesses play a role that can host the summer feeting sites. schools play a role. teachers play the role. this is a public/private
partnership. >> by using the funds that are available, this $1 million that's available to the states, it's not only solves the problem of ending childhood hunger, but it also improves the economy. it brings all of that money into the economy of this day. >> host: let's get some calls. mike on the democrat line from kentucky. hi, mike. >> caller: yes, i'd like to make a comment. if we made schools year round that would cover summer time. i think breakfast and lunch should be free. that's why there's no distinction from anybody. that's just adamant i had -- just a comment that i had to make. until we get people to the polls, that's never going to happen. >> the school that we visited yesterday, the l.c.whitlo, they have universal breakfast. it addresses the stigma issue. >> absolutely. one kid isn't saying i'm the poor kid who can't afford a
meal. you know, you handle that by the universal meal program. >> host: let's go to madison, wisconsin. melonie. >> caller: good morning. >> host: good morning. you are on with billy shore and jeff bridges. >> caller: hello, jesus christ made feeding the hungry one of his -- >> host: go ahead. we're listening loud and clear. >> caller: okay. jesus christ made feeding the hungry one of his first priorities. anybody calling themselves a conservative or republican who argues the child means the parents need to pull themselves up are unworthy themselves and playing some sort of selfish game. so i really do believe that these people need to get real about this problem. and act more unselfish and
christlike. >> what a great comment. i couldn't agree with you. >> and i think it underscores this is not a political issue. this is a human issue, a humanity issue. >> not only spiritualty, it's also a, you know, a pride in your country. talk about being patriotic. what could be more patriotic than feeding our country's children. >> host: some people say it's not up to the federal government and up to the schools, it should come from the family. you mentioned private/public partnerships. what is the role of private industry and is there a point where the government goes too far? >> well, yeah. i think there's definitely a government role. and that's not just my opinion. that's bipartisan support for 30 years. democrats and republicans who have said there's a segment in our community that's so vulnerable that they will going to need help. so, for example, we met a gentleman at a reception george
jones that runs bread for the city. they serve 5,000 family who's have an average income of under $7,000. many of which whom have children living with elderly parents or grandparents were disabled. so they are going to be vulnerable. i think all of us believe when it comes to the most vulnerable, we want to help. it's not government alone that can solve the problem. we are also at the same reception. we were there with companies like conagra and others all of whom want to make a difference. i know jeff sees this as kind of a common ground. you know, we are so divided politically. the elections showed that a week or so ago. there's so much common ground around helping kids. >> host: let's go to hunts, alabama. tracey. >> caller: good morning. the last two callers made -- you know, they had really good points.
it would be nice if every child were fed in school. actually, it would be fair. because in the country it's the law that you have to send your children to school. and unfortunately, it is -- i've been on both sides. where i've received help, and then, you know, i didn't qualify. i'll tell you when you don't qualify for help, i heard mr. shore mention families with income under $7,000. you know, that's ridiculous that we put these -- you know, in order to qualify, you have to be almost destitute or have in income at all. when i was working, i would be in a worst situation working. because i didn't qualify for any help. i didn't have money for food. money that i had for food, had to go towards transportation and child care. >> yeah, that's one the of the
barriers is the red tape and eligibility issues. it's a great, great point, tracey. >> host: do you hear a lot of stories like that as you talk to people about hungry kids? >> absolutely. the problem is it's just too big of a hassle. i can't do it. you know, the depression and that sense of failure, freezes you. you know, it's hard to -- i appreciate your call, tracey. >> i think part of what we're saying with the no kids hungry campaign it's a set of deeper issues like the problems that tracey was talking about. we don't have the answers for all of those problems. but we do have the answers when it comes to kids. we know how to solve that piece of it. >> jeff bridges, you mentioned earlier, you started the nonprofit end hunger back in the 1980s. >> yes. >> host: what inspired you to do that? why devote your time and attention versus other causes?
i'm sure you see a need for help. >> i was made aware of the enormity of the problem -- of world hunger really, it started. and the fact that there was enough food, money, we know how to do it. proven solutions to it. and it ended hunger. i was asked to look inside. what are you willing to do? not just make a donation. what are you willing to do that's going to fit in with your normal life that you can sustain doing until the problem is dealt with. i thought well, i'm an actor. like i said. you know, i deal with the media all the time. so this is something that i can do. we started the end hunger network. then maybe about, you know, we worked with on the live aide concert, we provided all of the facts and figures that were, you know, told the people between
acts. then about maybe ten years after we started the organization, we decided to shift our concentration to hunger here in our country. because some of the safety nets that we've been talking about weren't being fully funded and actually, it's kind of the same problem that we are existing today. >> were you surprised to realize the problems right here at home in america after doing work on the international field? >> yeah, absolutely. you know, for a while there, we had it handled. and the whole started to appear. >> host: let's go to alexandria, virginia. gene, our republican caller. >> caller: good morning. thank you for c-span and it's great that someone like mr. bridges is behind this issue. i wanted to make two points of
-- based on observations were slightly different than the guest suggested. the first point was parental difference of the matter. it's a matter of nutrition. and your guest mentioned they thought it was a problem with information. but information to parents is a pretty easy thing to take care of. i have two daughters that have hunger children. despite my repeated insistence and lessoned learned in nutrition, they still are largely indifferent. they don't have an income issue. i would imagine in lower income families, it's not so much a matter of information as it is to indifference. >> yeah. i think that's -- i think that's a good point. you know, i agree with the indifference in the parental. i don't know, you know, the isolate just the parents are to blame. i think indifference is kind of
what we're calling out to people to say, yeah, let's look at this indifference. let's not be indifferent about this problem. you know, it's not only, you know, ending the suffering of the child, but also our nation. you know? by having, you know, an adult who has gone through hunger as a child. he's, you know, educationally and technically he's just not up to snuff. you are going to create a weaker, you know, work force. you know? so this indifference issue, you are talking about is it basically. i think. and i think one the remedies to it, if this is reaching people out there that are moved by what we are talking about is to go to nokidhungry.org and find out what you personally can do to
end hunger in our country and take the no kid hungry pledge. which is i believe no kid in america should go hungry. by taking this pledge, i'm adding my voice to the national movement of people committed to ending childhood hunger here in our country by 2015. but good point. >> billy shore, our caller talked about just educating parents. talked about his own kids, not always heeding his advise on the healthy foods. there's education about healthy foods and there's also what we call food insecurity. people who just don't have the money to buy food, who don't know where their next meal is coming from. can you talk about the difference? >> yeah, we have to deal with both of those. kids who are hungry on a chronic basis because they are not getting the food. a lot of families that live on the edge to such a great degree economically, they are not sure they are going to be able to buy groceries, and provide for their
kids what they need. part of it is getting the resources to these families. i think there is no substitute for parental responsibility. that's important as well. also getting them the information. we have a program, for example, kind of parcel of the no kid hungry campaign. it's a very important nutrition education component. we work with, we teach, we don't do it, but we work with chefs and others around the country who teach low income families who are on a very limited budget how to cook in ways for their kids that are nutrition. something as simple as if you know how to carve up a chicken. you can buy a whole chicken, rather than chicken parts. if you are on a fixed income, you might save a couple of dollars. there's a lot in terms of education that can help families make choices that make sense for their budget. so it's a very important component of this. >> let's take a look at the public service announcement with the no kid hungry campaign. ♪ ♪ >> look around you.
one in four kids in the u.s. faces hunger. it's not always easy to see the signs. but in the land of plenty, there are kids that don't know where they will get their next meal. join share our strength in food network and take the pledge to end childhood hunger here in america by 2015. learn how at no kid hungry.org. the next meal could come from you. >> our guest, jeff bridges, actor, academy award winning actor and billy shore with the organization share our strength. talking about childhood hunger. jeff bridges, we heard your voice, we saw you for a moment there. do you feel like this is resonating with people when you get out and talk to folks, you'll be at national press club today, democrats and republicans and it's something they can both get behind? >> yeah, i am feeling the environment seems to have made a
shift. this indifference, i think, is, you know, that particular barrier is really being knocked down. i just sense that, yeah. >> do you feel like the economic woes that face the country? >> more so. definitely. >> host: let's get back to the calls. pat, independent, california. pat, welcome, and thank you for joining us. >> caller: thank you for taking my call. thank you, c-span. jeff, i'm a big fan of yours. thank you, mr. shore, for this work that you are doing on this worthwhile campaign. my granddaughter who i'm raising , has qualified because i'm retired, we are below poverty level. we qualify for her breakfast and lunch. one thing that i would appreciate you taking a look at
is the menus they are providing on these free lunches. monday, pizza for lunch, tuesday, pizza for lunch, wednesday, pizza pockets for lunch, thursday, it was chicken sandwich which she likes, but she comes home semihungry, i guess. because she is getting food. so your working so hard and putting so much effort into this, and you say there's the money. but when i was in school, of course, that was years ago, we had a cafeteria, and the food was cooked right there, and we had a choice. you got in line. and you got hot mashed potatoes and gravy. i'm sure you had the same thing. all of the food is brought in. all of it is frozen. all of it is nuked in microwaves. if you are going to put all of the time and effort into this, i
think we better look at the -- what they are serving the kids. >> that's just a great point, pat. and, man, i was inspiring to go to that school yesterday. wasn't it, billy, the elsie stokes charter school here in d.c. what they have done with the money is allotted schools to provide nutrition for the kids. it's usually such low quality. what they do at this school, first of all, there was the garden that the kids tended for a salad bar. they are eating their own lettuces and carrots and so forth. the chef that was preparing meals and going out and shopping for, you know, meals to turn the kids on to their taste buds as well as their bellies. and she was doing this and saving actually making money from the money that the
government was giving. she was saving money to be used in the education. >> host: the listeners in texas, new york, they want that. how do they make that happen? >> right. well, i think when jeff said go to nokidhungry.org. that's a start. there's a lot of information about how to do these types of things in your community. it's, of course, not just happening here in washington. we had on june 4th, the first lady asked us to bring chefs to the white house. we brought 700 chefs to the south lawn of the white house. almost every one of whom went back to the community, get involved in the schools, make a difference on the kind of meal that is we are talking about here. >> right. people. everybody has something to do. pat making this call, raising the question. it's a wonderful contribution, pat. you know, you weren't indifferent. you cared and here you are making a difference.
you know, school teachers, everybody's got somebody -- >> a strength to share. >> that's right. a strength share. very good. >> host: congress comes back to washington for the lame-duck session. one the items on the agenda is the child nutrition. talk to us about what it can do. are you optimistic it can move? >> it's a very important piece of legislation. it will increase by $5 billion the amount of resources available for hungry kids in the country. it's not a perfect bill. there's been a lot of controversy over it. some of the funds that uses to increase the child nutrition programs actually come from future food stamp benefits. there's been a little bit of a divide about that. it would set the bar way above where we are now with current law. so i think that we're going to see most of congress get behind this. it passed the senate by a voice vote. there wasn't even a roll call vote. it was unanimous.
i think we're going to see action on it this year. i sure hope so. >> host: let's go to the democrats line. welcome, liz. >> caller: hi. >> host: welcome. you are on with jeff bridges and billy shore. >> caller: my comment is i used to work for a school. i used to work for a school. what i would see, i used to work in the cafeteria, what i would see, what i would see in serving kids is -- >> host: keep going, liz, we're listening to you. >> caller: money became a factor in serving the kids. i would see kids come in their hungry and want a meal. and i have seen a cafeteria worker snatch the food out of a kids hand because he didn't have the money to pay for it. and at the end of the day, the cafeteria would put so much food
down the garage disposal that kids could have been eating. at the end of the year, at the end of the school year, all of the food that was in the freezers, they would put in the garage. i mean food that had never been opened. that food could have been given to kids and families that were in need. but these cafeteria workers and these people that are so much for the money would put this food in the garage. and i couldn't believe that. >> yeah. great point. that's one the things that we want to do. ing it to raise a attention of what you are talking about. point out other ways to serve food to kids in school with an example like this. the elsie stokes school that we experienced. we plan on making a documentary and showing how there's another
way to do it that's more cost efficient and certainly more nutrition. >> certainly programs like universal breakfast take away the kids having to come and pay for it. they get the breakfast when they come to school. sometimes in the cafeteria, sometimes in the classroom. >> host: we were talking about the child nutrition act. if the lame-duck session does not pass it this year, what are the prospects to send it to the gop controlled house? are you looking at what they may or may not do or what may or may not be different? >> the political makeup will change. it'll be harder to get a bill like this through. i think because of the bipartisan support of the bill has had, it will get through this year. there's a real urgency to do it now. >> host: baton rouge, republican line. >> caller: hi, how are you?
>> host: good, thanks. >> caller: well, these gentleman have a good idea. the problem is they are trying to solve the solution. and don't look at what causes the problem. and what really caused a lot of this problem is these -- this -- they pay these girls, young teenagers to have babies. that's where the big problem is. they get compensated for having babyies. >> host: any comments? >> well. not exactly sure. i don't know who compensates who for having babies. but i would say that the babies in any case, the babies themselves shouldn't be the ones to suffer. i think we are talking about let's idea the most vulnerable,
the most voiceless, and make sure they have a chance to grow up so they are maybe not in the situation that their parents were. >> host: we have a couple of comments on twitter. recalling what it was like when they were in school. >> host: another one the listeners commented that he or she had a family member involved when there was local control. how do you get back to the local control? >> i think what we saw yesterday, providing school districts with the resources that they need, the information that they need. i always believe a lot of failures are failure of imagination. schools think they need to be part of the program where they buy all of the food from the central kitchen. it comes in processed way and kids eat it. when you see there's something else possible, i think a lot of folks are going to want to do it. >> another component that just
came to mind. developing your pallet as a kid. if you are given those pizza pockets, whatever they are called and you keep eating those. that's what appeals to you. you know? but if you are given, you know, a salad bar, and healthy foods, then you long to eat that. it's the kind of thing. this goes into the obesity idea. about, you know, educating your pallet as well as your mind. >> host: are schools being built without facilities to cook in calf fear -- cafeterias. is that a problem? >> yeah. we heard yesterday there's not cooking facilities at all in the many schools. >> microwave. >> host: this might come down to planning and thinking about farther down the road. >> right. there's such a movement to pay more attention to nutrition. i think it's going to change. >> host: let's here from alicia on the independent line.
good morning. >> caller: thank you. thank you very. it's very confusing. you are talking and i'm talking at the same time. >> host: turn your tv down. >> caller: i'm very happy that i have this opportunity. let me say i send my blessings and love to the troops first. helping children is very deer to -- very dear to my heart. i grew up in poverty. i was a very hungry, hungry child. sometimes we'd have just tortillas and tea. sometimes if we were lucky, we had tortillas and potatoes. once in a while, we might slaughter a sheep. that was not too often. so in every way that i can, i like to help children in general. but especially those who are hungry. i constantly think of children
who are in tent cities. we do not cover that in our news media. so many people out there who are out of jobs and who have lost their homes have gone out into the country. they are living in tents. and i'm just thinking, how hard it must going to be for them this winter. >> host: there certainly must be the hidden phenomenon. we heard the numbers in america. it was surprising to a lot of media outlets about how much americans are below the poverty point. do you feel like it's a phenomenon that's well documented? and that people are well aware of? >> i think it's been well documented. i don't think people are well
aware of it. a couple of stories about 49 million americans living below the poverty line. the greatest increase in poverty from 2000 to 2009. part of the no kid hungry campaign, part of the power that jeff bridges is to help people become aware of this. >> host: let's go to bob. democrat in ohio. hi there. >> caller: good morning. >> host: good morning. >> caller: i want to compliment both of the gentleman for what they are doing. it's refreshing to be talking about our problems in this country, instead of the war in al qaeda and all of the stuff that's on the news all the time. i think you guys ought to start the third party. feed the kids party. you look presidential. >> beautiful. >> i'm voting for jeff. >> caller: the major thing that i wanted to say is i was pretty hungry when i was a kid. it's hard to concentrate on what the teacher is saying. >> absolutely. it's really an educational problem as much as it is a
nutrition problem. >> caller: one more point that i wanted to make was if a kid knows he's going to get fed, he's not going to skip school. you guys are doing good work. god bless you. >> one the things that instruct me and alicia said i send my preference to the troops. the school lunch was started by the military. generals came to congress and said our troops are not fit enough. they are not healthy enough. we've seen too much mall -- mall nourishment. >> host: what will you be talking about today? >> i'll be talking about what we were talking about today, go to nokidshungry.org to make a different. >> let's go to oregon.
scott. >> good morning. >> welcome. >> caller: thank you. there's so many things i'd like to say. i'm pretty fed up with a lot of what's happening not just in our country, but the world. it's embarrassing to me often. i can't imagine why in those cases we let some of the most vulnerable people in our world go hungry with some of the things we do and money around the world. i mean throwing it around in ways that we could be spending it differently and smarter. we are talking about children. just imagine for a moment if somebody did come from another planet and saw what we have going on on our planet. it's hue humiliating to be a hun being sometimes. i heard something about pulling up bootstraps. parents should do more.
that's a good point. it shouldn't be tossed aside. parents can do more. there's too many parents that aren't. a little thing like oatmeal and banana isn't a big deal. >> host: sorry. were you guys going to respond? >> no. that's a very good point. it was something else that you were saying that i didn't want to interpret you. i kind of spaced it out. you know, yeah, you made the, you know, the comment about what we're doing to our kids. you know, and having this indifference whether it's parental indifference or, you know, being a normal citizen, you don't have any kids. if another country was doing to our kids what we're doing to our own kids, we'd be in war. this is crazy. you know? >> host: do you think that often times americans look overseas and don't always look home? when you tell people about your campaign and the efforts, do you get a good reception?
>> we are starting to. i think for a long time, we had to convince people there was a real hunger issue here. i think the recession has changed that. people are reading about food banks and being depleted. they are reading about record numbers on food stamps. >> really there's not much of a difference between domestic and international concerns. they are interwoven. as billy was say, the food meal programs in schools were started to, you know, make our troops strong. and now it's not only our troops, but just the -- our work force. you know, we don't have enough nutrition to make these, you know, brain cells of our children fire to receive the education that they are going to get. we're not going to be able to compete with the rest of the world. >> host: jeff bridges, actor and spokesman of share our strength, no kid hungry campaign. thanks for being with us. >> thanks for having us. >> host: and billy shore, the
executive and fourer of share our strength. they will be at the national press club talking about the issue. thanks so much to both of you. >> tomorrow is veterans' day. join us for live coverage as vice president biden as he lays a wreath at the tomb of the unknowns. a ceremony will follow on our companion network, c-span. >> when the house and senate return next week, both chambers are act on a resolution that set wednesday, 25th at the opening day of the 12th congress. before that happens, congressionals leaders need to be elected. they will likely choose their leads next tuesday in separate party meetings. house republicans have announced wednesday, november 17th, as the day they will elect new leaders and house democrats will pick their slate of leaders on
thursday, november 18th. >> with most election results final and the winners preparing to governor, use the video library so see what they said on the campaign final. search, watch, and share any time all free. it's washington your way. >> next, the role that money plays in campaign and politics. speakers include charlie cook, this event hosted by the group common cause lasts an hour. >> thank you, mary. and welcome everyone. glad you could all join us for the important confers hosted on common cause on what follows the money. let me describe briefly the format of the event. then i will make a couple of
introductory remarks and introduce the speakers. charlie cook will give brief remarks and open it up for questions from charlie. he has to run to a previously committed event right after that. then we'll open up and introduce our panel. each of them will speak briefly. then we will open it up for more q & a. that's the format. we have about an hour. we look forward to the conversation. on behalf of common cause, i'm delighted to help frame this conversation and hope we can get a rich dialogue about the importance of this issue. just a couple of facts to put this in context, the 2010 midterm election last week was the most expensive one ever. when all of the spending reports are finally tallied, the spending will probably exceed $4 billion. that compares to $2.6 billion in the 2006 midterm elections. of that, almost $300 million came from groups operating
independently of the candidates and political parties. variously called super pacs, 527 or 501c, they were free to spend without limits and accept limits from wealthy individuals, trade associations, and unions. about half of that money, $38 million came from groups not required to identify their donors. and it worked. independent expenditures donated in the last election were important to the results in seats that changed hands, democrats, or republican, or vice versa. independent groups spent on an average of 264,000 on the winner. those supporting the losing only spent 173,000. we look forward to the conversation on what does it mean? and what follows the money? my pleasure to introduce charlie
cook. he's the publisher of the cook political report and the political analyst for the national journal magazine and congressional daily a.m.. he also has a regular column for the washington quarterly, he's a political analyst for nba -- nbc news. with that, l.e.t. me turn it over to charlie. >> thank you. >> thank you, lenny, i appreciate your flexibility here. this is a wild day for me. when bob edgar and mary boyle asked me to do this, i was delighted to do this. it's -- i don't consider myself a hard core reformer. but i do see somebody, i am someone who sees the problem of the system has horrifically flawed. i don't have pollutions. -- solutions. i think the dialogue and discussion is important.
i'm not going to give my normal spiel. what i'm going to do is sort of rip off of the topic. i think some of the lessons that we've learned or learned again is that money is hugely important. but it's not totally determinative. and, in fact, there are times where there's a law diminishing returns or where the public just says sort of no mas. and, you know, meg whitman, spending, for example, in california. you know, it seems to be working, working, working, and then suddenly people just said, no. they kind of rebelled against it a little bit. and there may have been a little bit of that with connecticut with linda mcmahon. obviously, it didn't happen everyone. rick scott winning very narrowly the governorship of florida. money is important. but there does seem to be some
limits to what it does. i confess the whole area is sort of unlimited/undisclosed money is discomforting for me. frankly, i wasn't comfortable when we saw a lot of that on the democratic side in '06 and '08. i'm not so comfortable with it on the republican side in 2010. i think it's important for everybody to be consistent with that. but that i don't know -- i don't know what the solutions are. i really don't. in the absence of amending the constitution, i don't know where we go. i think we could all assume there's a problem. because of this this -- the importance of money has gotten to the point where i think it really is creating and i'm not so much from the selling out side as much as it's -- i think it's harder and harder for elected officials to maintain any kind of connection with voters with average voters when
they are chasing money so hard. and there's just not the time. and so there's -- i sat in on some focus groups or watching a video down link of some focus groups a few months ago with walmart moms and just sort of average and working class women with children under 18 years of age who had all shopped at walmart within the last month. and the level of abandonment that they felt from both parties in washington was really telling. and this one women, the school teacher in denver, she was asked, this was done the focus groups were done by walmart. they had an democratic and republican pollster overseeing the focus groups. one the questions they asked was if elected officials in washington understood your lives , what policies, what would they do differently? and this one woman, a school
teacher in denver said, i cannot imagine elected officials in washington understanding my life. another one, i think it was a women in the st. louis focus group. philadelphia, st. louis, and denver. i think it was in the st. louis one. another woman said too bad this isn't like on tv. that show "undercover boss" where elected officials could come and just live with us for a day or two and see what our lives are like. and just sitting there, this wasn't a conversation about campaign money or anything. but it did sort of reinforce a message to me of how abandoned and isolated so many americans feel. i don't think in most cases the elected officials and politicians are selling out so much as i don't think they have
time to talk to people in formal settings. you know, you remember back 1986 when jimmy carter was running for president. on the sofas of homes to save money to also establish a connection. how quaint that sounds today when, you know, these folks and you see the horrific figures of a typical member of congress has to raise every single day of their two years of a house term or six years of a senate term. and so i don't have solutions. but i -- you know, at least i'm encouraged that the biggest money doesn't always win. but the biggest money does win a lot more often than not. and -- but that there does seem to be limits for voters on how
much or how much of a disparity they are willing to put up before they sort of rebel. and i think we did see that. this was obviously a huge election. i tell people that it was, you know, wave elections, they are kind of ragged. and they aren't uniform. and so some parts of the country are worse than others. some were worse than others. i would describe using the starbucks, is the house was a vente election. that's the 20-ounce size. not as much as they thought they were going to get but in the house where it's going to be 63 were 64, 65 seats, enormous and biggest win for a party in any
election since 1948. biggest business term election, since 1938. obviously, the economy played a huge role. but the thing is there was a lot more going on than just a horrible economy. and i think that to me what i would look at is independent voters and these are the voters that are the most disconnected from politics. it is to look at the -- look at what's happening in the last three elections in 2006 those independent voters voted by an 18 point margin in favor of democrats for congress. 18 points in 2006. and in 2008, they voted by an eight point margin in favor of democrats and an eight point margin in favor of senator obama over senator mccain. this election they voted by an 18 point margin. 56% for republicans, 38% for democrats. now when you are talking about a 36 point swing, from one midterm
election to another, or a 26 point swing just from one election to another, that is absolutely enormous. and when you look at some of the other things, i mean, you know, that what we are looking at is a house of representatives that's sort of a lot more aligned. they are going to be a lot less fish out of water in the next congress than there have been. and where they are going to be very few, i think only a dozen democrats sitting in districts that john mccain won. and about 62 republicans sitting in districts that barack obama won. but keeping in mind that the mccain was not exactly the high water mark for the modern republican party. there was just sort of a lot going on. where democrats need to, you know, there wasn't about turn out so much. i mean democrats turned out a little bit less than before. republicans turned out a little bit more. it wasn't about deception.
they voted 93% in favor -- i'm sorry i got that wrong. 92 to 7. republican voters voted 95 to 4 in favor of the republican candidate. it was the independent. they are the ones less attached and putting the emphasis on political reform of all kinds. and, you know, i actually have a lot more hopes for the concept of redistricting reform than campaign finance reform. where i think that, you know, the great thing about making changes ten years out is had doesn't apply to the most of the people. i think it's easier to convince elected officials to do the right thing. it it's not going to apply to them or them any time soon. so i think getting, i think, over the next two or three years getting people to focus, getting
states and voters in the media more focused on redistricting reform and to do it for a time frame looking at, you know, the 2021 redistricting process. that actually probably has -- would accomplish a lot more than anything else we could do right now. why don't we stop and open it up. do you want to chair -- do you want to field the questions? whatever i can help talk about i'll be happy to do. thank you very much. >> thank you, charlie. [applause] [applause] >> let's open it up for some questions. since we don't have mics, i'll repeat the question. if you could be brief and make sure it's a question, not a speech, that could be great. who'd like to start in the back? >> charlie, can you talk a little bit about the public opinion about the descendants about the issues of reform.
there's been a lot of back and forth about whether voters care about the money. what about the independents? what's their vote? >> i think can you -- let me repeat the question, charlie. the question was what was the view of independent voters about reform? there's been a lot of back and forth about how they feel about it. what is your feeling? >> i would argue they are the only ones that do really care about reform. i mean the thing is, democratic voters are in favor of reforming and republican and republican-oriented groups. and republican reformers are interested in reforming democratic and democratic-allied groups. nobody wants to do anything to cut in on their own side. it's independents that people that don't have ideological, that don't have partisan roots. they are the one that are most disaffected from the political process. they are the most cynical. :
>> you know, the american people are sort of an ideological shape of a bell curve. you know, slightly more center right than left, but mostly most americans are between the 30 yard lines, and congress is now, you'd call it bimoal, like a camel with two humps, and there's not going to be left anybody left in the middle in
terms of congress. i think the increasingly ideological nature of the republican party and the democratic party is such that i think that the feeling of estrangement that people in the middle have is enormous, and it's going to be growing with this -- after this election even worse than it was before. >> i'm brine fisher. i have two questions. one, we have a tremendous amount of people working on this. [inaudible] the second question, these are clearly violations of -- [inaudible]
my question is why are we using the constitution of these, i would like to explore that also. >> i think everyone could hear that because he's close to the mic. i'm not a lawyer, and that's not my field, but i've never seen a felony committed in my presence. i think there's no reform measures done in the lame duck sessions which is not really what lame duck sessions are for. yeah, i can't particularly respond to that because, you know, i think it's screwed up and not necessarily felonious behavior. >> i'm carol campbell. you talked about independence. i'm national chair of the committee of michael bloomberg
to form a party out of independent greens and most on the ballot raised no money, but were in the process of having a positive impact. could you talk to that? could that be exciting and encouraging participation across the spectrum? >> well, i think that -- i think the american people have long been open to the idea of a third party, and i think they increasingly would love to see that happen because they fundamentally don't trust either party. i think they are incredibly open to it. i mean, the problem is that it's rare that you find independent or third party candidates that aren't sort of fringy characters that cannot get broad based support, and in most cases i've seen are not deserving the broad
based support. now, 1996, if colin powell had run, that would have been an interesting case. he was obviously, you know, a major figure, someone to draw broad-based support, and someone worthy of a great deal of support. you know -- >> we can change it? >> excuse me? >> [inaudible] >> i'll go straight to bloomberg. [laughter] well, i don't want to get into -- i think independent -- i think there's a thin line between independent and flakey, and you know, independent is a good thing. i don't think anybody referred to michael bloomberg as flakey. you can like or dislike him. i spent an hour with him one time, and he's one of the most impressive people i've met in my life, and hearing him talk about
what he's doing in new york city is amazing. you know, the fact is i cannot come up with a single other name of someone that could be a credible formable third party candidate in 2012. mike bloomberg, yes or no, and if there's another name, please let me know, but i can't think of one, and so it's sort of -- i -- but i think that with the economy, we're going to be looking at economic growth of probably somewhere between 2 percent and 3% through 2012 and unemployment in the 8.5-9% range through 2012. the economic climate is going to be a very, very difficult one for president obama seeking reelection. you know, i think the honey moon period for the afghan surge runs out next year, and there's a
possibility of problems on his left with the afghan war. you know, i think he's going to be in a weakened condition, and lord knows what republicans will come up with. i mean, if i were president obama, i'd be on my knees every night praying for the economy to turn around, the surge to turn around, and for palin to get the republican nomination. [laughter] >> a few questions over here. >> [inaudible] >> to be honest, i, i haven't looked much at the ballot initiatives on the environment, so i can't speak to that, but, you know, the thing is i think timing and politics is
critically important, and there is a good time when people are open to debates and dialogue and new ideas on things like climate change, and there's unfortunate times. i do think that cap and trade played a very significant role in what happened in this election, and that when i go back and look at where did the wheels start wobbling on the democratic cart? it was before the focus shifted to health care, and it was very soon after the cap-and-trade vote. when members started coming back from the fourth of july recess of 2009, that was the first sign that things were going wrong, and that was preceding the real focus on health care, and i think last year, i think the american people -- i think the american people would be open to a conversation about health care reform, and i
think they would be open to a discussion on climate change, but when you got unemployment at that point heading up towards 10%, that's -- they wanted a lacer-beam -- laser beam focus, but not on health care form or on cap-and-trade. i think it was a matter of there's a time and a place to focus on things, but when unemployment is skyrocketing, that wasn't the time, and i think it was, you know, i think -- i would say cap-and-trade was a contributing, not thee, you -- but one of five or six contributing factors that that election, and in particular sort of a midwest, heartland, and in the south, but in terms of the ballot initiatives, i c't