.. >> [inaudible conversations] could afternoon. iom a research scientist at the global forum. on behalf of my colleagues

we are welcoming you to this special event. it is an honor for me to introduce our speaker tonight susan wharton gates. dr. gates as editor and compiler of credit risk data for the of freddie mac top lobbyist and primary writer of testimony serving as vice president and corporate strategy the fascinating book with the insider's view that's dr. gates has worked as an academic for a public administration and policy at the college of business also a consulting firm that helps

firms and nonprofit san governments manage their policy claims. if that isn't tough behalf she earned her ph.d. from the seven republic administration. >> [applause] >> welcome to means a lot to be here and all those other people i am meeting just today at this event with that global forum on resiliency is fascinating so how do we insure resiliency in our communities economic and social perspective? so just in case you are wondering best-seller

movement of resiliency and around the world what can we learn about that? so "days of slaughter" there are some signs that things are not so good. is anybody that is gender than recall a student i'm trying to be gender neutral and age neutral but up to stay at the end the university i cannot imagine giving up an afternoon to sit and listen to me.

but several years ago i was asked to speak at the science -- school for science and technology it was ethics' day two years after the crisis and you lou can imagine this was an affirmation. seven but were they doing in 2008? and when they were nine years old. with a that was x box or another computer system so for their parents and so oh

just do give us back. at that other impact of the housing crisis they call that the global financial crisis. but it wasn't just here in the united states with a 30% drop does not sound like a lot but that is a massive bowling ball hitting dominoes that reverberate out from the street and all the communities with a tiny village on the arctic circle it was nearly wiped out. when that bowling ball went crashing with a 30% drop that eventually led to a

$9 trillion drop of hot water equity. sold their like thank you banks and you hope the house will appreciate and money will build up that someday they can cash out and vb retire. with something to live on. that equity was wiped out attitude of $9 trillion, 20 million foreclosures. to be foreclosed on is horrible for family. people hardly ever recovered that scar is your credit rating at least seven years with a very difficult time getting another place to live even to read to. it is very damaging. even local governments already funded? property taxes. thirty% of those values of

home drops that guess what happens? taxes fall in the same fashion. subsidies to bankrupt under still coming out of that. the economic hit almost a full year of gdp lost now many of these have come back with homeowner equity so that was a paper loss the economy has come back to a very large extent that the crisis fell like dominoes decimated investments in banks that invested in my former company lost millions of billions of dollars of stock the also invested it mortgage bonds and windows were downgraded it was fiscal stimulation that

economic recovery package push through costa lot of money people in needed social services with that budget deficit. but to keep mortgage rates low the federal reserve started to buy up excess mortgage bonds that fannie and freddie were no longer buying just to keep those market working and the rates low. to dave it is a huge if you look at the graph and how to get off the drug of quantitative easing to unload those mortgages. it has been a sad time so zero so that a on twitter the other day said i hate the title "days of slaughter" but i love the book so far. so i'm hoping he will still

like it but "days of slaughter" is not a bad title there is a lot of red on the cover but that is actually very inappropriate because a lot of readying was built. -- read the neck -- red ink was spilled. who was hit the most? families and the most vulnerable communities. but also in terms of social capital so much of what was going on when i was at freddie mac was a focus on getting more people into homes. this secede as job number one and i with a home and it is super important but home ownership is a challenging

baying and we one recent - - resiliency. so to get a hold and lose that a few years later is very damaging to people in the communities and economy. one a year ago a the home ownership rate sake to the lowest level of 1965. under president clinton and bush the major expansion was the minorities which was well below. these are highly sought after goals. they are very important goals so those that have been hurt the most of those neighborhoods have been allowed to come back.

so personal history disappears so talking about something that is nine years old how it must be ancient history that is one of the main reasons. to add to the public's understanding of the causes of the crisis a lot of books about read about the financial crisis has city by ec the big short? there is a lot of wall street in there to get through that people were seeing and dancing. but just hate it here with me it is a little tedious but so important purpose of most of the book has not focused on freddie mac or fannie mae but government sponsored enterprise or gse. public or private? that is the issue.

that is the day problem there was not a clear definition. that is it something you take on lightly but freddie mac writing at the five ceos the public statement to congress and to tell the story in the true sense of storytelling how you talk about ownership and sensitive issues race and immigration and it, the quality what is the role of the government sponsored enterprise with a $5 trillion mortgage assistance? howdy you talk about all that? in september 2008 when beings were starting to it imploded the housing will and everybody would freak out we

got the pink slip from secretary paulson and he came to our office and said thank you very much you are pursuing new opportunities to keep buying mortgages to do the best job you can to keep the housing market afloat. that is when the company went into conservatorship from being a fully operating fervid to vagrancy. -- into bankruptcy. nine years out. ag and other banks were back on their feet but not fannie and freddie because it is so darn complicated. how can we solve this problem to bring mortgage

money to home ownership? how to read and edit all three of those objectives? said the fable whose disobeyed his father's warning was so sure of himself if he just wanted to keep flying farther and farther and his - - he said don't get too close you have to balance this out. the years leading up to the crisis was like that icterus moment going higher and higher the innovative mortgage products hit the scene and to stretch well

beyond their means to get a piece of the american dream. so with huge gains of homeownership they have all disappeared but more and more people were becoming homeowners. to help equalize the vast difference of disparity at home ownership rates. it was that moment when the brady axe's of structured finance to develop that super technology that would eliminate risk. to say a thing we're done with the business cycle. and finally those lucrative

returns started to get noticed dollar around the globe people were searching for deals so if they call me after it was under the prime rate. we need to do more with financial literacy in this country. up and up to think that would be a good place for chapter one. walking into another vice president's office to shut the door. i needed to know how bad were things? to be knowledgeable where freddie mac stood if the company was still solvent. there is a lot of talk going

around, is it true? about conservatorship? he was staring at his computer. he said we are in a shitload of trouble. that is all i did manage to say aisle. years of bad provisions rose like a ghost of my head. so "days of slaughter" is a cautionary tale of how a deadly cocktail of money and power and politics and public policy. into destabilize communities that nine years.

so that central message of the book is this. with hot dogs and apple pie and baseball. so the way we get home ownership is mass quantities , a massive. but that system must err on the stability and safety. it is just that important. that is basic we would be surprised how quickly we forget with stability and resiliency don't take this personally but to be on capitol hill to be stable

and safe don't make lots of money. do they? they don't make a lot of money in the short-term. not everybody would get the house of their dreams, not now or ever. the labor economist love to obtain it is great for the economy. so those markets do not kill those campaign coffers. i am running to make sure nothing happens. save his stable housing markets should be job number one with the stability and

fairness to be good enough. the government put out a report in 2011 and one thing that i thought was very interesting of the summary items we conclude this crisis was avoidable. and then quoting shakespeare the fault lies not in the stars but with us. and those tax payer dollars that would be me after nearly a decade after i left the company i felt i needed to unpacked and it took me some time to sort that out. but it was my duty to put

the insight and experience to be helpful to the policy makers going for word pro organizational life is always funny. it is an apology and owning up. i did hear about that after the crisis. so that with a thing they understand it is way more complicated. so i want to show more texture in this story. so that debate of the gse is polarized and the longer we wait so the one team says it

is all our fault the wall street says it is all their fault. you can imagine how hard that would be to find solutions if we all have our hands in the pipe. -- piper go so did wall street and the housing industry. pushing more home ownership. talk about personal responsibility but chapter two is all about buying a house. time to end the class for a single ski.

so the importance of owning up coming into the light is important and i have gotten scared of that and so nobody apologizes. and it was about 10 minutes old and driving in a packed city because the cherry blossoms were out. going 1 mile an hour then somebody we are ends me. i would in the mirror and they look away i get out of the car and they lock their door. i knock on the window i said you just hit me.

that is upsetting. but what kind of social fabric to we have going on? with those massive institutions with the austrian banks was that a car accident? what happens to our national fabric? i told the there has been enough soul-searching or learning from the crisis for gore was interviewing for a job. and that is a hard job. i have been at this for a few years would relearning about a the crisis? to have

one non-profit comeback definitive is important to give that insider town what has happened. that is the mission to provide stability. this is in the chapter called phenology be obvious. those choices that we made the history has proved otherwise and i give voice to that. >> but i do want to do the big short thing and be funny in and give you a little history so i'm trying to run

through this. once upon a time there was a company called ferry make - - peony may. -- many made it was created in the ashes of another terrible thing that happened with the great depression. now what we went through was called the great depression so he may have heard of the agency fha and a few others federal federal federal federal federal to fix the private real-estate market. so fannie mae was created to restore investor confidence. to invest in houses.

and the bonds they would issue. this is a way to bring back a the housing market with the long-term fixed-rate mortgage. people had very short-term mortgages with balloon payments in short order because we need a long time to read pay their mortgage. so could the loan the money 30 years somebody else can do that. most people don't keep mortgages 30 years but they are amortized over a long period of time. but to bring stability and resiliency to the housing market that worked pretty well after world war ii and

to put together that budget mark which is the entitlement program to give that zero down payment mortgage. it is amazing to thank you can get a mortgage backed by the government with the zero money down. said to be in such a dramatic way. so the time we get through with the housing crisis it was every where. but i am skipping ahead. and we have that letter g.

and that is still there is part of hud to provide support when the lender makes you a loan they have this piece of paper called the mortgagee will pay them back a little bit at a time. they have to and that is how the whole system works. and during the vietnam war. and to provide that same function from mortgage bankers and in the private

market and then in 1970 can you make something like that for us? we would like another entity with the savings-and-loan entities. that is when it started in 1970. we were not called freddie mac bin but the federal home loan mortgage corporation. eventually we became freddie mac created for the savings-and-loan. to be safe and resilience and boring. with separate markets be each brought liquidity

savings and loans and mortgage bankers. but in 1989 the year before i joined freddie mac and then i came in and 1990 but the year before that freddie mac paid off stockholders of the federal home loan banks to say we want to be like fannie mae so the government led us to become a publicly traded company in 1989. negative en -- then things are not boring because the of markets blurred we were critical competitors to compete which was seen as the good thing and then drop

for the consumer. that was called a duopoly. and they began competing head to head. that is how we got the queue names to go with the new corporate job. fannie mae was older and historical and storied and freddie mac was smaller a and new were so we with a trend setter to have a lot of quantitative people it was nerdy compared to fannie mae the slogan was to put people into homes they could afford and keep. and to be powerful and more -- smarter investors but

they realized they still have of federal national mortgage federal federal federal, if they got too big then the government would come to their rescue. but i bet they are just about as safe and even though company say no, no, no that was the perception and in really arcane terms implicitly guaranteed by the government. and there really wasn't true. because of something called too big to fail so the government really has no choice but to hold its nose

and support i did a radio call a couple months ago why didn't they put the money on main street? that is the question everyone has cost but with a massive redwood tree is about to fall then you save the bread and that was the financial system because freddie in fannie have gone so so big. the return equity was so amazing with a former fed chairman would go nuts and skimming off profits so those agencies that have the

pointy heads and sharp pencil started to do all sorts of mathematics to figueroa how much we were truly costing the government and appearing on the appropriation bill somewhere that the government was providing because it was still in our name so writing for one of the ceos outside of that in the new yorker many years ago there were some children sitting in the sandbox. that is how they began to c.s. so trying to describe this as a government duopoly anti-government hedge fund. banks began to complain we were crowding out their

business and going to make that much money we should turn into affordable housing some the pressure was on to stay on the good side of everyone can put that back into housing sort i'd like trying to keep everyone and happy but in my field of the public administration scholar started to write i'd like this and that congressional research service worried that we were dangerous for go to said that we would privatize the profits and socialize the

losses. and then i might add $187 billion has been more than paid back in the last nine years but in any event they did socialize the losses. thanks for your contribution to those losses. september 2008 the market was on financial steroids the courtesy of yours truly and the newest competitors figured out a way to get around the underwriting with that huge bid for market share to set off the conflagration. so they were taken back it was costly and bloody we

were given one morning -- and called the bastards of finance so this crisis is happening but we were the subject of this presidential debate this was truly hard especially for a writer to hear all of this that was quaint by today's standards that we did end up drawing a lot of money at of the government and the federal reserve that we still haven't figured out what to do with them. so i can imagine in conservatorship and to

manage those companies if they were on their own 2 feet they cannot lobby congress or a undertake adventures. if a car just had a car wreck. so that is where we are you a driving an old car. and then to pass of the old ones? so this debate is taking place right now. gse cannot live without the

more critical than ever before. so there was one little catch. but it fannie mae and freddie mac made a lot of money again the with that arrangement except a few quarters nichols and dimes go every quarter billions now counted against that. and shirley but then the next morning gse wakes up with no capital is that the row so there is no row cushion any more. and with hedging strategies.

hurricanes are very expensive. so that is why congress or that regulator is not sustainable is scary. that is what inspires the subtitle. so the gse to server and then once they're up at zero they could have the ability to weather any losses in any quarter without pulling on taxpayer support. and then give back some money to come back that congress would like to figure out a real solution

but then just to new patch them back up so is this a sea change just before the end of the year to make sure we don't have all lost of -- a loss of investor confidence. there you have it "days of slaughter" light reading, a brief history, what happened and why, of romance for short-term decision making to be well intended public policy unintended consequenconsequen ces and political gains in fighting as an industry of their own private interest for the

good of the whole. clinical cronyism money and politics that is great to have the internet these were of those congressional websites. i have been there 19 years to string of pearls on the necklace so it is a story. so there are some remembrances for sure so the companies are stuck in a freeze frame it is time for congress to get added the ideological straitjacket.

before i take questions what are the takeaways? that is a long time to write of boca research. >> so to have over 60 rejections that is really hard on your ego to be out there rejected, rejected, rejected. of every publisher said i did that. i did that.

but the others were interesting because many agents decided it was all gse or wall street but i came in like road kill. so whether these narratives that ties up in knots? there anything that is our word public policy with those situations to focus on those major institutions to be fair with good public policy if he decides says no fannie and freddie were

regulated in some ways are not in others so we had a patchwork system of regulation. so i will go get a different charter from the banking administration to said want that charter. if you have a weak regulatory system anybody can do anything they want. so they both have a lot of truth in them. and there watching these hearings arguing in the house of financial-services.

i have seen that. so i tried to up and those either or narratives. and those are short. so with those viewpoints it is no wonder with those restructuring choices if they blame democrats or republicans and it is a national sport to blame freddie and fannie they begin is in the middle. with intervention to compensate and reward that behavior.

and then tried to jump headlong but my company would be the hardest to abandon tried and true. both sides of the aisle to contribute on how to see our way for word. so with the promise of regulatory reform. so what is the solution? so a response and 2010 did. but there so many regulations that have to be read and then to respond

with public comment. >> absolutely these regulations do but on their old they are not enough. so with the housing goals and to go from 51% and how does a company respond to that? we don't want to be seen as lagging. but what is interesting is many people like to blame the housing for with the gse bat it shows those mortgages that supported those

families to perform better anything that wet wall street has created. you cannot blame those housing goals to a very different view of what it meant to become homeowners. so the last day and i will say the more rules the you have many economists point to the stifling nature. with those costs to efficiencies those that were laboring under dodd/frank regulations all these smart people will have jobs costly

in a regulatory culture. and then to be clever to find a loophole. there are some of instances in there. but nobody blaise fooled so again in the report they tear the book apart but they don't disagree on this of the systematic breakdown of accountability and ethics. with those policies and

house to live in to them. and people can make a difference. and that is mean ethics matters. that is impractical end ridiculous. there with those same regulatory arrangements. and sacrificial leadership. and with financial reporting. so would you invest in something? it is imperative

that ethics is free to the institution. so to learn about the chief credit officer and then the third take away is how do we prevent another collapse? and the management board. and it is with the ring and a weakening. it is weakening a system that is vital as edmonton and earlier i am not alone

so house prices are rising when house prices rise with affordability let's relax the standards so don't worry we will assume those underwriters are held up with appreciation reconvey gave bad loan but survive. so the other day i heard a radio ad with zero down payment with the zero mortgage insurance but the federal credit union was offering that. and then those mortgage default rates. to transfer those to other entities and that they are

not doing enough to become homeowners. and so what they charge those fees that 30 years any insurance company is a very dangerous thing so those claims after irma so what about those years there and not collecting fees? so there is another hurricane now there. maybe it is off the coast of africa faraway it will not come ashore but if we were a meteorologist we would be looking at a dangerous pattern is. so we begin to move the

company's and minimize be home ownership and there are a lot of other ways to live. from home ownership but that is all whole other election. so let's be bring. and to be stable and resilient how does the story end? that your writer there isn't much left to do. and then reoffered that top chief financial officer. but now suddenly put up that the top and a beloved

long-term employee and then dedicating it to his memory of this book died six months after we left and within two months after that. so that is captured in a way to be caught up so i wondered if the company could take much more so the call the employee meeting. that was a form of group therapy going across the road with the cameramen and dick tv cameras on our faces

the regulator caught up to our group but the only thing that could destroy an attitude how you doing he asked? i stared at the tips of my shoes readjusts people in the and. so that is what it comes down to week and greedy and insecure and short sighted hard work and great moral courage men and women with layers of organizations the of the intertwining systems of money and power if the men and women with that

system of washington all played their cards differently. but i guess we will never know. [applause] >> is there a path to get out of the conservatorship?. >> that is up to congress. there was no way to buy

yourself out of that that is not a ticket to salvation is up to congress and that is the question of the day. a lot of people in congress feel let's just go on. to patch them up with that explicit guarantee. and get them back on to help families become homeowners. and how they express that explicitly. they feel very different about that we will never

ever help you again. because you know, if they fail again to chile believe they were truly private is a very difficult thing we try to look at what might be an option there is so much moral hazard in the system of too big to fail. so let spread the rest to more entities. so to have more players in the system not that we couldn't get that complete the. so those that are on their own but they would have a

government guarantee. they may not want to bring money to the housing market to stand behind the bonds. so those things that are on budget. the then to decide how we won at home ownership but what is is that netherworld we ran that movie. >> but the fha had some part

in that red line so that is not equal. >> but that is because of the time period. >> has that part of that policy bed addressed if you try to get home ownership for more people to the fly by night. >> that is another great question of the day real-estate agents are showing houses but they get

steered into risky products but that is another side of housing policy where people end up living as a competitor to freddie and fannie to meet the housing goals which was a perplexing moment but you are right they have worked very hard to make that a broad based market. >> widely think they thought

those that were selling those innovative?. >> as i said and those that are helping people can be seen as part of our mission but house prices were rising progressively. but i did think there was a financial aspect where they had a higher premium for market share. so these competitors that had come into our world were taking our cake and eating bad. is very well documented you're out there to maintain the market share.

they said we should stop doing this but no longer have a job. >> allow me to conclude very briefly i want to keep the events rightabout one hour so please join us in the library for refreshments and dr. gates will be available for further questions. there are copies of the books for sale at 20% off. [applause] [inaudible conversations]

>> that is something that of woodrow wilson said may 30th 1913 editing had been discussed and agreed upon the woodrow wilson and his wife drove out to to an american cemetery outside paris so close you can see this pope of the eiffel tower and there he woke up before hundreds of thousands of graves and he could barely contain himself

through those families scattered all around us and the french plan to the american flag wilson got out there with an eloquent speech it was finished they thought and wilson said he said i beg you that was a compulsion. it to be the commander in chief in reifies the congress to declare city of war. i sent them over here to die. that which is inconsistent is inconceivable that a man

can give bin his life and that is his living spirit to a service that is not easy in to stand against those purposes to say here's the and i consecrated in spirit who are gone and have left me under the band of fidelity. i often wish every president had to read every president before sending every man or woman abroad so especially in a country whose country's entire foreign policy, the identity was forged by a

world war i so that gives us never to forget that. [inaudible conversations] >> hello we are delighted for this special evening. with no need enormous introduction but c-span is here we are being videotaped of what i find