| 00:00:112 min. |
Towns, Edolphus - U.S. Representative, [D] New York
Here in this committee that we swear all of our witnesses in. So will you please rise and raise your right hand? Do you agree to tell the... |
| 00:03:014 sec. |
Pinto, Edward - Chief Credit Officer
(Off mike.) |
| 00:03:052 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Pull your mike just a little closer. Yes, thank you. |
| 00:03:077 min. |
Pinto, Edward - Chief Credit Officer
(Off mike) -- published elsewhere. Here we go. In my prepared testimony, I show that there are a total of 25 million subprime and Alt-A... |
| 00:10:591 min. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much, Mr. Pinto. Mr. Kling. |
| 00:12:0414 sec. |
Kling, Arnold - Senior Economist
Thank you. Thank you, Mr. Chairman, distinguished members of the committee. I would like my written testimony to be -- I'd like my written... |
| 00:12:182 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Without objection. |
| 00:12:204 min. |
Kling, Arnold - Senior Economist
Thank you. It was a privilege to be asked to testify in this forum today regarding the collapse of Fannie Mae and Freddie Mac, and the ongoing financial... |
| 00:16:466 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much, Mr. Kling. Mr. Calomiris. |
| 00:16:521 min. |
Calomiris, Charles W. - Professor
Thank you, Mr. Chairman. It's an honor and a pleasure to appear before you and the committee today to share my views on the role of the... |
| 00:18:0942 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
-- (inaudible) -- Yeah, let me just say that, based on that, let me just read this, and you can, (sort of ?), maybe respond to it as you... |
| 00:18:5125 sec. |
Calomiris, Charles W. - Professor
Thank you, Mr. Chairman. Actually, it was through the kindness, I guess, of the Chairman -- who showed me that letter earlier, or had it... |
| 00:19:163 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
-- (inaudible) -- (Cross talk) -- therefore, I'll give you an extra minute -- |
| 00:19:19 |
Issa, Darrell - U.S. Representative, [R] California
Mr. Chairman? |
| 00:19:193 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
-- in your testimony. We'll give you an extra minute. |
| 00:19:2223 sec. |
Issa, Darrell - U.S. Representative, [R] California
Mr. Chairman, I might ask, from a parliamentary standpoint, wouldn't it be in our best interest, as the unanimous consent, that we enclose... |
| 00:19:45 |
Towns, Edolphus - U.S. Representative, [D] New York
Without objection. |
| 00:19:452 sec. |
Issa, Darrell - U.S. Representative, [R] California
Thank you, Mr. Chairman. |
| 00:19:474 min. |
Calomiris, Charles W. - Professor
Now I'll read the replacement text: "Tables 1 and 2 show that, comma, for each category of mortgages with subprime characteristics, comma,... |
| 00:24:202 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Dr. Calomiris, could you summarize? |
| 00:24:2253 sec. |
Calomiris, Charles W. - Professor
Yes. Well, I conclude that counter -- actually the crisis would have been less than half as large as the actual crisis if the GSEs had stuck... |
| 00:25:154 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much, Dr. Calomiris. Mr. Stanton? |
| 00:25:195 sec. |
Stanton, Thomas H. - Fellow
Thank you, Mr. Chairman. I would ask please that my written statement and two attachments be included for the record. |
| 00:25:242 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Without objection. |
| 00:25:266 min. |
Stanton, Thomas H. - Fellow
Thank you, sir. Mr. Chairman, Ranking Member Issa, members of the distinguished committee, in 1991 I wrote a book called "A State of Risk:... |
| 00:32:1320 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Let me thank you very, very much for your testimony. You know, I think it would have been wise for us to allow them to go first and then... |
| 00:32:3322 sec. |
Issa, Darrell - U.S. Representative, [R] California
Mr. Chairman, I totally agree with you, and in fact, of all the things that -- my hope as ranking member and your hope as chairman that... |
| 00:32:551 min. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much for your comments. Let me move right along. I would like to ask our guests -- let me start with you, Mr. Stanton, and... |
| 00:34:021 min. |
Stanton, Thomas H. - Fellow
Yes, sir, I'd be delighted. If you look carefully at the law -- and I'm a student of the charters of the two companies and the legal framework... |
| 00:35:524 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
All right, do the other members of the panel agree on that? |
| 00:35:561 min. |
Pinto, Edward - Chief Credit Officer
I have a little different take on that. When the original goals were set subsequent to the 1992 legislation -- I believe HUD set them in... |
| 00:37:373 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Yes, Dr. Calomiris? |
| 00:37:401 min. |
Calomiris, Charles W. - Professor
I just want to add that I think that there were obviously other motivations too for getting involved in subprime, and the e-mail correspondence... |
| 00:38:413 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Thanks. |
| 00:38:44 |
Stanton, Thomas H. - Fellow
I have something, Mr. Chairman. |
| 00:38:444 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Sure. |
| 00:38:4837 sec. |
Stanton, Thomas H. - Fellow
These are two companies funding $5 trillion in mortgages. The whole point of trying to underwrite mortgages for people that are non-traditional... |
| 00:39:253 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
All right, thank you very much. I yield. |
| 00:39:2850 sec. |
Issa, Darrell - U.S. Representative, [R] California
Thank you, Mr. Chairman. This is a wonderful panel and I appreciate your statements, and obviously we'll be poring over them well into the... |
| 00:40:182 min. |
Pinto, Edward - Chief Credit Officer
No. Alt-A actually stood -- one of the meanings of it was alt agency. They were things that the agencies would not buy. How do I know that?... |
| 00:42:232 min. |
Issa, Darrell - U.S. Representative, [R] California
I appreciate that. And Mr. Calomiris, I see you're shaking your head "yes". So I think we've established today that we're... |
| 00:44:311 min. |
Stanton, Thomas H. - Fellow
Absolutely! And that's the logic that led me to recommend these companies be removed from conservatorship, now that they have an apparent... |
| 00:45:531 sec. |
Issa, Darrell - U.S. Representative, [R] California
Okay, thank you. |
| 00:45:5446 sec. |
Kling, Arnold - Senior Economist
Congressman, I have a -- I hope that you will keep raising the issue of investor loans and not owner-occupied loans, because your colleagues... |
| 00:46:4012 sec. |
Issa, Darrell - U.S. Representative, [R] California
Thank you. Thank you, Mr. Chairman. And I think with that we'll probably realize that home ownership and being a homeowner and renting out... |
| 00:46:524 sec. |
Stanton, Thomas H. - Fellow
Homes ownership. |
| 00:46:564 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much. Congressman Bilbray from California. |
| 00:47:002 min. |
Bilbray, Brian P. - U.S. Representative, [R] California
Thank you very much. And let me thank the panel and thank you for throwing darts at both sides. This is kind of refreshing in this town. There's... |
| 00:49:28 |
Kling, Arnold - Senior Economist
Sixty-two trillion (dollars) or something. |
| 00:49:282 sec. |
Bilbray, Brian P. - U.S. Representative, [R] California
How much? |
| 00:49:302 sec. |
Kling, Arnold - Senior Economist
Sixty trillion (dollars) outstanding at the end of last year -- gross. |
| 00:49:32 |
Bilbray, Brian P. - U.S. Representative, [R] California
Sixty -- |
| 00:49:322 sec. |
Kling, Arnold - Senior Economist
Trillion. |
| 00:49:34 |
Bilbray, Brian P. - U.S. Representative, [R] California
Sixty trillion (dollars). |
| 00:49:342 sec. |
Kling, Arnold - Senior Economist
And it came from nothing 10 years ago. |
| 00:49:3654 sec. |
Bilbray, Brian P. - U.S. Representative, [R] California
Yeah, which was really a product of our regulatory reforms squeezed off one side and left it wide open and the bulge started coming out... |
| 00:50:301 min. |
Calomiris, Charles W. - Professor
Yes. I'd just like to say something briefly about that. On an optimistic note, remember that credit default swaps are a zero net-sum... |
| 00:51:3752 sec. |
Pinto, Edward - Chief Credit Officer
And that was demonstrated by Lehman Brothers when they unwound. It was, I believe, it was a nothing. It all happened and everybody yawned.... |
| 00:52:291 min. |
Stanton, Thomas H. - Fellow
I think the issue of credit default swaps has been covered. But I want to point out something else on the horizon that's worth looking at... |
| 00:53:321 min. |
Bilbray, Brian P. - U.S. Representative, [R] California
Mr. Chairman, I just want to say, the three of us up here actually are sons of areas that were redlined consistently before this, and I... |
| 00:54:353 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Thank you very much. Thank you. The gentleman from Ohio -- Idaho -- |
| 00:54:38 |
Sali, William "Bill" - U.S. Representative, [R] Idaho
Idaho. (Laughs.) |
| 00:54:384 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
-- Congressman Sali. |
| 00:54:421 min. |
Sali, William "Bill" - U.S. Representative, [R] Idaho
Thank you, Mr. Chairman. Gentlemen, I'm sorry that I was gone for a short while while you were giving your testimony. I had looked at some... |
| 00:55:444 min. |
Pinto, Edward - Chief Credit Officer
Excellent question. In my prepared remarks, I proposed two solutions, a short-term and a long-term. The short-term -- and I liken it --... |
| 00:59:457 sec. |
Sali, William "Bill" - U.S. Representative, [R] Idaho
You're suggesting that the mortgage lenders are going to have to take the loss of writing down the principal. |
| 00:59:5214 sec. |
Pinto, Edward - Chief Credit Officer
The mortgage lender -- well, the federal government is on the hook for -- I hate to tell you this. You already own 77 percent of all the... |
| 01:00:0628 sec. |
Sali, William "Bill" - U.S. Representative, [R] Idaho
Well, we spent half a trillion dollars in deficit in last year's budget. That doesn't count the $700 billion of bailout, the $85 (billion)... |
| 01:00:346 sec. |
Pinto, Edward - Chief Credit Officer
You already own these loans. You're responsible for them -- $4.6 trillion of the $12 trillion is Fannie Mae and Freddie Mac. Who owns Fannie... |
| 01:00:404 sec. |
Sali, William "Bill" - U.S. Representative, [R] Idaho
But you're suggesting we can create value out of thin air -- |
| 01:00:4438 sec. |
Pinto, Edward - Chief Credit Officer
No, I'm not creating value out of thin air. You have to write down these mortgages to a level where the people that are in them, the homeowners,... |
| 01:01:221 min. |
Kling, Arnold - Senior Economist
I'm going to disagree with that. We've agreed on a lot of stuff so far, but I'm going to disagree. I personally -- my instinct, kind of... |
| 01:02:319 sec. |
Sali, William "Bill" - U.S. Representative, [R] Idaho
Aren't those same 8 million people going to live in those same houses, though? I mean, they're just going to trade addresses at the end... |
| 01:02:404 min. |
Kling, Arnold - Senior Economist
Or they will rent their houses. But I think we have to get to a natural market with supply and demand in balance, because as long as you... |
| 01:07:0642 sec. |
Towns, Edolphus - U.S. Representative, [D] New York
Let me say to the gentleman, your time has long expired. Let me thank all the witnesses. I really appreciate your coming and sharing... |