Live coverage underway now here on cspan2. [inaudible conversations] [inaudible conversations] [inaudible conversations] good afternoon. I am the executive director of the center for law economic the finest here at gw. The senate as a think tank is on to be a focal point in d. C. For the study integrated major issues, this is a law, entrepreneurship. We are excited about todays program. We have the best, so the best experts coming with different perspectives to discuss the use housing cost the 2000 financial crisis, what is the right policy for the future course for all audience members we are live right now on cspan2. So just so you know so they can ask questions, you will be broadcast to the world. Before we continue i would like to introduce you to the dean who is elderly Family Public service at gw law school. Thank you to ill be brief. I just want to express my thanks to all the different Peter Wallison with whom i agree on many things but disagree on many others. I bought this book. I read it. It very interesting and very challenging, and under will have a wonderful day today. Peter, thank you again for coming. Thank you. And now the moderated a real modern by colleague, professor art wilmarth. Thank you and welcome everybody. We are delighted to have you. I think we are very stimulated an interesting discussion of two issues, i guess like the god we are looking backwards and looking forward so were looking first backwards at the financial crisis and asking the question of whether u. S. Housing policy before the crisis played an Important Role in essentially sowing the seeds of the crisis. And then secondly we are going to be asking the question of what should be the u. S. Housing policy Going Forward. Im not going to anticipate the commentators remarks but obviously all of you are aware that fannie mae and freddie mac are in a quasilimbo state at the moment. There are essentially controlled by the federal government through conservatorships and there is periodic continuing debate about what the future of those organizations should be, or what any alternative organization might be in terms of federal participation in the Mortgage Market. I do like to introduce our three speakers as dean morrison mentioned we we are indeed greatly privileged to have all three of these speakers here today. They are nationally recognized experts on the Mortgage Market and on Financial Regulation more generally im also delighted to welcome all three of them back to gw law school. All of them have been here for some of our power programs and we are very grateful that they have come back once again. To our first speaker will be Peter Wallison. Peter is a codirector of the American Enterprise Institutes Program on financial policy studies and he is a longtime expert, analyst and commentator on financial regulatory matters generally. The current book arises it in part out of what that he did on the Inquiry Commission established by congress to analyze and comment on the causes of the financial crisis. Our second speaker is damon silvers. He is the director of policy and special counsel at the aflcio. He joined as general counsel in 1997. The treasury departments Financial Research Advisory Committee and the Oversight Board Standing Advisory Group and he served as the Oversight Group for the troubled asset relief program. Everybody knows it as part. Important different. He was involved with that from 2008 until 2011. He also had an Important Role in analyzing and looking at the causes of the financial crisis. He worked for two different unions. Our third speaker is kenneth noted. He is a professor of economics at the University North carolina greensboro. Its published extensively on the Mortgage Market. I would say he is the preeminent [inaudible] of the Mortgage Market from original in the. [inaudible] his co editor and contributor to housing and Mortgage Market in Historical Perspective. Both published by the university of chicago. He received his phd in economic history from the university of wisconsin at madison. Again, the order of our speakers will be peter, damon and ken. Then we will have a brief period for colloquy and we will open it up for q a from the audience. When we come to q a, because the program is being broadcast, please allow our assistant with the microphone to reach you before you ask your question. Okay. Without further ado, peter, please kick us off. Thank you very much. I also want to thank alan larson for working to set this up. Ive been talking to him for quite a while to see if i could get an opportunity to speak with him and this was it. In any event, im going to talk mostly about my book and if we talk about some other things afterward, i would be happy to participate in that conversation too. Hidden in plain sight is the name of the book. It grew out of my dissent from the National Crisis Inquiry Commission, it may surprise many of you to know that much of the material that the commission had assembled was not actually made available to the commissioners and so i wrote my dissent without that. When i finally did see much of the materials that the commission had assembled, i was able to write a book which fully supported but i put in my dissent but with a lot more. I thought i had more useful material. Lets start with the whole point of this. Why did we have a financial crisis . Everybody can agree that the financial crisis was caused by the fact that we had, in our video toll system, too many lowquality, subprime or otherwise week loans, mortgage loans. Residential mortgage loans. That is what we all agree on. The question is why did we have so many loans in our Financial System like that. Im going to now, i hope this thing actually works, im going to try to explain why this happens. What you see on your screen now, on the screens is where things stood on june 30, 2008 just before the financial crisis if we assume the crisis began with the default, with bankruptcy of lehman brothers. On june 30, 2008, this is what the situation looked like for subprime and other high risk loans. On the left is the federal government that had 76 of all of those loans. The blue is fannie mae and freddie. Above that the red is fha and above that a number of other Government Agencies like the department of agriculture and veteran affairs, all of what participated to some degree in the Mortgage Market. On the right is the private sector. What you see immediately when you look at this is that the government had a major role in buying be lowquality in risky mortgages. In fact, you might say that the government created the market for those mortgages. After all, they were the principal buyer and the holder of it. Now how serious were these mortgages . In terms of their effect on the holders . This is an excerpt from a Credit Profile published by fannie mae in june 2009. I was just about a year later. They have had a chance at this point to take a look at what the losses came from. This will show you that they had about 800 30,000, almost 838 billion subprime dollars in subprime or otherwise week or highrisk mortgages. If you look at the line below, it shows in 2008, 81. 3 of their losses came from these mortgages that shows two things, first the government was a major buyer who created the market for these mortgages and when these mortgages were held by the government, they they were the principal source of the lawsuit that occurred in our Financial System. Why is all of this important . Its important because the response to the way the financial crisis has been perceived produced some very significant legislation, the dodd frank act. The way the Financial Crisis Commission described the financial crisis was that it was the fault of the private sector. Banks and other Financial Institutions, according to them were insufficiently regulated and had insufficient Risk Management and as a result, for reasons that we are not actually in my mind fully explained but for whatever reason, they were the ones that caused the financial crisis. The government was really not involved at all and if you look at the report of the Inquiry Commission, you will see that they say fannie mae and freddie. Were really not important. Real substance of the crisis came from the fact that these banks and other Financial Institutions essentially went crazy. They began to make mortgages they had never made before and as a result, they failed and that was the substance of the financial crisis. The Government Agencies that help these did not cause the financial crisis. Pat is a misunderstanding of how the mortgage system works because to the extent that a mortgage fails, in any community, and drive down the price throughout the community. As a result, even if the result is suffered by the taxpayers because of frannie mae and freddie. Or some other Government Agency that bought this was holding it, the failure of fannie and the failure of the mortgage causes failures throughout the time. As you have these failures we are going to have many more lawsuits as a result of these weak and highrisk mortgages. When you blame the financial crisis on the private sector because they have not been adequately regulated, what you get is some significant regulations of the Financial System. The socalled dodd frank act. What we are looking at now is a comparison of recovery from a recession. Can see that the red line, eight years old now which is below the average recovery which is the average of all recession. An incorrect diagnosis rather than on what the government did produced legislation that has punished all of us in the economy because of a very strict regulations that have been put in place. As a result, how does this happen. Fannie mae and freddie. Were two very large government backed mortgage companies. They were, by the year 2000 even before that, the dominant players in the u. S. Mortgage market. They were buying about 50 of all mortgages in the United States. In 1992, congress adopted something called the Affordable Housing goals. The black line and what youre looking at here are the goals as they increase over time. Initially they required that one fannie and freddie bought mortgages, 30 of all the mortgages they bought had to be made to people who are at or below income where they live. However, housing and urban development was given authority to increase those requirements, and what you see here in the black line are the increases over time. It went from 30 , 40 and by 2000 it was 50 . By 2008 it was 58 . That meant anytime fannie and freddie bought mortgages, 56 of all the mortgages they thought had to be made to people who were at or below the Median Income. Fannie and freddie were known for one thing before 1992, and that is that they would only accept prime mortgages. What the prime mortgage . Thats a mortgage with a down payment of 10 20 made to a person who has a credit or which is not a great credit score but its a solid credit score. That is if that person has been paying his or her obligations over time for the third element was whats called the debt income ratio. That is after the mortgage closed, your debt or no more than 38 of your income. If you had no more than 30 of that including your mortgage, that that was part of a prime mortgage. Up until 1992, thats how frannie and freddie conducted their business. By 1992, they persuaded that this was keeping many people in the United States from buying homes. Especially lowincome people. For that reason, the affordable Affordable Housing goals were adopted requiring fannie and freddie to buy mortgages made to people who are at or below Median Income. As they rose over time, fannie and freddie found the red in the green lines are fannie and freddie, they found it was very difficult to continue to buy prime mortgages when they were required to by increasing numbers of mortgages made to people who were below Median Income. It is very hard to find mortgages when more than 50 of all all of the loans you are buying are below Median Income. The obvious result is that fannie and freddie started to reduce their underwriting standards. In the mid 19 90s they started to reduce their down payment requirement and as they proceeded through the years, they reduce their credit scores, they increased debt to income ratios because otherwise they couldnt meet these government requirements. As we see, by 2008, 56 of all mortgages in the top line here had to be made to people who were at or below the Median Income and fannie and freddie had reduced their standards substantially. The two other categories below that had to do with a very low income people and underserved areas which were largely minority areas. We will just focus on the top level, and that shows a very substantial increase over time in the mortgages that had to be purchased by originators and others that were made to people that were at or below Median Income, where they lived. How will a reduction in underwriting standards have an effect on the economy . If you think about it in terms of down payment, if the requirement to buy a home is a 10 down payment and a person has 10000, he or she can buy 100,000 home. If the under writing requirement is reduced to 5 , then the same 10,000 can buy a 200,000 a 200,000 home. What does that mean . It puts great upward pressure on home prices and thats what happened over time. In addition, a person who is going to buy it 100,000 home with a 10000 down payment is now a much weaker credit because he or she has now bought a 200,000 home with the same 10,000 down payment which means instead of borrowing 90000, he or she has borrowed 190,000 has much we weaker credit for all of his or her other obligations including the mortgage. The most important thing is to look at this chart and see what the effect of this upward pressure on Housing Prices was because this is prepared by Professor Robert schiller at yale and it shows that about 1997 and 2007 we had the biggest Housing Price bubble we have ever had in our history. When, in 2007, that bubble began to deflate, we had the financial crisis. There comes a point in any housing bubble where no matter how recessionary the loans get, people cant afford to buy a new house. So, people stopped buying houses and the bubble reached the top and you have a serious downturn and losses throughout the economy. This particular chart shows the extent to which those losses occurred and how quickly they occurred. This happens to be only a chart that shows what was happening in the mortgaged backed security market. This is a pretty good representation of what was happening to mortgage crisis throughout the country. What we see happening here is that the government had policies which require wired fannie and freddie to reduce their underwriting standards over time. As they reduce their standards, that created pressures, upward pressures on home prices creating a bubble and eventually the bubble came to an end and we had a financial crisis. It is on the strength of that that i believe the financial crisis that we suffered in 2008 was the result of Government Housing policy, not the result of the private sector going crazy. If you think about it, fannie and freddie were the key buyers in this market. They were buying at least 50 of all the mortgages that were made in the United States. When a principal buyer in any market reduces the quality of the product that it was looking for, the market will supply that. Now, now, you can say ethically, the banks and others should not have responded to the request of fannie and freddie for these lowquality mortgages. They shouldve said no i will not make these mortgages. Thats a little but too much to expect. In any market, when a major major buyer is looking for a lowquality asset, that asset will be supplied by the people who create that asset and that is the mortgage originators. In 1992, there were very few highrisk quality mortgages being made. It was about a 10 market at the time simply because there were no buyers. Fannie and freddie would not buy those mortgages so people didnt make them. As their underwriting standards get further, more and more of them were made over time. It drove up Housing Prices and resulted in the crash of 2008. Thank you very much. [applause] good afternoon. As you were told, im damon silvers. Im the policy director. That is not really why im here. I was involved in the oversight of the asset relief program. We have to say things about the bailout but we didnt really do anything. Peter and i have been engaged and peter has the edge on me. He has written the book on it. The key thing, i disagree with the framing of the question. There is a different way to look at it rather than the private sector at fault. If you are engaged in public policy, you quickly learn that there are no boundaries that are meaningful between the private and public. To say this was just a private sectors fault. My view is. The public sector, the regulators, fannie and freddie acted in conjunction with the private sector to produce the financial sector. They did so by executing a model that all the major actors had in mind that soon they should support those decision. So the second thing i want to say is its the wrong question. You really have to Pay Attention to what happens over time that trying to answer this question by looking at a snapshot, particularly at the end of this bubble, they were fundamentally just leading. You have to match the question, who moves first and why. Im going to go through this very briefly in a sketchy manner, but if you are interested, there is a chart. I dont have it on the slide, but this is the age of smart devices. You can probably find it. There is a chart that shows fannie and freddies buying of subprime credit. It is on page 124. It shows the purchasers by year, and the narrative that goes along with it is the key narrative you need to understand. It is true that they had policies that were ancient. They went back to the deal of buying only essentially prime loans or conforming loans. These policies were in place substantially until the early 2000s. They were not removed at the time that the goals for purchasing loans were put in place in the early 90s. They were not removed when those goals were increased. They were removed in 2004 and 2005. They went on up dying spree in 2004, 2005. They bought interest in pools. If you look at the key slide which is the slide of composition of who held their credit risk, i understand its who held the credit risk. Its not who held the loans. With the subprime market exploded, exploded exploded in the sense of group, not collapsed, the subprime market exploded in the early 2000s. What drove the explosion of the subprime market . The key thing was that a credit was cheap. You can argue whether that was a good thing or bad thing. We were in a recession. Alan greenspan of the people he was talking to the Bush Administration thought that credit would be better than fiscal policy and people can argue about that. The people who were responsible for keeping an eye on the terms of loans being made to low income folks, making sure they were not going to explode in that other sense and they were essentially doomed to fail, stopped watching. The key people who were responsible for that decision were at the Federal Reserve. There are other places that other people shouldve said and done something, but the key actors were at the Federal Reserve. Greenspan and the staff of fed took the view that we should follow private markets and they said no, you have to actually do the job you are required to do which is to look at the terms of these loans. With the regulators looking the other way and the Bush Administration actively encouraging the use of private credit markets as a form of economic stimulus because to fit their ideological claim, you then saw, not surprisingly wall street stepped into the breach. Thats what they do. They like to make money. They started selling loans that have low Interest Rates and then exploded into high rates that the borrowers could not afford. The these have a technical term. Theyre called sucker loans. They started selling those loans out large volumes and they started making a lot of money by doing that. Were selling them by using a cut out like stripmall benders, the banks finance those people in the banks secured them and sold them to capital markets. This was very profitable. Banks began to take market share in a huge way by doing this. Subprime lending began to dominate the Mortgage Markets in 2003 and 2004 before fannie and freddie are in the market. Now you come to the other piece of the puzzle. Back when they were responsible they had this characteristic that people dont talk about a lot which is they were essentially was a government. They would not owned by private dock holders. They were using incentive structures tied to equity. In the 1990s, this was a democratic policy, not a partisan partisan conversation, this is a democratic policy initiative. In the 19 90s they were privatized meeting they returned from Government Agencies into privately held, private corporations and their executives were incentivize based on the return on equity measures, just like any other private corporation. Im sure they paid a great deal of money to do that. Those executives met in 2003 and 2004. They were losing, they are Running Companies that are losing market share and that are not as profitable as their competitors. Not surprisingly, with their their personal fortune on the line they became extremely eager to be get into the subprime market. They were already in the market, and by doing so, heres where peter and i agree, by doing so, they certainly contributed to the growth of those markets in 2005, six and seven. Fannie and freddie were accelerating at the end game of the crisis. There was no question they bear some responsibility for the ultimate scale of the crisis. They are not the prime movers. The problem with them, the reason why they acted like celebrants was because they were given a guarantee and a Public Mission and they were structured to act like private entities and private parties benefited from it. As i think all of us learn some way or another, you have implicit government guarantee, now go make as much money as you can for yourself, that person with that set of incentives is likely to take very large risks because there is effectively no downside, no meaningful downside now, this is a story, not of the private sector versus the public sector, but of what happens when you essentially take Financial Markets, and Financial Market regulators and deregulate and leave things like implicit guarantees in place. Now, this has implications for the future course of housing policy. Before i get to these implications, i guess guess im supposed to Say Something about god frank. The reason why the financial crisis was so terrible was partly because the Housing Market was the biggest market in the world so if you mess up that market, its going going to ripple through everything. But all kinds of accelerants existed that were the consequence of regulatory failure or the lack of regulatory jurisdiction. Some examples, i just mentioned the fed and the feds lack of of interest in Consumer Protection. This is the fundamental motivator between the Financial Protection Bureau that you want the people doing Consumer Protection to actually believe in it and to be focused on it. The fed has a few other jobs. To make a mistake as big as Alan Greenspan and his staff made, maybe you dont get another shot that is part of dodd frank. A lot of the rest of dodd frank was about trying to plug the regulatory holes that led to the situation that weve been discussing, to have greater leverage on the economy than it wouldve anyway. The problem of the lack of regulation and derivatives, the basic problem weve been discussing was multiplied severalfold by the existence of the market and squares and all that which is now the subject of many movies. The aji problem revealed that it was possible for something that was technically a thrift to set up, let me ask about the main capital behind it. That led to the abolishment of the ots. The pieces of dodd all goes back to these kinds of his of accelerants. They are as much a judgment on the deficiencies of captured government as they are a judgment on the behavior of the private sector. In a funny kind of way, no one should be under any illusion that people in Financial Markets try to act in ways that maximize for themselves. Its that if you understand that than the question is, what is governments governments role in ensuring that in a world of imperfect markets come that doesnt run amok in our society. Finally what are the implications for the Housing Market Going Forward . We are currently in a debate that is largely incomprehensible about the future of the gses. Despite the the fact that he has made how many public appearances about describing the horrors, they are in place more or less as they were the first time we had this debate. There is this debate about what to do with them that has been going on for a long time. Children have been born and grown up while this debate has been going on and nobody knows, outside a handful of people, nobody knows what this is about. It is completely incomprehensible. Heres what its about. It is very difficult without some kind of guarantee to maintain a largescale market for a 30 year fixed rate mortgage. Who is willing to take the Duration Risk associated with that. There arent enough people willing to do that on a naked basis to support the u. S. Mortgage market as the American Public has come to demand it. Then the question is, who gives the guarantee . Who pays for it . Who benefits from it, how is it managed . In the 2000s, they were set up with the government as a guarantor, the beneficiaries in the Financial Markets not paying anything, and in a sense, the general public not paying anything. Then governed as if they were a private Company Fully at risk in the marketplace. Nobody believes this is a good way of doing this. At least nobody is willing to say so publicly. What are some of the choices . There is one other thing you have to understand that since the gscs are still with us and pretty much the same form in terms of governance and financial structure that they existed and after the treasury took them over in the fall 2008, they are still with us, this problem is not come up on a blank slate. It comes up against the fact that here they are, the gses with a full government guarantee and yet, private stockholders, there are people who own stock in fannie and freddie today and that stock has sort of been worthless for ten years. People willing to make a wild bet that somehow the same kind of people who are willing to buy more bonds in the hope that they might be paid off sometime have bought the stuff. Now, id make that the mark. Argentine bonds. Argentine bonds are actually a better example because of the use of political muscle. These bonds, i take that approach because they were paid. So we get this stubborn equity which only existed as an accounting device. It was necessary to keep the government from having to integrate its accounting with the dses. You have this equity, those equity holders who have a certain amount of money in their pockets are busy trying to ask persuade everybody in washington that they have to be paid off here. They have to be recapitalized in the way to get money. Thats absurd. It is not just absurd in terms of the equities of this matter, so to speak. Its absurd because it is the door back to the governance problem that caused fannie and freddie to be an accelerant in the financial crisis. The other idea thats out there is the idea that fannie and freddie ought to be restructured to be the provider of a free guarantee to the large banks and their mortgage businesses and that guarantee ought to be that the banks ought to control fannie and freddie and that they ought to offer this guaranty kind of with government support. That is also a bad idea. Just think about it for a second, who is involved in that . The original, there is is a right way to do this. A lot of hoops are being jumped through in order to avoid the right way. The right way to do this is to have essentially a heavily regulated utility that is run in the interest of its own credit that does not have equity holders and that charges mortgage wonders a fee for bearing the risk. Now there is no question that ultimately the federal government is going to stand behind that guarantee. That is the point. Therefore, it cant be a private company. A campy in the interest of equityholders. It has to be run as a Public Entity which purpose is to pay a debt and to ensure the mortgage, and, the hedge funds on the one hand and the big banks on the other hand have to be escorted out of the room. Otherwise, we are going to repeat this experience in some form or fashion. I would just conclude by saying that the chart, the thing i love about peters presentation is that each of the slides is a door into a timeline thats not initially there. To go back and see that slide the 88 recession was more like that, more financially driven than this last one, the most financial have the longest lope. It has nothing to do with god frank. Its how we allow the structure of our economy to change. They drove panics in the 19th century. If we repeat these mistakes, if we go back to a deregulated economy in which people get to take public risks, the next one will almost certainly be far worse. As we sit here today, we should really ponder just how serious the consequences of that may be. Thank you. [applause] hello. Thank you to for inviting me. That was very interesting. For little change of pace, i am going to go back to ancient times, the day they mentioned in the 1930s. The intention of of this talk is to put this topic in a little more Historical Perspective than ordinarily it has. Hopefully we will learn something. To do that, i will talk about three things. One is is longterm development of the Mortgage Market and how what we just experienced fits into that. Second, i will try and convince you that it makes sense to look back on how we reformed our Mortgage Markets in the 1930s as an example of the kind of mistakes or successes that we can have an reorganization. Finally, looking at the 1930s reform, look at some of the legacies that contributed into the events that damon referred to. When i talk about longterm development, i have three things in mind, the drivers of development, the key features and the dynamics. Let me not waste a lot of time on that and get to the point. I see these as coming from demandside. This is what commanders of mortgage credit or commercial reasons. These things keep showing up and they want to market thats integrated. Theyre not happy with mortgage lending. Second, as referred today, lower down payments, lower rates and more favorable repayment schedules. This is the constant theme that shows up in our development of our Mortgage Market. Finally there was an emphasis in not improving and accessing the mortgage even among people who were very different in their risk of providing mortgage payments to them. These are very familiar things to them. The key features i want organized, a function, here there are really two key p pieces i want to emphasize. Second, there is a lot of to chanel exchange. You can see theres a volume of activity and you can see peaks in the last 90 years. 1930 is a peek, 1955 is a peek and 2007, which we just experienced. The low is an indicator of the impacts of the mortgage lending volume we see. The 1930s was was a bit of a disaster and you can see that very clearly here. You can also see 2007 had tremendous real impact as peter talked about. The 1950s were a little different. We dont see see that kind of crisis and will come back to that little bit later. We talk about institutional disruption and youve just gotten a flavor listening to these folks, but this goes over 90 years years. We can talk about private versus public, publicly financed and sponsored lending channels and theres been tremendous change in total mortgage debt, but within each of those categories, there are differences between Portfolio Lenders have buyandhold mortgages versus securitization and this is not a static sector of the economy. This is one that institutionally responds in a way. This brings us into what i think of as the dont dynamics and thats what im talking about this. Theres little bit of a payoff here. Its a five step process and thank you very much will be reminisces of the things damon talked about. First we have innovation. In my mind innovation can be public entities or private entities. Its just a new way of doing things. Leading to expansion of mortgage mortgage debt. Followed by crisis, resolutions which are generally very distasteful and lengthy and debilitating and finally well get to the reform stage. Id like to talk about history, im not going to worry too much about the first three bullet points. They have given you different views of the most recent one. My most concerned about here is during crisis and resolution and importantly during structural reform of the market, after a crisis, how do we react to what kind of foresight did we show and how wise have we been . I personally think there are these four episodes that are listed at the bottom of the slide. I think these are key in structural. This is the way mortgages that were originated, the way they were serviced in the way they were held, fundamental changes in market structure. As you can see we are in one which is what makes this interesting. It hasnt ended and we are going on. I could pick any of them but why not pick the 1930s because its the one that has the most to do with the residential issues that were dealing with today. Id like to look at crisis and reform during the 30s. I want to look at four components of this. The the fhlb act or Home Loan Bank act and Emergency Program called the homeowners loan program and then the early version of sandy may and those are the ones i would like to talk about the most. First is a little more background, the housing crisis was bad. Peter is correct, in terms of real housing crisis it wasnt as severe as it was in our most recent mama but in terms of the impact on homeownership, they are is the they are of equal magnitude but then they fell to 41 over a tenyear period. The substantial disruption during this period. You can also see that on the institutional structure. Ill give you some more county level stuff for those of you who are interested. Also give also give you this observation. This was made in january 1953. This is about 20 years after the reforms of the 1930s had been enacted. Im going to read it because thats the way i am. Since the act and the National Housing act has been past there has been very little original thinking about the mortgage system. We have proceeded on a crisis to crisis basis, improvising as as we went along until our sense of direction had been blurred if not actually lost. That was said by a guy named miles who may not be familiar to many of you but he is the guy who we know helped to draft and implement the original fha legislation, a prolific housing researcher. He going the phrase in the 1950s, urban renewal and actually served as the chairman of the noble task force in 1969. This is this is a man who was there, who thought and this is not a very good appraisal of where we sat 20 years later. What i would like to do is give you some idea of what perhaps went wrong or what went different and then totally unexpected at the time. To understand the fhlb act which is a 1932, prior to roosevelt, this is hoover, you have to understand the industry of the building and loans in the United States. In 1930, there was almost 12,000 building and loans acted in the United States. These were very strange kinds of organizations. It was. They get the contract wrong, but other than that its a perfectly good movie. They are the dominant Home Mortgage lender in 1930. 40 of the institution that they held. They operate in every state, they operated in cities of all sizes, they were very local and their orientation. They had a trade group called the United States building and loan. There were very active and they threw their weight around. In 1931, when hoover called a Housing Conference because this crisis was unfolding, he, as he had done in 1928 campaign endorsed their call for a home loan Discount Bank that they want the federal government to establish for their building and loan association. The act like a Federal Reserve to provide discounted for building and loans. Hoover sees this as an opportunity to give emergency recovery to all lenders in the Housing Market so he endorses it the problem is, the representatives actually draft the act and they are disproportionately in charge of the board when it is appointed and they go about business that they are very much committed to which is creating a modern saving and loan industry. Instead of 12,000 association we are down to below 4000. They are large and managerially oriented. The most important thing is a small number of savings and loans, what they want to do is create a dominant and protected network of local lenders and they did. They were very effective in that. So, the bottom line of fhlb, it was very much industry driven and exclusive to us and ells. Roosevelt takes office at the end of the hundred days. They passed the loan act which establishes a remarkable corporation that some people have written books about and in a period of just three years,
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