I really think this election is about the economy. It is about jobs, people on food stamps and changing the direction we have in the state. Part of that is an honest assessment of where we are as a community and state. If you poll folks, it is all jobs and the economy. We are not providing enough opportunity. And what we did with 21 million for a plant that has no jobs, 19 million to bloom for a plant that doesnt exist down the street. If we had taken that and put it in delaware businesses and expanded growth we would be much farther along. I think we need to change the focus and focus more on delaware businesses, good morning growth. We do that under a Great Administration we will have better results. I ask for your indull skwrepbls indull skwrepblgs. When they closed facilities we had a choice. We could fight to put people back to work and make things in delaware or give up on those workers. And if your approach was followed we would have an empty building decaying factory and rusting refinery. I will fight for those workers. When i was first running for governor i could not have imagined Lehman Brothers was about to collapse or major pillars of our economy were about to close down but thats what happened. And in delaware that changed everything. We have pulled together and im proud of it. We are a state of neighbors but we have significantly more work to do. We are going to do it. That is why i ask the people for their confidence and vote. Candidates, thank you. David wilson, thank you. And to our audience we appreciate your attention as we talk about the issues in the race for governor in the state of delaware. On behalf of wvde and the university we thank you for being with us and good night. [captioning performed by national captioning institute] [captions Copyright National cable satellite corp. 2012] as Hurricane Sandy continued along the east coast washington, d. C. And the president ial campaigns are adjusting schedules. The house and senate has a proceed form tpa session and the government is closed. The president s have suspended Campaign Activities the rest of the day and the president is in washington, d. C. Monitoring the situation with the fema. The stories are textbook left out. Great stories about real people in American History. Very important moments in American History that we dont know about. The first pilgrims in america came 50 years before the mayflower sailed. They were french. They made wine. They landed in florida in june instead of december but were wiped out by the spanish but we left that out of the textbook. A woman was taken captive by indians in 1695, marched into new hampshire. In the middle of the night she killed her captors and realized she could get a bounty for cancelness and got them and made her way to boston. They erected a statue to her, the first statue to an American Woman showed her with a hatchet in one hand and scalps in the other. Kenneth davis is our guest sunday. He is a best selling author of the dont know much series. Watch live at noon eastern on book tv on cspan 2. We talk about running a large Public Financial Institution just six months after it came under government control. He also looks at how president obama and mitt romney will deal with the housing industry after novembers election. This is just under an hour. Im bob glauber. Im a member of the faculty here at kennedy school. It is a pleasure to welcome all of you to this years lecture which is funded by nasd which is the private sector regulator of the u. S. Brokerage industry. The focus of this series is on financial regulation. And each year we have had a leading public official responsible in some way for u. S. Financial regulation. This year our speaker is a tiny bit of a stretch. He was c. E. O. Of freddie mac from mid 2009 to just a few months ago. While in that role he was not a public regulator, he was responsible for returning a very large Public Financial Institution. Freddie mac and fannie mae are what are called government sponsored entities, g. S. E. s. For years they were described as private companies with a public of supporting housing, or, more simply, as mixed publicprivate enterprises. In september of 2008 both failed financially, were placed in government conservatorship. Becoming quite unmixed, just public corporations. The g. S. E. s have had many problems prior to the could have beenor ship. Ed was not part of that, arriving about a year after conservatorship. But he was part of the solution. The task of running freddie mac is a big challenge. It is a very large business. It is about 5,000 people and with the Balance Sheet at its peak before conservatorship of just under a trillion dollars. That included about 800 billion of mortgages financed directly by freddie and another 1. 7 trillion of mortgages guaranteed but off Balance Sheet. Together with Fannie Mae Freddie was responsible for roughly half of the u. S. Mortgages made to homeowners. Since conservatorship the amount of mortgages directly on the Balance Sheets of freddie mac and fannie mae have declined. But their role in financing u. S. Home ownership has shot up. Today roughly threequarters of u. S. Mortgages are made or guaranteed by freddie and fan nie. I was on the freddie mac board head of the governance and nominating committee. The first c. E. O. Of freddie put in place by the treasury at the time of conservatorship quit after six months. We had to pitch to efrd to make the job. That was simple. A most challenging job but the opportunity to do meaningful public service. Freddie mac and fannie mae needed strong leadership and guidance as they rehabilitated themselves and waited for the government to decide just what to do with them. I should point out that we are still waiting for the government to decide just what to do with them. It is now four years since conservatorship, and beyond some partisan back and forth about banks handling of foreclosures housing policy has been one of the elephants in the room during the campaign. Ed had an outstanding career in public and private sector. Degrees from dartmouth, h. B. S. And Harvard Law School starting with a philadelphia investment counseling firm. They were later bought by united Asset Management which ed eventually ran. From there he became chairman of Delaware Investments a large mutual furnished investment company. Next he was called in to run put Man Investments in boston which had experienced regulatory failing. He righted that ship and sold it at a good price for shareholders to a large Canadian Financial firm. It was at that time we approached ed to run freddie mac. Freddie mac and fannie mae with the broader issues of u. S. Government housing and finance is one of the major unfinished pieces of business in financial regulatory reform. It is clearly an important issue. We have cspan here tonight filming this. Ed has a prbgts of an saerpbs perspective of an experienced manager and thoughtful Public Policy participant. This evening he will talk about where the g. S. E. s have been and what to do with them. My great pleasure to ed haldeman. Thanks for that kind introduction, bob. Im appreciative of so much of you come being out to visit with me and learn about freddie mac and g. S. E. s. Im particularly pleased to be giving the glauber lecture tonight. There are many, many people, perhaps hundreds, maybe it would number in the thousands, of people whose career was launched by bob glauber. Im one of those. He taught me investment pplt in 1973 at hubbard Business School and as he indicated i spent approximately 35 years in the Money Management industry. So, i dont distinguish myself based on my career being launched by bob glauber, but what is a little bit special about me, perhaps unique, is that my career began and ended with bob glauber. And since particularly this week i ought to be careful about the preposition i used in that last clause, because bob was on the board, i was the c. E. O. , and the preposition i used was my career ended with bob, not by bob. And i think this week particularly im sensitive to making sure Everybody Knows that we ended our time at freddie mac together. Im pleased that the subject tonight is freddie mac and the g. S. E. s so that i have an opportuni opportunity, now that im no longer the c. E. O. Of freddie mac, to present a balanced view of the g. S. E. s. In is a subject this is a subject of which i have come to see others speak aggressively, emotionally. It gets very heated and it is very uncommon for people to present a balanced view. In fact, my goal tonight is to present a balanced view of the g. S. E. s. And if i succeed i think it might be the first time there has ever been a balanced presentation about the g. S. E. s. Certainly the employees that worked with me were passionate about their role, the function they performed, almost a religious kind of mission is what they felt they were doing at freddie mac. And it was hard to imagine that there were other people in society that had the same kind of visceral feeling in the opposite direction about the work that they did. And neither side was able to see the other point of view. Hopefully in the course of the next 15 minutes or so you will come to a balanced opinion about freddie mac and the g. S. E. s. I want to start with where they been and im going back quite a bit in time to 1938, when the first g. S. E. Was created, fannie mae. To think of what the Mortgage Market was like at that point in time. Because i think that by doing so, we will see some of the advantages and good things that have been accomplished by freddie mac, fannie mae and the g. S. E. s. Before fannie mae the Mortgage Market was very different than today. The only thing that was available were very short term mortgages, five or 10 years, variable rates. Down payment 50 was the standard in those days. There was a full payment at the end of the term. Had to come up with the whole thing at the end of this short term. Very large variations regional ly with respect to availability and rates. O standardization in terms of underwriting at all. All done very locally with different standards. Around the Mortgage Market was not at all connected to the Capital Market and, as a result, rates were quite high in those days. Subsequently the Mortgage Market has changed radically and i hink in large part because of freddie mac, fannie mae and the g. S. E. s. Most importantly, the Mortgage Market got highly connected to the Capital Market, the secondary mortgage function performed by the g. S. E. s connected the Mortgage Market to large pools of assets, the Capital Markets, including not just in the u. S. But worldwide. There was standardization in underwriting that was required by the g. S. E. s. Virtually an elimination of the variability in rates and liquidity by region. There was a broadening out in access to mortgage money in our count country. Terms ofery limited in very high income people, very limited in terms of ethnic background. The g. S. E. s broadened that out substantially and, most importantly, made sure there was widespread availability of fixed rates at 30year mortgages. Think of what is so special about mortgages in our country tod today. For about a 3. 5 Interest Rate you can get 30year money with no prepayment penalty. A pretty unusual economic opportunity. So, those are the early years. The advantages that g. S. E. s brought to the Mortgage Market. Lets think of the years just before the financial crisis and think about where the g. S. E. s have been in that period of time. The reason that it is worth while looking at it just before crisis is there are many people who have argued and written that the g. S. E. s caused the financial crisis or great recession. As bob glauber indicated, i was not at freddie mac until way after the financial crisis so i dont really have a stake in this game. I would is a chart that look at to sort of determine to ought freddie thau mac and fannie mae caused the crisis. And im not saying perhaps we will find later some contribution. But do you think they caused it. And this chart looks at market shares. The market share of the g. S. E. s is at the top. And it is that blue line. At then the reddish line bottom and gets very high in 2005 and 2007 is the private market. The private secondary Mortgage Market. So, this is the investment banks and commercial banks issuing secondary m. B. S. Securities, private label securities we call them. Look at that radical market share change. Freddie mac and fannie mae going from on the order of 75 down to 40 , fulling like a rock. The private label taking a tremendous share. What would be the cause of that . Cause, in my view, is a change in underwriting standards. A change from requiring substantial documentation and high underwriting standards of large down payments, many of the private capital competitors reduced some of those standards and were able to take substantial market share. Now imagine you are the c. E. O. Of freddie mac at the bottom market share number, 40 . You have seen your market share for the two g. S. E. s go from 75 to 40 . Do you react or not . Do you change your underwriting standards . How much can you tolerate in terms of market share loss . As the c. E. O. Of freddie mac i had 5,000 or 6,000 employees. It looks like the entire market is going away from me. Do i change or not . I think that the c. E. O. s, the people running the company, did make some changes. And we each can make our what we would have done in that position. But i would at least argue it is a hard call. It would not be easy to be unchanged in terms of your requirements on down payment, underwriting standards and have that market share go completely away like that. This is another indication of, i believe, whether or not freddie mac was the cause of the financial crisis. We are looking at mortgage default rates over time. The did he ever nation of default is 90 days delinquent. You can see that at freddie mac and fannie mae at the worst our delinquency rate got up in the to 5 zone. For the overall Mortgage Market in our country it got to be 10 . For the subprime sector of the market it got up to be 25 . So, again while i believe that freddie mac and fannie mae did lower their standards, look at the resulting delinquency rates. I think that you can see a big 2010 the way freddie mac and fannie mae behaved and the rest of the industry did. T mac and fannie mae behaved and the rest of the industry di the mac and fannie mae behaved and the rest of the industry did. Tc and fannie mae behaved and the rest of the industry did. The w and fannie mae behaved and the rest of the industry did. B the c and fannie mae behaved and the e the way freddie ry did. Mac and fannie mae behaved and the rest of the industry did. T mac and fannie mae behaved and the rest of the industry did. W mac and fannie mae behaved and the rest of the industry die the mac and fannie mae behaved and the rest of the industry did. E freddie mac and fannie mae behaved and the rest of the industry did. N the way freddie mac and fannie mae behaved and the rest of the industry did. So, i dont believe that the two g. S. E. s were the cause of the crisis. Al i do think they did reduce underwriting standards. I can understand as a c. E. O. Why you might have done hat given what the competition was doing. I do think there were some mistakes and problems made that were connected to the g. S. E. s, and certainly one that i found troubling was sum retailed in a book summarized in a book called Reckless Endangerment which is a story of crony capital i capitalism exhibited by the two g. S. E. s. I view that book almost as a playbook on how businesses can execute crony capitalism and get close to government for their benefi benefit, not just an incredible lobbying organization, not just Massive Campaign contributions, but things like hiring repeatedly people coming out of government, opening regional offices in all of the critical congressional offices and hiring relatives of congressmen in order to fill those regional offices. So, to be sure, some of the criticism that gretchen morganson offers is accurate. A second problem was the implied government guarantee. This was not something that necessarily was generated by the g. But they took advantage of it. But what they were able to do because of the implied government question was borrow essentially as much money as they wanted to at the government rate. So, unlike most private companies, when you put on more and more debt the rate goes up. 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