PANEL I OF THE HEARING OF THE HOUSE COMMITTEE ON FINANCIAL SERVICES
SUBJECT: LEGISLATIVE AND REGULATORY OPTIONS FOR MINIMIZING AND MITIGATING MORTGAGE FORECLOSURES
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REP. MELVIN WATT (D-NC): Thank you, Mr. Chairman, and I'm not sure whether Mr. Paulson -- Secretary Paulson is leaving before or after, but --
REP. FRANK: After your question, sir.
REP. WATT: I just -- I want to follow up on something that Mr. Baker said earlier to Mr. Bernanke. My experience in 15 years of serving on this committee is that, particularly in prepared comments and even in off-the-cuff public comments of any kind, neither the Fed nor the secretary or any of you make comments that don't have some intent.
And I guess -- this is not necessarily a question, unless you all want to respond to it -- I detect a level of animosity, Secretary Paulson and Mr. Bernanke, in some of your comments, both prepared and this morning, toward the GSEs -- even, Mr. Paulson, at the bottom of page 5 and the top of page 6, your statement that, "had you to do this over again, you wouldn't have GSEs structured like this." And I guess my comment is I hope that there's not an intent -- it seems to me that there are degrees of public involvement in a number of levels; everything that we do at the Fed is public involvement at some level in structuring and shaping our economy. And the government has made a judgment that we will ingest ourselves through the GSEs in a particular segment of our economy.
So I guess my general comment is I hope you all will be a little more careful in projecting this, because I perceive a level of animosity here that I hope is not --
SEC. PAULSON: No. I would like to comment on that, and I'll be brief. I feel no animosity. I have a high regard for the people who run these institutions and for what they're doing.
What I said is -- which I think we all need to recognize -- this is an unusual construct. It is an unusual construct when you have for-profit institutions with boards that need to be focused on earnings per share and their shareholders while it is a public service mission, and --
REP. WATT: And I acknowledge that, Secretary Paulson. But that same perceived conflict, I guess, would be in any responsibility that we impose on shareholder institutions. CRA has that -- carries that responsibility; our involvement in raising or lowering the discount rate has some impact on -- in those private markets. And I don't know when you start signaling out one institution or one set of institutions there --
SEC. PAULSON: The reason I did it -- and I think it's important for people to understand this -- is I -- when we look at an institution like this, we need to understand and think through very carefully all the issues.
And -- for instance -- I'll just give you one example, okay?
And, for instance, I'll just give you one example, okay? There's been --
REP. WATT: Can I -- I really had a question that I wanted to ask. Maybe you could give me your other construct that you would do, if you were doing it over, in writing and we could have a conversation another time. I didn't even really -- wasn't even seeking a response from you all on this. And Mr. Bernanke, I'm sure he wants to do it too.
Let me quickly ask a question. One of the proposals that has been under consideration is, in the bankruptcy code, bankruptcy judges don't have the capacity to deal with mortgage adjustments when folks go into foreclosure. They go into bankruptcy, in fact.
One of the proposals that is being kicked around is the prospect of changing that. Do you all have any particular responses or reactions to that? Any of you.
MR. BERNANKE: I first want to say that I have no animosity whatsoever to the GSEs. Dick Syron used to be in the Fed system, and so he's a Federal Reserve veteran, and he's a good friend of mine. It's just a question of public policy and how's the best way to achieve the government's goals without creating risks in the financial system.
On the bankruptcy code, it's ironic, in a way, that the rules about separating the House from the rest of the obligations was originally intended to protect the borrower, not the lender. So there are some complicated issues there. I'm not prepared, unfortunately, this morning to give you an insightful comment on that subject.
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