An hour with FDIC Chairwoman Sheila Bair

fdic chairwoman sheila bair made headlines last week when she criticized last year's bailout of us banks she also recently endorsed controversial proposal to create an fdic type structure to figure out what to do with failing institutions deemed too big to fail i'm kenny macintyre and today on kbr presents sheila bair chairwoman of the federal deposit insurance corporation and she's held that position since two thousand six when appointed by president george bush in two thousand nine she was named one of time magazine's top one hundred most influential people the year before that forbes magazine named her the second most powerful woman in the world just behind their top choice german chancellor angela merkel there is a native of independence kansas and holds a bachelor's and law degrees from the university of kansas she returned to her home state to give the one hundred fifty what landon lecture at kansas state university on november second two

thousand nine and now here is the fdic chairwoman sheila bair good morning to all of you it's a great joy to be back home and dances they're few places on earth that compare with chances in the hardworking stand that people who live here for ever i work or travel i've never forgotten the basic american values of liberty opportunity and common sense that i learned while growing up in independence and like a lot of kansans i was taught to be honest and direct alf landon as we all know never pulled a punch in politics which she once remarked would be a sin he was a couple problem solver always promoting the common good not expedient despite opposition from some in his party as governor in the middle of the great depression of the nineteen thirties he embraced many parts of president roosevelt's new deal and he uses common sense in getting at the heart of the problems in his own state by lowering taxes

crushing for utility regulation passing a moratorium on mortgage foreclosures and sponsoring was to bolster troubled banks we need more men and women in washington with that kind of courage and boldness and i like i hope to think that i'm falling out with steps for tackling the aftermath of a financial and economic crisis that has done as much if not more damage to our country at a kansas tornado how will we weather this crisis how we protect consumers from the abusive practices of the past few years have we stop excessive risk taking how do we keep people in their homes how do we prevent more this massive bailout for the giant financial institutions as a lifelong republican and market advocate it's not exactly been easy for may the government has been going into places where we don't want to pay he'd been doing things you'd rather not be doing

would've had little choice so i want to talk today about how the stability of our financial system was jeopardized to the point that the federal government was forced to intervene in ways that were unthinkable just a few years ago i also want to talk about what we've learned from this very painful episode and what must be changed to avoid these problems are occurring in the future it's hard to believe that just a few years ago economist recounting the great moderation a pattern of long expansion was punctuated by grief and mild recessions interest rates when inflation or low easy credit in the wake of the dot com bust of the nine eleven terrorist attacks boy the demand for real estate easing which even in standards lead to an increase in home ownership rates and home prices rose throughout most of the country fewer homeowners defaulted on their mortgages as home price appreciation historically low interest rates and relaxed underwriting standards made refinancing uneasy an

attractive option financial institutions also thrive in this low interest drake and easy credit karma this is true of banks as well as a growing shadow sector of non bank credit providers from june two thousand for through february two thousand seven not a single bank failed this is the longest period without a bank failure and fdic history the banking industry posted quarter after quarter of record profits non performing assets were of historical lows and us bank capital levels were strong both historically and by comparison to their global counterparts and anita scolded the near a huge asset bubble was building in order to maintain earnings growth financial institutions found ways to increase leverage using securitization and opulent cheap financing existing homeowners rip eager to tap their newfound

home equity others were anxious to become homeowners but were unable to qualify for a traditional mortgage financial institutions treated new mortgage products many of which could only be repaid in home prices continue to climb and thereby made credit available to ever more risky borrowers through and sustainable mortgages i started becoming concerned about predatory lending and subprime mortgages and two thousand one when i was assistant secretary for that for financial institutions at the treasury department some lenders generally not banks were offering mortgage loans the borrowers couldn't afford the subprime loans refinanced through wall street securitization vehicles emory clayton with exotic creatures and complex these were my concerns are justified my warnings did not resonate at the time in part because rising home prices enabled we are worse to refinance and push their problems into the future so even more federal power as existed to regulate non banks mortgage lending they were nike

is the wave of defaults in problem loans would not come until the housing price bubble faltered in early two thousand seven was chairman of the fdic i began to speak loudly and clearly and frequently about the way that mortgage payment problems that would hit the industry i have long advocated for pro active and sustainable loan modifications as a cost effective way to deal with an affordable mortgages and as an advocate of foreclosure prevention i hope our planet would have agreed modifications can help owners and families avoid the financial and personal losses associated with foreclosure as we've now seen the subprime mortgage problem has turned into a prime mortgage problem as the economy has just fined for too many families are facing foreclosure because of lost income from economic distress write about from the subprime debacle these developments at the stage for what followed the worst financial crisis since the great depression let me

go over the dramatic events that helped shape this crisis inevitably the housing bubble bursts the decline in home prices led to a large scale downgrade in the credit ratings of a variety of complex financial instruments cbs studios cd a squared terms most americans as well as a key financial executives had never heard before ultimately the losses from the bursting bubble exposed how much risk have been treated in the financial system as the crisis unfolded it became clear that potential losses for the large and would threaten the viability of many larger financial institutions as we all know any talk of the great moderation ended in two thousand seven in june two thousand seven bear stearns announced devastating losses for two different time hedge funds which have been marketed as low risk investments these lawsuits prompted

a cascade of reading meters the downgrades a similar investments in the financing that had been available for securitization and structured credit markets quickly dried up mounting credit losses shook investor confidence and burma speaking unwilling to do business with each other and ways to parse these events have energy and perceived to be mole rats as two thousand eight and folded conditions in the mortgage in other markets continued to deteriorate many non bank mortgage finance companies went out of business in march bear stearns was acquired in a federal reserve assistant transaction by jp morgan chase and in july and the mac bank mr stricken california failed resulting in the most costly bank failure and fdic history soon after fannie mae and freddie mac were forced into conservatorship and in september lehman brothers filed for bankruptcy the insurance giant aig received eighty five billion dollars from the federal

government to avoid collapse it would eventually require another one hundred billion longer became the largest insured depository institution to fail though thanks to the fdic is resolution cars he was sold in a seamless transaction they report no support from the government and fully protected all the passengers liquidity in the interbank market evaporated and the united states is not alone in facing this crisis in september two thousand seven northern rock a large mortgage lender in the uk experience a liquidity crisis run by depositors the first bank run in the uk another one hundred years by the end of two thousand seven northern rock had received a huge fan of almost twenty seven billion pounds of the bank of england by february two thousand and eight the uk government was forced to take ownership of northern iraq and the fall of two thousand a subsequent banking crises swept through many western european countries and again in the uk in the fall of two thousand at the

us authorities have a series of internationally coordinated actions to contain the damage from the collapsing financial system the congress passed the emergency economic stabilization act in october which funded us treasuries temporary asset relief program known as tarp the fdic is deposit insurance fund that was temporarily increase to two hundred and fifty thousand dollars and temporary guarantees were instituted for money market mutual funds the federal reserve open land and facilities to provide funding to a much wider range of companies that have historically been able to borrow from the fed charting tom's burdened by large holdings of now elected mortgage related securities the fdic created the chamber the critically guarantee program to guarantee bank holding company down in order to provide liquidity in the treasury invested hundreds of billions in large institutions six eight allies to provide them with fortress balance

sheets these actions were unprecedented broadening the federal safety net that given the tools available they were mostly necessary to create more layers of other large complex financial institutions that would have caused severe damage to the global financial system and the real economy credit markets are now slowly falling and liquidity has vastly improved with short term credit spreads returning to normal levels equity markets have recovered somewhat that are still well below the pre crisis levels with the worst of the crisis apparently behind us it's time to consider the fallout from this calamity well government intervention has been successful in preventing wider fears is also introduced moral hazard into our financial system by providing previously can imagine a long rounds the taxpayer support for open institutions government intervention has had too many cases protect its stockholders bondholders and managers from the

consequences of their mistakes we must make fundamental changes to our financial regulatory system to reduce its moral hazard and to make sure the financial crisis does not happen again the forms are needed to treat him always say and transparent and better regulated financial system one that combines stronger and more effective regulation with market discipline this crisis gives us an opportunity to achieve significant reporter reform and it is imperative that we meet the challenge and not sidestep our responsibilities to ensure financial stability and to protect the taxpayer we simply cannot afford to maintain the status quo so what's to be done first we mostly unsuited to fail second we must close the destabilizing regulatory gaps that exist and have more checks and balances to make sure

regulators do their jobs and third we must do much more to protect the american consumer when it comes to financial products to end too big to fail we must find ways to impose greater market discipline when systemically important institutions and ensure that no phone is too big or to interconnected to fail after all when a properly functioning market economy there will be winners and losers and when firms to their own mismanagement and excessive risk taking are no longer viable they are actually failed one thing we learn from our handling of this crisis is that to get to kale has become explicit when it was once implicit by contrast small institutions and their investors know that they can and will be allowed to fail this competitive spirit it makes it more expensive for small banks to raise capital and secure funding the fdic has to sob well more than one hundred institutions that you're alone that everyone knows that small institutions are not too big to

fail firms that the market believes are too thick or to interconnected to fail the sport our system is too big to fail firms can raise large amounts of debt and equity at favorable terms that did not reflect the true risk profile when investors and creditors believe affirmative big to fail they grow more complacent indeed there are even more likely to encourage these firms to take on greater risk additional leverage him becoming a larger investors and creditors and so that so far have been proven correct that the government will not allow these firms to jail for fear of major repercussions for the broader market and economy this crisis clearly revealed that a date for non banks we have no practical way to address this problem we did not have an effective resolution process for handling large complex financial firms that become trouble or feeling the fdic process only stands to insured depository institutions

and without the ability to close impose losses on systemic firms which get into trouble we run the risk that we will have to repeat the costly and unpopular taxpayer bailouts of the past year for most on the reform agenda is the need for a special legal and regulatory framework to ensure the orderly wind down of systemically important financial times while avoiding financial disruptions that could devastate our financial markets and economy he resolution mechanism that makes it possible to break up and sale to sell the failed institution opera's best option should be designed to protect the public interest prevent the use of taxpayer funds and provide continuity for the failed institutions critical financial functions the fdic is authority to resolve failing banks interest is a good model this is the same model that has allowed the fdic does seem us to resolve thousands of institutions over the years we protect insured depositors were preserving vital functions

the fdic has the authority to move key functions of a failed bank to you each other bridge bank losses and that are imposed on market players reprocessing good times and who should bear the losses in the case of failure or shareholders of the failed bank typical lose all their investment creditors to deliver you some are all the nouns owed them top management has replaced as are other employees who contributed to the institutions they are and the assets of a failed institution or sold to a stronger better manage fire it's processed as applied to systemically important financial institutions whether banks or non banks it would prevent instability and contagion while promoting fairness financial markets will continue to function smoothly well the firm's operations or transferred or unwound in an orderly fashion the government would step in temporarily to provide working capital for an orderly wind down including providing necessary funds to complete transactions there aren't processed at the time of data

we proposed a working cattle for such resolutions come from a reserve which the industry would find in advance if this would provide better protection for taxpayers building the fun in advance would also help prevent the need professors during an economic crisis and assure that the term which they'll pay something into the town to avoid double counting for banks which already pay deposit insurance premiums he says his city faced some assets held outside of insured depository is any costs associated with the resolution not covered by phone would be recruits traditional industry assessments this resolution mechanism would address systemic risk without a taxpayer bailout and without the european and we saw a year ago it would provide for worse and signals to the market most importantly over the long run it would provide the market discipline that is so clearly black and today a research funded in advance of your

industry assessments would also provide an economic disincentive to size and complexity another way to address congress systemic institutions it's to make it expensive to be one industry says this could be rex myspace with firms in beijing in high risk activities paints i've never been a more proprietary trading complex structured finance and other high risk activities would warrant higher fees in addition systemic powers would be required to have in place their own petition plan a living well senator said his pig we should demonstrate that they could be broken apart and sold in an orderly way this had been greater legal and partial separation affiliates within these large financial holding companies and in particular greater autonomy and far wall surrounding insured banks in addition to the largest firms impose the most potential for systemic risk should be subject to greater oversight higher capital and liquidity requirements and

a credential safeguards popular cbs it's in congress has turned out to be not so remote from their parent organizations and the recent crisis should be counted and capitalize on balance sheet rest taken together these measures would help ensure that our largest and most complex firms can stand on their own two feet without resort to an implicit or explicit government backstop only by instituting a credible resolution process and penalizing high risk activity we really able to limit systemic risk and a long term competitive advantages in public since saturday eight years to the largest institutions under the current system we also need better regulation or systemic risk and systemic institutions unfortunately our current system has too many regulatory gaps and needs more checks and balances to make sure that regulators get the job done in the run up to the current crisis are financial and regulatory systems and supervisory surveillance did not identify and

address the buildup occurs within the system in short it failed to provide an effective mecca potential oversight we need to develop a more effective way to monitor and proactively deal with emerging risks from a system wide perspective we need to be able to integrate insights from a number of different regulatory perspectives including bank securities firms holding companies and others from these different perspectives we must survive at a holistic view of the developing rest of your system all we need is a systemic risk council of national regulatory agencies with the authority and responsibility to identify monitor and take action future systemic risks a systemic risk council would provide an appropriate system of checks and balances to ensure the decisions reflect the interests of public and private stakeholders it should have broad authority and responsibility for identifying institutions products practices services and

markets they create credentials the senate risks it should have the authority to step in and fill regulatory gaps when they are exploited in a way that threatens the safety and soundness of the financial system and should have authority to establish that implement the minimum mandatory macro credential standards for such things as capital liquidity and leverage when individual regulators failed to act concentration and complexity of the derivatives markets really a further sources of risk in the current crisis well these markets perform important risk mitigation functions they also proven to be a major source of contagion during the crisis losses on mortgages were exponentially magnified by trillions of dollars in derivatives whose values were derived from the performance of those mortgages and concentrations of derivatives exposures among certain dealers helped catalyze systemic breakdown when the market decide the derivatives dealers weakening other market participants came to me and more and more collateral to protect their claims at some

point the firm can only additional collateral demands and it collapses the resulting fire sale of collateral can depress prices freeze market liquidity and lead to the collapse of other firms derivative counterparties have every interest in a more collateral and so it as quickly as possible or market prices decline the collateral calls generated by drivers can afford a credit risk management many of the popular rounds of the past one way to reduce these risks for retaining market discipline it's a major of their counterparties keep some skin in the game throughout the cycle and that this approach he receiver for a failed institution could impose losses of up to twenty percent of the secured claim this would ensure the market participants always have an interest in monitoring the financial health of their counterparties it would also limit the sudden demand for more collateral because the protection would be kept secret as derivatives contracts should also be required to trade on an ashtray privileged exchange or through regulated centralized counter party

system but we need to take these steps to strengthen the safety and soundness of the financial system we also need to address the human side we must make sure that consumers have access to financial products and services that are transparent easy to understand and competitively priced improved consumer protections are in everyone's best interest it is important to understand that many of the current problems affecting the safety and soundness of the financial system or caused by a lack of strong comprehensive rules against abusive practices and mortgage lending looking over the financial landscape for consumers over the past seven years i do see many positive changes in terms of technological innovations and water availability of credit but i also speak you mentioned this isn't credit availability at the expense of products and services that help build well i see poor they regulated and training mortgage originators making loans to families his biggest lifetime financial dilemma well be their mortgage song

icy complex poorly understood mortgage contracts the company bae and decipher bob disclosures and mind numbingly the ways i see an explosion of payday lenders and check cashers church an unbelievably high fees for the kinds of financial services you and i get for no or minimal cost at our local bank but i also see some banks in bed and complex up a few structures on checking accounts and credit cards trapping on moray or less sophisticated bank customers given the importance of the consumer to our overall economy it is amazing to me that we haven't done a better job of protecting them i think we can do better so i support the establishment of a new agency whose sole job would be to set affected common sense standards and protections for consumers and it was such an agency would help banks and the more responsible providers to consumer credit by helping to get the bad elements out of the system and creating a more even playing field for those who are trying to do the right thing many in the industry are working constructively in washington for

meaningful reform some however are working furiously against that fear is their tactic they say reform would stifle innovation they say reform would impede the ability of our country to grow and compete in the global economy but these are the very same arguments used to justify the regulation in the first place someone has to keep the status quo and by implication they want to keep the taxpayer on the hook that makes me angry my mentor and former boss bob dole always lived his life by his father's view of the world as viewers versus doers and he was a dealer the steelers would have arrested nothing even after millions of lost jobs and trillions and last well i'm a republican but always be a republican from kansas so i believe is bob lobel use it when it's all over it's often work it's whether he made a difference i believe the government has

a multiply and seven basic rules for protecting the common good i believe the government is to do we're going to make a difference especially in the face of adversity and unfairness so my hope is that alfred landon was right but there are some intelligence people in washington even though he knew there are more of them in kansas my hope is that intelligent people in washington will be doers willing to take on the special interests and willing to do what's right for america sasha you're listening to one and small barely speaking in kansas the university of victorian era now takes questions from the audience first i just wanna thank you for coming back to kansas and in his lecture on it i see it is the last couple but it says that a comeback here among sophomore in economics my name's thomas summers is this importance of regulating emissions it seems to me that these interactions with fans go through hell to set prices

right to determine the value of goods and what i'm interested in is overly concerned that by imposing limits on this that you will in turn to constrain what their value assessed fees that go along with what the price of the exchanges like the pricing is to get people in the capital markets with your parents to get an equity funding for large institutions that person mechanism is out of whack because it's too big to fail implicit guarantee so i think if you get rid of that i think that that way oh hopefully not set more required to pay more competitive pricing for their own funding agency growing disparities between attending classes small large institutions because of this problem i also think that nbc credential seniors like capital applied across the board are just commonsense rules until all forms of a certain size will get their funding major financial intermediaries is we do not want leverage a certain level and i think that helps constrain asset bubbles and good time even

if you have pepper which shipwreck increase in the good times been strained easy kind of credit sue asset bubbles and abilities for those cattle their requirements and their time soon increase or political and financing basic rules including basic apple seniors apply even lay no i don't think that impairs the prize for medicine at all but i think it does serve as a good chap and greed and an excessive leverage which led us into a lot of trouble here i think for some things for speaking for entrepreneur freshman economics here on the office of economics a more specifically reinhart talk a lot about it appears he would stroll to exist as an insurance or ization because really it's trying to insure like insuring house that's already on fire because the fractional reserve banking system inherently like the banks owe more money at all times and they already had in their reserves at that time sun hanley they can never pay out what they owe and so it just buy one hour increases and i think that

fact especially true as to say the fdic is beginning to run very low one resources and is nearing bankruptcy itself so first party despite the place of the fdic as an insurance corporation that area and secondly it appears he was to run out of its resources right now where is where is looking to get more money in the future when the federal reserve will increase insurance premiums or look for congress raise taxes well this is the debate that occurred back in nineteen thirty three about wendy yeah yeah the fdic was created and that i think aired advance was is that the people we know that it was safe to put their money in banks and so even though there isn't spewing the market incentives for deposit insurance really recommend that i think the benefits of having a passenger's for the average bank customer to know that their money is safe and also providing stability of funding to banks as intermediaries to take this process make loans justifies the real moral hazard that is created we are

reportedly foreign reserves said that are set by statute so it will weaken clutch have been arranging on one one five one point five to happen in two thousand six part of that time know that there is a statue of its reserve richard one point two five and said that was too low frank i think what we're dealing with now is too low i came to the fdic in two thousand sex within two weeks we put our heads to raise premiums for congress and not given us the shortage of them until earlier two thousand six hundred the old gestures shame if you keep a banquet server had a high supervisory rating which is over nine in ferguson of all banks can charge any premium song is the research what about that one twenty five member sweeter a very quick way to start building up the reserves while most of it turns into debt for six so we would have some question they did this wasn't enough time to build up so i do think they're at him you going for when the reforms i would like to see is to give the fdic more flexibility to raise the premiums saying good times but i would not necessarily create a vacuum in it or what a wall street guy so

banks are just inherently unsolvable it's true obviously that if they take deposits make loans and they hold this man wants to maturity right so if you didn't immediately liquidate all those loans which would know i had to catch the engine survivors lawn sure there would be a significant short fall but that's not what we do when a bank fails we typically a transfer the whole bank the franchise because a stand alone still healthier banks acquire provide some washer on those loans to help us capture the intrinsic diagnosed was it not the liquidation day but what their actual value will be in terms of the return they degenerate versus the losses they're projected degenerate and so it actually works pretty well for us ii and it's not dresses won iowa result was the result last year there were either is not a cost most of these institutions there is it varies but again i think overall the system that we have even though their losses some banks fail that is absorbed buy insurance premiums are paid by banks and i think the cameras is that it

provides stability i don't even one i think what would've happened with pleasure it had been the passengers is in october that was the only thing i was able at that point and it's insured losses sustained in those things that provide credit we have not sir we are having a stress on our industry funded researchers we have begun a special session would raise premiums last night to prepare their assessments over the next three years before the end of the year which will bring about forty five billion dollars in cash our projections are the cashier to be ample to cover water projects of losses are in a lot of it turns on the economy were so they can sue pretty pessimistic assumptions about the economy we think this will get to say through this without having the treasury the everest of cancer should understand we're for it's incredibly are the government we have wide authority to borrow from treasury up to five hundred billion dollars so if we needed to immediately so i think that the air with it with the concurrence of the fed and treasury so i think an

important one is richard rogers' they don't have anything to worry about the government were full faith and credit there's an answer guaranteeing a basic cost any attention because it's an ember well we haven't had a bargain taxpayers will be and whether they can place for pumpkin state university i really really long slow gradual five local science basically i'll do it without being a very very bad place and that's like the only thing i can really support from like nineteen thirties they were banned maybe but no i was working as a financial adviser an oil embargo and it's a wordless know we have fdic insurance that is different from from the thirties to today that's a huge difference right arm i guess is what they do for big call on there's not very mean leaders in washington have been home

because most of the problems to the fact that you know in the business leadership was not leadership here at the bailouts and in the political you know elise you know they all you know cave to the pressure and oh it's really frustrating there's not many people hillary can blow you bet they could happen you cannot just you know i said oh my gosh who will all are you know you save your panic of last year i like i was it was a painting by definition of the word the fdic is our safety net does only bossy i don't know that we need anything else here one is how safe place to put your money it's the fdic the everything else will take risks with wires that's what happens and that's why were american that was better than the other countries we don't want to like china who don't want more like europe we don't want to be those things we need to just do what we do what we've done two hundred years

which is let people take risks and there i think it works and they get rewarded for that doesn't work then you don't bail amount that's right and also so i think that's right and i think yeah we want a resolution mechanism that were actually works so that we can impose their licenses <unk> trouble they are kind of receivership or their shoulders and creditors take the losses not government we actually think that's that's important for the proper attention to the markets that could have a virtual question the proposed a new proposed new consumer protection agency write do you feel that this agency should eliminate podcast checked in payday lending or subprime mortgages now i don't think this is a laminated them i think it but i think there needs to be better regulation better understanding prices need your screenplay down on those types of financial services and batter going to compare friendship across

service providers we have a very elaborate their framework for regulating insured depository institutions but outside of that a recent consumer credit the number of providers there's just really not much oversight of all so i think it would help low level be a reporter playing field for there to be more symmetrical even regulation also disclosures a reflex so if you wanted you know what's interesting looking at payday honor of drawing across china credit card i would we have this at our regulators looking at across sectors and providing more meaningful disclosures for consumers so they can be able to make more intelligent choices so i know i'm not saying that this is now not at all but i do think her that came in better regulation better oversight and to make sure that the disclosures that are required are being made and that they are meaningful to consumers they can make intelligent decisions think he thought i had a question of terminology when an asset is no longer likely what is it doesn't seem like it's

all on the rise so something evanescence and fleeting has a misunderstanding or perhaps its fascist name so there are different rules for bank loans that are held and because the bank is so intense you sell the selling alone and keep it on their books their services and collector year the income that comes from a mobile fuel to work out if there's a law so even with liquidation it really is irrelevant if the long answer to me how to naturally see then if it does have evaluation issues than there are gas is now talking about requiring everything to be much larger than even loans that banks hold and portfolio and i that troubles me greatly i think these laws are a disadvantage in terms of their credit quality there is no liquid market for a whole on the way to raise prices for a lot of years security and as i'm afraid of if we started trying to force banks to marco's with some theoretical liquidation very when the market sees apple has a market and have very very low valuations and it is happy times though i wasn't two

thousand more by three abraham her highly inflated values so for bank loans it's as you know your question families to why we let things hold these loans to the book with reserves project for objection a loss and so the dejected against them but we don't report that they're going to see ms bair chairwoman of the federal deposit insurance corporation their gave the land to lecture on public affairs on nov second two thousand nine and mccain auditorium at kansas state university for the rest of this hour we'll go back to september two thousand seven when bear spoke at the university of kansas to increase savings rates why not not taxed the interest income you would receive why not non tax it right through our savings or you have any other ideas

to heart ryan reached him and it's a right way i think we can take a little more of a look at the year the tax policies that said that apply to returns on savings i'll we have obviously a provided a lot of incentives to our racing for one ks they're for tax free savings were returning interest or best return can but she like tax rate others really sound that would would go farther and cannot tax and on and i think you know that continues to be debated there are some that say wishy going farther and to start taxing consumption get away from getting savings or income it really wanted to try to change the economic dynamics i mean clearly our tax policies have overplayed your objects for lower income family's tax policies may not be particularly effective un de increasing savings rates and and there i think are a minute to look at and other types of programs i was wondering what your best advice would be to do it

as the future use of the business ventures of years to kansas how to be successful and i'll be successful you well you know it sounds trite and old but it's true it does you need to work hard and you need to be willing to you know a star or you can start and do the job which are given out whatever it is and do it well throughout my career i mean i can say that said that being a bank teller was by one of the more exciting things i did but you know what i did it i did it well and i took a lot of edward information retail banking level out a bit of the end i think you know every step of my career out whether they've been the glamour jobs are candidates right now every day job searchers try to do that really well and eight even if that worked in particularly interesting i think any job doing is worth doing well and i think employers appreciate that i think ultimately it pays off and it you know don't don't go to castor take measured risks i'll keep an eye open for opportunities we don't

force that are usually a future talented and smart your cars i now all business majors and other images hear it you success will come am i don't have a place in that i do have a remark to mate concerning the year get out when you buy a home and we bought our home in nineteen seventy one which the market wasn't what it is today that might have slowed today is what my house and i am seeing a lot of the younger generation an island the last ten years each time the value of their homeland and their tech slowed got my ear and their payment winner the care so it's all tied together in their house payment and it became really tiny ten minutes not improved a whole lot and they get i'm seeing a couple of people lose their homes the carriers

going up over their badges they may have bought to match fastest diarrhea date that's really something you need if they think on empty geary and in future years ago one that that's absolutely right and that's an excellent point and the gardens that we've issued to our banks in terms of that underwrite mortgages we require they take tax insurance into account and determining whether the bar is abel able to make the monthly payments ah that's very very important now we've seen how a lot of these sad sack prime loans the taxes on insurers insurers can be urbanized as their taxes that can be a bit of a chuckle changes well i seventy seven runs were made without regard to taxes and insurance and we've actually got reports were partially get refinanced every six months just try to pull out equity of their their homes just to make the tax insurance so if you're taking out a mortgage that's very her lender chevy you should to a makeshift in

service but the principal interests of the taxes and insurance up his taxes can go into areas very very severe than an obligation the city of alienating tip to pay down your mortgage bank yes that's really good point on this bear thank you for being here tonight question i got is on the insurance portion of the fdic insurance and i know you know well can you explain to us how the insurance works for fdic sure well our first call if you do you really want to get into the intricate details say she got our website fdic duchy of the fdic that gap we have a deposit calculator which reagan put in the money that you have and banks and it will tell us how much of that is insured the basic rule is one hundred thousand dollars per account two hundred and fifty thousand dollars for our tax deferred of savings that has an ira out by structuring a chance though are you can get more than a hundred thousand dollars of coverage for france's you if you have a can just in your name a hundred thousand dollars coverage for that he had to count yourself your spouse you get another hundred

thousand dollars us at the chester county child and yet another hundred thousand dollars so there are actually ways seth restructuring how your accounts that you get more than a thousand dollars in a single bank where someone applies for banks so even if you don't have to do that kind of account restructuring each bag can get a hundred thousand dollars that the limit is for bank is not per per depositor so actually are you know a lot of people put that much money into a bank that other ways that a structure couser three mobile banking relationships to get it quite quite high amounts of the passengers ob gyn you sure that you're you're you're you're fully insured up to those limits obviously bank to kansas all that would typically will happen is that we will outline before we close the bag we will find another bank to save the deposit liabilities of the failed institution that bank to immediately take over the surprises and there will be no interruption in your ability to access your fines

out that almost always this is what happens that i've been told historically the few situations where we were not able to arrange for it oh another bank to acquire the deposits as there still actually twenty four hours searching for our way before the causes can access their insured funds so we we try very hard hour we meander pass or protection uses are our first and primary mission we take it very seriously and i think about that one of the reasons why even though we have some institutions now that are in a challenging situation with some of the more mortgages market turmoil but really nothing there plans in this country in heaven for some time and that reason is i think really is the fdic i guarantee our which is very strong guarantee of it to see that but i'm very proud to run it's much better what we need for regulatory agencies is a long enough to get that before you visited idaho mediate the bank

regulators only regulate banks and banks or institutions that actually take deposits at if you take a deposit your bank unless have fdic insurance if you're going to be holding yourself up and that that trust relationship consumers taking deposits their number financial situation so over of lenders who do not take deposits they go to the capital markets to access the funding to support lending activities those are out fritz says mortgage finance companies i had been doing a lot of the winning that were overseen some problems now a lot of them have gone out of business now because they made a lot of bad lending decisions those types of institutions islamic institutions historically have been regulated the same level mr clay they are subject to last or lighter or regulatory regimes and i think we're now starting to realize that there needs to be an even level of underwriting standards and consumer protections for all those disparate more easily not just insured depository institutions historically it's been up that way i dont know why other countries do

just have one regulator for everybody backs non banks our weed out now but we certainly starting to understand now that that we need stronger sanders in a non bank sector that question would be a wise approach for college students as far as credit cards are concerned credit cards can be read convenience and they can also be a way to start building up a credit history which might serve you well down the road up so if you take out a credit card use it when you need to use it and make sure you pay to go off each month on time i think if you keep a bill way i didn't give away a fee if he did a lot that can increase your interest rate and it could also impact your your credit score so if you misuse a credit card you're gonna be creating a lot of problems for yourself not just in terms of the sahara just race but also in terms of that image credit history which will mean that when you later go to apply for a car loan or a mortgage should they have to pay higher interest rate so don't get the credit card on issues or coughing you know i use it

use it wisely and pay off but the most important thing is pay off the balance and for every month if you made it to flutter for a couple months that whatever you pay in time and preferably painful on time every month ms baer do you see any similarities to the situation that occurred in the late eighties and early nineties with the thrift industry and what is going on today with the so called so called credit crunch and worked the regulatory agencies and they learn anything from what happened back in the early nineties right sereno says it's a good question and i think the differences is that most of this lending has been done outside the banking system the savings and loan crisis that we had was being done by insured last train stations not those insured by the fdic and a richer by the old federal savings and loan insurance corporation also known as the fist like this has been done primarily outside the banking sector and i guess the good news is because most of the non all the most

has been done outside breaking out that it's really not creating the kinds of some of the challenges that we saw during the s and l debacle other sound july know mortgage insurers they are having some challenges but for the most part i think this is when it in fact earnings of banks that is not an avenue have significant impact on on some of the issues the way we saw it during the s a l crisis so obviously that is a that is assisting them primarily outside the year the banking sector this time around again underscoring that we've got the regulation rider least better for the depository institutions but we didn't extend it to non banks based on your knowledge of investing who would be your advice for short term investing based on how the market is performer right now are first wants in the short term that the american market you know i'm sorry i don't give an investment advice i have a very strict rule that that mask actually sec has rules about getting registered if you were if you were

you know the surprise i would say that i think is exactly the kinds of questions that get answered in a personal finance course wraps and some investment sources of the ages in the end as a school here obviously they are short term investments their long term investments if you're investing for the short term you wanna find very safe you know low risk investments that you need to access the money right away if you have a long term investment horizon and even take more rest because your resume go up they go down and they go up a second you can read those fluctuations are are obviously that the safer short term investments or bank deposits up treasury securities are many markets those types of investments for short term and most experts would say that's where there were a preacher man you mentioned that the rate for her the insurance rate for various is two hundred and fifty thousand and the other one was a hundred thousand and one where those last adjusted in two thousand six and that congress pass comprehensive that was insurance reform legislation to thousand six and they also

authorized us to index the limits for inflation so i think the first ok we will have to index for inflation and has just about eighty thousand eleven at nightfall question now that you have a two hundred and fifty thousand dollars limit our harmony iris out there what percentage of them would lose money if there was a problem but when they wouldn't that wouldn't lose any money at a turning fifty thousand dollars debt you know i don't say that i i don't know off the top of my head right now if you want to give me your card later we are hard times why haven't i don't know what that number is you spoke of subprime mortgage turmoil one ripple effect as we almost mortgage foreclosure how can the general population avoid being drawn into lawsuits by mortgage foreclosure companies that are structured as attorney written foreclosure factories that reach into

states and name individuals that are not even geographically close to the actual clients and fall what happens with these mortgages the subprime mortgages this is there are or securitize basically they're pooled into a big investment pool at pools divided up into securities interested in those securities are sold out investors so unlike traditional mortgage lending where the weather holds on to the mortgage if you get in trouble tried to repay at their lender can try to help you out restrictions on the avalon is sold off to lots of different investors however there are firms called servicers the continued to wiggle service that debt that is they're the ones that collect the payments from you each month and make sure that those payments are properly treated your account and they do have some authority under most not all that most of these securitizations pool agreements these servicers to have some authority to restructure these two ons so if you have an unaffordable product you have an adjustable rate more

easily see michelle ponce and the pain is going to go up and marry him payments pay it you should you should contact or service or contact the name of unity that is on your billing statement that as your service are erin opp if you can't if they're not going to talk to you then you should call the fdic it's a response center we have a number of the toll free numbers space in kansas city but the number on our website we can refer you to a group called neighbor works which is it's a grassroots organization is working with with borrowers in servers just write these loans restructured not all servicers have the legal authority to restructure long but most of them to and that will be my strong advice to you if you're among these paintings shock loans aren't you know it's not certain anybody centrist frankly for for an owner occupied home ah where the b owners and i have been making regular payments under the day lower rate on these sub prime mortgages to keep them out of their homes because they can't make the

reset rate of foreclosures we're expensive for lenders for investors for borrowers foreclosure foreclose property significantly adversely impacts other properties that are in the neighborhoods so we're dealing with an unpleasant situation here that that really the best of all possible solutions for for borrowers or their homes have been making good faith payments he just convert their mortgage into a fixed rate mortgage at the start or at the replay we know that they can't pay their mortgage and let them stay in their home and again this is a strong messenger we're putting out the servicers if they're affiliated with banks and their jurisdiction those are the kinds of instructions they got from us so i would encourage you if you know someone who's in this situation they shouldn't first issue call a service for the name on the billing statement that came dissatisfaction that way either number of good grassroots organizations they worked this one in our call center and put them in touch with neighbor works if they can find a number directly a i n and i wish the message was this is really a very

unfortunate situation for everyone what was and i enjoyed this very much thank you so much russia's an officer like the difference sheila bair chairwoman of the fdic the federal deposit insurance corporation there gave this year's landon lecture on public affairs at mccain auditorium at kansas state university it was recorded november second two thousand nine by kansas state it as special thanks to the sky single day in the office of mediated education after that sheila bair answered questions at the university of kansas leed center where she gave the anderson chandler lecture sponsored by the k u school of business september seventeenth two thousand seven and in that entire production of kansas public radio university of kansas

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