FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you very much for inviting me to join you today.  It is always a great pleasure to spend time with men and women dedicated to improving the lives and communities of our fellow citizens, and I am grateful to you for asking me to participate in this event.

The past year has been one of tremendous progress for our country and our economy.  I don’t think I need to remind anyone in this room of the serious challenges that faced us at the dawn of 2003.  The economy was still recovering from the terrorist attacks of 9/11, the burst of the market bubble and the corporate scandals of the previous two years.  The recession inherited by the Bush Administration had taken a large toll, depressing profits and forcing Americans out of work. The President was determined to confront these crises directly.

When it came to dealing with the recession, the President was guided by one clear and central principal:  in order to encourage economic growth, the government’s job is to let people keep and spend more of their own money.  In order to accomplish this, the President promoted successive rounds of tax cuts despite the strong opposition of some, who seemed reflexively opposed to putting money back in the hands of those who earned it.  Under the President’s plan-

• 109 million Americans have received, on average, a tax cut of $1,126.
• 23 million small business owners have received tax cuts averaging $2,209.
• Married tax payers, taxpayers with children, and in fact every American that pays taxes has seen reductions in their tax obligations.
• Businesses, and especially small businesses, have received new incentives to invest in plants and equipments and create new jobs.

The results of these tax cuts have been dramatic.  We have emerged from the recession with an economy stronger and more resilient than many would have thought possible.  New housing starts, business investment, corporate profits, and GDP have all increased.  In the third quarter of 2003 alone, 328,000 new jobs were created. 

In fact, our research at the Treasury Department informs us that, without these tax cuts, there would be 2 million fewer jobs in America than exist today under the President’s plan.  The economy has not simply endured the shocks of the last several years; it has overcome them.

We have also responded vigorously to the corporate scandals of the preceding years.   New laws, such as the Sarbanes-Oxley Act, as well as vigorous prosecution of corporate wrongdoing, have ensured investors that their profits and losses will be based on real-world economic results, and not the misdeeds of a handful of irresponsible corporate executives.  The performance of the stock market over the last year tells us that investor confidence has returned, and America’s markets will remain the safest and most reliable investment opportunity in the world.

We also cannot forget the ongoing threat of terror that continues to plague not only our country, but all societies that favor democracy and the rule of law to tyranny and oppression.  Let no one doubt that the world is a safer place thanks to the overthrow of the Al Qaeda and Taliban government in Afghanistan, and the recent capture of Saddam Hussein.  Although the war on terror continues, there is no doubt that the enemies of America sleep less and less comfortably every night, knowing that American justice is their fate.

With all the progress we have made in the last year, their remains work to be done.  One of the areas of supreme importance to this Administration is continuing to make America a place where families have the opportunity to purchase their own homes.  In order to promote home ownership, the President has called for increasing minority home ownership by 5.5 million families by the end of the decade.  Remarkably, in the past 18 months alone 1 million minority families have already achieved their dream of owning their own homes.

America remains the best place in the world for a young family, just starting out, to buy a house.  As you are well aware, the Treasury has called for the housing GSEs to register their equity securities with the Securities and Exchange Commission under the ’34 Act.  In order to help further the goal of ensuring Americans can obtain the dream of home ownership, the Administration has called for reforming the regulation of the housing government sponsored enterprises (GSEs). 

The central principle behind reforming regulation of the housing GSEs is simple:  these entities are world-class financial institutions, and they deserve a world-class regulator – one that is on par with other such financial institution regulators in the U.S. and around the world.  The Administration has called for placing Fannie Mae, Freddie Mac and the Home Loan Banks under a single regulator equipped with the stature and the tools to ensure these institutions continue to operate in a safe and sound manner, and able to perform their mission of expanding home ownership opportunities for all Americans.

Last summer I was asked to head-up a survey of the Federal Home Loan Bank System, with particular view to the changes that have taken place in the System since passage of the Gramm-Leach-Bliley Act, and how the Banks’ activities have evolved in recent years.  In the course of this project, we have spoken with participants in the System, the Finance Board, most of the Banks, and others.  We also solicited comments from each of the Banks individually, to which most have responded.  As it relates to changes in the System since the passage of the Gramm-Leach-Bliley Act, our review has focused primarily on the implementation and results of the Act’s new capital structure for the Banks, and on the Act’s provisions that expanded access to the System for small depository institutions.

Any review of the activities of the Federal Home Loan Banks over the last 15 years reinforces our belief that the Bank System needs to be included in the new regulatory structure which has been proposed for the GSEs.  The activities of the FHLBanks have been transformed to some degree from being focused solely on providing collateralized advances to members, to operating more active investment portfolios, including investments in mortgage-backed securities and more recently direct investments in mortgages from the Banks’ mortgage purchase programs.  As the risks undertaken by the housing GSEs have converged, there becomes a greater need that they be regulated in a similar manner.

By combining the housing GSEs under a single, credible regulator, we can ensure that the mission of promoting home ownership in our communities is conducted in a safe and sound manner, with a unitary view towards what’s best for the housing finance system as a whole.  The new regulator must be empowered with the ability to take a comprehensive look not only at each GSE individually, but also monitor developments in the housing finance market and the GSEs’ operations in relation to it.  The new regulator must have the power to review the new activities of a GSE, set prudent minimum and risk-based capital standards, and take prompt corrective action when necessary.  The new regulator must also have the ability to conduct an orderly wind-down of an institution in the unlikely event that such an institution were to fail.  These changes are not simply commonsense proposals to give the housing GSE regulator the same powers as our other financial regulatory agencies; they are proposals which will strengthen the GSEs and allow them to continue their important mission of increasing home ownership affordability for working Americans.

Finally, let me conclude with the message that I hope you all take from my remarks here today.  When it was announced that Treasury was conducting a survey of the Bank System, and that the Administration was pursuing comprehensive regulatory reform of the GSE regulatory model, I sensed that there was genuine concern in the System as to our ultimate goal.  Please allow me to be clear:  the Administration fully supports a strong, safe and sound Federal Home Loan Bank System.  The changes we are proposing are intended to make sure that all of the housing GSEs can continue to serve the mission for which they were created.  A credible regulator, equipped with the tools, power and stature to ensure the GSEs continue to focus on that mission, is in the best interest of the housing finance system, the Federal Home Loan Banks, and all Americans.

I thank you for inviting me to speak with you today, and I thank you for the work you do to expand home ownership affordability in our communities.  As the reform process moves forward, your continued input is not only necessary, it is welcome.  Thank you.