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such a weakened position that it's forced us to open ourselves to any mets -- methods, be it outsourcing and leveraging that private effort in capital and just letting you do your thing. in some ways we could be the libertarian dream here. [laughter] >> i saw two people leave the room. [laughter] here's a question, what's the advice for do detroit? overlap, overlay, not an ip instant city in china, right? there's no unified government, it's fragmented at the bureaucracy level, and there's this capacity issue, serious capacity issue within government. what's the advice? >> well, i don't suspect that a lot of the entrepreneurs in this room who are the talent pool for the next economy in detroit are thinking how do i get a job with the city. so -- >> no career advice. >> no, but i mean, seriously.
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the young talent pool, the 20-somethings and 30-somethings are not thinking about the public sector as a career path. so let's just be blunt and honest. the city is not going to be able to harness the talent that's there that will get the city to the next place. so invert the question. not how are we going to hire those people, but how are we going to bring them into the process sitting where they are in universities, in the private sector, in the ngos that are dynamic and interested in the city of the future, and the city has to invent the way to do that. collaborate, create communities of interest, harness that talent pool, um, and give them the resources where it's necessary if the resources are there. now, there's not a lot of city resource, but the city has the legitimization capacity to say you are now the agent of change. it used to be the department of x, and the department of x is now really incapable. i mean, this is a hard conversation to have when you're
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talking about services that should be delivered more efficiently and more effectively by a strengthened city, and that might be years away. but there's today, there's tomorrow, and there are the years between now and when the city is strong enough to be able to do it for itself. so this is part of the reinvention process is figuring out what kinds of public/private partnerships are possible that won't violate the law, because there are laws on the books that prevent these things from taking some shapes. but we've seen in europe, asia and other parts of the world really interesting ways of inventing the process of partnering that don't involve giving away public assets and public goods. nobody's talking about that. >> i think the other thing, and i talked about this earlier, i think some structural changes need to be made to how government functions. right now there is, there are very, very, very few cities who have any type of an entity that's tasked with looking out and across. and the way cities are set up now, the way agencies are set up
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now, the way the budgets are allocated, they do not foster innovation. you can go to pretty much any agency in any city in this country, okay, and their planning budget, their project plan has been set up for the next three to five years. it doesn't foster innovation. and so having, creating an entity that is empowered, okay, to find innovation, to drive innovation across these agencies that has a budge is one -- budget is one of the steps to get there. >> and a few cities have created the office of innovation attached to the mayor -- >> right. >> to get the innovative process, and maybe that's one step. >> i, i don't know detroit that well, but it seems to me that, you know, those ideas could work, but i'm not sure if they require all the investment from the kind of top down solutions. and, you know, i don't know if they are the key solutions here. ..
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if the city became a backup and classroom, it's exciting to think about divisions or technologies, almost allowing people to hack into people to use the city, to use it for an
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experiment, and a lot of people will be excited to come here and develop new services and so on. it's a very exciting bottom-up way to do things because in a top-down way, to promote innovation, you can do it, but it requires a lot of investment. it's more like top-down approach. >> so the brand is poured by. i expect most in berlin with the guggenheim getting richer and richer but this is economic activity is really booming. >> they're not competing visions. they are complementary visions, were frankly in the case of de
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jure, potentially this state has a very strong role. cities are creatures of the state begin to decompress mental lives these silos and stovepipes of government that cut across. that's one way. the second piece is the notion of almost like a hacker fund. let's take an issue. energy efficiency, greenhouse gas emissions, the low carbon city, writes? which is very much off the building environment and let's see if we can move outside the building space into the district space so to speak. are these competing visions or they complementary and can we imagine with all this doubling up of tech expertise here that we can begin to move some of the coproduce solutions quicker? >> echo production in this case is possible when and if something's happened.
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so dte in the city and key institutions like worsening in the university have to get together and say we want transparent the run energy consumption are building. was it going to take to have a dashboard that you and i can access on your smartphone or kids can access in their schoolrooms are parents and home double tell them which of the schools of the city school district are cleaner and greener and smarter than others. something that would require collaboration, that would have been utility to share the data. a lot of cities are now doing this to really change the game because now i have access to knowledge that will then tell me which school is least efficient and i'm going to focus on why that's inefficient. is it not whether rice? is it not least the right way. are the kids going to be the drivers because they commence their parents for kids and parents are going to get that
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schoolroom cleaner and greener. one key ingredient is transparency that makes data possible. >> detected to understand what the problem is. i finished up a piece of work for a regional economic development initiatives. that is to miss out these that is trying to recover her, trying to bring businesses and individuals back to the region. they went through an exhaustive process. a few weeks of soul-searching to come up with what are the top three barriers to migration to that region? there were three very diverse group unless transportation networks. so the question is how can we apply smarter transportation principles to alleviate that? second with access to water. how can we borrow on d.c. water in sonoma county water authority ceased to do that.
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third was this body mass of education. the education is good in some pockets of the region and that in some. how can we use smarter principles, raced to the top, whatever. but it's really focused on what are the problems. let's take our breath and move on to the others. >> so that they take care and also folks have questions. the microphones are here. what i take from this conversation i want to get your response on the advice is to think about the city is a network of players, some very large, like a henry ford medical come even some of the cultural institutions, some of the employers, et cetera. a network of players who can take their own responsibility, obviously in partnership with the government around certain sets of issues.
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and the michael's point about what is the right issue to tackle because in the southeast, there's no water. last time i checked, you got lots of water, the great lakes. not your problem. but there's obviously a number of issues, whether it's run energy, education, health. this strikes me as a way to get around the challenge of government is dysfunctional, government is compartmentalized. you got a lead agency here. for americans. we don't need permission from anyone have time. it seems that might be part of the solution. >> before i comment about that, i want to be sure in your list of players who don't forget my brother and sister who have been employed so long they're out of the workforce in real questionable skill readiness if
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you will. i don't want to forget them in the equation. it's music to my ears to hear planning. the definition of the problem and information flow. those are the ingredients of planning. it's music to my ears to hear that. what kind of had a piecemeal approach. a couple initiatives in the city last decade, and gps chips in our garbage sharks attract crowds, helped analyze and the city depopulating, trying to redefine rats in a more efficient way as well as tracking your personnel. i think of outfitting police cars with cameras. everybody has done that i think. those were seeded with grant money. we haven't been able to keep up to gps. right now we have not been able to keep up with the chips.
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>> they actually put the chips in the garbage and chart or the garbage goes. >> ray, ray. you know, i think there needs to be the seed money cannot be a federal, aid, but there needs to be an institutional approach that redefines. we have embraced cameras in police cars, so we now find a way, even though all the technology at that 70% to the base price of the vehicle. between the cameras in the laptops in trying to think about all they have. they have a gps, whatever other type algiers. supertype to do that for so many reasons, but it does switch it back to the institutional capacity to plan and redefine good services and then of course defund them. >> question. >> and from itt tech.
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i would like to ask the question to carlos. what do you think keywords would do for industry. >> in terms of >> different industries and why people had responded to, like google and other people can respond better to craigslist, something like that. do you understand what i'm saying? >> not exactly. >> they actually worked, like the sort of search. >> how to search the city. >> what do you mean, in terms of
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of -- >> keywords. you understand what i'm saying? a lot of people respond to certain words. okay, keywords is worse that a lot of people respond to in some people don't respond as well. >> i understand, but in terms of tuba city in which people are looking for -- [inaudible] >> okay, i'm not sure in the best person to answer this in a sense of not too familiar with teacher. if you're talking about keywords in the city. >> industry, the keywords people respond to this kind of universal in a way. what language you speak. the keywords that when respond to a person who lives in singapore. where i live out, more people
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respond to craigslist than more or less google or ebay or something like that because it's more attached to the economy, getting something for less. >> i agree with you. to be honest i'm not the best person on how this could feed into it. >> were raising sort of a broader issue, in particular with regard to the application and deployment of technology in different cities that have very different starting points, right in terms of race, ethnicity, deployment. so this conversation, which resorted engage on about efficiency, allocation, you know, it's hard to translate.
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the interface of individuals to the quote unquote economy is radically different in different points of the country. >> that's a really interesting question, particularly as it goes forward in a city like this but there's a whole range of cities that have depopulated radically in the united states and have large unemployment. it changes i think the nature of the deployment and nature of the exercise. >> i thought he was a more technical person. >> i may be the least technical person though i didn't treat like a maniac. >> on scott also become a venture for america fell in the city of detroit and also the next energy center. i've a question for all of you. one of the things i've heard talked a lot about here is that this technology, software, data
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collection is a means to an end. one of the things i've noticed within the orange premiership community in the united states and conversation surrounding it is that the and do some type says social media application or app. so i wanted to ask you all wish you think because there's an enormous power social media as a means to an end, but the conversation is too often an end in itself. so how do you think we can bring the two together or how committed the conversation started because in my field, that type of leveraging the technology could be incredibly powerful. but there's a divide between the two cultures. >> great question. thoughts? >> may be all say we talked to a lot of mayors who want to create
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networks of allies for the projects of cities are undertaking partly because they want to have access to all the knowledge and resource for social networking help the city tap and that's an understandable thing. but it's very opportunistic, a little bit mercenary. i what to build a social network in order to accomplish my goals. we have to explain carefully to the city theaters that often the people of the social network have different ideas about how to go about the process of changing schools are improving buildings are making mobility and trends that more efficient and affordable in the city. often you get results from the social network that you weren't necessarily expecting when you asked them to participate in a conversation. so city leaders that we talked to who've been through this process actually realized it
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probably was worth it even though it's painful because they came under withering attack person when they start the social conversation with citizens that that is going to result in the policy you started your assumptions with. we had to basically say if you really want to open the process and get the public engaged, don't start from the assumption your ideas are going to be the best ideas are there going to be acceptable. that is a good humbling experience for city leaders to realize that the social network at the city is engaged in on project x, y or z is actually not going to deliver what they expected at the outset, but maybe something a lot better. >> i also think, to the gentleman's question, there is a growing opportunity to engage the general public in solving some of these problems. if you go back to the example i used about the southeastern region, where water conservation was one of the bigger barriers
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to economic development, there are some things the city in the region needs to do. but there are also things identified, where if we were to distribute the data to the general public on water use, that was fun behavior. so there's an opportunity there for social media, smart apps to engage developers to help engage the general public in this big data umbrella around water conservation. >> it gets back to your other point about trying to set priorities, meet people where they are. people in the southeast understand water shortage, right? this is a huge issue in the sweeps across a good person and the sunbelt. the crisis is the talent is the question goes back to the earlier panel, build off of the powerful production and started
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spectatorship rate going forward. that is really the fundamental issue in this parts of the midwest, given the last 30, 40 years of industrial restructuring. so against it is is really powerful fusion of setting priorities and figuring out how technology is one of the vehicles for achieving not, which is really the power of all this. unengaging the citizenry. these are different cultures now. but there is fear that up altogether, which requires leadership and you do have a two plus two equals five kind of effect. >> most city leaders truthfully don't understand that this is the connector between citizen and city and there has to be an intelligent way of engaging around the supercomputer we
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carry around in a pocket that is the social media device. it's a tool for transparency because i like to hostage in a municipal buildings are inside a taxpayer can't energy costs. >> question over here. >> anthony pellegrino, representing the school of business administration. taking a back to the money, we mention grant money. asking the fed and the state is kind of a longshot, for both the budgets of the cost of work, but i'm kind of curious, where can they channel the new funds and also can anyone shed a light on foreign investment as well? >> great question. we see the federal government scale back on this country. it's not a question of whether, but how much, where the state has got issues. how do we think creatively about public-private financing
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vehicles? >> i should technology finally the detroit has had a tremendous commitment from its foundation in the last couple of years and that includes spending a massive cleaning out for, to be sure it works project meant to draft the geographic changes, the patterns of the population in the city. you know, the thing about grant funding is your kind of the puppet on a string. your priorities become what's fundable and once the funding runs out because it's again meant to be seed money, you still have to figure out what is it that makes us do what we do better, you know. i guess i don't want to focus too much of the great timing. i wanted to be part of operating. >> particularly at the end of the day if we didn't strike him you the costs radically. matches for buildings, but for cities. there's a whole bunch of tangible matcher x you could
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neo's to help seed private financing. >> i responded to the previous question that we can look at cities in two ways. one and a top down, for those technology cities, now we can reorganize. if you think about that you need quite a lot of a lot of government investments, developing platforms to do this from the top down. but the other option is have to see the city where everyone can leverage the computer. this is higher. it now has a profit. how come you leverage this in order to promote good behavior, new action? and if you do this, then you don't need that much money from the government. in decades and he just seemed to be like a catalyst and then things will happen.
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small grants for foundation can be much bigger because you leverage everybody contributing. >> i want to apologize for the other folks who want to ask questions because for 45 seconds and counting down. last, i think this has been a very interesting panel to set up a cot at the traditional -- if the government is to do this, though the top down. we need a variety of interventions and the bubbling of energy in this city in the downtown, in the midtown. that detroit can be coming in now, it can be a petri dish for a lot of texas innovations of interventions. so best part of the challenge is to go through the day. how do we send that signal that at this point in time in this city, in this metropolis, in the state it's time to innovate and experiment. thank you very much.
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[applause] >> inc. so much. [applause] >> you're a good moderator, bruce. there was a great panel. thank you to olivia. the first thing i always say it's about u.s. competitiveness because they think it all ties back to that. a next session, please come out jim doherty, a very good long-time friend of mine who is a fellow at the council on foreign relations is going to moderate. but organize this in conjunction with the council on foreign relations as about u.s. competitiveness. let's get it underway, the panel is fair. all right, jim, take it away. >> great to be here in detroit. first time in a while. i have to make it happen more often. so were going to have a nice conversation. we have to cover a lot of a lot of things in 40 minutes, so we're going to start right away. you can see the panelists,
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backgrounds, michael, paul and ted, great panel. i'm 40 minutes that we try to cover as looking at infrastructure, education and immigration, trying to look at it through the lens of technology and the role of urban centers and take a look at what the current state is in the united states in each of these things, what some of our best as competitors are doing and maybe a couple sections on tactical things the united states can you do have a job. we'll try to take the calls at the end of the campy without further ado, i want to ask you next to start. your last job as cio of united states of america. that's a pretty big job. so you got to see lots of things. you had great perspective on these areas, immigration, education, infrastructure. can you pick one or two and comment on the current state in terms of competitive in world.
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>> sure, when you look at the story of america, it is the story of entrepreneurs and the ability to disrupt matches the local level, but the global economy. unfortunately, what you're hearing is too much of the gloom and doom in terms of where america is that it comes to competitiveness. my view is that it is still the best country on the planet when it comes to starting up a business in advancing ideas you have or access to talent. the challenge we have before us because we are the architects of our own destiny, the key issues we need to confront. if you look at the next 30 years, if we don't address i don't think we can remit the most competitive country in the world. first it comes down to immigration. it is broken. it makes absolutely no sense to educate some of the smartest people in the world with
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advanced degrees and then ask them to leave the country and go start up something elsewhere. why are you stapling right to their graduate application of these that were a green card. second, when it comes to education, the challenge we have domestically is that system is always broken as we look for the next 30 years. in detroit, for example, their 3400 i.t. job openings in the detroit mature region. the challenge is that we haven't done enough in terms of retooling the workforce, in terms of transitioning from one career path to the other. i know there's interesting programs underway they need to be scaled, for example, the way community college is a program with a broad instructors around the world they trained people to actually move into the i.t. career track and at the same time, this is done in a 16 week period and 73 people graduated
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from the program in 27 of them have jobs as a result of that. we need to figure out how do we become better at retooling the workforce we are to have domestically as we try to make sure to remain competitive globally when a comes to immigration policy. >> paul. >> ford faces a big challenge. you have to have a engineering and manufacturing overseas. how do you make that balance? and what are the things that make the united states a better place for you to locate things versus outside the united states? very specifically. >> that's a great question and to build up the next comments. it's possibly a slightly different perspective, especially focus on some of the things gone right to send the customer, without a huge customer base in the u.s. we focus on really creating products that customers want and customers value high-quality
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products. clearly backgrounds around the world in common things as you mentioned, jim, we have to maintain a global footprint in terms of manufacturing and education. but in terms of a commitment and some of the things that are really happening, we've recently announced, for example, over the next four years, $16 billion of engineering and manufacturing of the u.s. we've announced creation of 12,000 new jobs in manufacturing engineering here in the u.s. just this week, we announced another 1200 jobs. michigan, where were producing a new fusion. a year or so back we completely retooled our michigan assembly time and we are producing a whole range, some of them with technologies about power traits
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and so on. so there is a huge amount of good news here and it really comes down to working with all the key stakeholders to ensure without world-class products, that we leverage all of the local knowledge around the customers here in the u.s. want and really strive to make the u.s.a. u.s. a competitive place or manufacturing and exports, but also in the sense of engineering great products. if i could really just one other point that out like to mention, the point around immigration, education and so on. we as an industry plays a little bit of crisis in terms of recruiting critical skills into the auto industry, particularly bound controls engineers, software engineers and just in general stem disciplines.
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and we're doing a tremendous amount to promote education coming to promote the technical disciplines, cheaper and better engineers and give them a career that can last many years, can last a lifetime. so i support all of the points you make, but i do just want to share with you some of the things. >> michael cundiff literally written the book on financing education passed into writing a book on it now. maybe you could talk a bit about, you know, what is going on, the current state of education in the united states and maybe some of your view of what we could be doing other. >> well, if you look at the university level, the u.s. is still the predominant science and engineering engineer in the world. if you were quantitatively come look at all kinds of dissonance on the numbers because a very
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large engineering graduation rate in some curlers countries, particularly china. but there's a lot of dispute about what the numbers actually mean. in terms of quality, science and engineering in the u.s. and university level are so predominant in the world, though other countries are catching up as others have said because the u.s. was the only man left standing are the only person left standing at the end of world war ii and has a free field for two or three decades. as far as k-12 is concerned, things are quite different. do you have huge disparity in quality, even with a few 50 miles or so, i think we were sitting today you can probably find outstanding quality, science and math education, k-12 and terrible quality. and that's a microcosm of the u.s. as a whole, which has huge inequalities in k-12 education
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system. so its average performance on all the indicators is medium among developed countries are some of the mediocre if they want to be critical. the top tier does extremely well, the top quartile graduates from k-12 u.s. schools is very well by international comparison. the bottom quartile is terribly, said the median is somewhere in the middle. so if you're worried about the science and engineering workforce questions, almost all of this people come the top or child in the k-12 system with all of its problems, and there are a lot of them come is producing plenty of people if they can be tracked it to go into science and engineering will do extremely well. but we are leaving behind the bottom quartile. we're doing very badly. that's an equity issue. but the workforce issue of the non-science and technology story. you really want people to be
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literate in numerous in all occupations these days. so that's a quick overview on the education side. >> if you get a chance to go to a commercial, there's a great program called renewing america and it's definitely one of the best places to find information on this topic as it gets updated. ted, maybe you can comment on what she think the most important issues are and what should be thinking about. >> i guess i'll be slightly gloomier from a restarted because because there's two stories in the u.s. economy. one is innovation, entrepreneurship, start a, u.s. is unparalleled, continues to be that way. if you look in terms of spreading economic benefits broadly throughout the economy, we have not been terribly well in the last 30 years. every school definition is one creating a lot of high which
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work towards people so the standards of living continues to rise. on that standard, was not done tremendously well over the last several decades. if you take kind of the industry is to go back to the 50s and 60s, the ottawa industry employed millions of people directly and in the spinoff. shake the showpiece industry of our current era, consumer electronics, smartphones, televisions. the supply chain is all in asia. a lot of value added from a lot of smart people doing creative things, but a lot of the work not expanded in the united states. consumer electronics is not the employer, said the expansion afforded to try to have a big impact here. were not seen the same thing on the technology side. a lot of the challenges we are are in fact moving into another era achievement as they disrupt the changes david argued at the
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outside and is undoubtedly correct, we as a country have to think strategically about how do we do better for more of our people in this next era of disruptive change than we did in the last one? is that there were no zero-sum global economy. we can all rise together, but relatively speaking, we haven't done well for a broad swath of our people for several decades now and you can see the results in a city like to trade now. >> when you look at that view, you've got to think about the global population. the 7 billion people in the world. there's only 310 million people in the united states. therefore the only way were going to be able to compete in the global economy is to create a destruction abroad is of our economy. when you think about 310 million people competing against the rest of the world, what becomes really interesting here is that talent and capital is going to
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flow where it's most welcome. from a public policy perspective, we need to make sure we had danced the agenda of the ball comes both the talent in the capital. and companies that have been created here in the united states, would you go back and look at the auto industry, whether you look at what's happening with the semiconductor industry, classically what happened to intel when it came to manufacturing memory card and shifting to ship spirit way to think about the broader economy in that context. i think the big problem at the base of this pier and it is fundamentally education. across the country, there's 3.6 million job openings today, 3.6 million. we just are not able to find a talented workforce to be able to fulfill those jobs. >> paul, what are the things that are uniquely great about the american system that worked
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for you and what are the things that are uniquely not so great you'd like to see fixed? >> good question. actually some of the numbers you just about are some of the numbers i spent a lot of time thinking about. they're a 7 billion people to vote, only 300 million in the u.s., the 300 or so a lot of people. the otto industry to 7 billion is less than 100 million per year, around about 15, 16 million here in the u.s. the numbers are big in absolute terms. they may be smaller in percentages, but what is absolutely compelling for us in the auto industry is that customer base of the number in service, effectively expect for the foreseeable future to have a very strong auto market. it comes down to the u.s. senate
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could say the same thing for many other regions are many other countries around the world. i think what is unique here is clearly an understanding of the environment, the customer. if you come back to my initial comments about focusing on the customer and producing products that our customers really want and value. sos and understanding that the market customer manufacture in the sense that the economics distribution, the supply base that i talk about the 12,000 jobs come in the adjacent jobs in the supply base of related engineering activities. there's a big multiplier on that number. so i just keep coming back to the market itself, the opportunity to put growing vehicles out there, to focus on the things people really want
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them to tie back with jobs. you know, historically our industry, particularly the domestic manufacturers here in the detroit area, have this kind of images, you know, vehicles that are not high-quality vehicles that don't perform well for my fuel economy's good in just one area we've been focusing tremendously in the last two years on fuel economy and emissions. they've made a commitment to engineer the highest quality vehicles and the best fuel economy to pay every market around the world. if you come back to some of the investments i mentioned earlier, a very large percentage of the investments have been in very high technology, whether their hybrid vehicles, plug-in hybrids, battery electric vehicles, we now have six electrified vehicles here in the
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u.s. a vehicles that achieve over 40 miles per gallon. most of that engineering was done right here in chicago, at our engineering center in dearborn along with the supplied in a lot of component manufacturing is coming into the area as well. the fact jury manufacturing power, electronics and so on. so it really does come down to the commitment we've made to the focus on the customer, to focus on engineering degree questionable products and obviously you need to market knowledge and you need the engineers. and it just keeps tight right back to your point on education and the technical disciplines. >> michael, who if anybody is getting it right at scale that we can learn from? >> i don't think there's any model out there that is --
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>> some pieces of the model, for example, in some countries, any countries actually, the government can really determine what percentage of the university cohort is going to nature or specialize byfield? so if you see numbers coming out of china, the numbers of scientists and engineers being graduated a share, it's a very high her. i forget what it is, 40 some% of those graduating are in science and engineering. but it's mainly an engineering story. it's 33%, i think, of every graduating cohort from chinese universities and engineering. that is not because chinese kids are saying, a third a third of them saying they were to be engineer and i'm going to go that way. it's pretty because her happily because government policies mandating or incentivizing high percentages going into
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engineering and has to do with chinese government been a long time since the revolution dominated by actually engineers in the government circle. so that can't be done in the u.s. so far as i know. you can't say to stamford at the university of michigan, you'll graduate 33% of your bachelor's degrees in engineering next year. so you have to make it attractive. >> or could we incentivizing aquatics >> you can incentivizing and we haven't done very well on that. in fact, to pick up on paul's comments and on task, one of the problem i think has been the really smart kids, highly skilled, sophisticated, challenged kids are sort of voting with their feet away from engineering careers because they see what has happened to the auto industry in the u.s. and
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maybe their parents worked in the auto industry and was very successful. so unfortunate with the parents are timed them off in his don't do what i did because it worked fine for my generation. but look what happened to the generation that followed me. they got laid off and so on. so one of the real problems i think is that disruption -- were interested in disruptive technologies and so on in this discussion, but disruption of agencies that the cyclical sort that goes up and down and up and down is actually not a healthy way to operate industrial and educational system because the signals go back to the high school kids when there's a break in an industry like the auto industry, saying maybe you thought you wanted to be an auto engineer or systems designer or whatever, but look what happened. so you should go to finance. that's where you should be going
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now. unfortunately ,-com,-com ma i don't know the stories in michigan, but in many engineering schools, significant percentages of kids majoring in engineering don't want to be engineers. they want to go into finance. the engineering degree is a ministry degree to finance. that's not healthy. >> so takamori talked about education and immigration, nothing yet about infrastructure. under the something you think about. >> limited to challenge the concrete things being done. infrastructure is just bizarre because we're the greatest free enterprise country in the world. most of our infrastructure is entirely socialist. this completely government undead, requires appropriations, barring at the government level. go to europe and almost all of the roads, sewer systems, often in areas of expanding broadband, other things that, public-private partnerships.
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something the obama administration is in talking about for a number of years. a small amount of seed money from the government that brings in a lot of private money sitting on the sidelines, that's looking for investments in things that pay longer-term. toll roads is a classic example. so we do far less than we could do an infrastructure as we don't have appropriate structures. you do see interesting things happening. i mean, new york is set up an infrastructure bank to do with the state level was not at the federal level. chicago, mayor emmanuel announced the launch of a $7 infrastructure project in chicago, again to bring private money sitting on the sidelines. so that's a very good example of what can be done. the u.s. is losing ground on a lot of key components of infrastructure and for understandable reasons. governments don't have an awful lot of money. so if you're waiting on the line on government appropriations in government borrowing for
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infrastructure investments, that is not the best way forward in the current environment. so that's a very good example in the infrastructure. symantec couple other things that are low-hanging fruit. you talk about a competitive international economy. if you go around the world with every major country has a national effort to attract foreign investment. it has plummeted to me how much lost out to china. europeans about steady, we've lost a lot of ground. oecd looks at investment promotion efforts at the national level. u.s. is last in terms of effectiveness. without a seller solves for the world. of course everybody would come to the united states. with 310 million people. we got to go and sell ourselves to the rose businesses. finally on the export side, 60% of our exporting the soundbite
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large, multinational companies. many small and medium-sized countries into the games. and medium-size company in germany with experts to china can go use the embassy facilities to search for customers and build the base you need to do that. we don't offer anything like that to american companies. there's a lot of things we can do basically to sell ourselves to the world as an attractive destination to invest and to export from that were not doing. >> back to immigration for a moment. are there countries out there, if we could emulate their immigration policies are still aspects of it, what countries are doing it well now that you think the united states could come from quick >> again, there's not a perfect model out there yet. i think what you're seeing across the world are countries that for example the middle
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east, are trying to build incubators, ringing in people, but i'm not sure if that sustainable long-term when you think about it. duplicate some of the work happening in in you, for example, to try to attract foreign investments come in to try to attract more entrepreneurs. but i'm not sure, it's still very early in terms of the results out there. i think for the last three decades, the u.s. has had historically a very healthy immigration policy, but in the last decade or so, we've kind of gone the other way. when you think about the number of immigrants set of common adults amazing companies and created jobs in the hundreds of thousands, we can't be looking at other markets because i don't think there's like the perfect model. but we took back it would happen in the 1970s in terms of the
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uss and historical model, we did encourage immigration. a lot of people came in a science, technology, engineering and math by next background. if you look at silicon valley, you see the fruits of a lot of it. >> you a comment. >> i spent seven years of my life painfully as a member of the commission on immigration reform, which is chaired by barbara jordan in the 90s this was. the way to describe the american immigration system is its enormous, represent something like a third of the world's total immigration into the one country with 7% of the worlds population. its enormous, but it's terribly unbalanced. it's dominated by family ties and skills-based immigration is an afterthought in the current system. that's the problem you're referring to. it's also a balanced in a different way, which is as an expedient led by industry actually come expedient because
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the system is hard to change. we have a dominant smell in the skills base side, we have a dominant of temporary migration over permanent migration. that is not healthy enough time to get these kinds of peculiar outcomes. so the system is enormous. in these reform. it's not that you need for immigration. it's such you need to have a better balance within the immigration system. as far as who does better, i never thought i would say this i must say. i spent many years living in britain and they had a hopeless immigration system i thought, very badly administered, very badly thought through. they now probably have the most thoughtful analysis of skills needs treatment by immigration in the world.
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they've leapfrogged everybody else. there's something called the migration of issa re-committee. as a government-sponsored entity, that is independent and the government valassis group, is there a shortage of let's say ford says there's a shortage of systems design engineers in the automotive industry. they will analyze the question until the government what they think in a very sophisticated way they do it. and the government can say, too bad for not going to do anything about it, or we're going to respond to this set of recommendations, but only part of it. the big advantage of the system is to have an independent analysis of claims of shortage or surplus. right now the claims of shortage, claims the surplus in different areas of high skills. if you had an independent force, it would say we can't find any signs of shortage in this area,
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but in this area, we see actually grow market problems and they published a report. it's not just a private report. they published it, make it public. in the newspaper discussions of these issues in britain you have an intelligent discussion of these issues based on data, whereas here what we have is, well you know what we have. we've claims of shortage, claims the surplus and nothing ever happens. >> on to encourage anyone with questions. i keep having to make sure nobody's there. if i cannot also, imagine they could also apply the model domestically. so in the state of michigan from the looks of it is the workforce investment centers coordinated closely with industry inside, what types of graduates doing it to the next 10, 15, 20 years?
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and then guidance counselors at a scene in terms of what the industry of the future are. i remember when i was in high school i had i.t. with industry to go when, no transparency about what the future was going to look like. i would argue that's probably most kids in high school are doing today, plainly picking professions rather than having some type of data to decide. >> interesting. a lot of the analysis authority been done. as you start to look at the pipeline of k-12 and invest the education and really look at what the future needs. i've heard ready to graduate in terms of skills in the industry is, what does it take to make our industry track is individually? i think of it could just get our arms around a lot of the background is dirty done. it's kind of a call to action. >> yes, sir. >> great panel. my name is glenn oliver and our
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company operates the global dance for the utility industry. so i interact with a lot of city leaders and government leaders. you know, in relation to a topic you're, technology and cities, one of the things it is the challenges you've got a huge amount of innovation that is out there, even here at a local level, particularly someone out of ann arbor that is available to the cities, but she still have the reload and further resistance to change in city government. i would like to note the panel thinks about the merits of possibly the federal government using its resources like it did with race to the top of digital medical records to provide some incentives for the folks on the local level to become more open to innovation and to elegy that would help them deliver services
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and manage their infrastructures for some of these new technological solutions that are out there, but are just reluctant to adopt. >> great question. >> all give it a shot. bruce's point about how cities are looking at each other and seeing what the best innovations aren't trained to adopt an. i think it's not a seamless process at all. if you have asserted federal role, identified to the best practices, there were three words and incentives for adopting areas of technology adoption, innovation. that could be a very valuable exercise. one of the things that modern technology does is allows for very high-speed rapid exchange of ideas and you don't see that operating in governments the way we need. so i think that it's an important idea. >> to answer that, i also think the federal government could put
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an incentive is to hard wire the outcome that is looking as far as dollars are concerned in terms of infrastructure investments, but it's probably more important in terms of leadership at the city level being open to technology, been open to innovation. all give you an example. in the city of washington d.c., for example, when it first came and from the city council decided to say they were going to pass a law because he was going to disrupt sort of the traditional model in terms of how taxis are regulated across the city. he suddenly saw this kind of clash between the old world and the new world in terms of disruption. at the end, they resorted a campaign an uprising by the people of the district of columbia and now it operates
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air. a lot of the people, the actors at the city level also has unhealthy relationships try to preserve the status quo. i think it's impossible import me when picking leaders, we elect leaders able to embrace to elegy to embrace the future rather than try to protect the status quo in the name of jobs than in the name of a lot of other areas around procurement. >> when i was last in academic, i think i should say one of the strongest defenders of the status quo is academia. since we are here at wayne state, in an academic institution, i think it would be useful to pick up on the point to look at our graduate degrees structures intersect but to me of the nonacademic labor market. right now our crutcher programs are focused on producing people with phd's are the academic
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labor market, which is not expanding very rapidly if at all. and yet you have companies looking for very highly educated people, whom they can't find. part of the problem is the academic system is now developing in england to mention very quickly a dozen of the kind of graduate degrees that intersect very closely at the technical level, intersect very closely with the needs of the nonacademic labor market. so one thing to look at is the developing professional science master's degree programs around the country. i think there are that many michigan, on the michigan state university has been a leader nationally in the effort. but there's now nearly 300-degree programs, which are science or engineering plus basic business skills. >> sir, next question.
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>> name is gary samuels. i'm a salesforce.com. i question has to do with mentorship and collaboration as relevant to the cooperation now about educating and retooling. it's also relevant to the discussion earlier about orange partnerships. the question of the comment is if we educate and retool somebody and make it taste in a position, there's still a risk of assimilating and been able to perform well. i'd love to hear comments from the panel run what can we do to it with mentorship and collaboration programs within the corporate environment or business environment in the same conversation for the community view of an entrepreneur gives a great vision and talent he may be missing something. he often is a cofounder or people who can be around the economics of his business and so forth. if the general idea of how we can improve mentorship and collaboration for entrepreneurs as well as people being retooled to find jobs. >> you want to take that? >> is a great question.
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my comment is an answer almost between the two questions. one of the game we been embracing in the last several years is the broadest concepts of open innovation, so partnering with nontraditional partners, whether they be established tech companies, smaller startups, entrepreneurs individuals and so on, harnessing the innovation to bring it. and certainly to the first question i can vouch for the innovation being developed right here in the michigan area. i do think that a couple things are appropriate. thoughtful incentives to actually help accelerate kind of seed money, to kickstart these things. but we have to ensure that the underlying technology or innovation is good edited in a global sense, but in terms of the technology itself and the
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business model to ensure the sustainable. so the second question, as we actually bring new engineers and tour companies, actually steering through those critical years, whether they're making a transition from another industry or whether they're making the transition from academia are absolutely critical. so things like mentoring on the career development, creating the type of work environments of the culture they expect coming out of college are all critical things in things that we focus on a lot at ford. ..
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doing to help foster and promote mid sized companies to export overseas? >> m i'm happy to take -- not nearly enough. is the right answer. i mean, we have a commerce department, that's part of the mandate, but the money that goes in to it, is pretty minimal. there isn't the kind of coordinated focus export effort at the federal government that you see, for instance in germany. i think a lot of possibility for collaboration, you have people working on the ground in china doing exactly what you're talk abouting and, you know, the friend of mine, jeremy who wrote -- how to sell anything to the
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chinese is working with state government in missouri and new york. a lot of innovation is taking place at the state level. i would like to see more at the federal level. we are out of time. please join manyt panel. [applause] we appreciate it. so the next whole segment of the program is going to be devoted to the inic of manufacturing and the future of manufacturing until the united states. i'd like to bring out my long time colleague when i was at " fortune" magazine. eric please come out to lead the discussion on the diy economy. thank you, eric. >> thank you, great to be here. let me just quickly introduce our panel list -- panelists. please to have a seat to my immediate left is grady burnett. who is global marketing in
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facebook and lived in an an are an an arbor more many years. mark is a ceo of -- which has a recent facility that opened up here not too far from the airport. we'll be talking about what we do there. the den nay ringelman is inkey go go is co-founder and coo. and which is an interesting pratt form for manufacturing. what we're going to talk about today is the do-it-yourself economy, and how how different tools have become available to entrepreneurs beyond just what we have become acooch to in the internet world. so the cost of producing a start-up, you know, has declined
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dramatically in the past decade, seen the -- mobile and internet start-up. we're starting to see many of the same tactics and techniques being used by start-ups and other industries. in particularly in manufacturing. and i think it goes all along the chain from, you know, ways to fund your product with indy go go and ways to product property type your product ways to manufacture it, and ways to market it and to reach out to the customers. after of the fact with the social, you know, facebook and other social streams. so let's talk a little bit about where we are today, obviously a lot of people talking about detroit in the election sb and bringing back manufacturing jobs. but i almost think that miss
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misses the point. yes, we want to shore the manufacturing base. in my mind what's the new form of manufacturing that is being opened up. what are we seeing here in terms of the types of people who can now consider themselves manufacturers. is it possible to great the gm in your garage now? mark? >> absolutely. so some things people don't necessarily realize today. the cost of a computer numberically controlled is come down something on the order of 95%. we are training how to use the classes. they are not world class at the end of the session. if you are patrick buckley and you want to do an ipad case
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and take three cases, ninety cays later, you could have like he did a million dollar company. they did $3 in the second year. $10 million year. square did the original three prototypes. they are doing fine. it has gotten smaller. typical when you do a software start-up, now you need $75,000. you can do a hardware start-up for the same kind of money. we had doesn't and dozens of crowd-funded project come through from 10,000 to $100,000 that got them through the prototype stage the first run in manufacturing nap is new to the world. you haven't been able to do that for the kind of price points. den nay all kinds of amazing projects on indy go go to my favorite one rented one is the
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building -- what is the -- [inaudible] yeah. tell us about what the products and companies that i have merged on inkey go go and how do you see it opening the opportunities that would have been maybe been hobbyist in the past. >> a few young europes who were passionate about keeping bugs away. we've had that problem before? flies, that's right. so what they did is put the creative minds to work and came up with the awesome contraption to the benign fashion shoo away flies. and what they ended up doing is they used this which leveraged facebook and the social media. they ended up raising almost $600 ,000 by offering their product as a way to raise money to built the product.
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so what was fascinating about that as well as other we've had campaigns raise money for 3-d printers. we had campaigns raise money to make the next film, we even had campaigns that are doing charity or cause-related stuff so people funded their baby. we had a couple who couldn't afford ivf inveto for thelyization. they got the rate of $10,000 to have a baby. so what is so incredible about this, and what we were talking about . >> the crowd goat pick the name? >> yeah. what's so powerful ease specially from products and services, we had a campaign who two young women wanted to create a solar powered environmentally friendly inflatable light they could giveaway in a model to the developing world. a lot of women and children die
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every day get injured from the car -- lamps. they came up with a cheap and affordable solar powered system to light peoples' homes across the world. they ended up raising $60 ,000. the bug people $600. what was true for both of the cases because was product, because in a way preselling the item, because people who contribute to the idea and the project actually gate perk in return. oftentimes for a product-base the actually product is the perk that you deliver. they end up mitigating the risk of overfunding or overfunding their production. they raise just enough money to produce just enough product that was actually purchased in the campaign. so that makes any sense -- >> right, the preselling. >> the social aspect to this.
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which gets to, i mean, maybe you can address this, because you sort of see the marketing start before the product even exists, right? the marketing starts with the core group of maybe what you call early adopters. can can be the most loyal customers. they cheer you on. once you have the product, a lot of people are find fact social that the facebook, that, you know, is a great distribution mechanism for connecting with new customers and getting people to recommend those products down the line. >> yay i think the distribution is incredibly important. if you think about how we make decisions. we make them by our friends, family, and coworkers do and what the platform of facebook is allowses you to engage the community in a word of mouth in a way that never existed before. you can act elevate those
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friendships, those people most passion passionate and have them tell your story. i think it's powerful. if you think about a ground funding idea i saw recently, idea, the university of michigan, there's a football player who played? a couple of years ago who graduated and like most college athletes is going in to the work force. he jumped back in to the community in florida. as a new business that is about the sustainable farming and eating healthy in the community that has not done it, and he's doing it through. he funded this. and distributed it through facebook. and as a result, i contributed to that. i'm excited. that's how increasingly the things are happening. >> what kind of businesses are you seeing on facebook? i think you mentioned to me a woman who started making toys or
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pickup pickup pickup puppets. >> it's a such a range. it's great. when you think about -- it always starts from a personal set of interest. almost business story on facebook starts with a person connecting with their friends on the page, talking about a set of interest, realizing maybe i have a business opportunity here. creating a page, ingoing from that. the woman we talked about is a name in north carolina business. and it is a kids clothing business. and it's based in north carolina. they basically distribute economic platform on facebook. they do it through the southwest, southeast, and midwest. she was selling as a hobby at first. her husband lost his job. he made it a career. she started doing more project. realized she could build a business. funded that through the community and a bunch of different stunts and she found her entire customer base that way subpoena she found the
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entire work force which is 80 people. she built a business of 80 people. >> she didn't have a website. >> she sells through facebook. she found a community of people that care and pace -- passionate about the product. and the networking bilged and she shipping product all over the country. >> right. tell us about some of the products that you're seeing on the platform and how would you sort of compare and contrast to where in the cycle would you as a entrepreneur take advantage of your platform versus some of the facilities that are available. >> sure. the way we fit in to the ecosystem is distribute manufacturing. we enable people to reach out no to out only the local community which is it is strong. but also in a global market, and so, you know, we allow people
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to, you know, produce product, next to the customer. and what we are starting to see is that people are kind of falling through, you know, they're using the crowd funding knowledge determine the appropriateness of the product is someone going to buy it. are they interested in if. they'll do prototypes at techshop and then if they are, you know, thinking on a global basis, they'll use a platform like ours to push their product out in the globe. that definitely what we're seeing shape up. and that ecosystem didn't exist five years ago. i mean, it really didn't. it's a emerged over the past three years this idea that you can come up with an idea, you can reach out to your market, determine whether or not they want it and fall through the
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prototyping and manufacturing side of things like that. you know, and that's exciting. >> we talk a lot about jobs at this event, and everything you're talking about, you know, it's very positive and encouraging because now, you know, anyone can come up with the product idea that needs to be manufactured. they don't need a million dollar facility that is available to them them. but the flip side that okay, once they prototype it and found their early customers, and they're scaling up, you know, past 500 or 1,000 items, don't they then just go back in to the that traditional scale manufacturing. does that create jobs here or abroad? >> is it a solution for the job . >> yeah. and it is because this is like
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the -- [inaudible] when you start using the internet. when you started getting e-mail, it was like why can't i use it with everything else. what we've done is encourage people to think about doing this in a new way. where we have kind of -- is that we removed the complexity of talking to people overseas. there is [inaudible] where people as they go to volume need to do that still, but what we are finding sz that people are starting to think critically about everything in their supply chain. and that includes whether or not they can use local resources to do what want to do. so what we are starting to see is that people are bringing jobs back locally because it just kind of makes sense to them. in many cases it's less complex than sending stuff overseas. [inaudible] important things going on with supply and demand curves as
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well. specifically because the robotic tools are cheap relative to where they were twenty years ago. you are able to manufacture things in short moderate runs at price competitive places that we have never been able to do before. so the demand curve is literally being shifted because of the ability to manufacture. an so question short runs better made what the customer wants and move a lot of the jobs back to the u.s. the job isn't the labor i just eliminated from the chinese worker on the line. and have a robot do it here. the job is on the design side imagining what it is that somebody wants and being able to deliver it for a cost effective manner. i believe it's a huge opportunity for manufacturing in the united states. >> we have seen the world's fastest electric motorcycle built on site. they're never going to sell a million of these. their objective is to get it to 400/500.
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those could produce thousands of those and probably be manufacturing in a distributed manner. it is another example you can get the cheap ipad cover from a chinese manufacturer for $5 or $10. for $60 you can have a beautiful ipad case that the president of the united states carries. patrick is never going to do a million of these. >> is he manufacturing them? >> in san francisco, yeah. >> it's an important thing. people are starting to build out the narrative around the product, you know, knowing the person who makes the product is an important part of the removal -- [inaudible] [inaudible] of information around product. that's what we suffered from for thirty years. that's what allowed us push stuff overseas. it's still in my shop, it's made local, right? it's not. what people starting to question is what -- is the story.
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you know, they know the guy who -- mark tells that story with real pride because he knows the guy. you know, and that's what we find our customers as well. their customers know them, and have a personal relationship to them. and that's vitally important. because it's about reinvigorating a social contract. >> i think i would attribute that to facebook as helping raise the bar with the expectations that you should know what your money is going to and what you're funding or what you're buying. because now it's easy to know the story behind the story if you adopt know the story behind the story, it's -- the words. and right, i mean, we're talking about products, we have a great example it's a food product that is a young woman who -- we're talking about jobs with she
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started a gluten free bakery because she had celiac and there were no products on the market for her to eat. she got a bank and got a $10,000 to get the business started. they literally made gluten free macaroons out of the back of the truck or the garage, and they started, you know, getting a little bit of attraction and they had the opportunity expand the production. hire people, and get the product in to regional grocery store. the only thing, they needed to upcandidate the packages which was going to cost $15 ,000. for a small business, where every single dollar you earn goes back in to working capital to help grow. they department have $15 ,000 sitting on the site. side they went back to the bank and said we have a huge opportunity grow our business and take the next step. the bank said congratulation there's no way we're giving you a loan. you're less than a year old. you're too high-risk. how do we know you're going to be successful.
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it's not they didn't want to. the risk return model didn't work. what did they do? they went on here and racessed a $15 ,000 by preselling macaroons building their customer base. using it and building it beyond that. in three weeks, and within three months, they were shipping their product across 40 states in america. and now they're hiring people and now they're growing. and it's . >> we talk a lot of social proof in investing. ron conway invested, that's safe for me to invest. right? what you're describing makes me think about social proof for consumers. right. you know, 600 people put up some money and help the woman raise $15 ,000 there must be something there. and i think that, you know, facebook, you know, is part of that. like you can see how many people
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like something or, you know, give it their stamp of approval, and this is kind of, you know, the next step in economic. >> and we're all social beings. it's interesting if you think preindustrial revolution. it lead us to do so many different things. engage in dirl different culture and travel to new places, learn about new interest. what it didn't allow is the personal connection. what i feel facebook for the social world around it has done is brought the personal relationship back to the center. businesses can be personal and they can actually have a voice. as a consumer, you can feel like you matter. and you actually count and have a voice in a way you haven't in a long time. and that creates opportunities for the business and creates opportunities there's businesses that will use facebook to understand how they product they
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want to build. there's a little stuffed animal called squishble that's in new york, now, started in d.c. they literally do all the product design through facebook. they'll say, should we create this next? should it be red or blue? and ha that's will actually happen there. people will feel a connection to the product they helped make it. >> i imagine you see some of that as well. >> in businesses like that, that is a business that started without a flash sales, it's connected to a particular designer who night be putting a few hundred things together. or a few thousand thingsed at most and having that ability to have the connection go back and look for that person's design. that the personal connection matters a lot. i think it drives job growth and business growth. >> something you mentioned, mark, how you see a lot of businesses being able to produce things in short runs. right, i think there's a bigger issue here when you talk about manufacturing. the manufacturing base right for
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-- about scale manufacturing and you get the economy. >> sails are relative thing. >> it's changing. >> yeah. let's talk about scale. how much boeing aircraft did they sell last year? a million? 500,000? 10,000. 5,000. hundreds? that's not mass manufacturing. that's actually hard core one at the time. build it. they have 250,000 employees. the aircraft engine division how many train engines did they sell last year? 500? there are hundred of thousands of jobs, billions of dollars being manufactured in the united states with the high paying jobs, use these fancy kinds of tools. again, ha is cool they come down and more assessable and easy to use. here's another front example. david lang came down about year ago, and said i've never made anything in my life. i'm going write a blog about it,
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and i'm going take a bunch of classes, i want to see if i can figure out how to make things. nine months later he's running an underwater remote control rov company that has been crowd funded and using this to help do the manufacturing. he's already sold hundreds of them. it's not a million, but do we need million remote control underwater vehicles in i don't know. maybe we do. for $200 or $300 you can own something that will go around the at beach. t a new toy. it's not a toy. nasa is interested. noah is interested. have orders from all over the place. this is from a guy who didn't know how to make anything from this time last year. we are living in a different space than we were five, ten, fifteen years ago. he leveraged social media. he used the blog, facebook, his
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friends, he used crowd funding and use it's an interesting space. it's not just about are you going sell a million units? yes, you're going to do some of the stuff. i think square probably gets it made in china. but there are plenty of products and plenty of spaces to be able to create products locally that people want locally. >> the point is also that a lot of barriers entrepreneurship as we've been hearing is getting started. and even if you can't, you know, keep using the tools, if you do have to make a million, that's fibro. we know how to make a million widgets, right? and what's fascinating about this, the barriers to entrepreneurship, you know, not just in the digital realm, but in the physical realm are going away. all right. what would you say to, you know, a lot of manufacturing jobs have gone away and a lot of skilled
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labor, you know, people are out of job talk about retraining. but it seems to me, if you have an idea, you can -- . >> we talk about this in music how the democratization of the music industry is actually enabled kind of a rising tide of the middle class musician. no, you're not britney spears. you can make a living selling music online. maybe make a few $100,000 a year and live the music. those people fifty years ago working in coffee shops by day and playing in coffee shops by night to make a living. i was in a cab talking to taxi driver, i was like how is life. it's good. i wish i could make more money. blay, he's working hard. and we talked about idea. would you start a business if you could. he's like, now that you ask
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there's an incredible place where taxi drivers it's never easy to find bedroom. i have a great dwrod to create a boardble bathroom. and he went crazy to give me details. why don't you do it? i need little bit of money. there's a thing called inkey go go. i need to help design. there's a thing called tech shop. and he's like holy crap. it's possible. we're in the world where like there's all these ideas and just been repressed every never seen the light of day. the mechanism to raise the money to design the product, to distribute the product, to market the product were never there. now they are. what i think we're going to see is less about a lot of the jobs of people who work employees before are going become entrepreneur and we see the rising middle class of entrepreneurs. >> i think this --
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demystification is just going. it's happening. , you know, and people, they kind of sit on the edge of the rabbit hole, right, you can make something and they flip down the rabbit hole and it's the casings and mel reason all the sudden it's everything. and so it's not only, you know, the manufacturing of big things, at some point time they go, why can't i make this microprocessors and, you know, we're seeing that. people are tumbling down the rabbit hole and saying i can make that and that and that. they understand what's going on. what happened over the past thirty years has been that mystification. we needed that mystification to keep the system working. the system hasn't supported people. the macaroon story deep inside of it has an important point.
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the bank wouldn't give them the loan. >> is it mystification. i find people that call it specialization. should techshop making the . >> i think it is mystification. thing is the thing of, you know, that's too hard to do. that's, you know, we would -- . >> it used to be. the education system in many respects encouraged that. you would go and get a postgraduate degree to work out how to make something an mba, maybe. you don't need anymore. the way of -- the tools are there for you to engage automatically. now, you just need to plug them together. there are these stories that are emerging that are allow you to wrap around the existing system. they don't support us. and they haven't supported these sorts of entrepreneurs but our tools do. that's the really vital thing.
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>> i think the best thing michigan can do or the city of detroit is literally a marketing campaign like knick key, you can do. everybody has ideas. and, i mean, i was in berlin, actually, there's a panel in berlin v detroit which is interesting. you can feel the energy building. there's a come plaintiff's exhibit over there of germans v the u.s. they feel like we are faster and innovative. what you're starting to sense is build the confidence they can do it as well. we're seeing more entrepreneurship come out of here. i feel that's detroit and began needs is the big campaign saying you do it. here's all your tools, it's a matter of you deciding yes, yes, i'm going to go and try. >> to put it in context, right. it comes from new zealand. they are literally on the edge of the world. we go on the airplane and flew over here and started the
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company, you know. michigan and detroit is embedded inside the united states, you know, those resources are literally on your doorstep. there's no excuse not do it. it might not like look a million dollar company. it will turn in to something like that. >> if anybody has any questions. we have microphones here. lineup and i'll call on you. so, you know, one thing that we you touched upon here is the custom runs, right, and people have been talking about a lot about mas customerrization for a long time. it's something that corporations have mastered to one degree or another. but in a way, it kind of fit in with what you were talking about everything having a story or the consumer feeling they have a connection to, you know, to the product, and when products are, you know, i don't want to say
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they are hand crafted. they are custom made, right, they can be custom designed, you know, for your specific needs, it's also like we're going to back to some of the connection we had, you know, almost preindustrial. >> there's a clear research in craftmanship. et sy.com is a great website of handmade goods people are producing things in the baifm or tech shop or selling job line. again, these tools enable you to, you know, the machine doesn't compare how complicated it is. you do your design and hit print. it starts to cut and if you own the machine yourself. you walk away at the tech shop you have to stay there. the acted to customize that so it fits.
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i have a little app i can show you. i can design a small coffee table. it doesn't look great. i can sign a cough tee table in thirty-second. spin it around. give me the form. it's cool i'm a little bit tall it would be nice if it was economized to my leg. ikea do do that for me. it seems like it comes out of the same height. twont be nice if my furniture fits my height. you use the type of machine. i don't know, yes there's a craft component and that particularly works well when you're talking about social media and so forth. the toos are agnostic. if building a robot and going to do 1,000 of them and charge $20,000 a pop, that's a nice business. it's not really craft, you can bruce them in short run and make a great living. >> i had the opportunity to visit techshop yesterday on the
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way from the airport, there was guy working on the laser cutter and had a piece of wood. he was making a game board, you know, and he could economize the game board making a side business off of it. there was another guy he had the two robot legs, he was trying to figure out how to make a robot to balance. he hant got ton the other part. nobody figured out this part. he's a guy here in detroit, he might figure it out. >> one of the first members here was -- italian moved to detroit lost access to the tools when he got married and moved here. discovered us and he gone back to the making beautiful string bases. >> we have the picture question put it up there. keep telling the story. >> there he is. you're not going to make a l many of those.
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right. but at $20 ,000 a pop, and eight or ten of them a year. he can make a decent living. >> the customize and the craftman story. is that it provides competitive advantage. if i was a furniture maker, i would make tables that facility him. they would give an advantage over the mass manufacturers because they don't care about max. he sits outside of the db that's the other important thing going on here. >> and the other element to customization. we see it happening in the crowd funding with the perk model, he a two inventedders coming up with the mobile accessory
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device. it was cool you put the mobile phone in the to base they created. you put a marker on the shirted and walk around and your mobile device follows. you. they were able -- they got rejected to prototype the thing, so they went to raise money to do it and got them going. they offered different custom build of the base. and through it, they maximized people's willing tons pay. they're willing to pay for the customization. they got more money. they left less money on the table and validated their idea and because their campaign they got the venture capitalist, the one that originally rejected them. it showed there was a serious amount of interest. it gets back to the microeconomic, with you offer suchization you can actually optimize people's willing tons pay and not leave any money on the table whether it's loss or
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consumer surplice. >> start -- i encourage people go on that website and not log in through facebook and log in the next time. you can see what they do and play around and get the various interest. they'll learn over time. they'll start to see that these products are related interest you care about. it's a personal store to you. that you're more likely to engage and buy things from. >> yeah. >> have you ever played around with dynamic pricing one of the first ten to donate, you get, you know, the product for $5 and then it goes up by $5 for every . >> our customers do it all the time. >> it's exciting. >> we have a question over here. introdisuse yourself and ask the question. >> i'm chris, the founder of [inaudible] we're a platform for local community. and we had a campaign at inkey go go. thank you. my question we would be remiss
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to have a discussion with do-it-yourself with entrepreneurship without mentioning the jobs act. i get asked all the time personally i'm skeptical of it. i'm skeptical because i think that the unhappy of investors for quickly in the cases of unsuccessful companies. a lot of legal battle and unfulfilled promise. all the benefits you are talking about being able to have presale your items, that personal connection with your project creators and dot nors and the community you kind of miss out on all of that with equity-based crowd funding. i'd be interested to hear the panelist's opinions. >> it going ruin it all. >> i have strong opinions. you can read my "washington post" opinion from last friday. look, we have managed to all but destroy the ipo market in the
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united states in the last two decades. we had the 92% drop in $50 million and below ipo in the last twenty years. 90%. that is absolutely ludicrous. the fcc and the discussion said, look, it gets technical. the 5060 has raisedded $800 million last year. we don't see why it's out of balance. this is the peak of the pyramid. this is the bottom of the per med and you're saying it's not at problem. it should be five times the size. you apt robust economy that creates jobs. you have to unleash the entrepreneur. it's ludicrous. [applause] let's get personal. right. let's say that you're a kid from downtown doit, you have the great idea for modifying your skateboard, and you have to go to friends and family to raise
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$10,000? really? yeah, that's the reality right now. you have to go to friends and family. there's no way for them to legally reach out to a community and tap in to engine and put a blush out. it's against the law. he can go to jail. thank god thank changing. >> for equity. the ground crowd funding you do that. times it takes more than $100,000 to get something done. there will be fraud and problems. i am concerned about the, you know, the or fin or oregon fan -- we have swung the pendulum so far. we have destroyed the entrepreneur society. >> not because of the lack of funding on the -- other issues on the exit stake. there's, i mean, look, facebook, you guys, you pushed off the ipo, you know, for a long time
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longer than you probably could have ten years ago because it allows you the freedom to sister dc a different world. a lot of companies are seeing that. all the, you know, challenges that facebook is having issues with going public, what, you know, that -- i think that's a bigger deterrent than not being able to get -- [inaudible] >> i disagree with the first comment. the reason, you know, the, you know, the reason you believe that issue because we have been living on to the regime for eighty years that allow you to find people get you ebbing fip if we had that, and took it away, you would see the incredible reduction in entrepreneurship like we have seen in the last twenty years.
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i actually think we can use transparency and other technology. i love the fact that fake game guy that caught, you know, inside of $25 00. i think there's some tools we can use today . >> we were talking about this backstage. it gets back to the whole discussion of, you know, social proof a lot of times people use these craft funding platforms and it's not so much that yes we're going to get return. we're going to get a product but they're doing because they want to see this product or this company sort of come in to existence. it's almost like altruistic motivation. i think there's a danger if it becomes a pure financial transaction, that a. you attract more people looking at it purely as a financial transaction, and they want that return. and that, you know, that might there might be tension between
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that and motivations from the social motivations that we have seen create the amazing things. >> so we -- to address your question. equity funding going ruin crowd funding. we think no. we see there are five reasons in the world universally why people fund anything. five. and we call them five p. the first is passion. they want to see the thing idea come to life. the person succeed. they want to do good. the second is participation. they tonight part ever something bigger than themselves. they are working 2k09 5:00. they have kids at home. they would love to do their own dream project thaw i they don't have the time. the third is the perk. they want the e maker the printer, they want the rover under water thing. the fourth is pride. they want to be reck recognized for being the funder. people were talking about how they were like funder number
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25621,000. they were there first. and then the fifth reason is profit. that's only one of five. and currently the profit is illegal right now. currently the first four are dynamicically at play. people aren't just choosing unmoted elevation. there's a mix happening at the same time. there's no reason to believe why it won't happen if we added the fifth p.d. we think fundamentally that crowd funding is a social experience. and anyone who has not funded something that way or raised money that way, does not understand that until they actually do it. because you're funding people. you're not funding idea but people. that said, with the equity crowd funding with fraud we have been at it almost five years. we've been, you know, worried about fraud since day one. the reason we are worried we want to be in business and empower people across the world. we don't want some stupid fraudster ruining it for everybody. given that, we have been
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committed to that. we have develop machine learn and the stuff on the back tend not just provide a completely platform where campaign with the most activity get promoted base order the own action not base what we think. it's what protecting and catching stuff and pulling stuff off the platform. >> we have two minutes left. let's get one more question. you have a question? >> my name is [inaudible] you can call me [inaudible] i'm from oakland university. my question is more of a clarification. basically what you're saying is that a person starting out a business or [inaudible] in order to become a successful entrepreneur not so much the kill -- skill they have but the tools they are possess that they
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use are in possession of. >> i think it's a combination. >> a combination. >> the tools are ever an amplifier of the skills. you might be really skillful if you don't have access to the tool. it's hard work. if you have access to the tool you may kick ass. you may have access to the tool the end result may not be so great. what's different is that literally from the first time since the begins of the industrial revolution. you can have access to the tools from the cost equivalent of a daily cough foe. that has never happened before. you can raise money on platforms through a computer you owe and tap in distribute manufacturing that will help you dislifer. this is a new day. >> you can make more mistake and not be completely destroyed by them. for the price of a cop of coffee. you try again. >> i think we're out of time. we'll land it on that note.
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thank you for the panelist and the great discussion. [applause] >> thank you. [applause] that was great. i don't think you could have a better discussion on the topic anywhere in the world. we're here in detroit. it was a world class discussion. i mean it. fantastic. by the way, the same set was built at techshop detroit. so enjoy that. and there's a couple of things that are going come up in the next few minutes here that are all sort of a theme and the next speaker is one of the parts of the theme. we -- i really -- and we at tech economy wanted to create an awareness here and everywhere. i think it's maybe even more neated in detroit. there are weird and incredibly promising unexpected developments occurring in business preaccept dated by technology and this company about to come out and talk to
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you is an interesting example. company only been around since 2009. they are -- i'll let him describe what they are. they just last week raised $68 million from the world most famous venture capitalist firms. anyway, ben, come out and shake us up a little bit, i hope. [applause] >> hello, david told me i have ten minutes to change your entire perception of everything you see in the world. i'm going do that. see if it works. the empire state building, i live in new york. i'm guilty that have. the empire state building was built in one year and 45 days to built the empire state building. it took -- [laughter] two years and two months to
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build the potato peeler. something wrong here. eleven years later, we don't have a freedom tower. this is the first jetliner p80 from idea and design to delivery was 143 days. that's what our country was capable of when we needed to be innovative. fifty years since the original concord was designed and it's still the fastest commercial jet in the world, and it was flown completely mechanically, like no onboard computers and switches and things like this. there's something to be learned by all of this. and that is as the world has moverred in to a place where
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we're making acts and technologies and servers and things like this. we have forgotten about the things that actually touch all of us as human being. real things that you can hold in your hand, look at out on the street, and sometimes drop on your foot. companies all around the world are having trouble figuring how do we be innovative and capture this. even pg this is a quote, you can't read it, says we haven't created a new meaningful category in some time. this is from the ceo of pg just two months ago. so what does it mean? it means that we need do something about it and that we need take all of the cool things happening in fj and community and internet and put it in to things that matter. the things we touch and feel every day. they haven't made anything new or meaningful in some time. guess who has? a bunch of crazy folks locked in
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glass conference room in new york city. we launched brand new consumer products every single week every tuesday at 12:00 and thursdays at 12:00 regardless what's going on in the world. that's going increase to about ten products per week by the end of the year. the reason i started the company, i was an inventers myself, i realized making physical product is really hard. you need have there's some sort of list of tons of different disciplines from design to engineering and manufacturing and retail merchandising. so many things need come together to push one brand new product in the to the real world. what it results is in a world where invention is inassessable. now, we strive to make it assessable we do it by leveraging three things. three things that any company can activate, employ, and put forth to bring all the technology innovation and all
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the passion that bilged the state building in one year and 45 days in to everything around you. technology, community, and experts. it's the coming together of all three of these things that makes it possible for us to defie gravity every sickle weem. we have got to place we launch new consumer product somewhere between $5 and $50,000. when every company to rubber maid they are spends millions dollars just to throw something against the wall. by the way, the guy pictured here. we call him around the office detroit. he's here somewhere. his name is richard. he runs shop. everything that comes out of this guy's hands. he went to college here. [applause] where are are you? stand up. i can't see. he's here. so all of in happens where people come together submit
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their idea, some of the ideas are as simple as recycled science fair projects they had in high school. this is one that was submitted bade guy in wisconsin who graduated high school at the time hep said it's a problem and i needed solution. i can't fit all of my power cords in to the power grip. 709 people came together. and design process and all of the sudden wret world pivotable power strip. you can pivot your outlets and everything. [applause] this is just one product. we do it twice per week. jake's product is closing on million units sold. a 24-year-old kid from wisconsin is made over close to half a million dollar just a year after his product hit the marketplace. this is coming together is a world can do. his product can be found at the best retail stores in the
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world. now i slow down a bit. so wrap your head around this. everyone talks about the future. the future, the future. 100 years, 100 years of progress in the fair town over 100 years ago, you guys had a guy that made something like this. it was a car, it was called model t. it was the best selling car in 1909. and it came in black. it got 17 miles per gallon. here we're 100 years later, 100 years later, like, wrap your head around this. the best selling car in america is still a ford! it's still black and gets 16 miles to the gallon. [laughter] that was 100 years worth of progress. let's look at what a community can do in 100 days. 100 days of progress.
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jenny, a student in atlanta, she looked around her dorm room and said, everyone around me is using milk crates for things other than milk. and this has been going on forever. when was the last time you saw a milk crate carrying milk if hold records and books. she was tired. they are ugly and i don't want them. second of all, they're not built for this. so how do we take the milk crate and revolution it and change the world. she submitted it earlier this year. a community got to work and we immediately started sketching it figuring how to revolution nice it. we found a ?op new jersey, they spend a few days on it. we found a factory in vermont, they had big molding machines. soon are or later there were tens of thousands of these being made. and jenny and her product went
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from $5 to $1 million in four days. knead in the u.s. made by all of us toct as community and people in less than 100 days. it's available at staples and officer max and target. so all of this comes down to one simple thing in my opinion, back then when we were building buildings a year and 45 days and defying the lawings of physics by making super sonic jets. we did it because we had to. that's what we were paying attention to and put our passion in to as a nation. and now we'ring our passion in to making iphone cames games and things that aren't actually moving us forward as a society. why this place works and the community is so dambisa productive is because of the one quote from mr. ben franklin
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another awesome ben. he said, tell me if you tell me i'm going forget. i'm going it forget it. i don't care about the new product and discount. i don't care about promotion and the car now comes in pink. i'm going forget about it. he said, show me, i might remember if you show me that car and show me why it's better. i might remember the fact that i should stlait empire state building. but if you involve me i'm truly going to understand. and when people understand the passion that goes in to a product, and the passion that goes in to building a project and coming together as a community, then they're going to understand and really going have your back. so thank you, and please do things other than iphone apps, i guess. [applause] [applause]government.
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mr. haldeman spoke about the housing market and financial regulations at the john f. kennedy school of government. this is just under an hour. >> i'm a member of the faculty here at the kennedy school at a romani school of business and government. it's a pleasure to welcome all of you to this year's lecture, which is funded by nasd, which is now in the, the private broker of the u.s. industry. the focus is on financial regulation and each year we have had a leading public official responsible in some ways for u.s. regulation. this year, our speaker is a tiny
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bit of a stretch, but not really much at all. ed haldeman was ceo of freddie mac from a 2009 to just a few months ago. while in that role, ed was not really a formal regulator. he was responsible for running a very large public financial institution. freddie mac and its sibling, fannie mae are what are called government-sponsored entities, gics. for years described as private companies at the public mission of supporting housing or more simply, as mixed public-private enterprises. but in september 2008, both institutions failed financially. they were placed in government conservatorship, becoming quite unmixed just public corporations. the gics have had many problems of their conservatorship.
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ad was not part of that arriving by the year after conservatorship. but add was part of the solution. the risk of running freddie mac is a big challenge. it's very large business. about 5000 people. but the balance sheet at its peak, before conservatorship of just under a trillion dollars. that included about $800 billion of mortgages financed directly by friday and another $1.7 trillion of mortgages guaranteed off balance sheet. together with fannie mae, freddie mac's responsible for roughly half the u.s. mortgages made to homeowners. since conservatorship, the amount of mortgages directly on the balance sheet of fannie and freddie have declined, but their role in finance u.s.
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homeownership has in fact shot a. today, roughly three quarters of u.s. mortgages are made for her and she by freddie and fannie. i had a bit of a roll after his place in conservatorship yet i was in the freddie mac ford, head of governing and nominating committee. the first ceo of freddie was put in place by the treasury department at the time of conservatorship quit after six months. we had to make a pitch to add to take the job. it was fairly simple, and most challenging job, which is a germanic understatement. but the opportunity to do meaningful public service. setting for any needed strong leadership and steady guidance as they rehabilitated themselves and waited for the government to decide just what to do with
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them. i should point out that we are still waiting for the government to decide just what to do with them. it's now four years since the readership. and beyond some partisan back-and-forth about things handling of foreclosures, housing policy has been one of the elephants in the room during the campaign. ad has had an outstanding career in both public-private sector, leading important financial institutions after degrees from dartmouth, hbs and harvard law school and started his career with the philadelphia investment accounting film dealer. it was later bought i united asset management which churn for eventually ran he became the u. of delaware messman and next he was called to run putnam investments here in boston and even larger management firm that
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has advanced to the previous management. he righted that it eventually sold a good price for shareholders to a large canadian financial firm. it was at that time that we approached add to run. freddie and fannie, together with a broader issue of u.s. government involvement in housing finance is one of the major unfinished pieces of business and financial regulatory reform. it's clearly an important issue. we c-span here filming this. ed has the unique perspective. an experienced manager of the frontline running the gics and most thoughtful public policy participant. he's done when the talk about where the gics have been and what to do with them. my great pleasure to introduce ed haldeman.
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[applause] >> inc. so much for the kind introduction. i'm very appreciative of so many of you coming out tonight to visit with me and learn about freddie mac and the gics. i'm particularly pleased to be giving the glauber lecture here tonight. there are many, many people, perhaps hundreds, maybe even number in the thousands of people whose career was launched by bob glauber. i am one of those feared doctrine one-time investment management in 1973 at harvard business school and as he indicated, i spent approximately 35 years in the money management industry. so i don't distinguish myself based on my career been launched by bob glauber, but what i think it's a little bit special about me, perhaps unique is that my
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career began and ended with bob glauber. [laughter] is particularly this week, i think i have to be careful about the preposition i used in that last clause because rob was on the board. i was the ceo and the preposition i used was my career ended with bob, not by bob and i think it's a particularly insensitive to making sure everybody knows we ended our time at freddie mac together. i'm also pleased that the subject of the lecture tonight is freddie mac and the gse so i have an opportunity, now that i'm no longer the ceo, have an opportunity to present a balanced view of the gics. this is a subject, which i have come to see others speak very
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aggressively, emotionally. it is a subject he 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 and if i succeed, it may be the first time there's ever been a balanced presentation. certainly, the employees that work with me were passionate about the role, the function they perform, almost a religious kind of mission is what they felt they were doing at freddie mac. and it is hard to imagine that there were other people in societies that had the same kind of visceral feel in the opposite direction about the work that they did. neither side able to the the
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other point of view. hopefully in the course of the next 15 minutes or so, you will come to balanced opinion about freddie mac and the gics. i want to start with where they've been and go back quite a bit in time back to 1938, when the first gse was created, fannie mae, to think about what the mortgage market was late at that point in time because they think they're doing so, we'll see some of the advantages and good things that have been accomplished by cne, freddie and the gses. before fannie, the mortgage market was very different than it is today. the only thing available was short-term mortgages, five or 10 years, variable kinds of rates. the down payment on a 50% was the standard in those days. there is a payment at the end of the term. you had to, but the whole thing at the end of the short-term.
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very large variations with mortgage money and rate, no standardization, all done very locally with very different standards in the mortgage market was not at all connect it in as a result, rates were quite high in those days. subsequently, the mortgage market has changed radically and in large part because of ready, cne and the gses. most importantly, the mortgage market got hayley connected to the capital market, the secondary function performed by the gses connected the mortgage market to large pools of assets to the capital markets, including not just the u.s., but worldwide. there is standardization required by the gses, virtually an illumination of the variability in rates and
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liquidity by region. there was a broadening out in the access of mortgage money in our country before a very limited high income people very limited in terms of ethnic back down. the gses brought not a substantially and made sure there was white bread availability, fixed-rate, 30 year mortgages. think about what is so special about mortgages and our country. today, for 3.5% interest rate, you can get dirtier money with no prepayment penalty, a pretty unusual economic opportunity. so those are the early years. the advantages the gses brought to the mortgage market. let's not think about the years just before the financial crisis and think about where the gses has been in that period of time.
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the reason is worthwhile taking a look at for the financial crisis is that there are many people who have argued in written at the gses cause the financial crisis or cause the great recession. as bob glauber indicated, i was not at freddie mac until way after the financial crisis, so i don't really have a stake in this game. but this is a chart i would look at too sore to determine extent i thought freddie mac, cne may cause the price is. i'm not saying that perhaps will find later some contribution, but do you think they cost it? this chart looks at market shares in the market share of the gses is at the top and it's up blue line. and then the british line that
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starts at the bottom and gets very high is the private market, so this is the investment banks in the commercial banks issuing secondary mds private-label securities we call them. look at the radical market share change. freddie and fannie going on the order of 75 or send down to 40%, falling like a rock. and the private-label taking tremendous share. but would be the cause of that? because in my view is a change in underwriting standards, a change from requiring substantial documentation and high underwriting standards, large down payment, many of the private capital competitors
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reduce some of the standards and were able to take substantial market share. now imagine you are the ceo of freddie mac at the bottom market share number, 40%. the senior market share go from 75% to 40%. he reacts not? do you change your underwriting standards? how much can you tolerate in terms of market share loss? is the ceo of freddie mac at 5000 or 6000 employees. it looks like the entire market is going away from me. do i change not? i think the ceos, people running the company did make some changes and we each can make our judgment about what we would have done in that position, but at least argue it's a hard call. it would not be easy to be unchanged in terms of
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requirements on underwriting standards and have the market share go completely away like that. this is another indication of what i believe whether or not freddie was the cause of the financial crisis. and here we take a look at mortgage default rates over time the definition of default is 90 days to link went. you can see that i freddie and fannie at the wordstar delinquency rates cut up into the four to 5% down. for the overall market in our country, it got to be 10%. the subprime sector of the market he got into the 25%. so again, while i believe
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freddie and feeney did lower their standards, resulting delinquency rate, you can see a big difference between the way freddie and fannie behaved in the way the rest of the industry did. so where i come out en masse is that i don't believe that the two gses for the cause of the financial crisis. i do think they did produce underwriting standards, but i think i can understand why the ceo might have done not given what the competition was doing. i do think there were some mistakes and problems made that were connected to the gses and certainly one that i found troubling was summarized in about by gretchen morgenstern called reckless endangerment, which is the story of crony
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capitalism exhibited by the two gses. i view that look almost as a playbook on how businesses can execute crony capitalism and get close to government for their benefit, not just an incredible lobbying organization, not just campaign contributions, but things like hiring repeatedly people coming out of government, opening regional offices and all the critical congressional offices and hiring relatives of congressmen in order to fill those regional offices. so to be sure they offered is accurate. a second problem was the implied government guarantee. this is not some lame but
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necessarily was generated by the gses, but rather took advantage of it. but what they were able to do because of the implied government currently was fire essentially as much money as they wanted to at the government rate. so unlike most private companies, when you put on more and more death as the rate goes up, they were able to borrow almost unlimited amounts of the government rate and then create a retained portfolio, which some people described as a hedge fund because one is able to arbitrage the difference between the government rate and the rate they use to buy in some cases private-label securities. so i don't think the gses for a halt, but i do think it is a stretch to call them the cause of the financial crisis.
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so let's talk about what the gses have done subsequent to the crisis since they put into conservatorship to point in time that i'm more familiar with. one of the things they have done in one of the reasons i took the job is that they have been the only game in town for the mortgage market. and here, the numbers accounting for 75% of the total mortgage market if you add in fha, another government mortgage provider commuted to about 95%. so the private market has been providing only 5% of the mortgage money. where would we have been over the past three or four years without the gses performing this function? in addition, we worked with the administration in treasury
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department in order to execute some of the government programs. home affordable modification program and home affordable refinance program. you can see the number of modifications done since conservatorship is 1.2 million homes, a big number. the only problem is when the idea of modifications was first generated. the program was quickly taken over by political people in and close to the white house and they decided they needed to make an announcement about what hamp was going to do and they said it was going to do three or four modifications. i've no idea how no one got the number, but someone wanted a big number as result, 1.2 has always seemed like it wasn't very successful. it's a pretty big number and the
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gses executed not just the modification program, but also the refinance program. one of the things we didn't do was we didn't do principal forgiveness and that is -- a not quite ready for this one, but on this list of things up here, we didn't do principal forgiveness in some of you have read criticism about us not doing we didn't do principal forgiveness and some of you have read criticism about us not doing. we believe pretty strongly as some of you have read criticism about us not doing. we believe pretty strongly as did our regulator that there was a real risk of strategic default where we offer a program of principal forgiveness, which is to say that even though freddy has lots of underwater mortgages , over 80% are still current. nobody had any problem or has continued to make their obligation despite being
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underwater. we worried about principal forgiveness having some impact on those a cent of the underwater mortgages and we thought it's better to focus our attention on hamp rather than add principal forgiveness. i wanted to spend just a minute on another part of our subsequent conservatorship, which would be profitability. many of you have read about standing back and freddie may. in front of you is two bars. one is the amount to draw with taken from the federal government and the green bar is a moment dividends paid. what a lot of people don't recognize is that the dividends that we have to pay now i remember like $7.2 billion a year. so if you generated $7 million in income, you'd still have to
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draw something from the government and that's why people continue to talk about draw. if you look at the total record for the entire time, the round numbers rhr from the government of 70 billion dividends at 20 billion, beating a net drop of 50. you can see them to designate when that your son come, the draw was 40 billion. so everything subsequent to 2008 has been a drive required to pay dividends. that is a net neutral impact on the treasury. and the reason we been able to get to that level of profitability is that all the mortgages that have been put on in the last years during conservatorship have been very high-quality in terms of down payment and in terms fica score, much higher than was the case prior to conservatorship.
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this new book, besides subsequent to conservatorship now accounts for 60% of the total primark. so that was all passed. we talked about the real old time. come on 19 we took a look at the pre-crisis. a much that post-conservatorship. let's now look forward and think about what to do with freddie mac going forward. it has been a great frustration to me that the treasury department and the administration has come up with no program policy recommendations as to what to do. it is now 50 months we've been in conservatorship. it's now 50 months to 6000 people who work at freddie mac don't know if the company existed no job security at all. the treasure was to put out a position paper in january 2010 with the subjective solution.
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they didn't do that. it didn't come until january january 2011 and then the white paper of the stooges three options, three options obvious to anyone on day one of conservatorship. so it's a great frustration remained a progress in this area, particularly when i believe there is strong consensus on what we ought to do. before you is a proposal put forward in august of 2009 by the mortgage bankers association, which talks about farming companies, friday capital companies they call it the cheese, market credit guarantee entities, which would be three to five the number of the private capital companies to compete with one another, that there would be no government guarantee of the companies. there'd be a government guarantee of the securities, mortgage back securities.
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or for that t., they would pay an insurance premium much like fdic insurance. the securitization would only be a plain-vanilla kind of mortgages. anything outside it would have to be done in the private capital market and there would be no retained portfolio at all. so we had this proposal, a sensible proposal in my view in august of 09. three years later, a really smart guy named jim milstein who is at the treasury department, the guy was possible for the restructuring of aig is the voyeur in investment in keene restructuring kind of person and he put out a proposal, which has many common ingredients that we saw from the mortgage bankers
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association. here, the emphasis is on a government agency. the federal mortgage insurance association, which authorizes management regulate a series of securitate there's the issue mortgage-backed securities and again, the company are not guaranteed, just security czar. the beauty of both of these proposals is that the technology in the infrastructure and system in the human capital of the gses would not be reset, that could form the basis of one of these securitize theirs to compete in the private capital market going forward. so i believe that there has been some consensus around a proposal that is feasible would work. one was issued by somebody who had an ax to. that is the mortgage association, but milstein coming
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from the treasury department come up or simply his view is what is best for the economy, but it's a very similar proposal in my estimation and i wish that we could move ahead with them being like this then you would be tremendous benefit icing for the taxpayers to get some usefulness out of this investment that they have made in the gses and keeping them together and functioning, to use the skeleton, to use the infrastructure and awaited that allows the taxpayer to get a benefit, to get some monetization of the investment that is then made over time. ..
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>> i have made my decision to leave freddie mac because i thought it was going to take a long time before we would get resolution. unfortunately, i joined the company the middle of 2009. at that point, everyone was certain that the company would be relaunched at some point. possibly in a couple of years. obviously, we have been disappointed in that. as the calendar rolled through three or four years, i concluded looking at my birth certificate that i probably wasn't going to make it. that was one indication of my pessimism about when we were going to get this resolved.
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it was clear to all of us that as we got into the election year, that nobody was going to spend any time on it, and it has been remarkable how the candidates have been on the subject, given how much of it we have talked about. significant things like tax policy and policies on deficits. i think there is going to be a long period of time before we will get any action on this. i'm just talking about when someone puts out an idea, which has to be challenged in congress and debated, and then you get something fast, and then you have the implementation. after all, think about where we are as far as implementation in
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terms of obamacare. unfortunately, i am very pessimistic about when we finally get resolution. >> yes, sir. >> i am a student at harvard kennedy school. you started your remarks talking about the incredible remarks before the conservatorship. as we think about the entities that will follow, how we think about creating an appropriate amount of political installation against lobbying when it comes to capital requirements or appropriately pricing governments guarantee? >> that is a real important question. i can tell you that during my time in the conservatorship. we had really strong
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restrictions. we were not able to make any political contributions. not just the corporate level, but i, personally, was not able to do it. i happened to go through law school with a couple of senators. i was not able to visit with them even on a personal sense. it precluded from any interactions. we had to go to a regulator. initially, all the lobbying and the lobbying people were let go. i can tell you that it has been totally insulated with a couple of exceptions, which were really annoying to me. which member of congress, who felt like they own freddie mac,
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like they own me, but they would call on my personal cell phone. i don't know how they got it, trying to make me intercede on some action the company was about to take. presumably a foreclosure can kind of activity that have gone through the process. it was asked to intercede. there was an attempt in that direction. all of that makes me a little bit pessimistic about your question. i think when we get to the resolution, one would hope that we would have the private capital company, which would be regulated very closely with restrictions on campaign contributions, lobbying, those kinds of things. but we are also going to have to have strong leadership for those
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who don't buckle to the pressures that they receive. but it is a problem. i guess against the reason that i'm not too pessimistic is because we have gone through this period of time where we have been incredibly disciplined about employment and political activity. >> you also talked about the discipline of the gse during this period. what they have guaranteed. have you come money pressure? >> very modest. obviously, the statements made by members of the treasury department administration
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suggesting that we were too tight or the other place that we would get a little bit of pressure is how aggressively we took the push backs to financial institutions. the very modest and reasonable, i would say, not particularly troubling. >> okay. >> hello, i am a student here. i really like your charts. it looks that we focus on the single-family side of things, and i'm interested to see about what to think about the multi-family aspect. >> thank you for that remember to grab a supporter. this is the second time i have spoken since the vice presidential debate, and as a result, every time i sip some water, i wonder whether it is too much or too little or whether it is appropriate or not. [laughter] >> so multi-family is a really great story.
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it is about 20% -- excuse me, 10% of our business, but it is a successful business. it is one where we have had -- i showed you where we are no matter what time period we are looking at. there was a default rate, such that many people but that can be spun out and that is a -- another way taxpayers could receive money. i'm very proud of the efforts that we have made in analyzing
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multi-family. i think that it could be a very successful standalone company. going forward. >> hello. i am asking this question on behalf of the jfk junior reform committee. would you say that the companies have lost the ability to recapitalize themselves? >> i think in the traditional way of using the word recapitalize themselves, yes. because of the 10% dividend requirement. when most got institutions to have bail out, there was a 5% dividend with an ability to repay that. freddie and fannie, the dividend was 10% with no ability to repay. as a result of that, the ability
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to recapitalize themselves, to use your phrase, really isn't fair. and the numbers for freddie mac is like $72 billion, meaning that the dividends payments annually at 7.2%. it is really hard to generate enough capital to meet that dividend and accumulate on your balance sheet. you have a chance to recapitalization. >> i am the senior at the college here. thank you so much for taking the time. you begin your talk by discussing the important advances in the mortgage market after the introduction of gse is. i wanted to know in your opinion and looking forward, to what extent do you think a more purely private area is able to
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or would be able to achieve the public polls of the gse? >> okay, let's hypothesize no government involvement. you'll remember that i had limited government involvement, none of which are too big to fail, none of them have a government guarantee, but the mortgage-backed securities that they issued would be government guaranteed and there would be an insurance premium paid for that guarantee. that is the extent of the government. let's hypothesize to go to your question that there is no ultimate reinsurance, ultimate backing of the security. the disadvantages to that, i think, would be largely in the
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cost of mortgages. i believe that the mortgage rates would be materially higher as compared to my suggestion. and the reason is that i think that there are big sources of capital worldwide that will only invest in our housing mortgage market. if there is some kind of ultimate government backstop. i think there are big pools of assets in asia, for example, that will only invest if there is an ultimate government backstop. i visited during my tenure with some of the holders of freddie mac security from foreign institutions. and they said they would not buy anymore and we would reduce the holdings, because even under the
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current state of affairs, they were not exactly comfortable with the ultimate government guarantee. we made it clear how significant was to have that guarantee. big pools of assets in our housing market. for that reason, i am willing to tolerate a limited amount. >> without government involvement, it would be a higher price for mortgages. and i bet that is right. but the consequence consequence would be a higher mortgage, of course. what would be the consequences of that. would it be good, bad, or not either? >> the consequences of higher rates? >> just. >> well, i think that they would be significant.
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i think that already, we are going to narrow down the universe of possible homebuyers. because the down payment is so large and if you compound that with a higher interest rate, you will narrow that potential home buyer down to a level which i think is unacceptable in american society. and we definitely went too far towards the goal of making everybody a homeowner. we had that single-minded objective of getting that percentage higher and higher, and i think that we push too hard. but i think that if you compound a 20% down payment with significantly higher mortgage
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rates, i think we would be marrying the universe of homebuyers into small groups. >> my name is jacob and i'm a sophomore here at the college. i wonder if you could talk about the climate and culture when you assumed leadership in 2009. what were the expectations and pressures? >> yes, i am trying to describe a little bit. so there are five or 6000 people that work at this company. many of them, like people employed anywhere in our society had in invested a lot of their money in the company. the 401ks, stock holdings. many people are proud of the company that they worked for, and they bought stock in the
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company. their holdings went down to zero. i am not saying everyone had 100% of a 401k, but there were big holdings that went to zero. and then the people were criticized by politicians as being the cause of the financial crisis. these are people doing great work helping people. many of the employees told me that when they would wear a freddie mac t-shirt or sweatshirt to the supermarket or the home depot, they would be accosted by people. acosta for what they had done. as bob indicated, they were put in the conservatorship.
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six months after the ceo arrived he left. two months after he left, the person who was a chief financial officer, age 42, took his own life. he didn't do anything -- there was no fraudulent activity, but because of the stress. so the employees had that list of thoughts and pressures with no job security or idea whether the company was going to exist. remember that there were senior politicians who repeatedly told the press that freddie mac should be abolished. in the paper that the treasury put out, they said many times that the company should be ground down. that is what the friends of the gse said. imagine the morale of the people
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because of that i try to spend as much time as i could being visible in talking to them and trying to come up with hope for the future. which was around this notion of us getting ready in some form to relaunch the company. the good news is that people hung in there and they continue to work hard. they are continuing to function quite well. >> hello, my name is josh, i am a student here at the kennedy the kennedy school. i want to ask you for your perspective on -- or your perspective on the book faultlines. it talks about the need for cycle group regulation. he observes that we come up with these great ideas.
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ideas like you articulated very well. they get this number, political pressures are applied to what he calls credit populism. seeing that we need to figure out ways to build regulation that somehow that won't happen. they are immune to those pressures. any thoughts on how we can do that? >> no, it is a great thought. only partially facetious, one of the best ways i know to prevent many who have been in this situation before.
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builds and builds and builds, and people become more and more aggressive as things go up and up. and then they reverse themselves. it seems like a new generation needs to go through that for they believe it. i think experience and people -- having people on staff, the regulatory authorities or companies who have gone through a few cycles is one great thing to have there. then i think that trying to insulate regulators from the political process is really an important thing to do. we certainly did not do that
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right at the gse. you can see there was an attempt made to take the teeth out of the regulator. they got too aggressive. they call people on the hill to intervene. those are two thoughts that i have on how you might be able to accomplish that goal be mapped okay, we have to end, so let me take one last question. scott, i am a stock member here the kennedy school. thank you very much for your talk. a question on the campaign. you said that there is a proposal from the treasury in terms of what to do next with the gse is. and presumably, an obama administration would follow something along those lines after dealing with the fiscal cliff and tax reform and all the other issues that are on the agenda. what about romney
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administration? what sorts of proposal, if any, have been articulated? >> well, let me make it clear that i did not say that there had been a proposal by the administration. they produced a long awaited white paper in january of 2011. a government solution, he plans solution, or a hybrid solution. i am not being facetious in saying that. so we haven't had a proposal from either side. the mortgage market has changed because of that and i think that
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the republicans and the administration, as they came in, would want to go more towards a free-market kind of solution without any gse. i would hope that the suggestion that i made and the mortgage bankers association made would be seen as something that both sides could live with, and that it is largely a private capital solution. there is not a freddie or fannie. they're our are capital companies that are competing to have the ability to pay a premium in order to get a government guarantee of their underlying security. i would hope that that would seem is enough of a free-market solution that republicans would be okay with it. and enough of a protection of the housing market that the
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democrat folks might find it acceptable. >> okay. thank you. >> thank you. [applause]
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Today in Washington
CSPAN October 31, 2012 2:00am-6:00am EDT
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Bob Glauber
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