Hidden in plain sight and why it could happen again. You remember the Financial Crisis Inquiry Commission investigating the causes. You decided not only with democrats but the republican appointees. What did you see they didnt . Looking at the housing system and dodd frank im sorry fannie mae and freddie mac for quite a while before i got on the commission. So i have background on what was happening in the housing sector. So i was looking for the commission to look into what happened with fannie mae and freddie mac and the role they played in the housing crisis and ultimately the financial crisis and the commission was not interested in that and they wouldnt look at it to the degree that i tried to interest them. I was just told i was given all kinds of signals that something they would do so i decided i would dissent so the differences with the other republicans came from the fact that my view our responsibility on the commission was to make sure the American People understood what happened in the crisis to be outside the partisan differences that we just were not agree with anything the democrat said and they didnt want to indict the Bush Administration so i felt i had to speak with the independent voice. So to vote for that commission in the late stages of that inquiry but in your book you have a lot of unconventional views but this focuses on the housing and Mortgage Market in the United States when and why did the Us Government get so heavily involved in the Housing Market cracks back when the government attempted to assist banks to make loans by guaranteeing the loans and to assure one ensure them and then fannie mae was established late 1938 also part of the new deal to provide liquidity to banks and then to get liquidity for the mortgage. So it was all very helpful to indoor one induce more home sales in the United States. That was the beginning. The government got much more involved in the fifties when they started adjusting the fha standards in order to improve housing in the United States or increase the amount of housing with a desire to help the economy. Because once the government started using housing to improve the economy and the American Peoples view of their government, then political from what it was before it was simply a question to make sure the market. This stretches across republican and republican administrations to encourage accounting activity. Where did you see the more recent turning point in this development . The key turning point from my perspective was 1992 when congress adopted the Affordable Housing goals under a great deal of pressure at the time the below Median Income has credit for mortgages in many activist supported those in pressured congress to do something to provide much more credit to those groups and then adopted the Affordable Housing goals. These goals are only applicable to fannie and freddie and when they bought mortgages from other originators to make sure 30 percent were made to people at or below the Median Income. To require a certain quota was given to the department of housing and urban development at that point and over that time between 1992 in 2008 they gradually ratcheted up the requirements to add new requirements those that of all mortgages that are below the Median Income and by 2008 it was 56 percent in the Bush Administration. Its not partisan it was done under clinton first and then under bush the whole idea was carried through. And designed to encourage americans to save money and then to ensure middle income people can have a home and an asset of this kind. There something wrong in night on in general that they should be able to buy a home in america. There is absolutely nothing wrong with that homeownership should be encourage but the problem with the system to force fannie mae and freddie mac to lower those standards for those that could not sustain the mortgages by the year 2008 more than half of all mortgages in the United States are what we would call subprime mortgages and of those 76 percent are on the books of Government Agencies which shows clearly it was the government that created the demand. Now what happens when underwriting standards decline its not those that bought homes could carry those homes but when they fail they affect all of the people around them all of those go down so what the American People should understand what they dont really understand today when those standards are reduced to show other people that cannot sustain the standards dont have the proper credit relationships are the down payment and unable to keep the mortgages. We have a couple that intersected with fannie and freddie and what they have done and the congressional and political push to encourage more homeownership and when thes combined fannie and freddie were there with the vehicle to do all this. What happened then with fannie and freddie with the existence with lawmakers that led to where we were in the crisis . The person who ultimately became the president of fannie mae jim johnson was a political operative. Realizing fannie mae was under stress because it had a strong government franchise it would have to sustain over time if fannie mae and freddie mac actually became supporters of low Income Housing that would give a strong backing in congress with this superior franchise position to get support from the government to make quite a lot of money. Even though they were started by the government. They were privatized in 1968 and given authority to buy governmentbacked mortgages to enter the conventional market with a regular mortgage that made them profitmaking institutions and then became a publicly traded company on the New York Stock Exchange one of the largest institutions in the United States at that time but the because as they grew bigger the dangers were always that somehow the government would move against them with a great deal of push in the Bush Administration for fannie mae and freddie mac and from their point of view especially fannie was much more political to avoid more regulation they have to rely on the democrats of congress they were very focused to make sure fannie and freddie supported low Income Housing. Even though they were beginning in the two thousands to find those mortgages would cause them to suffer tremendous losses they could not go to head to say we will not comply with the quotas anymore because it drives us out of business and we will fail we couldnt do that because they could no longer support them in the Bush Administration to put them under much greater regulation 2,032,004 and 2005 to become successful so they were caught in a vice to keep the democrats on their side and on the other hand in the Affordable Housing requirements gradually driving them to insolvency. I read economist eloquently but i never heard a more eloquent statement succinctly summed up the economic world than george bush in 2008 when he said if money doesnt listen up and this will go down. [laughter] so tell us. But that was short and to the point and appreciation for the fact to understood what needed to be done. And was always surprised when i was surprise. That i spoke to him and if i didnt have the right relationship with the president then its my fault. So one year before the crisis to get to know the president and work with him. And to understand the markets so the conflict he dealt with as anybody we believe in the United States of america to build responsibility for your own losses. But from day number one he understood the Financial Markets were about the economy and jobs. So i was coming to him and i did not have to self him he would back me up and say listen hank we will get through this. It wont look good. This will be politically unpopular but we will do what it takes and sometimes almost like my mother to me. And then to get more sleep. So it seems to me right up after the election probably felt barack obama was more knowledgeable and interested in what was going on is that a Fair Assessment . And it certainly gave me more anxiety and was now president obama was engaged in that support for what we needed to do. But i am quite grateful to john mccain because i have real respect for him because let me tell you the election six weeks away there is no way in my judgment have gotten it if john mccain came out against it. To hold the populist card we would have been left defenseless. So i am increasingly grateful the way he handled himself during this period to say i just had a few hours of sleep. And with that threat. But that was when he came back that was quite a scene to interrupt the campaign to come back and Michelle Davis who was with me today and then said to me about john mccain coming back. And so she was afraid. [laughter] she got me on the flight on the way down. So as it turns out, again, it was a couple days of anxiety but john mccain spent time with the House Republicans and he did his part and even after we got the t. A. R. P. And to criticize the things he has done which is very unpopular but on one level that sometime after the election and this may be slightly exaggerating but i recall 93 percent of American People oppose the bailouts 60 percent oppose torture. [laughter] so 70 percent were looking at something much worse so to explain to the American People this wasnt for wall street it was for them. And to have thes consultations with obama. [laughter] for both the president and the members of the administration what they really didnt anticipate how tough it would be on the economy. But from the message you were giving them, i would ask what you expected because i did not expect them. I knew that there is a scene in the book talking about denver tachy to meet long on been burning key to meet with congress. And then as warren said the numbers were freezing up. So i knew with the certainty of this would be turned down because when you have companies it is uncertain with the shortterm funding most say i cannot handle all the funding you would like so what does the prudent company do . That congress had not sees jet in their district so i knew with a certainty it would get worse im not sure it would be 10 percent unemployment but it would be bad. And i knew that if they didnt do something it would collapse and then they couldnt find themselves and could not pay for the inventories and let employees go. And then we have armageddon. And then to have this terrible situation. And we will be in deep do do. And its really hard to give credit for the disaster that you never saw or could see days to sit on the front porch in charlotte with my grandmother and tell me stories about her use in the thirties when she was living in connecticut and the story she told me was that she was very proud because her children could wear a new suit shoes every year but a lot of kids didnt get new shoes or even have shoes but the shoe factories had shut down during the depression and fathers lost their jobs or was it enough to provide shoes for the kids i can see there was something wrong all they had to do was open the factory and then kids would have the shoes. She said it doesnt work that way when it was the intellectual puzzle of the Great Depression the factories are there the workers are there but for some reason it isnt happening that magneto problem the system isnt working it was a puzzle to me i dont want to pretend i was inspired from age six to study the Great Depression but when i came back and graduate school i found that to be the holy grail the most important puzzle that economist have and to spend a lot of time researching. That is our firm paradox to go down in history. You were fed chair for a little while and coming to the senate and put on a committee that was called the sleepy Banking Committee with sarbanesoxley wasnt a lot on their agenda that my wife and i lived in zip code 44105 which doesnt mean much to you but the first half of 2007 there were more foreclosures than any zip code in the United States of america and it seemed to me at least intel bear stearns there wasnt all that much more attention from the fed with the housing issues because the housing crisis with a whole lot of reasons it was predatory lending and obviously what was happening with manufacturing. So why was the government overall not cognizant all over the country . Ohio was in the middle of this. With foreclosures every year all over the state from appalachia to innercity why did we not see that as a country how serious that was . I spoke about foreclosures a number of times before the crisis my concern was that some are probably unavoidable but in some cases it seems like there wasnt enough effort being made to modify mortgages to find a solution that people would stay in their homes. We were concerned with the Housing Market beginning to slow as early as 2006 talking about foreclosures in the subprime mortgages. But we did worry about those excellent communities. And i heard those statements but also i would say that Consumer Protections to stop predatory lending and those responsibilities and the authority the fed ha had, particularly prior to you and not casting aspersions on any fed chair, but i thank you are more into then your predecessors. But i began to hear from people in cleveland and other cities that Consumer Protections with predatory lending the any other regulator was there for us. You are use to the word predatory which is critical i talk about that at length in my book i have to go back because some of this extends back to the nineties. That are not blaming anybody in particular but in that deceitful lending. And that legitimate subprime lending is just a very Good Development because it allowed people of more modest means and minorities to counteract the redlining to get into a home to participate in the American Dream and quite honestly one of the reasons there wasnt a more aggressive effort for subprime lending was the fear of cutting that off with a very strong decision between predatory lending that was already illegal it was a question of enforcement. Versus subprime lending to be a different type. Going from a different angle i dont think the key fed staff that were captured by the firms they regulated that they perceive to be in their own career or financial interest but open to the arguments it should not be excessive in the competitive Market Forces to some extent teacher poor lending practices i work in the institution where lobbyists are omnipresent with a different environment from regulators. You may remember after dodd frank past the chief lobbyist for Financial Service industry now it passed they will go lobby the regulators. I met a place in the senate where lobbyists come at you regularly over time in part because your regulators tend to hear from the most elite in society its easy to preserve the union and then think is that i have to get my Public Opinion passed. And with pope francis with the parish priest it doesnt strike me that way so it just seems to me the fed is less likely to be aware of the pain of how many regulators know people with their homes foreclosed on and to see that and understand that. That Federal Reserve system and there is one in cleveland but they report to us about what was happening in cleveland and well before the crisis there was a philosophical perspective that the Financial System should be less regulated to be more dynamic. But certainly greenspans view that banks have sufficient capital that you didnt have to watch them to carefully. I didnt have to be too burdensome. 8 million American Homes were foreclosed on during the great recession. But they didnt all disappear. The wealth gap in America Today is bigger than it has been in 100 years were at the top one tenth of 1 percent the homeownership rate is the lowest level in 50 years and it continued to go down 11, 12, 13 and 15 until it bottomed out in 2016. I was sitting there in 2016 watching donald trump when this populist insurgent campaign at the time the economy with a high Dow Jones Industrial average. Wall street is doing great. But america is angry and on the left Bernie Sanders is doing well with this populist message so it seemed like housing would be a fruitful way to focus. So basically i started with the question 8 million americans lost their homes, we lost our wealth, where did it all go . Who took it . The homewreckers. One of the things i think about with Home Ownership is the typical american wants to do a lot of equity in their home. So when you lose a home or your family loses a home that you cannot leave to your child or grandchild, that is a significant wealth depreciation event. But that will happen intergenerational impact. Homeownership is the only way most people can save money. We follow the Dow Jones Industrial average only 20 percent own stock the average american only has 4000 in the b