Children for example learn a lot from their parents but they learn an amazing amount of water just by Walking Around the world and crawling and putting things in their mouth and whatnot. There are arguments to this type of thing. I wanted to hear your thoughts and opinions as we announced the project and if you think its feasible and ethical. The brandeis project. What is the project . It was announced the last couple of days. They want to use Machine Learning to basically trade a balance between basically those that eventually choose our privacy practices into our data to be used. That is their idea. Here is what happened today. We all know about that because they dont have a choice of it. If you have have the choice is going to be all those documents and go through all of those and whatnot . There are things like privacy at the same medical knowledge to be extracted without being able to identify the patients and i think that is a promise that it isnt the whole solution. I think another part of the solution is we have to get smarter about who owns the data. You can decide what gets done with it and so on and so forth. Part of it is Computer Systems theres a million Different Things you can do with it but finding the one you want to do is often very hard. You would look for privacy so that is what this project is trying to do i am all for it. What you said earlier about the recommendations i think that the concern that people have as individuals is where the consent comes in. Is it for those that want to use the data of individuals whose data has come from think about it this way. Whenever there is a transaction between two people in some sense i have the right to record in my brain and i remember it will be from your whole experience and you are the only one that has your whole experience. Thats above a dangerous. So it is something where a bunch of likeminded people get together and say this is our data. We own it and then you might join the union of the people who at the end of the day to you want that model to be owned by you. You want is to be the third half of your brain. Thats what they want to do that the third half is on the funding organ and they have a conflict of interest, so [inaudible] are you aware of the case where they travel and basically charge the redlining how do you keep that out . They go through this computer and its on the tickets to you. Its selling the ticket and all that they know is that they are not able to play those games. Right now it is but its just i think that is about all the time we have today. Pedro will be over at the signing table. [applause] next on booktv beth mclean discusses her book shaky ground which looks at the stability of the u. S. Mortgage finance system. Shes interviewed by joe white and reporter at the wall street journal. Host we are here with Bethany Mclean to talk about her new book called shaky ground at the strange saga of the work which finance. Thanks for being here. Guest thanks for guest thanks for having me. Host this is something i spend a lot of time thinking about and i know why fannie mae and freddie mac which are the dissenters of the book are important companies. Why dont you start by telling us a little bit about why you wrote the book and about why they are so important for the broad popular. I started covering it back in 2004 when i was still a fortune and in the way of the accounting scandal. At the time i think i was shocked to find out that Companies Like this existed. What is a governmentsponsored enterprise . But a governmentsponsored enterprise in this case 80s was created in the wake of depression to become more widely available and the idea was that if you have this institution that could buy up the loans that the lenders have made and that would that would free the lenders to make more loans because they wouldnt have to worry that their capital was all tied up in a loan that they had made as of the idea is that this would help foster homeownership and that was the beginning of fannie mae in a system in the united states. No other country has it or a 30 year fixed rate the way that we do and most people credit that to the existence of fannie and freddie. So these two companies have grown to be absolutely an honest, fannie and freddie to gather the large Financial Institutions of the world they are absolutely anonymous to the functioning of the system and part of the hidden machinery that makes our lives possible. And when you go to the bank and get your mortgage you are expected to have the Mortgage Rate quote it to you and so in particular its been part of what has made the function seamlessly. Host some people say that it was partly responsible for the financial crisis and a lot of people think that this is a problem that the government fixed a long time ago. Isnt this like a 7yearold problem but now kind of here we are qdr and i guess how far weve gotten. We havent gotten anywhere. Thats the problem. But there is a Silver Lining in the crisis. Maybe i should back up a little bit. They were the first two companies i guess it was bear sterns first it was sort of people held by j. P. Morgan europe and the conservatorship where there is a byline of credit from the treasury managed by the Government Agency. And when they were taken over in the fall of 200890 days but this would be temporary conservatorship was supposed to be tipperary. We were going to figure out how to reform and why people think it is problematic. They were going to be formed in and get on with it and here we are seven years later these two giant companies are still in the state called the conservatorship and it is a big Public Policy question. What we do we want to finance to be like and still it is totally unresolved. I think thats been an issue for every american with a mortgage. Its an issue for every american who has been wrapped up in a house and for every investor because these five chilean dollars of securities most for the Global Financial system like water they are everywhere. That will have Global Economic effects. Host lets back up a little bit because a lot of people i dont think understand the function. The ima home owner and i go to my bank to get a mortgage. How are they involved . When you go to the market and get your mortgage those lenders dont keep the mortgages anymore. At least they mostly dont. The great majority of them get filled off to fannie mae and freddie mac to then package them up and sell them off as securities to investors around the world and the existence of a system act as an insurance company. So the investor has to worry that Interest Rates might change but they dont have to worry that you will be unable to pay because fannie and freddie are guaranteeing that. So that system has turned the mortgages into something that around the world they have invested in without thinking twice because they dont have to go through and analyze 100,000 make sure all of you are going to pay the mortgage and knowing and feeling the securities are safe and of the way that system has developed they have the purchase of tom in kansas which turned are american homeownership more domestic into the Global Financial issue. Maybe one or two other countries what is having a system in place . Thats part of the debate. Some people say if you got rid of fannie and freddie there would be no impact. The market would continue exactly as it is and i want to pause on that point for one second. It needs to be explained what that means to this implicit perception in the years before the conservatorship that would stand behind any and freddie. If you default to did they somehow didnt have the money to pay, the u. S. Government would step in and pay and that is what happens since they were put into the conservatorship. That system has given americans access to the third year thirdyear mortgage with something people around the globe dont have. The total fixture in American Life that i think i saw some data from the urban institute found 80 of the buyers that are choosing the 30 year fixedRate Mortgage. Host in the other countries would have a shorter term of Interest Rates that change more often. So the mortgage could double every month for the existing has made a mortgage a stable instrument at least for the home owner. Host you talk about the government guarantee. So is there a guess given this implicit suggestion of whatever we want to call it that they are going to step in. The fact that they had this in the u. S. Government standing behind them announced that they could pass along lower Interest Rates. They would pay in a system without fannie and freddie and certainly if meant this longerterm or ditch. How much of the benefits did that actually guess that was new since the financial crisis. It wouldnt have been a Mortgage Market and arguably the downturn that followed the financial crisis would have been a lot worse. So fannie and freddie served the purpose of stepping in to provide mortgage credit. So you spend a lot of time talking about the lives of fannie and freddie at the development and have accumulated political influence in washington. The freemarket economy with a capitalist economy that is the governmentsponsored enterprise why cant the private capital just take care of americans mortgagebased. In response to that, fannie and freddie developed the lobbying and i think that if the former congressman who used to say they have the most sophisticated lobbying operation he had ever seen in his entire life. The reason they did that is because they felt like there were forces in the government to take away the advantages they have from this perception it became a really formidable and political and that in some ways intensifies. I think that you have people that ended up on the wrong side of fannie and felt that it really resented the company for the way they behaved. There was talk to be the first black president and they were Democratic Power players. In the Mortgage Market is one of the biggest in the world about money. The private companies. Many of the players market totally resented any and freddie because it meant less for them and so fannie became part of this, im not the first to use this phrase of Industrial Complex and to sort of loose loosen it and sometimes the fractious unhealthy kind of a lie in some everybody that has a stake in this enormous enterprise that is the american Mortgage Market. Host some of the anecdotes that youve you gave about the lobbying prowess it was granted and then what happened after that . Guest ironically coming and we can come back to this but one of the criticisms in the 1990s one of the responsibilities that was given to them by congress as a sort of quid pro quo from the perception that was close to the government is that they had to do things for Affordable Housing. They had specific quotas that they needed to make that would satisfy these Affordable Housing goals and during the 1990s the constant cry from the housing activists and from people on the right who didnt want them to exist which they dont do enough and they are not doing anything they are just all about their own profits and they are not doing anything to make loans more widely available they were criticizing them for doing that only to call up when he was supposed to get a grant only to get a call from the senior person saying we are not going to give it to you and he actually called jim johnson and said you cant possibly be that full minded, can you . Host ire member a quote from the the book somebody disturbing the lobbying congress and they will cut you up and throw you in the river or Something Like that. Guest it was from the Washington Post in the 1990s and i think that it is one of the great ironies. It sounds sweet and harmless and in reality it is this monster financial empire that had at the end time. Host you probably got this from the recording but it seems like part of the resentment about how they acted as how much people felt they depended on the government for existing in the first place so on the one hand you are dependent for us on the guarantee for the very Business Model and a beer and youre you are spending all of this money and threatening people around washington. Guest from former treasury secretary he says if you are going to design this to extract money from the u. S. Government you couldnt do better than this for this hidden subsidy and what they mean by hidden subsidy is there was an implicit guarantee of this idea of the government to stand behind fannie and freddie but they didnt pay the fee for it and so there was this money that fannie and freddie could then turn around and exploit in order to pay their executives really well and to have huge lobbying. Host how did they know they were supposed to the profits of fannie and freddie . Guest the rest of these in the 1990s but said many was flowing through to the executives and shareholders of fannie and freddie and not the homeowners. It was a small amount like 25 basis points which is a quarter of 8 so if youve you send youve sent or monthly mortgage payment or 100 it would reduce it a little bit. Its irrelevant in the context of what happened in 2008 because the value of freddie and fannie that they are there in the private market is we may not need them in good times but we certainly need them in bad times so to say any and freddie were not providing much value and then to ignore what happened when they devoted to the market it seems like a funny way to look at the issue. Host politically they did build up a lot of presents meant for people that were looking at that chance. Guest it helps guest it helps presentiment. What do they do anyway . They said they are too big to fail and will land with a giant side which is what happened for the reasons that we are predicting. President obama a president obama a few years ago described it as heads we win and tails you lose. So it was this idea that what happened is they would be allowed by taxpayers. Host the congress cant pass anything it seems like and just a few days ago one of the things the senate agreed on was to put a new cap on the pay of fannie and freddie at a seems very fashionable even today. Guest its become extremely fashionable which is ironic because the Mortgage Market has never been more than a year since before the financial crisis so you would think that would have given them some kind of mojo. This narrative took hold and its pretty popular in a lot of circles that fannie and freddie in the goals they had for the financial crisis in many ways if you can see that fannie and freddie at the government are solely responsible for the financial crisis, while there was no problem if that doesnt mean more regulation the only answer is get rid of the government and we will all be just fine. As a result of that, even the staunchest supporters have run from them and the congressman that was most closely associated in the 1990s as a defender of theirs and even he said they should be abolished. Host one of the issues this isnt the first scandal. There was an interim scandal because of the financial crisis even though it was less than 20 years ago. So it happened in the early 2000. Host this is my first exposure was these accounting scandals back in the mid2000 that led to the Senior Management teams of both companies and they were slightly different. The idea is that it is actually understating the earnings and the idea is that they were manipulating the complicated statute about how you account for the derivatives and overstating its variants and it was a huge scandal. The Management Team was kicked out and they had to do a statement earning the regulator even called fannie mae a governmentsponsored enron. Just think about how odd that is can you imagine the city groups and regulators saying that its a governmentsponsored . Those are big words. The really strange thing is its like a mixture that has all of these strange twists and turns. The odd thing about that scandal is that when they released the earnings of the shareholders equity went up, not down. It went way up and despite all this rhetoric about how he was a fraudster never charged by the Justice Department the judge ended up throwing out several claims against him saying that there was absolutely no evidence that either man did anything wrong. You would expect 20 regulator calls the company a governmentsponsored but this is going to end with a bang and ended with such a weird little whimper. Host why do you think the government kind of overplayed backs guest i think that that if deepseated fear and anger against this reference that they were in and they were minding their executives pocketed the brahimi changer to the Financial System and they needed to be reined in. Fanney in particular successfully fought every attempt to rein in by muffling its political clout. They started to feel frustrated at their ability to rein in and that the companies were a systemic risk. And i think the fight became very ugly on both sides. The unfortunate thing about it is that after the Management Teams of both companies were ousted at the beginning of the dangerous bubble in the real estate and History Congress was still unable to pass any new legislation. Its popular to say fannie and freddie are democratic problems. Republicans are righteous on this issue and fannie and freddie that the democrats problem. But we had a republican in charge of the white house and a Republican Congress and they were still unable to pass any legislation and it hopes to explain where we are now. But you know as well as i do that republicans are reluctant to sort of disruptive this issue as some democrats are. Host we had to start the conversation talking about what these companies do. Its not something that you c