Accomplished cost house of representatives and subsequently hindered president s obama agenda, then that could be part of her legacy thats less positive. Host did you have a smile on your face or scowl . Guest i worked for a democrat. It was he was one of the democrats who did not lose, so it was more a sign of relief quite frankly. Almost every democrat was in danger of losing. It was a wave election. It was quite shock but curiosity. Now the republicans have a turn, lets see what happens next. Host what do you teach . Guest introduction to american politics, course, u. S. Congress, part of that course i have the students playing members of congress and get a bill enacted through the house of representatives and thats a great experience for myself and i get to play speaker. I also teach course called power and america, politics, learning about different aspects of power in the United States or interest groups, power of president , power of people, power of voters, those are some of the classes that i teach hear. Host why dont speakers traditionally vote . Guest hybrid position as speaker as i mentioned before. They are seen partisan leader but also as a nonpartisan leader. If youre nonpartisan means that youre not supposed to be taking part in the issues of the day that put you on one side of the question or the other and to the extent speaker is supposed to be presiding over the house and ensuring everything is supposed to be done fairly, people might question the ability to do that, so traditionally speakers do not participate in votes, they can, they are no prohibited from doing so. Traditionally they do not. This also has changed over time and in the 1970s speakers started participating more and more often. Cull going he votes very, very rarely on the house floor. I think that is in part that the speakers needs to move himself or herself out of debates and conflicts in order to be seen as someone who really has the whole house and the interest of the whole house at heart. Host and we have been talking to Catholic University professor matthew green, published by Yale University press. This is the cover. Youre watching book tv. Is there a Nonfiction Author you would like to see, tweet us on book tv or post a comment on our wall. Facebook. Com booktv. Next on book tvs afterwards programs, journalist describes her book shaky ground, shes interviewed by reporter from the wall street journal. We are here with bethany. Thanks for being here. Thanks for having me. Of course, this is something that i spend a lot of time spending on. Why dont you start by telling us about why you wrote the book and why fannie and freddie are so important to the modern populist . Guest i started studying in the wake of this scandal. At the time i was shocked to find out that Companies Like this existed. What is a government sponsored enterprise. Fannie was created back in the wake of the depression by roosevelt in order to help make Home Ownership widely available. If you have an institution that could buy loans that banks, lenders had made that would agree up the banks. But the idea was this would help foster Home Ownership, and that was the beginning of fannie may and unique system, no other country has it. No other country has a 30year fixed rate either like the way we do. Host right. Guest most people credit to the existence of fannie and freddie. Large Financial Institutions world they guaranty over 5 trillion of mortgage related debt. Theyre absolutely enormous. Critical to the function of the Global Financial system and their sort of part of the machinery that make our life possible. When you go and get your loan, you expect to have Mortgage Rate quoted to you right then and there. For decades, fannie has been part of what has made that function seamlessly. Host a lot of people know from one of the first two companies taken over from the government. Some people say that were partly responsible for the financial crisis. A lot of people think that this is a problem that the government fixed a long time ago, right . But now kind of here we are and, i guess, how far we have gotten. Guest we havent gotten anywhere, thats part of the problem. Youre exactly right, they were the first two companies i guess there was bear stearns first. Fannie and freddie were substitute were supported by line of credit from the treasury and effectively managed by a government agency, when they were taken over in the fall of 2008 the idea was this was temporary. We were going to figure out how to reform the finance system and talk about why people think it was problematic, we are going to reform them and get on with it and here we are seven years later, these two giant companies are still in the state called conservatorship. Its still totally unresolved. Thats an issue for every american with a mortgage. Its an issue for every american who has wealth tied up in a house. Its an issue for every investor because the 5 trillion of security through financial system, theyre everywhere. If theres a change in the value of the securityies or lack of confidence in them that will have ripple effect. Host im a home owner, i go to my bank or lender and get a mortgage and the loan is granted to me. Guest those lenders dont keep mortgages anymore. They dont keep them, they sell them off and most of them since financial crisis t great majority get sold the fannie may and package them off and sell them to securities to investors around the world and the existence of this system and fannie and freddie act insurance company. The investor who buys them has to worry that Interest Rates may change but not that you are unable to pay. So that system has turned American Mortgage into something that buyers around the world can invest in without thinking twice because they dont have to go through an analyze lights and make sure you are going to pay the mortgage, they can buy the securities. Knowing or feeling that they know that the securities, that the securities are safe. And the way that system has developed, it means that in china can finance home in kansas. Its turned american Home Ownership whats more domestic than home into a Global Financial issue. Host right. This is something thats unique to the United States or at least the United States or one or two other countries. So what does having the system in place give americans, somebody in the United Kingdom getting home . Guest thats part of a debate. Private capital would fulfill the role that fannie and freddie play. I want to pause on that for a second. The fact that fan incomer ie are government sponsored. Its lead to the perception in the years before conserve conservatorship, the u. S. Government would step in and pay. Thats obviously what happened since they were put into into conservatorship. That system has given americans access to a 30year fixed mortgage which is something that people around the gloap dont have, 30year fixed rate repayable, i think i saw some data from the institute that on 80 of buyers who are buying are choosing 30year. Host in other countries mortgage for much shorter term. Guest if Interest Rates doubled, your mortgage payments could double every month. Host right. Guest the existence of fannie and freddie has made a stable at least for the home owner. Host having the government in there and giving this suggestion or whatever you want to call it to investors, what did that get homeowners before the crisis . Guest theres a good question, i think it got the argument was it got them a lower rate than they would otherwise have. The fact that they have u. S. Government standing behind them meant that they could pass along lower Interest Rates, per perceived as safer and pay in the system without fannie and freddie and certainly meant this longterm mortgage. There was always a debate in before the crisis of how much of benefit that would give the homeowners. In the wake of the financial crisis, private capital completely fled the mortgage company. If we hadnt had fan incomer ie and freddie there would not have been Mortgage Market. Financial crisis would have been a lot worst. Fannie and freddie provide mortgage credit when private sector wouldnt do it. Host you spent a lot of talk about how they sort of accumulated political influence in washington. Can you talk a little bit about how they did that in the sort of, you know, the sort of opinions and fierce of fannie and freddie that came as a result . Guest yeah, there were always people in the government in academia who said, what are we doing with the government present in the Housing Market, we are a free market economy, we are a capitalist economy, why cant private capital just take care of americans mortgage needs . There was this sort of ideological resistence. In response to that, fannie and freddie created real lobbying, fannie had the most sophisticated lobbying operation that he had seen in his entire life. The reason they did that because there were forces in the United States government that were trying to kill them. They were right. They developed outside aggression to any threats to take away their advantages they had from this perception that the u. S. Government would stand beside them. It came a Political Force and i think that in some ways intensified the resentment against them. People who found themselves on the wrong side and, again, this was lead by stanley, bigger and more aggressive and more powerful of the two companies, you had people who ended up on the wrong side of fannie and really resented the company for the way for the way it behaved. You had in the 1990s fannies executives were democratic players, the chairman of the unit verse universe, there was talk the first black president , they were Democratic Power players. There was a lot of resentment around that too. Private companies, banks, even mortgage insurers, other players in the Home Ownership market totally resented fannie and freddies markets because it meant less for them. Im not the first to use the phrase, the housing industrial complex, Debatable Alliance of everybody who has a stake in the enormous enterprise, that is the American Mortgage market. Host kind of their lobbying in the book, the ones that you mentioned if i remember right, a nonprofit that was offered by grant by fannie, what happened after that . Guest yeah, we can come back to why this is ironic, one of the criticisms in 1990s, one of responsibilities that was given to them by congress is sort of special advantages they had from the perception they were close to the u. S. Government, was that they had to do things for Affordable Housing and had specific quotas of loans that they needed to make that would satisfy the Affordable Housing goals, and during the 1990s the constant cry from people on the right who didnt want anything, it was all about their own process and they arent doing anything to make loans more widely available. It was criticizing them for doing that, only to call up fannie, he was supposed to get grant, only to get a call from the senior person at fannie, sorry, no more money, we are not going to give it to you. He called jim johnson and said, you cant possibley host i remember a quote from the book. Something like, theyll cut you up, gut you and throw you in the river or Something Like that. Guest it was a great quote from the Washington Post and i think its another of the great irony, sounded like a candy company, grandma, sweetless, its monstrous financial power. Host you probably got this from your reporting, part of the resentment of how they acted, how much people felt that they depended on the government in the first place, on the one hand, youre dependent for Business Model and on the other hand you are spending all this money, threatening people around washington, et cetera. Guest great quote in the book from larry summers, look, if you were going to design a scheme from extort from the u. S. Government, you couldnt do it better than that, basically had the hidden subsidy, the idea that the government would stand behind fanny and freddie. This was kind of the free money that could exploit and pay executives really well. Host how do we know that em guaranty was going to homeowners . Guest it wasnt. Most of the benefits from that was flowing through to executives and shareholders of it would reduce it a little bit. I think thats a good interesting debate. I think its sort of irrelevant in the context of what happened in 2008 because the value of fanny and freddie is that they are there when the private market isnt. We may not need them in good times but we certainly need them in bad times. And then to ignore what happened in the fall of 2008 when deserted the market, seems to me like a funny way to look at the issue. Host they built a lot of resentment. Guest absolutely. Why do we need these companies . Host right. Guest the course of people that said theyre going theyre too big to fail, they are going to land on taxpayers, which is exactly what happened even if it wasnt precisely for the reasons that were that people were predicting. President obama only few years ago described it as heads we win and tails we lose. So it was this idea that no matter what happened fannie and freddie would win, in bad times host you feel a lot of that even today. Congress cant pass anything it seems like and then a few days ago one of the things that the senate agreed on was to put a new cap on the pay of fannie and freddie ceos. Guest it has become, i think, extremely fashionable that these companies after the financial crisis, which is why ironic, the fendence has never been more than the financial crisis. Host right. Guest the hatred of them has intensified. I think theres a clear reason for that. The narrative took hold and is very pop intlar in a lot of circles but fannie and freddie and the goals they had to make housing affordable were solely responsible for the financial crisis. If you can say that fannie and freddie and the government were responsible for the financial crisis, well, then, there was no problem with the private sector. The private sector doesnt need any more regulations. And as a result of that narrative even fannie and freddies supporters have run from them. Barney frank was the congressmen associated with fannie and freddie and defender and even him says it should be abolished. Host theres a scandal that was easy to forget because of the financial crisis even though it was less than 20 years ago. This happened in the early 2000. Guest this was my first exposure to fannie and freddie, accounting scanneddals, scandals, and they were slightly different. Freddie was actually understating earnings and the idea that fannie was manipulating accounting and overstating its earnings. It was a huge scandal and the Management Team was kicked out. The company had to do statement of earnings. Their regulator called fannie, citigroup is a government sponsored like enron. Those are big words. Someone said to me the story like mixture, it has all the strange twists and turns. The really odd thing about the accounting scandal when fannie announced release of statement of earnings, it went way up, despite all the rhetoric about how franklin was a fraudster and saying there was absolutely no evidence that either man did anything wrong. You would expect when a regulator calls the company a government sponsored enron that this is going to end with the bang, people in jail and it ended host why do you think the government overplayed their hand there . Guest i think it was deep seated fear and anger, they were a huge danger to the financial system. Fannie in particularly successfully thought by muffle lg muffling political cloud. People started to feel frustrated as inability and real sense that the two companies were a systemic risk, i think the right became very ugly on both sides. The unfortunate thing about it is that after the management tames of teams of both, congress was still unable to pass any new legislation. Host right. Guest ii want to pause on that. Republicans are righteous on the issue. We had a republican in charge of the white house and the Republican Congress and they were still unable to pass any legislation. Host right. Guest it helps to explain where we are now. Republicans are reluctant to to sort of disrupt this issue as some democrats are. Host right, we had to Start Talking about what companies do. Its not something you can easily unless guest right. Host lets talk about the housing boom and i guess what fannie and freddie participation was. They didnt really go as far out as some of the other private lenders. What were fannie and freddie doing during this period . Guest definitely contributed to the problem. I just dont think its the full cause of of financial crisis. By the mid2000s the share had been cut in half as prime lending instead of mortgage selling to fannie and freddie were selling to wall street firms. Thats what all the haters wanted to see happen, fannie and freddie cut out of the market. So around 2005 both fannie and freddie did two things. They started buying securities for own portfolios and they decided we need to get into this business too. And you can trace that through market share numbers, interviews with executives, executive presentations, they were terrified that they were losing their profits, losing their hold on the market, so they began to guaranty riskyier loans. They were never as risky, but to help bring down the system the default rate on loans like a fraction of of the default rate. But nonetheless, it totally contributed to the crisis and it was enough to create the perception that fannie and freddie needed a bailout. Host right. One of the things that people allege is that it was not only fannie and freddie that decided to take on more risks and the government was making getting more risks. Where do you come on that . Guest i think it was some of both. But