Transcripts For CSPAN2 After Words 20151025 : vimarsana.com

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 they did a lot of what they did in order to increase their market share and produce profits and you can see that through executive presentations at the time. How do we keep up with the market, how do we keep our process, we need to be relevant. So you cant simplistic about it. You cant say it was one thing or the other. It was both, it was a mixture of reasons. It was a mixture of reasons why they did it. Host whose job was that to make sure it wasnt getting out of hand . Guest the only job was to regulate fannie and freddie. The regulator knew that they were going to riskier loans. Host was it a staffing issue or guest competence issue. A competence issue, and i say that not meaning people were incompetent. If members were making loans and wall street were buying them up, everybody was analyzing risks and making sure people could pay their loans back. Windows security started to lose value, everyone started to take a huge loss and what they were doing buying these loans that had already been sold off to investors by wall street, that was a screwed up thing and they were trying to satisfy their wall street pack on those products, so they were trying to satisfy their housing goals, also. I went to pause on this issue of the housing goals in the crisis because i think there is this misconception that i think is worse than people who understand the issue because its so much intellectual he dishonest because putting people who could not afford homes into homes is so dishonest. It was the majority of risky loans that were packaged up and turned into securities were not paid for the purpose of Home Ownership. Whereby someone takes out a bigger mortgage, takes the cash, uses it to pay off bills, pay down a third data may be going vacation, maybe remodeled their house, but if you had intimate those loans and of the crazy investment loans where people were buying seven or eight properties, there would not have been a financial crisis, so the crisis has become this referent of of ownership, if it proves this idea we should never extend credit people who might be on the marches margins of being qualified for homeowner should because what happened in the financial crisis and there has been Academic Work done showing the majority of the financial crisis was actually affluent borrowers who did not pay their refinancing and its a referendum on extending credit to people who can afford to pay it back in this rampant expression host is interesting because there has been entire books written and even ones that have come out recently that have blamed fannie and freddie for the crisis, so i guess whether this become as the two i gets a way one, it people like to simplify complex issues and it feels like clarity and i think if you cant say the government caused the financial crisis you have a really clear simple explanation and you dont have to say it was all of these, wicked factors you can contribute it to this one civil thing and i think that is part of the appeal. I think the other part is the regulation appeal and if you could say fannie and freddie in the government did this, then you can say we dont need more regulation for wall street. I am not a believer in regulation and is not a cure to all problems, so i dont mean to sound per regulation. But, you can get if you get rid of dodd frank, if the whole problem is fannie and frank, then throw it all out. On top of that you can get rid of fannie and freddie and never have the government in the Housing Market again, so i think its this very appealing argument and its gain an enormous amount of credit oldie despite the fact i think it is readily disproved the ball if you spend time thinking about it. Host since 2008, when anything started to go downhill, when did it start to become apparent that there were Serious Problems at any and freddie and then what wouldve happened had of the government is not stepped in . Guest the last one im not sure i can answer, but it directly relates to this idea of fannie and freddie caused the financial crisis because the notion is that fear about these loans that were backed by fannie and freddie started tremors in the system and that spread to private market loans and thats what brought down the whole system and thats categorically not sure if youre fannie and freddie stock prices were at alltime highs and the first real tremor was when a french Money Market Fund couldnt pay because of losses on us subprime mortgages, which were clearly wall street mortgagebacked securities, nothing to do with fannie and freddie and then this giant lender called new century, which was one of the big sub prime lenders was bankrupt in 2007, before there were even tremors at fannie and freddie. As the year went on the financial crisis was so odd, not one big conflict, this eruption and then things would calm down and then another eruption and as the year 2008, went on people got worried about fannie and freddie because you could see that they had a lot of riskier if you have a giant housing downturn going on with two highly leverage institutions and taking the credit risk of us homeowners, they will have a problem and i think arguably there couldve been a huge loss of confidence and even if they hadnt ventured into these riskier mortgages. So, then the summer of 2008, stock prices were plummeting and there was great fear that they wouldnt be able to do will be able to raise money in the markets and the whole machine would grind to a halt. I think its fascinating because we generally think of globalization is a good thing, not always. The treasury secretary tells a great story about being in beijing for the summer olympics and hearing the story that the russians were trying to get that chinese to dump their holdings of penny and freddie backed securities to create chaos in the global economy. Then there is this chinese financial telling bloomberg that the Us Government let fannie and freddie failed in that it would be the end of the Global Financial system. So, there was this idea that if these two companies were to go down, their securities were everywhere and would disrupt foreign central planks in foreign global relations and wreak havoc through the banks and was shut down Mortgage Markets. There was this perception we couldnt let these two companies fail. Host its interesting because having so much interconnectedness and having such a large market, even if you are not sure of what the probabilities are that fannie and freddie would fail, this the consequences were so dire that you would have an outcome like the buyers were saying you would rather act and be wrong man roll the dice. Guest there is this huge subterranean fight over whether fannie and freddie needed a bail out and i tented that the government a bit of slack for what it did in 2008. It was a financial crisis it is easy to look back now and say people couldve done things differently and may be the company did not need a bailout or we could have let them fail, but hindsight is really 20 20, certain to think arguments about what happened in 2008, are a bit beside the point. Although, there are arguments, which is why i caveat what i say. Host and yet the way they put them into conservatorship, it was the genesis of why things are still so screwed up now, so talk a bit about why they use this process called conservatorship and the structure they set up. Guest conservatorship is a wellknown thing at how the fbi saved the family bank and its been the model governing fannie and freddie conservatorship lifted and how they we ability a family bank. It wasnt like the idea of conservatorship was anything new. That that said there are a couple of weird things about the any and freddie conservatorship and one of the terms was so much tougher than the bailouts of big banks and the bailout of aig. Aigs back to semi normal, but back to a publicly traded company. The banks finance their executives, tens of millions of dollars in bonuses to their executives. Fannie and freddie has become a prism from which it seems like they will never be released and there has been some argument by former fdic people that say this is not what conservatorship history of conservatorship is and put them on a firm footing up at them back out there. It is not a license to steal the profits of these companies forever. Host its interesting because the fdic has conservatorship law and for the conservatorship of beginning and freddie to hold separate law called hera was passed to kind of create different structures and sort of people thought they were familiar with the concept of conservatorship and a lot of times the fdic uses conservatorship as a stopping point to receivership, which is honestly not the government wants to do with fannie and freddie, but when the government bailed out fannie and freddie, its not like they took away all of the publicly traded shares; reich . What exactly did they leave behind . Guest its another, i think its kind of a game of lets pretend. The government left them 20 of the Common Securities of fannie mae and freddie mac in the hands of private shareholders. These were never supposed ebony value because the government was taking a huge 10 dividend to any money the government put in fannie and freddie they would get on their money, huge onerous dividends of in that government took 79. 0 of the equity of both companies, so what was left would lose money from here until eternity was nothing, so shareholders were supposed to be wiped out even though there was this stomp, basically that was left trading. At the time the government did it they said, the regulators ban and freddie even said this might have value someday. Host do you think they said that demented or they said that guest i dont care if they said and meant it or not, they said it and they left the stock outstanding, so even though now they may wish they didnt and i have heard arguments from people in the government to that we only did not because we had to, because we didnt want to put fannie and parties that on the us balance sheet, so you shareholders should know you were wiped out even if that is not we said at the time, you should just know better. Host for a time after the conservatorship that shares traded like they were wiped out. They still traded, but they were pennies. Guest penny stock, but then what happened is that some investors started to do their work and they said all of these losses that fannie and freddie are taking, they are headline that any of brady has taken a 87 billion in taxpayer money to bail them out, but i think its not as widely understood and its made up number. Fannie and freddie had to take money based on accounting concept, and complicated accounting concept called net worth and that means if your assets are worth less than your liabilities that is below zero and you have to draw money to fill the hole in this concept of net worth takes into account not only state losses, but it says if you lose money on this loan in the future that will reduce your Network Today also. So panic and freddie took a lot of money based on losses that were supposedly coming in the future, but actually never materialized and in truth the companies didnt actually lose that much money on a cash basis, but they had to draw this money anyway. So, some investors began to do the work and said these companies at some point will reverse all these losses and be really profitable. Would we do in america with companies that have gotten into trouble . We restructure them in salvage them and restructure them, so this is a great that. Host then what happened . Guest and then the Us Government in the summer of 2012, for reasons that may be a great debate and controversy said we will take instead of just having you pay 10 dividends on whatever money you put in fannie and freddie we will take almost every penny of profits you make from now until eternity. Host the government does give an explanation for why they did that; reich . Describe that. Guest they argue that fannie and freddie will keep losing money and that they all thought fannie and freddie would keep losing money and they didnt kill the companys word to come profitable and it would be to order sent to require them to pay this 10 dividend and instead they would take everything that they happen to make, so if they made money and one quarter they would take it and if they lost money in another quarter they would get money instead of having its a bit if you want me money and i was supposed to pay your a dollar in interest every month then i couldnt pay and so you said, bethany, i wont take the dollar if you dont have it, but when you do have money i will take it all. Host i guess part of the my understanding is part of the reason they say they structured it is they were especially worried about it comes back to the interconnectedness idea we were talking about before and at least for a certain time it wasnt as if fannie and freddie had an instant amount of money to draw from the government, so that extent what they have less its smaller and you start having investors and Mortgage Backed securities in china thinking do i have to worry about the. Guest its one of the downsides again of this Global Connected system we have and the sensible reason was we dont want the Foreign Central Bank of china to be worried that fannie and freddie dont have enough capital. We want to make sure their securities are safe and protected, so this makes the securities seem safer than having this requirement to pay a dividend with money they didnt have. Host you mentioned in 2012, the Housing Market was starting it was showing signs of the bottomed and Getting Better again. So, we know what the government said was the reason they did it, what do you think was the reason guest this is still a subject of mammoth lawsuits that are winding their way through the court could the ashby things that come out on both sides that are interesting and i almost hope this goes to trial because i think it would be quite fascinating inside with the workings of the governments as well as fannie and freddie, but it is hard to see that the government didnt understand that the two companies were about to become really profitable. They had investors telling them thats and there has been interesting stuff that has come out in court cases testimony from a former fannie financial person saying that they knew we were about to become really profitable. So, that is strange. I guess i am in the camp of if the government had a good reason for doing this than i would like to know what it was, but the reason they have given doesnt appear to make sense and that makes me very nervous because i dont like feeling that we as taxpayers and citizens are being applied to and there was Something Else going on and we dont know what it was because the apparent reason given just as not seem to make sense. Im not saying it doesnt but i have this rule after two decades of covering business that you should never underestimate the amount of incompetence in the world. Its just somewhat hard to believe. Host through my reporting i mean sometimes it felt like you have to remember that these are huge organizations and sometimes the right people dont know guest it is possible. It is totally possible. It just feels so at odds with what actually happened given the enormity of the profits that have come from banning freddie and the last couple of years, 241 billion to the us treasury, so its not like they squeaked out a few pennies here and there and the Us Government didnt know this was going to happen, i mean, 241 billion of profits. Host so, you think that maybe the reason they started sweeping the profits kind of set us back when we were tied at the 90s and early 2000, these are Companies People work afraid of and you think that it sounds like you think this was an opportunity. Guest i dont know. I dont know, so it could be the governments explanation is absolutely true. The facts just dont quite line up, so that makes me a bit nervous. Theres plenty of speculation that came out to my reporting about the reasons they might have done it and one was these companies become incredibly profitable again there will be pressure on us to pop them back to life as they were and these companies were the worst thing ever. How could we do that. I think there speculation and it is certainly true that they have been used as a true to reduce the federal budget deficit, so there is likely should the government those billions for its own purposes rather than having fannie and freddie keep the billions of dollars that they were making and that could be possibly part of it. I think some of the emails and presentations that have come out in the court cases suggest also that in this kind of environment of not wanting to see wealthy investors get paid even though those wealthy investors happened to manage the money and pension funds, but there still is kind of anti hedge fund we dont want to see the investors get rich and i think there was a feeling explosively written we dont want investors to have a payday. Host so, you started talking about it, but we are talking about the hedge funds we see on tv all the time. Like we are talking about paulson and company, bill ackman and pershing square. Mutual fund manager, which is a popular retail fund and a lot of people on the fair home find, so you mention the ones brought before the sweep, but some of these funds, i mean, they analyze the legal case and are picking up shares after they saw some profits. Guest you have a little luck, i guess, intrinsic passivity for them because the ones that bought before the government change it, how are you possibly to know . Afterwards what people say and i think it is actually a fair point, is that this is wrong and you cant do this. This is not the way our system is supposed to work. Theres this great line in the book, i took 80 of your house the financial crisis and you came back and started paying and making your mortgage payments and i said no, im going to take 100 and it feels wrong. Theres another great line i loved the book that came from the former executive and this person said well, it feels anti american and then again there are people that would argue that they were always anti american. Host do you feel like the involvement of the hedge fund with this kind of complicated issue. Guest i think it has definitely complicated issue. I would argue its a good thing for a couple of reasons, but i think its complicated the issue because it has meant that you have these very powerful and some of the most powerful wealthy of people in the nation sort of in their suing the Us Government, fighting for an outcome that is not what the administration has said it wants that investors have very much push for it and not just we want to get paid, but we want fannie and freddie back and thats precisely what the administration said it does not want. President obama has been very clear that fannie and freddie has to go, so it is certainly complicated. I argue its a good thing for a couple of reasons and what is i dont think we want the government to have a free hand. This is an issue that affects every american in some way or another. It affects the Interest Rate you pay on your mortgage, the availability of mortgage credit, the value of your house. I dont know that we want our government making that decision behind closed doors that will affect everyone without some sort of debate and thats one of the big reasons i wrote this book. I also think that what happened in 2012, maybe the government was completely maybe everything they did was correct, but dont you want to know . Isnt it good to have transparency . Who else but a wealthy investor can afford to sue the Us Government . Im always a believer in more transparency and more answers and lets see what happens. So, i have come to believe that the investors, while they are after their own payday are also sort of raising awareness of this situation anyway that i that i think is probably good. Host one of the great frustrations of the court cases so far is that they are going through this discovery process, but what they had discovered is not available to the public, at least yet. Its not even available to the hedge funds, people available to the lawyers. Guest super annoying. Wouldnt you love to see that stuff . Host yes. And the plaintiffs attorneys appear to be confident in their filing asserting the government lied. Every filing will go Something Like, such and such Government Official said acts, but because of and then a big redacted passage and that is clearly not the case. Guest lies and the secrets. Host as you said, its almost, if all you have is the plaintiffs attorney, if you are on the governments site and all you have is the plaintiffs attorney characterizing these documents it will be the worst reflection coming out, but a judge just recently decided, that at least for the time being that these documents will be made public. So, one this came up in another talk you cave a couple of days ago and some of the hedge fund, which dont want this litigation to go all the way to the Supreme Court or wherever it ends up, their investment return theyre hoping the government will decide to settle. One of the ideas is that if we can make this discovery public then it will be so embarrassing or the threat of it becoming public will be so embarrassing that they would settle. When do you think of that strategy . Guest i dont like that as an answer because i want transparency and i actually want to know what the government was thinking when they decided to take all of the profits. So, i dont like the idea of possible government this behavior being squelched or covered just so that investors can have a settlement. I feel like thats kind of anti transparency. That said, one of my fears about where we are today is that there will be an external shock like victory in the lawsuits for the hedge funds or like an incredibly missing document that the government does not want public, so they will settle with investors or there will be some sort of shock that will force fannie and freddie to go back to the treasury and take more money and then they will become a huge political football again. So, instead of making a wellthoughtout decision about what structure in the Mortgage Market could look like again, an issue that matters to every american, then we will lurch in some sort of halfbaked answer. In order to avoid discovery, avoid the political football and i think that is a fight mean process. Host so, the obama admin ministration has been etiquette added adamant that they encourage this. Are we getting anywhere . Guest the Obama Administration has been a little bit more pointed than that in this issue and correct me if i am wrong, but they havent clear they want fannie and freddie gone and obama even said in a speech in phoenix a couple of years ago, it was heads you win entails lose in the cubbies have got to go. So, they have been insistent that they want private capital to finance the American Mortgage market. We have got this kind of disconnect going on and tell me if you sense the same thing, but i think there is this pretty widespread acceptance that if it were not for some sort of government backed in the Housing Market this 30 fixed rate would not be there and certainly would not be there for the most population in all Economic Times. It might be there for the wealthy, four more people in Economic Times when they are good, but not the fixture of American Life as we know it, so i think there is actually acceptance that we dont want to pull the plug on some government presence in the Housing Market yet there is this anti dna freddie rhetoric and so its kind of a stalemate of what do we do. Some of the most serious reform was a bill i believe in the spring of 2014. Host it seems like a long time ago. Guest it does, that there is an argument that that bill recreated fannie and freddie. It was a different structure, but you still have government backed and if you still have a government backstop then why not reform fannie and freddie. Give them better regulation, make sure their incentives not to produce extraordinary profits for their shareholders and executives, but rather run the business and structure them differently. May be even tossed them some measures of the Mortgage Market, but why wouldnt you use try to fix what you have instead of starting from scratch with a totally untested system that is going to support the most important asset in most americans lives. Host what do you feel should happen right now . Guest i am somewhat torn in this. There is a part of me that has always disliked email is been part of our society from the beginning. I felt like we needed to do a larger reef think of this notion of how we finance homeownership and a larger rethink down to if you are doing a cash out refinancing, should be treated like if you are buying a home . If we encourage homeownership and why do we also increase people to turn their home in credit card. Shouldnt we do this larger rethink. Im not sure we will do that. So, i have started to believe i would rather see the reformed fannie and freddie with much tighter regulation and much limits on what their executives can make and may be structure utility with at ex apple rate of return rather than swing from the fences and make whatever you can and get rich its sort of i have used this line, but its like Winston Churchills famous line about democracy, penny and freddie are the worst possible system until you consider the alternatives and then you think they dont look so bad. I guess i have become an advocate of fixing what we have while recognizing that its not perfect. There are dangers in that system. There are dangers in every system. So, there is this, i think another side that if you have the big banks financing the Mortgage Market then that is private capital. I mean, fannie and freddie, yes, had to be bailed out by the government. So did the big banks, so if we fix that now with a hefty financial reform legislation like dodd frank him if the big banks control the Mortgage Markets, dont you think they would have be bailed out the next crisis and then we undo everything that was redone by dodd frank. Why is that private capital . Host