About to see can be viewed in entirety by visiting our website booktv. Org and using the search function at the top of the page. First in february of 2015 the American Enterprise institutes peter appeared on our Author Interview program afterwards where he argued that Government Housing policy caused the 2008 financial crisis. Peter, your new book is called hidden in plain sight, what really caused the worlds financial crisis and why it can happen again. You were a member of the Financial Crisis Commission which was investigating the causes to have 07, 08 financial crisis. What did you see that they didnt . I had been locking at the housing system in the United States, doddfrank and well, im sorry, doddfrank and fannie mae for quite a while before i got on the commission. I had a lot of background on what had been happening in the housing sector, so i was looking for the commission to look into what happened with fannie mae and freddie mac and what role they had played in the housing crisis and ultimately the financial crisis and i found out that the committee was not interested in looking at and to the degree that i tried to interest them i was just told that i was given all kinds of signals that that was not something that they were going to do so i decided that i would descent. Now my differences with the other republicans came from the fact that my view was that our responsibility on the commission was to make sure that the American People understood what happened in the crisis, that i was outside, i thought, the partisan differences between the republicans and the democrats. Im afraid the republicans felt that they just would not agree with anything the democrats said and they didnt want to they didnt want to invite the Bush Administration, some of them had been in the Bush Administration, so i i felt that i had to speak with an independent voice and thats why i descent. You wrote a lengthy descent for the commission and for the late stages that focuses on the housing and Mortgage Markets and the governments role, heavily involved in the Housing Market . Actually it began in the new deal back in the 30s when the government attempted to assist banks in making loans by guarantying those loans and ensuring those loans and then fannie mae was established in late 1938 also part of the new deal to provide credit to banks, when they made a mortgage, they could then sell mortgage to fannie mae, made more mortgages. It was helpful in inducing more home sales in the United States. That was the beginning. The government really got much more involved and adjusting and federal housing standards in order to improve housing in the United States or increase the amount of housing sold in the United States in in and desire to help the economy and thats when we sort of got off the rails because once the government started using housing as a way to improve the economy and ways to improve the American Peoples view of the government and how successful it is. Then it became a political issue instead of what it had been before which was sort of a question of making sure that the markets functioned well. This stretches democratic and republican administrations. The interest in housing and encouraging housing activity, where do you see the more recent turning points in this development . Well, i think the key turning point here, at least from my perspective was not 1992 when congress adopted something called the Affordable Housing goals, they were under great deal of pressure at the time to make sure that the borrowers who were below medianincome or lowincome borrowers had credit for mortgages and many activists in support of those borrowers in those communities pressured congress to do something that would provide much more credit to those groups. Congress then adopted the Affordable Housing goals which required fannie mae and freddie mac, those goals were only applicable to fannie and freddie and when they bought mortgages from other banks and originators to make sure that of the mortgages they bought 30 had been made to people at or below the Median Income. That the authority to require a certain quota was given to the department of housing and urban development at that point and over time between 1992 and 2008 they ratcheted up and so that, for example, by the year 2000, 50 of all mortgages had to be made to people that were at or below Median Income and by 2008 it was 56 that would have been in the Bush Administration, it wasnt, it was done under clinton first but then after bush the whole idea was carried through by hud. The theory behind this is encouraged americans to save money to build equity in their homes. Part of this is to ensure lowerincome and middleincome people can have a home and asset of this kind. Is there something wrong with this idea in general that people should be able to buy a home and find the home in america . Absolutely nothing wrong with that. There are lots of good reasons why Home Ownership should be encouraged but the problem with this system that it forced fannie mae and freddie mac over time to reduce overwriting standards and that way they lured a number of people into buying homes who could not actually sustain the mortgages over time. In fact, by the year 2008 and this is really an important date in the book, by the year 2008 more than half of all mortgages in the United States were what you would call subprime mortgages, 30 million subprime or other weak mortgages by 2008 and of those 76 were on the books of Government Agencies which to me shows clearly that it was the government that created the demands for these mortgages. Now what happens when underwriting standards decline, its not simply that the people who have bought homes are unable to carry those homes, what also happens when the mortgages fail, they affect all of the people around them, all of the neighborhoods, the values of homes and all of those neighborhoods go down so what the American People should understand after the financial crisis in which i dont think they really understand today is they are all hurt when underwriting standards are reduced so that other people dont have proper credit and unable to keep mortgages. We have a couple of issues that intersected in the period. One was the existence of fannie and freddie and what they had done for a while and the other was the congressional and the political push to encourage more Home Ownership. Thats right. And when the two combined fannie and freddie was there as the vehicle to do all this. What what happened then in fannie and freddie and existence and relationship with lawmakers that led to where we got in the crisis . Its really quite interesting because the person that became the president of fannie mae, johnson, he was a political operative before that, he realized that fannie mae was under stress because it had very strong government franchise that it would have to sustain over time and i think he recognized if fannie mae and freddie mac actually became supporters of lowincome housing, that would give them a strong backing in congress that would keep them in their superior franchise position where they were getting all kinds of support from the government and making quite a lot of money. Both of those institutions. And it became fannie and freddie, even though they were essentially started by the government, they became like private entities . They were privatized in 1968 and in 1970 they were given authority to go where they were originally were, buying backedmortgages into vengessal market where they would buy regular mortgages, that made them very important profitmaking institutions. But the political relationships became extremely important for them because as they grew and got bigger and bigger, the dangers were always that somehow the government would move against them, regulate them more strictly and there was a great deal of push in the Bush Administration for much more regulation and from their point of view especially fannie which is much more political from their point of view to avoid more regulation they had to rely on the democrats in congress. Democrats in congress were very focused on making sure that opiniony and freddie supported lowincome housing and even though they were beginning in the 2000 to find that they were buying mortgages that would ultimately cause them to suffer tremendous losses, they couldnt go to congress or go to hud and say, we we wont comply with the quotas anymore because its driving us out of business. We are going to fail. They couldnt do that because if they did that, the democrats in congress would no longer support them and the effort of the Bush Administration to place them under much greater regulation in 2003, 2004, 2005, would have become successful and they wouldnt have been so profitable. They were caught in this vice between on the one hand having to keep the democrats on one side. As the coronavirus continues to affect the economy, we are taking a look at Author Program about trade, finance and the 2008 recession. Up next henry paulson, former secretary in the george w. Bush investigation spoke with warren buffet about the actions taken in response to 2008 economic collapse. I read various economists, adam smith, david ricardo, all of that, but i really have never heard a more eloquent statement that succinctly summed up the economic world than george bush made in september, i think, of 2008 when he said in a memorable ten words, he said if money doesnt loosen up this sucker can go down. [laughter] it was like a gettysburg address, short but to the point. [laughter] as i read the book an appreciation for the fact that he understood what was going on and understood what needed to be done. Was there ever time with proposals . No, he was only surprised when i was surprised. I was surprised more than once. [laughter] then i would say that i felt spoke to him, one of the things i learned, warren, from my previous career is no matter what you negotiate, i could have all kinds of understandings about the relationship we would have but if i didnt have the right relationship with a president , it wasnt his fault, it was going to be my fault. I had a year before the crisis to get to know the president to work with him and remember, he went to business school, he understands good fundamental understanding of markets and issues and cared about them and so the conflict he dealt with was was the same conflict i dealt with or anybody who was in the markets. We believe in the United States of america that risktakers should bear the responsibility for their own losses and that so big interventions were not something i didnt go to washington to do that. He certainly didnt, but from day one he understood that the Financial Markets were about economy, i would have to sell him half way through the conversation he would buck me up, listen, hank, we will get through this. We are not always going to look right. That was that was talking about my mother. It seemed that going up to the election, that you probably felt that obama was both more knowledgeable and more interested and what was going on in the financial crisis. No doubt, with john mccain, with barack obama. They were more difficult, above all of that, and president obama was was attentive, engaged and comfortable he was going to support what we needed to do. Im quite grateful to john mccain because and i have real respect for him because let me tell you an election 6 weeks away and theres no way in my judgment got the tarp that john mccain had come out against it. If he had played the populist card we would have been left defenseless and so i look back, im increasingly grateful of the way he handled himself during this period, during the time he gave i lost a few hours of sleep. Hank, you describe one place in there, you have something where you say you issued a veil and i read what you said [laughter] well, that was that was when he was when he came back. There was quite a scene. He interrupted his campaign to come back and i remember i was testifying at the time and Michelle Davis who is here with me today, is sitting behind me, testifying and my blood sort of went cold right there and she said to me, if someone asks you about excuse me about john mccain coming back, just simply say i welcome the involvement of, you know, of everyone in this and so on because i think she was afraid what might come out of my mouth. [laughter] so as it turns out, again, the it was a couple of days of anxiety but, again, john mccain spent time with the house republicans, rallying them, and, you know, so he did his part and and even after we got the tarp, he did not jump on or criticized some of the things we had done which, again, were very unpopular. American people none of us like bailouts and so again it was some time after the election, but after we had done several things we had done and i think this may be a slightly exaggerated but i recall 93 of people opposed the bailout and 60 other opposed torture. So 70 were we would go into something much worse than a bad recession and so we never were able to explain to the american this wasnt for wall street, this was for them. You had consultations with obama as i understand at the end leave out the sort of part. [laughter] both the president and members of the administration have repeatedly said during the past year that they really didnt anticipate how tough things would be in the economy, but the message that you were giving them, you expected things disgusted. Am i wrong on that . Well, id ask you what you expected because i i did not expect them, i knew that we went up as seen in the book where we talk about ben bernanke and chris cox and i went up to meet with congress and tell them we would need these authorities and the difficulty we had at the time was as warren said much better than i could, the the arteries of the Financial System were freezing up and so i knew with a certainty that business was going to turn down because when you have companies that that its uncertain that they would be able to raise shortterm funding, most cfos are going to ceo, hey, boss, i may not be able to have all of the funding youd like for the next 30 days and what does a prudent company do, start cutting back. Congress hadnt seen it yet and hadnt seen it in their district and i knew with a certainty it was going to get worse. Im not sure i knew it was going to be 10 unemployment but i knew it was going to be bad and so then when the i knew if they didnt do something and it collapsed, then the businesses wouldnt be able to fund themselves, wouldnt be able to pay for inventories and and pay supplyiers and would let employees go and that would ripple through the economy and we would have armageddon so then when the economy did turn down. We had this terrible situation of congress because the way the American People had seen it we went up and said give us thighs authorities and if you dont we are going to be in deep dodo. Its going to be bad. Well, they gave us the authorities and we were in big doodoo. And preventing disaster that people never saw or could see. Weve opened archive to look at Author Programs about the economy. In 2015, former Federal Reserve chair ben bernanke sat down with democratic senator sharod brown of ohio to talk about actions he took during Obama Administration in response to 2008 financial crisis. I used to sit down in the front porch with my grandmother and she would tell me about her youth when she was living in connecticut and the story she told me, she was very proud because her children were able to go to school and able to wear new shoes every year but lots of the kids in town, you know, didnt get new shoes or in some cases didnt have shoes. I said why not, the shoe factories in the connecticut factory had shut down in the depression and fathers lost their jobs and therefore not enough money to provide shoes for the kids and i was 6 or 7 years old i saw something wrong with. All they could do is open up factories and they could produce shoes and she said, no, it didnt work that way. Thats the real puzzle that the factories are still there and the workers are still there for some reason its not happening. The system isnt working. It was a real puzzle to me. Im not going to say that i was inspireed from age 6 to study the Great Depression. The most important puzzle that economists have and i did spent a lot of time thinking about it. Im thinking that the paradox of the shoe wills go down in economic history. I came to the senate in january of 2007, i was put on a committee that leader reed is calling the Banking Committee and didnt have a lot on their agenda. Where i came from it was very different. My wife, wont mean much to you but in the first half of 2007 more foreclosures in the zip code than any zip code in the United States of america and and you it seemed to me as in 2007 and 08, at least until bear stearns, there wasnt much attention from the fed, housing issues because the housing crisis was more caused, a whole lot of reasons, in cleveland it was predatory lending and sort of a centerrism, predatory lending and and obviously what was happening with manufacturing, declining base of manufacturing. Why did the fed sort of miss this in some sense . Why why were why was the government overall not cognizant that there were places all over the country and, in fact, ohio had in the middle of this story had more foreclosures every year than it had the year before all over the stays from appalachia to inner city. Why did we not see that as a country. How serious that was . I dont agree with characteriz