Think, in 2003. And they worked. They kept the country in a reasonably prosperous situation. One we dont see now. Guest i think they think the election of 19 2000 should have been thrown into the house of representatives. The Supreme Court majority basically ripped the election out of the constitution and cited it. I think it should have been thrown to the house paid host what chapter house. Host what chapter would you recommend republicans read from this book on jack kemp . Guest that is a good question. Really all you need to do is read the introduction. It is pretty long for an introduction to a book, but it really outlines what kemp did, why he did it, and what his career was like. And if you read another one called supplyside, it will help you. But there are so many others. Jack camp had this really kemp had this really interesting and exciting career. Guest i completely agree with fred. If you read if you read the introduction, i think you will continue reading the book because it does sort of set up and if i do say so myself, i think it is pretty well written. [laughter] host thank you both your time host we are here with Bethany Mclean to talk about her new book shaky ground thanks for being here. First this is something i spend a lot of time thinking about i know of any mae and freddie mac the start by telling us why you wrote the book and why fannie and freddie are seven important. Started to cover fannie in 2004 with the wake of the big accounting scandal. At the time i was shocked to find out that Companies Like this existed. But in this case it was created in the wake of the depression to help make Home Ownership more widely available. To buy of the loans that the lenders have made so then they make more loans. Said the idea was this would foster Home Ownership and this was the beginning of the annie mae with a unique system no other country has a 30 year fixed rate either in most credit that to the existence of a peony and freddie. They have grown to be absolutely eagerness to gather with older guarantee of mortgage related debt. Critical to the functioning of the Financial System that is what makes our lives possible they expect to have a Mortgage Rate quoted to you. In recent history as one of the first to companies to be taken over by the government to be responsible for the financial crisis. And this is how far we have gotten. But the idea there is the Silver Lining with a Global Financial crisis you are riper but the first to companies but then to be bailed out by j. T. Morgan. With that by line of credit from the treasury and when they were taken over the adn said this would be temporary to figure out how to reform the Housing Finance system and here we are seven years later the giant companies are still in the state conservatorship what do we want Housing Finance to be like . And think that is an issue with every american with the mortgage and for every investor because the 5 trillion of securities moved through like water everywhere. With Global Economic ripple effects. To literally no the thing the function of fannie and freddie. I go to my baby or lender to get a mortgage but then what happens then . You go to a lender to get your mortgage. They dont get to keep those anymore. They sell them off. With a great majority are sold off to fannie mae or freddie mac who package them up and sell them off the security to investors around the world. To be any in freddie and at t have to worry about Interest Rates could change but the city and freddie guarantee that. That is what buyers around the world can invested because they dont have to go through to analyze to make sure you will all pay your mortgage. Added means it is a the purchase the home with america and how motorship with the Global Financial issue. So what does have the system in place . Is part of the debate if you got rid of fannie and freddie there is no impact they would continue exactly as it is with private capital. But i want to pause on that point for a second. The fact finney and freddie our government sponsored it is like the empress implicit thing that fannie and freddie could not pay so obviously at is what happened as they went into conservatorship but that system has given americans access to the fixedrate mortgage which is something people around the world dont have that is the total picture of American Life that 80 percent of buyers who buy a homer in the 30year fixedrate mortgage. Host or shorterterm with Interest Rates. With a 10 year mortgage so you as a homeowner dont know what your interestrate share payable be because the rates move it has made a stable instrument talk about the government with this implicit suggestion what did that get home orders before the crisis . To read bad is a good question. It got them a lower rate and the fact that fannie and freddie had the government standing behind them to pass along but it is perceived as safer so it costs less through homeowners that could pave the rates on mortgage there is always how much debt to give to the homeowners . That is part of the financial crisis the private capital fled the market if not for fannie and freddie there were a bad the Mortgage Market and the potential crisis would have been a lot worse. Host you spend time talking about the rise of fannie and freddie to have accumulated political influence in washington. Talk about it how they did that with the opinions and fears as a result . There were always people in the government and academia that said were redoing with a government presence . Would is a government sponsored enterprise . So in response to that to develop real lobbying muscle to have that fannie had the most sophisticated lobbying operation he is ever seen in his entire life. But they did that because they felt the rich people the government trying to kill them. But there is any threat to take the advantages that they have been they became a Formidable Political force. People found themselves on the wrong side may be to read a bigger and more aggressive and powerful of the two they really resented the company the way they behaved jim johnson the Washington Post once called them frankly to be ahead of a windy of dash 0mb with talk of the first president. So there was a lot of resentment around that. The Mortgage Market is one of the biggest in the world. And other players in the Home Ownership market i am not supposed to use the phrase but the Industrial Complex durable sometimes Fractious Alliance of everybody who has a stake in the enterprise of the Mortgage Market. Host yes you talk about their lobbying prowess and a nonprofit was offered a grant and then what happened after that . Guest why this is ironic that one of fannie and freddie responsibilities that was given to them by contrast with dash congress as the quid pro quo is they had to do things for Affordable Housing with the loans that they needed to make. With that, instead cry from those people of the right to to say they dont do enough. The the dont do anything to make them more widely available. Said they are criticized for doing that but the organization was supposed to get a grant only to say there is no more money we will not give it to you. The action the said you can actually be that way. Can you . I remember somebody describing we will cut you up day and throw your body in the river. Guest from the 1990s the Washington Post there was another great irony because penney may sound sweet like a grandmother. Because at that at the time had unparalleled political clout. But it seems part of that resentment how much they sell depended on the government in the first place you are dependent on the guarantee for the Business Model the yet you spend all the money thready and people around washington former treasury secretary said if he would decide a scheme to extort money you could not do a better than this. Basically with the hidden subsidy that there is the implicit guarantee the u. S. Government would stand behind fannie and freddie but they did not pay a fee so it was free money that they could turn around to exploit to have huge lobbying muscle. How do we know that that guarantee was going to homeowners verses the profits . Guest there is an argument that it wasnt. And then use to argue it was 25 basis points in the mortgage payments were 100 of the math was right. Ed is a good and interesting debate but it is irrelevant in the context of 2008 because the value of fannie and freddie isnt. We dont need them in good times that we do in the bad times. So that johnnie a boom decade there were not providing much value but it seems that is a funny way to look at this. Looking get that chance to end a. To safeguard to a big to fail which is exactly what happened president obama of the described the idea that a matter what happens with the executives to be allowed the taxpayers. Host you feel that even today . But then just of todays ago to universally agree to put a new cap on the ceos. Even today. To seem extremely professional is ironic because without them but it has never been more since the financial crisis you think that would have given them some mojo in there is a clear reason for that. It is very popular in a lot of circles that fannie and freddie and the goals that they had were solely responsible for the financial crisis so then to sit there were so the responsible was no problem in the private sector. And then we will all be just fine. Barney freight was the congressman and a defender of theres it even he said they should be abolished. Host this is not there first scandal. There is an interim scandal that its easy to forget because of the financial crisis less than 20 years ago. This is a the first exposure to fannie and freddie with the scandals in 2000 that led to the ouster of all City Management teams of companies. But then the idea that fannie had a complicated statutes to overstate earnings and it was a huge scandal. With the regulator to think how odd that is. Can you imagine . Those are big words but with the mixture of monty python but the odd thing is that when they released the statement of earnings equity went up, not down. And despite the rhetoric in never charged by the Justice Department priority for sec staying there is absolutely no evidence that he did anything wrong you would expect when they called the ended with no little whimper. Host white you think that the government played that out . It was deepseated bigger since the they were abusing deposition they were a huge danger to the Financial System fifth event with that political clout. In to see him frustrated with the ability that the two companies were a system aggressed. And then it became ugly on both sides. After the management teams for at the beginning of the biggest bubble in History Congress still could not pass any new legislation for free in freddie. Is popular to say they have democratic problems but we had a republican and in charge of the white house and even in congress and still did not pass legislation explaining where we are now. Then we talk about what these companies do. Unless the you give that very blanket. Ry blanket. Here is a story of the housing boom. To say they did not go as far as a private lenders. Day definitely contributed to the bubble that definitely contributed to the problem but it isnt the full cause. But the market share was cut in half to sell them to phidias and radio that is what the problem is it was becoming riskier and riskier. So around 2005 he started to do by the wall street securities for their own portfolios and then decided that you can trace that through market share numbers come in the executive presentation say and they were terrified they were losing there will of the market so they began to guarantee riskier loans. See you concede there were never as risky as the private sector but with the default rate of the back to lowes purses wall street was a fraction of the default rate. But the total contributors to the crisis. That people also allege not just fannie and freddie but the Affordable Housing goals so where did you come down on that research . It was in order to increase the market share. And you can see that with the executive presentation at the time. So you can be simplistic and the other was both. Whose job was that . T ted was regulated to have a Government Agency the office of federal housing to regulate fannie and freddie that was their entire job. But they did not think twice about it. Was the staffing or political issue . It was a confidence issue i say that the but they are incompetent but if we make these loans and investors were buying the securities then to analyze the risk to pay the loan back the be realized that all went to hell in a handbasket but in fact, we both could not pay the loan back. That is the biggest irony one of the things that brought the baby and freddie down that they started to buy the of wall street manufacture its securities so when it started to lose the value they had to take lose its value. And then was packaged and sold to investors that has to be one of the more screwed up the reins. [laughter] but then they with pack the products so then they tried to satisfy their housing goals. There was an uh misperception it was almost intellectually dishonest that is what caused the crisis but the majority of risky loans that was packaged were not made for the purpose is of Home Ownership doublea2 cash out somebody takes out the mortgage and takes the cash to pay down the other dead or go on vacation but if you did not make those loans then there would not have been a financial crisis proposal was the referendum on homeownership with the idea we should never extend credit to to be qualified for homeownership because and then to have the Academic Work done actually the borrowers did not pay their cash shot refinancing. Sue was like extending credit to people that cannot pay back and then there was credit to borrowers every level. There have been entire books written that blame fannie and freddie. So why was this a cause . It was a clear way with the complex issues. If you consider the government caused the freddie joe crisis you have a clear explanation that is just part of the of appeal part of it is the regulation of you can save peony in freddie and the government did this but you could say we dont need any more regulation we dont believe that is secured to all the problems im actually quite mixed on regulation but if you think that we could get rid of dodd frank. Then on top of that to never have it in a the of the Housing Market. With the enormous demand of currency if you spend time to think about it. Since 2008, a when does it become apparent there were Serious Problems at fannie and freddie . And what had happened had the government not . Lenovo of i can answer that better relates to the idea that fannie and freddie cause the financial crisis because of the loans that were backed by them and categorically and that is an alltime highs. With the french Money Market Fund could not pay because of the losses on the west of prime mortgages with mortgagebacked securities nothing to do with fannie and freddie. Than the giant winter called me and said they went bankrupt before there were travers. But the year went on law and a and it wasnt a big conflagration. Is and as 2008 went on people were increasingly worried because you conceded had those mortgages on their books with a giant housing downturn going on those whose sole business is to take the credit of the voters will have a problem. Even if they havent ventured into buying risky mortgages. The stock prices were plummeting and there was great fear they could not raise markets and is fascinating because we think it is a good thing but the treasury secretary tells the great story of the beijing olympics and then it goes back to the securities with the global e economy. And then to say that it is the end of the global when mitchell system. So the idea that if these two companies were to go dash of the securities were ever. 05 so global reactions that are rather of Balance Sheets so there is a perception. It is interesting and then to think they will fail if those consequences are sara dyer but you would rather act and be wrong. It is subterranean despite where they were. I tended to cut the government to a little bit of slack for what they did. It is easy to look back. So i tend to think those arguments about what happened are about beside the point. Added the caveat. The way they put them into conservatorship is the genesis that is screwed up right now. So they use a process called the conservatorship. Guest back at is how the fdic saved the failing banks it is in the law to govern fannie and freddie and that was lifted from, so was and that my idea was anything new but a couple of really weird the miss and one is the terms of the bailout were so much easier than the big banks eddie even aig is back to so to my normal but executives did not get fired their back to paying the shareholders. But the uniquely iran there has been in the argument that conservatorship is to rehabilitate and to put them back up there. Reduce not a license to steal. Host there is that was passed to four different infrastructures than people thought they were familiar and that was the stock 2. Two receivership . When they bailed out to it isnt like they took away the publicly traded shares shares, so what exactly did they leave behind . Guest that is of a game. That is of a game. The government left them 20 of the securities. These were never supposed to have any value with the 10 revenue and then david be paid that an