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tv   After Words  CSPAN  October 18, 2015 9:00pm-10:01pm EDT

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attractive an the other thing companies that are starting to do this. everyone of these interactions with a computer something that you ask about teaches the computer what are the difficulties? it is not just from you but from everybody else. so you will have of a better computer to a teacher much better than any other could. people have been working on this for a long time. . .
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children for example learn a lot from their parents but they learn an amazing amount of water just by walking around the world and crawling and putting things in their mouth and whatnot. there are arguments to this type of thing. >> i wanted to hear your thoughts and opinions as we announced the project and if you think it's feasible and ethical.
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the brandeis project. >> what is the project? >> it was announced the last couple of days. they want to use machine learning to basically trade a balance between basically those that eventually choose our privacy practices into our data to be used. that is their idea. here is what happened today. we all know about that because they don't have a choice of it. if you have have the choice is going to be all those documents and go through all of those and whatnot? there are things like privacy at the same medical knowledge to be extracted without being able to identify the patients and i think that is a promise that it
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isn't the whole solution. i think another part of the solution is we have to get smarter about who owns the data. you can decide what gets done with it and so on and so forth. part of it is computer systems there's a million different things you can do with it but finding the one you want to do is often very hard. you would look for privacy so that is what this project is trying to do i am all for it. >> what you said earlier about the recommendations i think that the concern that people have as individuals is where the consent comes in. is it for those that want to use the data of individuals whose data has come from --
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>> think about it this way. whenever there is a transaction between two people in some sense i have the right to record in my brain and i remember it will be from your whole experience and you are the only one that has your whole experience. that's above a dangerous. so it is something where a bunch of like-minded people get together and say this is our data. we own it and then you might join the union of the people who
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-- at the end of the day to you want that model to be owned by you. you want is to be the third half of your brain. that's what they want to do that the third half is on the funding organ and they have a conflict of interest, so [inaudible] are you aware of the case where they travel and basically charge the redlining how do you keep that out? they go through this computer and it's on the tickets to you. it's selling the ticket and all
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that they know is that they are not able to play those games. right now it is but it's just -- >> i think that is about all the time we have today. pedro will be over at the signing table. [applause]
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next on booktv beth mclean discusses her book shaky ground which looks at the stability of the u.s. mortgage finance system. she's interviewed by joe white and reporter at "the wall street journal". >> host: we are here with bethany mclean to talk about her new book called shaky ground at the strange saga of the work which finance. thanks for being here. >> guest: thanks for >> guest: thanks for having me. >> host: this is something i spend a lot of time thinking about and i know why fannie mae and freddie mac which are the dissenters of the book are important companies. why don't you start by telling us a little bit about why you
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wrote the book and about why they are so important for the broad popular. >> i started covering it back in 2004 when i was still a fortune and in the way of the accounting scandal. at the time i think i was shocked to find out that companies like this existed. what is a government-sponsored enterprise? but a government-sponsored enterprise in this case 80s was created in the wake of depression to become more widely available and the idea was that if you have this institution that could buy up the loans that the lenders have made and that would that would free the lenders to make more loans because they wouldn't have to worry that their capital was all tied up in a loan that they had made as of the idea is that this would help foster homeownership and that was the beginning of fannie mae in a system in the
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united states. no other country has it or a 30 year fixed rate the way that we do and most people credit that to the existence of fannie and freddie. so these two companies have grown to be absolutely an honest, fannie and freddie to gather the large financial institutions of the world they are absolutely anonymous to the functioning of the system and part of the hidden machinery that makes our lives possible. and when you go to the bank and get your mortgage you are expected to have the mortgage rate quote it to you and so in particular it's been part of what has made the function seamlessly. >> host: some people say that it was partly responsible for
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the financial crisis and a lot of people think that this is a problem that the government fixed a long time ago. isn't this like a 7-year-old problem but now kind of here we are qdr and i guess how far we've gotten. >> we haven't gotten anywhere. that's the problem. but there is a silver lining in the crisis. maybe i should back up a little bit. they were the first two companies i guess it was bear sterns first it was sort of people held by j.p. morgan europe and the conservatorship where there is a byline of credit from the treasury managed by the government agency. and when they were taken over in the fall of 200890 days but this would be temporary conservatorship was supposed to be tipperary. we were going to figure out how to reform and why people think it is problematic.
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they were going to be formed in and get on with it and here we are seven years later these two giant companies are still in the state called the conservatorship and it is a big public policy question. what we do we want to finance to be like and still it is totally unresolved. i think that's been an issue for every american with a mortgage. it's an issue for every american who has been wrapped up in a house and for every investor because these five chilean dollars of securities most for the global financial system like water they are everywhere. that will have global economic effects. >> host: lets back up a little bit because a lot of people i don't think understand the function. the ima home owner and i go to my bank to get a mortgage. how are they involved?
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>> when you go to the market and get your mortgage those lenders don't keep the mortgages anymore. at least they mostly don't. the great majority of them get filled off to fannie mae and freddie mac to then package them up and sell them off as securities to investors around the world and the existence of a system act as an insurance company. so the investor has to worry that interest rates might change but they don't have to worry that you will be unable to pay because fannie and freddie are guaranteeing that. so that system has turned the mortgages into something that around the world they have invested in without thinking twice because they don't have to go through and analyze 100,000 make sure all of you are going to pay the mortgage and knowing
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and feeling the securities are safe and of the way that system has developed they have the purchase of tom in kansas which turned are american homeownership more domestic into the global financial issue. >> maybe one or two other countries what is having a system in place? >> that's part of the debate. some people say if you got rid of fannie and freddie there would be no impact. the market would continue exactly as it is and i want to pause on that point for one second.
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it needs to be explained what that means to this implicit perception in the years before the conservatorship that would stand behind any and freddie. if you default to did they somehow didn't have the money to pay, the u.s. government would step in and pay and that is what happens since they were put into the conservatorship. that system has given americans access to the third year third-year mortgage with something people around the globe don't have. the total fixture in american life that i think i saw some data from the urban institute found 80% of the buyers that are choosing the 30 year fixed-rate mortgage. >> host: in the other countries would have a shorter term of interest rates that change more often.
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so the mortgage could double every month for the existing has made a mortgage a stable instrument at least for the home owner. >> host: you talk about the government guarantee. so is there a guess given this implicit suggestion of whatever we want to call it that they are going to step in. the fact that they had this in the u.s. government standing behind them announced that they could pass along lower interest rates. they would pay in a system
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without fannie and freddie and certainly if meant this longer-term or ditch. how much of the benefits did that actually guess that was new since the financial crisis. it wouldn't have been a mortgage market and arguably the downturn that followed the financial crisis would have been a lot worse. so fannie and freddie served the purpose of stepping in to provide mortgage credit. >> so you spend a lot of time talking about the lives of fannie and freddie at the development and have accumulated political influence in washington.
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the free-market economy with a capitalist economy that is the government-sponsored enterprise why can't the private capital just take care of americans mortgage-based. in response to that, fannie and freddie developed the lobbying and i think that if the former congressman who used to say they have the most sophisticated lobbying operation he had ever seen in his entire life. the reason they did that is because they felt like there were forces in the government to take away the advantages they have from this perception it
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became a really formidable and political and that in some ways intensifies. i think that you have people that ended up on the wrong side of fannie and felt that it really resented the company for the way they behaved. there was talk to be the first black president and they were democratic power players. in the mortgage market is one of the biggest in the world about
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money. the private companies. many of the players market totally resented any and freddie because it meant less for them and so fannie became part of this, i'm not the first to use this phrase of industrial complex and to sort of loose loosen it and sometimes the fractious unhealthy kind of a lie in some everybody that has a stake in this enormous enterprise that is the american mortgage market. >> host: some of the anecdotes that you've you gave about the lobbying prowess it was granted and then what happened after that? >> guest: ironically coming and we can come back to this but one of the criticisms in the 1990s one of the responsibilities that was given to them by congress as a sort of
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quid pro quo from the perception that was close to the government is that they had to do things for affordable housing. they had specific quotas that they needed to make that would satisfy these affordable housing goals and during the 1990s the constant cry from the housing activists and from people on the right who didn't want them to exist which they don't do enough and they are not doing anything they are just all about their own profits and they are not doing anything to make loans more widely available they were criticizing them for doing that only to call up when he was supposed to get a grant only to get a call from the senior person saying we are not going to give it to you and he actually called jim johnson and said you can't possibly be that full minded, can you? >> host: ire member a quote from the the book somebody
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disturbing the lobbying congress and they will cut you up and throw you in the river or something like that. >> guest: it was from the "washington post" in the 1990s and i think that it is one of the great ironies. it sounds sweet and harmless and in reality it is this monster financial empire that had at the end time. >> host: you probably got this from the recording but it seems like part of the resentment about how they acted as how much people felt they depended on the government for existing in the first place so on the one hand you are dependent for us on the guarantee for the very business model and a beer and you're you are spending all of this money and threatening people around washington. >> guest: from former treasury secretary he says if you are going to design this to extract money from the u.s. government you couldn't do better than this
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for this hidden subsidy and what they mean by hidden subsidy is there was an implicit guarantee of this idea of the government to stand behind fannie and freddie but they didn't pay the fee for it and so there was this money that fannie and freddie could then turn around and exploit in order to pay their executives really well and to have huge lobbying. >> host: how did they know they were supposed to the profits of fannie and freddie? >> guest: the rest of these in the 1990s but said many was flowing through to the executives and shareholders of fannie and freddie and not the homeowners. it was a small amount like 25 basis points which is a quarter of 8% so if you've you send you've sent or monthly mortgage payment or $100 it would reduce it a little bit.
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it's irrelevant in the context of what happened in 2008 because the value of freddie and fannie that they are there in the private market is we may not need them in good times but we certainly need them in bad times so to say any and freddie were not providing much value and then to ignore what happened when they devoted to the market it seems like a funny way to look at the issue. >> host: politically they did build up a lot of presents meant for people that were looking at that chance. >> guest: it helps >> guest: it helps presentiment. what do they do anyway? they said they are too big to fail and will land with a giant side which is what happened for the reasons that we are
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predicting. president obama a president obama a few years ago described it as heads we win and tails you lose. so it was this idea that what happened is they would be allowed by taxpayers. >> host: the congress can't pass anything it seems like and just a few days ago one of the things the senate agreed on was to put a new cap on the pay of fannie and freddie at a seems very fashionable even today. >> guest: it's become extremely fashionable which is ironic because the mortgage market has never been more than a year since before the financial crisis so you would think that would have given them some kind of mojo.
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this narrative took hold and it's pretty popular in a lot of circles that fannie and freddie in the goals they had for the financial crisis in many ways if you can see that fannie and freddie at the government are solely responsible for the financial crisis, while there was no problem if that doesn't mean more regulation the only answer is get rid of the government and we will all be just fine. as a result of that, even the staunchest supporters have run from them and the congressman that was most closely associated in the 1990s as a defender of theirs and even he said they should be abolished. >> host: one of the issues this isn't the first scandal. there was an interim scandal because of the financial crisis
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even though it was less than 20 years ago. so it happened in the early 2000. >> host: this is my first exposure was these accounting scandals back in the mid-2000 that led to the senior management teams of both companies and they were slightly different. the idea is that it is actually understating the earnings and the idea is that they were manipulating the complicated statute about how you account for the derivatives and overstating its variants and it was a huge scandal. the management team was kicked out and they had to do a statement earning the regulator even called fannie mae a government-sponsored enron. just think about how odd that is can you imagine the city groups and regulators saying that it's a government-sponsored? those are big words. the really strange thing is it's
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like a mixture that has all of these strange twists and turns. the odd thing about that scandal is that when they released the earnings of the shareholders equity went up, not down. it went way up and despite all this rhetoric about how he was a fraudster never charged by the justice department the judge ended up throwing out several claims against him saying that there was absolutely no evidence that either man did anything wrong. you would expect 20 regulator calls the company a government-sponsored but this is going to end with a bang and ended with such a weird little whimper. >> host: why do you think the government kind of overplayed backs >> guest: i think that that if
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deep-seated fear and anger against this reference that they were in and they were minding their executives pocketed the brahimi changer to the financial system and they needed to be reined in. fanney in particular successfully fought every attempt to rein in by muffling its political clout. they started to feel frustrated at their ability to rein in and that the companies were a systemic risk. and i think the fight became very ugly on both sides. the unfortunate thing about it is that after the management teams of both companies were ousted at the beginning of the dangerous bubble in the real estate and history congress was still unable to pass any new legislation.
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it's popular to say fannie and freddie are democratic problems. republicans are righteous on this issue and fannie and freddie that the democrats problem. but we had a republican in charge of the white house and a republican congress and they were still unable to pass any legislation and it hopes to explain where we are now. but you know as well as i do that republicans are reluctant to sort of disruptive this issue as some democrats are. >> host: we had to start the conversation talking about what these companies do. it's not something that you can fit into the speech very easily unless you're going to give a blanket shift. let's talk a little bit about the housing boom and what fannie and freddie participation of that was. you started to say they did really go out as far as the private lenders but what were they doing? >> guest: they definitely contributed to the bible and the
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need to satisfy the goals i just don't think that it's the sole cause of the crisis. the market share had been cut in half as the subprime lending where instant of the mortgage originator signed the market is to fannie and freddie they were selling them to wall street firms totally bypassing fannie and freddie cutting them out of the market and that is what they wanted to see happen. having been cut out of the market. the problem is the standard for the loans were getting riskier and risk your. so, around 2005 they did two things. they started buying some of the wall street securities in their own portfolio using them to meet their affordable housing goals and decided we needed to get into this business. you can trace back through market share numbers and the exit to dance and executive presentations. they were terrified that they
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were losing the propaganda losing their hold on the market so they began to make risky loans. you can see by the numbers they guaranteed were never as risky to help bring down the system. it is a fraction of the default rate but nonetheless contributed to the crisis and it was enough to create the perception that fannie and freddie needed a bailout. >> host: one of the things people allege in the market crisis is that it wasn't only fannie and freddie the decided to take more risk but that these affordable housing goals try to get them to take on more risk. they keep and produce profits
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and you can see that through executive presentations at the time how to wiki up with the market and keep the profits they need to be relevant. you can't be simplistic about it and say that it was one thing or the other. it was both end up as a mixture of reasons why they did it. >> host: whose job was asked to make sure they didn't get out of hand? >> guest: they were regulated and had a government agency called the office of federal housing enterprise oversight whose only job was to regulate fannie and freddie and the regulator do that they were going into the risky loans and they didn't think twice about it. >> host: was at a staffing issue or political issue? >> guest: it was a competence issue in some ways. and i say that not meaning categorically speaking. there was this idea that the private sector do was doing. what it was doing.
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the lenders were making these loans and investors were buying the security they knew they were doing and everybody was analyzing the risk and making sure people get paid their loans back. nobody realized until it went to hell in handbasket but no one was doing that work and couldn't pay the loan back. >> host: kind of part and parcel of that and loans you had fannie and freddie start to invest in some of those securities the market was playing. >> guest: that is the biggest irony and the twisted tragic part of the story that brought fannie and freddie down that created the losses that led to the perception they needed a bailout they started to buy a manufactured securities and pulled them on their own balance sheet and so when the securities started they had to take huge losses and what they were doing the buying loans that have
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already been packaged and sold to investors by wall street, that's got to be one of the more screwed up things. >> host: >> guest: they were trying to satisfy the products with the loans had satisfied so they tried to set aside housing goal, to back. i i want to pause on this issue about the crisis because i think that there is a really widespread misperception that i think is actually kind of worse among people who understand the issue because it is almost intellectually dishonest that putting people who couldn't afford homes into homes is what caused the crisis and we should never do that again. it was not. the majority of risky loans that were packaged up and turned in so securities were not made for the purpose of home ownership. they were made for the the financings where somebody takes out a bigger mortgage and takes take the cash and uses it to pay off bills but if you hadn't made
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those loans and you haven't done the crazy investment loans there wouldn't have been a financial crisis. so if this approves the idea that we should never extend credit to people that might be on the margin of the qualified home ownership because look what happens in the financial crisis isn't a referendum on that one way or another. it's an academic work done showing the majority of people in the crisis is quite affluent borrowers who didn't pay their refinancings. as it is a referendum on extending credit to people that can't afford to pay it back in this crazy extension of credit at every income level but it's not a referendum on home ownership. >> host: there's entire books written that have come out recently that kind of plain fannie and freddie and the affordable housing goals. so why does this become --
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>> guest: people like to simplify complex issues and even if it is in the clarity it feels like clarity and i think that if you can say the government caused the financial crisis, you've got a real clear and simple explanation. you don't have to say it was all these complicated factors come you can just reduce it to one simple thing and i think that is part of this. i think the other part in the regulation if you can say that fannie and freddie and the government did all this don't get me wrong i am not a beekeeper in regulation and all problems so i don't mean to sound proregulation i'm actually quite mixed on that point but you can get rid of that is the whole problem with fannie and freddie.
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then on top of that you can get franny and freddie because look what it led to. so it is a very appealing argument to arguments to spite the fact that i think that it is just not proven if you spend time thinking about it. >> host: so 2008 everything started to go downhill. when does it start to become apparent that there were problems and then what would have happened had the government not stepped in? >> guest: this vertically relates to this idea that they caused the financial crisis because the notion is the fear about the loans that were enacted started traversing the global financial system and spread to the private market loans and that's what brought down the whole system just categorically not true.
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for fannie and freddie were at all time highs and the first tremor was when the french money market couldn't pay because of losses on u.s. subprime mortgages, which were purely wall street mortgage-backed securities nothing to do with fannie and freddie. it went bankrupt in 2007 before there were even tremor's. but it was the year when the financial crisis wasn't one big conflict. there kept this interruption of things that come down a little. people got increasingly worried because you could see that they had a lot of risky mortgages on their books and if you have a giant housing downturn going on you have the institutions whose sole business is taking the u.s. homeowners and i think arguably
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they could have done a loss of confidence and then even if they hadn't turned into guaranteeing these marketers in the summer of 2008 the stock prices are plummeting and there was fear that they wouldn't be able to make money in the market markets and the whole machine would come to a halt. we think of it is this good thing, not always but hank paulson treasury secretary told a story about being in beijing for the summer olympics hearing that the russians trying to get the chinese to hold fannie and freddie securities to create chaos in the global economy. then there's this chinese -- if they want fannie and freddie to fail it's going to be the end of the global financial system as we know it. so then there was this idea that if the two companies were to go
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down, the securities were everywhere and it would be at the foreign relations and delivery catholic in all the banks that held the securities on their own balance sheet and it would shut down the mortgage market. so is this perception that we could inflict these companies fail. >> host: having so much interconnectedness and such a large market, even if you are not sure of the probabilities tammy and freddie are going to fail if the consequences are so dire that you have an outcome in what they were saying, you would rather ask and and the wrong then roll the dice. >> host: there's a huge fight over whether they really needed a bailout and i tend to cut the government a little bit of slack for what they did in the 2008 financial crisis. it's easier to look back now and say people could have done things differently. maybe this company didn't need a
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bailout and we could have let them fail. hindsight really is 20/mac 20/20 so i tend to think the arguments about what happened in 2008 are a little beside the point. >> host: the way they put it in the conservatorship is why things are so screwed up right now. they used a process called a conservatorship and the structures they set up around that. >> guest: so it is a well-known and how thing how the fdic says the failing bank. it's how they rehabilitate the failing bank so it wasn't like the idea of the conservatorship. and i said this a couple of things about fannie and freddie conservatorship.
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they were so much tougher than the bailout of the big banks. it's back to semi-normal but back to being a publicly traded company the big banks executives didn't even get fired back they are paying the shareholders and executives and bonuses. there've been some by the fdic that say look this isn't what conservatorship is. it's rehabilitate the financial thing and put them back out there. >> host: it's interesting because the fdic has the conservatorship law. it was passed the different structures and people were
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firmly with the concept of conservatorship and it's kind of a stopping point to the receivership which acknowledges. but the government bailed out of fannie and freddie it's not like they took away the shares. the government left 20% and securities of fannie mae and freddie mac in the private shareholders. the government was taking a huge 10% dividend. any money the government injected into fannie and freddie to get paid 10% had a huge onerous dividend and they took 79.9% of both companies so what was left of the two companies
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from here until eternity was nothing said they were supposed to be wiped out even though there was this stump basically that was left training. but at the time the government did it, the government said well you know what regulators even said this might have a value someday. >> host: they said and they meant it or -- just can't get it they meant it but they said it. and so even though now they may wish they didn't and they heard arguments from people in the government that we only did that because we had to put on the u.s. balance sheet you should know that actually you were wiped out even if that it isn't what he said at the time. >> host: for period of time they were wiped out and still traded.
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they said all these laws is fannie and freddie are taking in the headline number fannie and freddie have taken $187 million in taxpayers money to bail them out. fannie and freddie had to take money based on the accounting concept of the complicated concept of the network and that means that if you are listed in the liabilities and it's below zero, then you have to draw the money to fill the hole and the concept isn't what it takes into account not only today's losses but it's as if you are going to lose money on this in the future commitment is going to reduce the network today. so fannie and freddie took a lot of money based on the losses that were supposedly coming in the future but were never actually materialized and so in truth, the companies didn't actually lose that much money on a cash basis but they have to draw the money anyway. and so some investors began to
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do the work and they said these companies at some point have to reverse all the losses they are taking. what do we do with the companies that have gotten into trouble? we have researched them so this is a great debt. >> host: and then what happened? >> guest: in the summer of 2012 for the reasons that are the subject of great debate and controversy said we are going to take instead of just having you pay a 10% dividend on whatever money we put in, we are going to put almost every profit you make until eternity. >> host: so does the government gave an explanation for why they did that and they argue, describe that just for the record to keep losing money and they all thought they were going to keep losing money that would become profitable and they thought they would be onerous to
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pay the dividend so instead they just take everything that they had to make so they make money and take it and if they lost money in another quarter obviously they would get money instead of having to --. i can't can take the dollar if you don't have it but if you do i will take it all. >> host: my understanding is the way they structured it it kind of comes back to the interconnectedness for certain period of time had an intimate out of activity to draw from the extent that what they have less starts to get smaller to have investors in mortgage-backed securities in china thinking they would start learning about this.
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>> host: it's one of the downsides of this global connected system that we have a further central bank of china to be worried about fannie and freddie don't have enough capital. we want to make sure that the securities are protected. so this makes the security seemed safer than having the requirement to pay the dividend with money they may not have. >> host: you mentioned they were showing signs that they were starting to get better again. we know the government said the reason they did it. what do you think was the reason? >> guest: you know, this is the subject of the lawsuit, and there could be things that come out on both sides that are interesting and i almost hope it goes to trial as i think it will be a fascinating insight into the workings of the government. as well as fannie and freddie.
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but it is hard to see that the government didn't understand the two companies were about to become profitable. they had investors and they were tallying them and and there have been interesting stuff that had come out in the court cases testimony from the former financial person saying they knew we were about to become profitable. if the government had a good reason for doing this i would like to know what it was but the reason doesn't appear to make sense and that make me very nervous because i don't like feeling that we the taxpayers and citizens are being lied to and that there was something else going down and we didn't know what it was because of the reason it doesn't seem to make sense. you should never underestimate the amount of incompetence in the world and its possible everyone on wall street understood the companies first
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started making these amounts of money into the government actually just couldn't. i guess that is always possible. it's just somewhat hard to believe. >> host: you have to remember these are huge organizations. sometimes the right people don't know. >> guest: it is possible. it is totally possible. it just yields what happens given the enormity of the process that has come from fannie and freddie. they paid $241 billion to the u.s. treasury. so it's not like they squeezed out a few pennies here and there is and the government didn't notice was great having. >> host: so you think that maybe the reason they started sleeping on the profits goes back to talking about the '90s and early 20s he was a go's. these are companies that people were afraid of and you think that it sounded like maybe he said this was an opportunity
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that -- >> guest: i don't know. i don't know so it could be that the government explanation is absolutely true. the facts don't quite line up with it. there's plenty of speculation that came out of the reporting of other reasons they might have done it. one was the companies become incredibly profitable again there's going to be pressure on us to bring them back to life just as they were and the companies are the worst thing ever how can we do that i think that there's speculation and it's certainly true that have been used as a tool to reduce the federal budget deficit. so there's speculation the government wanted those billions for its own purposes rather than having freddie and fannie keep the billions of dollars they were making and that could be part of it and i think some of that presentation that has come out of some of the court cases suggest also that in this kind of environment of not one thing to see wealthy investors get paid even though the wealthy investors actually happened to
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manage the money of the pension funds and others that there is this anti-hedge fund we don't want to see the investors get rich and i think there was a feeling we don't want investors to have a payday. >> host: we are talking about the hedge fund on tv all the time. we are talking about paulson & co. and the hedge fund manager. you mentioned about ones before the sweep. some of these funds also analyzed the legal case after they show the profits, right >> guest: the ones that brought before the government changed its mind are impossible to know. after words what people say it's a very fair point.
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this is in the way the system is supposed to work. they have a great line in the book. so it's like i said in a financial crisis if you came back and started paying and you were making your mortgage payments and i said i'm going to take 100% and it feels wrong. there is another great mind that i love in the book that came from the former executive and they said it feels anti-american and therefore people would argue that they were only as anti-american. >> host: sure. and do you feel like the involvement of the hedge fund has kind of complicated this issue as a result? >> guest: it's definitely complicated the issue. it's for a couple of reasons that has comforted the issue because it's meant that it meant that you have these very powerful -- some of the most powerful in the nation suing the u.s. government fighting for an outcome that is and what the
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administration said that it wants. the investors have very much come to push for it and that is exactly what the administration says it doesn't want. president obama has been clearly do not want fannie and freddie. they've got to go to that is complicating matters. it's a good thing for a couple of reasons. these affect every american in some way or another. it affects the interest rate on the mortgage and the availability of markets credit and the value of your house. i don't know that we want our government making a decision behind the closed door that will affect everybody without some sort of a public debate and is one of the big reasons i wrote this book. i also think that what happened in 2012 baby if the government was onboard but who else but the
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wealthy investor can afford to sue the u.s. government cracks so let's look at this and make sure what you did was. i'm always a believer in more transparency and more answers to see what happened. and so, i've come to the the the investors while they are after their own payday are also sort of raising awareness of the situation in a way that is probably good. >> host: one of the great frustrations of the case so far is that they are going through this discovery process but what they have discovered is an unavailable to the public at least yet it isn't even available to the hedge funds. >> guest: wouldn't you love to take that step? >> host: and the plaintiff appeared as they do appear to be very confident in the filings and asserting the government like that of reviling goes
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something like such and such government official said this and it's clearly not the case. and as you said it's almost if all you've got is the plaintiff's attorney -- if you are on the government site and all side and all you have is then characterizing the documents it's the worst reflection of the documents coming out. what a judge has recently decided at least for the time being these documents are not going to be made public. so this came up in another talk that you gave just a couple of days ago. some of the hedge funds which don't want the litigation to go all the way to the supreme court it ends more quickly and they are hoping the government will decide to settle.
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one of the ideas is if we can make this discovery public it will be so embarrassing they can move to a settlement. what do you think of that strategy? >> guest: i don't like that as an answer because i want transparency. i want to know what the government was thinking when they decided to take off the process. so i don't like the idea of the possible government this behavior being squelched or covered just so the investors can have a settlement. i feel like that is kind of anti-transparency. one of my fears about where we will be today is an extra hole shock for the hedge funds or incredibly embarrassing documents the government doesn't want to become 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 treasury
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and take more money and then it will become a huge political football football again and so instead of making a well thought out decision about what the structure of the market could look like again an issue that matters to every american in the half-baked answer in order to avoid the discovery and to avoid the political loss of the two companies that is a really frightening prospect. >> host: said they have been adamant for a long time that they want to see congress solved this are we getting anywhere with that? >> guest: they've been a little more pointed than that and this issue, correct me if i'm wrong that they have been clear they want to freddie and fannie gone. obama said in a speech at couple of years ago heads you win and tails i lose. the two companies have got to go. so they have been insistent that
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they want private capital to finance the american mortgage market. so we've got this kind of disconnect going on, but i think there is a pretty widespread acceptance that if it were not for some sort of a government backstop in the housing market with a fixture of the fixture of american life, the 30 year fixed rate mortgage wouldn't be there and it certainly wouldn't be there for most of the population and all economic times. it might be there for the very wealthy and it might be there for more people in economic times, but it wouldn't be the fixture of american life as we know it. so i think there is an acceptance that we don't want to pull the plug on the government presence in the housing market. yet there is this anti-rhetoric in a so it is a stalemate of what do we do and is so the hysteria in every form as wasn't as the spring of 2014 dot --
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>> host: it seems like a long time ago. >> guest: it does. but there was an argument that the bill bill sort of re-created cme and freddie in a different structure but you still have a government backstop in the housing market so if you are still going to have a government backstop it better why don't reform feeney and freddie and give them better regulation and make sure that their incentives are not to produce extraordinary profits for the shareholders and executives but rather to run the business safely come a structure them differently and maybe even toss them some countercyclical measures of the mortgage markets going insane, freddie and fannie will back from the mortgage market but why wouldn't you try to fix what you have instead of starting from scratch with a totally untested system that is going to support the most separate the most important asset and most americans live?


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