♪ studios in new york city, this is euros. charlie: fannie mae and freddie mac were formed by congress to support the american dream of owning a home. for decades, their influence made for wall street greed. they were at the center of the wall street crisis. seven years, they remain in limbo. book, the rise and fall of what might happen next, it is ground."haky i'm pleased to be joining by

manhany mclean and bill ack from pershing square management. give me a primer. bethany: they were formed by congress in the wake of the global crisis. the one thing that we might figure out to do with these two companies, what might make more sense. but instead, here he arson years later, the companies are still in conservatorship. they're supported by lines of credit from the government. we have done nothing. even more frightening, the companies have gotten bigger. they have over $5 trillion of debt backed by home mortgages. and thanks to a decision by the government, they have no capital to back that up. in the wake of the capital, we need more of it, that will make

the financial system safer. in contrast, we have these two companies, which together are two of the biggest entities in the world, no capital. run by jim johnson in the 1990's, the washington post was called the chairman of the universe. was talk about the accounting scandal, that he might be the first black president of the data states. charlie: what happened? bill: right after the great depression, fannie mae created a market for home mortgages. they would take deposits and make mortgage loans. in the old days, they hold onto them. ofy go insolvent by virtue having lent money on a long-term basis on a fixed rate.

having deposits the change in price every day. they create liquidity for mortgages. enable the establishment of a fixed rate mortgage which became a fixture of the housing market. upir business was buying mortgages, getting up a large volume, selling securities backed by them -- where they would guarantee the payment of interest and principal. very simply, they would buy a bunch of mortgages, chop them up, and sell bonds backed by the allegations. they would guarantee the payment of interest and principal on the mortgages over 30 years. it made them very safe and every bank in the world owns fannie and freddie mortgages. that was kind of the same business. what went wrong -- charlie: you ever owned them?

bill: never both of them. of the very safe business borrowers, they became more aggressive. they became hedge fund like businesses, betting on the price of securities. and they were pressed by congress to make riskier guarantees loans. so more and more people can own a home. they wanted a home, they had to borrow money on the securities. the barney franks of the world wanted better. prices declined. charlie: i'm not sure either of you have heard the story, but larry summers was on a shuttle. he was at the end of the clinton

demonstration. he ran into someone part of the incoming administration. said the most important thing you can do is fix fannie mae freddie mac. areany: these companies widely perceived as democratic companies. but it was actually under the clinton administration larry summers first of them on an official way. meaning you begin a criticize him publicly in question the u.s. government's ties. it became a huge political brouhaha. i think it is fascinating that it was a democratic treasury secretary. charlie: what you going to do? bill: solution is to restore fannie and freddie do what they were 30 years ago, very safe businesses. why is that important?

the u.s. economy is the only finance market the world where you can borrow money at a 30 year fixed rate. to borrow 80% of the night of a home. you can borrow money at something less than 4% on a first mortgage on a $250,000 home, it really enables the dream of owning a home. it is a very good way to save for retirement. that is what we need to go back to. when we get back there, was happened, they took risks they should not have been taking. the management teams in the past the very good job rebuilding the capital of both companies. the issue is there headed back in the right direction -- getting out other riskiness, guaranteeing strong mortgages.

in august of 2012, the u.s. government decided unilaterally to actually take 100% of the profits for ever. every corner they generate profits, which has been every 2012, thence government takes out the dividend. deprives them of the ability to capitalize. the government has been repaid the principal. the u.s. government made a very large profit, almost $100 billion, which it should. 79.9%.. taxpayers own when they should allow the entities to rebuild. do not pay any entities until they get to a level that jamie dimon called a fortress. business ofhe owning a housing finance company.

the u.s. government in the same thing, they injected capital to bolster the institution. participation in the stock, and exchange for committing capital, and they for citigroup to rebuild the banks. they exited business should not be in. restored to a privately held institution. that same thing happened at a ig, jpmorgan, goldman sachs. fannie and freddie were the only institutions were the government decided to take over. it was ac big event in history of corporate america. charlie: what did you think of hank greenberg? bill: was interesting -- charlie explain: what he did. terms,n very onerous

the government took huge pound of flesh on aig. they paid back the money and became public again. we expect that have on fannie and freddie. hank was not happy any suit this was an illegal appropriation. charlie: no one thought he had a chance. but he got no damages. we are suing on the half of all of the stockholders, to reverse this 2012 transaction. we are not fighting the bailout. hank attacked the 2008 takeover. we are saying the terms are that forthe we reject years after the crisis is not enough for the government to get to percent coupon. charlie: you say on the half of

millions -- bill: we get calls and e-mails from people in retirement who own 10,000 shares. our investors benefit if the stock price increases. that is a we make a living. bethany: i think the u.s. government needs to do something. every person out there should care. isn't just homeowners with mortgages, it is our relationship with global entities. water,ecurities are like and if there is a disruption and they have to take millions of dollars from taxpayers, there could be a disruption in all the markets. i want a solution. that little less sanguine, there is a payoff. but i have come to believe that

despite the problems with the model, it is like winston churchill's old quote. the worst thing in the world, with the exception of everything else. when you really start to think through what is the upturn of, they are all worse. obamae: president described it as heads we win, tails you lose. bill: every major bank, the depositors have a guarantee from the u.s. government. that is a huge subsidy of the banking system. every large bank has potential for the government to step in and save it if there is a financial crisis. there is implicit backstop. does is government force the bank to hold more capital. if we put guardrails on fannie and freddie to stop them from going into high-risk businesses,

we require the whole multiples. you can make it extremely removed the taxpayer ever has to step in to save them. if you let them recapitalize, just the profits they are generating, and for five years, we believe they will be worth half $1 trillion. the taxpayer will own 80%. that can be used for education, deficit reduction, if you let the entities continue to exist, is no viable alternative to them. that is why they are where they are. financialhe largest institution in the world, if you combine them, operating with zero capital. each government the company is swept out 100% by the government. thelie: with respect to 2008 crisis -- imagine jb morgan

operating with no profit. stalin-esque. bill: it is literally the government taking private property without compensation. that is constitutional stuff. look, i think the original securities laws that were put into place after the great depression good. the issue was more about enforcement. i actually read the dodd frank bill when it came out. charlie: had a free week? [laughter] bill: the problem with bills and laws, i would not want to be jamie, running a major financial --

charlie: the standards of liquidity and leverage. bill: it is a vastly better place than it was 10 years ago. charlie: if they have been in place in 2000 and eight, we woul8, we would have had a crisis? pages,rinciple in 1000 the problem is that the complexity and regulatory overlap. it leads to some bad -- charlie: almost to go back to where we were. bill: after the great depression, the sec was created to put good laws into place. people stopped enforcing the rules. y: there is important

part, let's have private money to finance. ytd the government? does, what dodd-frank that it prevents too big to fail, if you take the mortgage banks,nd put it into the ineffectively undoes the bill. it is not private capital in the way that there is a pretense that it would be. bill: i agree you want the housing finance supported by private capital. but you cannot do that with a blank sheet of paper from scratch. freddie and take fannie, they've been around since the 60's, take the enormous scale economies and track record, use them as public

companies again -- owned by the public. as long as they base it is large enough, you can make it an extremely unlikely that the government should not be involved. the government is involved in oversight, not risking taxpayer money. you can get there with the current system. charlie: does any other country have this? bethany: there is no other country besides denmark that has what americans call a birthright, a 30 year mortgage. you will you this argument that other countries do it differently, the rates are better. why can't we do it? otheroblems, one is that countries are as diverse geographically the income spread. the other is that in europe, banks essentially financed the markets. banks ino bail out the 2008.

this idea that other companies do not have the government involved -- bill: why do we get rid of the 30 year mortgage. ? the entire bulwark of the mortgage enables someone who is 28 or 38 to save money and put down a down payment to buy a home know they will not get stuck in five years having to refinance. have 30 years. if rates decline, they can refinance. that instrument has created enormous wealth. it lets you get rid of the prepaid mortgage, which no one in congress is in favor of. it has destroyed us. ♪

♪ charie: last winter, you said that fannie and freddie were the most interesting risk reward in the capital market. bill: i mean that if you buy it today, i believe the only solution to the problem is to present them as effectively privatized. that is something they do very well. charlie: you believe that that will be the solution that takes place? that it is a safe bet? bill: i don't want to make an investment recommendation.

charlie: i'm asking about -- bill: i think it is more likely than not that is the outcome. legal, risks.cal, it is not a safe bet. greatny: i think it is a example of political dysfunction, that we are not done anything yet. i am not as optimistic that our system will do anything until there is a crisis. my fear is that if there is a crisis, the government will lurch. some sort of with solution that will not be a solution at all. i wish the government would take the luxury of fixing the roof while the sun is shining. and do something while the market seems relatively setting to put us on stable ground to waiting on a crisis. --rlie: big banks are doing

interestingwill be to see. i think there is a lot of questions about what their business model is going to be going forward. and what businesses therein, whether the trading business is to make money as they did. in the past charlie: why does it matter to most americans, whether the federal reserve raises rates or not? indicationrow is an of what they think of the state of the economy. if they defer, they still have concern. part of me says a small increase would be ruled favorably., they believe the strength of the economy is such that a 25 basis messagencrease is a

that we are finally recovering from a crisis. we're here to talk about a book. i do not write it, so i can be objective. it is a good book. what happened is that no one in the congress or government or the country understand what these institutions do. this is a little book, it takes two hours to read. it is the best $11 you will spend. a little plug for bethany. bethany: i will take it. companies are part of everyone's lives. i feel like it is something we should understand and think about, instead of just letting special interests dictate the outcome without anyone understanding what is happening, until there is another crisis.

id we not do anything differently? charlie: the questioning of hedge funds --you are a shining star, but you had a bad month. bill: hopefully, we do not judge ourselves on a monthly basis. charlie: what you have about august? bill: even berkshire hathaway's profit stock is down. why? people panic, they sell. fundse: a lot of pension are moving -- some in.

are they alone in terms of that? --edge fund bill: as a result of that profit share, and attract people to the industry. gets a: you are saying a percentage for managing the assets, too. bill: it a profitable business model, so it attracts people who want to compete in the industry. there is a full continuum of talent. so far thatd only it was a boutique. they were small five years ago. there were a couple of hundred. couple trillion dollars. they can be much more short-term, more trend followers. want to make one

very high-level point about the middle class for a moment. bethany haso what written. the last 20 years, the price of computing, basic goods and services for middle-class people has come down. we've had a meaningful deflation. and that is partly why there has been no real wage increase. there's been no revolution. the risk however, the only asset that is going to appreciate her medically is a roof over your head. if you do not own a home, your subject to renting. a man have been increasing at very high rates -- 7%. the ability to own a home and control your cost of housing,

actually build a nest egg with this asset, it is very important. fannie and freddie have enabled people to own homes in america. charlie: go ahead. bethany: it is an interesting thing. there are other hedge funds who are suing the u.s. government over their handling of freddie. but if you think about it in a different way, it takes someone with a lot of money and power to sue the u.s. government. i think it is fantastic that we have a group home who are willing to shine a light on the government's actions. i applaud hank greenberg. the government's action a time of crisis should be scrutinized. charlie: to realize there is the case. andany: that is a value transparency that hedge funds

and wealthy investors can provide. charlie: is it a huge value? bethany: that when i come down on a different side. charlie: i renumber as he began to deal with a crisis, smart people would come and say the indicator i'm looking for is the housing market regain its growth. when we begin to see movement and new construction, i will know the economy is beginning to gain traction. bill: that is what janet yellen was looking at. the housing market is a huge the economy. it is not just construction, but the furniture you buy. the moving, and it is one of the few places where a middle-class person today can make a real living -- and construction,

without a college education. construction is very important for the economy, in general. home, itinvest in your will always growing get better, that equity will always be higher, that idea -- bill: it is not dead. you had athe crisis, stable increase in the value of homes around the country -- over a 75 year. o period of time. full by no money down, crazy financing. that blew up because it was a bubble. it reset the much lower value. the benefit of today, you are buying at much lower cost. it will be a good investment, like it has been. unlike the stock market, were people react emotionally to their stocks, the beauty of a home is -- at a minimum, you

have an asset you can live in. you know the cost. and you can rebuild equity is a built in savings plan. you have been a principal each month. it is a good way for the average way money. charlie: you are a financial writer, not an economist. what impact are we looking at for a calming china's slowing down of growth and the efforts on that to try and do something, even some people judge it too much? bethany: i think is a big overhang for the situation. thereof and smart people have argued over the years that the situation is worse than a buddy wants to let on. numbers are not true. if we had a meltdown field by they willstate boom,

have one fueled by the construction -- the likes the world has never seen. that is a big risk. you are seeing it in commodity prices. it is frightening. that thee to believe world we live in is secure after the global financial crisis. but it is still a scary place. bill: i am bearish on china. 7% is overstated, it is very leveraged. a big chinese did not handle both the rapid increase in the stock market and the promoting of marginal leverage -- charlie: going after financial writers -- down, the chinese approach has been to literally arrest and go after short-sellers, there is nothing more frightening to investor to be in the stock market when you are told you are not allowed to

sell. i have a norm us respect for the chinese. they are entering a real entrepreneurial and intelligent people. but they really mishandled the stock market. right now they are managing the currency and the economy, that is very difficult to do. bethany: they are a big owner of freddie and fannie. charlie: are they selling? know.y: i do not bill? bill: there is and always pressure to get capital out of the country. the economy is deteriorating. will have to let it appreciate. that 2%eract depreciation -- i think it is to

between percent -- they should selling assets and buying the chinese yuan to support the currency. they are consuming reserves. charlie: you are here about your strong feelings. not a talk about pershing square. where is the herbalife deal? show:,nce i was on your the short story -- intended.o pun bill: bethany is well-known for exposing the enron fraud. as resultis a stock that

of ourinvestigations. i think the frustration on the part of investors, and the co-author, her , shutted them and said down a pyramid scheme. many times people left and went to another one. ima, whatdown the themv is the difference between herbalife? define the difference. sec should be able to tell them what it is.

he said i'm sorry we have no answer. the problem we have is whether it is a legislative problem or they are not a strong regular as it should be. this company needs to be shut down. is effectively identical and substantively, i think it will happen. charlie: will it be a huge day for you? 100% of the away profits i may personally. it will be a good day for our investors. charlie: good to see you. ground," bethany, thank you. stay with us. ♪

charlie: salmon rushdie is here. he has written 12 novels, for nonfiction and a book of short stories. he won the booker prize for midnight's children. he was knighted by the queen. his new book is called "2 years." it is his first novel for adults and seven years. good to have you. your last book was in the more? outan: yes, i just worked

that in a kind of spooky me, i started working about two years ago. somehow it took me 1001 nights. charlie: how do you decide what to write? i try: in between books, all kinds of things. most of them are any good after 24 hours. sometimes an idea sticks. i had this idea of geneies attacking manhattan. which would be enjoyable. i had this image of a man was a and if you're somebody who's been your life nurturing the earth, the things that grow in it, and you wake up you are an inch off the ground, that is a shock.

athought maybe it could be story of someone waking up and being a cockroach. like kafka. story,orphosis in his and it grew from there. charlie: you said you get sick and tired of telling the truth. alman: the memoir was the longest book i wrote. it was like getting a monkey off my back. i drew a line in the past. if everybody wants to hear about those years, read this 650-page book. you will be sick of it. i want to be the person to tell a story, and i told it. i will go back to the things that first made me want to be a writer. which is to write fantastic tales. i came out of the indian tradition which you grow up with

fantastic tales. and i will bring that tradition over, living here for 16 years. charliel: is one easier than the other? salman: this is harder. charlie: it comes from the kind of sense of whatyou turn it int. it was very enjoyable to do, actually. the center of the book, there is what is called the war of the worlds. the supernatural beings are attacking the air of, we have to

defend ourselves. is a time of extraordinary conflict. i think it is a time of great uncertainty. the thing that happens in the book, all sorts of characters they findardener =- -- strange things happening. that we live in a time that we finding and changing and all kinds of directions. many feel we do not know what is going on, except that the old rules of the world do not seem to apply more. we do not really know what the new ones are. charlie: but you also say it is a series of love stories. and sheat the heart of thethe',

claims to recover the dinosaurs. which may or may not be true. she lives a long time. and in the 12th century, on one of her visits to this world, love., she falls in father changed our family name. that.e, it comes from anyway, she falls in love with that. i did, too. in his time, he was the progressive voice. he was the aristotelian

philosopher, trying to shift the way of reason and logic and science and tolerance. away from blind faith. charlie: you argue for a kind of reason. man: it is too easy to say reason is good. out of the irrational self comes what i do for a living -- the arts. the company the marriage of the rational and the irrational. that is what the famous etching, was saying these things create marvels. when they are separated, they bring forth monsters. arlie: you did not introduce logic.

science.g together of salman: he was a great admirer of aristotle. he became very significant to thomas aquinas, the italian renaissance humanists were very influenced by him. charlie: you have made the observation that terrorism is very attracted to the real problems of sexual relationships. salman: it is a joke with a little edge. charlie: because of how they have -- salman: if you live in a world where you are broke and you have zero prospects, and you feel upon and is easy for you to believe that as someone else's fault -- charlie: someone comes along

with the argument that you will have everything you want in the next life. isis says that. salman: the thing that baffles me, why do the women go? charlie: i would assume it is a simple reasons, to belong to something. a connection somewhere, some romance to it. their life is boring? lure, may be unreal, is propelled forward. salman: i decided to turn it into a supernatural war. to say something about this world. i do not know quite yet. i have always felt a little regret that i had not written

more short stories. i had one book and a few other things, but i feel right now that i have five files with stories of different links. , so i might write some of those. charlie: at the same time? do you do that normally in your life? sounds like it would be difficult. aa bad: i am i multitasker. one thing at a time. you know what a book tour is like. it is not a time to begin a big project. i have whateze in, i think is --i don't know what it is yet. it is not formed. charlie: beginning to feel like

it may emerge. salman: you have a feeling that there is a fish on the line. but you do not know how big it is. charlie: it has not surfaced. skills, could you take y ar life experiences, and take bright young person who was very much observant, very much interested in the world around spiritual to even agree in the broadest sense of that, and make them into a good writer? is there a way? is there some existential quality? salman: what you can teach his craft. a lot of writers can be taught

how to do it better. and how to make sentences -- charlie: what is that? salman: the shape of the book. the things you cannot teach, everybody who is exceptional has some very personal relationship with the english language. think about hemingway or joyce, you immediately know that it is them when you pick up a page. charlie: do you see it in conversation? salman: not always. i don't believe hemingway spoke like that. for me, when i sit down to write, my mind works in a way that it does not otherwise.work page,nd of writing on the i do not write in the way i talk to you. another thing happens.

and that is the kind of magic. some -- like raymond carver, he has a very particular relationship with the language. what you said earlier, the thing that is hard to teach is the ear. charlie: i was when to say that. i think the best writers have this marvelous sense of recall for experience and observation. how people talk. salman: when you write to dialogue, two talking to each other, it should be possible not to say he said or she said. talk,rom the way they you should know. with all my characters, i start with, how do they talk/

are they talkative? are they taciturn? how big is their vocabulary? once you have made decisions about how a person talks, you know a lot. charlie: i have been a verbal person all my life. identity able to articulate and say to myself this way, than sitting and saying one sentence after another. salman: i quite enjoy expressing myself in dialogue like this. writing is the hardest thing i know how to do, especially when it is a book like this. it is supposed to feel like this, the great italian writer calvino mentioned swiftness and likeness. it is very hard to do. like it as read

quickly written, but it has deopth to it,. awful, andand it is you make it better. charlie: do they need much editing/ ? salman: i do not show work in progress. i'm too nervous and fragile. i get very interested in what other people say eventually. charlie: is it an editor, friends that are honest with you? need people who will tell you the truth. that i got bored or confused over here. that is what you need. i'm not saying i always do everything people say, but it is very useful guidance.

if three people say the same thing, than they are right. charlie: you know they're onto something. and you find out how to fix it. salman: the greatest editors always had the brilliance, they would see the problem here. but they would have to you how to fix it. charlie: the best usa here is what you do, just that this does not work. salman: you lost me here. you go and find out how to fix that. that is your job. charlie: how long does it take you to write a book? salman: the memoir is faster. no question. i talked to someone who said it is twice as fast. i think he is right. the memoir is by far the longest

book i wrote. it just came rushing out of me like a torrent. flood.dammed up this takes longer. charlie: you sit at a typewriter and just go? salman: i have a lot of journals, records. but a novel, you have nothing to you make it up. i have three times take five years to write a book. charlie: that is 25 years, already. year.: fury took a this one took two years. life,e: the issue in your as wide and as imaginable as it is -- salman: that is everybody's

problem. it is sad but true/ . charlie: it is in the top of consideration of what has to be dealt with. almost all of us think of it at some point every day. is going on in the world. charlie: good to be with you. salman rushdie, we will see you next time. ♪ .

rish: it is friday the 18th of september. this is "trending business" with me, rishaad salamat. an interest rate hike, worried about the state of the global economy. janet yellen signaled the slowdown in china is an ongoing concern. dropping below 50%. it could still happen. home prices rising in august in half the cities tracked by the central government.

up from the previous. rices are not rising much. a patent war with samsung. a court decision may force its rival to stop using some features in its smart phones and tablets. there is a right to exclude competitors. follow me on twitter. i'm at rishaad salamat. some of these moves counterintuitive. >> that's right, rish. in the wake over the federal reserve decision, let's look at what's happening across the asia pacific. right around the trend lines. investors following into these safe haven aspects. the yen is neg