some of them to go back a little bit further in time to describe some of the groundwork that was lead to create the crisis. but josh and i decided to go back much further into the early 90's to tell the tale because a debacle of this large really didn't happen overnight. and unlike some of the book's conclusions, other book's conclusions that i was nobody's fault, somebody's concatenation of defense that could not be helped we really believe that there were actual parties involved when the ground work. ..

how did it happen at the right to expand the rate of homeownership to first-time homebuyers, many of them minorities, immigrants and other lower income individuals, how did it happen that is partnership, this push by the trapping them in loans that they could not afford it and putting them squarely on the road to

financial ruin? in other words, how it is a dream of homeownership he comes such a nightmare for so many first-time home buyers? it's really an awful paradox and you think about it. government officials in avoid homeownership homeownership was a win-win for everyone opened the door to predatory lenders who are at the least sophisticated of into the most poisonous loans. these included lots of prepayment penalties high-interest -- or high interest rates. a report by the center for responsible lending with 1.8 million loans in early 2000. it showed from 2000 to 2004, burson minority neighborhoods received a disproportionate number of loans with prepayment and all means. the center, barbour said in

separate areas for more than half of residents represented minority groups, the odds of receiving prepayment penalties for 35% higher than those of similarly situated or worsens it orders for minorities comprise of less than 10% of residents. the study controlled importantly for key borrower property amounts are your sticks, such as borrower credit to ensure the results were not -- repeat, not based on differences in risk theirs. now, we were assigned to the apex in the center made another study of 177,000 loans in 2006. and it concluded the odds of receiving a higher rate -- fixed-rate purchase loan for 71% greater for african-american men for weight. african-americans in the sample were 15% more likely to receive a higher rate -- adjustable rate

mortgage than if they had been weight. african-american borrowers for 44% more likely to receive a higher rate on their fixed-rate refinance loans than for similarly situated white borrower. latino borrowers were similar, receiving the higher fixed-rate purchase loan, they were 60% greater than a similarly situated white barber. these data support what i found in my reporting about countrywide financial, one of the biggest sub prime lenders before it was acquired in a fire sale by bank of america into tanzania. according to a former broker who spoke to me from the los angeles area, where he worked for countrywide, it targeted low-income borrowers with high cost loans. instead of receiving the best one possible as countrywide advertised promise, borrowers

were led to loans that resulted in which commission for countrywide smooth talking salesman. the loans also contained outside feeds to become these affiliates are not providing most services such as appraisals and insurance and also carried punitive prepayment penalties or interest rates that were sent literally went well at first, only to skyrocket in a few years time. countrywide financial sounder, angelo mozilla talked enthusiastically of wanting to help minorities and low-income americans secure markets. doing its part to democratize the home of business, countrywide became the number one lender to the hispanics and african-americans. in a february 2003 speech here in washington, mozilla promised to devote $600 billion to

mortgage loans for underserved communities through 2010. and yet according to company insiders, countrywide system resigned to increase costs for precisely these types of borrowers. one former mortgage broker in los angeles at the countrywide ranch in upscale neighborhoods like over the hills or santa monica had to slash their market street to be competitive with rival banks. in areas predominantly minority, countrywide's rates were far because companies new borrowers in these neighborhoods had few, if any alternatives. the former employee told me, i'll put it this way. i countrywide santa konica ranch, the last anywhere from 1% to two percentage and seven alone. if they broke even, they were lucky. the black areas, like slawson bridge, the average point church

or loan is anywhere from two to four percentage points. and you were meant for branded if you do not charge more. countrywide's entire operation from an information technology to its incentive pay was designed to wring maximum pafford out of the mortgage lending villain, no matter what it cost borrowers. the company's computer system, for example, defaulted to a setting on a medically excluded a virus cash reserve from his or her financial statement to the effect of making the borrower appear to be less financially sound and he or she would be steered away from lower cost loans into those that that were marksmen have been more profitable. now, countrywide of course is not the only lender that appears to have targeted minority borrowers. a recent lawsuit against wells fargo overloads that it made in tennessee found that its foreclosure rate in black

neighborhoods of memphis are almost 18%, five times the rate in predominantly white city neighborhoods and seven times the rate in predominantly white county neighborhood. according to a sworn statement by a former wells fargo credit to officer named mark taylor, mario taylor cited in this lawsuit, quote, the prevailing attitude with african-american customers or savvy enough to know they were getting about loan, so we would have a better chance of convincing them to apply for a high-cost loan. of course, high-cost loans make it that much harder to build up equity in your home, which has been the biggest source of wealth for many people over the years. and these punishing most obviously increase the odds of foreclosure. a study by the atlantic constitutional foreclosures in that city found african-american

neighborhoods delineated based on sister had foreclosure rates higher than majority white neighborhood. they are -- that's because the newspaper said, african-american borrowers are more than twice as likely to obtain subprime loans and caucasians. it certainly gives a whole new meaning to the push for the american dream of homeownership. and yet, as we turn to the aftermath of the crisis, these are the very people who are also not getting any help from washington. while we throw billions of dollars at the lending institutions that created this problem, main street is really left to fend for itself. unfortunately, this has created a few very pernicious views that there are two types of roles. those for the rich, powerful, politically connected institutions and then there are the rules for the rest of us.

now back to turn it over to josh for his insight and interpretations interviews on how much fun it was to write a book. [laughter] >> i think she was -- she may not realize she wasn't kidding. it was actually delightful writing the book together. and i think it was largely because we both have been involved in this area from the wall street side for a very long. and frankly, we are early in the morning about the crisis to come. it's probably worth taking a step back really into the early chap is that the book because the crisis -- i don't think we've contextualized. cannot think anyone wants to have honest dialogue that needs to be had in order to move past it, in order to start rethinking our public policy.

we talk about homeownership rates, but we don't ever define homeownership. and that really is the root of this crisis, as a problem of definition. we had this crisis began frankly as a result of the recession of the 80s. we came out of the recession of the decent homeownership rates in the early 90s, stagnant at levels they were at in the early 80s. we had home prices rising and yet, wages were flat. and so, washington and its wisdom recognized there were two options. either figure out a way to increase wages sustainable or lower the standards to increase homeownership rate. and they chose the latter. and so, we embarked upon the largest public private partnership ever in history of this country and at all of the parties. it had treasury, hud, cne,

freddie, mortgage bankers, realtors, home builders, the community groups and special interest groups. all of them were involved in this push to increase homeownership to intended record levels by the end of the millennium. and they created a platform that would carry that out in that included reduced down payments, changes in building quality, innovation of new mortgage products. and all of these are stated goal and implemented as part of policy, part of playing a part of the notion of wrapping ourselves in a culture of ownership. ownership society without ever having a discussion about what it was. we forget all of the benefits that historically have been conveyed by homeownership were real. there are greater test one's community. they are a better place to raise

a family, more stable neighborhoods, typically neighborhoods with more focus on educational attainment of the children in those neighborhoods. we never stop to ask what it was that really true of those as part of the social policy discussion. and history has shown that it's actually the down payment and the monthly payments of principal and interest in what has been a forced savings plan, a relatively illiquid investment, where money is paid in and trapped in very difficult to extract. the benefit of homeownership is one that resulted for most in this. and people buying home about the time of family formation, making monthly payments of principal and interest, such that about the time of retirement they could have more church burning a

birdie at the largest retirement assets and wealth transfer asset. and yet, we talked about having achieved record levels of homeownership, which we didn't because there wasn't equity. it was phantom equity. in fact, the homeownership rates were created for lunch and that politicians, the trade association, by capturing congress and pressured regulators to pay less and less attention to safety soundness. and we watched as homeownership rates climbed from their historic 62 to 64.5%, which they've been since world war ii coming to 1995 starting to rise, to getting 69.5% at the end of the millennium. and then we think about this crisis. in reality, homeownership rates peaked in late 2003, early 2004. so where's the crisis of 2004,

2005, 2006, 2007? and that is really the story. that is the story of the fact we all of our definitions. we watched the industry, cne and freddie, later the mortgage bankers, realtors, home builders, community groups really push this notion that we need to put former people into homes. what we were doing by 2004 was giving people incentives to take the more and more risky markets products and homes that they heard he had as a way of extract and equity theater be built up in their homes and create incentives for people to build and buy second homes and investment properties, which is another piece sadistically discussed here. art of the crisis we are living through right now is a crisis given by the reality that in 2004, 2005, 2006 in the early part of 2007, between dirty six

and 39% of home sales were second homes and investment properties, okay? that is overhead that will not be touched by any current government initiatives to stabilize the housing market. that is part of the reason that the banks, we put to these troubled asset relief programs still have these troubled asset from their bank balance sheet. we don't want to really step back, look up at her housing policy did, what are financial service policy did and really we have been seduced. we've been seduced by tax policies and the senseless rich rather than building up equity and debt leverage benefits not the consumer, that the lender and that really is what this crisis is about. so even as her starting to talk

about dog frank in its implementation and the rulemaking that goes with it in the building of more rational standards for housing policy, we are still not willing to have the larger discussion about national housing policy should be, who should benefit, how it should be implemented. this tax cut has to be considered as something we need to address with it? and instead, we're right back to where we were, this co-mingling of social policy with financial markets. and that's a very toxic peru when you start handling the opportunity for social policy goals and steps these to be delivered through private market players, there is going to be money that doesn't mean it's intended target, where historically the lending for first-time homebuyers, buyers permitted access, special buyers were sometimes delivered directly through government programs if you think back to

the g.i. bill for right clicks in fha programs. the goal was to have the government recognized that there is some value in centime homeownership, but in doing so directly, there's greater control and less likelihood for a seepage of profit payments. and fannie and freddie were the front end of coming clean the social policy with financial market policy. and that really is the departure point that i think is very important because in 2001 averted paper called housing a new millennium, a home without equity is just a rental with debt. and in that paper, and there was no -- there really was no private-label mortgage-backed securities market. i have been part of the creation of what we call sub prime 1.0 in

the 90s, where we saw a large number of small sub prime originators come. and really what they're doing is making loans that were still relatively traditional mortgage products, 15 year, 30 year fixed-rate projects, traditional farm products to borrowers with blemished credit histories. in that industry therefore had a very small market could tap into the ultimately, the market went away because it pretend that race, accelerating after the russian debt crisis and accounting games that were found to have occurred in the industry and it disappeared. and with that, wall street investment banks realize that if only they started innovative new products, they could expand the borrower class and they could increase the homeownership and sell this string to a larger number of people. cne and freddie were partnering

not and is not just cne and freddie were at odds in many ways with the investment banks in the private market, they also had a partnership with them. and subtleties i would cne and freddie by 2000 with innovative low down payment programs, was invading the move from traditional underwriting, where you would walk into a bank in your community, look at anchor in the face. he would look at your credit history. he was a picture employment history. he would like to think about the regional economics of the community in which you are borrowing and where your job was and he would make a loan decision. and cne and freddie velez for efficiency in an instant gratification we could move to automated underwriting, automated appraisal processes. we could really change the structure and dynamics of the housing and mortgage finance system and they did. and we're here. and so even now as for watching

discussion about under dog frank there is a rule on risk retention, where any securitizations, the issuer and or the originators supposed to hold proportionally 5% of the structure. unless the loans that are not cool i was called qualified residential mortgages. and now comes the regulators said to pose for a qualified residential mortgages and you end up seeing the same group, the same partnership, the same unholy alliance of the home builders, mortgage bankers, banks, community groups say hold on. if you were to make this a qualified residential mortgage will come if they would be minorities who would be kept out of homeownership for the cost of homeownership would rise.

haven't we learned rant helping people to put them into products that are not sustainable? perhaps it is time we think about really a functional housing policy that doesn't transfer the benefit to the banks for the issuers and instead to the buyer were. so if the mortgage interest deduction, which theoretically is supposed to benefit homebuyers on the really only benefits those who itemize tax is coming really only benefits the miller in the upper middle income and wealthy, which we could turn on its head and turn into a principle of equity tax credit, which would therefore be progressive. it would give incentive for people to pay down every year is much principle as they can and build real wealth in real savings. we could create 529 accounts so they would be tight for mortgages to people can say for a down payment on a tax rebate if we believe it's an important social tool for savings.

for washington and all of its wisdom, and all of the relationships that we've talked about between the trade association, when both sides of congress, this is not a left right issue. this really has become unfortunately the senate banking committee house financial service committee. they both compete for the same dollars and trade groups and the people in this room broadly as individuals have very little involvement in that process and very little to women that process. and so, our hope in writing this book was really to help educate and illuminate what is going on here so hopefully they would do little to our public outcry for holistic policy, transparency policy and understanding of who is fond of the policy comes out of our government intended to benefit us. and usually, not benefiting. so it was that.

i'd like to turn it back over. thank you. [applause] >> we are going to begin the question hour now. and so, please come to the microphone with your questions or comments and try and ask questions without many semicolons. last night so please began and if you're comfortable saying your name, please do that. and sub one and 74 will answer the questions. >> i want to play devil's advocate with both of you.

there are federal agencies and the government to regulate to cne and freddie. but suppose hypothetically were both invited to administer that agency. would you do in your implementation? >> first of all, the regulators that were charged with regulating cne and freddie in the years leading up to the crisis, they were really neutralize. cne as top executives understood how to defang its regulators, how to co-opt congress, and the congress its regulators so therefore they could by congress and have everything under control. so for years, the regulatory for structure over fannie and freddie was the 98-pound weakling, okay? and was punished. whenever, you know, okay i tried

to talk about safety and soundness issues, he was drummed out of town. i mean, congress would get up on my legs and say we don't have the safety and soundness issue here. we need housing. and so, it was not regulated well and aggressively because of the very gives, you know, tax pics of fannie mae and freddie mac. so i think looking back, you can't really say that you had a good regulatory structure. now what we would do now -- i mean, you can just have a be somewhat adversarial relationship with these companies are overseeing. when we interviewed barney frank for this book, we asked him, you know, why would you take them aside as a company all these years when you could have been really helping the regulator to its job? and he said, i felt like they

were becoming an adversarial relationship there. we said that's what it supposed to be. we're not supposed to be friends and colleagues here. they are supposed to be overseeing. go ahead. >> if i were to summarize the book in a sentence -- that doesn't mean you don't have to read it [laughter] it would really be how fannie and freddie type to financial industry to capture the regulator. in the industry learned that lesson. it was fannie and freddie is a perfect example, you had to direct her of their regulator in 2002 right away paper of the future systemic risks posed by fannie and freddie in the white house asked for his resignation within 24 hours of that. you had the regulator after an accounting scandal that it didn't do because frankly my

mind there is a capture examiner who was in charge. but in the aftermath of that accounting scandal, the regulators started doing investigation and a senator called the hud inspector general to do an investigation of the regulator to try and stymie that. so frankly there was this arms in the air finally buy most of the finnish regulators and i'm not excusing the behavior. it is just the reality is they don't want us to regulate, what are we going to do? that was commingled with this view of hate, people do with this in their self-interest and none of these companies will intentionally trip themselves off a cliff, so will just not do anything. >> thank you. >> in the spring of 2008, i taught an undergraduate course in math and finance, where we did present value analysis, duration of a bond, interest

rate risk, formula for pricing options, catalysts and pricing models, value at risk and automation of risk investment. think of the course ended in may of 2008, before we are brought into bankruptcy. not a single principal financier todd wasn't violated by the people who were under these institutions. it was incredible. i may just make one comment here and many questioned. the course announcement was posted on the website of gw in december of 07. this is an undergraduate course. i was amazed. i got letters from three staffers at the federal reserve who wanted to take this undergraduate course. i couldn't believe it because there's no way they could get an mba degree. so clearly they knew something

was pulling in their. the look in your book -- i looked at references to goldman sachs. behind almost every shady deal that has been exposed, for example, they ripped off dossey, you know, a colleague of mine made a joke that we could get the major investment tanks in china and russia and japan, we could cut our defense budget by $500 billion a year because there is not a single economy in the world that could do this in five years. but my question with goldman sachs in space. given the advocate deals, why would anyone in his right mind take the opposite side of the trade with goldman sachs? i mean, according to free-market economics, you know, they shady

banker or some thing, people start doing business. and yet there they are bigger and better than ever. >> that only hold where there's a real free market. where there is an assumption that there is an informational or i should say an asymmetry of information between buyer and seller. you are always going to side with the one that you know has the asymmetry in their favor. and i think it really is a piece of wood is gone and the crisis that there is an understanding that those who are always in the know, always a given its information, have access at the loves of government are they not the outcomes are before the questions are publicly opposed. so you are right. in a closed system of free-market, you're right. he would take the other side. i'm sorry, in a free market you might take the other side, but i

think there's not a free-market operating here. there's an assumption understanding that it's not working fairly. so right now, what i think you're saying is this is corporate cronyism and we haven't done anything to address that. >> goldman sachs was responsible for managing economics. >> consequently. >> they were involved in all sorts of the structure finance deals and benefited goldman sachs. now, whether they still? >> do is feel little uncomfortable with that question only because our goldman sachs questions because unfortunately i think focusing so closely on goldman sachs actually helps us to forget that they're a number of other institutions that are

equally culpable, they have gotten equally to big to intertwine into danger is frankly for the public good and we're not really addressing those, nor by the way are really even doing that much digging into what going on or has gone on to what they've been above the coast thursday favored point. >> he's not defending goldman sachs, just so you know that. >> what effect, if any, is reeling bus depot have on the crisis? >> just a tiny little bit. last night welcomed the classy though of course was the depression era while they served us very well for a 66 years i think it was. of course they were -- big financial institutions were chipping away for years, finally succeeded with the help of

robert rubin who annihilated altogether in 1999 and there is a picture the book of the signing of grand bleach lightly, which is directly out of class to go. everyone is smiling and affronts laughing and greenspan is copying and it's all a big lovefest. and it really was the beginning of the end. there is a wonderful picture of president roosevelt signing glass-steagall until the end nobody is smiling. everybody looks very grim and it is the deep dark depression. and we don't have a macbook, but putting them together with such an interesting position. it absolutely had everything to do with the crisis. it allowed wall street firms to vertically integrate, to expand operations. it was part of this idea again that josh mentioned earlier that

allowed them to take even more risk with, you know, the misguided notion they would never risk the bank because they were too smart to do that. it also fit into this regulatory view that regulation wasn't necessary, that regulation was coming in now, and evil, that bankers could be relied upon to do the right thing, could be relied upon to come up with their own capital ratios to determine those kinds of things themselves. so it was a real speed change a thing. it had been integrated over a period of years, but it had everything to do with it. unfortunately, it's very difficult to set the genie back into the bottle. >> i think gretchen is spot on. you know, and also created this opportunity, frankly, for banks to compete with geocities when it came to mortgage loans.

so fannie and freddie had certain benefits, including the fact from a regulatory capital perspective, the mortgage bank securities had very low risk. we saw the basel committee of the view that the geocities mortgage-backed securities should be reversed at the behest of the banks and lobbies and once they did in all the sudden the notion was that all mortgage-backed securities of equal ratings should have the same rest. you ended up seeing the banks that have branches become very aggressive in pushing mortgages through the pipe line. the investment banks had have to figure out another angle. and i was vertically integrating in many cases they're lending channels. it was using third-party originations and then buying servicing and starting to build all of the information and advantage, including the relationships, which we haven't

talked about with the insurers, which were again part of the crisis of the private mortgage insurers and the bond insurers are integral essential to the crisis. part of the whole of the financial supermarket that was intended to reveal glass-steagall. >> thank you. this is such a rich topic. no pun intended. i don't even know where to start. by saying first of all, i really don't believe this is so much a financial crisis we are in as it is a cultural crisis anything oral culpable because nobody has asked for any height in this. we are also willing to go around and have wall street tieless and preparing us for the next 15 years. what you've described is not capitalism. what you've described is economic security. i appreciate you for writing

your book. i was should also look and some other topics about people who put a lot of their money in the spirit that we should write write a book about deportation of those people. if they want to pay the taxes, then list in sweden, don't use i rose, that is my public's list. just go where you go in your money's going. >> well, you don't read my e-mail because there's so many people looking for heads on spikes in my e-mail every day. so there really are a lot of people who are in that same -- on your wavelength absolutely. i mean, i think there is a sense and a colleague and i love the story have been writing colleagues about why there have been no prosecutions. it's a very interesting question whether god didn't bark very hard to come up with the irritated answers.

one of the answers i did get to make sense to me when you compare this crisis to the s&l crisis in which 800 some executives went to jail for a crisis that was far smaller in number and losses in pain and agony that has been endured by people, we had actual ceos going to jail. you know, we found one of the key reasons that this occurred was because the regulators in the years when things were good, in the years reading it to the media and in the mania for not doing their job reining in the practices, taking names, doing investigations so when the bubble burst they had no information to bring. and so again, this regulatory capture not only had the initial problem of failing to rein in, you know, a really perverse package. it then had the secondary impact

of committing to this notion that it was nobody's fault. we can't bring a case, therefore luscious i'll go quietly to forget this ever happened. so i hear your pain. i feel your pain. you know, i think we're trying to get to the bottom, but it's a very complex issue. i also think it is a social question. i agree with you. >> actually i agree -- we both agree. that is what drove us to write the book together, that this is a cultural issue. the heads on spikes, you know, was there some value, but it still doesn't address, to my mind, the more fundamental problem. and that is one we are still beating those people in charge of redefining the system going forward and forgetting the fact that to my mind of the housing network, the largest impact this crisis has not yet been felt.

the largest impact of this crisis is going to be felt over the next 19 years as the largest generation in american history retires with less equity in what is historically been the single largest retirement intergenerational wealth assets as we have a senior homelessness problem as a result, as we end up with a failure to fix the system to incense, pay down the debt and the growth of personal savings. and that becomes a real piece of this crisis because it is going to happen blankly at the same time that her u.s. treasury is forced to accept austerity and cuts in the social safety net. >> to what do you attribute the other custody of the department of justice, which continues to the present day i asked that as a former federal prosecutor. >> i'm going to ask you. >> i don't know.

i can write an indictment and just what they read in the newspapers in 30 minutes. into bikinis eat would be like shooting fish in a barrel. >> is the politicization frankly. it is the politicization of the department of justice committee attorney general general's offices, lack of independence of regional offices. it is, frankly on the other side, this political pressure that comes from the notion we've unfortunately had to learn with. i don't agree we have to, but we've had to, which is rush if you like that, you risk destabilizing these very same institutions that we spent so much effort trying to make look like they're solvent. >> this is never good at the bride statement of the justice in the past. does it extend? is that what you're suggesting? >> well, it's hard to draw any other conclusion. i don't have the answer.

i am not a part of these e-mails going back and forth. but it's difficult to draw any other conclusion but a debacle this large, creating this much pain and trillions and losses come up it was nobody's fault and that there wasn't a crime committed. it's very difficult -- you have to suspend your disbelief for far too long to draw the conclusion. so again, i think it is an appetite to prosecute that isn't there. i think there is a fear factor of losing the case. they say these are complex cases, paper cases. you don't have a big and a .2, you know, who is dead on the ground. there are many, many excuses given. i buy none of them. >> there've been no real investigations. >> that's the problem. the regulatory infrastructure leading up had no investigation going on to really find the

culprit. and when he did get a case, such as the one against angela mozilla brought by the sec coward appeared to have extremely damning information, e-mails in which he privately says phones are poison, toxic. at the same time, publicly crowing about how good his company is doing, financially sound and providing the best loan for all of their customers. that seems to be a layout, but i am not a prosecutor and not a lawyer, so unfortunately i'm going to have to -- >> but the senate in the slammer for life on the basis of that. >> i want to make sure all those online will get a chance to make their point, asked the question. so we are going to end with the last woman in line. >> no point. just a question or two.

my classical question that asked, so i'm left with, what do you think of doug frank as a response to this crisis? antiheroes? >> .frank in my view really ripped the big one, which is too big to fail. they did nothing about cutting down these institutions to a manageable size, incised it does not impair the taxpayer. that is the key feeling in.frank. another failing as it has left hundreds of rules to be made by regulators and therefore providing a second manipulation possibilities for the industry. they got their first chance when they were talking about the legislation, writing legislation , the first chance to manipulate. now they can manipulate regulators. >> is that better than nothing? >> there are parts that are fine, that are good. a 3000 page law -- classico is

32 pages. 3000 pages it is, you know, way overdone and not affect is on the crucial issue of too big to fail. >> not to take much longer and that, but i agree with gretchen. you know, why couldn't you have just added one paragraph that essentially said, any institution that has to rely an extraordinary government asset purchases commit that guarantees some of his exudates in the window will have senior management and offices removed at the earliest convenience of the board and card as consultants or otherwise at a regulated entity for a period of five years. if you did that come in this company is either choose to shrink themselves to the point that they could manage risk or spend money on increasing risk management to the point where they were ameliorating most of their. we didn't want to do that. there's a reason for that.

legislators did a great job of doing everything but legislating because they did, scratches head, left everything to the regulators to define. >> we have some heroes. there were folks at the cbo, congressional budget office. they have a wonderful thing ever they came up against fannie mae were in 1995 were part of the congressional -- part of the congress acted 92, which was the safety and soundness act that created the regulator to ask for your studies in cbo. cbo did a masterful job of analyzing how rich the subsidy was from the government that fannie mae received. they were visited by fannie mae executives. juno neal, who was ahead of cbo at the time said she felt like they're being visited by the mafia. she was pressured to try to water it down, not to produce this report is very explicit but

how much the guarantee was worth to the company and how it all cause they have to protect it. so we have cbo people who were standing up against the pressure from fannie mae. other people saw what was coming. people in the georgia area, who were first to wave the flag and call a rating agencies for inserting themselves in a process, where georgia had the most -- toughest predatory lending law in the country, but the ratings agencies want in and said we will not rate any securities that contain georgia loans. and so, all of that predatory lending had to be guided because the ratings agency said they would not rate those funds. we are people on the way jumping up and down in morning. so there are some heroes in the book. i'm glad you said that. >> you make a very strong case

for the central role of housing policy as factors in the crisis, but i haven't been able to understand how a housing policy, the private investment banks could go bankrupt. it seems to me that when there and laymen what bankrupt, that it seemed the there is a lot of mere incompetence possibly malfeasance and behavior of those institutions and many others that contributed to the failure of those institutions. i see no obvious causal connection from the housing policies. i wondered what your theory of those mistakes is. >> certainly bear stearns was a huge player in the mortgage market to overseas firms were allowed to take on, which was something henry paulson

importuned the fcc to allow, was to increase leverage these firms could take on their books. and that really let them down the path because only a small loss really was magnified by the lenders they had. there was a tremendous amount of profitability and risk-taking related to mortgages on wall street. look at countrywide, look at bank of america. it is in trouble now because of its lending practices. >> you also have to remember that the mortgage bank security, the residential mortgage was the lowest risk asset permit capital% to, okay. that is a big piece of why the banks went headfirst into this, why they leveraged ecmo why you took mortgage-backed securities and when he didn't have natural buyers for them, he took the mess tranches and bundled them into my leveraged instruments,

collateral is debt obligations multiply that further and further. and if you look further in the e-mail files, one of the things you find is that there were other institutions that would have gone down because they retained risk, which is one of my biggest problems is you got this risk retention which essentially says we should have institutions retained risk on the notion that certainly if they drink the poison they will be to others. the reality is institutions often didn't realize that they were serving up was poisoned. and so what you saw was in 2007, you saw an e-mail file institution. stan o'neal didn't even realize the size of the exposures he had until he was in hot water, where goldman and deutsche and others who many had problems were quickly trying to offload what they had as remaining risk as quickly as they could. so those instruments come in the

murkiness, leverage, non-transparency, to even look in the cbo because they were qualified institutional buyers are very sensual to the crisis. >> i think you explain why there were severe temptations presented to corporate executives. but you haven't explained why they use those temptations. they played to make money and they lost money. >> they made a lot of money on their stocks. >> that line of argument anything is a committeeman of argument. the question is, can you trust the executives of these institutions to have the interest of the institutions at heart? because it would appear in these episodes that the interest of the institutions might've been sacrificed to those of the

executives. i think again going back to the question, i think that phenomenon also deserves broad attention. >> hi, looking forward in thinking about the next election and i'm assuming the answer to this question is no, but what do you think is the possibility of there being some kind of discussion of how policies going forward in the next election. it seems like the obama plan and republicans talking about our different. >> no one is talking about housing policy. housing policy is a broader discussion about what we need to do by way of housing or population. renting versus owning. we need mobility because we have a changing social reality? do we need to change the tax

incentive structures to meet whatever we cite as housing policy goals? do we want to have social policy transmitted through private corporations who will deliver subsidies on the government thought she? at the housing policy discussion. but not having that. really what we have is the near discussion, which is a political discussion still about do we put a stake through the hearts of fannie and freddie and what to replace them with? @a housing policy. with any expectation either of those discussions, the winner heading down or a real substantive discussion of housing policies in the election, probably not. so you're right. but even in terms of what do we do at the gics? there is a mass -- i think an understanding of both sides do we want to kick that went down the road until after the next presidential election. >> don't forget we are still in

the depths of the housing crisis because foreclosures are still -- massive. there is a sense that we can't deal with this right now. >> although that's an opportunity. but just as a catalyst for real housing politics and also the solution to the ongoing crisis, to define what the housing policy can transmit or can transform into. >> speaking of the ongoing crisis, i wanted to ask about the programs to help our workers who are in trouble. in my reason for this is personal knowledge and experience with two mortgages. one is the mortgage my house than i hold on our house in washington, which is in a neighborhood where house prices have risen, line of equity, we're clearly not the sort of people who need to be helped by

the government. nonetheless last journal service are called us up one day and said because your mortgage is held by freddie mac, you qualify for this program. and within a week, we had a no appraisal, no-cost, no documentation of income refinance -- refinance at a lower rate. it was wonderful. it was the best refinance i've ever done. >> you must know somebody in high places. anyway, the other mortgage go, contractor who is hispanic was in alexandria is underwater, has an arm, which was originated by countrywide and now is serviced at least i bank of america. they do not expect it to default, but he wants to

refinance second mortgage before rates go up. they have been trying for a year now to get the paperwork for the hud program through bank of america finance gotten the runaround over and over. and then last week somebody said everything is fine. you really are going to get this a month have you talked to mr. sanchez. mr. sanchez told them everything would be fine. the contractor said they would move heaven and earth. only the next day, when mr. sanchez talked them into signing the document, it turned out that mr. sanchez is a sleazy lawyer who is skimming them into a contract to spend something $2500 to negotiate the mortgage -- refinance they been trying to do with no guarantee

of success. fortunately, they were savvy enough and also my contractor talk to me than a lawyer. i said you can't do it now. it seems to me and my feeling is freddie mac is trying to raise his figures and looks like it can get lots of people help a refinancing mortgages like ours and in the meantime, people like my contract for her really should be being helped by these programs are getting help they need. >> well, i search within the treasury program, the hip program has been an unmitigated disaster. from the very outset it was as they can eat. it really was almost the worst possible combination of kind of people coming up with an idea of how to not tell people is really how it ended up working.

bank of america coming in now, again, is filled with stories where they lose the paperwork, don't allow modification. there just does not seem to be a real sense in the private sector or the public. to make -- make a rational and intelligent decision about who should be helped and who should not be helped. and so i just think the government has been a woeful job. others said at the outset, contributed to the idea that main street really got it in the neck and everybody else walked away. >> i also felt the interference of my contractor with a failure of regulation because it is clear that someone at tank of america was actually in pollution with a sleazy lawyer, and stirring them on. and that seems to be really outrageous. >> i mean, unfortunately again we don't have a