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public library for 50 minutes. >> it is terrific to be back in chicago. it always is, especially on an actual nice day.

i was here last week was 45 degrees. i have to tell you this makes me tremendously must all shook for the days when moodie came to my talks to read and i always like to tell this story about my very first book event, which took place when i was living in baltimore. it was just after it published a book called the naked consumer. [laughter] exactly. it's a book that nobody got. nobody read. well, one read it and reviewed the book and he did it because he was a target of the book. the book was about, by the way, about how corporations spy on individual consumers, very apt today perhaps, so why did get a call when i was living in baltimore to what to lamb tester

pennsylvania to the talk, not to talk to a signing. i since learned that sunday afternoon talks are deaf and especially when you do a talk in lancaster pennsylvania on the first warm day after six months of hard winter. it's one of those things you're stuck in the back of the books were you see these people at the table there are about 40 books on the table, and there you are. somebody at this bookstore had made a plate of chocolate chip cookies and put them next to me so i sat there for about three hours i sat there for the first hour and a half with nobody coming to talk to me. they were looking at the books all around me but nobody was coming to talk to me or may dhaka contact and of course nobody bought the book. and about the hour-and-a-half point i looked up and this woman was coming towards me with a big smile on her face, looks like

she's taking the greatest delight in this event. i see her coming and i take out my hand and now i know that my career is on its way. she comes up to the table and she says hal much for the cookie [laughter] so it's not what he would imagine it to be. let me first say here in this lovely in new i'm a huge fan of libraries and i'm not just sucking up when i say that. i like to think of myself as the indiana jones of libraries in repelling the 900 levels of the dewey decimal system looking for interesting and interesting debate the but we created by immelt phill who was a rabid anti-semite. if you were to give me a choice

between an night with kate planchette or walked alone in the library of congress i would take the night with kate in a heartbeat. [laughter] but i do love libraries. so if i but talked tonight about this new book of mine come in the garden of beasts, and how it came about. within the publishing company, within the company people i guess they are inherently lazy, they call the book now almost exclusively by its acronym which is itgob which sounds like something the cat would cough up and i have the nine year old mentality to use a itgob mile growling you sound just like the possessed girl in the exorcist. [laughter]

>> this may not seem like my kind of book necessarily one block of the quarter the holocaust and so forth when in fact there were distinct phases so this idea came to me during the first of all the idea as some of you may have heard me talk in the past is a very, very hard time. my publicist and friend refers to it as the dark country of new ideas.

when i'm in that dark country have no idea as i get very moody, i get sort of inlaid with myself so i want to be productive and i don't ever feel productive when i am setting life, thinking of what i.t. i am going to do next so in this country of new ideas about five or six years ago wondering what i was going to do next when i thought i'm going to go to a bookstore, browse the history section to get a sense of what the books look interesting. but covers turn me on and so forth but to strike my mind thinking about stuff. i saw a book that had always been on my must read list but i never read it because it was just too intimidating of the prospect. 1200 pages, tiny type, no photographs. some of your thinking it's a bible. [laughter] but in fact it was the rise and fall of the third reich.

terrific book. i bought it home. it was like a thriller. if you can in fact be set to fall in love with a book about richard clich. i just feel a little bit slow about things because when i was about a third of the way through the but i realized with a minute, william had actually been there in 1933, 34. actually in 34 he had come to berlin in 1934 and stayed there as a correspondent until it kicked out in the u.s. entered the war. what would that have been like the met these people face-to-face hitler all these people we know today to be monsters. only he met them at a time that nobody knew what the ending was going to be. he met them at a time when nobody had an inkling the holocaust was coming the second

world war was in the relatively near future i would capture the sense of that time through the eyes of a couple of characters and 54 who were new to berlin outside as americans because i write for an american audience. so they very deliberately began to read. i went to my library, my favorite library in the university of washington campus, and i just began to read. i took out as many terrific histories as i could, the grand history and the series of books by richard evans and the history of the biography of hitler and so forth. but also, i found a lot in the 900 levels i found a lot of memoirs and diaries and so forth

from that period and before and after. eventually i came across the diary of a chicago man named william odd. and soon afterwards i found a memoir by his daughter, martha so we try to set the scene. imagine that you are william, you are 63-years-old, you are a mild-mannered professor of history chicago and a good reputation but you are a professor of history struggling in this time with financial shortfalls because this is the era of the great depression. you are tired of the engulfing demands of the graduate students and all you really want to do is finish a book that you've been working on. it's actually a multivolume series of books about the old south which in fact, it's ironic when you titled the rise and

fall of the old south. [laughter] one hot day in june he or sitting at your desk this is in 1933, you're sitting at your desk and precisely noon at the phone rings. the guy at the other end of the linus franklin delano roosevelt, the new president of the united states, and one little note he was president at that point since his inauguration in march in 1933 inauguration day was still in march. it was changed to january because the feeling was you didn't want to have a president be a lame duck for any longer than he absolutely had to be. so, roosevelt is on the line coming and he asks you would you be the next ambassador to germany, america's first ambassador to nazi germany, the

ambassador to germany has been vacant at this point for six months. here's the kicker he gives you two hours to decide. two hours to decide. what he does not tell you is that one reason he has called you aside from the fact a confidant of his recommended you apart from the fact you know german, one reason he has called you is because nobody else wanted the job. [laughter] three weeks later, you find yourself on a shipped to germany you've got your family with you, your wife, a grown son, and you're 24 year old daughter, martha come and martha is a heck of a daughter. she's smart, she's sexy, she's a

flirt, and she has this thing, she has a way about her that in flames the passions of a man both young and not so young. at 24 she's already had an affair with the poet and author carl sandburg. and one of the delights of the research which is why i always do my own research is that when i was going through martha's dippers of the library of congress, in one file i can across the two locks of hair in a little clear plastic archival envelope tied with the old black thread it looked like little broom heads and i'm here to tell you it was as white as it appeared, and was quite course, coarse hair. it's a magical moment for me. [laughter] i'm just that way. but at 24 she said this affair, she has broken to engagements to

be married, and she is in the midst of a divorce to escape a dead marriage to a new york banker. now personally i think any marriage to a new york banker would be dead, but i don't want to cast any aspersions to the financial crisis in america, but by this time she's very close friends with wilder says she has a very interesting kind of circle. she comes along to berlin for the adventure and immediately falls in love, falls in love with the so-called mossy revolution, she calls it the nazi revolution. she finds it intoxicating at first and here's the thing. she was not alone. this was a very common viewpoint in 1933. the argument was you could quarrel with the methods i would say so will the other hand he was restoring the nation's pride helping it get its act together

to drastically reduce unemployment and seeding by the years and to be delivering on that promise. the night before they left new york they all gathered there in order to catch the shift they went to a dinner party at the apartment of a fellow named corrine of the crane plumbing dynasty. you may not realize it but i'm sure you have seen the logo staring up at you from urinals around the country. i can't speak for the ladies' room. so she has this party and mind you this is back in 1933 has no reflection of the plumbing today that charles crane as the party is winding down and they are leaving charles crane takes the new ambassador aside and says to him let hitler had his way. he also advises dodd, very

directly not to have any social interaction with jews while he is in berlin. let's look at the world through martha's eis. she finds herself in a fiber and charismatic city. we always think of that world and at least i certainly did as drab black-and-white shaded in gray because that's the kind of imagery that we come across, we see black and white photographs and newsreels. there are some color images that have surfaced but for the most part it seems like a black-and-white world, like there was a bright sunny day in germany until it 1965 when a chrome became a film of choice. she said something very different than this black and white world. she saw color everywhere, the brightly colored trans that ran on the streets as perfect as the toy is. every balcony had a box of red geraniums or seemed to at least. at christmas of the city went

wild. there were christmas lights everywhere and trees on every square and every street corner. so much of it dodd was moved to write you would almost think the nazis believed in jesus. there were glorious cafes that sat hundreds of people at the time and there was dancing every night at these fabulous night clubs like the root of the hotel and it's very interesting the establishment called the house in berlin and it's a structure that have five restaurants slash nightclub in usenet one of which is an american wild west parr and the of the wild west bar where the germans in the huge cowboy hats would serve your cocktails and some were members of the nazi party so it is kind of nice thought that these nazi cowboys were serving drinks. it appealed to me any way i

thought when he saw here you have an investor, ambassador ghana arrived in germany as a professor of history for his studies he arrives with certain expectations. he's a statesman and yes they do crazy things but in the and the act like states and there's a certain rationality even in the craziest people. he also arrives bearing a certain amount of pleasant baggage. back in the 1890's, i, like many students, he traveled to germany to complete his education, to do the postgraduate education. he went to work on his phd thesis, which don't even want to think of the nightmare here which was about thomas jefferson he has a wonderful time, the germans are marvelous, warm, sweet people and a young woman places on his pillow in his room so he comes bearing this recollection.

the war he encounters is like nothing that he expected when he expected a certain amount of rationality. he finds now only pathology. not just pathology that he finds it, and talking about organic pathology. he writes and this time that a leading free in germany and any of our culture would be a place of asylum and here is the daughter who in effect falls in love with a pathology at first. and the stories provided an ideal vehicle for traveling through that period i wouldn't want to write about him alone, and not a fan of diplomatic history is. i wouldn't have wanted to read only about martha, not sure i could sustain an entire book about her but to capture

something much bigger think both in fact and both actually undergo a very satisfying transformation in the course of the very first year of there's in berlin which is when the action in the book takes place from the summer of 33 to december 34 when something quite horrific occurs when the united states and the rest of the world should have paid much more attention to but failed to do so. >> so i realized that the story is really shed light, if you are looking for a more fundamental reason for this, for doing this story, they shed light on why it took so long for america and the world to realize the true dangers hitler and why appeasement became the first half of dealing with these people. some of the things that surprised me and to me it was a

shock the extent the intensity of the anti-semitism in the united states, and also within the upper ranks of the state department, the lower level of the secretary cornell hall. i was really startled by it. he was a very interesting guy that tried to imagine the perfect guy to be secretary of state at this time it would be cordial. one of his passions was croquet, and he hay speech impediment. he had a speech impediment but people around him likened to the cartoon character elmer of fudd. when hall wasn't around, he would quietly mock the speech

impediment. if he was referring to the trade treaties he would refer to them as the "twade tweeties." but the top three guys in the state department all had a healthy if not outright hatred certainly distaste for jews. one knit referred to them openly and readily as pikes. he had expressed a certain level of anti-semitism and in one dispatch back in the state park and after he had been in berlin for a while, he complained that he had too many jews on his desk. to many jews. this was in paring his ability to deal with the nazi regime in particular he complained about his receptionist who absolutely low-fat the nazis and sort of pictured this woman sitting at the entry as these officials came through and personally i

think it is just made for a miniseries. but so you had dodd complaining about too many jews on his desk and there's also one very strange conversation that he has with hitler. there are too formal meeting season this time period and the second meeting he actually tries to find common ground with hitler on the so-called jewish problem. the nazis had hijacked the debate by framing it as a jewish problem. once -- words matter. once you frame something as a jewish problem what else will you think about, how would you solve that problem? so it was a jewish problem. dodd said we have our own the jewish problem in america. but we have chosen to solve it in a more humane fashion by which he is referring to things like the university and so forth. this by the way does not nullify hitler, surprise, surprise. she gets steamed up again and he

just loses it completely which was a tendency of his and he says if they don't stop this, i will put an end to all of them. this is 1934. long before the holocaust, 1934 you get the first whiff of what was coming down the pike. i was also struck by how knew everything was and all the things that today we know as absolute truths of the nazi era were not familiar back then. for a sample, the goose step which when dodd first saw was how ridiculous it seemed, just ridiculous. it was so new at this point that in the embassy and was referred to as a swastika it was a broken cross which is a little translation which is the term the germans used. the hitler salute, i'm not going

to do it because it still has a jarring effect also. i would be a little bit concerned that if i actually did it that would be the moment that somebody would take a digital photographs. [laughter] put it on the web and would go by role, and suddenly i would have a lot of new friends that islands necessarily want. [laughter] the salute was so novel that dodd's general in berlin, the man named george not to be concerned with the designer george messersmith he did the nazis and happily messersmith treated the ferberite the way nm for polis would treat an aboriginal tribe that is to say that he wrote in detail and at

length about all kinds of things because this was brand new. the swastika itself wasn't a brand new because i personally owned a collection of the works of kipling that for published in the 1890's and every book on its binding has a swastika. it's the indian good looks fine but as a political symbol in the modern age back to the hitler salute. so, messersmith, who by the way wrote so long on so many subjects and was named 40 pages george come he wrote an analysis observations about the hitler salute because this was such an awful thing and it's the only thing i'm going to read, i promise you. the salute had no modern precedent for the narrow required salute of soldiers and the superior officers but the practice was uniques that

everyone was expected to salute even in the most mundane encounters, the shopkeeper saluting, they were required to salute their teachers several times a day. at the close of the theatrical performances, the newly astana list custom demanded they would stand and salute as they sang the first german national anthem and second, the storm trooper and thumb, the so-called kurson dessel song. the german public haddad that the increased the salute to make the act of incessantly saluting almost comical especially in the course of the public buildings where everyone from the loneliest messenger to the loftiest officials alluded one another turning a walk to the men's room into an exhausting affair. [laughter] my hope was to capture a sense of the gradual the darkening and had this vision suddenly has the two characters in a nonfiction grimm brothers' story tell.

they entered the dark woods and things get darker and darker and darker or, you know, queue the wizard of oz song mollyann zandt tigers and bears as you move into the darkness of the third reich. so talk about flexible how dodd was given secret draft committees not laws yet they were drafts of things coming including one that shot in the literal translation of the document being called for the killing of the incurable. another chilling for shuttling of what was. i also talked about martha's ninian loveless including her affair with a very interesting character who i think encapsulates the complexity and the nuance of the period this was a very complex period. this dhaka was rudolph who was

the first chief of the then brand new agency called the gestapo. the first chief of the job all of one year when he was replaced by the awful characters speak to in his high-pitched voice protege reinhardt. it deals with the unusual character. here he presided over this entity that has caused the imprisonment of the thousands of communists and social democrats in the political party of the era and who had presided over the agency that had tortured hundreds of these people and likely murdered even in this early phase scores, and jet the diplomatic community, dodd in particular, thought of him as a good guy. he had a lot of integrity as fer

deride officials mind. here's the guy you went to if you wanted to get an american out you would go to rauf and he would oblige. he was a very interesting guy. he is the one who led, who agitated for the christmas amnesty, the christmas amnesty for 1933 that led a lot of prisoners out of the camps and so forth in germany. and he later claimed that that was one of the most fine moment when he got to choose who got to go free. said he was a very interesting character who martha it seems clear at this point had a relationship with and a charming photograph in the collection of the library of congress where martha and the chief of the gestapo are sitting at a table in a lovely little outdoor country restaurant having a grand time. i just find that kind of magical cure is this evil character,

potentially evil character with the daughter of the ambassador, the american ambassador to germany one other thing, just as he was the perfect embodiment of the secretary of state if you were to try to imagine what a villain, what kind of villain would run something like the gestapo to would imagine read off to a point. finn, dark, lean with a horribly scarred face, the lower part of his face, scarred by a practicing a lot of students of the era engaged in which was terribly dillinger to mark your opponent that a doctor sitting in would then call it pitted everybody would get stitched up and then there was the end of it and would bear the scars for the rest of their lives but this was a sort of a bad judge strength and her was some. but the thing is he was considered to be a real catch.

he was handsome in a dark way. look at the photograph and you might believe me, he was said to be sexually charismatic, he was a charmer, and it's funny i showed this picture to a number of women in seattle most recently to the hit a tree and photographer and everybody looks at him and goes yeah, not bad, not bad. i also learned in taking a look at the gestapo that one way that they summoned people for interrogations' they would do it by postcard so we would get this postcard saying he can you come to the gestapo headquarters on such and such a date and time, we would like to talk to you and

would you to do, you have to go and if you didn't they would hunt you down and they would go out because the german populace to fall into line to become the term was coordinated, fall into line with the nazi party and the third reich that they would denounce neighbors who had not likewise seen fit to act to behave in a coordinated fashion they would also denounce neighbors because to the result petty personal disputes. if you didn't like the way that your neighbor was keeping up his house or her house come to would drop a dime on him or her with a gestapo and they would either send a postcard or come and pay a visit because they followed up on just about everything. in fact, people were riding out their friends and neighbors so much that even hitler complained. he said and i quote, this is

what he told his justice minister, he said we are living at present in a sea of denunciations' and human mean, this is adolf hitler. anyway, i'm very happy to report they get it. there's this narrative tension that he will bring to the book, this idea that we know what is happening in here are these people you just want to say don't go into the basement, you know what i mean, like poor films. my favorite reaction to the book this far is from a friend of mine who read it just before going to sleep one night, possibly a bad thing right we were going to sleep zero cup whipping from a nightmare being pursued by nazis and had to protect was her little purple plastic water bottle.

if i give somebody nightmares, if i can give somebody nightmares consider that from an narrative standpoint of the victory and i'm going to stop there and take questions and i hope you have a lot of questions. if you don't, i have questions for you. [applause] question. >> he the point is you have to go down to the microphone here so that is going to add the pressure. you have to come down to these microphones and speak because we have got c-span folks reporting this. these people are either leaving our they are going to ask me a question. [laughter] okay, you first. yes. >> my name is tracy.

first i was curious as far as your writings did you have an idea that he started researching writing for a book and then all of a sudden decided this isn't going to work and if so, what was about? >> yes. second question. [laughter] i will talk about that in a minute. what's your second question? >> that's it. what was it about. >> i will tell you something, you never know, but just recently, having been and still am in that dark country of new ideas, i had an idea that seemed to me to have all the right elements, and i was looking into it and looking into it and the thing that took place in california, and i was just -- i didn't know anything about this and the head of these great characters and stuff but there was just something missing and i worked on it for a long time until i realized i think the best way to put it is it lacked heart, so i killed it. most of my agents saw, but i'm not sorry. i'm glad it's dead.

good question though. thank you. yes? >> i started reading the book yesterday evening, not too late. >> did you wake up crying? >> no, but i'm curious what struck you as the most surprising thing in your research? the fact that there was this 1% of jewish people in germany because the impression is is this an overriding issue and that then mention that and also the fact that dodd wasn't reporting all of the attacks on america. i had no idea that they were actually -- yeah, those surprise me but what surprised you with your research because as you said you think you know this area that really? >> a couple of those things. just the fact and it's there for anybody to know. i think that it was kershaw that first made the point that only about 1% of germans were in fact jewish. it's also partly not well known and certainly should be well known that most of the victims of the holocaust or not germans they were from the eastern

countries that were subsequently invaded by the nazis. but only about 1% of the germans were jews and the one point that he makes is that for most germans this whole anti-semitic thing was kind of an abstract concept because typically the average german have little or no contact with jews. there were concentrated in the big cities and a typical world german had either no contact with the jews or limited contact and it was almost invariably find. siskel anti-semitic thing was meant for the party members and so forth and that is kind of fascinating. anybody that wants to look into that more, check out his work. it's fantastic. so, i was impressed by kind of thing as well and the level of the anti-semitism in this a department is what i found most startling. the effort to keep the tax on the americans from making the

press i found really startling. the point was he was trying not to antagonize the germans in his nineties believe that he could actually use persuasion and reason to help hitler and the government find a more moderate way to go, which in the course of the first year he realized thankfully at the end was not going to happen. so that is why. thank you. yes? >> i'm curious about the obstacles you might have encountered in your research, and do you speak german and access to the archives knockout asking about obstacles, german as it happens wasn't enough. i don't speak german, i did have a translator chancellor in german documents including the autobiography called lucifer at the gate, didn't mind being called lucifer by the way.

he thought was kind of to his mystique, but they did a the translator for those things. but what i mostly wanted to concentrate on exclusively really was the point of view of my to innocence. the two americans entering this world and that led me to the tremendous trouble for the documents and the national archives and the wisconsin historical society and madison wisconsin of all places. so, the main obstacle is the same obstacle ivies in any book is finding the material. you've got to go the distance to find the material. going to berlin and a sort of seeing what's there now but also getting a feel for berlin. little subtle things for example. one thing i didn't know and appreciate, i wouldn't have known is how close of the action in this book takes part around

the central part in berlin which is called the garden which in translation is the garden of beasts hence the title "in the garden of beasts." so all the places that are important to the action are actually around the eastern quarter of the park and what i learned by going there is that everything was so close together just a matter of a walk to the gestapo headquarters to the 20 minutes to the building. i don't know why that was important, but it was. everything is so. it is a very flat city. the first time i opened my hotel window and looked out over berlin and the tiergarten first thing that popped in my mind is this is corpus christi. i don't know why. just very flat and just it's berlin. so anyway.

>> i'm a very big fan of yours and i think all of us are -- i know we all feel truly gifted -- we all feel the truly gifted to partake in the stories -- we'll give it to partake of your stories. [inaudible] [laughter] [applause] i'm sorry. [laughter] >> i have a feeling of the end of the 21st century i think it is going to be considered one of the century's greatest books. i just started reading your new book and i just wanted to ask you as a writer you have a very engaging manner i feel just listening to you talk, and i just wonder the storytelling comes very naturally to you and how difficult is it to be a really good writer such as yourself as you encounter discourage and along the way.

i mean i -- you talk about selling cookies at the table. we all know about that, but when did you really feel like i know i can do this? i know i've got. i'm a great storyteller, and along the way you encounter doubt in your self. i'm just curious because i know --. it's an engaging to bring the readers and. it's a wonderful feeling. i pick up that book and feel like you are my voice, you're talking to me. i just love that. if you encounter a discouragement along the way. >> i'm going to let my daughter address that. if you missed it and tell the audience the reality this is my daughter she goes to the

university chicago. [applause] >> sell with al all the time and what he does is he works from four to eight in the morning. >> it is true. it is in fact true self doubt is something that i have to deal with all the time and i like to think that it drives me to hunt for stories that are the kind of thing that i'm going to like and people, other people are actually going to light but i sure wish there were some elixir i could take the would give me one day where i wasn't afraid something was going to be a bomb case in point to underscore things for you on the eve of the

city's publication, i was convinced and you can check with anybody in my family i was convinced my career was over because this was a book that had to narratives' that never intersected. it broke all the rules of the narrative's. so there you go. i have similar fears for this one. so there you go. yes? >> you touched a little bit on the anti-semitism, and i wasn't aware that the ambassador of history was a professor of history and my question is did he have any kind of historical and plant of anti-semitism in germany because you go back and read martin luther and has nice things to say about you so so

was there any sense the history of anti-semitism in germany? >> good question. here's the good thing. she did have a sense the fact anti-semitism had been prevalent in that a lot of times in terms of the anti-semitism nazis kind of drop in the drop in from mars but it has nothing to do it anti-semitism it had been a scene at that point out. but it's interesting at the same time as they were somehow able to ignore his own tendency to be anti-semitic. we today would see as the blatant and i summit as among his heart was in his era, sort of an indian thing that a lot of people expressed and so saw no reason to be uncomfortable with

because you see the evidence in this in the fact that some of these guys in the diaries knowing that they might one day become public and very clear and direct another dislike about their views. another question. over there, yes. >> thank you for the thoughtful presentation. i was wondering do you think that ultimately dodd was the right person for the position and do you find yourself sympathizing with the struggles and may be thwack of otherwise action on confronting the nazis. >> starting with the idea that was a kind of position nobody could have done anything terribly productive, and nobody could have really persuaded hitler to do otherwise i do have to say that given his mandate,

roosevelt sent him with four the fundamental mission with a standing a sample of american liberal who values. and dodd did that. dodd never set up to the nazis and he never caved in to the nazis. she held true to that mandate much, much to the absolute alliance of the third reich. he really ticked off the germans just by refusing to give on those fundamental principles and ultimately i don't want to throw out any spoilers in terms of the book. so, i do think that there is a tendency by historians to overlook dodd as a field ambassador i don't think that is at all correct. i think if i had to give him a letter grade, given the circumstances, i would give him -- given the curve of the era i would give him a d+.

yes? >> i don't know if this is a great question to end with a love your begin by a understand that there is a song coming out and a slave to questions one is what is your level involvement in actually making it and if you are concerned about when they make movies out of books particularly nonfiction the tend to hollywoodize that. >> was bought by leonardo dicaprio and he doesn't intend to play homeless and get off the ground. there is no screenplay as yet. it's going to take a while. my involvement is going to be minimal because i espouse i'm going to paraphrase this to hollywood which is that you bring your book to the fence, to get back of money in front. [laughter]

because [applause] because hollywood if you are a writer that wants to have any control over your own work it will no question it will break your heart. hollywood will break your heart. so really it comes down to when you decide to sign of over an option to make the decision at that point to i want this to happen or not, and it's going to be interesting because at this point i want to see what filmmakers and actors will make of this book. i'm particularly interested in what the music is going to be that goes with and who plays the victims. i'm going for scarlett johansson. and kate blanchet. [laughter] so anyway, that's where there's plenty of the involvement. [applause]s a little over an ho.

[applause] >> thank you so much, david. we are really thrilled to be here tonight at politics and prose as you know is an iconic institution in washington, and

it is just a thrill to be here with you and engaged customer as well, that's really fantastic and it's wonderful to meet david, and to see in person this incredible institution the devotee loves in washington. now josh and i have been a little bit on a book tour. the book came out may 24th and among the questions that we always get or often get from interviewers, by years of the book, e-mail and my e-mail count at chaim what surprised you the most about your reporting and the investigation that you both did to come out with this book. we all know that there have been a lot of books about the financial crisis. many of them recount the events during the crisis in the heat of the panic of 2008. some of them go back a little

bit further to describe some of the groundwork that was laid to create a crisis but it josh and i decided to go back much further into the 90's to tell the tale because a debacle this large really didn't haven't been over night. and unlike some of the book's conclusions, other book's conclusions that it was nobody's fault, sort of day concatenation of events that couldn't be helped we really believe that there were actual parties involved laying the groundwork. but as far as what has the most surprising to me in this exercise is the number of paradoxes that emerge from the story. the paradox of the powerful participants in the event leading up to the crisis who continue to this day to be in

positions of power or are even in positions of greater power than they were. a second paradox that trillions of dollars of losses being endured by the investors and borrowers, yet no one involved in the mess being held accountable. but to be the most perplexing paradox of all is this. how did it happen that the drive to expand the rate of homeownership to the first-time home buyers many of them minorities, immigrants and other low-income individuals, how did it happen that this partnership, this push will not trapping them in loans that they could not afford and putting them squarely on the road to the financial ruin? in other words, how did the dream of homeownership become

such a nightmare for so many first-time home buyers? it is an awful paradox when you think about it. government officials and the belief that the homeownership was a win-win for everyone opened the door to the predatory lenders who lured the least sophisticated people on to the most poisonous loans. these included loans with prepayment penalties of high interest prepayment penalties or high interest rates. a report by the center of the irresponsible lending looked at 1.8 million loans in their early 2000's. it showed that from 2000 to 2000 for the borrowers and the minority neighborhoods received a disproportionate number of loans with prepayment penalties. the center found that the bar was living in the code areas were more than half of the residence represented minority groups the odds of reseeding

prepayment penalties were 35% of those of the solar lee situated borrowers in this of course where the minorities comprised less than 10% of the residence. the study controlled importantly from the ki borrowers property and loan characteristics such as the borrowing credit scores to ensure that the results were not, repeat not based on the differences in the risk factors. now, we move on to the apex of the boom and the center made another study of 177,000 loans in 2006. and i concluded that the odds of receiving a higher rate, fixed rate purchase loaned or 71% greater from african-americans than for whites. african-americans or 15% more likely to receive a higher rate adjustable rate mortgage than if they had been white.

and african-american borrowers were 44% more likely to receive a higher rate on their fixed rate refinancing alone and similarly situated whites far worse. latino borrowers were similar. receiving a higher rate, fixed-rate purchase loans favor 60% greater than a similarly situated white borough were. this data supports what i found in my reporting about countrywide financial, one of the biggest said prime lenders before it was acquired in a sale by bank of america in 2008. 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 loans possible as countrywide's advertisements promised, the borrowers were let high-cost loans that resulted in rich commissions for countrywide's

smuts talking salesman. these loans also contained outside fees to the company's affiliate's providing loans services such as appraisals and insurance and also carried punitive prepayment penalties or interest rates that were set low at first only to skyrocket in a few years of time. countrywide financial founder angela talked enthusiastically of wanting to help the minorities and low-income americans secure a mortgage. during its part to democratize the home loan business, countrywide became the number one lender to both hispanics and african-americans. in february, to those of free speech here in washington, she promised to devote $600 billion to the mortgage loans for the underserved communities through

2010. and yet according to company insiders, countrywide systems were designed to increase costs for precisely these types of borrowers. .. was anyway her friend 2% to four

percentage points and you are reprimanded if you do not charge more. countrywide entire operation, information technology and incentive pay was designed to wring maximum profit out of the mortgage lending boom, no matter what it cost or worse. the company's computer system, for example, defaulted to a setting that automatically excluded if borrowers cash reserve from his or her financial statements. this had the effect of making the fire appeared to be less financially sound and he or she would be steered away from lower-cost loans into those that were more expensive and 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 rates in black neighborhoods of memphis are almost 18%, five times the rate

in predominantly white city neighborhoods and seven times in predominantly white county neighborhoods. according to a sworn statement by a former wells fargo credit officer named mark taylor -- maria taylor cited in this lawsuit, quote, the prevailing attitude is african american customers were savvy enough to know they were getting a bad wound, 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 at the d. in thy love, which has been the biggest source of wealth for many people over the years. these spanish amounts obviously increase the odds of foreclosure a study baby up in constitution of foreclosure told african-american neighborhoods delineated by census tracts had foreclosure rose higher than maturity white neighborhoods.

that's because the newspapers that african-american borrowers are more than twice as likely to obtain sub prime loans than caucasians. it gives a whole new meaning to the american treating of home ownership. these are the very people who are also not getting any help from washington. her out billions of dollars that the lending institution that created the problem, and main street has really left to fend for itself. unfortunately, this has created a few, a very pernicious view that there are two types of roles. there are those for the rich, powerful, politically connected institutions and then there are the rules for the rest of us. and i'd like to turn it over to josh for his insights and

interpretations and his views on how much fun it was to write up a. [applause] >> i think she may not realize she wasn't getting that it was actually delightful to read a book together. i think it was largely because we both had been involved in this area from the writing side come in me from street side for very long. and frankly we are early in morning about the crisis to calm. it's probably worth taking a step back really into the early chapters of the book because the crisis -- i don't think we've contextualize and i don't think anyone wants to have the honest i like that needs to be had in order to move past and rethink our public policy. we talk about homeownership rates, but we don't ever define

homeownership. and that really is the root of this crisis. it's a result of the recession of the 80s. he came out with homeownership's 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 list of recognized there two options. either figure way to increase wages sustainably for lower the standards to increase homeownership rates. and they chose the latter. so we embarked upon the largest public private partnership ever in the history of this country and the title of the parties in. today's treasury, heard, cne, friday, the realtors, the

homebuilders. the community groups and special interest groups. all of them were involved in this push to increase homeownership to the intended record levels by the end of the millennium. they created a platform that we carry that out and then included reduced down payments, changes in building quality, innovation of new mortgage products and all of these for a stated goal is implemented as part of policy, part of plan and part of the notion of wrapping ourselves in a culture of ownership. ownership society without having a discussion about what it was. then we forget that all of the benefits that historically have been conveyed by homeownership for real. there were greater ties to one community. there are a better place to raise more stable neighborhoods,

typically neighborhoods with more focus on educational attainment of children in those neighborhoods. when members have to ask what it was that really drove 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 and 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 was one that resulted for most of the postwar period in people buying a home and about the tightness in the formation making monthly payments of principal and interest, such that about the time of retirement he could have a mortgage burning party from the largest retirement asset and wealth transfer asset.

and yet, we talk 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 consumption by politicians, patriot associations, by capturing congress and pressuring regulators to pay less and less attention to safety and soundness. then we watched as homeownership rates climbed from their historic 62 and four are not to 1995 talking to getting to 69.5% by the end of the lending them. and then we think about this crisis. in reality, homeownership peaked in late 2003 or 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 that we older definitions. we watched the industry, fannie, freddie, realtors, home builders, community groups really pushed this notion that we need to put more and more people into homes. what we do by 2004 was giving people incentives to take a more and more risky mortgage products on homes that they already had as a way of extract and the equity they are a built up in their homes and create incentives for people to build and buy second homes and investment properties or watches another piece that isn't discussed here. part of the crisis we are living through right now is a crisis that was striven by the reality that in 2004, 2005, 2006 and early part of 2007, between 36% and 39% of home sales were

second homes and investment properties. that is overhang that's not going to be touched by any of the current government initiatives to stabilize the housing market. that is part of the reason that the banks, who we put through these troubled as they were these programs still have these troubled assets on their bank balance sheets. we don't want to really stop -- setback, look at look at her house in policy did, what our financial service policy did and really we've been said or used. we've been seduced by tax policies that in fact leverage rather than the building of equity and debt leverage benefits not the consumer, but the lender. and that really is what this crisis is about. so even as we are starting to talk about dodd-frank and its implementation in rulemaking that goes with it and the

building of more rational standards for housing policy, we are still not willing to have the larger discussion about what rational housing policy should be, who should benefit from how it be implemented. this tax cut has to be considered as something we need to address with? instead we got right back to where we were, this co-mingling of social policy with financial markets. and that's a very toxic brew. when you start handing the opportunity for social policy goals and subsidies to be delivered through private market players, there is going to be money that doesn't meet its intended target, where historically the landing for first-time homebuyers, buyers buyers have limited access were sometimes delivered directly through government programs. if you think back to g.i. bill

and jimmy may programs and fha programs, the goal was to have the government recognize that there is some value in inventing homeownership, but in doing so directly to us greater control and less likelihood for seepage of profiting. and fannie and 794 at the front end of co-mingling the social policy with financial america policy. and that really is a departure point i think is very important because in 2001, i wrote a paper called houston in the new millennium, a home without equity is a rental with it. and in that paper, there was no -- there really was no private label mortgage-backed securities market. i had been part of the creation of what we call the subprime 1.0 in the 90s, where we thought a lurch number of small sub prime

originators come. really what they were doing was making loans that were still relatively traditional mortgage products 15 year, 30 year fixed meat products, traditional and products, to borrowers have blemished histories. in that industry therefore had a very small market that it could tap into. ultimately it went away because prepayment rates accelerating after the russian debt crisis and accounting games that were found to have occurred at that industry and it disappears. and with that, wall street investment banks realized if only they started innovating new products, they could advance the barber class and increase the homeownership and sells a stream to a larger number of people. fannie and freddie were a partner in that. and as much as fannie and 79 for

ipods in many ways the investment banks in the private market, they also had a partnership with them. so what you saw was fannie and freddie was innovating blowdown permit programs in the move from traditional underwriting, were you talking to the bank in your community, but if you are in the face. he was a pitcher credit history and your employment history. he would look and think about the regional economics of the community in which you were byerly and where your job was than he would make a loan decision. fannie and freddie decided in instant gratification world we could move to automatic underwriting and appraisal processes. we could really change the structure and dynamics of the housing and mortgage finance system. and they did. and were here. and so even now as we are watching the discussion about under dodd-frank, there is a

real risk protection, were any securitizations, the issuer and with the originator are supposed to hold a proportionally 5% of the structure. unless a loan to not pull our what is called qualified residential mortgages. and now comes the regulators that their proposed rule on monday qualified residential mortgage is a new and up seeing the same group, the same partnership, the same unholy alliance of the home builders, mortgage bankers, banks, community groups say hold on. a few words to make this the qualified residential mortgage rule, there would be minorities who would be kept out of homeownership for the cost of homeownership would rise. , we learned we are not helping people if we put them in products that are not

sustainable? perhaps this time we think about really functional housing policy that doesn't transfer the benefit to the banks are the issuers and instead to the barber. so with the marc rich insurance deduction, which theoretically is supposed to benefit homebuyers come up are really only benefits those of mortgage punch and itemize their taxes, only really the upper income and wealthy, which we could turn on attendant turning three principal equity tax credit, which would therefore be progressive. it would give incentive for people to pay down every year as much principle as they can and build real wealth and real savings. we could create 529 accounts for mortgages so people can say for a down payment on a tax-free basis if we believe in housing policy as an important social tool for savings. but washington come in all of his wisdom, all of the relationships retyped about,

between the trade associations, when both sides of congress -- this is not a left right issue. this really has become, unfortunately, a senate banking committee, house financial services committee both compete for the same dollars from the state and trade groups and the people in this room, bradley as individuals have little involvement in the process and very little to win in that process. so our hope in writing this book was really to help educate and eliminate what has gone on here so that hopefully there would be a little bit more public outcry for holistic policy, transparency and policy and understanding who is sending a policy that comes out of our government intended to benefit us. and usually not defeating us. so i think what that, with that diatribe in rant, 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 microphones with your questions or comments and try and ask questions without many semicolons. [laughter] and so, please begin. if you are comfortable saying your, please do that and gretchen morgenson and joshua rosner will answer the questions. >> hi, i want to play devil's advocate to both of you. there are federal agencies and the federal government to regulate to fannie and freddie.

let's say you are both invited to administer that agency. what would you do with your implementation quirks >> yeah, sure. first of all, regulators that were charged with regulating fannie and freddie in the years up to the criticism of the groundwork was being made were really neutralized. fannie s. top executives understood how to defend its regulator, how to co-opt congress, and a congress congress its regulator and therefore they could by congress and had everything under control. for years, this regulatory infrastructure over fannie and freddie was a weakling and punished. whenever our see how talked about safety and soundness

issues, it was drummed out of town. congress would get up in my legs and say, we don't have a safety and soundness issue here. we need housing. and so, it was no big elated well and aggressively because of the very proactive, you know, chicks of cne made and freddie mac. so i think looking back on the you can't really say that she had a good regulatory structure. now what we would do now -- i mean, i think you have to have a somewhat adversarial relationship with these companies you are overseen. when interviewed ernie frank for this book, we asked him, you know, why are we taking the side of the companies all these years when you could have been really hoping the regulator do it job? he said, i felt like there was becoming an adversarial relationship they appeared with

that, but that's what it's supposed to be. we are not supposed to be friends and colleagues here. they are supposed to be overseeing. >> now, 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 of financial service industries to capture congress to recapture the regulator. the industry learned that lesson. with the fannie and freddie as an example, you have the direct your in 2002 of the future systemic risks posed by fannie and freddie and the white house asked for the resignation within 24 hours now. you had the regulator after an accounting scandal that it didn't do because frankly my mind there is a captured examiner who was in charge.

in the aftermath of that accounting scandal, the regulator started doing an investigation and a senator called the hood inspector general to try and stay me that. there was most of the finish of regulators and i'm not using the behavior, it's just a reality that they don't want us to regulate. what are we going to do? that was co-mingled with the steelers people do it in their self-interest and none of these companies will intentionally turn themselves off the cliff, so we'll just trust them to do the right being. >> thank you. >> in the spring of 2008 i tied an and math and finance, where we did duration of a gun which measures interest rate risk, formula for pricing options,

kabbalistic pricing models, value at risk and high evaluation of risk. thank god the course ended in may of 2008 before lehman brothers to bankrupt. not a single thing i taught wasn't violated by the nature people running these institutions. let me just make one comment and then a question. the course announcement was posted on the website at gw in december of 07. this is an undergraduate course. i was amazed i got letters from three staffers said the federal reserve who attempt 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 during their period for looking at your book,

i look at references to goldman sachs. by now most every shady deal that has been exposed, for example, they've ripped off to david. that is read "the wall street journal," which a colleague of mine made a joke that if we could get a major investment banks in china and russia and japan, we could cut our defense budget by $500 billion figure because there's not a single economy in the world they couldn't bring to its knees in five years. but my question was goldman sachs is this: given its deals, like the advocates deal, why would anyone in his right mind take the opposite side of a trade was goldman sachs? i mean, according to classical free-market economics, if a person is a shady banker or

something, people stop doing business with them. and yet there they are, bigger and better than ever. >> that only holds where there is 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're always going to side with the one that you know has the asymmetry in their favor. i think that really is a piece of what's going in the crisis, which there is an understanding that there are those who are always in the know, always given advance information, access of the levels of government ripping of the outcomes that are before the questions have been publicly posed. and so, you are right. they closed system that was free-market, you're right, it would take the other side. i'm sorry, and a free market, you may take the other side because everyone can't be read on the time. i think there's been a free-market operating here. there is an assumption and

understanding that it is not working fairly. so right now, you are right. all i think you're saying is this is corporate cronyism and we haven't done anything to address that. >> your own books mention goldman sachs was responsible for managing the earnings of fannie mae and they were involved in the structured finance deals that always benefited goldman sachs and no one else. and that's fine. but now, why are they still in business? >> you know, it's also -- i always feel uncomfortable with that question only because their goldman sachs questions because unfortunately focusing so close and goldman sachs actually helps us to forget that very number of other to two shins that are equally culpable, but i find equally to big intertwined in

danger is frankly for good. and we're not really addressing those, nor by the way are we really even doing much digging into what goes on or has gone on or what they're involved with because there is a favorite whipping point. >> he's not defending goldman sachs. just so you know that. >> what effect, if any, did repealing glass-steagall house on the crisis? >> just a tiny little bit. [laughter] well, glass-steagall of course was the depression era law that served us very well for 66 years i think i was. of course, they were big financial institutions chipping away at it for years, finally succeeded with the help of robert rubin to annihilate it altogether in 1999.

and there is a picture in the book of designing of grant leach bliley, which was the repeal of state colin is smiling and line feed and greenspan is there laughing on its olympic lovefest. and he really was the beginning of the end. there is a wonderful picture of president roosevelt singing glass-steagall into the thing nobody is smiling. everybody looks very grim and it's a deep, dark depression. we don't have that when the book, but putting that together with with such an interesting text of the vision. 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

risks within this guided notion that they would never risk the bank because they were too smart to do that. and also fed into the regulatory view that regulation wasn't necessary, that regulation was an 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 sea change a thing. but it had been degraded over a period of years. it had everything to do with it and unfortunately it's very difficult to put the genie back in the bottle. >> i think gretchen is spot on. it also created this opportunity, frankly, for the banks to compete with the gses when it came to the world. fannie and freddie at a

regulatory perspective, the mortgage bank security had very low risk and we saw the basel committee to review that the gses mortgage-backed securities should be a lower risk at the behest of the banks and lobbying. and once they did in office said the notion was all mortgage-backed securities with equal ratings should have the same readings coming to see the banks that had branches become very aggressive in pushing mortgages through their own pipeline. but investment had to figure out another angle. and i was vertically integrating in many cases. and buying servicing and starting to build all of the information, including the relationships which we haven't talked about with the insurers, which are again part of the crisis of the private mortgage

insurers who are integral and essential to the crisis. and part of the supermarket that was intended with the repeal of glass-steagall. >> this is such a rich topic, no pun intended. i don't know where to start. so you personally really don't believe this is so much a financial crisis we are in as it is a cultural crisis and i think we're all culpable because nobody has asked for any heads up in this. we are also willing to go around and have wall street tell us this is just a normal business cycle. this could happen again, folks. no question about it. what you describe is not capitalism. its economic tierney. we are all the ones of that. i appreciate you writing about.

i wish you'd also like it some other topics about people who have put a lot of their money. i wish you would write a book about deportation of these people. let them live in sweden, but don't use my library is, my public schools. over your money is going. >> well come you don't read my e-mails because there's so many people looking for heads on spikes every day. so there are a lot of people who on your wavelength absolutely. i think there is a sense and a colleague and i have been writing articles about why there is no prosecution. it's a very interesting question why the dog didn't bark. very hard to come up with the authoritative answer. one of the answers i did get 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, pain and agony endured by people, were you at actual ceos going to jail. you know, we found one of the key reasons that this occurred is because regulators in the years when things were good and you're slinging that to the media and in the media were not doing their job reining in the practices, taking names, doing investigations so when the bubble burst, the confirmation to bring cases. so again, it's this regulatory capture not only had the initial problem of failing to rein in really perverse practices, it then had the secondary impact of contributing to this notion that it was nobody's fault. we can't bring a case, therefore

luscious although quite and forget this ever happened. so i hear your pain, i feel european. i think we are trying to get the bottom of it, that's a very complex issue. i also think it's a social question. i agree with you. >> and actually we both agree. i think that's what drove us to agree to read the book together is that this is a cultural issue. the heads on spikes would serve some value, but it still doesn't address to my mind the more fundamental problem. and that is one way or still living those people in power in charge of redefining the system going forward and forgetting the fact that to my mind the largest impact of this crisis has not yet 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 one to six toric within a largest retirement and interracial halts transfer. as we end up with a failure to fix the system, to incentive pay down and does growth of personal savings. and that becomes a real piece of this coming crisis because it is going to have been likely at the time that her u.s. treasury is forced to accept austerity and cuts in the social safety net. >> elaborating something on you touched on. the one that can attribute the utter passivity of the department of justice, which continues to the present day. i ask that as a former federal prosecutor. i could write an indictment in these cases just just a luddite read in the newspapers in 30

minutes. convicting these people would be like shooting fish in a barrel. >> it is the politicization frankly. it is the politicization of the department of justice, the attorney general's offices, the lack of independence of the regional offices to bring cases. it is frankly on the other side of this political pressure that comes from the notion that we've unfortunately had to turn to liquid. i don't agree that we've had to, but we have to. if you do anything like that, to risk destabilizing the very same institutions we spent so much of her trying to make look like they are solvent. >> i want to know what is happening. >> well, it's hard to draw any other conclusion honestly. i'm not a part of these e-mails going back and forth.

but it is difficult to draw any other conclusion that a debacle this large, creating this much pain and trillions and losses, that was nobody's fault and there wasn't a crime committed. it's very difficult. you have to suspend your difficult for far too hot to trot that conclusion. so again come i think it is an appetite to prosecute that isn't there. there is a fear factor losing the case. they say these are complex cases from the paper cases. you don't have a big was dead on the ground. there are many, many excuses given. i buy none of them. >> there's also been a real investigations. that's the problem. the regulatory investigations height not go on to really find the culprit and when you take it a case, such as the ones against

subs angelo mozilo, e-mails and which is privately saying that these funds are poisoned, toxic. at the same time, publicly crowing about how good his company is doing, financially sound and providing the best loan for other customers. and selling stocks. that seems to me to be a layout, but i'm not a prosecutor, so unfortunately -- >> put the senate in the mayor for life on the basis. i can understand why that hasn't been done. >> going to make sure all those in my book a chance to make their point and asked their questions. so we are going to end with the last woman in line. >> no point. just a question or two. i glass-steagall question i'd ask him as i am left with what

do you think of the dodd-frank response to this crisis. and any heroes? >> dodd-frank in my view really mess with the big one which is too big to fail, did nothing about cutting down these institutions to a manageable size that does not imperil the taxpayers. that is the key failing in dodd-frank. it has left hundreds of rows to be made by regulators and therefore providing a second manipulation possibility for the industry. so they got their first chance when they were talking about the legislation, writing the legislation to manipulate. now they can manipulate regulators. >> is it any better than nothing? >> there are parts that are fine, better. the 3000 page live, glass-steagall has 32 pages.

3000 pages is way overdone and not affect goods on the crucial issue into big to fail. >> not to take much longer i'm not, 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, debt guarantees them within 60 days at the window will have officers moved at the earliest convenience in part for employment or consultants or otherwise for a period of five years. if you did that, these companies could either choose to shrink themselves to the point that he can manage risk or spend money on increasing risk management to what they were ameliorated on those concerns. we didn't want to do that. legislators did a great job of doing everything but legislating because they did, as gretchen said, left everything to

regulators to define. >> we have some heroes. they were supposed to the cbo, congressional budget office. we had a wonderful thing at what they up in 195 as a part of the congress that in 92, which was the safety and soundness act that created a new regulator for fannie freddie, treasury, gao and cbo. cbo took a job job of analyzing how rich the subsidy was from the government that fannie mae received. there were visited by fannie mae executives. june o'neill was that he cbo at the time that like they were being visited by the mafia. she was pressured to try to water it down, not to produce a report that is very explicit but how much they guarantee was worth to the company and how at all costs they had to protect

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

policy and behavior at gses as factors in the buildup to the crisis. but i've never been able to understand how a housing policy leaves private investment banks to go bankrupt. it seems to me when bair and the men went bankrupt, it seemed like there was a lot of mere incompetence or possibly malfeasance in the behavior of those institutions and many others that contributed to the failure of those institutions. if enough obvious causal connection for the housing policies to the states and investment banks. i wonder which are theories of state says. >> bear stearns has a major player in the fact that the leverage these firms are allowed to take on, which is something that henry paulson importuned the sec to allow us to increase

the average these firms take on their books. that really let them down the path to perdition because only a small loss was magnified by leverages they had. there was a tremendous amount of profitability and risk-taking related to mortgages on wall street. look at countrywide, bank of america. it is in trouble now because of its lending practices. >> you also have to remember the mortgage-backed security, the residential mortgage with the lowest risk asset from a capital good. and that is a big pizza by the banks went headfirst into this, why they leveraged it, why you took mortgage backed securities and when he didn't have natural buyers for them come you took them as tranches and bundled them into more leveraged instruments and then multiplied that further and further. when you look in the e-mail

files of the financial crisis inquiry system, one of the things defined as there were other institutions that would have gone down because they retain the risk which is one of my biggest problems with dodd-frank is you have the risk retention rule that says we should have these retain risk on the notion that if they have to drink the poison, they won't feed it to others. but the reality is the institutions didn't realize what they were serving up with poison. so what you saw was in 2007, you saw an e-mail files, institutions bear was ignoring it, merrill, stan o'neal didn't release the exposures he had until he was in hot water. work goldman in deutsche and others who had problems were quickly trying to offload what they had as remaining risk as quickly as they could. so those instruments, the murkiness, leverage,

non-transparency come and ability of regulators to look into a cd out because they were qualified institutional buyers have the right to our very essential to the crisis. >> i think he explained that there were severe intentions, but you haven't explained why they yielded to those. after all, they play tonight money and they lost money. >> that line of argument is another of the same line of argument. the question is alan greenspan comments on this. can you trust the executives of these institutions to have the interest of the institutions of such a hard because it would appear in these episodes that the interest of the institutions might have been sacrificed by those of the executives. i think again you go back to the heads on pikes.

that phenomenon also deserves a lot of attention. >> agreed. >> 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 housing policies going forward in the next election? it would seem like the obama plan and the plan the republicans are talking about are different. none of them are housing policies. >> no one is talking about housing policy. housing policy is that we need to do that with housing population. reggie versus owning. mobility to change social reality of demographics. do we need to change tax incentive structures to meet whatever we find this social policy goals are housing goals?

we went to the social policy transmitted through private corporations who will deliver subsidies on the governments balance sheet quakes that is a housing policy discussion. what we are having the same error discussion, which is a political discussion about to put a stake through the hearts of fannie and freddie and what to replace them with? that's not housing policy question. with any expectation that either of those that dictations were real substantive discussion of housing policy will be part of the election? probably not. so you're right. but even in terms of what do we do with the gses, there is a mass -- an understanding of those size does want to take that down the road until the next presidential election. >> don't forget we are in the depths of the housing crisis because foreclosures are still

massive. people are massively underwater in the live. there is a sense we can't do it this right now. >> although that's an opportunity to choose a catalyst for real housing policy and also the solution to the ongoing crisis to define what the housing policy can transmit or can change into and transform it. >> speaking of the ongoing crisis, i wanted to ask about the programs to help borrowers who are in trouble. my reason for this is personal knowledge index your hands with two mortgages. one is that mortgage my husband and i hold in washington, which is in the neighborhood for house prices are the same. we had plenty of equity. we are clearly not the first people who need to be helped by the government. nonetheless, last year alone servicer called us up one day

instead because your mortgages mortgages 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 at a lower rate. it was wonderful. i mean, it is the best refinance have ever done. >> you must know somebody in high places. >> the other mortgages that of my contractor who is hispanic, lives in alexandria is underwater, has arm originated by countrywide and now is serviced at least by bank of america. they do not expect to default, but he wanted to refinance into second mortgage to get a fixed-rate mortgage before rates

go up. they have been trying for a year now to get the paperwork for the hud program or bank of america. and they've gotten the runaround over and over and over. and then last week someone said everything is fine. you really going to get us unless habitat to mr. sanchez. mr. sanchez told him everything would be fine. my contractor said they were going to move heaven and earth. only the next day when mr. sanchez talks them into signing the document, it turned out mr. sanchez was, it is a sleazy lawyer who is getting them into a contract to spend something like $2500 to negotiate the mortgage -- refinance they've been trained to do with no guarantee of success. fortunately, there are savvy

enough and also my contractor talk to me and i'm a lawyer and i said you cancel now. but it seems to me my feeling is maybe freddie mac is trying to raise its figures and looks like it could get lots of people who need help by putting through mortgages like ours. and in the meantime, people like my contractor really should get help for these programs are getting the help they need. >> is certainly within the treasury program, the hand program has been an unmitigated disaster. from the very outset of his badly conceived. it really was almost the worst possible combination of people coming up with that idea of how to not tell people is really how it ended up working. bank of america, you know, again my e-mail box is filled with

stories for the visa paperwork. there just does not seem to be a real sense, either in the or or the public are to make a rational intelligent decision about who should be held and who should not be held. so i just think the government has been a woeful job. again i say said diaz said, and main street really got it in the neck and everybody else thought to wait with a lot of money. >> i also felt the experience with my contractor was a real failure of regulation because it is clear that someone at bank of america was actually in pollution with the sleazy lawyer in steering them on. and that seems to me to be really outrageous. >> i mean, unfortunately again we don't have a housing policy, and holistic housing system. not making excuses for whenever

the affair, i don't buy the basis in the background on your equity in your home. but the other side is, is freddie mac subsidizing not necessarily your case, some borrowers who won't ultimately be up to stay in their homes, getting them to pay cash in the house where they haven't done the appraisal, seaside, and income verification. that is in some sense back to the other practices. there's a difference on top of that between the two comparing apples to oranges. getting freddie or government karen t. to credit risk already. bank of america, the likelihood is your contractor's work is not even help a bank of america. it's called by a mortgage-backed full and investors have to be considered. the problem is bank of america is a servicer who owns the largest portfolio of home-equity

lines. and so there is risk to them on that, depending what they do on the first mortgage. so you are right that this is a problematic situation in the government isn't interested in dealing with it. one of the things they are not willing to do at this before you can have come in that example, treat cars have come in they need to be in conflict to end the relationship between the circuit lanes they hold their balance sheets in the first is a link to hold from people. >> first, thanks very much for writing about. as a couple questions. right now that's like fannie and freddie might be profitable in 2012 and 2013, setting aside 20% dividend midnight on the treasury. at that point, i ensure there would be pressure to bring conservatorship. but they have patented most of this mortgage business or they hold over 40 patents.

so did pat at the mortgage, everything from the mortgage process to securitization. they also own a lot of tech algae and information on every single homeowner in the country. i'm not sure those patents should have ever been granted, but i guess i am asking, do you think they'll be put in the public domain along with the information to technology? are we going back to business as usual clinics >> go ahead. i think i know the answer. so, there is this great divide right now in washington between those who were afraid if we take too long to address it, after the next presidential election, there is going to be a push because they are profitable, just to put them back out there, remember, public markets. everything's okay. we'll take them for deletion are the edge.

then you have those same of them. i'm actually not state. there is value to the franchises if there's great value in the patent portfolios and the information they have, which i think you could use if you could figure out a way to make not government-sponsored enterprises, but enterprises that were fully private. i think there's some value in not because there's value in the information. or you can offer to the entire market, opening a good debate right now is do we have seen and friday or do we have the mortgage banks as the next fannie and freddie? the question is, should either of those groups the mechanisms for social policy delivery or should they be nothing more than mortgage market structure, financial market intermediaries? you know, the likelihood is that

fannie and freddie will come out the other side it seems. now with the same names, not the same structure, but some of the franchise value will be retained. it's still unclear as to what i'm trained in whatp/@ú!pzçñ?