former dry grains and also impossible to grow in the things the american agriculture engineers have been looking for, such as statements -- citrus fruits. it becomes an incubator for a certain type of crop which we now know is opium. so it's kind of an interesting story that afghanistan had never been able to produce opium prior to 1950 when the u.s. a development project a certified the so such as to make this a productive area for opium. ..

>> that's kind of a funny story that nobody's really going to believe. i was applying for graduate school to cambridge, and the person advising me said just find whatever you want to do because in that application you have to put forward a proposal for what you want to do. and it was, it was august of 2001. i had actually taken a break

between my undergraduate and starting my ph.d.. wiz going to -- i was going to go to law school at the university of washington. and i was researching areas kind of i thought i wanted to do. i knew i wanted to do south asian history, and i was looking around and said, afghanistan, nobody is doing it. nobody at all is doing it. especially from a historical perspective. so i e-mailed my then-girlfriend and now wife on september 10th, believe it or not. i know nobody will believe that story, but i kept the e-mail so that i could say, no, actually, it did happen that way. [laughter] and then the more i got into it, the more kind of open territory i realized was there. which is an interesting comment that after, you know, ten years of being engaged with afghanistan still the academic community, scholarly community is very, very small in terms of

people who actually have a long-standing, developed understanding of afghanistan. there are a number of people, especially in washington, that have a great and deep understanding of its current politics. however, that kind of longer view of afghanistan, especially pre-1979, is still something that needs to be much more fully developed within the academy. >> and finally, knowing what you know about the history of afghanistan and the area, what would you -- a prediction for what's going to happen in the next ten, twenty years. >> um, well, i'm a historian, so i get to talk about the past rather than the present. with that caveat, i'd say what's probably most clear is going to be the ongoing u.s. role in afghanistan. and i think that probably everybody knows in the back of

their mind what that ongoing role is going to be which is that, yes, there will be a troop drawdown, but i suspect bag gram will become -- bagram will become -- that's the main air force base in afghanistan -- i suspect that will become a semiperm if not a permanent installation. really it goes back to what i was talking about earlier which is for the afghans to reconstruct that political compact upon which they've had a 200-year history of relative political stability and coherence. they definitely can reconstruct that. the international community can play either an obstructionist or a largely positive role in that. and i think how that's going to turn out is going to largely be dependent on how both the international community and also stakeholders inside afghanistan act in the coming years. >> benjamin hopkins is the author, "the making of modern

afghanistan" is the book, published by palgrave. >> over the next several months, booktv will travel to several universities to talk with professors who have published recent nonfiction books. this month we speak with authors from george washington university here in washington d.c. and next month we head to george mason university in virginia. for more on our booktv college series, visit booktv.org. >> we'd like to hear from you. tweet us your feedback, twitter.com/booktv. >> up next, gretchen morgenson and joshua rosner talk about about the 2008 u.s. financial collapse and the role played by lending and mortgage companies fannie mae and freddie mac. this lasts about an hour. [applause] >> thank you so much, david.

we are really thrilled to be here tonight. politics & prose is, as you know, an iconic institution in washington, and it's just a thrill to be here with you and engaged customers, well, that's really fantastic, and it's wonderful to meet david and to see in person this incredible institution that everyone loves so much. 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 off get from interviewers, buyers of the book, um, e-mail and my e-mail at the account at the times, what surprised you the most about your reporting and the information that you -- 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.

um, 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 in time to describe some of for groundwork that was laid to create the crisis. but josh and i decided to go back much part -- much farther into the early '90s to really tell the tale. because a debacle this large really didn't happen overnight, and unlike some of the books' conclusions, other books' conclusions that it was nobody's fault, sort of a concatenation of events that could not be helped, we really believe that there were actual parties involved laying the groundwork. but as far as what has been most surprising to me in this exercise is the number of paradoxes that emerge from this

story. the paradox of powerful participants in the events leading up to the crisis who continue to this day to be in if positions of power -- 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 investors and borrowers, yet no one involved in the mess being held accountable. but to me, the most perplexing paradox of all is this: how did it happen that the drive to expand the rate of home ownership to first-time home buyers, many of them minorities, immigrants and other lower-income individuals, how did it happen that this partnership, this push wound up trapping them in this loans that they could not afford and

putting them squarely on the road to financial ruin? in other words, how did the dream of home ownership become such a nightmare for so many first-time home buyers? it's really an awful paradox when you think about it. government officials and the belief that home own home ownership was a win/win for everyone opened the door to predatory lenders who lured the least sophisticated people into the most poisonous loans. these included loans with prepayment penalties of high interest -- prepayment penalties or high interest rates. a report by the center for responsible lending looked at 1.8 million loans in the early 2000s. it showed that from 2000 to 2004 borrowers in minority neighborhoods received a disproportionate number of loans with prepayment penalties.

the center found that borrowers living in zip code areas where more than half of residents represented minority groups, the odds of receiving prepayment penalties were 35% higher than those of similarly-situated borrowers in zip codes where minorities comprised less than 10% of residents. the study controlled, importantly, for key borrower property and loan characteristics such as borrower credit scores to insure that the results were not, repeat not, based on differences in 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 it concluded that the odds of receiving a higher rate, fixed rate purchase loan were 71% greater for african-americans than for whites. african-americans in the sample were 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 refinance loan than for a similarly-situated white borrower. latino borrowers were similar, receiving a higher rate fixed rate purchase loans, they were 60% greater than a similarly-situated white borrower. these data support what i found in my reporting about countrywide financial, one of the biggest subprime lenders before it was acquired in a fire 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 loan possible as countrywide's

advertisements promised, borrowers were led to high-cost loans that resulted in rich commissions for countrywide's smooth-talking salesmen. these loans also contained outsized fees to the company's affiliates providing loan services such as appraisals and insurance and also carried punitive prepayment penalties or interest rates that were set alluringly low at first only to skyrocket in a few years' time. countrywide financial's founder, angelo mozilo, talked enthusiastically of wanting to help minorities and low-income americans secure a mortgage. doing its part to democratize the home loan business, countrywide became the number one lender to both hispanics and african-americans. in a february 2003 speech here in washington, mozilo promised

to devote $600 billion to mortgage loans for underserved communities through 2010. and yet according to company insiders, countrywide's systems were designed to increase costs for precisely these types of borrowers. one former mortgage broker in los angeles said that countrywide branches in upscale neighborhoods like beverly hills or santa monica had to slash their mortgage rates to be competitive with rival banks. but in areas that were predominantly minority, countrywide's rates were far higher because company executives knew borrowers in the these neighborhoods had few, if any, alternatives. the former employee told me, i'll put it this way; at countrywide's santa monica branch, they lost anywhere from one to two percentage points on a loan. if they broke even, they were lucky. but in black areas like the

shawson branch, the average points charged per loan was anywhere from two to four percentage points, and you were reprimanded if you did not charge more. countrywide's entire operation from its information technology to its incentive pay was designed to wring maximum profits out of the mortgage lending boom. no matter what it cost borrowers. the company's computer system, for example, defaulted to a setting that automatically excluded a borrower's cash reserves from his or her financial statements. this had 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 were more expensive and more profitable. now, countrywide, of course, was not the only lender that appears to have targeted minority borrowers. a recent lawsuit against wells

fargo over loans 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 the rate in predominantly white county neighborhoods. according to a sworn statement by a former wells fargo credit officer named mark taylor -- mario taylor cited in this lawsuit, quote: the prevailing attitude was that african-american customers weren't savvy enough to know they were getting a bad 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 loans, obviously, increase the odds of foreclosure. a study by the atlanta constitution of foreclosures in that city found that

african-american neighborhoods delineated by census tracks had foreclosure rates higher than majority white neighborhoods. they are -- that's because, the newspaper said, african-american borrowers were more than twice as likely to obtain subprime loans than caucasians. it certainly gives a whole new meaning to the push for the american dream of home ownership. 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 view -- it's a very pernicious view -- that there are two types of rules. there are those for the rich, powerful, politically-connected

institutions, and then there are the rules for the rest of us. and now i'd like to turn it over to josh for his, um, insights and interpretations and his views on how much fun it was to write a book together. [laughter] [applause] >> i think she was, she may not realize she wasn't kidding, it was actually delightful writing a book together. um, and i think it was largely because we, we both had been involved in this area, her from the writing side, me from the wall street side for a very long period. and, frankly, were early in warning about the crisis to come. and 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 contextualized, i don't think anyone wants to have the honest dialogue that needs to be had in

order to move past it, in order to start rethinking our public policy on housing. we talked about home ownership rates, but we don't ever define homeowner home ownership. and that really is the root of this crisis, it's 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 '80s with home ownership rates in the '90s stagnant, we had home prices rising, and yet wages were flat. and so washington, in its wisdom, recognized that there were two options, either figure out a way to increase wages sustainably or lower the standards to increase home ownership rates. and they chose the latter. and so we embarked upon the largest public/private partnership ever in the history of this country, and it had all

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

there are greater ties to 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. but we never stopped 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 payment of principal and interest in what has been a forced savings plan, a relatively illiquid investment where money is paid in and trapped and very difficult to extract. and so the benefit of home ownership was one that resulted for most of the post-war period in people buying a home at about the time of family formation, making monthly payments of principal and interest such that

at about the time of retirement, they could have a mortgage-burning party, have the largest retirement asset in intergenerational transfer wealth asset, and we've gutted that. and yet we talk about having achieved record levels of home ownership which we didn't, because there wasn't equity. it was phantom equity. and, in fact, the home ownership rates were created for consumption by politicians, by trade associations, by capturing congress and pressuring regulators to pay less and less attention to safety and soundness. and we watched as home ownership rates climbed from their historic 62 to 64.5% which they'd been at since world war ii to 1995 starting to rise to geg the millennium, and then we think about this crisis. and the reality is home ownership rates peaked in late

2003, early 2004. so where's the crisis of 2004, 2005, 2006, 2007? and that's really the story. that's the story of the fact that we perverted all of our definitions. we watched the industry, fannie and freddie and later the mortgage bankers, the realtors, the home builders, the community groups really push this notion that we needed to put more and more people into homes. but what we were doing by 2004 was giving people incentives to take the more and more race can key mortgage -- risky mortgage products on homes that they already had as a way of extracting the equity that they already had built up in their homes and create incentives for people to build and buy second homes and investment properties which is another piece that isn't really discussed here. so part of the crisis that we're living through right now is a crisis that was driven by the reality that in 2004, 2005, 2006

and the early part of 2007 between 36 and 39% of home sales were second homes and investment properties. okay? that's overhang that's not going to be touched by any of the current government initiatives to stabilize the housing market. that's part of the reason that the banks who we had put through these troubled asset relief programs still have these troubled assets on their bank balance sheets, okay? we don't want to really stop, step back, look at what our housing policy did, what our financial service policy did and that really we've been seduced, we've been seduced by tax policies that incent leverage rather than the building of equity. and that leverage benefits not the consumer, but the lender. and that really is what this crisis was about. so even as we're starting to

talk about dodd-frank and its implementation and the rulemaking that goes with it and the building of more rational standards for housing policy, we're still not willing to have the larger discussion about what rational housing policy should be, who it should benefit, how it should be implemented, does tax code have to be considered as something we need to address with it? and instead we've got right back to where we were, this comingling 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's going to be money that doesn't meet its intended target. where historically the lending for first-time home buyers, buyers who had limited access, special buyers were sometimes

delivered directly through government programs, and if you think back to the g.i. bill, right? and ginny may programs and fha programs, the goal was to have the government recognize that there is some value in incenting home ownership. but in doing so directly, there's greater control, and there's less likelihood for seepage of profit-taking behavior. and fannie and freddie really were at the front end of comingling the social policy with financial market policy. and that, that really is the departure point that i think is very important because in 2001 i wrote a paper called housing in the new millennium, a home without equity is just a rental with debt. [laughter] 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 subprime 1.0 in the '90s where we saw a large number of small subprime originators come. and really what they were doing was they were making loans that were still relatively traditional mortgage products, 15-year, 30-year fixed rate products to borrowers with blemished credit histories, and that industry, therefore, had a very small market that it could tap into. ultimately, that market went away because of prepayment rates accelerating after the russian debt crisis and accounting games that were found to have occurred at that industry. and it disappeared. and with that wall street investment banks realized that if only they started innovating new products, they could expand that borrower class, and they could increase the home ownership and sell this dream to a larger number of people.

fannie and freddie were a partner in that, and as much as fannie and freddie were at odds in many ways with the investment banks in the private market, they also had a partnership with them. and so what you saw was fannie and freddie by 2000 was innovating low down payment programs, was innovating the move from traditional underwriting where you would walk into a wang -- a bank in your community, you'd look that banker in the face, he would look at your credit history, he would look at your employment history, he would look and think about the regional economics of the community in which you were borrowing and where your job was, and he would make a loan decision. and fannie and freddie realized that for efficiency, we're in an instant gratification world, we could move to automated underwriting. we could move to automated appraisal processes. we could really change the structure and the dynamics of the housing and mortgage finance system. and they did, and we're here.

and so even now as we're watching the discussion about, under dodd-frank there's a rule on risk retention where any securitizations the issuer and/or the originator are supposed to hold proportionally 5% of the structure. unless the loans that are in that pool are what's called qualified residential mortgages. and out comes the regulators with their to posed rule on -- proposed rule on what a qualified residential mortgage is, and you end up seeing the same group, the same partnership, the same unholy alliance of the home builders, the mortgage bankers, the banks, the community groups, okay? say, hold on, if you were to make this qualified residential mortgage rule, there'd be minorities who would be kept out of home ownership or for whom the cost of home ownership would

rise. haven't we learned that we're not helping people if we put them into products that are not sustainable? perhaps it's time that we think about really a functional housing policy that doesn't transfer the benefit to the banks or the issuers and instead to the borrower. so we've got a mortgage interest deduction as example which theoretically is supposed to benefit home buyers but really only benefits those who itemize their taxes, really only benefits really the upper-middle income and wealthy which we could turn on its head and turn into a principal equity tax credit which would, therefore, be progressive, right? it would give incentive for people to pay down every year as much principal as they can and build real wealth and real savings. we could create 529 accounts so that -- for mortgages so that people can save for a down payment on a tax-free basis if we believe in housing policy as an important social tool for

saving. but washington in all of its wisdom, in all of the relationships that we talk about between the trade associations who on both sides of congress, this is not a left/right issue, this really has become, unfortunately, a senate banking committee, house financial service committee, they both compete for the same dollars from the same trade groups, and the people in this room broadly as individuals have very little involvement in that process. and very little to win in that process. and so our hope in writing this book was really to help educate and illuminate what has gone on here so that, hopefully, there would be a little bit more public outcry for holistic policy, transparency in policy and understanding of who is funding the policy that comes out of our government intended to benefit us. and usually not benefiting us.

so i think with that, with that diatribe and rant -- [laughter] i would, i'd like to turn it back over. thank you. [applause] >> we're 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. [laughter] so, please, begin. and if you're comfortable saying your name, please, do that. and gretchen morgenson and josh rosner will answer the questions. i think you're going to have to get up. >> okay, we can come up. >> yeah. >> hi. i want to play devil's advocate

to both of you. there are federal agencies in the federal government that regulate fannie and freddie. let's suppose, hypothetically, you were both invited to administer that agency. what would you do in your implementation? >> yeah, sure. um, first of all, the regulators that were charged with regulating fannie and freddie in the years leading up to the crisis when this was really, all this groundwork was being laid were really neutralized. fannie, especially its top executives, understood well how to defang its regulator, how to co-opt congress, make congress really its regulator and so, therefore, they could buy congress, then they'd have everything under control. so for years this regulatory infrastructure over fannie and freddie was a 98-pound weakling, okay? and was punished, you know,

whenever, you know, ofeo tried to talk about safety and soundness issues, it was, you know, drummed out of town. i mean, congress, they would get up on their legs and say, you know, we don't have a safety and soundness issue here. we need housing, you know? and so it was, it was not regulated well and aggressively because of the very proactive, you know, tactics 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, i think you have to have a somewhat adversarial relationship with these companies that you're overseeing. and when we interviewed barney frank for this book, he -- we asked him, you know, why were you taking the side of the companies all these years when you could have been really helping the regulator do its

job? and he said i felt like there was becoming an adversarial relationship there. and we said, well, that's what it's supposed to be! [laughter] we're not supposed to be, you know, friends and colleagues here. they're supposed to be overseeing. so, you know, go ahead -- >> no, no, no. i think, you know, if i were to summarize the book in a sentence -- that doesn't mean you don't have to read it -- [laughter] it really would be how fannie and freddie taught the financial service industry that if you capture congress, you've captured the regulator. and the industry learned that lesson. so with fannie and freddie as a perfect example, you had the director of the regulator in 2002 write a white paper of the possible future systemic risks posed by fannie and freddie, and the white house asked for his resignation within 24 hours of that, okay? you had the regulator after an

accounting scandal that it didn't do because, frankly, in my mind there was a captured examiner who was in charge, but in the aftermath of that accounting scandal, the regulator started doing an investigation, and a senator called the hud inspector general to do an investigation of the regulator to try and stymy that, okay? so, frankly, there was this arms in the air finally by, i think, most of the financial regulators, and i'm not excusing the behavior, it's just the reality of they don't want us to regulate, what are we going to do? now,s that was comingled with this view of, hey, people do it in their self-interests, and none of these companies are going to intentionally drive themself off a cliff, so we'll just trust them to do the right thing. >> 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 which measures interest rate risk, capital pricing models, value at risk and risk of an investment. thank god the course ended in may of 2008, before lehman brothers went bankrupt. [laughter] not a single principle of finance wasn't violated by the people who were running these major institutions. it was incredible. let me just make one comment here and then a question. the course announcement was posted on the web site of gw in december of '07. this was 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 brewing there. but looking at your book, i looked at references to goldman sachs, and here's my question. behind almost every shady deal that has been exposed, for example, they ripped off gadhafi, i was reading in the "wall street journal" just a -- [laughter] you know, a colleague of mine made a joke that if we could get the major investment banks in china and russia and japan, we could cut our defense budget by $500 billion a year because there's not sake l economy in the -- single economy in the world they couldn't bring to its knees in the five years. but my question with goldman sachs is this. given its deals like the abacus deal, where -- why would anyone in his right mind take the opposite side of a trade with goldman sachs? i mean, according to class

call -- classical free market economics, if a person is a shady banker or something, people would stop doing business with them. and yet there they are bigger and badder than ever. >> but, but that only, that only holds where there's a real free market. where there's 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. and i think that really is a piece of what's gone on in the crisis which is there's an using that -- understanding that there are those who are always in the know, always given advance information, have access at the levels of government where they know what the outcomes are before the questions have been publicly posed, and so you're right. in a closed system that was free market, you're right, you wouldn't take the other side. i'm sorry, in in a free market u

might take the other side because everyone can't be right all the time, but i think there's an assumption and an understanding that it's not working fairly. so right now you're right, all i think you're saying is that this is corporate cronyism, and we haven't done anything to address that. >> in your own book you mentioned that goldman sachs was responsible for managing the earnings of fannie mae -- >> absolutely. >> and they were involved in the all sorts of these structured finance deals. >> well, you know -- >> and it always benefited goldman sacks and no one else -- goldman sachs and no one else. but now why are they still in business? that's what i don't understand. [laughter] >> it's also, i mean, i always feel a little uncomfortable with that question only because unfortunately, i think focusing so closely on goldman sachs actually helps us to forget that

there are a number of other institutions that are equally culpable, that have gotten equally too intertwined and too dangerous, frankly, for the public good, and we're not really addressing those. nor, by the way, are we really doing much digging into what goes on or has gone on or what they have been involved with because there is a favorite whipping boy. >> thank you. >> but he's not defending goldman sachs. >> no, exactly. >> just so you know that. >> um, what effect, if any, did repealing glass-steagall have on the crisis? >> just a tiny little bit. [laughter] um, well, glass-steagall, of course, was the depression of-era law that served us well for 66 years, i think it was. of course they were, you know, the big financial institutions were chipping away at it for

years, finally succeeded with the help of robert rubin to annihilate it altogether in 1999. and, um, there's a picture in the book of the signing of graham-leech-bliley which was the repeal of glass-steigel, and everybody's smiling, and everybody's laughing, and greenspan is there clapping, and it's all a big love fest. and it really was the, um, beginning of the end. um, if you look, a wonderful picture of, um, president roosevelt signing glass-steagall into law, and nobody is smiling. everybody looks very grim, and it's the deep, dark depression. and putting those two pictures -- we don't have that one in the book, but putting them together was such an interesting juxtaposition. it absolutely had everything to do with crisis. it allowed the wall street firms to vertically integrate, to expand their operations.

um, it was part of this idea, again, that josh mentioned earlier that allowed them to take even more risks with the, you know, misguided notion that they would never risk the bank because they were too smart to do that. it also fed into this regulatory view that, um, regulation wasn't necessary. that regulation was a, um, you know, 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 theamses. and so it was -- themselves. so it was a real see change, i think, but it had been, you know, being degraded over a period of years. but it had everything to do with it and, unfortunately, it's very difficult to put the genie back into the bottle. >> yeah, no. i think, i think gretchen's spot on. you know, it also created this, this opportunity, frankly, for the spanks to compete -- for the

banks to compete with the gses when it came to the mortgage can world, right? so fannie and freddie had certain benefits including the fact that their mortgage-backed securities had very low risk weightings. and can we saw the because el committee of the view that the gses should be a lower weighting really at the behest of the banks and lobbying. and once they did and all of a sudden the notion was that all mortgage-backed securities should have the equal risk weighing, you ended up seeing the banks that had branches become very aggressive in pushing mortgages through their own pipeline, but the investment banks had to figure out another angle, and that was vertically integrating in many cases their lending channels, it was using third party, um, originations and then buying servicing and starting to build all of the

information in advantage including the relationships which we haven't talked about with the insurers which were, again, part of a the crisis, both the private mortgage insurers and the model line bond insurers who were integral and central to the crisis. and part of the goal of that financial supermarket that was intended with the repeal of glass-steigel. >> thank you. this is such a rich topic, and no pun intended, but i don't know even where to start. but by saying, first of all, i really don't believe this is so much a financial crisis we're in as it is a cultural crisis. and i think we're all culpable because we -- nobody has asked for any heads on pikes in this. you know, we're all so willing to go around and have wall street tell us, well, this was just a normal business cycle, and they're already preparing us for the next 15 years. this is going to happen again, folks, no the question about it. what you described is not capitalism. what you've described is

economic tyranny. and, again, we are all, we are all victims of that, and i appreciate you for writing your book. i wish you would also look into some other, you know, topics about people who have put a lot of their money, the wealthy who put a lot of their money in sweden, these 4500 -- i wish you would write a book about deportation of these people. and if they don't want to pay their taxes, let them live in sweden but don't drive on my roads, don't use my public schools. just go where your money is going. thank you. [laughter] >> 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 at the times have been writing articles about why there have been no prosecutions. and it's a very interesting question, um, why the dog didn't bark. very hard to come up with the

authoritative answer, but one of the, i think, answers i did get that made 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, you know, endured by people where you had actual ceos going to jail, you know, we found that one of the key reasons that this occurred was because the regulators in the years when the, when things were good, in the year leading up to the mania and in the mania were not doing their job reining in the practices, taking names, doing investigations so that when the bubble burst, they had no information to brick cases -- to bring cases. and so, again, it's this regulatory capture not only had the initial problem of not reining, of failing to rein in, you know, 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, let's just all go quietly and forget that this ever happened. so i hear your pain, i feel your pain, you know, i think we are trying to get to the bottom of that, but it's a very complex issue. i also think it's a social question. i agree with you. >> yeah. and, actually, you know, i agree, we both agree -- i think that was actually part of what drove us to agree to write the book together -- that this is a cultural issue. the heads on spikes, you know, would serve some value, but it still doesn't address, to my mind, the more fundamental problem. and that's one that we're still leaving those people in power in charge of redefining the system going forward and forgetting the fact that, to my mind as a housing analyst, the largest

impact of 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 has historically been the single largest retirement and intergenerational wealth transfer asset as we have a senior homeless problem result, as we end up with a failure to fix the system to incent the paydown and the growth -- the paydown of debt and the growth of personal savings. and that becomes a real piece of this coming crisis because it's going to happen likely at the same time that our u.s. treasury is forced to accept austerity and cuts in the social safety net. >> yes. lab rating on something you touched on, to what do you contribute the utter passtivity of the department of justice which continues to the present

day? i ask that as a former federal prosecutor. >> i'm going to ask you. [laughter] >> i don't know. i could write an indictment just on what i read in the newspapers in 30 minutes, and convicting these people would be like shooting fish in a barrel. >> it's 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, you know, frankly, on the other side this political pressure that comes from a notion that we've, unfortunately, had to learn to live with. i don't agree that we have to, but we have had to which is, gosh, if you do anything like that, you'll risk destabilizing these very same institutions that we've spent so much effort trying to make look like they're solvent. >> this has never guided the fraud section of the department of justice in the past, and i want to know what's happened now. is the fix in? is that what you're suggesting? >> well, it's hard to draw any

other conclusion, honestly. i don't know the answer, i am not a party to these e-mails going back and forth, you know? but it's difficult to draw any other conclusion that a debacle this large creating this much pain and this trillions in losses, that it was nobody's fault. and that there wasn't a crime committed. it's very difficult to, that's -- you have to suspend your disbelief for far too long to draw that 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, these are paper cases, these are not -- you don't have a victim to point to, you know, who is dead on the ground. i mean, there are many, many excuses given. i buy none of them. i can only -- >> there's also been no real investigations. >> yeah. that's the problem, the regulatory infrastructure leading up to this had no investigation going on to really

find the culprits, and then when you did get a case such as the one against angelo mozilo brought by the sec where it appeared to have extremely damning information, e-mails in which he is privately saying that these loans are poison, toxic, these kinds of descriptions, and at the same time publicly crowing about how good his company is doing financially sound, and, you know, providing the best loan for all of their customers. >> and selling stock. >> and selling stock throughout. that seems to me to be a layup. but i am not a prosecutor, and i'm not a lawyer, so, unfortunately, i'm going to have to -- >> you could send them to the slammer for life on the basis of that. and i cannot understand why that hasn't been done. >> i want to make sure that all those who are in line will get a chance to make their point, ask their question. so we're going to end with the last woman in line.

>> no point, just a question or two. my glass-steagall question got asked, so i'm left with what do you think of dodd-frank, the response to this crisis? and any heros? >> um, dodd-frank, in my view, really missed, whiffed the big one which is too big to fail, did nothing about cutting down these institutions to a manageable size, to a size that does not imperil the taxpayer. um, that is the key failing in dodd-frank. another failing, i think, is that it has left hundreds of rules to be made by regulators, and so, therefore, providing a second, um, manipulation possibility for the industry. so they got their first chance when they were talking about the legislation, writing the legislation, they got their first chance to manipulate, now they can manipulate the regulators, two bites of the apple. >> is it any better than nothing? >> i think there are parts of it

that are fine, but i think that a 3,000-page law, okay? glass-steagall was 32 pages. 3,000 pages is, you know, it's way overdone and not, um, not effective on the crucial issue of too big to fail. >> yeah. and not to, not to take much longer on that, i think, i agree with gretchen. you know, why couldn't you have just added one paragraph that, essentially, said any institution that has to rely on extraordinary government asset purchases, debt guarantees or more than 60 days at the window will have its senior management and officers removed at the earliest convenience of the board and barred from employment as consultant or otherwise at a regulated entity for a period of five years? if you did that, these companies would either choose to shrink themselves to the point where they could manage their risk or spend money to the point where they were ameliorating those concerns, okay?

we didn't want to do that. there's a reason for that. and legislators did a great job of doing everything but legislating because they did, as gretchen said, left everything to the regulators to define. >> and you had asked about heros. we have some heros. there were some folks at the cbo, the congressional budget office. we have a wonderful vignette where they came up against fannie mae when they were in 1995 part of the congressional act of '92 which was the safety and soundness act that created a new regulator for fannie and freddie, asked for studies from treasury, gao, hud and cbo. cbo did a masterful job of analyzing how rich the subsidy was from the government that fannie mae received. um, they were visited by fannie mae executives, june o'neill who was the head of cbo at the time said she felt like they were being visited by the mafia. they were, she was pressured to try to water it down.

not to produce this report that was very explicit about how much the government guarantee was worth to the cope and how -- company and how at all costs they had to protect it. so we had cbo people who were standing up against the pressure from fannie mae. there were other people who saw what was coming, people in the, in the georgia area who were first to wave the flag and call out the rating agencies for, um, inserting themselves this a process where -- in a process where georgia had the most, toughest predatory lending law in the country, but ratings agencies walked in and said we will not rate any securities that contain georgia loans. so all of that had to be gutted because the rating agencies said they would not rate those loans. so we had people along the way who were jumping up and could dd warning, so there are some heros

in the book, i'm glad to say. >> thank you. >> you make a very strong case for the central role of housing policy and the behavior of the gses as factors in the buildup to the crisis. but i have never been able to understand how a housing policy leads private investment banks to go bankrupt. it seems to me that when bear and lehman went bankrupt, that 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. i see no obvious causal connection from the housing policies to mistakes in investment banks. i wondered what your theory of those mistakes is. >> well, certainly bear stearns was a huge player in the mortgage market, and the fact that the leverage that these firms were allowed to take on

which was something that henry paulson, um, importuned the sec to allow, it was to increase the leverage that these firms could take on their books. and that really led them down the path to perdition because only a small loss really was magnified by the leverage that 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's in trouble now because of its lending practices. >> yeah. i mean you also have to remember that the mortgage-backed security, well, the residential mortgage was the lowest risk asset from a capital perspective. okay? and that's a big piece of why the banks went head first into this, why they leveraged it, why you took mortgage-backed securities and then when you didn't have natural buyers for them, you took the tranches and

bundled them into collateralized debt obligations and then multiplied that further and further. and if you look back in the e-mail files even of the financial crisis inquiry commission, one of the things that you find is that a there were other institutions that would have gone down because they retained risk which is one of my biggest problems with dodd-frank is you've got this risk retention rule which essentially says we should have these institutions retain risk on the notion that, certainly, if they have to drink the poison, their not going to -- they're not going to feed it to others. these institutions often didn't realize what they were serving up was poison. and so what you saw was in 2007 you saw in e-mail files institutions. bear was ignoring it, merrill, 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 still, many of them had problems were quickly trying to offload what they had as

remaining risk as quickly as they could. so those instruments, the murkynd, the leverage -- murkiness, the leverage, the inability of regulators to even look into a cdo because they weren't qualified institutional buyiers with the right to are very central to the crisis. >> well, i think you've explained why there were severe temptations presented to those corporate executives. but you haven'ting plained why they yielded to those temptations. after all, they played to make money, and they lost money. >> a lot of them made a lot of money on their stocks and -- >> you made money until you didn't. >> well, that line of argument, i think, is then another kind of missing line of argument. the question is alan greenspan famously commented on this, can you trust the executives of these institutions to have the interests of the institutions as such at heart? because it would appear in these episodes that the interests of the institutions might have been

sacrificed to those of the executives. and i think, again, going back to the question of the heads on pikes, i think that that, that phenomenon also deserves a lot of attention. >> agreed. >> hi. looking forward and thinking about the next election, um, and i'm assuming the answer to the question is, no, but what do you think is the possibility of there being some kind of discussion of housing policy going forward in the next election? it would seem like the obama plan and, i guess, the eight plans that the republicans are talking about are different. ..

>> that's not housing policy question. do i have expectation that either of those discussions, the one that we are heading there which is not a housing policy discussion board real substantive discussion of thousand policies? probably not. so here right. but even in terms of what do we do with the gses, there is an understanding on both sides that we want to kick that went down the road until after the next

presidential election. >> don't forget we are also in, still in the depths of the housing crisis because foreclosures are still massive. people were under water. there's a sense that we can't deal with this right now. >> although that's an opportunity. that's not pretty to use as a catalyst or a real housing policy. and also for the solution to the ongoing crisis to define what the housing policy can transmit, or can change into, transform into. >> speaking of the ongoing crisis i wanted to ask about the programs to help borrowers who are in trouble, and my reason for this is personal knowledge and experience with two mortgages. one is the mortgage my husband and i hold on her house in washington, which is in a neighborhood where house prices have risen, we have plenty of

equity. we are clearly not the sort of people who need to be helped by the government. nonetheless, last year our loan 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 at a lower rate. it was wonderful. of the best refinance we have ever done. spank you must know people in high places. >> no, no. in we, the of the mortgage though is that of my contractor who is hispanic, lives in alexandria, is under water. has an arm which was originated by countrywide, and now it is serviced by bank of america.

they do not expect to default but he wants to refinance this second mortgage to get a fixed-rate mortgage before rates go up to they have been trying for years now to get the paperwork for the hud program through there, through bank of america. they have gotten the runaround over and over and over. and then last week somebody said, all, everything is fine. you really are going to get this. let's have you talked to mr. sanchez. mr. sanchez told and everything was going to be fun. as my contractor said, they're going to move heaven and earth. only the next day when mr. sanchez talked him into signing the documents, it turned out that mr. sanchez was, is a sleazy lawyer who was getting him into a contract to spin something like $2500 to

negotiate a mortgage, refinance they have been trying to do, with no guarantee of success. fortunately, they were savvy enough -- >> thank goodness. >> and my contractor talk to me and i'm a lawyer and i said no. but it seems to me that my feeling is that maybe freddie mac is trying to raise its features and look like it is helping lots of people who need help by putting through mortgages by refinancing mortgages like ours, and in the meantime people like my contractor who really should be helped by these programs aren't getting the help they need. >> i certainly would see that the treasury's program, the hamp program has been a disaster. from the very outset it was just badly conceived. it really was almost the worst possible combination of kind of people coming up with an idea of

how to not help people is really how it ended up working. bank of america, you know, again my e-mail was filled with stories where they list the paperwork, they don't allow the modification. there just does not seem to be a real sense either in the private sector or the public sector to make a rational, intelligent decision about who should be helped and who should not be helped. and so i just think the government has done a woeful job. and again i think as i said at the outset, main street really got it in the neck and everyone else walked away with a lot of money. >> i also felt that the experience of my contractor was a real failure of regulation because it's clear that someone at bank of america was actually in collusion with a sleazy lawyer. wage, and in stealing them on.

that seems to me to be really crazy. >> unfortnuately, again we don't have a housing policy. we don't have a holistic housing system. and not making excuses for one or the other, i don't know the basis in the background on your equity in your home. but the other side is, is freddie mac subsidizing not necessary in your case, some borrowers who will not ultimately be able to stay in the home, getting them to pay cash into a house where they haven't done the appraisal as you said, they haven't and income verification, so that his back to the other practices. there's a big difference though on top of that between the two, comparing apples and oranges. fannie and freddie our government guaranteed. they own the greater risk already, okay? bank of america, the likelihood is your contractors mortgage is not even held by bank of america. it's held by a mortgage-backed pool and those investors have to

be considered. the problem is bank of america is a servicer who also owns really the largest portfolio of second liens and home equity lines, and so there's risks to them on that, depending on what they do on the first mortgage. and so you're right that this is a problematic situation, and government isn't interested -- isn't interested in dean with it. before you can have an example of bank of america treat borrowers well, they need to be i'm conflicted in the relationship between the second thing that they hold on the balance sheet and the first liens the service for people like your contractor. >> thank you. >> thanks for writing the book. i had a couple of questions. right now it looks like fannie and freddie might be profitable, they be going into 2013, setting aside the 10% dividend that they might owe to treasury. and at that point i'm sure there

will be pressure to bring them out of conservatorship. but they have patented most of the mortgage business they hold over 40 patents and they're continuing to get patents, so they have patented, everything from the mortgage application process all the way to securitization. and they also owns a lot of technology and information on every single homeowner in the country. i'm not sure those patents should have ever been granted, but i guess i'm asking coming to you think they will ever be put in public domain along with the information, technology, and what do you think will happen? are we going back to business as usual? >> go ahead. [laughter] >> so there's this great divide right now in washington between those who are afraid that if we wait too long to address it, wait until after the next presidential election, there's going to be a push because they

are profitable just to let's put them back out there, let's bring them back into the public markets. everything is okay. we will tighten of regulation around the edge. and the new get those are saying, let's get rid of them. i actually am agnostic. there is value to the franchise's. there's great value in patent portfolios in the information that 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 that because there's value in information. or you can offer to the entire market, open it up. but the debate right now unfortunately is to a fannie and freddie as fannie and freddie or do we have the mortgage banks as the next fannie and freddie? and so i think really the question is should either of those groups is a mechanism for social policy delivery, or should they really be nothing

more than mortgage markets structure, financial market intermediaries to the mortgage finance system. the likelihood is that fannie and freddie at this point of going to come out the other side it seems. not with the same names, not with the same structure, but i think some of the franchise value will be retained. it's still unclear as to what manner. >> thank you. >> thank you very much, gretchen and josh. [applause] >> you're watching book tv on c-span2 48 hours of nonfiction authors and books every weekend. >> out next, shannen rossmiller talks about becoming a self-taught terrorist hunter and the sting operation she carried out with the fbi. this is about 20 minutes. >> good afternoon.

thank you for joining us here at the heritage foundation. as director of lecture and seminar as it's my privilege to welcome everyone to our auditorium and, of course, to welcome those who join us on a heritage.org website. we would ask everyone in as if you make a courtesy check that cell phones have been turned off as we prepare to begin. it will be appreciated. we will of course post a program within 24 hours on our website for everyone future reference. and, of course, our internet viewers are welcome at any time to send questions or comments simply addressing those e-mails to speaker@heritage.org. our guest today is prove that one person can indeed make a difference. after 9/11, as the mother of three and in rural montana who is also serving as a municipal judge, she immediately began formulating a plan to respond to this unprecedented attack on the united states. her effort succeeded him as she will admit beyond imagination.

ultimately joining forces with the fbi, she participated in sting operations and pioneered digital entrapment tactics at the forefront of today's war on terror. through her workon a new field of espionage, cyber counterintelligence, has been founded. we are pleased to welcome shannen rossmiller to the heritage foundation today. each of us owe her a special debt of gratitude for her courage. we look forward to hearing in greater detail from her on her saga as an unexpected patriot. shannen, welcome to the heritage. [applause] >> for some want to thank the heritage foundation in here today. it's quite an honor. a little intimidating some just going to try to get to this the best i can. i'm just going to make a few quick remarks about my book, about my story and we would is in question and answers. on 9/11 i didn't know much about

terrorist groups or their ideologies. i knew even less about the arab world and its cultures. the events of 9/11 deeply affected me. to my car and eventually cause me to live within myself to find the courage and determination fight terrorism on a level that hadn't been seen before. at the time i started my question fighting terrorism i have no idea i could imagine that the work and it took pioneered counterintelligence on the internet would be, not as cyber counterintelligence and come to one of the keys of fighting terrorism. through my efforts the us government would come to prosecute two of the largest cases of domestic terrorism and espionage in u.s. history since 9/11. in the case of army specialist ryan anderson he received the largest conviction today in the war on terror having been sentenced to five life sentences. in the second one was a state of pennsylvania -- michael who plotted to blow up a trans-atlantic pipeline as well as for other energy infrastructure locations here in

the united states. in what he envisioned as the 9/11 plot of energy. over the past 10 years i worked over 200 cases of the threat of terrorism against the united states and its interests abroad. with attending anniversary of the tragic events of 9/11 fast approaching it is important not forget the day that changed the country and the world for ever. and cause the course of history of mankind for ever be altered. though americans suffer immeasurable personal loss of nearly 3000 that day and thousands of our honorable soldiers have given their lives in the wars in afghanistan and iraq, and al qaeda terrorists who sought to defeat america have failed to impede america. as a proud american i believe is our strength and perseverance of this country is to grow and continue we need to identify what it means to be an american today in a post 9/11 world. what we can do collectively and individually, to pay it forward by selfless and good deeds me to our community and to our country to continue to make america the

biggest country in the world. there are stories that history of individuals who stepped up and given themselves to become pioneers for betterment of mankind. too often we believe our inabilities, shortcomings, fears and weaknesses prevent us from doing the unthinkable to affect change. however, if each and everyone of us us looks within ourselves there is something we can have to offer that can ultimately make a difference. it is my hope ensuring my personal story and experience in fighting terrorism that people will identify within themselves what it is they can offer not going to our country but to our communities to affect change. so my question that i would post each one of you is can one person make a difference against in the face of odds? the answer is yes. but the caveat, a productive again an architect at change because each and everyone of us to identify where and how we can give of ourselves to make a difference. finally, i will leave you with one final thought and that is

please ask yourself what can you do to make your community and our world a better place for mankind? [applause] >> i'll help you start off the story. >> a little nervous. >> i understand any audience and the outside that you're essentially recovering from surgery. where we at 9/11 and why would you start this? >> oh, yeah. it was asserted that on the evening of 9/11 i had fallen and i'd suffered a hairline fracture to my pelvis so that left me kind of laid up for about five weeks. i just kept, you know, it was very emotional and dramatic it and as the events continue to unfold on television, it just impacted me to the point where i wanted to try to understand these people, how they could do what they did, and then eventually i took it a step further and decided to start communicating, interacting with them. >> where did you find the network? >> you mean the first?

i was watching a news broadcast on cnn, and it talked about the website, a form where there was terrorist chatter and communicate should i wrote down the website and i went there and you get. that's where it all started. >> please don't do cnn credit. [laughter] is there any comments from the audience we were glad to have them. but it is interesting as we noted in the text in your book also i believe no and family knew you were doing this? >> they had seen me doing things and learning and reading about terrorist groups and what was going on in the war on terror, but i hadn't, i didn't make it a point to inform anybody in my family. [inaudible] >> how it happened was i received an encrypted file by open one morning early in the morning and it crashed the computer. and so my husband was trying to recover everything, a large amount of air because that

eventually had to come to explain. [laughter] that's how he came to understand what i was doing. >> any comments or questions, stories from the audience? >> judge, thanks so much. for your book and your undying loyalty to our country. i'm kelly stenson from the heritage foundation. you obviously had to mentally pass a bunch of hurdles before you give yourself the green light to do this. some are practical ones like i don't know, sir, i assume you didn't know any arabic. others were i a judge, i know there's a lot out there, the law of entrapment. can you walk us through any aspect of sort of the logistical hurdles that were there like learning arabic, the law of entrapment which is clear but

there's international implications? and then i was struck by your excellent interview yesterday on the die show where you are asked at end about personal security, whether you are ever concerned for yourself or your family. such attention any of those, it would be most grateful -- grateful. >> first of all i will address the last one first as far as the security goes, i don't talk in detail about what that is other than to say i do have it. and over the last two years, the question is asked, you know, are you ever going to feel like you cannot have to look over your shoulders and be in fear. there was a time in like 2006 in 2007 where that was really paramount, on the front burner. but with the at the isotope in everything, i do have security and that at a point where i feel safe and comfortable. as far as your other question,

when i, i did know arabic. i me when i first stumbled into the first website it was all an edit. guilty i could do is look at the pictures. and so, you know, they were disturbing, gory. but, you know, it said a lot and i want to know what the chatter was and what they were talking about sort purchase translation software. if anyone knows a thing about translation software, you don't get the context of what is being stated. i eventually wanted, because i was becoming more involved in it i wanted to see if i could learn the language. i would not say i know arabic. it's an ongoing process for me that i've been doing over the years. i'm former fluent in jihadi talk. that's what i needed, how we need to talk when i do it. and as far as the law and everything, in doing this, you know, it's not something that i think if i haven't had a background in law and know what it takes to make a case ended as a judge, knowing how to make decisions on rules of evidence

and things like that i wouldn't have had probably as good a chance at being successful. in maintaining and protecting civil rights at the same time. each one of the cases i've done that involves anyone here in the united states, entrapment is first and foremost, the one defense you have to ward off against. in each stage of the communicate should spend it do, i'm always, you know, conscious of making sure there's no entrapment. and so that's, i think that's what spent a lot of my cases to be made solid. >> high, shed. can you tell us about putting the book together? was it fun? did you enjoy it or was it painful? how long did it take, those sorts of comments. >> i wouldn't say it was fun.

it was a process that you know i kept avoiding for a couple of years and then finally with the right guidance and everything i was convinced that this would be the first time for me to be able to tell my story from my perspective. the importance of what i do and why i do it, as well as point out how it has impacted my life and change everything. the life i had on september 10, 2001 is not the life i have now. so without not only was change, there was personal sacrifices and loss. and as far as putting the book together, i wrote the book in five weeks. and it went right to publishing. but it was a very, it was an interprocess that i had to go back and relive each one of these modes that were impacting my life to the point where i wanted to explain it and have it understood what it was meaningful to me.

[inaudible] i have possible experience. i've been in this country for 26 years and i visited pakistan only twice and both times -- [inaudible] so anyway, what happened first time when i visited them i think it was 2005, and it was -- [inaudible] my question to you is this. the people at such a hatred for america and for jews, and it took me like two or three others to vent their frustration and let them know that there is something about america at the income you can talk with him for ever, and at the end they want

to learn how can they go to america and how can they make money? >> we need to get that message out there. >> they are private and how can they get american woman? [laughter] how do you come to those kind of the issues? >> i'm not your typical kind of woman or female. i've never really been interested in things that are, you know, normal, thank you. i mean going back to my younger years i have very early interest in criminal behavior and in particular serial killers. i started studying the behavior mindset and components area early on. and you know, having the opportunity to reflect back on my early years to see where my interest led me, trying to understand the whole mindset process of people, how the arab mind thinks and how it's affected by culture, you know,

and all the different things that impact that. i wanted to understand where our clashes, civilizations came together, or didn't come together. and so that whole process was something that i took on before, i mean, studying the tribal culture, the clan, all those things. and eventually through trial and air of the different identities i created and used i was able to figure out how to say things, what works, what gets them going. trial and error and figure it out. but figure that mindset has been key. to almost all of it. >> what part of its medication, how many could you follow through on, how many were not successful? it's almost as if you have a perfect batting average? >> oh, no. there were plenty of times where i create an identity and then ultimately mess up, so i discard it and another one. the whole process is it's kind of hard to explain, but trial

and error, you know, 30 out what works and what didn't was really a process that took some time. but once i got it down and i saw what was working and what i had to say to people to continue engaging individuals there, things kind of started to roll from there. but it took a while to understand the process in mindset. >> which one might have been to the scariest or the most frightening? >> usually what i would try to do is not in a situation like that because you don't want to give you enough to make them go out and act on it. what i would try to get, i would caution able to communicate only with me and i would take control of it and week out and extract what i can from them, and that process takes some time. but probably to this day i would have to say, look at persons of interest in other countries like jordan and pakistan, afghanistan and wherever, probably the most

disturbing case was the alexander? by the fact what he wanted to do, kill his fellow crew, it still bothers me to this day. it is very chilling. >> other questions from the audience? we have one back here. >> could you tell us a little bit about, did you pose as a jihadists? did you pose an american who wanted to help jihadists? and secondly i'm curious about your opinion about private citizens doing intelligence gathering. >> well, okay, first of all as far as private citizens doing counterintelligence, when i started doing this idea to try to understand. one thing led to another. but i don't think, i would not encourage our, i mean, it's too easy to think you are doing good and then you almost come you're stepping, vigilante almost to

you can impact someone's life anyway if you don't understand how the law works, how to make a case or not and how that, everything of that comes together i think it can be problematic on a lot of levels. although i'm a private citizen and i have done this, i wouldn't encourage other people to do it but at the same time i think there could be more training and more focus on analysis in the law as the whole process comes together. i think that would make for a better, more secure approach. >> maybe you can't talk about this but i'm interested in how, were you able to figure out who were behind their online identities? i assume they use some sort of techniques? >> no. >> that answers that question. >> surprisingly. no, really. you know, that's one of the things that did surprise me. you can go grab an ip address, whoever is logged in you and you