was that the policy at fannie? >> i do not recall. >> were you required to repurchase loans once they became delinquent and record them at fair value on the balance sheet? mr. mudd, do you recall? >> to my recollection, the way that the accounting handled the purchase of a loan out of a security, that loan have to come out -- had to come out and be marked at fair value. then, should it recover, the income off of that loan would amortize back into it. >> that did not happen until 24 months after the loan became delinquent. >> mr. holsaken? >> thank you. my first question is, what was your internal risk matrix that said that you could survive? >> the models ran thousands of pads, as you can imagine. at any time, through the summer and fall of 2008, we were disclosing what our best estimation was as far as being likely losses and what they were going to be. basically, we were not able to imagine how bad reality would be. looking backwards, we were trailing what the market was actually delivering as home prices fell an

when fannie mae was one of the principal sources of capital in the mortgage market, fannie mae's influence was greater. when other sources of capital were more plentiful, as in the period prior to the crisis, fannie mae's influence was diminished. fannie mae and the other gse's were unique. we took our duties to our shareholders and our public missions very seriously. interest throughout most of my 27 years at fannie mae, the company was able to balance successfully its potentially conflicting objectives. however, this was more difficult when the markets experienced significant change and during periods of great stress in the system the growth in the last decade of the private label securities backed mortgage is one such change that had a significant impact on the mortgage markets and fannie mae. private label securities, or pls for short, are mortgage-backed securities issued by entities other than fannie mae, freddie mac and ginny mae. subprime mortgages, alt-a mortgages and jumbo loans were financed. in 2003, which was also a year of heavy refinance activity, the size of the pls market

there was pushed back by fannie and freddie.and eventually they came out with a number where hud thought it showed investment and higher goals and fannie >> and that's typically the way the negotiation happened, as i understand the process. >> because in our interviews with fanny's staff. nobody of the fannie mae folks we interviewed, recalled that they raised concerns. i guess there was an interim process but at the end of the day no one said this will compromise safety and soundness. did you comment on them? >> hudd would run the goals by fail and we would examine them and an apply whether or not they could be met. >> under your 10-year in 2005 did you voice an objection on safety and soundness ground? >> no. >> go ahead. >> but we also told the enterprises that if situations ever changed and they thought that they couldn't meet the goals without taking on excessive risk we made it clear they should not take it on. >> did they circle and say we have a problem here. >> mr. lock heart the same set of questions. >> the goals were

he was chief credit officer at fannie mae in the late 1980s. welcome to both of you. >> thank you. >> let's start with the what went wrong question. to what extent were fannie mae and freddie mac vehicles for the subprime debacle? >> they were actually not as responsible as a lot of people would think. i know that ed disagrees with me. i think that the real problem here was the creation of an unregulated mortgage market. wall street was funneling trillions of dollar -- dollars through unregulated channels into private label securities. these were largely where the subprimes were. and what ultimately happened was the gse, fannie mae and freddie mac were losing market share. they are government chartered but they were also shareholder owned and so they basically put short-term profits ahead of long-term safety and soundness responsibilities. and they basically sort of followed everybody else down the rabbit hole. >> what is your view, victim orville an here? >> my view is mohr villain. it goes back to the early 1990s. and a number of federal hous

, but one of the things that got us into this problem is not just fannie and freddie but if you look at the weight of all of our programs to stimulate housing, and it just has gone too far and friday and fannie are not going to be able to stay in their present form. they need to be -- i think the mission needs to be shrunk. the need to be restructured in very fundamental ways. but right now we need them where they are but i think how we on wind the situation is going to be important. >> we were getting grilled by the congress and they would point out how there was too much leverage in the banking system. were you ever tempted to say the institution debris and had the most leverage of all? >> i was tempted to say a lot of things, warren. [laughter] but i resisted the temptation because one of the things that i am pleased about was i was able to build enough relationships on both sides of the ogle and the congress did act before the system collapsed and if it had collapsed we would have easily had 25% unemployment in this country. it would have been a terrible situation and the crisis,

that was a little bit like what fannie and freddie were.we were racing against time to stabilize those before we knew some bad earnings were going to be coming out from the bank sector in particularly the lehman brothers losses so that was a race against time. we were fortunate that we were able to get it done without the markets becoming spooked or unstable, so that is why what i had heard in china got my full attention. >> there is a front-page story in the journal this morning about freddie and fannie, and it is very much worth reading. i believe that said there is now 111 billion that has been put in by the federal government, but it is expected that much more will so in effect, it presently looks like the federal government will lose more money and freddie and fannie vanden aig by some markets. >> when i look at these programs overall, we will get every penny we put in the banks back with a profit. and i think when you look at all of the other programs, we may be surprised at what we get back in actually even with freddie and fannie i

and fannie mae and its coert freddie mac were trapped and their private mission to make money for shareholders. as the crisis elevated they were pulled into refinancing, warehouse lending and other seemingly desperate attempts to stop the building. >> fannie and freddie were pushed to earn capital, rescue more borrowers and cut costs. i sought to balance the fine points of mission in business in so far as i could understand them with the support of regulators and policymakers. that was no longer possible by september 6, 2008, and i am sorry for that. >> now, mr. mudd was also asked about that day in september of 2008 when fannie and freddie were placed into governorship and it seemed like the letter was something out of the past noting issues that had already been addressed. he said the letter was simply to force conservatorship. >>> can fannie mae and freddie mac be fixed? joining us now is is sherry and

fannie had 30% extra capital.lowered the requirement, but the capital didn't come down because they raised more capital. >> it i remembers of real capital? >> yes. >> freddie? >> freddie's capital came down. they were still above the 20%. probably about 25%. >> okay. but was the view at that time that we think the market will stabilize or was it also the view that there was an acknowledge at some point, at some point these institutions might have sob to -- to be seized? >> we were hoping to stabilize the mortgage market. we were not assuredly that we were going to do it. but we felt the combination of bear stearns purchase by jpmorgan and this would help stabilize the market and we might be able to get through it. it didn't work, as we all know. >> all right. a couple of other quick questions about your reviews. you did mention you noticed credit risk in 2006. did you know credit -- but at the time i think you'd said there's credit risk but i think you felt responsible, is this fair interpretation about the qualit

we're talking fannie and freddie. they testified before this financial crisis committee in washington. steve moore, let me go -- you guys would both like to privatize. i want to go to a separate but related subject. we know the model for private profit and taxpayer bailouts doesn't work, but i want to get into this. how responsible for the financial meltdown was fannie and freddie, acting upon the mandates from hud, the housing department, andrew cuomo was the secretary, congress, barney frank and his ilk, essentially saying we want you to buy up these mortgages we made that were given to people that could not afford them in the first place. how culpable is fannie mae, for example, for the wholenings meltdown, steve moore? >> i think they're at the epicenter. the problem is with these institutions, you're right, that they have these kind of private profits, but they socialize the losses, but it's deeper than that, and maybe something we would agree on. you have these institutions making massive contributions to member

this time it was former fannie mae c.e.o. daniel mudd doing the crooning, as the commission turned its attention to government-backed mortgage giants fannie mae and freddie mac. >> susie: tom, american taxpayers paid dearly for their poor decisions. fannie and freddie were taken over by the government in 2008 and so far they've cost taxpayers more than $125 billion. >> tom: the companies had the twin tasks of encouraging homeownership while growing shareholder profits. stephanie dhue reports. >> reporter: former fannie mae c.e.o. daniel mudd says meeting his firms competing goals of increasing affordable housing and maximizing profits was an impossible task. >> the government-sponsored enterprises were able to balance business and mission when home prices were rising. they could perform when home prices were flat. they could survive a 30-year flood, but not 2008. >> reporter: in 2005, when the housing market was still booming, the companies were embroiled in accounting scandals and losing market share to wall street firms. in

with the onset of, i guess, the cynical view of the market the presumption that fanny -- fannie and freddie were not backed but the full faith of the united states government and that cynicism led to 20 to 40 basis points subsidy if their deventures in short-term debt which for a financial institution is huge. and so the procedure that is were involved with fannie and freddie were largely to build up the asset side of the portfolios. it didn't -- it almost didn't matter what they held. just as long as they harvested the subsidy. that creates huge profits, huge rates of return on equity, and set into place a very large component of potentially tockic assets. and the failure of fannie and freddie was a major factor in the crisis remembering it occurs prior to the lehman default. as a result is that is that the combination of the system breaking down had extraordinarily large effects which had difficult to judge because you only have a single incident. you can't say what would have happened if, but there is no doubt in my mind that if fannie and freddie had held only those mortgages in its por

why is fannie and freddie any different? you know better than this, sherry. >> it's time, it's time for change. but you know what i'm going to tell you, here's the main reason it's time for change, larry. that is, granted, we have a lot of problems now and those are incentives, but the real incentive is these models worked. they were started back after the depression to credit markets and they were and now, now we have a different environment, now we have global market credit markets moving around. we don't have barriers to, you know, the state banking barriers. >> sherry, you had politicians. you had politicians saying -- hang on, guys. >> very dependent on foreign investors. they're not coming back unless they know there is some kind of federal backstop and this is the problem we face today. we all agree the model is flawed but what do you replace it with? >> say with a straight face that these models worked. howard, you know that, they did not work. they got us into the crisis we're in. we have to leave the there, guys. >

freddie is beyond me. >> fannie and freddie's role were important in the financial crisis. they were a major reason we had a crisis. >> reporter: they're known as the government sponsored entities, federally backed institutions that bought mortgages from others injecting money in the housing market. the clinton administration gave them new mission: expand homeownership to those who had not been able to buy, making loans to people with bad credit and no money down. >> fannie and freddie started to make loans with no down payments. those loans are weak. >> get in a housing market they can't afford without any skin in the game is another big problem. >> reporter: they were also boosted by risky mortgages made by others to make it possible for the banks to offload them to fannie and freddie. >> that allowed freddie and fannie to amass the huge portfolios and mortgage-backed securities that were made up of subprime mortgages. eventually it's a house of cards and it collapsed. >> now they have to be bailed out as well, the cost of which is estimated at $400 billion. many lawmaker

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sheet, and if you recognize that fannie mae and freddie mac are not consolidated into the government's balance sheet, our situation is actually worse than the numbers we showed, because they don't consider the federal reserve and fannie mae and freddie mac. [applause] >> the last speaker described the fiscal situation as an existential threat to the country. i think all of you would probably agree with that characterization. most of your solutions have focused on medicare and medicaid spending and social security spending as to be parts of the budget that i would say our human security spending, and this is very little about spending on military security. i am curious to know from each of you, do you think the military spending should be treated differently from any other part of the budget, and if so, why? >> no, i don't. i think that in looking for solutions, all parts of the

. >> his absence -- i wanted to bring up the fannie -- your thing to resuscitate fannie and freddie. >> wait, wait, wait. >> if the mortgage securitization business is an economically viable one, why will not firms engage in that with appropriate regulations? as you mentioned, as they do as i understand in other things like credit card securitization and so forth? >> well, i think they would. what i was arguing for, michael is not the resuscitation of fannie and freddie. what i was arguing for was whatever system we come up with, give weight to the important externality -- the positive externalities that are associated with homeownership which is not part of the mortgages and securitized mortgages so that when a guy is buying a house, the value of reduced crime rates is not reflected fully in the value of the house. now, if i'm wrong, the hell with it. then we should just leave it to private markets. i would try to get the politician out of it. because the politicians have a costless incentives to make houses available. so i prefer the markets. but i would have the markets with some

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i worked to improve the relationship between fannie mae and its regulator and to return fannie mae to timely filing status with the sec. after the completion of that, one of the most complicated restatements in recent history, the company emerged to face the housing depression and the housing crisis. it did not survive. i want to be clear, i was the ceo of the company and i accept responsibility for everything that happened on my watch. over the past couple of days, i have heard mr. greenspan assigned himself a 70-30 ready and i believe the chairman gave himself a 49-31 rating. my experience was during the crisis of 2007 and 2008, it was virtually impossible to get on the positive side of that ratio because so many decisions were a choice between on savory alternatives. certainly, fannie mae endeavored to the best in class and to continuously improve business but we hired talented executives to build a world-class risk management modeling capabilities and maintain strong controls and comply with regulations. i did the best that i knew how to consider alternatives, to develop processes

we find out there is a big problem with freddie and fannie. the republicans, seeing this coming, passed a bill in the house. when you pass a bill in the house you send it to the senate. now people are much more aware today as to how things work in the senate. it's not sufficient in the senate to have a majority of votes. there are 100 senators, you'd think, well if you get 50-plus votes, you ought to be able to pass something in the senate. the senate is a weird place, that's not how it works. it takes 60 votes in the senate to bring it up for a vote. once you bring it up far vote, you can pass it with 50-plus votes. the republicans passed this bill to regulate fannie and freddie. went to the senate, it died over there with a lot of other bills the republicans in the house passed. it died because it did not have 60 votes. why did it not? the republican had 50-something senators and they needed five of six democrats to go along. none of the democrats went along with further regulation of freddie and fannie so the bill died in the senate. freddi

most interestingly, this book starts in early september when freddie mac and fannie mae were essentiallybroke. here are two institutions that guaranteed 40% or so of the residential mortgages in the united states whose debt was held all over the world and a very significant amounts including by foreign governments that would not have taken kindly to the default of freddie and fannie. you had them owning a very large portfolio of mortgages themselves, and like i say in early september debose were broke. .. .. and, which have received in this complicated hank's problem, in a very short. met before september the watchdog agency that congress had established to watch these agencies had had given them a clean bill of health, and that clean bill of health might be fun to go back and read that now. well, let's get onto hank's book when i got this book, i got it a little early and i expected to learn a lot about the financial crisis and i did, but i didn't realize that i would also learn something about how to attract women. [laughter] it is a little late i realize, but hank had a surefire, a su

>> fannie mae and freddie mac? what percentage to fannie mae and freddie mac?> i don't know. >> can you give us a ballpark? >> i would have to follow a. >> can you provide that later? i would appreciate it very much. you said in your testimony you underwrote to originate standards not citi standards and this is interesting because mr. bowen's group wrote to citi standards. why was there this different business model? why would a customer want to loans underwritten to the originator standard instead of citi standards? >> we mostly bought from large low capitalized originators, who were known in the market, and so there was an acceptance of new century's guidelines or america west guidelines or wells fargo's guidelines to so when the offering document for the prospectus we would be technically the issuer but we would describe the originators guidelines. >> you mentioned three companies that were largely sub-prime lenders. >> they were large counterparties of hours a. >> you brought from them? they were the originators but they were largely some prime, at least th

what can we take away from the hearing about the future of fannie and freddie? diana olick is in washington with that angle. die yachb an diana? >> well, it is interesting to listen to the two former executives. they talked about the push and the pull and how they were pushed by wall street, and market share as the private labels were popular on wall street, and pushed by the government to get into the all-day mortgages and the more riskier loans, but in the afternoon when you saw the former regulators coming in, they talked about the arrogance and the greed and some finger pointing going today, but the takeaway is what they were in agreement on and that is that fannie and freddie cannot stay the way they are, and they cannot be changed immediately as you heard daniel mudd say that 90% of the mortgage market, if you include fha and va, is 90% government-backed especially when the housing market is under not so sure of a footing. well, that hi are hoping for a hybrid, but they say it will take a long time before we get to a change from what freddie and fannie are

you make fannie and freddie irrelevant. you have the same rules for them as you have for banks so banks can compete on customer service with fannie and freddie. and you also mean that all of these exotic mortgages are irrelevant. if you don't have the 10 percents or maybe even higher, then you just don't have it, no matter what kind of hoops the bank tries to go through and have the brightest minds create to pretend you can't afford that house. you have very simple rules that make a lot of these innovations irrelevant if they are not truly add gs economic value. >> roger, let me ask you a question. this comes from mike pence. a lot of people have said that. peter wallace has said this. former treasury secretary john taylor said this. why not bypass all the discretionary aspects, including the $50 billion fund, which was not in the original obama package, why not go straight, roger, to bankruptcy court? i guess that's always been my first choice. let's do it the way they do it for all the other companies. wouldn't that reall

i was trying to make the point that conservatives can not content themselves with saying that fannie and freddie are evil. i am not in favor of imposing the moral standards of charlie rangel on the housing market. i always thought conservatives or for home ownership. economists or against it, because it makes the labor market less flexible. if you have a house and you are out of work, you are all lot worse off than if you are in -- if you are renting an apartment and you are out of work. this is a very complicated business. i am taking the same position that conservatives have been taken -- and been taking. >> you can come in front. >> i agreed with everything is strategically if not tactically pipit -- tactically. there is an argument to be made that things have changed a lot in the united states. you have been around ceos, senior executives for a fair number of years. >> thank you. [laughter] >> i would just like you to reflect, have you observed changes in terms of, yes, i could do this legally, but i am not going to do it for other reasons. >> that is a very good question. i have

if you like fannie and freddie you will love the bill. >> bret: they are not in the bill. >> fannie and freddie are left out of the bill. >> it treats more institutions like fannie and freddie. aig, goodman sacks. it's too big, and the federal government has the unlimited authority to go in and rescue. >> you know what is missing in the debate i think other than the republican critique of the bail-out fund, it's what they think would be better. from the left wing and the democratic party you hear a critique. you are saying if you're too big to fail, you should be too big to exist and banks should be broken up. they have a set of ways they would strengthen the bill, hire capital requirements, whatever that is. what is it exactly that republicans want to do instead of this bill? >> the republicans are for higher capital requirements. that are in the bill. they are -- they there are sensible elements to the bill but not the unlimited authority for the federal government to take over non-bank institutions. >> let me add one -- there is a huge irony pointed out by larry lindsay, the former h

>> fannie mae and freddie mac? what percentage to fannie mae and freddie mac?i don't know. >> can you give us a ballpark? >> i would have to follow a. >> can you provide that later? i would appreciate it very much. you said in your testimony you underwrote to originate standards not citi standards and this is interesting because mr. bowen's group wrote to citi standards. why was there this different business model? why would a customer want to loans underwritten to the originator standard instead of citi standards? >> we mostly bought from large low capitalized originators, who were known in the market, and so there was an acceptance of new century's guidelines or america west guidelines or wells fargo's guidelines to so when the offering document for the prospectus we would be technically the issuer but we would describe the originators guidelines. >> you mentioned three companies that were largely sub-prime lenders. >> they were large counterparties of hours a. >> you brought from them? they were the originators but they were largely some prime, at least they

i have two ideas for fannie and freddie. number one. privatize them. number two, privatize them. let's get out of the bailout nation. back in a couple minutes.

fannie and freddie. they'll fall apart. >> this is '94?warnings for years. >> i said, okay, great. that sounds like a project. what should we do to fix it? he says you can't fix it. it is so politically wired. they hire everyone's spouse. they are so politically wired you can't touch them. >> doug is right. it's a political question. a philosophical question. where do you stand? do you believe the government should be in the business of encouraging home ownership or increasing home ownership in this country? is that the government's role increasing? >> here's the problem, andy. even if you start with good intentions historically happened fha first started and you had to have really high amounts of capital to get that first loan. it spreads all of the way down. >> what happened also is when congress passed the law to allow interstate merger of banks, they had community reinvestment provisions and groups like a.c.o.r.n. said if you don't put enough money in for low income housing, we'll object to your merger. >> if you want to change policy,

that's much harder than saying freddie and fannie, what do you owe us? $40 billion is freddie and $70 billion is fannie. that's a lot of money. we did get it wrong. i just think we have to think that through. just as we have to think through lots ofth0 things that libertarians, one of whom is represented here would climb the walls about. when we socialize risk which we've done with health care cost, it doesn't make it crazy for the president to say we have a role, we the government, in reducing obesity. because the cost of obesity is now socialized. so mayor bloomberg is going to protect me from junk foods. what's the new room? no fizzy drinks to school children because they want to enjoy their pop as much if they can't have a -- enjoy their pot as much if they can't have a coca-cola with it. it adds about 10% to health care. that's $150 billion. southeasternly if taxpayers are paying it, they have some right to say wait a minute. there maybe other ways to do it if you don't believe obesity is a disease rather than a choice. i don't know how we handle t

all their mistakes on fannie mae, freddie mac, f.h.a., all thele instrumentalities that govern the united states for decades to come they didn't take any losses on those themselves. they were enriched by the taxpayers of the united states who lifted them right up, and they're not dealing with the damage across this country where foreclosures continue to go up. i wanted to make sure that i placed on the record the names of the six companies that now hold 2/3 of the wealth of this nation, and they are goldman sachs, morgan stanley, j.p. morgan chase, citigroup, bank of america, and wells fargo. they have enriched themselves handsomely. they doubled their importance since the beginning of this crisis while quashing community banks across this country, seeing forced mergers and institutions like p.n.c. bought up as local community banks that didn't do anything wrong and were not permitted to do

when fannie mae was a principal source of capital, the influence was greater. when other sources were more plentiful, as in the period prior to the crisis, our influence was diminished.

the obama-dodd-frank bill does nothing with regard to fannie and freddie. think about this number right now. you hear about the money spent over the last year or so out of taxpayer pockets, whether it goes to aut toe industry or a.i.g. or bear stearns, you name it. all those billions and billions of dollars went out the door, you know which bailout really trumps all those combined? it would be the g.s.e.'s, fannie mae and freddie mac, where i mentioned earlier this evening the number is close to $400 billion already projected to cost the taxpayer over the next 10 years. the president's plan, the dodd-frank plan, silent on trying to do anything about that. not only silent about doing anything on it, not only are they silent about doing anything about that, but silent on putting any limits to it. it's money coming out of your pocket and my pocket to bail out these institutions. remember, finally, it was largely government that got us into this situation, we find -- into this situation we find ourselves in in the first place. it was the implosion of fannie and

>> fannie mae and freddie mac? what percentage to fannie mae and freddie mac?i don't know. >> can you give us a ballpark? >> i would have to follow a. >> can you provide that later? i would appreciate it very much. you said in your testimony you underwrote to originate standards not citi standards and this is interesting because mr. bowen's group wrote to citi standards. why was there this different business model? why would a customer want to loans underwritten to the originator standard instead of citi standards? >> we mostly bought from large low capitalized originators, who were known in the market, and so there was an acceptance of new century's guidelines or america west guidelines or wells fargo's guidelines to so when the offering document for the prospectus we would be technically the issuer but we would describe the originators guidelines. >> you mentioned three companies that were largely sub-prime lenders. >> they were large counterparties of hours a. >> you brought from them? they were the originators but they were largely some prime, at least they

>> fannie mae and freddie mac? what percentage to fannie mae and freddie mac?>> can you give us a ballpark? >> i would have to follow a. >> can you provide that later? i would appreciate it very much. you said in your testimony you underwrote to originate standards not citi standards and this is interesting because mr. bowen's group wrote to citi standards. why was there this different business model? why would a customer want to loans underwritten to the originator standard instead of citi standards? >> we mostly bought from large low capitalized originators, who were known in the market, and so there was an acceptance of new century's guidelines or america west guidelines or wells fargo's guidelines to so when the offering document for the prospectus we would be technically the issuer but we would describe the originators guidelines. >> you mentioned three companies that were largely sub-prime lenders. >> they were large counterparties of hours a. >> you brought from them? they were the originators but they were largely some prime, at least they were. >> the

right now obama is doing the same to fannie mae and freddie mac. i see the loans every day that come through. the people do not qualify. the modifications are going into bankruptcy and foreclosure again. host: what do you do for a living? caller: yes, i worked in the insurance agency. i see these come through with no source of income, no qualifications. i received phone calls all the time to hurry the documents through because fannie mae wants to clear these loans. these loans are an abomination. who made good on all these bad loans? if you want to know when things began to go downhill, it was in 2006 when the democrats took over the purse strings. host: all right, marshall in arkansas. caller: yes, it is time that the gop except it -- and i think most do -- i think that mitch mcconnell has one of his welcome, frankly. i think god for senator bob corker who has stepped out and said a few things that may help get more of the gop some courage. the talking points will not get you everywhere, just to make the president fail in the upcoming elections. t

and remarkably, after fannie mae and freddie mac literally facilitated and were at the very center of the financial crisis for housing, the president made absolutely no reference to gse reform. i'm not really surprised that bank stocks rose today after the president's speech, as was reported on cnbc, because what this is to the large financial institutions on wall street is taking the bailout ideas of t.a.r.p. and making them permanent. this is a permanent wall street bailout. house republicans and the american people oppose that approach, and sadly the president embraced it today when he visited new york city. >> it's interesting, by the way, congressman -- by the way, i love talking stocks with you. not all the banks went up. a lot of these big banks went down. citigroup, jp morgan chase, and u.s. bancorp actually fell. but you're right, the u.s. bank index was up. what would it take to gain your

they heard more apologies, including from former executives of mortgage giant fannie mae. >> i want to be clear, i was the ceo of the company and i accept responsibility for everything that happened on my watch. >> brown: we continue our look at what members of congress are hearing about the new health care law. betty ann bowser follows democrat tom periello home to his virginia district. >> health care is not my fight t was about economic relief to working it in middle-class families. seniors who are struggling. if we can save them a little money, that's a really big deal for people. >> lehrer: and we get the analysis of david brooks and ruth marcus, filling in for mark shields. that's all ahead on tonight's newshour. major funding for the pbs newshour is provided by:

fannie and freddie only guaranteed the loans. it is clear from what happened wall street that these banks have a vested interest in not dotting the eyes and crossing the t's. they were pushing people in homes. i know, because i live in south florida. i do get people knocking on my door trying to get me to refinance. when i purchased my home 20 years ago the t's were crossed and the i's were dotted. the bank representatives knocking on a door begging me to either sell my house or get me to refinance. host: input from anne from florida. if you take a look at "the washington times calls " from page you will see the story -- filibuster, they call it, stahl's finance reform bill. if the camera can pan down a little bit, they focus this morning as well on the so-called bailout. they write that treasury has profited from big bank bailouts. that is the headline. to the left is a chart that the title bailout balloons and there is a lot here, but it is illustrative in the eyes of "the times." and they go on and on and on. they point out th

eastern time testimony from former fannie mae executives. and also fannie mae and freddie mac and the 12 federal home loan banks. that is all coming up tomorrow. today's live coverage resumes after this lunch break. as you heard about 12:30 p.m. eastern time. about a half-hour from the. meanwhile, conversation about the commission's investigation from today's "washington journal." >> host: on your screen is the new jobs washington correspondent who covered the economy and financial issues for the newspaper based in washington. pleased to say is making for a first visit to the "washington journal" this morning. we will focus in on the financial crisis inquiry headed by phil angelides that may yesterday. everybody has chairman greenspan, on their front pages today. what do you think about what happened yesterday? >> guest: thank you, susan. chairman greenspan offered his analysis of what got us into this big financial mess. unfortunately, the analysis is not very comforting to many people. he essentially, what happens a 100 year storm. he thin

i think the biggest chunk is from fannie and manfredi and then finally ginny. the reason i ask is obviously because i'll justly wary come from. i come from the position that fannie and freddie might have been engaged in some inappropriate activity over the last several years, but no more so for the most part than private entities. ..

said that fannie could buy subprime mortgages.e mortgages that they bought, mortgage-backed securities on the market, allowed lenders to lend, we call them ninja loans, no income, no job applications. those loans went bad almost overnight in 2005. >> diane, let me stop you there. the legislation allowed fannie and freddie to buy and permitted these kinds of loans to go forward? >> you got it. encouraged them. >> the president continues his white house main street tour this week. tomorrow he will visit an energy facility in ohio. the tour is designed to hear from the best and brightest ceos and small business owners about their ideas to grow the economy and put americans back to work. on wednesday the president makes stops in missouri and illinois. >>> a killer tornado rips through the southeast. that's just one of the places we're taking you the rest of this hour in choctaw, mississippi. people are wondering how to rebuild their lives. >> i was based here. i grew up here. i don't know if i want to live here anymore. >> dateline, p

is that simply a coincidence or what was the business advantage to moving freddie mac from fannie mae >> i don't have the personal details of the pros and cons of doing business with each of them. those contracts were negotiated actually in the home loans group and i think steve might have been involved there so i can't recall why one over the other but we always try to have them in a good competitive position. >> i would like to enter into the record the washington mutual document, fannie mae allies business relationship proposal to may of 2005. here is what your executive summary says. the key is pretty proposes provides the mythic illiquidity for option arm originations with more advantage and credit for amateurs, and preferred access to the balance sheet relative to our current agreement with any. so it was economically, it was economically driven position. >> that sounds like a better deal. and not just option arms but i think i also heard that are guaranteed fees amount explanation. >> alright. i have one final question for you mr. killinger and that was, at one time towards the

the mortgage is passed on by fannie mae and freddie mac. fannie mae and freddie mac bundled them together, bundled a bunch of mortgages together and created an investment instrument through securitization. those securities were then kind of blessed by the credit agencies. the credit agencies, the mortgage to brokers, they make their fee. the bankers make their fee. they're out of it. fannie mae and freddie get some sort of fee for securitizing the loans. they're kind of out of it. credit agencies make their fee and they're out of it. we end up with folks owning these securities, in some cases all around the world. slice and dice these securities acquired by different investors. too many of the players in this business didn't have any skin in the game. and at the end of the day, when folks started defaulting on their mortgages, not making their payments and those investments, mortgage-backed securities were out there owned by a bunch of different investors, they turned into what i call swiss cheese, and they had a lot of holes in them. holes

want to be in a position of defending andrew cuomo's heading upon hud, when he continually pressed fannie and freddie to make loans to people the that they knew could not pay. i do not want to ignore it judge pose near's very important comments about suburbanization. there is more travel, more pollution from cars. but all has to be in there, but i do not think conservatives can content themselves with simply a tax on housing subsidies. or the notable recession of the deductibility of second mortgages. we have to decide whether there are externalities', whether they are positive or negative, and what sort of subsidies are appropriate to that circumstance. that is much harder than just saying, fatty -- freddie and danny, what do you owe us -- freddie and fanny, what do you aus? it is something like $40 million. that is a lot of money, and we did get it wrong. but it is just one of the things we have to think through. when we socialize at risk, which we have done with health care of course, it does not make it crazy for the president to say we, the government, need to have a role in reducing

when i was in treasury, we had concerns about fannie and freddie. every particularly had concerns about the very large organizations operating with the implicit guarantee of the federal government. and the deputy treasury secretary at the time, larry summers, was that my successor got involved with the issue. i was not personally that is all but he was very involved in focusing on those issues are. >> what would be your idea of a loan that would enhance the ability of low and middle income people to buy homes and affordable housing loan as an and freddie were required to make it, that would be a sound loan? i mean, if you are going to require organizations as fannie and freddie were required to make certain kinds of loans, how can you then say at the same time, if we regulated these loans, they would be sound loans rather than the kind of zones that they seem to have made? well, i'm not expert on mortgage extension that i think what, this is a fight more time to think about i could give him or copperheads if response. but i think what i would do in

begin addressing fannie mae and freddie mac. again, the current dodd bill doesn't include the four words fannie mae, freddie mac. establish minimum lending standards for mortgages. we had subprimes with no underwriting standards, no lending standards. this present dodd bill does not change that. we must change that. increase competition for credit rating agencies. they were clearly part of the last crisis. and improve coordination and communication among all financial federal regulators. mr. president, these are the principles of strong regulatory reform. i hope these are the principles around which we can come together in a bipartisan way. i certainly support that effort by richard shelby and chairman dodd. i encourage that effort. but those negotiations will not be meaningful unless we demand here on the senate floor that they be meaningful and demand that a bill moving to the senate floor is true reform and a bipartisan approach. i urge that approach, mr. president. i enthusiastically support that approach. thank you, mr. pre