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tv   Susan Gates Days of Slaughter  CSPAN  November 5, 2017 8:15am-9:31am EST

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>> are right. good afternoon. thank you for coming. my name is dan simundza. on a research scientist at the global forum on urban and regional resilience. on behalf of all my colleagues at the form i'd like to welcome you to two nights special event. it's an honor for me to have the opportunity to introduce our speaker tonight, doctor susan wharton gates. dr. gates wrote that freddie mac for nearly 20 years at times help position of the edge of the copies research magazine, compiler of credit risk data for the board of directors, policy director for freddie mac's top login is some coordinator of the risk group and primary writer of ceo congressional testimony. she served as vice president of
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the public policies and of corporate strategy. our fascinating book "days of slaughter" which she will discuss shortly provides an insiders view of the implosion of the u.s. housing finances. since her time at freddie mac dr. gates has worked as an academic, a consultant and an entrepreneur. she's taught classes at virginia techs city said propublica administration of policy and that the college of business. she's found a consulting firm, wharton policy group that helps firms, nonprofits and governments manage conflicting policy claims. and if all that is not enough she's also a hokey she earned her phd from the center for public administration and policy at school of public and international affairs. so please join me in welcoming dr. susan wharton gates. [applause] >> so well, everybody. it really means a lot to be and i want to thank dan and marcia and christine and david and all the others i'm just meeting
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today who brought me down comforter set of this event, the global forum on resiliency. it's just a fascinating grouping of people and ideas focus on how do we ensure resiliency in our communities from an economic, political and social perspective? what a great topic. so suggesting your wondering, te housing crisis was not our stellar moment of resiliency for the united states government, communities, and even around the world. what can we learn about that? so my book, if you need some light reading, "days of slaughter: inside the fall of freddie mac and why it could happen again" ." i also want, i see students here. anybody is younger than me i coasted and scum sorry about that. actually i teach this a student
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and some are older than he and i love that, too. trying to be gender-neutral and age neutral. i just love the students because i have, i youngest child is a stimulus doting up the pike of the interstate at an unnamed university, and i can't imagine her getting up a lovely afternoon just sit and listen to me talk about the housing crisis because that was pretty much dinner conversation i think for her entire childhood. several years ago i was asked to speak at thomas jefferson high school for science and technology which is one of the nation's stellar, maybe some of you went there, tj is what we call in northern virginia. it was a fixed day, just a few years after the crisis and i was folding to talk about, this is ethics -- business ethics dies ghosted and we talk about the financial crisis. this was a stimulating conversation for them, what is a financial crisis. i asked them what were you doing
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in 2008? when i look at the c faces, all i saw were people trying to remember what happened in 2008 when they were nine years old? the only way they could number 2008 was remembering which, whether it was xbox or another computer system was out there and you're playing that. but 2008 for their parents was a year they were probably never ever forget. just to bring us back and we'll do the time warp and go back to that moment and a lot of research has been done since then in terms of the economic, social and other impacts of what we call the housing crisis, i was in australia a few years ago and they called it the gse, the global financial crisis. they even have an acronym for it. it wasn't just here in the united states. a 30% drop in house prices. doesn't sound like a lot. it is a massive bowling ball hitting the dominoes that
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reverberate out from main street and committees where you grew up. all the way across the world. a tiny village right on the arctic circle in norway had invested in housing bonds, was nearly wiped out when that bowling ball went crashing around the world, 30% drop. eventually led to a $9 trillion drop in home owner on equity. when people get homes, they are not just places to live. they are like piggy banks. your parents and you will hope that someday they will appreciate and that money will build up in their homes, that someday they can cash out, sell the home to someone else and maybe retire with something to live on. that equity was wiped out to the tune of $9 trillion. 20 million foreclosures. to be foreclosed on is horrible for a family.
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people hardly ever recover from that. means you have been able to pay. it stars your credit rating for at least seven years. you will have a very difficult time getting another place to live, even to rent a place. it's very damaging. and spillover effects, not just in the housing market. local governments, how are they funded? property taxes come right? when 3% of the valley film strop, guess what happens to local property taxes? they fall in the same fashion. some cities in our even went bankrupt and are still coming out of that. u.s. economic hit, almost a full year of gdp lost. many of these things have come back, many of the homeowner equity if people didn't sell during that time, that was a a paper loss and that has come back thankfully. our economy has come back to a very large extent, but -- [inaudible] the crisis the like dominoes,
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desmet investments of banks that invested in my former company, lost millions, billions of stock. they had also invested in mortgage bonds of wall street firms are comprised of subprime mortgages and windows are downgraded everyone lost as well. the deficit rose. there was fiscal stimulations. the economic recovery package pushed through by the prior president cost a lot of money. there were more expensive for people who are unemployed, people who needed social services. our government budget deficit rose. to keep mortgage rates low and from going through the roof the federal reserve started to buy up excess mortgage bonds that freddie and fannie were no longer buying just to keep mortgage rates low and keep the market working. today about 40% of our federal reserve balance sheet is now made up of those bonds. it's huge. we are now starting to figure out how to get off the drug of
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quantitative easing and begin to unload those mortgages. so gosh, it's been a really sad time, and so i saw something on twitter the other day said i'm reading this book, i hate the title, he works in real estate, i hate the title, "days of slaughter" but but i love the k so far, some hoping the next week he will still like it when using what i say by the real estate industry. but in any event, "days of slaughter" is not a bad title and lots of red on the cover which johns hopkins chose, is actually very appropriate because a lot of red ink was spilled. one of the saddest outcomes, since we're were talking about resiliency of communities i think is so sad and i will say more about this, is that just to assert the most, the weakest, families and the weakest communities, the most vulnerable communities. i mean primarily financial gullible but interim the social capital and opportunity, so much
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of what was going on when i was at freddie mac was very much a focus on gosh, getting more and more people into homes. this was seen as job one for us and very important. i live in home and everybody here, hopefully, liz and hope. it's super important. but home ownership is a challenging thing. what we want is resilient home ownership, sustainable homeownership. simply to get a home and then to lose it a few years later, that is really not resiliency and is very damaging the people and their communities and the economy. one year a copy is homeownership rate use homeownership rates sink to its lowest level since 1965. the lowest level since 1965. under presidents clinton and bush, our major focus was to expand homeownership and
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particularly minority homeownership which was lagging well below white homeownership rate. these were highly sought after goals, very noble goals, very important goals. that's the saddest thing is that the very people that those goals to help and hurt the most, and those neighborhoods have been the last to come back. so in a day of snapchat which my daughter tells me that's gone, it's disappeared forever, personal histories disappear after a day, so talk about something that's now nine years old, how that must be just ancient history, so that's what are the main reasons i wrote the book. so we wouldn't forget, we wouldn't forget. to add to the publics understanding about the causes of the crisis, there's been lots and lots of books have been written about the financial crisis, have there? that focus on different aspects. has anybody seen the big short? there's a lot of wall street in there and they it to the tedious stuff they are people singing
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and dancing. i'm not going to sing and dance but you just have to a -- you have to hang in there with me. so so important. most of the books have not focus of freddie mac and fannie mae. i'll use an acronym, try keep a minimum, gse, government-sponsored enterprise. you are probably going is a public or private? that's the issue. that was the problem. there was not a a clear definin of who or what we are. writing from the inside, that's not something you take on lightly to do. but i was the writer of freddie mac for many years. i wrote five ceos are acting ceos. i wrote the public statement to congress, had to tell our story any true sense of storytelling like how to talk about finance, homeownership, really sensitive issues around race, immigration, money, wealth, income
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inequality? what is the role of government sponsored enterprise that supporting a $5 trillion mortgage system and selling bundle of the world? how would you talk about all of that? in september 2008 when, gosh, things are really starting to implode in the housing world and everybody was freaked out when mortgage bonds are getting downgraded and so summoned loss were starting to hit, our company was, we got the pink slip from secretary paulsen who was the then secretary of the treasury, and he came to our office and said they give very much, your executives are pursuing new opportunities but we would really like you all to stay and keep buying mortgages and keep doing the best job you can to keep this housing market afloat. that was when the company went into conservatorship, which is sort of never, never land between being a fully operating firm and bankruptcy.
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it's not a a really good placeo be. and guess what. they are still there. nine years, one month out. other banks, they have time in the machine and the back back e feet but not freddie and fannie. a lot of this has to do, it's so darn complicated. how are you going to fix them? how can we solve this problem of bringing mortgage money to americans for homeownership and how do we do it safely? how do we do cheaply? how do we keep the money going? how do we manage all three of those objectives? do you remember the fable about a chris, the boy who disappoint his fathers warning. he so sure of himself. he had on these wings and he just want to keep flying farther and farther but his father said don't get too close to the sun. and don't get too low or you'll fall in the water. yet to balance it out.
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is that what he did? no. they usually up to the crisis a member i had 19 of them, to me were like a icarus moment, going up higher and higher and higher into the sky. innovative mortgage products hits the scene. we thought they defied the laws of good underwriting. it allowed millions of homeowners to stretch will be on their means to get a piece of the american dream. the icarus moment happened when huge gains in homeownership evolve, disappeared now, but we really gain in homeownership and more and more people were becoming homeowners. it finally was attainable to policymakers to help equalize this vast difference in disparity in homeownership rates that we were seeing across groups.
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it was an icarus moment when the brainiacs of structured finance convinced us that they develop the uber superduper technology that would eliminate risk. some housing economist i member would say we are done with the business cycle. i'll get to that. and finally our lucrative returns on use housing started to get noticed all around the globe. people were searching for yield, a place to put their money. u.s. housing. what are the subprime mortgages anyway? had someone call me after the crisis, subprime, , i thought there was a good long because it was under the prime rate. we need to do more on financial literacy in this country. up and up and up we went, and then we touched the sun. and i thought that would be a good place, to read from chapter one. early one monday morning in late
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august 2008 i walked into another vice president's office and shut the door. i needed to know how bad were things. he was more knowledgeable about where freddie mac stood in the capital sense, that is, whether the company was still solvent. i cleared my throat. there's a lot of talk going around, i said softly. is it true what i'm hearing? about conservatorship? he was staring at his computer, and it turned and faced me hard. we're in a shit load of trouble. he returned to his screen. my throat felt dry. oh, was all i managed to say. years of bad premonitions rose like a ghost in my head. so "days of slaughter" is a
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cautionary tale. it's the tale of how a deadly cocktail of money, power, politics, and public policy rocked global capital markets and destabilize families and communities. it's been nine years since those days of slaughter and a lot of folks are back on the feet, but many are not. so i sent a message of my book is this. homeownership is awesome. it's up there with hot dogs and apple pie and go nationals baseball, okay? but in our country the way we get homeownership is to take on massive quantities of debt, massive. and if you're going to deal with a lot of debt, like we do, then the system must air on the side of stability and safety. it's just that important.
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that may seem kind of basic but you would be surprised how quickly we forget these painful lessons. stability and resiliency, and those in the resilience form don't take this personally, but it's sort of boring, resiliency boring. go on capitol hill and talk about. get to another year, just be stable. stable and faith don't make gobs of money for people, do they? -- safe. mortgage bankers, wristed agents, at least they don't make gobs of money in the short run. safe and stable force means not everybody is going to get the house of the dreams, not now, maybe not ever. nothing wrong with ranking. it's a great option. and labor economists love ranking it as people can get up and go and take jobs elsewhere. it's great for the economy.
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safe and stable markets do not feel campaign coffers or when elections. i am running today to make sure nothing happens. but safe and stable housing market should be job one for policymakers. that plus fairness. stability and fairness. if we could achieve that, that would be good if that would be good enough. the government put out a report in 2011 that i made my students read, and one thing that i thought was her interesting in their list of summary items was, we conclude that this crisis was avoidable. it was avoidable. and then quoting shakespeare, government quoting shakespeare, the fault lies not in the stars but in us. all of us especially those of us
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who do paychecks one of these failed institutions the required billions in taxpayer funds. that would include me. so having written for freddie mac for nearly a decade, when i left the company i felt i needed to unpack, first it took a long time to sort out what just happened, how did that car wreck happen? it was my duty to put these insights and experiences with the hope it would be helpful to policymakers going forward. it's a lament, it's sad, funny in little places. organizational life is always funny here it's an apology and it's in owning up. i don't know about you but butd hear a lot of that after the crisis. by adding complexity and nuance to restore that many people think they understand how hard he said they were all wrong, or
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they were all wrong. it's way more complicated than that. there's a lot of nuance. i'd like to try to unpack that come stay with me. but i wanted to show more texture in the story. and what it was like to see it happening on the inside out. there's a current debate on the gses. it's very polarized and the longer we wait to solve this problem, the more polarized it becomes. it's just like the team that hates freddie and fannie says it was all our fault. and then there's a team that hates wall street and they say it's all their fault. so you can imagine it are congress lines up that way, how hard it's going to be to find solutions when, guess what, we all have our hands in that high. in my book yes, you will see my company made mistakes, plenty. read on. but yes, so did wall street, so did the regulators it, so did the housing industry.
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push push push more homeownership, more more more. even homeowners. cut to talk about personal responsibility these days, but chapter two is all about buying a home so you all again. you need to read that. before you sign for massive 100, 200, hundred, 300, $400,000 debt. time to end the quest for singles scapegoat and let's work together to fix this system. the importance of owning up i think is very important as well. i think that truth is important. coming into the light is really important. i think that we've gotten scared of that and so nobly apologizes. i had a new little car, a vw a number of years ago. i was in d.c., it was 2002, the car was about ten ten minutes , okay? i was driving in a very packed
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city because the cherry blossoms were out. i think i'm going about one mile an hour and suddenly somebody reader in sydney. -- rear ends meet. i look in the mirror and the person looks away. i get out of the car and walked back in the person locks their door. i knock on the window and finally looks at me and i said, you just hit me. will not own up. that's upsetting if that ever happens to you, that's upsetting. first it's that affect your car but what kind of social fabric do we have going on? to me when massive institutions and regulators and government agencies and wall street banks and massive companies like my own go was at a a car accident? i don't know, i'm not saying anything. what happens to our national fabric? that's what i'm writing to help repair that. i don't think there's been enough soul-searching or ruling
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from the crisis and that tells me that it could happen again. i was interviewing for a job a few years after the crisis with a government agency, and he wanted me to work with housing groups and i said that's a hard job. that's really hard job. and you tell me, i've been out of this for a few years, with everybody learned? what's happening? the government person was like learned? had one nonprofit come back and say we thought a lot about this and we think we pushed too hard. we learned. i think it's important to own up. how else can we heal? i believe it's important to get an inside account, not simply what happened but why internet the mistakes. i am not an official. freddie mac failed its public mission to provide stability to the u.s. housing market. this is in a chapter called acknowledging the obvious.
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i hope that's obvious. the choices that we made may have seemed right at the time, but history has proved otherwise and as a former employee, an executive, i give voice to that. before i could have myself i do want to do the big short thing and try and be funny and give you an little history about what i'm talking about, if you're going to i think i walked into the wrong lecture hall. hang on. i know this can be sleep inducing but i'm going to try to run through it. this is our history. once upon a time there's a company called fannie mae. the federal national mortgage association. it was created in the ashes of another terrible thing that happened, 1930, 1929, the great depression. what we just went through recalled the great recession. they don't want to talk about the gd, the great depression. that was a bad event, too. you might've heard of the agency fha and a couple others that all
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start with f, federal federal federal. better solution coming in to fix the private real estate market because money had just fled. fannie mae was created along with fha and a few others to restore confidence, investor confidence so that people would bring the money to the housing market and invest in houses. either through banks or buying them themselves or eventually through the bonds that those banks would issue. it was a way to bring back to life this housing market. it was also a way to provide a long-term fixed-rate mortgage. back before the depression people often a very short-term mortgages and often would layer them up and they would have balloon payments in very short order and if you couldn't paint, down the thing went. we need people to have a longtime to repay the mortgage, give stability to the system. if somebody ever asked you what you love me money for 30 years?
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dude come somebody else can do that job. that's a big task to loan money for 30 years. most people don't keep mortgages for 30 years, but there amortized over a long time so we can all afford the monthly payment. that was what the government wanted to do was to bring stability and resiliency to the housing market. that worked pretty well. there was a terrible housing crisis after world war ii and the government created the va mortgage program. i know this because a work at omb, the office of management and budget of my job was to put together the budget mark for the vehicle mortgage program which is an entire the program which gives veterans or active duty a zero down payment mortgage. at the time that was amazing. it was amazing to think you could get a mortgage backed by the government for zero money down. but it was seen as a very important public policy objective as a way of helping our veterans who had served their country in such a dramatic way.
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that was va, zero down payment program. by the time we got to the housing crisis, that's your program was everywhere. it was everywhere. but anyway, i'm skipping ahead. in the 1960s fannie mae was split into two parts. this is where it gets complicated. half of a state with the government and so it had the gee, government national mortgage corporation and you might know that as jenny may, under the cute girl name. so jenny is still there as part of had an ginnie is providing support to the fha and va mortgages. so when the lender makes you a loan, they have this piece of paper called a mortgage and you're going to pay it back a little bit at a time. how does linda get more money to make you a mortgage and you and you? they have to sell your mortgage to an entity and ginnie mae would buy the fha and va mortgage and return the bank money that they could lend epic that's how the whole system
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works. so ginnie is on budget and president johnson's and will keep ginnie on but we need to split half of the off and put fannie out in the real world and make them a public traded corporation and that they would be able now to provide that same function for mortgage bankers. didn't have deposits come in so they could really make mortgages. is anybody going to sleep yet? fannie had this job out in the private market. along came 1970 and the savings and loan companies are like hey, we like that fannie mae thing. can you make something like that for us? we have deposits coming come it would like another entity to buy our mortgages that were coming from the savings and loans entities. that's where my company started, 1970. bellbottoms, tie-dye and freddie mac. in fact, they were not called freddie mac been. we recall something that you might think you needed to say is
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entitled afterwards it was called the federal home loan mortgage corporation or -- we eventually became freddie mac. we were created for the savings and loans. we were owned by the 12th or home loan banks, very safe, resilient, boring. very boring. freddie, fannie, separate that we each brought liquidity to these sections, savings-and-loan and mortgage bankers. sleepy but the system worked. but it's a sort of small. in 1989 a year before i joined freddie mac, i was really wide-eyed, working at omb, doing good stuff, very idealistic. i came into freddie in 1990, but they you before that freddie mac paid off stuff, stockholders, federal homeland make sense if we we want to be like fannie mae. and so the government let us and
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we became a publicly traded company like fannie mae in 1989. that's when things were not so boring anymore. it was rather fun. the two markets a blurred and guess what, we became and credible competitors trying to compete with what was seen as a really good thing. because this was when copies compete come that brings out innovation, you get a better mousetrap and costs drop for the consumer. it was called a duopoly. not a monopoly, a duopoly. we begin competing head-to-head and we get a lot of amazing things. that's when we got argued names freddie and fannie to go with our new corporate mojo. fannie was older, larger, storage, historical. i didn't say hysterical. i said historical and 40 was small and newer. and so we were trying harder and we had a lot of quantitative
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people and kind of nerdy, kind of nerdy place compared to fannie mae. our slogan back and was to put people into homes they could afford and keep. resiliency defined. after a decade, now we're in the late 1990s, we got bigger and bigger and bigger and more powerful and smart investors started like pouring money into us. but they were so smart they realized these freddie and fannie people, they still have asked, federal national mortgage -- f. federal federal that her. if they too big i bet the government would come to the rescue. i can make a living more money on them investing in them than on a treasury bond by that you there just as safe. and even the companies are like no, no, no we have our own capital base, forget the government stuff, that was the perception. and in and really arcane turn
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the idea was like we were implicitly guaranteed by the government, even though every perspective on every security that was issued said no, no, no. that's not true. it really wasn't true but in 2008 it became true. because of something called too big to fail. too big, the government has no choice but to hold its nose and support those entities. i've done a radio call a couple of months ago and a woman, very upset and a convicted that? why did they put the money on main street? that is the question of you and has asked. but it's sort of like a massive redwood tree is about to fall on the grid, you save the grid, and that was the financial system. because freddie and fannie had gotten so so so big. we made so much money, i return on equity was so amazing.
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not so amazing to the federal government, former fed chairman alan greenspan just go nuts with our our always, thought we were really just skimming off profits at the government expense. government agencies like the old agency omb in cbo, the ones that have the pointy heads and the sharp pencils, they started to do all sorts of mathematics to try and figure out to the nearest billion how much we were truly costing the government in a subsidy since. wouldn't be appearing on an appropriation bill anywhere but there had to be some implicit subsidy that the government was providing by the virtuous act that f was still in our name. i was beginning to write one of the ceos around the time and it became very opportune to the outside terminology now while we were getting many critics. i remember a cartoon in the new
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yorker many years ago and it had eiji children, freddie and fannie, sitting in a sandbox throwing stint at each other. that's how the world began to see yes. our new habitats were coined to describe we were a government duopoly, a spongy conduit, a government hedge fund. banks began to complain that we were crowding out their business, housing groups argued that if we're going to make that much money we certainly should pour it back into affordable housing. and so the pressure was on to try and stay on the good side of everyone, to be good corporate citizens, not make too much money, pour it back into housing, do the right thing. it truly was kind of like a rubik's cube, a three-dimensional chess, try to keep everyone happy, including our shareholders who just were interested in growth. in my field, , public administration, a couple
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scholars started writing. cbo and omb were like i don't really like this. tom stanton who is still at hopkins, and ron mo who was with congressional research service started to write papers and they were worrying saying we were dangerous because we were neither efficient nor fowl. two. an thing we would eventually privatize the profits, true, and socialize the losses. true. and yet i might add, $187 the gses required have been more than paid back in the last nine years, way more. that's another story. but in any event they were bailed out and they did socialize the losses and take you very much for your contribution to those losses. in september 2008 as a mention our market was on financial steroids courtesy of yours truly and our news competitors, the wall street banks who have
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figured out a way to get around our normal dodgy boring underwriting, so in a huge bid for market share we had, together with a few other actors, set off convocation of normal proportion. 38 years after freddie mac was created, we are taken back into the government fold and it was costly and bloody. we were given one more name, besides frankenstein as accretion of government, bastards of housing assignment. back in 2008 presidential campaign, this crisis is happening two months before a major election, those of you playing xbox, we were the subject of all this presidential debate and the thing said about which is truly, truly hard,, especially for a writer to hear all of this. that campaign was kind of point by today's standards, i don't know.
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we did end up drawing a lot of money out of the government. and as i said the federal reserve started buying our mortgage bonds, and today we still have figured out what to do with them. still hard on the inside of the firms, i can imagine existing as, in conservatorship, the regulators playing a broader role, let's say, in managing the company can normally a company with experience if they were on their own two feet. the gses cannot amass capital. they can't lobby congress. they can't undertake new ventures. that's hard to find money to innovate, to renovate. they're just treading water until congress decides what to do. i don't know about you but if you've ever had an old car and just had a car wreck, you would like to fix it, so you fix little things but you really, what you need is a new car. that's sort of where we are.
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we are really driving an old car and we really need it. we need this system to work. how and what kind of new car, or should we just patch up the old one and put them back on the road? that's the debate in congress, as recently as last wednesday. this debate is taking place right now. the gses, can we live without them? actually not. they are more critical to u.s. housing than ever before. there is one little catch. what's interesting now that we're safe and stability, freddie mac and fannie mae made tons of money. losses are very low. but by virtue of the arrangement the government has, all the profits except a few quarters, nickels and dimes go to the government every quarter. billions flow to the u.s. treasury under counted against deficit reduction. the cinderella our is now upon us. this was unsure whoever designed
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this not surely by 2018, surely gses, we will figure this out. midnight december 31, 2017, the next morning the gses wake up and they have no capital. it's running down to zero. that means there's no cushion anymore. if any sort of blip happens in interest rates or hedging strategies or any sort of credit losses, hurricane costs americans are very expensive or freddie and fannie, they will be back to the government asking for more money. no earnings, no equity, no capital cushion. so that's why congress is getting a little nervous. that's why the regulator is saying this is not sustainable. this is scary. and that is what inspired the subtitle of my book, why it could happen again, right from the mouth of the regulator. now what is our gse conservative testifying in congress last
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week? he said once the capital cushion drops to zero either enterprise while the other two whether any loss expenses in any quarter without drawing on taxpayer support. so obviously he would be in favor of government, get back some money so these things don't need to come back. but that's tricky. congress would like to figure out a real solution. the concert is policy inertia has settled in anybody sick and tired of this topic that will just patch them up and put them back on the road without fixing them up. stay tuned, you might find some things happened just before the end of the year to make sure that we don't have a loss of investor confidence. again, not my words but the gse regulator. so there you have it. "days of slaughter", ," light reading, ugly history. what happened and why. it's a lament to our short-term
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decision-making. the well intended public policy that had unintended consequence consequences, political gains we all played, our inviting as an industry, however baser thought about their own needs, our own private interests and who was watching for the good of the whole. political cronyism, money and politics. it's there. am i telling new stories at school? really not. it's great to have the internet. most of all these documents were on congressional websites when all the investigation started going. i'm saying i been for 19 years and i remember the headlines. i read the testimony. let me string the pearls on the necklace and let's make sense of what happened. let's look back and make sense, so it's a story, it's a story.
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there's no smoking gun but there are some little remembrances for sure. a book about the past, also about the future. because our companies are just stuck in a free spin and the clock is ticking and it's time for congress to get out of its ideological straitjackets and come together and fix the problem. before i take questions, you might say so, that's interesting, history book, gory, raise alarm bells, but what other takeaways? it took nine years to bring this book to publish. that's a long time to write the book in research and try to sell a book to people don't want another financial crisis, but if writing a book is grueling torture, trying to sell it is pure hell. over the five years i tried in
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vain to find an agent, much less a publisher, i had over 60 rejections. it's really hard on your little ego, to be a thing to be rejected and to be rejected and to be rejected. ..
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to stimulate ownership, better rental situations, the focus of major institutions on not just the easy mortgages to make but tough ones, and being fair. good public policy is very important. but the other side says no, it was the wall street firms. they were unregulated , or regulated in some ways, not so regulated in others. wall street took our market by storm, they were unregulated, lenders were under regulated. we had a patchwork system of regulation, a number of our regulators weren't up to snuff and there was trading going on albeit a different kind of charter for my banking institution, i'll go to the weakest regulator? who is the weakest regulator? it will be taught on me and a lot going on.
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so if you have a weak regulatory system, then anybody can do anythingthey want and that's the problem , not anything. both of the narratives contribute to our understanding and both have a lot of truth in them. why do we have to be so standoffish about that and insist and have these blame games. we just start arguing in terms of banking, you did it, we did it, blame game. i have children, i've seen that. the more complex account of what happened, i'm trying to upend these either/or narrates. i argue it was not one thing or another but both and and as most things inlife are, one other short little excerpt . given these largely irrespective viewpoint is no wonder congressional hearings and up and shouting matches with republicans blaming democrats and democrats lame
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republicans for their role and is a national sport to blame freddie and fannie. the truth in my mind is somewhere in the middle. intervention at times, well intended and sometimes not did complicate intent and reward some of the worst behavior on the part of my company. it's equally true that as fly-by-night brokers and regulated, and the wall street firms prevented it from jumping headlong into the riskiest mortgages, my company would have been far less inclined to abandon tried-and-true, resilient standards in the name of market share, both sides of the aisle have something important to contribute on how to see our way forward. a second take away is the limit and promise of regulatory reform. if you believe the crisis with was already driven by unregulated firms, then what's your solution.
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regulate. and regulate even more. throw them in jail. just regulate them. .frank was a response that came out in 2010, did bill, anybody want to find employment after graduation, become a complaint counselor for regulatory agencies. there's so many regulations out therethat have to be read, it's hard not to read them and then to respond and write a comment. >> . >> for employment, full employment for people. as i said in the book, regulations have their place, absolutely they do. but they're not and all, on their own they are not enough. i'll provide numerous examples of how in the face of daunting regulations, that our goals in 2004, our regulatory response to congress, they were going to go from 51 percent of our business to 57.
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this is really huge, really huge and as the company responded , we're going to respond, we don't want to be seen as lighting. we don't want to be seen as not doing our mission. what's interesting is many people like to blame the housing goals but the response but the data coming differently. it really shows that what it is that supported lower and moderate income families which is the focus of the goal did perform better than many of those ones we bought that wall street had paid. >> that did not meet our goal requirements. so it's a mixed bag. you can't blame the housing goals but i argue in the book it did open the door to a different view of what our goal was and what it meant to help people become homeowners. >> this leads me to, the last thing i'll say is the more rules you have, many economists went to the
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cycling nature onwork in the business and innovation, joy work . >> regulatory have costs. many of the people who have to now back with who are laboring under don frank regulations, the small banks are going out of business. they can't hire lawyers for you smart people are going to get jobs as complaint lawyers. it's very costly to live in a serious regulatory culture that gives rise to why now there are calls with this new administration to loosen up a little bit on the regulation. the other thing that happens in regulations as we get very clever at finding loopholes . it seems to be part of human nature. there's some instances in there where freddie mac technically met the rules but we have to explain ourselves in congress because we were really too cute by half and nobody was full so that brings me to the places of ethics. the governor wrote in 2001
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reports and now republicans and democrats have torn this book apart and they disagree on many things.they don't disagree on this, that there was a systematic breakdown in accountability and ethics. no one had no. >> that's why i wrote in the first book, his policies are great, regulations are awesome but guess who has to deliver them? people. >> people. >> people really do make a difference. >> and in the book i get insight into half a dozen leaders at freddie mac and i'll leave it to you to decide if ethics matters. one reviewer found my discussion of ethics asnacve . in practical. really? that's sad. these are the leaders i read about operated under the same regulatory arrangements. what made the difference in
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how they behaved and the choices they made? ethics. >> courage. sacrificial leadership. so i believe ethics and impeccable commitment to financial reporting to truth telling is so critical to the future of our financial system. would you invest in something you thought was an ethical? it's an imperative for resilience. unlike costly regulation, ethics is free to the institution. this is costly to the individual. you can read about freddie mac's former credit officer and he said the offer had been closed. third take away. so how do we prevent another collapse? my warnings about a double debt have nothing to do with the current company. regulator, management or the board. >> i'm concern at the continuing conservatorship of both his weathering and
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weakening our public investment and we all need companies right now. >> we own them, they are public access. weakening a system that is vital to the resiliency of our communities and our economy as i mentioned earlier i'm not alone. as the regulator raised storm flags in congress . so here's where it stays over the weekend, prices are rising, markets are overheating as i heard from a number of economists and prices rise, they put pressure on affordability. if everybody's the homeowner, what are we going to do? let's relax any standards. don't worry. if we stay in the industry, the sins of the underwriters are covered up by health appreciation. you make a bad loan but it keeps rising. >> this is happening with the rise of low down payment mortgages. the other day i heard a radio ad , mortgages in a down
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payment and zero mortgage insurance and guess who was offering it? a federal credit union. >> the movie continues, for the great achievement of low mortgage default rates finally when gmc has massive losses, they're transferring them to other agencies, getting down to zero. zero losses. enough, tax will be passed and we will say the gse's are notdoing enough to help people become homeowners and not taking off enough risk, they are simply taking the low hanging fruit . a period of low default for mortgages also questioned the fees that franny and betty charged. any insurance company knows that the erosion is a very dangerous thing. who are those insurers that are using claims after irma and hardy?
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can these companies be sound enough to pay all these claims if in the good years they had not been collecting fees that would be adequate for the bad times. i remind you there's a lot of science that another hurricane is out there. >> maybe it's off the coast of africa, far far away. it will come ashore in the same way. but if you and i were meteorologists, why wouldn't we be noticing some dangerous patterns were all too familiar with . >> so i believe we should begin to move thecompany off the government life support . and minimize homeownership, expectations of the companies, there's lots of other ways to live. we should stop, we should help and move some of the subsidies of home ownership and all sorts of environmental impact fees, that's a whole other election. >> no more interest public policy. >> it will be enough for any finance system to be stable and resilient. >> how does the story end?
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six months after government takeover firms assess, we couldn't say anything else so if you are right up, not much left to do. >>. >> government took over the firm, we mastered our top executives, our acting chief financial officer and the guy at the lower levels now suddenly put up at the top and the top guy was asked to leave. it killed them. the beloved respected long-term employee, what i call old freddie and in his memory, it's i dedicated this book. and he died six months after the takeover by the government and i left within two months after that.i had had enough. >> 'sdeath captured in a way all the little deaths we were suffering and caught them up
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in a great shroud of our hearts left us that day and i wondered if the company could take much more. we called in and all employee meeting. a town hall meetings were becoming our form of group therapy and that they as we charged once again across the road, cameramen pointed tv cameras in our sound faces, i noticed one of the officials had caught up toour group , he was walking next to me and made an employee, he, the regulator, i felt of death, was the great leveler. probably the only thing that can destroy washington accused is that where you stand depends on where you sit. >> how are you doing? he asked lightly. >> not so well answered and i stared at the tips of my shoes. we are just people, all of us. in the end. >> and maybe that's what it comes down to. people. >> we, greedy, insecure,
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shortsighted but at times capable of the deep inside, hard work and great moral privilege, men and women working in layers of organizations that orbit around other boxes and other organizations and intertwining and complex system of money and power. perhaps things could have turned out differently for freddie mac if the men and women in the boxes and layers and the jacket system of washington had all played their cards differently. i guess we will never know. thank you very much. [applause] i guess we have time for questions. thank you for going through all of that.
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i think we got right here and you are next . >> is there a path to getting out of conservatorship? >> the path is up to congress right now. when the bailout agreement was set up and the sponsorship siphoned up there was no way to buy yourself out of that so even though they overpaid the amount the government loaned them, that's not the ticket salvation. it really is up to congress and beloved congress is in trouble with things like this so that's the question of the day is what is the way out. a lot of people in congress feel that you know what? let's just go on. they paid their debt to society, let's catch them up and keep the government
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explicit guarantee. everybody knows that freddie and fannie are backed by the government and let's get them back on helping families , homeowners and we're just going to reckon it as a cost of our government that we are going to do this explicitly. the other side of the pipe, they feel very differently about that and would like to completely privatize the system and say government, you are done. we are having a divorce and we will never, ever help you again. the problem is many people think the cat is out of the bag with government. you know that you will be back there so no one would believe that they were truly private so it's a difficult thing. i've written a paper with a colleague that you try and look at what might be an option and we think there's so much moral hazard in the system that comes from the fact of being too big to fail area that this, let's get
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smaller thing is rough so let's get smaller. let's spread the risk. seymour entities not just these two massively large entities. what have more players in the system and let's say that i don't believe we can get rid of the government guarantee completely but maybe we can guarantee the security and not the entities themselves so smaller entities that are on their own, but the security is that they're selling all around the world. let's have some sort of government guarantee on that. ask people are skittish now and many may not want to bring money into the housing market about some sort of government promise that will stand behind these bonds and we really freaked out the world with what we did. so that's the sort of middle-of-the-road kind of approach i think that's going to be necessary . i think it's important that people have downpayments. i think we should reinvigorate fha, the things that are on budget where we have a democratic process and an appropriation, from yours
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anyway and we decide as a nation how we want to fund homeownership. >> the things that are in the fuzzy world, i don't think are as good. we made made in that movie and 38 years, beth, and i don't want to see that again. >>. >> fha had some part in this, and fha took part in redlining? and i don't know but i'm guessing that maybe the availability of the loans was not equal to veterans of color versus, i don't know that i'm asking but because of the times. that was. >> so has that part of the inequality of federal housing been addressed? or is it lingering and putting pressure on if you're
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trying to get homeownership with more people to these sort of fly-by-night solutions? >> that is another great question do sure and that's always a great concern that there is discrimination in mortgage one day. our real estate agents showing people in theory is a keyword in this. >> the people get steered into very risky products in an effort to put them into homes. another side of housing policy that isn't as much about finance is about redlining where people end up living. fha became quite a competitor to freddie and fannie and we began to meet their business to meet our housing goals which is another perplexing moment and the fha did suffer quite a bit to their mutual unfortunate cells and they took many losses. so you're right, the redlining issue was very much 50, 60, 70.
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i know hud has worked hard to undo that and make it a broad-based market but it is a lingering concern. >> how do you think that the freddie may, why do you think that freddie mac fought all this focus abracadabra. on the part of the people who were selling these innovative products? >> as i said, when the sun is out, you really need to buy in bullets. when the sun is out, riskier products that are helping people or at least sensibly in the short run can be seen as part of our mission. >> mortgages where people don't have to put a lot of downpayments does put more people into homes and helps rising rather aggressively so what is the mission is the question? but i do think there was a financial aspect to this
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where those kind of mortgages had a higher premium on them and we were in a march for market share as i said. there were new competitors that had come in to our world, our protected world and were taking their case and eating it. so we fought back. i think that's very well documented. it's been gone through in congressional testimony. we were out there to maintain our market share and we had to buy things we did not like and the personwho said we should stop doing this no longer had a job . >> banks, allow me toconclude briefly , we will stop now but i wanted to keep the event to about an hour and we are right on schedule so we will, join us in the lobby. we have light refreshments available and doctor gates will be available if you have further questions.
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i'd also like to mention there are copies of the book for sale in the lobby as well, 20 percent off. again, thanks much. [applause] >> here's a look at upcoming book fairs and festivals happening around the country. this weekend we are to state capitals, live at the texas book festival in austin and look for us at the wisconsin book festival in madison. next week we will be at the national press club's book fair and author night in washington dc. then on november 15 it's the national book awards in new york city. later in the month, we will be live at the 34th annual miami book fair on november 18 and 19th featuring senator
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al franken, best-selling biographer walter isaacson, katie turner and many other authors. for more information about upcoming book fairs and festivals and to watch previous festival coverage, click on the book fairs tab on our website, >> atlanta started as a transportation hub for railroads and got really crowded in the middle . by the late 1880s we began to build beltline railroads to go outside of that center. and there were four different ones, so ryan brazil's idea to connect them was unusual because they never were connected, they were owned by four different railroads and there were industry build up around them. people began to live around them. and then the streetcars came in the late 1800s and there was this magnificent network of streetcars in atlanta. and in their infinite wisdom,
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one year after i was born in 1940 they destroyed all the streetcars in atlanta. why? because they were old-fashioned. why? because starting around 1915, atlanta began to switch to automobiles and trucks, the picture in the book downtown atlanta in 1914 and it had a few streetcars, it had a lot of pedestrians just walking across the street in five points of atlanta and there were some horses and buggies. >> and there were a couple of cars. and then there's a picture on the next page from 1924, 10 years later. and it was all cars. with some streetcars packed in so people began to complain that it three cars were in the way of the cars and there was traffic jams only ended up building the streets over the middle of town.
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that's a downtown, to how underground atlantic came to be. in the process of cars and trucks taking over, these beltline railroads, the industries moved further out because it wascheaper land and they could be serviced by trucks . so by the 1990s when ryan was writing this masters thesis, it was mostly a card or of, i have a picture in the book that is just covered with vines and weeds and they were homeless enhancements along it. and so ryan wrote this thing and said we should, people are beginning to come back in this town, we should turn this into this vital network, take advantage of the infrastructure that we already have and instead of trying to do, make up some brand-new thing with atlanta tends to do. >> and he saw it as something
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that could change the city. >> it was very well written and it's actually online, you can find the spaces. ryan wrote about himself: where we want to live that came out last year, it's a very good book and our books are complementary because his is kind of a big picture book about what we should do as cities . and mine is a very, you'll find nitty-gritty book and sort of down on the streets and meeting the people there and a different approach. and mine is much more about atlanta. specifically. so he wrote this brilliant thesis and put it on the shelf and he thought nothing would ever come of it. like most masters thesis. and so he went to work for an architect. and one day of two years later at lunch, he and his colleagues were just talking about what they put in their masters thesis. and he explained his and they said wow.
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that's fantastic. bring that in and let us look at it. the and they said you got to do something with it. togetherthey wrote a letter . a second every georgia politician and planner and environmental people and they all wrote back and said that a terrific idea, good luck with that. and except one person was kathy willard who is running for mayor right now along with eight other people in the city of atlanta. and the champion this idea and so did ryan and they built a grassroots organization for a few years and 2004 area mayor shirley franklin took it on and it developed into a bureaucracy which we have now. she found ray weeks was a businessman who had sort of semiretired and had enough
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money where you could donate his time which he did for four years to this project. i've gotten to know all of these people and i've interviewed like 400 people for the book in the last six years so i began to work on that in 2011. and so they tried to figure out how, and in the process ryan's original idea of running streetcars around morphed. very quickly, and his friend said why don't we put a trail that people could ride their bikes on it? why don't we have people be able to walk along? then a guy named jim langford who was at the time in charge of the trust for public land, somebody approached him and said they wanted help turning the sort of derelict land south of this big old derelict sears building off the avenue into a park. and they said you know, you
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can make this into a park and you could alleviate all the flooding by building a retention pond there. and he thought that was a great idea but the beltline was all in the news at that point you he said you know, he looked at the map, it goes right up to piedmont park. it goes through piedmont park. if we do this part down here, and over, there's this other part downhere in this neighborhood and he realized it connected a bunch of parts, why not make it a green way? why not make it a linear park , i connected park so he hired alexander was a world-famouscity planner . i also got togo through this , to come down here and to try and figure out what kind of park you could have. and atlanta isseverely under part . we have a lot of trees in the city, beautiful trees.but most of them are in people's
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backyards. most of them are not in public places. and in metro atlanta which is this huge stroke sprawling mess of 6 million people or so now, they are losing land at an alarming rate. and losing trees at an alarming rate. >> watch this and other programs >>. >> welcome to sioux falls south dakota on book tv, located along the banks of the river, the cities on the eastern part of the state who did both minnesota and iowa border. from our cable partners for the next hour and 15 minutes will be true the areas literary community beginning with author john lowery and a history of the midwest and recent to shed light over country reputation. >>. >> today we are at the center for western on the campus of august and a university. he's in sioux falls south dakota. it's an institution of higher


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