Someone is about to tap you on the shoulder.
It's someone who's already made a donation to the 2012 campaign, and who's willing to give again if you'll step up and take ownership of it, too.
They've made a promise to match your first donation to this campaign, effectively making your $5 donation a gift of $10. If you give now, you'll double your impact.
We're not just gathering donations here. We're gathering people.
We didn't get this far by doing things the usual way. Our campaign doesn't take money from Washington lobbyists or special-interest PACs.
We're doing this the right way -- with a whole lot of people like you taking the lead.
One of our earliest supporters is prepared to make a second donation in order to persuade you to make your first. It's that kind of commitment that creates a grassroots campaign capable of changing the outcome of an election -- and capable of changing the course of this country.
That's the spirit that drives us. And it starts with a tap on the shoulder.
Now all you have to do is take them up on the offer. Give it a go:
You have got to be kidding. Obama, Bush, Clinton, Bush, Reagan -- all facilitators in what is now a crumbling empire of 8 percent of USA population raking in 90 percent of wealth, power, political influence. I just talked with a realtor in Spokane, who sold me the house I have now (2006) on the market to head out of this town for the Westside. Banks are screwing home sellers and buyers -- won't loan to low or middle income families, buyers. When a house gets close to closing, the too-big-to-jail banks won't loan the money for the house's selling price?
I think I will pass on trying to buy off Obama with my $5. Politics, my friend, are as corrupt as they can ever get. My realtor has a bead on Spokane, this economy. Talk about schools, and she has soon-to-be Costa Rica bound administrators saying how the system in this town's district is corrupt. They are bailing. Teachers who can't take dumb and dumber administrators forcing bad curriculum down their throats -- they too are on the retreat.
That's a whole other column, speaking to power, challenging them daily, not letting their nonsense be the only message youth and workers hear.
The bottom line, though, is what issue should I send to the re-elect team of Obama to point out why I'd not waste a wooden nickel on his or any of his competitions' campaign? Climate change? Stopping big energy from killing economies, communities? Corporations' big sucking of our communities' hopes and dreams and ability to function with high prostitution-level inside dealing and payoffs?
Well, let's just get back to the housing crisis -- Democracy Now. Is this enough for Obama and the other politicos to understand why some of us will never support political campaigns of the big-league kind.
DEMOCRACY NOW -- www.democracynow.org
JUAN GONZALEZ: A prominent Wall Street analyst predicted this week that not a single top executive at Goldman Sachs will face criminal prosecution for the company’s role in causing the financial meltdown of 2008. The analyst, Brad Hintz, said the U.S. government still views Goldman Sachs as "too big to fail."
So far, the Securities and Exchange Commission has filed suit against only one Goldman Sachs employee: a young mid-level trader named Fabrice Tourre who was part of an effort at the bank to essentially place bets that the housing market would collapse. The prosecution of Tourre was the subject of a front-page article in the New York Times this week, written by one of our next guests, Gretchen Morgenson.
AMY GOODMAN: Gretchen Morgenson is the Pulitzer Prizer-winning business reporter at the New York Times who has written extensively on how the U.S. government has failed to prosecute any of the top figures who played a role in the economic crash. She is co-author of a new book called Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. Her co-author, Joshua Rosner, is an expert on housing finance and a partner at the independent research consultancy firm of Graham Fisher & Co.
In the book, they argue that the root of the financial crisis lies in President Clinton’s decision to heavily promote home ownership in the ’90s and the lowering of lending standards by Fannie Mae and Freddie Mac.
Gretchen Morgenson and Joshua Rosner, thanks so much for being with us.
GRETCHEN MORGENSON: Thank you.
AMY GOODMAN: Let us start with Gretchen Morgenson. Just lay out the thesis of this book.
GRETCHEN MORGENSON: Well, the thesis really is that Fannie Mae, which of course was created in 1938 to, you know, help homeowners have access to credit to borrow to get a home, really sort of expanded in a way that was designed very much to benefit the insiders at the company. Remember, this is a company that was both public and private, had a lot of government perquisites, and received those perquisites and used them to its own advantage. So, it’s a story, I think, of how sort of good and noble ideas can go awry and really a lesson in how not to allow that to happen again.
JUAN GONZALEZ: And Joshua, how exactly did Fannie Mae go from being a government-created agency to basically a private corporation backed by the government?
JOSHUA ROSNER: Yeah. So, the government, in the late 1960s, decided that they needed a competitor for Fannie Mae, so they created Freddie Mac. They ended up privatizing both of those a decade later. And in privatizing, they retained a line of credit to the Treasury, which wasn’t really large enough to matter, fundamentally, but it told the markets, it implied to the markets, along with other benefits that they had, such as not having to file financial statements with the SEC as all other companies did, that these were special companies, these were companies that retained some government support. And so, publicly, they would say, and they would put on all of their debt issuances, that these are not obligations guaranteed by the government. But privately and quietly, there would always be a "wink wink, nudge nudge" that went along with that comment, to the point where foreign central banks became more and more and more comfortable buying government-sponsored enterprise debt, Fannie and Freddie debt, as a proxy for U.S. Treasury debt, because they’d get the extra yield, and they believed that it was government-guaranteed.
JUAN GONZALEZ: Well, if there’s a—if I can say, if there’s a key villain in your story, it’s James Johnson, who was, for a long period of time, the chief executive of Fannie Mae. You quote at one point that, "Under Johnson, Fannie Mae led the way in encouraging loose lending practices among the banks whose loans the company bought. A Pied Piper of the financial sector, Johnson led both the private and public sectors down a path that led directly to the credit crisis of 2008." But now, some people, though, have questioned whether you’re not sort of echoing the criticism that’s been raised by some of the Republican Tea Partiers, Sarah Palin herself, saying Freddie and Fannie were behind the whole crisis. This whole issue of the reduction of lending standards by the government and by Fannie Mae and how that affected the crisis, could you talk about that?
GRETCHEN MORGENSON: We’re certainly not saying that Fannie and Freddie were the, you know, key movers in this. They were—Fannie was a lead mover, a prime mover, first mover. And Jim Johnson really was a person who really taught the entire financial services industry how to co-opt their regulator, how to co-opt Congress, so that they could achieve what they wanted. And in many ways, this was personal enrichment, made a lot of money, the top executives of Fannie Mae. This, you know, is not our idea of what a government-sponsored enterprise should do. But so they were a primary mover, not the only movers. We had Wall Street very involved after Fannie Mae led the way. So, it really isn’t that simple.
JOSHUA ROSNER: Including the fact that you have to remember there was a symbiotic relationship between Fannie and Freddie and the private firms. Fannie Mae’s largest customer was Countrywide. Countrywide sold more of their volume to Fannie Mae than any other lender. And that relationship is really part of the ebb and flow of the private versus the government-sponsored. So, even as early as 2001, I had written a paper called "Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt," in which I warned that we would end up where we ended up. Fannie and Freddie were really the only players. There wasn’t very much of a private market. The private market was where banks would make loans and hold them on their balance sheet. But the private-label securitization market, the mortgage-backed securities market, really was innovated after that. And so, Fannie and Freddie were part of the drivers of the creation of that private-label market and supported it, buying a lot of the private-label mortgages, mortgage-backed securities, that these other firms, Countrywide and Deutsche Bank and others, would end up issuing, Goldman Sachs.
AMY GOODMAN: One of the revelations in your book has made headlines in Massachusetts. In 1991, Fannie Mae hired Frank’s partner Herb Moses out of graduate school.
JUAN GONZALEZ: Barney Frank’s.
AMY GOODMAN: Barney Frank, congressman. Frank called up a VP at Fannie to praise Moses’ qualifications at the time. Congressman Frank was a member and later became chair of the House Financial Services Committee. Gretchen?
GRETCHEN MORGENSON: You know, we spoke with Barney about this as we were preparing the book and really wanted to ask him. You know, ’91 was a crucial moment in time, because after the S&L crisis, Congress was concerned that there would be losses at Fannie Mae and Freddie Mac that the taxpayer might have to bear, and so they were putting in place some new regulation to keep those losses from happening. And so, this was a crucial moment for the company.
And yet, Barney Frank spoke with people at Fannie Mae about hiring his partner. His partner was then hired. There was a red carpet rolled out for him by the company, because of course they were eager to provide this kind of a favor for a person who was in a position of power. We asked Frank if he felt that this conflicted him at all. He said, "Absolutely not." But if you look at the record, you see tremendous pushback from Frank in congressional hearings against the very idea of being careful about safety and soundness at Fannie Mae.
JUAN GONZALEZ: Joshua?
JOSHUA ROSNER: Yeah, no, I was just going to say, I think that that example, which has made headlines because it’s a little bit salacious, is really one example—and it’s not just Barney Frank, it’s both sides of the aisle, it’s Republicans and Dems—of the way the financial service industry really captured Congress with favors, with relationships, hiring senators’ sons to run their partnership offices.
Barney Frank—you know, there’s one that I don’t think had ever been reported at all that we include, which I think is even more sort of interesting, which is that the Fannie Mae Foundation, which provided annual awards and grants to folks who helped housing the most, awarded a charity that was founded by Barney Frank’s mother, annual awards on at least—
GRETCHEN MORGENSON: Two occasions.
JOSHUA ROSNER:—two occasions. And that type of relationship really does bind elected officials to corporate interests in a way that we feel is important to discuss, not necessarily in the public interest.
JUAN GONZALEZ: I want to get back to this issue of the lowering of lending standards, because one of the—I’d say the first half of the book is really sort of dedicated to how this process unraveled. And you say at one point that when the Boston Fed—I think it was in the '90s, early ’90s—comes up with a report showing that there had in fact been discrimination in the lending industry toward minority groups, that there was—that one of the few publications that raised issues about this report was Forbes magazine. And I think you quote some of the staff members—Peter Brimelow, who I remember in particular—challenging this whole notion that there had been racial discrimination in lending practices. Now, I happen to know a little bit about Brimelow, because later on, a few years later, he wrote a book, Alien Nation, that became widely criticized because the theory was that the United States was being brought down by massive Third World immigration. So I don't expect that Peter Brimelow would be the kind of person who would, like, stand up against racial discrimination. But the question of the impact—how central was the lowering of standards by Fannie Mae and Freddie Mac in lending standards? How much was that a part of it? And how much was actual fraud by the industry, by the brokers, by the appraisers, by the Mazilos of the world, who actually engineered fraudulent loans?
JOSHUA ROSNER: Right. So, on the most simple level, if you were to think about it today, we have about 40 percent of American homeowners have, or are close to having, negative equity. OK? If we had retained the lending standards that existed prior to 1995, where you really had to have 20 percent down payment, it would be a fraction of that that would have negative equity. We would not be sitting here having this conversation about a national housing crisis. That is a major part of this, was we went from 20 percent down, other than through explicit and direct government subsidy programs, right? The VA programs, right? Certain Ginnie programs, the farm credit programs. We went from that to Fannie and Freddie driving from a 20 percent down, down to a five percent down, down to a three percent down, to starting to play with, as early as 2001, zero percent down programs, which, by the way, if you put zero down, closing costs are about five percent, so really you’ve got negative equity day one. That is a setup for a disaster if home prices start falling. And so, if you start talking to congressmen and senators about, you know, at some point if home prices fall, the people who you loved the ribbon-cutting ceremonies that you got for putting them in homes are going to start accusing you of trapping them in homes that they couldn’t afford, becomes a reality.
JUAN GONZALEZ: But what percentage of it was new buyers, poor folks buying their first home, and what percentage was well-to-do people trying to refinance, constantly refinance, or interest-only loans—
JOSHUA ROSNER: Absolutely.
JUAN GONZALEZ:—to be able to get equity out of their house, on the theory that the house was going to continue to increase in value?
JOSHUA ROSNER: That’s a really important and great point. So, homeownership rates, which had been stagnant in the early 1990s at between—at about 63 percent, started rising to 64, 64.5 percent. Out comes this initiative to increase homeownership to record levels by the end of the decade. We get to 69.5 percent by the end of 2000. And we end up peaking in homeownership late 2003, early 2004. So that’s really—homeownership rates did peak long before the real estate market peaked. So, 2004, 2005, 2006, 2007 were a combination, as I think you’re pointing out, of refinancing activity, which was stripping equity—and it wasn’t just the well-to-do, it was anyone who had equity, was given incentives to take mortgages that allowed them to strip the equity out of their home to remodel their bathroom, to buy that other—you know, the riding lawn mower or whatever it was, and it was second home and investment property purchases on speculation.
GRETCHEN MORGENSON: Don’t forget that incomes were stagnant throughout this period. And so, for many people, it wasn’t taking equity out to go to Europe, to spend on some frivolous item. It was to maintain a lifestyle—
JOSHUA ROSNER: Absolutely.
GRETCHEN MORGENSON:—or keep, you know, their income at a level that they could actually live. So, there was a lot of equity extraction that was not based upon buying or consumerism or something that was frivolous. You know, I think that one of the most poisonous paradoxes that we found in our reporting for the book was that the very people that the government was claiming to want to help—first-time home buyers, minorities, immigrants—were the people who were hurt the most by this crisis. If you look at foreclosure rates among minorities, far higher. If you look at delinquency rates and problem mortgages and bankruptcy filings, it’s really so much worse among these very people.
AMY GOODMAN: You’ve also written extensively about how the government has failed to prosecute. We started this segment talking about a prominent Wall Street analyst predicting this week not a single top executive at Goldman Sachs will face criminal prosecution for the company’s role in the financial meltdown. Talk about that.
GRETCHEN MORGENSON: Well, of course, not being a prosecutor, it’s very difficult for me to really understand what goes through their minds when they bring cases or investigate. But I think that there is a genuine sense out there that there are two sets of rules, one for big and powerful institutions that are deemed to be too politically interconnected or powerful to fail, and the rest of us, Main Street. And I think that feeds a—that’s a very pernicious view. And unfortunately, if you don’t have investigations and if you don’t have cases being brought, that view will continue. In the S&L crisis, for example, many, many people went to jail. High-level executives went to jail. CEOs went to jail. And to have a crisis that was this much larger than that one and to have no one go to jail is very troubling to a lot of people.
JOSHUA ROSNER: And part of that really is—you know, to reiterate what Gretchen said—this view that if we really investigate, if we really find wrongdoing by senior executives at these firms who now are too big to fail, we’re going to risk destabilizing the system. That’s really the psyche.
AMY GOODMAN: And how much of it is—well, for example, President Obama will be raising—hopes to raise more than a billion dollars for the 2012 election cycle to become president again. And the people he surrounds himself by, the very people involved in 2008 in the financial meltdown.
GRETCHEN MORGENSON: Exactly. And this brings us back to the original point we were talking about, about this public-private partnership with homeownership and how Fannie Mae co-opted Congress. It’s again that story. And so, I think it’s quite disturbing to many people.
JUAN GONZALEZ: I’m curious about your sense of the role of the news media as this crisis unfolded, because it seems to me that throughout the '90s many of the newspapers—and, of course, you had the growth of business networks and cable—the business sections of the newspapers grew, but they grew basically as cheerleaders for the industry, rewriting the press releases of the analysts, not really doing independent reporting and analysis or investigations of what was going on in the business world. Now, after the whole thing collapses, now there's lots of reporters saying, “Hey, the government should have done this.” But where were those reporters when the crisis was developing?
GRETCHEN MORGENSON: Excellent, excellent point. I have, myself, taken on a lot of these individuals and institutions well before others. And believe me, it’s not easy. They are very powerful. They come at you with guns blazing. And I totally get that. That’s fine. But I think there was a sense among a lot of my colleagues in the press that—of a collegiality with people, almost that you wanted to be invited to the parties, instead of being outside with your nose pressed up against the glass, which is where I’d rather be. You wanted to be in the mix with the CEOs. There’s this sense of adulation. There’s a sense that if the CEO takes your call, that you’re, you know, sort of increasing in your own power. I think that’s a very hypnotic effect that happens in the media.
AMY GOODMAN: Let’s talk about how all of this affects average Americans. In the face of the massive budget shortfalls, calls are mounting across the country for wealthy individuals and corporations to pay a greater share of taxes. Here in New York City, hundreds rallied at City Hall yesterday demanding officials close tax loopholes and regulate financial practices, instead of targeting the public sector with layoffs and budget cuts. Protesters cut a symbolic Social Security net to represent the effects of cuts to vital services. This is a Brooklyn resident, Bobby Talbert. bq.
BOBBY TALBERT: Major corporations and the big banks are getting tremendous tax breaks. They’re getting bailed out, and they have a tremendous amount of loopholes, as far as financial is concerned. Meanwhile, services are being cut for marginalized families and even for the working class in New York City.
AMY GOODMAN: Gretchen Morgenson?
GRETCHEN MORGENSON: He’s absolutely right. And again, this is this feeling that the bailouts benefited Wall Street, they benefited corporate America, and did not benefit Main Street. I think, from the very outset of this crisis and the government’s reaction to it, we have had that feeling. And Main Street has been left out in the cold. The foreclosure programs are abysmal. The banks are not responding in a way that everyone had hoped they would. So I completely agree.
AMY GOODMAN: Lloyd Blankfein told you he felt waterboarded?
GRETCHEN MORGENSON: That was, yes, the word.
AMY GOODMAN: Explain the conversation, what was happening at the time. And then I want to ask you about Fabrice Tourre.
GRETCHEN MORGENSON: I think that what Mr. Blankfein meant was that he just felt, you know, overwhelmed by the public attention. I think that they felt at Goldman Sachs—and he had said this at one point—that they were doing the Lord’s work, or God’s work. And I’m going to take him at his word, if he really believes that. And, you know, I think that financial institutions are important. They are an intermediary. We need to have banks. I’m not saying, “Let’s get rid of them.” But I think that that tells you a little bit about his mindset. And, you know, many, many CEOs live in a bubble. They’re not used to having people speak truth to them. And so, I think that was his reaction. But I don’t know. I’m not in his brain.
AMY GOODMAN: And Tourre?
GRETCHEN MORGENSON: This is a—was a 28-year-old individual, seemed pretty junior in the organization.
AMY GOODMAN: He’s the only guy being brought up on charges. GRETCHEN MORGENSON: He’s the only—
AMY GOODMAN: We just have 30 seconds.
GRETCHEN MORGENSON: Yes, he’s the only guy being brought up on charges. And so, you just once again wonder why are there no—why aren’t more people further up the ladder being singled out or focused upon?
AMY GOODMAN: Finally, your solution, what you think needs to happen?
GRETCHEN MORGENSON: Well, I think we need to address the foreclosure problem immediately. We need to have the banks, I think, face the music about what kinds of assets they own that they are not accurately reporting on their value. And I think that we have to try to balance it out between Main Street and Wall Street. Josh?
JOSHUA ROSNER: Yeah, I also think we need to turn the society from being geared for debt to equity. So, instead of a mortgage interest deduction, which incents borrowers to become indebted, maybe we should have principal equity tax credits so that they have incentives to save.
AMY GOODMAN: On that note, I want to thank you both for being with us, Joshua Rosner and Gretchen Morgenson, authors of Reckless Endangerment.