GRETCHEN MORGENSON: You know, Brian, we have to go back in time. A crisis this large doesn&rsque;t happen overnight. And if you really want to try to understand what happened to create this mortgage bubble and then the ensuing crisis, you have to go back to early 90s when Fannie Mae and Freddie Mac were under a little bit of pressure from Congress, because of the S&L crisis.

Congress was rightly concerned that maybe there were losses sitting in these mortgage finance giants that were quasi public, quasi private. They were public in that the government had started them but they had private shareholders, so they were operating for profit. Congress was concerned there might be losses like in the S&L&rsque;s in this giant companies, and wanted to make sure that they were overseen, that that they were policed, and that they were not going to require taxpayer bailouts.

And so, we go back in time to 1991 when James Johnson takes over as the head of Fannie Mae and he really takes this Congressional urge or fear and turns it on its head. Because instead of having a regulators tougher, instead of having higher capital cushions required at the companies, instead of having a Congress that was more vigilant and more watchful for a taxpayer bailout, he turned all that on its head. And what was created was a legislation, piece of legislation called the &rdque;Safety and Soundness Act&rdque; that was virtually written by James Johnson of Fannie Mae.

LAMB: OK. Who was he? Or is he? He&rsque;s still alive.

MORGENSEN: James Johnson was a democratic, political operator, had run Walter Mondale&rsque;s campaign for president, was a guy who bridged Wall Street a little bit, had worked at Lehman Brothers in a sort of Washington, perhaps, lobbying effort, but really did come out of democratic Minnesota politics. That&rsque;s where he was born. That&rsque;s where he was raised. Went to Princeton, and then came to Washington. And really understood the game; really understood the key thing he knew he had to do was to protect the government subsidy, to predict the implied government guarantee that stood behind Fannie Mae and its smaller brethren, Freddie Mac.

LAMB: You read another cut line under a picture of the Fannie Mae headquarters. You said, &rdque;Fannie Mae sumptuous and sprawling headquarters in Washington was designed to resemble the government&rsque;s palace in colonial Williamsburg.&rdque;

I guess in seeing that picture and a great description of it, I start thinking, &rdque;I don&rsque;t know. Have we ever seen inside this place?&rdque; Have you ever been in it?

MORGENSEN: I&rsque;ve never been in it. I&rsque;ve been writing about Fannie Mae as a political machine since the mid-1990s, so I&rsque;m not a friend of Fannie Mae. But I&rsque;ve never been inside. Certainly, some reporters have been inside and they were there –there was, I believe, a Washington Post reporter that, you know, during Mr. Johnson&rsque;s era was a lot of following him around and did a very in depth story on it but it&rsque;s – it&rsque;s – it&rsque;s the building itself is, I think, since telegraphs such a message of power and royalty almost and Fannie Mae really was that up until, of course, the tax payers have to bail it up in 2008.

LAMB: In the most basic of terms, what does Fannie Mae do for the generalist? How can we understand exactly what they do?

MORGENSEN: Fannie Mae is not a mortgage lender but what Fannie Mae does is it buys mortgage loans that have been created by banks, or other institutions. It sometimes holds them on its own balance sheet and reaps the income that the homeowner pays. Or in another cases, it pools packages of those loans and guarantees them and sells them to investors.

So the enterprise essentially either owns or guarantees home mortgages. And it was set up in the aftermath of the Great Depression try to keep housing finance wheels moving. So when you get into a banking crisis, as we certainly did in depression, home lending dries up. Nobody&rsque;s willing to make those kinds of loans. So, Fannie Mae was created to step in when the private markets for mortgages failed.

LAMB: One of the things in your book as you talk about money people took out of it. I guess an overall question is this is a GSE, a government service enterprise. How did a government created enterprise, have a sumptuous headquarters and allowed people to take, I think –Franklin Rains –I think he said $90 million out of it over relatively short period of time. How was that possible?

MORGENSEN: It&rsque;s possible because of the implied taxpayer guarantee. What I mean by that is that Fannie Mae, like any financial institution, borrows money from investors in the debt markets. So they&rsque;ll go out to investors and say, &rdque;We want to raise $100 million or $10 million. What do you want for income that will make you buy that security?&rdque;

If you&rsque;re Fannie Mae and you have this government-sponsored aura around you, you can borrow money at a far lower rate than other banks that don&rsque;t have the implied guarantee of the taxpayer. So that difference between what you as an enterprise pay to borrow money from the public that is very lucrative. And that it&rsque;s a subsidy. And that is where the riches came from.

LAMB: Do we know how many people work there?

MORGENSEN: How many people work there? Well, now, it&rsque;s probably much smaller, because the enterprises are shrinking. They&rsque;re a taxpayer owned. They are almost in a situation where they&rsque;re trying to reduce their balance sheet. But during the 90s when they were ballooning their balance sheets, thousands of people worked there. And not just at the sumptuous headquarters, Brian, one of the things that they were incredibly shrewd about doing and that Mr. Johnson devised were these sort of grassroots efforts, offices, partnership offices, they were called that were across the country that were designed to create photo ops for politicians when they came home to their local constituents and to sponsor, or participate in developments that look good for the constituents and that look good for the congressman. And so Fannie Mae was everywhere. It was really ingenious; just a brilliant strategic plan to really dominate the industry, to defang its regulator, to co-opt congress, and to protect that very lucrative subs subsidy that I was talking about earlier.

LAMB: Well, if you look back –I mean, for the sense this crisis in Fannie Mae, I know have tried by calling Fannie Mae and looking in the record books to find the presidential appointed board members. They – as you know, since they become a GSE, government service enterprise, they got five out of eight-teen the president could appoint. You can&rsque;t find a list.

They – Fannie Mae says, &rdque;Oh write us a letter.&rdque; And there are all kinds of excuses that are given. You go to the congressional record, you can&rsque;t find them. Who are some for the people over the years that have had presidential appointees – appointments to that board and also to the leadership?

MORGENSEN: Well, I&rsque;m thinking now. I have to rack my brains. But I remember a certain members of the board, Jamie Gorelick was on the board, or was a vice chairman. She had a very level, I think. Rahm Emanuel was…

LAMB: He was Freddie Mac.

MORGENSEN: …Freddie Mac&rsque;s board. So, you know, we&rsque;re talking about very high level of people in Washington and the, you know, elite power circles that are invited…

LAMB: A lot of them republicans and democrats.

MORGENSEN: Oh yes, both sides of the aisle. Absolutely, both sides of the aisle.

LAMB: Did they make much money as a member of the board?

MORGENSEN: Yes, they did. And the interesting thing, Brian, is that when you talk about the secrecy is fascinating because can you imagine that this government-sponsored enterprise did not have to reveal what it paid its top executives?

Now as you know, public companies do have to disclose in proxy statements that amounts that they pay their top five executives. Fannie Mae and Freddie Mac didn&rsque;t have to do that. And when members of Congress had the temerity to ask for this information, they were shut down.

LAMB: How – How? Why couldn&rsque;t them…

MORGENSEN: This was the power of these companies. They would marshal their friends on the hill and they would beat back any attempt to identify the riches that the top executives were making.

LAMB: I want to show you some video of Jim Johnson back in–let me just check it–it&rsque;s 1996. A speech that he was making a get-you reaction to this.

(BEGIN VIDEO CLIP)

JIM JOHNSON: Demographic changes like increased immigration and aging baby boomers have expanded the number of people who seek to own homes. As these forces all come together, they create tremendous momentum in the housing market. In watching the trends develop, we came to understand the urgent need for greater and more innovative financing, so that more Americans could take advantage of the opportunity.

Just 2 ½ years ago I announced Fannie Mae&rsque;s trillion dollar commitment to finance 10 million homes by the year 2000.

(END CLIP)

LAMB: What&rsque;s he saying there?

MORGENSEN: He&rsque;s saying that homeownership is a goal that we should all be pushing towards. And he was crucial to the government&rsque;s public-private partnership to push ownership. So Clinton came out of with this partners and homeownership in 1995. Fannie Mae was right there. Jim Johnson was there right there at the podium with him. It was a goal to increase the rate of homeownership in the United States of America.

And the idea was that if you could allow more people to buy a home who have been shot out of the process –immigrants, first-time homebuyers, minorities –that that would be a greater good for the nation because home ownership is good, even though there really was no proof that home ownership was a boom to everyone.

There was this aura around it; wrapping yourself in the American flag. There&rsque;s something about the homeownership that&rsque;s very noble and uplifting. But there was an awful lot of money to be made in this partnership, and you didn&rsque;t hear them talking about the money to be made in this partnership. But that was also a huge motivator.

LAMB: Some of the names, Mr. Donilon and who is now the national security council for President Obama was working there and Bob Zelnick… Get the name right?

MORGENSEN: Zoellick.

LAMB: I don&rsque;t know why I said Zelnick. … Zoellick who was with the Republican Party was also over, and Ken Duberstein, who used to be the Chief of Staff of Ronald Reagan, was a member of the board. But you see all these names. Tim Geithner is in your book, who is our – now our treasury secretary. What&rsque;s his relationship to all this?

MORGENSEN: Well, Tim Geithner was the head of the New York fed, the President of the New York fed during the years when regulations become extremely lax in this country for financial institutions. And particularly in New York, Citibank was the purview of the New York fed. And obviously, they were not paying attention because Citibank became one of the biggest nightmares of the bailout brigade.

And so Tim Geithner was really at the creation of this kind of belief that banks could set their own capital standards, that derivatives were a wonderful thing that spreads risk and that financial innovation was not to be stopped. It was all this kind of mindset that really came down from Greenspan, I think, who said, you know, really was anti-regulation, was not interested in making sure that financial products that were sold to people were not going to blow up on them five minutes later.

And so there was a tone that bankers would never do anything so silly and stupid as to take the risk that would blow themselves up. That was Greenspan notion. And he later apologized for it saying he can&rsque;t believe that he can&rsque;t believe they didn&rsque;t understand that they were taking these risks. Geithner was a big part of that mindset and a big part of that regime were bankers were really allowed to kind of set their own rules in capital standards.

LAMB: You spent a lot of time on your book talking about people. I&rsque;m going to name some of them and get you tie it all together. Sandy Wiel.

MORGENSEN: Sandy Wiel was crucial in the late 90s, crucial in getting the elimination finally of Glass-Steagall. Glass- Steagall was the depression era law that had separated investment banking from commercial, protected from rapacious bankers pretty well for 70 years. Finally, Sandy Wiel and his friend Robert Rubin at the treasury secretary drove a stake through Glass-Steagall&rsque;s heart. It was dead and gone. Sandy could amass an empire known as &rdque;Traveler&rsque;s Group&rdque;, which then merged with Citigroup. Citibank to become Citigroup. He was a beneficiary of the elimination of Glass-Steagall.

LAMB: And you say that Rob Rubin– he was treasury secretary under the current administration, went back to Citigroup after that. Did I – Did I read, you said 100 million jobs?

MORGENSEN: I think it was 115 million overtime being a sort of eminence grise at the company on the board who didn&rsque;t really have to do much but certainly made a lot of money doing it.

LAMB: But Robert Rubin is a democrat. And then you mentioned earlier Allen Grainsban, who is a republican, or something, on the other side of right of center. Is this a political matter?

MORGENSEN: This is, again, across the aisle. This is homeownership was this push that really involved both Democrats and Republicans, private sector and public sector. It was a push that really asked – asked regulators to team up with the regulated entities which was highly unusual. You know, so, it was a all-in effort to push homeownerships to what I think Clinton wanted it to be 70 percent in the year 2000. He didn&rsque;t quite get there. They got 69.7 percent, or something like that.

LAMB: Well, I remember hearing President Bush brag about the percentage up there, it was 69 percent or something like that.

MORGENSEN: Exactly. Exactly. Bush carried the…

LAMB: Isn&rsque;t this good though?

MORGENSEN: Bush carried the standard also. Isn&rsque;t it good?

LAMB: Isn&rsque;t it good that people own their own home? And isn&rsque;t it good –isn&rsque;t that a role the government should play?

MORGENSEN: This is the conversation we need to have in this country that nobody is willing to have. OK? What role should government play in housing finance?

If you want to subsidize housing in this country and we want to talk about and the populist agrees that it&rsque;s something we should subsidize, then put it on the balance sheet, and make it clear, and make it evident, and make everybody aware of how much it&rsque;s costing. But when you deliver it through these third-party enterprises, Fannie Mae and Freddie Mac –we deliver the subsidy through a public company with private shareholders and executives who can extract a lot of that subsidy for themselves. That it&rsque;s not a very good way of subsidizing homeownership. I think we&rsque;ve seen that; that end of that movie in 2008.

LAMB: How much money has the taxpayer had to pay to bail out Fannie and Freddie?

MORGENSEN: At the moment it&rsque;s $151 billion.

LAMB: Will we ever see that money – the taxpayers ever see that money again?

MORGENSEN: It&rsque;s possible that it will decline; that that loss will decline somewhat but we will never break even. We will never make money on it. It is always going to be some sort of a loss to the taxpayer.

LAMB: Who else was a loser in this process? Did Fannie and Freddie have a stock that they&rsque;ve traded?

MORGENSEN: Yes. So, shareholders who were caught at the end of the line when all the troubles were coming forward and all the losses were accumulating, the shareholders, those shareholders lost. A lot of the smaller banks who bought the debt issue and so preferred stock of Fannie and Freddie were losers because they thought that they were money good, but the debt holders came out fine because the government backstopped it. All those years that Jim Johnson and all of his colleagues said that no taxpayer dime would ever have to be extended to Fannie Mae, of course, was proven to be false in September in 2008.

LAMB: Here – heres another clip of Jim Johnson. This one is from 1998.

(BEGIN VIDEO CLIP)

JOHNSON: And that is with all of this success, it&rsque;s seems to me those who would change this system really should take onto themselves, the burden of proof that their change will improve on the successes that we&rsque;ve had. Will their system lower the cost of mortgages for average families more than this system? Will their system guarantee liquidity in the system, which of course is part of what makes this all work. Where we essentially now have a national mortgage system, where you can get the same mortgage rate in virtually any part of the country at any time. Will the new system or what changes are going to be made assure liquidity more certainly.

(END VIDEO CLIP)

LAMB: What do you think they were thinking at the time?

MORGENSEN: When he was saying that?

LAMB: Yeah. I mean, were they doing things for the betterment of the country? Or do you think that other goals?

MORGENSEN: Well, I think, that what they were doing was they had to come up with a masterful way to extract money for themselves while pretending to do something good for the country. OK? Homeownership does sound like a good thing. And if you can pass on savings to borrowers, that is a good thing. And if can allow people who are not typically home buyers to enjoy homeownership, that&rsque;s also a good thing.

But in this way, it was actually corrupt because it was a company that was designed to make profits for the shareholders and paid its executive immensely well and used a lot of that subsidy again that the taxpayers stood behind. The reason that Fannie Mae was so wealthy was because it didn&rsque;t have pay as much of borrow money; that money it used to buy members of Congress, to put out these partnership offices, to put the PR out there that Fannie Mae was a do-gooder. It helped them get the message out with advertising that actually inserted themselves in presidential elections. I mean this was all about protecting the subsidy. And so they would do whatever you had to do.

LAMB: If you&rsque;re Jim Johnson and you&rsque;re sitting at your desk at Fannie Mae out on Wisconsin Avenue here in Washington, and you&rsque;re looking at the world, what were – you mention the partnership offices, how big were those partnerships? I know you said there were 55 of them at the time you wrote the book? How big an office would that have been out in the field?

MORGENSEN: Couple of people but they would often hire family members of congressional members so you would be sure to make sure that you were helping your friends back in Washington. Another ingenious thing that he came up with was to create a foundation, or to fund that Fannie Mae foundation with Fannie Mae stock, which was at that point in time going to the moon because the company was so profitable.

Well, what he would do with the foundation money was he would pay academics to write articles that were very pro housing, pro homeowners, pro Fannie Mae and Freddie Mac. And so, he ended up co-opting almost the entire academic community, as well by paying them well to write favorable research about the benefits of home ownership and how Fannie Mae was delivering on its goals.

LAMB: You suggest in here that I think Joe Stiglitz, who is a Nobel economist, and Peter Orszag wrote.

MORGENSEN: Yes. And they did a piece together talking about, I believe, the likelihood, a very small likelihood they said of Fannie Mae ever really requiring a taxpayer bill out.

LAMB: So Jim Johnson sits at his desk. He&rsque;s got the partnership across the country. He&rsque;s got the foundation. Who ran the foundation? Anybody? Was it a political job?

MORGENSEN: He would put people on –he would put sort of local politicians as I recall were on the foundation. Then, he would put pro-housing advocates on the foundation, from across the country.

LAMB: And that money to form that foundation came out of the treasury of Fannie Mae?

MORGENSEN: It came –he put in a big chunk of stock. I forget how much, but something like $350 million, or maybe that&rsque;s wrong. But anyway, a lot of money in Fannie Mae stock.

And as it grew and became more and more profitable when they were ballooning the balance sheet in the 90s that amount grew. And so the foundation was immensely wealthy. And you could deploy that money anyway you wanted to get the word about the do-gooder good-deed-doers of Fannie Mae.

LAMB: Now I read that the foundation was folded back into Fannie Mae. Is the still active? They still giving money away?

MORGENSEN: No, no. It&rsque;s a shadow of its former self. They stopped when the tax payers took it over. They, I think, basically shuddered the foundation.

LAMB: Now, a Supreme Court justice makes a couple of hundred thousands of dollars a year. The president of United States $400,000 a year. How much does the Fannie Mae president today make? Do you know?

MORGENSEN: Well today, they don&rsque;t make as much as they did in the heyday because again the taxpayer owned. It wouldn&rsque;t look good for the CEO of these or either these enterprises to be making tens of millions of dollars as the CEO of Goldman Sachs does when the taxpayers owned them.

LAMB: But why should they make more money than the President of the United States?

MORGENSEN: Well they do and the reason that they&rsque;ll give you is that it&rsque;s a very complex company. They have to really understand the ins and outs of the business and hedging the risks of the company&rsque;s big mortgage portfolios is very complex. And they have to oversee it. That&rsque;s what their argument is.

LAMB: What happened to public service?

MORGENSEN: So I think they make probably $2 million a year, $1.5 a year.

LAMB: But, what happened to public service?

MORGENSEN: You tell me what happened to public service. I mean public service is a thing of the past and certainly was never what Jim Johnson view Fannie Mae as.

LAMB: Here is a gentleman that you write a lot about who testified on Capitol Hill and well, its former congressman Kanjorski from Pennsylvania questioning Mr. Mozilo. And I&rsque;ll ask you more about it.

(BEGIN VIDEO CLIP)

PAUL KANJORSKI: Why didn&rsque;t our Federal Reserve; why didn&rsque;t our SEC as Mr. Cummings asked the question – why didn&rsque;t our Treasury Department see the same statistics that I got on 18 percent failures of mortgages in securitized pools? Why didn&rsque;t they see this? Do you have an answer Mr. Mozilo – you ran the company with the largest number of these. Did – did you participate in putting pools together?

ANGELO MOZILO: As Mr. – yeah we did – certainly we did. As Mr. Prince pointed out, these – things happen over time, so you&rsque;re not finding out instantaneously.

KANJORSKI: No, no, this was for the year 2006.

MOZILO: Yeah, right. And we immediately – first of all, we investigated each of these loans as to what the cause of it was and it was a variety of causes. One was…

KANJORSKI: Mostly, it was that people didn&rsque;t have the income – they didn&rsque;t have the net worth and they never should have been in those loans. Isn&rsque;t that the cause?

MOZILO: That&rsque;s not generally the cause because people who were sincere about living in the house and want to preserve their house will make the payment or will contact us to see if we can help them work it out.

(END VIDEO CLIP)

LAMB: What do you think?

MORGENSEN: I think that a lot has happened since those words were uttered to make them seem very dubious.

LAMB: That was &rsque;08 when that testimony –actually March of &rsque;08.

MORGENSEN: Well, that was really before the crisis, of course, September was the depths of the crisis and then 2009 the stock market hit a new low, or hit the lows.

But I think that I think that Mr. Mozilo really was probably not as truthful as he could&rsque;ve been about the statement of his company. It turned out the SEC sued him for insider trading. And in that case, they turned up e-mails in which –or correspondents with other executives at the countrywide in which he called the loans that the company was making toxic and poison, and publicly was, of course, raving about the company&rsque;s financial position and how well it was doing. So there was a definitely an economy between the private musings of Angelo Mozilo and the public declarations that he made.

LAMB: In the book, on page 186, &rdque;But Mozilo recognize that lobbying might not be enough. And he soon begun inviting people with deep political connections to join us on his company&rsque;s board.&rdque; Then you mentioned Henry Cisneros former head of HUD and the mayor of San Antonio that Clinton appointed secretary of head from 93&rsque;-97&rsque;. Cisneros was also the board on KB Home. And I don&rsque;t know what that is but you say that Jim Johnson was on the board of KB Home. And Jim Johnson is still on the board of Goldman Sachs.

MORGENSEN: Yes, and still on the board of Target.

LAMB: And by the way, has he been –is there any evidence that he did anything illegal?

MORGENSEN: The only thing that was alluded to in his era at Fannie Mae that was questionable came out in the OFHEO report. This was the over site the regulator for Fanny and Freddie that did conducted an enormous investigation into the accounting scandal that erupted at the company in 2005. And what they found was –the investigation found that executives at Fannie Mae would do whatever they had to do; move mountains to make sure that they made the earnings number that Wall Street were looking for and that would generate their sumptuous bonuses. And that practice began, according to the OFHEO report under Jim Johnson.

LAMB: So was there a follow up on by the government to check that out and do anything in the way of investigation?

MORGENSEN: By the time that investigation came out, he was long gone.

LAMB: Is there any claw back, provisions in our government to get some of these money back? These folks who were involved in Fannie Mae, Freddie Mac, and all those GSEs have benefited from –but the taxpayer loses the whole thing.

MORGENSEN: That&rsque;s right. There are laws that regulators can use to claw back compensation. They have not been used very aggressively. The main one is the Securities and Exchange Commission under the Sarbanes-Oxley law of 2002 is allowed to claw back and incentive compensation in cases where the companies have been found or cooked their books.

Now, here was one of the biggest book cooking fests of all time, Fannie Mae, and you know they got some money back from Franklin Rains but not very much. And here is the pièce de résistance. Franklin Rains was the CEO at the time of the accounting scandal. And the pièce de résistance that the United States taxpayers continued to pay the legal bills of Franklin Raines and two of his cohorts in their defense against shareholder litigation in the accounting scandal.

LAMB: Have any of these folks that ran Fannie Mae ever come public? I don&rsque;t know that I&rsque;ve seen Jim Johnson anywhere and he&rsque;s still very much involved in businesses and all. And isn&rsque;t he a part of the Perseus Corporation that&rsque;s based here in town?

MORGENSEN: A private equity…

LAMB: Yeah.

MORGENSEN: Merchant capital…

LAMB: Has he or any of the other people and Franklin Raines on public with any of the way they feel about this?

MORGENSEN: Frank Raines, I think, has started to come out and talk about housing finance. I think he was on a on a panel a couple of months about here in Washington.

Jim Johnson, I think, is keeping it pretty low profile but as you say he&rsque;s on the boards of Goldman Sachs and Target. He is the compensation, committee chair of both Target and Goldman Sachs. But it was interesting this year a very prominent and prestigious shareholder of Goldman Sachs came out with the public letter urging investors to vote against Jim Johnson&rsque;s reelection on the board of Goldman and Target because the investor said he had been involved in quite a few questionable scandals, or had been near to –and then cited his years at Fannie Mae.

LAMB: We have another clip of the Angelo Mozilo. Before we do that, where is he today? You say he took what $400 million out of countrywide?

MORGENSEN: He – He sold stock worth about $500 million in the last few years of the company&rsque;s history before it was sold in fire sale to Bank of America. This was when the boom was ending and he was selling stocks hand over fists. So, $500 million was the amount of stock that he sold just in that period. And there were many, many years he was a founder of the company. He took a lot of money out of it, had a huge salary, et cetera. So, that&rsque;s only a portion of what he took out of the company.

LAMB: But what did he do that was wrong?

MORGENSEN: Well, the SEC contended that because he was making these private statements that were different from his public statements and that he was selling stock at the same time that that was insider-trading that he was trading on –that he had nonpublic information and that he had increased the amount of shares he was selling because he knew that the end was near.

LAMB: Has he been charged by any entity by doing anything illegal with…

MORGENSEN: No, no. And the SEC settled with him for $22.5 million.

LAMB: Here&rsque;s Mr. Mozilo again from that same hearing

(BEGIN VIDEO CLIP)

MOZILO: Generally these are speculators – didn&rsque;t work out for them; values went down, they abandoned. And other – a lot of it was fraud.

KANJORSKI: How long did it take you to come up with the understanding that it was this type of an 18 percent failure rate before you sent the word down the line – check all of these loans or future loans for these characteristics, so we don&rsque;t have this horrendous failure?

MOZILO: Yeah – Immediately – within the first – if we don&rsque;t get payment in the first month, we&rsque;re contacting the borrower – attempting to contact the borrower, and that&rsque;s part of what we do when we&rsque;re adjusting our guidelines…

WAXMAN: Sir…

KANJORSKI: I understand you do to the mortgage holder, but don&rsque;t you put all those together in statistics and say, these packages we&rsque;re selling now are failing at such a horrific rate, that they&rsque;ll never last and they&rsque;ll be a total decimation of our business and of these mortgages we&rsque;re holding.

WAXMAN: The gentlemen&rsque;s time has expired, but please answer the question.

MOZILO: As it was pointed out, these mortgages are put in very complex securities that have a lot of tranches to them, so it is very difficult to see a loan, a series of loans, are they in that particular security or another security – the only one who would know that would be the security holder.

(END VIDEO CLIP)

LAMB: The language that people &rdque;tranches&rdque;, what does that mean?

MORGENSEN: Is they sliced and diced these securities in different ways; higher level, higher quality of loans down to the you know toxic waste. It&rsque;s fascinating to watch Mr. Mozilo now with the benefit of understanding the foreclosure crisis and what has happened to so many people who were lured into these loans; losing their homes, losing their credit score. It&rsque;s really been a brutal couple of years.

And Countrywide was as you remember the largest single supplier to Fannie Mae of loans. And so Mr. Mozilo didn&rsque;t have to worry about every loan he made because an awful lot of them went to Fannie Mae. And therefore, were at the taxpayers&rsque; bottom line.

LAMB: Later on in your book, you say Johnson, meaning Jim Johnson, was an early initiate to the VIP program. Starting in 1998 and continuing through 2007, Johnson received six cut rate loans from Countrywide worth a total of more than $10 million.

And then you go on the list a bunch of others including Kent Conrad, Chris Dodd, Barbara Boxer, Donna Shalala, Richard Holbrooke. I guess he was in business with –these were all –this particularly is all Democrats. Where there are any and Republicans?

MORGENSEN: I think there were some Republicans. I think –I know that Bob Bennett –his son ran one of the partnership offices, so again there was across the aisle you know participation here.

LAMB: How good a deal was this VIP program?

MORGENSEN: You know it&rsque;s hard to know because you didn&rsque;t really understand what the rates were but you can be sure that they got special treatment as far as speeding up the process, a lower interest rate, so those kinds of things. And a lower interest rate has a real benefit overtime, of course, in a mortgage.

LAMB: You say at the beginning of your book, &rdque;Josh and I…&rdque;—first of all, who&rsque;s Josh?

MORGENSEN: Josh is my fabulous co-author, who is a genius in the analysis of financial institutions and a housing finance in particular. His name is Josh Rosner and he&rsque;s an analyst at Graham Fisher in New York.

He and I were –we had never collaborated before on a book but he had been a source of mine for many years. And he was one of the first callout the homeownership goals as potentially faulty, and first among the first who really point out that the kinds of mortgages that they were making were really going to lure people in and create problems. So he was very perspicacious and on a four front of questioning a lot of these conventional wisdom.

LAMB: &rdque;Josh and I felt compelled to write this book because we are angry that the American economy was almost wrecked by a crowd of self-interested, politically influential and arrogant people who have not been held accountable for their actions.&rdque;

But isn&rsque;t there another way looking at it, that these people just figure out how to use the system? And it&rsque;s most of the time fair and honest? And I didn&rsque;t know I&rsque;m trying to put words in your mouth. But there&rsque;s an after saying that &rdque;She&rsque;s just had a –she&rsque;s just got a grudge.&rdque;

MORGENSEN: Well, I have a grudge if it means weighing the taxpayer down with $151 billions of dollars in losses. OK? I have a problem with that. I have a problem with allowing companies to take reckless risk, pay themselves immensely as they&rsque;re doing it. And then when the bill comes, when the risk show up to be problematic and the loans that they made go bad, they don&rsque;t have to pay the freight. The taxpayer pays the freight. That I have a problem with and, I think, a lot of people in this country have a problem with that.

So I don&rsque;t have a problem if people are operating within confines of prudent business practices and if they are being paid very well, to manages risks, and they do that well, I don&rsque;t have a problem with that. I have a problem with taking reckless gambles, reaping enormous profits doing it and then walking away with your money and leaving the taxpayer holding the bag. That&rsque;s what I have a problem with.

LAMB: Well, why have they all been able to get away with this over the years and takes so much of the taxpayer money without, I mean, is it –what&rsque;s the answer?

MORGENSEN: Well, in this particular case, the answer was that they were able to wrap themselves in the American flag of homeownership. Jim Johnson was able to argue that if you touch the system, if you fiddle with the system, if you change it like he said in the clip, are you going to be able to deliver a home loan at the cheap rate that we will?

This was always the threat that was held over people who criticized the business model of Fannie Mae. It was always your anti-homeownership, your anti-the American way. And –but what he&rsque;s not saying is that of that subsidy, he&rsque;s only passing on to the borrower two-thirds of it. He&rsque;s keeping one-third of it to himself. And that is an inefficient way to subsidize housing.

LAMB: I want to show you a clip of a recent speech that you made. And I want to ask you a lot of questions about this.

(BEGIN VIDEO CLIP)

MORGENSEN: I&rsque;m a tough reporter and I like being a tough reporter, but it&rsque;s hard. You have to have a backbone; you have to have an editor who is willing to stand up against the pressures, which are immense. And you have to have a different mind-set, you don&rsque;t want to be a part of the party. You don&rsque;t want to be invited to the peoples&rsque; house who you cover. You don&rsque;t want to be feeling like you are part of that scene.

And there are a lot of journalists who unfortunately get sucked into the idea that they can be friends with the people that they are covering. I don&rsque;t do that kind of journalism, but I think that it&rsque;s unfortunate that there are quite a few who do.

(END VIDEO CLIP)

LAMB: Explain more what it&rsque;s like to be a tough reporter?

MORGENSEN: Well, for me, it&rsque;s fun. It allows me to get to the truth, which is really what I&rsque;m after.

LAMB: How you do it?

MORGENSEN: Business reporting is a lot cleaner and a lot easier than political reporting. I&rsque;ll tell you about it. There&rsque;s a lot of public information. There&rsque;s a lot of government documents that companies have to file that really can reveal immense amounts of information.

I get people calling me over the transom who are whistleblowers, who are upset about what they see happening in an organization, or in some practice, or whatever. I have people that I have known forever on Wall Street. I was a broker myself on Wall Street long ago.

So, I have a lot of contacts from my years on the Street. And believe it or not, there are a lot of people who really want –they know Wall Street can be honest. And it is an honest place for many people. And they don&rsque;t want the bad apples anymore than I do, or you do. And so they will call me and tell me about practices that they find disturbing.

LAMB: How do you avoid being friends with the people that the cover? And why did you say so many journalists are friends with them?

MORGENSEN: Well, I think, look at it this way. I call it access journalistic. You know in many types of reporting, you&rsque;re relying on people to deliver you something that you can&rsque;t get any other way, particularly in political reporting, Washington reporting.

You&rsque;re relying on someone dropping a classified document in your lap. And then you have to –you&rsque;re thrilled to have it but then your trick is to explain to the reader how got it. And knowing that whoever dropped it in your lap had an axe to grind with dropping it in your lap.

Business reporting, you don&rsque;t need to do that. You can do your work. There&rsque;s so much more information available. You can do what we call &rdque;write arounds&rdque;, where you write around the person. They don&rsque;t have to participate. It&rsque;s much harder, I think, in political reporting.

And so what we do and what I do in business reporting is –I mean, I don&rsque;t get invited to dinner at these people&rsque;s homes. I am the skunk at the garden party and I like it that way. But I stay to myself, I go home every night to my husband and my son. And that&rsque;s the way I like it. I don&rsque;t believe in socializing with the people that I&rsque;m covering. It&rsque;s just that simple.

LAMB: What&rsque;s the downside for you – for that? What do you miss?

MORGENSEN: You know the downside is that I will not get the piece of information that someone wants me to have that makes them look good.

LAMB: And why do you want to do this? What&rsque;s –interesting thing is you went to school in Minnesota St. Olaf and Jim Johnson is from Minnesota. Do you know him?

MORGENSEN: No, he would not talk to me.

LAMB: How long would you ask him?

MORGENSEN: I got the silent treatment. I asked him perpetually over that time that we were writing the book and I never received even the courtesy of it, &rdque;I&rsque;m not going to return your call.&rdque;

LAMB: What about Mr. Mozilo, would he talk to?

MORGENSEN: No, he&rsque;s never spoken to me either.

LAMB: What about Barney Frank?

MORGENSEN: Yes, Barney Frank spoke with me. Some people you know –I like to sort of separate. There are two kinds of people in this story, Brian, one are the housing zealots; the people who really believe that homeownership is worthy and a worthy goal and we should push for it no matter what. I would put Barney in that category; wasn&rsque;t that he really personally benefited.

And then there were the people who want the personal enrichment from the public-private partnership; people like Jim Johnson and Franklin Raines. So, there&rsque;s two kinds of people, I think, in this story; zealots and personal enrichment schemes.

LAMB: But you do say under the cut line or in the cut line on the Barney Frank picture that Congressman from Massachusetts, staunch protector of Fannie Mae almost to the end. Frank requested that Fannie hire his partner in 1991 when Congress was devising regulations for the company.

MORGENSEN: Yes.

LAMB: Did they hire him?

MORGENSEN: They did.

LAMB: What&rsque;s his name?

MORGENSEN: I forget his name. I&rsque;m sorry.

LAMB: I can look here, I think, it&rsque;s Herb Moses.

MORGENSEN: Yes, Herb Moses. Herb Moses.

LAMB: So they hire him?

MORGENSEN: They did hire.

LAMB: How often was that done, not for Barney Frank but for anybody that you mentioned Senator Bob Bennett?

MORGENSEN: It was done like that constantly. Can you imagine saying no to such a thing? I mean if you&rsque;re Fannie Mae, you want as many chits out to people as you possibly can you have. And if it means hiring someone, and particularly in this case, I think Mr. Moses was an able candidate for the job but I was told by people who were there at the time that was that interviewed extensively throughout the company that were looking for just the right spot for him. Will you have to be insane not to give Barney Frank do him a favor because he is on the financial services committee, which, of course, is the entity that oversees your regulator, and that calls you to testify. So I think that was pretty common practice.

LAMB: Where did you grow up?

MORGENSEN: Where did I grow up? I was born in Pennsylvania in State College. Spent some time in a small town outside of Toronto. My father was a academic, who kept getting additional degrees, spent a year in London when he got his PhD. And then went to Southwestern Ohio for high school, and college in Minnesota, came back to New York immediately. And I&rsque;ve been there ever since.

So most of it Midwestern. I have a lot of Minnesota genes. My father was born there. My sister was born there. My mother&rsque;s father was born there. So a lot of DNA from Minnesota.

LAMB: Is Morgenson your maiden name or your married name?

MORGENSEN: Yes.

LAMB: You say Jim Johnson was Norwegian by ancestry. What&rsque;s yours?

MORGENSEN: Yes, I am Norwegian and Danish; half English, one-quarter Norwegian, and one-quarter Danish.

LAMB: So what&rsque;s your sense of why you think so much differently come some of the similar background and that Jim Johnson you worked for Vice President Mondale, he&rsque;s – you know, he was there…

MORGENSEN: I wish I could tell you. I really wanted to have an interview with him because I really want reflect his point of view and Josh and I were eager to hear him out on this. But I just can&rsque;t tell you because I never even got a chance.

LAMB: One of the things in your book, you keep making all these connection in this town. And in this case, these folks were making millions and millions of dollars. Why didn&rsque;t anybody stop it?

MORGENSEN: People did try to stop it.

LAMB: Who?

MORGENSEN: There&rsque;s a wonderful anecdote, wonderful episode in the book where the CBO, the Congressional Budget Office, in the mid-90s decides to do the unthinkable; decides to try to calculate the amount of subsidy to calculate what Fannie Mae and Freddie Mac got in terms of a government subsidy that&rsque;s lower cost of capital, lower cause of debt that they had, had never been done. The company did not want it to be done because they didn&rsque;t want anybody having inkling of the billions of dollars of this subsidy every year that they were reaping.

They also always told you that they passed along every nickel of it to the borrower, which CBO also wanted to test. So Marvin Phaup, who was a research analyst at CBO, took this on as a study, came up with the figure eight can kind of calculation of how much the subsidy was. It was, I think, $6 billion, or something, in one year Fannie and Freddie. This was in the 90s when that was real money. And so he is going to deliver this wealth through June O&rsque;Neill, who&rsque;s the head of the CBO at that time, is going to deliver this research to Congress.

And there&rsque;s a wonderful moment, where after they&rsque;ve done all the work and all the analyses, Fannie Mae ask for a meeting with June O&rsque;Neill. And so she invites them in…

LAMB: Head of the Congressional Budget Office.

MORGENSEN: Head of the Congressional Budget Office. The researchers are at a meeting with three, I believe, henchmen from Fannie Mae and they try to pursued June O&rsque;Neill not to publish this research. And it was a big threat to them because nobody knew than $6 billion was a size of the subsidy and Mr. Phaup had also determined that two-thirds was all they passed along borrowers, that they kept a third of that to themselves every year. That&rsque;s a lot of money.

And so this was a threat to them. And they wanted to make sure it wasn&rsque;t public. And so, they pushed any they pushed. And June O&rsque;Neill told me she felt that she&rsque;s been visited by the mafia. But she stood up and said, &rdque;I&rsque;m sorry, gentlemen.&rdque; They couldn&rsque;t poke any holes in the arithmetic. It was all again these bromides about homeownership. You&rsque;re going to make it harder for people to own a home if you print this research. This is their typical default decision.

And so, she&rsque;s got up and said, &rdque;Gentlemen, I&rsque;m sorry we&rsque;re going to publish this research. We&rsque;re proud of it. We know we did a good job. &rdque; And so they did. And she went to deliver to Congress and was savage by all of the Fannie Mae and Freddie Mac protectors who were members of Congress at that time.

LAMB: By the way, do you happen to know whether or not the board members of appointed by the president had to be approved by the Senate?

MORGENSEN: I don&rsque;t know the answer to that.

LAMB: We should still try to find this list of people.

MORGENSEN: I&rsque;ll do it. You&rsque;ve peaked my curiosity. I now had to go back and do it.

LAMB: Well, it&rsque;s one of the things about this town is trying to get the information. And that&rsque;s what I want to ask you next is how hard was it for you to get to this information? And how long did it take you to do this?

MORGENSEN: Well, Josh had a lot of the information in his notebook because he had been following the company for years and years. I had some in my notebook because I had been following the company and writing about it since 1995 or 1996 when I was at Forbes and then later at the paper.

So it wasn&rsque;t starting from scratch. We both had a lot of experience with the area with then the crisis occurred; we lived through that. So we really it – I think it took nine months to write it.

LAMB: Is there information that you&rsque;d like to have? I mean, that&rsque;s obviously, there&rsque;s all kinds of information but is the information that you can&rsque;t get to in Washington D.C. that they –or any in the government because there&rsque;s an excuse for holding it up. I mean you mentioned something in here about HUD was able to hold up information on mortgages. But on the day-to-day basis, how much information is being repelled from the public?

MORGENSEN: Right now, it&rsque;s hard to say. I mean, I think, early on there was quite a bit control of the information. Interestingly, covering the financial crises from Wall Street was easier than when it moved to Washington. Washington became a much more confined, closed shop, and harder-to-get information.

I remember just an example when treasury started one of their programs for loan modifications, we were trying over and over to get information on how many borrowers had been able to be helped by this program. And it was like pulling teeth. You might as well have been asking for the formula for Coca-Cola. Nothing. They would not tell us. They would not tell us. And it was ultimately because the program wasn&rsque;t doing very well.

So yes, there&rsque;s a lot about certainly what I would love to know are whose meeting with whom? Whose lobbyists are meeting with high level, you know, regulators with members of Congress? That interaction, I think, would be fascinating to know and it&rsque;s just very, very difficult to come by.

LAMB: How much money can Fannie Mae now use to lobby?

MORGENSEN: They&rsque;re not allowed to lobby any more.

LAMB: How much money can Fannie Mae use to contribute to political campaigns?

MORGENSEN: I don&rsque;t think they&rsque;re allowed to do that anymore. I mean a lot changed when the taxpayers took them over. They had to give up the foundation. They gave up the partnership offices. I know they gave up the lobbying. They&rsque;re not supposed to lobby. So it was a changed world after Labor Day 2008.

LAMB: What&rsque;s the chances that the American people will be able to see inside sumptuous headquarters of Fannie Mae? Or for that matter, Freddie Mac, which we haven&rsque;t talked at all about?

MORGENSEN: I don&rsque;t think that very likely. I mean I think that the companies are now hunkered down. They are wards of the state. They&rsque;re certainly not the aggressive swaggering about town; entities that they once were.

LAMB: What percentage of the mortgages in this country are still owned by Freddie Mac and Fannie Mae?

MORGENSEN: Oh my gosh, they&rsque;re dominant. I would 80% of mortgages are either backed by or owned –I mean, there is no really good mortgage market at the moment. Fannie Mae and Freddie Mac are pretty much it. FHA also.

LAMB: In the middle of your career, you worked on Wall Street for a while. You also served as the press secretary for Steve Forbes? Why?

MORGENSEN: Wow.

LAMB: When he ran for president.

MORGENSEN: Well, you know, I thought that would be interesting? This was in 1995. I had kind of a newborn child, which was really crazy that I would do that and so I didn&rsque;t travel as extensively as most press secretaries do. I was at Forbes magazine at the time working the editorial side; a reporter and an editor. And so when Steve, who&rsque;s on the publishing side, asked me to do it I thought, &rdque;Gosh, that might be kind of interesting.&rdque;

I had wanted to be a political reporter growing up. And so I thought, &rdque;This would be kind of cool.&rdque; Well, six months of hell. He folded after six months but it was very interesting ride because I got to see the other side of the notebook. So, I was working with journalists. And so, it really helped me to become a better journalist.

LAMB: What did you learn about journalists?

MORGENSEN: Well, in this particular case, they travel in a pack. They really didn&rsque;t care to understand some of the ideas that the candidate had. It was very sort of –the perception was that he wanted a flat tax so that he could enrich himself. That was about this in depth that the analysis got.

You know I&rsque;m a person who like dig and delve than get to the bottom something, so the kind of superficial approach of the campaign, which I understand because you&rsque;re –under the gun day- in day-out was really kind of news to me.

LAMB: You can read. You&rsque;re usually every Sunday on the front page of the business section. Matter of fact that they were recording an issue on the front page in the New York Times about Merrill Lynch and Bank of America. What are the rules for you at the New York Time? How much can be opinion? How much has to be reporting? And who do you answer to?

MORGENSEN: My columns, which appear on the front page of the Sunday business section, are reported columns that means that they are backed by fact that I&rsque;m not just sitting, gazing at my navel and then I&rsque;m opining about what I see. I really am—it&rsque;s really more reported columns.

You know it&rsque;s not overwhelming the opinion. I really love to report. And so, what I do is kind of a little bit more on the reporting side than on the opining side. I also do news stories. As you said it appear in The Daily occasionally, so that&rsque;s a little bit of a difference. A lot of other columnists don&rsque;t do the news –stories but I really to keep in the mix and keep up with what&rsque;s going on. So I do that.

Who do I report to? I report to the Sunday business editor. His name is David Gillen (ph). And then I report to the business editor of the paper, who is Larry Ingrassia.

LAMB: We&rsque;ve only have about 90 seconds. As we look ahead, this whole thing you&rsque;ve been writing about, do you have any hope that this would never happen again?

MORGENSEN: I don&rsque;t, unfortunately, because we haven&rsque;t sold the crucial problems. We not fixed the parallel of too big to fail institutions. We have not resolved Fannie Mae and Freddie Mac. We have not had that conversation about the role of housing finance in this country that you brought about at the outset. We need to have that conversation. Josh and I were hoping that this would create that conversation, so people could have a discussion, a robust discussion and then decide. But we haven&rsque;t done that. We haven&rsque;t got near to that. And so, therefore, I think, the chances of another crisis are pretty great.

LAMB: You&rsque;re planning another book?

MORGENSEN: I am not.

LAMB: Why not?

MORGENSEN: I&rsque;m tired. I have a day job and the day job is pretty demanding. I did not take a book leave to write this book. So, you know, I think that, unless it&rsque;s something really super compelling comes along. It would have to be very compelling for me to take on another project.

LAMB: By the way, who name it &rdque;Reckless Endangerment&rdque;?

MORGENSEN: We came up with that ourselves. We tried on a lot of different things, Josh and I. But that really stuck with us and the publisher was fine with it.

LAMB: Gretchen Morgenson, author was Joshua Rosner of &rdque;Reckless Endangerment; how outsized ambition, greed and corruption lead to economic Armageddon. Thank you very much.

MORGENSEN: You&rsque;re welcome, Brian.