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“Reckless Endangerment” author Joshua Rosner on who holds responsibility for the housing market mess.
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A new book shedding light on the housing mess which -- the American economy to the brink.
And the message is simple Fannie and Freddie hold most of the blame yet taxpayers are still funneling money into these two behemoths.
Joining me now Joshua Rosner he is the co author of the new book -- reckless endangerment.
How outsized ambition greed and corruption led to the economic Armageddon wow that's a mouthful -- good job though I think this book is fascinating -- of course.
I've covered a lot of this -- -- the thing that.
-- -- us most -- the Willis report is the fact that American taxpayers have funnel some 130 billion dollars into these and today's.
This is just a big black hole -- And the numbers are gonna continue to rise for -- while.
It is a big black hole.
It's a big black hole that actually was driven almost by -- well by a couple of things that the personal greed of the people who were and the company's.
But also the social policy that government officials felt that they can direct through these -- -- governmental entity.
It's kinda it was a lot of you sort of managing -- behavior going on absolutely that I think people now look back in retrospect in question.
You -- one of the few people who came -- said hey this is a problem very very early you were on this story fast.
-- Who is to blame here I mean a lot of people want to point fingers at consumers others -- the banks others -- the government.
I think there's plenty of blame to go to all of those.
I think at the end of the day what you had was he had Fannie and Freddie is -- like government to organization shareholder owned but with a public mission.
Who.
Recognize.
That if they got the government to push the notion of increasing homeownership they would be beneficiaries.
The executives' pay would end up benefiting and -- be able to do big favors for people on the hill ribbon cutting ceremonies for constituents.
Helping to be able to say were increasing homeownership rates in your -- a special deals -- our special deals on mortgages which we later saw.
It's -- you ended up seeing this really driven in my mind by.
Really congress who recognize that they had these wonderful tools and Fannie and Freddie that they can squeeze like women's and oranges to make you set -- whenever they wanted.
And the executives who ran those companies who saw great opportunity.
Well let's look at this point that I know you believe which I think it's fascinating -- is classic third world politics business in -- locked with government.
Matching Barney Frank and and I Angelo Mozilo who ran countrywide at the time to really mean by that well -- it.
When the IMF goes -- to restructure country as you know were watching obviously the European peripheral countries in trouble.
Ireland Portugal Italy Spain and Spain Greece in trouble the problem and in restructuring and economy is never in.
How do you get them to accept austerity and -- restructure the debt it's.
How do you disentangle the culture that ties the the financially -- the banks from the government because they become so intertwined.
That it becomes really difficult to separate them and what we have now or.
-- frankly five too big to fail banks that really -- placed Fannie and Freddie is almost government sponsored entities who aren't competing based on fundamental economics.
It's the worst right it's -- worst of all situations.
And because now we're back stopping the big bank we're back stopping them.
We -- talking about that we can't break them up because that's not free markets but we're forgetting that the reason they exist.
Is because they've been hobbled together to be ever larger as a result of this I want to taxpayer now they are not.
Competing freely with the smaller banks with the regional banks.
And they really aren't frankly globally competitive institutions and.
This Josh and we look forward for just a second here because I think the big question on the table now is what next.
That a lot of laws coming onto the books a lot of competing institutions that want to regulate banks.
Banks stepping back and not wanting to land what do you see as the future.
Well unfortunately I think we've got that and we've had a number of headwinds secular -- so you know we had consumption.
As the driver for the past forty years driven by declining interest rates the move from one income family to two income family.
We had democratization of credit we had the baby boom generation picture all of those are now headwinds.
And there's gonna be less consumers' credit worthy and able to borrow.
The banks even regardless of where they want to lender or not there's less to lend against.
And unfortunately the Fed has created this this wash of liquidity which isn't really.
Album and the thought really that's not really serving their intended mission it's almost as if we're at the end of the keynesian cycle.
Where you can stimulate demand artificially through.
Injections of liquidity they believe that I I believe we believe McCain's last no I believe that we're really at the end of the cycle where it's not about.
It's not about stimulating demand about the we have excess capacity and we don't have the demographics to support.
That demand.
They can get better a fervent believer and the fact that we can't make it.
Border we first need to improve the competitiveness of our financial sector and that isn't by making them bigger that's actually by making them less reliant.
On subsidies government support their -- and -- that's exactly right they are hot now -- pleasure talking to you thank you real.
