Ben 00:01-00:58

bob welcome to crime capsule thank you it is great to have you we are not just at the beginning of a new year we are also at the beginning of a new presidential administration it is a volatile time to say the least uh… especially in the housing market interest rates are coming down slowly but they're still great uncertainty and it is true of every transition, that there is work to be done sifting out what is inherited from a previous administration from what effects accompany the change directly. Now I say this as a way of prefacing the fact that in your book, this is a story you are very familiar with, isn't it? This story of transitions and change and volatility and uncertainty.

James 01:02-01:12

This is an issue that's been festering for about 80 years because we've always had bigger problems that we were dealing with and it's been just kicked down the road.

Ben 01:13-01:51

Your book about the rise and fall, the creation and collapse of Fannie Mae really is a fascinating story because it does span nearly the whole of the 20th century, and it involves key players from the very highest levels of power in American society all the way down to individual homeowners who were affected by decisions just reaching them at incredible scales. Let me ask you this. Did you know when you first started out to write this book what kind of journey you were going to go on?

James 01:53-02:10

All I knew was that I wanted to find out the history of Fannie Mae and I couldn't find anybody who had written that. I was curious about how it came about and why it grew so big. So that's what I was looking for and that's what I found.

Ben 02:11-02:15

Tell us a little bit about your background. You're a journalist and have been for many years, is that right?

James 02:15-02:17

Yes, for over 45 years.

Ben 02:19-02:29

How did, when Fannie Mae collapsed, were you already on the story or was this something that you were watching in real time, kind of like the rest of us?

James 02:30-02:38

Well, both. I'd been writing about Fannie Mae and Freddie Mac for about five years at the time of the government takeover in 2008.

Ben 02:42-02:55

So, you were probably in conversation with some of the individuals who were involved in the downfall, if I may use that word. I mean, they were your sources to some degree, is that fair to say?

James 02:56-03:16

Oh, definitely. I mean, from day to day. I was one of the few people in the country covering Fannie Mae and Freddie Mac. It's a pretty obscure area, even though they were companies with trillion-dollar balance sheets. It's kind of the plumbing of the mortgage system. It's not something that most people know or care much about.

Ben 03:18-03:45

Let me ask you this. How did you make the transition from reporting on it as a journalist and trying to cover the events in real time to taking that step back and trying to assess it from a bit more of a macro perspective? Basically, it's a question of how did you go from writing articles in the moment to actually pursuing book authorship on the topic?

James 03:46-04:21

Well, when the government took over Fannie and Freddie in September of 2008, I was asked to write a story about, you know, where did these companies come from? And I had never really known a lot about the history, so I started looking around for where can I find a good history of this whole phenomenon, and I couldn't find one. There had been lots of bits and pieces written here and there, but nothing telling the whole story. So that right away gave me an idea. There should be a book about the history of these companies, and I started on it immediately.

Ben 04:22-04:32

Tony Morrison, of course, famously said that we are always to write the book that we want to read, right? And there's yours, right? There we go, there we go.

James 04:32-04:39

And there were not millions of other people, but I still thought it was an important book to write, and I'm so glad I wrote it.

Ben 04:39-05:04

Yeah. Well, tell us a little bit about this. I mean, research methods are something we talk about a lot here on Crime Capsule, because anybody writing about great moments in American history draws on a variety of different sources, usually a variety of different kinds of sources. What would you say were the most valuable sources that you worked with as you began to shape this into a more permanent form than the newsprint?

James 05:07-05:51

There were old congressional debates. Those were helpful. There was a certain amount of coverage in newspapers, but it was always pretty sketchy. There were a few scholarly articles that had been written about various aspects of the history, and there were still people around who remembered a great part of it. I was terribly frustrated that I couldn't go back and talk to the people who had run it in the 40s and 50s and 60s, because I would have been fascinated to know more about them. I found out as much as I could about them, and they were some fairly colorful people. But I could go back and spend another lifetime on this if I really wanted to.

Ben 05:52-06:07

Sure. I confess I had not expected living memory to be a part of this particular analysis. Who were you speaking to and what were you hoping to learn from folks who were involved in the administration in decades past?

James 06:07-06:25

Well, I was able to talk to people going back to the 1970s, so it wasn't going way, way back, but there were still people around who remembered things that happened in the 70s and the 60s. But there's nobody around who remembered things in the 50s and the 40s or the 30s.

Ben 06:27-06:32

For that, you had to have your testimony from Congress and so forth. Anything in the National Archives?

James 06:34-06:51

I think there probably is. I didn't delve into that because of a lack of time. I looked into the Nixon Presidential Library, the Library of Congress. I can't remember everything I looked into.

Ben 06:53-07:08

Well, your book came out in 2012, which is about four years after the government did instigate that particular takeover. How long did it take you, Bob, to actually compile all these sources and draft the main text of the book?

James 07:09-07:22

I worked on it over about three or four years while working full-time as a journalist. So it was in the evenings and on weekends and whenever I could steal a minute.

Ben 07:24-08:26

That is always the task. That is absolutely the hardest battle to fight, is finding that time. So we here at Crimes Capsule are starting this new series, as you know, called The Echoes of the Past in the Present. The story of Fannie Mae is one that spanned the 20th century nearly in its entirety, and its implosion was deeply consequential. It took about 70 years from beginning to end. We are still living with the fallout today, almost 20 years later. Before we talk about that, I want to get to that. But I'm just curious, can you take us to the very origins of the creation of this institution? Who set it up and what were they trying to do in its earliest days?

James 08:28-10:42

Well, we have to go back to the Great Depression when Franklin Delano Roosevelt was president. And about a quarter of the American workforce was unemployed. And around half of all home mortgage debt was in default. And housing starts, new houses being built were down by 90% from before the Depression. So there was a great priority on trying to get people back to work. And one way to do that would be to build more houses. But to build houses, you need to have bank loans. And banks in the middle of the Depression were not really eager to gamble on real estate. So the government thought, well, we'll try to make the banks feel more secure. And the government set up something we still have today called the Federal Housing Administration, FHA. People still get FHA loans. These are designed for lower income people. They are subsidized in that the government provides insurance to the lenders that if there's a default, the lenders will get their money back. So they set up the FHA in 1934. But then they realized that, well, even with the FHA, the banks were still nervous. And if they made a home loan, they didn't really want to hold on to it for 30 years. They wanted to find somebody else to take it over. They needed investors. And so the government said, well, we need to encourage somebody to buy these loans. And so the government made another provision for chartering a new kind of privately-owned company that would be called National Mortgage Associations, and they would buy FHA-insured loans. It was a great plan, but there was just one problem. No private investor wanted to do it. So finally, in 1938, the Roosevelt administration created an agency, the Federal National Mortgage Association, what we now call Fannie Mae. This was not considered big news at the time. The Wall Street Journal put the story on page two and it was only eight sentences long.

Ben 10:45-10:47

I mean, considering in 1938, yeah.

James 10:48-10:58

It was not a major issue. This was a little program that was going to try to give a bit of a boost to the housing market. And it was aimed really at lower income people.

Ben 11:00-11:09

Is it fair to say that our national attention was a little bit more focused on what was taking place in Poland and in Austria and so forth at the time?

James 11:11-12:53

There was so much going on that this was really a minor wrinkle that probably a few people in Congress even paid any attention to. But this agency went to work and it grew quickly for a while and then in World War II It shrank back because during the war there wasn't much housing construction. And after the war, the Senate Banking Committee discussed, well, shouldn't we just get rid of this Fannie Mae? You know, it's played its role. We don't need it anymore. Now, the Truman administration said, well, yeah, let's make more room for private investors to do this work of buying mortgages, but we'll keep a Fannie Mae around as an emergency backup device. You know, if things go wrong, we've got this little agency. Well, then came Dwight Eisenhower in 1953 as our new president, and he was a Republican, and he wanted to get rid of some of these old New Deal programs. He didn't think the government needed to be in the mortgage buying business. So he proposed legislation to gradually transform Fannie Mae from an agency into a privately owned company. Congress passed the legislation, Eisenhower signed it, but there was one problem. This legislation did not contain any deadline. for Fannie to become a privately owned company. So that never happened. And in fact, within a few years, we had a housing slump and Congress was telling Fannie Mae, we need more government backed debt to finance more housing. And so it was gradually becoming something, this is an agency we need. And Congress said, oh, this is a handy tool we have. And the housing market grew more and more reliant on Fannie Mae.

Ben 12:54-14:12

Can I ask you real quick, you mentioned this, when we hear of post-war growth, you know, we think about, you know, the United States building its way out of the Depression, you know, you can travel to towns and cities across the country and see train stations and post offices, you know, that are all CCC or WPA projects. Just recently, I had the chance to spend a little time on Cheeha Mountain down just outside of Birmingham in Alabama, came across a CCC tower, the highest point at all of Alabama, you know, built by public money. They're everywhere, right? And there's kind of a legacy that we here in the country have of the the built things that pulled us out of that slump, and then the war hits. I guess I'm curious, Bob, you know, when you are, as a researcher, tracking the growth of this agency from 38 forward, is it possible to see, is it a linear slope up as far as how much money it is insuring for these banks? I mean, can you see year on end, you know, they start off with, say, $10 million that they're going to insure, and then it goes to 15, and then 25? Or is it more, do you get these sort of pulses of information, you know, every couple of years when there's a big seismic change? How do you measure that growth?

James 14:14-15:44

It was measured in government records, and it grew, for the most part, steadily. There were ups and downs with the housing market. When the housing market was hot, then Fannie Mae was much busier and doing more business. So it kept growing, and by the 60s, it was a pretty big deal. But it was still something that operated in the background because That's not the kind of thing ordinary people were worried about they just they got their mortgage and they maybe heard of Fannie Mae But that was it and again in the 60s We had so much else going on the Vietnam War and the war on poverty and race riots. So Reforming Fannie Mae was not a huge priority but it did come up again because of a budget dispute and Critics of LBJ said that, well, the federal budget does not really reflect all the obligations of the government because the government is standing behind all of this mortgage debt. And so LBJ appointed a commission to try to settle this debate. What do we need to do about the budget? Do we have to put this on the books? And in 1967, the commission decided, yes, the debts of agencies like Fannie Mae should be included in the federal budget. And that would have increased the budget by an estimated $2.5 billion, which now is peanuts, but then was a big sum of money.

Ben 15:45-16:00

Do you think that's a fair assessment? I mean, as you look back on the debates at that time, do you think that is a fair call to say that if the government is putting up this much money, whether or not it, you know, ends up being actualized, that we should account for it in that way?

James 16:00-16:49

Oh, definitely. I mean, there was no way to really deny that. And so the government was forced to face up to this. Yes, you know, we do have this potential liability, we better start admitting it. But LBJ did not want to admit that or have that burden on the debt. So LBJ went back and dusted off Eisenhower's idea. In 1968 we had legislation that provided for the sale of Fannie Mae to private shareholders. So this should be solving the problem. But the problem was Fannie Mae would still have a charter from the government. So it would still have a role in public housing. And so it was still going to look and feel quite a bit like a government agency, even though now it would be owned by private shareholders.

Ben 16:50-17:18

it's interesting, because it does tie in, that general ethos does tie in with LBJ's vision of, you know, the Great Society, right? I mean, like, you think about so many other areas in which he, in many cases, successfully attempted to provide safety nets and forms of social insurance for people, you know, Medicare, and so forth. Well, here's another one in which maybe the government can play a role in providing or stabilizing housing. That's an interesting outgrowth.

James 17:18-18:37

Yeah, I mean, this is one reason that Fannie Mae kept growing, is it's very hard to be against housing. People want houses, obviously, and we've got very organized groups of people who are always acting as cheerleaders of the housing market, the realtors, the home builders. So if anything came along that threatened this government subsidy we got through Fannie Mae, they made a lot of noise, and Congress listened to them. And so that is why it kept going. But at any rate, in 1968, it seemed like, well, maybe they fixed it. There's a private company now. It's off the government books. But nobody really thought about the contradiction here of having a public policy role and an effective government subsidy, but also having private shareholders wanting maximum profits. This is because of something called the implied guarantee. Because officially, the government said, we do not guarantee the debts of Fannie Mae. But in fact, investors believe that, well, in a pinch, the government would have to rescue Fannie Mae.

Ben 18:37-18:39

Right. Otherwise, what would be the point? Yeah, exactly.

James 18:41-19:05

So Fannie Mae continued to benefit from this belief in the market, even though everybody had denied it, that if something goes wrong, Uncle Sam will step in. So that means they can borrow money much more cheaply than anybody else in the housing market. And they can keep growing faster than the true private sector companies.

Ben 19:06-19:42

Let me ask you one question about that period, just real quick, because you mentioned the late 60s and we get into the 70s shortly thereafter. You know, our students of American history will recall that the 70s were actually A slump as far as you know GDP production and we had the recession caused by oil crisis and so forth What impacts in this sort of tender new phase of the agency's life the company's life? You know, it becomes a private entity and then within a decade We're in a national recession right in the Carter administration and so forth. What impacts did that have on? Fannie Mae at that moment

James 19:43-21:25

Well, the impacts came in the Nixon administration. Nixon came in, and so you might think, well, here's another Republican. He's not going to want the government to be in the mortgage business in any way. But along comes a slump in the housing market, and people were demanding more aid for housing. interest rates went way up during Nixon's first year in office. And housing construction fell about 40%. And Nixon in 1978 declared there was a crisis situation in housing. So now Nixon has to do something. And part of the solution found by Nixon and Congress, both parties, was more Fannie Mae. If you remember, originally Fannie Mae was set up to buy FHA mortgages. This is for lower income buyers, a smaller part of the market. But now, under the Emergency Home Finance Act of 1970, the government created a second government chartered mortgage company, Freddie Mac. So now we've got two of them. But more important, the legislation now allowed Fannie and Freddie to buy a much wider variety of mortgages, not just these FHA loans, but normal mainstream mortgages for the middle class and even the upper middle class. So now all of a sudden, Fannie Mae and Freddie Mac had a much larger role in the housing market. The realtors loved it, the home builders loved it. Most people in Congress liked the idea, if they ever even thought about it much. There was almost no debate about the possible long-term consequences.

Ben 21:26-21:58

Can I ask you just briefly, I mean, one of the through lines in your book, which comes up again and again in different decades and different phases over this 70-year history, is of warning signs and of fault lines. You know, were there structural considerations? We're at the midpoint here in the late 60s, early 70s. Were there warning signs as far as the structure of these two entities that we should have seen that would presage what was to come in the early 2000s?

James 21:59-22:42

There were always a few people in Congress and a few economists and critics who raised lots of questions about this potential trap for the government. The government could eventually have to pay a big bill. And some of these people were saying, this is something the private sector should be doing, not just a quasi-private company like Freddie and Fannie, who are really subsidized, but the true private sector should be doing this. But those voices were always silenced because the homebuilders and the realtors said, don't tamper with the housing market. It's too risky. We don't want to go into the unknown. What happens if it doesn't work?

Ben 22:43-22:50

Was that even true in the sort of hyper-capitalist 80s, you know, the Reaganomics, the sort of free marketeerism gone wild?

James 22:51-23:57

Yes, we'll get to that. I mean, that was another episode, but first we've got to go through Carter. Something important happened in Carter's administration. He had a housing chief named Patricia Roberts Harris, and she thought that Fannie Mae was doing too much for the suburbs and not enough for the inner city. And Fannie Mae said, hey, wait a minute. We're a private company now. You don't push us around. But then the Carter administration threatened legislation to restore more government control over Fannie Mae. And so they came to a compromise. And the Department of Housing and Urban Development started setting goals for Fannie's financing of mortgages for poor people. So this seemed like a nice way to patch things up, but a precedent had now been set that the government can impose quotas on Fannie Mae. And this strengthened the idea that Fannie Mae was actually really kind of like a government agency. And so it improved that perception of a government guarantee.

Ben 23:58-24:06

Were these quotas in terms of number of units or instruments sold, or were they in the strength or health of the instruments?

James 24:06-25:29

It was in the number of homes financed for people falling below a certain income. So there was a whole series of different quarters they had to meet. And that sounded burdensome, but actually it strengthened Fannie and Freddie because now they had this mission from the government. And they could always talk about their mission. If you tried to complain about the big profits they were making or the huge salaries of their executives, they'd say, we have a mission. That's what we're doing here. We're not just like some company only interested in profit. But then, of course, as you mentioned, along came Ronald Reagan, and people thought, well, surely he's gonna finish the job and really get the government completely out of the mortgage business. And there was a perfect pretext because Fannie Mae was losing a lot of money at that time. This was the early 80s when we had double-digit interest rates. And interest rates jumping around like that caused huge losses on the books of Fannie. So the government could have actually used that as an excuse to put Fannie Mae to sleep. But once again, people say, oh, that's not the right time for that. The economy is very wobbly. Nobody wanted to upset the housing market. So instead of putting Fannie Mae to sleep, the Reagan administration gave it a tax break and helped it survive.

Ben 25:30-26:09

It's funny you should mention that exact period, because I actually recall, I became a homeowner about five years ago, so finally got my, you know, introduction to all of these instruments and mechanisms and so forth. But I do recall my parents who became homeowners in the 70s and early 80s. talking about those interest rates that were so astronomically high as they were preparing to purchase their first starter home, just fretting about how they were going to make it work. And, you know, they both had incomes. I mean, they were a dual income household, but there was still this kind of question of what are we getting ourselves into? Would it be better and wiser for us to stay renters in this very uncertain time?

James 26:10-27:20

Yeah, it was a very scary time and a lot of people did have to put off their home purchasing plans. I mean, it's kind of like today where housing prices have become unaffordable for many young people. They don't know if they'll ever be able to afford them. So once again, people are going to be reluctant to tamper with the market. But that's getting a bit ahead of the story. So we've seen how Reagan decided just let Fannie and Freddie go on, didn't want to tamper. But then in the late 80s and early 90s, we had a real estate bust and we had a crisis among the savings and loans institutions. They had bet way too much on real estate in the late 80s and made too many really bad loans and they started They started going bust and the government was forced to take over all of these savings and loans. That was a huge crisis in the 80s and early 90s. And so having seen that happen to the savings and loans, Congress had to take a look at Fannie and Freddie and say, we better look at them too and make sure that they're not going to get in trouble.

Ben 27:21-27:36

Luckily, we had a budget where we could do that though because as we enter the 90s as we know, you know We enter the kind of the beginnings of the Clinton economic boom the dot-com But this was before that this was the early 90s the early 90s were pretty rocky.

James 27:36-29:26

There was a recession It was a terrible real estate market and there were all these failing savings and loans. So Congress felt an urgency We've got to do something and we better make sure that Fannie and Freddie are behaving So we better look at their regulation And Fannie Mae said, OK, that's fine. We can have a new regulatory regime, but just do it our way. And Congress basically let Fannie Mae write the new recipe book for a new regulatory agency that came along. It was called OFEO, and it was quite weak. So that is how we got into a situation where through the 90s and into the early 2000s, these companies were not very tightly regulated. It is a truth. And whenever the regulator would try to bark at them, they would go to Congress and say, look at this, the regulator is going to mess up the housing market. Tell the regulator to calm down. So that is how we got to a situation in the early 2000s where regulation was pretty light. And this was coming into a huge housing boom, house price boom, which started around 2002, 2003. And we saw huge increases in house prices, coast to coast. And we saw everybody thinking, we've got to buy a house now, because it's going to be more expensive next week. And people saying, we've got to buy 100 houses as investments. We're going to buy these things up by the dozen and rent them out. And there was a huge, crazy boom.

Ben 29:26-29:30

What was fueling that perception?

James 29:31-31:31

Well, interest rates started to fall, and that meant it was cheaper to buy a house. You could buy more house because your loan costs less. And people just got very bullish about housing. They could see, you know, a lot of people need houses. Prices are going up. Let's grab them. It's like any market. When prices start to go up, people think they're gonna keep going up. And so more and more people rush in. And this is when Wall Street got really involved. Before, Wall Street firms were really focused mainly on the stock market and on financing corporate debt. But they saw mortgages are an interesting investment. They pay a higher interest rate than, say, a U.S. Treasury bond. but they seem pretty safe because there's houses standing behind this and the government has to protect the housing market. And so Wall Street began competing with Fannie and Freddie to buy loans everywhere they could. And Fannie and Freddie actually started shrinking. Well, Wall Street got bigger and bigger in the mortgage market, and Fannie and Freddie were starting to panic. You know, what's going to happen to us? We're not needed anymore, maybe. So they had a big debate internally about, you know, the way they were buying mortgages. They were, they had some fairly strict rules about, you know, only lending if the buyer had a decent amount of equity in the house and could show that he could afford to buy the house. But they could see Wall Street was experimenting with all of these subprime loans or other kinds of exotic loans where you didn't have to really prove that you could pay for the house.

Ben 31:32-31:36

Were Fannie and Freddie still operating on the quota system at this time?

James 31:36-33:02

They still had the quotas, but this was for, and they had to do that part of it, but they wanted to be in the other part of the market too. They wanted to be in the booming market, and so did Wall Street. So we saw all of these loans that were riskier and riskier. There were loans called stated income. For people who didn't have a regular paycheck, You know, usually when you get a mortgage, you have to show your pay stubs. I make X per month, that's why I can afford this. But some people don't have a regular job. Maybe they're contractors or… Freelancers, could be anything. Freelancers, yes. And a lot of people just don't want to hand over information. So they came up with stated income loans. These ones where you go to the bank and you say, well, I make this much. And the bank makes some checks, but they're not really sure how much you make. There are also a lot more adjustable rate mortgages that are not fixed. And some of these new adjustable rate mortgages came with a provision saying, you know, you don't have to pay down the interest right away. You just pay on the principal. You worry about the interest later. You only pay the interest, excuse me. You only pay the interest. Don't worry about the principal for now. So this will reduce your payment and then you can afford a bigger house. And don't worry because the value of the house is gonna go way up and you'll be fine.

Ben 33:02-33:05

Yeah, you just flip it later. You'll be you'll be a good shape.

James 33:05-35:03

Exactly, right And sometimes you could skip a monthly you when you were couldn't afford a monthly payment You can skip a couple and we'll just add that onto the loan So we got more and more of these high-risk loans and Fannie and Freddie finally around 2005 Decided we got to do a bit of this too. You know, we got to keep up Mm-hmm So, and at this time, the same time, the Bush administration, George W. Bush, they did not like Fannie and Freddie for ideological reasons. They thought this was a bad idea, having this quasi-government stuff. And so they were looking for a way to shoot down Fannie and Freddie. What they zeroed in on was the accounting by Fannie and Freddie for their results. were Fannie and Freddie really reflecting on their balance sheets all of the risks that they were taking by holding all of these mortgages, and the fluctuations in interest rates which could hit them? Well, the accounting for holding mortgages, the accounting for holding mortgages, securities, or mortgages of any type, is very complex. So there are lots and lots of debates over years about Fannie and Freddie's accounting. And this was probably a worthy subject to look at. And there probably were some problems with their accounting. There surely were some problems. But it distracted us from the real issue, which was not the accounting, but the fact that they were financing these riskier loans. And so not much attention was paid to that until around the beginning of 2008 when private sector mortgage companies started to go bust, starting with the subprime lenders and then spreading to big Wall Street firms like Bear Stearns and Lehman Brothers.

Ben 35:04-35:05

So along about the summer of 2008,

James 35:09-36:13

Investors all over the world who had bought Fannie Mae securities to finance this housing operation started to get very nervous. What if Fannie Mae and Freddie Mac went bust? And the Bush administration wasn't too eager to say, absolutely, we'll stand behind them, because they didn't really like him. But by August of 2008, Things looked so bad for Vannie and Freddie. They were reporting huge losses. The investors were panicking. Investors in China were calling up the Treasury Secretary and asking, what are you going to do? And finally, the Bush administration decided, we've just got to take these companies over. And so they came in one day, without warning, they came in, sat down the executives and said, you're done, clear out your desk. And in September of 2008, they became companies owned by the U.S. Treasury.

Ben 36:15-36:21

Can I ask you just a very simple question? Where were you in that moment, Bob?

James 36:21-37:49

I was reporting on all of this. Yeah. You know, suddenly, for the first time in history, Fannie Mae was a big page one story. Absolutely. Because of this crisis. And so it was, it was a big deal. Everybody started writing about it. And at this point, the government has taken over them. It did seem like, well, maybe this is the end of the story for Fannie and Freddie. They've been taken over. The government can do whatever it wants. It could shut them down. But once again, nobody quite dared shut Fannie and Freddie down because what would happen to the mortgage market without them? We don't know. And so they have continued to this day to be owned by the U.S. Treasury. And now they're under very strict government control and they are not allowed to take big risks with the kinds of loans they finance. But we still have a situation where the government is the dominant player in home mortgages finance in a country where we supposedly don't like socialism. So This topic keeps coming up, and now the new Trump administration is saying, we're going to do something about this. We're going to find a way to put these guys back into the private sector. And those, they'll have to figure it out for themselves. They'll survive on their own.

Ben 37:50-38:03

Do you think that that is, just based on your reading of this long history and the different attempts that have been made to privatize in different forms, do you think that's actually a viable project? Do you think something like that could succeed?

James 38:03-38:52

I don't know. The first Trump admissions tried to do it, but then they didn't get around to it. Now they're going to try again. And maybe they'll try a lot harder this time. In the past, Congress has always come to the rescue of Fannie and Freddie because, you know, the congressmen hear from their realtors and their home builders, we need these guys. Now Congress is listening very closely. It's pretty compliant. I think if the Trump administration is really determined to do it, and they're willing to take the risk that it could be a mess, it could well happen this time. That's what I want to ask you about. It will be very interesting to see what they do and how it works out.

Ben 38:53-39:16

Yeah, and that's one of the reasons that we wanted to talk to you, given your history of this agency, is that if this is back on the table again, it does pose an enormous risk, right? It's a very unusual sort of political calculus to have to map out as to what would happen if he goes in there and starts ripping out the guts of this thing or sending it back to the free market entirely. I mean, what do you think could happen?

James 39:18-41:12

Well, I think we might have to come to terms with something. In the United States, people are used to what we call a 30-year fixed-rate mortgage. Yeah, I have one. I love mine. Most people have that and they love that idea. Yeah, I know what I'm going to pay for the next 30 years. That's great. In almost every other country in the world, people have adjustable rate mortgages. And if interest rates goes up, your mortgage payment goes up. And when they come down, your mortgage payment comes down. And this may sound scary, but that's what they deal with. And they have home ownership rates, which are at least as high as we have. The housing industry always used to say we're the envy of the world, but not really. The rest of the world is doing pretty well in this area in general. And we are wedded to this 30-year fixed because we're used to it. And the 30-year fixed rate mortgage is a tricky product because that is risky for a lender to say, I'm going to have a 30 year instrument in my book and it's going to pay me, it's going to keep paying me the same interest for 30 years. Well, what if, what if I make a loan at 5% interest to you for your house, but then interest rates in general go up to 15, 20% all of a sudden you're still paying only a 5% but I, the lender, have to pay 10 or 15% to bring in deposits. So I'm losing money on your loan every month. I'm in big trouble. So that is why the rest of the world does not use 30-year fixed mortgages because they're a tricky asset for a bank or for anybody to hold. You have to have a lot of capital to be able to bear that risk of interest rate fluctuations.

Ben 41:13-41:50

I'm fascinated to hear you sort of speculate on what impacts the new administration, um, you know, might seek to affect on, on these agencies because they do have such a long history. You know, I'm curious, you've written about this before, the question of fault or blame, um, that centered around, uh, the government takeover and, and fall of 08. Do you regard that moment as the fault of individuals, or do you regard that as a more distributed kind of fault, where there's no one real person at whose feet blame can be laid?

James 42:56-44:49

It's very distributed. A lot of people after the housing crisis, after the financial crisis of 2008, 2009, a lot of Americans were furious that nobody, no big shot went to jail. They screwed up. These guys are crooks. They should have gone to jail. Why didn't they? Well, it's a bit hard to pin it on an individual. Yes, there was fraud in a lot of mortgage transactions. Whose fault was that? It's hard to put it down. Where did that fraud happen? Certainly you could say that the senior executives on Wall Street and at Fannie and Freddie made bad decisions. They took too much risk. At the time, lots of people taking those risks, and so they feel that we were doing what seemed to make sense at the time. They made a mistake. They were probably greedy, but it's not, a criminal offense to be greedy or to show poor judgment. Now, maybe some of them should have been put in jail, but it's not easy to prove. So what happened is some of them ended up paying fines. Angela Mazzillo, who was the CEO of Countrywide, which was the biggest private sector lender back in those days, was fined. He paid a bunch of money. The top executives of Fannie and Freddie, were accused of misleading investors. The SEC accused them. And there was a long court case. And finally, after about five years, they settled these cases with fines. Those fines were not paid by the individuals. They were paid by Fannie and Freddie. And Fannie and Freddie, at this point, were owned by the government. So basically, the government was fining itself.

Ben 44:52-45:04

An ironist might have to call that the cost of doing business, right? Which is a sort of strange and sad place to live, but that's where we are.

James 45:04-45:24

And now we have to look forward, and it's going to be a debate about what do we do? Do we shoo these guys totally out of government? And somebody's, probably the realtors, I don't know, builders are going to come out again and say, well, be careful. Mortgage rates are going to go up if there's no government banking.

Ben 45:26-46:05

Bob, I have to say, this is, it's a fascinating story, and we really appreciate your perspective on this, because you have a way in your book of making very complex topics not just accessible, but actually compelling. And I think when we look at the story of these entities and how they are still sort of rippling through our lives in this present moment, you know, the past echoing through the present, I'm just very grateful for the way that you can break that down for us and help us to understand that this is something that continues to affect us in pretty consequential and pivotal ways. So, thanks.

James 46:06-46:06

My pleasure.

Ben 46:07-46:18

Let me ask you this. Where can folks, anyone out there who wants to learn more about this particular story, to pick up a copy of the book, what is the best place for them to do so?

James 46:19-46:36

Well, you can go to any bookstore and say, I would like The Fateful History of Fannie Mae by James R. Haggerty. That's my writing name. And they can order it for you. Or you can go online and order it from any online bookseller. So you can find it out there.

Ben 46:37-46:49

That sounds great. Well, we will be watching with attentive eyes, both to your continued reportage at the Journal and to what happens with this particular story in the months to come. Thank you so much for joining us on Crab Capsule.

James 46:50-46:50

All right, thank you.