Skip to main content

tv   Book TV After Words  CSPAN  November 26, 2009 2:00pm-3:00pm EST

2:00 pm
in the end, i was trying to be as fair as possible. when you are looking at economic arguments in the last 10 or 15 years, there's no way to tell what's combine to last and what's not. :
2:01 pm
>> so for the last question what i would like to do is both of those audiences where we talked about the app academic that's responding to your book and the everyday audience that may be responding to your column. and your blog. do you feel that there is an inadequate he of understanding of knowledge that is out there, and how does that play out where it requires a phd and people who are well-versed in statistics and analytics to make sense of the markets on the one hand. been on the other hand you have the everyday person who can barely understand what is in their mortgage agreement. and for whom as you said you are helping them make sense in economic theory.
2:02 pm
how do those come together? is that destined to always -- >> at seems like it's a lot less clear now that it was two years ago that you need to know all these theories to understand how financial markets and the economy works, because clearly the theories sophisticated, statistics and everything else did not allow these people to predict what happened or really understand what happened. so i one level, i feel like, my whole goal in this book, i am someone who struggles with the math and the statistics, and has a real habit of reading. it's like people reading playboy for the articles that i read academic for the articles or prose, not the equation to. so i'm one of those people and in many of these things i'm sure some of the context i just got wrong, and a lot of others i would just have to have been explained to me again and again and again, and read articles again and again and it would
2:03 pm
finally come through. i guess what it is, a lot of -- this is both the beauty and the limitation of the way academic research works, a lot of academic theories don't really see that much. you are trying to be careful and trying not to represent something more than you can pick and they are just restatement of the obvious or less obvious statements from very minor things. i guess i don't -- i do think there is this concern that if market jargon completely has taken over by kwon, then the rest of us will be a feeling left out. but it seems in terms of understanding the economy we've actually taken several steps back to a more simpler basically keynesian explanation for how things were, at least in a time like this. and away from a world where the people with a really fancy equations can have all the answers. so i feel like the inequity may
2:04 pm
be increasing over the last two years because it included the economist didn't have all of the answers. >> terrific. thank you. >> thank you for having me. [applause] >> coming up next, book tv presents "after words," an hour-long discussion between a guest host and the author of a new book. this week peter schweizer, research fellow at the hoover institution at stanford university talks about his latest book, "architects of ruin: how big government liberals wrecked the global economy - and how they will do it again if no one stops them." he discusses the book with
2:05 pm
congresswoman michele bachmann. ms. boxer girlie serving her second term as representative of minnesota's sixth district is a member of the house financial services committee. >> hi. my name is congresswoman michele bachmann. i hail from the great state of minnesota. i am and my third year in the united states congress and i am privileged to be able to sit on the financial services committee. and who would've known that for the last two, three years that financial services committee would be the center of the universe when it comes to taking a look at what's happening with the economic meltdown that so many americans have had to deal with and look at. joining me today is an author of a great new book that i know everyone will be interested in, it's called "architects of ruin." and the author is mr. peter schweizer. he will join us today to talk a little bit about what happened with the economic meltdown, how did we get here, who are the key
2:06 pm
players, what are we going to do and how do we get out so we can get back into prosperity. peter, i want to thank you for joining me today. and for booktv. so let's talk a bit about your book, "architects of ruin." how long has been a? >> just a couple of weeks. >> what have you been hearing from people so far? >> it's interesting to a lot of people reaction, a lot of people were surprised with the information in the book. i think they're sort of a narrative that's been written about the financial crisis now similar to the narrative that was written about the great depression. that narrative is basically the problem capitalist run amok and i think this puts a lot of people into so when i present and makes a case, it surprised a lot of people. >> it's interesting because so much what we've been hearing about is the problem is big wall street. at how coble, maybe what we should do is lay some groundwork first of all. tell me about your background.
2:07 pm
what qualifies you to write his books to? on a file at the hoover institution at stanford university, and i've been so for 10 years. i have written many articles and about a dozen other previous books. i like to think of myself really as a journalist or a researcher. >> do you have an economy background. i do not have that background. it sort of telling the story, telling the story about activism that helped bring us to the point where we are. there's also political story. >> when you say activism, do you mean political activism? >> yes, political activism. groups like acorn which has been much in the news, but also talking about labor unions who are very political in their action and have an agenda for their longtime for pushing for reducing lending standards for. >> that's a great point. architects of ruins, by architects, it looks like you are naming names. ruin, you're talking about the
2:08 pm
disruption of the economy? >> that's right. >> and you are talking to are those people. isn't actually individuals, peter, or is it organizations? give the viewers just a little bit of a background on what the ruin is, number one. and the number two, who are these architects of? >> okay. the moon is the current state of our economy, and my basic point is that even though there is now discussion about an economic recovery, we've got huge financial problems that we face. in the private sector, we've got a lot of bank loans that were made in home mortgages that were made that person for not going to be paid back. then we as taxpayers will end up having to basically foot the bill. >> this year we're looking at 1.4 trillion in debt for the year the close fourth 2009. that scares a lot of people, that level of debt. i think probably you identify in your book that the housing meltdown, the mortgage belt on,
2:09 pm
subprime loans but also prime loans that went into default were a big part of this. so you're talking about the our tax of one but talking about the ruin, the meltdown. talk a little bit more about what was the first domino that fell that actually cause, how did we get to this rule of? >> people are familiar with a lot of the crazy loans that were written. there was a strawberry picker in california was given a $725,000 mortgage on a home. people have heard all these stories about liar loans where people didn't have to provide any information about their income or no money downloads, that have been much in the news. my argument, the case and make it this is really what all group of political activists have gone on for more than 20 years. these are the architects of. >> but the ruins. will get to the architects. as far as the road goes, you're saying liar loans, ninja loans,
2:10 pm
low income. >> no income, no jobs. >> one thing you wrote about in the book, you talk about a requirement in a law that people can count welfare payments and they can count food stamps when they went to the bank, they would show that as income? >> the right. >> how -- did we get the guy that we had platinum level than he stands in a country for like 150 years. peter? >> we used to. we knew that those standards but what happened was there was despaired in homeownership in linney in the united states. primarily it broke down between ethnic minorities and other americans that the reality was -- that's redlining. that's what people said was breadline. is that to? >> d'argent was the reason we have this gap was because banks were racially discriminate against hispanics and african-americans. the problem with that tree is there really wasn't much evidence to support its. in fact, when you look at the
2:11 pm
data you found that black owned banks actually had a worse winning record than white owned banks to mayor nor a community's. >> is that because they didn't have sufficient money to made the loan? >> it was because unfortunately those communities tend to have more problems with credit. the federal reserve has done studies that show and white americans for example, 21 percent in a bad credit which means they have defaulted on loans or declared bankruptcy, they have some degree of problems that within the african-american and hispanic community, it is more than twice that level. so the problem is as you have credit issues, the act is ignored that, and what they said was this is about racism and racial discrimination. still in order to close this gap in homeownership, we're going to force banks on the basis of argument about racial discrimination. we will force thanks offered no money down loans. were going to force banks to say that you need to accept some welfare payments or you need to send other forms of income as
2:12 pm
traditional income. you even had instances where banks were told when they came to hispanics that were applying, that you should not be surprised if they had either no social security number or two or three social security numbers they were using. so this was an effort to say we need to allow as many people as possible to have access to bank loans, and we need to force banks to make loans to people that they would ordinarily not make. >> so the intention was to make sure that there was not discrimination? >> right. >> that was the intention of the bill. and i think we can all agree that's a really good thing. >> absolutely. >> we don't want anyone discriminate against it wasn't there a study that came out of boston that was don? >> there was. >> that there actually was discrimination? >> yes. >> and what was the conclusion? >> the study showed that one out and with similar income went and applied for home mortgage, that blackout of its rejected more
2:13 pm
often than white applicants. that study and others only took into account income. they didn't take into account assets that they didn't take into account credit history, job stability, etc. this is the problem with a lot these days is they can typical choose one factor and say that these things are failing to make these loans on racial grounds of. >> there is a differentiation between income and credit worthiness. >> exactly. the other reality is if you think about it, banks make money by loaning money to people that will pay them back. so to argue that a bank is going to reject people have good credit history because they don't like the color of the skin or they don't like their religion, just doesn't make sense. this is how they make money. they make money by making loans. >> and that that takes us to the architects. so the people that we are pushing to pass the law, from what i have read, we had
2:14 pm
platinum level lending standards in the united states. -the law was changed. what was that while? >> the first thing that happened to have something called community reinvestment act, cra, which was passed in 1977 by jimmy carter. and activist groups like acorn were in support of the. this law was a nuisance that what the law basically said was if you are a bank and you wanted to merge with another bank or you wanted to open a new bank branch or even wanted to open up a new atm and sheen, you have to prove that you were linking to the broad community. you were lending to everyone that the activists use this as a vehicle to compel banks to push this agenda that they had what you might call -- >> what is that a to? >> the agenda is to get banks to make loans to individuals who ordinarily would not get loans. the ostensible goal was to encourage homeownership in america. >> by not getting loaned you were saying that they last
2:15 pm
creditworthiness? >> exactly. >> do you have substantiation to back that up that when you do actual studies, objective studies, and you remove other variables, was there to evidence of discrimination? >> there was not. you can see that on a couple of levels. first is as i mentioned earlier, a black owned bank actually have a worse record of rejection, of minority app against it indicates that we're not talking to a racial component here. there is something else. >> i don't understand. you said acorn had pushed this. they had a believe in discrimination and you said studies prove there isn't. what was acorn getting out of the? >> there's a couple of things. number one, i argued this was really not about fighting discrimination. this was about income redistribution. >> because often with acorn, you see they are trying to get housing for people that are poor, they can somehow get in it, and they are looking on as a good service organization.
2:16 pm
>> right. >> what you say? >> i would say that's not true on a couple of levels. what they did with the cra is to enforce banks to make loans to their constituents, people who would not credit worthy. they also use the cra to check out banks. they would go to banks that were searching a merger. they would say if you set this program and link to these people, and if you make grants to our organization every year, we won't take a big stink about this. we won't accuse you of being racist. but if you don't give us the grant, if you don't make these loans, we are going to declare that you are racist bank and we're going to oppose you getting federal approval for this merger on the grounds that you are going to be the credit needs of your community. >> so acorn was involved in the shake down to banks. one thing that you talk about was from the 1930s and the fact that he had encourage people to go to the banks
2:17 pm
because that's where the money is. >> right. >> explained that. >> you have to -- >> you're saying that banks were not the problem? >> no, banks were not the problem. what you see really with this issue is a merging of two forces. you see sol lewinsky was a radical from chicago who had a very strong lasorda marxist view of things. and he argued in his book that really the weak link of the cattle system are banks. because they need people to come in and deposit them on and they need people to make most. so they are very sensitive to public criticism. there was that part of his argument that include to defeat capitalism you target banks because they are bondable. >> defeat capitalism? >> guest. >> so you're actually saying solid list you want to defeat capitalism? >> absolutely. >> radically change our economy here in the united states? >> yes. >> into what? >> internet perhaps the soviet union.
2:18 pm
he was not a fan of the soviet union but he idealistically believe that you could create sort of a egalitarian society that i would argue that his vision would have the same conflict that we do in the soviet system. is our unit was that we need to the greater egalitarian system, and the way you achieve that is by going after the major institutions, including the banks. his argument was -- >> redistribution of wealth? >> exactly. >> he believed, who did he influence? i assume it seems from your book that he was kind of the apex, and again i didn't get the theory is a conspiracy. >> not at all. >> you are talking that people agree on ideas, agreed on philosophy, people who agree on and results? >> it is a worldview of. >> so if you have solved the leading and essentially reduced vision of wealth and anti-capitalism, who were those believers? here you have acorn. was that the sole architect
2:19 pm
speakership a lot of people were influenced by him to get acorn, high officials, international union, public officials. hillary clinton, and our secretary of state wrote her senior thesis on him. she thought he made some tactical decisions but was supported. barack obama, the president, wrote an essay in the book that was sort of honoring sol. so there are a lot of people have -- >> president obama also worked as an attorney for acorn, or isn't that true? >> he gives. >> said people say he did not. do you know if he did or didn't work for acorn? >> was he a paid staff lawyer for acorn, no. but were the case that acorn was involved in that they would refer to obama, yes there were. i actually talk about a case that is related to the financial crisis in the book. it evolved in 1994 days in chicago where they were three individuals african-americans who claimed they were being racially discriminated against
2:20 pm
by citibank. because they were denied mortgages and home loans. in their complaint, they admit that they have bad credit. but the argument made by the attorneys is this the still racial discrimination. and they represented a violation not only of the fair credit act but also the 13th amendment of the constitution which the amendment that abolished slavery. what's interesting is citibank, barack obama was one of the attorneys by the way represented the plaintiffs in this case, what's interesting is that citibank did what hundreds of other banks did. they are all kinds of lawsuits taking place. they did want the publicity. they did why the high legal bills. so they cut a deal. what basically -- >> with acorn? >> with acorn, with the three individuals speck that is after congress passed this law? >> that's right. this was 1994. so you have a situation where citibank settles, the three players each get $20000. >> who are the plate of? >> three individuals, i'm trying
2:21 pm
to remember the name. >> that's fine. but three individuals claimed they were harmed by not receiving a loan at a settlement was reached? >> the each got $20000. the attorneys in this case, including barack obama, received $950,000 in legal bills. so these were the sorts of things that were happening all the time. >> who played the legal bill? >> citibank. they wanted this lawsuit go away. >> citibank pay the legal bills for barack obama and others who are defending this case the? >> yes. >> so we know that acorn, we know solve had the idea, and i capitalists, wanted to set changer in the united states, and then he had people agreed with them such as you mentioned the secretary of state, hillary clinton and now our president, barack obama. but then also acorn, how about members of congress? what members of congress thought that the community reinvestment act was a good idea?
2:22 pm
>> there's lots of them. what's interesting by the way -- >> was a push by congress? >> it was pushed by the senator from wisconsin. what's interesting there was really no debate in house. it was just sort of passed and signed by the carter administration. >> did people understand what this could mean? >> they get. >> did people understand the community reinvestment act would force banks to lower their lending standards to people who lacked creditworthiness? >> they did not. what the law really said, very nebulous, what the law said was in order to get federal approval, federal regulators need to take into account whether you're making loans all segments of the community. that sounds wonderful. the problem is that when activists gave into this racial tension said no, what this really means is you need to be lending to all these racial groups. in fact, we need to set up a numerical quota system to make sure that loans are enforced.
2:23 pm
>> is that a part of the community reinforcement act? >> the clinton administration in 1993 put the power of the federal government behind the cra and set up a quota system. >> for banks to. >> for banks. >> i want to make sure i understand. banks were told you have to make loans to every segment of the population. including people who can't afford to pay the loans back. >> right. >> you have to count welfare and food stands, and income, and so really sketchy loans and in the clinton administration passed amendments that said -- >> what the clinton administration did was they put the justice department behind, and they went to a bank and he went to other mortgage brokers, mortgage lenders like countrywide instead if you reject more than five minority outcomes, which with large banks is bound to happen, we are going to consider filing a lawsuit. the federal government, on the
2:24 pm
ground of racial discrimination. >> so they had threats of lawsuits from the justice department and they had the threat of not being able to grow their business or merge their business if they fail to get these loans. so did banks view this then, peter, that they had to set aside and just assume that you didn't banks know they were going to have a higher default rates because they didn't. >> where were the bankers? why were they not thinking about this? wouldn't you think the banking lobby would be all over d.c. and making a fuss about this? what happens because there were bankers that were doing that. there was one gentleman that i quote those ahead of the independent bankers association who said look, really what this is this is a way of trying to advance a liberal social agenda and not have the government to have the banks pay for. >> that is one thing you wrote about. i wrote this were done. you said economic democracy, democratizing capitalism. in other words, isn't just another word for redistribution
2:25 pm
of wealth? >> it is. >> these people really believe this about redistribution of wealth. >> and the argument is quote unquote economic democracy, you need to have equal access to credit. the problem with that is it sounds very good, but what they mean is if an individual content that has good credit and get a loan, then an individual comes in and has bad credit should also be able to get about. >> so it is outcome-based, outcome-based desires it sounds like on the part of architect, sol, mrs. clinton, obama, acorn who are part of these architects of ruin, there go all to really was apparently what you're saying is redistribution of wealth. and whether a person at creditworthiness or not didn't matter. it sounds like what you are saying, peter, is there is a belief that there is a right to housing, to ownership of housing.
2:26 pm
is that active? >> a right to housing at a right to credit. what is interesting to be more than housing credit? >> more. >> so what other types of advocacy like everything we've been hearing in the media is it was released back housing loans that were causing trouble. everything that we hear, people's hair on fire and this is all derivatives that it was wall street that it was greedy bankers, forcing people to purchase loans that they couldn't buy. so number one, bankers who force people to either those they could not afford to pay back. but then greedy wall street selling the commercial paper to each other. >> right. >> what about that? >> there are two sides of the. there is the housing puzzle we talked about that i argued was really instituted by the program. which led to the subprime market. but the second part of the story is wall street speculation, at the point i make in the book is it that think about the bailout that we had last year.
2:27 pm
>> don't remind me that i voted against a. $700 billion we are still paying the cost of that thing. that's what led to gm. that's what led to christ but that's led to all of these. exactly. here's a question i asked a lot of people. the vice president of goldman sachs-how may times does the big wall street investment houses, common times had they been bailed out by the federal government? >> lasher was the only time. the reality is when you look back at the beginning of the clinton years, 1994, wall street goldman sachs gosen big for mexican bonds. the maximum under mexican government says we can't pay them. >> why would wall street want to buy something that is not a good investment? these are the sharp under sharpest attacks. they would want to do that. >> baby. a profit is often a function of risk. so if you want to make a big
2:28 pm
return on wall street, it will entail taking big risks. that's okay, but capitalism needs to be about profit and loss. what you have happen in the clinton administration in mexico in 1984, in russia in 1986, in asia, they were big in derivatives in asia in 1998. long-term capital management, same thing happened with brazil. each one of these instances, the big wall street investment houses make wild speculative bets. >> but was a problem then that the federal government didn't regulate that enough? that's what you would think the common solution would be that they were making wild bets. were they thinking they could make wild bets and poor joe taxpayer would be forced to pony up if that happens to? that's what happened to each one of those cases, by the way, congress did not agree with his beloved of the clinton administration had to have a special u.s. treasury department fund that was ostensibly therefore the u.s. dollar. but to use it about these
2:29 pm
investment houses. here's what scares -- >> so private u.s. investment banks on wall street were making widely speculative bets. and they were making it, thinking that the federal government would bail them out if their investments went south, and in fact that's what happened to excel at the federal government reward bad behavior on wall street? >> exactly. >> so was wall street emboldened them. >> that's exactly what happened to each one of these, with the clinton administration did was not only make sure they got their principle that, they actually gave them their profit back. so if they invested in widely state of the mexican, it goes south, -- >> so they socialize. >> and in banking they called low hazard. . .
2:30 pm
they are some of this dance, freddie and family are the secondary mortgage circuits with a buy a mortgage and turn that into commercial paper, they bundle with a lot of other mortgages and then they sell that paper because we know that
2:31 pm
there should be a continuous income stream for 30 years or 15 years, people making their mortgage payments so that's a pretty good bet. you sell that mortgage paper thinking you're going to be paid back so people sold those mortgage-backed securities, the only problem is what? >> guest: the only problem is that works as long as you have high handed -- lending standards. the old ways were put money in the game and you've got to -- you have to save up. >> host: have real income. >> guest: three to five-year history and have a stable job, get rid of the lending standards and give a loan to somebody or they're putting no money down when they don't have proof of credit. >> host: were it is obvious. so all these geniuses better on wall street and all these geniuses at the ready in fannie come i didn't have regulators? i thought the banking industry was the most regulated industry in the u.s., is that two not
2:32 pm
true? >> guest: the nuclear power industry is more regulated than that. >> host: but the banking industry is highly regulated. didn't the regulators to scream to high heaven we've got trouble? >> guest: they did it because of a federal government more than we have a school of affordable housing and what happened at fannie mae, for example. >> host: why would they buy bad loans? >> guest: it was part of this agenda of affirmative action lending. >> host: ever private entity is. >> host: . >> guest: there are chartered by the government so there are an implicit government but private but what happened was you had to move a beginning in the 1990's which said it then he may has been about a middle-class supporting home ownership. we need to ensure that more minorities also benefit from this program so there was initial commitment of $1 trillion them became $2 trillion by fannie mae of saying we're going to start
2:33 pm
buying subprime marones. >> host: what do we care? if they want to do that they can do whatever they want. >> guest: they are backed by the taxpayers implicitly because they are chartered by congress so they were able to act as a free private company but they were guaranteed by the u.s. taxpayer and that's where we ended up getting into trouble because they eroded the lending standards that have always protected the mortgages. >> host: you have a private contract, a private company having a private contract in the way thing is people who were not part of that, the american taxpayers were the suckers that had to, and clean of the mass when everything fell apart. hold that thought, we'll come back any to get a little more into the architects of ruin. thank you so much for joining us. we have here today the privilege of looking at the booker "architects of ruin" by the author peter schweizer and we will come back to learn more but will take a break now and be right back.
2:34 pm
after words with peter schweizer and congresswoman michele bachmann continues. host macdonald my name is
2:35 pm
congresswoman michele bachmann and thank you so much for coming back after that important break. we are joined today by a wonderful author of a great new book that literally is hot off the presses, there are 40,000 copies just out for the last two weeks and is called "architects of ruin". the author is mr. peter schweizer and for more information on this great book go to i'm sure that is easy to spell. in more information available in bookstores all over the united states, very timely. this is a topic we've still contend with, economic collapse in the united states. again, my name is congresswoman michele bachmann, a member of congress from the great state of minnesota, this is my third yea in congress and a privilege to sit on financial services committee and we have been talking about friday and fanny and how they contributed mightily to this collapse but we are literally digging our way out of people suffering, we have
2:36 pm
millions of people at work and unemployment is at 9.8% and very soon will have more unemployment number south, the president's team has said it expects this will be the new normal. for quite awhile going forward because we're looking at in excess of 10% on a planet. there are real consequences, when you see this level of economic collapse. one thing that a lot on realize in the last of our minds the value of the dollar has dropped 16%, people feel that in some way but it is profoundly hear that. i don't know if there is an economist from arizona state university that run a column has a study of the shows that since this last year since the inception of bailout nation and as really also wish to address in your great book "architects of ruin", this economist says since the inception of bailout nation and that the federal government has taken over 30 percent of the private
2:37 pm
economy. that's a stunning figure. when you think of that $700 billion bailout buying banks, by aig, the largest insurance company in the u.s., freddie and fannie, chrysler, gm, taking over the whole student loan industry -- it's really quite breathtaking at 30% of the private economy is now owned or controlled by the federal government and if this health care bill goes through that's an additional 18% that the federal government will control, 40 percent of the private economy. it's really -- it really causes a person to cause and i think that's one thing to it about your book "architects of ruin", informed me how just a small decision, a small bill can be like a little bit of leverage. like if you have a teeter totters echoes one way or another, the fulcrum, one of bill can cause our entire huge wonderful american economy to tip. you talk about the kennedy reinvestment act, you talked about how lending standards were
2:38 pm
forced to be lowered, mandated by law, banks were forced to make those loans or they could expand as businesses and then the bad loans were sold off to freddie and fannie. the secondary mortgage insurance market, they purchased the loans, turned into a commercial paper and then sold off to wall street presumably to investment banks and you told us a little about investment banks. how the federal government was doing bailouts and i'm wondering if you may pick up that story from there and talk about how the federal government -- he said that they forced banks to do what they normally wouldn't went against economic prudence cents and then freddie and fannie were backed by the federal government with an implied promise, if these marriages go south commercial paper we will bill you out. implied promise. so why did wall street take the gamble? >> guest: i think they did for a couple reasons. first is high profit comes from high risks so there's always went to be a tendency on wall
2:39 pm
street to speculate but what really restrains wall street in iraq from speculation is a chance that you could lose your shirt host mask >> host: the place riss configured on call sam is a job. >> guest: would bill the mound and that had been the recent significant case were the investment houses jpmorgan, goldman sachs etc. had gone into financial difficulty from speculation, the federal government stepped in and bailed them out so they can to accept the fact the government was going to do that has wracked that was 94 when the big inducements came in. why didn't we see a meltdown in the '90s? >> guest: the work place at the time that this was dangerous and was going to encourage more risk but the problem was the cra community reinvestment act started to pick up steam in the late 1990's and up until that point the commitments under the cra has been about $400 billion which for the overall u.s.
2:40 pm
economy is not so large. >> host: if there were losses, excess of defaults out of 400 billion, we could absorbent. >> guest: the problem is in the eight years running up to subprime crisis in 2008, around 2,000 in the cra commitments in those numbers of $4.2 trillion. >> host: now 2,000, there is complicity on both sides of the aisle. you're talking republican and democrat because people want to know who did this, who made these foolish decisions so republicans were also complicit. >> guest: there were exactly. there were some that bought into the idea that this is a wonderful thing to encourage home ownership and a wonderful thing to give credit to individuals. there were some members of congress but a lot of it frankly came in the bush administration. there are advocates in the bush administration, president bush among them again along with some of the activists felt if we encourage ownership this is
2:41 pm
going to give a new birth. >> host: in home ownership is a good day, what would be wrong with wanting to see increased level of homeownership among people who have been apartment dwellers? when that be a good thing that the pride of home ownership and bucking up the economy with all the things? >> guest: there's nothing wrong with it is but the problem is the difference between home ownership and giving mortgages they can afford because you give people mortgages no money down, they don't have to show proof of income . >> host: for the force? >> guest: no, they were encouraged and what is interesting. >> host: these people shouldn't have been encouraged which were saying that the cra not only encouraged banks during the loans but said you are mandated, you have to have a quota. >> guest: and the things would actually go out and promote. >> host: that doesn't make sense -- why would the clinton administration and the bush administration pushed the banks to make loans that are going to default knowing that the backstop will be the american
2:42 pm
taxpayer? it just seems incredulous that very smart people wouldn't see that this problem was common. wasn't this foreseeable? >> guest: i think it was, there were people saw it coming but the problem is there's a tendency in washington and you've probably seen this up close, there's a tendency to engage in social engineering to say here is this issue or this problem . >> host: big government solves problems. >> guest: you get a unintended consequences that people don't think about. there were some people who probably saw that it would hurt the capitalist system in the daycare and other people who thought i don't think that's going to happen and when we give these people homes and they will care about them, they will make the payments because there is the pride of home ownership. sounded but the problem is the loans have a much higher failure rates than other loans. bank of america for example in 2008 said the cra loans were 7 percent of their loan foreclosures -- portfolio but 29 percent of their losses.
2:43 pm
>> host: was that the consumer director to washington mutual and bankamerica going down, countrywide in now citibank have file bankruptcy? >> guest: it was a lot of those cases because the cra commitments from some of the banks are literally hundreds of billions of dollars. >> host: now we are way out of kansas now, dorothy. now we have gone to a holdrun level. and so we have the big government forcing the banks to make loans to people who lack credit worthiness, counting food stamps and welfare as income, wireless acceptable. it's just off the charts, we know we're going to have trouble so from there the banks sell the loans to freddie and fannie. diggs have so loans because they say if they go south of san will take care and the banks sell them to wall street. wall street picks up the commercial paper, there are trading back commercial paper but in order to ensure against risk, the morgan stanley and the
2:44 pm
goldman, investment houses out there that are taking a risk in pricing risk in the equation, usually there is insurance that comes for those mortgage-backed insurance. morris back securities. so that insurance company was primarily. >> guest: a irg. >> host: do you want to talk about that so aig was insuring the loss of risk for the investment houses. >> guest: when you are talking about derivatives or credit to all swaps you are talking about ways of spreading around risk. one of the ways that the clinton administration changed adding to the problem was fannie mae developed a situation in the late 90's when they saw that this affirmative action lending as an work was leading to an erosion of lending standards and the agreement had always been if you were a bank and sold are just too fannie mae and said that in this bundle the average credit score is 620 and ended up not been true, you have to buy back from fannie mae.
2:45 pm
that sounds very fair. the problem was so bad by the late 90's that fannie mae actually said we're going to give you all aid to over. because we are finding that which were saying about those is not conforming to what is actually there, we are going to give you aid to over and not ask to take the loans back. that just encourage more of this kind of lending. >> host: more risk-taking. >> guest: what's interesting is people in the prices look at subprime lenders like countrywide and said that the problem with countrywide causing the problems -- countrywide to issue the kinds of loans that they issued to praise the no money down lines because they sold those loans to fannie mae. they didn't actually hold on the books. >> host: they said that there is an implied promise from the federal government to step in. what i don't understand is it seems like along the chain your local bank freddie and fannie, a big investment houses that trade in this commercial paper, aig which is the insurance company
2:46 pm
for the commercial paper. why didn't anybody along the way say we've got a problem here? especially when freddie and fannie was pumping up the number of the mortgages that they were going to be taking on. as the balance sheets came so high in, where were members of congress? where was the white house? where were the regulators? isn't there a point from those people who say the problem is lack of regulation? >> guest: it's not lack of regulation, the rules are there but the problem is you had in iraq and iron triangle. the biggest wall street firm is making big profits of this and really . >> host: the march raids wall street made it the more they made. >> guest: they were going to get bailed out. by that federal government, the taxpayers. >> host: they did get bailed out again in. >> guest: de did. >> host: you're iron triangle, wall street appear saying we're
2:47 pm
making lots of money and will get bailed out and the other is. >> guest: the activists who said we will get loans. >> host: a cornyn. >> guest: we are getting things for our constituents, is facing our social agenda. >> host: which is we want to collapse capitalism and we believe in economic redistribution of wealth is what they wanted. >> guest: the third are the politicians in washington. >> host: what did the politicians get out of this? >> guest: they got the activists. >> host: have a big headache right now. trillion dollar deficit with, it doesn't look too smart to any more of. >> guest: the blame gets shifted to somebody else and is usually not somebody within the triangle. >> host: are you willing to name names? which politicians -- are there any politicians behind us? >> guest: absolutely. the chairman of your committee barney frank from massachusetts. as been a longtime supporter of the community reinvestment act,
2:48 pm
championed it and there's actually initiative right now been pushing congress by congresswoman jobs and from texas to expand the cra, not of include banks which are currently covered but to include credit unions and other lenders. >> host: so spread the contagion a little further. >> guest: and make it worse. barney frank as supported that legislation. you have burned frank, senator christopher dodd from connecticut, banking committee and the senate to support of the cra, you have the clinton administration, a lot of senior people supported the cra, there's a lot of people who had a lot to gain by making the system worked the way it did. >> host: and those who had to gain a use and investment houses on wall street he felt that taxpayers also take the losses and aig, they were making money on the assurances they were selling so when we went through our hierarchy here base, freddie and fannie, secondary mortgage and then went to investment
2:49 pm
houses and aig, anybody above aig on the food chain? >> guest: not really except the federal government ultimately the people holding its mortgage-backed securities. >> host: who was holding in? investors all over the world. >> guest: all over the world. >> host: it wasn't just americans, the interesting thing about the $700 billion bailout, the very first moneys, the first billions that one of the door at of the u.s. treasury and this is american tax dollars and the first billion side understood went to the deutsche bank, the bank of france. why is that? wanted those warnings get the first billions out of t.a.r.p. bonds rather than america? >> guest: osher why the first but they were holding a huge number of the mortgage-backed securities and they have basically been told by the wall street first . >> host: did they know this was bad? >> guest: some might have that they were told by big firms in wall street don't worry, the federal government will bail
2:50 pm
out. >> host: don't the rating companies look at these mortgage by securities? dog they look at aig, the derivatives? dog they look at all of this and say it's good or not good paper? >> guest: some were drinking the goulet. and they would basically give reports that the investment houses wanted to have a problem that the rating agents were basically in facing the ratings on the information given in the information they were getting from freddie and fannie. >> host: again it doesn't add be live that way or the regulators doing, what was congress doing of oversight. seems like people were asking questions but the problem is congress like you said this at the fulcrum in this. they enforced bad decisions had to be made under the law. what about the federal reserve? what was of the federal reserve because of their task with the assignments of the soundness of our dollar and the soundness of price stability. where was the federal reserve in this? >> guest: there are people
2:51 pm
within the federal reserve alan greenspan -- was very concerned about some of the problems taking place in lending by most of the people in the federal reserve were tasked by helping to regulate to the cia so they have a vested interest part of their power and influence so they had a vested interest in seeing the community reinvestment act been vigorous and strong because it gave them leverage. the federal reserve to ship in mightily to the problem because they had loose money policy and that made money cheap. >> host: by loose money policy you mean the interest rates stayed too low for too long. with the money supply and all that did not warrant keeping the interest rates that low? >> guest: they were printing money. >> host: to take more risks. >> guest: you have an active interest rates that may be 1 percent in some instances so it led to the point where if you bring an individual who doesn't have any money who has gone steady income and you want to go
2:52 pm
out and get a mortgage on a loan if you got a bank that's encouraging you to do it because the having quoted to me, you got it federal regulator in lansing this agenda saying this is good and a money-supply or interest-rate issue to wear them take it up alone isn't going to cost a lot of money. so all these forces are converging to encourage the kind of problem that exists today and what's interesting about the mortgage prices that i think is overlooked is why there is a lot of focus on the condos sitting empty and florida branches in california, this is primarily the epicenter of the crisis in urban america. and these are minority neighborhoods in new york and cleveland and los angeles and elsewhere, the epicenters of the financial crisis. >> host: in means they have been foreclosed on. >> guest: the race are five to six times the rate has tracked the old some irony that people whose organizations have the iron triangle you explain to the viewers but the people of this supposedly were trying to be held the most now have very bad
2:53 pm
credit ratings and now they're sitting in the midst of foreclosure. hands that is a part of all this money that is being bailed out and again if you have joined us late my name is congresswoman michele bachmann from the great state of minnesota and i want to give a shout out to mr. peter schweizer is joining us here today, the author of "architects of ruin". this book that's been out for a few weeks now, about 40,000 copies. go to his website for more information. he is detailing for us that economic ruin and collapse we're looking at right now and our economy, how we got there and you told me briefly earlier and i read about it in the book that you are portending that. done a. that right now the federal government, the big government that created this economic ruin wasn't a private bank repossessed. although that is part of it. part of it is big business but the other part is big government
2:54 pm
and that's been overlooked how they laid the foundation in the made requirements to force business to make unwise business decisions but you mentioned to me that we may be setting ourselves up for a similar bobble in dealing with the grain economy. can you talk about that? >> guest: first of all, we have not solve the problems of this financial sector so i think the prospects for another bubble. >> host: well over 12 trillion we have committed to the federal reserve and the fdic, all these entities. trillion's upon trillions is max we have that problem developing at the same time social engineering in this new area which is the grain economy and the idea is we are going to create . >> host: as of the government hasn't caused enough trouble with the sea are a. >> guest: we're going to inflate and other economy.
2:55 pm
>> host: is there another bill congress looking to create this new bubble with the grain economy. >> guest: basically the idea is we need to encourage renewable energy, wind and solar. >> host: what's wrong with back? >> guest: the problem is you have creating a situation where you have a huge government grants and loans, tax credits that are encouraging people to rush into this sector of the economy and the reality is that it's not economically viable without these government programs and without this government help. >> host: you have heavy government subsidies going into renewable energy, is not profitable on its own. as of the discipline of the marketplace if you will were people who put their private money, private capital into a product or service and a half to make a go of it, they have to be able to sali for more than it takes them to produce it and put out on the market, that's not happening what you're telling green economy has been getting
2:56 pm
heavy subsidies for how long? 20 years? >> guest: its really ramped up recently, a little in the bush administration but as part of president obama's agenda. >> host: he says he is trying to prime the pump and lay the foundation, is that true? >> guest: he is priming the pump if you create a huge sector of the economy as not sustainable by itself you got a choice -- either continue to pour huge amounts of taxpayer money into subsidizing or you've got to pull the plug at which point you're going to have a bubble poppers. the same kind of thing that happened in the realistic economy. and i quote a billionaire investor who is supportive of corrine technology who says that with the current incentives in place we are setting ourselves up for a potentially $20 trillion bubble burst of agreeing economy. >> host: who is a supporter of this who believes in renewable energy? but he foresees what has happened in the housing industry could also happen to green
2:57 pm
technology? people aren't going out and getting loans -- you mean people who put solar systems on our house? taking out loans -- explain with a bubble comes from because people can understand when they buy a house and mortgage, what is it that people are doing to change their behavior that's going to set up this problem for the bursting? >> guest: for example, there's a story i cite in there, and gentleman in hartford, connecticut to put a large wind turbine on the roof of his office building in hartford. there's not much wind in that location but the reason he did is because he gets 89 percent of the cost of that recuperated right away from federal government tax subsidies. the point is that you are encouraging businesses, encouraging investors to go out and go to this sector of the economy to invest heavily to start a business is not sustainable. that they cannot produce something and sali for more and make a profit and so the bubble is going to come into iraq probably the best analogy with
2:58 pm
the internet stock bubble of the '90s. to come into the right to use the everybody rushed in and invest and suddenly the realization is going to. >> host: there's no profit here. >> guest: it's the wizard of oz. >> host: so what you're saying is that may be pro-business, it may be portrayed as pro-business to go into the green economy and that's the next generation, but it may not be pro free-market. >> guest: and has a huge distinction. >> host: talk about that. >> guest: i think even conservatives we can become susceptible to this idea that we want to be pro-business. the problem is when you are pro-business you end up basically with corporate welfare or subsidizing businesses. we should be pro free market, i think for example on green energy renewable sort great and we ought to create an informant in a situation where people that go in there and develop technologies and do so whether actively but we should not be subsidizing individual businesses.
2:59 pm
this is what happened in wall street. the clinton administration said we're going to bail out these individual investment houses and were pro-business but not pro free-market. ask it would have said in english investment decisions you are born to lose your shirt and next time you'll pay the price. >> host: rather than the taxpayer bailout, you take your own risk, that taints a good idea. in the time remaining this is peter schweizer, his book is "architects of ruin" talking about the current economic meltdown and you are at when we look at the solutions, what if congress -- here is peter schweizer come i'm just giving you your magic want. what would you do tomorrow? what would you do today to set our economy up right? >> guest: the first thing we need to do is stop social engineering, stops and i guess something that i want to change in our economy. >> host: redistribution of wealth. >> guest: alan get rid


info Stream Only

Uploaded by TV Archive on