Matthew Richardson

  • Aired:  07/13/11
  •  | Views: 43,490

Matthew Richardson likens America's subprime mortgage crisis to the aftermath of a Godzilla and King Kong battle in downtown Tokyo. (5:52)

>> Jon: WELCOME BACK.

MY GUEST TONIGHT PROFESSOR AT

NEW YORK UNIVERSITY'S STERN

SCHOOL OF BUSINESS, HIS NEW BOOK

WHICH HE COAUTHORED IS CALLED

"GUARANTEED TO FAIL FANNIE MAE,

FREDDIE MAC AND THE DEBACLE OF

MORTGAGE FINANCE."

PLEASE WELCOME TO THE PROGRAM

MATTHEW RICHARDSON.

SIR --

[CHEERS AND APPLAUSE]

THANKS FOR BEING HERE.

>> FEELS GOOD TO BE HERE.

>> Jon: THE BOOK IS CALLED

GUARANTEED TO FAIL.

IT FEELS LIKE THEY HAVEN'T

GOTTEN A TREMENDOUS AMOUNT OF

ATTENTION AS FAR AS OUR ENTIRE

MORTGAGE DEBACLE AND CRASHING OF

THE ECHMM.

[LAUGHTER]

WHAT IS YOUR FEELING -- ARE THEY

PRIMARILY RESPONSIBLE FOR THIS

COLLAPSE?

PARTIALLY?

>> YES.

I THINK THERE SHOULD BE

TREMENDOUS OUTRAGE AT THE

MORTGAGE FINANCE SYSTEM.

FANNIE AND FREDDIE WERE SMACK IN

THE MIDDLE OF THIS.

YOU TOOK THE TWO FIRMS WITH

PUBLIC GOVERNMENT BACKING.

THEY WENT FROM JUST A LITTLE

BITTY PLAYERS IN THE EARLY

1980'S TO AT THE TIME OF THE

CRISIS THEY OWNED 50% OF

MORTGAGE MARKET, $5 TRILLION OF

MORTGAGE DEBT AT RISK WITH

LITTLE CAPITAL UNDERNEATH IT AND

WE'RE PAYING FOR IT.

YOU'RE PAYING FOR IT.

I'M PAYING FOR IT.

THE AUDIENCE IS PAYING FOR IT.

>> Jon: THE IDEA IS THAT THE

TRICK THEY WERE PULLING WAS THEY

GO TO CONGRESS AND SAY, DON'T

WORRY YOU'RE NOT ON THE HOOK FOR

THIS.

AND THEY WOULD GO TO WALL STREET

AND SAY DON'T WORRY CONGRESS

WILL PAY IF THIS GOES SOUTH.

>> THAT'S EXACTLY CORRECT.

THEY WERE A PRIVATE FIRM.

THEY MAKE THE PROFITS BUT THE

REST WAS BORNE BY THE TAXPAYER,

AGAIN, ALL OF US, YOU COMBINE

THOSE TOGETHER IT'S A NASTY MIX.

>> Jon: HOW DO THEY PRIVATIZE

PROFIT.

I'M CURIOUS AS TO HOW PROFIT

GETS PRIVATIZED AND LOSSES GET

SOCIALIZED.

HOW DOES THAT SEEM TO WORK?

>> THEY'RE GUARANTEED TO FAIL.

THEY HAVE NO CAPITAL UNDERNEATH

THEM.

THEY CONTROL A HUGE AMOUNT OF

MORTGAGE MARKET.

IF THINGS GO WELL WHICH THEY DID

FOR TEN YEARS, THEY ARE RATING

THE MONEY --

>> Jon: WHO ARE THE

SHAREHOLDERS IS THAT US?

>> THE PEOPLE THAT BOUGHT STOCK

IN FANNIE AND FREDDIE.

IF YOU BOUGHT THAT STOCK --

>> Jon: YOU HAVE TO OWN THEIR

STOCK?

>> THAT'S RIGHT.

>> Jon: WHY WERE THEY ALLOWED

TO -- I UNDERSTAND IT IS IN MANY

RESPECTS A NOBLE ENDEAVOR TO

HELP PEOPLE OWN THEIRijIS IT NOT?

ISN'T THERE VALUE TO THAT?

>> WE SUBSIDIZED HOUSING SOX WE

GOT PEOPLE TO BORROW MORE THAN

THEY COULD AFFORD TO BUY HOUSES

BIGGER THAN THEY TPHAOEFPLD IT'S

GREAT WHEN EVERYTHING IS GOING

UP AND WHEN THE PYRAMID BEGINS

TO COLLAPSE YOU FEEL THE PAIN.

>> Jon: WOULD WE HAVE FELT THE

SAME PAIN.

WHY WAS FANNIE AND FREDDY

ALLOWED TO BUY INTO THE DERIVE

ACTIVES MARKET.

WHY DID THEY GET INTO THAT

BUSINESS?

>> THEY WERE SIMPLE INSTITUTIONS

THEY BOUGHT SIMPLE MORTGAGE

BACKED SUPREME COURTS AND

GUARANTEE THE DEFAULT RISK ON

MORTGAGES.

YOUR POINT ABOUT THE MORTGAGE

SECURITIES MARKET IS WELL TAKEN.

WE DESCRIBE IT AS A RACE TO THE

BOTTOM.

ON THE ONE HAND YOU HAVE FANNIE

MAE, FREDDIE MAC WE CALL IT

GODZILLA.

YOU HAVE THE BANKS WE CALL KING

CONGRESS.

WE WANT THE READER TO ENVISION

THEY ARE LOOKING AT DOWNTOWN

TOKYO LOOK THE AT GODZILLA AND

KING KONG BATTLING IT OUT.

YOU HAVE TO DEAL WITH BOTH AND

THE LARGE INSTITUTIONS.

>> Jon: WHEN GODZILLA AND KING

KONG ARE ATTACKED IN TOKYO IS

THERE A REGULATORY ALIVE THAT

COULD ZAP THEM WITH A GAMMA RAY?

OR HOW DO YOU BATTLE THAT TYPE

OF -- IT STRIKES ME AS, IF WE'RE

BACKING THEM AND BACKING THE

PRIVATE MORTGAGE INSURERS WHO

ARE WE NOT BECOMING AND HOW

COULD WE AS THE AMERICAN PUBLIC

HAVE WON IN THE FIRST PLACE.

>> ONCE YOU MADE THEM KING÷ú KONG

AND GODZILLA THERE'S NOTHING YOU

CAN DO.

YOU HAVE TO PREVENT THEM FROM

BECOMING THAT.

>> Jon: DO YOU HAVE FAITH

THERE CAN BE AN AGGRESSIVE

STREAMLINE, NOT CUMBERSOME

BUREAUCRACY, REGULATORY REGIME

THAT COULD CONTROL THESE THINGS

OR IS IT POLITCALLY NOT

FEASIBLE?

>> I DON'T KNOW ABOUT THE

POLITICS.

IN THE BOOK WE HAVE A

THREE-STAGE PLAN TO GET FROM

WHERE WE ARE NOW TO WHERE WE

WANT TO BE.

FIRST WE STOP MESSING AROUND AND

WIND DOWN FANNY AND FREDDIE.

SECOND WE NEED TO WEAN MORTGAGE

FINANCE OFF THE GOVERNMENT.

YOU CAN'T DO IT COLD TURKEY.

YOU HAVE TO DO IT GRADUALLY.

OUR PLAN TAKES A DECADE TO DO

THAT.

>> Jon: WE'LL BE HERE THEN.

IF THEY FIGHT FOR A DECADE THAT

SHOULD BE ALL RIGHT.

WE'RE ALL GOING TO DIE!

[LAUGHTER]

>> IT'S BEEN THREE YEARS WE

HAVEN'T DONE ANYTHING.

YOU HAVE TO ADDRESS IT AT SOME

POINT.

YOU WOULD HOPE A PRIVATE

MORTGAGE FINANCE SYSTEM WELL

FUNCTIONING.

YOU HAVE TO HAVE IT WELL

REGULATED AND IF YOU HAVE THAT

YOU HAVE A MUCH BETTER

FUNCTIONING ECONOMY AFTERWARDS.

>> Jon: ONE WORD YES OR NO IS

THAT -- THERE ANY POSSIBILITY IN

THIS UNIVERSE THAT THAT GETS

DONE?

>> 50/50.

>> Jon: "GUARANTEED TO FAIL"

IT'S REALLY DISTURBING.

GET IT.

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