BILL MOYERS: One of journalism's premier business reporters is with me now. Gretchen Morgenson won the Pulitzer Prize for her fearless exposés of Wall Street's dirty secrets and reckless behavior. Her recent book with Joshua Rosner on crony capitalism at Fannie Mae is called Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon. Welcome.


BILL MOYERS: You describe in Reckless Endangerment a tight web of relationships, personal relationships that connected Fannie Mae, Goldman Sachs, Citigroup, the New York Fed, the Federal Reserve and the Treasury. I mean, that's quite a little circle there. How did that web work?

GRETCHEN MORGENSON: Well, these are all obviously very powerful organizations. But you go back in time and you connect the dots, Bill, and you see a tremendous number of incidents, episodes where these players are interacting at very high levels and very powerful people.

So you have Fannie Mae, whose CEO goes to join the board of Goldman Sachs after he leaves as CEO, this is James Johnson who ran Fannie during the days when it was, you know, really becoming the absolute top crony capitalist company. He goes to join the board of Goldman Sachs when he leaves Fannie Mae. Goldman Sachs helped Fannie Mae cook its books according to the OFHEO Report which was published in 2006.

BILL MOYERS: That was the investigative commission that was looking into how all this happened?

GRETCHEN MORGENSON: That was the investigative commission that was looking into how Fannie Mae was able to manipulate its earnings. So now we have Mr. Johnson on the board of Goldman Sachs. Goldman Sachs of course raises a tremendous amount of money for Fannie Mae. You also have, you know, on the chairman- on the board of the Fed you have people from Goldman Sachs.

I mean, it is just a tremendous web and it's very important to understand that along the way when anyone tried to rein in Fannie Mae, when anyone tried to say that, "Gee, maybe we should, you know, reduce the threat to the taxpayer that these companies pose," that there were people in place to reject that idea, Larry Summers for example, another prime case. When Treasury was writing a report that would have been a roadmap to how to privatize these companies and reduce their taxpayer reliance Larry Summers ordered that report watered down. So that there-

BILL MOYERS: He was then the Treasury Secretary?

GRETCHEN MORGENSON: He was then the undersecretary-

BILL MOYERS: Undersecretary of the Treasury under Clinton-

GRETCHEN MORGENSON: -of the Treasury. Robert Rubin- yes.

BILL MOYERS: -under Clinton?

GRETCHEN MORGENSON: Robert Rubin was the secretary of Treasury. He was so friendly with Jim Johnson that he could not be on this matter, he recused himself and delegated it to Larry Summers. So every step along the way you had people protecting this company and protecting this idea that they could continue to enrich themselves on the subsidy provided by the government.

And you fast forward to now and you have the same sort of circumstances. All of these financial services companies are protected because of this threat that if they are allowed to fail all hell will break loose and the whole world will come to an end and we must do everything we can to stabilize them and protect them.

BILL MOYERS: David Stockman says that to him Jeffrey Immelt of GE is the poster boy for crony capitalism. But when I read your book I thought James Johnson is the poster boy for crony capitalism. Would you find that acceptable?

GRETCHEN MORGENSON: I think so. I think James Johnson was in the right place at the right time, a financial services company at the moment when financial services were growing in importance in this country. Certainly that is a company that was explicitly government related unlike GE which is not. So I think he is the ultimate crony capitalist. But I would certainly not argue that Jeffrey Immelt is right alongside there.

BILL MOYERS: Assess Jim Johnson's leadership of Fannie, was he a success?

GRETCHEN MORGENSON: He was a success personally. I was told that he made $100 million during his years there which were '91 to '99. I think that he was a huge success for the company in getting it to the position where it was unquestioned, where it rolled- steamrolled over any critic, where it had complete control of Congress and had completely defanged its regulators. So if you want to look at those, in those terms he was a tremendous success. But if you want to look at what the taxpayer is paying now which is $150 billion for Fannie and Freddie I would say that's a failure.

BILL MOYERS: And as you say he left Fannie Mae in '99, went on the board of Goldman Sachs, ran the Kennedy Center, then the Brookings Institution, on the boards of Target, United Healthcare, 2001 he joined Perseus Partners, a private equity firm, continued to consult for Fannie Mae. I mean, it's as if, it's as if he were being celebrated for what Fannie did the to taxpayer. Oh, there's no penalty, there's no price.

GRETCHEN MORGENSON: There's no price.

BILL MOYERS: There's no price?

GRETCHEN MORGENSON: There's no price. I don't think that, before Reckless Endangerment I don't think people even knew the role that he played. And you know, so I think that that might have shifted public opinion a tiny, tiny bit on this, on the radar screen. But yeah, he is still on the board of Goldman Sachs, he heads the compensation committee on the board of Goldman Sachs. He heads the compensation committee on every board on which he sits which tells me that this is the person who knows how to keep the CEO happy with their pay.

BILL MOYERS: What do you know about how much he made at Fannie?

GRETCHEN MORGENSON: Well it's all difficult because they did not have to disclose executive compensation. So this is really from people inside the company who were there at the time, but the number was a nice round $100 million as far as they were concerned.

BILL MOYERS: And how did this cozy relationship, this crony capitalism contribute to Fannie's downfall?

GRETCHEN MORGENSON: Well, it really, I think, painted the picture that this was a company that was doing good, that could not be questioned. And they maintained throughout, Bill, that there would be no cost to the taxpayer ever, that this was all of the benefit that they accrued from their government relationship, i.e., the money that they saved by not having to raise money in the capital markets as Citi Group does or that, because they were implied implicitly guaranteed they reaped rewards for that, financial rewards.

They maintained that they put that all back into system, that helping homeowners was really their goal. And so made, it made mortgages that much cheaper for everyday people. Well, it wasn't true. They in fact kept a third of the subsidy for themselves and for their protection scheme. But you know, so this was a very powerful argument. No one was willing to question it.

And so what it did was it just ballooned the balance sheet, it made the ultimate bill to the taxpayer that much larger. If they had been reined in, if they had been questioned, if they had had to justify themselves in a rational way with Congress really watching over them and their regulators strong then we would not be into them for $151 billion.

BILL MOYERS: Well, there's so much valuable information in Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon. Gretchen Morgenson, thanks to you and to your colleague, Joshua Rosner for this book. And thanks to you for being with me on Moyers & Company.

Gretchen Morgenson on Fannie Mae’s Web of Influence

January 20, 2012

In this video excerpt, Bill Moyers speaks with Pulitzer prize winning New York Times financial reporter Gretchen Morgenson about how high-level players at Fannie Mae, Wall Street banks and government agencies allowed the mortgage giant to avoid regulation and enrich its executives — only to leave taxpayers holding the bill after the financial crisis.

Watch Bill Moyers’ full conversation with Gretchen Morgenson.

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  • Jfrademacher

    Cudo’s on your coverage Mr. Moyers.  No one else has the intestinal fortitude to go where you have gone and it is SO important!  Knowledge is power — thank you!!!

  • Sdkremax

    Thank You Bill Moyers, Gretchen Morgenson and Jacob Hacker & Paul Pierson for bringing to light what we all have suspected for years.
    Please keep it up…Also to Jim HIghtower for his HIghtower Lowdown…not to be missed…posed on Dec 14th and printed on Jan 18th. I’ve printed that off for my friends and family.
    Many thanks again.

  • Babsbwm

    Thank you for the concise information for people who do not trust the media or have the time to put it all together.  Thank you Bill Moyers!

  • michael garcia

    Welcome back ,only having a converter  box I came across you while flipping channels.The high definition/converter box sure is interesting.Hope I remember to try find you next week when you have John Reed as guest.He was head of Citi when I took my plunge nto equity market in late 1980’s.I read his five year plan held my position long and it delivered.Some how I believe  the banking/financial mess has its roots with Reagan era,when he eliminated the deductible interest of credit cards in exchange for the adjustable rate mortgage,which became equity mortgages.As homeowners felt wealthy we started our consumer society.At 70 Iam credit rich and cash poor,but as I tell my love ones ,it not how much,its how you manage what you make.

  • Anonymous

    Ms Morgensaid, “…The little guy doesn’t have the benefit of all the powerful friends in Washington and the powerful friends on Wall Street.”  The little guy doesn’t have ( insert expletive here ) chance.  

    I saw this picture of a man on an occupy event with a sign that read, ” I can’t afford my own politician, so I made this sign: Corporate lobbying = Corruption.”  The little guy doesn’t have a snowflakes in hell’s chance.  

    The Arab Spring began with a “little guy”, a young man’s self immolation because the little guy doesn’t have a chance.

  • ldarnell

    Building the list of names of the 1%.

  • Vlhamilton1

    My husband and I love your new show and are thrilled that you are helping to get the word out about “crony capitalism” versus “Free Market Capitalism” .  Welcome back.  Our nation needs your truthful exposes on the growing economic inequality now more than ever.
    We are the 99%

  • Anonymous

    This piques my interest in corporate (or is it corporat?) geneology. I never knew there was so much sordid incestuous begatting in there. Thanks for the equivalent of a new Old Testament Book. “The Book of Gretchen” should go right between Leviticus and Numbers.

  • jb doughty

    Mr. Moyers,
    Thank you for having the cajones to be a REAL JOURNALIST!
    There aren’t many of you left in our “us- against- them-media”
    I enjoyed Mr. Stockman’s interview as well as Ms. Morganson’s. If one company is too big to fail, then it follows that another company could be too small to succeed…and that is highly illogical. Please continue to be true to journalism and to your Country.  

  • Barbara J.

    Someone should be knitting these names into a long scarf.

  • Msfixit7

    Great work interviewing Gretchen Morgenson.  I’m going out to buy her book, Reckless Endangerment, right away.  Bring her back often to keep us informed.  Greta show.

  • TexJo

    Morgenson’s book and your interview leave the misleading impression that Fannie Mae and its sibling, Freddie Mac, were the only cause of the huge housing bubble which in turn, when it burst, caused the Great Recession.  Unfortunately, that’s right out of the (inaccurate) Republican talking points.  Fannie and Freddie caused some of the chaos, to be sure, by making sure their regulators looked the other way, but MOST of the damage to our economy was caused by reckless, greedy investment banks who devised all those devious derivatives that caused the global financial meltdown.  
    What Johnson at Fannie did was feather his own nest handsomely by perverting a basically good idea:  help middle class people afford a mortgage.  That’s bad, even evil, maybe, but please keep his deeds in perspective.

  • Anonymous

    Yes, many wishful thinkers stop at blaming Freddie and Fannie. Even Morgenson doesn’t do that exactly. These agencies were guarantors and were fleeced by bundling of bad mortgages just as many foreign banks were. It was a global scam. That’s why “Inside Job” (documentary by Charles Ferguson) starts with Iceland. Right now the middle class in China (a small fraction of a poor population) is suffering a housing collapse. This was the trailing edge of financialistic fraud still in progress, with most of the bubble in exotic instruments of pure speculation. 700 trillion outstanding in derivatives, ten times the value of global assets. How many times do I have to exercise my stubby clumsy fingers to remind you Moyeristas?

  • Anonymous

    The truth  is that this is old news Gretchen uncovered too late. If the Obama Administration is gonna do nothing about it, then it is about as relevant as tabloid headlines.

  • Anonymous

    Whose neck would it encircle? Moyers is trying to tell you how things work, not indict people over specific events. The ruling class has already decided no laws were broken. What we Moyeristas need to understand is that these shenanigans are continuing  uninterrupted. Scarves are better if woven anyway.

  • Anonymous

    Free market capitalism leads to crony capitalism if it is not regulated and capped in size. Then the infection at the top poisons everything below it.
    Maybe Capitalism USA (empire)needs decapitation to save the heart and limbs. A country does not work like a body; and a national economy does not resemble a household budget. There are major qualitative differences. Capitalism should not be our religion. There are many economic variations we could use.

  • Anonymous

    Digitization of the airwaves was a dirty deal with the burden on the poorest. I swore I’d never pay for cable or satellite TV and I haven’t yet, though I had to buy a new idiot box and an antenna.

  • Richard West

    Normally I admire the work done by Bill Moyers.  But he did the public a disservice by putting on Gretchen Morgenson to publicize her book “Reckless Endangerment” without offering any contrasting viewpoints.  The book’s primary thesis, that the financial crisis was caused primarily by the actions of the GSE’s Fannie Mae and Freddie Mac in supporting affordable housing, just isn’t supported by the facts. The GSE’s were far less heavily invested in subprime mortgages than were the Wall Street banks and, in fact, lost most of their money in investments in pools of exotic real estate loans to more wealthy borrowers.  They also were relatively late to enter the subprime market, far behind the private investors.

    I suggest Moyers invite Jeff Madrick and Frank Partnoy , authors of two excellent articles in the New York Review of Books on the fallacies of the arguments made in “Reckless Endangerment” on the show to rebut Morgenson.  

  • Sellarsan

    At last we have have clarification about the immoral actions that brought about our country’s economic crisis. At last we have honest disclosures, thanks to your and your sponsors, of powerful people manipulating and corrupting our country’s financial system for their own selfish, personal greed. Why haven’t these Fannie Mae and other unethical CEOs been imprisoned for their gross wrong doing, for their indifference and criminality to the people they are suppose to serve? Why hasn’t Fannie Mae been extinguished?

  • Arbuck99

    I’m 60 years old and have worked payday-to-payday all my life.  What I never realized before now is that I’ve always believed democracy and capitalism were one of the same.  I never questioned it.   Democracy now appears to me to be a game of puppet masters, and capitalism a trip into the game show money wind chamber.

  • Anonymous

    Thanks for mentioning the NYRB review. Here is a quote from it:

    But the book’s unjustified thesis that Fannie and Freddie were major causes of the financial crisis is being used by politicians and pundits to soften criticism of private business and by lobbyists and others who would water down the new regulations passed by Congress under the Dodd-Frank Act. The book is also being exploited by those who believe the federal government should have little if anything to do with supportfor the mortgage market, a view we find unfounded.

  • Brio

    I just watched a rerun of the program with David Stockman and Gretchen Morgenson. I meant to post a comment when I first saw it months ago. So here is my second chance. 

    I listened to her conversation with Bill Moyers and I felt both were lacking in providing the audience with relevant info on the financial crisis. 

    She mentioned that Glass-Steagall was only 34 pages but Frank-Dodd bill was long and complicated. Neither she nor Bill Moyers suggested reinstituting Glas-Steagall if it worked so well for years. 

    I also didn’t hear either of them mention Obama by name. Instead there was a lot of references to the “administration.” Why not just say the “Obama administration” or “Obama’s policies.”

    Moyers was lacking in his questioning and Morgenson was lacking in telling us why the administration really didn’t attack the problem. 

  • Chas Z.

    Ms. Morgenson was right on target with her Fannie Mae’s web.  Failure is necessary in a true free-market.  The US Treasurey cannot “bail-out” those who made bad choices.

  • Bill George

    Congress appointed the Financial Crisis Inquiry Commission [FCIC] as a fact finding commission to determine what caused the mortgage meltdown and the ensuing financial crisis.

    It’s interesting to note that Congress created Dodd Frank legislation and the president signed the legislation before the FCIC completed its work, and before the FCIC issued its analysis of what caused the financial crisis.

    Peter J. Wallison was a member of the FCIC. When the FCIC report was released Mr. Wallison wrote book titled, “Dissent from the Majority Report of the Financial Crisis Inquiry Commission”. Observers have pointed out that the FCIC was a very ‘political’ and unobjective commission.

    If one wants to read an interesting outline of early warnings about the power of the GSE’s, and their influential roles in the mortgage market, look-up and read: “Is FM Watch a Crusader With an Agenda?” By Louis Sichelman” RealtyTimes 7/5/1999.

    FM Watch was a mortgage industry group which attempted to warn Washington D.C. about the toxic twins (Fannie and Freddie).

    FM Watch’s concerns were soon marginalized by the public relations and lobbying efforts of the toxic twins. Look-up and read, “New Alliance Confronts FM Watch, Champions Existing Housing Finance System” By Broderick Perkins RealtyTimes 10/5/2000.

  • j w
  • dsqs

    The story of Fannie and Freddie (FnF) is most complicated and shrouded in the the secrecy. Think of the the money/assets these companies manage. There are no comparable companies to these largest private share holder owned companies. Nobody knows all the facts and truth about FnF since public information hidden from public. The truth about FnF gets slowly revealed as time passes.
    Contrary to all the misconceptions, Gov does not own FnF and do not have authorization to own these companies, Gov does not guarantee FnF liabilities including MBS. Currently Gov indirectly controls FnF thru supposedly temporary private FHFA conservatorship, sweeps all the profits and the rights of private shareholders have been suspended.

    It would be great public service, if Bill gives real full story leading to 2008 crisis, role of FnF, WallStreet FIs, public officials representing interests WS FIs, temporary but permanent FnF conservatorship,
    sweep agreement etc… Also it would be great If Bill can highlight how the rights of private shareholders have violated without due process in a free capitalistic economy.