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.

GRETCHEN MORGENSON: Thanks, Bill.

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.