Foreclosing on Fannie and Freddie: Capitol Gains

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July 15 (Bloomberg) -- House Financial Services Committee Chairman Jeb Hensarling has a new plan to shut down mortgage giants Fannie Mae and Freddie Mac and reduce the government's role in the housing sector. U.S. Treasury Secretary Jacob Lew offers his thoughts on the competing proposals to wind down Fannie Mae and Freddie Mac. And "Capitol Gains" features a segment on cloud computing moving underground - literally. Companies are burying their servers and data in caves. Bloomberg Contributor Richard Falkenrath explains to Peter Cook on Bloomberg Television's "Capitol Gains." (Source: Bloomberg)

This week on "captiol gains" -- it is a monopoly.

House financial services chairman wants to shut down fannie mae and freddie mac and get the government out of the housing business.

He will tell us why.

What to do with fannie and freddie.

One of the issues facing jack lew.

Hear his take on the plan and more on our -- in our exclusive interview.

In this era of cloud computing, why are americans storing bearers in caves?

I am peter cook.

This is a show where we focus on the business impact of action using bloomberg government.

If washington is your business or you want to know what the government is doing, stay tuned for the next 30 minutes every sunday.

We begin with a debate over the future of fannie mae and freddie mac.

Five years after the financial crisis, the mortgage finance giant are earning record half it and playing a bigger role in the nation's housing market.

To guarantee more than half of all mortgages in the u.s.. they sent 66 billion dollars in profits to the u.s. treasury, bringing the total pay to 132 billion dollars and rising.

The improving picture is not stopping some in congress from proposing to close fannie mac and -- fannie mae and freddie mac for good.

Leaving the texas republican to propose liquidating them, scaling back the government's role in housing.

It would eliminate fannie and freddie within five years and a place them with a new to curate a station platform which was largely turned the mortgage finance system over to the private sector are.

It goes much further in cutting the governing core than a bipartisan proposal in the u.s. senate.

Does it go too far?

Let's start with your plan to wind down.

Is it realistic to shut these institutions down within five years, if the government out of the finance business altogether?

It is not get the government out of the business.

What it does it gets the government outs of having a permanent presence in the secondary mortgage market.

It has not worked out too well for us.

Today we have the federal government that is controlling virtually the entirety of our mortgage finance system.

I do not think americans want that to happen.

Today's americans have had to pay over 107 $80 billion -- $180 billion in institutions where they have manipulated their financial statements in order for their top executives to earn huge onus is.

Today the american taxpayers only vote for over $5 trillion.

They want out of the business.

They have the huge bailout.

They are starting to pay taxpayers back.

They are helping some of the deficit situation.

Why rock the boat?

These are the same people who also told us there was never a problem with fannie and freddie, let's roll the dice.

People said you cannot do anything five years ago because the housing market is too fragile.

Now they say the housing market is coming back and why do you want to rock the boat?

We need a sustainable housing policy.

It has to be sustainable for homeowners.

We have had federal policies that help the people into homes they could not afford to keep.

It was tragic.

All kind of tragedy throughout our nation.

Did you start to fear -- do you think it is fair that it would reduce the number of american second own their own homes?

Under current law today, corelogic has said 52% of the americans that bought homes in 2010 would not be allowed to finance under today's standards.

Relevant to current law, the protecting american taxpayers and homeowners act will make home ownership more affordable.

It will give american homebuyers option so their federal government does not steer them into one project they may not be right for.

You know there is a bipartisan support are over bob corker.

-- supporter with bob corker.

They could step in with a guarantee.

Why is that not a more reasonable approach?

Is that what the ultimate compromise will look like?

We have a countercyclical provision and our bill as well.

It is not going away.

In times of economic stress, you have the sha that could ramp up should we have another crisis like 2008. i am fearful.

I have not looked closely at the bill.

I know he is a good man.

I applaud anybody who will work in try to do something with this plan.

The administration has not done anything.

The demonstration has punted the ball.

I salute anyone with a plan.

I am skeptical of plans.

If you do not get rid of the permanent, everyday government guarantee in the secondary mortgage market, i fear all you have done is put fannie and freddie in the federal witness protection program.

Yet they are released on an unsuspecting public.

There we will have a boom bust cycle.

We need a sustainable policy for house peers remember sash so they are never asked to dissipate in the bailout.

How comfortable are you that this will clear the house?

I am not a las vegas bookies a why will not give you odds.

I believe we will market this up.

I believe we will take it out before the congressional august recess.

I know they are anxious to have this.

I will take my case to the colleagues.

I do not know anyone who wants to defend fannie and freddie.

I do not know anybody that wants more taxpayer bailouts.

I do not know anyone who wants to support government policy.

They will put -- government policy that puts them in homes they cannot afford to keep.

I'm anxious to take this to the house floor.

I believe ultimately that some version of the act will become law.

I do not spend a lot of time with our president but hopefully he would sign it.

You also heard from ben bernanke.

You have been a critic of some of his policies over the last few years.

How is history going to treat ben bernanke?

I have a high regard.

He is one of the most able public servants that i have ever met.

In 2008 history will record -- that he still -- did it to the plate at a very hard time that the fed to creative moves.

Clearly there was a role to the full faith and credit of the government and handling those crisis.

My concern is that we are now in 2013 and many of the policies are still in place.

What we see in my opinion is something that is very low to moderate benefit in very high risk.

Regrettably, it appears that one point five percent to 2% gdp growth may be the new norm.

We see a stripping that we know may have to be unwound.

I've had the opportunity to sit down with the chair man.

I know his view and he knows my view.

We respect each other's view.

It is the 100 anniversary of the federal reserve later this year.

I sure -- assure you they will be conducting rigorous oversight on the monetary policy.

You do not have a vote on any bernanke successor.

You're not sure the president would be sitting down with you to get your take.

Ifo pretty confident he will not.

Janet yellen has been mentioned as a positive successor.

Your thoughts?

I think i would rather talk about texas a&m football.

I think the president could do a lot worse than an bernanke.

Maybe he will.

Otherwise, i think i'll let the president make his own appointment at the moment.

Thank you for the time.

Thank you.

Will he come back, what does jack lew think of the plan for danny and freddie?

Hewlett-packard's multibillion contract with the navy is under road test.

We will tell you why.

? jack lew travel to russia and greece to engage in some international diplomacy.

At home he has a long domestic to to list including a looming debt ceiling i'd and what to do about fannie mae and freddie mac.

I sat down and asked for his four reaction.

Two new proposals in congress to try to address what to do with fannie mae and freddie mac.

There is one that would do away with fannie mae and freddie mac and reduce the government's role.

What do you make of this proposal?

If you look at these two proposals.

In the sense you have a bipartisan efforts which we have been engaged in the conversations over.

They are looking for a way to accomplish goals.

One is to make sure that the american taxpayers are never left on the hook for an unbounded risk if there were another problem.

We cannot repeat what happened in 2008. we have to give ride the capital back into the mortgage market.

That is something we need to work together on.

And to make an access for credit for people who are credit worthy.

I think if you contrast with the conversation and the house, it is interesting that one of the bipartisan -- one is a bipartisan conversation and one is not.

If the treasury looks at the options, corker in the senate as opposed to what we are seeing in the house?

I think these are going to require more work.

We will have to scrutinize.

That reflects the principles were the administration is laid out.

It is the kind of direction we need to go.

Be three-year anniversary of.


The debate continues.

It is important that we implement the outstanding pieces quickly.

I have said -- said the end of the year for getting the major pieces in place.

I think this is shared by all the agencies.

We are going to see capital and leverage standards as a place that gives real assurance that institutions can undertake.

We will same rules that are clear.

We're going to see progress on the volcker rule so that it is finished.

We have a fair amount of work ahead of us.

Since the day i stepped into office, i have made it at the top of the list.

We went from swearing in at the oval office to chairing a meeting of the financial stability oversight council.

I have not let up since.

I am determined we will do as much as we need to into big to fail.

You said you will not negotiate over the debt ceiling.

At some point you have to sit down with john weiner.

We have been clear.

The negotiation over the debt limit led to a very bad outcome.

It led to the sense that the united states was debating should we or should we not default.

It introduced a series notion that there was a point of view that default was an acceptable option.

I think congress learned this in 2011. the president has so we will not negotiate over the question of whether or not there should be the option.

Congress has to raise the debt limit.

All that does is pay the bills we have committed to.

We cannot introduce the notion that it will not happen.

We remain very open for the kind of discussions that would bridge the gaps on fiscal policy.

We have shown that we are willing to go more than halfway to put on the table the tough revenue policies.

We need the gauge meant.

Need in the context of fiscal policy.

History is scheduled to take them to russia and greece.

When we we come back, more for you including the government using billions two-minute -- medicare fraud and waste.

Why is this good news for federal contractors?

Securing the cloud underground.

Why some companies are taking their servers into caves.

? welcome back.

It is time for our check on federal contracting.

The federal program designed to protect the bioterrorism attacks like the letters sent to president obama.

They could be facing the budget act.

Rejected by a shield could shrink from $290 million a year budget to $250 million.

It spurred a cottage industry such as biotech.

The cutbacks could trigger consolidation in that industry.

Finding fraud within medicare is proving profitable to federal contractors.

Last year they recovered 2.4 billion dollars in medicare overpayments for the federal government, the heme him eligible for 246 million.

That is double the fees they made in 2000 level.

It involved $229 million.

They could get $3 billion.

They are all competing the summit to hold on to the contracts.

The navy just renewed a five- year technology contract with hewlett-packard for $3.5 billion.

It is the biggest federal contracts.

They are protesting the award with the government accountability office.

For more on this contest and whether it could be successful, i am joined by brian friel.

Thank you for joining us.


For seeing as.

Tell us more about this contract.

How big a contract is this?

It is probably the most watched contract of the year.

It is for running the navy's network for all sailors around the world.

It is a huge deal.

In 2008 it required an industry.

It is the biggest contract.

They inherit and teamed up.

If they want as it would be one of their biggest contracts.

In a time with budgets dropping , it is important for companies to deal market share to grow.

Are we able to gauge the chances for this protest to be successful russian mark -- successful?

Most fail.

In this case hp bid less.

It is particularly hard for a company to win a protest in those circumstances.

We are in an environment of shrinking budget dollars.

We are losing more of this -- these, aren't we?

There is more going on between ibm.

They will probably go into a protest fight.

The overall market is not growing.

You have to steal it to grow.

There is another contract out there.

There are not a lot of those these days.

We are all waiting to see about the bidding award.

Tell us about this.

When the budget was passed for this year, most got flat funded.

The one exception was cybersecurity.

It got a $200 million bump.

This program is to monitor the cybersecurity attacks.

They can all find additional revenue in an environment where this is not ready -- readily a viable.

We have a long list of editors.

Any idea when that might come?

It could come sometime in july or august.

There will be several companies selected.

They will start competing with each other every time the government puts on an order.

You're not convinced this is there.

And maybe less?

The $6 billion is what they said is the maximum value over five years.

If you look at the budget, this has been obligated.

I am not sure where the remaining $5 billion will come from.

6 billion.

Something to take notice of.

Brian friel, thank you very much.

Coming up cap next, a new way of storing data.

It is not in the cloud but in the other direction.

We will explain coming up.

? with more companies storing data, how it faces constant threats.

Wild weather can damage data centers.

Men are moving underground.

Companies are using abandoned mines or even caves.

It is not the first place you would expect to find the cloud.

How far underground are we?

He is president.

He calls this 3 million square- foot cave "home." with natural disasters such as the tornadoes threatening to wipe out above ground data centers, an increasing number of companies are moving their operations underground.

Iron mountain was one of the first.

They have been storing data since 1998. info bunker houses it inside a former airport bunker.

The area protects from natural disasters.

We have this filled out.

It is the equivalent above or below.

It do not have based read.

The cave temperature is 60 degrees and makes cooling cooling servers much more cost efficient.

The operating costs are 30% lower.

The limestone walls are five times stronger than traditional concrete, protecting against earthquakes.

Access to individual data is with advanced a biometric security.

While this will protect the data from mother nature, there is one threat that they cannot do anything about.

A hacker with an ax to grind.

Another thing to worry about , a flooding.

That going to do it for this weeks "captiol gains"." i am peter cook.

We will see you next sunday.

? we are finding it, we are testing it, we are there as they build it.

We are on a quest to show you the most cutting-edge companies on the brink of the future.

Tonight, we dedicate the entire episode to a brand-new city, built green from the ground up.

Right in the heart of the most oil-rich region in the world.

Who loves energy more than us?

We will take you inside masdar, a multibillion-dollar experiment the future of energy.

300 football fields of solar panels.

"bloomberg brink." companies that break the mold, conventions, boundaries.

And the future of technology, design, and industry.

We often sit here and talk about innovative companies, innovative people.

You have done something extraordinary.

You have gone to see an entire city dedicated to innovation.

I did, i went to abu dhabi to masdar city.

They are trying to create the greenest city in the world.

Abu dhabi, big oil-producing place.

But you also said greenest city in the world.

What does abu dhabi care about being green?

They do sit on some of the world largest oil reserves.

They are trying to think more broadly about energy now.

Masdar is their first step in that direction.

Masdar is a strategic, holistic, comprehensive approach to clean energy.

Seriously and a meaningful way contribute to the advancement.

We believe that this is a logical step for a major oil- producing nation to venture into.

Who loves energy more than us?

We are trying to a home for a new energy.

We are about to get to masdar, the world's biggest experiment in sustainability.

This entire thing is supposed to be all of masdar city.

It looks like an oasis in the middle of the desert.

This is architectural eye candy.

There has never been a single attempt by anybody in the whole world to do anything as aggressive and as ambitious as masdar city.

This is definitely superlative.

We go big, we do not do things small.

When abu dhabi does something, we go all in.

We are in a very hot, uncomfortable, humid place.

How did people adapt before air- conditioning?

One of the things we do is try to blend architecture as well as maintaining the sustainability standards.

Everything here has a purpose.

These doors are designed to direct wind into the courtyard, the tiles are cool no matter how hot it is outside.

Exteriors of the building are designed to maximize shade.

We put the buildings close together so they can shade each other.

Things can be done in a very harsh climate to significantly reduce the amount of energy we are using and the outdoors more often.

About 10 to 12 degrees cooler inside the city than outside, and you definitely feel that.

So, this plant here generates all of the power for masdar city?

That and more.

This is a 10-megawatt plant.

It was installed and operational back in april 2009. at that time none of the city was built.

We connected this directly with the grid and have been providing clean energy to abu dhabi since then.

It is also powering on the construction?

It is all powered by this and rooftop solar on the buildings themselves.

Those provide 30% of the power.

That is about 11, 12 megawatts, and we use about three in the city.

We are very much energy positive.

Can you tell me about this pilot program?


This is one of over 100 pilot projects we have been working on the last 5 or 6 years.

This pilot is looking at solar chilling.

Here we are benchmarking three different systems.

Mirror system, panel system, and a parabola system.

We are taking the energy from the sun to generate warmth runs the chiller in the background.

This chiller has been operational and going some of the offices in the background.

This is a good example of trying to diversify the technologies you are developing, not just in the region but around globe.


We're not looking for just this application for the backyard.

We want to make sure there is a market gap and masdar and its network can accelerate through that market gap.

We position ourselves as a commercial accelerator.

If we can prove something out with our partners and get a year earlier to market -- that is a huge value for a global company.

This is not even our largest business unit.

We do global renewable energy.

We have global capital funds.

The largest csp plant in any term you can think of.

Power or size.

We are at full capacity -- we are producing a full 100 megawatts into the grid.

This is an extraordinary moment for us.

Today this is the first massive footstep that has been taken on renewable energy in this region.

It is 300 football fields put together.

Of solar panels.

How do you feel today?

With this being unveiled to the world?

I am very proud, it is a big achievement.

We are at the tipping point in terms of how people think about energy for the future.

Worldwide, but especially in the middle east.

It does not make economic sense anymore for them to use their own fossil fuel reserves domestically.

The cost of generating electricity is basically the cost of a barrel of oil.

One barrel of oil -- to use it to generate cheap electricity at home means about $90 of opportunity cost that is lost.

If you displace that with renewable energy, it already makes economic sense without doing anything more.

This algae is becoming fuel for jet planes, for trucks, and for cars.? i will grant you that masdar looks like it is chock-full of innovation.

I feel like i have seen this house of tomorrow stuff before.

How does masdar not just become the epcot center of the 21st- century?

I was skeptical, too.

But after i spent time there, it is really not a showpiece.

They are conducting all of this groundbreaking, green research.

Even the labs themselves are sustainable.

It is a proven model all over the world.

For it to always start with establishing a research hub.

It is always around your ability to adapt brains, technology, and people.

One of the core ideas of masdar institute, we are building programs where people collaborate in group-like efforts.

That is the core.

It is not about the facilities.

It is about the people and the programs.

A lot of people have a misconception about science.

They think it is a crazy guy in a garage with eureka moment, and all of a sudden some magic happens.

What tends to happen, it is somebody who picks one small aspect of the world but they try to understand completely.

Then they communicate it to the people around them.

Those people find links to what they are working on.

Before you know, it gains momentum in a certain direction and we push the ball further down the road.

Masdar institute is designed to make that collaboration and that alignment happen faster than a typical university.

What is all this green stuff behind you?

This is algae out of the environment.

All this algae, you have found in the middle of the desert?

We have.

The market is huge.

The algae from the desert we are really interested in fuels.

We want to grow it in large entities.

The market is huge.

You are talking now, jet plane fuel, one of the most expensive commodities out there.

What we are trying to do is look at what conditions it grows the best.

It grows better in some than others.

We could almost train them to do what we want to, just by changing the conditions in which they grow.

Those conditions are the carbon dioxide?

Carbon dioxide, temperature.

People that want to go into industry are very interested.

What is the advantage of being here in masdar city versus somewhere else in the world?

The big part, what is exciting to me, is being in the desert.

The conditions in the desert are such that the things that live out here are very strong.

This is probably one of the coolest places in the world to look for organisms like that.

If an organism can live under these conditions, they can pretty much live anywhere.

You said it uses co2 to grow.

What are the environmental implications?

We have an economy that depends on fossil fuels -- the idea is that the co2 [indiscernible] and use that co2 for the algae to grow, so we are kind of killing two birds with one stone.

Nanotechnology is simply a way of thinking about how you're going to build something or how something works.

This is the first time a facility like this has been done in the middle east.

What you will notice is they look different colors.

That is because the spacing -- butterflies have different colors on their wings.

That is not because it is different colors.

It is because they have little spikes on their wings.

The distance they are apart is what makes the color.

Butterflies use nanotechnology.

How much does it cost to make something like this?

$40 million.

You gotta use all the equipment to achieve that.

You have to have the kitchen before you make a peanut butter sandwich.

This is only part of what is actually required to make the operation work.

This is the flashy part.

This is flashy?

In the back we have the support equipment.

We spend more money on the support, on the behind the scenes stuff to make the equipment work.

At the start of this process, i made a long list of the chemicals i wanted to use.

About a third of them had never been in the country before as a developing country, they never developed a policy for how it needed to be disposed of.

We probably could have gotten away dumping some of this stuff down the drain.

What we wanted to do was provide an example or a template of how a facility like this should be set up.

We have a huge amount of electricity that is coming into that room.

If we were trying to get all that heat out of the room with air conditioning, there would be a gale-force wind there.

What we do is pump cold water through all of the tools to take that heat away.

We have a whole special system here for pumping processed, chilled water through the tools.

The system right here uses a solid catalyst, sort of like a powder, but it is activated, so it has chemicals on the outside.

It is tailored so that when we pump certain molecules in, they react and they stay there.

It turns into a sand.

That does not react anymore.

We can just throw it away in a landfill and it will not react with anything else or poison the groundwater.

When we have vapors and solvent vapors, rather than pumping those and the atmosphere, we blow the air through and the droplets capture the vapors and then they come down into a tank in the bottom.

We test that chemistry and pump in other chemistry to neutralize that.

It is very sophisticated system.

It is.

You start to realize, this is much larger and more elaborate than some of the tools.

You are really developing technology that everybody in the future will hopefully be relying on.

Probably masdar and abu dhabi will be profiting from that, correct?

There is always an aspect of business, that you can make money in business, but you can do business right.

One of the reasons i came here is masdar is a commercial venture, but it is not just about making money.

It is also about doing good things.

I didn't even do anything and it is moving.

You don't need to drive it.

It can run 24 hours a day.? we have seen some interesting research and some cool things.

Let's not lose sight of the fact that this is supposed to be a functioning city.

And when it is built up there will be tens of thousands of people living there.

Right, tens of thousands of people.

How do you move them around in a sustainable way?

Even the transportation reflects their spirit.

They are creating the personal rapid transit system.

These are driverless cars.

It is the most futuristic transportation system i have ever seen.

You can't drive into the city.

You have to park your car on the outskirts and then take the prt in.

The whole idea is to have the city be carless.

Parking my car.

Like the average masdar citizen.

This is not your average terminal.

In new york, our subway does not look this clean and beautiful.

How are they powered?

They are powered by lithium- ion batteries -- we charge in the stations.

That is a charge bed.

We can drive without charging for four hours.

You can get some information.

I did not do anything and it is moving.

It is like magic.

You don't need to drive it -- it will drive 24 hours a day, 365 days a year without a driver.

All of the city is above us?

All the transportation is underneath.

What is the most unique element of this system?

Our system is free ranging.

It is riding between concrete walls.

Every two meters we have a magnet in the floor.

You have a whole grid with magnets.

You put all the magnets in a database.

You can draw on the computer a new route.

What is the reaction you normally get?

It is an attraction.

It is a weird experience having no driver.

We are here.

We are here.

You have now arrived.

All right.

That was a quick ride.

There are only two stations at the moment.

In the future, who knows?

We are hoping for more stations.

The original plan was for there to be 3000 prt's, at the moment there are only nine operational prt's -- that is a big difference.

They started with a very big plan and then the crisis went over the whole world.

Everything is delayed, so we don't know the future will bring for us here.

This is the plant.

What we have to build now is just this part.

The vision is huge, and the first thing that was cut was the prt system.

How does that make you feel?

I think it is a big mistake.

There are new office buildings, an extension of the institute.

All of this people need transportation.

From the beginning, no cars allowed.

So -- what is left?

Do you think masdar city is pulling back on their vision of being sustainable by retreating from the prt system?

I don't think they are pulling back totally.

Something has changed.

The economic slowdown that took place on the whole world did impact the progress of masdar city.

At the end of the day, we cannot do it alone.

We will not do it alone.

It was never the objective to do it alone.

To build a city all at once, and there weren't any tenants, that is not a good proposition, so the idea for us was, let's take a little time to look at the experience we had over the first five years.

It was really a startup model.

Go fast, fail fast.

That works.

We learned so much from that.

We learned what the gaps and we noticed what the market timing where.

We were much more knowledgeable in phase two.

What we are looking at behind us, that is our first commercial building that will be the siemens headquarters.

It is currently the most sustainable building in abu dhabi.

How do you think it reflects to choose masdar city as your headquarters?

I think it reflects well.

Siemens is doing the medium voltage electricity network.

They can do simulations of how they can reduce demand.

Siemens is coming here because they see it as a testbed.

What is unique about the building?

There are a lot of lessons from building masdar city.

What design elements make the building unique?

The facade is northwest facing.

At the end of the day, these shading devices are designed to block out the direct sunlight, and yet maintain a view out.

We have introduced light and atrium space.

An office area that does not have contact to natural lighting has very little value.

It is pretty cool in here.

This is the natural, ambient temperature.

What this means is that the shading devices are doing a good job at the moment.

A very good job.

Masdar city is really focused on this idea of passive architecture.

That is the idea of an energy-efficient building.

Once you optimize the path of nature for the building, it is just a question of using the minimum amount of energy of the ac system.

What is going to be out here?

Each of these plots are designated for various residential and commercial use.

What do you think the misconceptions of masdar are?

The misconception that it is a showcase.

Some sort of nice gift somebody is trying to present to the world.

This is really a living lab.

It would be unfair to look at any of these projects around the world in a cookie-cutter fashion.

You are on a discovery of innovation, commercialization, and research, and if you're going to go into that, you have to manage risk along the way.

You are going to have some dead ends.

Otherwise it would not be a discovery.

It would not be research.

We need technologies from all over the world.

We need individuals from all over the world to come and help us achieve this very aggressive and ambitious objective.

Always please remember that there is not a single attempt as aggressive or as ambitious as masdar city.


This text has been automatically generated. It may not be 100% accurate.


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