Measuring the Mortgage-Crisis Fallout

DATE February 13, 2008 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
NETWORK NPR
PROGRAM Fresh Air

Interview: Financial reporter Gretchen Morgenson on the subprime
crisis and the housing meltdown
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

So how much worse can fallout from the mortgage crisis get? I wish we could
give you a definitive answer--we can't--but we can offer some good
explanations of what's been going on and how it's affecting us as consumers,
investors, home owners, and would-be home buyers.

My guest, Gretchen Morgenson, is a financial reporter and columnist for The
New York Times. She won a Pulitzer Prize for beat reporting in 2002. In the
early '80s she worked for a major stock brokerage. One of the latest
developments in the crisis is yesterday's offer from billionaire investor
Warren Buffet to reinsure $800 billion in municipal bonds, now insured by
three companies that have taken a big hit on mortgages. We'll get to that
story later.

Gretchen Morgenson, welcome back to FRESH AIR. Now, the last time we had you
on, it was October 10th and I had asked you about the state of the mortgage
meltdown and you had said we were just in the eye of the storm and that we
hadn't even begun to see some of the problems emerging from the mortgage
practices. You were right. Things have gotten worse.

Ms. GRETCHEN MORGENSON: So unusual.

GROSS: And I'm afraid to ask you the question again but I will anyways. Do
you think we've seen the worst of it yet?

Ms. MORGENSON: No, we haven't, Terry, and I'll tell you a couple of reasons
why. One is that we have a massive number of interest rate resets coming
later this year. These are mortgages that started out with a very low
introductory teaser rate that then reset to much higher rates, and there is a
vast number of those happening this summer and early fall, so a lot of people
who took out mortgages in the, you know, 2005 market, were agreeing to the
teaser rates for two years and now they're going to see their rates skyrocket.
So that's one reason.

Another reason is that we are starting to see some of the so-called pay option
ARM mortgages. This was one of the more esoteric products out there, but it
allowed home buyers to kind of set the amount that they would pay on their
mortgage. They didn't have to pay down principal if they didn't want to.
They could pay a fraction of the interest rate. But at a certain point in
time the bank would stop allowing them that freedom if the loan became far
bigger than the underlying asset, or the house. So that point is also
becoming closer. We're going to reach that point soon, where people are going
to have to start paying down the principal and pay a much higher interest
rate. So those two things combined tell me that we are nowhere near the end
of this line.

And the response from Washington has been so sort of, you know, lackluster,
that we're still dealing with problems that people have had who've already
gotten into default and into delinquency.

GROSS: Yeah, well, the Bush administration had just proposed Project
Lifeline, which the way I understand it, basically, if you're defaulting on a
mortgage because you haven't paid in 90 days, it gives you 30 more days to
pay.

Ms. MORGENSON: Do you have any idea how quickly 30 days goes by? I mean, it
really is a Band-Aid for a massive problem, in my view. You know, 30 days is
something that people should get anyway. This process is far too quick in
many states. Terry, as you know there are some states that allow a home to go
into foreclosure without any kind of oversight from the bankruptcy court, and
in these states people are really kind of railroaded into foreclosure, and you
have to really wonder what another 30 days is going to do for those people.

GROSS: Well, you know, you're talking now about how the mortgage crisis is
affecting individuals with mortgages that they're having trouble paying.
Let's look at the more global consequences of the mortgage meltdown now. What
are some of the recent ways that we've seen that affect international markets
and the international economy?

Ms. MORGENSON: Well, first of all, we've seen major banks taking enormous
losses. We've seen CEOs of some of those banks losing their jobs because it
is perceived, and accurately so, that they were not alert to these problems
and maybe not even aware of them. We have seen, you know, banks around the
world taking huge losses related to mortgage securities that, I think, were
very surprised to find these kinds of problems in their portfolios. And I
think that we are starting to see, depending on your viewpoint about whether
we are in a recession or whether we are poised to go into one, the effects of
this mess on the consumer.

GROSS: So what are some of the effects on the consumer?

Ms. MORGENSON: We had a terrible Christmas as far as retail sales are
concerned. Retail sales in January continued to fall. I think that the
consumer is just wildly overindebted thanks to very aggressive practices by,
you know, major financial institutions, and they're going to have to rein in
the spending. And, as you know, consumer spending contributes to, I think
it's roughly two-thirds of the gross domestic product, so a consumer that is
tightening his purse strings is going to be a problem for the entire economy.

GROSS: Well, this is what the economic stimulus package that Congress just
passed is supposed to address. A lot of people, a lot of Americans, will be
getting tax rebates, several hundred dollars, and I guess the hope is that
they'll go out and spend it and pump up the economy a little bit.

Ms. MORGENSON: Well, I would challenge that thesis because I think that the
one message that is finally getting through to the American consumer, thanks
to this mortgage problem, is that debt is a problem. Assets may shrink in
value, but the debt never does. So you have a home that was worth $350,000.
You took out a mortgage on it of 350, say, 325. Maybe it's now worth 300.
Maybe it's now worth 275. The assets can shrink, but your debt load does not.
So why on earth in this situation would people go out and spend the $200? My
bet is they're going to try to retire some of that debt.

GROSS: And that wouldn't help the economy?

Ms. MORGENSON: No, it would help their balance sheets, and that's an
important thing for consumers to start to get right because as you know, we've
seen periods of spending that exceeds the income that Americans have, and a
negative savings rate, which is a disaster when you're going into a period
like we seem to be, which is a troubled economic environment.

GROSS: Is there a part of the stimulus package that Congress just passed that
affects mortgages?

Ms. MORGENSON: Yes, there is, Terry. There's an increase in the amount of
money that Fannie Mae and Freddie Mac, which are the government sponsored
enterprises that buy mortgages and help home owners buy homes, the increase in
the amount that Fanny and Freddie can buy in a mortgage. They are restricted
because they are government sponsored enterprises, they're closely regulated,
and up until this point they could not buy a mortgage that exceeded $417,000.
Now, with the crisis in the mortgage arena and so few banks lending, Congress
believes that increasing those limits--so allowing Fanny and Freddie,
particularly in high cost areas like, say, the East Coast and certainly
California, allowing Fannie and Freddie to buy mortgages of far greater
amounts--up until I think it's about $470,000--that will help is some ways
because it will kind of encourage banks to make loans in those areas because
Fannie and Freddie will buy the mortgages from the banks and the banks won't
have to hold them.

But it really isn't likely to help anybody who is already delinquent, already,
you know, in default, struggling. This would only be for new mortgages and
it's really only a temporary fix, I believe, for a year. But it will provide
some help.

GROSS: If you're just joining us, my guest is Gretchen Morgenson. She's a
financial columnist and reporter for The New York Times.

Now, the Fed recently cut interest rates in this emergency meeting right
before the stock market opened in late January, and I think they were really
afraid there was going to be an incredible crash because international markets
had lost so much money overnight. And the Fed is expected to cut rates again.
You had a recent column that was really interesting about how cutting rates
has worked in the past, and you look at how it worked in 1990 after the
savings and loan crisis, but you're wondering whether that will be effective
medicine this time around. What's different this time around?

Ms. MORGENSON: Well, this time, Terry, we have a circumstance where banks
are being forced to take on bad loans onto their balance sheet. This is a
little bit complex so I hope you can stay with me, but banks had created these
entities that were not on their balance sheets. They were called structured
investment vehicles. They sold securities to investors who, you know, run
mutual funds, money market funds. But in the credit crisis that really sort
of took off in August of last year, investors stopped buying those securities
because they felt that they weren't maybe as solid or financially sound as
they wanted to--risk became much more of an issue for investors. And they
started to look to buy only those securities that the very highest rated, most
financially solid institutions.

So these investment vehicles that had been off banks' balance sheets have to
migrate back onto them, so they have now got to kind of take on a lot of loans
that are not necessarily, you know, in a good financial position, and that
restricts their amount of money that they have free to make loans. When the
Fed cuts interest rates they're trying to make banks--they're trying to push
or prod banks into lending because, as we all know, loans grease the wheels
that turn the economy. You know, a business person can't start up an
operation without a loan. Loans are extremely important. They're central to,
you know, economic growth. So the idea behind the Fed dropping rates is to
promote lending. And as you know, we've been in a credit crunch and lending
has been curtailed because people are worried that the loans will not be paid
back.

So we're in a position where the banks may want to lend, the banks may even
make money making loans because the cost of their capital is lower when the
Fed drops rates. But they can't because their assets, their balance sheets,
are ballooning with these assets that they never thought that they would have
to take back onto their balance sheets. So that's part of the problem.

GROSS: So basically the ways that banks can take advantage of the lower
interest rates, they can't really do right now because they have no assets.
They're...

Ms. MORGENSON: Well, they have very little excess lending capacity. Banks
are very strictly regulated as far as their capital is concerned. They have
to set aside, according to bank regulations, a certain amount in cash reserves
for the loans that they have on their balance sheet, you know, to kind of make
up or cover any kinds of troubled loans that may emerge. So banks' capital
positions are strictly monitored, and one of the reasons this migration of
these debts back onto their balance sheet is restricting them is they have to
increase their reserves to reflect those assets coming back onto their balance
sheet. That takes away from cash that they could otherwise use to lend and
make money lending.

GROSS: So if the banks can't really take advantage of the lowered interest
rates in the way that they could other times that the Fed has lowered interest
rates a lot, then what help will lowering interest rates provide?

Ms. MORGENSON: Well, ultimately it will work to, you know, grease the wheels
as I explained, but it's just going to take longer, and these sort of bad loan
or troubled loan positions are going to have to be worked out. And it's just
going to take longer, Terry. It's not that it's completely ineffectual, but I
think that the process is going to be a bit more drawn out, and that's going
to disappoint people. Because I think previously there were periods when
interest rates were cut and it was a relatively quick reaction.

GROSS: So when you say longer do you mean months or do you mean years?

Ms. MORGENSON: I think it could be years. I mean, certainly, you know, way
more than months, and I think that that is all wrapped up also in the
recessionary or downturn environment that people are feeling in the overall
economy.

GROSS: My guest is Gretchen Morgenson of The New York Times. More after a
break. This is FRESH AIR.

(Announcements)

GROSS: My guest is Gretchen Morgenson. She's a financial reporter and
columnist for The New York Times. We're talking about the continuing fallout
from the mortgage crisis.

Now, the megabanks, like Citibank, Bank of America, they've lost billions
because of the fallout of the mortgage meltdown, and these megabanks are
relatively new in the history of banks, so what does it mean when like a
megabank loses billions of dollars?

Ms. MORGENSON: Well, you've heard the expression "when a bank is too big to
fail"? Some of these banks, people are wondering are they too big to succeed.
And the question I think is very well put because Citigroup is a massive
institution that dabbles in all kinds of areas: insurance, commercial
banking, investment banking, securities and trading. And, you know, this
vertical integration of all of these businesses that was really the response
to the downfall of Glass-Steagall, a depression-era law that was created to
try to prevent this massive build-up in a single institution.

Now it's really kind of come a cropper. You know, you have to say to
yourself, can these institutions be managed. Obviously Chuck Prince, who was
the CEO of Citigroup, lost his job over the mortgage and other troubled assets
debacle that Citigroup has seen. Merrill Lynch's CEO Stan O'Neal also lost
his job because he wasn't minding the store. Merrill Lynch has suffered
enormous losses also. So one wonders if they can be managed adequately and
one wonders if we'll just go through a period of sort of divestment after
building up these massive institutions.

GROSS: Well, you say you think some of these megabanks are too big to
succeed, but getting back to your original phrase, are they too big to fail?
Is it possible for a megabank to go under?

Ms. MORGENSON: Well, I certainly don't think the government would allow a
megabank to go under. There is a too-big-to-fail doctrine, and it is alive
and well. I think that you could also say that it--some institutions are too
medium to fail. I mean, I think we're kind of downgrading the size of the
entity that can be or will be saved as a result of what this concept is. Now,
we all understand that you don't want to see failures of these institutions.
They have hired too many people. They control so many assets. It would be so
disruptive, and the confidence that would be lost, you know, by the American
people in these institutions would be an enormous hit and, you know, would be
a long time in recovering. For all those reasons we understand that you can't
let those institutions fail.

But I think that there is almost a sense now across the country that
institutions of a smaller size are not being allowed to fail, and if they have
made bad decisions based on whatever, you know, whether it was greed, whether
it was just incompetence, why should the American taxpayer be forced to bail
out their incompetence. I think it's a very good question that we all should
be asking. Because you know the American taxpayer will be the ultimate bag
holder in this mess.

GROSS: And then, of course, there's the question, why should people who have
their life savings in these banks be forced to suffer because of the bank's
bad decisions.

Ms. MORGENSON: That's right. Now, we do have safety nets, of course. The
FDIC and the others, you know, insure the insurance funds, cover accounts up
to a certain size, but I think there really has to be something done about the
idea that executives can walk away from these disasters with enormous
paychecks, with huge severance packages, and really kind of leave the mess to
the taxpayer to pick up.

GROSS: Is there any safety net for people who have a lot of money in the
megabanks or on these large brokerage houses that have also lost a lot of
money because of the mortgage crisis?

Ms. MORGENSON: Typically you're restricted, as you know, to $100,000 by the
FDIC. These banks are typically FDIC insured. So if you have amounts over
that then you have to sort of sort minding your Ps and Qs about where you put
your money. You do have, as an investor in a stock brokerage firm, protection
from the Security Investor Protection Corporation, but that is limited to a
failure of a firm, and that is--I think $500,000 is the limit. So it's not
that you lose money in the stock market and can get your money back from an
insurance fund. It's that if the broken firm fails and your securities are
somehow, you know, locked up in the failure then that you're insured up until
that amount.

GROSS: I've got another megabank question for you. The government investment
arm of Abu Dhabi recently bought $7.5 billion of shares in Citigroup. So what
does it mean for a foreign country like Abu Dhabi to own what is, I think, 4.9
percent of the shares of an American megabank?

Ms. MORGENSON: Well, we've been in this place before, Terry. In 1990, we
had a Saudi Arabian prince buy a very large stake in Citibank. It was
Citibank back then; Citicorp was the parent. And he was a passive investor,
certainly not somebody who was going to, you know, rattle the cage and tell
them how to do their job. So we've sort of--we've been here before. It has
not been a problem. But this go-round, the Abu Dhabi bank, other sovereign
wealth funds who are buying into our US institutions, first of all it's
embarrassing. You know, you wouldn't be at this point, you wouldn't be--these
executives wouldn't be going around with a tin cup if there weren't problems,
right? That's embarrassing, for starters. And you do have to wonder if,
under any circumstances, some of these institutions, these foreigners are
going to want to take a more active role and take on a little bit more control
that comes along with such a large stake that they've invested. We're not at
that point yet, and people don't seem to be too worried about it, but I don't
think it's a good thing, and I think we just have to wait and see.

GROSS: And why would a country like Abu Dhabi invest in an institution that's
so troubled? Do they get a good buy?

Ms. MORGENSON: Well, my guess is--well, certainly they got a good buy. I
think they got a discount to the prevailing market price for their shares.
But, you know, obviously they're bullish on America. I mean, I think that we
all believe that the country is going to survive this thing and thrive, and I
hope we learn some lessons from it. And they'll be there to capitalize when
Citigroup stock starts to turn around. They're patient, they're long term.
They have a long-term horizon. They don't want a quick buck necessarily, and
Citigroup also pays a dividend, which will keep them, you know, somewhat happy
while they wait. But I think that it's a long-term belief that this is a
temporary problem that will be worked out and that at the end of the line the
stock will go up again.

GROSS: Gretchen Morgenson is a financial columnist for The New York Times.
She'll be back in the second half of the show. This is FRESH AIR.

(Announcements)

GROSS: This is FRESH AIR. I'm Terry Gross back with Pulitzer Prize-winning
financial journalist Gretchen Morgenson. She's a reporter and columnist for
The New York Times. We're discussing the continuing fallout from the mortgage
crisis.

Now, we were talking a little bit about the Fed lowering interest rates and
the impact that's going to have on banks. Let's talk a little bit about the
impact that will likely have on individuals. What are the downsides and the
upsides for individuals with lower interest rates?

Ms. MORGENSON: Well, certainly the downsides for people who are on a fixed
income, people who rely on their investments, Social Security, things of that
kind that are related to, you know, whatever the prevailing interest rates
are. If you are a person who lives on the income from a CD, then it's going
to be lower than it was earlier because banks will take those numbers down.
They'll take those interest rates down as prevailing interest rates fall. I
think that the other risk is that the lowering of interest rates creates an
inflationary period, and that would be the worst of all worlds because then
you would be going into a downturn economically but you would also be asking
consumers to pay higher prices for things. As lower interest rates kick in,
you do have to worry about the potential for inflation.

Now here is an interesting anomaly about lower interest rates. Lower interest
rates are supposed to then translate into lower mortgage rates, right?
Because that's kind of the benchmark for what a mortgage lender would charge.
We are not seeing dramatic declines in mortgage interest rates, and here's
why. These banks have lost so much money making bad mortgage loans during the
boom times that they are not about to drop their mortgage rates to reflect the
lower Fed rates that have already been cut. They are interested in making as
much as they can on anybody who can get a mortgage now, would be people who
are good credit risks. They have a high FICO score. They have a good
downpayment to put down on the house, or they have a lot of equity already in
the house. But one of the frustrating things, I think, for consumers today is
that if you'd thought that when the Fed dropped rates your mortgage rate was
going to correspondingly decline, it really hasn't.

GROSS: Wow. So if the lower interest rates aren't good for living on your
savings if you're retired, and they're not good if you're buying a new house
because interest rates aren't really coming down on mortgages, who is helped
by the low interest rates?

Ms. MORGENSON: Once again, it is the banks. And, you know, that's kind of
the key element and that's the Fed's responsibility and obligation, is to keep
the banking system operating and, you know, it's just an anomaly that we're at
a period when banks have these other problems that have to go back onto their
balance sheet so they can't respond as quickly as maybe they have in the past.
But I think it's really unfortunate because, as you look at the credit card
rates that are out there and you see the disparity between those rates--you
know, as high as 20 percent, or 18 annual percentage rates--you see the
difference between that and what the banks, you know, have to pay for their
cost of capital, which is way down, it really is obvious that consumers are
getting gouged.

GROSS: Why does the stock market seem to like it so much when the Fed cuts
the interest rate?

Ms. MORGENSON: Interest rate cuts are good for stocks because it lowers the
cost of capital for companies. Let's say you're IBM. You need to borrow, and
so as rates are cut that lowers one of your costs, and it lowers a key cost
for you. So it's really very kind of knee-jerk, the reaction. Obviously the
stock market is kind of a voting mechanism that involves a lot of other
things, especially confidence in the system and confidence in the future and
confidence in the economy. So interest rates do provide a nice cushion
because people think that it's a very positive thing for the companies whose
shares are traded on the stock market.

GROSS: You know, I was going to ask you if this seemed like a good time to
buy a house because interest rates are lowering, but you're saying that those
lower interest rates aren't being represented in the housing market.

Ms. MORGENSON: They are coming down a bit, Terry, but they're not coming
down as much as they normally would. When the Fed has cut rates to the levels
they have, you would think you would see mortgage rates, you know, well below
where they are now, and it's just not--it's what we call "sticky" mortgage
rates. They're sticking up here at these kind of unnaturally high levels and
that's a way for the banks to kind of replenish their profits.

GROSS: So if the mortgage rates haven't been coming down in the same
proportion that the Fed has been cutting interest rates, does that mean that
this maybe isn't such a good time to buy a home? Do you think that the
interest rates will start to come down sometime in the near future?

Ms. MORGENSON: Well, I think that there is a concern about this being the
right time to buy a home more to the point of falling house prices, because I
think that we're going to be in this kind of a difficult period for a long
time, you know, I think certainly another year. So would you want to buy a
house when the price may fall from the point at which you buy it?

Now, obviously there is no market average for the United States of America.
Different markets for real estate are vastly different and behave differently.
You have devastation in Florida and California. You do not have the same
kinds of problems in other states. So your own personal local understanding
of your personal market certainly would drive your decision, but there is a
real chance that house prices are going to continue to fall because there is
just not as much demand. It's a simple supply and demand equation.

When house prices were rising it was because lax lending was providing many
more people with mortgage money than they really ought to have had. That
naturally pushed the price of these homes up. You had developers who were
going wild with developing parts of Florida, California, etc. Las Vegas. Now
those developers, many of them, are, you know, in difficulty. Some have filed
for bankruptcy. So you're going to have to work through the supply of homes
that we have out there; and in some markets, that supply is enormous. So the
prices will have to continue to fall. That would be the only concern, I
think, about taking on a mortgage at this point in time. Nobody wants to take
on a mortgage, as I explained at the outset, that would end up being higher
than the amount of the house that underlies it.

GROSS: Are there other forms of loans that are being affected by the mortgage
crisis? For instance, are student loans?

Ms. MORGENSON: Yes, Terry. I think that we're going to start to see now a
similar problem emerge in student loans. Student loans have been, you know,
obviously made to people who are among the least able to pay. They carry
these really onerous debts from the very moment that they leave college. It's
really been an unfortunate development that grants that were a typical way for
for people to have college educations funded really have given way to these
very overpriced or very costly loans that were made by institutions and Sallie
Mae. So I think we're going to start to see a similar kind of a problem
emerge in college loans. People are going to have difficulty paying them.
People are going to feel that these are vastly higher interest rates than they
can afford, and I think we're going to start to see some failures there as
well.

GROSS: My guest is Gretchen Morgenson. She's a financial reporter and
columnist for The New York Times. We'll talk more after a break. This is
FRESH AIR.

(Announcements)

GROSS: If you're just joining us, my guest is Gretchen Morgenson. She's a
financial columnist and reporter for The New York Times.

In a recent column you wrote that because the stock market has been doing so
poorly this is a good time now to examine the fees on your mutual funds if you
own mutual funds. Why is this a good time to do that?

Ms. MORGENSON: Well, any time is a good time to examine fees because, Terry,
fees can really mean the difference between a prosperous retirement and an
unprosperous retirement. I mean, it's mind-boggling how much these things
really--when they are compounded over periods of years can decimate your
ultimate returns. So I think that people don't pay that much attention to
them in times that are good, because you feel good about your mutual fund
manager. He or she is making money for you. Your account size is growing.
But, you know, when you are experiencing declines in your mutual fund values,
you can then stop with this idea that your money manager is doing such a great
thing for you and start to examine actually what they're being paid for the
job that they're doing. And so I just use this as an opportunity to sort of
say let's pay attention to what the fees are that you're paying.

Unfortunately they're extremely difficult to kind of fathom. If you're not in
a straightforward, you know S&P 500 index fund, such as those offered by
Vanguard and other no-load funds, if you're in a fund that your broker has
sold you or in a fund that has a front-end load or a front-end cost, it's
really difficult to come up with a kind of a number of what you're paying. So
that's why I think it's important.

GROSS: And are you paying--with these fees, are you paying a percentage of
everything that's in the fund or just a percentage on the profit?

Ms. MORGENSON: You're paying a percentage of the assets that you put into
the fund. So...

GROSS: So even when you're losing money you're paying a percentage of what
you have invested?

Ms. MORGENSON: That's right.

GROSS: So how do you suggest finding out now what the fee that you're paying
is?

Ms. MORGENSON: Well, they don't make it easy, as I explained, and thank
heavens there is a good Web site that you can go to to input what funds you
own into it--it's got a calculator--and you can put the fund name, the share
type that you bought, whether it's the A, the B, the C--they're all these
different kind of share classes that are also very confusing. And it's a Web
site that is www.finra.org, and it's the Web site of what used to be the
National Association of Securities Dealers, regulatory oversight of stock
brokers and brokerage firms. They have a wonderful calculator for mutual fund
fees, and you just put your fund in there--if it's a load fund--and they'll
tell you what your account balance will be at the end of a period that you put
in, say five years, seven years, three years. You can vary it depending on
your own situation, and you can see what the different fees are and the
different share classes and how much you'll have left over, you know, using an
estimated annual return percentage. So it's a good thing to look at, and, you
know, if it's a size of a fee that is just outlandish and if you can actually
see what it's doing to your ultimate return, I think that it's just a good
information tool to use.

GROSS: I'm going to repeat the name of that Web site. It's FINRA, F-I-N-R-A,
which is an acronym for the Financial Industry Regulation Authority.

You know, I think a lot of people are wondering now, like, well, what is a
safe place to put your money.

Ms. MORGENSON: Absolutely. People are worried about that. You know, of
course, banks are safe. Money markets, though, are another investment that we
really have to now question because of the mortgage meltdown. Money market
funds are practically universal. There's probably very few people out there
that don't have them. It's a way to park your cash, get a little bit more
than you would in a savings account; get a little bit more than you would
maybe--certainly on your checking.

But these funds, some of them--some of them, not all--have invested in
mortgage related securities and had problems as a result and so you have to
look in the prospectus. Nobody wants to read through those things, but
they'll tell you what these securities are that the fund owns. But if you
really want to be super cautious, you would restrict your ownership of such a
fund to a fund that is only investing in United States government securities.
That will pay you less than some of the other funds, but if it's safety that
you're after and you don't want any kind of mortgage nightmare cropping up,
then United States Treasury securities money market fund is an answer.

GROSS: Gretchen Morgenson is a financial reporter and columnist for The New
York Times. We recorded our interview yesterday. Later in the day,
billionaire investor Warren Buffet made an offer to three bond insurance
companies that have been hit by the mortgage crisis: Ambac, MBIA and
Financial Guarantee Insurance Company. Ambac was the first to give an answer
and the answer was `no thank you.' This morning we called Gretchen Morgenson
and asked her to explain Buffet's plan.

Gretchen, what did Warren Buffet offer to do?

Ms. MORGENSON: Mr. Buffet, who, as you know, runs as very large insurance
company, essentially offered to pick up the municipal bond insurance aspect of
these bond insurers' business. That used to be what these companies did
solely, but in recent years they've stepped into new businesses and
unfortunately those included mortgage-related securities, and now they're
insuring a lot of securities that are having difficulty and poised to default.
So their municipal bond insurance business is still a fine business.
Municipalities rarely default, as you know, because often it just means, you
know, raising taxes or whatever to pay off whatever the expenditures are
required. But this situation that Mr. Buffet has stepped into is a way for
him to kind of profit by picking up at perhaps a distressed price a very good,
very solid, pretty conservative business, insuring municipal bonds.

I don't think that it really makes a huge different in the grand scheme of
what the problems are facing these bond insurers like MBIA and Ambac because
they would still, under the plan, be left with the toxic business of insuring
mortgage-related securities, so this is really not a solution to the huge
problem that they face.

GROSS: I guess for these companies it would mean helping them with the best
part of their business and leaving them holding the bag with the worst part?

Ms. MORGENSON: Well, it wouldn't really be helping them with their business,
it would be buying that business.

GROSS: Oh, it would just be taking that away? Uh-huh.

Ms. MORGENSON: Yes. It would be buying that business from them and, you
know, or taking that business from them, offering to backstop it or reinsure
it, essentially, and then they would be left with, as we described, the kind
of toxic business. So I don't really think it's something that they are too
likely to want to accept, but it could provide for the overall municipal bond
market a sense of stability that I think has been missing recently as the
problems of these insurers have become evident. So that is a positive in the
plan. You know, if Warren Buffet's company, which is very highly rated, very
solid, financially sound, if that is backing the municipalities, then I think
it's probably easier for them to raise money, for them to underwrite bonds
than it is now.

GROSS: How worried has the municipal bond market been?

Ms. MORGENSON: It's been increasingly worried because, of course, these
insurers are, you know, an aspect that makes a municipality's job of raising
money easier. If the municipality's bonds are insured by a solid, financially
grounded company, then it makes it easier for them to sell their bonds to
investors. So it's been a skittish period and a difficult time, and there
have been anecdotal reports of some municipalities being unable to issue bonds
that they hope to issue because of these problems with the insurers.

GROSS: So how long do you think it's going to take to have a complete picture
of the three bond insurance companies' reactions to the Warren Buffet
proposal? One of them has already turned it down. Ambac has turned it down.

Ms. MORGENSON: Yes. I think that the others will have a similar response to
it, so I think we'll be back to square one pretty quickly.

GROSS: Gretchen, thank you very much for the update.

Ms. MORGENSON: Any time, Terry. My pleasure.

GROSS: Gretchen Morgenson is a financial reporter and columnist for The New
York Times.

If you've never seen the Brecht-Weill musical "The Rise and Fall of the City
of Mahagonny," you can know watch a recent production on DVD. Coming up,
Lloyd Schwartz has a review. This is FRESH AIR.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Review: Lloyd Schwartz on a new DVD release of "Mahagonny"
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

Many of Kurt Weill's songs, such as "Mack the Knife" and "September Song,"
have become popular standards. But most people aren't familiar with the
larger works these songs come from. Classical music critic Lloyd Schwartz
says that there's a reason for that. Except for "Threepenny Opera," Weill's
other operatic works and theater pieces don't get produced very often, but
Lloyd says with at least one work that's beginning to change.

(Soundbite of music)

Unidentified Singer: (Singing)
(Unintelligible)...honey, the air is clean and fresh
Booze and poker tables...(unintelligible)...
Shy on harvest moon of Alabama
Like the sound...(unintelligible)...

(End of soundbite)

Mr. LLOYD SCHWARTZ: Kurt Weill's most ambitious undertaking with his
best-known collaborator, German playwright Berthold Brecht, was their 1930
opera "The Rise and Fall of the City of Mahagonny," a brilliant and
devastating portrait of a society that's driven by greed, self-interest and an
obsession with mindless pleasure. It takes place in a mythical USA, and in
some of its songs, including the famous "Alabama Song," the words were
actually written in English.

(Soundbite of "Alabama Song")

Unidentified Singers: (singing) Oh, show us the way to the next little dollar
Oh don't ask why, oh don't ask why
For we must buy the next little dollar
For if we don't find the next little dollar
I tell you we must die
I tell you we must die
I tell you, I tell you
I tell you we must die
Ha ha

Oh moon, oh moon of Alabama
We now must say goodbye
We now must say goodbye
We've lost our good old mama
And must have dollars, oh you know why

Oh, moon...

(End of soundbite)

Mr. SCHWARTZ: Nasty, yet unforgettably tuneful, "Mahagonny" makes for
exhilarating musical theater. Before the Metropolitan Opera's telecast of its
first production back in 1979, it was very seldom performed in this country.
But last year alone, it had major productions in Boston, Charleston and Los
Angeles. The LA Opera production, starring Patti LuPone, Audra McDonald and
Anthony Dean Griffey, was telecast last December on PBS, and it's now on DVD.

There are powerful directorial touches by John Doyle, though I thought his
recent version of Stephen Sondheim's "Sweeney Todd," in which the actors
actually played all the musical instruments, was more imaginative and finally
more chilling than this "Mahagonny." But conductor James Conlon delivers a
gripping and insinuating musical performance that never lets up.

(Soundbite of music)

Unidentified Singers: (Singing) Nothing you can do can help a dead man
You can try to sweet talk him
Or you can yell at him
Or you can let him lie there
Or you can drag him with you

Nothing you can do will help a dead man
Nothing you can do will help a dead man
Nothing you can do will help a dead man
You can shove metal under his hand
You can dig a hole for him
You can shove him down in it
You can bury him up with a shovel
Nothing you can do will help a dead man
Nothing you can do will help a dead man

(End of soundbite)

Mr. SCHWARTZ: The cast is terrific. Patti LuPone is a mixture of vulgarity,
cynicism and desperation as the widow Begbick, founder of this seductive city
of nets. And her voice--part Broadway, part opera--meets Weill's vocal
demands in a compelling way.

Opera tenor Anthony Dean Griffey combines a hulking power with a tender
innocence and delicacy as the hero/victim Jimmy, the good guy who'll give you
the shirt off his back but who is sentenced to death for not paying his bar
tab. And Audra McDonald is sensational as Jenny, a prostitute with a heart of
gold--cold, hard and glittering. She won't even lend Jimmy, her lover, the
cash to save his life. "As you make your bed, so you lie in it," she sings,
in the song that expresses the central moral of the opera.

(Soundbite of music)

Ms. AUDRA McDONALD: (As Jenny) (Singing) In this world you must make your
own bed
And no one will show you the trick
So go on and get kicked if you want to
As for me, I would rather stand and kick

In this world you must make your own bed
And no one will show you the trick
So go ahead and get kicked if you want to
As for me I will stand up and kick

(End of soundbite)

Mr. SCHWARTZ: I guess there's still some question in people's minds about
whether "Mahagonny" is a real opera. Even the Met, which does most operas in
their original languages, presented "Mahagonny" in English, but given the
spotty English diction and the clunky translation being used, I wished this
production had kept to the original German with English subtitles. At least
the parts Brecht and Weill intended to be in English would sound different
from the parts not in English. Still, this is an exciting performance of a
remarkable and disturbing work. I hope that the telecast and this DVD mean
that more and more people will get to know it.

GROSS: Lloyd Schwartz is classical music editor of The Boston Phoenix and
co-editor of the Library of America's new volume of Elizabeth Bishop's poems,
prose and letters. He reviewed Kurt Weill's opera "The Rise and Fall of the
City of Mahagonny," which has just been released on a EuroArts DVD.

(Credits)

GROSS: I'm Terry Gross.
Transcripts are created on a rush deadline, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of Fresh Air interviews and reviews are the audio recordings of each segment.