Reich: Big banks likely to stay too big to fail
TEXT OF INTERVIEW
Stacey Vanek-Smith: We talked about the Senate's financial reform bill at the top of the show. It's starting to take shape. Robert Reich is professor of public policy at Berkeley, he's here to give us his take on the legislation thus far. Good morning, Robert.
Robert Reich: Good morning, Stacey.
Vanek-Smith: So Robert, it was week two in the Senate's battle over financial reform. Who's winning?
Reich: Well one winner was the Federal Reserve. Originally, remember, the Senate planned to strip the Fed of its power to oversee banks because it had done such a lousy job before the crash of 2008. But the bill now lets the Fed keep all of its authority over big and small banks. You may also remember, Stacey, the criticism of the Fed for keeping secret the payments it made to banks that contracted with bailed-out insurer AIG, well a measure that would have subjected the Fed to ongoing review was watered-down to a one-time only audit.
Vanek-Smith: How about the banks? How did the biggest banks come out in this?
Reich: Well the biggest are quite likely to remain too big to fail, Stacey. An effort to cap the size of the biggest banks was voted down, as well as a measure that would have required the big banks to pay into a fund to be used in the event that a big bank was at risk of failure. A requirement that big banks spin off their lucrative derivative trading businesses is still in there, but it may not survive beyond Tuesday. That's when Senator Blanche Lincoln of Arkansas, who introduced it, faces a primary challenger from her left. Also still in the bill is the so-called Volcker rule, barring big banks from trading on their own accounts, owning hedge funds and private equity funds. The banks hate this and will try to narrow it.
Vanek-Smith: Polls show huge public distrust of Wall Street, and mid-term elections of course are only months away. Why isn't the Senate doing more?
Reich: You've got to remember, the Street -- Wall Street that is -- is a major campaign contributor to both parties. Besides, Stacey, most of the public doesn't understand the details of finance. So it's relatively easy for the Senate to sound tough while creating a lot of loopholes.
Vanek-Smith: Robert Reich is professor of public policy at Berkeley and was the Secretary of Labor under President Clinton. Thank you, Robert.
Reich: Thank you, Stacey.