The good and bad of the reform bill
Chairman Rep. Barney Frank (D-MA) (C) in a Senate-House Conference Committee meeting on Capitol Hill in Washington, D.C. The Conference Committee discussed the Senate and House versions of the financial regulatory reform bill and came up with a compromise bill that will go to vote next week.
TEXT OF INTERVIEW
Kai Ryssdal: What is this bill going to do for the financial system in the crisis next time?
Dan Gross covers business and the economy for Slate and Newsweek. Dan, it's good to have you with us.
Dan Gross: Good to be here.
Ryssdal: If you assume, as most people do, that we are gonna have another financial crisis at some point in the next 15, 20-ish years, does the bill that passed earlier this morning do anything to ameliorate that to make it less harsh?
Gross: By definition, we do not know when the next crisis is going to be or where it will come from. One of Wall Street's great skills is at innovating new ways to blow itself up. So this legislation is intended to forestall some of the things that got us into trouble, but it's hard to say definitively this will forestall anything from ever happening again.
Ryssdal: Well then, where might it do the best job? What have they done well in Congress?
Gross: One of the good things it has done is set a marker to tell Wall Street firms and banks that you can't just have access to the Federal Reserve and the federal government insure all your deposits and then go do whatever the heck you want with it. It's setting down a marker to say, look, you can only put so much money into hedge funds and private equity, you can only trade certain types of derivatives and that we're going to set up this risk council to look over things and make sure the system is not getting too out of control.
Ryssdal: Where did they then not do such a great job? Where did they miss the mark?
Gross: One has to do with leverage, in terms of limiting the amount of debt these companies can have and use. That was what caused the downfall of Lehman Brothers and Bear Stearns and the whole investment banking industry -- too much debt.
A second is not compelling the industry to pre-fund it's own bailout. There had been talk about setting up a fund -- $50 billion, $150 billion -- to be funded by teh large institutions that the government can call on in times of need when a bank needs to be wound down, or some intervention into certain markets were necessary due to a systemic problem. That is absent from the bill.
Ryssdal: Does this thing then have a place in the context of the current economic recovery. Is anything in this bill going to make it better now?
Gross: As far as immediate impact or providing a stimulus, I don't really see any of that in here. But of course, that is not what this is intended to do. This is intended to A. provide some sense of justice or sense that we have learned something from this crisis, to try to prevent a lot of these things from happening in the near future, and ultimately to put the financial sector on a sound, long-term footing, which helps our economic growth in the long term, doesn't do a whole lot for us in the next couple years.
Ryssdal: Do you think that Congress made the most of the opportunity it had, that they took this crisis and turned it to its best possible advantage?
Gross: Absolutely not. They were not nearly tough enough on the credit rating agencies that played such a role in giving a stamp of approval to all these securities. They should've taken this opportunity to make the SEC truly independent in terms of keeping the revenues it raises, rather than having to go to Congress every year for an appropriation. So there were a fair number of missed opportunities here.
Ryssdal: Dan Gross, he's a columnist at Newsweek and at Slate.com Dan, thanks a lot.
Gross: Any time.