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There's the plan, then the execution

Joseph Grundfest

TEXT OF INTERVIEW

KAI RYSSDAL: Secretary Paulson came right out and said as much this morning, although a quick look at the calendar would tell you the same thing. Domestic politics being what they are in a presidential election year, nothing much is going to happen with this plan anytime soon. Joe Grundfest used to sit on the Securities and Exchange Commission. He's at Stanford Law School now. Professor Grundfest, thanks for being with us.

JOE GRUNDFEST: Pleasure to join you.

RYSSDAL: You know there's that saying in Washington, "the President proposes, Congress disposes." What are lawmakers going to do with this one?

GRUNDFEST: Well, it's going to be quite a while, Kai. Let's remember what happened in the process of creating the Homeland Security Department. There we had a terrorist attack on the United States and it took Congress several years to figure out how to reorganize a group of various agencies and put them together into a new department, so however long it took to put together the Department of Homeland Security, and however painful and difficult that process was, I think it's safe to project that it'll take longer to put in place these measures in the financial markets, and that the process will be even more difficult and more political than what we've already experienced.

RYSSDAL: What are your thoughts about giving the Fed all this power? It is one of the most opaque, not quite secretive but certainly tough to decipher, organizations in Washington, and here the administration wants to give them more power.

GRUNDFEST: Well, you know, that's going to be part of the debate that Washington will have. It is, I think, very important that there be a body that is politically distinct from the Congress and the administration, that deals with the question of control of money supply, interest rates and all of those issues, because we know from experience in many different countries, that a great deal of mischief can happen if politicians get control over central banks.

RYSSDAL: Let me spread this out a little bit to some of the other agencies and organizations that were mentioned in Secretary Paulson's speech today, specifically the SCC and the Commodities Futures Trading Commission, the proposal to merge them. How's that going to go down do you think?

GRUNDFEST: Well I think that's going to be about as easy as finding peace in the Middle East. The futures markets have been at odds with the securities markets for years, and if anyone thinks that it's going to be easy to bridge that gap, I think they simply have no experience in terms of the history of that debate in Washington, DC.

RYSSDAL: But when they start digging into this stuff, I mean members of Congress are going to find things that they like and things that they don't.

GRUNDFEST: Well, there's absolutely no doubt about it, and one of the things that they're going to find that they don't like is that when you consolidate these agencies, it can actually affect the flow of money to political campaigns in Washington. For example, most people don't realize that the Commodity Futures Trading Commission is overseen by the Agriculture Committees up on Capitol Hill, and it's because they have that oversight that many of the large investment banks that actually trade in financial instruments, and really don't care that much about soybeans and pork bellies, wind up visiting with senators on the Ag Committee, and contributing substantially to senators on the Ag Committee.

RYSSDAL: You spent some time on the SCC in Washington. Let me ask you to do a gut-check here and tell me what you think of this plan to begin with.

GRUNDFEST: Well, you know, I think there's a great deal of benefit that can be had from rationalizing the rather achaean, baroque, balkanized structure that we have in Washington, DC, but at the end of the day, I really think the question goes to the quality of regulation, rather than the quantity and the allocation of responsibility. As we wind up working our way through this battle, I think we have to keep our eyes on the prize, and that is are we moving to a world of smarter, cost-efficient regulation, or are we just going to be piling on additional requirements that at the end of the day, don't make the financial world a better or safer place for anyone.

RYSSDAL: Joe Grundfest teaches law at Stanford University. He's the director of the Rock Center for Corporate Governance there. He was an SCC commissioner as well. Professor Grundfest, thanks for your time.

GRUNDFEST: It's been a pleasure.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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