Fallout: The Financial Crisis

Panel pushes for more TARP regulation

Marketplace Staff Jan 29, 2009
Fallout: The Financial Crisis

Panel pushes for more TARP regulation

Marketplace Staff Jan 29, 2009


KAI RYSSDAL: This might sound like the lead-in to a bad joke — sadly for all of us it’s not: What do you do when $700 billion isn’t enough?

The new head of the Congressional Budget Office told Congress today he thinks banks are going to need more than the initial $700 billion that was authorized in the TARP — the Troubled Assets Relief Program. Perhaps on the order of hundreds of billions of dollars more.

The panel that lawmakers set up to keep an eye on how that original pool of money’s being handed out issued a new report today on how we might avoid this kind of thing ever happening again. Harvard Law professor Elizabeth Warren chairs the committee.

Professor Warren, good to have you with us.

ELIZABETH WARREN: It’s good to be here.

RYSSDAL: I’d like to go back, if I might, before we get to the current report, to the last time you and I spoke, beginning of December, and your interim on the TARP as it existed then. You had some not nice things to say about the Treasury Department and what they were doing. Has that changed at all?

WARREN: Well, we’re still asking the questions.

RYSSDAL: Are you satisfied with what the new administration is doing?

WARREN: We’ve sent another letter explaining what questions have been answered and the many, many questions that are still open. We’ve asked them to get back to us by a date certain and I hope that that’s going to happen. Look, things are changing. We understand that. They’re announcing lots of new policies. And we want to be fair. We want to give them a chance to do that. But at the same time, it doesn’t change the fact that this is the taxpayers’ money. We still have a responsibility and we’re still going to keep asking those questions until we get some answers.

RYSSDAL: You met with the Treasury Secretary yesterday, the new Treasury Secretary Timothy Geithner. How did that conversation go?

WARREN: It was very nice. I will say this about the secretary — he at least understands what the problem is, that the American people want to know what’s going on and that they have a right to know what’s going on.

RYSSDAL: Let’s get to the report that came out today on regulatory reform. As the title sort of implies, you think — your panel thinks — more rules/more regulations are critical to preventing this from happening again.

WARREN: What this panel says is that we came out of the Great Depression with some key, new financial regulations and that kept us safe for 50 years. We began to develop new financial products, and we had a choice. We could have decided “Hey, that means we need to innovate and change our regulations, make ’em a little smarter,” or we could leave these new products unregulated and we could start deregulating the old ones.

We chose the latter path. And what happened? We had the SNL crisis in the late 1980’s. We had another crisis late in 1998. We had another one in 2002. And now we’re in the worst economic crisis since the Great Depression. It’s not that we want more regulation. It’s that we are not appropriately regulating a lot of new financial products that have hit the market. We need to do better.

The Congressional Oversight Panel for the Trouble Assets Relief Program has identified these areas most urgently in need of reform:

1. Identify and regulate financial institutions that pose systemic risk.

2. Limit excessive leverage in American financial institutions.

3. Increase supervision of the shadow financial system.

4. Create a new system for federal and state regulation of mortgages and other consumer credit products.

5. Create executive pay structures that discourage excessive risk taking.

6. Reform the credit rating system.

7. Make establishing a global financial regulatory floor a U.S. diplomatic priority.

8. Plan for the next crisis.

RYSSDAL: What hope do you have that in the current political environment in Washington, which is proving to be less bipartisan than anybody had hoped, that your recommendations will be adopted?

WARREN: Well, it’s not a question just of our regulations being adopted immediately. I think the first thing that happens is that we have to frame what went wrong. And when we frame what went wrong, that begins to shift the whole debate. I think that our specific recommendations will be important as that discussion goes forward. What we’ve done is we’ve brought eight things that we could do to make sure that we don’t re-create this problem and get ourselves back into the same mess.

RYSSDAL: Harvard law Professor Elizabeth Warren chairs the Congressional Oversight Panel on the Troubled assets recover program — the TARP. And we’ll have a copy of her committee’s report on our Web site — it’s Marketplace.org. Professor Warren, thanks for your time.

WARREN: Oh, thanks for having me.

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