TEXT OF INTERVIEW
Steve Chiotakis: The White House’s plan for financial regulatory reform has gotten a pretty cool reception so far in Congress. Senator Chris Dodd, the Democrat who chairs the Senate Banking Committee,
says there’s a lot of politics in the proposal. So what are the chances of passage? Former Labor Secretary Robert Reich is with us this morning to give us his thoughts. Good morning, Bob.
Robert Reich: Good morning, Steve.
Chiotakis: Are we finally getting some movement on financial reform on both sides of the aisle?
Reich: A bit. The biggest stickest point has been over a new agency to protect consumers from abuses — you know, like mortgage bankers steering borrowers away from standard 30-year fixed loans towards higher-priced subprime loans. The House approved the creation of an independent consumer protection agency, but Senate Republicans have refused to go along. The Senate Banking Committee seems on the verge of a compromise that would put the consumer protection agency inside the Federal Reserve. The only problem is, the Fed already has a consumer division, and so far it’s notably failed to protect consumers.
Chiotakis: That sounds a lot like bureaucratic gamesmanship.
Reich: Ah yes, well behind it is politics of course. The simple fact, Steve, is that Wall Street doesn’t want to deal with another agency, doesn’t want more oversight, and is doing whatever it can to avoid it.
Chiotakis: And what about the other elements of reform, Bob, such as regulating derivatives?
Reich: Well there’s been some progress here, but with huge loopholes. For example, neither the House nor the emerging Senate bill requires that all credit-default swaps be openly traded on exchanges. And that means big bets can still be made without adequate capital to back them up.
Chiotakis: Are banks still going to be too big too fail?
Reich: No, and this actually is the encouraging thing. Bipartisan agreement on what they’re calling a hybrid resolution fund — a fancy word meaning basically a fund to pay the cost of dismantling large financial firms that get into trouble. And much of the funding will be coming from the large banks.
Chiotakis: What about, Bob, the so-called Volcker rule that would partly re-establish this wall between commercial and investment banking?
Reich: Well the White House now wants it, but it’s going nowhere. Wall Street hates it and the Senate Banking Committee doesn’t want to get near it.
Chiotakis: So then, does it look like we’re going to get financial reform this year?
Reich: Well let’s put it this way, Steve: We’ll get something Congress wants to call financial reform. But the way it’s moving, it won’t be strong enough or bold enough to prevent another financial meltdown, I’m afraid.
Chiotakis: Former Labor Secretary Robert Reich and current professor of public policy at the University of California Berkeley. Bob, thanks.
Reich: Thanks, Steve.
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