Congress takes on financial reform
TEXT OF INTERVIEW
Steve Chiotakis: While the G-20 in Pittsburgh is taking up global economic reform, the U.S. Congress has its own work to do to try and prevent another financial meltdown. Former Labor Secretary Robert Reich joins us this morning to talk about whether lawmakers are able and willing to make some new rules happen. Good morning.
Robert Reich: Good morning, Steve.
Chiotakis: So what’s the mood in Congress as far as financial reform goes?
Reich: Less than expected eight months ago. The sense of urgency is gone — most people are focused on health care these days, and the Street has been exercising its lobbying muscle, already watering down proposals for tightening rules on trading derivatives like credit-default swaps.
Chiotakis: And what about President Obama’s idea for giving the Fed this authority to oversee financial risk?
Reich: Doubtful. Many in Congress are asking why give the Fed more power when in blew it last time by not seeing the housing bubble? One possibility here: Chris Dodd, the new chair of the Senate banking committee, wants to combine the Fed with three other major bank regulators into one super regulator.
Chiotakis: And we’ve heard about this new consumer financial protection agency? I mean what are the chances of that getting through?
Reich: I’d give it even odds. Business groups hate it — they’re already running TV ads about the perils of more government. And both the Federal Reserve and the FDIC say it’s unnecessary.
Chiotakis: And Bob, limits on compensation, I mean that’s been a big sticking point, right?
Reich: Well obviously Wall Street doesn’t want them. But Obama has two interesting allies on this one: the Europeans have come up with a proposal linking pay to long-term performance, and the Fed is also cooking up one.
Chiotakis: And is there anything coming down the pipe that looks like a sure bet to you?
Reich: Yeah, two of them. The president’s proposal to create legal authority to sell off the assets of big banks, like Lehman Brothers — they’re on the verge of going under — and also requriing banks to have more capital on hand.
Chiotakis: What about something’s that’s not on the table that you think maybe should be?
Reich: Well to my mind, resurrecting the Glass-Steagall Act, which walled off investment banking from commercial banking. That could have stopped a lot of the mess we’re in right now, but that’s not on anyone’s radar screen right now.
Chiotakis: And Bob, what if this is all for nothing, and we walk away without any bills getting passed?
Reich: Well don’t even think about it, Steve. Now that the big banks know they’re too big to fail and will be bailed out if their bets turn sour, they’re likely to make even riskier bets than before in the absence of smarter regulation and better oversight. And nobody wants to go through another meltdown again.
Chiotakis: All right. Former Labor Secretary Robert Reich, who teaches public policy at the University of California, Berkeley. Bob, thanks.
Reich: Thanks, Steve.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
