Leader McConnell & Senator Warner on "State of the Union"

Leader McConnell & Senator Warner on "State of the Union"

By State of the Union - April 18, 2010

CROWLEY: We want of course to get the Senate minority leader to respond. We have Mitch McConnell. He is joining us from his home state of Kentucky. Senator, thanks for being here with us. Right off the bat, the president says you are being deceptive in describing this bill.

MCCONNELL: Well, Candy, he ought to talk to his own treasury secretary, who agrees with me, as well as the Washington Post and the Wall Street Journal, that there is a bailout fund in the bill that was reported out of the Banking Committee, the partisan bill that came out of committee on a party-line vote.

CROWLEY: But that still does not--

MCCONNELL: I don't think that's in dispute.

CROWLEY: But that bailout is funded by the banks themselves, is it not? It is not a taxpayer bailout?

MCCONNELL: Well, Robert Reich, who was Bill Clinton's secretary of labor, says it is a bailout fund. I mean, regardless of how the money is produced, it is a bailout fund that sort of guarantees in perpetuity that we will be intervening once again to bail out these big firms. The president's own secretary of treasury toward the end of the week confirmed that they would rather not have it in there. I think we are all in agreement that the bill that I was referring to, except maybe the president hasn't talked to his own secretary of the treasury, has a bailout fund in it.

CROWLEY: So it does appear, and CNN has been reporting that senior administration officials have said to Senator Dodd, take out this liquidation pool (ph) that you're talking about. OK, let's say they take it out. Is the bill OK with you? Can we move on then?

MCCONNELL: Well, there are some other problems with the bill. What we ought to do is get back to the table and have a bipartisan bill, which is what we don't have at the moment, because the bill that everybody is referring to, the only one we have at the moment, came out of the committee on a straight party-line vote. I think we need to get back to the table and get it fixed.

Look, I don't know anybody in the Senate who thinks we ought not to pass a bill. The question is, what's it going to look like? We want to make sure that we don't set up a system whereby we empower the government to continue to do what it has been doing -- running banks, insurance companies, car companies. We have now seen them nationalize the student loan business, which will cost 31,000 jobs. The American people are saying, we don't want another bailout, but they also don't want a kind of perpetual government massive interventions across the board running private businesses.

CROWLEY: The president's accusation that the senator is being deceptive is not all that the president had to say. We want to talk a little more about that right after this break.


CROWLEY: Before we continue with Senator McConnell, here is a short breakdown of what's in the bill to regulate financial institutions. The new law would create an independent watchdog housed in the Federal Reserve and designed to protect American consumers from unfair financial practices. It also creates an oversight council to monitor the country's biggest financial firms to help identify potential risks before it is too late, and a $50 billion fund paid in advance by banks would be used to liquidate failed companies before they can infect the rest of the industry. The bill also calls for more scrutiny and regulation of derivatives, a bet that investors place to speculate on the future value of assets. Agreeing on how to regulate derivatives remains a huge sticking point.

Does this sound complicated? It is, and the Republicans don't like what they see. We will find out why when we come back with GOP leader, Mitch McConnell.


CROWLEY: We are back with the minority leader in the Senate, Republican Mitch McConnell. Senator McConnell, the president pretty tough on you during his radio address. Here is a little more of what he had to say, and I will ask you a couple of questions on the back half (ph).

(BEGIN VIDEO CLIP) OBAMA: The leader of the Senate Republicans and the chair of the Republican Senate Campaign Committee met with two dozen top Wall Street executives to talk about how to block progress on this issue. Lo and behold, when he returned to Washington, the Senate Republican leader came out against common-sense reforms that we have proposed.


CROWLEY: OK, so what the president is saying is you met with Wall Street leaders, with the man who raises money for Republican Senate races, and talked about how to block this bill. Did the meeting take place? What was the conversation? MCCONNELL: Well, we certainly didn't talk about blocking the bill. I don't know anybody who's in favor of blocking this bill.

MCCONNELL: I also met recently with the Kentucky bankers who are also opposed to this bill. The community banks, the little guys on main street. We're all meeting with a lot of people. This is the current subject. For the president to politicize this in the same speech in which he said we ought to de-politicize it is really quite amusing, the same day the Democratic National Committee is putting up Web ads trying to attack Republicans on this issue.

I thought he wanted us to have a bipartisan bill. That's what I would like to have. We are in the process of gathering information from people all across the country, from Wall Street to main street to try to get advice about doing this right.

Everybody in the Senate, everybody, Candy, in the Senate wants to pass a bill. But one that is opposed by the Kentucky bankers is certainly going to raise some concerns on my part. We need to fix it, get it right, and pass it on a bipartisan basis.

CROWLEY: Well, if the president is playing politics, you have to admit that it raises suspicions when you are meeting with Wall Street executives, as I take it you did, with Senator Cornyn, who raises money for Republican races. Doesn't that sort of set you up for this sort of accusation? That you went in there with the fund-raiser to talk about, you know, we've got to fight this bill.

I mean, what did you talk about?

MCCONNELL: Well, look, we were talking about financial regulation, as everybody in the country is talking about it. Most of the people in New York supported the president, the vast majority of them are on his side. They supported him during the election, they still support him. Is he saying we shouldn't sit down with his supporters and talk about a bill that he thinks we ought to pass and that I think we ought to pass? This is absurd, he...

CROWLEY: Why was Senator Cornyn there?

MCCONNELL: Candy, Candy, he is the one who is trying to politicize this issue. We are the ones who are trying to get it right. When the Kentucky bankers tell that this bill is a long way from being what we ought to pass, then it raises some concerns with me. And I think it does with all of our colleagues across the country who are hearing the same thing.

CROWLEY: Well, why was Senator Cornyn in the meeting? And what did the -- I understand what Kentucky bankers are telling you. But what did the Wall Street people tell you?

MCCONNELL: Well, they have concerns about the bill. The Kentucky bankers have concerns about the bill. We all have concerns about the bill. I have even heard the assistant Democratic leader of the Senate say he is not sure he can get all of his members to support this bill.

Right now, I think there is a pretty good shot -- a pretty good reason to believe that there is bipartisan opposition to this bill. We ought to go back to the drawing board and fix it.

CROWLEY: Let me try one more time. Why was Senator Cornyn in that meeting of all of the other senators you could have taken with you?

MCCONNELL: Senator Cornyn is a United States senator from Texas. He is going to be voting on this issue like all the rest of us are, simply because we are all involved in politics, as is the president. It doesn't mean that we can't discuss issues with people that we meet around the country who are deeply involved and concerned about what we are doing.

CROWLEY: Let me ask you about derivatives, hugely important here, because derivatives are those sort of hedge bets that financial institutions make, sort of against other investments that they may have. And they were a huge part of the melt-down. Do you believe that those derivatives ought to be public and open so that everyone knows where they come from, what they involve, and how much they cost? Blanche Lincoln has an amendment to that effect.

MCCONNELL: Well, it is my understanding that there is broad bipartisan support for changing the current way derivatives are regulated. And you are going to have shortly on your show one of the members of the Banking Committee, a thoughtful Democrat, Senator Mark Warner, who has been deeply involved in this, you should ask him as well.

But I think this is an area where we're going to have bipartisan agreements that there ought to be change. I'm not a member of the Banking Committee. I can't tell you exactly what the change ought to be. But I think there is a broad agreement that there ought to be change.

CROWLEY: Well, as a general principle, shouldn't those derivative transactions be open? Shouldn't we -- the public and the investors know everything about those derivatives and have them out in the open?

MCCONNELL: Well, as a general rule, I think we ought to improve the current system, which everyone seems to feel is falling short. Exactly how that will be done we will leave to the experts on the Banking Committee who hopefully can work that part of it out on a bipartisan basis.

CROWLEY: So you will agree with whatever the Banking Committee comes up with? MCCONNELL: Yes, we want to -- well, that's what we have been trying to achieve here is to resume the discussions that were going on within the committee. Senator Warner has been a big part of that, that were, we thought, going to lead to a bipartisan bill.

I'm hopeful that that will still happen. I think the fact that they reported a bill out of committee on a straight party line vote was not helpful.

CROWLEY: Senator, you know, are being charged at this point of rather -- that you would rather have this issue to take to the polls in November, to try to frame the Democrats as wanting endless bailouts rather than actually come to any sort of agreement. Do you risk being the party of no again?

MCCONNELL: That's not my view. I think we should get a bill. I think it needs to be done on a bipartisan basis. And we need to get it done as close to the right way as possible. This bill will have a lot more credibility if, unlike health care, which was jammed down everybody's throats on a partisan basis -- in fact, the only thing bipartisan about the health care bill was the opposition to it.

That is not how I view this bill. But I do think we need to get it right. We don't want to end up with the wrong kind of bill that exports our capital markets to London and Hong Kong and other places. The financial services industry in the United States has been an important part of our economy. We need to get this done correctly.

CROWLEY: Senator, let me turn your attention to the Senate Republican primary in Florida. Governor Crist, now well behind Marco Rubio. You have supported Governor Crist. There are inklings that this is a man who may quit the Republican race and run as an independent. Are you still fully behind Governor Crist?

MCCONNELL: I think we're going to elect a Republican senator in Florida. And the Republican primary voters in Florida are going to determine who that is. We have been looking at the surveys, as you indicate. It looks like Marco Rubio is running a very effective campaign and seems to have the lead. I'm going to be there behind the Republican nominee, whoever that is.

CROWLEY: What if Governor Crist runs becomes an independent? Is that something you can support? What happens to him as far as the Republican Party is concerned if he runs as an independent?

MCCONNELL: Well, he would lose all Republican support if he were to run as an independent.

CROWLEY: OK. One last question, really quickly, one of your colleagues has said vis-a-vis the deficit commission that tax hikes are on the table. Are they as far as you are concerned?

MCCONNELL: Well, we have appointed the commission the president created. And I am going to leave it up to them as to what they want to recommend. And then we will have a chance to vote on that. I don't think we have a problem because we tax too little. I think our biggest problem is we spend too much and we have been spending too much and borrowing too much. We don't need to add taxing too much on top of it.

CROWLEY: So they are not on the table?

MCCONNELL: Well, I'm not on the commission. I'm just giving you my view.

CROWLEY: All right. Thanks so much, Senator Mitch McConnell, the leader of the Republicans on the Senate side. We appreciate your time.

MCCONNELL: Thank you.

CROWLEY: Up next, a Democrat and former business executive who worked on the financial reform bill gives us his take, Senator Mark Warner of Virginia up next.


CROWLEY: Now for the Democratic response, I am joined by Virginia Senator Mark Warner.

Senator, it's good to see you.

WARNER: Candy, great to see you.

CROWLEY: OK. Let's start out on this financial reform bill, since you have been working on it. A couple of questions here. First of all, administration officials have let it be known that they would just as soon let go of this $50 billion liquidation fund. Is that OK with you?

WARNER: Listen, there are different ways to get at this. But let's back up and look at where we started.

WARNER: One, this bill has been -- has been very bipartisan.

Senator Corker from Tennessee, Republican senator, and I have been working for more than a year, trying to get this right, recognizing our goal was, one, end too-big-to-fail; two, never have public taxpayer exposure again; and, three, make sure that we set up financial rules of the road for the 21st century.

The first thing we did was we created a systemic risk council so that all of the regulators could get together and have an early warning system to make sure that we didn't get in the crisis in the first place again.

Second, we put in place requirements that these large institutions would have to have additional capital, that we'd be able to limit the amount of leverage so it wasn't a traditional 10-1 or 15- 1 but we saw some 50-1 and 100-1 leverage rates that needed to be ratcheted back.

Third, we created a whole new area of what's called contingent capital that would convert to equity if a bank got in troubles again.

CROWLEY: That's the liquidation pool?

WARNER: No, no, that's just -- these are just trip wires, speed bumps to make sure we don't get to a crisis.

And, four, we put in place a requirement that said these large, systemically important firms -- they've got to write their own funeral plan, so that, if they get in trouble, there is an orderly process through bankruptcy that can unwind them appropriately.

We then said, even if that -- all those trip wires don't preclude a crisis, we then want to make sure there is orderly process through bankruptcy.

But if there's this crisis coming at once and you've got to use what would be called resolution -- and resolution, we set up in a way that it would be -- no rational management team would ever want it. It means the company's going out of business. It means it's being liquidated. It means the shareholders are going away. The management is disappearing. This truly is a death panel.

We're saying, how do you get through liquidation? We didn't want the taxpayer to fund that. So we said, if we put together a little bit of this fund, $50 billion that would be funded by industry, to keep the lights on until you could actually borrow enough money using the FDIC process to orderly resolve and get rid of the firm.

Now, if there's a way to cut that back or make it smaller, I'm willing to look at it. I'd love to hear from Senator McConnell and some of the others, specifics, not just general attacks.

But one of the things that I think is a bit hypocritical, if there hadn't been this fund, there potentially could be a gap in financing, right there, where the taxpayers could again be exposed.

CROWLEY: You know, the Democrats have really gone after Mitch McConnell for his saying, oh, this is a taxpayer bailout. I want to play you something that Secretary Geithner said recently about this very same fund.


SECRETARY OF THE TREASURY TIMOTHY F. GEITHNER: If you create a fund in advance, there's a risk you're going to create more moral hazard. People will live in the expectation where the government will come in and protect them. We don't want to create that expectation. That's why we think it's better to do it after the fact.


CROWLEY: So that's exactly what Senator McConnell has been saying, yes? WARNER: Well, I think what he -- what Secretary Geithner was talking about -- in the House bill, there's a -- there is a large -- larger fund, $150 billion. Nobody in the financial sector thinks that a $50 billion amount -- and, again, originally, Senator Corker and I suggested something in the neighborhood of $20 billion, $25 billion -- was going to be enough to, kind of, resolve a whole series of firms that might be going down simultaneously.

This is really a chance to buy a little bit of time and not have taxpayers exposed. There's different ways to get at this. There's a way to create a trust that could be funded through the industry. There's ways to, kind of, cut it back and give the FDIC borrowing ability a little bit quicker.

But what we'd like to hear from, you know, our Senate Republican leader is specific suggestions. I mean, this is Senator Corker and my best chance. It was bipartisan put together. If there's a better way and an easier way to do it...

CROWLEY: But you don't have Senator Corker's support at this point. All the Republicans have said the bill, as is, is not going to work. So there's not a bipartisan bill.


WARNER: What they have said is -- Senator Corker and others who have worked on this bill have said there are ways that can -- that the problems in this bill can be fixed, I think his term was, in five minutes. Well, let's get together and fix those problems. CROWLEY: Sure, but you've got a leader that's saying, "Put it on the floor"?

WARNER: Well, what we're saying is, let's put it on the floor so that we can offer the kind of amendments -- and I think there would be bipartisan amendments where there's areas -- if we can tighten it up, let's do it. But what I'd love to hear from the Republican leader is not these broad-brush critiques.

We're going to go back into session tomorrow. Let's have those three or four suggestions, put them out there. Let's talk about them. We've spent well over a year trying to get this to the best place possible.

The one thing, you know, those of us on the committee have been working on is we realize, if we mess this up, it could have huge implications downstream. So we want to get it right. This should not be a partisan issue. Getting it right, financial rules of the road for the 21st century, never again having the kind of meltdown where we had taxpayer exposure 18 months ago; and 18 months later, the fact that we still don't have new rules of the road -- I think it's time to get on with it.

CROWLEY: One of the things in this bill has to do with a couple of new agencies or entities that are going to watch over or something.

It struck me -- this Wednesday, Senator Levin held a hearing looking at what happened in the meltdown. And he said something I thought was really interesting.


SEN. CARL LEVIN, D-MICH.: So where were the bank regulators? The painful fact is that they had a front-row seat to Washington Mutual's high-risk lending strategy, its poor-quality loans and substandard securitizations practices but did little to stop it.


CROWLEY: OK, so -- and let me put up on the screen for our viewers just the number of financial industry regulators that are around, that already exist, and we still had the meltdown. They were asleep at the switch.

Goldman Sachs was -- at least has been charged with, and says it's innocent but has been charged with really monkeying around with these derivatives.

So you have all these regulators. Now you're going to create more regulatory agencies, more oversight committees. Why are they going to work any better than the multiple ones that are in place?

WARNER: Well, Candy, one of the things that failed in the last crisis was the fact that these individual regulators, one, didn't have current-time data, and, two, they were operating in silos. So one of the things we did create was not a new regulatory agency. As a matter of fact, we've consolidated bank regulators from four down to three. I'd like to see further consolidation.

CROWLEY: But you're talking trillions and trillions of dollars of transactions...

WARNER: No, let me answer the question.


WARNER: Let me answer the question. The question is, we've created a systemic risk council that says, let's make sure that the SEC, the prudential bank regulator, the Fed -- they actually all come together and share that information. Because some of these firms -- it may have been their broker -- broker-dealer that was causing the problem, not their banking component, but you've got to share above the silos.

Then we did create something that will give these regulators, on a current, daily basis, an exposure into the amount of all the transactions that are taking place, a so-called Office of Financial Responsibility.

It hasn't gotten any attention, but will give, real-time, that data. And this systemic risk council, which will be this early warning system, we think, will actually allow this aggregation of data that didn't take place in the past.

CROWLEY: I want to -- I have to ask you, really quickly here -- I said to Senator McConnell, listen, you look as though you want to take this to the polls rather than actually come -- come together.

The same can be said on the Democratic side, that you would much rather be able to go to the polls and say, "We don't have a single Republican on this bill; you see, they're on the side of Wall Street and we're not."

So aren't there politics being played on the both sides?

WARNER: Look, Candy, I'm still relatively new to this job, and I didn't get the memo yet that we weren't actually supposed to get stuff done in a bipartisan way.


I mean, Bob Corker and I have been working at this for a year. I know Judd Gregg and Jack Reed have been working on it. There's a lot of bipartisan action here. This should not be a partisan bill. My hope is we can get a bill that will get 75 votes.

Because, you know, we need to set financial rules of the road for the next 50 to 60 years. We had pretty good rules of the road that were set in the 30s that lasted us 80 years. I'd love to see a bill that will put the next 80 years' rules in place.

CROWLEY: Senator Mark Warner, always good to see you. Always too short. I appreciate it.

WARNER: Thank you, Candy.


Early Forecast: More Gridlock
Ruth Marcus · November 9, 2014
Progressives Don't Need Washington All That Much
Froma Harrop · November 6, 2014
Obama Touts Economic News as He, GOP Leaders Meet
Alexis Simendinger · November 8, 2014
With Obama Back, Faceoff on Immigration Looms
Alexis Simendinger · November 17, 2014

State of the Union

Author Archive

Follow Real Clear Politics

Latest On Twitter