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Roundtable on Financial Reform

Roundtable on Financial Reform

By Special Report With Bret Baier - April 19, 2010

(BEGIN VIDEO CLIP)

PRESIDENT OBAMA: If we don't change what led to the crisis, we will doom ourselves to repeat it. That's the truth. Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again.

SEN. CHRIS DODD, D-CT., SENATE BANKING COMMITTEE CHAIRMAN: Our bill ends too big to fail. Bailouts end forever.

SEN. SUSAN COLLINS, R-ME.: I don't think you do it by creating a moral hazard, by putting a big fat fund out there in the first place that tells financial institutions don't worry, you can engage in risky practices, high-risk products, there is going to be a fund, there it is, $50 billion all ready to bail you out.

(END VIDEO CLIP)

BRET BAIER, "SPECIAL REPORT" HOST: Republican Susan Collins there talking about a pre- liquidation fund that is in the Senate bill as it's being debated right now that would essentially pay for a big company's collapse. That is what she is talking about with that fund.

But the financial regulatory reform debate back and forth is heating up. The president is heading to Wall Street on Thursday to pitch this.

Let's bring in the panel, Bill Kristol, editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.

Mara, the president heads to Wall Street to pitch it. There has been a lot of back and forth, Republicans saying the bill does not do everything it needs to do. What about the policy and the politics?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Well, I think on the policy, they're a lot closer than it sounds. Even Mitch McConnell has said that, said it isn't like health care where only the opposition was bipartisan.

I think the bailout fund that Susan Collins talked about and Mitch McConnell talked about will go away. The White House doesn't want it and the Republicans don't want it. I think as soon as that is gone, then you will see what the remaining differences are, and they're not that many.

I don't think Republicans are drawing a line in the sand here and seeing it very important to stop this piece of legislation. They're not saying that. They say they want a fix and they want to have negotiations over it.

BAIER: It was heading down that road.

LIASSON: Yes, and it's been heading down that road at different times, first with Shelby, then with Corker, then with Shelby again. It's like every so often there are negotiations and I think there will be. There are still talks. Shelby is involved with them. I think that in the end, there will be a bill and there will be some Republican votes.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think what is so interesting about the bill that is now proposed is that it is Congress once again voluntarily emasculating itself.

The bailout as proposed in the bill would allow the executive branch on its own, without appropriation from Congress, any approval from Congress, to seize, essentially seize a firm it designates again unilaterally as systematically risky, take it over, have the treasury back all of the bad loans, and then have the Fed print the money to pay them off.

Now, when we did the Chrysler bailout, or the bailout of TARP, which we had in 2008, we had to get the Congress along. This is an interesting and I think a disturbing trend where so much arbitrary power is not only in Washington, but not only in the executive, there is no checks, no balance.

That means you get a few powerful people in Washington, secretary of the treasury, head of the FDIC. You walk into a large institution and say we might designate you systematically risky. We want you to do "x," "y" and "z." I can assure you they will do "x," "y" and "z."

And that's what happens in Putin's Russia when he takes over oil. That's not the way it should be. Congress ought to stay engaged, and that it's willingly giving up its prerogative is remarkable.

BAIER: Bill, what about this question - is the American public more skeptical of Wall Street banks or the federal government now?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: They are skeptical of both, and they think, I think, and I think that one can curb Wall Street banks without giving unlimited authority to the executive branch of the federal government.

Brad Sherman, a Democratic congressman from California on the House Financial Services committee, said this afternoon the Dodd bill, the Senate bill that we are discussing, has permanent unlimited executive bailout authority, a Democratic congressman saying the truth.

Chris Dodd, we showed a clip, he is saying it ends too big to fail. It doesn't. That is just not the case, I'm afraid.

And it has the bailout authority. That's what the $50 billion is for. And, as Charles said, even if $50 billion is taken out, there is a discretionary bailout authority for FDIC and treasury, totally at the discretion of the executive branch. They don't have to come to Congress to get money as they did in October of 2008.

So it's a power grab by the federal government against Wall Street. There are ways to regulate Wall Street and do it without giving unlimited discretionary bailout authority to federal government. That's why Republicans have gotten more traction than people expected in opposing this bill.

BAIER: Do you think politically - originally there was a letter of all 41 Senate Republicans saying they wouldn't allow the bill to go floor, they would filibuster it unless they go back to the negotiating table. With the president doing this full court press and the pressure building, can politically Republicans hold the line there?

KRISTOL: Yes. We talked to Susan Collins, a moderate Republican, tries to work with the Democrats. And I think she is a little shocked at what is in this bill. This is not just regulating, having a trading floor or exchange for derivatives. It is not just handling this, but this is federal executive branch, unlimited authority over huge non- bank institutions.

This isn't for banks that have depositors' money, you realize. They already have a resolution authority. This is for Goldman Sachs, AIG. If you like Fannie and Freddie you will love the bill.

BAIER: And those are two words that are not in the bill, Mara, "Fannie" and "Freddie."

LIASSON: Right, Fannie and Freddie are left out of the bill.

KRISTOL: It treats more institutions like Fannie and Freddie. AIG, Goldman Sachs, anything that's systematically too big, the federal government has the unlimited authority to go in and rescue.

LIASSON: You know what is missing in the debate I think other than the Republican critique of the bailout fund, it's exactly what they think would be better.

From the left wing and the Democratic Party you hear a critique. They are saying if you're too big to fail, you should be too big to exist and banks should be broken up. They have a set of ways they would strengthen the bill, higher capital requirements, whatever that is. But what is it exactly that Republicans want to do instead of this bill?

KRISTOL: The Republicans are for higher capital requirements as are in the bill. They are - there are sensible elements in this bill, but not the unlimited authority for the federal government to take over non- bank institutions.

KRAUTHAMMER: Let me add one - there is a huge irony pointed out by Larry Lindsay, the former head of the Council of Economic Advisers in the Bush administration, and he also did an analysis of treasury and the fed unilaterally, and that is that the big institutions and the banks like this, because if you know if you lend money to the large institutions, in the end the Treasury and the Fed will come in and guarantee all the loans.

That means you will preferentially lend to these institutions and it will end up like Fannie and Freddie and they can borrow at lower rates and have a competitive advantage.

So ironically, it strengthens the Fed and it also favors the big, big institutions and it hurts the smaller ones. Either there are other positions were overrided, but this is definitely I think, assistant relative to the other firms the same way it did for Freddie and Fannie. They have an implicit guarantee.

BAIER: It is supposed to come out this week. Does it go through?

LIASSON: I think in the end it goes through.

BAIER: Bill?

LIASSON: I think the opposition is building.

KRAUTHAMMER: It passes. Everybody hates Wall Street. Anything that is against Wall Street will pass.

 

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