Excerpts
JEFFREY BROWN (Newshour): Banking Committee Chair Christopher Dodd helped shepherd the bill through the Senate. He acknowledged, it's not perfect.
SEN. CHRISTOPHER DODD, D-Conn.: I can't legislate integrity. I can't legislate wisdom. I can't legislate passion or competency. What we can do is create the tools and the architecture that allow good people to do a good job on behalf of the American public. And that's what a bill like this is designed to do.
I regret it can't give you your job back, restore that foreclosed home, put retirement moneys back in your account. What I can do is to see to it that we never, ever again have to go through what this nation has been through.
JEFFREY BROWN: The bill is sweeping in its scope, running to some 2,300 pages. Among key provisions, it would give federal regulators authority to wind down troubled companies, in a bid to solve the problem of too big to fail. It would also create a 10-member oversight council to watch for threats to the broader financial system.
For the first time, there would be federal oversight of derivatives, those bets made on the future price of securities. And a consumer protection agency would be established within the Federal Reserve to regulate mortgages, credit cards and other products. All but three Republicans voted against the measure.
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JEFFREY BROWN: Now, Chrystia Freeland, of course a key question was what this does to change the behavior of Wall Street.
And what do you see in terms of imposing change, and where might it fall short? What do you see?
CHRYSTIA FREELAND, Reuters: Well, I agree with Roben that those are some of the key points.
The other points that I would really single out are, as your report mentioned, I think the derivatives rulings are really, really important, the fact that derivatives, now most of them have to be exchange-traded and they have to be centrally cleared.
This was the part of the market that really blew up. And what was so scary about it, with hindsight, was, people really didn't know what was going on there. That is what we refer to when we talk about the shadow banking industry.
So, it's really important that most of these derivatives now have to be centrally cleared -- that means we will all know about it -- and exchange-traded.
In terms of where the bill falls short, I would say they should have gone further on the derivatives. You can still -- if are you a non-financial party, if you are, say, an oil company, you can still trade in derivatives not on the central exchange. I think that that's a mistake. I think it would be better to move them all on to the exchanges.
JEFFREY BROWN: Roben, bring us to Main Street now. What is the impact on average people, on consumers, specifically through this new consumer protection agency?
ROBEN FARZAD, senior writer, "Bloomberg BusinessWeek": Well, there is a rather massive codification of very specific consumer protections here.
I mean, everywhere from credit card customers to investors, you're now specifying that the SEC can come out and say that brokers have to espouse a fiduciary interest, where they put the -- the clients' interests ahead of theirs. Amazingly, I mean, a lot of us don't realize that that actually wasn't law before. That's an option that broker-dealers have.
And then, in terms of specificity a lot of things now, the devil is in the details in terms of what mortgage companies, loan companies, credit card companies can and can't do in terms of nickel-and-diming you, the warning they have to give, the impossibility now of issuing some of the liar loans that took down the entire mortgage system.
So, really, regulators used this opportunity to kind of roll up their sleeves, and not just kind of rein in Wall Street and cordon off systemic risk there, but go after a lot of the practices that affect bread-and-butter Americans.
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JEFFREY BROWN: Of course, Chrystia, some of the bankers involved here, they -- they argue that the new regulations could impact mortgages. They could curtail lending. What do we know about what will happen?
(CROSSTALK)
CHRYSTIA FREELAND: Well, if they work, then they should curtail lending.
JEFFREY BROWN: That's part of the issue, right?
CHRYSTIA FREELAND: Part -- yes, that's part of the issue.
And I do think that people, the American public has to be honest about this. Part of the purpose of this financial regulation is, if you want to use a traffic metaphor, what we have discovered in hindsight is that capital was moving too fast. The speed limits were too high, and there weren't enough air bags, and there weren't enough seat belts in the system.
The goal, broadly speaking, of this legislation is to lower the speed limit of financial capital and to require all of us to wear seat belts. Now, the good news is, I think the legislation succeeds in doing that, maybe not 100 percent, but to some extent. And that should mean that car crashes, you know, 100 car crashes are a little bit less likely in the future.
But what it also means is that capital is going to move a little more slowly. That is the inevitable cost. And for Main Street, that means, yes, it will be harder to get a mortgage than it was in the go-go years of 2006, 2007.
Inevitably, we are going to be writing stories, you are going to be do reports about poor American homeowners who are no longer able to get a mortgage. Well, guess what? That's the price of having a safer financial system.
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JEFFREY BROWN: Well, so, Chrystia, in terms of who watches, going forward, to make sure that those kind of things don't happen or untoward things don't happen, what does the bill bring in terms of regulatory changes. The Fed still has -- actually, the Fed maintains a lot of power. And Roben referred to that new council, the oversight council.
CHRYSTIA FREELAND: Yes, exactly.
I mean, that is a new thing. And it is really important that there now is a council that has overall authority. I think the issues there are, first of all, it is still a very feudal, a very Byzantine regulatory system. If you were being radical, you could have really shaken up this very fractured, you know, very multigroup group of regulators and said we want to have more unity. We want to have a single regulator. We want to make it easier to oversee the system and harder for these banks to engage in regulatory arbitrage.
So, it is a tough game for the regulator. And the second really important point, which your report highlighted, is so much of this is going to be about the judgment of the regulators. And I think, when we look back at the financial crisis of 2008, one of the conclusions we're going to draw is, regulators forgot that their job was to be policemen. And they started to see themselves as farmers, if you were, of Wall Street.
They started to think that their job was to help financial services to grow. Now, that might be the job of other parts of government, but, surely, the job of regulators is to make sure these guys are not doing things which are too risky.
And what will really determine whether we have another big financial crisis in the next five years or 10 years is going to be what attitude the regulators take.
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