This is a rush transcript from "On the Record," June 17, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Earlier, we went to the United States Senate to talk to Senator Richard Shelby of Alabama.

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VAN SUSTEREN: Financial overview -- how's our government done in terms of looking at our financial system up until now?

SEN. RICHARD SHELBY, R – ALA.: Well, we know we've had a financial debacle. It's a question of how do we fix it. How do we approach it in the future to prevent catastrophes or debacles from happening in the future?

VAN SUSTEREN: Has it been a failure to this point? Are you willing to go that far?

SHELBY: Well, I would say it's been basically a failure because we wouldn't be in the situation that we are today. Maybe not a total failure, but a failure.

VAN SUSTEREN: So the president announces a new program. How do you like his new program?

SHELBY: Well, I think it's a starting point. It's a proposal. Some people say, Well, it's a proposal, it's a white paper, something to consider. I think it's a little more than that. I haven't read all of it. It's 80-something pages. The banking staff's breaking it down. But I have read some of the items.

I'm concerned about some of the items. Maybe it doesn't go far enough. Some areas, maybe it doesn't take advantage of the situation. We don't know this. I believe that what we really need to do now, so we see what the proposals are from the White House and Treasury, is hold comprehensive hearings in the Senate Banking Committee, and also the House counterpart, to find out what went wrong. Because if we don't know what went wrong, we won't fix anything and we will do a political whitewash, and that's a big, big mistake.

VAN SUSTEREN: All right, here's my sort of thought as just a regular citizen. The Federal Reserve Bank -- under the -- under the new -- the new proposals by the president, they have expanded powers, right?

SHELBY: That's right.

VAN SUSTEREN: OK. What didn't they have before that would prevented the situation we're in now? Because they had enormous amount of power even before today.

SHELBY: Well, first of all, let me just say again the Federal Reserve Bank -- the Federal Reserve was the regulator of the holding companies. Most of the big banks who got into the serious troubles were -- their primary regulator was the Federal Reserve. Either the Federal Reserve didn't know what they were doing or were not prepared to do their job.

VAN SUSTEREN: All right, well, did they have the authority to do it? Because what it -- what it could appear to many citizens is that this is just another bureaucracy. Had they actually done their job at the time with their existing powers, we wouldn't be now creating a whole new system, a whole new set of rules.

SHELBY: I think you're probably right because I have always said the Federal Reserve let down the American people, why should we give them expanded powers?

VAN SUSTEREN: All right. So then that leads to the next question, is that one of the important players in this whole economic scheme is secretary of the Treasury Geithner, who during the troubled times was president of the Federal Reserve (SIC). So I -- so as a citizen, I'm wondering -- we're creating a new system today. The old system had the power. It wasn't managed right, so we had the debacle. And one of the key players is a person -- the secretary of Treasury secretary, who was the head of the Federal Reserve.

SHELBY: Who was head of the Federal Reserve Bank in New York, which has deep conflicts coming from the Federal Reserve Act. The Federal Reserve president of New York is basically selected by a lot of the banks who he regulates. This does not even change the Federal Reserve Act that brought that about.

VAN SUSTEREN: So why should I feel good as a citizen listening to that now there are going to be these broad changes? There are going to be new rules, expanded power. Why should I feel good when, apparently, from what you say, is that there was the authority to do it, but it was just a dropped ball?

SHELBY: Well, don't feel good yet because this is only the beginning of a long, drawn-out affair. We've got to have hearings in the Senate and it's got to take a while. We should not rush to judgment on this. The Obama administration might be creating what I'd call a legislative traffic jam. They've got health care. They've got energy problems, you know, proposals, and now they got financial regulatory problems. The worst thing we could do, I believe, in the Senate Banking Committee is rush to judgment and adopt what they have proposed today as the law. We better do it right.

VAN SUSTEREN: Well, shouldn't -- aren't we doing it backwards? Shouldn't we find out what the problem is first and see if we need all these new rules?

SHELBY: Absolutely. I have advocated that. I've told Senator Dodd that in the committee and said it on television, that we need to know what went wrong before we try to fix anything, and we don't know exactly yet. We have -- we could be creating another layer of bureaucracy and having more systemic problems down the road.

VAN SUSTEREN: So have we -- I hate to use such a harsh word, but have we been had today that this is a big roll-out of something vastly important when we had the powers before, now we're creating a bureaucracy, and we don't know what the problems are that the bureaucracy needs to meet?

SHELBY: Well, I don't know if we've been had because this isn't the final word. If this were the final word, I'd say, Hold on.

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