Financial Regulatory Reform: Washington 'Going Stupid' Again?

This is a rush transcript from "On the Record," April 19, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: And are we going stupid again, missing a chance to fix a problem without spending a lot of money? A new battle -- just what we need, of course -- is blowing up in Washington over financial regulatory reform. We went to Capitol Hill. Republican Senator Judd Gregg went "On the Record."


VAN SUSTEREN: I guess, Senator, we should admit that it doesn't get any more beautiful than out here on Capitol Hill.

SEN. JUDD GREGG, R - N.H.: Oh, isn't this spectacular? It's just a beautiful scene, beautiful weather. The Capitol looks fabulous, you know? It really does look fabulous.

VAN SUSTEREN: It is sort of fun. All right, well (INAUDIBLE) talk to you about you -- Goldman Sachs and the -- and they are being charged civilly by the SEC, and your reflection on it that you think the other party's using it as a mechanism to get this financial regulatory bill through.

GREGG: I think it is unfortunate. The timing isn't good in my opinion, because it's an anecdotal event. It does not really have a lot to do with financial restructuring.

The financial restructuring should be proceeding on a bipartisan path. There is agreement here in the Senate between a number of us on major issues such as resolution authority, derivatives, how you protect consumers, how you reorganize regulatory agencies. There's basically agreement.

But we have all this hyperbole going on right now, and this event clearly energizes even more hyperbole, and that's not constructive to good legislating.

VAN SUSTEREN: I know that 41 Republican senators signed a letter say the current Senate bill, that you're opposed to it. One aspect of it is this consumer agency. Are you for a consumer agency of some sort?

GREGG: Absolutely.

VAN SUSTEREN: I'll tell you what I think is odd about it, because I did a little research, and some of the people -- some of the consumer advocates who are critical of Democratic Senator Dodd on it say they think he doesn't go far enough.

They say that's because they don't want it to fall under the Federal Reserve because the Federal Reserve had failed to use its power in that area the years before the financial meltdown.

The first thought I have is, why in the world are we looking to create a new consumer agency? Why don't we get the people to do the job who hold the position, because at least somebody does currently have the power to do this?

GREGG: You are absolutely right. That's the correct way to do it. That's why the suggestion that came from our side of the aisle is you raise the level of responsibility and visibility within the regulatory agencies on consumer responsibility.

You have safety and soundness as primary purpose of the Federal Reserve, the OCC, and the other agencies which control banking regulation. You raise consumer protection to the same level of safety and soundness and you merge them, because they are really intertwined.

Whether or not you have good consumer protection has a big effect on safety and soundness of the banking community, especially smaller banks. So you basically put in the regulatory agencies at an equal in both areas.

VAN SUSTEREN: Don't we already have that, but it is just that people drop the ball leading to the financial meltdown? Didn't somebody within our huge government structure, within the federal banking system somewhere have the oversight and the power to have taken steps to avoid what has ultimately been the financial meltdown?


VAN SUSTEREN: Somebody dropped the ball?


VAN SUSTEREN: Why not review where the ball was dropped and fix that area rather than creating a new agency and spending an enormous amount of money and at least see if that works?

GREGG: I think that's what we should do. But as a practical, political question, what are we going to do and what makes most sense?

That's why the suggestion was made by our side of the aisle and agreed to at one point by the other side of the aisle that the Federal Reserve, which has primary responsibility for regulation in this area, set up within the Federal Reserve a consumer department agency which has the same visibility levels as regulatory people.

And thus you reduce the bureaucracy in the sense you are not creating a separate agency which has independent autocratic powers, which would be a big mistake.

VAN SUSTEREN: Do Democrats agree with that or oppose that?

GREGG: Different Democrats had different positions. But basically Senator Dodd at one time was in agreement with that approach. The president and his people have never been in agreement with that approach. They always wanted an independent agency, independent of the bank regulatory regime.

I think that's a mistake because if you set up an independent agency, they don't have any responsibility forever safety and soundness. And basically they may push out requirements to loan money to people who can't afford to pay it back as part of their social justice purposes as a regulatory agency.

And when you separate those two, you undermine the banking industry. And as you undermine the banking industry you weaken the ability for people to get credit on Main Street.

So we want to combine the two and put them both in the Fed. You could do it the way you are suggesting.

VAN SUSTEREN: Just have people do their jobs.

GREGG: Have people do their jobs, but that doesn't work in Washington. When we see a problem something else has to occur to make it look like we are resolving the problem effectively.

VAN SUSTEREN: If we have already within our government structure a mechanism by which the meltdown could have been an avoided if we people to do their jobs --

GREGG: You are making too much sense to be sitting in Washington, Greta. As a very practical matter the goal should be the same, to make sure consumers get the same attention as safety and soundness from the bank regulators.

VAN SUSTEREN: Except it wouldn't cost more.

GREGG: Yes, I don't support an independent agency, so I'm not going to defend that as approach.

VAN SUSTEREN: Goldman Sachs, and this may be something you don't have an interest in either way, has been charged civilly. Why is there not a criminal investigation instead of a -- why do they get a civil investigation?

GREGG: I don't know the answer to the question. I'm not enough of an expert in that area to have any idea what the decision of the SEC was necessarily.

VAN SUSTEREN: Are there other objections to the financial regulatory bill that -- with the Democratic Party -- that perhaps you could work together on and reach a consensus.

GREGG: Yes. Number one, resolution authority, basically saying we're going to put an end to too big to fail so that no company in this country, financial specifically, has taxpayers backing it up.

It's very important to do that, because the marketplace does not work efficiently if the marketplace thinks taxpayers are going to come in and back up a company when it gets into trouble. When a company gets into trouble, it should basically have to be resolved, in other words, stockholders lose their money, unsecured bondholders lose their money.

I think we can reach agreement on that

VAN SUSTEREN: Goldman Sachs got bailed out, right?

GREGG: They didn't ask. I don't think in Goldman's case they were looking to be bailed out.

VAN SUSTEREN: They took it, right?

GREGG: They were told to. If you're going to go back and do some history, what happened -- I was there at the time. Hank Paulson called in the top 10 banks and said you are all going to take this money, because if only those of you who are in real trouble take the money it is going to be a message to the marketplace that you guys are in trouble and the others are stronger and that is going to turn the playing field against you and you are going to get in worse trouble.

He said all the top 10 banks, you have to take this money there. So there were four or five who didn't want to take it -- Wells Fargo, Goldman, a number of others, but ended up having to take it.

VAN SUSTEREN: So I'm wrong to think they got a bailout from tax payers and turned around and paid big bonuses? I'm wrong in being sort of like hyper-critical of them?

GREGG: In the Goldman case I think it is hard to say that. You can make that case with Bank of America because of the Merrill deal with Citibank, and with a couple of others that clearly got support when they were in difficult straits and then gave large bonuses.

VAN SUSTEREN: I cut you off on the other objections you have to the financial regulations.

GREGG: We have almost an agreement on derivatives. Derivatives are a huge, complex issue. Senator Jack Reed and I have been working six months to come up with language to address this and we think we basically have an agreement.

We have pretty much agreement on the consumer side, or we did at one point, how to structure this, put it in the Fed and make it an agency within the same status with people who are responsible for safety and soundness.

And thirdly we had pretty much agreement on how we were going to reorder regulatory structure so institutions couldn't go out and shop for the weakest regulator, which is what was happened. They were arbitraging the regulators.

We do have a lot of areas of agreement. When you look at this issue, it is not partisan issue. This issue can be resolved because there really aren't a lot of the partisan fights here. It's basically getting it right.

And there are two tests of getting it right. One, make sure that as well as we can do we end systemic risk so that doesn't happen again. Number two, make sure America remains the best place in the world to create capital and get credit, because that's what drives entrepreneurship and creates jobs.

VAN SUSTEREN: Senator, thank you sir.

GREGG: Thank you, Greta.


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