President Obama Introduces Overhaul to Financial Regulations
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DOUG MYRLAND (Guest Host): I'm Doug Myrland, sitting in for Gloria Penner with the editors at the roundtable. And President Obama said this week that the government needed to act to end, quote, a culture of irresponsibility that he attributed to banks and borrowers. The administration's plan, outlined in an 85 page paper, is already drawing criticism from those who might become more regulated. And, John Warren, you've been following the story. What's your take on the President's proposals?
JOHN WARREN (Editor and Publisher, San Diego Voice & Viewpoint): Well, you know, it’s a very complicated subject. It's going to have a lot of discussion for weeks to come. It has been said as a foundation that perhaps President Obama looked back at what Roosevelt did when we had the Great Depression and we got such things as the Security and Exchange Commission (sic) and regulatory entities. What we have now is a proposal by the president which obviously, from what we're hearing, did not pop up overnight. There's been a lot of discussion groups and interactions. It seems to be a brain child of Professor Elizabeth Warren out of Harvard. And what it does is, it deals with this whole issue of finances from a different perspective. We've sunk a lot of money into banks and AIG and – and these things are not regulated, the insurance industry is not regulated the same as the banks. And so they've come up with this Consumer Financial Protection Agency which, I think, is not going to draw the support of consumers the way they want because people are concerned about how much they're protected and aided. But as we get into it, we see that the banks are opposing certain elements of the new plan. We have the FDIC, the Office of the Controller, the Office of Thrift Supervision, the Comptroller of the Currency, we have the Federal Reserve, we have all of these entities with roles that are being played in finances. And yet one of the criticisms coming out of the proposed plan by the President is that rating industries such as Moody (sic) and Standard & Poor's, these people are not going to be affected even though other entities will be and that it seems to be a real problem that you would allow the rating industry to be paid by the very people that they're regulating without any oversight. There were concerns about expanding the Federal Reserve and giving them more power. There's been some discussion of whether or not we have a national bank. And looking at the experience of other countries, we've pulled back from that idea. And so we have a hodge podge of plans and regulations that are going to go forth. They're going to the congress, and we've had a promise from both the Senate involved people, Frank and Dodd, handling the Finance Committees, that they're going to get a bill back at the end of the year to the President. But we're going to have a lot of discussion here. This whole issue of the sub-prime entities and hedge funds and derivatives and Bespoke derivatives that are not regulated and allowed a lot of the activity to take place in terms of products that were put into the marketplace, there'll be a sorting out of these things. And one final complicated or interesting point is that the big banks are in support of all of this inclusion because insurance industry's – has never been regulated like the banks and that's given their competitors unfair competition, so they want to bring them into the mix, if you will. And I think the President's to be commended because the idea is that while we're going to try to address the financial crisis, we're not going to leave the entities that created it in the position that they were in so that we have this reoccur. So all of that makes for a very complicated thing when you throw in also the politics of the Republican party versus the Democrats and those who feel that we are moving to socialism and Presidential takeover.
MYRLAND: Tom York, you've expressed a little skepticism about how you think this bill is going to proceed.
TOM YORK (EDITOR, San Diego Business Journal): Well, instead of – I think the financial services industry is going to do a little strong-arming here in congress to make sure that the bulk of these proposals don't get adopted. I think there's just a reluctance on the part of the large banks, you know, the large financial institutions to move forward with any change, especially protection against the consumers. There's a lot of positions in the bills – or in the proposal that's been put forth to protect consumers and I think the banks and some other financial services companies think that that goes too far so they're going to be pushing. And I think at the end of the day we're not going to see much except for mush.
MYRLAND: We want to invite our listeners to weigh in at 1-888-895-5727 if you have some thoughts about increased or even decreased regulation of financial institutions. JW?
AUGUST: Well, I'm a TV guy and we like to simplify complicated things, and I see it as two things. You got – They want to increase the power of the Fed—the Fed's supposed to take care of the big boys and the big problems—and they want to create a consumer agency to protect consumers. Those are the two main lines going on here and in both main lines you have people who are opposing them because of their interests and various issues, monetary issues. This idea, initially, was much bigger. They had much bigger plans and they have been kind of dumbing it down over the last – I don't – maybe dumbing it down's not the right word, but they've been reducing the kind of the vision that the President had on this.
MYRLAND: Well, and they certainly scaled back their ambitions…
MYRLAND: …as far as consolidating agencies or creating sort of an uber-regulatory agency. They've left a lot of those agencies in place. What do you all think about that? Is that sort of a practical approach to say, look, we don't think we can get this huge change made but let's push where we think it'll give? Or are they setting their sights too low?
WARREN: Well, you know, Washington is a very interesting place. When you have a democratic form of government such as ours, you want to make changes without traumatizing the populous. And so many things happened. You know, the banking industry went through some of these pains when the Community Reinvestment Act was passed. There was concern that too much concern was being given to citizens and to the community and banks shouldn't have to be as accountable as they became. The banks were given an opportunity a couple of years ago to self-regulate, as they've always said they would do whenever they've come under this kind of scrutiny, but they haven't done so. And so I think that with the – with all of the things that are on the table for the government right now that it was probably wiser to try to do some regulatory modification within existing structures as opposed to tear down and replace those structures and further give people a sense of uncertainty. What's important here is that while the public is not supporting all of the particular ideas and plans of the President, the President's rating is still high enough to suggest that people have confidence in the fact that he's making efforts. And I don’t agree with Tom that this is not going to go anywhere. It is going to go someplace. These things are going to be changed. FDIC's got to be changed. What happened with Fannie Mae and Freddie Mac, makes it necessary for change. The Federal Reserve, in terms of how we have allowed that to function and pumping in of money, people are concerned about that. And then when we find out that the Office of Thrift Supervision, which was responsible for such banks as Wachovia and Bank of America, we find out now that many of these entities actually solicited the banks to come to them rather than exercising their authority because their budgets and their abilities to work were dependent upon who they showed that they were handling their regulating. So the system broke down almost completely, and that's why we're going to have changes even though it might not reach the magnitude that we're talking about here.
MYRLAND: And, Tom, I want to ask you about your skepticism about this bill really going very far or ending up being a lot watered down. Seems like financial institutions, looking at it from the outside, don’t have a lot of political capital these days. I mean, they're pretty unpopular and we've gone through some terrible times. How are they going to lobby for their own self-interest and really push this down?
YORK: Well, I have to agree with you. I think the big banks are still in a state of shock as to what happened less than a year ago last fall. But it seems to me that, you know, if you take a bigger picture view of what happened last fall and earlier this winter is that the systems worked. You know, the FDIC worked. You know, the other supervisorial agencies worked. You know, the economy didn't collapse. We had to pump some money in there but basically, you know, we took care of business as these problems came up one by one in fast succession. Now I have to agree that last September, October, I was telling people, well, maybe you need to take a thousand dollars out of your ATM and put it under a mattress because I'm not so sure the ATM system is going to work. But, you know, the federal government and the Treasury Department, the Federal Reserve all worked through this through the various regulatory agencies and now we're coming back with something, I think, that's untested, it's untried, and we're going to basically upend, you know, a system, a financial system that's worked for the last, well, since the industrial age? I'm just not so sure that's going to happen.
JW AUGUST (MANAGING EDITOR, 10News): But they do need to – What I'm concerned with is you'll have a George Bush coming in in ten, twelve years and they need a structure – they do need to put a new structure in place. We don't want to have – We learned from our mistakes, hopefully. Put a new structure in place and hopefully have people in positions of power that run that that take care of business. The problem is, you don't know ten years from now what – it may be the Reagan era all over again and people are sick of regulation, let's start dumping it and we go right down that road again.
MYRLAND: Well, I want to talk about that from the point of view of taxpayers and consumers because nobody wants to be regulated but everybody wants to be protected, okay? So how is the consumer protection aspect of this going to play out? Are the banks and the financial institutions going to try to convince people that the consumer protection is actually going to limit their options? Or…? I mean, we all love the FDIC, for example, our savings accounts are protected. Why wouldn't people want stricter rules on credit and some of those consumer protections, Tom?
YORK: Well, I think they do want – they do want protections and, in fact, the Federal Reserve came up with a set of protections involving credit and credit cards late last year or earlier this year and then congress went ahead and passed a bill that sort of mirrored those reforms. And, as we saw there, is that there was a lot of politicking behind the scenes to kind of water those reforms down. And now that the – You know, now that we're moving forward with the plan from Obama's administration to further regulate, we're going to see more push back. But I think the taxpayer does want, you know, protection and maybe some reform. But I would always caution this: The devil you don't know – or, the devil you do know might be worse than the one you don't know, or something like that. I'm not quite sure I said that right.
WARREN: Well, here's the problem…
MYRLAND: Well, John, you're the pastor, you can talk about the devil for us.
YORK: Yeah, I'm sorry, John.
WARREN: Here's – here's the protection problem here. The problem is that the people want to be protected, as we talked about the credit card industry.
WARREN: So the government moves in the direction of passing regulations or laws to protect them and the implementation of those regulations is where the people get the backlash.
WARREN: Because the implementations restricts credit, it restricts mobility and flexibility in terms of the kind of financing and banking things they were able to do beforehand. And a case in point is those institutions that were able to do sub-primes with unqualified people now would not be able to do that because they would be regulated and reviewed from the other end. So that's where the citizen begins to discover they're being affected. The Patriot Act is another prime example, and we passed that act supposedly to protect us from having our financial institutions used by terrorists. And so every citizen that wants to do a transaction has got to produce DNA and the whole world. Yet people can come across the border and get a little – a card and open all kinds of bank accounts and get credit cards while citizens are still going through red tape. So we have all of this contradiction in terms of what we consider the protection of the consumer.
YORK: One other point I want to make is that if you look at this from a business point of view, and since I'm the editor of a business publication I often have to do that, is that I think credit was widely available although sometimes misused or widely misused two years ago, three years ago, with credit cards and people taking out mortgages. I think, you know, so people doing this have to take some responsibility for what happened. They took out too much credit, they took out loans they probably shouldn't have. I mean, there's rectitude on the part of the taxpayer as well as on the part of the government.
MYRLAND: JW, do you think people are changing their point of view and their ethics when it comes to credit? Or do they have really short memories?
AUGUST: They have really short memories. Right now, we're all thinking about it but when the country does the up – you know, the uptick and things start getting better, we'll forget and people will go – do the – that's human nature.
MYRLAND: So can I jump to the conclusion then that you would say it probably is necessary to have some consumer protections in place to protect us from ourselves?
AUGUST: I don't know if I'd phrase it that way but, yes, we need those protections. If – The most important thing, I think, is transparency in financial programs. We need more transparency. We need a better understanding. We need these services that monitor these very sophisticated instruments to be able to tell us like it is.
MYRLAND: It's an interesting societal question because everybody wants to get the money flowing again.
MYRLAND: Everybody wants to get credit going again. But nobody wants to get people upside down like they were before. So it's a real ying and yang kind of question for people.
WARREN: Well, they're waiting for assurances and guarantees that if it flows that it won't be interrupted or reversed and they'll be victimized. And what we have to remind the people of is the legislative process that will be used to bring about this rash of changes is a process of hearings and inputs. Everybody – people get to speak. And I think that groups will have to organize and understand that if they don't organize and participate, their points will be missed. And in the final analysis, a document will come out of committee, it will carry with it a report which will detail even more so before it gets action on the floor. We'll probably end up with a House-Senate conference with this, and more compromise. So there will be changes and it's just incumbent upon the people to violate that old maxim that says that law's like sausage, when in order to be appreciated should not be viewed while being made. In this case, we need to view the laws…
YORK: View the sausage.
WARREN: …and the sausage while it's being made.
MYRLAND: Well, on that note we'll wrap up Editors Roundtable. We've been speaking with John Warren, editor and publisher of the San Diego Voice & Viewpoint, JW August, managing editor for 10News, and Tom York, editor of the San Diego Business Journal. And we do want to take a moment here to acknowledge the passing of Geri Warren, John Warren's wife and partner in their newspaper for many years. John, on behalf of everyone at KPBS and on behalf of all the editors who sit at the roundtable, I want to extend our condolences and let you know that you and your family are in our thoughts. We also want to let you know that we're dedicating today's program to her memory and in celebration of her energy and her support of good journalism. I'm Doug Myrland and this is the Editors Roundtable.