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Failures of Financial Regulators Explained by Former Reagan Nominee - YouTube
Channel: TYT's The Conversation
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all of that you might see interviews
today at we've got a at great guest re
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guys james barth is uh... the latter
eminent scholar in finance and all
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bernie receipts is also the senior
finance fellow at the milken institute
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uh... he was in a point to present all
reagan and george h w bush chief
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economist of the office of thrift
supervision
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and previously the federal home loan
bank board of so obviously got a great
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deal that's pretty someone is recent
books was rethinking bank regulation
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till angels govern
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and uh... i want to go to about an
article he wrote let's make financial
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regulation work for us and uh... where
he had some very interesting i guess i
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walk on the unprofor smart
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uh... bank you'd like to propose they're
worth it
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i'm going to have you here so for some
songs go back in time a little bit
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because this could inform our
conversation about what to do next
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uh... as to what happened before two
thousand any has a lot of theories as to
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the main cause of the crisis
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what's your takeout
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uh... might take uh... basically is bat
the record territory scale
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uh... and i paperwork miserably
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uh... when it came to actually regulated
surprising are banking institutions
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i think the river territories did lots
of things that actually set the stage or
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for the financial crisis i think that's
an overlooked
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uh... it turns out once we got
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uh... into the crisis in particularly in
september two thousand eight there
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wasn't much that could have been done
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uh... so with my view is is that we
should look back in time ten years
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before
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uh... the emergence of the crisis and
look for with their priorities do and
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when we do that uh... we
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basically end up with a stab story with
respect to the regulatory
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uh... performance
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you so on that note i totally agree now
these days is pretty sound to
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progressive saying we should have done
more regulation of the banks
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uh... to make sure that uh... they were
not seen while dress
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and uh... conservatives and republicans
say no that's not the case uh... if we
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had deregulated the banks more
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then a free market principles were
worked at satara
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so where do you come down on that
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uh... where uh... where i come down is
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it's perhaps uh... on the side of those
who believe
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that we did not need more record for
stories and we have one more today as
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result of the enactment the dot pray
packed
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uh... and it turns out we got a lot more
regulations
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i think with the roper was a alacra been
porting existing regulations
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the record represent all the power thing
needed too
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uh... basically contained
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uh... the risk taking by baking
institutions they just simply did
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enforced the existing regulations that
were on the books
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that's my take so that's that's
interesting 'cause
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you know it doesn't fit comfortably into
the into a former which i really like
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he owed because you're not saying that
you didn't mean regulations in fact
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you're saying you should reports
regulations the uh...
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now president while monahan is saint
paul got the devil
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if we just have these you'll power
respect and we would have been able to
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control it
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you know i'm not sure i've ever believe
that because they always say like how
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you-know-what
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we just got started we just couldn't do
anything about it at the time
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to tell me what you think is a fallacy
in that are in
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well i i think it's very easy to a point
to the policy and that is all we have to
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take a look over the past uh...
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hundred uh... two hundred years
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every time we've had a financial crisis
in this country here in the united
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states
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the congress and the president uh...
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always do one thing
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and what that one thing is then act
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a new law
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uh... that
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adds more record referees
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and more regulations over the banking
system
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and when the act an act that law
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they've basically used to words
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they stay with this new law
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never again of what we have a financial
crisis or banking craters
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but twenty years later
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uh... we have another crisis indeed
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are all these walls come
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after a crisis
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they're not enacted to prevent a crisis
and yet we find over time we've had
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more frequent
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financial and banking crisis
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and they become more severe i've
witnessed of the most recent one
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right but you know there was a time
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where regulations that work weather was
glass steagle or or others that uh...
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separate out the investment banks in the
positives money et-cetera
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from nineteen forty-five anything
correct me if i'm going into nineteen
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seventy five million even
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pass that
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uh... you know you've bed
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axes
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always the nineteen eighties that we're
fairly stable banking industry
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so perhaps a loser english is the answer
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uh... it turns out to work
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get work is uh... opportunist every
federal deposit insurance because
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depositors insured by the have lost
their money but that certainly a plots
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for for depositors
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and it was sorely needed
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uh... with respect to the last two eagle
actor within acted as a result of the
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great depression
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and what we find today as a result of
most recent crisis
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uh... we wont basically three cover five
major investment banks
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those investor banks were not
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bank holding companies
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they were not part of the banking a
system
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uh... per se so we had five major
investment banking companies uh... it
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turns out one was allowed to fail
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and that women brothers
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two-way required by bank holding
companies
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and the other two converter to bank
holding companies
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so that speaks to the issue uh... other
glass steagle act it turns out
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basically is a stand-alone investment
banking companies i got into trouble
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mouth that's an interesting thing kinda
amber certainly concern
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if it's
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if they're losing their own money that's
one thing obviously but if they are
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uh... eventually losing deposit or money
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door taxpayer money that's a whole
different answer
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so you know let's turn to why youth
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the regulators were not enforcing the
regulations that were even on the books
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uh... it turns out
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that uh... innum
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a most recent book courageous
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sub published uh... in card entitled
guardians of finance making regulators
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worker for us
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uh... it's post by m_i_t_ props
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and in that book
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uh... what
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myself of arturo coop to target is that
the recruiter refers or not i unlike
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referees in sports events
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they tend to be biased in favor of the
whole come home team
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uh... there's been studies to show in
indeed referees in all the major sports
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events basically ten to be biased in
favor the home team
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and argue the record territory at home
team
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is the institutions archery regulating
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so they tend to be biased in doing
things in their favor
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so it's not unlike uh... not that were
arguing that we don't need regulation a
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regulator evil but they tend to be
biased
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so what we proposed regs
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is just like you have instant replay in
in hiv
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sports events
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tends to reduce the virus we believe
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we'd instant reply which picked the
right word for refers
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we need uh... a group of experts
basically
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who look at what the regulated during
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and basically provide that interleaved
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and report to the public we don't like
the regulators are doing their job
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that sensing why do you think that they
have that bias achtenberg in fear the
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bankers because they call mingle with
them
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because that's the the community that
there and
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if you look at basically a record of the
fed reserve in recent years
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you find
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the public meetings okay in which the
public grows and meets with federal
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reserve board officials
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that number such meetings mister klein
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whereas the number of meetings width of
the leaders of the big financial
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institutions
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i have actually increased
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so they tend to spend more time
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not with ordinary taxpayers
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uh... but more time
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with their heads of the institutions
that they're actually regulating
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and that may induce uh... a biased when
it comes to
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a strong enforcement actions
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beings somewhat concerned that perhaps
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uh... they're going to be making
mistakes
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rather than
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basically enacting the laws and
regulations as they exist so on that
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note i really off hunger percent so is
the answer to that you're saying it's
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too hard to know on mingle them
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you have this thing called the sentinel
which sounds kinda badass what happened
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with uh... what is it and what is it do
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it basically comes from reading from
james madison are poor president karen
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imitate
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uh... it turned out what it does is it
puts together
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a group of experts
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not unlike you have experts
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uh... in the inspector general's office
is of government agencies but they look
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at after the fact of what happened at
some of the agencies
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we're talking about
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having a group of experts accounting
expertise financial expertise
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other sorts of expertise
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in which
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what they do is they get information
writer territories all of them
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and basically upset that information
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and point out
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that perhaps the record for a very
should take stronger enforcement action
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uh... things are starting to get out of
hand
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and the report to the public
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but by having no regulatory authority
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they don't get closed to the
institutions are actually being
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regulated
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you know here's our freedom i i know
that you discuss an article but
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you know one of the issues of course is
that the regulators who wind up getting
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hired an incredibly very
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you know you could've salaries
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by uh... that banking industry later and
that that might have a bias effect as
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well i'd really don't think that's as
relevant but
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but couldn't you just heard the sentinel
two when when the sentinel then have
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you know this enormous incentive to play
ball
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uh... ap uh...
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art back you've always poplar white
listings are are possible
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but what we believe you're gonna get
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people who want to do a job have no
regrets or freddie
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and it just as we have inspector
general's a blow the whistle occasion
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gone bad things being done the
government agencies
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you have academics out there
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uh... in in the community who basically
point out uh... do real stock markets or
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overheating
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uh... something should be done
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nobody pays attention unless you have
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uh... in official agency in which these
people working
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uh... and i believe there are people who
are going to be basically now ten months
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unlike people blow the whistle now in
that
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they're going to point out bad things
that interview there that are being done
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by the recruiter a freeze on the record
for a fish candidate that more bread
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that'd be a public debate
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and these individuals will be acting in
the public interest
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but not necessary in the interest of
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uh... the institutions being regulated
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and how mother commingling problem i
mean is impossible possible in the sense
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that old and i think
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home buyers as well so uh... you know
her but you should we do a golden cage
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enemy knows with the bottom is used to
keep the heir to the throne
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and and and golden cage in a part of the
arum we couldn't get out of there were
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two
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and that the what would happen to omit
if the word other parts of the palace
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so how do you think the central removed
from the rest of the banking committee
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but basically eliminating the rolling
door of the people will go work there
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part can't go work uh... in the
potential uh... happenstance was to
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shins
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that pepper involved were for a lengthy
period of time
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uh... so you give 'em a longer period of
time get paid a market wages and they
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have no incentive to
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uh... to basically we even a short
because i because our pay basically
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comparable sarita what deadlier earn
uh... at the institutions being
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regulator
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and they can't go worker program want
pitter pat
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every president of the fed reserve bank
of new york except the first one
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basically came from the industry is
being regulated
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and return the industry's being
regulated
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the revolving door is re-used
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spinning door
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in washington yet there's no question
about that i would be in any way of
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their cc from working
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and the banks for ten years uh... and
for if you we do the central which i
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like i would say they can never work in
the banking industry and say if you know
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what you don't want that and don't take
the job heaven is a really important
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public position
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and we need someone who is above
reproach here
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uh... in that position so yeah pressure
people at the top of these agencies and
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they're the ones were talking about
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that populate have to make the tough
decisions but but shortly making the
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right decisions which is important
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is a stool laws and regulations
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uh... it's simply not enough to stay
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withgod frank we need more regulations
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we know need more regulators now would
you be morgan chase for some saying
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c we need
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more regulations
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soliciting return that some companies
interesting so you know uh... yeah
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are some regulations that we left today
i call the commodity choose
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modernization act
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arson is a disaster in two thousand four
we basically lifted that uh...
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amount of money that they could leverage
of the banks of the leverage even more i
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thought that was a disaster i do you
think the those or also proximate cause
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or do you think that was initialed
all-in in no way collapse
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no i i agree if you go drink it turned
out or about one of the apart of the
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prop
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uh... if you want institutions leverage
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if you look institutions
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uh... basically take out insurance in
the former product a pop swabs
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and yesterday then hold less capital
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odyssey gives an opportunity to
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uh... row bigger
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and engage in risk your activities but
this was all done infected with the
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blessing of the record territory
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so the finalists under the future right
because i i think we have this could
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still use hilton tempelsman fortunately
where
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the execuse little corporations are not
beholden lesotho cheryl is a packed
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aboard sarah and they're a set of a
snake is what's money as possible miss
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short-term
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which doesn't nestle in master
shareholders
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incentives let alone the taxpayers et
cetera right so uh... i'm afraid that
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uh... as long as those
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guys achieved more three sample of the
woman who just left this chief
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investment officer she made nearly
thirty million dollars in the last two
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years if she is to keep that money
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bears that j_p_ morgan lost to a three
billion dollars idea i mean i don't take
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that risk for thirty million dollars
over two years at you know in for a for
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myself so mike my question is have we
fix the system
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in any
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demonstrable way
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that addresses that issues so that we
won't have a problem going forward
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or do we have the same set of problems
that we've been talking about here
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are going to peter i don't think that
we've solved the problem quite a bit
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republic too big to sale problem
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until we solve the compensation from
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as you pointed out many people take aya
ki
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would be happy to work for half of what
some of these people uh... earned and
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itu kan calls losses that these banking
institutions so you know what a pay
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people leagues orbits of the money for
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basically
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uh... during lots of water to special
yonex
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it turns out the institutions have to be
bailed out by the tax first
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i don't think we've got an good enough
job in that respect uh... by far
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all right uh... and then angus finally i
always liked and on the scene armageddon
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kind of thing outside believe that we're
gonna do you have a
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financial collapse like the world's
never seen just because i don't believe
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we have fix the system and if you give
people the incentive
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incredible gambles on your pc talk about
how you know the service industry for
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these has gone up from one trillion to
sixty trillion or did from two thousand
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one to two thousand seven for these
basically these gambles right that
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they're taking
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i gave you have that kind of money
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being gambled
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people will make mistakes and we won't
be able to recover i'm just trying to
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see here anyway in
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in which
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it's not set uh...
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uh... the problems i like to be uh...
bed of adoptive mister rather go through
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life being a part of a story saying
uh...
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uh... the likely over to the corporate
of financial close uh... in the next
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week or so i'd pick right now the
financial system is far healthier than
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it was obviously just a few years ago
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uh... but i think
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we still haven't been as sufficient
amounts
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the rain in the right recorders
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after all
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the federal reserve webmaster disclose
five news media
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basically what
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money it had provided to which
institutions
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uh... as a result of all the bailout
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and the cutters are refused alternately
the issue with the federal district
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courts an operative spring quarter
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and the federal reserve so that they
could release that information big
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because of the harmful to the public see
that's way uh... i say we call for
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central
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but for the reserved for the poor timing
enough it's somewhat of a secretive
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agency with all the expertise in parts
of it makes mistakes it turns out we
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also offer it isn't just the people at
the federal reserve a so i think that's
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why we have to do much more
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help the public become better inform
tempers were deployed on the record
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territory i'll i would be more
optimistic to we are going to be
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sentinels uh...
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floating around we don't know but it's
the jersey idea and one i'm glad we
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discussed for the president's parth
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face so much for joining us on the
interest thank you jack it's been a
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pleasure alright
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