Why Richard Baker Scares the Street
As chairman of the House subcommittee on capital-markets regulation, Representative Richard Baker (R-La.) has been the scourge of Wall Street. He has focused a harsh light on analysts' conflicts of interest, mortgage-finance behemoths Fannie Mae and Freddie Mac, the mutual-fund industry, and credit-rating agencies. On. Feb. 20, Baker sat down with BusinessWeek editors in New York to discuss his priorities. Here are edited excerpts from that interview:
On his No. 1 priority for overhauling regulation of Fannie Mae and Freddie Mac:
"Having the ability to adjust minimal capital [for government-sponsored entities (GSEs)] is an absolutely essential tool for a regulator. Essential and nonnegotiable."
On why he thinks reform of GSEs is certain:
"I just think it's a different world." [The recent accounting scandal at Freddie Mac] "sent everyone a warning, and there has been a marked shift in the political view of the GSE's market vulnerability. There are just too many people who have signed onto reform to stop it."
On why he disagrees with New York Attorney General Eliot Spitzer's push to require mutual-fund complexes to lower their fees as part of settlements in trading-abuse cases:
"That's price-fixing, and it goes over the line. Disclosure is the remedy, not telling people how to price [their funds]."
On why he opposes requiring companies to treat all stock-option grants as an expense against earnings:
"I hate to see this engine of economic development stifled by the inability of a young person to get a piece of the pie."
On the need for regulation of hedge funds:
"The industry is a huge source of capital. I'm very much concerned about the simultaneous management of mutual funds and hedge funds by the same person. You've got a guy going long in one fund and short in another." [Despite efforts to mediate such conflicts of interest,] "I find the Chinese ladder company is working well in New York."
On why a free-market Republican is so tough on business:
"I advocate Republican consumerism. We need to let the business world do what it will but be transparent and open, so that people can see what they're buying."
Edited by Amy Borrus