On Mar. 3, Byron Dorgan, Democrat of North Dakota, and John McCain, Republican of Arizona, issued a bipartisan call for the establishment of a special Senate committee to investigate the causes of the financial crisis. Whether that "select committee," which would have subpoena power, ever comes into being is still an open question. What isn't in question is that Dorgan spoke out against deregulation of the banking system, which many say sowed the seeds of the crisis. The Business Exchange box at the end of this column directs you to a video of Dorgan taking to the Senate floor to warn against breaking down the walls between commercial and investment banks. "I think in 10 years time we will look back and say, 'We should not have done that,' because we forgot the lessons of the past," the senator said. That was 1999. Now Dorgan is looking for lessons to guide America as it navigates a treacherous future.
You and Senator McCain want to investigate the roots of the financial crisis. What are you looking to accomplish?
SENATOR BYRON DORGAN
I think Congress and the American people need to understand all of the dimensions of this crisis. I mean, we know portions of it, but there's much we don't know. Even actions of the government are not fully understood. No one knows exactly what the Fed has done to this point, how much exposure exists with respect to the Fed's loans and guarantees. It's estimated that somewhere around $9 trillion in loans and guarantees and so on have been committed on behalf of the American taxpayer.
One black hole seems to be all the money handed to AIG (AIG). Where is this money going, Senator?Oh, I assume it's going right through their hands to counterparties, because AIG, as you know, had a unit in London that made very, very large bets with respect to credit default swaps.
Should Washington put a deadline in place and tell these companies, "Yes, we will be supportive, but after a certain amount of time, you're on your own"?Many of the largest banks got involved in very risky enterprises, and I don't think they necessarily have a divine right to be saved. In 1999 I was one of eight senators who worked against what was called the Gramm-Leach-Bliley Act, named after Senator Phil Gramm. But it was fully supported by President Clinton and Bob Rubin, Larry Summers, etc. And it repealed the Glass-Steagall Act and many of the protections put in place after the Great Depression. I wasn't so prescient, but I just felt that allowing the banks to create big holding companies with so-called firewalls, which turn out to be tissue-paper firewalls, and then to take on massive risk from real estate and securities, was just fundamentally wrong.
Would the investigation you're proposing seek testimony from Clinton, Alan Greenspan, Rubin, Gramm, Summers, and other deregulation players like Sandy Weill?I think anybody who proposed dismantling deregulation and protections put in place 70 years ago needs to answer for it. I happen to think [banking deregulation] was a significant cause of what we're now experiencing, and we ought to hold people accountable. If this country made bad decisions, let's understand what those bad decisions were, who was pushing them, and what we can learn from them. One of the important discussions no one is having at the moment, even as trillions of dollars in taxpayer money are being pushed out the door, is the future. Is the future to go back and reconnect some portion of Glass-Steagall? Some say that can't be done; others say it must be done. But that decision has to be made, and I don't think it's old-fashioned to go back to protections that previously existed.
What about American consumers? They also helped cause this train wreck by taking on mortgages they couldn't afford.Right, and not just mortgages. Take a look at what's happened to credit-card and consumer debt. The country was living beyond its means—as was the federal government and business. But I would make the case that sophisticated mortgage brokers and unscrupulous banks had a lot to do with this crisis.
With all due respect, Senator, does Congress really know enough about the financial system and these complex instruments to mount an effective probe?It's a fair point. But one might ask, do the biggest and most sophisticated bankers in the country know enough about these financial instruments? Apparently not.
Do you think that people involved in this crisis at the highest levels of major financial institutions should go to jail for misleading investors and jeopardizing the economic strength of this country?I think anyone who's broken the law should bear the consequence, but I don't think we know enough yet.