Charlie Rose Talks to Timothy GeithnerBy
People ask two things about this legislation. No. 1, will it prevent another crisis? No. 2, does it speak to capital requirements and risk and leverage—the very things that caused the crisis in the first place?
I've always said that the centerpiece of any reform is stronger capital requirements, constraints on leverage, forcing institutions to manage with more stable funding. That is the most important way to prevent future financial crises. What this bill does is provide authority that the government agencies didn't have to make sure we can set and enforce capital requirements, not just on the banks but on large, complicated institutions...like Goldman Sachs, Morgan Stanley, AIG, GE Capital.
How tough was it to get this through because of the opposition of Wall Street?
There was a lot of opposition and a lot of political opposition from the minority party. But I fundamentally don't understand the basis for the opposition by anybody who looks at what this country went through, what this country is still living with in terms of the scars of the crisis. It brought the economy to the edge of collapse. It caused enormous damage not just to the financial system but to well-managed companies, banks, and investment companies, and to people who were careful and didn't borrow too much. There's no credible way you could look at that system and say we didn't need sweeping reform.
Did it drive a wedge between the President on the one hand and Wall Street and the business community on the other?
There's nothing remarkable in what you're seeing today. Businesses would like to be able to operate with less regulation, fewer constraints, and, of course, lower taxes. But I don't think [the schism] will endure. The President understands that governments don't create jobs.
Let's talk about the consumer aspect of the legislation. How will it be different from what we had before?
What it does is take diffuse authority now spread across a lot of different agencies and put in one place the authority to establish protections for consumers so they'll have much less risk of being caught with a fee they didn't anticipate or being tricked into a loan they can't afford. The singular achievement—and this goes across the bill—is this basic premise: If you're going to be in the business of providing credit and financial services, you need to live under a set of simple rules.
Will Elizabeth Warren be director of the new consumer agency?
Let me just say that she is an incredibly capable, effective advocate for reform. She was way ahead of her time, way ahead of the country in pointing out what was actually happening in the credit business. All the bad stuff that was happening, the looming housing crisis, she was pioneering and pointing out those risks. And she is probably the most effective advocate of reform we have in the country on these questions. So like I say, I think she'd do a great job in that position. But that's the President's decision to make.
The other question is whether her nomination would be approved by the Senate.
Like anybody who has been a champion of reform, she's earned her enemies over time, and there's no doubt she'd face some criticism and opposition up there. But that's the price of entry.
What does Paul Volcker mean when he says this bill took some of the purity out of what he wanted to see?
This is legislation, and there's no risk of excess purity in any legislation. But this is a very strong bill, and it's true to all the things that Paul Volcker and the President said at the beginning were going to be essential. Because what it does is put in place much stronger basic constraints on risk. And he was obviously decisive in helping shape this, explain it, and sell it. What the Volker Rule says is if you own a bank, we don't want you taking advantage of the safety net or the privilege of being a bank and using that to subsidize a bunch of risky activity that could imperil the stability of the system. That's a simple, just constraint. And the bill achieves that.
Fannie Mae and Freddie Mac were not dealt with here.
They're next. We've had a very smart, capable team of people working for six months now looking at alternative ways to reform those institutions and, frankly, fix the broader housing finance market.
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