National Public Radio "All Things Considered" - Transcript

Interview

National Public Radio "All Things Considered"

MR. SIEGEL: Secretary Henry Paulson is one of the people who would testify on Capitol Hill next week if Senator Christopher Dodd has his way. Dodd is chair of the Senate Banking Committee and he told me this morning that he wants to hold hearings on the government's role in helping JP Morgan acquire Bear Stearns.

SEN. DODD: I'm generally supportive of this decision, but I also believe this is an unprecedented action, Robert. And for the first time ever, taxpayer dollars of this magnitude were paid at risk without a huge guarantee that we're going to be protected as taxpayers.

The first $1 billion of potential losses -- JP Morgan will assume the responsibility of that. But over 10 years, if the sale of these other assets don't go well, the taxpayers are on the hook for $29 billion.

MR. SIEGEL: Well, one idea that's been raised is that this suggests the need for regulation of investment banking in the way that there's regulation of other kinds of banking.

SEN. DODD: Well, certainly -- look, no one can make a case here that this happened because of over regulation. And clearly, you know, we've grown up enough at a time in our lives when one of the principles involved in banking -- you were entitled to have your deposits, your assets, insured by the American taxpayer because you were a bank.

In a sense here, now, if an investment bank is going to start acting like a bank and get backups, then I think it begs the question, obviously, then shouldn't there be some regulation of that? The American taxpayers' money is on the line, to what extent -- how are you conducting your affairs and your business?

Now, let me quickly add here: I'm not overly anxious for over regulation here. I see the dangers in going down that route, but we need to have a sensible, prudent, responsible action here that did not happen. For too long a time -- 13 years -- the Congress of the United States passed and the president into law the law that required regulations to protect against deceptive and fraudulent practices in the home mortgage area. Nothing was every done about it -- nothing, zero -- not even proposed regulations. And frankly, I'm convinced at this juncture, that that among other things was the reason why we got into this mess.

Remember, the epicenter of this crisis -- economic -- is housing. And the epicenter of the housing crisis is the foreclosure crisis and so we need to get to the heart of that, and that's why I'm recommending a series of legislative efforts here to deal specifically with that, Robert.

MR. SIEGEL: But on the subject of the potential regulation of investment banking -- Washington rather enthusiastically not too long ago took down the barrier that had stood between commercial and investment banking in this country for many years.

If in fact you further blur that distinction by requiring the sorts of reserves at an investment bank that you do of a commercial bank, what happens to risk? Are you in effect saying that any investment bank that exposes people to risk -- which we thought is essential to capitalism -- is in violation of the spirit of regulation?

SEN. DODD: Well, that's a good question. And that's why I don't want to prejudge it here. The question you asked is whether we ought to be looking at it and I think we should. But certainly, if you're going to subject the taxpayers' money to the kind of risks we're talking about here, then there has to be some protection.

I'm very concerned that we're going to go ahead here and eventually have this pendulum come back and decide that this was a one-time event and there's nothing more to be concerned about. I'm not convinced of that at all. I think we're in the middle of this, not the end of it.

MR. SIEGEL: Can you conceive of the action that the Fed undertook as being a one-off act that sets no precedent? Are there occasions when, because the consequences look so grim, the government can act and do so without sending any message to any other investment house in any other liquidity squeeze there might be? It's just a unique almost magical moment that happens and then passes? Or inevitably, has the Fed done something which is precedent and which other people are going to act on the basis of?

SEN. DODD: Well -- and that's why I think it's important to have a public hearing about this and to describe it as it is. It has a number of issues. First, I have great respect for Jamie Dimon, who's the head of JPMorgan. He also sits on the board of directors of the Federal Reserve in the New York. And so, you know, the question's here: Having decisions being made over the weekend with an institution where its leader is also a member of that board raises some serious issues, I mean, that ought to be addressed.

MR. SIEGEL: You suspect a possible conflict of interest in that relationship?

SEN. DODD: Well, these are matters -- this is what you needed to talk about here. Were there other alternatives to this particular proposal, and is this the model?

Now, I've had some people over the last several days who said we're creating a model for future events. If that's the case, then I'm deeply worried about it. I'm willing to accept that this was a one-time event. We're under a clock. Decisions had to be made. But the idea that we're creating a permanent model for future events like this is troubling to me, because of the idea that the American taxpayer's been put on the hook here. And I'm hoping it never comes to that.

I hope we make money off of this, since we've got a period of time in which these assets can be sold off. We may even make money on it. But the idea that you put the federal government on the line -- the taxpayer on the line -- with no guarantee, no protection at all, worries me. And that's why I want to make sure this isn't a precedent-setting event that we're going to look to in the future and wonder why we didn't raise more questions about it.

MR. SIEGEL: Well, Senator Christopher Dodd -- Democrat of Connecticut, chairman of the Senate Banking Committee -- thank you very much for talking with us.

SEN. DODD: Robert, thank you. It's complicated. We'll keep talking about it.

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