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MATTHEWS: Welcome back to HARDBALL. That was President Obama today praising three Republican senators who plan to vote with Democrats this Thursday for the financial regulation reform bill, or the Wall Street bill, the bill that"s supposed to rein in the "too big to fail" banks. But will the bill save us from future financial catastrophes?
Ohio Democratic senator Sherrod Brown is on the Banking Committee and Senator Judd Gregg of New Hampshire is the top Republican on the Budget Committee. Gentlemen, I"m going to keep this real simple. It seems to me that the mess we got into began when the housing prices in this country went down. People bought houses they couldn"t afford. When they saw (ph) the mortgage higher--the money they owed higher than the value of the house, they walked. A lot of these mortgages were created into or built into securitized securities, if you will, bundled together as value. They turned out to have no value because people were walking away from their mortgages.
Is this bill going to solve that problem, Senator Brown, the problem of money disappearing because people can"t afford or don"t want to pay off the mortgages they agreed to?
SEN. SHERROD BROWN (D-OH), BANKING COMMITTEE: This isn"t going to solve the housing problem, but it"s going to make sure we don"t go through again what happened because of deregulation, what happened because of Wall Street speculation, what happened because of an irresponsible federal government in the last decade, during the Bush years, when they weakened the whole regulatory system and Wall Street--the Wall Street bankers betrayed the country. And this bill puts in everything from a--everything from a systemic risk council to other--a consumer protection agency and other things that will make sure that this doesn"t happen again.
MATTHEWS: Well, you know, for weeks on this program, months, in fact, we heard about "toxic assets" and the need for the federal government to bail out companies that owned too many toxic assets, meaning securitized mortgages that were worthless people were walking away from them. Are we going to solve the basic problem with this bill again?
BROWN: I think we are. I think--
MATTHEWS: Toxic assets. Are we going to have more toxic assets or not?
BROWN: I think we will solve this. I think that--because--because there"s a--there are protections built into this bill in terms of consumer protections with the consumer agency, that will make sure these kinds of things are less likely to happen. We didn"t replace Glass-Steagall, which--which perhaps we should have. We went a long way towards doing it. I think the bill could have been stronger by what we should have done to break up the largest banks.
I"ve said on this show before, Chris, that 15 years ago, the largest six banks in this country, their total assets were 17 percent of GDP. Today, they"re 63 percent of GDP. We tried an amendment on the floor with Senator Kaufman. About half the Democrats voted no and almost all the Republicans voted no to that. I mean, "too big to fail" is too big, as even Alan Greenspan said. But I think we"ve come 80, 90 percent of the way of doing the right thing to fix this issue.
MATTHEWS: OK. Let me go to Senator Gregg. Senator Gregg, you haven"t joined the fellow--fellow New England senators, Collins and Snowe and now Senator Brown from Massachusetts. Why are you the odd man out in New England?
SEN. JUDD GREGG (R-NH), BUDGET COMMITTEE: Because I agree almost 100 percent with what you said, Chris, as the predicate to what caused the problem and what we should been addressing in this bill. And this bill does not address that. The two drivers of this event were, one, the fact that loans were being made on property which couldn"t equal the value of the loan, that it was assumed the property was going to appreciate. It didn"t.
Two--that tied with the fact that loans were being made to people who couldn"t pay the loans back when the price of the loan reset. That was poor underwriting, terrible underwriting. And then those loans were sold into a securitized market which was driven almost entirely by Fannie Mae and Freddie Mac.
Now, this bill does nothing about reforming Fannie Mae and Freddie Mac. It leaves the taxpayers of America with almost a $500 billion obligation there. And it does nothing about significantly changing the underwriting standards so that loans are made to people who can pay them back on property that is worth the value of the loan being made.
So you"ve hit the nail on the head. Those are the two reforms which would have been--
GREGG: -- most substantive, and they"re not in this bill.
MATTHEWS: Well, let"s look at--let"s do an alternative view.
Here"s President Obama today. Gentlemen, let"s listen to him.
(BEGIN VIDEO CLIP)
OBAMA: It will prevent a financial crisis like this from happening again. By protecting consumers against the unfair practices of credit card companies and mortgage lenders, it will ensure taxpayers are never on the hook for Wall Street"s mistakes. And it will end an era of irresponsibility that led to the loss of eight million jobs and trillions of dollars of wealth.
(END VIDEO CLIP)
MATTHEWS: I also want to throw in here something from Hank Paulson, who"s basically the guy who told President Bush that we had a big problem that had to be dealt with. Here he is, former secretary of treasury Hank Paulson talking to "The New York Times" today. Quote, "We would have loved to have had something like this, this bill, for Lehman Brothers. There is no doubt about it."
Let me go to you, Senator Sherrod Brown, on that. What do you make of the fact that I--if any Republican has a problem with this bill, I will remind them it was Hank Paulson who talked the--talked--most people who were worried about the market crashing and the whole economy crashing to do something like TARP. Now the question, is he still reliable as a judge of what"s good and bad? Do you trust him as an arbiter of what"s good and bad, Hank Paulson, Senator Brown?
BROWN: I don"t know that I trust him or don"t trust him as an arbiter of what"s good and bad. I do think that--I believe what he says when he said if he had had resolution authority, as this bill provides, it would have been a very different situation in 2008. In (ph) a systemic risk council, he said, particularly if he"d had it in place as early as--when he become treasury secretary, appointed by President Bush in 2006 -- that systemic risk council would have been able to sniff out a lot of these problems.
At the same time--and so he thinks that would have been a very different roll-out of all these problems. We wouldn"t have lost this many millions of jobs if we had had this place (ph). And this comes from a Republican treasury secretary.
I would add to that that the consumer protections will make sure that a lot of these underwriting issues won"t be so damaging and dangerous and create all these toxic assets. So on several different levels, this bill works.
But I think, Chris, you come back to this, that we see a pattern here of overwhelming numbers of Republicans voting no on issue after issue after issue. And typically, they"re protecting their benefactors. Republicans are protecting Wall Street. That"s what they"ve done on this bill by fighting against it, the same way they did with the insurance industry on health care, the same way they did five years ago on the energy bill when they gave BP and Exxon everything they wanted, tax breaks--
MATTHEWS: Why did Russ Feingold--
MATTHEWS: Why did Mr. Clean vote against this bill, is going to vote against it? Russ Feingold of Wisconsin said he"s going to vote against this bill.
BROWN: Oh, I think--they think it"s not strong enough. They want things that I want.
I mean, they want some things in this bill that--that I would go further, but the Republicans stop all that. This isn"t too--this is too much regulation for Republicans.
BROWN: They don"t like rules and regulations, whether it"s mine safety, the Gulf of Mexico on oil companies or whether it"s Wall Street. Feingold wants to go further. And, as I said, I would have, too, in terms of too big to fail on the size of the banks.
I still think this is a good bill, not as good as it could have been.
MATTHEWS: Let me go to Senator Gregg here for more time on you.
MATTHEWS: You"ve been shorthanded here.
GREGG: Well, thank you. I appreciate that.
MATTHEWS: Let me ask you this. If Fannie Mae--and I agree with this--we have to look at the problem of people buying houses they can"t afford.
MATTHEWS: The whole thing. But are you saying that the Wall Street end of this thing didn"t need reform?
GREGG: No, not at all.
In fact, I think--but I think Sherrod Brown is just wrong, just plain wrong. I think Wall Street is probably reasonably happy with this bill, because it really doesn"t go to the essence of some of the questions which were raised by people who were concerned about that.
The one part of this bill that I do agree with that I think was done -
and, by the way, it was done in a bipartisan way--it was done through negotiation with Richard Shelby and Chris Dodd--is the resolution authority. If that template for how that was negotiated had been done on other areas, like derivative reform and like the consumer products--consumer protection language, then you would have had a bipartisan bill.
There were a lot of us in the room negotiating right up until the White House decided unilaterally to walk away from negotiations and our Democratic colleagues on the other side of the aisle decided they wanted a political issue, they wanted to beat up on Wall Street.
Well, what they came up with was a bill that doesn"t accomplish the goal, which is to make the system safer and sounder, and it doesn"t really do much that"s going to really upset the Wall Street banking community. In fact, I think most of the Wall Street banking community is probably for this bill right now.
MATTHEWS: Do you think--both of you, gentlemen, do you think we faced havoc at the end of the Bush administration? Was it as bad a crisis as it appeared to President Bush, for example, and to President Obama before he had been elected--before he came into office? Was it as bad as it looked?
You first, Senator Brown. Was it really bad?
BROWN: Of course it was as bad as it looked.
The first month of the Obama administration, we lost 700,000 jobs. A direct outgrowth--it was a direct result of what was happening on Wall Street with credit, with the financial industry about to collapse, and 700,000 jobs lost that month.
This past couple of months, we"re starting to gain jobs. We still have a long way to go. But that"s where--that"s the problem that was inherited. So, it was every bit as bad. It was probably worse than it looked those first couple of months.
MATTHEWS: Well, Senator Gregg, same question to you. Was it as bad as it looked back under President Bush"s watch?
GREGG: I don"t think people realize how bad it was. We were facing a fiscal calamity of really proportions which we have never seen in this country since the Great Depression.
I saw where you quoted Hank Paulson. And his view was that unemployment would have gone to 25 percent. You would have had an entire collapse of the financial system of this country followed by probably the collapse of the world financial system.
GREGG: So, it was extraordinarily bad.
The way I describe this is this way. You come to a bridge. You"re driving over the bridge. The bridge is about to fall in. Somebody comes up and repairs the bridge. You cross the bridge. You don"t even know they repaired the bridge, so you just keep going. You think, maybe, well, everything was OK.
It wasn"t. If that bridge had collapsed, it would have taken this entire economy down and it would have taken the country down financially.
MATTHEWS: But so many people in your party, on the far right--I don"t mean the conservative mainstream--I mean the far right--are knocking off people like Bob Bennett out in Utah, going after people across the board in your party saying TARP was evil.
GREGG: Well, they"re wrong. And on the left, you"re getting it also, people saying TARP is evil and the Fed is evil.
The simple fact is that TARP did what it was supposed to do. It basically saved the financial system on Main Street, on Main Street. And not only did it save it, but it did it in a way that the American taxpayer have actually made money off the money that we put into the system to try to stabilize it. We have made about $17 billion off of TARP. We have gotten almost all the money back that we put into the financial system. We haven"t gotten it back from the auto industry. We haven"t gotten it back from AIG.
But we have gotten almost all the money back that we put into the banking system. We expect to get it all back. And the American people are going to make money. And at the same time, we stabilized the system and actually gave people a safer and sounder financial system.
MATTHEWS: OK. Well, I"m glad to hear a voice like yours.
Thank you, Senator Sherrod Brown.
BROWN: Thank you.
MATTHEWS: Thank you, Senator Judd Gregg.
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