tv [untitled] CSPAN June 17, 2009 7:30am-8:00am EDT
i believe the supreme court abdicated their -- abdicated their responsibility in the 2000 election because that was the total reason we have the electoral college was because of the communication. it was so slow in the old days. furthermore, i am embarrassed and ashamed when i hear these people calling in saying that co2 is not poisonous. back in a dinosaur days there was more co2 and less mammals. host: we want to move on to other topics. thanks for all of your input in this first half hour. we will talk next about regulating the financial markets. a big announcement coming from the white house administration today. our guest will be drawn from "the wall street journal," +
>> public money, i am sure. >> my taxes? >> 30 years ago, the companies created it sees as a private service with no government band- aimandate or money. >> there's still time to get your copy of the c-span 2009you can order it online or by phone. "washington journal" continues. host: at the table, the chief economic correspondent for "the wall street journal >"
what will we hear today? guest: we will hear a comprehensive reform, the most sweeping since the great depression. we have had the worst financial crisis since the great depression and now they will go back and rewrite the rules as comprehensively. there are a number of steps. they break it down into five steps. they want to give the federal reserve power to oversee institutions that are too big to fail. they want to create a new consumer agency to protect consumer rights in the planning. they are looking at increasing cooperation with foreign regulators. that would be so that you do not see money flowing offshore. they will regulate certain markets more aggressively, such as credit default swaps,
derivatives, some of these exotic instruments. the final step -- the main step is really giving the fed more power. the final step is closing institutions that could be too big to fail, and in the way when you are in a situation where someone like lehman brothers that is on the verge of collapse, what do you do with it? they were in the position with these big ones where they had a choice. you either rescue id or allow it to fail. they want to find a more orderly way to go through the process. host: how will this come out today? guest: barack obama team has been orchestrating a process of bringing everything out. the have already put out an 85-
page white paper last night. they have been talking to reporters over the last few. -- the last few days. the president will lead the discussion today with his own speech on the subject. host: we want and fighters to phone in with their questions and comments. -- we want to invite viewers. john is the chief economic correspondent for "the wall street journal" -- first when you started reporting this on monday you do talk about that this will touch almost every corner of and banking. what does it mean for the average person? guest: for the average person it means first of all there is a
new consumer protection agency. one of the concerns that comes from the crisis is that banks created many exotic mortgages. that households did not understand -- they discover their mortgages were resetting higher than expected. there is a new agency the obama administration proposes. it will oversee that kind of activity. it will also take up some of the of the regulatory powers that the fed has had. one very controversial element of our regulatory structure has been the community reinvestment act and this new agency will look after programs like that. host: see if you can give us a sense of what else went on in the administration. this article says that the plan seeks to overhaul the nation's outdated system of financial regulations.
guest: that is a very good analogy. there was a vigorous debate about how aggressively to go after this. for instance, there is a view that we have had too many regulators. we have had several agencies -- there was a debate over whether to consolidate the supervision into fewer regulatory agencies. the british have just one financial-services authority. in the and they decided the act of consolidation itself would have been too big a political fight and was not worth using political capital. they had to pull from within and restructure the existing
financial regulatory structure to make it happen on capitol hill. there'll be many fights that must be fought even to get this proposal advanced. one of the big ones has the potential to be over the fed. it is now the right time to -- is now the right time to give the fed more power? there are many critics who say that first of all, the fed missed too many opportunities to rein in the excesses from the last years. second of all, it has taken on too much power and authority in fighting this crisis. there are voices that could pose resistance. host: we will get the president's remarks to you later and look to post that 85-page white paper. is that readable to the average viewer? [laughter] guest: yes, i think it will. your viewers -- you have a very
intelligent audience. eight gets into the nitty gritty. they try to explain their rationale. as you get to the last pages a gets nitty gritty, but you get to see how works out by reading through it. host: our next call is from austin, texas. caller: i really despise the fed. it is now even the fed, but the private central bank who controls of the thing. many people do not understand the history of the federal reserve and the reason we had the depression was because of the fed regulating interest rates. they artificially set interest rates. that is exactly what happened in the 1990's and why we had the economic boom because alan greenspan lower the interest
rates. when you artificially contrived to control money it will backfire. the market will correct itself. the main problem is that people do not understand the history. that is my observation of the solution is to go back and look at what abraham lincoln did. i do not like the gold standard, either. but abraham lincoln has the best idea to have a public bank their prints money debt-free. we do not need to issue bonds to private bank and have them give us money. we need to print our own money. guest: there are few. there were taking up. one, the fed is a very difficult institution for people to understand. it was created in 1913. it is a mix of public and
private interests. we have the federal reserve board in washington with governors who are appointed by the president and confirmed by the senate. then you have 12 regional federal reserve banks around the country with boards that represent the private sector whose elect their own presidents. the president's then have to be approved by the federal reserve board in washington me know there is an odd mix you do not see in other areas of government between public and private interests. ben bernanke is a scholar of the great depression. he is a former princeton university professor. his guiding du in managing this crisis has been driven -- his guiding view has been driven by reading history. he has thrown some much money at
this crisis because he is trying to avoid a repeat of the great depression. host: joe is on the line. caller: i am happy "wall street journal" subscriber for over 40 years and a happy watcher of c- span. i love your column and read it all the time. there are many small businessmen like myself who have been upset with the policies. i agree with that last caller about the federal reserve. there are many small businessmen who are getting organized to elect more republican lawmakers. we think would help the market instead of raising taxes like obama would be to cut back capital gains tax rates. wouldn't that energize the stock market? you should cut the capital gains.
would that help the market, john? guest: and they actually did cut the capital gains tax rate. it has been part of the policy agenda for the past 15 years. the capital gains tax rate came down to 15% during the bush administration. that part has already been done. there is a vigorous debate about how effective it was. republicans argue it would raise revenue. it did in the early years, but i don't know if it would help now. it has already been brought down significantly. host: the callers are talking about the fed as a problem rather than a solution. take us over to the hill. these five major points -- which of them must get approval?
guest: a lot of them have to get approval. it is amazing how large a legislative agenda congress is taking up. they are moving on to this financial re-vamp almost immediately. tim geithner will be there tomorrow starting testimony. there are many pieces that will have to be handled by congress. one is creation of new authorities. the other is giving the fed more power. that is where you will see intensity. particularly in the senate. in the house barney frank is sympathetic to the fed and how it has handled the crisis. the point of view of the obama administration is they feel they need in authority to handle
overall systemic risk. they feel the fed is the best they've got. barney frank is sympathetic to that view. there is debate whether it should be a committee who looks at systemic risk. there was debate about whether it should go to someone else or some new agency. and the and you decided you cannot go into a war with the committee. but in the senate there is serious resistance to giving the fed more power. host: virginia beach on the democrats' line. caller: the correction is just incredible. host: what do you mean? caller: -- the corruption. they have at federal reserve --
these people are not independent. they have a revolving door of people from these country club schools. you look at people from harvard, yale, princeton, columbia, brown, and the revolving door of people from wall street into our treasury department and from the central banking system which the fed is like tim geithner from the central banking system of the new york -- but it is just a big smokescreen. if they create mountains of bureaucracy there will be no accountability. host: some say the fed might be the best entity out there to deal with this. caller: the fed has created this -- greenscam since the 1990's
artificially controlled interest rates. then he climbs there was no way that anyone could have predicted this housing problem. host: do you see ben bernanke best being different? caller: he was with green-scam during those years. guest: there is an interesting debate that has not yet been resolved about the role that the fed plays in creating this financial crisis. after the 2001 recession there was a fear we would go into japan-style deflationary. the fed cut interest rates to only 1%. then they said there would keep it there for a long time and did. there is an idea that the cap
parades too long and created this excess in the housing market. but there is-a isview of this that the fed -- there is a counter-view that the fed was responding to powers beyond its own. interest rates were facing downward pressure because there was so much money flooding into the economy and of the u.s. system from places like china, russia, saudi arabia which had these large surpluses and excesses' of dollars that were flowing into the united states. even as the fed started to raise interest rates in 2004, loan rates which are tied to mortgages continued to stay long. it was a conundrum.
so, the fed was fighting against forces. we do not know the answer to this. we could say the fed probably contributed, but i don't know that there were the sole contributor. host: our guest was educated at both duke and colombia. he is the chief economic correspondent for "the wall street journal" for 10 years. guest: yes, going on 12 years. host: the next call is from north carolina, and independent caller. caller: i will change over from the federal reserve for a little bit. i look at the stock market and see it more as a gambling casino.
people are treading wildly. they are in a stock for as little as two minutes or 15 minutes. there are millions of shares traded. it has nothing to do with investment. investment would mean you bought something and held it for a month. my question is, what can we do to stop the the casino we're calling the stock exchange? guest: at the root of your question is a question the obama administration has been wrestling with which is, what is the role of the federal government in controlling or trying to manage speculative excess? certainly there was a lot of it not only in the stock market, but also in the housing market and in the credit market. is it the job of the government
to manage the process? the fact of the matter is that kings talked about animal spirits. there is a long and rich history of financial excess in the markets which did not begin just a few years ago, but goes back centuries. regulators have wrestled with this for a long time. the obama administration is trying to answer that question with this reform. i think they decided they need to do more but are cautious of doing too much. if you impose too much regulation on markets there are bound to be unintended consequences. after the great depression it was believed to banks were competing too much to get customer deposits. so the federal government put in
a regulation for bank deposits. money fled from banks. people would look for returns on deposits. you had newmarket's grove. -- you had new markets growing. you also run the risk of tightening too much and reducing the innovative elements of the markets that create benefits for people. it is a delicate balance. we will not know for some time if they have struck the right one. host: have of the markets responded to that news this week? guest: the markets have been prepared for this for some time. a few years ago there would have
been very aggressive action against trying to increase regulations for investment banks. there was vigorous debate in the clinton administration led partly by larry summers about over-the-counter derivatives. the people who argued for more regulation ended up losing. after the crisis we have been through a think everyone on wall street understands we are in a new era and we are looking at a whole new set of rules. that is exactly what they will get. in terms of the stock market, what they are looking there -- the focus now is on other issues like the prospect for recovery. when will the fed started raising interest rates again? the fact that there will be more regulation is a given at this time. host: what is the current health
of the credit markets in your opinion? does this new approach by the president deal with executive compensation? guest: there have been signs of improvement in the health of the credit markets. they are watching spreads, the relationship of interest rates, like the rent on a junk bond or mortgages. you see them tightening which shows you that investors are becoming less risk-adverse. rates are coming down. that is a good sign. they are no clear back to normal. it is hard to define what normal even is right now. they are back to around where they were right before the lehman brothers blow up. that is encouraging. remind me of your second question? host: executive compensation. guest: as part of the effort to
regulate systemically important institutions there will be a look at how executives are compensated. that is another delicate balance to strike. we saw with what happened after these tarp fund restrictions were put into place many investors became cautious of getting involved in any of these bankers and tarp programs because they do not want regulations on executive pay. the fact of the matter is that competition affects the behavior and incentives of the senior people at institutions. it is very hard to try to shape the landscape of finance without taking a hard look at the incentives and senior decision- makers at financial institutions. compensation is on the table and it must be. host: a few more calls.
the republican line, go ahead. caller: as someone coming from zero small town of 10,000 in illinois, with this recession it seems like the obama administration is in a mad dash to deal with all these things with higher taxes, more bureaucracy, bigger government -- he seems to be in a mad hurry to do that. why is this recession so much different to where this guy obama has to act so quickly to control so much of what we do? guest: i would make two points. the first is why is this recession different. it is fair to say that it is. it is nothing like the last two recessions. they were very mild. they stretched out for some time, but they were relatively mild recessions.
we are looking at an unemployment rate that is on the path to double digit levels. by some measures the declines in output we seek combined with unemployment could make this the worst downturn since the great depression. they feel they must act because it is the much more serious recession. on the question of the mad dash, there are two points. i would look at this as a relay race because the mad dash was actually begun by the bush administration who set in place for instance the rest use of bear stearns, aig. it was the bush administration and hank paulson who went to congress and ask for tarp money. it is fair to say that the obama administration has taken that baton and continued to run at
full speed. the administration has taken on health care reform and attempting to address greenhouse gases. so, it is fair to say that he is part of that mad dash, but the mad dash began with the republican system. the guy's got scared and decided they had to act aggressively and even with that we're looking at an unemployment rate of close to 10%. host: we have a call from maine on the democrats' line. i'm sorry, i did not have my button push. caller: the problem is one thing -- hedge funds. you should know that i know. before you were born -- i have been in the market for an
awfully long time. hedge funds are manipulators of stocks. the reason the fuel prices got up to $147 per barrel when there was no shortage of oil is because hedge fund futures were buying futures. they manipulate. one particular man who was a brilliant mathematician made it $1 billion for himself last year. he says that the market is like a casino -- that is correct. they allow card counters to come in there and manipulate the casino -- that is with the markets are doing now. you have to control the hedge funds. you have to register them and secondly, put some system out there to see how the monica. if you do not, -- to see how they manipulate it. if you do not, the markets are not there anymore.