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What’s been happening with the Volcker Rule?
Oh, I think it’s O.K. There’s a lot of commotion about the length of the rule and the commentary and all the rest. A lot of lawyers have spent a lot of time trying to prick holes in this thing. And you end up with a pretty cumbersome piece of paper. But I went back and read it. The regulation itself is only 35 pages.
So if anybody argues that banks lobbied and had it diluted, then they are, in the words of the creator of the Volcker Rule, wrong?
This reminds me of that old story about the guy that murdered his parents and then pleads innocent because he’s an orphan. Lawyers are working away adding to the complication and now they say, “Oh, it’s too complicated.”
So, overall, Dodd-Frank will make us safer?
My answer to that is unambiguously yes. A principal effort in this whole thing is to limit this too-big-to-fail problem … an effort not to have failures. But if you’ve got a failure, what happens? Dodd-Frank has a pretty clearly set out resolution process that says the government takes it over. The government will liquidate that organization, or it will merge it or sell it. The stockholders won’t be bailed out. The management’s gone. If there aren’t enough assets in the organization to cover the liabilities, the creditors will have to swallow it.
What about the shadow banks, the hedge funds, and other financial powerhouses?
Because of Dodd-Frank, they now come under surveillance. You have to have strong, alert regulators.
Which we did not have last time.
There was this feeling that the market could take care of itself, that, you know, markets were efficient.
That was the view of your successor, Alan Greenspan.
It was the view of a lot of people, I’m afraid. And I think it’s been a rude awakening that we just can’t count on all these things to self-correct. They usually do, but too frequently do not.
Some are saying that with interest rates so low, the U.S. should sell bonds and invest in infrastructure.
I agree with that, technically. … Now, we’ve got a long-term budget problem. We’ve got a special committee in the Congress that is dealing with that. [But] it’s going to take some kind of balance. There has to be a look at the tax side, too. You can’t do it all on the expenditure side.
Do you believe opposition to taxes on the part of the Republicans in Congress is an economic theory or is it an effort to paralyze the President?
They’re certainly not very willing to accept any Presidential initiative at this point. The President inherited this terrible economic situation. And it’s very hard for him to deal with it if there’s an automatic opposition to everything that’s proposed. We’ve got two big problems on the horizon, it seems to me. We’ve got the European situation, which is coming to a crisis. And the United States has got to deal with the budget problem. If we did both of those, say, in the next month or two, I think people won’t be quite so grumpy and will have a little more confidence. But right now, they’re both hanging out there.
There’s been intense criticism of the Federal Reserve in the Republican debates. What’s your take on that?
To some degree that was inevitable. The Federal Reserve has departed from their usual remote-seeming approach. They took truly extraordinary measures during the crisis. They only did it in cooperation with the Administration. That’s clear; there can’t be any reasonable complaint that the Federal Reserve went off on a wild tangent. But they were doing extraordinary things. And they got into areas that are indeed politically charged. There’s a strong case that they had to. Things were falling apart in 2008.
What do you make of Occupy Wall Street, this protest developing in this city and around the world?
I make of it that people are unhappy, but the protest itself doesn’t seem to be totally coherent. But there is a feeling which I’ve been a little surprised has not been expressed more. … You have a situation in the U.S. where there’s been almost no growth in real income for the average family for 10 or 15 years, but at the upper end of the income distribution there’s been an enormous increase. It seems almost unbelievable if you look at the charts. The only thing that came close to it is 1928, 1929.
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