The next bailout...
Video - TARP Watchdog Ted Kaufman with Dylan Ratigan - Mar. 23, 2011
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MSNBC TRANSCRIPT:
>>> welcome back. the congressional panelling charged with overseeing the t.a.r.p. program on track to dissolve next month and while the panel is disbanding doesn’t mean the state of our financial or economic system is any less dangerous than before.
>> you can’t bail out too big to fail banks or auto markets without dissorting these markets. the question we must ask is did the treasury do everything to rein in those problems? the answer, unfortunately, is no.
>> and the panel’s final report on the t.a.r.p. highlights the problem that still plague our markets years after the financial crisis. joining us now, former senator ted kauffman. senator, what’s the greatest forward risk that you see right now?
>> well, i think it’s still too big to fail. moral hazard coming out of the whole bailout scheme that continues. the idea that banks don’t have enough capital, you know, it’s that whole area we talked about on the floor and talked about in the congressional ?oversight panel’s final report that the special investigator on the t.a.r.p., inspector general talks about it.
>> what’s so bad about having one class of banks, the too big to fail banks, the giant banks that get cheaper mean easier access to capital? why is that such a negative?
>> well the first thing is because what it crates is moral hazard. that’s if you’re running a bank or running any institution and you — if you look at your earnings, you have good years, you have bad years. you have things that go well, you have things that go bad. if you know things can never go too bad what you do there’s great incentive and great incentive for the shareholders for you to take a whole lot of risk. there’s a direct relationship between risk and return. you go for the high risk, high return thing because in the mean time you’ll be making your money. if one time you hate rock you know that will go yeah. the second thing it crates a big problem. the rating agencies are clearly sending a message that they think the banks are too big to fail. all the other banks have to brother and pay more for their money than the big banks do.
>> is that the reason why we don’t have money being invested and lent into our economy, in other words, because you have the ease of returns with the too big to fail banking system and high level speculation, why would you bother for making my productive lorng term investment or lending in america?
>> that’s right. i think one of the things, dylan, i’ve been talking about a lot is the whole way our markets have changed. high frequent trading where markets are less and less interested in banks. they are much more interested in making money and using trading algorithms. i was brought up that our marks are there to help the long term investor and help companies and america that need their capital. a report came out the other day, it’s devastating in terms of the number of initial public offerings compared to china. the number of companies that are ? delisting from the major exchanges. these people are not interested any more in doing what we did and that’s making sure that america is productive. as businesses come back, incredibly disturbing study that because of the way we have now, because of the trading, 70% of the trade on these markets is high frequency trading. because of that, then companies that want to come in and invest and they did this study. they had 17 companies that back when they got there, went into business and went to the valley of death, needed more investment they couldn’t get it. cisco and computer associates and dell, now their initial public offerings nobody is interested because they are too small.
>> if you look at the decision by the banks to try to make their money in things like high frequency trading –
>> things are microseconds.
>> all these sort of things basically that are speculative, short term use of money as opposed to long term productive use of money that’s at their discretion.
>> guaranteed too. remember the whole thing — that’s why we — when we did away with the glass ceiling. if you want to be in the banking business. low risk, low return, you can make money at it. now they don’t want to be. they want the government guarantee but want to be able to go into investment banking business which you couldn’t do before and they are not interested in fees.
>> what’s confusing to me is, again, if those guys running those businesses want to repurpose to do short term speculative activity why is it that the treasury department and the president, this president and prior presidents continue to provide direct subsidies and indirect subsidies to those businesses? in other words it’s one thing if you decide you want to open up a gambling parlor. i can do that. nothing wrong with that. but why is it the government and the taxpayers being asked to don’t subsidize that activity that doesn’t result in lending or investment. why is that?
>> dylan, ate conflibding message. one, the banks are still fragile. that’s why we can’t put new capital requirements on. that’s why we can’t do all the things we have to do. they are still worried about them. they allowed to issue dividends and buy back their own stock. it just doesn’t make sense. there’s too messages coming out from the administration, from treasury, from the fed, from all of them except fdic that say look these things are still fragile.
>> what’s the break down between the president, the white house, the treasury department and the federal reserve and these banks that american tax dollars are being repurposed for these purpose.
>> we have to look what we did in the past. one of the things i talked on your show we should of done what they did after the great depression, put this back in place. what i’ve heard in the last two weeks, we’ve done enough to the banks. we haven’t done anything to the banks. the banks haven’t done anything about their capital requirements. they are still getting subsidy from the fed in terms of the interest rates are zero. all those things are still going on. we have not done the regulation which we all said we have to do. it’s very — causes me great concern.
>> obviously the biggest symptom of it, i have to wrap it up, the fact that money is not invechtd and not left in this country is played out both through the housing crisis and unemployment crys is as if we trade — we’re playing whack-a-mole. we traded the financial crisis for the one employment and housing crisis because they are not a strong political constituency.
>> what concerns you about it is this, in fact, there’s a political constituency out there to do something about home foreclosures but we haven’t put the emphasis on that. you have to wonder where are the incentives to do this.
>> listen, always a pleasure. hope to continue the ? dialogue with you, senator. thank you.