Fox Business News Happy Hour
Transcript

Eric: Rob Nichols back at the bar. President of the Financial Services Forum and Harvard professor, Neil Ferguson, his latest book, the Ascent of Money. Rob, I want to start with your reaction to the president's speech.

Rob: Thanks. Nice to have you me mere guys. Nice to see you. He gave a good speech. I don't think a lot of speeches that are that eloquent and his rhetoric is obviously good. Let’s go to the substance. There were couple of things in the speech I thought were notable. The idea of creating a system risk supervisor. Someone to look at entire forest, entire system, rather than specific legal entities. I think that is sensible idea. Create wind down or resolution authority. Heaven forbid if policymakers get into the sort of situation we were in last fall that they would have the sort of tools, to carefully, cautiously, and in a non-chaotic way take down one of the large institutions. There were couple substantive pieces that were good. There wasn’t a lot of new policy mentioned. Kind of a rehash two previous two administrations have done over the last two years and what he would like to see in regulatory modernization going forward this fall in Congress.

Cody: Neil, throw it over to you a little bit, speaking on this stuff, seems we had laws in place even for resolution of these fraudulent banks that needed to end up being bailed out at the end. Whether, I mean, can you tell me, did we actually, do we need new regulations? You hear the premise that we're starting here. We’ve got enough regulations already. What do you think?

Neil: I find it deeply mysterious, I have done since Treasury Secretary Tim Geithner set these proposals at some months ago, at the most that really can be said is that they're going to add one more regulatory agency. That is one to protect consumers who presumably we should infer weren't protected before. But everything else already exists. There was a resolution mechanism in place to deal with any institution that was failing. The Fed already has that overarching par that will be conferred on it. We’ve got all this stuff. The key question is, why weren't these regulations enforced before.

Cody: Exactly.

Neil: Incidentally, this is question not only for this administration but for the previous one because we shouldn't forget many of these problems of inadequate enforcement of regulation go back many years.

Rebecca: Rob, let me ask you about the news happening now. We’re getting word that the attorney general, Andrew Cuomo, is going to go after bank of America executives in that Merrill Lynch bonus deal. And you also have a judge today throwing out that $33 million settlement with bank of America. Is this more of what we need to see to gain back trust for Wall Street? We have this great mistrust of the government. It all started with the bank bailout, and subprime mess. Do we need to see more that?

Rob: Taking aside the legal case today, because I don't know all the details, I’ve seen breaking news accounts as you have, there is a lot financial services industry does kind of en masse to restore confidence and trust. It ranges everything from making sure that we enhance financial literacy programs that is a huge element because there was absolutely consumer element to this crisis. That is a piece of it. Idea of coordinating with our international partners is very important as well. That is something I think we need to do --.

Rebecca: but criminal, civil charges, what about that?

Rob: Listen if there was, if law was broken, the justice system should run its course, of course, absolutely. I just don't have enough texture on this specific case to say that is what needs to happen right here.

Rebecca: right.

Eric: Neil, turn it over to you, sir. You heard a lot of potential regulation. Consumer financial protection agency. You heard about regulatory, systemic risk czar. Feels like, we're going to, it is a tightrope. You have to be careful not to under regulate because you end up with things like derivatives and things that could blow the system up. But over regulating could drive businesses overseas. Are we over that line? Did we cross the line into too much regulation?

Neil: I think there is a danger of that, because a myth is taking root that this crisis came about because of inadequate regulation or deregulation dating back to the time of Ronald Reagan. I do think this is a myth. Let’s remember, the institutions that more or less blew the financial world up were the most regulated institutions. Fannie Mae and Freddie Mac followed by too big to fail investment banks and commercial banks t wasn't hedge funds that caused this crisis. It wasn’t unregulated part of the financial system. This is really important point; people are forgetting it is precisely institutions under the government's control, under its supervision most likely to take excessively dangerous risk. Why? They assume if they blow up they will be bailed out by you guessed it, the taxpayer. I don't think more regulation is the answer. I think too much regulation is the problem.

Cody: Neil, the thing that drives me crazy, I read your column and you say quote, what was needed was a massive bailout across the board. It is that type of confusion. If you're speaking out of one side your mouth right now we need to prosecute these crooks. That’s great. But then you turn around say we're supposed to bail them out and which is it and how to I decipher what is right, man?

Neil: It is very straightforward. The situation arisen this time last year if there wasn't a massive bail out of these institutions we would have a second great depression. I don't think there is any question that Ben Bernanke did the right thing.

Cody: So just this once.

Neil: Acting as he did. Let’s face it the problems arose because a whole bunch of institutions thought they were too big to fail. Hank Paulson then turned around, and said Lehman brothers is not too big to fail. Can I make one critical point? One critical point.

Rebecca: We're running out of time. I want to give Rob the last word, Neil.

Neil: Okay.

Rebecca: What he says, this whole bailout, folks, people at home; made banks bigger and stronger because.

Neil: Right.

Rebecca: The government helped all the banks consolidate. Here we are worried about two big to fail when the government allowed this to happen. They enabled it.

Rob: It is important point out new authorities we do need, there are, there is no institution that should be too big to fail. There are some too big to fail uncontrollably. Resolution authority is needed. On many of these institution as of a year ago, like Bears and Lehmans we did not like authorities we like them to have so the taxpayer will not be on the hook.

Cody: Department of Justice could have done their part enforcing antitrust laws.

Rebecca: Thank you for being here.