TOPICS > Economy

Are Bank Restrictions Enough to Prevent Another Recession?

January 21, 2010 at 12:00 AM EDT
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Judy Woodruff speaks with Rep. Scott Garrett, R-N.J., about the proposed restrictions on the nation's financial institutions and how this will affect consumers and the economy.

JUDY WOODRUFF: And now, for another view, we turn to Representative Scott Garrett of New Jersey. He’s a leading Republican on the House Financial Services Committee. He’s helped draft many of his party’s alternative recommendations for financial regulatory reform.

Congressman Garrett, thank you for being with us.

Tell us, overall, your take on the president’s proposals today.

REP. SCOTT GARRETT, R-N.J.: Before I do that, I would just say that was a fascinating interview. I appreciated some of the questions that you posited and the lack of answers on the other side of it.

And, also, just one other comment. You know, I was thinking, your lead-in to this story talked about the fact that the — the stock market tanked today. You know, when the former Fed chairman was in, Alan Greenspan was in, there was a saying back in those days that you called the “Greenspan put.” Any time the treasury secretary — for the Fed chairman said something, the market saw that as good news and it took off.

We have just the opposite with this administration. Any time this administration comes out and says something about what they plan to do in the future, the market tanks. And I think — and it tanks not only for Wall Street, but it tanks for the rest of America as well. And I think that’s very telling as to where this administration is going to bring us with Wall Street and the economy as well.

JUDY WOODRUFF: Well, what — what do you think that tanking of the markets represents? Who was speaking there?

REP. SCOTT GARRETT: Well, I think they’re responding to what this administration is rolling out here.

You know, one of telling comments that the secretary said just now was, he wants stability. And you followed that up with a great question, asking for — saying that the market looks for stability in the marketplace, and will this do this?

And he missed the answer — or he didn’t give an answer. The market would want stability if they know what the game plan is, they know what the rules are today, and they can live with them and go forward. Well, we saw the administration come out early on in this year, the spring or the summer of this year, with their white paper, saying, this is what we want to do.

I was at the White House when they rolled it out. I got a copy of it, read through it. That was all — their entire game plan. We have been working on this from June, July, August, September, October, November, December, all these months. And now, just when you have a political action over in Massachusetts, they come out with, well, a clarification with brand-new things.

How does that bring about the stability that the marketplace is looking for?

JUDY WOODRUFF: And — and we did hear his response to those questions about the timing of it.

Let me just ask you, though, about…

REP. SCOTT GARRETT: There isn’t — really wasn’t an answer to it. He says, we have been working on this — you raised the right question about Paul Volcker.

Well, why didn’t — why didn’t they tell us this idea back in June?

JUDY WOODRUFF: And — and, without rehashing the whole interview…


JUDY WOODRUFF: … he talked about December and impetus right now that the Senate legislation is going to be.


JUDY WOODRUFF: But let me ask you about one-half of this, at least, and that…


JUDY WOODRUFF: … is ensuring no bank owns, invests in or has any sponsorship of a hedge fund or private equity fund. What about that part of the proposal?

REP. SCOTT GARRETT: Well, that would put — obviously, put the reins in on the current Fed chairman and this administration with what they used in order to try to get us out of the situation that we’re in right now, right?

I mean, in other words, had their rules been put in place a year ago, they wouldn’t have been able to try to push for some of the mergers that we did see on Wall Street to try to bring us out of this situation. So, that’s one real question that we have to put back to the administration. What will they do next time?

And the second major point is this. If we want the banks to lend — and we all do — if we want the economy to expand — and we all do — do you really want to start confining the banks in their ability to make profits in order to generate more capital to lend out to the people? And that’s what these constrictions will now do.

JUDY WOODRUFF: And the core point, though, Congressman Garrett, there behind this…


JUDY WOODRUFF: And we heard Secretary Geithner refer to it…

JUDY WOODRUFF: … and the president, too — and that is using the so-called safety net of government money, the banks turning around and using that money that they have had access to and making risky investments with it, to their own benefit?

REP. SCOTT GARRETT: Well, there, that’s a good point as well.

And that’s why, when this administration came out with their package last — this past year, we said, you know, what you’re really doing is continuing the bailout mentality. You’re continuing with the legislation that came out of the committee and out of the House and what they support to allow for these institutions to be bailed out.

By who? By you and me, the taxpayer. Republicans, on the other hand, had a proposal, and we laid it all out for them — they never really allowed us to move it — that says, no, we need to end the bailout mentality — taxpayers are calling for that overwhelmingly — and stop allowing Wall Street to look to the taxpayers to be bailed out.

We go in an entirely different direction than what Secretary Geithner is trying to do right here.

JUDY WOODRUFF: Well, let me just understand.


JUDY WOODRUFF: So, going forward, would you and other Republicans support the idea of making sure a bank does not own — have the ability any longer to own a private equity fund or a hedge fund?

REP. SCOTT GARRETT: No, no, we wouldn’t. We wouldn’t. And we wouldn’t see the need for it because we wouldn’t support the idea of that institution being totally bailed out again by the — by the taxpayer.

JUDY WOODRUFF: And then the other half of this is the idea of…


JUDY WOODRUFF: … limiting consolidation, putting limits on the size that any bank would be allowed, the large bank, would be allowed to grow to.


You know, years ago, and not too long ago, the United States had some of the — the majority of the largest financial institutions in world. Now we have gone down to the point we only have — you can count them on one hand. And where’s the rest of the large financial institutions? Elsewhere in the world.

If what this administration says is, we’re going to tie the hands even more, so that we’re going to put a limit on them, the secretary answered your question by saying, do you want to dismantle them? Effectively, he should have said yes, because that’s what their legislation allows them, the administration, to do, to dismantle them when they get larger than they want them to be.

We will be uncompetitive with the rest of the financial markets in the world, as we continue to be so with this — policies they have enacted so far — or tried to enact, I should say.

JUDY WOODRUFF: Do you believe any limit should be placed on these large mega-banks?

REP. SCOTT GARRETT: Sure. The limit should be on the other side of the page. The limit should be that the taxpayer should not be the avenue for recourse when they have problems.

When the banks grow to or when these financial institutions grow to such a size that they can’t sustain themselves, or what have you, they have problems, economic problems, or financial problems, they shouldn’t be able to look back to you and I, the taxpayer, to be bailed out. That’s where the limit should be.

You put that limit on, and you will not find yourself so much in the situation that we came to today.




How would that — how would you enact that?

REP. SCOTT GARRETT: Well, the — well, we have legislation that we have proposed.

We do have the idea of, you know, a council of regulators out there, so the council of regulators can get all the information out that they need and look over the horizons, what have you. So, we support that general idea. We don’t go as far as the administration wants to.

We have the idea of saying that put limitations on bailouts, so that the bailouts don’t occur in the future, so that we don’t have to do the — look to see AIG situations or Bear Stearns situations or the Fannie Mae or Freddie Mac, which is probably going to be more money spent on those two institutions than the Congress spent on the TARP program.

JUDY WOODRUFF: We’re going to have to leave it there.


JUDY WOODRUFF: Representative Scott Garrett, we thank you very much.

REP. SCOTT GARRETT: I appreciate the chance to be with you again. Thanks so much.