Anthony Randazzo Interview
This video from ReasonTV shows you an interview with Anthony Randazzo.
Anthony Randazzo Interview
Anthony: The problem is we didn’t try it on fettered free market capitalism because
sure we’re now talking about explicitly naming all these firms to fail but
the reality of the system has band that these firms were already implicitly
to big to fail.
Nick: Hi I’m Nick Gillespie with Reason TV today I’m talking to Anthony
Randazzo a policy analyst at reason foundation and author of the new
policy brief storming Wall Street about plans to regulate the financial
industry. Thanks for talking Anthony?
Anthony: Thanks for having me.
Nick: There are three bills on tap for discussion and possible passage in mid
September, what are they?
Anthony: We’ve got first the consumer financial protection agency Bill which is
essentially a Bill to try and create a single agency that will take all the
consumer protection regulation roles from the other agencies and put it
under one roof.
Nick: And this is mortgages, credit cards?
Anthony: Yeah everything. Any sort of financial product, any innovation whether
it’s from a bank or a none bank with the all the house in this agency and
this agency would have the power to create it’s own sort of standardized
products to simple claim what the used products and force all company’s
to actually offer these in addition to theirs.
Nick: Right and their argument there is that they want contracts for credit cards
or loans or whatever that people can read in 4 minutes or less?
Nick: And very simplified.
Anthony: Of course the bill that they’re creating is not readable by any Americans
and does not really an aspect.
Nick: What’s wrong with that Bill?
Anthony: The biggest problem with that Bill is that it is telling companies what they
can and cannot do in terms of operating. It’s saying you are going to you
can’t offer this product because it’s too complex or if you’re going to offer
this product you have to write it in this language an in some cases they’re
going to say here’s a product and you have to offer this. You have to offer
this type of mortgage whether or not it’s profitable to that bank because
we feel that it’s simple enough that this is what most people are going
Nick: So does that raise cost in the way that if you say to Wal-Mart or Sears
Roebuck or K-Mart or whatever you have to carry. You can carry
whatever you want but you also have to carry this line of goods?
Anthony: Yes, it’s exactly what it is.
Nick: What’s the next Billon tap?
Anthony: The next one is sort of a broad approach to regulating derivatives financial
products themselves. You got the consumer side but then you’ve got a
separate bill which you may wind up being coupled with this so then you
pass these together but this is actually talking about whether or not it’s
even right to be creating credit default swaps and so you’ve got to how
like how are we going to protect the consumers and then we’ve got like
whether or not banks can be aloud to compete in creating these things.
Nick: What very quickly define simply as possible credit to fault swap and what
role did they play in the financial crisis?
Anthony: Very simply a credit default swap is insurance. It’s insurance on another
trade or something else and it can be offered by accompany like AIG and
so AIG offered all this credit default swaps on different trades for different
companies like Goldman Sachs or Bearsterns. AIG going down and false
swaps sort of becoming unstable it absolutely was a problem for the
different companies, but if you look at it through sort of free market
perspective these companies were depending on a company that maybe
wasn’t that great which means they weren’t making the decisions.
They didn’t have good business models and protecting those companies
that have bad business models probably is not a great idea.
Nick: But this is too big to fail theory right which is that once you get to a
certain size you don’t have to that kind of conscious of your business
model because as long as your big enough we know that you’re never
going to actually fall.
Anthony: Exactly which is actually the third sort of bill that they’re putting out
which is that’s the big one and this is what’s probably going to be brought
up in October is this Bill to regulate systemic risk so they’re going to
create this tiered system where all banks, big banks all 9 bank financial
institutions like hedge funds even big insurance companies. They’re all if
they’re determined to big to fail. They’re going to be called a tier one risk,
tier 1 financial holding company and then we put in this top slot and all
those companies if anything bad happens to them, government steps into
save them and they’ll know it.
Nick: One of the arguments is you know we tried on regulated free market
capitalism. Unfettered buying and selling and greed and look where we are
now so this is a you know just a simple response saying like if you’re that
big you’ve got to pay more attention to what you’re doing?
Anthony: Well the problem is we didn’t try it on fettered free market capitalism
because sure we’re now talking about explicitly naming all these firms too
big to fail but the reality of the system has band that these worms were
already in plicitly too bit to fail. If you just go back and you look at
minutes of meetings in the Federal reserve where they’ve got bank
residents together in midst of the financial crisis. Lehman brothers was
astounded that they didn’t get saved. You listen to their leaders, talk to
Guitner or Berneki, they were stunned that they were let failed.
They assume that like Bear Sterns long terms management back in the
day, that they were too big to fail what is more difficult for investment
climate or for the financial system is knowing that you’re going to be
reglated harshly and inefficiently or you’re not even sure whether or not
the regulations are going to be stable overtime. Ultimately banks can get
around any type of regulation so while we’re going to sit back and talk
about the different problems with the different reforms.
Uncertainty is really is the biggest problem so there’s the argument by
many that we just seed to get reforming over with now. We need to get
this through as soon as possible because a bank can figure out how to
operate in any…
Nick: So even a bad regulatory regime that is certainly is better than a good one
that is uncertain?
Anthony: Well on the margin so I mean if it’s too bad yes, but banks can sometimes
even you said a source of a competitive advantage in terms of okay so
we’re having all these different products limited and what we’re offering
what can we offer that’s better than the next pie given out there in the
same sort of climate.
So you do have that but what we are talking about is we’re talking about
restricting their ability to create wealth and so a bad regulatory regime. It
maybe better than on certainty and there maybe companies going but it
means we’re going to have the economy recovering slower and it’s not
going to recover Ash strong as it could if we were to reform the market in
such a way that will allow companies to grow much faster and much
Nick: Are big company’s now are they leaning towards massive regulation
because they know they will have both the political and economic
resources to kind of screw over this crappier innovators who are going to
bring the next level of new ways of doing business.
Anthony: In a lot of ways yes they are there’s in some ways there are members of
the industry that are going to wind up being okay with these regulations
because they have in some sense such regulatory capture. They are able to
say well yeah we’ve got these problems but all the other big guys have the
same problems and no one is going to really step up.
But no CEO in the right mind really wants these regulations, they maybe
able to can say well this is what’s politically, this is the reality and this is
what we’re going to accept. No CEO on the right mind wants to not be
allowed to offer certain derivative products so I mean yeah in a lot of ways
we’re talking about things on the margins, we’re talking about what could
be or what couldn’t be financial services reform whatever happens is
probably not going to be the end of the world but it is important in terms
of America really being physically financially stable moving down the
Nick: And whatever happens it will push back any kind of recovery by some
Anthony: Yeah I mean you’re going to have like unseen, unintended consequences.
We may not know how far it may push back recovery, we’re never going
to know what kind of recovery we could have seen if we restrict this
company’s ability to produced wealth. It’s going to do something.
Nick: Thank you very much today we were talking about Anthony Randazzo a
Policy Analyst of Reason Foundation and author of the new Policy Brief
Storming Wall Street for Reason TV I’m Nick Gillespie.
Anthony Randazzo Interview
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