Anthony Randazzo Interview

This video from ReasonTV shows you an interview with Anthony Randazzo.

Anthony Randazzo Interview Reason TV 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? Anthony: Yeah. 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 want. 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 winder. 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 road. Nick: And whatever happens it will push back any kind of recovery by some mental type? 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.