Question: Why did you oppose the Graham-Leach-Bliley Act in 1999, which removed the long held separation between commercial and investment banks?
Richard Shelby: I opposed and I believe it was in 1999. I think I was the only Republican that voted against the repeal of Glass-Steagall because it had worked for years. What it did basically is separate investment banking, which is highly leveraged banking from commercial banking, which is highly regulated. When you repealed Glass-Steagall you put it all in commercial banking and you’ve seen a lot of problems that come with it. We were assured then, but I didn’t believe it at the time, that they would not be putting the taxpayers at risk you know by doing this. Now we know better than that. Now the question is can we change that. I don’t know if we can ever go back to Glass-Steagall as it was, but the regulators can do a lot toward making sure that the commercial banks don’t jeopardize themselves by their investment banking or proprietary trading.
Question: Would you advocate reinstituting a separation now?
Richard Shelby: I don’t know if we can reinstitute Glass-Steagall. Some people have advocated. Dr. Volcker has advocated it. Senator McCain and others have because once something has passed it’s passed, but I think if we can’t do that that we certainly could make sure through the regulatory process that the taxpayers are not put in harm’s way.
Question: Is it time to stop subsidizing mortgage indebtedness, get rid of Fannie, Freddie, FHA and mortgage interest deduction? (Arnold Kling, Econlog)
Richard Shelby: Well, you ask a lot of questions there. The Fannie and Freddie, they’re going to be gone. And they’re already gone as far as a viable private or hybrid enterprise. The question is, how long will it be before the private sector can pick up the role that they’re doing? And what role will that be? As far as mortgage deduction you know that is very popular in America and it’s probably aided and abetted a lot of homeownership, so that’s probably some that most people wouldn’t touch.
Recorded on January 22, 2010