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Big Think Interview With Richard Shelby
Richard Shelby, Alabama's senior United States Senator, was first elected to the Senate in 1986 with an undeniable commitment to Alabama and the simple philosophy that a smaller government can also be a more effective government.
Senator Shelby is Chairman of the Banking, Housing and Urban Affairs Committee and Chairman of the Commerce, Justice, and Science Appropriations Subcommittee. In addition, he is a member of the full Appropriations Committee and the Special Committee on Aging.
Question: What are your objections to the Consumer Financial Protection Agency, and what is your plan to reduce the problem of Too Big To Fail?
Richard Shelby: I will first try to address the consumer financial regulatory body. We’re all consumer. I’m a consumer and everybody in America is a consumer, so fundamentally I’m not opposed to creating a consumer protection division of a Prudential Bank regulator. I think we should, but I am opposed to creating it outside the Prudential regulator because the number one issue with banks and it is a consumer issue, is the safety and soundness of banks. Today we have a lot of banks that are still sick or in trouble and there will be a lot of bank failures in the year 2010, so the first order of business is a sound banking system that one can take your deposits that you can sleep at night with and feel good about that will be able to make you loans and so forth, but at the same time being a consumer I think that they should look at some of the consumer aspects of the banking system and I believe the Prudential regulator, that is the regulator that deals with safety and soundness is the proper one to do that.
Question: How did Treasury’s handling of TARP spark the financial panic?
Richard Shelby: Well I think if you look back at the Troubled Asset Relief Program, TARP I opposed that from the beginning. Financial institutions were not too big to fail, that although they were big we should have let them fail and we would have been better off. It would have been a lot more efficient. It would have not been without pain, but we would be a lot ahead of the game today than we are, so my trouble with Treasury then and the Federal Reserve was the intervention there. I think we could have done better. We could have done it different ways, but only history will tell that and I would contend that nothing is too big to fail.
Question: Are you more or less confident in recent months in administration officials?
Richard Shelby: I think it’s mixed. I think as far as our banking system is concerned the Federal Deposit Insurance Corporation headed by Sheila Bair, I think that the FDIC has been on top of things. They’ve closed down a lot of banks, which they have to do. As a regulator they probably mixed like everybody else. I think the worst regulation by any agency was the Federal Reserve over the bank holding companies. Most of those banks, not all, most of those banks were the troubled banks and the ones that caused the most heartburn.
Question: What did you do as Senate Banking Committee Chair to curtail poor practices that led to the crisis?
Richard Shelby: Well first of all I was the leader in trying to make sure that Fannie and Freddie did not fail and did not cost the taxpayers a lot of money. Mixed up in all the financial crisis was the role that Fannie and Freddie played, also the rating agencies, Moody’s, S&P, Fitch, rating instruments that is securities, investment grade, triple A grade and all this when in reality they weren’t. I was the one that authored the legislation to bring competition and give the FCC, which they have now, more power to deal with the people who rate credit, we call the rating agencies.
Question: What do you expect to happen with Fannie Mae and Freddie Mac?
Richard Shelby: I would hope they would be privatized as soon as possible. Right now in early 2010 Fannie Mae and Freddie Mac are probably the only people that are really buying mortgages to a great extent in the secondary market, so they’re the game in town, but on the other hand when we create a hybrid vehicles like we call them government sponsored enterprises, GSE, we’re waiting for trouble in my judgment and I saw that coming five years before. I was hoping that we could privatize them totally, make sure that they were strong and make them work in the market without any implicit guarantee by the taxpayers. That didn’t work out, so now the taxpayers own, for the most part, Freddie and Fannie. What the debt is going to be at the end of the day we don’t know yet.
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.
Question: With most Republicans opposed to additional fiscal stimulus, how can we reduce the unemployment rate? (Scott Sumner, The Money Illusion)
Richard Shelby: Well I don’t believe you’ll ever reduce the unemployment rate in a meaningful way with stimulus. In other words with government spending because once the stimulus is spent generally the jobs are gone. What we need to do is revitalize our banks where they can make loans to small and medium sized businesses and let the market work. The market ultimately is probably going to be the only thing that brings unemployment down from the high levels that they are today.
Question: What’s going to be the best method of lowering the U.S. debt without raising taxes? (Dan Indiviglio, The Atlantic Business Channel)
Richard Shelby: I have never to my knowledge voted for taxes. I don’t plan to vote for them in the future because the spending of the government will always outrun the taxes. In fact, right now we’re spending too much in taxes. If we tax everybody 90 percent it wouldn’t take care of our problems. It might aid and abet some of them, but then we take that money out of people’s pockets and we do real damage to the economy, so if people are advocating taxes as a way to close our deficit I think that’s a short term and I think it’s a flawed argument.
Question: Given that a flat tax has little to do with simplicity, which is our main goal, why is a flat tax fair? (Mark Thoma, Economist’s View)
Richard Shelby: I believe a flat tax would be fair for a lot of reasons. I have advocated the flat tax on a number of occasions. One, it would lower people’s taxes, tax burden. They would have more money to spend and it would be good for the economy. They’d have more money to say, which would be good for future investment and job creation in this country and a family under my proposal, a family of four that made I believe $36,800 would pay no taxes at all. We would become a nation of savers instead of spenders and there would not be deductions because you wouldn’t need them. You’d have more discretionary money.
Question: What’s the Republican strategy going to be on health care moving forward?
Richard Shelby: Well first of all, we have advocated a number of things, but our democratic colleagues and friends have not met us half way and I don’t think they intend to meet us half way. They got the majority in the House and the Senate. I don’t know what is going to happen with the senate bill that has gone to the House now, but I hope it won’t pass, but maybe now with us having 41 votes instead of 40 that we could come back and work something with the democrats that would be meaningful. It would be a scaled down version of health reform that we could agree on and I believe that would be in thinking like the majority. That’s what the majority of the American people think now. Look at the polls.
Question: As it rebuilds, how can the Republican Party avoid the waywardness that occurred during the Bush administration?
Richard Shelby: I think that the Republican Party is beginning to rebuild itself just like the Democratic Party did after the ’94 democratic debacle and this will take a number of years, but you see a lot of life out there. You saw what happened in New Jersey. You saw what happened in Virginia. You saw just what happened in Massachusetts and I think later this year you’ll see a big reaction to a lot of the democratic policies headed by the Obama Administration.
Recorded on January 22, 2010
A conversation with the Senator of Alabama.
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