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Sen. Bob Corker: 'The bill as it now is written allows ... bailouts in perpetuity'

corkerfinreg.JPGIn negotiations stretching from the spring of 2009 to February of 2010, Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) worked together to agree on financial-regulation bill. Their work produced the resolution authority section of Dodd's legislation, which is to say, the section that attempts to avoid future bailouts. After that, Corker continued to work with Dodd on other elements of the bill. So after Sen. Mitch McConnell said that the legislation ensures "endless taxpayer-funded bailouts for big Wall Street banks," I called Corker to get his perspective. What follows is a transcript of our conversation, lightly edited for clarity.

Was Sen. Mitch McConnell correct? Is the Dodd bill, as currently written, a permanent bailout?

I've cautioned against hyperbole. But the fact is that the bill as it now is written allows numerous loopholes that allow a situation where you could have bailouts in perpetuity. It's a fair statement. This all happened after Mark [Warner] and I finished our work but my negotiations with Dodd ceased. Treasury and FDIC became involved and there are provisions that have been added that change the effect of our work. It can be fixed pretty easily. And everyone already knows how to fix it. To be fair, every administration wants unto themselves as much flexibility and freedom as they can get. What we need to do is take some of that back.

I think it would be useful for us to get very concrete here. So what is a "bailout," exactly?

A bailout is when the government comes to the aid of a company after the company begins to fail. The government comes in and creates mechanism for its survival.

My understanding is that the bill's resolution authority mandates that a company gets liquidated if it has to tap into the $50 billion resolution fund. Shareholders get wiped out. Management gets wiped out. The company gets taken apart. Am I wrong in any of that?

That's exactly right. What you've just said is true. But there are a ton of technical things that have to do with the FDIC's ability to guarantee indebtedness, the ability of the Federal Reserve to do things that act like a bailout. I have a list of 14 items that we're sharing with Treasury that we want them to look at. And by the way, I think they're very willing to look at them.

I hope what you get out of this is that Mark and I have no issue. But there's some bankruptcy court language that's not in here. There are some issues regarding judicial review of the FDIC's activities. Some of these things, if you read the language, the FDIC could have the ability to inject equity into the company. They want something called incidental powers. Unless things are clearly defined, they can cause problems. The biggest issue is narrowing what the Fed is able to do, what the FDIC is trying to give itself in order to create flexibility.

It sounds like what you're saying is that the issue here is not a philosophical dispute between the two parties, but technical changes to make sure the language of the law accords with its intent.

That's exactly right. Let me give you another example. The way the language is written right now, the resolution process could be used on an auto company. We want this clearly, solely to apply to financial institutions. That's just one example of a definition type of thing that has to be dealt with. But I think the rhetoric has been overheated, and I've cautioned against it. Little words mean a lot here. And I think we're better off discussing this issue on the substance. And there are other things, too. The bill does not adequately deal with one of the basic causes of this crisis, which was that underwriting was really bad. Now, we have to end any discussion of companies being too big to fail. But there are other important issues.

Let's talk about some of them, then. Many Democrats wanted a strong Consumer Financial Protection Agency that could police underwriting standards. The reporting out of your negotiations with Dodd was that you were a bit uncomfortable with the level of power it was being granted. Could you tell me a bit about your thinking there?

Well actually, we got into a really good place. I was slightly uncomfortable and Dodd was slightly uncomfortable. But I'm not really talking about underwriting as it relates to consumers. I'm talking about risk retention in securitization. To me, the bill looks at the issue backwards. It will shut down securitization without dealing with the type of loans being securitized.

You've also mentioned your discomfort with giving the Federal Reserve and the FDIC much autonomy. That makes sense to me given the size of the regulatory failure in the run-up to the crisis. But on one of the most important issues, capital requirements, pretty much all the power lies with the Federal Reserve, and it's used at their discretion. Have you given thought to including hard caps, like the 15:1 cap in the Frank bill?

I'm probably hurting myself in negotiating by telling you this, but I'm concerned about giving so much freedom to regulators. There's a lot of talent at the organizations and they have very sophisticated ways of looking at these questions. But what you said is exactly right. Every single time, the same thing happens: As the economy gets better and better and better, the regulators get looser and looser and looser, and then we crash and they overreact and clamp down and begin overcriticizing, which is why we're seeing a contraction of credit in places where it shouldn't be occurring. So I'm not sure we don't need to be more specific in capital and underwriting. I know the demographics in our country are different than in Canada, but over there, you put 15 percent down on a home. You just do. And they didn't go through these problems. I'm not saying that's what they should do, but in our office here, we're thinking about whether we should be giving up so much flexibility

As someone who just covered the health-care debate, yesterday was a bit worrisome to watch. This bill has been constructed without much public attention. It's pretty far in the process and it's only now breaking onto the front pages. But before we're even getting a chance to really ask whether it's structure is appropriate, McConnell is calling it a permanent bailout without offering any alternatives, and so now the two sides are hardening, and it becomes hard to believe that we can still make important changes like the one we just talked about.

I think that's right, and unfortunately what happens in these debates is that if you take a complex bill and reduce it to four message points, it doesn't do our country or constituents a good service. But in politics, it works very effectively. What I try to do is say it's fair to say this is a criticism. It's fair. But we can fix it! And then let's fix it. And make sure the bill works to help create financial stability. There'll be more crises, but let's try to learn from what's occurred.

On that same point, it's a bit hard for people to understand what that criticism is right now, and so it's hard to judge if it has been fixed, or should be fixed. You've said you've got 14 items of concern. Will you release them publicly so people can see whether they agree?

Well, if I do that then what happens is that the lines get hardened. And I'm not trying to be offensive, but a bunch of this read in the abstract would read like Greek. One of the issues is deeming language, which is very important. But I don't want to release it because I want to get to a deal. I'm better off raising these questions with Treasury and Dodd. It may be that they have an adequate response that makes my issue go away. You can't negotiate things in public because then people harden and it's hard to come to an agreement.

photo credit: Andrew Harrer/Bloomberg.

By Ezra Klein  |  April 15, 2010; 11:45 AM ET
Categories:  Financial Regulation , Interviews  
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Comments

So Senator Corker, no CSpan cameras in the negotiation room? What an outrage!

Posted by: imherefortheezra | April 15, 2010 11:54 AM | Report abuse

Sen. Corker seems like a very reasonable guy in this interview. I especially like that he'd prefer to work behind the scenes to get results rather than play things out in public.

Posted by: mschol17 | April 15, 2010 11:57 AM | Report abuse

In the interview format, Sen Corker makes good points that sound reasonable (though without the details, it is difficult to know for certain) and imply he is open to compromise. But will that prove to be the case in the end, or will the sides 'harden', as he says, and we end up with a party line vote? I can't imagine the odds are lower than 95% for that outcome.

Posted by: bsimon1 | April 15, 2010 11:58 AM | Report abuse

To repeat one of Yglesias' favorite lines, "Senators have agency". If Corker really believes he was in a good place with Dodd and it was just these 14 things that have very easy, very obvious fixes and all he has to do is go talk to Dodd in private, then GO TALK TO DODD IN PRIVATE.

If things are really that small and technical, if they really just accomplish the same goals easier, Dodd will JUMP at the chance to put them in the bill. He (regrettably) needs a 60th vote anyway, can be Corker's as easily as anyone else's.

The fact that Croker is dilly-dallying and refusing to publicly state his concerns makes me very suspicious, not just of his motives (but certainly of them), but of how ossified and ridiculous the Senate has become.

Posted by: colby1983 | April 15, 2010 12:00 PM | Report abuse

Corker sounds eminently reasonable, but on healthcare so did Susan Collins and - to a far lesser extent and for a much shorter period of time - Grassley and Hatch. At the end of the day, the only republicans who matter in the senate are the leadership: McConnel, Kyl and Cornyn, and they're going to play this exactly how they played healthcare. The screeching cries that the financial regulation bill is a communist plot will begin in 3... 2... 1...

Posted by: john7 | April 15, 2010 12:02 PM | Report abuse

Corker gets one thing wrong: "I know the demographics in our country are different than in Canada, but over there, you put 15 percent down on a home. You just do."

With the CMHC in Canada, (http://www.cmhc-schl.gc.ca/en/co/buho/index.cfm), and their "CMHC mortgage loan insurance (that) features housing finance solutions such as flexible down payment options that can help you buy a home with a minimum down payment of 5% and build equity sooner — with interest rates comparable to those with a 20% down payment."

It's not 0%, but it is not 15% either.

Posted by: bernie_michalik | April 15, 2010 12:20 PM | Report abuse

Colby,

I think Corker's trying to preserve his ability to talk to Dodd in private, rather than through the press. Getting Corker onboard before public debate gets started would be huge, since then the argument begins with "the bipartisan bill."

Worried about his dodge on 15 to 1 though. That's the simplest, most effective, most understandable measure that could be included.

Posted by: etdean1 | April 15, 2010 12:22 PM | Report abuse

very good follow-up to yesterday's posts about McConnell.

Its a shame Corker isn't in the leadership but the same can be said for some Dems too. Hopefully they work out the issues and it gets resolved and we get a bill that won't perpetuate bailouts and actually works to reform the system.

Posted by: visionbrkr | April 15, 2010 12:24 PM | Report abuse

@vision: "Its a shame Corker isn't in the leadership but the same can be said for some Dems too."

The bullies make their way to the leadership. On both sides. That's how it works. That being said, that's my Senator. I'll be happy to vote for Corker, next time around.

Posted by: Kevin_Willis | April 15, 2010 12:54 PM | Report abuse

Holy crap.

Reporting.

Posted by: roquelaure_79 | April 15, 2010 1:13 PM | Report abuse

Another follow-up here:
http://cafehayek.com/2010/04/too-big-to-fail-and-the-dodd-bill.html

Posted by: staticvars | April 15, 2010 1:13 PM | Report abuse

Oh, btw Ezra... hope you listened to Planet Money's podcast on Friday with the NY Fed. Along with this weekend's TAL, it's essential listening, and the clarity of his answers very much resembles Corker's above.

Posted by: roquelaure_79 | April 15, 2010 1:15 PM | Report abuse

He does seem reasonable, but as has been said above, it all comes down to the final vote. Corker may be happy to negotiate the bill more to his liking on policy, but if he won't commit to voting for it, or outlining a few small changes that he's willing to trade for his vote, then it's the Finance comittee all over again.

Posted by: MosBen | April 15, 2010 1:19 PM | Report abuse

Great reporting on Ezra's part to get this quote: "So I'm not sure we don't need to be more specific in capital and underwriting."

I am going to hope and pray that flexibility leads to a hard cap in the final bill, and if it does, I will have to give credit to Corker.

Posted by: neversaylie | April 15, 2010 1:55 PM | Report abuse

The last statement by Corker shows just how hypocritical Republicans truly are. They are okay with back-room "deals" now, but not during the HCR debate,which were really negotiations and nothing out of the ordinary? Another thing I found interesting was,"Well, if I do that then what happens is that the lines get hardened. And I'm not trying to be offensive, but a bunch of this read in the abstract would read like Greek." It stood out to me because during the HCR debate Republican routinely said the American want to read the bill. But now the Finical reform bill is too hard to read so the public won't be allowed to see it until Republicans say it is OK?

I guess I will never understand republicans.

Posted by: Ja4879 | April 15, 2010 4:45 PM | Report abuse

I feel bad for Senator Corker. It sounds like he spent a ton of time on this which is now going to go to waste as his leadership has decided they're going to go full-on opposition and mischaracterization of the bill in order to kill it.

"Permanent Bailout" is a fair criticism like "Death Panels" were a fair criticism of health care reform. Fair meaning loosely on the same subject as the provision mentioned, but a complete misreading of the bill designed to inflame passions and prevent anything from getting done.

The leadership has decided the best way to go forward is to be both populist and opposed to any legislation at all. Here those are a contradiction in terms, so we'll have "permanent bailout" memes coming out to throw up enough dust that the base ignores that fact.

Posted by: jlowery1 | April 16, 2010 9:57 AM | Report abuse

much ado about nothing. corker, like so many of his republican cohorts, lacks that fundamental element of character which good men can call upon. sure, he can be eminently reasonable and wise behind closed doors, but at the close of the day, it comes down to what the likes of limbaugh, beck, and hannity will countenance from their republican captives. as we have seen, its a short leash. corker doesn't have the character to break it.

Posted by: jimfilyaw | April 16, 2010 10:24 AM | Report abuse

@Kevin_Willis: How can you be proud of a senator who voted lock step to not allow debate on the biggest issue of the last year HCR. Nobody expects him to necessarily vote againt his leadership on the substance of HCR, but continuing to vote against even debating the bill is hypocritical in the extreme. How about voting against unemployment extentions twice? Are you proud that Corker shut down construction projects and subjected unemployed people to weeks of uncertainty and needless paperwork? And where exactly is Corker on the biggest scientific issue of the day, climate change? Voting lock step with the repiglican majority again? How about EFCA? Does Corker believe that workers should have the right to organize without the egregious management's obstruction, delay, and poisoning of the process, hiring consulting firms to issue vague threats about plant closings and firing workers who try to organize their colleagues? With or without card check (mail in ballots would get around the voting privacy meme), there are many parts of that bill that a "moderate" could support, but where is he? Corker has mastered sounding like a moderate while voting like a right wing hack.

Posted by: srw3 | April 16, 2010 11:46 AM | Report abuse

It seems to me relatively immaterial what Corker says, whether in private to Dodd or Warner, or publicly to Ezra or C-Span or whoever.

As long as McConnell, Corker's Senate leader, is out there demagoging and, frankly, lying, the positions have already hardened.

One can hope that this GOP obstruction will rightly be labeled as the Republicans (with Corker as exception, perhaps) being in bed with Wall Street.

Posted by: RalfW | April 16, 2010 12:29 PM | Report abuse

I think the bailout fund should come from a derivatives tax and an transactions tax on day/computer trading/arbitrage (retirement/pension funds and long term (>60 days) investors exempt) along with raising some general revenue to make up for lost revenue caused by wall st driving the economy into a huge ditch. Transaction taxes discourage short term speculation in the markets that really serves no productive purpose in the larger economy, it just enriches hedge funds and large institutional day traders, making money by investing huge sums on tiny differences in interest or exchange rates.

Posted by: srw3 | April 16, 2010 1:56 PM | Report abuse

I think the bailout fund should come from a derivatives tax and an transactions tax on day/computer trading/arbitrage (retirement/pension funds and long term (>60 days) investors exempt) along with raising some general revenue to make up for lost revenue caused by wall st driving the economy into a huge ditch. Transaction taxes discourage short term speculation in the markets that really serves no productive purpose in the larger economy, it just enriches hedge funds and large institutional day traders, making money by investing huge sums on tiny differences in interest or exchange rates.

Posted by: srw3 | April 16, 2010 1:56 PM | Report abuse

I think the bailout fund should come from a derivatives tax and an transactions tax on day/computer trading/arbitrage (retirement/pension funds and long term (>60 days) investors exempt) along with raising some general revenue to make up for lost revenue caused by wall st driving the economy into a huge ditch. Transaction taxes discourage short term speculation in the markets that really serves no productive purpose in the larger economy, it just enriches hedge funds and large institutional day traders, making money by investing huge sums on tiny differences in interest or exchange rates.

Posted by: srw3 | April 16, 2010 1:56 PM | Report abuse

Corker comes off as reasonable, informed, and relatively non-partisan in this interview. Where has that Sen. Corker been all this time?

Posted by: willallison_2000 | April 16, 2010 2:00 PM | Report abuse

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