Keynote Panel Discussion with The Honorable Chris Dodd
and The Honorable Barney Frank
Moderated by MSNBC/NBC Journalist Stephanie Ruhle
w/ Introduction by Dennis Kelleher, President and CEO, Better Markets
Dodd-Frank Act 10th Anniversary Conference
Tuesday, July 21, 2020, 1-5 p.m.
Transcript for Video
DENNIS KELLEHER:
Thank you, John, for that sweeping and insightful review of the decades before the 2008 crash and the Dodd-Frank Act. It is the prefect introduction for our next segment.
It is now truly an honor to introduce two legislative giants for whom this historic legislation is named: Chris Dodd and Barney Frank.
Chris Dodd served as a Senator for 30 years after serving in the House for six years. He was a key participant for decades in nearly every major national policy debate, and he authored major legislation in the areas of education, health care, foreign policy, and election reform as well as in financial services.
Barney Frank served 32 years in the House of Representatives, which was after 12 years of serving the people of Massachusetts in various city and local capacities. He too was at the forefront of virtually all the major issues facing the country over those many years.
It is almost impossible to describe the complexity and difficulty in enacting any major legislation in the ordinary course. To do that under the historic and unprecedented circumstances facing the country in 2008, 2009 and 2010 infinitely multiplied the hurdles and made success a long shot at best.
The good news was that, during those years, as the Wall Street-caused financial and economic catastrophe slammed the country, both were at the height of their legislative power. Chris was Chairman of the Senate Banking Committee and Barney was Chairman of the House Financial Services Committee. At that point in their careers, they were well-known and highly regarded statesmen and very sophisticated legislators.
Any serious legislative response to the financial crash and economic crisis would only happen if those two leaders could steer it through their respective committees, then through and off the House and Senate floors, and then a conference committee, all the while, keeping the leaders of Congress and the administration on board, not to mention the innumerable very powerful outside groups and constituencies.
And, of course, they had to do all that, as President Obama said, in the face of daily unrelenting opposition from the “entrenched and well-funded opposition who tried to block any reform at all.” As if all that wasn’t enough, this all had to be done under intense media scrutiny.
The challenge for Sen. Dodd in the Senate was multiplied because he was also a leader on the historic health care legislation moving through the Senate at the same time, filling in for my former boss and his dear friend, Sen. Ted Kennedy, who we lost in August of 2009.
To say the least, the task facing Chris and Barney was truly daunting, if not Sisyphean.
The fact that we are hearing from them today, 10 years after passage of the landmark legislation which bears their names, validates what I and many others believe, that they were uniquely positioned and talented to bring to fruition probably the most important piece of banking and financial legislation ever enacted into law.
I say that based on personal knowledge because I was privileged to be on the Senate floor for most of the consideration and passage of the Senate bill and then the Dodd-Frank Act itself. No one will ever know how truly difficult this undertaking was and no words will ever fully capture the achievement.
None of that is to say that the law was perfect. It was not. No law is, particularly one that intends to re-regulate one of the most complex and sprawling sectors of the economy. However, it was the best law the U.S. political system could produce at the time and, remember, it passed without one vote to spare.
And, all things considered, including that the most powerful, wealthy industry in the history of the world opposed it with unmatched ferocity, it has been an effective law, responsive to the causes of the crisis, and by the time the Obama administration left office, it was well on its way to being properly implemented.
And, as we have detailed in the reports I talked about earlier, it has also been responsible for preventing the current pandemic-caused economic crisis from becoming a banking crisis.
In thinking of a moderator with the subject matter expertise and journalistic acumen to illuminate the back story behind the making of the legislation and its ongoing importance, my first thought was Stephanie Ruhle. Stephanie is the Senior Business Correspondent for NBC News and the Anchor on her widely watched daily show “MSNBC Live.”
She brings a practitioner’s experience and eye to all these issues, having worked for many years in the financial industry and markets. As a result, she has street cred and knowledge and well understands the nexus between finance and Washington. Her coverage of these areas is as informed and insightful as you will find anywhere.
With that, I turn it over to Chris, Barney and Stephanie.
STEPHANIE RUHLE:
Thank you so much. This is such an important day, and it's an honor to be with both of you. I would love it if we could start with a little bit of a history lesson: ten years ago, you were in the room for the most important conversations that began with President Bush's financial regulators. Sort of briefing Congress that we had (an) impending economic collapse through our financial system … so can you take us back to sort of when this all began. Chris?
SENATOR DODD:
Well, first of all, let me thank Better Markets and Dennis Kelleher…and good friend Barney Frank; we had a great relationship together working on this—building other matters over the years. Thank you to George Washington University and President Obama. Barney and I will vow this wouldn't have happened without an administration that was tremendously supportive.
You're obviously correct; I’m glad you began, Stephanie, with that question because it's important to remember what Barney and I went through in the summer and the fall and what the Congress did dealing with the collapse. … (inaudible) Nancy Pelosi’s conference room on September 18, 2008, when we were told by the chairman of the federal reserve board—Chairman Bernanke—that unless we acted in the congress in a matter of days a good part of the financial system of the United States and the world would melt down.
He didn’t say it in a hyperbolic way—very calm but very factual, very clear, and so we left that meeting wondering whether or not we could pull together a piece of legislation that would have managed to get us through the immediate problem, which we did with the TARP legislation. Maybe the most unpopular thing that Barney and I maybe ever did in our tenure in public service, but I would go to my grave believing (it) one of the most necessary things …. (inaudible) and if I had to go back and do it over again, I would suggest that we ought to start immediately.…by the time it got around to 2010 for …signing ceremony, a lot of the public had moved on—the memories of what had happened in the summer and the fall of 2008 were fading, and so we acted when we did but it was not easy.
And then lastly, I would just mention this, and it's important to remember this: in the summer and the fall of 2008, you had the Congress controlled by Democrats, the White House controlled by President Bush's administration, we were 40 days away from a national election—not exactly the time when you'd normally be expecting to come together, pull together, to try and get our country back on its feet again. And were it not for Barney working what he did in the House, (and) I was blessed to have colleagues of mine in the Senate who understood it, we were able to get over that hump and then we had of course to go forward and try and deal with the very problems that created the best to begin with, which became the Dodd-Frank bill.
STEPHANIE RUHLE:
Congressman Frank. Take us back to when this all first began; how you started crafting Dodd-Frank. When you think about the gargantuan task and the disaster that we were in, it's extraordinary that you were able to make this happen. So, can you take us back to the room or the rooms or that time period?
REPRESENTATIVE FRANK:
It begins early in 2008, and one of the things that should be stressed here, I think Dennis (Kelleher) has made this point, this became partisan, unfortunately, in Congress because the Republicans basically refused to cooperate with us. Chris had some cooperation early on, which he worked for, and then they decided to pull the plug on that. I never had much cooperation in the House side, but this began very collaboratively with the Bush administration, and you know people ask, when did vicious partisanship begin in America? January 21st, 2009, when Barack Obama became president because from 2007, 8, 9 and 10, two Democratic houses—House and Senate—worked very closely with the Bush administration in dealing with this.
And we began in 2008, and the first indication I had was when the Bush administration engineered the takeover of Bear Stearns by J.P Morgan Chase, and at that point, Bernanke and Paulson—the leaders of the financial policy in the Bush administration—explained that they thought we were in trouble and that if a major institution failed, we wouldn't be able to handle that. Of course, that became true when Lehman failed, and they wanted to talk about changing that. And as we explained to them, getting the Congress to move in that situation—interestingly with almost overwhelming Republican opposition to what the Bush administration was asking—would be very hard, and so we stayed in touch with them on the House side—we were moving on adopting legislation to deal with the mortgage problem. We actually got a bill passed that ultimately became part of the larger bill, but we didn't have the political heft to do anything major until the crisis hit unfortunately.
At that point in September, we did have very strong cooperation (in the) House, Senate and the executive—interestingly, the Senate was bipartisan at that point. Senator Shelby, the leading Republican, was opposed to it but he wasn't obstructive. The Senate Republicans on the whole were supportive; several of them by the way paid a price for that in the next year when they got defeated in primaries.
Kate Bailey Hutchinson in Texas, Bob Bennett in Utah. So we had the House Democrats, the Senate Republicans in the administration, and at that point, we began to work fairly closely together, and including by the way, while obviously this was me immediately dealing with the crisis from the funding for lending the money to the banks, we set the basic outlines to a great extent of the legislation as well. And people should understand, when the right-wing with President Trump and others denounce this legislation as a Democratic overreach, they should understand that all of the major regulators appointed by George W. Bush agreed with the basic outlines of the bill.
STEPHANIE RUHLE:
The report that Better Markets released today on Dodd-Frank has this whole section about it being a bipartisan bill, although it was enacted in a largely partisan vote. Senator, do you agree with that?
SENATOR DODD:
Absolutely, I’m glad that Dennis made that point. In the bill, (inaudible)…. we only passed the bill because we had a super majority, and we were able to hold three Republicans in the Senate (who) supported the bill; we had lost a Democrat, Ted Kennedy had passed away, and so was right on the margins. So, the actual outcome looks partisan, but I can go back through that bill any number of instances and point out the bipartisan nature of what's in the bill. I wrote down some of them here just to make the point: the Office of Financial Research in the Treasury Department—that was a Republican idea to put it in the Department of Treasury; FSOC, for those who want to create an independent department, we put that in the Treasury Department at the behest of our Republican friends; (and) making the Consumer Financial Protection Bureau an independent agency. My friend Bob Corker of Tennessee was the author of that idea along the way, and then we did things like I never told anybody ahead of time, but I invited Democrats and Republicans to share responsibility for various aspects of a very complicated proposal.
So, I had Mark Warner and Bob Corker deal with Dukey Depale; Chuck Schumer and Mike Crapo dealt with a corporate governance. I had Jack Reed (and) Judge Ray deal with the derivatives market. Shelby and I worked on the Consumer Protection Bureau. So that cooperation didn't solve every problem but it produced some very positive results in the process going forward. And then on the floor of the Senate, we debated 60 amendments; half of them were Republican amendments; about 10 of them were accepted unanimously; another five or eight of them were debated amendments and Republicans carried the day. And I never demanded a 60-vote margin except on one of the 60 amendments; so if you had 50 votes you could win or lose rather than creating super majorities on every single vote, which has become routine today.
So, we made a real effort. Hank Paulson, when we finished the bill, used language, very positive describing what was in the bill. In fact, …. one of the kept secrets if you will, is that Barney and I followed to some extent the recommendations of the G20, which is the proposal signed by world leaders, including President Bush. Now, we didn't go letter for letter, but we understood the value not just of having a financial bill dealing with architecture and structure…, but to what extent can we get cooperation globally. Not verbatim cooperation but at least agreeing on principle. And so following the G20 to some extent, a document endorsed and signed by the Bush administration, I think that is another example of the kind of quote bipartisanship that we sought to have.
And I made a Herculean effort in the Senate to get any Republican from the very beginning. And Bob Corker really was the only Republican to begin with who was willing to sit down and work with me, and we did for weeks on end to try and pull the bill together. So I take great offense, as someone who spent 30 years in the Senate following the models of senators who preceded me who cherished the idea of getting cooperation between the two parties, to move major issues forward. So it is not for any lack of effort. In fact, in many cases actually succeeding, to have a significant amount of Republican participation in the adoption of this bill.
STEPHANIE RUHLE:
Congressman Frank, what do you think?
REPRESENTATIVE FRANK:
More different experience because, historically, the Senate has been a somewhat civilizing influence on House members who are free to be a little bit more rambunctious with smaller districts although that has substantially diminished over time. And I think the difference in that regard between the House and Senate is gone probably because as I said several of the Republican senators who were taking the lead in being bipartisan during the crisis were defeated in primaries in 2010. Mike Castle from Delaware who lost to the …. Kay Bailey Hutchinson, they called Kate ‘Bailout’ Hutchinson; poor Bob Bennett, a very impressive, thoughtful guy couldn't even get on the ballot in Utah because of anger because he'd been too cooperative. But on the House side, I (inaudible) beginning in 2008, we were passing a bill, maybe late 2007, we were passing the bill to restrict the sale of mortgages that shouldn't be sold. Ironically, of course, the right wing said, oh you liberals, you gave all these mortgages to people who shouldn't have gotten them. When we passed in the House the bill to restrict bad mortgages, the Wall Street Journal attacked me for restricting minorities’ ability to buy these houses.
Spencer Bachus, who was then the senior Republican on our committee, supported the bill and brought with him a significant minority of Republicans. As a result of him supporting this bill to ban abusive predatory mortgages that were the source of the problem more than anything else because they couldn't be repaid, he almost lost his position. Some of the conservative Republicans, including the late chairman Jeff Hensley complained to the Republican leadership that he was being much too cooperative with us, and he had to fight very hard to get his position back, and as part of that, he had monitors—he had Republican leadership people installed to watch him.
I once complained to him about a statement he had issued that was really more off the wall than usual, and he explained that it wasn't his statement. It was one that had been written in the Republican leadership office, and he had to sign it. So and then of course, we had the TARP when the majority of House Republicans voted against that bill, both times, … but here we are in this terrible crisis and this bipartisanship in the Senate under Chris's leadership, but in the House, even on the second vote, even after the stock market has had its biggest one-day loss ever up to that time, a majority of House Republicans still voted against it, and the Republican leadership’s explanation was that Nancy Pelosi had made a speech that they thought was too partisan so to punish her they voted against their president's proposal to save the economy.
Therefore, it was no surprise to us when in the House the next year when we were doing the bill, we got virtually no Republican support. I think we had two Republicans—one was kind of an accidental Republican who was a Republican from New Orleans, the only one I think since Benjamin Butler after the Civil War, and he served a few months because of the Democrat who got sent to prison; and then Mike Castle, who was defeated in the primary in Delaware the following year.
STEPHANIE RUHLE:
Senator, you had said in the beginning that by the time this happened in 2010, a lot of people had forgotten all the problems that we faced in 2008 and how complicated things were. Just in the last few minutes when I hear the two of you speak about all of what this legislative process encompassed, was this the most difficult technically difficult thing you had ever taken on, and your teams, when you think about all that you had to cover?
SENATOR DODD:
Well it was, and you know, it just seemed to me that we couldn't go through what we'd gone through in 2006 actually 2007, 2008 and come back out and leave it because we had taken a sizable hunk of taxpayer money and given it to invest in many healthy lending institutions and walk away as if the problems had been solved. In fact, for decades, people have been talking about the reform of the financial services architecture, but typically in our country, in a democracy, it takes a crisis to get people to move. The problem, in this case was, and I understand the administration's point, they had a chance (and) they really wanted to deal with health care and decided to move on that directly. Of course, President Obama was just coming into office, so the following … really consumed that very difficult process.
We watched the Congress and the country become more polarized, and so for all of those reasons, the delay in coming around to the bill again, the delay resulting in the kind of heightened partisanship made it more difficult and given the magnitude of the issue, we didn't solve every problem, we didn't intend to here, there are a lot of issues we'll probably talk about some of them that might have wanted to include if we'd been able to write exactly what we wanted to in a bill like this. So it was tremendously complex but I’m glad I did what I mentioned to you earlier, Stephanie, and that is by involving my colleagues on the committee to become part of the problem solving. This was good, it couldn't fall entirely to a chairman of the committee. I always felt the best chairman I watched were people who made an effort to include their members in the crafting of ideas; get the best invested in the product, if you would, and so that made a big difference because people became engaged. They were asking to contribute their ideas and thoughts to making the bill work and that really helped tremendously.
STEPHANIE RUHLE:
But even contributing ideas and thoughts, Congressman Frank, how much of a financial services architecture education did you need?
REPRESENTATIVE FRANK:
Oh, a lot. Let me say something that I know Chris agrees with and that he's said himself. None of this would have been remotely possible without one of the great under-appreciated assets in America: the wonderful, bright, dedicated, self-sacrificing women and men who served as our staff. Chris and I were both lucky to have …although obviously it wasn’t random, we get some credit—but we had people working for us who are as talented as anybody, who were doing it for much less money ,in much worse conditions physically and every other way, and so that was the main thing. That these people I could not have understood all this, and Chris couldn't have but collectively we had a great deal of help—even with that it was tricky.
You know you asked about what the experience was like. I went to bed knowing I wasn't going to get any Republican. When we passed the bill that year, there were 71 members of the committee, 42 Democrats and 29 Republicans. I literally went to bed on nights when I had trouble sleeping counting Democrats. I couldn't go to sleep until I got to 36 on any given issue. We had a series of markups on this bill, and literally until I got to 36, I would have trouble sleeping. Fortunately, we did on almost every issue, but it was complicated by several things. First of all, the substance then, remember we were not an island here, we had to consider the impact of other countries. The competitive position of America …(inaudible) might be importing …(inaudible) had that whole set of things.
I noticed just recently that the former prime minister of France … was indicted, and I remembered at the time that he was actually in my office because the French embassy in Washington, stupidly, is about a foot from Maryland, so to get from the French embassy to Capitol Hill takes about two hours during lunch hour, and he wanted to talk to me and I could not get there (as) we had votes. So I had the president of France in my office, which my father would have appreciated…. One of the big issues also then was the multiplicity of regulators we had. And I gotta say one thing that strikes me is the extent to which Republicans made very partisan criticisms of what we did, and then from 2011 until the beginning of 2019, they did virtually nothing to correct any of what they said were grave errors. And in a forum we had recently that was put on by Bookings with Chris’s leadership, a high-ranking White House economic official criticized us because we hadn't done anything to diminish the number of regulators, and I didn’t get a a chance to ask him, but for the two years that Donald Trump had a Republican out of the Senate, they didn't do anything in that regard.
But yeah, they were substantively complicated, politically complicated, there were international implications; it really was, I would say, it was a Rubik’s cube except I have never been able to solve a Rubik’s cube, and we did get through this one.
SENATOR DODD:
Stephanie, let me add on the point that Barney made. First, let me second what he said about our staff and remarkable people who were involved in going through this with us. We did something else in the Senate; I suspect Barney did the same. I said to every outside interest (that) if you want to be heard, we're going to hear you; I won't necessarily be involved in these conversations, but if you have something you want to share with the Senate Banking Committee, I will guarantee you (that) you'll get an opportunity to be heard, and I don't know anyone who didn't take advantage of that. Some may not have but I wanted to make sure that door was open, … they couldn't at the end of the process, say you know, I couldn't even be heard on an issue. So my staff, in addition to offering great counseling advice and working with Barney's and other members, also spent a lot of time with stakeholders and the bill that we were proposing, and gave each and every one of them an opportunity to be heard on their various ideas, and I think (that) played an important role as well.
STEPHANIE RUHLE:
Senator, we rarely see anyone in government give anyone else, definitely from previous administration's credit, but here we are facing an economic crisis today that was sparked by a health crisis and our globally significant financial institutions are actually in very good shape: lending practices are working, the pipes that you cleaned up and retooled through Dodd-Frank are working. If Dodd-Frank wasn't enacted, what situation do you think we would be in right now given what's happening economically?
SENATOR DODD:
I think we would have collapsed economically. How we would have come out of this if we didn't have banks with the capital liquidity, their ability, their profitability, their strength to be able to play over the last 20 weeks, and I don't know of anyone who disagrees with that nor do they disagree with the conclusion that we had the complication of a financial system that could not respond as well as the pandemic and all of the economic implications of that we'd be in such a deep hole. I worry if we could get out of it so I know we didn't with all of our stress testing and going forward no one envisioned dealing with a global pandemic but I happen to believe in others who are following this now more closely than I am have said over and over again that the strength of our financial institutions uh has made an incredible difference. We've got a lot of long way to go obviously and we've got deep economic problems, but they would have been far, far worse had we not known what we did 10 years ago.
STEPHANIE RUHLE:
There's also a wide array of financial institutions banks alone. Congressman, when you think there's really only about 10 global significantly important banks, I mean the behemoth Wall Street banks then beneath them there are thousands of community and regional banks out there, how complicated was that for you to create this legislation knowing that so many of these institutions serve different purposes and serve different customers?
REPRESENTATIVE FRANK:
I should say at the beginning, I am a member of the board of directors of an important regional bank, and I think people should always want to make that clear. Yeah, well for instance, it explains one of the issues that I just referred to; one of the complaints we had was we had too much duplication in regulation and there were three major examples of it we resolved. …there was both the Office of the Control of the Currency and the Office of Thrift Supervision, which chartered national banks; the Office of Thrift Supervision was for savings and loans; the Control of the Currency was for commercial banks. The Office of Thrift Supervision developed a deserved reputation for being kind of easy on the people they regulated. We ultimately abolished them; we merged them with the OCC. My plan B there was to change their name to the Office of (inaudible). But we did resolve that conflict; but the other two we couldn't touch for political reasons.
… it's crazy that derivatives are regulated by both the Commodity Futures Trading Commission and the Securities Exchange Commission. Derivatives started out as based on commodity; that's why it's the Commodities Futures Trading division; then the financialization of derivatives took over; the SEC got involved, but if you tried to merge those two ,you would have the …. community furious that the financial big shots were taking over.
But the other one where Chris took … courageously was to try to consolidate regulation of banks between the OCC, that regulates national banks, and the Federal Reserve that regulates state-chartered banks. And there was a proposal to merge them, and it was vetoed by the most politically influential group that we were dealing with. Precisely, who you talked about: the multitude of community banks they have much more power than Citibank or Bank of America because they've got people in everybody's district who are civically active and friends of the members, and they have employees in everybody's district and the head of the independent community bankers. Many of which are state chartered came and said look there's no way you can put us in the same regulator as the big guys.
If there was a common regulator, if it was either the Fed or the OCC, then the small banks and JP Morgan Chase would have the same regulator, and they said no one size; doesn't come close to …so they bid on that effectively. Also, when we drafted the bill, we frankly made several changes in favor of the community banks. They are not inspected by the CFPB; they're covered by its rules but the CFPB doesn't send the team to examine them because they said that would cost you money. We had a fight over deposit insurance, we raised it from 100 to 250 to protect small banks from losing deposits of a large amount to bigger banks who are perceived to be quote safer. I wanted to do it even more; the big banks fought us on that one but that was another example of where we did some differentiation finally; and I think we didn't do it enough; and Chris and I supported not entirely the whole bill but a part of the bill that passed last year 2018, which exempted banks under 10 billion from the Volcker Rule and said banks again under 10 billion in that sense could make loans that would otherwise be dubious as long as they were to keep them in their own portfolio. In other words, run the risk themselves, so we did do some differentiation in the original bill and in two respects, I think improved upon it.
STEPHANIE RUHLE:
Senator, what about the non-banks—the financial institutions that were also part of this—the AIGs, the Lehman Brothers, the hedge funds, the private equity firms. How did you factor in their roles? What kind of regulations they needed and this legislation?
SENATOR DODD:
Their part of it was with the f-stop. Yeah well the f-stock was an effort obviously the financial stability oversight council it was the idea to look at systemically important systemically risky institutions and it wasn't confined obviously to ones that qualified by definition or legal definition so that we could take a look at some of them and now this has been a source of significant contention. Until recently I was the secretary Mnuchin talk about stock would have value the idea that we ought to be identifying a potential product lines or institutions that pose systemic risk to the old industry.
So that was a major step in moving in that direction. Obviously looking at product lines we talked about, the transparency issues on other issues like derivatives and so forth I think will help as well in providing us with better information about what's occurring in those in those financial service areas, and it's all working well today. By the way all the concerns that were raised about the fact that this is going to create future problems have not turned out to be the case. One point that Barney has made over and over again, and I agree with him on, and that is we had a lot of complaints, about people saying well you stripped the ability of the federal reserve to respond to a future crisis by providing capital during times of the difficulty that's the one we're going to it turned out that Jay Powell has proved them all wrong. In fact I was able to take advantage the 13-3 section. I don't want to bore people with too many details but the 13-3 section is working fine in the sense that the capital has become available and as a result we've been able to handle at least part of the economic crisis we're dealing with today.
So again, I think again we needed to understand the growing presence of sort of the shadow banking system has posed some significant problems the CFPB the consumer financial protection bureau is not limited they've been looking at payday lenders and other matter. Some of them would qualify as opposed but others would not uh in terms of how consumers get injured and harmed by an institution that doesn't meet the legal or technical definition of a financial institution or a bank can also be the subject of their efforts.
STEPHANIE RUHLE:
Okay, they're looking at the payday lenders but does it disappoint you to see that all of the progress that you made somewhat of which is being undone right now? Payday lenders today are far more emboldened than they were two years ago. We saw payday lenders in the last month receive PPP loans from the government, and then if you want to tack in the shadow banking. Look at all that that private equity funds have done in the last five or so years and now they're watching middle market companies that they own they're watching those stocks get bought up by the fed?
SENATOR DODD:
Yeah, I’m disappointed on some of these specific issues. Let me come back and reimport the point that's been made by others already today in this conference is we now have the structure in the architecture to address those issues under the proper administration. Barney and I never guaranteed that we would be able to solve all future problems in a political system in this country-elect where votes matter, and so we lost the head of the Consumer Protection Bureau. We had the head of the budget become the temporary head of the CFPB. The fact is they're still there and the Supreme Court decision the other day where I’m sure our opponents were praying that the court would declare the entire act unconstitutional or at least the CFPB unconstitutional proved to be quite the opposite. So I’m disappointed by some of the decisions but I want to remind people today in this conference, we're not going anywhere; there was no efforts really made to repeal Dodd-Frank because it wasn't health care and yeah they made some votes and things that worked that I didn't like I would have voted against them myself but they didn't go to the heart of what we've done the heart of what we did 10 years ago is the law of the land today in the United States.
STEPHANIE RUHLE:
Was there not the political will or the lobbying effort will to repeal Dodd-Frank, Congressman, because at the end of the day it worked? If you talked to some of the biggest bank CEOs over the last 10 years when Dodd-Frank was first introduced, they were devastated. They thought it would crush their business and then in the subsequent years you saw those same CEOs say by the way Dodd-Frank made us better and smarter and stronger?
REPRESENTATIVE FRANK:
Two things I would say about that. First of all, you're right, that it was political fear that kept the Republicans from doing this. The fact is that even during the angriest times with the Tea Party and they (were) upset about the TARP, which was at the same time, one of the most successful and unpopular things the federal government ever did. Financial reform was popular, the consumer bureau in particular. So, the Republicans, well the ideologues, wanted to go after it. The Republican leadership was told by most of their members I don't want to have to vote on that; I don't want to have to choose between the Tea Party and the bulk of my voters. So, because though there's great contrast where they tried to appeal healthcare until it later became more popular and financial reform, which was always more popular; and as to the big banks, I think they discovered two things. First of all, and this was a factor, there was pressure on the fact that there's pressure on people in any industry to go to the bottom. If you are competitors for stock investors or customers or whatever are engaging in activities that aren't the right sort morally but look profitable you can be heard.
We have the famous statement from Chuck Prince who was in city court when the music explained you got to dance. I asked him at one point why he was using a technique that allowed the bank to incur debt for keeper of the balance sheet and he was called the structural investment vehicle for civil. So really, he said well if I don't do this, Goldman will beat me in the stock market because that balance sheet will work better and also I think helped us internationally. The fact that American financial institutions including our stock market have a reputation for being very well-regulated is a source of strength. It is one of the reasons why the dollar is so strong; this is still a place people want to put their money and one of the reasons is that they're safe here . And so you have this competitive protection against inappropriate action. You have the reputation for safety, and the fact that frankly, we knew what we were doing and what we banned, and this is the key. What we prevented people from doing was incurring, and it comes down to incurring more debt that they can handle and absent regulations. You could get some kind of you had competitive pressure to do the things that incurred more debt that you could handle, and we have relieved every financial institution that wants to be responsible from the pressure united.
STEPHANIE RUHLE:
In his remarks earlier today, President Obama said this, “we were met every step of the way by entrenched and well-funded opposition who tried to block any reform at all.” During this whole debate back in 2009, President Obama also said that he was calling out Republican leaders and said just last week Republican leaders in the House summoned more than 100 key lobbyists for the financial industry to a pep rally and urged them to redouble their efforts to block meaningful financial reform. Not that they needed the encouragement; the industry lobbyists had already spent more than 300 million dollars on lobbying that year. Given that this was the worst financial crisis since the Great Depression and that an economic crisis isn't partisan, were you surprised, Senator, that you were met with such ferocious opposition from the industry? The industry that had largely brought this upon themselves and then how quickly it became so partisan?
SENATOR DODD:
Well, I certainly was, and I was surprised that the industry didn't step up earlier. I remember I made a recommendation to some of the people in the financial services sector when the problems first emerged. In a way it may sound simple to people, but I said why don't you come on down to Washington, bring up one of your preachers, the young people who know this industry ,we’ll take out the top floor of one of the hotels, roll up your sleeves and offer to go to work on behalf of the country free of charge to help us get back on our feet again. There was just tone deaf, it seems to be about recognizing it was a moment for them to step up and help get us back on a better track than we were clearly on and whatever reason I don't know who they were listening to politically but they were just digging a deeper hole for themselves.
All the time someone suggested we ought to mention some things that people may not be aware of. I remember going and meeting with the financial services roundtable, now it predates a lot of this, but nonetheless, it's … a big group. That's your largest institutions that come to Washington once a year and talk about these issues, and this was again predated the actual events of the catastrophe, but I got excited about it.
It was 2007, I thought ,was my first chance as the chairman of the banking committee to listen, and basically the two issues they wanted to bring up: they were frightened to death of a consumer protection bureau and they wanted to talk about executive compensation. I remember leaving the room thinking, here they had the chairman of the Senate Banking Committee there, are a lot of these product lines which are complicated, and here's an opportunity for it to maybe educate me from their perspective on things that I ought to understand better, and it was just stunning to me that the major issues they wanted to talk about were their pay and a bureau that would protect the very customers they try to service every day.
From being taken advantage or so they were toned down through all of this now. The good news is you're not bad or are disappointed, you think they're getting advice whether they thought of themselves, I thought someone's going to pull them aside and say listen we just went through bailing out major institutions here with billions of dollars from taxpayers. I remember one of the fights we had and then finally remember that at 1:30 in the morning before the TARP vote.
Frankly it was Hank (Paulson) who also was very upset that we were going to put restrictions on executive compensation as part of the TARP package and I said you're kidding me? We're asking the taxpayer to write a check for 700 billion, and you still want to be able to get you know bonuses? Finally, Hank said forget them I can't they won't sign on with the TARP bill. Well we managed to prevail that particular argument that night at two o'clock in the morning but that was sort of the mentality we were going through. So yeah it was surprising to me; there was a lot of bitter people who didn't realize the moment. They were in but let me just say in fairness, I think today they're doing a much better job. I think their reputation for better work needs to be done, but I’m sure it's going to be a lot wiser industry politically it may certainly work and no 7 and 08 that's for sure 10 to 10.
STEPHANIE RUHLE:
Well hubris and extreme wealth can often delay one's ability to be a little bit more self-aware. Congressman, when you think back, were there any points where you thought this thing isn't going to happen. We're not going to get this legislation through and were there things you maybe had to leave on the table in order to get it through?
REPRESENTATIVE FRANK:
You're right; let me just add a little bit to what Chris said. I was struck and it's true Hank Paulson, who might meet on a lot of things, just put up a terrific fight, and his argument was interesting. It was that if we put restrictions on executive compensation, the executive in question would refuse to participate. Now understand what that means. This was a program that they presumably understood was going to save the economy and people making much more money than any human being could probably spend in two lifetimes in a couple of years, were objecting to a fairly small reduction in their compensation and was so angry that Paulson thought they might walk away from this cooperative effort. And I got to say that was an impugn thing of their patriotism. I also think I never read one piece. I’m going to read it after I do a rubric cube but there is one part of it that seems to me very, very relevant.
There's a guy, he's a prince and I …forget his name, but he's played by Henry Fonda in the movie and he's riding in a battle against Napoleon and he says my god they're shooting at me who everybody loves and that was the impression I got from some of the financial executives. They were used to being lionized and treated very respectfully and held out to be these great wizards; and all of a sudden people, were yelling at them, and you remember that meticulous comment from Goldman Sachs, only oh we're doing god's work; and I think a large part of it was that or was Steve Schwartzman talking about this was like crystal …. I mean they were just offended they couldn't believe that we were all as a country so ungrateful to them for the great benefits they've given us.
As to when did I think it might fall apart there were two points. One was when we ran into a problem and I said the big banks generally didn't have much influence but there was one point where there was an issue actually over a federal preemption of state law and the Bush administration had put through a program whereby states had no power to regulate banks. They could only be regulated by the federal people, the national banks and we were reversing that substantially and the biggest banks were so upset about that that we had a problem with some of our New York Democrats and Chicago Democrats who represented areas where the big banks had a lot of employees and that was their crowd and that contributions and they were there was a serious problem there. Steny Hoyer, who's a great legislative technician, I went to him and said Senator this could come down over this and he negotiated a deal so that we preserved the importance of allowing the states with some compromise.
The other issue very relevant to today, there was a large number of African Americans on the committee, then and now, because it was always a committee of urban jurisdiction and housing. And the African American community was hurt worse than anybody else by the financial crisis, including by the fact that African American banks had been major purchases of the preferred stock … made Freddie Mac. A number of them were in trouble; we were trying to protect them and the number of the African American members were told by their consequence that you're saving America. How about us and the group led by Max Edward is now the chair and some others that recruited? I think all of the nine or ten members of the Congressional Black Caucus said they couldn't vote for the bill unless we got some major concessions and I did ask. And Rahm Emmanuel came and talked, and we made some progress to the point where they didn't vote against the bill but they didn't vote for it. They have centered themselves from the meeting and we've won by one goal. That was one of the nights when I kept counting Democrats and finally got to 36 was okay.
So those were the two crisis points. They were ,and by the way and I want to make this point, and I know the view is that there's too much money in politics, and I generally agree with that except on those occasions when I needed some but the fact is that we made this bill and we dealt with it. I think Chris will agree, the obstacles we ran into were either the most of them either ideological, honest ideological, opposition from some people or constituent pressure campaign contributions had in my experience. I do not remember, and we talk honestly with each other in private. I don't remember anybody ever suggesting that they couldn't do a certain thing on our committee or even in the House of the whole because of contributions. People told me I can't vote for that because of this constituency group but I just think you're not being tough enough but I think the media and Bob Kaiser has written this wonderful book about the process, and I think you see when you read that honest conviction and political constituent pressure were by far the greater influences than campaign contributions even when we're talking about regulating the richest people in America.
Sen. Dodd: I’ve got to make one correction, Stephanie, if I can this is where modern technology comes in. My staff send me an email. Bob Corker was very helpful; he was going to suggest that the Federal Reserve is where the Consumer Protection Bureau should be housed who was not the creator of the consumer if I have said that I apologize that was a mistake.
STEPHANIE RUHLE:
This illustrates the point you were both making earlier, the extraordinarily talented and selfless staffs you both had. Can you give us an example—a non-public story—something we haven't heard yet and you can change names or leave them out to protect one's identities that sort of illustrates the thrill of victory or agony of defeat in terms of going through this process, Senator?
SENATOR DODD:
Well, there are quite a few moments. You know I thought it was a great question and I think we'll protect the innocent and all this but certainly a moment that Barney and I can both share having gone through it literally and I’m not exaggerating here, the vote on the floor of the Senate was occurring. The final passage of the bill and all of a sudden one of my supporters indicated they had a problem and so couldn't vote for the bill. Well if I got 59, votes we'd be not be having this conversation today, Stephanie, and so it involved New England and I got a hold of my friend in the House, who I think Barney, without telling state secrets, I think you were in the gym in the House gym because he would have voted on this, and I called Barney and I said we got a problem.
Now the votes occurred it took about 10 minutes or so, but we resolved the problem with Barney's assistance and helped with people he was aware of and knew and the person ended up voting for the bill and we got the 60th vote and passed. I don't know if that's written anywhere but it was one of those critical moments you can't get much closer than that when the clock is running and the boats are counting and have we launched that boat we would have been having an intellectual conversation today about what Dodd-Frank. Now the discussion to it's not going to get that's one you tell them more but that's fine I know Barney remembers that enough it's pretty critical.
STEPHANIE RUHLE:
Congressman, how about for you?
REPRESENTATIVE FRANK:
Well, that was clearly one of them we were involved in. I was in the gym and went in my gym clothes to our offices to meet with our great staff director team working two months to have a Jim Siegel and Dave Smith wound up in a sort of double negotiation. One with the senator in question the other with Paul Walker because it involved the Volcker Rule and we worked it out.
The one that bothered me, I will leave out the name, one of my regrets is that we weren't toughened up in the bill on the question of risk retention. I think anybody who incurs a debt for the society should have to bear some of the responsibility if that debt is not be paid and we put the principal in. It was especially important for Morgan and as we were getting in the conference a senator and I used to talk about that. Chris gave you the context. It seemed to me that there were people who took turns being senator 60. That is they would come to you knowing that you had 59 votes but you needed that senator to get to 60 and in this case Senator 60 had been focused by mortgage brokers who wanted an exemption from the restriction that you couldn't securitize without some holding on to the risk for super good loans and I didn't like the idea, was worried about it but 60 is 60 and Chris and his totally good faith let me aside.
One of the things I’m proud of -- the House and the Senate don't get along the way they should. Egos get in the way, turf gets in the way and here is one of the most complicated political treacherous legislative things you ever had to deal with and there was never any friction between me and Chris or between the House and the Senate. Through us in that regard enough staff to that but it worked very well and cooperatively together but I had to give in and so we created this category for loans that could be exempt. I mean there were supposed to be three kinds of loans. Loans that you could make but were subject to risk retention and then the small category of homes that were golden and you didn't have to worry about risk retention.
The trouble is those last two categories got the one the exception ate up the rule because of the language that was developed at this Senate complaint the loophole became such that there were now two kinds of loans you can't make unless you're a small bank and I want to keep in your portfolio which is fine with me. You bear the risk or loans that are not subject to risk retention ironically almost every other kind of securitization is subject to risk retention more heavily than loans. I think that's a good thing so that was a loss that I didn't realize the dimensions until later when a very interesting coalition of the banks and the liberal advocacy groups got together and insisted on broadening that move forward.
SENATOR DODD:
Yeah, good point. I’m just going to say it the other moment I was going to share, and Barney knows about this one as well. The Republicans came to us for the paid for the bill at the end of the conference we had never paid for it with a cost for the bill like larger that of a paper they came up with one that we thought was acceptable and it's a picture behind Barney’s head I don't know if that's the same picture by any of us about six o'clock in the morning. I can't get any more support people to understand the House to vote.
Again, a Republican, a couple of Republicans, one particularly came and said I can't vote for that painful I’m off the bill. Now I’m short again by one vote. I spent almost a day with the parliamentarian of the Senate but something they've never done before to convince him that signing a conference report was not tantamount to voting for the conference before. So even though everyone had signed it or voted or not signed it, he had the majority of votes and therefore there was no changing the conference report. It literally took me almost a day to convince the parliamentarian to do something he had never agreed to before and that was we had nothing supported until voted about it's not been adopted even though the countries have signed it so we had to reconvene the conference right here change the paid for to meet the concerns that have been raised and then go back again. Again, one of those moments that again you're hanging by your fingernails and the parliamentarian of the Senate said I’m sorry that's it the bill would have died as well.
STEPHANIE RUHLE:
You have both been out of Congress for the last 10 years but what you can give us is extraordinary perspective. You've both independently said throughout this hour that while it was hugely successful, it was enormously unpopular. I’m speaking about TARP. Fast forward to the economic rescue that we're seeing today; the trillions of dollars that the U.S. government is giving to small and large businesses you can also add in all that the fed is doing. How concerned are you, Congressman, about the lack of oversight and the backlash that's to come?
REPRESENTATIVE FRANK:
I’m not as concerned as some of my friends. First of all, we are talking here about compensating people for something that was done to them not by them. The problem with the TARP was that the people, many of the recipients of TARP funds, were the mallet factors although the federal government made money off every part of the TARP ironically, except the one part of the chart that was popular the automobile loans. We remember TARP money kept General Motors and Chrysler in business and Ford said if they had gone out of business Ford would have suffered too because there would have been no supply chain but the banks were the villains many of them and there were no villains here. None of this money is going to anybody who is held accountable for causing the crisis.
Secondly, it's much more broadly shared; everybody, many, many people are getting something which is helpful even with that. Yeah there is some problem, but I have two responses to that. First of all, when we have people and this, that's to say the unemployment, you know it's hard to do something in a very short period of time on a massive scale without error, so the question is which errors are worse? To me, the errors of people in need, children who are stressed, parents who can't make it, people facing eviction, the possibility that they will not get any help troubles me a lot more than a couple of people who got help they shouldn't. We're a rich enough country when we're talking about this to air on the side of compassion, so that's why I don't worry as much. Secondly, once again it's a very difficult process to do this as in in this time period, I think frankly it's not been done on the whole rather well, but my basic point is that.
Let me just take one example the 600 stipend you have. Some people, conservatives mostly, saying well don't do that because if people can get that, 600 some of them won't come back to work and the economy will be hurt. Yeah, but more of them are people who need that six hundred dollars and I’m more distressed at the thought that there are families, children, other people who will be in real pain if they don't get the six hundred dollars than the small number of people who might be taking a free ride on it. So, again I would have on this side of keeping it going.
STEPHANIE RUHLE:
Senator, what do you think?
SENATOR DODD:
I agree with Barney. I think it makes sense. Obviously, we got a major problem come with fall. I know they're grappling with the issue now in the Senate and in the House on the third or fourth tranche of assistance. I hope it's going to focus again on caring for other people and childcare, you're never going to get the economy moving again. I authored back 30 years ago the Act for Better Childcare, the first childcare program since World War II. It was a fight then to get it done because we were dealing with a generation that didn't understand how important that is. Today you cannot recover without it so I’m hopeful they can do some of these things to allow us to get through this until a vaccine comes up. I think it's tragic we have this kind of mindless opposition to people wearing masks and public gatherings here, it's stunning to me the national leaders, a national leader particularly, is advocating a policy different than all the advice of the contrary.
So, I think trying to help people through this until we get back on our feet again makes all the sense and the point that Barney made is absolutely on target. This is not writing a check to people who created this problem. We are faced with a health care crisis for the likes of which we've never seen before. It's now exceeding I think the Spanish so-called Spanish flu 100 years ago and not to step up not to do these things I think would be indictable reprehensible, so I agree with Barney entirely one.
STEPHANIE RUHLE: One thing that we've seen since the pandemic has caused this economic crisis, we mentioned it earlier, is that our banking system is stronger and better since Dodd-Frank. However we also see the huge growth in non-bank financial firms, private equity firms, hedge funds, for example. What needs to be done from a regulatory perspective around those types of institutions becoming so large that we're then arguing well they're too big to fail and they need to be rescued next when they put themselves in this situation and exaggerated the shadow banking system?
REPRESENTATIVE FRANK:
We've done some of that the way in which many of those non-banks were involved in the problem had to do with the one area where I think we had the worst problem, and we successfully resolved it to a great extent and even the Trump administration is going to walk and that's derivatives. As Paul Walker called them instruments of financial mass destruction, we have resolved the derivative problem by putting them in exchanges by requiring that counterparties be able to deal with it and so the problem was in the past non-banks to get involved in derivative situations could sell credits or fall swaps or whatever and so whatever their activities are, that won't happen. The importance of that is this it was through the derivatives I think that the problems that particular institutions ricochet through the system if a particular private equity fund gets into trouble now and it gets hurt it's not as interconnected to the financial system.
As we would be worried about that is, I think we've gotten to the point where you know we never try to protect people from losses. We shouldn't but the losses now more likely fall on the people who incurred the losses without systemic connections. That make it worse and one of the things we did do is in the bill we did we regulated functions as well as institutions now that doesn't mean no problems with what these are doing but they're not necessarily financial regulatory bumps I think there's a strong role for any trust that I’m glad to see Democrats for instance in the House, Dave Sidcellini and others, Senator Warren has talked about this. They're looking at the anti-trust implications of these agglomerations and noting that among the negative effects appears to be depressing wages and so there are negative social impacts from large financial institutions buying up a lot of companies that are not within the jurisdiction or financial regulation but should be looked at in other ways.
STEPHANIE RUHLE:
Senator, does Congress always need a historic crisis to enact pro-consumer or pro-little guy legislation because it often seems that in good times the bigger get bigger and bigger and bigger, and they keep pushing the limits until things get broken and then we're in crisis?
SENATOR DODD:
Yeah, I don't but yeah that's pretty much the way it is it has been historically. I’ve often said I think Barney and I agree on this, we could have never passed Dodd-Frank in 2007 or even 2008, maybe we had tried early I don't think so. We certainly couldn't pass it in 2011 after the 2010 elections windows open up. You take advantage of a crisis, if you will, where people are focused on it and you can then do some things that that people would acknowledge should be done but they must receive that sense of the urgency of now. That we've used that happens until people actually are feeling it and so that's why it's so important.
I said this I know at the beginning of our conversation Stephanie, but we almost didn't get it done because we ended up acting later, and it sounds ridiculous to talk about less than two years later but even two years later the country moves on you know. We're listening to these huge issues today they're going in front of us here all of us at this gathered here like this and listening well there are only one hurricane away from changing the subject in America, and so you have to act when these moments occur or you miss them and that was true of health care, it's true of financial reform, it's true of what we're dealing with now on the issue of minorities of communities and financial services. Using the word systemic risk no longer to confine it to a bank or a hedge fund but to realize now a virus can be a systemic risk, climate change can be a systemic risk.
To insurance companies to banks but to all these shadow banking institutions things that go way beyond what we traditionally were thinking of when we passed this bill, so we've got a lot of work to do. If I were advising the banking committee today and on this, we did a good job but it's ten years ago. I could now bank with this in my hand I can make deposits from my cell phone. You can't do that I couldn't do that 10 years ago, so technology's better new instruments are emerging. There’s a lot to be done here we did a good job 10 years ago and it's great to celebrate it and talk about it but there's a lot of work particularly in serving underserved communities.
Particularly minorities and rural communities a lot to be done to make sure that that redlining is no longer just a local issue it's a national issue because of the availability of financial services. So, I would hope that our successors and all of this would really realize there's a lot more work to be done.
You've got a crisis in front of you, let's take advantage of it here now and make sure we can do some things we've talked about for years so that's why I agree with Barney and it's a perfect moment to move.
STEPHANIE RUHLE:
Well you certainly didn't let that crisis go to waste. I want to thank you both for all that you've done and for joining us today and spending this hour with us. Dennis, thank you for this opportunity. It was really great to be with all of you.