YouTube video

Howard Dean: If they water down the Lincoln amendment on derivates trading I won’t support the bill

Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. We’re back at the America’s Future Now conference, and now joining us is Governor Howard Dean, former governor of Vermont and presidential candidate—I should say Democratic presidential candidate, nominee. You fought for the nomination.


JAY: What’s—I don’t know. What’s the correct formulation of that?

DEAN: That’s fine. That’s enough.

JAY: Okay. So we’re in the midst of the Senate and the House are negotiating the finance services or financial reform bill. What do you make of where those discussions are at, who’s been appointed? Because the knock on who’s negotiating has been nobody that’s strong on the reform side is actually even in the negotiations.

DEAN: Well, that is a little worrisome. But the Senate side—and there was a piece that was put out on the Net about two weeks ago that showed that they had taken something like $50 million from the financial services industry. But the Senate bill is the much stronger of the two bills. So this is a point that’s really almost as important as the health bill. If we get the Senate bill, we’ve got a really good bill, just as if we had gotten—

JAY: As is?

DEAN: Yes, even as is. There’s a couple of things in the House bill that would improve it, but by and large, if you had to just take one of them, the Senate bill’s far better. The Senate bill forces derivatives to be traded on open exchanges. The Senate bill breaks up banks that engage in risky instruments like credit default swaps. And the Senate—.

JAY: That’s if they keep the Blanche Lincoln—.

DEAN: If they keep that. That’s right. If they keep that amendment in there. That’s correct. The Senate bill limits—well, actually, I think both bills limit banks and banking fees. The Senate bill is a much tougher bill. And with a couple of exceptions in the House bill, if you had—as I said, if you had to pick one or the other, you’d want the Senate bill.

JAY: But they don’t have to pick. I mean, they are going to negotiate.

DEAN: And if they give up some of those really strong protections against basically these gambling casino instruments, like credit default swaps and derivatives, then this is going to be a bill that’s not going to do much.

JAY: So one of the key things is the Consumer Protection Agency, and one of the controversial things is in the Senate bill it seems to have more power, but they want it housed at the Fed, where, if I understand correctly, the House limits its powers but makes it independent. Doesn’t it have to be independent and have more powers?

DEAN: Well, look, I don’t think that’s a crucial part of the bill. I mean, they’re both decent models. They could easily come to a reasonable compromise on that. But, you know, the lack of adequate consumer protection was not what drove us into this huge financial meltdown. What drove us into this huge financial meltdown is greedy banks trying to make double-digit increases by swapping papers back and forth and turning Wall Street into a gambling casino and forgetting that their real mission is (A) to take care of their clients and (B) funnel capital into creating jobs. There’s nothing that creates jobs about creating credit default swaps.

JAY: Now, one of the big objectives that many economists I talked to thought this bill should address is what they call structural blackmail, the ability of these financial institutions to simply have such clout and be so big they can force the American public to bail them out when the sector’s in crisis. And the economists I’m talking to say that even though there’s some good stuff in this bill, it really doesn’t deal with that.

DEAN: It does deal with it. And I’m not an economist (although I don’t mind sparring with them, ’cause they’re wrong as much as they’re right about what the future of the country is going to happen), but there are some things in the bills that will help. For example, there is an orderly unwinding in bankruptcy procedure, in a takeover procedure, that’s spelled out ahead of time if the banks get into trouble. There is a limitation that they can’t acquire any bank that would give them more than 10 percent of all the deposits in the country. So there are some limitations. One could argue that they’re not enough.

JAY: Yeah, I mean, you can argue strongly they’re not enough, because part of the problem, from my own point of view, is that even if you have some of the process for taking over a specific bank, they get into these gambling operations like a pack. Like, if one goes, they all go. So you wind up with a whole sector in crisis—it’s not like you get just one bank that’s in crisis. And that’s what happened this time. The whole sector comes to the American public and says, you’d better bail us out.

DEAN: That’s why it’s important to adopt the Senate bill, which forces banks to divest themselves of the operations that engage in that gambling. So that’s—.

JAY: So that goes back to this Lincoln amendment.

DEAN: The Senate bill, yeah. Well, the Lincoln amendment also creates transparent derivative trading. So if you’re going to have—about 10 or 12 percent of derivatives really do have a purpose. That is, farmers use them to offset risks that they have to take—and it’s a risky business in agriculture and future commodity prices and so forth and so on. Now, you may be able to do that in a commodities market, but if you’re going to have derivatives, which nobody seems to be willing to outlaw, then—.

JAY: Isn’t that part of the real issue? I mean, if I understand correctly, the global derivatives market is about double the global GDP.

DEAN: That’s right. And so there’s obviously huge amounts. There was nothing but speculation there, and speculation really doesn’t do anything for market liquidity. The Wall Street people will argue that it does, but it really doesn’t. We did just fine without derivatives and credit default swaps for many, many generations on Wall Street. So if you’re not going to ban them, which maybe we should—I’m not smart enough to know whether we should or shouldn’t, but I’m smart enough to know that you shouldn’t allow them to have anything to do with banks that are insured by the federal government. Those kinds of risky businesses ought to stand on their own. If people want to play those games, they’re on their own.

JAY: Okay. So if the Lincoln amendment isn’t in the final bill and it’s really watered down, is it a bill you’ll still support?

DEAN: No. I mean, the Lincoln amendment is part of it. There are some other things that are good in the bill. I’m not sure I’d just support it if that was the only change. But if they’re going to take out the Lincoln amendment, they’re probably going to take out a lot of the other stuff. If you don’t have transparent trading of derivatives, then you really haven’t reformed finance, and that’s just plain and simple. So we’re going to see if we see the same spectacle that we saw with the health-care bill, which the reform is taken out and the public is still at risk.

JAY: Now, you fought for the public option in the health care. Some people have argued there needs to be a public option in the finance sector, there needs to be some publicly owned banks that can provide credit (there are some examples at the state level), but that if you’re really going to create an alternative to too-big-to-fail and structural blackmail, there needs to be some public institution as an alternative. What do you make of that?

DEAN: I don’t think that’s probably necessary. It’s not a terrible thing—North Dakota does it and it works very, very well. That’s a lot of capital to tie up in a bank.

JAY: A lot of taxpayer capital tied up in in these banks.

DEAN: Well, not so much anymore. Most of them have paid it back. But what I would like to see is, if we’re not going to have—I think states should be free to start their own banks if they want to. What I would really like to see is enough regulation. I don’t—you know, I don’t think these—these bank stocks, when I was growing up, used to pay a reasonable dividend and make a modest return. Let’s go back to that model. Let it be more of a regulated utility kind of a model and let the hotshots not be covered by FDIC and all that other business. Why can’t we go back to Glass-Steagall? Glass-Steagall worked. And, you know, if Glass-Steagall hadn’t been gotten rid of, we wouldn’t have just experienced what we just experienced. So, basically, the Senate bill goes back to some version of Glass-Steagall, and that’s where we ought to be.

JAY: And does at some point Howard Dean throw his hat back in the ring with some of these ideas?

DEAN: Oh, I’m throwing my hat in the ring all the time, but not running for office.

JAY: That’s the hat I was talking about.

DEAN: Yeah, I don’t have plans for that.

JAY: Thanks for joining us.

DEAN: Thank you.

JAY: Thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Creative Commons License

Republish our articles for free, online or in print, under a Creative Commons license.

Howard Dean is the former Governor of Vermont and the former chair of the Democratic National Committee. He is also the founder and current senior adviser on healthcare of Democracy for America, a large-scale grassroots organization that supports and promotes progressive issues in the United States.