Interview with Senator Jon Corzine
Q: But J.P. Morgan Chase and Citigroup are both on the griddle in this case and we don't know everything yet but what we've learned so far isn't very reassuring.
Certainly, elements of all the problems we've just talked about are showing up in pieces in those situations. And I think the with tie-in, quid pro quo financial structure--which, by the way, isn't new, it's just big, it's been around for a long time--we need to make sure that those are known to the public and that in those places where we think there's undue risk to the public that we create firewalls or prohibitions against the practices. That's a hard nut and I'm not prepared to say where all those should be, but I think there are places where they may be needed.
Q: Why did Goldman Sachs not go down that road? You didn't get a good enough offer?
You know, there was a big debate on it. I was probably more in favor of some kind of combination than some of my colleagues were, not that it was a matter of life or death. One of the reasons I felt we should go down that road is that some of the mega-financial conglomerates had better [earnings] multiples than the securities firms did. In recent years, it's actually flipped round, although GE Credit has got the best multiple of any financial institution in the world. So I don't have a religious view about Glass Steagall kinds of separations. I do have a view about making sure that where there should be firewalls and the public says there should, the firewalls should be there. And they should be audited.
Q: So you would be upset if we discover in the next six months that one of these banks really wasn't observing the firewalls?
I would think that would not be encouraging and, you know, I think the bank would suffer for it.
Q: Let me switch to the politics of these power relationships. You're in a unique position because you really were on the other end of the process and now you're representing the public. It's no secret that most people see this as a very one-sided contest, that is, Wall Street and Washington, particularly on these issues that of course matter a lot to Wall Street--financial regulation, the tax code, economic policy.
Well, I think that's true. Include corporate America, not just Wall Street. I think there are several levels on which public policy is debated and managed and, we see now, regardless of how people felt. Arthur Levitt, I think, is probably the clearest voice in that--how his efforts were resisted on the independence of auditors, his whole protestation of reform for option accounting. I think people think that, if you have an issue in the business world, you can get in to see your representative in a clear and certain way to represent your interest than if you're a pensioner.
Q: Is that not true?
It is true.
Q: You came from that world. How did you--not just you but generically-- how did people look at the Congress? As an impediment that would occasionally take care of you if you needed help?
Well, you felt a responsibility as a chairman of an organization to express your views in respect to how you found the system was working. Now, if it was pure self-interest that you were about, then you quickly lost any ability to have any advocacy of acceptability, except to those particular folks who were so happy for the money that they were just dealing with it. I'm not going to name names. I think that the most effective spokespersons for business interests are ones that really do try to identify what they think is both in the national interest and the public public interest and their own interest and they try to frame in that way. Jack Welch [of General Electric]was a master at that kind of thing or Hank Greenberg [of AIG]. I might not always agree with them but they try to pose things in public policy terms that represented more than just themselves.
Q: What about Robert Rubin calling the Treasury assistant secretary [asking him to pressure credit-rating agencies in behalf of Enron, his bank's failing client]?
I'm sure Bob didn't feel good about the call he was making. Bob's one of the most honest, straightforward people who ever said, probably did say, "I shouldn't be making this call," In fact, he's torn between his responsibility as a senior member of Citicorp who's working to represent a client's interest and representing what he thinks is good public policy.
Q: But how are we supposed to feel about that? Was his call over the line in terms of public behavior although he had a good motive to do it? Or it's standard practice and that's just the way the system works?
Well, you know, I think the real issue is you got to make sure you accord equal access. People ought to try to balance out the scales about how one responds to all the people who want to be heard.
...A good legistator ought to look at both sides of the arguments and try to get some balance on what they think is right for the public, not just be influenced by who gave the most amount of money. Unfortunately, they dont hear with much clarity from people on the lower end of the economic scale. This 401k debate that's going on now about whether or not we have caps [on how much of the company's stock can be held by a 401k plan] is a perfect example. These companies are having significant supported financial advantage brought to their income statements and balance sheets from the individual retirement plans that are about somebody's longterm health and welfare in retirement. These companies are willing to say their benefits are more important than trying to structure a program that is sensible within the context of any sound financial theory, concept, advice that anybody would get from academics, regulators, financial planners or otherwise. And I think that's wrong. The companies holding the 401k's are resisting changes that would bring sound diversification to portfolios. So there's a lot of work going on to resist those changes, whether it's the Chamber of Commerce or whoever. The response, I think, of a lot of folks in political life is, well, they can't all be wrong, those guys on that side. There's a more willing ear because of how the system works. You know, nobody is coming up here speaking for the individual investor who, if diversification was explained, would say this is how I want to do it. Nobody puts all their eggs in one basket in other things in life, why should they do it here?
Q: You've here almost a year and a half. Are you shocked or confirmed in what you thought the system was like?
Well, you know, I'm agnostic to whether...scratch that. I'm confirmed that the system has lots of tugs and pulls on it and I'd like to level the playing field so that all points of view have the same throw weight. Some of those that are left out of the debate don't seem to have much relative to others. And I think it is potentially dangerous. I'll give you a perfect example. Right now, we've got sitting in conference [committee] a bankruptcy bill that was basically written by the banking and credit-card industry and completely ignored the hooting and hollering of small folks and their rights in the legal system. People would be embarassed to bring up today [during the recession]. I think the only reason it didn't go through was the homes that had protections in Texas and Florida and a few other places that thought their states rights would be inhibited. But now I hope that people would understand that there's reason to challenge whether this bill was written for the benefit of the public.
Q: On campaign-finance reform, I know you voted for McCain-Feingold, but you've also suggested that you're not sure that's a solution and may even produce unintended consequences.
Hm-hm. I think that we need to get public financing of campaigns generally and, if we did that, I'd be willing to make sure that folks who are wealthy come into the system, either comply or if they did't voluntarily comply, they'd get the oprobrium of the public. But I think what's going to happen now is we're going to get just derivative political-action committees, taking up most of the soft money and repositioning it. I think the other thing. There's a very important element in the bill that the Senate put together which is the lowest-unit cost [on advertising] to drive down the cost of advertising on television. It will be real interesting to see if that is able to work its way through with the Shays-Meehan bill.
Q: You think that may disappear at midnight?
Somehow or another, that just may disappear in the conference committee. It's the first intermediate step that lowers the cost of campaigns. Then I think actually we ought to get to an opportunity for real public debates. Other countries have that and I think we can get there if we can contain this surge of money [from influential contributors]. Which, by the way, I think most of the influence is more appearance than substance, though I'm not saying that sometimes it isn't substance.
Q: Do you feel like this is a turning point of some kind--this series of scandals and the public reaction and the political reaction?
Unfortunately, we don't have Teddy Roosevelt in the White House. And without the bully pulpit and the support of the president for a lot of the initiatives that need to be taken, I suspect we will get marginal, incremental steps but not really get at the heart of a lot of these issues--unfortunately. I'd like to think that the president will get there. I think it would be very unexpected if he did, given the party he's a part of it, given the platform he's run on, his continued argument that we need more deregulation, not more checks and balances in the system.
Q: Do you worry about conflicted Democrats on this matter?
Oh, sure, sure. But, you know, that's why you need power in the White House to overcome those kinds of things when these issues actually have a chance. I mean, if we had a Democrat in the White House, we could have the catalyst to pull together these disparate elements, but right now the Democratic position is not to obstruct but it's very hard to lead on these controversial issues.
Q: But you could have some influence on those.
Oh I'm going to do things but, as a matter of fact, my view on this is we've got a long- run program ahead and, however it turns out, I don't plan on dying away from these issues. I think we need overall security reform. I think we need to go back to that bankruptcy bill. I think to deal with financial literacy. We need to deal with true accounting reform and maybe even look at the 1995 Securities Litigation Act [protecting financial firms from investor lawsuits]. I mean, I think we need a comprehensive approach. Do I think we're going to get it in the next six months before an election? Probably not. But, you know, these are processes that will continue. That I'm optimistic about. We will continue to have the debate and push forward on these things and, you know, the public will ultimately decide by who they put in the Congress and the White House.
NOTE: This transcribed interview may contain imperfect translations.