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Interview with Senator Jon Corzine | The Nation

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Interview with Senator Jon Corzine

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February 12, 2002

About the Author

William Greider
William Greider
William Greider, a prominent political journalist and author, has been a reporter for more than 35 years for newspapers...

Also by the Author

The new Fed chair came out in strong support of working families and the unemployed in her foundational speech this week. 

After all, no country in the world can match our bloody record for overthrowing foreign governments. 

Corzine:

You set the right context. As interesting as Enron is as either a criminal or regulatory investigation, and it is, I'm mostly interested in it for purposes of revealing the meaning--the need to get on with updating our system to make sense for the twenty-first century, dealing with changes that have occurrred that we've been sitting for on a very long time, whether it's pension reform or accounting reform or corporate governance reform or campaign finance reform.

Q: I read in Congress Daily that you intend to recuse yourself on financial reform. I hope you reconsider.

I will recuse myself if it has something specific to do with Goldman Sachs.

Q: But that's a lot.

No, no--only if I think it is going to impact their bottom line. If we were talking about analysts generically, I wouldn't recuse myself. If we brought Goldman Sachs in, I would not question them. When we had a vote last year about SPE's [special purpose entities] and tax deductions, I thought that would impact their bottom line, so I recused myself from that vote. I have an opinion about it.

Q: But why? Because if farmers recused themselves on the Ag bill----

I just think, given my specific role at Goldman Sachs, until it's confirmed to me that I no longer have stock in the company--I put my stock in a blind trust and told them to use a sensible approach to liquidate it as soon as possible--that, until I know that is done, I just don't want to create an appearance of a conflict. For the same reason, I think [SEC chairman] Harvey Pitt should recuse himself on Arthur Andersen-specific issues [his former client]. If you want his ability to comment as an important part of the dialogue, I don't have any objection to it. But about Arthur Andersen-specific--are we going to have an investigation?--I think he should opt out.

Q: How bad do you think the rot is in our financial system?

You know, I'm not sure I fully accept the "rot" concept. I think we have not updated our financial system for many years and we've allowed for the theme of deregulation to erode the checks and balances in our financial system substantially at a period of time when technology and globalization and financial entrepeurship were growing at geometric paces. So I think there's as much a failure to stay apace with the system as there was rot. Now I think there is an element of culture--a degradation--about what it is the mission of a company is about. And it has become so narrowly defined in public company terms--an earnings per share or earnings growth philosophy--that the system to some extent has lost track of its other objectives of social responsibility, of ethics, as they relate to employees and their position in society. There is a stewardship reponsibility in the context of society and for the people who work there and for the client customers that use their services or products that is as important as is the bottom line. As a matter of fact, we had a principle at Goldman Sachs--I didn't create this one, my predecessors did--serve your clients well, your profits will follow. But the point was, there was something more important than just the bottom line 'cause the bottom line will follow if you do a great job.

Q: In terms of deregulation, I know you've already made a number of proposals on specific problems, but I look back over the last twenty years since the real financial deregulation legislation and there is this string of crises and breakdowns, not just in investment houses but in commercial banks--junk bonds, the savings and loan collapse, the Mexico bailout, Long-Term Capital Management. Is there a systemic, structural problem there that ought to be fixed?

I think the thing that business often fails to understand is that, without checks and balances in the system, without some regulation--not overbearing regulation, but without some involvement of government in the workings of the economy in terms of its excesses--those who are outside the purview of the supervision and regulation end up operating to their own interests and to the detriment of the system at large. And it happens repetitively. It has throughout history. And I suspect it'll happen again in the future. It's one of the reasons I believe we ought to go out and bring hedge funds into the system of financial regulation. It's the same reason I believe we ought to have real reform with regard to SPE's {"special purpose entities" like Enron's off-the-book partnerships] that just scatter to the winds of non-regulatory venues or purposes. You have the same sort of problems in almost each one of those cases you mentioned. Probably the most egregious was the savings and loan crisis--they used a lot of the same techniques you see in the Enron case to provide for the kind of leverage that we have.

Q: But also in concert with Wall Street?

Right. No, no, no--I think Wall Street has looked at the rules and the ambiguity of the rules and accounting statements and has reinforced the view that the sole purpose of the company is to produce ever- growing earnings per share so you can get high multiples--and maybe lost perspective on the quality of earnings, the quality of product, the quality of reputation, which are equally important issues built on relationships with clients, with your employees, with things that matter in addition to financial performance.

Q: That sounds like you think Congress should go beyond these specific scandals and take a broader look at financial regulation?

I think there's plenty of room for broad-scoped review and reform in accounting, the reporting practices and functions of companies at large. A lot of that will end being focused on the financial structures of companies and I think that's probably appropriate. But, you know, you have some of the same situations in regulatory structures of other industries and activities. We haven't had a crisis in the pharmaceutical industry, but you know there are plenty of questions that surround that. We now have a lagging regulatory system regarding telecommunications that we, as a society, haven't pulled back to update. There are suggestions, but we haven't gotten anywhere. I just happen to think that the one that deals with the backbone or foundation of financial market competence is the accounting and reporting. Get an honest picture. If it's too easy to cook the books, correct it. Now not everybody's going to cook the books. I don't believe that everybody is cooking the books. You know, people are using the SPE's approrpriately. But, the fact is, it is too easy to cook the books if there is no regulatory structure to check it. And that's exactly what happened to Enron. And I hope it hasn't happened extensively. But, you know, certainly one has to worry about the case of Sunbeam and Waste Management which are pretty flagrant and now it looks as if Global Crossing may be quickly fitting into this. You know, this is really complicated because the whole idea of income recognition is something that the people at Enron and Global Crossing may not have broken the law. The rules of the road were so ambiguous that they allowed their financial geniuses to do what served their aims in getting market value. And there are a whole bunch of people who will argue that it's the same case in the whole dot.com phenomenon.

Q: Step back from the series of scandals. I gather you're a little worried, maybe more than a little worried, about the broader economic impact of all this.

Well, I think that society should recognize that, if people don't have confidence in how they go about making investment decisions, it soon will show in aggregates with regard to investment. If I don't know whether what I read about Global Crossing is right or wrong, then I would be a lot less inclined to put money into them so they can go out and lay down fiber optic cable as they did. You could imagine that on a whole series of companies and aggregate it across the economy and the investment function in society is severely diminished. And it becomes particularly important when you're so dependent on foreign investors to finance our current account deficit in this country, which is huge.

Q: A dangerous situation?

Right, if people look to our numbers that we put out in our statments as the basis for making their investments. I'll give you a perfect example of it. Much of the merger business has been driven by foreigners trying to become members of Americans' economic operating club. If they say, hey, I'm not going to do that anymore, I can't tell what the hell I'm buying, by the time we get done with this thing, I will be taking a big write-off. And, you know, the Japanese really did feel like they got taken for a lot during the 1980s and '90s. Maybe they didn't get good information and maybe they failed to properly analyze what they did get.

Q: Do you wake up in the middle of the night thinking we could wind up with a currency crisis down the road if foreign investors suddenly pulled back?

Well, you know, I think of things in probability mixes. I don't think of that as likely, but I see the conditions on which that could develop, based on people whose competence comes in questioned. For instance, I don't think it's going to happen in my old company, but if you had a company like Goldman Sachs who's super-well-regarded in the economic and financial system, or GE or Citicorp come unwound like it's Enron, then people starting losing confidence in what they believe in, then you have a much more serious effect. In the neartime, that's a crisis issue. In the nearterm, it continues to hold back both the economic and financial markets recovery that people hope would be stronger this year because people have to sort through whether this is just a bad actor or we've got a systemic issue. I think at the end of the day we will find out it was more of a bad actor situation than systemic but, you know, I wouldn't bet my life on it.

Q: Let's go to some specifics. You mentioned the SPEs like the partnerships Enron created off the books, thousands of these things...

But a lot of companies use those. In fact, the whole asset securitization that provided so much liquidity, starting with home ownership, got through similar methods. It is the hiding of those SPEs and using them for non-economic purposes that Enron was so egregious about.

Q: You asked Alan Greenspan at a recent hearing what economic value do you see in the way Enron used these and I'm told Greenspan answered none.

I think that's what ultimately is going to be the crux of the legal case against Enron. I don't know about all 4,000 of them but, of the ones that are very public, this is people moving around assets and income on a non-economic basis to generate a higher sense of valuation in their company.

Q: But couldn't you ask that same question of not all but an awful lot of these devices in the business and finance world?

Naw. Objectively or statistically, I can't tell you whether more of them are eye-wash than not. I saw a lot of them that were used for good purposes when I was an investment banker. I even signed off on SPEs to provide risk support for derivative portfolios and other things I worked on actively myself a couple of times.

Q: In Enron's case, they were using offshore banking havens. Can't you ask the same question about of that? What's the economic value of allowing both U.S. finance and corporations to use these places that allow tax avoidance and maybe cooking the books sometimes and evading U.S. securities laws?

All of those are fair questions. All of those should be asked by internal auditors in the first instance, all of them should be understood by the boards of directors and all of them should be challenged by the outside auditors. Now, if you're cooking the books, that is not an appropriate purpose.

Q: But leave aside the game-playing and the fraud. What's the economic value for the country to authorize that use of offshore havens?

Well, for instance, I'll give you one that's a reasonably sound economic value. We have insurance regulations in 50 states and very tightly drawn, very different regulations. So the reinsurance industry is located in Bermuda and it gets away from regulatory structure that would allow for people to actually put real money at risk. So the industry is organized there and it's done for an economic benefit for the reinsurers, but also so you can get away from some of the onerous restrictions that people would have to write certain amounts of insurance coverage.

Q: What about in the financial system?

Well, you know, there are similar situations in regard to derivative books which in some instances are shaped not unlike insurance books. So there are purposes that are perfectly legitimate. They may also be done so that you look at "haircut" rules [on taxes or interest rates] or something that private enterprise might think are heavy-handed, so you organize in an environment so you can get maximum use of your capital. It's a fine line when it goes to saying, I'm just doing this 100 percent to avoid taxes, there's no other economic reason to be there other than for tax avoidance.

Q: As you know, you got zinged or Goldman Sachs got zinged by the Wall Street Journal for the "monthly income preferred shares" (MIPS) you invented for Enron in the early nineties. And their version is that this allowed Enron to describe the security for the tax collector as a debt and therefore take a tax deduction on the interest payments while, for shareholders, they represented it as equity that shows how strong the company is.

In that particular case, there's no question the financial engineering did what you just said it did. But it was also reviewed by the rating agencies, it had to be graded when it was in the subsidiary whether it was economically sound. It had to be continually reported to maintain its rating. We first of all got a legal opinion by a respected lawyer. Then it actually got litigated in the Tax Court because the Treasury didn't like it and it was approved. I'm not saying--it was flushed out in a way that we didn't think we were, ah. We knew we were being aggressive but we were being aggressive to try to raise capital to try to build a busines and it was all fully disclosed. And if the Treasury hadn't said stop doing this, we would have not done more than--

Q: I don't want to start an argument over this but, according to this account, not just Goldman but the whole bond industry tuned up the engine for lobbying and so forth was all over Washington, including letters signed by you, saying get the Treasury off our backs here.

I'm sure we lobbied to make certain people were knowing what our case was with regard to MIPS. You know, we probably would have preferred not to go to a court to have them sort it out and thought the case was secure.

Q: But Treasury finally folded on it?

They folded, but then it was taken to court and was actually approved in a Tax Court.

Q: My question again though, without pretending to any full understanding of the details, is: what's the economic value in allowing you to invent that offshore transaction for Enron? If they can't raise capital in U.S. capital markets----

They could have. The cost of capital would be a lot higher. To use and then your ability to use equity for various purposes of additional leverage like the covenants on loan agreements is different than having debt arrangmements so --

Q: Isn't that another way of saying, we want to use these havens because we're outside the U.S. securities laws?

Ah...These got fully consolidated back as registered SEC transactions. It's all out there in the prospectus. It was sold to sophisticated investors and it was really a desire to raise equity capital, i.e. preferred, as opposed to going in and having a diluting shareholder issuance of new stocks.

Q: And these were 50-year securities. Fifty years is a long time for Enron.

Well, it's not going to be a great investment for those who bought on that basis. But, you know, for a lot of other companies, it was a good, it was advantageous for them in terms of creating equity with a tax deduction. You know, this is no different, in my view, than the argument that people have made that [stock] options shouldn't be expensed at their value at the time of their issurance. You write them off for income tax purposes, but you don't take any costs. This is kissing cousins with that kind of concept. .

You know, by the way, I'm not sure as a senator now who is interested in absolutely making sure, particularly in the current environment, that we have transparency and openness, that I would be as supportive today--given that we have created a world where people are skeptical of why people are doing this.

Q: That's exactly what I'm driving at. If people like yourself who understand this world would step back and take a look across the whole field and say, okay, that one's real economic value and that one isn't. Yeah, they all help somebody or other but they don't necessarily help the country. Among other reasons, a lot of taxes are avoided. Would you entertain such a review and what do you think you would come out with?

Yeah. Sure. In the same way that I'm making the case in regard to 401ks--that we ought to put some kind of limitations on the concentration of investments in the company stock for employees. Because we're spending--these are the President's numbers--$330 billion over five years in tax subsidies to promote 401k investment. I don't think we ought to be doing that in a non-sensible manner relative to what the best thought in financial practices are which is diversification. So a cap is not out of the context of sensible public policy. It isn't when it comes to loan limits for banks. It isn't for concentration of assets in security firms. It isn't even for defined-benefit programs run by sophisticated money managers. So why are we giving just unbelievable leeway for an investor group that probably has even less information than a lot of sophisticated investors?

Q: Let's talk about pension more broadly. You're on the board of University of Chicago trustees and on the investment committee? Were you all in Enron throughout?

To be honest with you, they have had various positions from time to time, I don't know precisely. They have very small positions with a limit of 3 percent [of the portfolio] but they are mostly indexed [spread across the market] and it very rarely went into specific transactions. I am not aware that they ever went into any of the specific partnerships.

Q: The reason I ask is the numbers I got show institutional investors in mid-summer owning 64 percent of Enron's shares.

It doesn't surprise me.

Q: which is not abnormal given their holdings in the market. But working Americans generally who have their deferred wages or savings or whatever you wish to call in these huge funds that follow various beacons and I don't mean to imply anything illicit, but they have no voice whatever.

Well, they have the voice of moving their money from one stock to another.

Q: I'm not talking about 401ks. I'm talking about the big pension funds.

Right. Other than the fiduciary responsibility of the trustees which people try to perform. But I want to stop here--one of the reasons fiduciaries put limits [on concentrated investment} is that it is a known risk to have concentrated investments where you can't always protect yourself against the risks that will show up like fraud.

Q: What I'm asking is do you see the potential for a larger problem and set of reforms in terms of this huge pool of money, which is capital, and without making any accusations, there's a kind of general lack of outside accountability. I'm not just talking about the money funds but the trustees vis a vis their beneficial owners----

Oh, I think there's a whole issue on corporate governance. I'm a big believer that pension reform and accounting reform and corporate governance are places where we should go to look for changes that at least in my view are fundamentally revealed by Enron, certainly Waste Management, Global Crossing, the corporate restatements. Because I think on pension issues, we haven't really put together a structure with sensible form on defined contribution plans [401ks]. The lock- down period which the President makes a big deal out of is a tiny piece of what the real problem is. Flexibility is a real issue. Rules of locking people up till they're 50 years old, when they've been there 10 or 15 years, is crazy--people can't adjust their portfolios. So those are the kind of things that should be done. We need other responsible fiduciary elements. Diversification is the most important. You also need liabilities for people who do have lock-down. There is a whole series of questions that are important now. I think what you're talking about with respect to whether there's a proper investment plan--I don't think they're irrelevant issues but I think they're a little bit below these other issues. I think we need real reform with regard to analysts at investment banks. What's the case? That 17 investment firms were still recommending an Enron buy on December 2?

Q: Including Goldman Sachs, I think.

I'm sure my former colleagues at Goldman are not happy with this. It's an uncomfortable situation when analysts are seemingly so conflicted by the relationships or positions. But Goldman Sachs at this stage, in the last five years, has not had much of any relationship with Enron so the analysts was operating on whatever basis. We ended up having difficulty with how people did business with each other. But I think that the idea that analysts could ever be given a percentage of the profits on the investment banking transactions that are company covered is mind-boggling actually to those of us who didn't follow that practice. Now, when I say that, we don't want to get into holier-than-thou, because analysts that covered companies and have great relationships with those companies tend to see business flow to particular firms, even though it was informal and not direct.

Q: They understood who Goldman Sachs was doing business with?

Right. And I think institutional investors pretty much long ago discounted the independence of financial analysts and brokerage firms. I'm not sure that's true for individual investors and that's a problem. But I think we need some guidance and we need some bite to the analyst issue but I don't think that's as important as getting straightened out our accounting issue which is what people make their decisions on. And it's a complete free-for-all on what gets done.

Q: What about the idea of public auditors? And I don't know quite what I mean by that, but a friend said to me, when it came to airport security, Congress decided we want this done by government employees, not entrepeneurial contractors cutting corners. He suggested that at some level--maybe not all corporate auditing--but there ought to be some presence like bank examiners.

I don't think it is a horrible principle or analogy, but I don't think we want to have the SEC doing all the accounting audits of the major companies. But we want the SEC, which is a public record venue, to have a much fuller participation in this process. The oversight of the accounting firms, in my view, ought to be an SEC division. I could tolerate some intermediate organization that had some SEC members with a beefed up accounting division at the SEC coming periodically and auditing the auditors, like bank examiners. They would have this new outside public body which has some SEC members on it be responsible for supervising FASB, supervising the accounting firms themselves. And we'll have to get a way to pay for that. How you do that can be user fees and other things. But whether it's in the SEC or sort of a blended independent agency with subpeona powers and enforcement powers, we are really going to have to give some kind of real clout to deal with the penalties.

Q: Some people have suggested, myself included, that a criminal standard would be good therapy for some of the players. I don't say that as a blanket denunciation but typically now some pretty wild stuff and huge amounts of money get settled with negotiated settlements either with the SEC or the injured investors. They pay some, promise not to do it again but not admitting they did it in the first place.

I'm open to discussion on criminal, but I'm not there. I think we may need more sentencing guidelines on the civil on failed audits that are increasing dimension on multiple sequence terms. But I think that's one I would like to bat out, how much damage is done. I wouldn't go quite to RICCO statutes.

Q: People are talking about RICCO, you know, across the country--why RICCO isn't in play.

You know, John McLaughlin had Arthur Levitt and me on his "One on One" show the other day and he tried to pin us down and say whether we would support RICCO application in the Enron case. First of all, I'm not a lawyer and he was trying to drag in everybody--the analysts, the politicals. I think there is certainly an appearance of criminal behavior, criminal fraud, in this case, but I don't know about RICCO itself.

Q: Let me ask about something that is structural. I sensed from your recent remarks that you were skeptical about the mega-conglomerate banks which have emerged. At least you have some questions about how they operate.

I think the issue there is are there enough of them to be competitive rather than whether they failed or they're undermining the efficacy of our system.

Q: Say what you mean by that.

I don't think, being in a global world, it's necessarily bad that we have a Citibank. I think we need to have some pretty strict rules about conflicts of interest and tie-in's and cross-marketing arrangements, the same way we're talking about the independence of auditers and other things. But to compete on an international basis today, when I basically think that derivatives on energy, on a barrel of oil or hog bellies or Treasury bills, anything like that is a financial instument, I think we're creating false barriers on how those things relate to each other. And so, in some ways, I'm supportive of those larger institutions but I think the rules of the road can be stronger because the instiutions are stronger and have greater clout. It's not that I'm opposed to them. But, particularly in the nature of the world that we have, where technology is so important, where we want to make a global presence for companies, where we want to have money flowing into local communities,we don't want to be isolated, we're going to need some checks and balances to make sure that that works.

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.

[tape turn]

...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.

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