Deconstructing Henry
Treasury Secy. Henry Paulson spoke on financial policy today. Frankly, the speech was a bit dull. So we asked some experts to take it apart and tell us what was significant. Kai Ryssdal has more.
U.S. Secretary of the Treasury Henry Paulson addresses the U.S. Chamber of Commerce on March 26, 2008. (Win McNamee/Getty Images)
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KAI RYSSDAL: The Secretary of the Treasury had some things to say about Wall Street today. There was talk of new rules and regulations, but he started this way.
HENRY PAULSON: Thank you very much, and as I look around I see a good number of friendly faces.
Because chances are he's going to need them.
The U.S. Chamber of Commerce was the setting for the Treasury Secretary's speech this morning. It was, as speeches about financial policy tend to be, dull -- important, but dull. So what we thought we'd do is take it apart, play the interesting bits for people who know something about the rules and regulations on Wall Street, then see what they had to say about what he had to say. Secretary Paulson got to the point pretty quickly.
PAULSON: The circumstances that led the Fed to modify its lending facilities, raises significant policy considerations that need to be addressed.
He continued with a brief financial history lesson.
PAULSON: One distinction between banks and investment banks remains particularly important. Banks have the advantage that they issue deposits that are insured by the Federal government. The trade-off for this subsidized funding is regulation tailored to protect the taxpayer from moral hazard this insurance creates.
That moral hazard argument we've all heard before, helping people who got in trouble by being greedy, but Duke University securities law professor James Cox heard something else, too.
JAMES COX: I think that this is very problematic.
RYSSDAL: In what way?
COX: That the investment banks will accept serious regulations of their ability to leverage themselves. This has been the key for many of their high returns in some recent years. I don't think they give up that very easily.
Whether or not they will, Paulson went on to say he wants to make sure the Fed's got a handle on who it's lending money to.
PAULSON: The Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions. The Federal Reserve is currently working to ensure the adequacy of such information.
Eric Talley's a professor of law at the University of California Berkeley.
ERIC TALLEY: That snippet of the speech is really a multi-syllabic version of "We're making this up as we go along."
Making it up because the truth is nobody's specifically in charge of regulating the institutions that caused the credit crunch that got us here. Hilary Sale teaches corporate and securities law at the University of Iowa.
HILARY SALE: What I thought was interesting about his language was that these people or these institutions "should consider," to be distinguished from the administration actually saying "go do it."
He went on to talk a while about the real estate market, but before he did, Secretary Paulson took a minute to snap Wall Street back to reality.
PAULSON: Despite the fundamental changes in our financial system, it would be premature to jump to the conclusion that all broker-dealers, or other potentially important financial firms in our system today, should have permanent access to the Fed's liquidity facility.
Duke's Jim Cox gets the last word.
COX: I thought what we were trying to do is to provide knowledge of a safety net so that everybody had confidence in the banking system. Now I'm sort of wondering if we're not lowering that safety net a little closer to the ground.
