Forget for a moment about obstruction by Wall Street lobbyists and Republicans in Congress. If you could single-handedly enact one piece of regulation on the financial industry, what would it be?
The story of Dodd-Frank is not yet complete, because the rules are still being developed. Dodd-Frank provided a platform to make sure that we end some of the most egregious practices and prevent another taxpayer-funded bailout. We've significantly increased capital requirements and essentially created a wind-down mechanism for institutions that make bad bets, so the whole system isn't held hostage to them going under. We have to make sure that the rules issued around the Volcker Rule are actually enforced. So there's a lot of good work that will be done around Dodd-Frank.
I've looked at some of Rolling Stone's articles that say, "This didn't go far enough, we didn't institute Glass-Steagall" and so forth, and I pushed my economic team very hard on some of those questions. But there is not evidence that having Glass-Steagall in place would somehow change the dynamic. Lehman Brothers wasn't a commercial bank, it was an investment bank. AIG wasn't an FDIC-insured bank, it was an insurance institution. So the problem in today's financial sector can't be solved simply by reimposing models that were created in the 1930s.
I will tell you, the single biggest thing that I would like to see is changing incentives on Wall Street and how people get compensated. That ultimately requires not just congressional legislation but a change in corporate governance. You still have a situation where people making bets can get a huge upside, and their downsides are limited. So it tilts the whole system in favor of very risky behavior. I think a legitimate concern, even after Dodd-Frank, is, "Have we completely changed those incentives?"
When investment banks, for example, were partnerships, as opposed to corporations, all those partners understood that if there was some tail risk out there – some unanticipated event that might result in the whole firm blowing up – that they were going to lose all their money, they were going to lose all their assets. They weren't protected. These days, you've got guys who are making five years of risky bets, but it's making them $100 million every year. By the time the chicken comes home to roost, they're still way ahead of the game. So I think it's something that needs to be discussed. But that's not something that can entirely be legislated – that's something that also has to involve shareholders and boards of directors being better stewards of their institutions.
Bill Clinton – how important is he as a surrogate for you? What's your friendship with him like these days?
Our relationship is terrific. He did a masterful job, obviously, at the convention. He has been a tireless surrogate on our behalf. I'm talking to him regularly, and he's given me good advice. Not only is he a great politician, but he's also somebody who has a lot of credibility with the public when it comes to how the economy works. Because the last time we had healthy, broad-based growth was when he was president, and people remember that. So he can say things that people immediately grab on to. And one of the things he said during the convention that I thought was very helpful was to put this whole economic crisis in context.
The biggest challenge we've always had is that unlike FDR – who came into office when the economy had already bottomed out, so people understood that everything done subsequent to his election was making things better – I came in just as we were sliding. Because of the actions we took, we averted a Great Depression – but in the process, we also muddied up the political narrative, because it allowed somebody like Romney to somehow blame my policies for the mess that the previous administration created. Bill Clinton can point that out in ways that are really helpful and really powerful.
Halloween's coming up. If you could have Mitt Romney dress in a costume, what should he be for Halloween?
I don't know about this Halloween. Next Halloween I hope he'll be an ex-presidential candidate.
This story is from the November 8th, 2012 issue of Rolling Stone.
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