Change is in the air in Washington and we are hearing more and more from the GOP leadership their plan to get America back on the path to prosperity. One of the top House Republicans who will take the lead in shaping Wall Street reform is Representative Spencer Bachus (R-Alabama).
Bachus is expected to be named Chairman of the Financial Services Committee when the Steering Committee meets in December. An outspoken critic on the Administration's spending and policies, Bachus took the time with me to lay out his plan on reforming the financial services industry.
LL: The financial regulation bill has many job killing provisions in that bill. Can you be specific on them and what can be done to fix those?
SB: It is important that we conduct a title-by-title review of Dodd-Frank to identify all the job-killing provisions and see what can be corrected, replaced, or repealed. There are a multitude of things that need to be changed, but three examples of the types of provisions we would want to address Illustrate how we will proceed.
First, the hastily rewritten derivatives provision has been estimated to redirect as much as $1 trillion In the end, this requirement drains capital from the financial system that could be used for loans and job creation. That will need to be addressed.
Second, ending “too big to fail.” The American people have rejected this approach, it is fundamentally unfair, and yet it was written into law by Senator Dodd and Rep. Frank.
Lastly, the broad liability imposed on credit rating agencies had the effect of temporarily shutting down the asset backed securities market immediately after the bill was signed into law, forcing a temporary delay in the implementation that will also require our action.
Whenever you pass a 2,300-page piece of legislation drafted by one party in a rush to score political points before a mid-term election, you are going to have unintended consequences, and Dodd-Frank is certainly no exception.
LL: Do you think Congress has the political will to change?
SB: The American people sent a strong message to Washington: they want a new direction for the nation. Republicans have received that message. We are going to cut spending. We are going to end the bailouts. And we are ready to lead.
While we may not have been in the majority these past few years, we were still preparing to lead by drafting legislative alternatives and operating in a proactive way that ensured we were prepared to hit the ground running. We were the first to introduce comprehensive regulatory reform that would put an end to bailouts and ensure failed firms have to declare bankruptcy just like anyone else.
LL: What will be the first item on your agenda as Chairman of the Financial Services committee?
SB: Ending the bailout of Fannie and Freddie is my top priority. This bailout alone has already cost the American $150 billion and counting. Fannie and Freddie were at the heart of this economic crisis and should have been addressed as part of financial regulatory reform. Yet Democrats have refused to address this issue.
Republicans will tackle Fannie and Freddie. House Republicans want to reform the housing finance system in a way that does not rely on government guarantees, that does not make private investors and creditors wealthy while saddling taxpayers with losses, and that does not set the stage for the next financial crisis. Leaving the secondary mortgage market to a lot of competing private participants is the best policy option.
But using taxpayer money to subsidize the mortgage market is an addiction and like all addictions it can't be cured overnight. There will be a reasonable transition period over a number of years to allow for the private market to develop.
Another priority is ensuring rigorous oversight. The Democrats failed to conduct any oversight, instead, they gave the Administration a protective shield from answering any tough questions regarding their actions. This protection will be gone when Republicans take control. We will conduct regular oversight of all agencies within our jurisdiction. Right now, the public has been kept in the dark on many actions undertaken by the government in response to the financial crisis.
LL: In the 2300 plus page financial reform bill, Fannie and Freddie were never tackled. What do you want done with Fannie and Freddie?
SB: In July 2009, Republicans introduced the only legislation this Congress to address the future of Fannie and Freddie. The Republican regulatory reform proposal would unwind the operations of Fannie and Freddie.
Republicans will facilitate a private, competitive market that would price mortgages according to risk, be more innovative and efficient, and operate with less political interference. That process can’t start until Fannie and Freddie are reformed to eliminate their taxpayer supported subsidies that drive out private capital.
LL: Will Too Big To Fail be redefined?
SB: We will end “too big to fail.” The American people have rejected this notion, but the Democrats wrote it into law. Not only is “too big to fail” un-American, but it is unfair to our smaller community banks that are considered “too small to save.” It creates an unfair competitive advantage for those few institutions that are considered “too big to fail.”
This approach also leads to excessive risk-taking. That is why Republicans proposed sending all failed non-banks, no matter their size, to an enhanced bankruptcy proceeding. Bankruptcy is the only way to protect taxpayers from more bailouts, restore market discipline, and end “too big to fail.”
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."