Transcript: Sen. Whitehouse chats about Wall St. reform

Published April 30, 2010 at 9:22 p.m.

Journal photo / Sandor Bodo
Sen. Sheldon Whitehouse and aide Matt Thornton chat live with projo.com readers.

Sen. Sheldon Whitehouse, D-RI, chatting live about Wall Street reform Friday. The following is a full transcript:

Sen. Whitehouse: Hello, everyone...Thanks for participating in this web chat today...This is an important time now that we have broken the Republican filibuster and gone to the Wall Street reform bill...I am looking forward to taking your questions, and we will start with the first one.

Voter: Too big to fail is too big. What are you going to do about it and when?

Sen. Whitehouse: I am a cosponsor of the Kauffman amendment, which Sherrod Brown wrote about in today's Washington Post to limit the size of banks and to put leverage limits on their borrowing...I will be advocating to bring that amendment to a vote and voting for it.

hopeful RI'er: This question concerns the plague on your house--partisanship in the Senate. Gail Collins and David Brooks in the NY Times recently said that Lindsay Graham was their favorite senator because he is willing to be courageous and work honestly with senators across the aisle to reach deals without sacrificing his core principles. They wished all senators would be like Lindsay Graham. Why is this not the case, and are you interested in becoming the Democratic version of Lindsay Graham? (It would be great if you would say yes!)

Sen. Whitehouse: I am working with Senator Graham on a number of issues and consider him a friend...If I am ever in his position, I hope that I will be as flexible and sensible as he is being and, of course, I am usually happy to cooperate with the Democrats...(smiley face icon)...

Anthony: Dear Senator - Like many other Rhode Islanders, I was affected by last month's flood...Surprisingly, I found the process for federal assistance through FEMA to be very refreshing...It was quick and efficient...I did not agree with the award that I received because I believe the items that FEMA actually covers should be expanded, but accept the outcome...However, the process for SBA is quite the contrary...I went through an excruciating application process - complete with needing to gather boatloads of financial information - only to learn at the end of the process that we had be "approved" for a loan at the market rate (5.25%) and it had to be paid back in 2 years and 7 months...This amounted to monthly payments of over $500/month...To me, that is not assistance...I could do better by 1) looking for a home equity loan at a better rate with a longer term and/or 2) purchase whatever I need at merchants who offer no interest promotions for 1+ years if you use their credit cards/financing (i.e. Lowes, Cardi's, etc)...Something needs to be changed in that part of the process...How can one call a $500 monthly payment after having lost so much real assistance? I would be interested to know your thoughts on how disaster assistance might be improved to provide more equitable distribution of funding and better options for homeowners...Thank you.

Sen. Whitehouse: I am glad you had a positive experience working with FEMA, and I am sorry that the SBA process was difficult for you...If my office can help, please do not hesitate to call.

Sen. Whitehouse: I should add that Senator Reed and I are working hard to obtain additional funding to supplement what FEMA and SBA can offer...That will likely be directed to those who have filed with FEMA and SBA...So even if it is a pain, I hope that you will ultimately find that it was worth your trouble.

hopeful: Dear Sen. Whitehouse -- I decided to take advantage of the First-time Homebuyers Rebate, and am having a home built for me that would have been ready for the April 30th deadline for new construction, until the recent floods. But because of damage to my project, as well as the damage statewide and to National Grid itself I won't be able to meet that deadline and qualify for the rebate. National Grid informs me that I'm still weeks away from the service I need to get a Certificate of Occupancy needed to qualify. I tried calling the IRS and FEMA to see if they could get the deadline rolled back to the June 30th one those buying existing homes are given. They could not help me, and suggested I contact my Federal representatives. And so I'm asking if there is anything you can do to get the new-construction deadline extended to the June 30th one others are given -- similar to the IRS extending its deadline for filing, and other benefits being extended to those suffering financial damages, as I am, caused by the flood. If so, how can I follow up to see if you were successful? Thank you --Hopeful

Sen. Whitehouse: Thank you for bringing that to my attention...Although I cannot make any promises, I will take your concerns to Washington to see what we can do in the supplemental legislation...I had not thought of that situation, so I am glad you brought it up...And if my office can help, please give us a call...Thanks

James: As a former prosecuter, I'm wondering what you think of the Justice Department's criminal investigation Goldman Sachs over mortgage securities deals? Do they have a case?

Sen. Whitehouse: It is too early to tell and everyone is entitled to a presumtion of innocence in these matters, but ordinarily, the United States Department of Justice will not open a criminal case without what we called predication...So it appears that there is something worth looking into to justify the probe...The evidence we developed in the Senate this week about conflicts of interest makes this a ripe area for fraud...Conflicts of interest can lead to just that sort of misconduct.

Rhody Reader: Hi Senator- Can you please let us know what the deadlines are to apply for FEMA assistance?

Sen. Whitehouse: The most urgent deadline is Disaster Unemployment Assistance...You only have until May 6th to apply...This covers those who are unemployed due to the flood...Note that there are special offices for this assistance at netWORKri in Providence and West Warwick and at the Westerly FEMA disaster center at the town hall.

Sen. Whitehouse: Secondly, the deadline for applying for FEMA and SBA assistance is May 28...Even if you are not sure you intend to seek FEMA or SBA benefits, it would be prudent to apply if you sustained flooding damage, particularly since we are hoping to supplement what FEMA and SBA can presently do...I should add that although FEMA and SBA do have legal limits on the benefits they can provide, they have been exemplary in the speed of their response, the way they have spread offices out around Rhode Island, and the friendly way they appear to have been dealing with people.

angrycitizen: Do you support Sen. Blanche Lincoln's very strong language on derivatives reform? Ie, exchange trading for all derivatives.

Sen. Whitehouse: I do support Senator Lincoln's strong position on derivatives reform...Her bill needs to be coordinated with the derivatives language from the banking committee...I hope and expect that none of its strength will be lost in that process...Since Jack Reed is very involved in that, I have a lot of confidence there.

Sean42: Sen. Whitehouse, firstly thank you for making yourself available to us. I had an idea that I had emailed to Sen. Reed's office, but you know how those can be lost in the internet. It seems that the largest financial institutions had been able to effectively "capture" regulators by finding legal ways to operate outside of the rules (shadow-banking, Repo 105, etc). It seems partly because of how widely regulators are spread out - the Federal Reserve, FDIC, SEC, and others all operate independently from each other and may not be all on the same page. Wouldn't it make sense to consolidate regulators under one umbrella- much as the Bush Administration did with the Dept. of Homeland Security? Thank you again.

Sen. Whitehouse: That is a very good observation...The bill sets up a Financial Stability Oversight Council to coordinate among the various agencies, make sure no one is falling through the cracks, and look at systemic risk questions...The bill also limits the ability of banks to change their charters to choose more lenient regulators and "forum shop" for weak or favorable regulation...Because of its economy-wide jurisdiction, the Federal Reserve also plays a role that I expect to be exercised more responsibly than in the years leading up to the recent melt down.

proJoe: What about crazy credit card interest rates? The bill that just went into effect didn't impact those...

Sen. Whitehouse: The bill does not directly address credit card interest rates...I went to the Senate Floor last night with several colleagues to announce my intention to call up an amendment I have filed that would authorize states to limit exorbitant and usurious interest rates...The short story behind this is that back in 1978, the Supreme Court defined the word "locate" in the National Banking Act as the location of the bank, rather than the location of the consumer...Within a few years, the banking industry had figured out that this allowed them to move to states with the worst consumer protection and interest rate laws and from those states market around our home state laws...That's why credit card interest rates are now sometimes 30% or more despite state laws to the contrary...From the founding of our republic until the banks figured out this loophole, consumers had this protection and banks and the economy did just fine...I hope to have a vote on this amendment to close that loophole.

Stan: Why is that it's not OK for me to default on my mortgage when I'm under water, but just fine for the banks and other financial entities to write off bad loans with no consequence?

Sen. Whitehouse: The discrepancy between the way the big banks had to be treated to protect the entire financial system from failure, and the greedy and self-centered way they responded after the bailout (lobbying furiously against consumer protection legislation, for instance) have been one of the worst outrages of our financial crisis...It has been particularly frustrating to watch them pinching off creditworthy customers to protect their own books at the same time that Uncle Sam is extending them such generous credit to keep them going.

Rhody Reader: Can you please provide a brief overview of what the financial reform bill being debated would actually do?

Sen. Whitehouse: The bill would end taxpayer bailouts and provide a mechanism for the orderly liquidation of failed financial institutions so that Too Big To Fail is no longer the rule in practice...It would regulate shadowy investment vehicles like derivatives, credit default swaps, and collateralized debt obligations (CDOs), which have been the cause of so much mischief...And it would create a Consumer Financial Protection Commission to oversee consumer debt and protect consumers from being gouged by tricks and traps in the fine print of payment contracts...We hope to make it even stronger through amendment now that the Republican blockade has ended and we have the bill on the floor.

hnw: Sen. Whitheouse, whould not the Glass Steagall Act have prevented much of the abuses that have had such a negative effect on our finincial institutions?

Sen. Whitehouse: The repeal of the Glass Steagall Act in 1999 allowed deposit banks and investment banks to be combined...This created a windfall for investment banks, giving them access to cash to invest for their own account in speculative and risky investments...Speculative and risky investments have their place, but when they put the security of deposit banks at risk, there is a problem...I like this description from one of my colleagues: there is nothing wrong with fireworks, but you shouldn't store them in the house...Fixing the firewall between deposit banking and risky investment banking is one of the key goals of this legislation...Between the bill and several amendments, there are a few options before us and I can't predict which one will ultimately prevail, but it is a major concern.

Jake: Is there a way we can stop these ridiculous bonuses paid to the big financial companies' brass? I can't believe they can still defend those payouts.

Sen. Whitehouse: It is frustrating, particularly while people in Rhode Island are still suffering from the economic mess that started with the Wall Street banks, to see Wall Street going so quickly back to their previous behavior...Particularly when considerable profit was made from arbitrage on the zero interest money the banks were allowed to borrow from the Fed, these big bonuses seem both unjustified and inappropriate...The bill requires compensation for CEOs to be set by independent board members, not just the CEO's golfing buddies...I am adding an amendment that I hope will be accepted that will require the compensation consultants who advise on CEO pay to also be independent under terms to be established by the Securities and Exchange Commission.

jaytoo: It would make sense to have qualified(academically &experianced) people with a career at stake in these sensitive positions.

Sean42: By the way, I'm a recently graduated Political Science major that would like to get involved- financial reform and foreign policy reform in particular. I can be reached at shenry@mail.uri.edu. (A shameless plug, I know, but I may never speak live with a Senator again.) Thanks.

jorge2589: Why do you think the republicans in the senate are so against this financial reform bill??

Sen. Whitehouse: I think that there are a number of Republicans who see the need for strong regulation for Wall Street...Their party discipline is also very strong...This has created tension within their ranks that ultimately resulted in the failure of their initial filibuster on the bill...The Republican Leader and the Republican Senate Campaign Committee chair recently went to Wall Street for a private, closed-door meeting with Wall Street CEOs...When they came back, they made clear their opposition to the bill...I don't know what they talked about, but it doesn't look good...I look forward to working accross the aisle with any Senator willing to work with us on this bill...Democrats are not the repository of all good ideas, and the debate is usually healthy for the outcome of the bill.

jorge2589: Thank you very much senator for taking the time to answer my question!!

Sen. Whitehouse: hnw, regarding Glass Steagall, it certainly would be a clear resolution to simply reinstate the law...I am not sure the votes are there, so it is important to have a strong alternative firewall...The argument against going back to Glass Steagall is that it would inhibit US banks in international competition against the big European and Chinese banks...I am not sure about the merit of that argument.

Sen. Whitehouse: Sean42, We are always looking for bright Rhode Islanders to help, so send a resume to my office if you are interested in applying for a position.

cannon09: Mr.Whitehouse..I have a question for you...I am a tax payer and even before the big flood we just had..The front of my house always flood with the way the street was done..For 20 on years my wife has ask the town of Johnston to comeup and fix it,and all we get is there is no money for this kind of job..Maybe you can tell me where all that stemulis money that the President gave our state to fix the roads went..This is a major issue on my rd,and as a tax pay I beleive this shhould be fixed..I am tired of hearing there in no money to do this job.Just so you know the town answer to the problem was a catch drain..I am sure you know what one of those are..It is like a large glass that hold water until it gets to the top then it overflows,and when it doees it comes onto my land,and it destorys my grass and driveway..

Sen. Whitehouse: If you will contact my office at 453-5294, my constituent services people will help try to work with your road problem...As always, if there is anything we can do to help, do not hesitate to call.

hnw: Doesn't ceo pay regulation obfuscate the issue? Would it be better to have a ceo make very little but his company decieve and cheat the public, or a ceo make a fortune (not from gvt. bailout money) but the company provide honest and fair treatment for consumers? Two separate issues that should be kept separate.

Sen. Whitehouse: Good point...They are separate issues...The problem comes when the pay benchmarks for bonuses or other compensation are based on a "quick buck" that takes on big risk...The thrust of pay reform, consistent with the direction of the "Pay Czar," is to align pay with long term results...You saw the fortunes made by Wall Street bankers on CDOs when they closed the deal and reaped the fees, with no consequences when the long term risk exploded.

Sen. Whitehouse: Well, the time for the web chat has expired...I am sorry I did not get to every question...We will provide written responses to all the questions if you will send an email address to reply to...You can also submit questions and concerns via my website at whitehouse.senate.gov...Thank you very much for participating...I found it interesting and helpful, and I hope you did too.

Pam: We'd like to thank Sen. Whitehouse for taking part in our chat, which has now ended.

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