Senate Banking Committee Chairman Christopher Dodd says he's angry that banks are using government-provided funds to pay dividends, for excessive executive compensation and for acquiring other banks.
The Connecticut Democrat also says the Treasury Department has been too slow in addressing the mortgage crisis. Dodd tells Steve Inskeep that Congress may have to reconsider some parts of the rescue plan it approved.
Below is a transcript of the interview.
Sen. Chris Dodd: I've been disappointed that lenders — I didn't expect lenders to immediately start pouring money out the door. But when you get reports of hoarding, of paying dividends, of still having fighting executive compensation, excessive executive compensation, or acquiring healthy institutions for economic purposes — healthy banks acquiring healthy banks — that certainly was never the intent for the use of taxpayer money.
Steve Inskeep: But wait a minute, let me understand what you're saying. You're saying that $300 billion have been committed so far and it looks to you like a lot of it is not being used to relieve the financial crisis. Banks are just doing other things with the money.
It isn't just the $300 billion, Steve. Or the $700 billion, which we haven't committed all of that yet. Let me put it in perspective for you. It's about $5 trillion, Steve, we're talking about. If you take the guarantees, the increase in insurance and deposits, all of these things that have been done, the number is vastly in excess of $700 billion. I don't think I'm being excessive by demanding that these lending institutions show a commensurate degree of responsibility to the American taxpayer, and to be taking steps to help us relieve the clogged up, seized up credit markets in this country. So, if there's a note of anger in my voice, it's here.
Well, Senator, given that there was a big debate in Congress that was basically about attaching conditions, making sure the money was well-spent, how did it happen that, as soon as the bill was passed, it turned out that the Treasury secretary, Henry Paulson, had — it seems, from the outsider's point of view — almost total flexibility in how he wanted to spend it, and, once the banks get it, they seem to have total flexibility in how they want to use it.
Well, consider the alternative: 535 members of Congress have a lot of talent, but this is not one of them. And the idea that Congress would dictate exactly how this all ought to happen was not a great alternative, Steve. The idea was to get these resources to the Treasury, to the Federal Reserve, obviously to give them the latitude to move. But I want to use the opportunity of our conversation to express not only my frustration, but the frustration of my Senate colleagues here over the pace of this movement and the direction that some of these steps are taking.
Well, should banks hear a warning that if there is not some improvement in the next few weeks, you might be, say, at the very beginning of the next Congress, writing in revisions to that law?
Absolutely, Steve, and thank you for the question.
You think that you could be changing this and making it more strict?
We'd have to. I mean, I'm not left with any options. They know what they need to be doing, and they're not acting responsibly, in my view. And, if they don't act responsibly, then I'm going to require them to act responsibly.
And do you believe there's bipartisan support for those changes?
Absolutely. And this frustration is not being expressed by a partisan group. My Banking Committee members, with whom I stay in very close touch and contact, I think are frustrated as well. And we haven't talked about foreclosure mitigation. Here was a condition we actually wrote in, that I did with Sheila Bair, the head of the FDIC, the Federal Deposit Insurance Corp., to provide at least the option of providing a guarantee in the area of foreclosure mitigation. And I say this respectfully, but the Treasury's refusal to move on this is maybe the most frustrating piece of all, Steve. And yet we're still dragging our feet on whether or not the government ought to be more aggressive.
Well, you mentioned Shelia Bair of the FDIC. She's been on this program, talking about her proposal to get into the mortgage situation and provide incentives for banks to renegotiate their mortgages. Henry Paulson, the Treasury secretary, has said, I'm not sure that makes sense as a use of the $700 billion. As the law is written now, is that Paulson's decision, that's the end of it, he wins that argument?
Well, it is at this point. But, if we don't see some change in the next few weeks — well, we'll require it. My good friend Barney Frank has some indication that we may be seeing a change of heart in the Treasury on that point. But, I don't know any more than I've just told you. But, I'm hopeful that's the case. And, if it is, then we may be hearing some good news coming out of Treasury shortly.
Barney Frank, of course, is your counterpart in the House. Sen. Dodd, I know this is a complicated situation. But I guess at some point you may have to narrow it down to a yes or no. Either yes, this is sort of working well enough and, despite our concerns, we'll go forward. Or, it's not working and we need to start changing the law. If you had to make that decision today, where would you come down? It's working or it's not working?
It's working. That doesn't mean it's working to the point where, in January, February, March we're going to start seeing a complete turnaround in the economy. No one's ever predicted that. But clearly this is the right track. In the absence of doing what we did at the first of October, with the Emergency Economic Stabilization Act, Steven, this problem would be a thousand times worse. We now have the tools to begin to make some choices. In the absence of that legislation, we'd literally be standing here, twiddling our thumbs, and watching an economy deteriorate.
Sen. Chris Dodd, I appreciate you taking the time this morning.