The Basics Of Financial Regulation, Explained Senate Republicans blocked debate on a bill that would overhaul the U.S. financial system. But when it comes to concepts such as derivatives trading, "too big to fail" and leverage requirements, what does it all mean for most Americans?
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The Basics Of Financial Regulation, Explained

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The Basics Of Financial Regulation, Explained

The Basics Of Financial Regulation, Explained

The Basics Of Financial Regulation, Explained

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Senate Republicans blocked debate on a bill that would overhaul the U.S. financial system. But when it comes to concepts such as derivatives trading, "too big to fail" and leverage requirements, what does it all mean for most Americans?


Ezra Klein, policy blogger, the Washington Post
Alex Pollock, resident fellow at the American Enterprise Institute


This is TALK OF THE NATION. I'm Neal Conan in Washington.

A series of important questions emerge from the depths of the financial crisis. Why didn't federal regulatory agencies see it coming? How come nobody seems to regulate the enormous market in derivatives? What kind of mistakes inflated the housing bubble? And how should we redefine too big to fail and stave off another round of huge taxpayer bailouts in the future?

After months in the making, Congress appears close on the financial overhaul bill. Yesterday, Senate Republicans blocked a motion to begin debate, but Democrats say they're determined to press ahead and don't believe that Republicans will kill off a measure that promises to clamp down on Wall Street.

A new Washington Post-ABC News poll shows most Americans support the broad idea of stricter financial regulation, but when it comes to derivatives trading, leverage requirements and too big to fail, what's actually in this bill? What does it mean for you?

Later in the program, Sting joins us from New York to talk about his new tour with the Royal Philharmonic Concert Orchestra, but first, questions and answers on financial reform. What don't you understand about this bill? What would you like to know? Give us a call. 800-989-8255 is the phone number. The email address is You can also join the conversation on our website. That's at Just click on TALK OF THE NATION.

We begin with Ezra Klein, a policy blogger at the Washington Post and a columnist at Newsweek. You can find his blog series about financial reform. There's a link to it at our website. That's at Again, just click on TALK OF THE NATION. Today, he joins us from the Post studios here in Washington, and nice to have you back on TALK OF THE NATION, Ezra.

Mr. EZRA KLEIN (Blogger, Washington Post): Great to be here. I feel bad for Sting because he's going to have to follow my scintillating financial regulation discussion.

CONAN: Well, what is it, animals and children, never follow those?

(Soundbite of laughter)

CONAN: Yesterday, Democrats failed to get the 60 votes they needed to send this bill to the floor to debate. Are there major disagreements here on the substance?

Mr. KLEIN: It is very hard to say what people disagree on. I mean, one thing that I think is very important for understanding the path this bill is taking is that very few people know that much about it, and by that I mean experts. I mean people in the Senate and in the House.

When you deal with something like health care or climate change, there is a large and pre-existing intellectual infrastructure for the issue in Washington. The senators, the congressmen, have relationships with experts on these issues. They've worked on the legislation before.

There's nothing like that for financial reform, and so you have a lot of very vague speeches in which people are getting things wrong. But pretty much what you're seeing happen right now is not necessarily a clear disagreement over what type of bill we're getting but an effort as a general ploy for Republicans to increase their leverage to negotiate with the Democrats by showing they can, if needed, vote as a 41-person bloc.

CONAN: Well, let's leave the politics of this aside for the moment. We'll deal with that tomorrow with Ken Rudin. But in terms of the substance of the bill, one of the big changes on Wall Street over the past decade or so is this big, huge market in derivatives. Would this bill actually regulate that market?

Mr. KLEIN: It depends a little bit on what the final language on derivatives is, but the derivatives language has taken a very interesting turn.

So for viewers out there, derivatives are just this massive market with a $600 trillion notional value. And the main thing you need to know about it in the recent financial crisis, the main thing that made derivatives so problematic, was we don't know who holds them. We don't know how much they hold, who they hold them with, and so when someone like Lehman went down, we had no real clue what the impact of that would be because we didn't know who was exposed to their failure.

So you need to do a couple things here. The two big ones that most people agree on is that you need to do you need to run derivatives through a clearinghouse, and the essential use of this is that it would force the two sides to have enough money sort of on the table. They'd have to give it over to this clearinghouse that you could be pretty sure that you wouldn't have anybody not being able to cover their own bets.

And then you want to put them on exchanges like stocks are, so you can see how much these things cost, who's making bets. So you basically want to be able to ensure that people have enough money to cover what they've done and that regulators can see what they've done if we need to step into the middle of the market again.

Right now, the Dodd bill does a pretty good job of that, but what's happening at the moment is that they're merging that language with language that Blanche Lincoln has come up with. And Blanche Lincoln's language goes a step further than the Dodd bill, and she actually spins out the part of banks that do derivatives trading into their own separate entity.

So if you were Goldman Sachs, and you want to be a holding company and have access to these great cheap Federal Reserve funds like they currently do, you couldn't do derivatives. You would have to split that company, that part of your company off from yourself.

Whether that will survive I think is unclear. Over the weekend, the Federal Reserve, it turns out, was trying to get Democrats to kill it, but as of yet, they haven't succeeded.

CONAN: There was another question about this is sort of the story about the blind man and the elephant. You know the story, of course. One guy grabs the tail, thinks it's a snake. Another anyway, there's one part of the federal government, the Federal Trade Commission, that looks at one part of the industry, the Securities and Exchange Commission looks at another, on and on and on and on. Nobody has a complete picture of the financial community.

Mr. KLEIN: Right, and the big thing the bill does to handle this particular problem, which is a big one the administration flinched on this, by the way. There were leaks early on that they were going to consolidate the regulatory world, and they didn't. They decided it wasn't a fight they wanted to have.

What they do instead is create a new regulator, and this new regulator is a council of regulators, essentially. They would look at what they call systemically risky institutions. So if you're part of a local credit union, and your credit union fails, it probably it's bad for the people who worked at your credit union, may even be bad for you, probably isn't going to crash the economy.

But there is a certain class of banks and firms, what we call these two-big-to-fail folks, who their failure is a real problem. And so they will now be watched by these, by this systemic risk council and regulated by the Federal Reserve.

So the idea is, at least for the banks that really matter, the firms that really matter because they're not all banks, that we will now have a very clear line of regulatory authority.

CONAN: All right, you mentioned too big to fail, and I guess that's the 800-pound gorilla in the room or the too-big-to-fail gorilla in the room. I don't know what metaphor we want to use here.

(Soundbite of laughter)

CONAN: But in any case, does this bill address the problem of saying there are institutions that are too big to fail, thereby have an implicit guarantee from the federal government that should things go terribly, terribly wrong, the taxpayers will bail you out.

Mr. KLEIN: So there are two ways of dealing with too big to fail. The one way, that a lot of people would prefer, is that you make it so no institutions are too big to fail, right? You do what Senator Ted Kaufman would like, and you cap banks at a certain size, and you break them up if they get bigger. They're not doing that in the Dodd bill. Instead, the effort here is to make it easier to handle the situation if one of these banks does fail. You might be too big, but you're never too big to fail. And the way they do that is something called resolution authority.

And resolution authority is essentially a pre-defined series of steps you go through if one of these banks falls apart, and so this is where you get what a lot of people have been talking about as a bailout fund, this $50 billion orderly liquidation fund.

And here's how the chain of events will work. If you are a bank, and you begin to fail, if something really goes wrong, they will tap into that fund. They will take you into receivership, the FDIC. They will tap into that fund, and the act of tapping into that fund triggers a series of consequences for you as a bank.

The FDIC may keep you living until they can safely spin you off, but your management is fired, your shareholders get wiped out, your creditors are probably going to take a lot of losses, and you're going to be broken up and sold.

So these banks will fail. If they do fail, they will fail, but what they've tried to do is create a situation such that we know how to do it, and we're not caught in the same sort of chaotic uncertainty that paralyzed the financial market back in, what was it, you know, late 2008.

CONAN: We're talking with Ezra Klein, a policy blogger at the Washington Post, a columnist for Newsweek. If you have questions about the financial reform bill and what it does and how it might affect you, 800-989-8255. Email us, We'll begin with Paul(ph), Paul calling us from Chesapeake in California.

PAUL (Caller): Yes, this is Paul. I've just got a question because I heard Ben Nelson, why he voted no, and he said there is no bill to vote yes to start the discussion. There are pieces here and there, but there is no bill put together.

CONAN: There is no final version of the bill. Ben Nelson, of course, the Democrat from Nebraska, the one Democrat who joined the Republicans in the vote yesterday. Ezra Klein?

Mr. KLEIN: This was a strikingly disingenuous justification from Senator Nelson. So the vote that Ben Nelson cast yesterday was not a vote on the bill, right? We weren't voting on whether or not to pass this into law. It was to begin debate on the bill, open up the bill up, begin amending it, looking at it, talking about it.

And so his argument there isn't a bill there, this is actually very common. It's generally the way the Senate works. If the other part of his complaint was that the bill wasn't bipartisan enough.

But if Shelby and Dodd go into a room and create a package of amendments that will go into a manager's amendment on the floor that will make for a bipartisan bill that's how you would do that it would be no different. You wouldn't have the final bill yet. You would then have an agreement such that Shelby and 10 other Republicans would vote with him to move, you know, to move the process forward so they could create the bill they wanted.

It is a very interesting state of affairs in the Senate now where we don't just filibuster a vote on things, but we filibuster the opportunity to debate and amend them. We filibuster not just legislation but the legislative process, and that's what you're seeing there.

CONAN: Okay, Paul, thank you very much for the call. And the references there to Richard Shelby of Alabama and Chris Dodd of Connecticut, the senators on the Republican and Democratic side who've been most responsible for this area of legislation.

Let's bring another perspective on the financial overhaul in. Alex Pollock, a resident fellow at the American Enterprise Institute, has been blogging about the legislation at AEI's Enterprise blog, and he joins us today from the AEI studio here in Washington, as well. Thanks very much for being with us today.

Mr. ALEX POLLOCK (Resident Fellow, American Enterprise Institute): Thank you, good to be with you.

CONAN: And again, we certainly don't have a final product to look at, but in the broad outlines of what the Senate is talking about, do you see progress in controlling Wall Street?

Mr. POLLOCK: Well, we have a very complex bill. You mentioned correctly before that most Americans in the first place wouldn't be excited about financial regulation as a topic. And secondly, it's very hard to know all of what's in a bill that's more than 1,300 pages long. And if you do all those things at once, what will happen?

But we can say a few things about the bill. First of all, as my colleague, Phil Swagel wrote recently, it definitely sets up the possibility of future bailouts by giving regulators a lot of discretion of what to do with the $50 billion fund. And it strikes me as likely that the most important factor in a financial crisis are not the stockholders of troubled firms, who might well be wiped out, but the creditors.

And the question is how the creditors are treated. In Lehman Brothers, for example, what really set off the panic wasn't the complex derivatives. It was old-fashioned, short-term loans to Lehman Brothers by a very large money market fund who had then losses which would make it worth less than a dollar a share, and we had a run on money market funds.

That's a really old-fashioned creditor problem, and it looks to us like this bill wouldn't change anything in terms of the government's likely protection of creditors or bailouts. So that's one thing. A second thing...

CONAN: We're going to have to wait for the second thing until after a short break.

Mr. POLLOCK: Okay.

CONAN: Stay with us, Alex Pollock. Ezra Klein is also going to stay with us. We want to hear your questions about this financial reform bill, as well. Stay with us, 800-989-8255. Email us, Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. I'm Neal Conan, in Washington.

Big investment banks have a image problem. A Pew poll last month showed two-thirds of the public held a somewhat or very unfavorable view of the biggest banks. Now, Congress wants to clamp down on many of those financial institutions. The financial overhaul bill is the latest debate to split Washington along partisan lines.

Democrats hope to see a bill passed soon. Republicans yesterday blocked debate over the bill. We'll talk more about those political fights tomorrow with the Political Junkie.

Still, many expect some form of financial overhaul to pass eventually. So what's in this bill? Can it prevent another banking crisis and more bailouts? What does it mean to you?

We're answering your questions today, what you don't understand about financial regulatory reform, 800-989-8255. Email us, And you can join the conversation on our website at Click on TALK OF THE NATION.

Our guests are Ezra Klein, policy blogger for the Washington Post, and Alex Pollock, resident fellow at the American Enterprise Institute, who's been blogging about financial regulations at AEI's The Enterprise blog. And, Alex, if you could quickly summarize your other objections to the bill.

Mr. POLLOCK: Let me make two other points. One is on the so-called council, which is supposed to oversee the complete picture of the financial system, which of course it's impossible for anyone to have. But I think it's highly unlikely that a committee of regulators, this is just a committee with every regulatory body stuck on it. And whether you think a committee of government agencies will do better at achieving this understanding is a question. I doubt that it will.

A second problem with this bill is of course it's utterly lacking in addressing one of the most important elements of the entire financial crisis, that is to say Fannie Mae and Freddie Mac, who are fundamental in the problems and who don't appear anywhere in the 1,300 pages.

CONAN: Ezra Klein, Fannie Mae and Freddie Mac, the other question that Alex Pollock was talking about, does it solve the too-big-to-fail problem?

Mr. KLEIN: So, on Fannie Mae and Freddie Mac, he's completely right that they don't appear in the bill at all. My understanding is that they are being dealt with in a separate housing bill that is going to move after this one. But the wisdom of that decision, you know, I think is certainly up for debate.

The question of bailouts, I read Mr. Swagel's piece earlier, and it's very complicated because we haven't actually defined, I think to anybody's definition or satisfaction, what a bailout is. If you believe a bailout is when the federal government comes in and rescues Citibank, it does not do that.

Citibank's shareholders are wiped. Its management is fired. Citibank is broken up and taken apart and sold off. That isn't a bailout. The firm doesn't survive it.

There's then a question of how we deal with creditors, which is an interesting and difficult question. The money that is in the initial fund, the $50 billion orderly liquidation fund, that comes from a tax on the banks. So that isn't taxpayer money.

Then what happens is that if that isn't enough, if we need more, and in this crisis we would've needed more, the government can borrow against a certain type of - the assets that the bank could still be could still have sold off in order to pay back the government.

So let's say Citibank has a beautiful building. The government could borrow the cost of that building to pay off creditors and then sell off the building.

But there actually isn't that obvious of an avenue for simple taxpayer dollars to become involved. They really have done to the best of their ability and this part of the bill was written largely by a Republican, Senator Bob Corker they've done to the best of their ability a job trying to create a situation in which the system won't freeze up, but taxpayer money won't be on the line.

CONAN: All right, let's get some listeners involved in the conversation, and we'll start with Brian(ph), Brian with us from Grand Rapids, Michigan.

BRIAN (Caller): Good afternoon, Neal and guests. My question is: How will this bill affect rating agencies, and who will be paying for them?

CONAN: Rating agencies like Moody's for example?

BRIAN: Yeah, Standard & Poor's, Moody's.

CONAN: Okay. Alex Pollock, does this bill address that?

Mr. POLLOCK: There is a title in the bill on rating agencies, and thank you, it's a very good question. It tries to address the rating agency issue. It has the right idea that it would be better to have a more competitive rating agency sector, where you have competitors who are rating agencies who work only for investors and not for the issuers of securities.

There it adds a lot of regulatory burden and very debatable item, which is to give what's called a private right of action or people to sue rating agencies if they claim they've lost money based on their advice. But the rating agencies are in the bill with a kind of increased regulatory approach, which I don't I doubt will do much. But the fundamental idea of getting the government out of the business of designating certain rating agencies as its preferred special agents, in effect, and having a more competitive rating agency sector, those are really good ideas.

Mr. KLEIN: Let me just add to what Alex said there. I agree with all of that. The other thing the bill doesn't do, to the surprise of many, the way the rating agency sector currently works is that I'm a bank and I've got a product, and I go, and I pay a rating agency. I choose one and I pay one, to look at it for me.

And you can see the conflict of interest there. It would be as if our you know, if your kid could pay his teacher to grade his test, and if didn't like the grade, pay another one. But the normal solution people bring up to that, which is that you would have the rating agency randomly assigned to the bank, and it does have problems but that's a normal solution people might put in there, they haven't done that, either.

So the central conflict of interest at the heart of the rating agency model is unaddressed in this bill as of now.

CONAN: Brian, thanks very much. Let's go next this is Mary(ph), Mary with us from Leavenworth, Kansas.

MARY (Caller): Yes, if and when this bill is passed, how long will it take before it comes into effect, and what will happen to the people that are responsible for this whole big mess, where people have lost a lot of...

CONAN: The accountability issues, who's I'm not sure the bill addresses...

MARY: Yes. I'd like to see some accountability, and I know most of the American people would like to see this in Washington.

CONAN: Well, Ezra Klein, that may be being addressed today in pointed questions towards the Goldman Sachs executives who are appearing on Capitol Hill. I'm not sure the bill addresses accountability.

Mr. KLEIN: Not that I can tell. You know, Geithner and others have said this a number of times. They said, we're not out to punish these people, that, you know, what we're trying to do is fix everything. We're not trying to do retribution. I think there's a real question as to whether or not, you know, as the caller said, that's what people want. But there is nothing in particular in this bill that is going to look back at the financial crisis, identify the people who were responsible for it and make them pay in a way that they have not already done so.

CONAN: And in terms of when these things, these reforms take effect?

Mr. KLEIN: I think they actually it differs across reforms. Alex, you may have a more global take on it than I do, but it's within a couple years, but depending on which title you're looking at. You know, it takes a little while to set up one systemic risk regulator, but other regulators, when you're just changing how they currently act, that can happen almost immediately. So it sort of it varies across the bill.

Mr. POLLOCK: Yes, I think that's right. Of course, one thing it always occurs to people do, and you have to appear to be doing something, is change organization charts, and that's happening in here.

We're all in favor of accountability. There are some other people accountable we shouldn't forget about, who are the central bank, who promoted a housing boom, the policymakers who promoted what they call access, which really meant high-risk mortgage lending. And once we start the accountability, it spreads pretty wide.

CONAN: Mary, thanks very much for the call. Here's an email question from Lucy(ph): I don't understand exactly what is meant when you talk about Goldman Sachs betting against the packages. Please walk us through what's meant by that. I know it isn't placing bets, exactly. Ezra?

Mr. KLEIN: Well, what we're talking about here is, I mean, it's not that different from placing bets. It does have to it's derivatives, and essentially, Goldman Sachs put itself in a position to make money, at least in the positions that we're talking about in this email, in a position to make money if the housing market tanked.

And there are a number of ways you do this, everything from credit-default swaps to you can actually buy stock in firms that will see the stocks rise if housing goes down.

But it should be said that that is actually a perfectly normal thing for Goldman Sachs to do. That there is the SEC case against Goldman, which is that they did not fully disclose how they were constructing these bets to an unsuspecting buyer. That is a question of sort of disclosure and whether or not they're acting in a fair way to their client.

And then there is what Senator Levin is attempting to attack them for, which is taking a short position, just taking a position against the housing market. And that's not actually a bad thing for them to have done.

If more people had done it earlier, the bubble wouldn't have inflated as much as it did. So I think people sort of feel viscerally that Goldman has made a mistake or done something unjust in attempting to profit off of the sub-prime crisis. But so far as things that were done poorly in the financial, in the whole buildup to the financial crisis, the real shame is that more people didn't take that position earlier, thus warning us when there's still more time to do something about it.

CONAN: And Alex?

Mr. POLLOCK: To expand on that, it also would've been good if there were more ways to be short the real estate market, which has been historically hard to do.

CONAN: Okay.

Mr. POLLOCK: And that way, you'd get a more robust market with conflicting views.

CONAN: Let's get Bill(ph) on the line. Bill's calling from Ann Arbor.

BILL (Caller): Yes, hello. Thanks for a great show.

CONAN: Thank you.

BILL: The question I have is about a different type of thing that went on, which was clash trading. I don't believe it's a large part of this problem, but it does seem to be an unjust way to get some people involved in making a lot of profits at the risk of others.

CONAN: Is flash trading the possession of computer systems that are a little bit faster than anybody else's?

BILL: And then - my understanding is that they also have better access and they were actually got - paid a fee for better access to the information so that they'd know when to buy and sell.

CONAN: Ezra Klein, can you help us out here?

Mr. KLEIN: I don't know much about flash trading, I have to admit, so I'd be a little bit cautious about speculating on it.

CONAN: Alex Pollock, is this something you know about?

Mr. POLLOCK: As far as I know, there's nothing whatsoever in the Senate bill which addresses this. But this is a fundamental problem always when you're trying to structure a market or an exchange to make sure that the various buyers and sellers who are participating in the exchange do so in a fair way where there isn't some kind of a systematic advantage given to certain participants, and that's, in general, what the issue of flash trading is all about. But what the specific answer is, I don't know.

CONAN: Okay. Bill, we'll have to await - well, as they say at the White House or the State Department, we'll take your call, take your question. We'll get back to you with an answer later, okay?

BILL: Okay, thank you.

CONAN: Thanks very much. Here's an e-mail from Timothy(ph) in Lenexa, Kansas. Please ask Mr. Klein this: I spoke with my senator's office, Brownback, to ask why he voted against cloture on the bill. The staffer said the senator objected to provisions in the bill that treated small businesses, like car dealers, as banks or lending institutions and thought that was unfair. He said car dealers might fall under the bill's strictures and suffer from excessive regulation. He also stated this is one of Ben Nelson's objections. Can you comment?

Mr. KLEIN: This is something that some people are concerned about, and it comes in a couple of different provisions. This part isn't in derivatives, but a lot of people are worried about the derivatives affecting corporations. And this also has to do with, essentially, loan oversight. And I think, largely, the Consumer Financial Protections Bureau - which people are worried it will - which is supposed to regulate loans and other financial products made to consumers. And people are worried it will be used to sort of crack down on, you know, your car (unintelligible) a lease.

In general, my understanding of the politics of this is that Democrats and Republicans pretty much agree that nobody wants to take on small car dealers. Nobody wants to change away M&M, the M&M company - the Mars company does derivatives. So people are trying in a fairly good faith way to write down exemptions that are strongly worded enough that the people who you're not trying to regulate don't get regulated.

Now, this is legislative language, people don't do it well and you often have a situation in which - you know, say the Democrats think they have written the exemptions strongly enough and the (unintelligible) are worried they haven't. Or - and another thing you're having in the derivatives question that they feel they had - the Democrats feel it have written the language strongly enough, and there is an alliance between Wall Street and certain corporations to write a much stronger exemption such that financial firms can get out from under it as well.

So you do have a tension in these things as always of making the regulations narrow because you don't want them to be catching people they're not meant to catch, but not making those strictures on them so strong that they end up not fulfilling their intended purpose even narrowly.

CONAN: Ezra Klein, who's policy blog is called Explaining FinReg, that's at The Washington Post. And Alex Pollock, also with us, a resident fellow at the American Enterprise Institute, he writes the AEI's enterprise blog at You're listening to TALK OF THE NATION from NPR News.

And let's see if we can get an e-mail question in. This is from Steven(ph) in California. How can the current executive branch administration actually speak to fixing the actions of banks such as Goldman Sachs when many of the administration worked for Goldman Sachs? How connected are members of the current administration to Goldman Sachs now and in the past? Will the bill address issues of lobbying and past connections. Alex Pollock?

(Soundbite of laughter)

Mr. POLLOCK: Well, of course, there's always a problem when people move back and forth, which they clearly have a right to do between government and various firms. And Goldman Sachs has certainly been very successful in having its talented executives go into positions of responsibility in the government. I don't think there's any real easy answer to that question except you have to expect people to act with integrity, carrying out the responsibilities of the job that they are in.

CONAN: You were talking earlier, Ezra Klein, about conflicts of interest. Some people see that as conflict of interest, the sort of rotation between private industry and the government.

Mr. KLEIN: They certainly do, and I don't know that they're wrong to. It doesn't work in the way that I think some people sort of assume, right, which is that, you know, regulator does something because he's hoping to go back and get a giant pay package from Goldman Sachs.

What you worry about here is a little bit different and certainly more insidious, which is that people who spent a very long time on Wall Street or who are very, very close to a lot of people on Wall Street, number one, give undue consideration to Wall Street's perspective on these things, and number two is sort of captured by their way of thinking, a sort of, you know, what's-good-for-Wall-Street-is-good-for-America approach to these things. That is very natural, you know, obviously, if - you know, if that's your job.

But it is not a balanced perspective when it comes to creating these regulations, particularly now that we understand the walls between Wall Street and Main Street are as porous as they are and as easily breached as they are.

So it is an issue, but as Alex says, it is a difficult one to deal with because one thing that I don't think Wall Street quite ever meant to do, but it has worked out very well for them, is that the business is so deeply complex that they're really the only ones who understand it, and even they don't really understand it as we found out...

CONAN: As we recently discovered, yes. We can read those e-mails too.

Mr. KLEIN: Right.

CONAN: One last question. Elizabeth(ph) in Boulder, Colorado.

ELIZABETH (Caller): Hello, gentlemen. Good afternoon.

CONAN: Afternoon.

ELIZABETH: Thank you so much for this program. It's been very informative. I'd just like to ask a simple question, if this bill will have any effect on hedge funds in terms of transparency and potentially regulation.

CONAN: Transparency seems to be the one thing everybody wants, Alex Pollock.

Mr. POLLOCK: Transparency is what everybody wants, but it's very hard in fact to have because all kinds of coding, representations reflect theories behind them. And as Ezra said, one of the problems is everybody gets to thinking about the problems the same way...

CONAN: Groupthink.

Mr. POLLOCK: ...regulator - regulators, central banks and private actors, and it's very hard to think your way out of that.

There may be - I'd - I am not real familiar. Maybe, Ezra, you know if there are specific hedge fund requirements in this bill.

Mr. KLEIN: There are, and in particular, the derivatives element would have a big impact on that because hedge funds trade heavily in derivatives. But they have not really been specifically targeted at a high level because they didn't turn out to be that big of a problem.

But, Neal, if you wouldn't mind, if this is the last question, I just want to add in one thing that I don't think we've sufficiently covered here...

CONAN: Go ahead.

Mr. KLEIN: ...which is, it's important to just know about this bill, that it entrusts an enormous amount of power to the regulatory state -Alex touched on this earlier - an enormous amount of power to regulators who failed us previously. And I think that's something people should be genuinely worried about. This bill has been a little bit concerned about really reshaping Wall Street so that it has given discretion to people who did not use it last time. And there's not an obvious provision in this bill that makes it more likely they will use it next time.

CONAN: Elizabeth, thanks very much for the call.

And we need to thank our guests, Ezra Klein, a blogger at the Washington Post, Alex Pollock of the American Enterprise Institute. They were kind to join us today. Coming up, Sting. Stay with us. It's the TALK OF THE NATION from NPR News.

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