MICHELE NORRIS, Host:
We're going to hear now from two members of the Financial Crisis Inquiry Commission. In a moment, Chairman Phil Angelides, a Democrat, but first, with one of the reports two dissenting opinions, we're joined by Douglas Holtz-Eakin. He was appointed by Republicans to serve on the commission.
Thanks so much for coming in.
DOUGLAS HOLTZ: Thanks for having me.
NORRIS: You seem to argue in justifying your defense that the majority opinion is oversimplified and, in part, politically motivated. Explain what you mean by that.
HOLTZ: Well, we certainly wanted to steer the public away from any notion that there are simple explanations for the financial crisis: either it's Wall Street greed on one hand, or you often hear it's all the government's fault with their housing regulations.
Our view is that if you take serious the idea that you look for those things, without which we wouldn't have had a crisis, you come up with a very complicated picture, and our writings are intended to convey that.
NORRIS: I want to follow up on one of the key differences between the majority opinion and yours, the idea that 2008 was not just an American meltdown but a global meltdown. Help me understand why you think that's important because that's one of the things you really highlight in your dissent.
HOLTZ: It's a key difference between us and the majority. The majority is very U.S.-centric. The majority report does not talk at all about the credit bubble. We had a credit bubble and a housing bubble...
NORRIS: The international credit bubble.
HOLTZ: ...in France...
NORRIS: Mm-hmm.
HOLTZ: ...in Spain, in Ireland, in England. And those bubbles happened in circumstances of very different financial supervision than the United States, and they had very different, you know, political economy. You know, one of the majority's view is that, you know, Wall Street went to Washington and lobbied for lax regulation. Well, if the same thing is going on around the world, you have to look for deeper causes.
NORRIS: In your opinion, you write that the amount of financial regulation should reflect the need to address particular failures in the financial system. My question is, if we wait for failure to determine what regulators should be doing, then how can we prevent the next Lehman or the next Bear Stearns?
HOLTZ: There's some parts of financial supervision we know about. We know, for example, that the more leverage you have, the more exposed you're going to be, and so all of financial regulation supervision is always centered on safety and soundness. So that's not new, and we should continue to do that. But we learned some things in this crisis, like having access to cash, liquidity management, that I think it will be higher on the list going forward.
NORRIS: What about understanding the markets, though? Because it seems that the people who were responsible for regulating the markets didn't really understand these, you know, very complex collateralized debt systems that were created, that helped lead to this crisis. The system got ahead of the regulators.
HOLTZ: And the presumption is then that regulators can always know enough to stop stuff, and I think that's a question that remains open. If you want to regulate so severely that you'll never have a crisis, you're also never going to have a financial system.
NORRIS: At the beginning of this process, we had commissioners come in and speak to us...
HOLTZ: Mm-hmm.
NORRIS: ...and we had someone who was a Republican and someone who's a Democrat, and they talked quite a bit at that point about how there was going to be a lot of bipartisanship. And in the end, they were going to produce a report that the public and the government could trust. In this case - at the end of this process, there's a good degree of dissent, we're speaking to you...
HOLTZ: Mm-hmm.
NORRIS: ...we'll speak with chairman Phil Angelides. You're not in here together because you don't agree. Are you concerned that people will dismiss this report because of the obvious contention in the process?
HOLTZ: They may or may not. That's their judgment. What we will leave behind and what the staff, in particular, is to be congratulated for is an archive of extraordinary information of the testimony in the hearings, of the subpoenas and the documents we acquired. And I believe that's the lasting legacy of this commission. And I at least, you know, find comfort in the fact that Ph.D. economists - we've been studying the Great Depression for well over 70 years. We still disagree about what went on. I never expected instant agreement on what caused the most recent financial crisis, and if we got it, we were probably wrong.
NORRIS: Douglas Holtz-Eakin was appointed by the Republicans to serve as a commissioner on the Financial Crisis Inquiry Commission.
Thanks so much for coming in.
HOLTZ: Thank you.