The following is part one of a three-part interview. Assistant Treasury Secretary Michael Barr and Motley Fool editor Ilan Moscovitz discuss misconceptions about financial reform; the Volcker Rule, designed to separate proprietary trading from commercial banking at firms like JPMorgan
Ilan Moscovitz: First of all, I want to congratulate you guys on the Financial Reform Act. I assume you've caught up on sleep a little bit?
Michael Barr: A little bit. First of all, thank you. We are certainly sleeping better at night, but we really went right from the mode of passing the bill to working on all the work to make sure it gets implemented the right way. So not a big break, but a welcome respite from the worry about whether we get the bill over the finish line.
Moscovitz: What is the biggest misconception about financial reform?
Barr: Well, I think that really there are misconceptions on the right and on the left. Some people say we didn't go far enough, it's not tough enough, and other people who say no, you are going to stifle innovation, you are going to hurt the economy. I really think both of those are wrong.
I think that we ended up with a reform bill that is tough, because it takes the steps necessary to end the perception of "too big to fail," and reign in the problems in the derivatives market, and set up a new consumer agency -- all the basic steps to reform that we thought were essential at present laid out. We didn't get 100% of them, but we got pretty damned close as far as Washington goes. I think on that measure, we did quite well.
And at the same time, I don't think there is danger at all that this is going to stifle innovation or growth. I think it is a set of reforms that really puts in place airbags and guardrails in the system, but it doesn't keep people from driving the way they need to drive to grow the economy.
Moscovitz: Two specific areas where people criticized the bill for not going far enough: Section 716 and the Volcker Rule. Toward the end, those two obviously became really hot issues. The impression of many on the outside is that those weren't, and still may not be, top priorities for Treasury. Are those top priorities, and if not, is that because they are not good ideas, or just of lesser importance and draw too much opposition?
Barr: In terms of Volcker Rule, that was very much a top priority to get done for the President and for us. We fought hard to get it in the bill. You go back to last fall, last winter, when the President, the Secretary [of Treasury Tim Geithner], and Paul Volcker announced its approach. Everybody said, there is no way you are going to get that in the bill. Folks came out against it all over the place, and Treasury is the one who pushed hard to get it in the bill and got it done. So it is very much a top priority for us. We will be leading the effort through the Financial Stability Oversight Council to make sure it is implemented in the right way.
[As for] the provision that ended up being Section 716, I think that we have been frank, that we didn't think that that was a core part of the reform effort; it wasn't part of the President's plan. I think that it ended up in a fine place, and we will be working to make sure it is implemented in a way that is appropriate for the system going forward.
[Editor's note: Section 716 was included in the final bill but will only apply to some of the riskiest derivatives.]
Moscovitz: You said that this act goes quite far by Washington standards -- how do you tend to think about balancing policy and political expediency?
Barr: Well, I think what we tried to do really from the very beginning of the process, with the President and with the white paper on the Treasury's legislation, was to take on the issues that we thought were absolutely core to reform. That is, the issues where we thought the financial system absolutely had to change, and to hold very, very firm on those.
Our proposal is not to take on issues that weren't core to that effort, and to be willing all along the way to listen to other people, and to hear their ideas. I don't think that anybody thought we had 100% of the wisdom on every issue under the sun. But on core issues that we found potential to reform, bringing derivatives trading out of the dark and moving to central clearing; on ending "too big to fail" and giving the government tools to wind down major firms; on building a new consumer financial protection agency and the like -- we were willing to compromise on issues, but not to give up any of the core fundamental things that the President has to get done.
Moscovitz: Was there a major thing that you wish you had gotten, but weren't able to -- aside from not getting auto lenders directly regulated by the new Consumer Financial Protection Bureau?
[Editor's note: Auto lenders such as Ford
Barr: We got all the core elements reformed that we had to get accomplished. I obviously wish, the President and Secretary wish, that we had been able to keep the auto dealers into the Consumer Financial Protection framework, but I think in the core areas we got done what we needed to get done. There were certainly compromises that got done along the way, like the auto dealers, where we strongly would have preferred to not have to give on that issue. But in a town like Washington, it is not a 100% kind of town. We got done the President's core objectives.
Return to Fool.com on Monday for part two of this three-part interview.