Rep. Issa Breaks Down Financial Regulatory Reform

Rep. Darrell Issa is pretty confident that whatever version of the Financial Regulatory Reform bill passes in the Senate will breeze through the House, since, as he eloquently put it, “The House will pass a baloney sandwich if the Speaker put it on the floor.”

Clearly a disgruntled Republican, Issa, who represents California, said neither version of the bill addresses two of the big troublemakers from the 2008 collapse, Fannie Mae and Freddie Mac. He was also critical of the so-called $50 billion “bailout fund” that would be created to “save” troubled, too big to fail institutions.

“They really try to pretend that you’re fixing banks, when in fact banks already have FDIC—they can be closed at will,” said Issa. The notion of the fund is therefore “really about non-banks that are not FDIC regulated, and can’t be closed with no notice, the way a local bank is if it becomes insolvent.”

Besides, $50 billion is a drop in the bucket compared to what would actually be needed to save such behemoth companies. “Even if you leave the $180 billion to AIG out, and all the other money in the TARP, there’s about $2 trillion that the Fed came in and used to take a lot of his bad debt, if you will, off the markets,” Issa pointed out.

There are aspects of the bill that he “absolutely” supports, like distinguishing between banks and non-banks, determining who should regulate each, and classifying them as public or private entities. “We need to do that on a bipartisan basis,” he added.

Given recent charges of fraud leveled by the SEC against Goldman Sachs, much attention has been paid to a provision that Issa said would empower hedge funds, like the one betting against investments made by Goldman clients, to do that so separately.

“Betting against something…is part of a strategy, it’s been out there a long time, and if we want to regulate it, that’s fine,” he said. “But to pretend that ‘longs’ and ‘shorts’ aren’t part of the process is absurd. There is a futures market, and people like Goldman Sachs are going to make these instruments and make them available.”

And, as Imus observed, no matter what laws are passed, “They’ll figure out a way to do business anyway,” much like he does when told not to offend this or that person, or to say this or that word. “I always figure out a way to do it anyway,” he boasted.

One of Issa’s biggest complaints is SEC inaction. “Pass all the laws you want—if you can’t keep these administration agencies doing what they’re supposed to do, the law doesn’t do any good,” he said. “There’s enough failures of government there that we should be investigating ourselves, and finding out how we don’t fall asleep at the switch.”

At Issa’s request, the Inspector General at the SEC, Dan Coates, is going to look into whether the SEC announced their charges against Goldman to coincide with discussions of reform legislation on the Hill.

“He sees something rotten in when they did it and how they did it, even if their case has merit,” Issa said of Coates. “Why and how they did it is very much suspect.”

So is a report that SEC employees spend an inordinate amount of time downloading porn, and that they did so without being caught for a long time. “At some point,” Imus said, “You’d start to wonder why Bob in the corner isn’t turning in any work.”

-Julie Kanfer