Sunday, February 1, 2009

Financial Criminals Will Pay. Just Ask Senator Shelby

Financial Criminals Will Pay. Just Ask Senator Shelby


There was a lot of talk during the Presidential campaign about John McCain being the Senate's maverick. But if anyone is his rival as a lone-gun lawmaker unafraid to speak his mind, it is Richard Shelby (R-Ala.). Shelby is a fiscal conservative with a populist streak who began his 22-year career in the Senate as a Democrat. He can exasperate his party's leadership and get under the skin of the corporate executives and Wall Street pooh-bahs who face the Senate Banking Committee, where he is the former chairman and now ranking member. On Jan. 23, the day after he and Senator Charles Schumer (D-N.Y.) introduced legislation to investigate white-collar crimes that may have contributed to America's financial debacle, I talked with Shelby about the bill, the banking crisis, Citigroup (C), Goldman Sachs (GS), and Federal Reserve Chairman Ben Bernanke's quandary.

MARIA BARTIROMO

Senator, yesterday you and Senator Schumer introduced bipartisan legislation that would beef up financial regulation by adding 500 FBI agents, 50 Assistant U.S. Attorneys, and 100 staffers at the SEC. Is your intent not only to increase scrutiny of Wall Street but to go after individuals who may have engaged in criminal behavior related to the financial crisis?

SENATOR RICHARD SHELBY

Absolutely. I sincerely believe that there was a lot of fraud in this financial debacle. Mismanagement, true, but a lot of fraud, and I believe the SEC has not done a great job. They were undermanned. What's missing in our financial sector today is trust. There's no trust to speak of between the banks. The banks aren't lending, and if the banks aren't lending, our economy will continue to contract. This is not going to bring all the trust back, but we should go after wrongdoers.

Let me ask you about what's going on in the banking system. On the one hand, lawmakers would like the major banks to lend more, but they're also telling the banks to raise capital. So the banks are saying, how do we do both?

What you're asking is central to where we are. I think the Fed's got some culpability here, not only as the central banker but as the regulator of our largest banks. They didn't do their job. So now the banks are in a quandary. The regulators, and rightfully so, say you have inadequate capital. If you don't have capital, you will fail. We'll have to close you down. On the other hand, you lend money to businesses and individuals in this country to keep the economy going when you have capital. So it's a catch-22 situation. And some of the banks have used the infusion from TARP to shore up their capital, but they're still not loaning money because they are experiencing unprecedented losses.

It's really incredible. In Britain, regulators have taken a 70% stake in RBS [Royal Bank of Scotland] (RBS). Is that something we will see more of in the U.S.?

Oh, I hope not. My philosophy is and will be that we should keep the government out of business, including our financial failures, as much as we can. Right now the only game in town is the U.S. government. That's sad.



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