What, in retrospect, was the worst moment during the crisis?
During one week, we had Lehman fail, we had Merrill Lynch being taken over. We had AIG being bailed out. We had Goldman Sachs and Morgan Stanley under significant pressure. We had Wachovia under pressure. It was a really awful week in terms of how many big financial institutions were on the brink of failure. The system was completely paralyzed.
What was the most difficult political conversation you had while in office?
I have some frustration about the fact that I would often hear different things in a Congressperson’s office than what I would hear in testimony. It was kind of Professor Smith Goes to Washington. But I could comfort myself by knowing that in the ’30s, when we had another financial crisis and another deep economic downturn, the politics was even worse than it was after this crisis.
Of course, back then Senate hearings triggered a radical overhaul of the financial system. We didn’t get that kind of response. Why?
The Depression was much deeper, and at the time there was considerable fear that capitalism as a system was not going to survive. The level of distrust and unhappiness with the economic situation in the ’30s was significantly worse than this episode. There was a lot more fear about the possibility of revolution practically. So stronger measures were taken.
Do you think we got Dodd-Frank wrong?
No. There’s some big, important parts of Dodd-Frank that are very helpful, particularly the substantial strengthening in capital for large financial firms, the tougher regulation overall and, very importantly, the liquidation authority that was given to the Fed and the FDIC, which allows those two agencies to wind down failing financial firms. There are tools you have–if regulators are willing to use them–that can reduce the too-big-to-fail problem.
What do you make of America’s economic recovery now?
The U.S. economy has been growing now for six years, and it looks like it’s going to continue to grow. My overall view of the U.S. is that we’ve recovered more strongly than any other industrial country and that our medium-term prospects are probably also the best of any industrial country. This is a good place to invest. And despite political problems, it’s quite stable.
Does the financial lobby have too much power over regulators?
They clearly have influence. Although, since the crisis, the biggest institutions have had to be a little bit more circumspect because they’re still quite unpopular.
Where do you see risk in the system today?
There are uncertainties about emerging markets and their financial markets. I think that’s probably the area of most uncertainty. But we have a very complex globalized system, and so it requires constant attention to make sure that there isn’t some problem building up somewhere.
What can be done about growing inequality?
It’s a major issue, not only in the U.S. but in other industrial countries as well. To address it is going to require a very sustained effort to improve skills and to bring more people into the most productive parts of the economy. But it’s not really something the Fed can do much about. It’s got to be training, education, relocation, tax policy–all the things that only Congress can really address.
This appears in the October 19, 2015 issue of TIME.
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