What about the Senate's proposal to study the issue?
That's a problem. This is not rocket science that we're dealing with here. This is pretty rudimentary stuff. I don't know what kind of a study it would be … I think we have all now considered this. This is a singular time, and I think [acting] would be a lot better than putting it off or delaying it.
If it's so basic, why has the measure been so controversial?
Nobody likes change. … The world changes around you, and at a point you wake up one day and say, "I don't want one more change in life, because if it happens, my head is going to blow apart." That's the way people are: They get used to existing with the way things are. And there's nothing wrong with that, actually. And particularly if you're dealing with fully sophisticated people, you don't even need a fiduciary relationship. We're really talking about retail business here, customers who are not too terribly sophisticated in financial dealings and broker dealers and financial planners who are on a much broader scale and better scale: better schooled, better educated in the areas they're dealing in. There's a decided disadvantage.
So institutional investors can be treated differently?
That's a whole different thing. Those folks, they're used to [all this]. I have a friend who runs a mutual fund in Pittsburgh, and they don't even need rating agencies because their department evaluates these securities better than rating agencies do; they're that sophisticated, they're that advanced. But if you ask the question "do you need rating agencies," yeah, for Mrs. Jones who is trying to buy some bonds.
Does that mean you have less sympathy for the institutional investors who claim to have been misled by Goldman Sachs?
No, but there is a little disappointment on our part. What we've done very often—and you can really see it in securitization—we've allowed a situation to occur where these very competent professionals sort of got together and lined up all the benefits on one side of the transaction. … They proved that you can frustrate the market from really working. The only justification for a free market, and I'm a supporter of a free market, is that you can take government out of the role of regulator because … for every guy working on one side of the transaction, you have an equally competent person working on the other side of the transaction. And they keep each other honest. And that's the way the system is supposed to work.
But if you line everyone up on one side of the transaction and they all make a profit off of it and they don't have to give a damn about the other side of the transaction—and that's what happened with subprime mortgage securitization—you get to the end and it's the last guy that's holding the skunk, if you will. He gets screwed and screws all of his customers, but everyone else made money. And people readily saw that happening, but nobody wanted to break the game. It was a great game, and it lasted for 10 or 15 years, and finally it blew up in all of our faces. It was a frustration of the real free market. We've got to structure this reform bill to try to not allow that to happen again in the future.
How do you feel about the idea of a self-funded SEC?
I'm a very big supporter of the self-funding of the SEC for several reasons. And it has nothing to do with any criticism of the [congressional] appropriations process or the appropriations committee. As a matter of fact, I have no objection to them exercising their role as overseers and if we can construct something to keep them in that role, that's good. There's nothing wrong with more eyes looking at something. But so often with an independent organization like the SEC, they feel compromised even though Congress doesn't want to compromise them. [They feel] that when they have to come up here on a yearly basis and ask for a budget, they can get pushed around or contained. They don't feel free to do what they'd really do if they were running their own operation.