Money & Politics --- Mike (fast)
>> washington this week all consumed boo oil prices and the possibility they might cause some lawmakers their job. kevin hassett with the american enterprise institute said it might help if policymakers thought like winemakers. kevin is here to explain. you’re comparing oil to pinot noir.
>> that’s right. i’m a pinot noir drinker and after the movie “sideways” came out, everybody else decided they wanted to drink pinot noir, too, and that was terrible news for me because i could get it for $8 a bottle and now everybody’s buying it and the prices have come up. i think that demand surge doesn’t mean the government needs to enter the pinot noir market and figure out ways to make pinot noir from corn and subsidize the cultivation of pinot noir grapes, but let the market work. that’s the same thing with gasoline. right now gasoline is very expensive, oil is very expensive because demand has gone up for lots of good reasons and now those high prices are causing us to change the way we do things and high prices are the best cure for high prices, not government action. it’s disturbing to see everyone in washington falling all over themselves to figure out what to do. nothing the u.s. does can affect the calculation.
>> nothing the u.s. does, but is there anything we can do longer term at this point?
>> i think that longer term, you know, we obviously, as a people, need to gradually move towards other technologies. government, however, doesn’t need to tell us which technologies to adopt. and so right now they’re telling us to make ethanol from corn, but really because the corn lobby is so powerful here in the u.s., ethanol could probably be more efficiently made as it is in brazil with sugar but i guess the sugar guys aren’t as powerful as the corn guys. that’s the kind of thing that happens when government is involved. you need to sit back and let market forces work. the high prices will force people to buy hybrid cars and turn down the thermostat and search for alternatives, causing companies to invest their hard dollars in research and development. the government doesn’t need to get involved.
>> you expressed disappointment in president bush, because as a former oil man he should know better?
>> yes, president bush gave a speech today and i can understand it politically because politically everybody’s mad at the oil companies. so he went out and made a speech and rather than bash the oil companies, he extolled the virtues of alternative fuels and sure it would be great to live in never-never land where there were things other than oil to support energy. those things are really far away. the fact is that people are posturing now to pretend they’re doing something about it because people are unhappy about the high prices but people should get over it. the prices are high because the prices are high, adjust your consumption to the high prices but don’t ask washington to do anything because if they do, it will be a bad idea.
>> the interesting thing is that people are not adjusting consumption to high prices. they’re still driving like mad and the economy is moving forward. do you have concerns that the high prices should be acted on by the government because otherwise we’ll be in economic trouble?
>> the question is what the government will do. in the past history of recessions, all but one happened after a spike in oil. but the past recessions happened because of supply disruptions. this time around, there’s a tremendous amount of economic momentum in the world economy and that momentum is driving the price of everything up. and so really in some sense the high prices are good news, they’re a sign that the economies are vibrant and nothing we can do in the u.s. can change that that much. we’re about a quarter of the world economy and we’re not going to move things around enough to affect those prices.
>> there have been suggestions that the president and congress should establish a nationwide relaxation of air quality rules in the short run and also perhaps reinstate the mtbe liability waiver. those things might have an effect in the short run, would they not?
>> they would have some effect on gasoline prices, that is true. that is one area where policy is messed up so there might be room for policy because it could take away a bad thing. but what’s going on, we don’t have a lot of refining capacity in the u.s. and every area, local area has their own rule about what gasoline you have to use and it makes it very difficult to make supply meet demand so you can get local shortages. i was in new york city yesterday and the prices were in the high $3-something a gallon. you go from place to place and the price changes a lot because of local shortages based on local air quality rules so i think some sensible changes there could happen but they’re not going to make a big difference. the bottom line is that the oil price determines the gasoline price after you smooth through all that junk and the oil price is really, really high and not likely to go down very soon.
>> one last question and that is, we’ve heard a lot of criticism from politicians over the last couple of days of the oil companies. anything they’re actually doing wrong?
>> that the politicians are doing wrong or oil companies?
>> the oil companies are doing wrong.
>> there have been some academic studies that suggest that gasoline prices might look like they aren’t perfectly competitive. but it’s a really, really hard thing for economists to figure out because, in a perfectly competitive market where something’s a commodity, if you want to buy a bushel of wheat, it costs the same here as there. if people are colluding, then their prices are the same. how are you to really tell the difference between collusive action and competitive markets ? i’ve not seen convincing evidence that the oil companies are doing anything wrong.
>> thank you very much, bloomberg columnist kevin hassett, director of economic policy studies at the american policy institute. the chrysler unit of daimlerchrysler is expanding the number of flexible fuel vehicles it produces. flexible fuel cars can run on a combination of gasoline and as much as 85% ethanol.
>> today we’re announcing that in the 2007 model year we’ll put our popular jeep grand cherokee and jeep commander on our list of flex fuel vehicles for both fleet and retail sales.
>> u.s. shares of daimlerchrysler rising today. speaking of flex fuel, how about vegetable oil? in our “poll of the day,” do americans really worry about gasoline prices? stay with us.
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Listen Money & Politics --- Mike (fast)
Interview: Banking Committee Chairman---Shelby, Senator Richard---Politician / Govt Official
>> refco creditors are asking a u.s. bankruptcy judge to allow them to recover $1.3 billion from bawag, a bank based in vienna, austria. the creditors say bawag aided and abetted former refco c.e.o. phillip bennett in a fraud that brought down the futures broker. refco collapsed in bankruptcy last october, a week after it disclosed bennett paid back back an undisclosed loan of more than $400 million. allan dodds frank has details.
>> when phillip bennett repaid the loan to refco, he got the money from bawag which had lent him $420 million over a weekend. two days later, he was charged with fraud by the u.s. attorney. now the creditors in the bankruptcy case is accusing bawag bank of being bennett’s co-conspirator while helping him hide losses for five years. creditors claimed bawag, every february beginning in 2000, secretly led a company controlled by bennett―lent a company controlled by bennett to cover up losses. bawag lent the money, the creditors say, even though the bank knew something was seriously amiss at refco. in filings with the securities and exchange commission, the company disclosed that bawag owned 10% of refco. today the creditors told the bankruptcy court bawag actually owned far more of refco than has ever been disclosed by the bank or by refco. a spokesman for bawag, austria’s fourth largest bank owned by a confederation of labor unions, said the bank had not seen the creditors’ filing. the bank spokesman said it was a victim of bennett’s fraud at refco, not a participant. bennett’s lawyer had no immediate comment.
>> thank you very much, allan dodds frank. testifying before the senate banking committee today, securities and exchange commission chairman christopher cox saying mortgage giant fannie mae has given the s.e.c. a time table for finishing a $10.8 billion earnings restatement. that would help ensure its shares remain listed on the new york stock exchange, cox says, although he didn’t say what the time table is. fannie mae said in january the new york exchange had approved continued listing of its shares even though exchange rules allowed for delisting as of december 16 because fannie mae hasn’t released a 2004 annual report. what, if anything, does fannie’s progress mean for the prospects of legislation that would impose a tougher regulator on fannie mae, freddie mac and other government-sponsored enterprises? alabama’s richard shelby is chairman of the senate banking committee and joins me now. senator, thank you very much for joining us. first thing weed like to do is get an update on that fannie mae-freddie mac g.s.e. legislation. there ar suggestions from washington that you don’t have the votes and it won’t go anywhere this year.
>> we’re waiting on a report from ofheo, their primary regulator, and also from the s.e.c.,. whether the bill goes anywhere will be drneld by―determined by the senate, not the outsiders. we believe we have a good bill. just about every week you hear something about freddie mac or fannie mae, either restating earnings or they can’t get their accounting together. so you know something’s deeply wrong there. this legislation is meaningful and we hope that we can pass it before the year’s out. this is a crucial time to be looking at it seriously and we plan to do that. we’re going to bring it before the senate.
>> former senator rudman has issued a couple of reports on fannie mae. he outlined the problems they had in the past, but said he hasn’t found anything significant recently. are you still concerned, from what you’re saying there, about the financial condition of fannie mae?
>> absolutely. with all due respect to the rudman report, you know, they were hired by fannie mae to do this. they’re not a regulator. this was outside counsel and let’s see what ofheo comes up with. i think you’re going to see more of the same. i don’t believe fannie or freddie is out of the woods by any means. they need a strong regulator. they need some strong legislation to keep them from risking too much of themselves and perhaps the taxpayers.
>> short legislative session this year. do you have any time table for bringing legislation to the floor?
>> that would be up to the majority leader. we’re waiting on the ofheo report and on the s.e.c. when we do that, we’ll see where we are. but we believe we have a good piece of ingislation and we hope that the senate and ultimately the house will react to it.
>> if you don’t get a bill this year for whatever reason, do we have―are we in jeopardy, the financial system, from practices that might be ongoing at fannie and freddie?
>> well, i’m fairly optimistic that we’re going to get a piece of legislation, a meaningful piece of legislation dealing with fannie and freddie before the year’s out. and we’ll deal with what-if later. but, i’ll tell you, these two government-sponsored enterprises, they need a strong regulator. everything points to that. everybody knows that. they have a powerful lobby group everywhere on the hill to try to prevent any legislation that will bring about a powerful regulator.
>> speaking of regulation, in today’s hearing, you pledged again to move forward on regulation of credit rating agencies such as s&p and moody’s. what’s happening there? when might we see something and what might we see?
>> we’re not interested in per se regulating the credit rating agencies. we’re interested in competition in the business itself. there’s a lot of conflicts of interest there. there’s concentration of business and most of it in just two ratings agencies. there’s really no oversight of them. but we’re interested in competition in the marketplace. i think that was pretty much a consensus when we had the hearing, that we were coming with that. and i believe we’ll have to have legislation. the s.e.c. indicated that again today and they will work with us.
>> another regulated entity on your radar, the newly public new york stock exchange. you point out that recent changes at the exchange have generated what you call “substantial controversy.” can you elaborate on that?
>> absolutely. the new york stock exchange, you know, has gone public now. they’re publicly traded company and heretofore they have also been a self-regulator to some extent. now, the situation’s changed a bit. they are for-profit organization now, a corporation, whose shares are traded. i think that a lot of us on the banking committee are concerned about that and perhaps we will address it with legislation.
>> is there something that you can do? would you want federal regulation or would you want self-regulating agencies to just do a better job of doing that themselves?
>> i would question any self-regulated entity that big and so forth, where they have an interest to make money, which is not all bad, but nevertheless, something that big, i think you need a regulator other than themselves. everybody would like to be regulated by themselves. members of congress, i guess, they would want no regulation. people in the marketplace, until 70-something years ago, they had no regulator. but regulators, i think, if they’re doing some good and pointing out bad things that would happen, they’re good for the investor.
>> 30 seconds left―the s.e.c. doing a good job right now with the self-regulation issue?
>> well we are going to see. i think there might have to be legislation there. we’re not sure. i think chris cox, the chairman’s off to a good start. we had good people appointed to the s.e.c. and confirm. i like what the s.e.c. is doing now. we want them to keep it up.
>> thank you very much, as always, alabama republican senator richard shelby, chairman of the banking committee. coming up, what’s the best thing congress can do to rein in energy costs? bloomberg columnist kevin hassett says, nothing at all. he explains when “money & politics” returns.
