Ted Kaufman - United States Senator for Delaware

Biden Replacement Delivers Stem-winders on Wall Street Excess

Source: Bloomberg

By Paul M. Barrett and Phil Mattingly

April 16, 2010

Ted KAUFMAN’s big chance arrived in January, 2009 when Senator Joe Biden moved over to the White House. To his delight, and the financial services industry’s chagrin, KAUFMAN, a longtime Biden aide, got the nod to serve out the new vice president’s remaining two years in the Senate.

Rather than coast through Capitol Hill ceremonies and cut a few ribbons back home in Delaware, KAUFMAN, a Democrat, decided to make noise about an issue that really bothered him: what he viewed as financial-industry excess. “I was very personally upset about what had happened on Wall Street,” he said in an interview. “Someone needed to speak up.”

Over 14 months, KAUFMAN, 71, has become an advocate for changing the rules governing the financial industry. In a series of blunt speeches and television appearances, KAUFMAN has described the Obama administration’s proposed regulatory overhaul as deficient. He has called for the reinstatement of the Depression-era Glass-Steagall Act, which separated investment banking from commercial lending, and he has urged the breakup of large financial firms such as Citigroup Inc.

In an April 14 speech on the Senate floor, KAUFMAN disagreed with Senate Minority Leader Mitch McConnell of Kentucky, who had proposed the day before that the best way to deal with large, failing banks was to let them go into bankruptcy.

“If bankruptcy was a cure in Lehman Brothers, it was one that almost killed the patient -- the U.S. economy,” KAUFMAN said. “When former Treasury Secretary Hank Paulson decided to let Lehman Brothers go into bankruptcy, our global credit markets froze and creditors and counterparties panicked and headed for the hills. Instead of imposing market discipline, it only prompted more bailouts and almost brought down our entire financial system,” he said.

‘Move Forward’

Financial-industry groups disagree with KAUFMAN. “The idea is to move forward and modernize the regulatory framework, not backwards to the 1930s,” said Scott Talbott, senior vice president of government affairs at the Washington-based Financial Services Roundtable. “Breaking up firms is a myopic approach. It is better to focus on the risk of the activities a bank engages in and not just its size.”

Some proponents of stricter financial oversight see KAUFMAN, an obscure back-bencher, as an unlikely hero. “It’s so rare for an appointed senator to do so much, so loudly, so well, so quickly,” said Francine McKenna, a former managing director at BearingPoint, a global management-consulting firm. McKenna now has her own consulting firm and runs the investigative Web site, Re: The Auditors.

Business-Friendly

KAUFMAN’s stance on financial reform is all the more striking because he represents Delaware, a state whose business- friendly corporate laws have attracted financial companies to incorporate or locate there.

KAUFMAN said he believes he has changed minds in Washington on the regulatory legislation the Senate is expected to debate next week. His influence, though, may be greater outside the capital. “Senator KAUFMAN’s proposals for profound changes in financial regulation will get more views on YouTube than mentions in the final bill,” McKenna predicted.

What he has done is create a beachhead on Capitol Hill for ideas that otherwise might remain in the realm of opinion pages and faculty lounges. In new books, Simon Johnson, a professor of finance at Massachusetts Institute of Technology’s Sloan School of Management, and Nouriel Roubini, an economist with New York University’s Stern School of Business, have made similar arguments for mandatory split-ups of Wall Street firms seen as too big to fail. KAUFMAN has given them a voice in Washington, at least for another six months.

‘This Is It’

Delaware has scheduled a special election in November to fill Biden’s seat. When Governor Ruth Ann Minner announced KAUFMAN’s appointment in November 2008, he vowed he would not use the opportunity to launch an elective career. He said he intends to stick to that promise. “This is it for me -- this year,” he said.

Explaining his fascination with the 2008 financial crisis and its aftermath, KAUFMAN noted that he has an MBA from Wharton and has been an active individual investor for decades. “I did puts and calls,” he said. “I bought and sold long, and I sold short and on margin.” He has one unbendable rule: “Don’t ever buy something you don’t understand.” The short-term lawmaker and his wife, Lynne, have an estimated net worth of about $7.97 million, according to financial-disclosure forms he filed in March 2009.

Transparent System

His primary legislative achievement is co-sponsoring a law, enacted in May, that allocated additional resources for federal prosecution of financial fraud. He said he hopes to be remembered for his floor speeches arguing for a simpler, more transparent financial sector.

The overhaul legislation sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and backed by President Barack Obama doesn’t go far enough, KAUFMAN said in a March 26 floor speech. “There is too little in the current legislation that would change the behavior or reduce the size of the nation’s six mega-banks,” he continued. “No greater statutory walls, no hard divisions or limits on regulatory discretion, only a reshuffled set of regulatory powers that already exist.”

He also warned that, “Unless Congress breaks up the mega- banks that are ‘too big to fail,’ the American taxpayer will remain the ultimate guarantor in an almost certain-to-repeat- itself cycle of boom-bust-and-bailout,” he said.

“I can’t imagine anyone thinks an unelected, appointed millionaire who has never asked anyone for their vote is an ideal situation,” said Sam Geduldig, a financial services lobbyist at Clark Lytle & Geduldig in Washington.

In an admiring article last month, Johnson, formerly the chief economist of the International Monetary Fund, wrote: “People who want to defend finance as-is now need to come out of the woodwork. Senator KAUFMAN has set a very high standard.”

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