Future historians rummaging through the archives of the Washington Monthly might stumble upon a chilling article about a coming "financial conflagration … [E]very taxpayer in the country is on the line." The author was not some alarmist wacko, but a U.S. senator. And the year was not 2007, or even 2001. North Dakota Sen. Byron Dorgan expressed his fear of "exotic new derivatives called 'swaps' " way back in 1994. Five years later, when Congress passed legislation lowering the barriers between brokerages and banks, Dorgan told The New York Times, "I think we will look back in 10 years' time and say we should not have done this. " It's been 10 years, and Dorgan was dead-on. He spoke to Eric Adelson while visiting flood victims in his home state.
How did you see this coming?
I saw the development of these complicated financial instruments … and it occurred to me that it's an unbelievable amount of risk. I introduced several pieces of legislation to regulate it, but my warnings were widely ignored.
I guess they thought I was old-fashioned. The financial establishment had no interest in slowing down the march toward modernization. But the firewalls were made of tissue paper.
What was it like watching your fears realized?
It makes you sick. I felt strongly that if the banks want to gamble, go to Las Vegas. There's very little solace in being right, given the carnage. This is one of the most expensive lessons in American history.
What are you calling for now?
There needs to be a select committee of the U.S. Senate. We need to know what has happened here. I don't think anyone has established a narrative. We also need to restore a portion of the separation [between the banks and the brokers]. The securitization of credit has to be dramatically changed or abolished.
How are these ideas being received?
I requested a meeting with the president last week, and I put together a group of six other senators to join me. We presented him with what we thought was necessary financial reform.
I remain worried that modernization can't put a patch on things. There's a culture that's been developed on Wall Street and in Washington that what was done was a worthwhile thing because we were competing. We all want healthy banks. That's important. But what has happened is the big companies have spun out of control, like hogs in a corn crib.
One of the proponents of the change in regulations was then Treasury secretary Lawrence Summers, who's now Obama's Director of Economic Council. How confident are you that real reform can happen with Summers by the president's side?
[Pause] I offered the president my advice about financial advisers early on. I'll leave it at that.