You saw a marketplace there that was highly concentrated in six major dealers. You saw a marketplace where there was no transparency. Those dealers knew who their counterparties were, but did not know who their counterparties’ counterparties were. There was nobody with the overall view of what that credit concentration and credit risk was.

That’s what we were calling for regulation to do—to get information about all these counterparties’ exposures. Who was exposed to whom? It was obvious to me. We have this system of bank examiners—I don’t mean to disparage bank examiners, but they can be focused on the minutiae: “Are these forms being filled out correctly?” and they just miss the big picture of the big risk exposure and the functioning of a bank and its risk management. And the central banks allowing the capital to be set by the banks’ own internal models is just incredible.

TA: What would have happened had your recommendations been implemented in ‘94?

JB: AIG wouldn’t have happened.

TA: If AIG hadn’t happened—they were taking much of the super-senior risk and concentrating it in one place, you can follow it down the line, you would have much less lending to subprime housing, for instance. But you guys at that point were talking about interest-rate swaps:

JB: The credit-derivatives market was just being developed as we issued our report. We knew about it and we knew about AIG. Matter of fact, when you read about the regulatory gaps with the insurance companies, that’s what we had in mind.

We went up to meet with (CEO) Hank Greenberg up at his office at AIG to talk about our report and what we were recommending. He said “You can’t tell me anything about risk management. I’ve got control of this. It was out of control, but I’ve got control of it now. I have nothing to learn from you.”

The other thing that kills me—after our report came out and I was director of this group of about 120 people—some people in New York, Chicago, San Francisco—most in Washington. They did an amazing amount of work in the four or five years I headed that group. When Republicans took over the House, they cut GAO’s budget like 40 percent, partly I think as payback. They pretty much gutted the GAO’s ability to do this kind of work.

TA: Has it ever recovered?

JB: No.

TA: So if you were at GAO right now and were asked to do this kind of report you couldn’t do it?

JB: No, I don’t think you could do it, unfortunately.

One of the immediate fallouts from the big budget cut of the GAO was that we lost the New York office. I lost the people up there who helped do a lot of this work. I always gave them two directions: one, we want to be focusing on where the assets are—the big markets—and two, we want to focus on where the risk is. And that’s the way this derivatives report came about. It was growing rapidly, lot of exposure and big risk that no one was looking at.

TA: What do you think about how the press covers regulation?

JB: I think over the years the press, with a couple of key exceptions, the finance press is heavily influenced by industry. They take their side. To write their stories, financial reporters need to develop and maintain knowledgeable sources willing to speak on the record. These sources almost all come from the industry and naturally present the industry’s point of view. It is much more difficult for reporters to find informed, unbiased analysts willing to speak on the record. There is usually nothing in it for them to do so.

TA: Is the press more or less influenced than the regulators? Regulators from the last couple of administrations have identified with the industry and come from the industry…

JB: And this administration, too.

You get Larry Summers. You get Gary Gensler, who is actually the one who actively put in the deregulatory measure (Gensler, along with Phil Gramm, pushed the infamous Commodity Futures Modernization Act, which prevented the regulation of derivatives, most crucially the credit-default swaps that helped create the financial crisis). Then you’ve got their understudies. You’ve got Geithner. And then to take Geithner’s place at the Federal Reserve Bank of New York you get (William C.) Dudley. Well, Dudley is a former chief economist at Goldman Sachs.

President Obama needs to get away from this Wall Street-captured stuff.

TA: If the press identifies too much with the industry, what stories should it be doing now? What’s it missing?

JB: I think they’re concentrating too much on the proposals du jour without understanding or pointing out the fact that no one really understands what caused this financial collapse in this country and this incredible loss of wealth and this pain. And until you understand those causes you’re not going to be able to craft the correct solution.

But I don’t think the press can get at it. Unless you can get some examiner at Citigroup to talk on the record about “My God, we knew this place was a disaster, but Comptroller Dugan wouldn’t let us do anything about it.

TA: Which is unlikely.

JB: Extremely unlikely.

TA: Inside these agencies are people afraid to speak out?

JB: Oh, sure. You can pay a big price.

TA: How optimistic are you that the necessary reforms will be made?

JB: I think the same thing that happened (back in 1994), is going to be the same thing that’s going to happen now. The industry is already fighting back against anything really meaningful, but they’ll—as they did back then—they’ll form a study group and come up with some marginal stuff that won’t impinge upon their fees and upon their profitability. And that will be it.

TA: What should we be doing?