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Speaker 1: American International Group is no longer too big to fail.

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Speaker 1: That's according to the Financial Stability Oversight Council. The official

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Speaker 1: ruling from the Council is that a i G is

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Speaker 1: no longer a systemically important financial institution or city. The

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Speaker 1: label was pinned on it in in a step by

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Speaker 1: regulators to protect the financial system from companies seen as

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Speaker 1: posing a potential risk. AIGs collapse in two thousand and

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Speaker 1: eight was at the center of the financial crisis. With

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Speaker 1: that city label came stricter government oversight and tighter capital rules.

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Speaker 1: The Risk Council voted six to three to make the change,

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Speaker 1: with Treasury Secretary Stephen Manuchin and Federal Reserve Chair Janet

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Speaker 1: Yellen supporting it, along with several of the newer regulators

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Speaker 1: appointed by President Trump. Joining us is Robert Hockett, a

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Speaker 1: professor at Cornell University Law School Bob. The decision was

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Speaker 1: opposed by the director of the Consumer Financial Protection Bureau,

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Speaker 1: the chairman of the fdi C, and the director of

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Speaker 1: the Federal Housing Finance Agency, all Obama pointees. Was it

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Speaker 1: the right decision? Well, I'll say this much and again

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Speaker 1: thanks for having me on. It's not clearly the wrong decision,

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Speaker 1: even though it might be the often decision. And here's

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Speaker 1: why there have been substantial changes at a I G,

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Speaker 1: at least along one dimension that's actually relevant for these purposes,

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Speaker 1: and that has to do essentially with the short term

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Speaker 1: character of its liabilities. The problem with a I G

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Speaker 1: in two thousand and eight was that it was much

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Speaker 1: like a bank in the sense that it's derivatives business

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Speaker 1: was such as to render the firm prone to what

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Speaker 1: we call run risks, that basically, people might suddenly call

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Speaker 1: their various loans that have been made to I G

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Speaker 1: in various forms, so that A I G might suffer

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Speaker 1: a significant liquidity crisis. It has since then spun off

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Speaker 1: a lot of that derivatives business, and in that sense

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Speaker 1: it's less prone to run risk than it used to be,

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Speaker 1: and in that sense less bank like. On the other hand,

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Speaker 1: it still is have been very, very interconnected with other

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Speaker 1: financial firms throughout the economy. It still is also gigantic,

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Speaker 1: and indeed it's now looking into acquiring other firms and

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Speaker 1: becoming yet larger. So I think this is a kind

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Speaker 1: of a tough call. Miss. I'll say it wouldn't be

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Speaker 1: clearly right to keep it a city, But it wouldn't

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Speaker 1: have been clearly wrong to keep it one either, And

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Speaker 1: in this case as well, I don't think it's clearly wrong,

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Speaker 1: uh to sort of remove the designation as long as

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Speaker 1: it stays the way it has become since the crisis, Bob,

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Speaker 1: Prudential has been supposedly, you know, I'm laying the groundwork

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Speaker 1: to try to get a similar ruling. Does this ruling

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Speaker 1: mean the Prudential has got a good chance of getting

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Speaker 1: out from under the designation? I think it does mean that.

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Speaker 1: I think, I mean, there are a number of reasons

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Speaker 1: why it's probably why we should probably bet that it's

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Speaker 1: not going to remain ASSIFFI. One is this ruling which

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Speaker 1: suggests that the Council itself is becoming a little bit

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Speaker 1: less strict than it was, and that's no surprise because

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Speaker 1: of all the Trump appointees. And the second is because

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Speaker 1: in effect, Prudential has a bit of a blueprint now

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Speaker 1: after looking at what happened at g E Capital, what

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Speaker 1: happened at MetLife, and what happened at a I G.

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Speaker 1: It has a kind of blueprint for what it has

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Speaker 1: to do to look less systemically significant in the eyes

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Speaker 1: of the Council. Bob, you explained how A I G

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Speaker 1: Is a smaller, leaner company. Now it's sold off a

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Speaker 1: hundred billion dollars in assets, but the announced goal of

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Speaker 1: its CEO is to now expand through mergers and acquisitions.

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Speaker 1: Is that a dangerous move? It's definitely potentially dangerous. I

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Speaker 1: certainly didn't mean to suggest that A I G is

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Speaker 1: an extent small or lean um. It's it's definitely small lurb.

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Speaker 1: But as I mentioned before, it does intend to grow,

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Speaker 1: and of course many of its shareholders are demanding this

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Speaker 1: carl Icon among them, So it's going to become gigantic

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Speaker 1: again if it's not indeed still gigantic. And therefore I

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Speaker 1: think that the real focus of the f stock was

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Speaker 1: probably on the liquidity risk that the institution faced. In

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Speaker 1: other words, how panic prone was it right, how bank

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Speaker 1: run vulnerable was it? As long as it stays uh

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Speaker 1: sort of less bank like in that particular sense, my impressions,

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Speaker 1: the F stock is going to be less concerned even

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Speaker 1: while it grows. Now. I don't think that's good necessarily.

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Speaker 1: I think that size matters, and interconnectiveness matters even more.

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Speaker 1: But it looks as I the F sac is currently

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Speaker 1: focusing on liquidity risk and in so far as the

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Speaker 1: i G seems to be less liquidity risky than it

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Speaker 1: once was, the Fox seems to be viewing it as

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Speaker 1: in effect favor or less systemically dangerous. Well, Bob, you know,

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Speaker 1: as with many of the court decisions, we see it,

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Speaker 1: it looks like the who appointed the members has a

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Speaker 1: big impact here. Is this really something that you think, uh,

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Speaker 1: is you know, kind of based upon say, liquidity risk

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Speaker 1: or is it is it just going to be one

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Speaker 1: of these things where it depends which president appointed the

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Speaker 1: members of the Council at the time as to how

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Speaker 1: it gets enforced. Well, I sincerely hope that it's not

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Speaker 1: the ladder um. But that being said, I fear that

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Speaker 1: it is in large part the ladder. That's just say

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Speaker 1: to Trump has announced his intention right from the get go,

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Speaker 1: and even back in January, notwithstanding all of his campaign

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Speaker 1: promises to go much lighter on Wall Street. Even then

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Speaker 1: the Obama administration had done and we should be clear,

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Speaker 1: the Obama administration was not particularly rough on Wall Street,

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Speaker 1: nor were the Congresses that were in session during Obama's presidency.

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Speaker 1: But nevertheless, Trump said he's going to go deeven lighter

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Speaker 1: and it seems pretty clear that he's appointing people who

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Speaker 1: have that intention. Bob in about thirty seconds about how

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Speaker 1: much money does a I G save by not being

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Speaker 1: a city. Oh, that's hard to calculate. Um, It's it's

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Speaker 1: not just a matter of how much it saves in

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Speaker 1: the form of costs to sort of put together living

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Speaker 1: wills and the like. It's also a matter of how

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Speaker 1: much capital it no longer has to sort of maintain

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Speaker 1: as a buffer, and thus which is able to invest

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Speaker 1: in a sort of more speculative and it's potentially profitable

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Speaker 1: but also potentially dangerous manner. I don't know that I

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Speaker 1: can actually quantify that right here, June, you've done large.

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Speaker 1: You've explained so much to us. One of our favorite guests,

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Speaker 1: that's Bob Hocket. He is a professor at Ornell University

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Speaker 1: Law School.