[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
              STATE OF THE INTERNATIONAL FINANCIAL SYSTEM

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 25, 2004

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-75







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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSSELLA, New York              CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey            CHRIS BELL, Texas
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 25, 2004...............................................     1
Appendix:
    March 25, 2004...............................................    35

                                WITNESS
                        Thursday, March 25, 2004

Snow, Hon. John W., Secretary, Department of the Treasury........     7

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    36
    Baca, Hon. Joe...............................................    38
    Emanuel, Hon. Rahm...........................................    40
    Gillmor, Hon. Paul E.........................................    42
    King, Hon. Peter T...........................................    43
    Snow, Hon. John W............................................    45

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    "White House Warms up to Worker Aid'' article, The Washington 
      Post March 13, 2004........................................    56
Snow, Hon. John W.:
    Written response to questions from Hon. Joe Baca.............    58
    Written response to questions from Hon. Spencer Bachus.......    64
    Written response to questions from Hon. Scott Garrett........    65
    Written response to questions from Hon. Peter T. King........    68
    Written response to questions from Hon. Barbara Lee..........    69
    Written response to questions from Hon. Carolyn B. Maloney...    73
















              STATE OF THE INTERNATIONAL FINANCIAL SYSTEM

                              ----------                              


                        Thursday, March 25, 2004

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:10 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] Presiding.
    Present: Representatives Oxley, Bachus, Royce, Lucas of 
Oklahoma, Kelly, Paul, Ryun, Ose, Green, Tiberi, Kennedy, 
Hensarling, Garrett of New Jersey, Brown-Waite, Frank, Waters, 
Sanders, Maloney, Watt, Carson, Sherman, Lee, Inslee, Moore, 
Hinojosa, Lucas of Kentucky, Crowley, Israel, Baca, Emanuel, 
Scott, and Bell.
    The Chairman. The committee will come to order.
    We are pleased today to have the distinguished Secretary of 
the Treasury, Mr. John Snow, testify. Mr. Secretary, welcome 
back to the committee. It is always good to have you here and 
to hear from you. We look forward to your testimony on the 
State of the International Financial System.
    This hearing has its origins in the emerging market 
financial crisis of the late 1990s and subsequent reform of the 
international financial institutions. The goal was to make the 
International Monetary Fund, the World Bank, and the regional 
development banks, more effective at promoting and delivering 
economic growth, particularly in the emerging markets. Congress 
exercises its oversight regarding the reform efforts by 
requiring the Secretary of the Treasury to report annually to 
Congress. Since the G-7 is integral to reform, we also seek 
perspective on the G-7 agenda to promote global growth and 
development policy.
    Mr. Secretary, the Treasury Department has engaged in a 
number of successful international programs over the last year. 
Let me focus on a few of the more important initiatives:
    Fostering global growth. The Treasury Department, under 
your leadership, has taken a broad view of how to link 
development, trade, and macro-economic policy to create an 
environment that can foster global growth. The Treasury's 
leadership in working with our G-7 allies to craft an 
international agenda for growth is to be commended. Last week, 
the Council on Foreign Relations released a study that 
identified transatlantic economic cooperation as one of the 
five key ways to strengthen the relationship between the U.S. 
and the EU. They noted in particular that transatlantic 
commerce approaches $2.5 trillion per year and employs directly 
or indirectly some 12 million workers in Europe and the United 
States.
    It is good to see that increased regulatory transparency 
and coordination have been identified as areas for additional 
work within the G-7. One area of particular interest in this 
connection is the U.S./EU regulatory dialogue. Economic growth 
cannot occur if financial institutions are overburdened with 
conflicting regulatory standards. I will be particularly 
interested to learn how the US/EU dialogue can be used to 
promote growth across the Atlantic and reduce costly regulatory 
barriers where appropriate.
    I note also the importance that remittances can play to 
degenerate real economic growth in emerging markets throughout 
the world, not just Latin America. Remittances between 
established and emerging economies foster growth in both types 
of economies simultaneously. I will be interested in hearing 
your views on how unnecessary costs can be eliminated in this 
area. As you know, this is an issue of importance to this 
committee. We held a hearing on the issue last fall, and 
recently some members of this committee sent you and Ambassador 
Zoellick a letter on the topic.
    As for free trade, as you know, I believe firmly that free 
trade and growth through exports is a fundamental building 
block for economic prosperity and democracy both at home and 
abroad. The Treasury Department, through the executive 
directors at the multinational lending institutions, has 
encouraged the establishment of programs aimed at creating 
market-based economies that are open to trade.
    At home, the Treasury Department is the lead negotiator for 
the financial services chapters for all trade agreements. I 
support your efforts to open markets for our financial services 
firms and your efforts to create the trade-friendly 
environments to help emerging market economies grow.
    Through the G-7, you have provided leadership and support 
for countries around the world to move towards flexible market-
driven exchange rates. As you know, I co-sponsored H.R. 414 
last fall. That resolution promised that Congress would work 
with the administration to help China move as quickly as 
possible to a more flexible exchange rate. Since that time, the 
Treasury Department has dispatched a team of technical experts 
to advise the government of China, and China has announced that 
it will move towards a more flexible exchange rate system in 6 
years. These are promising developments.
    As to performance-based standards for developing programs, 
your Department has shown great leadership in fostering the 
development of performance-based standards for development 
programs both within the World Bank and at home with the 
Millennium Challenge Account. You have also led the effort to 
incorporate external audits of performance standards within 
development institutions. This is particularly positive since 
appropriations for the multinational institutions are now 
expressly conditioned on such external audits occurring. We 
look forward to seeing progress in this area.
    As to rebuilding financial systems in Iraq and Afghanistan, 
again, the Treasury Department and civilian employees have been 
among the first and most successful teams on the ground in Iraq 
and Afghanistan.
    No economy can function without reliable banking and 
payment systems, and your team has helped create new 
currencies, banking systems, modern payment systems, and free 
and open capital markets. I congratulate you and your people 
who work under dangerous conditions to make these things 
happen.
    And, finally, on Argentina and the IMF. Challenges remain, 
of course. The most critical of these challenges is, once 
again, Argentina and its relationship to the IMF. Since being 
cut off from international capital markets, Argentina's economy 
has grown because it has not been paying its debts. It has been 
servicing debts to one development institution with payments 
from another. This sends troubling signals to other sovereign 
borrowers around the world, especially those who continue to 
service their debt in good faith. I will be very interested to 
hear your views on how the Argentine situation can affect the 
reform debate within the G-7 and the IMF.
    And I now yield to the gentleman from Massachusetts for an 
opening statement.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 36 in the appendix.]
    Mr. Frank. Mr. Secretary, this is a hearing on the 
international financial setting. A number of members obviously 
have concerns about domestic issues that are equally, if not 
more, important. I want to mate the two. I support many of the 
specific proposals that you are making. You are asking us to 
provide more money for debt relief. The gentlewoman from 
California, who sits next to me, was one of the leaders in 
getting the Congress to address this. I was glad to work with 
her.
    I think we aren't doing enough to alleviate the crushing 
burden of debt on poor people. There is more money for the 
multilateral development banks which can be, if done well, used 
very importantly. There is a Millennium Challenge Account. 
There are a number of very important initiatives here. There is 
a question of trade, where we would have some differences, but 
I believe that properly structured trade is very important both 
for our own economy and for poor people.
    The problem is, I believe, that we are in a situation in 
the United States today where there is enormous public 
resistance to many of those things which you want. And it is--
that is the linkage.
    President Kennedy said once talking about his efforts to 
promote international cooperation, he talked about Franklin 
Roosevelt, who had initiated the good neighbor policy, a 
reversal of the policy of America sending the Marines to Latin 
America, and instead trying to talk about relations of mutual 
respect. And he said, and President Roosevelt called that the 
``good neighbor policy.'' and President Kennedy said Franklin 
Roosevelt could be a good neighbor abroad because he was a good 
neighbor at home. That President Roosevelt was able to get the 
support, he started the reciprocal trade acts and got Congress 
to give him much more power in the trade area, and began to 
move into the international area because the American people 
believed that he was someone who was also looking out for their 
welfare.
    Unfortunately today there are an increasing number of 
Americans who do not feel that the Federal Government is being 
a good neighbor at home, and they are therefore resistant to 
being a good neighbor abroad.
    I do not think there are many Members of Congress who did 
not hear frequently when the question of the $87 billion 
appropriation came up last year, why are you sending that money 
to Iraq? Why don't you keep it here? I don't agree entirely 
with that formulation. I think we had obligations and have 
obligations in Iraq. But that sentiment, I have to tell you, I 
think if you were to come back with another 76 billion, it 
would be a hard sell. My impression is you are going to have a 
very hard time getting trade treaties through if you even bring 
up most of them.
    I would anticipate great difficulty if we went forward with 
some of the requests for the multilateral development banks. 
And, as I said, the problem is the perception of many Americans 
that they are not being treated fairly.
    Now, much of the argument for the policies you are putting 
forward, the trade areas certainly, is that these are in the 
interest of growth for America. Increasingly, there are 
American workers who do not see growth as benefiting them. And 
I was struck by your comment last October, and as you know, I 
discussed this publicly, and it was a very fair comment. In 
October of last year when you predicted that we would be 
hitting 200,000 new jobs a month, which we said we have fallen 
far short of hitting, you said--and I wanted to go back, and I 
didn't think you just made a random guess. And you said quite 
reasonably at the time: Everything I know about the American 
economy says that with the growth we were then getting--and 
that was at the end of a very good growth quarter. You said: 
Given this level of growth, we can expect a certain number of 
jobs.
    Well, that was a fair expectation at the time, and it turns 
out that it is not accurate. Not because you misguessed. You 
accurately looked it where the economy had been. This economy 
has changed. The number of jobs that we produce for a given 
level of growth has, at least temporarily, stopped. We have now 
got to contemplate the problems of not generating sufficient 
employment to keep up with the growth of our workforce. We had 
all assumed that those were largely cyclical. We now have to 
think about to what extent there is a structural element in 
that, and we don't--not enough evidence is in for a final 
conclusion, but enough evidence is in to say this is a question 
we have to deal with.
    But if public policy ignores that question, what you get is 
a degree of resistance among the American voters and the 
American citizenry to the very international programs you want 
to promote.
    So I don't want us to stop being a good neighbor abroad. I 
want us to be a better neighbor. I think we should be doing 
more with regard to debt relief. I am in favor of the 
Millennium Challenge Account and kind of want to increase--not 
maybe with every detail, I want to increase even more what we 
do there. But I believe we are at a point of great resistance. 
And unless we can demonstrate to the average American worker 
that we care more about him or her than they think, we are in 
trouble.
    And as I close, I will just give a couple specifics. Coming 
here, as you do, and telling us that we should be voting money 
for these various things which I heartily support while we 
can't get an extension of unemployment compensation is very 
counterintuitive. And when you have Americans who are out of 
work because they are told we can't afford to extend 
unemployment compensation at a time when unemployment is much 
higher than we had hoped it would be, but we are going to send 
these monies overseas, that is exactly what John Kennedy put 
his finger on, and these two are therefore very closely linked.
    The Chairman. The gentleman's time has expired. The 
gentleman from California, Mr. Royce.
    Mr. Royce. Thank you for the opportunity to make a few 
opening remarks here.
    And, Secretary Snow, welcome. For whatever it is worth, I 
want to say that I think you and your team at the Treasury have 
been doing an outstanding job on a number of issues. And in the 
context of today's hearing, my own belief is that Treasury has 
not received the credit it deserves for your role in 
negotiating debt relief for the new Iraqi government. James 
Baker was extremely successful, but that did not just occur 
overnight. Treasury really tied everything up nicely.
    And I was also very encouraged to see the creation of the 
Office of Terrorism and Financial Intelligence in the Treasury 
Department.
    I believe that Treasury contains the tools and 
institutional knowledge that are critical for our country's 
successful war against terrorist financing. Many agencies 
including CIA, Homeland Security, Justice, State, and Defense, 
possess certain resources that also help us fight terrorist 
financing, but Treasury should be the lead agency in the fight.
    I think the President should frankly appoint a special 
envoy or a czar for terror finance. We really, I think, have 
got to the point where most of us understand we need one person 
who reports directly to the President totally focused on this 
issue. Foreign governments want to deal with one person, and 
they want to deal with one person only, and that person needs 
to have the President's ear.
    In the meantime, resources and authority at the Treasury 
need to be greatly bulked up. For one, the Treasury, not the 
National Security Council, should chair the Policy Coordinating 
Council on Terror Finance. The new Office of Terrorism and 
Financial Intelligence should house the staff for the PCC, 
which would further enhance Treasury's stature as the lead 
agency.
    Additionally, the Financial Crimes Enforcement Network 
should be more active in compliance. Since Treasury is the 
Department with Bank Secrecy Act and PATRIOT Act authority, it 
needs to have audit and compliance officers in-house. Other 
financial regulators like OCC and OTS are more concerned about 
safety and soundness. FINCIN should have a complete set of 
tools, and we here should ensure that you have those tools.
    I would also like to see the administration relocate the 
Foreign Terrorist Asset Tracking Center from CIA to Treasury. 
CIA has enough on its plate and does not have the same 
expertise in this area as Treasury has.
    Mr. Secretary, I understand that you probably do not want 
to comment publicly on what I have just outlined, and I am not 
asking you to do so. At some point, though, I would like to see 
someone from the administration come here and explain to us why 
Treasury does not currently have a broader mission on the fight 
against terrorist financing. From the perspective of a member 
of the committee and of the International Relations Committee 
as well, I am not pleased with the current structure. And I 
want you and your team to have greater authority and 
responsibility in this area.
    Just yesterday, in the International Relations Committee, 
we heard testimony on Saudi-related terrorist activity. Greg 
Bair, who is a former CIA station chief in the Middle East, 
agreed with me that terror finance needs more attention and 
needs the attention along the lines that I have outlined here.
    And, secondly, Mr. Chairman, I would like to submit for the 
record an opening statement from Peter King, who is our 
subcommittee chairman on domestic and international monetary 
policy as well, if I could, without objection.
    The Chairman. Without objection.
    [The following information can be found on page 43 in the 
appendix.]
    The Chairman. The gentleman's has time expired. The 
gentlelady from New York, Ms. Maloney.
    Ms. Maloney. Thank you, Mr. Chairman.
    And welcome, Secretary Snow. And congratulations on all 
your hard work. I would like to add to the opening statement of 
the distinguished ranking member, Mr. Frank, on being a good 
neighbor at home and abroad. And the escalating numbers of 
unemployment are tremendously troubling to my constituents. We 
have lost 3 million private sector jobs, a 2.2 net job loss 
when you include the public sector. And last month we only 
created 21,000 jobs. We would have to create 200,000 jobs a 
month for the next 10 months just to bring this country back to 
the place where we were when President Bush took office. Yet, 
at the same time the administration appears to be unsympathetic 
to the needs of the unemployed. The jobs are not there, yet 
they are not extending unemployment benefits.
    I am also deeply concerned, as many of my colleagues on 
both sides of the aisle, about the rise in the deficit over the 
last 3 years, which is of historic proportions.
    Since 2001, the administration's Office of Management and 
Budget forecast for publicly held debt over the 7-year period 
of 2001 to 2008 has increased 4.4 trillion to 5.6 trillion. 
That is 4.4 trillion more debt under the Bush administration. 
And currently, foreign investors hold 1.6 trillion of U.S. 
debt, a 27 percent increase over a year ago. I find that 
tremendously troubling to the future economy of our country. 
Should foreign investors lose confidence in our economy and 
reduce this investment, our constituents could face serious 
consequences, including a dangerously weak dollar and increased 
credit card and home mortgage interest rates.
    And while the administration actually on the floor today 
claims its new budget will address the situation by cutting the 
deficit in half, the Bush record, over the past 3 years is of 
rosy predictions, and but it is followed by a ballooning 
deficit and more job loss.
    The budget put forth by the administration for fiscal year 
2005, which does not include funding for Iraq, would seem to be 
more of the same.
    And I am also interested in your comments on 
administration's support for heavily indebted poor countries. 
And I certainly applaud the efforts of Treasury and Secretary 
Baker in engaging France and Russia in their efforts for debt 
relief in Iraq. The work to resolve the Iraqi debt crisis has 
only begun, and I have heard from NGOs in the region that the 
pledges of partial debt cancellation are proving to rise and 
raise the value of outstanding debt of Iraq, which means that 
the country could be required to pay more after debt relief 
than they would prior to such agreements. And this troubles me 
in two fronts: Debt surface will come at the cost of health 
care, education, and basic needs of the Iraqi people. At the 
end of the day we do not want to see the U.S. contribution to 
Iraq sent off to other countries for debt service.
    And, finally, I look forward to an update on the 
cooperation the Department is receiving on the international 
effort to cut off terror financing.
    Again, I thank you for your hard work, and we appreciate 
your testimony today.
    The Chairman. The gentlelady's time has expired. We now 
turn to the distinguished Treasury Secretary for another 
appearance before the committee. Mr. Secretary, we are honored 
to have you here. And I know the hearing is titled the State of 
the International Financial System, and obviously a lot on our 
plate in a lot of different areas. So we appreciate your 
participation today, and we are glad to have you back.

 STATEMENT OF HON. JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE 
                            TREASURY

    Secretary Snow. Mr. Chairman, thank you very much. Ranking 
Member Frank, distinguished members of the committee. It is 
always a pleasure to appear before you and continue the 
exchange of ideas that has been going on now for some 
considerable period of time.
    On the issue of the state of the global economy, I think it 
is clear we are in a lot better condition today in the global 
economy than we were a year ago at this time. The U.S., the 
leading economy in the world, is in a much better position. It 
is on a good growth path. GDP rose in the last half of the year 
at 6.1 percent, the highest in 20 years. All the private 
forecasts indicate that the economy will grow between 4 and 5 
percent this year. The highly regarded blue chip forecast came 
out earlier this week indicating a revised upward growth of 4.7 
percent. And in Japan, we are seeing better results, for the 
first time in a number of years, we are seeing considerable 
growth there. In Europe, while the growth is less satisfactory, 
there are a number of efforts underway across the Euro zone, to 
take steps to improve the performance of those economies.
    I appreciate, Mr. Chairman, your comment on our leadership 
in the G-7 on the agenda for growth.
    I think there is a recognition now that we have a growth 
deficit in the world economy, and that growth deficit hurts the 
United States. We grow more slowly when Europe and Japan grow 
more slowly, and when the developing countries grow more slowly 
it has hurt job creation in the United States, it has hurt 
exports in the United States. As we grow, we help the rest of 
the world; and as the rest of the world grows, they help us. 
Growth is no accident. Growth occurs because of the adoption of 
good policies. And what we are seeing around the world is 
increased attention to adoption of good policies.
    The IMF and the World Bank and the other multilateral 
development banks have an important role to play. In my 
submitted statement, I review in some detail progress which is 
being made there. Let me just mention a couple of things, 
because I know it is of great interest to you.
    One, the IMF has narrowed its conditionality so that when 
funds are extended there is the expectation of real reform 
occurring, and sustainable growth the end product of the 
extension of the financings. At the IMF as well, this past year 
we have seen important movement forward on sovereign debt with 
the widespread adoption of this concept of the CACs, the 
ability to work out through collective action clauses the 
sovereign debt issues that may arise. It has been a very 
helpful note, and the United States has taken the lead in 
moving the world in that direction.
    At the World Bank, we have seen a movement from loans to 
grants dealing with this issue of heavy indebtedness. It 
doesn't make any sense to continue to extend loans to countries 
that can never, never pay them back, and the World Bank has 
responded, I think, in a very positive way. And both 
institutions have focused more on real bottom-line results, on 
metrics, and on milestones. And I appreciate the support we 
have gotten from the committee in those efforts.
    While progress has been made, we are not satisfied. Neither 
is the leadership of the World Bank or the IMF. We have 
extensive discussions with them. They recognize they need to 
get even better at focusing on real results, measurable 
results; that they need to use the private sector more 
effectively, and they recognize the need for better 
macroeconomic surveillance. They also recognize, and this is a 
point we continue to make, that they are dealing with U.S. 
taxpayer monies as well as taxpayer monies from other 
countries. And the U.S. taxpayers properly--properly, should 
demand and do demand real results.
    I agree with Congressman Frank that we have a great stake 
in the world economy. We have a stake in the developing world. 
We have an obligation to try and advance better policies and 
sustainable growth. But we also have to do it in a way that 
respects U.S. taxpayers and assures that the U.S. taxpayers get 
real results from our support for those institutions.
    This is a time of real opportunity. The United States, for 
the first time in 7 years, is chairing the G-7, G-8. The 
President of course will host the other world leaders at Sea 
Island. We also have the chairmanship of the G-7 finance 
ministers, I intend to use that well to build even greater 
support for these core ideas that we think make the world a 
better place and make the IFFIs perform more effectively.
    With that, Mr. Chairman, I thank you very much and look 
forward to your questions.
    [The prepared statement of Hon. John W. Snow can be found 
on page 45 in the appendix.]
    The Chairman. Thank you, Mr. Secretary. And, again, it is 
good to have you back.
    Before I start the questioning, first of all, all members' 
opening statements will be made part of the record. Without 
objection.
    While it pains me, Mr. Secretary, I have to announce the 
score of the basketball game last night, since we do have a 
couple of players here. First of all, the final score was 27 to 
26 in favor of the Democrats. One of the lowest scoring games 
in the history of the Gallaudet Classic. The shooting 
percentage on both sides was quite extraordinarily low, Mr. 
Secretary. I know you are an old basketball player and would 
appreciate the fact that it was--our excuse was that nobody was 
really in shape. But at the end of the day, the winner was the 
Gallaudet University, the only school in the country for the 
deaf. And it was quite an exciting game. I want to congratulate 
particularly the gentleman from New York, Mr. Crowley, the 
gentleman from California, Mr. Baca, who were on the victorious 
team. The gentleman from Illinois had nothing to do with it. 
And Mr. Ose on our side was also a participant. But I thought 
in the interest of full disclosure, Mr. Secretary, I would 
announce that to the members.
    Let me return now to the Group of Seven Agenda For Growth 
issue. And certainly I think all of us are encouraged by the 
innovations achieved within the G-7 just in this past year. And 
I want to focus, if I might, on my first question on one 
detail. Your written testimony this morning indicates that as 
part of the G-7 Agenda For Growth, the UK is proposing a 
collaborative initiative on regulatory reform across the EU. 
How does this initiative coordinate with the existing US/EU 
dialogue for financial regulators? And how could a mechanism 
such as that US/EU dialogue be used to promote growth for 
American financial services, markets, and firms?
    Mr. Secretary, as an aside, I have had numerous discussions 
with parliamentarians in Great Britain as well as from the 
European parliament. Obviously, this is a huge potential growth 
opportunity particularly for financial institutions firms, and 
I wonder if you could elaborate on that?
    Secretary Snow. Thank you very much, Mr. Chairman. I will 
do my best.
    This is an issue that the Treasury plays an important role 
in. The SEC probably plays the lead role, but we are very much 
party to the financial dialogue, the EU/US financial dialogue 
and the UK dialogue. The Sarbanes-Oxley legislation of course 
is a great impetus since it changed our securities laws in some 
fundamental ways and corporate governance rules, at the same 
time that it has affected the accounting industry and 
represents the most sweeping changes in our Federal securities 
laws since the new deal. And Europe recognizes the need for 
some harmonization with us so that their companies can have 
access to our markets and our companies can have access to 
their markets.
    The issue that is directly before us of course is the EU 
requirement for an equivalent supervisor for financial 
institutions, equivalent to what they have on the other side of 
the Atlantic. I think we accept the validity of that point of 
view. There needs to be an equivalency. It doesn't have to be 
precisely the same, it has to be substantively comparable.
    And in talking with the EU ministers, I am encouraged, and 
an awful lot of progress is being made on that subject. The UK 
of course is not a member of the EU, so they have their own 
financial services administration, which is their financial 
insurance and banking and regulator that oversees these 
matters. And the FSA is making good progress with the EU as 
well in harmonizing between themselves.
    There is a rich dialogue on this subject. I think we 
understand each other, and I think we are making good progress 
in accommodating each other.
    The Chairman. Thank you, Mr. Secretary. Let me ask you 
about external performance audits. As you know, the 
Appropriations Act of 2004 would call for performance, external 
performance audits regarding international financial 
institutions, and I note you mentioned the Sarbanes-Oxley Act. 
And in that vein, why is that important? And are we making 
progress in terms of the effectiveness of those performance 
audits?
    Secretary Snow. I think the legislation is tremendously 
important. Everybody needs to be accountable. And what the 
legislation does by requiring outside audits is to assure 
accountability. And we have had extensive conversations with 
the World Bank. They understand that we cannot support the 
enhanced payments for performance, the performance payments 
unless there is an audit that satisfies us that the progress on 
the various metrics is being made. I think it is a simple issue 
of accountability, and the legislation was right to insist on 
it and we are going to insist on it as well.
    The Chairman. Thank you. And, finally, on IMF reform, I 
just want to talk--and I appreciate your testimony on Argentina 
IMF issues. But on lending limits in particular, the IMF of 
course used to restrict available resources to a multiple of 
each country's IMF quota. Your testimony would indicate that 
progress is being made on narrowing and specifying the 
circumstances on which countries could access large-scale IMF 
lending. This obviously could be a step in the right direction 
if crafted and implemented properly. Could you provide more 
details on the current thinking on this lending limits issue?
    Secretary Snow. Well, it is an extremely important issue, 
and it goes right to the center, I think, of making these 
international financial institutions and really the 
international financial system work appropriately and 
accountably. There are conditions where clearly the IMF needs 
to serve as a lender of last resort, but it can't be every time 
a country finds itself in some difficulty. We have been working 
with the IMF to limit the cases of exceptionality, that is, the 
cases where their debt or credit will be extended to those that 
really justify a lender of last resort access. And that is the 
core issue.
    The IMF has moved a long way in that direction to narrow 
this exceptionality, and I think, Mr. Chairman, we have seen 
good progress. We want to continue to see that concept though 
honed even further so that the world financial system, the 
sovereigns of the world, the developing countries who would 
seek access would have a clear sense, would have clarity and 
transparency on when access would be made available.
    The Chairman. Thank you. My time has expired. The gentleman 
from Massachusetts.
    Mr. Frank. Mr. Secretary, I think we may be about to set 
the record for quick compliance with a request from the cabinet 
officer. The last part of your testimony you asked us to take 
action on the Senate version of the NADbank bill. Thanks to the 
gentleman from Texas, Mr. Hinojosa, we debated that yesterday, 
and we are going to vote it through in about an hour.
    Secretary Snow. Wonderful.
    Mr. Frank. So you are doing pretty good.
    On another issue where I am much less in agreement, 
peripheral but international. The director of the Office of 
Foreign Assets Control has just made it clear that editing with 
the enemy will now be considered a serious threat to American 
national security. That is, you have interpreted in your 
department law involving trading with the enemy, et cetera, so 
that scholarly journals or others who receive manuscripts from 
Iran cannot edit them, must print them verbatim. Our colleague, 
Mr. Berman, who offered an amendment that said let us not use 
this as a way to do censorship intellectually, has called the 
interpretation ludicrous and absurd.
    I disagree with Mr. Berman. I think he is being much too 
kind. I think it is just nuts. I mean, it just is unseemly for 
the United States of America to be afraid of anybody's ideas. 
And the notion that we would try to restrict people from 
editing and publishing really troubles me. Yes, we should be 
very tough about all kinds of contraband. We don't want them to 
get economic benefit. But I really argue, I have written, along 
with Mr. Berman--I really urge you to reconsider. Let us not 
look like America is worried that if some Iranian sends some 
article and it is edited or translated that that somehow is a 
threat to the strongest Nation in the history of the world.
    Secretary Snow. Congressman, it won't shock you to know 
that this isn't the first time that something has come out of 
Treasury that I was not aware of. And it probably won't be the 
last. But I will look into that.
    Mr. Frank. Thank you.
    Now, back on the main theme, which is my main theme. How do 
we build more support within the United States for the 
international approaches in part by dealing with the problems 
that these things happen? I think what we need to understand, 
and you do, Mr. Greenspan does. Obviously things happen that 
are in the long run, even the intermediate run, a benefit of 
the economy, but those benefits and the burdens are not shared 
equally. And I don't think we do a very good job at this point 
of alleviating the burdens of those who have to bear them so 
the rest of us can have the benefit. And this is a particularly 
good example now with regard to trade adjustment assistance.
    And I am going to ask, Mr. Chairman, to put in the record 
an article from Paul Blustein of the Washington Post on March 
13th.
    The Chairman. Without objection.
    [The following information can be found on page 56 in the 
appendix.]
    Mr. Frank. About trade adjustment assistance. Because as 
the article points out: For months, the Bush administration has 
been fighting a lawsuit brought by a group of computer 
programmers whose jobs were outsourced abroad, arguing that 
they don't qualify for government benefits aimed at people 
coping with layoffs caused by imports. And apparently it is the 
legal interpretation that, because they were providing this 
service and not a good, they are not covered. I am not going to 
argue the law here, but why was not the administration 
instantly saying, good point, we didn't think about that, 
look--you know, 10 years ago when we were telling people we 
were going to retrain them, we are retraining for some of the 
jobs now being outsourced.
    Leave aside the question about whether outsourcing is good 
or not. We could debate all that. One of the things that I hope 
would not be debatable is that government clearly has the 
responsibility for easing the pain of transitions. And we don't 
do that very well.
    At a hearing, Senator Baucus, who was very involved in this 
asked, I guess, Mr. Zoellick what the administration's position 
would be on changing the law, and he hinted, according to the 
paper, that they might be willing to change the law. And the 
White House spokeswoman Claire Buchan said that is something 
that is being looked at. And Mr. Zoellick then said that is 
something we should examine very closely.
    Frankly, one needs to look at the cost aspects of this as 
well. Worrying about how much it is going to cost to provide 
this assistance to people who are losing their jobs to 
outsourcing is a very good way to build more and more 
opposition to outsourcing. And those who think that this is an 
inevitable part of the transitional global economy, I mean, 
what is the matter with these people? How do you go to them and 
say, okay, this is very good? I mean, Mr. Greenspan talks about 
creative destruction. Joseph Schumpeter was a wonderful 
economist, but he is less persuasive to people who have lost 
their jobs than Mr. Greenspan apparently realizes.
    So let me ask you. Could you just tell us now that the 
administration will support and help us move quickly 
legislation to cover these people in trade adjustment 
assistance?
    Secretary Snow. Congressman, I am not an expert on that 
trade adjustment assistance legislation, but the issue is being 
reviewed. And, as I understand it, while service workers are 
not included under the TAA, there are other programs which are 
applicable that are under the jurisdiction of the Department of 
Labor. And Secretary Chao is leading an effort to make sure 
that those programs, that the availability of those programs is 
widely known and communicated to people who might be able to 
draw on them.
    I agree with your premise. We live in a period of enormous 
change, accelerated change, and we owe people opportunities to 
retrain, to go through the transition, to work their way 
through the transition, to minimize the cost personally.
    Mr. Frank. The Labor Department--yes, there are some 
things, there are differences in the programs. Why not make 
these people eligible? Let me put it this way: If when we were 
drafting this law originally people could foresee the 
outsourcing, of course they would have been included. It is 
counterproductive not to do it. And let me just elicit what I 
think is a repeat of administration policy even more directly 
relevant here. Am I correct that the administration does 
support the 6-month extension of unemployment benefits?
    Secretary Snow. The issue has come up I think three times 
since the administration took office, and every time that the 
proposals have come----
    Mr. Frank. Well, currently. The problem, of course, is that 
it comes up in the Senate, but it doesn't come up in the House 
because the leadership won't let it. But does the 
administration favor another extension of unemployment?
    Secretary Snow. Well, I think the administration's view is 
that if the Congress acts on it, that the President would sign 
the legislation.
    The Chairman. The gentleman's time has expired.
    The gentleman from California, Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman.
    Mr. Secretary, I am concerned that many of our partners--
and I take Saudi Arabia as an example--our partners are not 
doing enough to fight terror finance. And one of the specific 
examples that I wanted to cite was the Al-Haramain Islamic 
Foundation, one of the charities that is headquartered in Saudi 
Arabia.
    We have had two separate actions where we have named a 
number of their affiliated branches across the world as 
supporters of al Qaeda. And I would like to know if Saudi 
Arabia has held anyone within their own borders accountable for 
this charity's terrorist activities? I understand that the 
branches that we have targeted are outside the country, but I 
think many of us find it hard to believe that people at 
headquarters in Saudi Arabia were completely oblivious to the 
activities of their satellite offices outside of the country. 
And I think, for us, the reflection here is that this is a 
charity who is financing people who are actively trying to kill 
us. And I am not aware of any arrests in Saudi Arabia related 
to Al-Haramain.
    So, I wanted to ask about your concern about lack of action 
from the Saudi government and how you feel about that. And I 
know the Saudis have put in place new laws, but what about 
asking them to look at the past and look at this particular 
institution and look at some accountability, having them take 
action with respect to the core group that have set up that 
charity?
    Secretary Snow. Congressman Royce, the issue of the Saudi's 
support in the financial war on terrorism is one which we and 
Treasury have engaged at the very highest levels of the Saudi 
government, and have done so on a continuous basis. I think 
some real progress, some real progress has been made, and we 
need to recognize that. Al-Haramain is the counterpart to the 
United Way in the United States. And the Saudis have taken 
extraordinary steps, given their culture, to go after the abuse 
of their leading charity as a vehicle for transmission of 
terrorist monies. You think back a year and a half ago, or a 
year ago to today, and to think that they are removing 
contributions baskets from the mosques to limit the use of cash 
going into these institutions, and that they have designated 
some large number. In fact, it was a joint designation with us 
and them.
    I think Saudi Arabia is a genuine ally in the financial war 
on terror. They recognize they need to do more. There are some 
things I probably shouldn't go into now but would be pleased to 
go into with you in a closed setting.
    Mr. Royce. Thank you. Another question I wanted to ask you, 
Mr. Secretary. I think we are right to focus on how terrorists 
get access to funding. But it seems to me that all the focus is 
on the end user, on the terrorist himself, or the focus ends up 
being on the wider terrorist cell. But also, I think if you put 
the focus on the banker helping the terrorist, that that would 
then bring into the equation someone who could be I think 
deterred more easily. Because all of these organizations need 
to get access to that financing. But maybe, maybe it is the 
banker who isn't quite as committed, who isn't quite as anxious 
to be a martyr, who has something to lose. And so if you could 
deter that element in the equation, you could stop the flow of 
funds. And I wanted your thoughts on that concept, if I could.
    Secretary Snow. Well, I agree with your basic premise, that 
we need to make the banking system an ally in the war on 
financial terrorism. And, of course, through the PATRIOT Act in 
the United States we have made enormous progress in that arena. 
And through FDIF, which has agreed on some 48 or so special 
recommendations on terrorist financing, we have engaged the 
world community in this as well and have established recognized 
international standards wherein, I think, it is well over 100 
countries, 160, 170 countries now they are freezing orders, in 
effect, to block terrorist assets, and a number of individuals 
have been designated here and abroad.
    The G-7, every meeting we, finance ministers with the 
central bankers meet, we have a special session on the progress 
in engaging the financial community and financial institutions 
in the war on terror. Some slip out of the net, I will grant 
you, but I do think we have made some pretty good progress.
    Mr. Royce. Our difficulty in Europe is, with an attorney, 
individuals can still open that account and never have their 
name on the account, put millions in it, and transfer it to a 
terrorist cell, and there is no way with that banking system to 
have accountability. And we really need to keep pressing on 
that front.
    Secretary Snow. I agree with you.
    The Chairman. The gentleman's time has expired.
    The gentlelady from New York.
    Ms. Maloney. Thank you.
    Mr. Secretary, the Department is playing several roles in 
Iraq in helping the economy get going. And I am particularly 
interested in your views on debt relief. First of all, what are 
the numbers you are working off of? Are they Treasury's 
numbers, or what numbers are you working off of on debt?
    Secretary Snow. We are working off some internal numbers 
that we are finalizing and numbers that are coming through the 
IMF. The IMF has been asked to take a lead role here in working 
through those numbers.
    Of course, for a number of countries, creditor countries, 
the Paris club will also be working through their assessment of 
what those numbers are. So it is a multi-part effort.
    Ms. Maloney. To the best of your knowledge, how much debt 
does Iraq owe the United States? It is my understanding it is 
very low, only one half of one percent of the total debt. And 
how much does it owe the world in total? Do you have that in a 
general sense?
    Secretary Snow. In a general sense, I do. For the United 
States, the principle debt is, as you say, it is relatively 
small, $2 billion, something in that range with about an equal 
amount of interest arrearage, another $2 million roughly of 
interest arrearage. So that our total debt is on the order of 
$4 billion. The number that--and this is not reparations, this 
is direct debt. The number for--in total, the aggregate number 
is something like 100, 120 billion is my recollection of it.
    Ms. Maloney. Could you give us a breakdown of that for the 
committee?
    Secretary Snow. I would be happy to supply it to you.
    Ms. Maloney. Thank you. And of this number, how much relief 
was former Secretary Baker able to secure?
    Secretary Snow. Well, what Secretary Baker has done and I 
commend----
    Ms. Maloney. And Treasury?
    Secretary Snow. And Treasury. But Secretary Baker now is 
taking on a special role as the emissary of the President to 
meet with heads of state to get a broad commitment from them. 
And he has made a great deal of progress. And the heads of many 
number of countries--I talked to him just last week, and he is 
preparing a number of mission--have agreed, and these are the 
leading countries of the world, to substantial debt relief. And 
that is going to be necessary if Iraq is going to return to the 
world community as a viable country, because the debt load is 
simply too crushing and they couldn't have a sustainable 
economy unless there is substantial debt relief.
    Ms. Maloney. And as you know, along with our former Chair 
of this committee, Congressman Leach and I have put in a bill 
calling for debt relief, a Sense of Congress, and also using 
the leverage of the United States in the IMF and World Bank, 
even though that loan is very low to those two bodies. And that 
loan was not odious from those two bodies to really move this 
forward and get total debt relief for this country, primarily 
because it was odious debt. We know that it was spent to build 
74 different palaces and for weapons and for odious causes, and 
certainly not for the people of Iraq who did not receive any of 
it. And it seems to me wrong to saddle that country, and 
particularly the American taxpayers that are our monies that we 
are giving to Iraq could be redirected to other countries.
    This is a conversation that we have been having. And I just 
want to press that I think it is the way to go. It is something 
that we could do and something that, in my opinion--Hitler 
didn't--we didn't repay Hitler's debts. A lot of countries we 
don't repay the debts when it is odious debt. When it is a 
reasonable debt for a reasonable government, I can see that. 
But for this reason, it is totally off the mark.
    But on Iraq, I have been there twice on various missions 
and I am very concerned about their future. It is going to take 
a commitment from the world. It is very tenuous. I have read in 
the paper various proposals that American banks and others have 
put forward to help finance the reconstruction of Iraq. I 
believe the American taxpayers with the crushing burden that we 
are having economically would appreciate any help we could get 
in that direction. And could you comment? I just read about 
them in the papers where they have been willing to finance 
reconstruction costs and put money into Iraq based on future 
revenues from oil. Where does that stand? Are you supporting 
any of those efforts? Would it help Iraq and the American 
taxpayers?
    Secretary Snow. We are supporting the efforts to bring 
international banks into Iraq, absolutely, and was pleased that 
the Central Bank governor, Governor Shabibi, has announced that 
three international banks have now been licensed to come in as 
depository and lending institutions in Iraq. This was a major 
step forward.
    Of course, J.P.Morgan/Chase is in there today playing an 
important role, and the Central Bank law is very forward 
looking in terms of making it possible for foreign banks to 
come in and help finance the growth of the country. They really 
need a financial sector. They do not today have a real 
financial sector. The banks that were there were not really 
functioning banks in the sense we think of banks. They were 
more appendages of the Saddam government used to handle 
financial affairs of the regime rather than lending 
institutions to bring capital to users of capital for growth.
    The Chairman. The gentlewoman's time has expired.
    The gentlewoman from New York.
    The Chair would announce there are four votes on the floor 
of the House. The chairman will recognize the gentlewoman from 
New York, and then we will take a break for those votes, Mr. 
Secretary, and then return.
    Gentlewoman from New York.
    Mrs. Kelly. Mr. Secretary, I want to associate myself with 
the comments of Mr. Royce. He asked you about Al-Haramain. 
Quite frankly, in my mind, it is no different than Hamas. These 
are charities that are in fact doing two things, promoting 
terrorism, as well as doing some charitable work. It is very 
hard to get your arms around something like that. But when you 
appeared before my committee, you said you were the lead agency 
for tracing the money on terrorism, and you said that you had 
set up, through the PATRIOT Act, a desk that essentially is 
working with not only Treasury but also Customs and CIA and 
FBI.
    I want to know how Customs, CIA and FBI are working with 
you. Because over the course of the last 4 months, everything I 
have read indicates we are not getting a whole lot of 
cooperation from the FBI. Are they giving you cooperation or 
just taking information and then you never know what happens to 
it?
    Secretary Snow. You are absolutely right, we have a joint 
task force in Saudi Arabia, in Riyadh, working with the 
counterpart agencies of the Saudi government, with the full 
support of the Crown Prince and the finance minister and the 
Central Bank governor. This is a subject I raised with them 
when I was over there several months back. The Saudis, I will 
say, are very cooperative in this.
    Mrs. Kelly. Excuse me, sir, but that was not the basis of 
my question. My base question is--I am glad the Saudis are 
finally beginning to help out in trying to trace terrorism 
money. We cannot stop terrorism until we stop the money. And my 
concern is whether or not you are getting information on your 
desk. Because you told me the buck stopped on your desk in 
tracing terrorist money. If that is the case, I want to know if 
you are getting cooperation from the FBI and the CIA even right 
here in this country. Are they taking or are they giving?
    Secretary Snow. We are getting good cooperation, let me 
make that clear. At the same time, we think that more focus on 
financial intelligence, intelligence about flows, is very much 
needed, a higher priority for that. And that is why I was so 
pleased when the Congress established the new Assistant 
Secretary for Intelligence at the Treasury Department. That is 
really a very important development in the war, and I know your 
role. I think it is critically important that that has 
happened. This will give priority to our efforts. It will make 
sure that financial intelligence is getting the attention it 
needs. We hope to announce that Assistant Secretary very soon, 
in addition to an Under Secretary, which was contemplated in 
the legislation, to oversee that whole initiative and become 
the focal point, the focal point for the financial war on 
terrorism. The one person in the United States Government, 
full-time, directly responsible every day, waking up and going 
to bed thinking about terrorist finance.
    Mrs. Kelly. Well, thank you. I also want to ask you quickly 
about TRIA. Right after 9-11, we put a Federal reinsurance 
backstop for terrorist acts here in the United States. That is 
going to expire. We put a sunset in there. I would like to know 
whether or not you feel that TRIA has contributed to the 
stability that has been in our economy with regard to a number 
of different factors of our economy over the last 2 years?
    And my second question is, since there is no cost involved 
in TRIA, unless there is a terrorist event, wouldn't it be 
sensible for us to extend TRIA out for a few more years until 
we are sure that we have done something to stop this war on 
terror?
    Secretary Snow. Mrs. Kelly, I agree with you. I think TRIA 
was very important. As a private sector citizen, member of the 
business community, I spoke strongly in favor of it. I think it 
has made a real contribution. We needed a backstop. The 
legislation, as you know so well, has a time frame to it. One 
idea behind the legislation was to see if the private sector 
could come in and fill in with the backstop maybe playing a 
smaller role over time.
    We have a decision to make here, I think it is September of 
this year, about whether the TRIA coverage will be extended for 
another year. And at the end of that year, we have the whole 
question of whether TRIA should be extended beyond that. That 
is a matter that is now under active review in the Department. 
We are getting comments from any number of private sector 
people, insurance companies, the building industry, 
construction industry, and so on.
    While I cannot prejudge our decision, I can tell you, one, 
that I strongly supported TRIA, it played an important role, 
and this issue of its extension will be receiving my full 
attention.
    Mrs. Kelly. I hope it will, and I hope we are going to get 
a positive result from that attention, sir. Thank you very 
much. My time is up.
    The Chairman. The gentlewoman's time has expired.
    The committee will stand in recess until 11:40 a.m.
    [recess.]
    The Chairman. The committee will reconvene, and we are 
pleased to recognize the gentlewoman from California, Ms. 
Waters, for 5 minutes.
    Ms. Waters. Thank you, very much. Mr. Secretary, I thank 
you for coming, and I want to try to get in a number of 
questions in a short period of time, and some of them just 
require a yes or no answer, so I will know what to talk with 
you about later, beyond this committee.
    As I understand it, you defend basically the 
administration's position on outsourcing and you do not think 
that that is the cause of the loss of jobs in this country.
    Secretary Snow. Well, no, I certainly would acknowledge 
that outsourcing has had some effect on U.S. jobs.
    Ms. Waters. Do you have any creative proposals to deal with 
this outsourcing problem? Would you, in any way, penalize 
corporations that we give contracts to, that we give loan 
guaranties to who are basically using the taxpayers' money? Do 
you think it is severe enough we should do something about 
penalizing companies that are outsourcing jobs?
    Secretary Snow. I think we have to be very careful there, 
Ms. Waters, because by penalizing U.S. companies that engage in 
trade in any way, I think we undermine our ability to keep 
American enterprises dynamic and competitive.
    Ms. Waters. Do you have any creative ideas, any thoughts 
about what we can do about it other than what I may be 
proposing, penalizing companies who get government contracts? 
Do you have any new ideas that we could talk about later?
    Secretary Snow. Yes, well, I'd be happy to talk about it. 
As you think about your legislation, though, I'd ask you to 
think about the fact that 70 percent of all the companies that 
are engaged in exports in the United States have fewer than, I 
think it is 20 employees. So an awful lot of small businesses 
are engaged in exports. That is a surprising statistic. But we 
don't want to do anything to hurt small business because they 
are really the engine of job creation.
    Ms. Waters. I do want to talk more about this with you, not 
today.
    As part of your statement, you talk about creating 
industrial parks and encouraging business growth in 
Afghanistan. Recent reports show that 50 percent of African 
American males in New York are unemployed, and I understand 
that a very devastating report is going to come out about the 
same in California. Do you have any creative proposals to deal 
with this kind of business development in America's urban or 
rural areas; such as that which you are proposing in 
Afghanistan?
    Secretary Snow. Yes, Ms. Waters. There are a number of 
governmental programs, not administered by Treasury, but 
through other agencies of the Federal Government that address 
those issues.
    Ms. Waters. But there is nothing in Treasury, such as what 
you are doing in Afghanistan; is that correct?
    Secretary Snow. No, Treasury does not administer any 
program directly like that, with the possible exception of 
something called the New Market Tax Credit program.
    Ms. Waters. Yeah, I know about those. Okay. You know, some 
of us on this committee have been involved with trying to 
recover stolen assets by dictators and leaders in other 
countries. We have had several hearings. We talked about 
Saddam.
    I have been trying to get money back for Nigeria. The 
Abacha regime, as you know, stole a lot of money. And we have 
been able to talk about recapturing some of that in other 
countries, in Switzerland, Britain, Luxembourg, and on and on, 
but nothing from Citibank in the United States.
    Have you been involved in this issue at all?
    Secretary Snow. I regret to say that I haven't.
    Ms. Waters. I want to talk with you about that at a later 
date, but will you please take a look at that and see if we 
still have some kind of efforts to do that?
    I also want to talk about debt cancellation for the New 
Millennium Act, where I am asking for 100 percent cancellation 
of the debt of the world's most impoverished countries. Do you 
support that?
    Secretary Snow. We certainly support the HIPC initiative 
very, very, very strongly, yes.
    Ms. Waters. And, finally, let me ask you a very tough one. 
Last night, I spent part of my evening reading the accounts of 
the assistance that we gave to members of the Royal Family of 
the Saudis and getting them out of this country after 9-11, and 
it is amazing and absolutely extraordinary what we did.
    Do you know of any involvement that we have had in also 
protecting their assets? Did we, in addition to helping to 
escort them out of the country after 9-11, arranging the 
airplanes and getting Royal Family and their associates out, 
are we doing the same thing or did we do the same thing for 
protecting their financial assets in this country?
    Secretary Snow. Congresswoman, I am not privy to any 
information on that subject. I am not aware of what actions we 
may have taken or may not have taken. I'm just not aware of it.
    The Chairman. The gentlewoman's time has expired.
    Ms. Waters. Thank you very much.
    The Chairman. The gentleman from Texas, Mr. Paul.
    Dr. Paul. Thank you, Mr. Chairman. Welcome, Mr. Secretary. 
I have a question dealing with the free market economy, and 
basically the question is where do you believe proponents of 
free market capitalism go wrong? And let me develop that 
question for a minute, because I do not think we follow free-
market economics.
    I do not think we're very close to free markets and a sound 
economy based on free and open trade. We have an artificial 
system that you have to deal with on a daily basis, and from a 
free market standpoint, it is mostly patch-up work trying to 
correct problems. And, of course, the free market proponents, 
especially Mises always said that when you intervene in the 
marketplace, domestically or internationally, you usually 
create more problems than you solve. You usually create two new 
problems for each one. But the free market economists, from 
Mises on down to Rothbart and Hayek, all of them I think were 
absolutely accurate in their projections and predictions. 
Because in the 1920s, they talked about the bubbles in the 
1920s and what would happen in the 1930s. They were correct in 
the 1960s and predicted that Brenton Woods would break down. 
Even Henry Hazlitt wrote from this viewpoint. When the IMF was 
established, he said Brenton Woods can't last, and he was 
absolutely right in 1945, and in 1971 it collapsed. These same 
group of economists said in the 1990s that the same thing would 
happen, that we cannot sustain the bubble in the stock market, 
and the crash inevitably comes for a very precise reason 
dealing with monetary policy.
    Now, I know when I ask the chairman of the Federal Reserve 
about monetary and dollar policy, he defers to Treasury. Of 
course, Treasury can, I think, legitimately defer to the Fed, 
because they have so much to say and do with the dollar. They 
are the ones that create the money out of thin air. So I 
understand that.
    But, still, where do they go wrong? And why is it that we 
have gone so far away from accepting the notion that true 
capital should come from savings rather than out of thin air? 
Why shouldn't we encourage savings instead of manipulating the 
economy with artificially low interest rates? Why do we do 
economic planning through all this manipulation in the monetary 
system and then we resort to this patchwork effort 
internationally, which costs a lot of money? Not a little bit, 
billions of dollars.
    Now, these same economists would say today that the 
international financial system is very, very shaky, probably 
not much better off than Long-Term Capital Management. And I 
have to pay attention to them when they talk about this. But 
the system that we have literally encourages the Congress to be 
extravagant spenders. They never have to worry about raising 
taxes. Debt can always be taken care of. And that is why our 
national debt is going up $700 billion a year.
    So if we don't get back to the basics of why we get away 
with what we do, I don't see how you can ever patch the system 
together. And this idea that we can just give IMF money, World 
Bank money, development bank money, come up with Millennium 
Challenge Account money, I mean, this is not a couple of 
dollars, and this all comes out of our domestic economy.
    So I am a strong advocate of free markets where interest 
rates are set by the marketplace, that budgets have to be 
balanced, because we don't have the authority, moral authority 
to print money out of thin air, and it really doesn't make good 
economic sense in the long term.
    So where, in your view, do we go wrong in thinking along 
these lines?
    Secretary Snow. Well, one place we go wrong, I think, 
Congressman, is not to acknowledge explicitly the implicit 
contingent liabilities that exist in a number of U.S. programs, 
good programs, important programs, Social Security, Medicare, 
Medicaid, veterans payments, and the Postal Service, a variety 
of these very important programs that serve very important and 
legitimate purposes where the potential liability to the United 
States Government, the contingent liability, the taxpayer 
obligation, or as you say the other side of that, a borrowing 
obligation, is very, very large.
    I testified yesterday before the Committee on Ways and 
Means on the Social Security System and on the Medicare and 
Medicaid systems and had to bear the very unhappy news that 
Social Security is not sustainable and that the Medicare 
system, unless put on a different course, is not sustainable 
either. The reality is the contingent liabilities that are 
implicit in those programs are a huge portion of the GDP in the 
United States.
    So I would say one thing--and I admire all those economists 
you cited, by the way--but the one thing I would say is to try 
to make explicit when Congress acts and when the administration 
acts, the real cost of the things we are doing.
    Dr. Paul. Thank you.
    Secretary Snow. Thank you.
    The Chairman. The gentleman's time has expired. The 
gentleman from Vermont, Mr. Sanders.
    Mr. Sanders. Thank you, Mr. Chairman, and thank you 
Secretary Snow, for being with us today.
    Three quick questions. You may recall that I passed an 
amendment which would prohibit the government from working with 
IBM to overturn a court decision regarding cash balance 
pensions. That was incorporated into law. You may remember the 
whole hoopla about that IBM lobbyist using the Treasury 
Secretary's stationery.
    Secretary Snow. Yes.
    Mr. Sanders. I would very much appreciate, and I thank you 
for initiating an inspector general's investigation on that, I 
would very much appreciate your giving my office a nonredacted 
copy of the IG report. We would like to see the full report. Is 
that something we could get? Because I think you will agree 
with me the allegations are very serious about that.
    Secretary Snow. I'm prepared to be as cooperative as we can 
be, Mr. Sanders, on that, and you're right I did ask the IG to 
look into it once it was brought to my attention, and you 
helped bring it to my attention. As I understand the IG 
statutes, though, the IG, not the Treasury Secretary, is in 
control of that process; that I cannot and should not dictate 
to the IG with respect to the IG process.
    Mr. Sanders. Well----
    Secretary Snow. I am advised that is the law.
    Mr. Sanders. All right.
    Let me go to another issue, and that is the outsourcing 
situation, and ask for your cooperation. As I am sure you know, 
this country has a record-breaking $500 billion trade deficit. 
We have lost 2.8 million good paying manufacturing jobs in the 
last 3 years. We are on the verge of perhaps hemorrhaging 
millions of very good paying white collar information 
technology jobs. The new jobs being created are paying 
substantially less, 29 percent less nationally, than the jobs 
that we are losing. We have companies like General Electric 
that basically boast when they tell us that they are moving to 
China.
    Ms. Waters raised this issue, legislation that I have 
offered, which now has 60 cosponsors, which says that the 
Federal Government should not be providing billions of dollars 
in corporate welfare for those companies that are heading to 
China.
    Now, without getting into a great deal, I think one thing 
we can do is would you work with some of us in putting together 
a meeting with corporate America who are taking our jobs abroad 
and having them come to Capitol Hill telling us how they are 
going to create decent paying jobs in this country? Will you 
work with us in arranging that meeting?
    Secretary Snow. I would be happy to take part in that 
dialogue and helpful in establishing it.
    Mr. Sanders. The American people, I think, do not want to 
give billions of federal dollars to companies who advertise the 
fact that they are heading to China.
    Last question. As you know, gas prices in this country are 
soaring. Great concern to consumers, to businesses, to farmers, 
and so forth. You and the administration are great exponents of 
unfettered free trade. You are; I am not. What I want to know 
is why the administration has not gone to the WTO to bring 
charges against OPEC, which is limiting supplies of oil coming 
into the United States?
    OPEC, by definition, their reason for existence is they are 
a cartel designed to limit production. Why aren't we going 
before the WTO pressing the charge that OPEC is in violation of 
free trade agreements?
    Secretary Snow. Congressman, the current price outlook is 
regrettable. It serves as a tax on America, on our consumers 
and it slows our economic growth. But I do not think the 
actions by OPEC, as I understand the WTO rules, are subject to 
the WTO rules, because they do not involve a trade violation in 
the sense of raising----
    Mr. Sanders. I would respectfully disagree with you. And if 
OPEC is not, by definition, restraining production and acting 
in total violation of what free trade is supposed to be about, 
I would be very surprised. And I would urge you and the 
administration to tell our friends at OPEC not to strangle the 
American economy and our consumers by forcing prices up 
artificially. Are we going to hear some statements out of the 
administration on that?
    Secretary Snow. Well, I think you have heard the Energy 
Secretary very forcefully talk about this whole subject. One 
reason that we are experiencing the rise in prices is that we 
don't have enough domestic capacity.
    Mr. Sanders. Well, that is your interpretation. I think the 
evidence would suggest that OPEC has limited the supply of oil 
coming into this country. Do you deny that?
    The Chairman. The gentleman's time has expired.
    Secretary Snow. I would say only that if we had larger 
supplies of domestic capacity, we would be less dependent on 
uncertain foreign supplies.
    The Chairman. The gentleman from Alabama.
    Mr. Bachus. I thank the chairman.
    Secretary Snow, we have heard a lot about outsourcing here 
this morning, but every definitive study on this issue shows 
that the balance of jobs that we are importing from abroad 
greatly exceed the jobs that we are exporting abroad. One 
recent study says that we probably get three times as much 
benefit from insourcing as we do from outsourcing.
    I am going to submit some of those for the record. I do not 
know why people are blind to this. In fact, in my district, 
three of our largest employers, if we didn't have a global 
economy, they wouldn't exist today. They are the highest paying 
new jobs in the district, and I think if you went around to 
other districts, you would find that.
    My question is similar to that. We hear all about 
outsourcing but nothing about the benefit that we get, the 
insourcing, and the high-paying jobs. Also, in your written 
statements you talk about the fact we have got the strongest 
economy since 1984. We have got low unemployment, which is 
going lower.
    In fact, this Congress curtailed, from 1992 to 1994, they 
curtailed unemployment benefits because they said we had such 
strong unemployment. It was higher than it is today. And the 
same people today are saying that we have high unemployment. In 
fact, it is lower today than it was in 7 out of 8 years under 
President Clinton.
    But I guess my question to you, home starts are at a record 
high, inflation is at a record low, interest rates are low, we 
have a strong economy, so why is it there is a disconnect 
between perception and reality?
    Secretary Snow. Congressman, you are absolutely right. The 
American economy is performing very well right now, high growth 
rates, low inflation, high productivity,the unemployment rate 
lower than the average of the 1970s, the 1980s or the 1990s. I 
think the issue is the apparent, and I say apparent for a 
reason, the apparent slower than expected pickup in jobs, and 
that is getting an awful lot of attention. And the talk of 
outsourcing is also getting a lot of attention, and I think it 
is creating a negative sort of miasma that colors people's view 
of what is really a very strong and very, very well-performing 
economy.
    I am confident we will see those jobs come back. We will 
see them come back in the months ahead at a very good clip. 
What we didn't foresee, what we didn't foresee was the 
extraordinary high productivity. We have had the highest 3-year 
productivity, maybe of all times, but I have checked it back 
like 30 years, so the highest in 30 years. Now, that high 
productivity is good for the American economy overall. It makes 
our firms more competitive, it means higher returns to the 
businesses, more cash flow, and that is going to lead to good 
things, higher wages, but it probably slows up a little bit the 
job creation process.
    We are still working off some of the excesses of the 1990s, 
the excess capacity created in those heady days of the late 
1990s.
    I would also point out, Congressman, this puzzle as between 
the two primary indices of the job market, both from the BLS, 
one called the payroll survey, which shows less growth, and the 
household, which shows lots of growth.
    Mr. Bachus. In fact, the household shows that we have 
created millions of jobs.
    Secretary Snow. 2.4 million.
    Mr. Bachus. How many?
    Secretary Snow. 2.4.
    Mr. Bachus. Nobody talks about that, but that is just as 
valid a study, and a lot of people think it is a more accurate 
indication of jobs. It is a mystery to me.
    Let me ask, in closing, you have been to Afghanistan, I 
know that you have worked with the new government in Iraq. Are 
they making economic headways? I know they have established a 
new currency, a new banking law in Afghanistan.
    Secretary Snow. In both countries, and America ought to be 
proud of its role in both countries, in both countries we are 
seeing enormous progress. There can't be any doubt about the 
fact that Afghanistan is on a much better path now than it was 
under the Taliban, and Iraq is on a much better path than it 
was under Saddam Hussein. Not just the economy. The economies 
are clearly on a better path, but the rights and the dignity of 
the citizens, the prospects for better lives in the years 
ahead.
    The Chairman. The gentleman's time has expired.
    The gentleman North Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman, and thank you, Secretary 
Snow, for being here. I'm just going to try to deal with one 
issue in the minutes that I have available, and that is to try 
to get an articulation of the administration's position on what 
trade and free trade is.
    Reading on page 3 of the prepared statement that you gave 
the committee, you say it is through free trade that all 
nations can benefit from each other's prosperity. Free trade 
means new markets for exporters. Further down you say, as I 
have made clear before, it is our strong view that the 
international trading system works best with free trade, free 
flow of capital, and flexible market-based exchange rates.
    Some of us who believe that it is a progressive position to 
support globalized trade, because we know that in the long run 
it will uplift the standards of living around the world, which 
we think is a desirable objective, have not been able to vote 
for any of the trade agreements, I personally have not, because 
in the negotiation of those agreements we also recognized that 
a number of these countries in other parts of the world have a 
system in place where they allow child labor, don't have labor 
standards, don't have environmental standards in place.
    All of the things that our U.S. companies have to comply 
with, these places do not comply with.
    I guess the question that I am trying to get a handle on is 
what is this administration's official definition of free 
trade? Does it, for example, include negotiation in trade 
agreements about labor standards? Does it include negotiations 
about environmental standards; the kinds of things that we know 
if they are not negotiated there may be free trade but not 
necessarily fair trade?
    There has been kind of a transition in people's 
articulation of this. I was somewhat surprised at how 
aggressively your statement talked only about free trade rather 
than even finessing the fair trade issue. Can you give me this 
administration's articulation of the things similar to the 
kinds of things that I have expressed that are or are not 
included in the definition of ``free trade ``as you see it?
    Secretary Snow. The overall concept of free trade 
essentially is removal of barriers, and they can be both tariff 
barriers and nontariff barriers, to commerce, to international 
commerce. It is opening of markets.
    And as you say, we see that, and I think you said you see 
broad agreement with the proposition, that that is the key to 
uplifting the rest of the world as well as the United States.
    Mr. Watt. Well, I do not think I necessarily agreed that 
that is the key, unless the nations are also doing something to 
affect the other standards of living that go with that.
    Secretary Snow. But when we, through the WTO, the WTO 
agreements, take China, for instance----
    Mr. Watt. I'm trying to get an articulation of what is 
included in free trade. I don't want to take China, for 
instance. I guess what I'm trying to do is get an articulation 
of this administration's position on whether the things that I 
have talked about are or are not included as part of free 
trade? Is it free trade and fair trade or is it just free 
trade?
    Secretary Snow. Well, certainly it is compliance with the 
rules of trade. Every freetrade agreement, every time we open 
up markets through agreements, there is a complex set of 
underlying and detailed specifications, and we want the 
countries to live up to their obligations.
    I mentioned China because we are pressing China to live up 
to its WTO obligations and to accelerate them. And if we could 
get the agreements with Morocco and Australia and Kafga and the 
African, Asian, Latin American countries that we are pursuing, 
the world would be a better place because those agreements 
would encompass a focus on a lot of things that we would then 
have the ability to seek to enforce.
    So I think we can make the world a better place through 
trade in a lot of ways.
    The Chairman. The gentleman's time has expired.
    The gentleman from Alabama is recognized for 2 minutes.
    Mr. Bachus. Thank you, Chairman Oxley.
    Secretary Snow, I'm concerned with the direction that the 
EU's financial services action plan has taken. Let me just be 
brief in how I am concerned.
    I am concerned that it is penalizing our London markets, 
some of the current market practices in the city of London, the 
way that U.S. companies and our affiliates in London operate; 
that actually the EU seems to be tending towards more of what I 
would call a less developing, less competitive over- regulated 
approach. And I am going to submit to you in writing some 
concerns I have and just urge you, and I hope you are already 
doing this, and I think there is evidence you are, that you be 
an active advocate on behalf of U.S. commercial interests and 
that you urge the EU to adopt market practices that are more 
comparable to what is found in London and New York, which are 
more modern efficient markets.
    Secretary Snow. Congressman Bachus, I can assure you that 
that is exactly where we are, and that is precisely what we are 
doing. I have a meeting in a couple of weeks with Chancellor 
Brown, the U.K. counterpart with whom I have discussed the EU-
U.S. dialogue. He has expressed some of these same concerns to 
me, I have expressed them to him.
    We very much want to find ways to involve the private 
sector more fully in the final rules that are adopted, and I 
share your concern. We cannot let an overly bureaucratic regime 
replace and substitute for the marketplace.
    Mr. Bachus. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentleman from California, Mr. Sherman.
    Mr. Sherman. Mr. Secretary, I have simply so many 
questions, I'm going to go through them all, ask you to respond 
for the record.
    Mr. Royce commends you for asking a few European countries 
to forgive a small portion of the Iraqi debt. I am 
flabbergasted that this country has not used its political 
muscle to demand the disclaimer enunciation or permanent 
deferral of the Saddam Hussein debt, just as the czar's debt 
was disclaimed or permanently deferred. Instead, money is going 
to be taken from the Iraqi people, and ultimately the American 
people, to repay those who financed Saddam's war of aggression 
against Iran, killing hundreds of thousands of people.
    If you lent money to Hitler, I do not think you got repaid 
even 50 cents on the dollar. The big money that was lent to 
Saddam was not from Europe, although its great press efforts to 
try to convince the American people of that, the big creditors 
are Saudi Arabia, Kuwait, and the Emirates, and now we've got 
Kuwait wanting another $50 billion or $100 billion in 
reparations for what they suffered in the war. So we liberated 
Kuwait and now, ultimately, it will be the American taxpayer 
paying them an extra $50 billion or $100 billion, plus the 
money they lent to Saddam in the 1980s, plus what he cost them 
in the 1990s.
    The Royal Families of Saudi Arabia and Kuwait are getting 
absolutely great protection from this policy. The American 
taxpayer is then told we can't loan the $18 billion, because 
the Iraqis couldn't afford to pay us back, it will put a strain 
on their economy, so we have to give it to them.
    Now, the true brilliance of that is that that protects 
Halliburton from European competition. Because now we are told 
we cannot let non American companies participate for those 
contracts because it is our money, it is taxpayer money. It is 
not money being lent to the Iraqis, where they could go out and 
get the best policy. The money has to go to Halliburton. The 
hope is that that same brilliance that has been used so 
effectively to protect Saudi Arabia, Kuwait, and Halliburton 
will be used on our trade deficit.
    Today, we found what it meant for America to surrender its 
sovereignty to the WTO, or should I say to corporate interests. 
We are going to open up this whole country to Internet 
gambling. And I hope the social conservatives understand how 
the economic conservatives have sold out their interests. You 
now do not have to leave your house to lose your house. Not 
because of any State in the country, not because of any Indian 
tribe, but because we have decided that anything that makes 
money from any corporation must be imposed on the American 
people.
    While we are talking about gambling, look at the 
international monetary structure. It is all based on America 
the consumer, the rest of the world producing. A half trillion 
dollar trade deficit this year on top of last year on top of 
last year on top of last year. You know, Mr. Secretary, that 
can't possibly be continued. Every year we have to borrow 
another half trillion and roll over all the money we borrowed 
in all the previous years. The only question is, will the 
dollar slide or will it crash?
    Unfortunately, Mr. Secretary, your department is doing 
everything possible to prevent the slide, and so next decade 
we're going to get the crash. At some point, and it could 
happen in one day, the dollar will decline in value. This is, 
in part, because it is too high, in part because we have 
tolerated what the Chinese are doing and pat ourselves on the 
back that they may stop stealing from us 6 years from now.
    The idea of pressure doesn't mean interrupting a ship 
filled with imports into the United States, it means sending a 
letter. This is the most powerful country in the world, which 
cannot protect itself from unfair trade practices, but we can 
send strong letters. We are very tough.
    The other thing we, of course, do is we have this 
Pollyannish view that if we cannot prove a violation of trade 
rules, we assume it doesn't exist. A half trillion dollar trade 
deficit may be good for American consumers today, a high dollar 
may be good for American consumers today, it may be wonderful 
living on our credit cards if we could continue it forever. We 
will have to decide whether our consumers are more important 
than our workers, and we could argue that forever. But the fact 
is, it is going to crash unless we allow it to reverse slowly.
    Does the administration have any plan, not to slightly 
ameliorate the trade imbalance of payments deficits, but to 
reverse them so that we are shipping more goods and services 
out and we begin to repay the enormous debts built up under 
several administrations; or are we going to sit here and fiddle 
while Rome burns and believe, oh, it worked last year, it will 
work this year, it won't crash next year.
    I do not know if I have time for a response, and I will 
leave that to the chairman.
    The Chairman. The Secretary may respond in 8 seconds.
    Secretary Snow. Two-part answer on the current account 
deficit. We need to get the rest of the world growing faster. 
We talked about that as part of the agenda for growth of the G-
7. Hopefully, we will see more growth in the rest of the world 
so they will have more investment opportunities to use their 
savings.
    By the same token, we need to encourage greater savings in 
the United States. One way to do that is with the 
administration's proposals for the RSAs and the LSAs.
    Thank you.
    Mr. Sherman. You cannot save a burning city with one bucket 
of water, Mr. Secretary.
    The Chairman. The gentleman's time has expired.
    Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman.
    Mr. Secretary, there are some positive indicators in the 
economy right now, and I want to acknowledge those, but I think 
you would also acknowledge there are some concerns, such as a 
$521 billion projected deficit this year by OMB, a $7 trillion 
plus national debt, and my question to you, Mr. Secretary, is 
how much of our national debt right now, and I don't want an 
exact dollar figure, but ballpark if you can, is held by 
foreign nations?
    Secretary Snow. Oh, about one-seventh of the $7 billion you 
are talking about.
    Mr. Moore. In dollars, what would that be, sir, 
approximately? One and a half trillion?
    Secretary Snow. I think maybe that is a little high. I will 
get you a precise number.
    Mr. Moore. All right. Do you know approximately how much 
Japan holds of our debt?
    Secretary Snow. Yes, approximately--it is a sizable number.
    Mr. Moore. $545 billion?
    Secretary Snow. That's about right.
    Mr. Moore. And China holds approximately $149 billion?
    Secretary Snow. A number in that vicinity.
    Mr. Moore. Should that be a concern, sir?
    Secretary Snow. Not necessarily, Congressman.
    Mr. Moore. Assuming the worst case scenario, and not just 
not necessarily, what is the worst case scenario if Japan and/
or China decided they didn't like the way we were acting and 
didn't want to hold our debt any more?
    Secretary Snow. China and Japan hold our debt because it is 
in their interest to do so. The United States remains the best 
place to invest. On a risk-adjusted basis, we have the highest 
returns, and we do so because of this extraordinary economy and 
this extraordinary system of laws.
    We protect capital. Capital is a coward. It only goes where 
it is protected, where it sees stability, where it sees a set 
of laws that respect property rights.
    Mr. Moore. But my question is what if they decided they 
didn't want to hold our debt any more? What could happen in the 
worst case scenario for us?
    Secretary Snow. Well, the great thing about the United 
States is we are a good investment opportunity for capital of 
all sorts, whether it is Asia or Europe or America. So I don't 
see the dread that you see in their holding that substantial 
debt.
    Mr. Moore. Well, I'm asking a question and trying to get an 
answer. I'm not hearing an answer.
    Secretary Snow. Well, the answer is I am not alarmed by it. 
You are asking me if I am alarmed, I'm saying no, I am not 
alarmed.
    Mr. Moore. Is there any worst case scenario if China and/or 
Japan decided they didn't want to hold our debt any more?
    Secretary Snow. That is a most unlikely case.
    Mr. Moore. I am asking most unlikely. Is there anything 
that could happened bad for us?
    Secretary Snow. Well, it is like what is the likelihood of 
this ceiling falling down on me? That would be a bad outcome, 
but I think it is very unlikely.
    Mr. Moore. Okay, I will go without an answer.
    We have right now the lowest interest rates that we have 
had in probably four decades; correct?
    Secretary Snow. That is right. That is right.
    Mr. Moore. I have been on the Financial Services and on the 
Budget Committee for the short time I have been in Congress and 
have had a chance several times to hear and ask questions of 
Chairman Greenspan, and one thing he has consistently said is, 
if our Nation is not in a fiscally responsible position when 
our economy starts to take off, we could see an alarming rise 
in interest rates. Have you heard him say something like that?
    Secretary Snow. Well, not alarming.
    Mr. Moore. Well, that is my word. That is not his. But use 
your own word or use his.
    Secretary Snow. I think what he has said is that we need to 
control the deficit, make sure that financial markets do not 
perceive the deficit as an embedded part of our financial 
structure, as an entrenched part of the financial structure, 
and to do that we need to control spending and control the 
deficit. Yes, I have heard him say that, and I agree with him.
    Mr. Moore. Deficits do matter, don't they?
    Secretary Snow. Absolutely deficits matter.
    Mr. Moore. We are not, in my opinion, doing a very good job 
right now of controlling deficits, when we have the highest 
deficit in our Nation's history and as far as the eye can see 
right now. I know the administration's intention is to halve, 
cut in half, the deficits in the next 5 years. Personally, I 
don't see that happening. I don't see any plan on the table 
that is going to make that happen.
    Secretary Snow. Well, I agree with you that deficits count; 
that the deficit is too large; that it has to be addressed. The 
only point I disagree with you on is whether we will get there. 
I think we will.
    Mr. Moore. We pay interest of almost $1 billion a day right 
now on our national debt; correct?
    Secretary Snow. Yes.
    Mr. Moore. Does that concern you?
    Secretary Snow. With interest rates low, the interest 
obligation on the debt has shrunk as a percentage, as you know, 
of the deficit.
    Mr. Moore. But if interest rates go up, that would change 
dramatically too.
    Secretary Snow. Well, depending on how much they go up, it 
could, yes.
    The Chairman. The gentleman's time has expired.
    The gentleman from Illinois, Mr. Emanuel.
    Mr. Emanuel. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary. I want to talk a little about a couple of issues 
here.
    I happen to be one of the few Democrats that is pro free 
trade, having worked to see NAFTA through, and GATT, voted on 
Chile and Singapore. But if everybody thinks free trade is just 
an absolute good, they can come to my district. It is not 
absolute good. There are winners and losers. And I'm sorry, but 
I think some in this administration and some in the Congress do 
not put in place some of the benefits and needs and safety nets 
to make more people winners. If we do not do that, those of us 
who vote for free trade are going to have to go into a witness 
protection plan every time we vote for it. Because the economic 
conditions that happen with free trade are detrimental to folks 
out there.
    I believe in free trade as an ultimate positive overall, 
but there are losers in this, and we do not have the health 
care, education, and retirement security that people need so 
they think they can be winners too. And you cannot maintain a 
part of your foreign policy with only 18 percent or 21 percent 
of the American people supporting it. The biggest, most 
important thing for foreign policy objective is the support of 
the American people. Eighteen percent is pretty low, in my 
view.
    Secondly, I want to bring to your attention an issue which 
early in the administration, you were not there, so it was your 
predecessor, but we had an effort with the Europeans to crack 
down on tax evasion and tax havens. In 2001, the 
administration, specifically your predecessor, abandoned that 
effort.
    There are two immediate benefits, and I will point you to a 
piece by Mr. Cutner Rose in Business Week, where abandoned that 
effort and actually killed it. We lose around $200 billion to 
$300 billion, I know that is a rough estimate, in tax revenue. 
When you run a $550 billion deficit, even if it is $150 
billion, that would go a long way to reduce the deficit, 
reducing the cost of capital, and also to help us in our 
crackdown on terrorists who are using these tax havens.
    Now this happened with your predecessor, and here in 
Washington we all like to kick our predecessor, so you don't 
even have to own this, but I hope you will take a look at this 
issue of tax havens as a way to, A, if you want to put it under 
the banner of fighting terrorism, put it under the banner of 
fighting terrorism, or put it as everybody has a responsibility 
to pay their fair share of taxes. People, individuals, and 
corporations are using these havens to hide legitimate sources 
of income that should be taxed and are not today. It can be 
part of an anti-terrorism effort or part of everybody paying 
their fair share. I don't care what name you call it. I think 
Treasury should reinstitute cooperation with the Europeans. 
That is number one.
    Secretary Snow. I thank you for those comments, Congressman 
Emanuel, and I want to assure you that we recognize, I 
recognize on your first point that trade creates dislocations; 
that everybody is not a winner and we need to deal with the 
transition. That is why initiatives like training programs, 
assistance for those who are dislocated and so on, are 
critically important. I agree with you. I regret very, very 
much that we seem to have lost the broad-based support in the 
country for trade.
    Mr. Emanuel. Well, let me bring up this point, and 
hopefully you will look at this other thing on tax havens. But 
when the HOPE scholarship and the Lifetime Learning was 
instituted at community colleges, which are the life blood of 
the new economy worth $1,500 on average, today they are $2,000, 
yet the HOPE scholarship is stuck at $1,500. Pell grants are 
frozen 3 years in a row. The average Illinois graduate from the 
University of Illinois graduates with $18,000 in debt. I don't 
think when you get your diploma you should get your first Visa 
bill.
    Health care costs, the lion's share now are being shoved to 
the employee. We have 401(k) problems in the mutual fund 
industry. And that is why--you know, everybody wants to talk 
about the greatest economic statistics. The reason you have 
fear out there is not just employment; it is that the entire 
infrastructure of the middle-class life, from retirement to 
health care benefits----
    The Chairman. If I could interject, the gentleman from 
Illinois, we have got a vote coming up. I know the Secretary 
has to leave. What I would like to do is accommodate the other 
three members who have not had a chance----
    Mr. Emanuel. I am done.
    The Chairman. Let us try, if we could, limit it to 3 
minutes apiece, and then I think we can all make that vote.
    The gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much.
    Two quick questions, Mr. Secretary. Earlier this week the 
corporate tax overhaul bill failed over in the Senate. Do you 
have any ideas or suggestions or the administration on how we 
could move forward with a bipartisan bill to address the 
European trade sanctions that have been in place in response to 
the current export tax breaks?
    Secretary Snow. Congressman, I don't have any specific 
suggestions on how to do it, but I certainly would implore the 
Congress to act on it. It is awfully important to get that 
resolved so these sanctions don't adversely affect our economy 
and our recovery.
    Mr. Scott. Let me ask you one other quick question, too. 
Going back to outsourcing for a moment. We have talked about 
that. But there is one feature about outsourcings that we have 
not touched upon, and that is the type of jobs that are being 
outsourced into dealing with our American financial 
institutions, credit bureaus, dealing with vital important 
information that banks are processing overseas in foreign 
countries that contain vital financial data about American 
consumers and our financial institutions. Do you feel that we 
have adequate safeguards to deal with what is obviously a 
privacy and soundness issue and a security issue? And it is 
particularly true given the current opinions and the level of 
dislike or hatred that European countries especially and 
countries in the Middle East have for Americans and American 
institutions at a time when we do have these heightened 
security concerns.
    Secretary Snow. Congressman, I am not an authority on the 
question you are raising. I will try and get you a more 
complete answer. But the PATRIOT Act will apply to those 
companies as will the Fair Credit Reporting Act. So you have 
both the PATRIOT Act and the Fair Credit Reporting Act, as 
amended, continuing to apply.
    Mr. Scott. All right.
    Secretary Snow. Those are the source of our ability to deal 
with the issues you are raising.
    Mr. Scott. But do you yourself, as the Secretary of the 
Treasury, believe that we are vulnerable or that what we have 
now is adequate?
    Secretary Snow. Well, I think that the legal framework we 
have in place certainly gives us the ability to deal with the 
questions you are raising.
    Mr. Scott. Thank you.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Bell.
    Mr. Bell. Thank you, Mr. Chairman. I will be brief.
    I wanted to ask you about something which appears in your 
prepared statement on page 2 regarding the agenda for growth 
and the United States' contribution to that. It seems to state 
that, as for the United States, our contributions will be 
basically the platitudes that we hear from this administration. 
And I am curious as to what we are actually doing.
    It says that our contributions will be through the 
President's commitments to maximize growth and job creation. 
This includes spurring savings through changes to the tax 
system, making health care more affordable, working to prevent 
frivolous lawsuits from diverting money from job creation, so 
on and so forth.
    My question has to do with our credibility and if that is 
going to be our only contribution. How are we making health 
care more affordable? Most people would argue that it is going 
in the other direction, not becoming more affordable. I know 
you are not going to suggest that we have succeeded in 
preventing frivolous lawsuits. If you do, that would take away 
a major campaign plank from the other side of the aisle where 
we hear that frivolous lawsuits are incredibly abundant in this 
day and age.
    And as we are preparing American workers for demands of the 
21st century job market, what we continue to hear, Mr. 
Secretary, is the fact that there are not enough programs out 
there preparing people for new jobs when their line of work has 
gone away.
    So I am curious, is this going to be our only contribution? 
And what is your comment on that?
    Secretary Snow. Well, I am disappointed you had those as 
platitudes, Congressman, because they are a lot more than that. 
They are really an action plan.
    The action plan involves of course action by Congress, and 
that is why the President among other things is urging Congress 
to pass the reform of the energy plan, to adopt a new energy 
plan which makes us less dependent on certain and expensive 
foreign sources. The plan, the action plan of the President 
calls for going after frivolous lawsuits. We haven't fully 
succeeded, but I must say, as I have gotten into this issue of 
frivolous lawsuits more and more, I regard the abuse of the 
litigation system as a serious threat to jobs in the United 
States. I have talked to any number of business leaders who 
have--small business, medium sized, large business--expressed 
enormous concern that the litigation system is changing the 
basic, the basic sort of ethos of America, making us a ``can 
sue'' society rather than a ``can do'' society, altering our 
basic commitment to a whole set of ideas of enterprise and 
entrepreneurship and things.
    Mr. Bell. And when you refer to frivolous lawsuits, are you 
referring to those that result in large verdicts that obviously 
juries do not view as frivolous, or are you referring to those 
that are just the cost of litigation in general?
    Secretary Snow. Well, it is the cost of litigation in 
general, but it is the lottery nature of the litigation system 
which is producing verdicts that are, I think, excessive under 
the circumstances, and that go 40 percent to the personal 
injury lawyers rather than to the litigants. I think we need to 
deal with this issue of the class-action system. A business 
firm taking into account whether to invest in Ohio or Illinois 
or offshore is going to factor in the risks of litigation. They 
are going to factor in the risks that litigation presents to 
their ability to get reasonable health care costs. And I think 
the evidence is pretty clear that the litigation system is 
driving lots of physicians and doctors and health care 
providers and nurses out of that profession, raising the cost 
of health care in the United States.
    The Chairman. The gentleman's time has expired.
    The gentleman from Washington State to wrap up.
    Mr. Inslee. Thank you.
    Unless we provide some relief to the difficulties of the 
dynamics of trade, the trade base is going to be lost for those 
who support trade. And to that end, many of us believe that we 
should extend trade adjustment assistance to service employees 
as we do now those in the manufacturing sector. Obviously, we 
have a lot of folks who heretofore have not felt threatened by 
international trade now in the software sector, 
telecommunications, actuaries, radiologists, you name it. Adam 
Smith and I have introduced a bill to do exactly that, and I 
would hope the administration would support this. The 
President's Council on Trade and Exports will make that 
recommendation to you shortly, I believe.
    Could you help us on that? Could you talk to your committee 
chairs and help push this bill? What do you think of this idea?
    Secretary Snow. Well, it is an area that really falls more 
under the jurisdiction of Bob Zoellick, the Trade Rep, and 
Secretary Evans and Secretary Chao. But I know the issue is 
under active review.
    The broader question is under active review as well; that 
is, providing transition assistance to those adversely affected 
by trade. I agree with you, we need to provide opportunities 
for those so that there is an easier transition to the future.
    Mr. Inslee. Do I take it that we have an ally who will be 
arguing for the extension of trade adjustment assistance to the 
service sector?
    Secretary Snow. Congressman, you have an ally for the 
broader proposition, that effective transition assistance needs 
to be provided. Whether it is precisely that legislation or 
something else, I am not close enough to it to give you a good 
answer.
    Mr. Inslee. Thank you.
    The Chairman. I thank the gentleman.
    Mr. Secretary, again, thank you for your appearance. It is 
always good to have you before the Financial Services 
Committee, and the committee stands adjourned.
    [Whereupon, at 12:55 p.m., the committee was adjourned.]



                            A P P E N D I X



                             March 25, 2004




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