[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
              FOREIGN POLICY IMPLICATIONS OF U.S. EFFORTS
                 TO ADDRESS THE INTERNATIONAL FINANCIAL
                  CRISIS: TARP, TALF AND THE G-20 PLAN

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 10, 2009

                               __________

                           Serial No. 111-37

                               __________

        Printed for the use of the Committee on Foreign Affairs


 Available via the World Wide Web: http://www.foreignaffairs.house.gov/

                                 ______


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                      COMMITTEE ON FOREIGN AFFAIRS

                 HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York           ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American      CHRISTOPHER H. SMITH, New Jersey
    Samoa                            DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey          ELTON GALLEGLY, California
BRAD SHERMAN, California             DANA ROHRABACHER, California
ROBERT WEXLER, Florida               DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York             EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts         RON PAUL, Texas
GREGORY W. MEEKS, New York           JEFF FLAKE, Arizona
DIANE E. WATSON,                     MIKE PENCE, Indiana
    California              JOE WILSON, South Carolina
ADAM SMITH,                          JOHN BOOZMAN, Arkansas
    Washington deg.Until    J. GRESHAM BARRETT, South Carolina
    2/9/09 deg.                      CONNIE MACK, Florida
RUSS CARNAHAN, Missouri              JEFF FORTENBERRY, Nebraska
ALBIO SIRES, New Jersey              MICHAEL T. McCAUL, Texas
GERALD E. CONNOLLY, Virginia         TED POE, Texas
MICHAEL E. McMAHON, New York         BOB INGLIS, South Carolina
JOHN S. TANNER, Tennessee            GUS BILIRAKIS, Florida
GENE GREEN, Texas
LYNN WOOLSEY, CaliforniaAs 
    of 3/12/09 deg.
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
                   Richard J. Kessler, Staff Director
                Yleem Poblete, Republican Staff Director
                                 ------                                

         Subcommittee on Terrorism, Nonproliferation and Trade

                   BRAD SHERMAN, California, Chairman
GERALD E. CONNOLLY, Virginia         EDWARD R. ROYCE, California
DAVID SCOTT, Georgia                 TED POE, Texas
DIANE E. WATSON, California          DONALD A. MANZULLO, Illinois
MICHAEL E. McMAHON, New York         JOHN BOOZMAN, Arkansas
SHEILA JACKSON LEE, Texas            J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida
               Don MacDonald, Subcommittee Staff Director
          John Brodtke, Subcommittee Professional Staff Member
            Tom Sheehy, Republican Professional Staff Member
             Isidro Mariscal, Subcommittee Staff Associate



                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Damon Silvers, Esq., Associate General Counsel, American 
  Federation of Labor and Congress of Industrial Organizations 
  (Deputy Chair of the Congressional Oversight Panel)............     8
Mr. Kevin L. Kearns, President, United States Business and 
  Industry Council...............................................    24
Nancy Birdsall, Ph.D., President, Center for Global Development..    33
The Honorable Terry Miller, Director, Center for International 
  Trade and Economics, The Heritage Foundation (former Ambassador 
  to the United Nations Economic and Social Council).............    44
Mr. Roger Robinson, Jr., President and Chief Executive Officer, 
  Conflict Securities Advisory Group (former Senior Director of 
  International Economic Affairs at the National Security 
  Council).......................................................    53

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Damon Silvers, Esq.: Prepared statement..........................    11
Mr. Kevin L. Kearns: Prepared statement..........................    26
Nancy Birdsall, Ph.D.: Prepared statement........................    35
The Honorable Terry Miller: Prepared statement...................    46
Mr. Roger Robinson, Jr.: Prepared statement......................    55

                                APPENDIX

Hearing notice...................................................    80
Hearing minutes..................................................    82
The Honorable Donald A. Manzullo, a Representative in Congress 
  from the State of Illinois: Prepared statement.................    83


      FOREIGN POLICY IMPLICATIONS OF U.S. EFFORTS TO ADDRESS THE 
      INTERNATIONAL FINANCIAL CRISIS: TARP, TALF AND THE G-20 PLAN

                              ----------                              


                        WEDNESDAY, JUNE 10, 2009

              House of Representatives,    
                     Subcommittee on Terrorism,    
                            Nonproliferation and Trade,    
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:05 p.m. in 
room 2172, Rayburn House Office Building, Hon. Brad J. Sherman 
(chairman of the subcommittee) presiding.
    Mr. Sherman. In advance of the Group of 20 meeting in 
London, this subcommittee held a hearing to explore the foreign 
policy implications of the possible commitments that would be 
made there. President Obama then went to the G-20 where, along 
with other G-20 summit leaders, he committed $500 billion in 
contributions to the IMF, roughly $109 billion of that to come 
from the United States. He also committed us to joining a $250 
billion expansion of special drawing rights, monetary reserves 
for all members.
    I should point out that nearly $2 billion of this $250 
billion will go to Iran. Hundreds of millions will go to Sudan, 
and Sudan has already used its prior receipt of special drawing 
rights by borrowing against it, turning it into cash, and 
financing its military. Additionally, the world leaders pledged 
at least $100 billion of additional lending by multilateral 
development banks, including a commitment to the World Bank 
which would triple its lending to $35 billion.
    No effort was made, that I am aware of, to say that before 
we make additional commitments to the World Bank, we get that 
organization to cease and desist its disbursements on loans 
previously approved to the Government of Iran. It also seems 
that as the President was making these commitments, he did not 
adequately explain to foreign leaders that in our country and 
with our Constitution, the President speaks for the executive 
branch, and that where legislation or appropriations are 
necessary, there is a co-equal branch of government, it is 
right there in Article I of the Constitution, and foreign 
leaders are often misled into believing that a President speaks 
for all branches of the Federal Government.
    In fact, they need to be warned that a commitment of the 
executive branch is a commitment to use the executive branch's 
power and a commitment to come to Congress and to try to 
persuade us to move in the same direction. My concern is that 
the policies reached at the G-20 meeting, while aimed at 
solving the world's economic problems or at least ameliorating 
them, seem to have been utterly blind to our anti-genocide, 
antiproliferation and antiterrorism policies.
    That may be the decision of the executive branch. It does 
not have to be the decision of the legislative branch. It 
appears that a number of our friends in Europe simply don't 
agree with us on anti-genocide, antiproliferation or 
antiterrorism. That doesn't mean they are pro-terrorist or pro-
genocide, it just means they think that we should conduct 
business as usual while turning a blind eye to those concerns, 
and it is clear that those who wish to be applauded by European 
leaders best ignore those considerations.
    The question is whether ignoring those considerations is 
also a way to be applauded by Congress and the American people. 
Last week, and I am glad he got here in time for this favorable 
mention, I and Ranking Member Royce organized and signed a 
letter to House appropriators urging the inclusion of important 
safeguards in any congressional authorization of U.S. 
Government funds to multilateral institutions. Specifically, we 
want to prevent countries that are identified as supporting 
terrorism or involved in nuclear proliferation, most notably 
Iran, from benefitting from policies of the IMF and the World 
Bank at the same time that the U.S. Government is transferring 
billions of dollars to those institutions.
    I should point out that the Senate war appropriations bill 
includes a $109 billion transfer or commitment of funds, if you 
will, to the IMF, and also over $3 billion is authorized for 
the World Bank. Nothing in that bill asks those institutions, 
in return for our largesse, to alter their policy: Business as 
usual, toward Iran, Sudan and other terrorist regimes. Now, 
these concerns are not new, as I have pointed out before. From 
2000 to 2005, the World Bank approved $1.4 billion in loans to 
Iran, some $0.5 billion is yet to be disbursed, and I believe 
the United States should not provide additional funds to the 
World Bank until those disbursements are stopped.
    Similarly, according to a May 26 report in the Financial 
Times, Hezbollah, in anticipation of potential success at the 
Lebanese election, began meeting with IMF officials. 
Fortunately, the Lebanese people were unwilling to embrace 
Hezbollah. Unfortunately, what these discussions show is that 
the IMF administrators were willing to embrace Hezbollah, 
should it have been successful in those elections. The 
international community should not expect Americans to 
contribute or put at risk more than $100 billion without 
focusing on the demands of the American people that these 
international organizations do not benefit terrorism, 
proliferation or genocide.
    As noted in a CRS report, the most effective way that 
Congress can influence U.S. policies toward multilateral 
institutions is by attaching enforceable conditions to new 
funding arrangements. Now, our discussion at these hearings 
goes beyond the multilateral institutions. Our domestic, or at 
least called domestic, stimulus efforts and bailouts through 
TARP, TALF and the stimulus bill, play a major role in the 
world economy, and one focus of this is the AIG bailout.
    Foreign-owned institutions have benefitted from the bailout 
of what are called U.S. companies. Most notable was our nearly 
$200 billion committed to AIG. Let me focus a little bit on the 
AIG bailout. The word is clear to investors worldwide. If you 
loan money to an American auto company, like Chrysler, you may 
get only 20 cents on the dollar, but if you take your money 
and, quote,  deg.``invest it at the AIG casino,'' not 
putting it into anything productive, not actually building 
anything, you just play the casino, the American taxpayer will 
be squeezed into making sure you get every penny, and so while 
the Chrysler bond holders are getting about 20 cents on the 
dollar, the AIG counter-parties haven't lost a penny, and I 
realize I have gone a little bit long but I know that Mr. Royce 
would want to hear at least a full contingent of this opening 
statement, so in deference to him, I will continue.
    Now, when you focus on the AIG, we notice that Societe 
Generale was paid $4.1 billion, U.S. Government money, on their 
credit default swap. They didn't have to give up a penny, and 
it is alarming and unacceptable that we sent this money to an 
institution that has continuously operated a bank in Iran since 
1974. On the same note, UBS, the biggest Swiss-owned bank, is 
known as a haven for tax evaders.
    It received $800 million of U.S. taxpayer money in the AIG 
bailout. While the Swiss authorities have provided the United 
States with details on 300 Americans suspected of tax fraud, 
UBS and the Swiss Government officials have failed to identify 
more than 50,000 U.S. account holders. Claiming that further 
cooperation would violate the law, they are unwilling to 
change, so U.S. tax money goes to support a bank that makes it 
much, much more difficult to collect U.S. tax money from those 
who owe it, placing the burden of that United States tax 
collection on working families who do not have Swiss bank 
accounts.
    Now, there are American values and there are what I would 
call the accepted values of Wall Street and the world economic 
elite. Sometimes these values coincide, and were reflected at 
the G-20 conference, which was dedicated to alleviating global 
poverty and stimulating the world economy. But, there are three 
T's where Wall Street values and world economic elite values 
clash with American values. I call them the three T's: Tax 
evasion, terrorism and total protection of the biggest 
financial institutions, whether U.S. or foreign, at the expense 
of the U.S. taxpayer.
    I would hope that American foreign and economic policy will 
reflect American values, and I hope that at least this branch 
of government keeps that in mind and asserts its authority, 
rather than serving as a rubber stamp for the administration. 
With that, I yield to our ranking member, Mr. Royce.
    Mr. Royce. Thank you very much, Mr. Chairman, and I thank 
you not only for calling this hearing but, as you know, the 
international financial crisis has impacted the full range of 
our foreign policy and national security interests, and that is 
part of the objective here, is to hear from our witnesses on 
that. Let me begin by saying I share the chairman's concern 
about IMF aiding Iran, and I very much appreciate the letter, 
Mr. Chairman, that you led, and which I signed, calling for 
this funding to be pulled out of the pending supplemental, and 
I think it is very, very important that at a time when we 
should be squeezing Iran because of its nuclear program, and 
recognizing that the Iranian economy, frankly, is hurting, that 
this policy of allowing Iran to receive new IMF money, and some 
suggest, Mr. Chairman, that this could go as high as $1.7 
billion--$1.7 billion, a lot of this at United States taxpayer 
expense. This is clearly nonsense, and that is just one 
concern.
    We also have Sudan. We also have Syria. We have the other 
beneficiaries, frankly, that we need to be worried about as 
well. Now, admittedly, I am not big on IMF spending to begin 
with, and I don't see ramping up its lending as central to the 
global economic recovery. I certainly don't trust it to play a 
critical regulatory role, as some advocate, and I suspect that 
with its levels of lending plummeting over the last 5 years, 
the IMF is probably desperate for a new mission, and I think 
that this is part of that push, but I think this opaque 
institution certainly hasn't made the case for a claim on U.S. 
resources, and I think it is especially important that we 
consider the fact that these are resources that we are going to 
have to go out and borrow.
    It is not as though we have reserves ready to fund this. 
This will be done through borrowing, and I think the popular 
media enjoys labeling the financial crisis, by the way, as a 
crisis of free markets. It rarely explains the harmful impact 
of government actions such as policies and political pressure 
to sacrifice lending standards, to resist meaningful reform. I 
would recommend Tom Sowell's book for those interested, the 
economist book, The Housing Boom and Bust, that gives you a 
full range of government interventions made in the domestic 
market here, where Congress was pushing in one way while the 
regulators were saying, wait a minute, wait a minute, the GSEs 
are overleveraged 100 to 1. You know, why aren't we allowed to 
go in and de-leverage them? Why can't we put some limit on the 
government-sponsored enterprises, Fannie and Freddie? Why 
should we have these 3 percent loans or zero down payment 
loans?
    Well, it was political pressure that drove that, you know, 
CRA driving subprime lending here. There are a lot of issues 
that, in fact, emanate from government intervention in the 
market, and Congress's crippling of the regulators to do their 
job. I had legislation, for example, to have a regulator look 
at insurance institutions, like AIG, and have access to all of 
the information at the Federal level in order to be able to get 
past this patchwork quilt of regulation, but how does the Fed's 
bad decision to keep interest rates effectively negative for 4 
years running, how does that have anything to do with free 
markets?
    How do the central banks in Europe, following the Fed's 
lead and having interest rates negative in Europe for 4 years 
running when adjusted for inflation and the resulting bubble 
that that created in terms of housing, in terms of an economic 
bubble, how does that have anything to do with the free market? 
No, no. These are mistakes made at the governmental level, and 
these are examples of interventions where we didn't get the 
regulation right.
    That is what this is about, and the fact is that free 
markets have done more to eliminate poverty than all of the 
government programs that free markets combined fund, because it 
is ultimately the market, through taxation, that funds the 
programs that we are passing out of here, such as the funding 
that goes to the IMF. At least the G-20 has agreed, on a 
hopeful note here, in my view, to reject protectionism, yet too 
many countries are moving toward protectionism.
    The Obama administration is willing to spend aid money for 
trade. The G-20 agreed to spend $250 billion on trade aid, but 
it is unwilling to get an actual trade deal done. It is tied in 
knots over the Panama deal, a deal of very minor economic 
consequences, but it sends enormous signals worldwide in terms 
of liberalized trade, or resistance to it in terms of 
protectionism. It is setting on a Korea deal. You know, 
finishing the Doha trade round could boost the global economy 
by at least $150 billion a year, yet there is no American 
leadership on getting that done.
    Nothing would more advance our interests abroad than an 
economic recovery at home. It is hard to see how today's 
massive deficit spending is going to help on that, as we look 
at government's attempt to spend. This year alone we will have 
somewhere--we won't hit a $2 trillion deficit, but by the end 
of the year, we will come close. Does anyone really believe 
this administration's claim that we will get deficits under 
control? I don't see the political understanding nor discipline 
to do that, and the Fed Chairman, again, raised a warning last 
week.
    Meanwhile, government bureaucrats and politicians are 
assuming ever-greater economic power. Who knows the powers the 
massively expansive Obama health proposal will transfer into 
public hands? TARP has brought the American people Government 
Motors, $50 billion of GM being Government Motors. The 
political economy is only beginning. The Hill reports that one 
prominent Member of Congress ``was able to get GM to undo a 
planned parts distribution center closure in his district.'' So 
political pull is beginning to replace market forces.
    One witness suggests that next will come graft and 
corruption. As Venezuela and others nationalize companies and 
embrace statism, their economic demise is going to intensify. 
Let us not join that club. Let us try to embrace markets. Let 
us try to keep politics out of it, and let us try, when the 
regulators want to take effective action against institutions, 
whether it be government sponsored enterprises like Fannie or 
Freddie, let us not have politicians stand in the way and 
prevent that proper regulatory role from occurring.
    Mr. Chairman, thank you again for this hearing.
    Mr. Sherman. Thank you, Mr. Royce. I should point out that 
as scheduling has worked out on the Hill, the Foreign Affairs 
Authorization Bill is on the floor now. I am watching it here 
on this screen, just for a second. I was paying full attention 
to Mr. Royce--and that is why so few of our colleagues can be 
here. Almost our entire committee is down on the floor. This 
hearing was scheduled first, but the floor needs to go forward. 
I am going to resist, and it is very difficult for me, 
commenting on Mr. Royce's views on trade, and instead recognize 
the vice chair of this committee, Mr. Scott.
    Mr. Scott. I won't mind saving you from Mr. Royce. This is 
a very timely hearing, and very much needed. I really can't 
think of any more single threatening issue for the future 
welfare of our country than our financial situation, not just 
here at home, but abroad. I have just returned from Europe from 
our NATO meetings, and needless to say, the financial crisis, 
the world's financial crisis was center stage, but the greater 
bout of attention was paid to what is going on in the United 
States, and surprisingly, that which got more attention than 
the domestic side was our debt, and the part of our debt that 
got the greatest attention was the debt that is being held in 
the hands of foreign countries.
    Many of you may not know, but just in the last 9 years, our 
country has borrowed more money from foreign governments than 
in the entire preceding, what, 211 years. Just think about 
that. That means, since the foundation of the United States of 
America, all of the money that was borrowed up through from 
1789 up through 2002 does not come up to the amount of money we 
have borrowed from foreign countries in the last 9 years. That 
is an extraordinarily threatening situation.
    Now, yesterday, I was on the Voice of America television 
program, and it aired exclusively into China. And you know the 
question that the Chinese were asking me over and over and over 
again was while North Korea, certainly in the news and they are 
right next door, the Chinese were concerned about that, but 
they were more concerned about whether or not they should 
continue to buy our debt. That is an amazing situation. So, and 
just today, Reuters has reported that Russia is beginning to 
question their continuance at the level of purchasing our debt.
    And so, I think with that backdrop, this hearing is 
extraordinarily important, and so I want to thank you, Mr. 
Chairman, for examining the foreign policy implications of the 
United States' response to our current financial crisis. The 
United States has been, and certainly still is, the financial 
backstop of the world. Make no mistake about it. We are still 
number one, hanging on by our fingernails, but we are still 
number one.
    We still provide the lion's share of funding for most 
multinational, financial and developmental institutions. The 
U.S. dollar has been the currency of choice for international 
transactions and investments for decades. Investing in U.S. 
treasuries has been the safest form of investment for even 
longer, and moreover, the American consumer has been the driver 
of economic engines, not just in this country but in numerous 
developing countries, through our purchasing power.
    This is what makes and will continue to make America the 
greatest nation in the world. Some say it is our military 
strength, and it is certainly there, but it is our financial 
capacity, it is our economic capacity, that drives the world. 
We have historically been able to wield our tremendous economic 
power alongside our military might to undergird our diplomatic 
efforts and achieve our foreign policy objectives, but it has 
been not just military, it has been economic power.
    However, it seems that in the wake of our ongoing financial 
crisis, our economic power, or at least the perception of that 
power, as I alluded to at the very beginning with my remarks on 
China and Russia, is beginning to unravel, and so while much of 
the discussion today will focus on multinational financial 
institutions such as IMF and the World Bank, I think it is 
worth examining the effect that a changed perception of U.S. 
financial prowess will have on our efforts to influence events 
around the world.
    Everything is image. It is not what we think of ourselves. 
It is what other people think about us. So much like the view 
of our military strength has been lessened by the quagmires in 
Iraq and Afghanistan, so too, it seems, the view of our 
economic might has become more negative as we are bogged down 
in this recession. We have already seen talk from OPEC about 
shifting away from dollar-based pricing of oil. So our economic 
leverage is beginning to wane somewhat. So as we move forward 
with our domestic financial rescue plans and with finding 
multinational institutions in an effort to spark global 
recovery, I feel that we must keep in mind that our ability to 
influence other nations lies largely in our economic right, 
real and perceived.
    Thank you, Mr. Chairman.
    Mr. Sherman. I thank the vice chairman. Without objection, 
the full statement of each witness will be entered into the 
record. We will ask each witness to summarize that statement 
orally in 5 minutes. Once we hear from the witnesses, we will 
be asking questions and I will depart from the usual procedure 
in that I will have our vice chair, then our ranking member, 
ask questions before I do.
    Mr. Connolly. Mr. Chairman, could I just ask, I have an 
opening statement.
    Mr. Sherman. Oh, yes, go right ahead. I didn't know you had 
one, but I look forward to hearing it.
    Mr. Connolly. Thank you. I am sorry I am late, but I was on 
the floor with the State Department Authorization Bill.
    Mr. Sherman. As I pointed out to our colleagues, that is 
why so many people--they all want to be here. They are all on 
the floor.
    Mr. Connolly. They all want to be at this hearing but we 
are fighting for the State Department on the floor of the 
House.
    Mr. Sherman. Yes.
    Mr. Connolly. Thank you, Mr. Chairman. Thank you so much. 
Mr. Chairman, if this crisis has taught us anything, it is that 
our economies are linked. Vulnerability in one system can have 
global effects. Last fall's collapse of Lehman Brothers, for 
example, displayed the ripple effect one catastrophic event can 
have on the global economic landscape. The ripple effect, of 
course, is not confined to just the financial sector. We have 
all seen the effects in our respective districts, here in 
Congress.
    Fairfax County, my home county, for example, is home to 
more than 360 foreign-owned firms, representing nearly 40 
countries. These international companies are dealing with 
financial challenges on both fronts. The U.S. Federal Reserve 
and the Bank of England have taken necessary steps to insulate 
our economies from further damage by buying debt. The U.S. and 
the U.K. are sharing much of the burden for insulating the rest 
of the world from further damage, though this situation is far 
from ideal.
    In a report released this week, the IMF warned that 
economic recovery in Europe, specifically the Euro zone, could 
be stymied by banks burdened with bad assets. I fear that some 
European nations are not doing their fair share with regard to 
properly cushioning the international economy from further 
damage. For example, last month, the IMF called for European 
authorities to follow the United States in conducting stress 
tests. The EU stress test, which will be national and not 
European-wide, will not even take place until September.
    European banks must be on the same page as the United 
States when it comes to cleaning up this mess. According to an 
IMF report published Monday, the lack of a coordinated and 
aggressive cleanup plan for European banks could hamper 
economic recovery in the 16 countries that share the Euro. The 
same report discusses the need for more decisive and thorough 
action on the part of European authorities.
    Mr. Chairman, German Chancellor Merkel has expressed 
skepticism about the effectiveness of major economic stimulus 
packages. Earlier this week she stated that ``the independence 
of the central bank must be preserved and the things that other 
central banks are doing now must be reversed.'' Though their 
more conservative approaches led to political gains, perhaps, 
for her party, I fear the long-term consequences in terms of 
economic recovery in the Western hemisphere. I look forward to 
hearing from our witnesses today. Thank you, Mr. Chairman.
    Mr. Sherman. Thank you. I am told the gentleman from 
Arkansas does not have an opening statement, and so we will 
hear from our witnesses, the first of which is Damon Silvers, 
who serves as associate general counsel for the AFL-CIO. Mr. 
Silvers is also deputy chairman of the three-member 
Congressional Oversight Panel. There are many Congressional 
Oversight Panels. This one is not made up of Members of 
Congress, but is perhaps the most important of the oversight 
panels since it oversees the TARP program. Mr. Silvers?

 STATEMENT OF DAMON SILVERS, ESQ., ASSOCIATE GENERAL COUNSEL, 
    AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL 
  ORGANIZATIONS (DEPUTY CHAIR OF THE CONGRESSIONAL OVERSIGHT 
                             PANEL)

    Mr. Silvers. Thank you, Chairman Sherman, and good 
afternoon to you and to Ranking Member Royce. Thank you for the 
opportunity to testify today. As you noted, I am associate 
general counsel of the AFL-CIO and deputy chair of the 
Oversight Board for the TARP. I hope you won't mind if I 
mention that we have five members and one of them is actually a 
Member of Congress, Jeb Hensarling. I think I would be remiss 
if I didn't correct the record on that. My----
    Mr. Sherman. The--go on. Go on.
    Mr. Silvers. My remarks today, though, are my own, and are 
not necessarily the views of the Panel, its staff or its chair, 
Professor Elizabeth Warren. I am going to try very briefly to 
address two issues. One is the interaction of TARP with foreign 
institutions, and the second is the G-20 from the perspective 
of the global labor movement.
    When Congress enacted the Emergency Economic Stabilization 
Act of 2008, Congress provided that funds under that act could 
only be expended to support U.S.-based financial institutions. 
It is built into the definition of the term ``financial 
institution.'' However, Congress did not bar foreign financial 
institutions from indirectly benefitting from EESA 
expenditures, and in particular, as you noted, Mr. Chairman, in 
your opening statement, a large portion of the funds provided 
to AIG, one of the primary beneficiaries of the EESA, have been 
transferred directly to foreign bank counterparties to AIG 
derivatives contracts, including, as you mentioned, Societe 
Generale and UBS.
    Now, I do not believe that at this time, either the 
documents that the Oversight Panel has obtained or the publicly 
available information in this area includes sufficient 
information to clearly understand the basic question of how the 
economic relationship between AIG and its derivative 
counterparties evolved during the critical month of September 
2008, which led to the bailout of AIG. As a result, it is 
really impossible to responsibly express with any certainty an 
opinion about these transactions or provide answers to 
questions such as, were these transactions in the form 
undertaken unavoidable, or, were they in the public interest?
    I think we can say, however, that none of the institutions 
on the AIG counterparty list, as disclosed earlier this year, 
would appear to have been bankrupted had they not received that 
money. Now, more broadly, the National Intelligence Director in 
the Annual Threat Assessment presented to the Senate Select 
Committee on Intelligence in February of this year identified 
the economic and financial crisis as ``the primary near-term 
security concern of the United States,'' and the activities of 
the Treasury Department, the FDIC and the Federal Reserve, 
which constitute collectively the financial bailout, a set of 
activities larger than the activities under the EESA that our 
Panel oversees, raise several questions in relation to the 
global interests of the United States. First, the question, 
what is the impact of the approach we are taking to refinancing 
our banking system on the perception among foreign investors of 
the strength of our currency, the state of the Federal 
Reserve's balance sheet, and the extent to which we have or 
have not actually dealt with the capital shortfalls in our 
major banks?
    Secondly, to the extent to which our approach to resolving 
our banking crisis is succeeding through providing low-cost 
liquidity and an implicit guarantee to our major banks with an 
international presence, is this approach causing U.S. banks 
operating overseas to be perceived as having an unfair 
advantage over their domestic competitors, with obvious foreign 
policy and potentially national security consequences?
    Thirdly, are we seeking to perpetuate the basic 
international financial arrangements that appear to have 
contributed to the bubble and the subsequent crisis, namely, 
high degrees of leverage funded by cheap debt, financed by 
global trade and currency imbalances? And fourthly, is it true, 
as some have asserted that we today have no means of resolving 
an insolvent global financial institution?
    Now, the global labor movement has urged the governments of 
the G-20 countries to ``put employment and fairness'' at the 
center of government's response to the crisis. In general, the 
global labor movement has supported the direction taken by the 
G-20, and in a number of cases, following the lead of the Obama 
administration. However, we are concerned that, first, the 
financial regulatory reform proposals in the G-20 London 
communique at the international level may be too weak.
    Secondly, that banks in key countries are being propped up 
rather than restructured, risking a Japanese ``lost decade'' 
scenario globally. Thirdly, that the governance of 
multinational bodies such as the Financial Stability Board and 
the IMF, charged with addressing the crisis, is both opaque and 
too narrow in terms of who is involved globally. And fourthly, 
that despite the very positive statements coming out of the 
London meeting, that the resources committed to fiscal 
stimulus, particularly in the Euro zone, and job creation, are 
not increasing, while the downward spiral globally is 
increasing. I have attached to my testimony a detailed 
commentary from the global labor movement on the G-20 meeting 
in London.
    Thank you, in conclusion, for the opportunity to appear 
before you today. Obviously, these subjects are somewhat more 
complex than the 5 minutes allow, and though I do not speak for 
the Oversight Panel in any respect, I hope I could speak in the 
respect of offering the Panel's assistance to the committee in 
any way you would find useful. I can say with certainty that 
the AFL-CIO and the global labor movement do so offer that 
assistance. Thank you.
    [The prepared statement of Mr. Silvers 
follows:]Damon Silvers (plus addendum) deg.



























    Mr. Sherman. Thank you. It makes you wonder whether some of 
these institutions were too big to fail. It said they were too 
interconnected to fail. Arguably, they are just too well-
connected to fail. With that, we welcome Kevin Kearns, 
president of the United States Business and Industry Council, 
which represents the interests of family-owned and closely held 
U.S. manufacturing companies. Mr. Kearns?

  STATEMENT OF MR. KEVIN L. KEARNS, PRESIDENT, UNITED STATES 
                 BUSINESS AND INDUSTRY COUNCIL

    Mr. Kearns. Thank you, Mr. Chairman, Mr. Ranking Member, 
other members of the committee, and it is a very timely 
hearing. Five minutes isn't much time. I am going to take a 
500-foot overview of the crisis, and that is, there is 
cascading failure going on in domestic manufacturing. We seem 
to think, collective ``we,'' that it is trillions for banks, 
financial institutions, insurance companies, but really not 
much for manufacturing, and if we give General Motors and 
Chrysler some money, who else is going to line up?
    We Americans just seem to love to hate our manufacturers, 
but I would ask the question, where is the wealth generation 
coming from to pay off the debt we have already incurred that 
Mr. Scott referred to and the massive debt we are incurring 
now? Any basic economic textbook will tell you there are three 
ways you create wealth. You create it by making it, mining it 
or resource extraction, and growing it. Banks and financial 
institutions properly understood, as opposed to creating 
derivatives and complex instruments that no one can understand, 
should make money on a spread, you know, they pay their 
depositors such and such and they take in a little bit more 
from customers they lend to.
    Even if we were to wave a wand and straighten out the 
financial institutions today, I can guarantee you that no 
domestic manufacturer, given our trade policies, given the 
unfair advantages, the currency treating, the VAT tax 
inequity--150 of our trading partners have VAT taxes, we 
don't--the IP theft, the subsidies, etc., etc., the list goes 
on. It is like Whac-A-Mole at the beach, you know, each time 
you hit the mole, another one pops up faster.
    I mean, they can create ways to subsidize their companies 
faster than we can address them in, you know, years and years 
of negotiation. When I was in the Foreign Service in Japan, I 
saw the SII, Strategic Impediments Initiative, talks that went 
on forever, the Moss talks that went on forever. Jim Rill tried 
to turn the Japanese Fair Trade Commission into an antitrust 
division of the Justice Department, etc., etc. The time for 
chitchat diplomacy is over.
    Our situation right now reminds me of England in 1946. You 
know, they thought they had all the experience, but they lost 
all their money, they lost their industrial base during the 
war. They thought they were going to run the world and the 
Americans were going to pay for it. Well, guess what? That 
didn't happen, and it is not going to happen to us. So, we need 
to find ways to re-energize our industrial base. We need to do 
so unilaterally if necessary, because sometimes power and 
unilateralism are necessary to bring other nations to the 
table.
    The Obama administration, as far as we are concerned, is 
trying to restore the status quo ante. Everyone up here yelped 
at a $789 billion stimulus bill. I didn't hear any yelping, or 
from certain quarters I did, but about $750 billion trade 
deficits year after year after year. I mean, we have had almost 
40 years of trade deficits. How many years do we have to keep 
going down that path, whether it is Panama, Mr. Royce, and you 
are right, it is small potatoes, but how long do we have to 
follow a failed model before we stop and re-evaluate it, as 
opposed to rushing ahead with more?
    Manufacturing does 60 percent of the R&D in this country. 
It provides the best-paying jobs. It is critical to our defense 
and our technology base. It is what we need. So when Congress 
has, for instance, the Big Three CEOs in here and rakes them 
over the coals, and they want a plan in 60 days or 90 days or 
whatever it was, you know, what is Congress's plan to address 
currency manipulation?
    The Secretary of State signed on to Bunning-Stabenow-Bayh. 
The President signed on to that bill. There were 180 cosponsors 
in the House. Why isn't that on the President's desk today? 
What are we doing about other trade cheating, intellectual 
property theft, subsidies? Every other nation in the world 
seems to think it is important to have a car industry, a steel 
industry, chemical industry, technology industries, other heavy 
industries. We don't seem to care. We seem indifferent, but any 
basic economics textbook will tell you that it is important who 
owns the rents or the profits.
    They make the decisions. They are the ones in control, and 
we are not in control of our destiny anymore. We may think we 
are, but I associate myself with Mr. Scott's remarks, except to 
the extent that the economic power is not there. We are not 
generating the wealth, and there is no plan that I can see, 
either in the Congress or the administration, to get our 
wealth-generating industries back on track, to spend the money 
on them. None of the 1,900 businesses I represent, and I will 
just say this in conclusion, no business owner is going to 
expand his factory or build a new factory in the United States 
until we change our trade policy, until we call our allies and 
other trading partners on their trade cheating, you know, you 
are flushing your money down the toilet.
    So, from the point of view of manufacturers, nothing is 
going right in Washington, and they are pulling their money out 
of their businesses and they are preparing to fail.
    [The prepared statement of Mr. Kearns 
follows:]Kevin Kearns deg.

















    Mr. Sherman. On that happy note, we now turn----[Laughter.]
    I thank you, Mr. Kearns, for your comments and agree with 
almost all of them.
    We would now like to turn to Dr. Nancy Birdsall, founding 
president of the Center for Global Development. The Center for 
Global Development is an independent non-profit policy research 
organization that is dedicated to reducing global poverty. Dr. 
Birdsall?

   STATEMENT OF NANCY BIRDSALL, PH.D., PRESIDENT, CENTER FOR 
                       GLOBAL DEVELOPMENT

    Ms. Birdsall. Thank you very much, Mr. Chairman and other 
members of the committee. I am going to concentrate on the G-20 
agenda, and in particular, its implications for U.S. support to 
the IMF package, and essentially, my statement has to do with 
saying that I support fully the idea that Congress would go 
ahead and endorse that package in the upcoming supplemental 
bill. Let me start by saying that, as some of you have already 
indicated in your remarks, in this century we are seeing really 
big shifts in the landscape.
    We are seeing the rise of China and other powers in Asia in 
particular, and we see more and more that we face transnational 
threats. Today's global challenges do not respect borders. They 
threaten security globally and they threaten our own security 
here at home, and the fact is, as some of your remarks have 
indicated, the U.S. cannot hide from these problems and we 
cannot manage these challenges anymore by ourselves. That is 
what the G-20 leaders, as a group, recognized at the London 
summit.
    Let me quote from something that former Under Secretary Tim 
Adams said at a hearing of the House Financial Services 
Subcommittee on International Monetary Policy and Trade, in 
which I also participated:

        ``Failed states and extreme poverty breed unrest and 
        instability and create the types of conditions that 
        allow dictators, extremists and terrorists to thrive. 
        In short, it is in our national security interest to 
        ensure that financial and economic crises don't 
        destabilize fragile states.''

    He pointed out that in the recent period, recipients of IMF 
loans have included Mexico, Colombia, Poland, Ukraine, 
Pakistan, all key allies and/or crucial players in the success 
or failure of United States foreign policy and in addressing 
our national security objectives. We have a global village that 
we constructed. We live in the center of that village. We are 
in the biggest house, but there are fires spreading, and the G-
20 leaders essentially said, we need the IMF as a fire brigade 
to deal with these spreading fires, and I think the Obama 
administration and the Congress need to, in a sense, make the 
commitments that will help ensure that the fire doesn't come 
back to haunt us here at home.
    Let me make four points very quickly. First is that the 
U.S. economic recovery and our national security do depend in 
part on substantially increasing those resources at the IMF and 
at the multilateral banks. In a sense, I have said that 
already, but I just want to emphasize that stimulating the 
global economy is absolutely vital for our own domestic 
recovery. Emerging markets are important in terms of our 
exports. In 2008, virtually all of our growth was export-driven 
and one-third of those exports went to emerging markets and 
developing countries.
    There is also a security issue. Here I want to be positive 
about it and say that this crisis risks undermining tremendous 
progress supported in very important ways by the United States 
in places like sub-Saharan Africa. We now have in Africa 20 
democracies, compared to three in 1989, 6 percent rate of 
economic growth over the last decade, very good macroeconomic 
management in most countries. All of that is put at risk now by 
this crisis, which is leading to the withdrawal of capital, the 
reduction of foreign aid, tremendous fiscal shortfalls, $15 
billion alone for Africa in lost trade taxes, which they will 
have to make up to pay doctors, to pay health workers, to keep 
their teachers in school and so on.
    So, it is in our interest on the security side to lock in 
those kinds of gains. What does the IMF have to do with this? 
As I suggested, it is the fire brigade in our global village. 
The G-20 basically endorsed the idea that there should be $1 
trillion available for emerging markets and poor countries. 
That includes and needs to include $100 billion from the U.S. 
for the new arrangements to borrow. The idea, the CBO has 
suggested that be scored at $5 billion. The $5 billion will 
leverage $500 billion.
    The cost to the U.S. taxpayer would be $5 billion, and 
there would be no cost to the U.S. taxpayer through the 
issuance of additional special drawing rights. I would be happy 
to answer questions about that. Now, the second point I want to 
make is the IMF today is not the IMF of old.
    Mr. Sherman. Dr. Birdsall, it appears your time has 
expired. That is why I was tapping.
    Ms. Birdsall. Thank you very much.
    Mr. Sherman. Yes.
    Ms. Birdsall. May I just repeat my three other points, just 
say what they are?
    Mr. Sherman. You don't need to repeat. I was tapping to 
indicate that you were already over time.
    Ms. Birdsall. All right. Thank you.
    Mr. Sherman. And that is what this tapping is. It is not a 
nervous affectation.
    Ms. Birdsall. I didn't hear it. That is all right. Thank 
you very much, Mr. Chairman.
    [The prepared statement of Ms. Birdsall 
follows:]Nancy Birdsall deg.



















    Mr. Sherman. We will get louder next time. We will move on 
to Ambassador Miller, director of the Center for International 
Trade and Economics at the Heritage Foundation. He has 
previously served as Ambassador to the United Nations Economic 
and Social Council. Ambassador Miller?

 STATEMENT OF THE HONORABLE TERRY MILLER, DIRECTOR, CENTER FOR 
  INTERNATIONAL TRADE AND ECONOMICS, THE HERITAGE FOUNDATION 
 (FORMER AMBASSADOR TO THE UNITED NATIONS ECONOMIC AND SOCIAL 
                            COUNCIL)

    Ambassador Miller. Thank you very much, Mr. Chairman, for 
the opportunity to testify here today. The views I express are 
my own and do not represent an official position of the 
Heritage Foundation. I think there are three issues here, Mr. 
Chairman. The first is the nature of the globalized 
international trade and financial system. I am going to talk a 
little bit about that. The second are the institutions of that 
system, the IMF, the World Bank, the World Trade Organization.
    You yourself, Mr. Chairman, expressed some concerns about 
those institutions and some of their concerns. I share those 
flaws, particularly the possibility that financing might go 
through those institutions to rogue states or others that 
support terrorism, but the final issue is the impact of the 
U.S. Government actions, our current actions and interventions 
in economic activity, both in the U.S. and other countries, and 
I do want to talk about that.
    What we do to keep our economic house in order here is far 
more important to our well-being than anything we do through 
international organizations or through cooperation in groups 
like the G-20. First about the overall system, Mr. Chairman, 
though we are in a recession today, it is important to remember 
that in recent decades, our world economic system has been 
producing strong, broad-based growth that has increased 
prosperity and reduced poverty around the world.
    Over the last 10 years, average world incomes have 
increased by over one-third. Some criticize the free market 
system that has produced this growth as good for the rich but 
not for the poor. The data show otherwise. Countries that moved 
toward greater economic freedom in the last decade reduced 
poverty significantly, while those that turned their backs on 
freedom saw poverty levels increase. Economic freedom's 
positive impact is also evident in areas like education, 
health, maternal mortality, life expectancy, as well as in 
protection of the environment, where countries that are more 
economically free do a far better job than their less free 
counterparts. The free market system works.
    The record of government interference in economies is not 
so pretty. The TARP program, initiated under the previous 
administration, is a good example of the problems of government 
interference in markets. The TARP in particular has created 
confusion, interfered with the establishment of market clearing 
prices for the assets in question, and there has been a lack of 
transparency in the program. It has done little to get the 
troubled assets off the books of financial institutions.
    The Fiscal Stimulus Package, passed under the current 
administration, is even worse. One estimate is that only about 
$37 billion of that money has actually been spent. Most of it 
is going to be spent far in the future at a time when 
government stimulus will no longer be appropriate but will lead 
only to inflation in the U.S. economy. The cost of these 
programs is creating a huge debt for our children, and we are 
going to have to finance it somehow.
    If we continue them, we are going to see either inflation 
or increased taxes, or both, as well as a fall in the value of 
the dollar, decreased foreign investment in the United States, 
lower productivity overall, and reduced economic growth. Some 
have expressed the hope that international cooperation, such as 
among the G-20, could speed recovery. This is unrealistic. The 
most important macro-variables, the money supply and spending 
levels, are going to remain under the control of individual 
governments.
    There was also a lot of talk about regulatory reform at the 
recent G-20 summit. Our current regulations are overly complex 
and subject to manipulation. We don't need more of them, but 
reforms to improve transparency and clarity could do a lot to 
improve competition and decrease risk. There are other imminent 
risks to the U.S. and world economies. Policies that would 
greatly and artificially increase the cost of energy will 
decrease U.S. and world growth and lead to increased poverty.
    Actions that would restrict trade flows would also have a 
devastating impact. Trade restrictions go by the name of 
protectionism, Mr. Chairman, but what they protect are the 
unfair privileges of politically connected special interests. 
Finally, as the size and reach of the Federal Government 
increases in the U.S., there is the ever-present risk of 
increased corruption, which thrives where government 
regulations are complex and pervasive.
    Mr. Chairman, a time of crisis may be a time to examine 
what has been done and what might be done better, but it is 
surely not the time to fundamentally undo the policies and 
practices that have brought so much benefit to so many. Thank 
you very much.
    [The prepared statement of Ambassador Miller 
follows:]Terry Miller deg.















    Mr. Sherman. Thank you. One scheduling note, you will be 
happy to know that while we are up here we are missing the 
opportunity to debate an additional 27 amendments that they are 
debating on the floor to the Foreign Affairs Authorization 
Bill, so the good news of that is we will not be interrupted by 
votes on the floor, and the other news is that the other 
colleagues on our subcommittee, you know, have a perfect excuse 
for not being here.
    Finally, I want to welcome Roger Robinson, Jr., president 
and CEO of the Conflict Securities Advisory Group. He has over 
25 years of experience in identifying and analyzing 
international security risks. Mr. Robinson?

   STATEMENT OF MR. ROGER ROBINSON, JR., PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, CONFLICT SECURITIES ADVISORY GROUP (FORMER 
   SENIOR DIRECTOR OF INTERNATIONAL ECONOMIC AFFAIRS AT THE 
                   NATIONAL SECURITY COUNCIL)

    Mr. Robinson. Thank you, Mr. Chairman and members of the 
committee for the opportunity to appear before you today. As 
you mentioned, I have been working on a nexus between 
international security concerns and global finance for some 30 
years now. The views that I am expressing today are my own and 
don't necessarily reflect the views of my firm, Conflict 
Securities Advisory Group, which is an independent, impartial 
research provider specializing in global security risk.
    Today, despite the valiant efforts of the Treasury 
Department and others to curtail financial flows to global bad 
actors, Iran, Sudan, Syria, North Korea and other regimes 
continue to benefit from lawful inflows of hard currency and 
external financing. In this connection, I have several 
observations I would like to share with the committee. First, 
concerning the role of publicly traded foreign companies, it is 
important to understand that these public firms represent the 
principal source of financial and economic support for Iran and 
certain other countries of concern.
    Most Americans hold at least some of these companies in 
their retirement accounts and other investment portfolios. Mr. 
Chairman, you have certainly been a leader in addressing this 
particular concern. The second involves the international 
financial institutions, notably, the IMF. In your opening 
remarks, Mr. Chairman, you reviewed the troubling amounts of 
taxpayer dollars committed to this enterprise, including the 
likely $250 billion general allocation this summer, from which 
Iran could reportedly see more than $1.7 billion. The direct 
cash infusions potentially provided by the IMF and other IFIs 
to these governments are legitimate national security issues, 
particularly as these funds are relatively undisciplined and 
easily divertable.
    The third issue deals with Federal contractors. We have 
calculated that among the top 100 recipients of Federal 
contract awards for Fiscal Year 2009, roughly 20 percent have 
engaged in some kind of business activity within the borders of 
a state sponsor of terrorism during the past 3 years. The 
Congress could play a catalytic role here that needs to 
transcend traditional ``name and shame'' tactics and should be 
aimed at the mitigation of legitimate business and financial 
risks.
    Should it be of interest, our firm, Conflict Securities, 
has researched the number of publicly traded companies 
worldwide with business interests in each of the terrorist-
sponsoring states, but in the shortness of time, and I am 
racing the clock, I would like to move to what more can be 
done. I have several recommendations in this connection. First, 
strengthen corporate awareness of global security risk. It is 
defined as the risk to share value and corporate reputation 
stemming from business ties to U.S.-sanctioned countries, 
including the terrorist states. The SEC has an Office of Global 
Security Risk that could be leveraged in this connection and 
could communicate with foreign firms.
    Second, we could highlight Iran's use of foreign 
correspondent banks that facilitate the money transfers, 
foreign exchange transactions, letters of credit, interbank 
deposits and related financial activities with most of their 
major trading partners, and that is something that should be on 
the agenda. Third, capitalize on existing private investment 
initiatives in the markets by mandating investment options for 
Federal employees that take into account these security 
concerns.
    And finally, pass legislation to sanction Iran's refined 
petroleum industry and encourage the Obama administration to, 
for the first time, enforce the Iran Sanctions Act.
    In conclusion, without the support of their state sponsors, 
terrorist groups are apt to shrivel like a virus without a 
host. Accordingly, the time is past due to take a more serious 
inventory of financial measures that could be brought to bear 
to hobble these regimes and change their cost-benefit 
calculations, much as happened with Libya.
    Mr. Chairman, I am persuaded that the market-oriented 
measures referenced above could serve as the most potent, 
nonmilitary means available to the U.S. to curtail terrorist 
sponsorship and WMD development and proliferation. In the best 
of worlds, the U.S. would receive robust and cohesive 
multilateral support for such initiatives, support which has 
traditionally been in short supply. If this is not possible, 
the U.S. would be well-advised to proceed unilaterally.
    The American financial system remains, as was stated by Mr. 
Scott, the dominant force on the global landscape that few 
responsible foreign financial institutions and companies can 
live without from a shareholder and reputational perspective. 
Regrettably, requiring these hard choices on the part of 
primarily foreign firms and banks is now a necessity. 
Postponing this day of financial reckoning will make more 
likely a nuclear Iran and more capable and dangerous United 
States adversaries worldwide.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Robinson 
follows:]Roger Robinson deg.













    Mr. Sherman. Thank you, Mr. Robinson. I will recognize our 
vice chair for his questions, followed by our ranking member.
    Mr. Scott?
    Mr. Scott. Thank you very much. I guess I would like to 
follow up on, to get your response to a couple of queries that 
were put to me by the folks from China yesterday. One caller 
was concerned about the safety and soundness of our United 
States treasuries and he asked whether China should divest or 
risk losing out on its return. Of course, I ensured the caller 
that the Treasury is the most safe and sound investment one 
could hold and that there is absolutely no risk that we might 
not repay our debt, but I am worried that there will soon come 
a day when that isn't the case, at least there are people who 
are thinking that.
    Then another caller from China asked whether United States 
had essentially been bought off by China, i.e., if the United 
States has become reluctant to focus on the considerable human 
rights abuses in China out of fear that they may stop supplying 
financing to us. That is the other wrinkle in this. This 
particular question in particular highlights in my mind the 
dangers of our economic situation we find ourselves in. Now, I 
in no way believe the United States has been bought off, nor do 
I feel that the caller was expressing a common perception 
around the world, but the issue is, the U.S., as it is 
perceived to become economically weak, to what degree will its 
leverage in holding people to a higher moral standard?
    So I would like to kind of get your response to that, 
because I think that is really the fundamental question we have 
got here is, what is the measure of this risk that our 
financial situation in this country is holding to the world? I 
mean, here we have got folks in China who think China is still 
dealing with us because we will go light on their human rights 
concerns, and others are--Mr. Robinson, I particularly would be 
interested in your response on this.
    Mr. Robinson. Well, Mr. Scott, my personal view is that we 
are, obviously, entering a somewhat perilous period. It is 
unprecedented in our history, and I think that, and I very much 
hope, that the administration understands the urgency of 
righting the ship. This is a very complex question, and I 
confess that it would be difficult to go into all of the moving 
parts, so to speak. I would say that for the foreseeable 
future, it is certainly the case that we would be servicing our 
debt without any kind of disruption. I think the remarks to 
your Chinese callers were spot on, but at the same time, I 
think all of us, behind closed doors, need to acknowledge that 
we are in new territory here, and like Kevin Kearns and others 
have mentioned today, there are a number of remedial steps that 
need to be taken urgently if the ship is to be righted. I would 
leave it with those more broad remarks, if I may.
    Mr. Silvers. Mr. Scott?
    Mr. Scott. Yes, Mr. Silvers, Mr. Kearns?
    Mr. Silvers. There are, I think, at least two ways of 
looking at your question. The first is central to understanding 
both how we got here and how we have to get out of here, out of 
the structural nature of the crisis we are going through. At 
the heart of our economic crisis is a structural trade deficit, 
which has led the Chinese, rationally, to accumulate dollars 
and then lend those dollars back into global markets, 
depressing the global cost of credit in ways that ultimately 
didn't capture the risks involved in the provision of credit.
    This is at the heart of the bubble and the collapse of that 
bubble. Those imbalances, that structural trade deficit we run 
with China, is not a sustainable phenomenon. As Paul Krugman 
once said about it, something like that that at some point has 
got to end, will end. It creates a situation where we and the 
Chinese are sort of in a state of mutually assured destruction. 
If they stop financing us, we stop buying from them. I think 
everyone understands this, and yet everyone also understands 
that it can't be sustained over time.
    I believe that the focus of the Obama administration's 
stimulus program and budget on not just spending money for its 
own sake but to lay a foundation for a more productive economy, 
and the Obama administration's commitment to addressing 
manufacturing, the details of which have not been worked out, 
are directionally correct in terms of dealing with that 
problem. On the other hand, those impulses among many different 
policymakers to essentially try to return to the economic 
status quo of 2006 or 2007 risks a perpetuation of the dynamics 
you are concerned about to the breaking point.
    There is a second and more short-term related problem here. 
There have been, as a result of the bubble, very substantial 
real losses associated with our financial system. Those real 
losses can be found in abandoned tract housing projects across 
large parts of our country. Who funds those real losses, who 
takes the hit, is deeply connected to the question of the 
sustainability of our financial relationship with the rest of 
the world. To the extent that we try, either explicitly or 
implicitly, hidden or above board, try to have the U.S. 
taxpayer absorb those losses in their entirety--there are 
trillions of dollars of these losses--rather than looking to, 
as much as we can, the people who took the risks, the investors 
in these institutions, to absorb those losses, if we do that 
and we at the same time borrow the money to do that, then we 
again run the risk of dramatically increasing the unsustainable 
dynamics you are concerned about, and this brings us back to, 
just as the first point tied us to trade, this point brings us 
back to fundamental choices about whether the public or the 
investors in Wall Street, essentially, are the people who are 
taking the hit for the mistakes that were made by financial 
institutions during the boom.
    Mr. Kearns. Just very briefly, may I, Mr. Chairman? Is that 
a yes or a no?
    Mr. Sherman. 30 seconds.
    Mr. Kearns. Okay, 30 seconds. I can be more succinct than 
Mr. Silvers. There is a Chinese proverb that you can use, Mr. 
Scott. It is that trees don't grow to the sky. The export 
driven model that the rest of the world follows, that the IMF, 
the World Bank, all these international institutions have 
shoved down their throat, has made America the first and last 
market of resort. It is over, okay. We are broke. We can't 
absorb their goods. So we need a new model, and the sooner that 
the Congress and the administration work on inventing what that 
model is and the people in the private sector, the better.
    Mr. Sherman. Thank you. The time of the gentleman has 
expired. We will go to Mr. Royce.
    Mr. Royce. Thank you, Mr. Chairman. I would like to ask Mr. 
Robinson a couple of questions, and one would be, what 
specifically can be done to tighten economic pressure right now 
on North Korea?
    Mr. Robinson. I think that a lot of folks in Washington are 
casting about for that answer, Mr. Royce, and----
    Mr. Royce. Well, we had the Banco Delta Asia approach in 
2005. That----
    Mr. Robinson. Which was shockingly effective. You know how 
that originated and how surprised Treasury itself was in the 
way that it electrocuted money transfers, letters of credit, 
interbank deposits. Something similar to that could be done by 
looking at the correspondent banking relations of all of the 
major North Korean financial institutions, as well as the 
banking relationships of their larger state-owned enterprises. 
Now, if these networks of banks, some of which are well known, 
were to likewise feel themselves put at risk in terms of 
accessing the U.S. financial system, as Under Secretary Levey 
has done vis-a-vis the Iranian banks in many cases, this would 
have a very powerful effect.
    It would be a Banco Delta Asia times three or four-fold 
impact, I believe, and we should also be looking at interbank 
deposits, because folks don't necessarily appreciate that when 
banks deposit with one another, the money can be used or 
misused as a kind of reserve checking account that are renewed 
every 6 months and turned into a 5-year loan near the cost of 
funds. So, there are a number of technical aspects to this 
strategy that we could employ that would, in effect, scare off, 
not just Asian, but European and other banks worldwide, and 
other financial institutions, from doing this kind of life-
support business with North Korea.
    Mr. Royce. I am thinking about some of the reports on the 
U.N. Development Programme and how they helped fund North 
Korea.
    Mr. Robinson. Well, we certainly want to include, 
obviously, the international financial institutions. We have 
heard the kind of record that is been cited vis-a-vis Iran and 
the World Bank.
    Mr. Royce. Right.
    Mr. Robinson. We can sure suspect that multilateral 
institutions need to understand that the free lunch for 
Pyongyang is over.
    Mr. Royce. Is Chinese cooperation critical on this, or can 
we get that cooperation, in your opinion?
    Mr. Robinson. I think we can but it is not going to 
necessarily come voluntarily. I think that we have to put those 
Chinese financial institutions that are insisting on providing 
life-support to the North Koreans on notice that it is going to 
be that activity or enjoy normal, unfettered access to the 
United States financial system, but it is not going to be both.
    Mr. Royce. That may be an area that the chairman and I can 
cooperate on as we move forward, but you mention in your 
written testimony that there were 50 publicly traded companies 
doing business in or with North Korea. Could you give us an 
example of some of those companies? You don't have to do it now 
if you don't have it at hand. We will get it later, but----
    Mr. Robinson. Well, I certainly can, and just to put that 
in perspective, there are 350 publicly traded firms doing 
business in Iran, 200 in Sudan, 180 in Syria, for a total, 
taken together with the North Korean example, over 500 public 
firms with active non-humanitarian ties in the terrorist-
sponsoring states, and of course, I include North Korea among 
them notwithstanding the fact that it was erroneously taken off 
the list of terrorist sponsors.
    Mr. Royce. One of the things that strikes me right now is 
with the attention, the focus, that we have on North Korea, we 
might be able to make an example of North Korea to the next 
guy, you might say. There is the old adage about warning shots 
in Russia and warning shots in the United States. A Russian 
told me he liked them here. In Russia they had them too but it 
was a warning to the next guy. The idea would be if we could 
get that kind of cohesion and get that kind of policy 
developed, we might be able to show what cooperation could do, 
and in this particular case, we might have enough unified 
support globally to--and Levey has shown, and he is still in 
his post, he has shown what can be done on this front. It is 
pretty impressive.
    2.0.0.5, as you indicated, it was an amazing lesson, and 
when you can't pay your generals and you can't continue to 
manufacture your missiles, as one of the defectors who had 
worked in one of the missile plants told me, you know, he said 
we were trying to buy gyroscopes on the world market, and when 
you have got no hard currency because everything's been shut 
down, you can't do anything. The whole line went dead for 
months. And so now might be a time to try to get the reforms 
necessary in the regime by deploying that strategy.
    Mr. Robinson. Well, we have done a pretty deep drill on 
North Korea and I would be pleased to assist with the kind of 
research that we have done in this connection. Just keep in 
mind that when you are dealing with serious financial 
sanctions, which we are now talking about,----
    Mr. Royce. Right.
    Mr. Robinson [continuing]. The chance for multilateral 
support incorporating the Chinese and Russians, for example, 
and the six parties that are playing in this game, is unlikely 
at best. Now, but----
    Mr. Royce. I understand that, but----
    Mr. Robinson. But, unilaterally, as you know from the Banco 
Delta Asia case, we are packing the gear unilaterally in this 
particular field.
    Mr. Royce. Right, right. Let me go to Nancy Birdsall, if I 
have still got some time here. I wanted to ask Nancy about an 
issue.
    What does the G-20 commitment to governance reform, in 
other words, allowing developing countries to have a greater 
voice in the IMF and other international financial 
institutions, actually mean, because it seems to me what it 
means is that the U.S. clout would obviously be diminished, and 
I guess my concern here, do we want to willingly diminish that 
influence in this regard, because many of the countries that we 
would be giving that power to aren't necessarily after the same 
objectives that you are after, Doctor.
    I am just thinking about rule of law issues, trying to get 
independent courts set up in different countries. We have 
leveraged a lot to try to bring the rule of law, and that is 
resisted by a lot of governments of the developing world. 
Certainly, intellectual property is another issue, doing 
something about intellectual property rights. If you diminish 
our ability to leverage on the IMF and you empower, basically, 
those developing countries where you are trying to institute 
reforms, presuming for a minute that the values that we are 
trying to inculcate or develop are worthwhile, such as an 
independent court system, give me your take on that, Doctor.
    Ms. Birdsall. Yes, I think the issue is the following: We 
need to bring countries like China into the club in a 
meaningful way, and in particular, into the clubs represented 
by the international financial institutions, the IMF and the 
World Bank. Why? First of all, by bringing them into the club, 
we are in a position to work with them and, in effect, push 
along their inclination increasingly to play a role of global 
stewardship along with us.
    Mr. Royce. Doctor, I was involved in Africa as chairman of 
the Africa Subcommittee for 8 years, and I have to tell you, as 
we pushed and as Europe pushed engagement with Africa, the 
African Growth and Opportunity Act, conditioned upon the 
development of the rule of law, independent courts, the Chinese 
Government were sending the opposite message. They were telling 
African leaders, No, you don't want to go down that road. That 
is not in your interest, it certainly isn't in China's 
interest, where they were trying to sole-source--they weren't 
trying to open up markets and they certainly weren't trying to 
improve the betterment of sub-Saharan Africa, and I just have 
to share with you, I think your premise about bringing them 
into the club, they are in the WTO and they are trying to wreck 
the WTO, you know?
    I mean, if they behaved in a responsible way on some of 
this, I think we could be sold, but I think their behavior 
convinces me that we are on exactly the wrong track if we bring 
them into the IMF and give them influence in the IMF when their 
goal is not the betterment of the developing world. It is 
taking resources from the developing world, subverting 
democratic process there, and pushing the idea of dictatorship, 
frankly, in African states. They have been very forceful about 
that.
    Ms. Birdsall. Well, the current proposal is to increase 
their voting rights and their quota in the IMF from 3.5 
percent, something like that, to 5 percent, so there is no way 
that the----
    Mr. Royce. But collectively----
    Mr. Sherman. The time of the gentleman has long since 
expired.
    Mr. Royce. If you add all of this up, we lose influence 
there in a pretty big way, once you add all of the state actors 
up.
    I am sorry, Chairman.
    Mr. Sherman. A number of issues came up during the ranking 
member's questioning. First, as to North Korea being removed 
from the terrorist list, I introduced legislation immediately 
after the Congress was notified of that intention, to prohibit 
the administration from taking North Korea off the terrorist 
list. For a variety of reasons, that did not get a vote on the 
floor. Speaking of North Korea and the ranking member's 
question of what leverage we have, and Mr. Robinson, thank you 
for your excellent focus on their banking relationships, my 
fear is that any one of a thousand banks could act as a 
clearing agent for them, cash on the barrelhead, and that we 
need to focus, in addition to the banks, on their real, sole 
lifeline, irreplaceable lifeline, and that is China, and as 
long as China, which subsidizes the regime in North Korea, it 
will take all of your banking skill and then some to put any 
real pressure on that regime, and as long as China believes it 
can sell tennis shoes in the United States and subsidize the 
North Korean nuclear program at the same time, they will keep 
doing it.
    One of the biggest fallacies is that because China holds 
our debt, they have power over us, and Americans are told, it 
is like your banker holding your mortgage. You better be nice 
to him. Well, imagine a world in which banks are prohibited 
permanently from foreclosing. Then the banker better be nice to 
you, and the fact is that in the world, the true power is those 
who control markets, and unfortunately, as a number of our 
witnesses have pointed out, the whole world has grown addicted 
to overselling into the U.S. market.
    Now, Mr. Silvers, your Oversight Panel, I think, has 
pointed out that we need more regulation. That is a no-brainer, 
but the World Trade Organization Financial Services Agreement 
obligates the United States and other countries to refrain from 
placing limits on the size of financial institutions, to grant 
market access to all new financial products, as if we don't 
have enough derivatives out there, to not add new regulation in 
new areas, and these obligations are enforced through the WTO 
tribunals empowered to impose trade sanctions against 
countries, as if our trade relationship and trade deficit 
wasn't big enough.
    Now, it is true that certain prudential measures are 
excluded from these WTO sanctions, but anything we did to 
protect consumers would not be, and the whole Doha Round is 
focused on further financial service deregulation. What steps 
should Congress take to make sure that our efforts at new 
regulation are not defeated? There is no way you can sell to 
Congress the idea that there shouldn't be regulation of Wall 
Street, so the way for the world economic elites to achieve 
their purpose is to disempower Congress, and one of the more 
clever ways to do that is through the WTO, a non-elected body 
that could impose trade sanctions against the United States if 
we dared to not follow their lead.
    So, what do we do to make sure that Congress's efforts to 
get a handle on the need for new financial services regulation 
are not defeated by the World Trade Organization?
    Mr. Silvers. Mr. Chairman, a couple of thoughts about this. 
Initially, I am not as convinced as some are that some of what 
appear to be WTO limitations on Congress's power in this area 
are actually all that toothy, and I think that Congress has 
taken a number of steps since the enaction of various WTO non-
tariff barrier provisions to effectively regulate aspects of 
our financial markets and corporate governance, and no one 
seems to have raised the WTO objection.
    The basic structure of the, and I am not an expert on the 
WTO, but my understanding is that the basic structure of the 
way in which it remains possible to regulate national financial 
markets involves not just the language you cited, but also sort 
of extenuating national security circumstances, that sort of 
thing, in the WTO----
    Mr. Sherman. Mr. Silvers, if I can interrupt, because I 
want to illustrate that the WTO is a truly toothless boogeyman 
used by--and this boogeyman is used to scare Congress.
    Mr. Silvers. Right.
    Mr. Sherman. And that is, we could simply adopt the policy 
that if the WTO, if any country got trade sanctions against us, 
we immediately had double trade sanction against them. Now, if 
that double trade sanction was in violation of the WTO, they 
could take us to the WTO and get a triple trade sanction on us, 
so long as our statute said, that means we do a quadruple trade 
sanction on them, so we would make it clear that any country 
that disagreed with our financial regulation was free to end 
all trade with the United States, but otherwise should keep its 
mouth shut. That is how toothless the WTO is, except as a 
boogeyman to scare Congress into doing whatever the world 
economic elites want us to do.
    Mr. Silvers. And Mr. Chairman, I think that is precisely 
the point I was, perhaps in a more wordy way, trying to make, 
which is that I think it is a boogeyman, and I think that over 
time, both the Congress of the United States and legislative 
bodies in other WTO member states around the world have 
effectively both strengthened and weakened financial 
regulation, while subject to the WTO. I would point out, 
though, that clearly, my testimony states that it is the 
opinion of the National Director of Intelligence that the 
failures to effectively regulate our financial markets have 
contributed to the primary threat to this country's national 
security extant in the world today, in the opinion of the 
National Director of Intelligence.
    So, to the extent that Congress agrees with the 
Congressional Oversight Panel that comprehensive re-regulation 
of our financial markets is necessary, there is clearly a 
national security purpose underlying it. Secondly, I would say 
that this boogeyman, frankly, goes to the need, both 
politically, but also substantively, to make sure that there is 
coordinated re-regulation of the financial markets globally, 
and this is why the global labor movement is so concerned that 
the G-20 language, in particular in respect to re-regulating 
shadow markets, which is where some of the most slippery actors 
here are and some of the greatest leverage exists in the world 
economy, that that language is not strong enough.
    We need, and the Congress needs, to work very closely----
    Mr. Sherman. Mr. Silvers, I am going to have to interrupt 
you, but one thing comes--I believe that we could create a 
report, I know Mr. Kearns would support this, that the 
hollowing out of our manufacturing sector is a grave threat to 
our national security, and I think that would have very strong 
validity in dealing with any action necessary to restore our 
national security, both in the financial and the manufacturing 
sector.
    Turning to Mr. Kearns, according to a number of economists, 
including Simon Johnson, former Chief Economist of the IMF, the 
money that we are being asked to provide to the IMF, $109 
billion together with a lot more money from other countries, is 
very likely to be used chiefly for bailing out European banks 
who have lost money, some $1.5 trillion, in Eastern Europe. Do 
you think that American taxpayers should provide the money, not 
to deal with the world's poor, but to bail out those banks that 
made $150 trillion in shaky loans to Eastern Europe?
    Mr. Kearns. I do not, Mr. Chairman.
    Mr. Sherman. That is the easiest question I have asked.
    Mr. Kearns. The Europeans certainly, the European bankers 
certainly knew what they were doing vis-a-vis Eastern Europe, 
and you know, we have had a system for the, I mean, I entered 
the Foreign Service in 1977. I traveled in 80 countries. I 
looked at a lot of governmental systems, financial systems, 
etc., and I became convinced that there were many, many free-
riding allies around the world who always depended upon the 
United States to take the leadership to transfer the 
technology, to license the co-production, to make the loans, to 
supply money to the institutions, and the sad fact is, as Mr. 
Scott pointed out, it took us until the first year of Ronald 
Reagan's administration for the national debt to hit $1 
trillion, you know, and now I don't know what it is, $12-, $13-
, $14 trillion.
    We don't have the money anymore to do this. I don't think 
it is our----
    Mr. Sherman. Let me squeeze in one more question.
    Mr. Kearns. Yes. I don't think it is our responsibility.
    Mr. Sherman. And that is, I believe the IMF played a major 
role with the financial crisis in Asia. Is it not true that one 
of the effects of their intervention in the Asian financial 
crisis was to force those countries to have undervalued 
currencies, which they kept undervalued for many years? Haven't 
undervalued Asian currencies hurt the United States by causing 
a huge and persistent trade deficit with those Asian countries, 
and contributed to the loss of 4 million manufacturing jobs 
here in the United States?
    Mr. Kearns. Another softball, a grapefruit over home plate, 
Mr. Chairman. They have. China competitively devalued in 1993 
and 1994. Those led to other devaluations in East Asia. 
Certainly many of the countries that China scooped business 
from with their devaluation were a lot more closely aligned 
with the United States and more friendly to our foreign 
policies and security policies, etc., so East Asian 
mercantilism is a massive and major problem, and the world is 
not going to get better, the financial crisis is not going to 
heal, until we do something about it.
    Mr. Sherman. And Mr. Silvers, do you have a brief comment 
on that, or do you generally agree with Mr. Kearns?
    Mr. Silvers. Oh, I agree. I think, Mr. Chairman, you stated 
it accurately.
    Mr. Sherman. With that, let me recognize the gentleman from 
Arkansas, and during this period, I am going to ask the vice 
chair to chair for the next 5 minutes.
    Mr. Boozman. Thank you, Mr. Chairman. I would like to, and 
we will start with Mr. Kearns, but I would really like to get 
the panel's input. You mentioned about re-energizing 
manufacturing and things, and I think we all agree with that. 
The reality, though, is that we are in a 70 percent 
consumption, you know, market right now. We are way top heavy 
on financial services. We need to export a lot more goods and 
services, and yet, with the global economy the way it is, that 
is very difficult to do.
    If I remember right, I read an article by Ms. Barshefsky, 
the trade rep in the 90s, and she was talking about the fact 
that 17 nations, including the United States, had already 
started, you know, the ``Buy America,'' the equivalent of that 
in their country, and that trade might be down as much as 10 
percent. So, again, I would like to hear your all is kind of 
take as to where we are going in the future and, you know, what 
the deal is.
    Mr. Kearns. Well, I think--may I go first?
    Mr. Boozman. Yes.
    Mr. Kearns. If you take a look at the import penetration 
statistics of the U.S. market, they are really dramatic, and 
they are worsening. That is, foreign countries and foreign 
companies' share of major industries, major industrial 
categories, sectors in the U.S. economy. So I think the first 
thing that we have to do is not so much worry about exports, 
but worry about retaking those percentages in our home market. 
We have the world's vastest market. It is the market we know 
the best. We don't have state-to-state regulations that confuse 
us. So let us make sure that we are the ones making the 
products here that Americans want and need----
    Mr. Boozman. So would you exclude other products in an 
effort to do that?
    Mr. Kearns. Well, I would certainly, you know--there is the 
myth of the level playing field, and I went to Frankfurt as a 
commercial officer in 1977 in the Foreign Service, and so I 
have been doing this 32 years and I haven't found a level 
playing field yet, and it is impossible for U.S. companies to 
compete against foreign VATs, foreign subsidies, foreign 
dumping, IP theft, you know, and on and on and on, without 
strong government actions. So, if it were up to me, I would use 
Article XII of the GATT and I would declare a balance of 
payments emergency, and I would put in tariffs, I would put in 
a border-adjustable surcharge for currency manipulation.
    I think the time for talking to these foreign nations and 
trying to get them to agree over some series of years to do 
what we want them to do is impossible. The previous 
administration talked to the Chinese about increasing domestic 
demand and following a different model, and they were stiffed 
every time a Treasury secretary went to China, so let us 
concentrate on our home market and take back a good percentage 
of that.
    Mr. Boozman. Ms. Birdsall?
    Ms. Birdsall. Yeah, I would just like to disagree with the 
thrust of what Mr. Kearns is saying. I think the issue is that 
we need to have a mechanism to ensure enhanced demand abroad. 
We have to have stimulus, not just in this country, but around 
the world. The fact is that China has done a relatively large 
stimulus package in order to increase domestic demand. The fact 
is that China, it is increasingly subject to the worry about 
the overall global imbalance. It is trying to find ways, given 
its political constraints, which are problematic, admittedly, 
to move away from an export-driven mercantilist approach.
    It is also true that the IMF was unable to discipline China 
on the foreign exchange side. It was equally unable to 
discipline the United States on its fiscal side, so we have a 
world in which it is absolutely critical that the U.S. retain 
its leadership in pushing for collective action that deals 
together with our allies and partners on these problems. If we 
start threatening here and there, you know, we are going to do 
this, we are going to get ourselves into a big problem.
    We are the masters of the universe in terms of knowing how 
to exploit an open, global, a liberal trading environment, and 
one part of that package has to be provision of collective 
insurance through institutions like the IMF and the World Bank 
so that developing countries and the rising, emerging markets 
don't go the mercantilist way, don't try to self-insure by 
accumulating reserves and doing all the saving, so that we are 
having to do all the buying and borrowing.
    We absolutely have to retain the leadership we have had for 
50 or 60 years in creating a system of collective insurance and 
appropriate collective action, bring China into the global 
community on these financial issues. Thank you.
    Mr. Boozman. Mr. Miller?
    Ambassador Miller. Thank you very much. I also want to 
disagree strongly with Mr. Kearns. I think the kind of 
restrictive and protectionist measures that he is proposing 
would set back growth and productivity in the United States and 
around the world tremendously. He is talking about re-creating 
a trading and commercial and production system that we might 
have had in the past, but the jobs that we need here in the 
United States are the jobs of the future, the jobs in new 
sectors, the newly created jobs that will happen in an open 
environment.
    So, I think it would just be very tragic indeed to start to 
build walls around the U.S. economy and say, you other 
countries stay out, because that is going, in the first 
instance, to hurt American consumers tremendously who are 
benefitting, the average family of four benefitting by about 
$10,000 each year due to the open trading environment in which 
we participate. So you are going to have that problem and then 
you are also going to have the problem for U.S. manufacturers 
who depend on the imports of intermediate goods in their own 
manufacturing processes, and if we put tariffs on those goods 
coming into the country, then our manufacturers aren't going to 
be able to produce the finished products in a competitive way 
and our productivity will go down, our wages will go down, it 
is going to be bad for Americans in every aspect.
    Mr. Sherman. The time of the gentleman has expired. I now 
recognize the gentleman from Virginia.
    Mr. Connolly. I thank the chair, and I would like to ask a 
number of questions, if we could be concise in our answers to 
the extent that is possible.
    Let me start with you, Dr. Birdsall, and I so much 
appreciated your citation of China, because actually, the 
stimulus in China seems to be working. By the way, Ben 
Bernanke, the Federal Reserve Bank chairman here in the United 
States, announced to us last week at a luncheon that he 
believes that the stimulus here is working, and he is not a 
wild-eyed liberal, the last time I checked. Should we be 
concerned at the cleavage between the United States and some of 
its close allies, Germany and France to wit, on the issue of 
economic stimulus at this time?
    Ms. Birdsall. Yes, I think we should continue to press the 
Europeans to increase their stimulus packages. We also have to 
recognize, however, that they have more automatic stabilizers 
built into their system because of their different and stronger 
social safety net, and I believe in the next year, as 
unemployment increases, for example, in Germany, and it will, 
because it is been kind of, employment has been propped up up 
until now, but as this thing unfolds and unemployment 
increases, their effective stimulus spending will increase 
automatically because of the safety net on unemployment.
    So, you know, it is a back and forth. There are some 
estimates that suggest that because of their automatic 
stabilizers, their stimulus has been, in effect, 2 percent of 
GDP already. I think it could be more, it should be more. I 
think it is a problem, and my understanding is, my assessment 
is that the Treasury and the administration have been pressing 
hard on that and will continue to do so.
    Mr. Connolly. Thank you. By the way, in that same 
conversation, Chairman Bernanke was asked about inflation, the 
stimulative bills and growing deficits, do they have an 
inflationary impact down the road? What he said was that in 
looking at projections over the next 10 years, the assumption 
is 2 percent or below inflation for the next decade, that there 
are no signs in the market right now of anyone being worried 
about inflation. Would you all concur? Mr. Silvers?
    I don't mean to suggest he said there is nothing to worry 
about. He was looking at data that said, there are no 
indications of the market suddenly in year 4 or 5 getting 
panicky about inflation.
    Mr. Silvers. Right. I mean, I would hate--I am not 
qualified to second-guess the chairman of the Fed on this 
question. The only thing I would be concerned about is that 
long bond interest rates are rising, and perhaps Mr. Bernanke 
knows things about that that I don't. I am perfectly willing to 
submit that. I would just point out something in relation to 
your last question, if you will indulge me.
    Mr. Connolly. Of course.
    Mr. Silvers. The labor movements in Europe, in the Euro 
zone, I think share your view of the need for further stimulus 
spending on the part of Euro zone governments. That is a key 
element of my testimony today.
    Mr. Connolly. Okay. If I may move to another subject, and 
invite any of you to speak up, how important is the new 
arrangements to borrow, and how important is it for the United 
States to participate? Ambassador Miller, do you want to start?
    Ambassador Miller. Oh, well, I probably don't have the same 
view as Dr. Birdsall. I don't think it is very important at 
all. I think it is important for the U.S. to participate as an 
equal partner in these international institutions. They do 
good, on average, but they are not essential to the workings of 
the world economy, and the amounts of money that are given to 
other countries, are provided, loaned, actually, to other 
countries through these programs, are very small compared with 
the amounts of capital that are moving through the private 
sector through flows from trade, financing that through foreign 
direct investment in the United States, through the purchase of 
government securities of the United States by other countries, 
so these are really very modest amounts of resources that are 
being provided through these international organizations, so in 
the global scheme of things, it is not that important.
    On the other hand, it is important for the U.S. to be a 
good international citizen, and that means that we do need to 
participate on an equitable basis with other countries of the 
world, and in the case of the IMF, which hasn't had an increase 
in its resources in a very long time, it may be that some sort 
of increase is in fact appropriate right now.
    Mr. Connolly. Dr. Birdsall?
    Ms. Birdsall. Yeah, I think it is useful to remind everyone 
that the Europeans and the Japanese are also contributing $100 
billion, that the Japanese contributed $100 billion earlier. It 
is very important to participate, both as a good global citizen 
and also because this is the moment when in many developing 
countries and emerging markets, the private flows aren't 
happening. There is capital withdrawals. There is, remittances 
are declining, trade flows are declining, so the whole point is 
for the international institutions to play a counter-cyclical 
role and to be there when the private money is insufficient, 
and to play the stimulus role that, within the domestic 
economies, additional deficit spending plays. Very important 
for our prosperity, our security, securing demand abroad, our 
exports, all of the other things that some of the other 
witnesses have applauded, in order to secure our place, our 
continued leadership as a trading partner and as a global 
citizen.
    Mr. Connolly. My time has expired, Mr. Chairman.
    Mr. Sherman. Thank you. I now recognize the gentleman from 
Illinois, a strong advocate for U.S. manufacturing and small 
business.
    Mr. Manzullo. Thank you. I am late here because we were 
attending a press conference because of what one of our state-
owned enterprises, General Motors, is doing to the dealers. I 
have been going over some of the testimony, and I think there 
are some structural issues with the IMF that need to be 
addressed. Is anybody here familiar with the G-20, the Global 
Plan for Recovery and Reform of 2 April of this year? I have 
got a copy here and as I read this, I am absolutely shocked, 
and I sit in shock and awe that money would go to an 
organization that could state such things as, ``We start from 
the belief that prosperity is indivisible.''
    Well, forgive me for the United States wanting to be 
profitable. Apparently, everything we have to do in this world 
is to make sure that every Third World country, and every 
country, has the same prosperity that we do. I am a citizen of 
the United States and not of the world, and I think we have to 
take that into consideration in dealing with international 
bodies, that part of being an American is that we want to 
prosper and we owe no apology for that.
    But as you get into this agreement, especially paragraph 
15, where it talks about taking the Financial Stability Forum, 
giving that teeth, turning that into the Financial Stability 
Board, to give it, among other powers, to endorse and implement 
the FSF's tough new principles on pay and compensation and to 
support sustainable compensation schemes and the corporate 
social responsibility of all firms. Mr. Kearns?
    Mr. Kearns. Yes, sir.
    Mr. Manzullo. Does that shock you?
    Mr. Kearns. Well, Mr. Manzullo, you and I have done 
business on manufacturing for a number of years now, so----
    Mr. Manzullo. Right. Nothing shocks you anymore.
    Mr. Kearns. I have said before you came in several times--
--
    Mr. Manzullo. And I have voted for every free trade 
agreement, but we still agree on maintaining the manufacturing 
base in this country.
    Mr. Kearns. Yeah, well, I think we have come to an end, and 
I think that there is no, you know, there is no easy solution. 
Prosperity can't be shared. The notion that we can pass some 
stimulus bills and talk our friends and allies and some non-
allies into stimulating their economies and everything is going 
to come out fine, after we have been on this, you know, 
consume, borrow, spend, binge for the last 10 years, is 
irresponsible, and----
    Mr. Manzullo. Does anybody else want to comment on that? 
Ambassador Miller, then Dr. Birdsall?
    Ambassador Miller. Thank you very much. I think the 
important issue here is to remember that we don't operate in a 
zero sum game in the international economy. Doing something 
that is good for the United States doesn't mean automatically 
that we are doing something bad for another country.
    Mr. Manzullo. That is correct.
    Ambassador Miller. Of course, in all circumstances, we need 
to do what is absolutely best for the United States, but in 
most cases, the vast majority of cases, that is going to mean 
doing things that are also good for other countries, not in the 
first instance, but as a result of doing things that are good 
for ourselves, so this really is a case where we can have win-
win solutions for everyone in the world if----
    Mr. Manzullo. But what about these words?
    Ambassador Miller. Well, I think the words are problematic, 
certainly the words corporate social responsibility and the 
talk about compensation and corporate pay compensation. That is 
very problematic, but that is also a rhetorical flourish, I 
think, on the part of the leaders there. What we are talking 
about is a consultative forum in this case, and if it started 
indeed to go beyond words, I would be extraordinarily 
concerned, but----
    Mr. Manzullo. Yeah, but wars start with words. Policies 
start with words.
    Dr. Birdsall?
    Ms. Birdsall. I just participate in the statements of 
Ambassador Miller, on both counts. It is a consultative forum. 
I think it was probably done to satisfy the Europeans in order 
to have greater strength on some other----
    Mr. Manzullo. But the European Central Bank has come out 
against funding more money to the IMF.
    Ms. Birdsall. The main thing that I would say is, on this 
issue of prosperity is indivisible, that my sense is that the 
idea is that that is a both, or more importantly, a statement 
of fact, a positive as opposed to a normative statement, with 
which I would agree, that we are better off here when others 
are better off there.
    Mr. Manzullo. But that is not what it says. I mean, what 
Ambassador Miller just says, that when the United States 
prospers, then the world prospers. Maybe not in the first 
round, but somewhere down the line because of the creation of 
wealth, of the utilization of foreign materials, the import of 
foreign materials, for example, into manufactured products here 
in the United States, but what bothers me is that we are 
supposed to sit back, write all kinds of check to the IMF, and 
when you see what the leaders of the Group of 20, and this was 
signed by the Group of 20--Spain signed it individually. I 
mean, they have been in their own world for years, but we can 
deal with international bodies responsibly, but what I don't 
like is when the socialists tweak the language, then they turn 
to America for the check.
    That bothers me more than anything, and also what bothers 
me is the fact that in one of the statements, I think that you 
made, Dr. Birdsall, is the fact that, on page 9, ``Monitor but 
don't micromanage further IMF reforms. Further and deeper 
governance reforms are needed at the IMF, but I worry that the 
tendency for Congress to dictate what the IMF can and cannot do 
undermines the U.S. role in global institutional decision-
making and ultimately weakens the effectiveness of the IMF.''
    The one who writes the check, and we write most of it, I 
believe, should have the opportunity to dictate the rules under 
which that check is spent.
    Ms. Birdsall. May I respond briefly?
    Mr. Manzullo. Of course, absolutely.
    Mr. Sherman. Let Dr. Birdsall respond and then the time of 
the gentleman has expired. Go ahead, briefly.
    Ms. Birdsall. I think we are talking about a package, to be 
concrete, which will cost the American taxpayer, at the most, 
$5 billion, which will trigger--our contribution will leverage 
$500 billion to ensure that there is prosperity, to increase 
the likelihood that there will not be catastrophic economic 
losses elsewhere which would bounce back like a fire to hurt 
us. So, that is the way I think of it. It is $5 billion. Let me 
point out that in the context, for example, of the IMF and the 
World Bank, U.S. contributions, except for these special things 
that the IMF are virtually, they are not there, except for this 
sort of special package, the NAB, and at the World Bank we are 
no longer the largest single contributor to the soft money 
window.
    So, we are losing our leadership. We are losing our 
leverage. We are losing our influence. We are losing our 
ability to take the normative positions that I think all of you 
support, because we are not making the financial contributions 
that we should.
    Mr. Manzullo. Thank you.
    Mr. Sherman. Thank you. I just want to correct the record 
factually. The most we could lose to the IMF is $109 billion. 
There is a small risk that we will lose something, and the CBO 
has in effect said there is like a 5 percent risk of us losing 
the whole $109 billion, not a risk to only $5 billion. I would 
also point out that the leverage depends upon whether other 
countries do what their leaders said they would do, which may 
or may not occur in light of the action that Mr. Manzullo 
points out was taken by the European bank.
    With that I yield to the woman from California.
    Ms. Watson. Thank you so much, Mr. Chairman. I will just 
throw this out, maybe one of you would like to respond. Please 
do so. Both the World Trade Organization and the World Bank 
have been monitoring trade restrictions proposed and adopted 
since the beginning of the financial crisis. However, they have 
come to different conclusions concerning the number of anti-
dumping cases in 2008, with the World Trade Organization 
finding that there has been no dramatic increase and the World 
Bank finding that the number surged in 2008.
    Has any effort been made to resolve the differences between 
the two reports, and anyone who might have information, can you 
respond, please? Okay, Dr. Birdsall?
    Ms. Birdsall. I don't know the answer to your question 
whether there has been any effort to reconcile the two, but I 
think that it is probably important to recognize that it is 
healthy to have this robustness and some redundancy in these 
assessments by the international institutions in which the U.S. 
is a member, and it is probably useful to assume that the 
greater estimates that the World Bank has put out are an 
important warning signal that we are on the brink, potentially, 
of a trade war, and the U.S. needs to take leadership in 
ensuring that that doesn't happen.
    Ms. Watson. Let me address this one to Mr. Robinson. Do you 
believe that these full payments to foreign banks such as 
Societe Generale and the Deutsche Bank and Barclays were a 
proper use of Federal funds AIG received, and do you believe 
that not paying these counterparties at a rate of 100 percent 
would have posed a systematic risk to the global economy, and 
is there a more appropriate mechanism for providing needed 
capital to foreign AIG counterparties?
    Mr. Robinson. I would associate myself with the chairman's 
remarks in that respect, in the sense that the irony of the AIG 
banks being made whole 100 cents to the dollar is scandalous at 
some level, that is for sure, and it seems to me that that was 
not indicated or required. There is certainly, in the case of 
Societe Generale and others, and we do have a list of those 
banks that have been, obviously, recipients of U.S. Government 
or taxpayer largesse, that as I may have mentioned in my 
testimony, there is a dearth of due diligence on the security-
minded or security-related side of that equation as well. 
Again, some of these banks have international activities, 
including partnering with Tehran and a number of other 
terrorist-sponsoring states, that almost certainly was never 
looked at when the due diligence was performed as to these 
recipients, and we have never really had a security-minded 
conditionality in global finance for this country until over 
the last couple of years, and this was surfaced by still just a 
handful of folks in the United States, the chairman among them, 
who are intent on trying to get a better handle, not only on 
where our money is going and how it is being used, but some 
sense of fair play, which this does not represent, given the 
risk that these investors knowingly took in going into AIG.
    It is, as I say, you know, in my humble opinion, scandalous 
that they would be made whole in the way they have when you 
compare it to those bondholders, for example, in Chrysler. I 
think that was the illustration that the chairman used. So, I 
have problems with this particular issue, and I also believe 
that, I hope that we will more systematically, when we are 
doing due diligence in the broadest sense of the term, we will 
finally, at long last, include our national security as a plank 
or standard operating procedure, if you will, for that kind of 
due diligence.
    Ms. Watson. Mr. Chairman, a colloquy with you, I have about 
5 more seconds.
    Mr. Sherman. Oh, absolutely.
    Ms. Watson. Okay. Is it possible that we could hold a 
hearing, then, to see where these dollars go and taking in the 
security aspect? I think we need to pin that down. We don't 
want to repay these banks and they are supporting the 
proliferation of arms in Iran or wherever, and I think we need 
to zero right in and see if we can start a trail and find out 
just where. Can you respond, please?
    Mr. Sherman. Well, I think we have, in this committee, 
focused on what happens to United States money, both private 
and public sector, and how that affects our efforts against 
terrorism and nonproliferation, and in my opening statement I 
focused on how we put money into AIG and they then immediately, 
I mean, it was seconds, wired many billions of dollars to a 
French bank that is actively engaged in banking with Iran.
    Ms. Watson. If we could zero right in and just hold a 
hearing to really trace and then see what we need to do in 
order to secure these funds--one of the things I understand 
that is being considered with North Korea is cutting off the 
funding that would circumvent and, you know, go to North Korea, 
that is feeding their nuclear proliferations. So, I think we 
need to do a little more, and I was hoping that maybe we would 
have a hearing to trail, trace.
    Mr. Sherman. We have focused on that a bit in this hearing. 
I look forward to covering it in other hearings, and I am 
relying on the witnesses to let us know whether they have the 
pithy information. It is not enough for us to have a hearing 
because we have got very interesting questions. We have to have 
some reason to think that you folks can come up with 
interesting answers. So, I see Mr. Robinson nodding his head, 
and we will certainly check to see whether we can put together 
a panel that will focus exactly on----
    Ms. Watson. I yield back.
    Mr. Sherman. Yes. I am going to do a short second round 
here, basically because Mr. Robinson hasn't gotten enough 
questions, but before I do, I want to once again paraphrase the 
Congressional Research Service when they stated, the most 
effective way that Congress can influence U.S. policies toward 
international financial institutions is by attaching 
enforceable conditions to new funding agreements, and it 
strikes me that if we pass a bill providing $109 billion to the 
IMF with not a single enforceable condition, then we are not in 
the business of influencing U.S. policy toward multinational 
financial institutions, which begs the question, why do 
taxpayers have to pay money to keep the lights on in this room?
    I would think that if Congress doesn't want to be 
influencing U.S. policy toward multinational financial 
institutions, the whole idea of having this committee, this 
subcommittee, etc., is called into question. Now, Mr. Robinson, 
for 13 years, we have had on the books, well, it is been on the 
books for longer, but for 13 years, no administration has 
identified a single company that has invested over $20 million 
in the Iran oil sector.
    As you know, the Iran Sanctions Act requires that the 
administration name and identify such companies, and then 
either impose sanctions or waive those sanctions with an 
explanation as to why they are being waived. The convenient 
approach taken by the last two administrations, and this 
administration may still be reviewing the policy, but it is at 
least continued for the last 136 days or so, is to simply never 
see such a triggering transaction.
    Could you identify for us just a couple of the clearest 
investments in the Iran oil sector of more than $20 million of 
the type directly described by the Iran Sanctions Act? And I 
realize I am hitting you with a specific here. My guess is that 
you can answer now, if you can't, I will ask you to answer for 
the record, but go on.
    Mr. Robinson. I have some recollection of such companies. 
If you go back in time to what was then the Iran-Libya 
Sanctions Act, and the waiver program, which became a kind of 
program, an automatic waiver, commenced, as you might recall, 
with, I believe it was Total, the French oil giant, and Gazprom 
of Russia. They have remained active in Iran and in some cases 
other terrorist-sponsoring states. If you look at Sinopec, 
which is traded on the New York Stock Exchange, as I recall, 
they have about a $100 billion deal in Iran that certainly 
qualifies for over the $20 million mark of the legislation.
    If you look at Royal Dutch Shell and, I believe, BP--I am 
starting to run out of off-the-cuff examples, but I would 
underscore that there are a number of very prominent firms that 
are technically in violation of the Iran Sanctions Act today, 
and as that bill has been expanded somewhat to move beyond the 
oil and gas sector to some of the downstream operations, this 
number of companies will increase.
    Mr. Sherman. I believe most of those are legislative 
proposals that were opposed and blocked in the Senate by the 
former administration. So let us not count our legislative 
achievements before they are signed into law.
    Mr. Robinson. Needless to say, I think it is moving in that 
direction, and again, the signal that is being sent 
internationally is clear, which is that you can invest in 
Iran's strategic energy sector with impunity and there is not 
an executive branch on either side of the aisle who has been 
willing to step up to sanctions enforcement.
    Mr. Sherman. Or to even--as you point out, there was--first 
of all, it was once the Iran-Libya Sanctions Act, we enforced 
it against Libya, we had some international support in similar 
sanctions on Libya, and it worked so well, Libya gave up its 
nuclear program, and we took them out of the act. So, the act 
was remarkably successful when applied. It is now the Iran 
Sanctions Act. You describe a period of time more than 13 years 
ago when administrations would at least identify the company 
making the investment, name and shame, and they would at least 
follow the law, even though the law allows them to limit their 
sanction to naming and shaming and to waive all other 
sanctions, and what we have experienced for the last 13 years 
is an executive branch that deliberately violates American law 
for the purpose of protecting Iran's business partners, which 
shows you that the values of the world economic elite sometimes 
take precedence over not only American values, but even 
American law.
    I will ask you to furnish for the record, not the biggest 
investments over the last 13 years, but those that are most 
clearly provable, because sometimes there is an announced 
investment in Iran that may or may not reach the point where it 
constitutes an investment as defined by the law. So the issue 
here is not what is the biggest, flashiest announcement, but 
what is the most provable investment of over $20 million, and I 
would ask you to furnish at least one example during the last 
few years of the Clinton administration and at least two 
examples during the Bush administration, and perhaps you can 
furnish one or two examples of things that are continuing, 
because something can be an investment during the Bush 
administration but also be an investment during the Obama 
administration as well, and when I refer to the Bush 
administration, I mean the second Bush administration, not 
going back to the 80s.
    I have got so many questions here, but we have gone long. I 
don't know whether my colleague from California has any 
additional questions.
    Ms. Watson. No. Thank you.
    Mr. Sherman. I think we have, consistent with the 
President's declaration that America does not torture, we 
should let our witnesses go. Thank you very much.
    [Whereupon, at 3:13 p.m., the subcommittee was adjourned.]
                                     

                                     

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