[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

                            FINANCIAL SYSTEM



                               BEFORE THE


                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION


                             MARCH 20, 2012


       Printed for the use of the Committee on Financial Services

                           Serial No. 112-108



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                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois

           James H. Clinger, Staff Director and Chief Counsel

                            C O N T E N T S

Hearing held on:
    March 20, 2012...............................................     1
    March 20, 2012...............................................    55

                        Tuesday, March 20, 2012

Geithner, Hon. Timothy F., Secretary, U.S. Department of the 
  Treasury.......................................................     7


Prepared statements:
    Fitzpatrick, Hon. Michael....................................    56
    Paul, Hon. Ron...............................................    58
    Geithner, Hon. Timothy F.....................................    60

              Additional Material Submitted for the Record

Capuano, Hon. Michael:
    Organization for Economic Cooperation and Development (OECD) 
      table entitled, ``Table A. Total tax revenue as percentage 
      of GDP''...................................................    65

                     HEARING TO RECEIVE THE ANNUAL
                     TESTIMONY OF THE SECRETARY OF
                    THE TREASURY ON THE STATE OF THE


                        Tuesday, March 20, 2012

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[vice chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, 
Biggert, Miller of California, Capito, Garrett, Neugebauer, 
McHenry, Bachmann, McCotter, Pearce, Posey, Westmoreland, 
Luetkemeyer, Huizenga, Duffy, Hayworth, Renacci, Schweikert, 
Grimm, Canseco, Stivers, Fincher; Frank, Waters, Maloney, Watt, 
Sherman, Meeks, Capuano, Hinojosa, McCarthy of New York, Miller 
of North Carolina, Scott, Green, Cleaver, Ellison, Donnelly, 
Carson, Himes, Peters, and Carney.
    Mr. Hensarling [presiding]. This hearing will come to 
    The purpose of the hearing today is to receive the annual 
testimony of the Secretary of Treasury on the state of the 
international financial system.
    The Chair would note the very notable absence of our 
chairman today, Chairman Bachus, who is undergoing a minor 
surgical procedure. He is expected to rejoin us tomorrow. He 
regrets his absence.
    Pursuant to Rule 3(f)(3) of the Rules of the Committee on 
Financial Services for the 112th Congress, the Chair announces 
that the recognition of opening statements will be limited to 
the Chair and Ranking Minority Member of the full Committee and 
the Chair and the Ranking Minority Member of the Subcommittee 
on International Monetary Policy and Trade or their respective 
designees, for a period not to exceed 16 minutes, evenly 
divided between the Majority and the Minority.
    Without objection, all Members' written statements will be 
made a part of the record.
    The Chair now recognizes himself for 5 minutes for an 
opening statement.
    Clearly, our economy is linked and intertwined with many 
others, especially Europe's. Almost all agree that Europe's 
failure to adequately address its debt crisis can adversely 
affect our domestic economy. The President has gone so far as 
to say, ``The biggest headwind the American economy is facing 
right now is uncertainty in Europe.''
    I respectfully disagree. Given current domestic exposures 
to European debt, hedging strategies in place, and current 
account balances, I do not believe Europe's problems are as 
threatening to us as they once were. The greater threat to our 
economy is that Europe will successfully confront their debt 
crisis and we will not successfully confront ours.
    Although the dollar remains the world's reserve currency, 
we are beginning to see some chinks in that armor. And although 
our economy still remains the flight to safety, the question 
is, for how long? Interest rates remained historically low due 
to the Fed's tripling its balance sheet. But this massive 
intervention is just masking true market interest rates that 
are making it easier for the Administration to service the debt 
on the Nation's first, second, and third trillion-dollar-plus 
deficits. Everyone knows our debt is unsustainable, and as 
economist Herb Stein once famously observed, ``If something 
cannot go on forever, it will stop.''
    Beyond the unsustainable debt, the Administration has 
stated that there are some encouraging signs in our economic 
recovery, and I agree. But after 3 years, there continue to be 
too many discouraging signs. Unemployment has now exceeded 8 
percent for 37 straight months, the longest span of high 
unemployment since the Great Depression. When one adds in the 
people who have simply given up and left the labor force, and 
those who have part-time work yet seek full-time work, the true 
unemployment rate should actually be considered to be 15.2 
percent. According to the World Bank, the ease of starting a 
business in the United States has now fallen from 4th in the 
world to 13th. According to the Census Bureau, almost half of 
the Nation is now classified as either low-income or living in 
poverty. Gas prices have doubled.
    If this too-slow and too-weak recovery had achieved the 
average growth rates of the 10 previous post-war recessions, 
GDP per person would be $4,528 higher and 13.7 million more 
Americans would be working today.
    The American people know we can do better. And perhaps more 
importantly, as they see Europe grappling with their debt 
crisis, they see no evidence that we are confronting our own. 
Since the President took office, the national debt has 
increased 45 percent, from $10.6 trillion to $15.4 trillion, 
debt held by the public--gross debt, rather. In the budget the 
Administration just released a few weeks ago, they would add 
another $11 trillion on top of it.
    And what is most ironic as we convene a hearing that will 
largely focus on the European debt crisis is that when you look 
at the numbers, the United States has a worse debt-to-GDP ratio 
than does the eurozone. There is no greater threat to our 
recovery than our own fiscal trajectory. Unfortunately, the 
President's approach to Europe appears to be, ``Do as I say but 
not as I do.''
    Now, the President knows what the cause is. He has said, 
``The major driver of our long-term debt is Medicare, Medicaid, 
and our healthcare spending. Nothing comes close.'' I agree. 
But there is nothing in his budget to reform, save, and secure 
these programs.
    And I am not the only one to take note. The Los Angeles 
Times has editorialized, ``It is past time for the 
Administration to lay out a credible plan for bringing the 
deficit and debt under control. Sadly, President Obama's budget 
proposal shows that he would rather wait until after the 
election to have that reckoning.''
    The Boston Herald editorialized, ``President Barack Obama 
has apparently decided that he is not going to be part of the 
solution to the Nation's enormous deficit, which would make 
him, yes, part of the problem.''
    As we discuss issues facing the eurozone, I want to make 
two things exceedingly clear: one, we cannot continue to ignore 
our own unconscionable and unsustainable debt; and two, U.S. 
taxpayers should not be expected to, and cannot afford to, bail 
out foreign countries. I am encouraged that the Administration 
has stated that it does not plan to seek additional funding for 
the International Monetary Fund (IMF.) But the IMF has 
announced its intention to further expand its lending activity 
through bilateral loans. When it does, U.S. taxpayers will be 
increasingly exposed to greater risk, as the United States has 
a 17\1/2\ percent equity stake in all IMF loan operations.
    The IMF is venturing into uncharted territory. Never before 
has it loaned money to countries on the scale that it has to 
Greece, Ireland, and Portugal. I hope in our discussion today, 
the Secretary will shed light on what we can expect the 
Administration to propose on a long-term plan that will prevent 
the United States from beginning on the road to becoming the 
next Greece.
    Mr. Secretary, I look forward to your testimony.
    I will yield back the balance of my time. At this time, the 
Chair recognizes the ranking minority member for 5 minutes.
    Mr. Frank. I am pleasantly surprised that in the last 30 
seconds of his statement the chairman managed to talk about the 
subject of this hearing. But most of it was, I think, a 
somewhat inaccurate partisan attack on the general fiscal 
policy of the United States.
    I remember a time when there were people on the 
conservative side who accused liberals of taking a ``blame 
America first'' strategy and saying everything was America's 
fault. Apparently that practice has switched sides, because we 
have a situation in which, as Mr. Bernanke said--people 
sometimes forget that Ben Bernanke was the single most 
important economic appointee of President George W. Bush, first 
at the Council of Economic Advisors, then at the Federal 
Reserve. And Mr. Bernanke has agreed with President Obama that 
the European situation is one of the major threats to our being 
able to continue our recovery.
    And at a time when it is generally recognized by economic 
analysts that America did a better job of dealing with the 
crisis than Europe, and where America has been helpful in 
trying to get Europe to move but where there were still serious 
problems, the chairman said, no, it is America's fault; that 
Europe should be, apparently, the example for us, even though, 
if you look at developed-world economies today, America is 
performing far better than any of the European economies. The 
European economies are not doing nearly as well in economic 
growth as we are. But the chairman would rather make a partisan 
attack on the Administration.
    When he does get to the international situation, it seems 
to me that he gets it very wrong. He does acknowledge that 
there is some impact from the European debt crisis, but he is 
somewhat critical of our efforts to deal with it, particularly 
the IMF. The notion that we should use our voting power on the 
International Monetary Fund to keep them from participating in 
a tripartite effort to deal with the European crisis is 
economic self-destruction.
    The fact is that the IMF is playing a very important role. 
It has been somewhat successful so far in helping. And a 
decision today that America was going to prevent any IMF 
participation in an effort to stabilize the financial situation 
in Europe would have a disastrous effect on the American 
economy. Now, a disastrous effect on the American economy would 
also have a negative effect on the President's chances for 
reelection. Perhaps that mitigates, in some people's minds, the 
negative economic effect. But the notion that we should try to 
block the IMF from constructive participation is economic 
    And then, though, we did talk about the deficit. And, 
again, the chairman seems to be oddly blaming America first 
when he contrasts the Europeans' view on debt and their actions 
to ours. The Europeans have one great advantage with regard to 
trying to cut their debt: They have outsourced their defense to 
the United States taxpayer. If the European nations, our NATO 
allies, the EU members, were spending a percentage of their GDP 
comparable to ours, their debts would be far greater. And, 
conversely, if we were to be able to reduce our GDP spending on 
defense to being only, oh, maybe twice what the average 
European one is, we would be making greater progress.
    The chairman quotes the President saying Medicare and 
Medicaid are the greatest drivers. I don't recall in exactly 
what context the President said that, but I think that is 
wrong. I think that the excessive military spending, which in 
some cases does more harm than good, such as in the war in 
Iraq, and which is increasingly I think showing to be futile in 
Afghanistan, but the United States taking over, as it has since 
World War II, the defense for Japan, the defense for Germany, 
the defense for other wealthy nations, that is a major factor. 
So to talk about the Europeans as models of how to deal with 
their debt, and to denounce America for higher debt and ignore 
the fact that a major part of that is that we are carrying 
their defense, let's join in cutting it.
    And I would say on that, I am having a hard time 
reconciling my Republican colleagues' professions that it is 
important to cut the deficit and keep taxes the same with a 
decision to go into Syria, with a decision to get more military 
involvement earlier in Iran, with a criticism of the President 
for talking about withdrawing from Afghanistan, with a 
criticism of the President for getting out of Iraq. I do not 
understand how many of the Republicans who were critical of the 
President for not spending tens and tens and perhaps hundreds 
of billions more on the military over the next few years than 
he is predicting reconcile that with the notion that we must 
cut the deficit.
    And now, like the chairman, I will close by getting to the 
subject. We have a very important issue here. There is a debt 
crisis in Europe that is threatening America. We have the best 
performing of the developed-world economies, but it is not 
doing good enough. One of the major threats to that would be a 
crisis in Europe. I support what the Administration and the 
Federal Reserve have done to deal with that, and that includes 
support for the IMF.
    Mr. Hensarling. The Chair now recognizes the chairman of 
the Subcommittee on International Monetary Policy and Trade for 
3 minutes, the gentleman from California, Mr. Miller.
    Mr. Miller of California. Thank you, Mr. Chairman.
    Mr. Secretary, it is good to have you here today. It has 
been a while since we have seen you. Under Secretary Brainard 
has been very available to us and very informative in helping 
us on issues.
    There is just a concern today. I know you recall when we 
went through our crisis in 2007, Europe was very cautious in 
staying over there, and ``that was an American problem.'' We 
are very cautious in that way, too. The IMF has been very good 
in giving them technical advice and direction on what they 
should do to resolve their exposure to the European crisis, but 
we are concerned that it is not transported over to us. We 
understand the nexus between trade and the financial services 
sectors that we have between our countries. But this hearing 
today is very important because we need to really understand 
where we are going, where the Administration is going, and 
where we end up. And we don't want to end up with their debt in 
our lap. The American taxpayers are very concerned about that. 
And that is not an accusation; it is just a genuine concern.
    I have said all along that this European problem is a 
European problem. There is no doubt at all that we are 
connected with them, but we need to insulate U.S. taxpayers 
from the problem and its being exported over to us. There is a 
huge interconnectedness between trade and the financial 
markets, and that is a good reason for this hearing today. And 
I hope you can give us your objectives and share with us your 
insight on where you think we are going on that.
    There is a serious concern raised in Congress that IMF's 
resources are going to be used in the eurozone, and if that 
happens and we are their largest shareholder in IMF, that is 
going to be used as a bailout for Europe and it is going to be 
a burden falling back on us. I hope in your comments today you 
can address that, because that really is a huge concern for us. 
We are just trying to come out of our crisis. And I am going to 
restate again, when we were going through our worst time, 
Europe--and you dealt with it, because I remember reading about 
your involvement--was very concerned that it not be a European 
crisis, that it was a U.S. problem, and we need to resolve it 
ourselves. And this committee has the same belief. Yes, we are 
concerned about Europe. Yes, we are concerned about their 
crisis. We want to assist them in any way we can. But the 
financial burden should not fall back on this country to 
resolve their problems over there.
    Some of the major regulations the Administration is 
imposing will have the effect of imposing that burden on us, we 
believe, especially in our financial sectors, because they are 
not adopting similar policies to what we are adopting over 
there, and it is going to put us at a real financial 
disadvantage. The Volcker Rule is a great example. There is not 
a European country that seems to want to comply with the 
regulations placed on our companies. And if they don't, what 
position does that put the American companies at a disadvantage 
to the European countries in the future?
    If we are ever going to get out of the situation we are in 
today--and we are moving slowly in a recovery--we cannot put 
the financial services sector at a disadvantage, and I believe 
the Volcker Rule would do exactly that. So I am hoping the 
Administration looks at that and says, if imposition of 
regulations and requirements on financial sector services 
companies here in the United States are not being looked at in 
the same way in Europe, and our countries are put at a 
disadvantage, then something wrong is occurring. And I hope you 
will look at that in a proactive way and try to help American 
companies and help the economy.
    I see my time has expired. I yield back. Thank you.
    Mr. Hensarling. The Chair now recognizes the designee of 
the ranking minority member of the subcommittee, Mr. Carney of 
Delaware, for 3 minutes.
    Mr. Carney. Thank you, Mr. Chairman.
    I am down here, Mr. Secretary. Thanks for coming today. I 
am eager to hear your perspective on the situation in Europe 
and, in particular, the threats that situation poses for the 
recovery here in the United States.
    I really have two main questions. The first is, can Greece 
be put on a sustainable path forward? Greece has had austerity 
measures imposed on it to address its fiscal crisis, and, 
clearly, its current fiscal path is unsustainable. But, at 
best, the benefits of these structural reforms are long-term. 
And can Greece get over it in the short term, I think is the 
    They have very incredibly difficult political decisions to 
be made as to whether or not they can and should impose more 
austerity and what the costs might be to the political 
situation. We have heard the reports this week about political 
dissent in Europe.
    As a member of the EU, Greece doesn't have one of the main 
tools that most countries otherwise would have, which is to 
devalue its currency to grow, to sell outside of the country 
and respond that way. And so, they seem to be caught in a bind; 
they have the worst of all worlds. They have the austerity 
imposed on the people, and yet they don't have the ability to 
grow out of it with a devalued currency. And so I would be 
interested in your thoughts on that.
    The second concern is the implications of a prolonged 
crisis on the United States and, in particular, the exposure 
that U.S. banks have to credit default swaps, Greek debt, and 
that type of thing. We have had other discussions in this 
committee and in other venues about that question, and I would 
be interested in your view of that.
    And I would also be interested in knowing your thoughts as 
to what extent that the reforms of Dodd-Frank have improved our 
ability to understand those risks and to mitigate against them? 
Dodd-Frank, as you know, was designed to promote transparency, 
monitor systemic risk, and ensure that U.S. financial 
institutions can withstand shocks to the system. The question 
is simple: Have these reforms enabled us to do that? Have they 
given us more information? Do we understand the exposure and 
the systemic risk that exists for major U.S. financial 
institutions and markets?
    Again, I want to thank you for being here today, and I look 
forward to hearing your views on these particular issues.
    I yield back.
    Mr. Hensarling. Secretary Geithner, welcome back to the 
Financial Services Committee. Without objection, your written 
statement will be made a part of the record, and you will be 
recognized for 5 minutes to summarize your testimony.
    The Chair wishes to announce for the benefit of all Members 
that the Secretary has a hard stop time of 12:30. Please 
observe the 5-minute rule and plan accordingly.
    Mr. Secretary, welcome again. You are recognized.


    Secretary Geithner. Thank you, Congressman Hensarling, 
Ranking Member Frank, and members of the committee. Thanks for 
giving me a chance to come before you today and talk 
particularly about developments in Europe, but I will also be 
happy to answer any other questions you have about the United 
States or the broader global economy.
    Europe is, of course, a key strategic and economic partner 
of the United States, and we have a huge stake--a huge economic 
stake, and a huge national security stake--in the success of 
Europe's efforts to contain its crisis. Our economy, as you 
acknowledged, is gradually getting stronger, but we still face 
a lot of tough challenges ahead as a country.
    As you know, in early 2009, the U.S. and the global economy 
were facing the clear and present danger of a second Great 
Depression. And we acted, with the Federal Reserve and with 
Congress, to pull the U.S. and the world economy back from the 
edge of the abyss. We successfully stabilized the financial 
system, and we restarted economic growth.
    And over the past 2\1/2\ years, despite the crisis in 
Europe, despite the rise in oil prices early last year, despite 
the disaster in Japan, despite the huge damage to confidence in 
the United States caused by the threat of default on the U.S. 
Government's obligations for the first time in history, despite 
all those challenges, our economy has grown at an average 
annual rate of about 2\1/2\ percent over the last 2\1/2\ years. 
Over the past 2 years, the private sector has added nearly 4 
million new jobs. Private investment and exports are expanding 
rapidly, much more rapidly than GDP as a whole. And we are 
seeing quite broad-based strength across the American economy 
in agriculture, in energy, in manufacturing, and in high-tech.
    But of course, looking forward, we still have a lot of work 
to do to repair the damage caused by the crisis. Unemployment 
is still very high, as you all know, and the housing market is 
still very tough. And we still face a challenging and very 
uncertain global economic environment, with Europe still facing 
a long and very difficult crisis, and the risks surrounding 
Iran, which are adding to upward pressure on oil prices.
    In that context, the context of oil markets, I just want to 
welcome very much the statements made by the Saudi authorities 
over the last couple of days that they will take further action 
to increase the supply of oil to global markets--a very 
constructive signal.
    China's exchange rate has now appreciated significantly in 
real terms against the dollar, not just over the past 5 years 
but over the past 20 months or so. And although they still have 
a ways to go in achieving a more market-oriented exchange rate 
that better reflects economic fundamentals, we are seeing very 
substantial growth in U.S. exports to China.
    We have acted with the rest of the world to significantly 
strengthen and reform the international financial institutions 
over the past 3 years--IMF, the World Bank, and others. And I 
want to express particular appreciation for the support of this 
committee, the bipartisan support of this committee, in those 
    We are making a lot of progress--and I would be happy to 
talk about it in more detail--in strengthening global standards 
for financial reform, global standards in oversight over the 
global financial system so that U.S. firms who compete in those 
markets face a more level playing field even as we put in place 
tough reforms here in the United States.
    Now, a few things on Europe. Over the past few months, with 
our encouragement and support and with the support of the IMF, 
Europe's leaders have been making some progress in putting in 
place a more effective, comprehensive strategy to deal with 
their crisis.
    And this strategy has had four key elements. The first 
element is economic reforms in the member states to restore 
fiscal sustainability, to restructure their banking systems, 
and to improve their competitiveness, boosting their longer-
term growth prospects. The second element is institutional 
reforms, including what they call a fiscal compact, that 
established stronger disciplines on the fiscal policies, the 
budget policies of the member states to limit future deficits 
and the level of debt as a share of GDP. The third element is a 
coordinated strategy to recapitalize the European financial 
system, alongside some guarantees for bank funding. And the 
fourth element is a firewall of funds, of financial funds, to 
provide financial support to governments that are undertaking 
reforms so that they can borrow money at sustainable interest 
    The European economies that are caught up at the center of 
this crisis have put in place some really very tough reforms 
over these last 18 months or so. And these reforms have been 
aided and assisted by very substantial actions by the European 
Central Bank. And together, those efforts--reform with the 
firewall and a more active ECB--have helped calm financial 
market tensions.
    But I think it is very important for us all to recognize 
that Europe is still at the initial stages of what will be a 
very long and difficult path of reform, and that path of 
reform, of crisis resolution, presents significant risks to the 
American economy still.
    For these economic reforms in Europe to work, the 
policymakers in the euro area have to carefully calibrate the 
mix of financial support they are providing and the pace of 
fiscal consolidation they are embarking on. And that is 
important to recognize because the economic reforms will not 
work without financial support that allows the governments to 
borrow at affordable interest rates. And if every time economic 
growth disappoints, if every time economic growth is somewhat 
weaker than they anticipate, if governments in that context are 
forced to cut spending and raise taxes immediately to 
compensate for the impact of weaker growth on deficits, then 
that would risk creating a self-reinforcing and really 
defeating, negative spiral of growth-killing austerity.
    The most important unfinished piece of this broader 
financial strategy is to build a stronger European financial 
firewall, again, as a backstop for the governments undertaking 
reforms. They are now in the process of reviewing options for 
expanding the combined financial capacity of their two funds so 
that they can make it clear to financial markets that they have 
the resources available on a scale that is commensurate with 
the needs they might face were the crisis to intensify in the 
    The IMF, as you know, has played a very important role in 
Europe. The IMF has provided advice on the design of reforms, a 
framework for public monitoring of progress, and financial 
support for the programs in Greece and Ireland and Portugal, in 
partnership with the Europeans, which are assuming the majority 
of the financial burden, as is appropriate. And those actions, 
supported by the IMF, have significantly helped limit the 
damage from the crisis.
    And it is very much in the interest of the United States 
that the IMF is able to continue its efforts in Europe. IMF's 
resources cannot substitute for a strong and credible European 
financial response, but they can help supplement those 
resources, supplement the resources Europe mobilizes on its 
    As you know, the IMF has played a major role in every post-
war financial crisis, while consistently returning to the 
United States and other IMF members any resources they draw on, 
with interest. We have never lost a penny in our engagement 
with the IMF, and that is because our commitments to the IMF 
are backed by a very substantial set of safeguards, including a 
substantial amount of IMF gold.
    However, over the past 18 months, as you know, the European 
crisis has hurt the American recovery. It has been a drag on 
growth in the United States and around the world. But Europe 
has pledged to do what is necessary to contain this crisis. 
They are making some progress on this path. But they are going 
to need continued support and reinforcement, and this process 
is going to take a lot of time.
    Thank you, Mr. Chairman. I would be happy to respond to 
your questions.
    [The prepared statement of Secretary Geithner can be found 
on page 60 of the appendix.]
    Mr. Hensarling. Thank you, Mr. Secretary.
    The Chair will yield to himself.
    Mr. Secretary, I am certainly heartened by the 
Administration's statement that you do not intend to seek more 
resources for the IMF. I remain somewhat confused, though, 
because 2 years ago there was an agreement on behalf of the 
Administration to double our quota to IMF.
    So the first question is, if you do not plan to seek 
additional funds now, do you have a timetable in which you 
    Secretary Geithner. Excellent question. Let me see if I can 
    It is true that, first, in the spring of 2009, we joined 
with countries around the world at that moment of crisis and 
reached a global agreement to substantially increase the 
resources available to the IMF in that time of emergency. And 
then, subsequent to that, we reached agreement internationally 
on a set of reforms that would change the governance structure 
of the IMF, adapt it a bit to better suit the challenges facing 
the world, and to shift a little bit the balance of those 
resources between what is called the quota resources of the IMF 
and what is called the new arrangement to borrow, which is like 
a supplemental reserve fund. And we have negotiated 
internationally, and we will come to the Congress at the 
appropriate moment to request authorization for those reforms 
to take place. But those proposals do not increase the 
resources available to the IMF.
    Now, in the present context, the IMF still has about $400 
billion of uncommitted loanable resources available to respond 
to the challenges of its members. And the IMF has a long 
history, if necessary, in short periods of time, of mobilizing 
temporary resources if they need it to respond to a crisis.
    We don't see the case for asking the IMF's shareholders to 
agree to another increase in IMF resources to lessen the burden 
on Europe. Europe is a very rich continent. They have the 
capacity to solve this problem. And we don't want to see the 
IMF's role substitute for--
    Mr. Hensarling. Mr. Secretary, if I could, I thank you for 
that. As you know, we have limited time here. I would like to 
get on to my next question.
    Sometimes what I consider obvious around here is not 
obvious to others. We have disagreements with the 
Administration. Many of us believe that the appointment of 
Richard Cordray was both unlawful and unconstitutional. 
Obviously, the Administration has a differing viewpoint. We 
will set that debate aside.
    It also appears obvious to many of us that if the 
Administration changed its mind and wished to increase U.S. 
contributions to the IMF, our belief is that you would have to 
come to Congress to do that.
    So my question is, does the Administration have a differing 
view? Do you have legal authority, outside of coming to 
Congress, to increase the IMF contribution?
    Secretary Geithner. No. Under the laws of the land--and I 
fully support this; I think it is good for this country--we 
cannot loan money to the IMF without coming to Congress to 
authorize that increased contribution.
    Mr. Hensarling. The next question then, Mr. Secretary: 
Setting aside the Federal Reserve's liquidity swap 
arrangements, in your opinion, does the Administration have any 
other legal authority outside of the IMF quota to provide any 
type of grant, loan, loan guarantee, or any other financial 
assistance to the European countries?
    Secretary Geithner. I do not believe so.
    You are right to refer to the Fed's authority. The Fed has 
authority Congress provided to provide swap lines and other 
forms of assistance. Outside that, it is like any matter of 
spending under the U.S. Constitution. Congress has the power of 
the purse. You get to decide and you control authority over 
what type of commitments we can make.
    There is, I think, one other exception. Congress has given 
the President what is called the Exchange Stabilization Fund, 
which is where we hold the foreign reserves of the United 
States. And there are authorities we have in that context to 
act to help provide stability in markets and this kind of 
thing, but they are not really relevant in this context.
    Mr. Hensarling. Mr. Secretary, notwithstanding the fact 
that the Administration currently will not be requesting 
additional funds for the IMF, obviously the IMF has announced 
their intentions to engage in a number of bilateral agreements, 
which, as I understand it, would require only a 50 percent vote 
of the IMF, meaning the United States could not essentially 
veto such an effort.
    But won't the increase in the IMF's bilateral borrowing 
from other countries to the tune of $500 billion substantially 
increase taxpayer exposure to the European periphery?
    Secretary Geithner. Excellent question. And it would depend 
on how those resources are used, the terms on which they are 
provided, and the safeguards that attach to them. As you would 
expect, we would care a lot about making sure that if the IMF 
were to pursue those agreements, that they were done on terms 
which would not disadvantage the U.S. financial position in the 
    Mr. Hensarling. Thank you, Mr. Secretary.
    The Chair now recognizes the ranking member for 5 minutes.
    Mr. Frank. Since the question of the nomination to head the 
Consumer Financial Protection Bureau (CFPB) came up, I would 
like to say that I do agree there was a gross violation of the 
Constitution involved: That was the refusal by the Republican 
Senators to allow a confirmation to take place. They did not 
have any objection to any individual nominee. They announced 
that because they didn't like the outcome of the legislative 
process, they were going to hijack the confirmation process to 
try and extort a change--clearly violative of the 
constitutional requirement that they treat a nomination on its 
    Secondly, I do agree that we have excessive American 
taxpayer exposure to Europe. It is called ``NATO.'' And in 
1949, when it was founded, and since then, there have been 
hundreds and hundreds of billions of dollars, it made a lot of 
sense. It doesn't make any sense today. And, again, if we 
equalize defense expenditures between America and our wealthy 
European allies, our debt situation would be much better. 
Theirs might be a little worse.
    On the IMF, Mr. Secretary, I must say that, given the 
danger that exists for our economy if the European situation 
does not continue to be somewhat stable, the notion that we 
should try to discourage the IMF from participating is hard for 
me to understand. But I also want to, because I think there is 
a misunderstanding about the extent to which we have a taxpayer 
exposure, I am going to ask you in writing to give us a list of 
how much our contributions to the IMF have cost us in budget 
terms over the years.
    But would you expound? The last time the United States 
increased our contributions to the IMF, do you know what the 
net budgetary cost was, according to the Congressional Budget 
    Secretary Geithner. We have had 60-plus years of experience 
with the IMF through a whole rich variety of crises. And we 
have never lost a penny of taxpayers' money in that context 
because the IMF was designed in a way--and we made sure this 
was the case--that any U.S. taxpayers' exposure would be fully 
    Mr. Frank. And that included, of course, substantial 
intervention in the Asian crisis in the 1990s by the IMF?
    Secretary Geithner. Throughout the debt crises of the 
1980s, the 1990s, and even this crisis--
    Mr. Frank. So, in fact, the IMF, to date, has not had any 
net negative impact on the American taxpayer.
    Secretary Geithner. No. And I cannot envision a 
circumstance in which it would, because we are very careful in 
terms of what the IMF does.
    Mr. Frank. So if we were try to get the IMF to not do 
anything, we would be increasing the risk to our economy at no 
savings to the American taxpayer.
    Secretary Geithner. I agree. In fact, it would be much 
worse than that, I think. If the IMF were unable to play its 
role in this context, then we would face much weaker growth 
here in the United States, much more risk to our broader 
financial system, and U.S. exports would be weaker, U.S. 
    Mr. Frank. I would be interested if you would give us, too, 
the CBO. And I think, if necessary, we should increase our 
quota, because it makes a great deal of sense. We buy a lot of 
stability for no net--but I would be interested if you would 
send along the CBO thing there.
    Now, I do want to be honest. The swap between the Federal 
Reserve and the European Central Bank that was referred to, as 
I recall, that did have an impact on the American taxpayer. 
Would you explain what that impact was?
    Secretary Geithner. On all the Fed programs, the Fed earned 
a substantial positive return to the taxpayer. I don't know 
exactly the return on the swap lines. They have been--
    Mr. Frank. But it was a profit for the American Treasury?
    Secretary Geithner. And a very substantial profit.
    Mr. Frank. So, as a result of the swap, Mr. Bernanke sent 
you a check?
    Secretary Geithner. That is correct. He sent it to the 
    Mr. Frank. All right. I hope you thanked him for it.
    Let me ask you now, Mr. Secretary--as I said before, we had 
this comparison of the European economies to the American, from 
the chairman, to our disadvantage. In terms of growth over the 
last couple of years, what is the comparison between the 
American and European, even the German, the best performing of 
their economies? What is the general comparative view?
    Secretary Geithner. As you pointed out, U.S. growth has 
averaged, even in this early recovery--early years of recovery, 
roughly 2.5 percent, significantly stronger than Europe, 
probably twice the rate of growth in Europe as a whole, though 
Germany has done relatively well, and of course significantly 
stronger than Japan.
    So it is fair to say that we are far ahead of Europe in 
dealing with our challenges in the United States, and our 
economy is looking better on really every measure than, 
certainly, the average of the major European countries.
    Mr. Frank. Last question: There has been a lot of concern 
about American banks' exposure to European financial 
institutions with credit default swaps, etc. If the financial 
reform bill that was signed into law in 2010 had been signed 
into law 2 years earlier, would that have had the effect of 
lessening the concerns we might have today?
    Secretary Geithner. Absolutely. I believe that if the 
reforms Congress passed in 2010 had been in place 3 years 
before, or 5 years before, then our crisis would have been much 
less severe and we would have been in a much better position to 
manage the effects of the crisis and contain the damage on the 
American economy.
    But today, because of those reforms and the actions we took 
to restructure the financial system in the crisis, U.S. banks 
are in a much stronger position and hold much more capital 
against the risks they take around the world. And that is a 
good thing for the United States.
    Mr. Hensarling. The Chair now recognizes the gentleman from 
California, Mr. Miller.
    Mr. Miller of California. Thank you.
    Mr. Secretary, the question has been asked about how in 
2010, the Treasury made a commitment to double the quota, and 
then we have had some responses. But will the Treasury seek 
congressional authority to transfer funds from the U.S. portion 
of the NAB to the U.S. quota?
    Secretary Geithner. Yes, we will.
    Mr. Miller of California. So you will be asking to do it in 
that fashion rather than additional funding?
    Secretary Geithner. That is right.
    Mr. Miller of California. Okay.
    In your testimony, you say that the reforms in eurozone 
countries will take time and won't work without the ability of 
governments to borrow at affordable rates. And I agree with 
that. But according to the Wall Street Journal, the Internal 
Markets and Services Commission of the Euro Commission says 
that the Volcker Rule could impair the ability of many 
countries to sell their bonds. And how can European countries 
borrow at affordable rates when they can't sell their bonds 
based on the Volcker Rule?
    Secretary Geithner. You are right, Congressman. A lot of 
Europeans have expressed concern about that risk. And those are 
some among the many of the comments the Fed and the other rule 
writers have received about the initial draft proposed rule. 
The Fed is in the process of examining those comments.
    We, Treasury, although we have no authority over the rules, 
play a coordinating role in the broader design of the rules. 
And we are going to take a very close look at how best to 
mitigate those concerns. And my view is that we will have the 
ability to do that.
    Mr. Miller of California. That is a glaring comment from 
them. And I appreciate your honesty in it, but the honesty 
alone sends a true message that there is a really serious 
problem with the Volcker Rule if it has this type of an impact, 
when we are looking at trying to assist Europe with the IMF as 
far as technical expertise, knowing that if we do something 
like this, it could really set them back. So I hope it is going 
to be a significant effort on your part to look at that.
    It appears that jurisdiction will adopt rules comparable to 
the Volcker Rule--we have said there. Does the Federal Reserve 
have any regulatory tasks with implementing the Volcker Rule--
perform the assessment of potential job losses that will occur 
in this country? If we are saying that the Volcker Rule is 
going to have a huge impact on the monetary system or financial 
sector system of this country and globally, that has to cost us 
jobs here in this country. Are you going to look at that too?
    Secretary Geithner. Maybe I should clarify one thing. I do 
not believe that, despite the concerns expressed by governments 
and central banks, that the rule as drafted presents a 
meaningful risk to liquidity or credit in those countries. But, 
we are careful people, and we are going to look at all the 
concerns expressed by these rules. And it is my view that we 
have the capacity to address those concerns. It is very 
important we do that.
    More broadly, of course, you are right to point out that in 
all these rules, we have to make sure we find the right 
balance. We need to create a more stable system in the United 
States that is good at providing capital to its best use, but 
we also have to make sure that we do so in a way that doesn't 
unduly damage the broader health of the American economy. I am 
very confident that we are getting that balance right. And we 
are going to be very careful to continue to make sure that, as 
we take in comments on draft rules, that where there is a case 
for adjusting a rule, we do that.
    Mr. Miller of California. But you used a good word in 
there, ``meaningful risk.'' And you are in a tough position, I 
understand that. You are trying to balance many apples at the 
same time. But when you acknowledge a meaningful risk and we go 
to say that the eurozone is going to be impacted in their 
capability to borrow in some fashion because of the Volcker 
    Secretary Geithner. No, I don't think there is a meaningful 
risk. But, again, we are careful people, so we will look at any 
concerns, both by U.S. financial institutions, U.S. businesses, 
as well as foreign governments, as we look at the comments. I 
don't think there is that risk, but if there is, we will 
address it.
    Mr. Miller of California. How do you address the Wall 
Street Journal's comments then, when they said the Volcker Rule 
could impair the ability of many countries to sell their bonds? 
And you acknowledged that in some fashion.
    Secretary Geithner. No, I don't--again, I don't think there 
is that risk. But it is something that we have the ability, 
under the law, to avoid.
    The way the law is structured, there is a set of safeguards 
to protect the taxpayer and the system from firms taking risks 
with the safety net to finance proprietary trading and other 
activities like that. But the law is also designed to protect 
market-making and hedging.
    So the exemptions--the law requires us to design exemptions 
for those activities for good reasons. But when you design 
exemptions, you have to make sure they don't swallow the rule, 
they don't undermine--
    Mr. Miller of California. But let's go back to our 
financial services sector. If we are saying that they are going 
to be under the guidelines and requirements of the Volcker 
Rule, and yet all these other countries are saying, ``We are 
not going to do that because that would put us at a 
disadvantage,'' they are admitting a disadvantage, so by the 
act, in and of itself, we have to acknowledge that our 
financial services sector would be at a disadvantage.
    Secretary Geithner. I don't--
    Mr. Miller of California. So that would be a meaningful 
risk to our financial services sector, I would think.
    Secretary Geithner. I don't think so. But it is a very good 
point. So let me think about it this way. Obviously, we got the 
balance in the United States wrong. That is why we had such a 
devastating financial crisis. So we need to toughen our 
reforms. So if we move our reforms up here and the world stays 
here, we have a problem.
    Mr. Miller of California. And they are saying they are 
staying there.
    Secretary Geithner. Not, not--I am coming to that. So, 
generally, we are trying to pull the world up to our standards.
    Now, they have different systems than ours, and they might 
be a little different in some cases. And you are right to say 
that if they stay beneath us, then risk will just shift. We 
haven't helped the basic problem. But if we respond to that 
risk by just lowering our standards to theirs, then we will be 
in a race to the bottom and get ourselves in a big mess again. 
So it is a difficult balance for us to strike.
    But, in general, it is not quite right to say that the 
Europeans aren't adapting a similar basic framework. They have 
different systems. The British are doing a much more radical 
separation of retail from wholesale financial activity--much 
more radical. And, of course, London--
    Mr. Miller of California. I wish we had more time on this 
one. It is a significant issue.
    Thank you.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
    Mrs. McCarthy of New York. Thank you, Mr. Chairman. And I 
appreciate the opportunity.
    Mr. Secretary, I apologize for not being here for your 
opening statement, but I did read it.
    Recently the Europeans acted to restrict the service of 
secure financial messaging to the Iranian banks that have been 
sanctioned by the EU. As a result, the Society of Worldwide 
Interbank Financial Telecommunications, or SWIFT--and, to be 
very honest with you, you are going to need to explain that, 
because a lot of people don't know what SWIFT actually is--will 
discontinue service to these banks. And I do appreciate what 
you have been doing on the Department's effort to encourage the 
EU and the SWIFT to act in this manner.
    What do you believe that the impact of this recent sanction 
action will be? And will there be an effort to mesh the U.S. 
list of sanctioned Iranian banks with the EU list?
    Secretary Geithner. The combined effect of these latest 
sanctions, both to discourage countries from buying Iranian 
oil, or encourage them to cut back significantly, and to make 
it much, much harder for countries to pay for their oil from 
Iran and to pay for other financial activity with Iran, the 
combined impact of those sanctions is very, very substantial.
    Europe has come a long way to matching the much tougher 
reforms we have had in place for some time. And their support 
has been very critical, of course, because we can't do this on 
our own. But we have had much broader cooperation even beyond 
Europe, because you are seeing Japan, South Korea--
    Mrs. McCarthy of New York. Right.
    Secretary Geithner. --China, countries around the world 
really moving with us to tighten up.
    Now, we are going to keep looking at ways we can bring more 
pressure to bear, and we are going to keep looking for what is 
the most effective balance of pressure we can bring to bear. 
But I think we are making really substantial, substantial 
progress. And our hope is, of course, that will alter Iran's 
calculations about their interests in pursuing a nuclear 
    Mrs. McCarthy of New York. Thank you.
    Good, I have time. Europe is the biggest trading partner 
that we have in the United States, and the euro area accounts 
for almost 15 percent of U.S. goods and services exports. The 
National Export Initiative has set an ambitious goal of 
doubling exports by the year 2015, which is right around the 
    If economic growth in the euro area declines, so will the 
demand for U.S. products and services. How will we continue on 
a path to achieving the NEI's export goal with absent or 
reduced European need?
    Because I think people really don't understand how 
important it is for us here in the United States, for our 
businesses, for our small businesses. Certainly, on Long Island 
we do an awful lot of exporting. So how do you see that future 
coming to--
    Secretary Geithner. You are absolutely right that Europe 
has a big impact on the United States because it is so large 
and because we have such a huge network of trade and financial 
ties with Europe.
    And the effects on us come through a variety of different 
channels. If they grow more slowly or fall into a recession, 
then the direct demand for things American companies create and 
produce is reduced. That hurts us directly. But the effects go 
significantly beyond that, because when Europe slows, the rest 
of the world slows, too. So that means growth outside Europe is 
weaker. That hurts American business exporters. When Europe is 
in crisis, as we have seen over the last 18 months very 
painfully, you tend to see stock prices fall around the world. 
That is very damaging to confidence here and around the world.
    And the typical pattern has been when Europe has been in a 
crisis, this is a good sign of confidence in the United States, 
but the dollar has risen relative to the euro. And so that is 
another effect on the United States in this context.
    But you are right to say the effects are very significant. 
It has been one of the major factors that has kept growth in 
the United States slower than we would like. It is not the only 
factor but one of the most important factors. If they are 
stronger in the future, that will be stronger for us. And that 
is why, again, it is so important that we encourage them and 
work with them to help them get their arms around this problem.
    Mrs. McCarthy of New York. And I think that is what the 
American people need to understand. Because when I go back 
home, everybody says, why are we giving all this money 
overseas? But it is actually for our benefit. And being that we 
do take money in on both projects, IMF, export, it is actually 
money coming back into our pockets.
    Secretary Geithner. And no risk to the taxpayer in that 
assistance because, again, we have--and as does the Fed--very 
careful safeguards that have been tested over a long period of 
time through lots of crises in this context. So there is an 
overwhelming and compelling economic and national security 
interest we have in working carefully through the IMF and what 
the Fed is doing to help them manage this crisis.
    Mrs. McCarthy of New York. Thank you. My time is up.
    Mr. Hensarling. The Chair now recognizes the gentlelady 
from Illinois, Ms. Biggert, for 5 minutes.
    Mrs. Biggert. Thank you, Mr. Chairman.
    And welcome, Secretary Geithner.
    Title V of the Dodd-Frank Act created the Federal Insurance 
Office (FIO) at Treasury. And in conjunction with State 
regulators and the U.S. Trade Representative, one of their most 
important missions is to strengthen the international 
competitiveness of the U.S. insurers and reinsurers. And FIO is 
to represent the United States in international forums and 
increase U.S. influence in the development of international 
insurance standards.
    In your opinion, does FIO have adequate staffing and other 
resources to successfully carry out this international mission?
    Secretary Geithner. I believe so. But if that were not the 
case, we would fix it. We have listened carefully to the 
concerns people have. And I am personally very committed to 
making sure that office has the resources it needs.
    Mrs. Biggert. Okay. FIO was required to submit two reports 
in September and one in January, and they are late. When will 
we see those reports?
    Secretary Geithner. You are right, they are late. And they 
are coming, they are getting closer. We have just been a little 
busy, and I apologize for the fact they are a little behind. 
But that is not really a resource question; it is just that 
they want do it carefully.
    Mrs. Biggert. Okay. Then I would like to go back to 
something Mr. Miller was talking about, the Volcker Rule. And I 
know that there have been associations like SIFMA that have 
commented, their comment letter dated February 13, 2012, 
regarding how the Volcker Rule proposal is prohibiting 
proprietary trading presumptions. And it seems like they are 
saying it is inconsistent with explicit congressional intent to 
allow useful principal activity. Could you address that?
    Secretary Geithner. Again, there have been a lot of 
concerns expressed about the initial proposed rule. Maybe I 
should go back a little bit. When the law was passed, Congress 
required the Treasury Department to put guidance out to rule 
writers about how the rules should be designed, the regs should 
be resigned. And that guidance we proposed was met by really 
quite a lot of support on all sides of the political spectrum.
    But when the rule came out, as drafted by those four 
regulators, as you have seen, there has been a broad set of 
concern, both sides: too tight, too loose, too weak, too 
complex. And it is the strength of our system that the way the 
system Congress has designed, we are required to put these 
rules out for public comment, and the regulators get to learn 
things from these rules.
    So my view has always been that the stakes in this are very 
high, and we should take the time necessary to get these rules 
right. And I think that is certainly the case in this context. 
So I am sure that the Fed and the SEC and the CFTC and the FDIC 
are going to carefully evaluate those comments. And I am very 
confident they have the ability to address those concerns 
within the way the law is drafted.
    Mrs. Biggert. Thank you.
    One last question: China stands as one of the few major 
markets to impose substantial barriers to entry for American 
business, including financial services firms. And though you 
have stated publicly that the United States needs to level the 
playing field with China, they continue to have the most 
restrictive market for financial services in the G-20. And the 
newly released Development Research Center of the State 
Council/World Bank report entitled, ``China 2030'' agrees and 
calls for significant changes to the Chinese domestic financial 
system as they become more active internationally.
    As the Chinese financial services firms expand into the 
United States, what steps are you taking to ensure that U.S. 
financial firms have the same access to China?
    Secretary Geithner. That is a very important point, which 
is very important to us. And thank you for highlighting that 
World Bank report because it is a very sweeping, constructive 
set of suggestions for reform in China, including opening the 
financial sector.
    I think it is very important that China move further to 
expand the opportunities for U.S. firms competing in China, 
alongside what they are doing to let the exchange rate move up. 
That is a critical part of both a successful reform process in 
China and it is necessary to be more fair to us.
    So we are going to keep encouraging them to move further. 
We made some recent progress even just over the last 3 months 
in opening up parts of the insurance sector in China. But we 
have a ways to go, and we are going to keep at it.
    Mrs. Biggert. Thank you.
    I yield back.
    Mr. Hensarling. The Chair now recognizes the gentlelady 
from California, Ms. Waters, for 5 minutes.
    Ms. Waters. Thank you very much.
    Mr. Secretary, I would like to thank you for being here 
    In your testimony, you said the European financial crisis 
has already caused significant damage to economic growth in the 
United States and around the world, and we have a strong 
interest in a successful resolution of the crisis. And I 
absolutely agree with you.
    And having said that, let me commend you and the Feds for 
the work that you have done on this extremely important issue 
and crisis. You have been involved in unprecedented policy 
consultations, coordination, and information-sharing between 
political leaders, central banks, and international 
organizations. And I think that you have represented this 
country very, very well.
    There are two policy initiatives that some of my friends on 
the opposite side of the aisle have criticized you about. I 
disagree with them. They were alluded to when you were speaking 
with Barney Frank. And that is swap lines and the agreement to 
    I think it is important for people to understand, as you 
have said, the Feds even made a little money on the swap lines. 
But why it--those two initiatives are very, very important, 
what it does in terms of providing liquidity to the central 
banks and why we stand to be served well by these two 
    Secretary Geithner. Thank you for those questions.
    Let me first say on the swaps, Europe has a much larger 
banking system than the United States, much larger share of 
their economy. And European banks borrowed a lot of money in 
dollars before the crisis to lend around the world. And when 
the crisis hit, because of concerns about the stability of 
Europe, they lost the ability to borrow in dollars.
    Now, of course, the European Central Bank does not run a 
dollar-based currency system. That is what we do in the United 
States. And so, faced with that loss of the ability to fund, 
European banks had to cut lending sharply around the world, 
even in the United States. And so the swap lines, by providing 
that access to funding, significantly reduced the need and the 
pressure on Europe's institutions to cut lending in the United 
States and in emerging markets around the world where U.S. 
companies have big stakes and where growth matters to us.
    So the swap lines were very, very effective in helping to 
soften the impact of the crisis on us and on countries around 
the world, and it would have been much worse for us without 
those lines. And, as I said, the Feds earned a positive return 
on those swap lines.
    IMF's role is equally important. And what the Congress did 
in the middle of 2009 in authorizing the IMF to have a much 
larger emergency capacity was absolutely critical to getting 
trade around the world restarted, providing financing for 
countries around the world to borrow so they could buy American 
products. And we would have been in much worse shape and our 
economy much, much weaker without those two steps.
    Ms. Waters. I appreciate that.
    And, as you have indicated, it certainly is in our best 
interest to help solve this crisis. I believe that, in addition 
to the cooperation that has been taking place by all of those 
interested parties, this is not a bailout. And those who term 
these initiatives as bailouts don't understand how important 
these two initiatives are to helping to stabilize this 
international economy.
    So I want to thank you for the work that you have done. 
And, again, I want to reiterate that I think what you have 
explained literally helps us to understand, and I would hope 
helps the other side to understand, why this cannot be termed 
``bailout,'' but rather, ``cooperation and assistance to make 
sure that we stabilize the international economy.''
    I yield back.
    Mr. Hensarling. The Chair now recognizes the gentleman from 
Texas, Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Secretary, it is good to see you.
    Mr. Secretary, I think you are on the record as saying that 
the U.S. contributions to the IMF are secure, the United States 
has never experienced a loss on any of its commitments, the 
American taxpayers have never lost a cent from the IMF program. 
And I appreciate that. But, Mr. Secretary, if you go back and 
look at testimony that has been brought before this committee 
and this Congress over the years, those were some of the same 
comments that were made about Freddie Mac, Fannie Mae, FHA, and 
the list goes on and on.
    And so I think these are unprecedented times that we are 
in. We would have never thought that the U.S. Government would 
have had to take the actions it took in 2008. And so I think 
additional funding or commitments to the IMF are not risk-free. 
Would you agree?
    Secretary Geithner. If I could just say, I would never have 
made the comments you referred to on Fannie and Freddie and 
FHA. And you are right, people have said all sorts of things in 
the past about us living in a world with no risk.
    But the IMF really is exceptional in how it has been 
designed. And, as I said, we have 6 decades of experience, 
through terrible crises, of looking at whether those financial 
safeguards were tested and how did we do. So I am really very 
confident that those financial safeguards will protect the 
interests of the American taxpayer. And I think it would be 
much riskier for the U.S. economy for us to try to pull the IMF 
back from helping the needs of its members, whether in Europe 
or elsewhere.
    Mr. Neugebauer. I note in 2009 the CBO, when they were 
analyzing whether the proposal to increase by $108 billion, 
they did a net present value risk adjusted and said that the 
potential cost to the American taxpayers would be $5 billion. 
What would be your response to that?
    Secretary Geithner. You are right, and they departed from 
decades and decades of practice in reaching that judgment, and 
I do not agree with it and do not share it. But you could think 
of that as an extreme precautionary balance in that context, 
and it doesn't change my basic view that the structure of the 
IMF's financial foundation provides very, very strong 
protections for the American taxpayer.
    But, again, you know life is about alternatives, and the 
question is, would we be better off as a country if the IMF 
could not act in this basic context? And I think we would be 
much worse off.
    Mr. Neugebauer. But you didn't paint a very rosy picture 
about the European situation. And, I think a lot of us think 
that this is just the tip of the iceberg and not the end of the 
iceberg. Obviously, if IMF makes additional commitments to 
that, it increases our risk portfolio.
    Secretary Geithner. That is a good way to think about the 
question, and I agree that one should be very realistic about 
the challenges Europe still faces. A lot of risk is still ahead 
for them and for us. But the question we face is, what can we 
do? What can we best do to protect American interests in that 
context? And I think the things we are supporting, the very 
prudent, cautious, conservative steps we are supporting, will 
make us safer.
    And I think for us not to take those actions, like the Fed 
has taken or the IMF, would make the European crisis more risky 
not just for Europe but for American companies. And that is why 
we think the path we are on is the right path.
    Mr. Neugebauer. I want to kind of follow up with some 
previous--you are responsible for FSOC, you chair that. And you 
put out some rules, and you all have been considering it, what 
significant financial institutions that can cause financial 
risk to the system. And to your credit, I think you put forth 
some fairly transparent rules.
    But when we look at the international community right now, 
they are going through a process where they are not being as 
transparent. And a lot of these entities that are domestic 
companies that are looking at complying or determining where 
they stand with you, the international community is not as far 
    So is that process out of whack? And do we need to make 
sure that--you have heard me talk about harmonization between 
all of these various rules. Where are we in that process?
    Secretary Geithner. That is a very good point. You are 
right that particularly in derivatives, we are really a long 
way ahead of Europe in designing that basic framework for 
oversight transparency in the derivatives markets. And the fact 
that they are behind us creates a bit of a problem because we 
want to be converged to the basically similar standards.
    And that is one of the reasons why the rule writers in the 
United States have been a little slower than the deadlines 
established by Congress. In that context, like I think in many 
others, where they are being a little behind because they want 
to make sure they maximize the chance for alignment as the 
European regime takes shape.
    But that is a very important question. We are concerned 
about it, too. And we want to make sure that we bring them 
along so we don't put U.S. markets at a disadvantage and just 
have the risks shift.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
    Mrs. Maloney. First of all, thank you, Mr. Secretary, for 
your service.
    I want to clarify one of the points. You were talking about 
the Ex-Im Bank, and you said that it never cost taxpayers 
absolutely 1 cent. I would like to--
    Secretary Geithner. The IMF. But that is true of the Ex-Im 
Bank, too, I believe.
    Mrs. Maloney. Yes, both of them. Have they ever made a 
profit? And if they do, does it go into the Treasury? Does it 
go into the General Fund?
    Secretary Geithner. When the IMF draws on the commitments 
we make, it pays us interest on those drawings. So, yes, in 
that sense, it returns our commitments with interest.
    Mrs. Maloney. So these are two programs that are creating 
stability in the economy and, obviously, in the Ex-Im Bank, 
creating exports and jobs and helping us build that 2\1/2\ 
percent to a higher percentage GDP. So it sounds like a good 
investment for the American taxpayer.
    I wanted to ask you about, of all things, Libya. Last 
Friday, I was in Libya with Minority Leader Pelosi, and we were 
meeting with the transitional government. And there was a great 
sense of unity, a great sense of purpose, a great expectation 
for their elections taking place in June. And oil production is 
up, which is going to help the world economy.
    And they were very concerned about Qadhafi, his family 
members and associates. The great wealth from this oil country 
was not going to the people or into their infrastructure or 
investing in any way. So, for 40 years, you don't see any 
investment for the people of the country. My question is, what 
happened to this money? Where is it?
    The government said they wanted very much to work with you 
and the American Government and the international community to 
try to regain and recapture those resources to help rebuild the 
country and to help with this new democracy.
    So I would like to know, are you working in any way, what 
steps are you taking, what are your plans to help this new 
emerging democracy?
    Secretary Geithner. That is an excellent question.
    We worked very quickly with countries around the world to 
freeze the assets of Qadhafi and his associates and the 
institutions they controlled very, very quickly. And we are now 
working very, very closely with the Libyan authorities and with 
those countries around the world to figure out how to recover 
as much of that wealth they essentially stole as possible.
    And what we do know is that there is no meaningful amount 
of those assets in the United States. The assets that exist 
reside outside the United States.
    Mrs. Maloney. Did they have any in the United States?
    Secretary Geithner. I don't think there is any material 
amount in the United States--not surprising because we have 
pretty tough protections.
    But we believe we have frozen a substantial amount of 
resources, and now we have to figure out a way to help them 
    Mrs. Maloney. About how much? Is it hundreds of billions 
    Secretary Geithner. No, I don't think it is that large, in 
terms of how much we have actually frozen or identified. But it 
is very substantial relative to the needs of that country.
    Mrs. Maloney. Yes. Also, I have been corresponding with 
your office and you on the challenges for Americans living 
abroad. I represent many Americans who are working abroad, and 
they are reporting that they are having problems gaining access 
to bank accounts abroad. And I know that we have requested a 
meeting with your office--you have granted one in April; I want 
to publicly thank you for that--so that they can work out why 
they are being denied these bank accounts.
    Your office is saying that there is no policy in the 
American Government that in any way denies American citizens or 
makes it more difficult for them, but the testimonials that are 
coming into my office tell a very different story. And I 
certainly support all of your efforts to improve tax compliance 
and to determine the ownership of U.S. assets, of foreign 
accounts. These efforts should not impair or hurt law-abiding 
American citizens.
    And my basic question was really on the fact of the U.S. 
PATRIOT Act and the foreign bank and financial services. 
Basically, what are you doing to help accommodate American 
citizens so that legitimate American citizens are able to 
access bank accounts abroad? And with more and more people in 
the world economy, it is becoming a growing problem across the 
    Secretary Geithner. That is a very important question. And 
you are right, there have been a lot of concerns with the 
impact of this set of laws, particularly the, what we call in 
shorthand, FACTA and the FBAR rules. And we are working very 
closely to try to meet the congressional intent in making it 
harder for American citizens overseas to avoid U.S. taxes 
without putting undue burdens on their ability to have a bank 
account, for example.
    And we are doing a lot of things to provide more time for 
banks around the world to adjust and to try to make sure that 
we are designing the rules in a way that creates a better 
balance between the important perspective you spoke to of 
preventing tax evasion but also make it easier for--a lot of 
Americans live overseas, earn a living overseas, and it is 
perfectly legal and needs to be possible for them to have bank 
accounts overseas.
    So we have some work to do on that, and I am happy to work 
with your office and your colleagues on how to make sure we are 
as responsive as we can be to those concerns.
    Mrs. Maloney. Thank you very much.
    Mr. Hensarling. The time of the gentlelady has expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, for 5 minutes.
    Mr. Garrett. Thank you, Mr. Secretary.
    As you know, Fannie and Freddie, their losses are close to 
over $200 billion, and this dwarfs all other direct losses 
associated with the 2008 bailouts.
    I believe that number actually would be a lot harder if it 
wasn't for the work of Mr. DeMarco over at the FHFA and the 
efforts he has made. I believe that the American taxpayers owe 
him a debt of gratitude for not allowing some of the various 
entities seeking to exploit Fannie and Freddie as cookie jars, 
if you will, to push their own agendas and take money out.
    As you know, the Administration has pushed forward its own 
ideas, some not so effective, some I would say would be 
counterproductive, as far as housing initiatives. And you 
recently announced that more may be under way.
    A month-and-a-half ago, the President announced HAMP 
version 2.0, which would seek to force taxpayers to essentially 
pay for other people's mortgages. And Mr. DeMarco released 
extensive reports about how taxpayer-paid principal reductions 
would be a net loser for the GSEs. There is also great concern 
with those programs about a moral hazard, as well, affecting 
the taxpayers for paying people's mortgages.
    So my question is simply this: Given, I think, the 
tremendous job that Mr. De Marco has done over at the FHFA, 
what will the Administration's reaction be or position be if he 
decides and fails to adopt some of the new provisions of HAMP 
2.0 because he believes that it has a tremendous cost to the 
taxpayers of this country?
    Secretary Geithner. We have actually been working very 
closely with Mr. DeMarco. He has a tough job, as you said. And 
he has been really overwhelmingly supportive of the vast bulk 
of the initiatives we have proposed to help repair the damage 
in the housing market.
    There are some areas where we disagree a bit. Of course, 
under the conservatorship mandate Congress designed for the 
FHFA, the Administration Secretary has no authority over the 
choices he makes in this area. But where we believe that the 
interests of the taxpayer and the broader housing market are 
best served by additional initiatives in this area, then we are 
going to continue to work to encourage him to adopt those, as 
we have quite successfully for the last 3 years.
    On the issue of principal reduction you referred to, there 
is a very strong economic and financial case to provide 
principal reduction in some circumstances where people are 
deeply underwater and they have faced a hardship like the loss 
of a job. And that is why you are seeing banks and investors 
across the market doing principal reduction on a much larger 
scale in those particular areas. And we think there is a case 
for the FHA doing it, too, and we are going to work with them 
on that.
    Mr. Garrett. He has, as I mentioned, extensive reports 
showing why, in his opinion, it would be a net loss. Do you 
have a counterpart? Can you send us your extensive analysis, 
not of the banks but of the GSEs, and how your numbers compare 
to their numbers, why it would not be a net loss to--
    Secretary Geithner. Good question. We are exactly in the 
context of working through that with him. So we want to make 
sure they are working off the same bases of facts.
    Mr. Garrett. Right.
    Secretary Geithner. We look with a neutral, independent 
view about where there is a case for principal reduction and 
where there is a case for other choices for homeowners. And we 
are working through that with him.
    Mr. Garrett. Can you provide this office or this committee 
with those--I will call them reports, to document just where 
you stand and where he stands on the numbers? I know you are 
working through it.
    Secretary Geithner. As--when we--let me say it this way. I 
would be happy to be responsive to that question and happy to 
work through where we think there is a good case for it.
    Mr. Garrett. Okay.
    Switching gears completely, with regard to the $25 billion 
settlement agreement that has come out recently, one of the 
parties that were not at the table, so to speak, were the 
investors in the RMBS marketplace.
    So my first quick question is, why, in your opinion, were 
they not at the table? Should they have been at the table? And 
aren't they really a party to this action because they will be 
the ones that will be hit by it?
    Secretary Geithner. Good question. And the architects of 
this agreement, of which I was not one, did spend some time 
thinking about whether they should try a much more 
comprehensive settlement, including those investors at the same 
time, and they decided to do it in stages. But you are right 
that they and others were left out of that initial process, and 
that is still to come.
    Mr. Garrett. When you talk about--what does that mean, that 
it is still to come?
    Secretary Geithner. There is a variety of efforts under way 
about how to resolve those separate claims.
    Mr. Garrett. That is a different issue. In other words, 
already with the settlement that is out there, this will or 
could affect those investors. And those investors are not just 
the huge investors, they are the 401(k) plans, the endowments, 
and what have you, which may represent our parents and 
grandparents, their pension funds. They were not at the table. 
But those investors, those individuals have already been 
affected indirectly or otherwise by this settlement agreement 
as the banks get the opportunity--or are compelled or 
encouraged to write down those mortgages.
    Secretary Geithner. You are asking, have their interests 
been adversely affected by the fact that they weren't part of 
    Mr. Garrett. Yes.
    Secretary Geithner. I don't believe so, but I would be 
happy to talk to you about that and try to give you some--
    Mr. Garrett. Reason why not?
    Secretary Geithner. --basis for that judgment.
    Mr. Garrett. All right.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
    Mr. Meeks. Thank you.
    Mr. Secretary, it is good to see you again.
    Let me first just pick up where my colleague, Ms. Maloney, 
had talked briefly about Ex-Im Bank. I know you have been 
talking a lot about the IMF. But we are faced to--and I think 
this conversation is going on in the Senate right now, about 
the reauthorization of Ex-Im Bank at a higher authorization 
    And I was wondering if you could just tell us or describe 
how the bank helps American companies and workers by providing 
financing for U.S. exports in countries that have less 
developed capital markets?
    Secretary Geithner. Countries around the world subsidize 
exports. We do it in a way that is very, very careful to 
protect the taxpayer by forcing Ex-Im to charge companies for 
the subsidy they get. And that is why over time I think it is 
true that there has been no record of loss to the taxpayers 
through these programs.
    If we don't do it, then other countries will steal business 
from American companies, and you will see fewer exports, and 
less jobs. That would be a mistake for the U.S. economy. If we 
stop, they will keep doing it. And it is not just Europe, it is 
China very, very aggressively, and Brazil. All sorts of other 
countries do it.
    So, it makes no sense, it is not rational for us to 
unilaterally disarm in the hopes that, by doing that, somehow 
the world will stop. I don't think there is any case for that.
    Mr. Meeks. Thank you.
    Now let me jump to Greece quickly, because we know Greece 
has a negative 9 percent growth rate and significant 
unemployment. But I believe, looking at some of your written 
statement, we talk about how we know there have to be some 
austerity measures, but austerity alone does not do it, and 
there have to be some competitiveness-enhancing reforms.
    Could you discuss, as you did, I believe, in your 
testimony, some of the kinds of reforms that would allow 
competitiveness in the Greek economy as opposed to just simply 
reducing spending?
    Secretary Geithner. Excellent question.
    It is very important for people to recognize that there 
are, sort of, three basic problems facing these economies. In 
Greece, and really almost uniquely in Greece, they just let 
their government get too big, too generous, borrowed a huge 
amount of money to support that. They and almost the rest of 
them face a real loss of competitiveness relative to Germany 
because they make it very hard to start a business, very hard 
to use the talent of their countries more carefully. And they 
have financial systems that--we had a terrible crisis in the 
United States, but their financial systems were much larger, 
much more leveraged, and much more risky than even what 
happened in the United States.
    So those three challenges of fiscal reforms over time, 
growth-enhancing economic reforms so that just in a simple way, 
it is easier to start a business, and financial systems that 
are brought down to Earth have a little more gravity in them--
those things are what is necessary.
    And it is going to be a very tough, very long, hard road. 
And it is important for people to recognize, as you did, that 
these reforms, which can work against growth in the near term, 
have to be supported not just by some conditional financial 
assistance, but those countries that are in a position to do 
more to support growth should do that. That would make the 
overall crisis easier to resolve and less risky for them in the 
    Mr. Meeks. Now, let me--I am trying to combine two 
questions in the little time that I have left. The first deals 
with Greece again, about how it relates to or the impact it 
would have on the U.S. economy if Greece were to default and 
abandon the euro.
    The second, which is a little different question, about 
Greece but also Italy: Given that the deputy governor of the 
Chinese central bank recently talked about how they no longer 
believe they need to allow their currency to appreciate, which 
means China is going back to try to keep theirs artificially 
low--so I was wondering what impact would the artificially low 
Chinese currency have on Europe's ability to, especially in 
Italy and Greece, be competitive internationally with respect 
to exports?
    Secretary Geithner. Those are very good questions.
    Greece itself is not large enough to cause a lot of damage 
to the United States. Greece matters a lot, though, because 
Greece's crisis hurt confidence across Europe and caused much 
of the rest of the continent to fall into recession. And if 
Europe can contain the risk of the Greek crisis spreading, 
Europe's crisis is likely to be much less damaging to us in the 
world. And they have the ability to do that.
    On the Chinese question, Chinese currency is up about 14 
percent in real terms against the dollar since the summer of 
2010, I believe, about 40 percent up against the dollar in real 
terms over the last 5 years. But they have a ways to go. I 
think by most measures, the Chinese currency is still 
undervalued relative to the dollar and the currencies of Europe 
and Japan and other trading partners. And so you are right to 
remind people that by holding their currency too low, they are 
making it harder for their other trading partners to grow, 
including in Europe.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
    Mr. Pearce. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    As I listen to the language, the lingo being used here 
today, it sounds vaguely familiar to the time in 2008 when we 
were moving down the road to bail out Fannie and Freddie. I 
remember Secretary Paulson saying that if we insure 100 
percent, we will never have to insure a penny of it. I think 
you were part of that working group. And now, I am hearing that 
if we insure Greece and Ireland and all of Europe, it is going 
to be in our best interest. And now Europe probably is in the 
category of ``too-big-to-fail,'' and the American consumers are 
going to have to pay the bill.
    I am fascinated with the conversation about the IMF not 
ever having failed. Just a couple of weeks ago, we had 
Christine Lagarde, the head of the IMF, here in this room, and 
she confirmed that maybe we did change loan terms, extend 
maturity dates, maybe we did change the terms of the loans--all 
to prevent defaults in the past. And so maybe that idea that we 
have never suffered a penny loss is a little bit of a rigged 
game, but we will leave it the way it is.
    Basically, I am just seeing that the American taxpayers--
Ireland has already bailed out their banking system, so now the 
government owes what the banks lost. You, back in 2011, made a 
comment that Fannie and Freddie--when we give these guarantees, 
it encourages investors to believe that the government is going 
to bail out bad actions and makes them take risks that maybe 
they shouldn't be taking. And so I am sitting here wondering 
abstractly, if we are going to bail out all of Europe, why 
would they quit taking risks?
    Because, see, Michael Lewis in his book, ``Boomerang,'' 
talks about how in Greece, it is a birthright not to pay your 
taxes. And why would the American consumer be stuck paying the 
bill for a country where it is a birthright not to pay your 
    Secretary Geithner. That is an excellent question. We are 
not going to put the American taxpayer or the American consumer 
in the position that they are taking risk--
    Mr. Pearce. Yes, but we are going to--
    Secretary Geithner. No, we are not--
    Mr. Pearce. With the IMF, every loan at the IMF, if they 
were under the same rules as loans to the small, independent 
banks in America, would they still be called sovereign or would 
they be put under special watch or would the banks holding 
those be put on a special category?
    Secretary Geithner. Oh, no comparison between those, again, 
because of the record of the--remember, the IMF is not just 
backed by a lot of gold; it is backed by the fact that any loan 
the IMF makes is senior to any other creditor. And IMF loans 
come with conditions no bank could impose. These are 
    Mr. Pearce. But still, we have had to write down and we 
have had to change loan--we have put loans that are in arrears, 
we changed terms, we extend maturity dates. Now, if I were to 
change the question just a bit--
    Secretary Geithner. Again, not a penny of loss to the 
American taxpayer in more than 6 years of history through all 
sorts of--
    Mr. Pearce. I understand, but Mr. Paulson guaranteed us 
that if we would guarantee 100 percent of Fannie and Freddie, 
that we would never have to pay a single dime. That was his 
guarantee coming into this Congress in 2008.
    Secretary Geithner. I doubt he said that, but the 
situations are totally--they are not comparable in any way.
    Mr. Pearce. I know. It is just that the American consumer 
is going to get stuck again.
    Secretary Geithner. No, that--
    Mr. Pearce. I have a vague belief--
    Secretary Geithner. --it won't happen in this context.
    Mr. Pearce. As we consider people not paying their taxes--
it is documented that over 100,000 people working for the 
Federal Government haven't paid their taxes--it is about a 
billion dollars. Has the Administration done one thing to start 
collecting that?
    Secretary Geithner. I would be happy to provide in writing 
again to the Congress the range of--
    Mr. Pearce. Could we get a list of the people who haven't 
paid? Because I would like to put that on my Web page. I really 
think the American people would like to have that information. 
Because there is a category of people in this country who 
believe they are beyond paying taxes, just like they do in 
Greece. And I think it is one of the things that people are fed 
up with.
    Now, I noticed that in your testimony you talked about 
Saudi Arabia increasing the output. Why is the United States 
not increasing its output? In other words, the President is 
going to my district tomorrow to talk about oil and gas 
production in the very three-county area where the Fish and 
Wildlife Service overturned a 6-year collaborative effort to 
protect the lizard as an endangered species. That lizard has 
the potential of killing all the oil and gas production in that 
area, which totaled the surplus--we were in a deficit last year 
in New Mexico--that three-county area totaled the surplus of 
$150 million.
    Why would the President be shutting down production in this 
country while he is asking Saudi Arabia to increase production?
    Secretary Geithner. U.S. production across the country of 
oil and gas is expanding dramatically and will continue to do 
so. And that is a good thing for the country.
    But, of course, we have to follow the laws of the land and 
what Congress has passed and the requirements Congress has 
passed to make sure that production exploration comes with--
    Mr. Pearce. If I could take my time back, I only have about 
11 seconds.
    The science that was used was steadfastly disproved. Even 
the BLM said this is a slap in the face, what this other--the 
Fish and Wildlife Service did. So I would be happy to continue 
the conversation on that.
    Secretary Geithner. Could I say one thing, Mr. Chairman? 
This is very brief. Because this is a very important question.
    You raised the concern, Congressman, that when the IMF or 
Europeans provide assistance to the nations of Europe that it 
is going to encourage further profligacy in the future. That is 
an understandable concern. But I would just draw to your 
attention how incredibly tough the conditions are that are 
coming with that assistance.
    If you look at what Greece, Ireland, and Portugal have done 
as a condition for those reforms, and if you think of what 
Italy and Spain are doing now for similar objectives, they are 
very, very tough reforms. And I think that helps offset the 
risk you would have and we would all have that if you put money 
on the table that is going to reduce the incentive for those 
    Mr. Hensarling. The Chair now recognizes the gentleman from 
Massachusetts, Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. I would like to yield 
to the ranking member for a few minutes.
    Mr. Frank. I feel compelled to be a little bipartisan and 
come to the defense of the Bush Administration. There was a 
previous comment that Secretary Paulson, when Congress 
accommodated his request finally, after we came to power, to 
give him the authority to put Fannie and Freddie into 
conservatorship, he guaranteed that there would be no taxpayer 
losses. He never did any such thing.
    He said that if we passed the legislation in the form in 
which he asked, it would greatly diminish that likelihood. It 
was not able to undo past mistakes. It is the case that since 
2008, we haven't lost any money, but that is simply not what 
Mr. Paulson said. He said he hoped that this would be able to 
stave off the lawsuits, but he never gave anything remotely 
close to such a guarantee.
    Mr. Capuano. Reclaiming my time, Mr. Chairman. After that 
eloquent defense of the Bush Administration, which I am not 
used to coming from the ranking member, I am kind of thrown off 
my game a little bit.
    Mr. Secretary, I thought today's discussion was supposed to 
be about the international financial system, so I would like to 
get to that a little bit. I have heard from some other Members 
that they think that Europe is basically handling their 
problems better than we are handling our problems. I guess that 
is one opinion, and that is fine.
    But I would like to ask, in the European problems they have 
had, have any of the major European countries significantly 
reduced their tax burden in the last 3, 4, 5 years?
    Secretary Geithner. I do not believe so, and I think most 
of them are going rapidly in the other direction.
    Mr. Capuano. I am under the same impression, but I thought 
I would ask you. I figured you would know better than I would. 
I would like to offer for the record a little table that I got 
from the Organization of Economic Cooperation and Development, 
the OECD, which is a 50-year-old organization that represents 
34 countries, 24 of which are European.
    It is a simple table that simply compares the tax burden as 
a percentage of GDP. And it shows the United States, of these 
34 countries, actually ranks 32 of 34. And it shows that one of 
the countries that allegedly is somehow more competitive than 
us, Germany, their tax burden is actually 55 percent higher 
than the United States' tax burden. That is the OECD, not me.
    And the United Kingdom, another country that a few weeks 
ago this committee was debating that they are somehow stealing 
all our IPOs, they have a 42 percent higher tax burden than the 
United States. Greece has a tax burden which is 25 percent 
higher than the United States. Even Turkey's tax burden is 
higher than ours. The only two countries that have a lower tax 
burden than ours are Chile and Mexico on this particular list. 
So I would like to submit that for the record.
    And I ask this, Mr. Secretary, because we have heard that 
if Europe is somehow doing a good job dealing with their issues 
and all they are doing is one side of the ledger, which is the 
austerity measures, which is fine, am I wrong to think that the 
United States has made significant cuts in the last few years 
through budgets?
    Secretary Geithner. Yes. Congress reached an agreement last 
summer to cut more than $1 trillion in spending over the next 
10 years. And if you look at what CBO said, for example, about 
what the impact of the President's proposed policies on the 
budget, they would reduce our deficits dramatically over the 
next 5 years to a level where the debt would stop growing as a 
share of the economy. So we are making progress on those 
fronts, but we want to be careful to do it in a way that 
doesn't hurt growth.
    Mr. Capuano. A balanced approach. My goodness, how unique.
    I guess I would like to ask, as a sidenote, those cuts that 
we have had, do they somehow exempt the IRS from those cuts? 
Are they exempted from cuts?
    Secretary Geithner. Congress has been reducing the 
resources available to the IRS for customer service and 
enforcement, thus hurting, by all independent measures, the 
IRS's capacity to collect taxes.
    Mr. Capuano. So while we are cutting the IRS, we are now 
demanding that they collect taxes owed to us--which I actually 
think is a good thing. In my former life, when I actually 
thought that making money was a good thing, I was a tax 
attorney. And I was always happy to see the IRS cut, because my 
clients had less concern, and that was fine by me. So while we 
are saying, ``Cut the IRS,'' we are saying, ``But they should 
collect more somehow from tax delinquents.'' I guess at some 
point someone will educate me as to how that works.
    But I want to get back to the European model. Has anybody 
suggested, that you know of--is there any serious suggestion to 
increase U.S. taxes to the German model of a 55 percent 
increase across-the-board?
    Secretary Geithner. No, we would not support that. No one 
has proposed that. And--
    Mr. Capuano. Has anyone suggested that, do you know of, 
anyone who is a thoughtful and significant person?
    Secretary Geithner. Not that I am aware of. In fact, even 
with the President's proposals on tax reform, which, as you 
know, would raise the tax burden on the top 2 percent of 
Americans, the effective tax rates on those Americans would 
still be very, very low compared to those that prevail in any 
    Mr. Capuano. My time is running out, Mr. Secretary. Thank 
    And I would just like to thank the gentleman from the other 
side who suggested by implication that we should adopt the 
European model and double our taxes. It is amazing to me that 
anyone would suggest that, even--
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
    Mr. Westmoreland. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for being here. I can't 
imagine what it is like to get up 3 or 4 days a month and know 
you are going to have to come up to the Hill and get a little 
bit grilled, so I do admire you for the courage and the stamina 
that you have.
    While we are talking about taxes, you had said previously 
that being an American is a privilege and that wealthy 
Americans should pay more just for being in America. Do you 
still believe that?
    Secretary Geithner. I believe, as does the President, that 
there is no plausible way for us to address the many economic 
challenges facing the country, including our unsustainable 
fiscal deficits, without asking those most fortunate few to pay 
a modestly higher percentage of their income and taxes. I do 
believe that, and I think that is very important. I don't see 
how we make any progress on these sets of things without that.
    Mr. Westmoreland. So you think that anybody who doesn't 
want to pay taxes or pay more taxes would be more un-American 
    Secretary Geithner. No, no, I wouldn't--
    Mr. Westmoreland. --somebody who is stepping up to 
volunteer but doesn't pay?
    Secretary Geithner. No, I wouldn't say--in fact, nobody 
wants to pay more taxes. Nobody wants to have to ask them to 
pay more taxes. But the problem we face, of course, is that if 
we don't do that, then what are we going to do? Because we 
can't go borrow a trillion dollars to afford those tax cuts. 
And if we ask somebody else to pay higher taxes to afford them, 
that would not be fair.
    Mr. Westmoreland. But if you look at being governed, I 
guess, or living in this country, half of the people in this 
country don't really pay any taxes.
    Secretary Geithner. That is not really fair, Congressman, 
because, as you know, it doesn't capture the taxes they pay for 
Social Security and Medicare. So when people say that share of 
Americans don't pay income taxes, it is not quite true because 
Social Security and Medicare are--all Americans pay a portion 
of their income to cover partial of the costs of those 
    Mr. Westmoreland. But not in regular taxes, correct?
    Secretary Geithner. Every week their paychecks are 
deducted, as a share of income, a tax to cover the cost of--
    Mr. Westmoreland. But at the end of the day, they pay no 
income tax.
    Secretary Geithner. No--well, it is true that a small 
fraction of the poorest Americans--this Congress has decided, 
and there has been a bipartisan consensus on this for a long 
period of time--
    Mr. Westmoreland. So it is not true--you are saying it is 
not true that half of the--
    Secretary Geithner. It is not true.
    Mr. Westmoreland. --Americans do not pay any tax.
    Secretary Geithner. The only way that is true is if you say 
somehow the tax we charge Americans against income for Social 
Security and Medicare does not count as an income tax.
    Mr. Westmoreland. I am not talking about Social Security or 
Medicare. I am talking about your Federal income tax that you 
get and file on a 1040 form.
    Secretary Geithner. I don't think we are really 
disagreeing. It is true Americans pay different types of taxes. 
They pay an income tax, and they pay a tax against income for 
Social Security and Medicare.
    Mr. Westmoreland. That is what I am--
    Secretary Geithner. And most Americans, the vast majority 
of Americans, pay both those taxes.
    Mr. Westmoreland. Okay, so the vast majority of them. So 
you disagree with the statistic that says that half of all 
Americans do not pay any income tax?
    Secretary Geithner. I do, because it doesn't count their 
Social Security and Medicare taxes.
    Mr. Westmoreland. Okay. Yes. And I think we will--but if 
you don't count those two taxes, do they pay anything?
    Secretary Geithner. But why would you not count them? 
Because they are--
    Mr. Westmoreland. Because I don't want to count them right 
now. I am just asking you a question. Let's just have a 
hypothetical question that you don't count those; do they pay 
    Secretary Geithner. You can count them or not, but they pay 
taxes for those things, those Federal programs, as a share of 
    Mr. Westmoreland. Okay.
    Secretary Geithner. They pay them every 2 weeks.
    Mr. Westmoreland. All right. Let's go on to something--
according to the Treasury Department, Chrysler has paid their 
    Secretary Geithner. We did take a modest loss on the 
Chrysler programs, and we will take a loss on the GM programs, 
too. But the auto industry is--
    Mr. Westmoreland. What do you consider a modest loss?
    Secretary Geithner. I don't recall the actual numbers in 
Chrysler. And, of course, in GM, it depends on how things turn 
out over time. But both of those companies have hired a huge 
number of people back to work. They are doing very well. People 
are buying their cars.
    Mr. Westmoreland. Let's just talk about Chrysler. What is 
the modest loss that you think the eventual will be? I am 
anxious to see what you think is modest.
    Secretary Geithner. It is done. It is done, and it is 
booked. Maybe this is a way to think about it: More than fully 
offset by the more than $20 billion in investment income we 
earned on the investments in banks. That would be one way to 
think about it.
    Mr. Westmoreland. I don't know if I am not asking the 
question correctly or you just don't want to answer it. But 
what amount is the government going to have as a loss from 
    Secretary Geithner. Because I don't want to get the number 
wrong, I would like to give it to you in writing. But it is 
already a matter of public record.
    Mr. Westmoreland. Is it close to $1.3 billion?
    Secretary Geithner. It is probably close to that, maybe a 
little bit higher.
    Mr. Westmoreland. Yes, $1.3 billion. That is more than 
``modest'' to me. I don't want to argue with you. But I do 
appreciate you coming, and you have great experience doing--
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Hinojosa, for 5 minutes.
    Mr. Hinojosa. Thank you, Mr. Chairman.
    Thank you, Secretary Geithner, for sharing your testimony 
    Much of the focus of the media, like CNN and Bloomberg, as 
well as this congressional body, has been on the tremendous 
debt crisis in Europe. However, substantial lack of economic 
growth and low GDP also looms large over the economic recovery 
of the eurozone. In the fourth quarter of 2011, the eurozone's 
economy contracted, albeit at a slower pace than expected. Some 
of those countries had their ratings downgraded because of 
those big problems.
    What is your prediction for the duration and the depth of a 
eurozone recession in 2012? And what sort of drag would a 
European recession, as they have today, have on the growth of 
the U.S. economy?
    Secretary Geithner. Let me start with this. If you think 
about where things were in the fall of last year, when most of 
the world thought we were living with the real risk that Europe 
would suffer a catastrophic financial failure, we are in much 
better shape today because they have been successful in calming 
those financial tensions and people are more confident that 
they are going to do what is necessary to hold the thing 
    But even under the most optimistic scenario of the impact 
of those reforms, this is going to take a very long time, and 
growth in many of those countries is going to be very weak for 
a long period of time. And that is why it is so important--and 
if it is weak, it hurts us, it hurts the rest of the world, 
less than we feared, though, 6 months ago. And that is very 
important. So even though they have a long way to go, we face 
less risk of damage to the United States and to the global 
economy because of the cumulative impact of the actions they 
    You are right to focus on the growth prospects. And, I 
think it is good to--we can hope that now that they have a bit 
more breathing room, because they have taken off the table the 
risk of a catastrophic financial failure, maybe they have some 
more time now to try to focus on things that would improve 
growth over time, and that would be good for us.
    Mr. Hinojosa. I agree with you, the situation 6 months ago 
versus today, that we are much better off. But I would like to 
hear your thoughts about any measures being considered in the 
eurozone to address the severe unemployment which we understand 
that that they have, especially in its young people, in 
countries such as Greece, Portugal, and Ireland.
    How concerned are the eurozone leaders about the 
international financial system and the possible long-term 
effects of severe social unrest that we see on TV in Athens, 
Greece; in London; in Italy; in Portugal; and in other European 
countries? Thousands, thousands out in the street, where they 
claim that the middle class has shrunk and that the gap between 
the rich and the poor has expanded. Those are concerns that I 
    Secretary Geithner. We share those concerns, and so do the 
leaders of those countries.
    And I think it is important to recognize that the biggest 
threat to those people still unemployed or at risk of losing 
their jobs is a financial crisis, Europe allowed to burn. And 
the necessary, essential, most important action they have to 
take to reduce the risk of further damage is to do what they 
have done to cool those financial tensions, because that makes 
it much less likely that they go into a deep depression.
    That is not enough, though. And across Europe--less so in 
Ireland, which is a very dynamic economy, but certainly in 
Spain and Portugal and Italy and Greece--they have to make it 
easier, just as an example, for businesses to be able to start 
a business and to grow a business, because that is the most 
likely way they are going to be able to get more opportunity 
created for those people still out of work. And they have a 
long way to go in that context.
    But they have to do things to cool the financial pressures, 
make sure they are supporting overall growth in demand, 
alongside these reforms to help make their economies work a 
little better over the long run. And it is going to take years 
and years.
    Mr. Hinojosa. Will the Barack Obama Administration allow us 
to increase the number of student visas from these European 
countries to come to the United States and see the way that we 
are handling this financial crisis, which has been very, very 
hard for us? I think that education seems to be the solution 
that works for us, as I believe would work for the European 
    Secretary Geithner. Good question. I would be happy to ask 
somebody to respond to the specific impact of those visas 
policies on that objective, but it makes sense.
    Mr. Frank. Would the gentleman--
    Mr. Hensarling. The time of the--
    Mr. Frank. I just want to note--and I appreciate the 
efficient way you have run this hearing. With the Secretary's 
timeframe, I just want to note that everybody here on the 
Democratic side will be able to be accommodated. And I would 
ask you to please recognize those who have stayed here.
    And I just want to advise the Members who were here, I 
believe we have five more Members, so we will have enough time, 
and that will be it.
    So I would urge you to recognize those five Members. The 
Secretary will be here until 12:30, so we will be able to get 
to everybody here who has been good enough to stay.
    Mr. Hensarling. The Chair recognizes the gentleman from 
Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Thank you, Mr. Geithner, for being here today.
    And just to follow up on a couple of questions with regard 
to the economy of Europe, it seems to me that we have in place 
a plan. And you say the pressures have been released, or 
lessened, anyway, from what people thought was going to happen. 
But, actually, has debt started to decrease at all?
    Secretary Geithner. Good question, because, as many people 
pointed out, when growth weakens because of the shocks of the 
crisis, then that tends to increase the level of debt relative 
to GDP.
    Mr. Luetkemeyer. Right.
    Secretary Geithner. But these countries have dramatically 
reduced the size of their actual deficits and their projected 
    Mr. Luetkemeyer. Okay. So what they have done is actually 
get their budgets under control, but the amount of the debt has 
not started to go down because their economies haven't gotten 
to the point yet where they can start paying down. Is that an 
accurate statement?
    Secretary Geithner. In some countries, it is starting to 
come down. In others, it is going to take a little while for 
the debt as a share of GDP to start to come down. But the 
deficits coming down is a necessary path to that.
    Mr. Luetkemeyer. Right. Okay. So at least they have a path 
to get themselves out of this mess.
    What is the impact of gas prices going to be in Europe? 
Because the Iranians, if I am not mistaken, have said they are 
going to not sell them any oil. And so, where do you see that 
    Secretary Geithner. On gas prices in Europe, when they go 
up, it is not good, but it has a much less damaging effect even 
than it has in the United States for a lot of different 
reasons, about how they tax gasoline in Europe in particular. 
So, yes, it is not good. But Europe decided on its own to cut 
off their imports of oil from Iran because they are committed 
to, as we are, to trying to put as much pressure as possible on 
that government.
    Mr. Luetkemeyer. Okay.
    With regard to the default credit swaps that are there, a 
lot of our banks here in this country have some of the default 
credit swap insurance with regard to some of the European 
countries, specifically Greece. Greece basically is in default, 
because creditors are being asked to take a haircut on at least 
50 or 53 percent or something like that of their bond debt.
    What is the impact of that going to be to our banks, our 
financial institutions here in this country?
    Secretary Geithner. There will be no material impact. U.S. 
financial institutions have dramatically reduced their exposure 
to the countries in crisis in Europe over the last 18 months or 
so. And they did buy protection against the remaining exposure 
they had, but that exposure is very, very small.
    But any investors around the world that had exposure to 
Greece going into this exchange will be able to--or at least 
almost all of them--will be able to take advantage of the 
protection they purchased through CDS.
    Mr. Luetkemeyer. It is kind of interesting from the 
standpoint that this situation has been prevalent for at least 
a couple of years that I have been aware of, and it seems like 
we are just now allowing the American public to see what is 
going on here, or they are become becoming more aware of it. 
And I am kind of curious, why were we not being more out front 
talking about this over the last couple of years, say, 2 years 
ago? I am sure your office knew about this and knew the 
concerns, especially after 2008, and knowing the intricacies of 
how complicated and how complex the financial world is and how 
tied together we as the United States and the European 
financial world is together, how were we impacted here.
    Because to me it looks like--we just got done talking about 
the default credit craps, we talked about the IMF funding, we 
talked about the swap lines, you talked about directing this 
and by the banks. They are our direct trade partners. We are 
connected to those guys in about every way except being a State 
of the United States.
    Secretary Geithner. You are exactly right. And this started 
more than 2 years ago--
    Mr. Luetkemeyer. Yes.
    Secretary Geithner. --and we have been intensively engaged 
with the Europeans, with the IMF, with the Fed, with the U.S. 
financial system, and with countries around the world over 
those more than 2 years in encouraging them to move more 
aggressively. And they have moved slower than we would have 
liked. But we have brought tremendous attention to it so that 
we were protecting the American financial system and trying to 
encourage them in ways that didn't put the U.S. taxpayer at 
risk to try to move more aggressively.
    And I wish they had been able to move more quickly earlier, 
because it did do a lot of damage to us. If you look back to 
what happened to U.S. growth in 2010 and 2011, if you look back 
at the moments where growth started to weaken in the United 
States, it is when Europe was lighting itself on fire.
    So I wish it had happened sooner, but we have been very 
actively engaged. And it feels better now, even though you know 
it is going to take a while.
    Mr. Luetkemeyer. Okay.
    Very quickly, I know that one of the other members of the 
panel here this morning asked about FACTA. Just a quick 
question about that. Where do you think this is going? Because 
I have three quotes here this morning from the Japanese Banking 
Association, the European Banking Federation, and the Institute 
of International Finance. All are very concerned that we are 
going to be impacting international investment with the 
proposed rules.
    I know we are not there yet, but can you just elaborate a 
little bit on where you think it is going to go?
    Secretary Geithner. Good question.
    Mr. Luetkemeyer. And are you willing to consider a lot of 
these implications and minimize us?
    Mr. Hensarling. Mr. Secretary, if you could elaborate 
    Secretary Geithner. We have acted twice since the law was 
passed to give people more time to adjust and try to lessen the 
burden and compliance for the reasons that you stated. And we 
are going to continue to work very closely with financial 
institutions around the world and their governments to try to 
make sure we can meet the tests of the law without an undue 
burden that would damage other interests of the United States. 
And I don't think people--people are not confident we are fully 
there yet, but we are getting closer.
    Mr. Luetkemeyer. Okay. Thank you.
    Thank you, Mr. Chairman.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
    Mr. Scott. Thank you very much, Mr. Chairman.
    And welcome, Mr. Secretary.
    Let me just say from the outset that while this is about 
international monetary policy, of course we can't leave out 
what is going on right here at home in the United States. And 
certainly I want to touch upon the--get a progress report from 
you and share some information about the heart of the problem 
that caused this whole problem, which was housing and mortgages 
and where we are.
    And, as you know, I have really been on a mission, myself, 
and thanks to you and your help at Treasury, in getting folks 
home safe. In that regard, I do want to say, if you would just 
tell your Assistant Secretary for Financial Stability, Timothy 
Massad, that we appreciate the fine cooperation he has given to 
us, along with Ms. Alvina McHale, the Director of Marketing for 
Treasury's Homeownership Preservation Office. They helped us 
last time. And I want you to know we are going back and having 
the second home foreclosure event in Atlanta, Georgia.
    I mention all of this because we were able to save 3,827 
homes last time. This time, our goal is 10,000 homes. And we 
can do this, Mr. Secretary. A lot of things have happened since 
the last time that I want to talk to you about, and I certainly 
want to just ask that--whatever you can do to help us to reach 
that 10,000 goal and to help make this a successful event. It 
is going to be June 1st and 2nd.
    Now, a lot has happened. We know we have some opportunities 
here to go to the heart of this matter and help many of our 
struggling homeowners with the writing down of principal. We 
have had a settlement, Mr. Secretary, as you know, of several 
billion dollars, but there is a lot of cloud there. We don't 
know. There are many people, struggling homeowners who say, 
isn't this to help us? How does it help?
    We want to use this event on June 1st and 2nd to really see 
what we can do to get some of this money out where it helps the 
most, and we can help reach this 10,000 goal. Georgia, for 
example, will get $813 million of this money.
    I want to ask you, what does this mean? How can we use this 
money in the billions? And every other State gets their share. 
But there is a lot of cloud over what it can be used for, what 
it can't, how our struggling homeowners can get a piece of the 
action. Please tell us about that.
    Secretary Geithner. You are going to be able to see a 
little more detail about what the settlement actually means in 
the coming weeks, and that will give you a chance.
    But alongside that, as you know, we are working very 
closely with Mr. Ed DeMarco at the FHFA and with Shaun Donovan 
at the FHA to try to make it easier for people to refinance to 
take advantage of lower interest rates; to make it easier for 
people to stay in their home, if they can afford to, by having 
their payment obligation reduced over time; helping them, if 
they need to leave their home, to transition to more affordable 
options. We are tying to get much more support to communities 
where they are still devastated by the huge number of 
unoccupied homes across communities, to get more resources into 
neighborhoods to help stabilize those communities.
    We are going to just keep doing everything we can in this 
context. And we absolutely will work very closely with you at 
your next event to try to make sure we are reaching more 
people. The settlement is part of it, but it is not the only 
thing happening.
    Mr. Scott. Exactly. Now, let me make sure we are clear 
here. Some of this money can be used to help write down 
principal; is that correct?
    Secretary Geithner. That is correct.
    Mr. Scott. Very good.
    Secretary Geithner. The banks, as part of the settlement, 
agreed that they would have to provide some of the assistance 
by reducing the balance of principal load by some of their 
    Mr. Scott. Very good.
    Now, the other area we are emphasizing is here. One of the 
fastest, if not the fastest growing segment of the homeless 
population, is our returning veterans. We have set aside a part 
of this, and we are coordinating with the VA to really 
structure what we got going that can help veterans stay in 
their home. It is the height of shamefulness to let our young 
men and women go and risk their lives and they come back and, 
as you know, they are struggling with homelessness as well as 
    What specifically are you doing in Treasury to help with 
that specific problem?
    Secretary Geithner. You are exactly right. And as part of 
the settlement and separately from that, we have been working 
with the VA and with the other housing bodies to make sure that 
they have a chance to stay in their homes.
    And it is even worse than what you described, of course, 
because we ask our servicemembers to move a lot, and it is very 
hard to move if your house is underwater.
    Mr. Scott. Right.
    Secretary Geithner. So, apart from making sure they are 
protected against people taking their home when they are 
serving their country overseas, we want to make sure that it is 
easier for them to meet their obligations as an armed services 
member at still a very difficult time in the housing market. 
And we have a lot more to do in that area.
    Mr. Scott. And then, finally, HAMP. Is it succeeding? And 
what are the challenges to making it better?
    Secretary Geithner. HAMP has helped modify mortgages for 
roughly a million homeowners now--less than we had hoped, still 
more to come. But the standards we set in HAMP have helped 
encourage another 2 million to 3 million loan modifications 
across the United States. And so, the broad impact of these 
programs is much larger than the direct programs in HAMP.
    One thing that is very important to realize is that we 
    Mr. Hensarling. Excuse me, Mr. Secretary. The time of the 
gentleman has expired. If you could submit that answer in 
    Secretary Geithner. I would be happy to do so.
    Mr. Scott. Thank you, Mr. Secretary.
    Mr. Hensarling. The gentleman from North Carolina, Mr. 
McHenry, is now recognized for 5 minutes.
    Mr. McHenry. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for returning.
    I know we have a lot of discussion about our European 
exposure, but the question of international harmonization. As 
you had the FSOC and your role there, has this been a point of 
discussion and a concern, about the stability of our financial 
institutions in the United States with our regulators moving 
much faster than European regulators when it comes to a whole 
myriad of market regulations?
    Secretary Geithner. Absolutely, it is the central focus of 
our discussions in the Council. And I have spent a lot of time 
directly working with the Fed and the CFTC and the SEC on 
exactly that basic question.
    I am not worried that the fact they are moving more slowly 
is going to undermine our efforts to get our reforms right in 
the United States, but we want to make sure there is a level 
playing field. And so we--and this is true in derivatives in 
particular, as I said earlier--want to make sure that we are 
moving with them, not too far ahead of them. Because if we move 
too far ahead without knowledge of where they land things, we 
may end up just shifting that risk outside of the United 
States, and that would be against the intent of the law.
    So, yes, we are focused on it, and we are making progress. 
Europe is actually very close to us on most of the key elements 
of derivatives oversight, but we want to make sure we are fully 
    Mr. McHenry. Okay. You mentioned this with derivatives in 
Title VII, with the extraterritorial application of that. Is it 
a risk that it would thin out our market, make it more volatile 
and, therefore, more risky?
    Secretary Geithner. No, I don't really think so. I think 
the real concern--think about a world in which we raised our 
standard up to here and they stayed down here. Then what would 
happen is a bunch of risk would shift to Europe and the world 
would be more risky, even if we felt more comfortable in the 
near term. But I don't see that happening.
    I think, again, on the broad strategy of derivatives 
reform, for example, they have largely embraced the 
architecture that Congress passed into law in the United 
States. And even though they are a little slower than us to 
adopt it and not identical in areas, they are very close, and 
we want them to be as close as we can.
    Mr. McHenry. So are you asking the CFTC to work with the 
SEC more diligently than they currently--
    Secretary Geithner. Oh, yes. Very good point. We want the 
CFTC and the SEC to be as close as they can, because if they 
are different, it is harder for the rest of the world to say, 
``We are going to be like America.'' So we are trying to gets 
the CFTC and the SEC to be aligned where they can be so we are 
in a stronger position to encourage the world to adopt our 
tougher standards.
    But we are also encouraging the Fed and the SEC and the 
CFTC to work very closely with the Europeans and with the 
Asians and with the British to try to make sure that those 
reforms largely match ours.
    Mr. McHenry. You mentioned the difference in regulation 
between Europe and the United States. And if there is that 
difference for a period of months, you would see a flow out of 
our markets to theirs. So is it important those dates match up, 
or is it important that they are close? Can you speak to that?
    Secretary Geithner. Excellent question. And you are right--
    Mr. McHenry. I know you have spoken a lot about this, and I 
appreciate that. This is one area where I think what you are 
saying is matching up with a very wide, bipartisan group on 
Capitol Hill.
    Secretary Geithner. You are right that we have to make sure 
that if we are ahead of them in implementation, that doesn't 
create a huge competitive advantage for their European 
competitors. So we are looking at that.
    Now, again, I think based on what we know now, before the 
crisis, the gap was like this. I think it is much closer on 
capital, on liquidity, on derivatives, on all the material 
things that matter to the economics of running a financial 
business. It is not perfectly there yet.
    So, yes, we are going to work to make sure the deadlines 
for implementation are as aligned as we can, but not at the 
expense of leaving Americans more exposed to risk than they 
need to be.
    Mr. McHenry. Okay.
    My colleague asked about HAMP. Many of us have grave 
concern. I sponsored a bill, and we passed it out of the House, 
trying to eliminate HAMP because of the impact it has, not on 
those it is helping, but on the over 50 percent who enter into 
the program and are left materially worse off by being kicked 
out of the program and having to pay fines and the accrued 
interest and penalties for missing payments.
    Would you categorize HAMP as a success?
    Secretary Geithner. Let me just say on this one point--and 
I would be happy to talk to you in more detail about this. But 
the performance of modifications under our programs is much 
better--much better for the homeowner and a much better success 
rate than the standard outside of those programs. And I am very 
confident--but it sounds like we should spend some time 
together on this--that you are better off being in a HAMP 
program than not, because the depth of relief you get is 
better. And that is partly why their performance rates on those 
modifications are so much higher than in the private market.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank you, Mr. Geithner, for appearing today.
    I want to especially thank you for speaking up for 
hardworking Americans who pay 1.45 percent of their income in 
taxes and for those who are now paying 4.2 percent for Social 
Security. It was 6.2 percent, but we have a holiday that will 
end, and they will pay 6.2 percent at the end of the holiday. 
And they will do this up to $110,100.
    So I thank you for speaking up, because to them it really 
is an income tax. We can phrase it and frame it, but it is an 
income tax and they pay it. And we ought to appreciate them for 
what they pay, just as we appreciate billionaires for what they 
pay. I think anybody who pays taxes ought to be appreciated.
    Somehow we tend to believe that poor people, who are taxed 
on all of their income, somehow they are not paying as much of 
what they make in taxes, when in fact, on a percentage basis, 
they are paying more. Because they can pay the 1.45 percent on 
all of their income; others will, too. But when it comes to 
Social Security, if they make, say, $30,000, they are going to 
pay that 4.2 percent on everything that they make, whereas a 
person who makes $110,101 will pay it only on the first 
$110,100. So if you make a billion dollars, you pay it on the 
first $110,100.
    Secretary Geithner. It is even worse than that because, as 
any businessman will tell you, the employer side of the payroll 
tax comes out of the wages they pay their workers. So the tax 
to the individual to cover Social Security and Medicare is not 
just the 6.5 percent after the temporary holiday, it is another 
6.5 percent or whatever it is on the employer side, which comes 
out of their wages.
    So it is true to say that the vast majority of Americans 
pay taxes against their income to help support the broad 
programs Americans have supported.
    Mr. Green. Again, I thank you for making these comments 
clear, because poor people merit some appreciation for the 
taxes they pay, too.
    Continuing along this line--because I really didn't intend 
to go this way, but I now must continue--a certain billionaire 
made about $3 billion one year, and I am happy for him. I am 
proud. It would take a minimum-wage worker about 198,000 years 
to make that $3 billion. I am happy for the billionaire who 
made his $3 billion.
    But I do think that it is fair for the billionaire who made 
the $3 billion to pay a fair amount of taxes on it. And I 
somehow cannot grasp the argument that the billionaire pays too 
much taxes. How did he become a billionaire if he is paying too 
much taxes?
    Secretary Geithner. Nobody likes to pay taxes, whether they 
are rich or poor. But the stunning thing about the United 
States today is that the effective tax rate you pay as a share 
of income is very low historically, particularly for the most 
fortunate Americans. And so we have proposed, as you know, to 
raise modestly that effective tax rate on the most fortunate 
Americans, because we can't afford to go out and borrow the 
trillion dollars over 10 years it would take to maintain those 
in place and we are not prepared to cut Medicare to finance 
those tax cuts.
    So, as I said earlier, I don't see a way to solve our 
Nation's problems, economic and fiscal, without raising that 
effective tax rate on the richest Americans modestly back to 
where it was, for example, at periods in our history where we 
did very well as a country.
    Mr. Green. Finally, there seems to be a notion afoot that 
if you cut the corporate tax rate--which doesn't mean that you 
are necessarily cutting corporate taxes--you are going to get 
more money in revenue automatically.
    Does that automatically happen? If you cut the corporate 
tax rate--because there is an effective tax rate and then there 
is the rate that we have, the corporate tax rate--will that 
automatically bring in more revenue?
    Secretary Geithner. Not in a material way. Most economists 
would say, if you did sensibly designed, rate-lowering, base-
broadening tax reform, that might have small effects on 
improving economic growth. But they are very small and do not 
come close to paying for the cost of a tax cut.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
    Mr. Huizenga. I appreciate that, Mr. Chairman.
    And, Mr. Secretary, thank you for being here.
    I just wanted to head in a slightly different direction 
regarding some of our debt and our debt structuring. But, 
first, I did want to address something one of our colleagues--I 
just wanted to gently correct her, when she had indicated that 
Europe is our largest trading partner. It, in fact, is Canada. 
I double-checked on the U.S. Census Bureau Web site dealing 
with foreign trade, and year to date, Canada accounts for 16.2 
percent of all of our trade, both exports and imports. China is 
at 14.2 percent. And all of the European nations singularly are 
in the single digits; collectively, are much more significant 
than that.
    I had run out, actually, to meet with the gentleman who is 
the chair of the Standing Committee on International Trade, who 
is a member of parliament, Rob Merrifield, from Canada. And we 
had a little conversation about this. We talked about what is 
happening in Canada and with their budgets. They are actually 
going to be introducing an austerity budget. They have lowered 
their tax rates. They believe that they are on firm ground. 
And, certainly, Prime Minister Harper, who has been here and in 
other places around the world, is looking for those trade 
    So we know that when we are talking about America, we are 
actually talking about an expanded North American envelope of 
influence, really. And Canada being so tied directly to Europe, 
they are also affected by that.
    And I wanted to talk a little bit about two things. You 
were starting to head down a path, and I believe we had run out 
of time, about the Brits separating their retail versus 
institutional spending. And you had said it is much more 
radical, and I just wanted to give you a brief time to expand 
on that. And then I have a very specific question, as well.
    Secretary Geithner. I am not sure I can really do justice 
to their reform, but, broad outlines, what they propose to do 
over time is to separate the retail deposit-taking activities 
of their big banks, require them to be very substantially 
capitalized, and leave the wholesale parts of the banking 
system separately managed with less regulation.
    And they have to choose what is right for them, but I could 
not conceive of why we would want to adopt that in the United 
States because we just went through a crisis in 2008 and 2009 
where it was caused significantly not really by traditional 
banking activities, although a lot of banks took too much risk, 
but because of what happened in the wholesale markets, where 
there were much weaker capital requirements and much more 
funding risk. And it was that collapse of the shadow banking 
system in the United States, the broader wholesale system, that 
caused so much pressure, so much trauma, so much damage here.
    So I say this with respect to them, but theirs is a much 
more sweeping separation, and I do not think it makes sense for 
our country.
    Mr. Huizenga. And I am not saying that it does either. I 
think the point that you were making earlier, and certainly 
that I track with, is that there are a number of solutions 
being talked about out there, and whether it is the Basel 
discussions and what England is doing and others. And we know 
there are great differences between Greece and Germany and 
France and Italy and others within the EU.
    Very specifically, though, it has been brought to my 
attention, looking at our debt structure and looking at the 
British debt structure, there is a chart out there that I saw 
that indicated the amount of debt that Great Britain has and 
when that debt is coming up to be renewed. And they have much 
more effectively, in my mind, backloaded this. Their 10-year 
debt window is very different than our 10-year debt window. We 
have gotten, and maybe you have the exact figures, but it is 
somewhere around 60 percent, I believe, or 70 percent of our 
total debt that will need to get refinanced here in the next 36 
months at historic, some would argue artificially low, interest 
rates. And what is going to happen with those?
    It seems to me that we need to expand this out. I talked to 
the former State treasurer in Michigan about this exact issue. 
And that is how so many of, whether they are States or 
countries or whatever, have gotten themselves into trouble. We 
need to lock into these longer-term lower interest rates. 
Obviously, that is going to have an impact on our day-to-day 
    And if you could comment on that, please.
    Secretary Geithner. You are right. Thank you for raising 
that. Extending the maturity of our debt is a sensible, smart, 
prudent thing to do in this environment, and we are doing it 
really quite aggressively. I think even over this short period 
of time, we have moved from an average maturity of, I think, 49 
months to, I think, 67 months today. And we are going further, 
expect to go further. As you said, it makes sense to do that 
because we are at a time of exceptionally low long-term 
interest rates.
    So we will keep moving, and we will do it in a carefully 
balanced way. And you are right that--
    Mr. Huizenga. Will this Administration be willing to take a 
short-term higher total--
    Mr. Hensarling. The time of the gentleman has expired.
    Secretary Geithner. Of course. And it makes sense to do it.
    Mr. Hensarling. The Chair now recognizes the gentleman from 
Minnesota, Mr. Ellison, for 5 minutes.
    Mr. Ellison. Hello. How are you, Mr. Secretary? Thank you 
for being here.
    I have a question about the Somali remittances. I know your 
office has been working on this, and I want to thank you for 
it. You guys have been very responsive.
    But could you just talk a little bit about what the 
Department of the Treasury is doing and might be able to do to 
help facilitate and come up with a permanent solution for 
Somalis in America to be able to remit money back to relatives 
at home?
    You are aware of the scenario, I know that. But just for 
the record, there have been a number of banks that have refused 
to facilitate the remittances. Perhaps you could take it from 
    Secretary Geithner. You are right, and I appreciate you 
drawing attention to this issue. We are working on it, and we 
will keep working with you closely on it. But you are right to 
say it is hard, and we are not having enough impact yet.
    The basic problem is that banks are reluctant to do 
business in parts of the world where they cannot satisfy their 
obligations under U.S. law to make sure that they are not 
facilitating the activity of terrorists or other people working 
against American interests, and that creates some challenges. 
And it is particularly acute in the context you cite.
    So we are going to keep working with you on it. It is very 
important to try and do it. We are not making enough progress, 
but we will keep at it.
    Mr. Ellison. I will be continuing to work with you on the 
issue. And just to just make the point for the record, 
estimates that I have found show that American Somalis send 
about $400 million annually in remittances that basically are a 
lifeline to their families. And so, at a time when we are 
worried about foreign aid and staving off hunger and 
starvation, these remittances actually help fill the gap. And I 
think it is in everybody's interest to come up with some 
    Secretary Geithner. I agree with you.
    Mr. Ellison. Switching to the housing context, could you 
talk a little bit about what Fannie and Freddie might do, given 
that they either own or guarantee about 60 percent of 
residential mortgages, to look at principal reductions on some 
of those mortgages in cases where it is advisable?
    At this point, the agency that is the conservator for those 
two GSEs has pretty much said that they are not going to be 
doing that. And my question is, could they be doing it? And if 
they could, when can they?
    Secretary Geithner. We think they can, and we are working 
to encourage them to do it. And they are working with us.
    They have to meet a very tough standard. The law is set. 
They have to make sure they are working for the interest of the 
taxpayer, not just to help the housing market. And so they have 
to be careful about how they do it.
    But we think there is a pretty strong economic and 
financial case for doing it in some cases--not for all 
homeowners, for some homeowners. We are trying to make that 
case as convincing and compelling to them. And I hope that we 
will have a better feel for what they think they are prepared 
to do in the next couple of weeks.
    Mr. Ellison. Good.
    I would like you to talk about the Volcker Rule. It passed; 
they are in the rulemaking process. But as people debate it in 
the press, even in Congress, there seems to be a strong 
emphasis on all the reasons why it can't work rather than the 
essential importance of recognizing that perhaps a bank that 
wants to buy, for example, a mortgage-backed security, 
shouldn't do it with government-guaranteed money and then, when 
things go wrong, look for the taxpayer to bail them out.
    Can you talk about the essential importance of why the 
Volcker Rule is a good thing and why maybe we should have an 
eye more toward making it work than figuring out why it can't?
    Secretary Geithner. We had a crisis caused essentially by 
some institutions taking too much risk, taking advantage of the 
safety net where it existed. And, as you know, it caused a huge 
amount of damage. We are going to be living with the legacy of 
that damage for a long time to come. So it makes a lot of sense 
to try to make sure we are doing things to protect against that 
risk. And the Volcker Rule is part of a broad set of reforms 
Congress passed to achieve that objective.
    But what the law essentially does is say that institutions 
that own banks shouldn't be able to run internal hedge funds 
that take a huge amount risk relative to capital because that 
could put us in a situation where their failures cause too much 
damage to the innocent.
    Now, the law also protected, I think appropriately so, some 
exemptions for market making and for hedging, things that they 
need to do in that context for markets to work well. And I am 
reasonably confident that the rule writers in this context are 
going to find the right balance. We want to be careful that the 
exceptions don't undermine the broader safeguards, but we also 
want to make sure those safeguards achieve what they are 
supposed to achieve and don't cause other damage to other 
interests that make--so we have to get the balance right. And 
we are going to take the time necessary to get that right.
    Mr. Ellison. Thank you very much.
    I yield back.
    Mr. Hensarling. The gentleman from Wisconsin, Mr. Duffy, is 
    Mr. Duffy. Thank you, Mr. Chairman.
    Thank you for coming in, Mr. Secretary.
    Just quickly, so I am clear, it is the role of a Secretary 
to implement the policies or the priorities of the 
Administration; is that correct?
    Secretary Geithner. Yes.
    Mr. Duffy. Okay. I come from the northwest corridor of 
Wisconsin. It is a larger, rural district. And one of my 
concerns is the skyrocketing oil prices of late. They have 
nearly doubled since the President has taken office.
    And I guess to you, is it your position that the 
Administration has supported policies that would actually lower 
energy costs?
    Secretary Geithner. I do. I think so over time. As the 
President has said many times, there is no quick fix to this. 
And you said prices have doubled, but that is really unfair to 
history, because they were really low in 2008 because the world 
    Mr. Duffy. I don't have a whole lot of time, so I want to 
make--your position is, yes, the Administration is supporting 
lower gas price policies.
    And I just want to run through some quotes that you may 
recall. In 2008, as the President was a candidate, in San 
Francisco, in regard to cap and trade, he said, ``So if 
somebody wants to build a coal-powered plant, they can. It is 
just that it will bankrupt them because they are going to be 
charged a huge sum for all that greenhouse gas that is being 
emitted.'' That was from the President when he was a candidate, 
which would lead me to have some concern about what his role is 
in regard to energy.
    In regard to his Energy Secretary, Mr. Chu, who also is 
implementing the policies of the President, in 2008, in an 
interview with The Wall Street Journal, he said, ``Somehow we 
have to figure out how to boost the price of gasoline to the 
levels of Europe.'' And, as you know, they pay $9 a gallon.
    Implementing the policies of the President, in 2012, on 
February 29th, he was questioned by Alan Nunnelee, where Mr. 
Nunnelee asked if it was his overall goal to get our prices of 
gasoline lower, to which Mr. Chu responded, ``No, the overall 
goal is to decrease our dependency on oil to build and 
strengthen our economy.'' That also doesn't sound like the 
rhetoric of someone in energy who wants to lower the cost of 
    And then quickly to give a quote from you, on March 4, 
2009, in a budget hearing, you said to Mr. Grassley, ``The cap 
and trade would increase the cost of energy for those types of 
energies that are particularly carbon-intensive. It does 
increase the cost of energy, and that is necessary if you are 
going to change how people use energy.''
    So we have you, Mr. Geithner, we have the Energy Secretary, 
Mr. Chu, and we have the President all making comments that 
would lead the American people to believe that you are not 
supporting lower energy costs but policies that will actually 
increase the cost of energy.
    Secretary Geithner. I don't think it would lead them to 
believe that. I think the question you asked at the beginning, 
and I will repeat it again, is that the policies the President 
is promoting are helping to facilitate a huge expansion in oil 
and gas production in the United States, a significant 
reduction in our dependence on foreign sources of oil--
    Mr. Duffy. And let's talk about that quickly.
    Secretary Geithner. --and a big expansion of our ability to 
use other sources of energy over time.
    Mr. Duffy. So let's talk about the change of oil production 
in the United States. Okay, I don't want to talk about private 
lands or State lands, I want to talk about Federal lands. It is 
fair to say that from 2010 to 2011 there has actually been an 
11 percent decrease in oil production on Federal lands. Is that 
    Secretary Geithner. As you know, I am not the Secretary of 
Energy, but I would be happy to give you his views on those 
basic questions. If that would be helpful, I would be happy to 
do that.
    Mr. Duffy. But you don't contest the fact that, actually, 
Federal land production on oil has decreased.
    Secretary Geithner. I just don't know. It is not my thing. 
But I will say that overall--and this is what matters for the 
availability of energy--production is rising quite 
    Mr. Duffy. Right. You just said that it is rising 
substantially, and I would agree with you, it is rising because 
of private land and State lands that are being opened up to 
exploration instead of Federal land.
    Secretary Geithner. But it wouldn't be happening--
    Mr. Duffy. Just quickly, I only have 1 minute left.
    Secretary Geithner. But it wouldn't be happening if the 
regulatory tax policies were having a significant disincentive 
on production.
    Mr. Duffy. In regard to--switching to our budget, or the 
President's budget, you have indicated that he is supporting 
tax increases; is that right?
    Secretary Geithner. Only on the top 2 percent of Americans.
    Mr. Duffy. Okay. And just quickly, I had a chance to review 
his budget. When does it balance with all those tax increases?
    Secretary Geithner. What the President's budget does, as 
CBO just pointed out last week, is over the next 5 years it 
reduces the--
    Mr. Duffy. When does it balance?
    Secretary Geithner. Hold on. I will answer your question.
    Mr. Duffy. But when does it balance?
    Secretary Geithner. Hold on. I am going to answer your 
    Mr. Duffy. What is the year?
    Secretary Geithner. The level of primary--
    Mr. Duffy. What year does it balance?
    Secretary Geithner. --balance is roughly 2016, 2017. To 
    Mr. Duffy. Mr. Secretary--
    Secretary Geithner. --balance in 2016, 2017.
    Mr. Duffy. In what year?
    Secretary Geithner. I said to primary balance in 2016 or 
    Mr. Duffy. Okay.
    Secretary Geithner. To primary balance. That is making sure 
that revenues cover expenditures except for interest. And that 
is important because it is--
    Mr. Duffy. When does it--
    Secretary Geithner. --at that level where the debt stop 
    Mr. Duffy. So when does it actually balance when you 
include interest?
    Secretary Geithner. It doesn't balance in the 10-year 
window, and that is what we budget for.
    Mr. Duffy. And don't you think we should have some kind of 
a plan that is going to bring us--
    Secretary Geithner. Not in the next 10 years.
    Mr. Duffy. Okay.
    Secretary Geithner. There is no way, no responsible way, to 
achieve balance in the next 10 years.
    Mr. Duffy. I yield back.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair observes that there are three more Members in the 
hearing room who have not asked questions. It is our intention 
to clear these individuals to keep the Secretary on his 
schedule. If other Members are monitoring the hearing in their 
offices, don't bother to come; you are too late.
    The Chair now recognizes--
    Mr. Frank. And that is a bipartisan disinvitation.
    Mr. Hensarling. The Chair now recognizes the gentleman from 
California, Mr. Sherman, for 5 minutes.
    Mr. Sherman. As to gas prices, I will comment that about 6 
months before President Bush left office, they were as high or 
almost as high as they are today. The collapse of the worldwide 
economy in late 2008 dramatically reduced gasoline prices. I 
don't think that is the strategy we would want to employ, as 
noble as that goal is.
    In addition, natural gas prices are lower than they have 
ever been. There is a North American market for natural gas, so 
production on this continent actually can, and has, cut prices. 
And that allows us to displace the coal while still generating 
    And, finally, oil is traded worldwide. There is a worldwide 
price for oil. And a slight increase in production in North 
America is not going to change the worldwide price.
    A couple of issues about funding small business. If we had 
member business lending for the credit unions, and if the 
credit unions had alternative capital, then without Washington 
risking taxpayer money, we would have capital in the hands of 
small business.
    I thank the Secretary for nodding, but I hope we get 
nodding here in this committee, because it is a matter that 
Congress needs to deal with.
    Now as to Iran, as you know, Mr. Secretary, I was 
disappointed early in the Administration when we augmented the 
IMF with $105 billion but did not demand the suspension of Iran 
from the IMF. And our action, in effect, created a billion 
dollars of special drawing rights as the IMF was supplemented.
    I would hope that before we do anything else to help the 
IMF, we insist, at a minimum, that Iran not be given any 
additional special drawing rights. Perhaps you could comment on 
that. Or, better yet, that Iran would be suspended. Because it 
is the purpose of the IMF to help member states when they face 
a financial crisis, and it is the policy of the United States 
to create a financial crisis in Iran. So it strikes me as odd 
that we would participate--that we would be both setting the 
fire and funding the fire department.
    Secretary Geithner. Good point, and well said. And I share 
your view on this.
    And I would just point out that the cumulative impact of 
the range of things that we have done to Iran has been 
overwhelmingly powerful. We have some more to do, but--
    Mr. Sherman. You do have some more to do, and that brings 
me to the next question. We have acted to sanction the Central 
Bank of Iran and certain other designated banks. Wouldn't it be 
far more effective if we designated all Iranian banks?
    If you forced me to go to change from Bank of America to 
Wells Fargo or even some lesser-known institution, that would 
not cause me to change my heartfelt policy. So shouldn't we be 
designating all banks and then working with SWIFT to exclude 
all Iranian banks from the SWIFT program?
    Secretary Geithner. Excellent question. And it is something 
we are going to keep taking a look at, and if it makes sense to 
do it, we are going to do it. Of course, for it to work, we 
have to get the rest of the world do it; it is not about us in 
this context.
    Mr. Sherman. The journey starts with us designating them 
    Secretary Geithner. Right.
    Mr. Sherman. --and then trying to persuade Europe to 
designate them all, or secondary sanctions, which I realize is 
not the first choice of the Administration.
    Secretary Geithner. I agree. If it makes sense to do it, we 
will do it. At the moment, I don't think that remaining gap 
itself is particularly material to our objectives. But if it 
becomes so, we will take a look at it.
    Mr. Sherman. I hope you will answer for the record how many 
banks remain unsanctioned by the United States or remain 
participants in SWIFT. And that is a question I have for the 
record: How many Iranian banks are a part of SWIFT?
    I would like to shift now to housing. I guess this might be 
a question for the record because my time is ending. And that 
is, Fannie and Freddie are implementing programs that will 
streamline the short-sale process and reduce the response time 
to the consumer. Do you agree that it would be prudent for the 
GSEs to pursue short sales instead of allowing the property to 
fall into foreclosure? And can you speculate as to or inform us 
as to why the GSEs have taken so long?
    And then the second question for the record is, does it 
make any sense to hit the GSEs with a 10 percent dividend rate 
when we have to lend them the money to pay us the dividend? And 
they are not--I believe in high dividend rates when it is a 
private institution. We are getting money from somebody else. 
But taking money out of our right pocket to our left pocket--
    And then, finally, does it make sense for us to use the 
GSEs as a piggybank or a pay-for for non-housing-related 
programs by increasing the guarantee fee at Fannie and Freddie?
    Mr. Hensarling. The time of the gentleman has expired. The 
Secretary can submit his answers in writing.
    Mr. Hensarling. The Chair now recognizes the gentlelady 
from New York, Ms. Hayworth.
    Dr. Hayworth. Thank you, Mr. Chairman.
    Mr. Secretary, referring to the conversation, the exchange 
that you had with the honorable Member from Texas, Mr. Green, a 
few moments ago discussing taxes and the fact that it sounds as 
though you are of the opinion that a certain amount of raising 
taxes will actually have a net benefit for the economy, for 
    We look across the country at--obviously we have 50 States 
that have all their own economic climates, in a sense, and they 
have their own State tax structures. Can you point to an 
example among our States in which a higher tax structure or a 
heavier tax structure has resulted in greater economic growth 
in those States vis-a-vis others with lower tax structures?
    Secretary Geithner. I think I can give you a better 
example, which is that--it is not exactly true, but basically 
what the President is proposing is to return the effective tax 
rates that the richest Americans pay to the level that 
prevailed in the second half of the 1990s. And we have a great 
national experiment of how well the American economy did in 
that context. And that was a period of enormous growth for the 
American economy, very high rates of private investment growth, 
productivity growth, very profitable time for American 
businesses and individuals. No material evidence from that 
period of time that those tax rates at that time were damaging 
to economic growth prospects. So I think that is the best 
    But another way to think about this--and we are having a 
national debate about this, and it is a good debate to have--
    Dr. Hayworth. Right.
    Secretary Geithner. --is, what would you do otherwise? 
Because we can't go out and borrow the trillion dollars we need 
to sustain them. It is unfair to ask people to take that out of 
Medicare benefits. It is hard to imagine that we should ask 
other Americans, middle-class Americans, to raise their taxes 
to protect the rich from higher tax rates. I don't see the 
basis for doing it. We can't meet the defense needs of the 
country realistically with those tax rates for the richest 
    So it is that reluctant conclusion and the evidence from 
the 1990s that we think it is better than the alternatives.
    Dr. Hayworth. I would say, Mr. Secretary, with all due 
respect, res ipsa loquitur. We don't have an example among our 
States that suggests that higher taxes work.
    I agree with you, we have a tremendous challenge that faces 
all of us. But I think the solution that meets with praise from 
both sides--because certainly I am one of those who wants very 
much to work with you and with all of our colleagues--is 
growth. As a Republican, I am not against greater revenues for 
the Federal Government, but I am against higher taxes. We need 
to grow revenues by bringing more participants into the tax 
    And, of course, we have just hit a milestone, as you know. 
Our corporate tax rate is now the highest in the developed 
    So I hope that the Administration is giving careful 
consideration to the budget proposal that Chairman Ryan is 
introducing today that does reduce substantially those tax 
rates. I know the Administration has talked about reducing 
corporate tax rates and making the Tax Code fairer and flatter. 
And I thank you for that consideration.
    On a separate topic, Mr. Secretary, Basel III. You 
referred, of course, to restructuring of banks and Europe bank 
reforms, and Basel III is obviously going to affect our banks, 
as well, in various ways. There is concern that agency 
mortgage-backed securities will be considered level 2 capital 
instead of level 1, even though in this country they have been 
considered to be equivalent to sovereign debt.
    Can you assure our participants that you are going to be 
working with the regulators to try to make that playing field 
even, if you will?
    Secretary Geithner. I can say that I know they are taking a 
look at it. It is the Fed's authority; it is not mine.
    My sense is, from a distance, that those concerns that the 
capital requirements would have a material adverse impact on, 
say, the price of mortgages, I don't think those are really 
justified at this stage. But I know the Fed is looking at it 
and will keep looking at it.
    Dr. Hayworth. Thank you, Mr. Secretary.
    And, Mr. Chairman, I yield back.
    Mr. Hensarling. I thank the gentlelady for yielding back.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney, for 5 minutes.
    Mr. Carney. Thank you, Mr. Chairman. And I appreciate your 
managing the hearing today, because otherwise I wouldn't get a 
chance to ask a few questions of the Secretary.
    Mr. Secretary, thank you for coming.
    I would like to first publicly thank you for the work that 
one of your Assistant Secretaries did, Mary Miller, on the on-
ramp, the IPO on-ramp bill. I have tried to point out, as we 
have discussed the bill in this committee and on the House 
Floor, that it was really out of an effort by the Treasury 
Department that these ideas emerged. And we appreciate her work 
on that.
    I also want to thank you for your work on the housing 
issues. I was part of the letter that was led by Ranking Member 
Frank to you, encouraging Treasury to implement HAMP more like 
HARP. And I understand that is happening, so there is no need 
for comment.
    I would like to go back to the two questions I raised in my 
opening statement, and the first is the sustainability of the 
solution for Greece.
    It is hard for me to imagine--you said in your testimony 
that this is just the initial phase, that severe austerity 
steps are being taken, economic reforms and budgetary reforms 
in these countries. And so it seems to me Greece has the worst 
of all worlds. They can't devalue their currency. They are 
attached to a currency that is really reflective more of a 
German economy than their own. And so they are going to kind of 
continually, as you pointed out in your testimony I think, get 
into this downward spiral that is forced by the solution.
    Could you comment further on that?
    Secretary Geithner. You are exactly right that a member of 
Europe has two disadvantages to the choices many other 
countries face: They don't have their own currency and they 
can't set their monetary policy independent of the rest of 
Europe, but they also don't have a mechanism for fiscal 
transfers that makes the United States work, for example. They 
don't have that piece that Hamilton put in place in the United 
States initially to allow transfers to cushion the effects of 
downturns that affect just part of the continent, not the rest 
of it. And those two things are big disadvantages.
    And you are right to emphasize that Greece is making 
progress toward sustainability, but whether they get there or 
not is going to depend hugely on whether they can sustain 
political support.
    Mr. Carney. Politically, right? I don't know how--
    Secretary Geithner. But I think that there are no good 
choices available to them.
    Mr. Carney. Right.
    Secretary Geithner. And--
    Mr. Carney. So one choice might be exit. What happens in 
that kind of a situation, where they opt out of the EU?
    Secretary Geithner. I think that--I know they have spent a 
lot of time looking at that question, and it is true that the 
rest of Europe has, too. And I think they have looked at it and 
concluded that it would be much worse for them, much more 
expensive, much more costly economically. And I think that is 
their judgment to make.
    So most of the things they are doing, most countries would 
have to do in their circumstances. If most countries, even if 
they had their own currency, had dug themselves that deep a 
hole, they would have to do a lot of these things to bring the 
government down to Earth and fix the financial system and make 
it easier to start a business, and to make sure people pay 
their taxes. Those things would have to happen no matter what. 
So they are doing things that are necessary, inevitable, 
unavoidable, and will make things better over the long run for 
    Mr. Carney. You said in your statement, also, that the 
impact on U.S. banks of the write-down of the financing for 
Greek bonds has had no material impact.
    Secretary Geithner. No, no material impact.
    Mr. Carney. What about on the CDS side of it?
    Secretary Geithner. Again, no material impact.
    Mr. Carney. And how do you know that? Is there anything--
    Secretary Geithner. Because the Fed--and it is really 
their--it really should be directed to them--they have a, 
really, very good feel today, and partly because of all the 
reforms that have been put in place for the direct and indirect 
exposures of the U.S. financial institutions to Greece, for 
example. So they can judge how large they are. And they are 
very, very small. The CDS protection that was written was 
really quite small, too.
    Mr. Carney. And, finally, Mr. Huizenga went on about the 
financing of our own debt. And I share the same concern that he 
has. And I was encouraged that you said you are going to try to 
    When I was secretary of finance in the State of Delaware, 
we were constrained by law, in terms of how that could be 
structured and that it had to be done kind of evenly over time 
so that you didn't get into situations where you are kind of 
betting on the future. It looks like, from where we sit today, 
you have basically zero interest rates and you have a 
significant amount of debt financed with short-term bonds, and 
they are going to have to be refinanced at some point, 
presumably at higher debt. So at some point, we are going to be 
penalized, unless we get a better 10-year fiscal plan.
    Secretary Geithner. And, again, that is why the prudent, 
responsible, conservative thing to do is to extend the maturity 
of our debt, which is what we are doing. We have done that 
really quite significantly just over the last 2\1/2\ years, and 
we have a little bit further to go. But we are closer now, I 
think, to the average of what most other countries do, and that 
makes sense for us.
    Mr. Carney. I am happy to hear that. Thank you again for 
your service.
    Mr. Hensarling. Mr. Secretary, we thank you for your time 
and your testimony, and we will allow you to excuse yourself 
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to this 
witness and to place his responses in the record.
    This hearing now stands--
    Mr. Frank. Mr. Chairman, before we close, I just want to 
acknowledge my gratitude to you for--it is difficult when you 
have all these Members and a limited amount of time. And I 
thank you for the fairness and efficiency with which you 
conducted this hearing.
    Mr. Hensarling. We will accept the gratitude.
    This hearing stands adjourned.
    [Whereupon, at 12:36 p.m., the hearing was adjourned.]

                            A P P E N D I X

                             March 20, 2012