[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HEARING TO RECEIVE THE ANNUAL TESTIMONY
OF THE SECRETARY OF THE TREASURY
ON THE STATE OF THE INTERNATIONAL
FINANCIAL SYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
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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HOUSE COMMITTEE ON FINANCIAL SERVICES
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
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
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
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
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 HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
James H. Clinger, Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
March 20, 2012............................................... 1
Appendix:
March 20, 2012............................................... 55
WITNESSES
Tuesday, March 20, 2012
Geithner, Hon. Timothy F., Secretary, U.S. Department of the
Treasury....................................................... 7
APPENDIX
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
INTERNATIONAL FINANCIAL SYSTEM
----------
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
order.
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
mindlessness.
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
question.
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.
STATEMENT OF THE HONORABLE TIMOTHY F. GEITHNER, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
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
efforts.
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
rates.
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
future.
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
own.
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
will?
Secretary Geithner. Excellent question. Let me see if I can
respond.
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
IMF.
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
merits.
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
Office?
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
protected.
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.
businesses--
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
taxpayers.
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
Rule--
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.
McCarthy.
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
capability.
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
corner.
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
today.
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
borrow.
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
initiatives.
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
along.
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.
Maloney.
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
recover.
Mrs. Maloney. About how much? Is it hundreds of billions
or--
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
country.
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
that?
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.
Meeks.
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
level.
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
world.
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.
Pearce.
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
taxes?
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
conditions--
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
things.
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
country.
Mr. Capuano. My time is running out, Mr. Secretary. Thank
you.
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.
Westmoreland.
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
than--
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
programs.
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
any?
Secretary Geithner. You can count them or not, but they pay
taxes for those things, those Federal programs, as a share of
income.
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
bailout.
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
Chrysler?
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
today.
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
together.
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
take.
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
have.
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
countries.
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
deficits.
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
going?
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
quickly.
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.
Scott.
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
borrowers.
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
joblessness.
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
were--
Mr. Hensarling. Excuse me, Mr. Secretary. The time of the
gentleman has expired. If you could submit that answer in
writing.
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
aligned.
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.
Huizenga.
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
partnerships.
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
budgeting.
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
there?
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
solutions.
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
recognized.
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
was--
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
energy.
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
correct?
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
substantially.
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
question.
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
primary--
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
2017.
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
growing--
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
electricity.
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
all--
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
growth.
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
example.
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
Americans.
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
structure.
And, of course, we have just hit a milestone, as you know.
Our corporate tax rate is now the highest in the developed
world.
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
them.
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
restructure.
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
now.
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
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