[Congressional Record Volume 141, Number 19 (Tuesday, January 31, 1995)]
[House]
[Pages H962-H968]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL STABILITY OF THE UNITED STATES GOVERNMENT
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 4, 1995, the gentleman from Oregon [Mr. DeFazio] is recognized
for 60 minutes as the designee of the minority leader.
Mr. DeFAZIO. Mr. Speaker, this evening we would like to address two
subjects having to do with the health of the economy of the United
States, and the financial stability of our Government. And they go to
the proposed or pending interest rate increase before the Federal
Reserve Board, and the announcements today made by the administration
regarding the Mexican bailout which apparently now will be done by
administrative order.
I would like first to start, since it has not happened yet, perhaps
we can prevent a disaster, start with the proposed interest rate
increase by the Federal Reserve.
Six times in the last year, a record, the Federal Reserve Board has
seen inflation somewhere over the horizon and raised interest rates.
{time} 2040
Those six increases have hit hard at anybody in America who has to
borrow money, families who want to borrow money to buy a house,
individuals who want to borrow money to buy a car, people who want to
start or continue with a small business, homebuilders and others. They
have been hit time and time again by the Federal Reserve raising
interest rates, this latest pending increase estimated to be one-half
of a percent.
Now, just think about it, this is a group that will meet in secret.
The Federal Reserve meets in secret. They are accountable to no one.
Calls were recently placed down there by my staff regarding the Mexican
peso bailout, and we were told there was no business of the Congressman
what involvement the Federal Reserve might have with our tax dollars
and reserve money that underlies our bank accounts. They will meet in
secret, and they will consider a policy change that is likely to raise
this year's deficit by $2.5 billion.
It is likely, according to the homebuilders, to drive a medium-priced
home beyond the reach of 1 million families in America. That is after
they have already driven up prices of mortgages by more than $200 a
month on a $100,000 home in the last year. This single increase will
drive up the mortgage on a $100,000 house by about $1,600.
Now, here we are squabbling over these proposals to reduce taxes by a
pizza a week for every American family, and the Federal Reserve in
secret with no accountability to the U.S. Congress or the elected
representatives of the people is going to unilaterally impose a policy
that will increase the deficit by $2.5 billion, will increase the price
of a home for a modest family, a $100,000 home, by $1,600 per year with
no public scrutiny, no hearings, and no accountability. It is
absolutely outrageous.
Furthermore, they have adopted a policy now, they think that any rate
of unemployment less than 6 percent is inflationary. God forbid that
wages should go up a little bit in this country. They have not gone up
for your average family in the last 20 years, and the Federal Reserve
has a concerted policy to make sure that does not happen. They consider
a wage increase for working Americans to be inflationary.
Yet we had a wire story today that said we had the least pressure on
employment costs since those statistics have been kept. Yet again, the
Federal Reserve is going to preemptively raise interest rates with a
concerted policy to put tens of thousands more Americans out of work.
Remember, it used to be 4 percent was considered full employment in
this country. Now they say 6-percent unemployment is full employment.
That is 3\1/2\ million Americans who are going to be deprived of their
jobs by the Federal Reserve because the Federal Reserve sees inflation
that does not exist.
Furthermore, Alan Greenspan, the Chairman of the Federal Reserve,
appointed by the last Republican President, has said that we overstate
inflation in this country. He testified just last week before the
Banking Committee and said, ``Well, you know, the CPI overstates
inflation by 1 to 1\1/2\ percent.'' That means, according to Alan
Greenspan's own numbers, inflation is at more than a 30-year low in
this country. Yet they are going to go back to the well one more time.
They are going to raise interest rates again. They are going to raise
the price of houses again, refrigerators, anything you buy on time will
be increased.
Why? Not because there is a real threat of
inflation, but because it is being demanded by Wall Street.
Now, it is an interesting question who makes monetary policy in this
country, who controls the currency of the United States. And are we
running this Nation for a few select bankers on Wall Street, or are we
running this Nation for the American taxpayers? That brings up the
Mexico bailout.
The gentlewoman from Ohio [Ms. Kaptur] found a very interesting quote
in the Wall Street Journal, and I thought you might want to present
that.
Ms. KAPTUR. If the gentleman will yield, I thank you for your
tremendous work on focusing on the Federal Reserve and the important
role they play in this country. They are unelected. They do not have to
come up here. Most Americans do not know who the Board of Governors of
the Federal Reserve are, and yet all of the money that the citizens put
in their banks back home, those banks, if they should choose, and most
of them do, then pay dues into the Federal Reserve System.
They are organized by districts around the United States. The closest
one to me is in Cleveland, OH, since I
[[Page H963]] live in the State of Ohio. Those banks belong to the
Federal Reserve here in Washington.
It is my opinion not all Federal Reserve district banks have the same
importance in the system, because it was not the banks that belonged to
the Cleveland Federal Reserve that got into all the trouble 12 years
ago or 13 years ago in making those loans to Mexico. It was largely
money-center banks in New York City that caused all the trouble. Yet
our member banks back home had to help cushion those blows. They were
forced to charge higher interest rates to their customers.
They did not cause the damage in the system, and I think what we have
here is the predominance of one set of money-center banks from Wall
Street and their related brokerage houses doing business in very close
communication, not open to the general public. Of course, I mean, they
do not see this happening.
But yet they draw money in from the system, do things with it that
causes problems, and they become very powerful in making economic
decisions for this country.
The gentleman was asking me about an article in the Wall Street
Journal today. You know, we have been trying to figure out why interest
rates are going up in the United States when there is no inflation,
when people's wages are not going up; in fact, people are taking
benefit cuts all over this country. We have so many part-time workers
and temporary workers and people who are being outsourced, downsized,
restructured, redeployed. There are all kinds of names for this.
And you ask yourself why would interest rates be going up in the
United States. Well, they are not really going up because of what is
happening in this country, but the markets are reflecting, our market
here, and the interest rates, are reflecting draws on the system
because of decisions made by money-center banks and large corporations
in other countries.
The closest one at the moment is Mexico. I believe interest rates are
going up in this country because the market is taking it out on the
American people, the banks that have a lot at risk and have made some
bad decisions, and the brokerages that borrow from them have made some
bad decisions. And now the American people are having to pay for it in
their checking accounts, in the mortgage payments that they make, as
the gentleman said, and what you mentioned in terms of the price of a
$100,000 house.
I know I figured it out for a $60,000 house in Toledo, OH. The
interest rates over last year will cost that family $100 more a month,
$1,200 more a year.
I do not care how much tax-cutting we do this year in this Congress,
we are not going to be able to offset the real dollars people are
paying every day through the worst taxes of all, which are these higher
interest rates people pay on their credit cards and cars and on their
homes.
Some of the people that are causing the trouble were talked about
today beginning on page A3 of the Wall Street Journal in an article
called ``Mexico's Currency Plunges Nearly 10 Percent,'' and it
continues on page A8. We have been asking the Clinton administration
for a list of who Mexico owes money to, who are the creditors that are
supposed to be bailed out. Of course, they have not sent us an answer.
It is very interesting what it says in the top paragraph on page A8.
It says that if the Congress and the taxpayers were to bail out Mexico,
one beneficiary would be the firm that Treasury Secretary Robert Rubin
used to run, Goldman, Sachs & Co., which ranked as the No. 1
underwriter of Mexican stocks and bonds in the United States and
European markets for 1992 through 1994. In those 3 years, according to
Security Data Co., Goldman underwrote over $5 billion worth in Mexican
securities compared with $2 billion for the securities unit of J.P.
Morgan & Co. Third was Bear, Stearns & Co. at $1.8 billion.
So I would guess that even though the administration and the Treasury
Department have not provided us with the specific list of creditors
that we are looking for, we can begin by reading between the lines here
and see whose wallets are really on the line.
Mr. DeFAZIO. If I could interject at that point. There is an
excellent quote which plays off that in the business section today of
the Washington Post, page D1, where the vice-chairman of Goldman,
Sachs, Robert Hormats, says the prestige of the President, the Fed
Chairman, and the leadership of both Houses in Congress has been
committed. If Congress were to kill the aid package, the feeling in the
rest of the world would be that we are a nation in disarray, a country
incapable of addressing a crisis. The psychological blow would be
enormous.
I wonder if Mr. Hormats is really talking about the blow to the
United States of America and the people whom I represent who have not
been speculating in Mexico, or is he talking about the blow to Goldman,
Sachs, who has done 5.2 billion dollars' worth of business in Mexico
for the last 3 years.
If we are taking about that, I am really concerned what is being
proposed now by the ex-director of Goldman, Sachs, the Secretary of the
Treasury, is to bail out Mexico now through an Executive order, not
through coming to the United States Congress.
{time} 2050
They found the Congress exerted, in this case, uncommon good sense;
they said ``Wait a minute, we don't see the collateral or the national
security interests. Why are we looking at this $40 billion bailout?''
I see the gentleman from California [Mr. Hunter] has arrived.
Mr. Speaker, I yield to the gentleman from California.
Mr. HUNTER. I thank my friends for continuing to discuss this issue.
I think there is an even greater issue now that I hope all of Congress
will start looking at and the American people will look at, and that is
the whole underpinning of this blind adherence to free trade that those
in the executive branch and many of our colleagues and friends in
Congress have adhered to over the last 10 years or so. If it is true,
if these apocalyptic claims by the Goldman-Sachs representatives of the
world are true, if you want to have a poor person Mazatlan send me a
thousand dollars, if that is true that we really have tied the United
States and the well-being of our people to the fortunes of a Third
World nation which we cannot
control, then there is a fundamental flaw in our free trade
philosophy.
What that means is we have handcuffed ourselves pursuant to the deep
breathers, the free trade advocates, to a drowning swimmer, somebody
who cannot swim.
I am talking about Mexico and other Third World markets, so-called
emerging markets that our investors have put billions of dollars into.
That is not a fundamentally sound economic policy for the United States
to follow.
So the people that helped engineer NAFTA I think have to answer a
couple of questions. First, they have to prove that this is an
apocalyptic situation--and I do not think it is--and I think Bill
Siederman and other responsible conservatives, moderates, and liberals
in the economic world have made good statements with respect to that.
But if our free trade philosophy has handcuffed us to these nations
that cannot swim, has put us in the deep water and said ``Have a nice
day,'' then that is fundamentally unsound and fundamentally flawed and
we should rethink free trade for that reason.
I think the gentlewoman from Ohio [Ms. Kaptur] the lady with the
rose, who has always had such an articulate viewpoint on this very
important issue and keeps coming and coming and coming on this issue on
the House floor, trying to persuade our colleagues to take a seek look
at this blind adherence to free trade. I think in the aftermath of
NAFTA and this debacle a lot of Members are starting to disengage
themselves from their idealistic philosophy and look at the real world.
I thank the gentleman from Oregon [Mr. DeFazio] also for his work
because he has been here night after night working on this issue. I
thank the gentleman for what he is doing.
Mr. DeFAZIO. I thank the gentleman.
Mr. Speaker, I see the gentleman from Vermont [Mr. Sanders]. I say to
the gentleman we are discussing both the Mexican bailout proposal and
also
[[Page H964]] more generally the policies of the secretive Federal
Reserve Board that is obviously hand in glove involved with the bailout
of Mexico.
Mr. Speaker, I yield to the gentleman from Vermont.
Mr. SANDERS. I thank the gentleman for yielding.
Let me congratulate the gentleman from Oregon and Ms. Kaptur and Mr.
Hunter for their excellent work.
I find myself just a little bit nervous in agreeing with the
gentleman from California [Mr. Hunter] with whom on many issues we do
not have much in common. But the point I just heard him make is an
excellent point.
It frightens me to think that if the global economy means that the
future of a decent standard of living of the American people rests on
the prosperity of an authoritarian corrupt government in Mexico, then
we are in very, very deep trouble. It also seems to me that in a time
when this Congress and this President are having such a difficult job
improving the standard of living of every ordinary American--today
there was a piece in the paper which indicated there are about 6
million children in America under the age of 6 who are living in
poverty. We have the highest rate of childhood poverty in the
industrialized world. Forty million Americans have no health insurance.
We are losing millions of decent manufacturing jobs to Third World
countries.
We have enormous problems in this country, which this Congress, this
President, President Clinton, and President Bush and others have been
unable to solve. If we cannot resolve our own problems how in God's
name are we going to be running the country of Mexico?
So I would simply suggest that we leave to our Mexican friends the
difficult charge that they have to run and try to improve the lives of
their people and that we should try to concentrate on our own needs
here.
The other point that I would make is that I was at a Banking
Committee hearing last week and at the meeting in pursuing the bailout
for Mexico we had the Secretary of State, Warren Christopher, we had
the head of the Federal Reserve, Mr. Greenspan, and we had the
Secretary of Treasury, Mr. Rubin.
My, my, my, all of these heavy hitters working night and day trying
to help us bail out Mexico, and yet I look at what happens to family
farmers in Vermont working 80 hours a week losing their farms; 2
million people in America who are homeless; children who are hungry.
Where are the heavy hitters who are standing up and saying we have an
emergency right here in the United States of America. Our standard of
living is in decline, let's pay attention to that need.
So I get a little bit resentful, a little bit resentful when all of
this energy, all of this big money focuses on bailing out Mexico and
yet the needs of the American people seem to be ignored.
Mr. DeFAZIO. I yield to the gentlewoman from Ohio.
Ms. KAPTUR. I would like to add a point to that in terms of who are
wiling to bail out and who are not willing to bail others out. One of
the most advanced industries in our country is the airline industry.
Every day we see newspaper articles in papers across this country about
the fate of USAir. That is one of our major carriers, which serves my
hometown and has served different parts of the Northeast.
There has been no surge as far as I have noted from those same three
gentlemen mentioned by the gentleman from Vermont, who appeared before
the Committee on Banking to try to help USAir work out of its situation
or its handsome losses over the past several years, to keep thousands
and thousands of people on their jobs.
I have no seen any phone calls or comments made by anybody over at
Treasury. In fact, it is interesting if you look at the Chrysler
situation several years ago before I got to the Congress, Alan
Greenspan at that time was opposed to any Federal involvement in the
Chrysler bailout.
Whether you agreed with the Chrysler bailout or you did not agree
with the Chrysler bailout, they paid their money back with interest, as
Lee Iacocca will remind us no matter where you meet him anywhere in the
country; he was opposed. Yet he is for this, one of the chief sponsors
of this effort to try to find a way, back doorway now of getting our
taxpayers and our banking system to bail out Mexico. Yet when one of
our own companies has been in trouble, now USAir needing a little bit
of help, I have not seen the Secretary of the Treasury on the telephone
or the Chairman of the Federal Reserve with the head of USAir.
So I would agree with the gentleman.
While I have the floor for a moment I just want to commend the
gentleman from California [Mr. Hunter] who has also been on this floor
so many evenings trying to give some incredible speeches that reached
far beyond the Beltway into the hearts and minds of the American
people, trying to show the people a new road, not a road that closes
off America but a road that is fair to American workers and builds
democracy abroad.
That is what we should be about here. For those of us who have fought
this long fight it is a great fight to be in because we know we are
right. The American people are now listening. They know something is
up.
I thank the gentleman from Oregon for having this special order this
evening.
Mr. DeFAZIO. The interesting problem is that we have been somewhat
successful. I think when we first started to speak out against the
Mexican bailout it was pretty lonely. The Republican Speaker and the
Republican majority leader in the Senate went down to the White House
to meet with the President, Alan Greenspan, Secretary of the Treasury,
Democrat President. We had a bipartisan agreement that it was in the
national security interest of the United States to bail out Mexico and
rush something through the Congress. But then a few of us started
standing up and asking embarrassing questions about why this was
necessary, why the haste, what was the collateral, what exactly was the
national security interest. These are questions of cost that have never
been answered, and in fact that is why they will not try to have to
move that legislation through the House. They do not want answers to
those questions, the list that the gentlewoman from Ohio provided about
exactly who holds these securities that are at risk. They are trying to
come in and tell us it is pension funds.
{time} 2100
Well, we made some calls in my district, and I know other people
have, and we have yet to find anybody managing a pension fund that will
admit that they were speculating in junk bonds in Mexico, bonds that
paid between 20 and 50 percent interest.
Now I do not think there are very many prudent pension managers
around the Nation who are engaged in such speculation, but apparently
Goldman Sachs was into Mexico very big time, $5.2 billion over 4 years,
and who knows how many of their clients were at risk here, as opposed
to Goldman Sachs itself as a firm, and how much liability they might
have for having provided poor advice to their clients talking about the
emerging markets of Mexico, but in our success it appears we are about
to be short-circuited.
Where we could not get $40 billion out the front door, it appears
that the President is going to attempt to take $40 billion out the back
door, still working hand in glove with the Federal Reserve with secret
amounts of money under terms not to be disclosed to the people's
Representatives in the Congress, working through the International
Stabilization Bank. How much of the money being channeled through the
International Stabilization Bank is flowing out of our Federal Reserve,
working through the International Monetary Fund? How much of the money
coming through the International Monetary Fund is money being channeled
by the Federal Reserve of the United States of America? I have not
heard the outcry in Europe that we must stabilize Mexico in order to
stabilize the world economy. I have not heard those cries, but we
certainly heard the cries coming from the people running Goldman Sachs
in Wall Street.
So, now it turns out that the President, even though he came to the
Congress in a bipartisan way to propose this bailout, has decided,
well, actually he did not need the authority anyway, that there is
another way to structure
[[Page H965]] this bailout using section 5302 or chapter 31, section
5302, of the U.S. Code stabilizing exchange rates and arrangements.
The gentleman from Vermont [Mr. Sanders] is on the Committee on
Banking and Financial Services, and I know the gentlewoman from Ohio
[Ms. Kaptur] is more versed than me, but the way I read this, Mr.
Speaker, it allows us to engage in short-term swaps or exchanges of
funds to defend the U.S. dollar, not 10-year loans to bail out a
failing government in a collapsing economy.
I ask, ``Would you want to address that for a moment?''
Ms. KAPTUR. I am glad the gentleman brought up that point. Before I
address that, let me just say that through our efforts 80 percent of
the American people oppose this effort to try to prop up the peso so
that Mexico can pay its debts to Wall Street speculators. What is
interesting is the Wall Street Journal today also said that 75 percent
of the residents of Mexico City, the people of Mexico, were against the
loan guarantee packages as well, so if the people of the United States
are against it, and the people of Mexico are against it, who is it that
is ramming this through?
And the gentleman asked about the Banking Committee. In my 8 years
that I spent on the committee, Mr. Speaker, I never saw the Currency
Stabilization Fund used for this purpose. It was always used in small
amounts, never to the tune of $20 billion. We are trying to research
back to see the largest such use of the fund. Maybe we found $2 billion
back 10 years ago, but never to this extent, and never to defend the
debts owned by another country. This is a very precedent-setting move
that is occurring here.
In addition to that, there is an additional, around $17.5 billion,
coming through the International Monetary Fund, and at the moment it is
unclear to us whether that is $17.5 billion in new money because the
U.S. contribution to the IMF has to be appropriated dollars through
here. Are those old dollars? Are those new dollars? Where are those
dollars coming from?
And then the third element of this is the International Bank for
Settlements, which is $10 billion, and it is very interesting because
the Bank for International Settlements has a board just like the
Federal Reserve. It has 24 members on the board. The United States has
never participated on that board before. We were not making payments.
All of a sudden who ends up on the board of the 24 most recently? The
Chairman of our Federal Reserve, Alan Greenspan, and the chairman of
the New York Fed, Bill McDonough, all of a sudden. And Citibank,
surprise, surprise, is all of a sudden making payments into the Bank
for International Settlements.
Now if it would happen that the debtors could not
pay their debts, the burden of the Bank for International
Settlements falls to the member countries to pay back. So they have a
lot of different names, but it is the same people in these different
institutions, and it all comes back right here, to the taxpayers of the
United States, and every single economist that came before our hearings
that the gentleman from California [Mr. Hunter], and the gentleman from
Oregon [Mr. DeFazio] and the gentleman from Vermont [Mr. Sanders]
helped us organize about a week ago, every single person said this was
a set of credits that had high risk. This was not something where there
was certain repayment. They expected losses. So, we expect that there
will be claims that will be made on the taxpayers of our country under
this new scenario.
So, the gentleman is correct. I think what the President has done is
just pushed the definition of what is in that section to the limits
both in terms of his own authority and the amount of funds that will
now be drawn down for the purpose of, not propping up the dollar, but
propping up the debts that are owed to creditors by the Government of
Mexico.
Mr. DeFAZIO. Mr. Speaker, I yield to the gentleman from Vermont for a
moment.
Mr. SANDERS. Mr. Speaker, the gentlewoman from Ohio [Ms. Kaptur]
mentioned that she read in the Wall Street Journal, I gather, that not
only are the vast majority of the American people in opposition to this
bailout, but in Mexico City, for interesting reasons having to do with
the sovereignty of the Mexican people, very strong opposition to this
bailout as well. So, on one hand you have the American people in
opposition. On the other hand we have the Mexican people in opposition.
But probably in the Wall Street Journal, if we went to the editorial
page of the Wall Street Journal, let me guess. The Wall Street Journal
is strongly in support of the bailout, which takes us back to the
scenario that took place some 14 months ago when we debated this issue
of NAFTA right here on the floor of the House.
And interestingly enough the proponents of this bailout are trotting
out all of the same figures once again. We have all of our former
Presidents who told us what a great deal NAFTA would be. They are out
again. And all of the former Secretaries of the Treasury who told us
what a great deal NAFTA would be, they are out again. And all of the
major newspapers in America and all of the large corporations in
America who told us that NAFTA would significantly improve the standard
of living of Mexican workers, why they are out again telling us
editorially what a good deal this bailout would be.
The truth of the matter is that, and I say this, and I know you have
made this point before: We are not gleeful, we are not delighted to say
that we were right about NAFTA and they were wrong. We are not gleeful.
But we do think it would be helpful for some of these editorial writers
and the Wall Street Journal, instead of saying, ``Let us pump another
$40 billion of loan guarantees into Mexico, and then maybe they may
want to acknowledge that they were wrong and that maybe we want to
rethink.''
And I know that the gentleman from Oregon [Mr. DeFazio] has
introduced a very important piece of legislation that I know we are on
which says, ``Let us break the NAFTA agreement, let us withdraw from
the NAFTA agreement,'' but it really does bother me that, after
misleading the American people, they are back 14 months later saying,
oops, we made a little bit--they do not acknowledge that they made a
mistake, but now they have proposed that we have--we put another $40
billion of loan guarantees.
Mr. DeFAZIO. Well, actually what they do is they say, ``We never
could have anticipated this.''
Of course we talked about the fact the peso was overvalued, would be
devalued. I mean they can go back and review the debate, and actually
we told them, as did credible economists.
But the gentlewoman from Idaho [Mrs. Chenoweth] I believe has a
question she would like to direct to the gentlewoman from Ohio [Ms.
Kaptur] and I yield to her for that purpose.
Mrs. CHENOWETH. Mr. Speaker, I thank the gentleman very much, and,
being a freshman in this distinguished body, I have watched with great
admiration as the gentlewoman from Ohio has patiently explained to us
and the American people much that we need to know, and I appreciate her
very much, and I am learning from her, but I do want to ask either the
gentlewoman from Ohio [Ms. Kaptur] or the gentleman from my neighboring
State, the gentleman from Oregon [Mr. DeFazio]. I have a question about
the basic function and the statutory authority of the Bank of
International Settlements. I was shocked to realize that they, too,
were a part of this bailout.
{time} 2110
It was my understanding that the Bank of International Settlements
was set up to help with International disputes. Again, Mr. DeFazio
pointed out there is no national security problem here or no great
national interest here.
Where is the dispute? Can you help me out here? Can you help the
American people out? So much is being skirted in terms of what our
expectations should be in the way institutions function, as well as
government. It seems that the institutions are functioning outside of
government, and it is a frightening thing.
Ms. KAPTUR. First of all, I think the gentlewoman from Idaho, so
early in her first term, for being down here in the well asking the
right questions.
Sometimes we do not always win our issues, but we find if we give
voice to the American people, even though sometimes we feel like we do
not have a lot of power, with that voice comes
[[Page H966]] greater understanding, and slowly you see a country
change. I think that is what we are about.
I am not aware of what the dispute is. The Bank for International
Settlements was a consortium of central bankers that was devised in
order to try to deal with some of the currency differences and for
central banks to band together for assistance if there were draws that
went more to one country than another country. I, like the gentlewoman,
am quizzical as to what the dispute would be in this case. And I am
very concerned about what the U.S. financial obligation would be if
bills come due you.
I also wanted to place on the record this evening, to the gentleman
from Vermont, who has been so steadfast in participating in these
special orders, to say you have talked about the Wall Street Journal,
one of the most respected publications in our country. And read it
everyday and many, many analytical articles are just superb.
But I think it is important for the record to indicate that the
former president of Mexico, the most recent president of Mexico, Carlos
Salinas, was appointed to the board of Dow Jones & Co., which owns the
Wall Street Journal, and it does not surprise me, therefore, as I read
the various headlines in the Wall Street Journal and some of the hype
that has been put into trying to make it seem like if we do not do this
there will be an apocalypse, ``Mexico worries spread to emerging
markets,'' the headlines, ``Mexico's currency plunges 10 percent amid
worries about U.S. rescue plan.'' The headlines, you worry. Headlines
form policy. It is important to know who is in position to make
opinions about this and influencing public opinion.
So if I might further respond to the gentlewoman from Idaho, my hope
is that as we get more details on the package, over the next day we
hope--we were not able to get the fineprint today--we will be able to
answer your constituents and our own with more specificity as to the
role of the Bank for International Settlements in this.
We know it is $10 billion. We do not know how that is being drawn
down. We were not provided with any details today.
Mr. DeFAZIO. I think the gentlewoman for answering questions as best
we can at this time.
I think the gentlewoman from Idaho has raised an excellent question.
The Bank for International Settlements, what is the United States'
obligation to that bank at this point in time? How is it we came so
recently to be represented on the board of directors by Alan Greenspan
and the chairman of the New York Fed?
What commitments has the United States made of either funds that are
be channeled through the Federal Reserve Board in secret, or more overt
agreements or obligations of the Federal treasury? How much do we have
at risk here?
I think these are excellent questions that need to be answered.
You know, there is this wisdom that somehow we have to allow the
Federal Reserve to operate in secret because it is the only way to give
them political independence. The Bundesbank in Germany is I think the
most highly regarded central bank in the world, and they are required
to conduct all their deliberations, negotiations, discussions and votes
in public. But yet our Federal Reserve somehow is the only agency of
the Federal Government, more powerful than the Congress and the
President combined in terms of the economic future of this country
today, in terms of whether or not we bail out Mexico or raise interest
rates again to fight inflation that no one else sees except for Alan
Greenspan and a few other inflation warriors at the Federal Reserve,
they do all this in secrecy. They change the policies to say they think
4
percent unemployment is too low and they would rather have 6 percent,
because otherwise wages might go up a little bit and working people
might earn more in this country and that might start an inflationary
trend. At the same time they are tying us to international agreements
and institutions which are diminishing the role of U.S. labor.
So on the face of it their arguments are not even consistent. But
they do not have to account to anyone. They do not have to answer
questions if we call down there.
My staff called down today to ask about conflicts of interest by
members of the Federal Reserve Board. Do any members of the Federal
Reserve Board represent regional banks which are heavily invested in
Mexico, and have they disclosed that fact, have they recused themselves
from voting as they apportion funds to bail out Mexico? No, we are not
allowed to know the answer to that question.
So what is this body we have created, that is so much beyond the
public and the elected representatives of the people? Its role in this
bailout is just extraordinary.
Mr. SANDERS. I think the points that the gentleman is making are
absolutely correct. Ostensibly we live in a democracy, and ostensibly
it is the President of the United States and the House and the Senate
that represent the American people, and presumably are elected to do
the best that we can to represent the interests of the American people,
and presumably are elected to do the best that we can to represent the
interests of the American people. And one of the aspects of this whole
bailout which bothers me very, very much, is that all over this country
the American people know what a lemon it is. They know that with the
$290 billion deficit, and with people in this body talking about cuts
in Medicare and Medicaid and nutrition programs for the elderly and for
the children, that it is absolutely insane to be talking about putting
$40 billion of American taxpayers' money at risk in this bailout.
It is not often in my view, as the only Independent in the Congress,
that actually the Congress hears the needs of the American people. But
guess what? On this particular instance, the Congress, the Republicans,
the Democrats, the Independent, heard what the American people were
concerned about and made it very clear that the U.S. Congress was not
going to support the Mexican bailout.
So some of us last night, we were saying hey, every once in a while
we actually win a victory. It looks like we are going to win this
particular fight.
But lo and behold, guess what? So what if many of the vast majority
of the American people do not want the bailout? So what if the vast
majority of Congress does not want the bailout? I guess the Wall Street
Journal, the major corporations and the major banks in America do want
it. So, hey, if it is between the American people and the Congress on
one hand, and the corporate world and the banks on the other hand,
which way are we going to do?
So what the President does, which is really disturbing, I would have
been disturbed if Congress had voted for the bailout. But I could have
lived with it, just as I had to live with NAFTA. But the idea that the
President circumvented the Democratic process, pulled out some ancient,
arcane law which ostensibly gave him the authority, is very, very
disturbing. And I frankly think those of us in Congress who are
concerned about this issue have got to deal with that statute and make
some changes to it.
Mr. DeFAZIO. Well, I appreciate the gentleman's comments there. I
think it is certainly time to review this statute. It is obviously time
to get some clarification from the administration on exactly what
authority they believe they do have. Are there no limits? We are now
pledging $20 billion to Mexico. Is there no limit? What if the $20
billion is not enough? Credible analysts came before our hearing,
unlike the playacting hearing put on by the Committee on Banking and
Financial Services, but a hearing where we invited people who had
differing views from the administration and the bailout artists, and
said ``No. $40 billion will not be enough. Mexico is such a basket
case, if you are going to tie the U.S. dollar to the Mexican peso, you
better be prepared to defend the U.S. dollar against a run by the
Japanese and the Germans and others, because they do not think this is
a very smart thing to do.'' They said, ``You can expect to be talking
about $150 billion, not $40 billion dollars.''
So this stabilization fund, will the President next week announce
that well, the $20 billion was not enough, and now we are going to go
for another $50 billion or $100 billion?
[[Page H967]]
{time} 2120
Where does this money come from? As you said, we have a $200 billion
deficit, where does this money come from?
Mr. SANDERS. I think the gentleman and gentlewoman might agree that
if we were talking about loan guarantees, it might be appropriate to
talk about loan guarantees right here in the United States of America.
Can you imagine how many decent paying jobs we could create right here
at home rebuilding our economy, both the public sector and the private
sector, if we had loan guarantees right here. But apparently, uplifting
the poor people of America--I always get a kick, I get a kick out of
hearing how good it would be for our economy if we can improve the
standard of living of Mexican workers. I happen to be very strongly
pro-Mexican and very concerned about the problems and the poverty that
exists in Mexico, and we all want to uplift the Mexican people.
But how ironic that that same argument is not used here in the United
States of America. Fourteen percent of our people live in poverty. Now
maybe if we invested in a jobs program, maybe if we rebuilt our cities
and towns and our infrastructure and provided decent jobs for our
people and uplifted them, maybe they would also be able to purchase the
goods and services that right now corporate America wants to sell to
Mexico.
But apparently that is a very, very radical idea to suggest that we
might want to uplift the poor people in America rather than the poor
people in Mexico.
Mr. DeFAZIO. Did not the gentleman identify an article yesterday that
said that because of the economic straits that our country is in that
we are going to have to lower the loan guarantees made available to
small businesses in this country?
Mr. SANDERS. The small businesses.
Mr. DeFAZIO. In my State the thriving growth of the last 20 years has
come from small businesses. We have had a few big corporations move in,
but generally we can identify most of the growth that is coming in. Now
we will have to cut back on loan guarantees for small businesses in
America while we, for example, extend $40 billion to Mexico.
Mr. SANDERS. The gentleman is quite right. That was in the Washington
Post, I believe, yesterday. It dealt with the Small Business
Administration, that is correct.
Mr. DeFAZIO. That is extraordinary. So somehow, I guess small
businesses in the United States are not a good risk or we just cannot
afford them, even if they are a good risk. And so we are going to have
to cut back on that extension of credit. But a regime in Mexico, which
has had three major financial crises, essentially two previous defaults
in the last 12 years, which is an authoritarian regime which has
lowered the standard of living of its own people by 25 percent in the
last decade, which has, however, created 24 billionaires in a mere 7
years, is somehow a great credit risk. And there is nothing to worry
about. But American businesses, well, I am sorry, we cannot afford to
extend that kind of credit to American businesses. We are just going to
have to cut that program back, and we are also going to cut our loans,
rural electrification loans and other things.
We do have a budget crisis. I agree. It is time to get it under
control. But how is it that suddenly, when we have to bail out the
savings and loans, we can do it off budget; when we have to bail out
Mexico, we can do it off budget. But if it goes to average
American people and their concerns, their small businesses, their
livelihoods, their education, we are broke.
This is a strange parallel to me.
Mr. SANDERS. The other irony, I think, perhaps the interesting irony
in this whole affair is that I personally happen not to be a great
believer in the free enterprise system for many reasons. I do respect
people who take a risk and, having taken that risk, if they do well,
they earn a whole lot of money. I think that is okay. But when you take
a risk by definition, there is a chance that you may lose. I find it
really outrageous that the people who invested in Mexico, especially
after the NAFTA agreement, they invested a whole lot of money, and they
expected a high rate of return. Well, things did not turn out the way
they expected. That is unfortunate.
But in Vermont, small businesses are having very great difficulty,
family farmers, workers, having very great difficulty. And yet they do
not have the U.S. Government guaranteeing their investment. What a
wonderful world it is for Wall Street investors. It is heads, I win;
tails, you lose. Heads, I win and get a large rate of return from my
investment in Mexico or tails, you guarantee my investment. Sorry, the
American taxpayer.
So they make these investments. And then they come crawling into the
Congress and say, gee, Congress, gee, Mr. President, we very, very
wealthy people may have to lose some money. That is unacceptable. We
are very wealthy. We are not supposed to lose any money. So you
ordinary Americans, average taxpayers, workers who may have seen your
jobs go to Mexico, we want you to bail us out.
And the leadership of the Republican party and the President and Mr.
Greenspan say, well, that makes sense to us. Hey, that is a good idea.
We will guarantee your investments.
Oh, that the average American small businessperson had that type of
support behind him or her.
Mr. DeFAZIO. I think a lot of our colleagues are not aware of the
fact that a lot of these short-term tesobonos that the Mexican
Government cannot turn over are paying rates of interest between 21 and
50 percent. Now, I do not know, but if someone offered me a 21 percent
rate of return on my modest savings, I might say, is there not a risk.
That seems like an awful high rate of return.
If they said, no, Congressman, do not worry about it, there is no
risk at all, I think maybe I would make a few phone calls. But the Wall
Street people, the Goldman Sachs firm, which is into Mexico for $25.2
billion over the last 3 years, and others, said, oh, no, this is an
emerging economy. There is no risk. This is just sort of like the
United States except the people speak Spanish. There is no risk down
there. Do not worry about the government. They just had an election.
Well, they had an election 6 years ago. The party that lost won, and
they were the one we liked the most. And this last time the party that
we liked the most, well, they won again. They may have fixed the
election, but they always win, so there is no risk. They do not allow
people to organize, labor unions. And if they do organize the labor
unions, do not worry, we also control the judiciary because we do not
have an independent judiciary in this country. And the judiciary will
take care of those pesky people trying to drive up wages there in
Mexico. So we will keep wages down there even lower than we can drive
wages in the United States so your investment in
Mexico is totally safe.
This is what is extraordinary to me, that we have allowed this thing
to spin so far out of control, that we get sold such a bill of goods.
Not you and I, since we voted against the NAFTA agreement, but so many
of our colleagues. And now we are going to go to this extent to cover
some very prestigious fannies around here and extend $40 billion of our
taxpayers' money to bail them out. They could not get it through the
Congress, to the credit of this institution. But now they are going to
find another way to do it.
Mr. SANDERS. I think at this point maybe some Americans are wondering
what they can do about this fiasco. I think the iron law of politics is
that government will often try to get away with as much as they can
until people stand up and say, sorry, you are not going to do that.
So I think I would speak for you and many Members of Congress who are
saying to the American people, we have enough problems at home. We have
a $200 billion deficit and a $4.6 trillion national debt. We do not
think it makes a lot of sense within that context to be bailing out an
authoritarian and unstable government and a very shaky economy in
Mexico. I would very strongly urge the American people, write to the
President, write to your Members of Congress and say, wait a second. We
want you to stop this $40 billion bailout.
So I would hope that the American people would stand up and say, no,
Mr. President, no Republican leadership,
[[Page H968]] let us reinvest in America. Let us control our own
deficit. I hope we do not take this lying down.
If people stand up and fight back, we can yet turn around this
fiasco.
Mr. DeFAZIO. I thank the gentleman.
I think these are an extraordinary couple of days in the history of
this republic. The House of Representatives and the Senate did stop the
bailout of Mexico or at least indicated that they were not willing to
go along readily. That was great. But now we have seen an end run
around the Congress of the United States with the creative
interpretation of a statute and another way to send $40 billion out the
back door that Congress would not let go out the front door. Yet again
the Federal Reserve is going to meet tomorrow to try and visit another
catastrophe on the American people, to raise interest rates, to banish
the threat of inflation that does not exist.
{time} 2130
There is a 30 year low in terms of inflation statistics to drive up
unemployment. That is the policy of the Federal Reserve.
Did this Congress authorize the Federal Reserve to drive up
unemployment? Are those the underlying laws and statutes in the United
States, and is that the authority which extended to the Federal
Reserve: You are charged with driving up unemployment because we do not
want to see wages go up, we don't want people to make a better standard
of living?
That is not what I got elected to do. I believe there are some
extraordinary questions here, and they all seem to come back to the
same very small influential group, the Federal Reserve, a few people on
Wall Street and some people in the administration, some of whom used to
work on Wall Street very recently, earning up to $26 million a year
advising their company to invest $5.2 billion in Mexico, and now want
to bail out Mexico.
These are extraordinary times, and the people should be very
attentive to what is going on here.
Mr. SANDERS. Mr. Speaker, I say to the gentleman
from Oregon, [Mr. DeFazio], what especially distresses me, as the
gentleman knows, in this last election only 38 percent of the American
people bothered to vote. I think the reason for that is so many people
are just shaking their heads and shaking their hands and they are
saying, ``Hey, I really have no power. I have no authority.''
With this whole business, what this whole business indicates is that
we can understand why people are giving up on the democratic process,
because here we have, for once in a very long time, the Congress of the
United States actually doing the right thing and saying no to the
bailout, and yet we still cannot win.
So next time when we run for reelection and we go back home, people
are going to say, ``What difference does it make? You are trying to do
a good job but they are going to go around you anyhow. You do not have
enough power to represent ordinary people.''
I think that is a very sad thing at a time when many of us, I know
the three of us, are reaching out. We want working people and we want
poor people and we want the elderly to get involved in the political
process.
This action on the part of the President just discourages, I think,
millions of people who say, ``Hey, it does not make a difference. Wall
Street has made a demand and the President has succumbed to it, and it
does not matter what ordinary people think about it.''
Mr. DeFAZIO. Mr. Speaker, I yield to the gentlewoman from Ohio.
Ms. KAPTUR. Mr. Speaker, I just want to say what a pleasure it has
been to participate in this special order with both gentlemen this
evening, and to also mention that part of the reason we doubt this
rescue package is simply because people like myself believe that the
markets are being manipulated by those who have a great deal of power.
In Mexico, for example, we know that both the government of Mexico
and our own Government knew that the peso was overvalued. We tried to
get it dealt with in the NAFTA agreement itself. They tried to prop up
and they did prop up the value of the peso right before the Mexican
election in August, and right after the election the peso began to drop
in value.
Then we had the GATT debate here in Congress, and right after GATT
passed the peso went through the floor. So we know that that government
manipulates the value of its money. Knowing that, we know we are now
being manipulated; that much of what we see happening is being done to
benefit the very same financial interests that created the overinflated
peso during the 1993-1994 period. There is a lot of money on the line
for many of these private interests.
My point with them is when, especially for those interests in the
United States which made over a 66 percent return on their emerging
market funds since 1990, you greeted those gains and profits with
smiles and parties in New York and boat parties off the docks and all
the things that happened with a 66 percent return, while interest rates
for average American families were going up at the same time as you ate
your profits, now is the time to eat your losses. The private market is
a very harsh referee, but you have to accept the market, both in the
ups and the downs, and not come running to the taxpayers of the United
States for some type of private or public relief for private actions.
I just want to thank the gentleman for participating in this special
order this evening, and to say what makes it worthwhile serving in the
Congress of the United States. Though we don't always win, though we
fight as hard as we know how, it is only bearable because of the people
who send you here and because of the fine colleagues with whom you
serve.
I would say to the gentleman from Oregon [Mr. DeFazio] and to the
gentleman from Vermont [Mr. Sanders] it is only worth serving because
you are here, too. It has been a pleasure to be here with you.
Mr. DeFAZIO. Mr. Speaker, I thank the gentlewoman. I thank her for
her leadership, and I can assure our colleagues that this is not the
last they have heard from us on this issue, either on the Mexican
bailout and the new attempts by the President to end run the Congress,
or the Federal Reserve and their incessant increases in interest rates
driving thousands of Americans out of work.
____________________