[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.


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