[Congressional Record Volume 154, Number 14 (Tuesday, January 29, 2008)]
[Extensions of Remarks]
[Pages E92-E93]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             WHY AMERICA NEEDS A LITTLE LESS LAISSEZ-FAIRE

                                 ______
                                 

                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                       Tuesday, January 29, 2008

  Mr. McDERMOTT. Madam Speaker, a recent Op-Ed written by the Honorable 
Barney Frank, Chairman of the House Committee on Financial Services, 
appeared in the Financial Times. Mr. Frank, I believe, succinctly 
describes the challenges that face Federal policy makers and a new 
American president. Too often these days, the market fails to protect 
the interests of the common good. I look forward to working with a 
president and a Congress that understands the vital role of a little 
government regulation and intervention. I am entering Mr. Frank's Op-Ed 
into the Record so that our colleagues, and interested Americans, can 
consider what lies ahead for our country if we do not carefully examine 
how we arrived in the current situation.

               [From the Financial Times, Jan. 14, 2008]

             Why America Needs a Little Less Laissez-Faire

                           (By Barney Frank)

       As we prepare for this autumn's election, the results are 
     in on America's 30-year experiment with radical economic 
     deregulation. Income inequality has risen to levels not seen 
     since the 1920s and the collapse of the unregulated portion 
     of the mortgage and secondary markets threatens the health of 
     the overall economy.
       These two economic failures will be major issues in the 
     forthcoming presidential election and, importantly, there is 
     an emerging Democratic consensus standing in sharp contrast 
     to the laisser faire Republican approach.
       There are two central elements of this consensus. Democrats 
     believe that government's role as regulator is essential in 
     maintaining confidence in the integrity and fairness of 
     markets, and we believe that economic growth alone is not 
     enough to reverse unacceptable levels of income inequality. 
     In the wake of the subprime mortgage crisis, credit markets 
     round the world contracted sharply in response to concerns 
     among market participants about the value of exotic and 
     opaque securities being offered in largely unregulated 
     secondary markets. This staggering implosion and its damaging 
     and widespread reverberations make it clear that a mature 
     capitalist economy is as likely to suffer from too little 
     regulation as from too much.
       With respect to income inequality, since the end of the 
     last recession--a period of steady economic growth--average 
     earnings for the vast majority of workers have fallen in real 
     terms. During this period, after-tax incomes of the top 1 per 
     cent nearly doubled.
       Whether because of globalisation, technology or other 
     factors, it is clear that market forces have produced too 
     much inequality and government has not adequately used its 
     capacity to mitigate the impact of these forces.
       Conservatives have long argued that government efforts to 
     address these issues would damage the economy. They are, of 
     course, the same people who predicted that there would be an 
     economic disaster after Bill Clinton and the Democratic 
     Congress raised marginal tax rates in 1993, and who opposed 
     other tax increases on upper-income people. Economic growth 
     in the ensuing years was among the strongest in the postwar 
     era. It is now clear that growth in the private sector is 
     consistent with a far greater variation in many aspects of 
     public policy--including taxation and regulation--than 
     conservatives claim. In fact, appropriate intervention with 
     respect to prudential market regulation is necessary to 
     promote growth, and its absence--as we have learned--can 
     retard it.
       As recently as a year ago, one often heard the argument 
     that U.S. financial activity would migrate offshore unless we 
     moved to further deregulate markets. There is little evidence 
     to support this claim. In fact, it is now clear that what has 
     been migrating to the rest of the world are the problems 
     associated with securities based on bad loans--often 
     originated by unregulated institutions in the U.S. Banks in 
     the UK and Germany were forced to close, either as a result 
     of

[[Page E93]]

     holding large portfolios of these securities or because they 
     could not roll over debt backed by them.
       Widespread securitisation, and use of the ``originate to 
     distribute'' model, has turned out to be far less than the 
     unmitigated boon it had once appeared.
       The market did its job with great efficiency in exploiting 
     the benefits of securitisation but government failed to make 
     good on its responsibilities. The failure of regulation to 
     keep pace with innovation left us with no replacement for the 
     discipline provided by the lender-borrower relationship that 
     securitisation dissolves. Increasing and largely unregulated 
     leverage multiplies the corrosive effect of this change.
       In response to the current crisis, it appears that the 
     regulatory tide may, at long last, be turning.
       In 1994 a Democratic Congress--the last before the 
     Republican takeover marked the arrival of the deregulators--
     passed the homeowners equity protection act, giving the 
     Federal Reserve the power to regulate all home mortgage 
     loans. The avatar of deregulation, Alan Greenspan, then Fed 
     chairman, flatly refused to use any of that authority.
       In contrast, today's Fed will soon issue rules using that 
     authority. That represents a significant repudiation of the 
     previous view. While the proposals made by the Democratic 
     presidential candidates differ in detail, they are to a 
     substantial extent consistent with the argument I have made 
     here. Their Republican counterparts continue to advocate the 
     hands-off approach pursued by the Bush administration. As a 
     result, we are likely to have a healthy debate about the role 
     of government in supporting a robust capitalist economy in 
     the 21st century. It is important to note that this debate is 
     not about policy details but represents fundamentally 
     different views about the nature of our modern economy.
       I believe the American people will decide that we should 
     enact policies that seek to curb growing inequality and 
     provide some check on market excesses.

                          ____________________