[Congressional Record Volume 154, Number 82 (Monday, May 19, 2008)]
[Extensions of Remarks]
[Pages E959-E960]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




FORMER IMF HEAD CALLS FOR REGULATION TO TAME THE ``MONSTER'' FINANCIAL 
                                 MARKET

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                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                          Monday, May 19, 2008

  Mr. FRANK of Massachusetts. Madam Speaker, for much of the past 
decade, we have had a debate between those calling for substantial 
deregulation in the financial markets, and those of us who are 
concerned that we did not have sufficient regulation to deal with the 
powerful innovations that we have seen in that market recently. Recent 
experience, in which disarray in the financial markets due in part to 
an absence of sensible regulation has led to serious economic problems 
in the world, very much strengthens the argument for appropriate public 
intervention that

[[Page E960]]

seeks to preserve the advantages of recent innovations while 
diminishing the harm that they have caused. Earlier this week, Horst 
Kohler, a man of significant experience in the financial world, and not 
one previously suspected of radicalism in any degree, spoke out 
strongly to emphasize that ``We need more severe and efficient 
regulation, higher capital requirements to underpin financial trades, 
more transparency and a global institution to independently oversee the 
stability of the international financial system.''
  Madam Speaker, reasonable people can differ with Mr. Kohler on some 
of the specifics, and on how they would be constituted. But the voice 
from this respected, experienced participant at the highest levels of 
the financial system should be heeded. It is truly time for us to work 
together here in the U.S. and in cooperation with legislators and 
regulators in other countries, to put in place the kind of system that 
Horst Kohler calls for, one in which we can try to increase the 
benefits of innovation while diminishing the damage that unchecked 
activity can cause.
  Madam Speaker, I note that among the areas that Mr. Kohler calls on 
us to address is what he calls ``the grotesquely high compensation of 
individual finance managers.'' In this connection, it should also be 
noted that Joaquin Almunia, Monetary Affairs Commissioner of the 
European Union, also recently noted that ``When we talk about wage 
moderation and the need to link wage increases with productivity 
increases, then we also have to say something about levels of 
remuneration that sometimes don't seem to reflect productivity'' for 
top executives.
  I ask that this important contribution to the debate about financial 
services regulation be printed here.

   German President Lashes Out at ``Monster'' Market and Its Bankers

                 (By Bertrand Benoit and James Wilson)

       Global financial markets have of become ``a monster'' that 
     ``must be put back in its place'', the German president has 
     said, comparing bankers with alchemists who were responsible 
     for ``massive destruction of assets''.
       In some of the toughest comments by a leading European 
     politician since the start of the subprime crisis, Horst 
     Kohler--a former head of the International Monetary Fund--
     called for tougher regulations and the reconstruction of a 
     ``continental European banking culture''.
       Mr. Kohler singled out excessive executive pay, the focus 
     of much public resentment against top managers, as a factor 
     in the subprime crisis and accused bankers of acting 
     irresponsibly.
       ``The complexity of financial products and the possibility 
     to carry out huge leveraged trades with little [of their] own 
     capital have allowed the monster to grow . . . also 
     responsible [is] the grotesquely high compensation of 
     individual finance managers.''
       Mr. Kohler's words will revive memories of the 2005 remarks 
     by Franz Muntefering, then German vice-chancellor, who 
     attached hedge funds as ``swarms of locusts'' whose ``profit-
     maximizing strategies inspired by international competition'' 
     posed ``a danger to our democracy.''
       The comments from Mr. Kohler came as European Union finance 
     ministers ratcheted up the pressure over boardroom pay--
     describing excessive remuneration as ``scandalous''.
       ``When we talk about wage moderation and the need to link 
     wage increases with productivity increases, then we also have 
     to say something about levels of remuneration that sometimes 
     don't seem to reflect productivity,'' sand Joaquin Almunia, 
     EU monetary affairs commissioner.
       Bankers ``have made huge mistakes'', Mr. Kohler told Stern 
     magazine, published today. Referring to the subprime crisis, 
     he said: ``I am still waiting for a clear, audible mea culpa. 
     The only good thing about this crisis is that it has made 
     clear to any thinking, responsible person in the sector that 
     international financial markets have developed into a monster 
     that must be put back in its place.
       ``We need more severe and efficient regulation, higher 
     capital requirements to underpin financial trades, more 
     transparency and a global institution to independently 
     oversee the stability of the international financial system. 
     I have already suggested that the IMF assume this role.''

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