[Congressional Record (Bound Edition), Volume 145 (1999), Part 20]
[Extensions of Remarks]
[Page 29059]
[From the U.S. Government Publishing Office, www.gpo.gov]



                               speech of

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                       Thursday, November 4, 1999

  Mr. PAUL. Madam Speaker, today we are considering a bill aimed at 
modernizing the financial services industry through deregulation. It is 
a worthy goal which I support. However, this bill falls short of that 
goal. The negative aspects of this bill outweigh the benefits. Many 
have already argued for the need to update our financial laws. I would 
just add that I agree on the need for reform but oppose this approach.
  With the economy more fragile than is popularly recognized, we should 
move cautiously as we initiate reforms. Federal Reserve Board Chairman 
Alan Greenspan (in a 1997 speech in Frankfurt, Germany and other 
times), Kurt Richebacher, Frank Veneroso and others, have questioned 
the statistical accuracy of the economy's vaunted productivity gains.
  Federal Reserve Governor Edward Gramlich today joined many others who 
are concerned about the strength of the economy when he warned that the 
low U.S. savings rate was a cause for concern. Coupled with the likely 
decline in foreign investment in the United States, he said that the 
economy will require some potentially ``painful'' adjustments--some 
combination of higher exports, higher interest rates, lower investment, 
and/or lower dollar values.
  Such a scenario would put added pressure on the financial bubble. The 
growth in money and credit has outpaced both savings and economic 
growth. These inflationary pressures have been concentrated in asset 
prices, not consumer price inflation--keeping monetary policy too easy. 
This increase in asset prices has fueled domestic borrowing and 
  Government policy and the increase in securitization are largely 
responsible for this bubble. In addition to loose monetary policies by 
the Federal Reserve, government-sponsored enterprises Fannie Mae and 
Freddie Mac have contributed to the problem. The fourfold increases in 
their balance sheets from 1997 to 1998 boosted new home borrowings to 
more than $1.5 trillion in 1998, two-thirds of which were refinances 
which put an extra $15,000 in the pockets of consumers on average--and 
reduce risk for individual institutions while increasing risk for the 
system as a whole.
  The rapidity and severity of changes in economic conditions can 
affect prospects for individual institutions more greatly than that of 
the overall economy. The Long Term Capital Management hedge fund is a 
prime example. New companies start and others fail every day. What is 
troubling with the hedge fund bailout was the governmental response and 
the increase in moral hazard.
  This increased indication of the government's eagerness to bail out 
highly-leveraged, risky and largely unregulated financial institutions 
bodes ill for the post S. 900 future as far as limiting taxpayer 
liability is concerned. LTCM isn't even registered in the United States 
but the Cayman Islands!
  Government regulations present the greatest threat to privacy and 
consumers' loss of control over their own personal information. In the 
private sector, individuals protect their financial privacy as an 
integral part of the market process by providing information they 
regard as private only to entities they trust will maintain a degree of 
privacy of which they approve. Individuals avoid privacy violators by 
``opting out'' and doing business only with such privacy-respecting 
  The better alternative is to repeal privacy busting government 
regulations. The same approach applies to Glass-Steagall and S. 900. 
Why not just repeal the offending regulation? In the banking committee, 
I offered an amendment to do just that. My main reasons for voting 
against this bill are the expansion of the taxpayer liability and the 
introduction of even more regulations. The entire multi-hundred page S. 
900 that reregulates rather than deregulates the financial sector could 
be replaced with a simple one-page bill.