[Congressional Record (Bound Edition), Volume 155 (2009), Part 6]
[House]
[Page 8223]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 THE ECONOMIC CRISIS--WHAT LIES BENEATH

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Madam Speaker, our Federal Government has taken drastic 
measures in the past 6 months, mainly in the form of taxpayer-funded 
bailouts, in an attempt to put a stop to the complete deterioration of 
our financial system. Trillions have been spent and companies such as 
AIG have been deemed ``too big to fail.'' But the Wall Street bailouts 
have proven to not be a sustainable cure to our financial ills. These 
bailouts constitute an assault on American capitalism and have 
introduced a large degree of financial hazard into our economic system.
  The nationalization of private assets is inherently un-American. With 
all the money we have spent thus far, we should have been able to stem 
much of the economic collapse--but we haven't. We have failed to grasp 
the root of the problem--the unregulated, out-of-control derivatives 
market.
  The recent disclosure that AIG will pay out $165 million in bonuses 
to employees of their Financial Products division--the very unit that 
made bad bets on toxic mortgages and credit default swaps--is wrong. 
The Federal Government owns 80 percent of AIG and the Treasury and the 
Federal Reserve has infused more than $170 billion in taxpayer bailout 
money trying to rescue this company. As these recent events 
demonstrate, the administration's plan of recovery by bailout is not 
working. Bailout after bailout is not a strategy. It's a formula for 
waste, fraud and abuse of taxpayer funds.
  The Federal Government has spent an exorbitant amount of money trying 
to rescue the economy but it appears to have had little effect. Beyond 
the $700 billion for TARP funds, the government has made commitments of 
more than $9 trillion and has spent $2.2 trillion. And there is very 
little oversight of this money as the case of the AIG bonuses makes 
clear. This begs the question: What are we getting for our money?
  Clearly the real cause of the financial crisis is more than just the 
bursting of the housing bubble, since over 90 percent of all homeowners 
are current on their mortgages. A closer look at the root causes of the 
crisis reveals flawed incentive structures and an inadequate regulatory 
system that allowed the derivatives market to spiral out of control.
  Specifically, the credit default swap market is completely 
unregulated and it helped spread the risks generated by subprime 
mortgages to investors and financial institutions around the world. In 
the U.S. alone, the Office of the Comptroller of the Currency reported 
the amount of outstanding credit derivatives from reporting banks to be 
$16.4 trillion just a year ago. Among the G10 countries--the United 
States, the U.K., Belgium, Canada, France, Germany, Italy, Japan, the 
Netherlands, Sweden plus Switzerland--the amount of outstanding credit 
default swaps is about $57 trillion.
  Many have called credit default swaps and the larger derivatives 
market the true culprit in the global financial crisis. Derivatives 
trading also helped to contribute to AIG's near collapse and it seems 
as if no amount of money can save AIG at the moment, yet the company 
has been deemed ``too big to fail.'' However, no one has defined what 
``too big to fail'' means in the real world.
  Beyond just credit default swaps, the Bank for International 
Settlements--the world's oldest international financial organization 
headquartered in Basel, Switzerland--reports the total outstanding 
amount of over-the-counter derivatives to be $684 trillion. This large 
amount of outstanding derivatives demonstrates the world financial 
system could be in a huge amount of additional trouble during this 
worldwide economic crisis. Since over-the-counter derivatives are 
negotiated between parties and not on an exchange, the risk of the 
contract falls on both of the parties. So if one of the parties is not 
able to meet the terms of the contract, the first party stands to lose 
as well. With $684 trillion of outstanding money, we are playing with 
very hot fire.
  As these statistics show, this is a problem not just in the United 
States but around the globe.
  So what is the solution? Let's break up these firms and sell the 
pieces off or separate the toxic loans and let the free market correct 
the economy as it was designed. The viable portion of these massive 
financial institutions can still be salvaged. However, we need to 
examine their asset sheets to determine how deeply involved each 
company is in the derivatives market.
  There are better options than endless bailouts and the 
nationalization of private assets in this country. We must put an end 
to throwing trillions at the wrong source of the problem.

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