[Congressional Record (Bound Edition), Volume 156 (2010), Part 5]
[House]
[Pages 6426-6433]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            FINANCIAL REFORM

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from California (Mr. Royce) is 
recognized for 60 minutes as the designee of the minority leader.
  Mr. ROYCE. Mr. Speaker, as we watch the Senate move on legislation 
yet again toward a cloture vote on Senator Dodd's legislation, I think 
it is worth noting some of the concerns that many of us have and that 
many economists have with the Dodd-Frank approach on the legislation. I 
begin with focusing on a past occurrence, the rescue of investment bank 
Bear Stearns in the spring of 2008.
  The Federal Government has committed trillions of taxpayer dollars to 
institutions like Fannie Mae, Freddie Mac, AIG, Citigroup, and Bank of 
America out of fear that the demise of any of these too-big-to-fail 
institutions would trigger a systemic crisis and collapse of the global 
financial system. For my own part, I'd make the observation that I 
thought--I voted against those bailouts with the presumption that if we 
move to enhance bankruptcy, it would be preferable to setting up a 
system which would bring the moral hazard and the eventual evolution 
into a system where the Federal Government was guaranteeing 
institutions that were too big to fail.
  But that is currently the concern I have about this legislation, even 
though the public has rejected this approach to financial regulation, 
the bailouts that we have seen, and abhor bailouts of financial 
institutions. If you have a town hall meeting, I guarantee you, you 
will sense the rejection of the Dodd-Frank approach.

                              {time}  1815

  Still, this approach, endorsed by the administration, would guarantee 
the bailout authority remains a powerful tool in the government's 
arsenal. Now,

[[Page 6427]]

the President is hoping to use the tactic employed in the health care 
debate by dismissing legitimate concerns with rhetoric but not with 
facts. And I would take the comments he made in New York where he said, 
``What is not legitimate is to suggest that we're enabling or 
encouraging future taxpayer bailouts, as some have claimed. That may 
make for a good sound bite, but it's not factually accurate.'' Well, 
actually it is accurate.
  And let us look at the bailout fund in the House-passed bill. On the 
House side, H.R. 4173, subsection 1609(o), it provides authority for 
the government to borrow up to $200 billion that can be used by the 
government for its bailout actions.
  In the Senate bill, Senate bill 3217, subsection 210(n), it creates a 
special $50 billion fund to resolve big financial institutions, to 
resolve those institutions when they've failed. Behind that fund is the 
ability to issue government debt--in other words, to issue taxpayer 
obligations. It is no wonder why our colleague on the other side of the 
aisle from California (Mr. Sherman) recently said of the Dodd bill, 
``There are serious problems with the Dodd bill. The Dodd bill has 
unlimited executive bailout authority. That's something Wall Street 
desperately wants but doesn't dare ask for. The bill contains 
permanent, unlimited bailout authority,'' as my colleague on the other 
side of the aisle mentioned, and I agree with his assessment.
  There is another piece of this in the broad expansion of open bank 
assistance authority granted to the FDIC. The House bill, section 1109, 
provides the FDIC authority to ``avoid or mitigate adverse effects on 
systemic economic conditions or financial stability by guaranteeing 
obligations of solvent'' financial institutions. The FDIC's guarantees 
can be up to $500 billion and may be expanded an additional $500 
billion with permission from Congress. That is $500 billion in 
potential taxpayer liabilities to solvent companies.
  This is not the death panel that Chairman Frank so often claimed. 
This is not an ``enhanced bankruptcy process'' or an ``expedited 
bankruptcy'' that the administration wants people to believe. It is, in 
fact, a codification of the current ad hoc approach to bailouts. As Mr. 
Sherman has noted in the past, this amounts to TARP on steroids.
  We are handing over the keys to the Treasury to unelected 
bureaucrats. If TARP was any indicator, regulators will always err on 
the side of doling out too many Federal dollars under the guise of 
preventing a systemic shock. If the letter of the law allows for them 
to guarantee $500 billion of debt for solvent companies, they will do 
just that. And this is simply the wrong approach. Regulatory discretion 
armed with a large pool of taxpayer money will inevitably lead to 
political abuse.
  Under the Dodd-Frank approach, government will determine which firms 
are too big to fail and which are too small to save. Under this bill, 
the government will determine which creditors and which counterparties 
of a failed firm should be bailed out and those that should not. And 
government will dismantle a healthy institution that they believe may 
pose a risk under the wording of the legislation.
  This type of power will lead to a hyperpolitical environment where 
political pull will replace market discipline. Subjectivity will 
replace objectivity and the clearly defined rules of the road that have 
been a cornerstone of our capital markets. We need to expand the 
bankruptcy process and the clearly defined rules of the road that come 
with it, and we need to take out the ability for political manipulation 
in the process.
  There are other concerns that I have with the approach in this 
legislation, in the Dodd-Frank approach, and one of the concerns I have 
is that it fails wholly to address one of the major root causes of the 
crisis. It is important to remember that one of the root causes of the 
crisis was in the junk mortgage market, subprime and Alt-A loans. 
Federal Government policies were responsible for the buildup of these 
loans. There were 27 million subprime and Alt-A loans in our economy in 
2008 before the financial crisis. That's about half of all mortgages. 
Of those, 12 million were held or guaranteed by Fannie Mae and Freddie 
Mac, the government-sponsored enterprises; $5.4 billion of FHA and 
about 2 million as a result of the largest banks making CRA commitments 
in order to get approval for mergers and expansions.
  One of the other factors, of course, in the economic contraction that 
we've faced was the fact that the Fed set negative real interest rates; 
in other words, they set the interest rates that were measured against 
inflation at a negative sum, and when our Federal Reserve put that in 
place for 4 years running, it was followed by central banks in Europe 
that did the same thing. So central banks all over the world for 4 
years set those interest rates at a negative rate.
  Virtually every economist will tell you that this played a 
significant role in the crisis; and we're not looking at the fact that 
we have not addressed this issue either because, in essence, the 
Federal and the central banks threw fuel on the fire. These unusually 
low rates incentivized the financial sector to take excessive risk and 
they exacerbate the normal business cycle. Dr. Friedrich Hayek won the 
Nobel Prize in Economics in 1974 for explaining this phenomenon on how 
this causes booms and busts in the cycle.
  And, of course, Fannie Mae and Freddie Mac and the easy money policy 
at the Fed were central to the housing boom and bust, and they are left 
unaddressed in the Dodd-Frank approach. When you add things in like 
excessive leverage in the financial sector and the overreliance on the 
failed rating agencies, you have a recipe for disaster.
  And I will add that the Fed came to the Congress and suggested to us 
in 2004 and 2005 that there was systemic risk with Fannie and Freddie, 
and what they asked for was an amendment to deleverage these portfolios 
that were being built up in Fannie and Freddie, in our GSEs, our 
government-sponsored enterprises. The leveraging was in excess of 
100:1. These institutions were involved in arbitrage, and it was 
Congress that gave them the wherewithal to do this and prevented the 
regulators from going in and forcing these institutions, these 
government-sponsored enterprises, to deleverage the size of these 
portfolios.
  You can imagine the reaction from officials at the Fed when we turned 
a deaf ear in Congress. As a matter of fact, I want to point out that 
in the Senate, we had legislation from Senator Hagel written by the Fed 
that would allow that authority to regulate for systemic risk, to give 
the regulators the ability to deregulate these portfolios. That bill 
went out of committee, but Senator Chris Dodd opposed it on the floor, 
opposed it coming to the floor, and, as a consequence, the bill never 
came up; although it passed committee, it never came up in the Senate.
  On this side of the House, the House of Representatives, there was a 
bill that came to the floor, and I put in the amendment that Chuck 
Hagel had carried in the Senate. Again, the amendment that I introduced 
was written by the Federal Reserve in an attempt to give them the 
ability to regulate for systemic risk in Fannie and Freddie because 
they had warned that the consequence we faced was a systemic economic 
collapse. And certainly that's exactly where this collapse began. It 
was in the housing market. It was with the collapse of Fannie and 
Freddie, the loss of about $1 trillion in value.
  Now I'm going to bring up one other issue that's missing on the 
Senate side that really gives me pause in terms of the way this is 
approached. Let me just make the point that the FDIC has no experience 
with these types of institutions. As I've said before, I have opposed 
the bailouts. I, instead, wanted to see a system devised. We have 
companies, major firms go bankrupt in the United States--airlines, 
railroads. These are handled instead by an expedited bankruptcy process 
through the courts, and that's what I wanted to see beefed up.
  Let's go to the Senate bill. A major premise upon which the 
resolution authority was based is the notion that

[[Page 6428]]

the FDIC uses a similar tool to unwind small commercial banks. In fact, 
last week before the Financial Services Committee, Secretary Geithner 
again reiterated this point. But this is like comparing apples to 
oranges, and I will share with you why.
  The FDIC is liquidating very simple institutions primarily made up of 
insured deposits and made up of small straightforward loans. In fact, 
98 percent of the liabilities of banks and thrifts unwound by the FDIC 
in the last 2 years were insured deposits. This is in stark contrast to 
the nondeposit-taking institutions likely to be covered under the 
resolution authority, which is going to end up creating this permanent 
bailout authority. And I would just give you some examples from the 
past.
  Take Lehman Brothers, take AIG. Neither of these firms had insured 
depositors or depositors of any kind, and their complex assets and 
liabilities did not look anything like the simple small loans and 
residential and commercial mortgages that the FDIC deals with. The 
sheer size of these institutions trump anything the FDIC has touched. 
The $639 billion in Lehman was nearly 15 times bigger than the largest 
bank ever resolved by the FDIC, and AIG was over $1 trillion in assets.
  This is another problem with this approach. Since nearly all of the 
liabilities of banks and thrifts unwound by the FDIC are insured 
deposits, there is a strong presumption of government backing behind 
these ``too big to fail'' institutions; and, by applying this model to 
the largest of our financial institutions, the legislation will signal 
that the government-provided safety net now extends to a much wider 
portion of our capital market.
  And think for a minute what that means to the competitors of these 
large firms, for the smaller firms that are too small to save. Suddenly 
they face a differential in their borrowing costs that can reach up to 
100 basis points. Some studies show 78 basis-point costs, some show 100 
basis-point costs. That's the costs that small institutions have 
currently that is higher than the borrowing costs of institutions that 
face this implied government bailout or have been bailed out by the 
government.

                              {time}  1830

  You saw it with respect to the government-sponsored enterprises, how 
much lower their cost of borrowing was and how they were able to over 
leverage, and how on top of all of this, they could become a duopoly 
and put their competitors out of business because people presumed that 
the government was behind these institutions.
  These are some of my concerns, and I know these concerns are shared 
by a colleague of mine on the committee, Mr. Scott Garrett.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from New Jersey (Mr. Garrett) is 
recognized for 42 minutes as the designee of the minority leader.
  Mr. GARRETT of New Jersey. I thank the Chair, and I thank the 
gentleman from California who was previously speaking for his 
insightful analysis of where the country currently finds itself with 
regard to this macro issue of Wall Street reform and banking reform in 
this country, something which Members on both sides of the aisle agree 
wholeheartedly is necessary and needed to be done. We just need to make 
sure that we do so in a thoughtful manner so we don't do more harm than 
good.
  When President Obama and Democrats claim Republicans are doing the 
bidding of big Wall Street banks and oppose all financial service reg 
reform, you know, you hear that over and over again by some of the 
commentators on TV, I have to say, you find it laughable on a number of 
different levels.
  First of all, think about this, it is the Democrat bills that have 
institutionalized permanent bailouts and too big to fail. It is no 
wonder then that Democrats have received such strong fund raising 
support from the titans of Wall Street.
  As I stand here, I'm not sure I have all of those numbers before me. 
Later on I may. Off the top of my head, those numbers stand out as 
something to the tune of something like around $15 million from the 
various titans of Wall Street, as they put it, to the President's 
campaign in the last cycle. I think the number I saw just the other 
day, and the most recent numbers out for the 2008 cycle of Congress, 
something like $2.9 million from these various Wall Street firms and 
banks going to the majority party, the Democrat Party, in the last 
election; twice as much as what is going to Republicans.
  Maybe it is no wonder that they have received such strong support 
from Wall Street that they would then put in a bill that would see to 
it that Wall Street is taken care of in the sense of the perpetuation 
of bailouts at the taxpayers' expense.
  Not only do Republicans support real financial service reform, the 
House Republicans were the first ones to come forward with a 
comprehensive reform plan that actually ends too big to fail. It ends 
bailouts, and we also don't succumb to the Democrats' urge to take yet 
another vast portion of our economy with government overreach and 
intrusion and bullying of private businesses. Think about that.
  The reason I point out that Republicans came out with a proposal 
earlier than the majority party, earlier than the White House, earlier 
than the Treasury. I remember being in this Chamber talking on this 
floor early last year in 2009, in January and February and March saying 
we need to attack this problem on Wall Street, we need to attack the 
morass that we are finding our country in economically. We needed to 
get reform done. All of the while Treasury was telling us we will have 
something next week, we will have something next week.
  Week after week passed, and we finally ended our waiting for them and 
we put our minds together. We listened to the American public and we 
listened to the experts. We listened to the people who were involved 
with this and the people who also would be hurt by wrong actions being 
taken. We took all of that advice and we came up with a Republican 
solution to this proposal, and actually had it done before the White 
House ever even came up with their white paper that they presented at 
the White House.
  I remember going to that presentation where the President came out 
and said here is my solution, here is the problem, just laid it out and 
left the stage. Didn't take a single question from the audience. That 
is how it has been ever since, left the stage and has not listened to 
what the American public and those involved have to say about their 
plan.
  Before I go to our Republican plan, I would like to remind our 
colleagues over in the Senate on the other side, who likely will be 
asked to vote on the Obama-Dodd-Frank plan, and they will be likely to 
vote on it again soon. They voted on it earlier, and I guess they will 
be doing it again today, if they haven't done so already. And the way 
it is coming down in the press reports is that Harry Reid sees it as a 
win/win for them to just continue to put vote after vote after vote. 
The last vote Republicans stood together saying they would vote ``no'' 
on any bill that would perpetuate bailouts to taxpayers for these 
financial institutions. That is a good thing. We hope they stand firm 
on that.
  There is a whole host of reasons, in addition to that, why both 
Democrats and Republicans should vote against that 1,300-page permanent 
bailout bill.
  Let me digress for a moment on that issue. We are just now learning 
of the ramifications, unintended and otherwise, from the health care 
bill; you know, that 2,000-page bill that we know no one read on this 
floor and understood all of the ancillary portions of it, and yet it 
passed in the House, passed in the Senate, and came back to the House 
again and passed overwhelmingly after a lot of arm twisting by the 
White House and others to get all of the votes they needed to get it 
done.
  But you could see during the debate in the health care bill, when 
poignant questions and particular questions were raised on particular 
portions of

[[Page 6429]]

the bill, there was no one on the other side of the aisle who could 
honestly say I have read through the bill, all of the several thousand 
pages, and all of the ancillary references to it and had a complete 
understanding of it. Yet that bill passed, and now we are seeing the 
ramifications from that.
  A study came out this past week from this administration saying the 
actual cost of health care, remember President Obama said he was going 
to actually lower it, would go up by a percentage or so over a 10-year 
period of time. Remember the President also promised no one would lose 
their health care plan, they didn't read the bill. Because they didn't 
read the bill, they find out now in another study that about half of 
those senior citizens on the Advantage program of Medicare will be 
losing their plans. That is the ramifications when you try to rush 
something through without reading it and understanding it.
  Now back to the point, here we have over in the Senate, we have a 
1,300-page plus bill that didn't go through the committee process and 
didn't have an opportunity for vetting and hearing from the various 
witnesses and experts, that, too, Senator Reid is trying to push 
through this week against all odds and truly understanding what they 
are doing over there.
  The bill they are attempting to work on and move quickly without that 
understanding codifies the government policies invoked to bail out AIG, 
Bear Stearns, and others, and it does so, in large part, by creating a 
permanent $50 billion bailout fund which, I should add, can be 
endlessly reloaded. Let me make a point on that.
  They say we are going to set up this $50 billion fund to bail out the 
future bank losses and what have you. Well, if the next day they need 
that $50 billion and it goes down, the next day after that they can go 
right back to the pot of money and try to raise it back up again, and 
go to another $50 billion. So $50 billion is really a placeholder for 
50, 100, 150, 200, 250, on and on and on it could go, bailing out 
failing institutions, so-called too-big-to-fail institutions, and 
potentially also indirectly put the American taxpayer on the hook.
  I should probably explain just one example of that. Look at AIG. What 
was the number we saw on AIG. I think it was around $80 billion needed 
to bail it out. Here is the seminal question which I think we put to 
Secretary Geithner. I don't know if we ever got a satisfactory answer 
from him or anyone else who proposed the legislation in the Senate. The 
questions was: Had you had this bill, the Dodd bill, in place prior to 
AIG, would the outcome have been any different?
  Well, there you needed about $80 billion, all from the American 
taxpayers. Here they say we will have $50 billion. Obviously $50 
billion is not enough; so in the short term, where will you get that 
money. The bill, the Senate Democrat Obama-Dodd-Frank bill basically 
says you can go to the Federal Government, the Federal Reserve, they 
can basically front end load that money to the facility so they can 
loan it out to whether it is AIG next time or another Lehman in the 
future, or what have you. The American taxpayer at that point in time 
is now on the hook for however much money they want to lend out without 
basically any limit.
  Other portions of the bill that are problematic besides creating a 
permanent $50 billion bailout fund, which, as I said, would be 
endlessly reloaded, paid for by taxing financial firms to pay for other 
larger firms' failure. I think that is an important point. If you have 
a local community bank in your community, you have to ask them, What do 
you think about the fact that potentially, depending upon your size, 
you could be held liable for the egregious mistakes and failures of 
these huge titans of Wall Street who make absurd investment decisions. 
I think most of your local community banks that potentially could be on 
the hook would say, it is nothing good for us, it is nothing good for 
our local community because any time you put a tax on something, one 
bank or another, it hurts the businesses in that community.
  Another major point that is problematic with the bill, it expands the 
implied government guarantee in the financial marketplace for the 
largest firms. Sort of along the point I was just making here, it is 
the biggest firms in Wall Street that are going to be able to say, 
Thank goodness, thank goodness we made all of these contributions to 
those people in Washington who are now supporting this legislation of 
the Dodd-Frank-Obama bill because now we know who our friends are, and 
of course, it is on the other side of the aisle, who are supporting 
this legislation that will allow for their perpetual bailout.
  Another problem with the bill is it continues to place taxpayers on 
the hook for billions, if not trillions of dollars for bailed out 
failed nonbanks. I say trillions of dollars because there is nothing in 
that 1,300 pages of legislation that is sitting in the other House, in 
the Senate right now that Senator Reid wants them to push right 
through, vote on without having full understanding of it. There is 
nothing in that bill that would say, American taxpayer, your liability 
to the big banks in New York and around the country is going to be 
limited at this much or this much. There is no limit. It can just go up 
to billions of dollars, tens of billions of dollars, hundreds of 
billions of dollars, or trillions and trillions of dollars potentially.
  And if you think trillions are out of sight as far as the potential, 
all we have to look at is the GSEs, Fannie Mae and Freddie Mac, and 
where is the limit on the potential loss to the American taxpayer 
there. I think it is around $389 billion that they have scored that it 
will cost taxpayers over the next 10 years coming out of our Treasury, 
which means out of our pockets. But there is a potential there with 
several trillions of dollars of potential losses on their books that we 
can all Americans be eventually liable for. So trillions are not out of 
the question when you are talking about such mammoth institutions and 
trading as we have seen here.
  To continue, with the problems of the Senate financial services so-
called reform bill that Senator Reid is trying to push through the 
Senate as we speak without anyone really understanding or reading it, 
the bill continues the pattern of government overreach that we have 
seen throughout the Obama administration and with the Democrats 
controlling here in the House.
  It also continues the pattern of government picking winners and 
losers and political bullying and deciding just who it is will succeed 
in this country and who it is that is going to fail rather than through 
the private market and rather than through the rule of law and the rule 
of the bankruptcy code.
  Did we ever think that we would come to the day when it would be the 
politicians who would decide: I think that business over there should 
do well and thrive and succeed, as opposed to this business over here. 
I don't have much favor for them for one reason or another, maybe they 
are not a friend of mine politically or otherwise, and the politicians 
says, That business can go into the dust and not succeed.
  Did we ever think we would get to the day when it would be Washington 
and Washington politicians and bureaucrats who would say, I am going to 
pick that one as a winner, and that one over there is a loser.
  That, in essence, is basically what we find in the 1,300-page bill 
that Senator Reid would like to see passed without any real debate or 
discussion or amendments or improvements upon because it allows the 
bureaucrats of various Federal agencies, these appointed and unelected 
individuals, to make those basically life-and-death decisions for 
industry and life-and-death decisions for businesses as well.

                              {time}  1845

  Did we ever think we would get to the point where those decisions are 
not made by the markets because this business actually did do a better 
job in deciding how it would grow, how it would invest, what sort of 
services it would provide? That's how the free market has always 
thought that businesses should thrive. And if this business over here 
decides that they make poor investment decisions, poor customer

[[Page 6430]]

service, poor decisions, generally, on how it's running, then the 
market should say that is the business that will fail.
  Well, we're going to throw that all aside now with this piece of 
legislation and say the market forces are not going to be it. What 
people decide on situations of who should win and who should lose are 
not going to be the preeminent decision basis anymore. Instead it's 
going to be politicians and bureaucrats, a sad day that most Founding 
Fathers would never have thought we would get to.
  Another problem with the Senate bill, the Frank-Dodd bill that Harry 
Reid is trying to push through the Senate right now without a debate 
and without a full discussion and disclosure of an understanding of the 
entire bill, is that the bill will restrict access to credit for 
families and small businesses and ultimately make credit more expensive 
and less available.
  A recent study points out that the portion of the bill, the CFPA, 
Consumer Financial Protection Agency, something that they want to 
create as a brand new agency here in Washington, as if we don't have 
enough agencies already in Washington, a recent study points out that 
the CFPA will increase the cost of interest rates that consumers pay by 
at least 160 basis points. What does that mean? That means if you have 
a 6 percent loan that you could have gotten today, well, once this bill 
passes, then it will increase by 160 basis points. That means your 6 
percent loan will now be 7.6 percent.
  Also, the study shows it will reduce consumer borrowing by at least 
2.1 percent. Well, that makes sense. Right now most people, when 
they're out looking for a car loan or they're looking for a mortgage 
for the house or a home equity loan to try to make some improvements, 
one of the first things they do when they sit down with their banker or 
when they open up the paper to see what the availability of interest 
rates is, they look to see how much are those interest rates. And you 
want to get the very best interest rates you can get because every 
percentage point higher means less money in your pocket at the end of 
the day and more money in the banker's pockets.
  Well, this bill, outside studies have said that when you now start 
looking for those car loans, student loans, commercial loans, mortgages 
for your house or mortgages for commercial property, under this bill, 
because they're adding these new impediments to the access of credit, 
you will see your rates of interest go up by 1 point, 1.5 points. That 
1.5 points can mean a lot of money, a lot of money out of your pocket 
and mine every time you take a loan. And think about it, is that 
something we really want to do during this economic morass, these 
economic troubles that we find ourselves in right now?
  I have so many small businesses that come to me right now, owners of 
small businesses, some are individuals, that say I just can't get 
credit as it is. I have a good credit rating, I have a good credit 
position, I've been paying all my bills on time, but when I go out to 
try to get a loan, I just can't get it. And as it is, the rates that 
are out there are not just really where I want to be, but I can maybe 
afford them if I can get those loans.
  Well, here we're going to have the Senate now try to pass a bill--and 
we already passed a version of it in the House, unfortunately--that 
will say to an individual who is already struggling to get a loan or 
struggling to pay his current interest, you know, the next time you get 
this loan, the rates were here, now they're going to be 1 point, 1.5 
points, even higher; more money out of your pocket each time just 
because we're creating a new agency in Washington with no other real 
effect except to make the credit availability less than it is now.
  Another huge problem with the bill that's before us in the Senate, 
that already passed the House and potentially will come back to the 
House for another vote if it unfortunately gets out of the Senate, is 
that the bill will also cost jobs; and it will cost the jobs at a time 
when the singular focus in this Congress should be just the opposite. 
The one main goal that we should be able to work on across the aisle in 
this House is how to create more jobs all across this country, all 50 
States.
  I know the average rate for unemployment in this country is just shy 
of 10 percent; but, boy, you talk to some folks in different parts of 
this country and you know that the unemployment rate is a lot higher 
than that: 10 percent, 20 percent, 30 percent, 40 percent, 50, 60 
percent higher in certain portions of this country than where it is as 
a national average. You talk to those people where the long-term 
unemployment rate is around 15, 16, 17 percent and ask them, What's the 
most important thing that Congress should be doing right now? They will 
honestly answer you, Get me a job; Help turn the economy around so 
unemployment rates start going down again and so I can start supporting 
my family again.
  And what are we doing? What I'm doing is trying to create those jobs. 
But what is Congress doing? What is the Senate doing right now? What is 
the Democrat majority doing right now? Well, they're trying to pass a 
bill over in the Senate that will cost the creation of jobs just at a 
time when we should try making even more.
  Remember I mentioned a study earlier saying that if we pass that 
Senate bill out of the Senate--today, tomorrow, this week, next week--I 
mentioned before that if we do so, your credit costs will go up. That 
same study also found the number of jobs will be impacted in this 
country as well. And here's what they found: the study found that the 
CFPA, the Consumer Financial Protection Agency, which is a provision in 
that bill over in the Senate, will actually reduce net new jobs in the 
economy by 4.3 percent. Let me repeat that: if the Senate bill were to 
pass and that new CFPA were to be created, as the President wants it to 
be created, you would reduce net new jobs in the economy by 4.3 
percent. So pass the Senate bill, see the net number of jobs go down by 
4.3 percent.
  There's another provision in the bill as well, just as an aside--
without getting into the weeds, as they say, portions of the bill--it 
says the derivative and systemic risk portion of the bill--that's a 
whole other portion separate from the CFPA, that is a section that 
tries to regulate and address the issue of derivatives. And 
Republicans, by the way, as I mentioned in the earlier portion of this 
hour, did put in language to try to address derivatives and make sure 
that there is more transparency and accountability there, but the way 
they're doing it right now over in the Senate, that section will also 
likely reduce jobs as well, according to outside experts. And why is 
that?
  Well, it's hard to get into without going through a laborious 
explanation of derivatives and how they all work and what have you; but 
just understand this, that if you create higher costs for the end 
users, if you create higher costs, whether it's credits or otherwise, 
for people who currently use the markets as they are currently 
configured in an honest, transparent, and open way, if you require 
certain businesses to say, well, instead of taking this $100,000 that I 
was going to use to buy some new equipment, a new truck, new 
manufacturing equipment, or instead of me taking this $1 million I have 
over here to build a new plant, to hire new employees, to create a new 
manufacturing base, I'm going to have to use that over here because of 
all the new rules and regulations that the Senate wants to impose on 
that business.
  I'm going to have to put it over here sort of just sitting in the 
bank, if you will, as far as capital because of these new derivative 
requirements. If I can't use it to buy a new truck, if I can't use it 
to buy new equipment, if I can't use it to build a new building, I 
basically just have to set it aside as far as margin or capital 
requirements, what happens to job creation in that business?
  If he can't buy the new truck, he's not going to hire a new driver to 
drive that truck. If he can't use the money to buy a new piece of 
equipment, he's not going to be able to hire new people in the business 
to run the equipment. If he can't use the $1 million, or whatever it 
is, to build a new plant to manufacture something, he's not going to be

[[Page 6431]]

able to hire new people that are able to run that factory and work in 
the offices in that factory as well or that business as well because 
this legislation will basically shift that money, job-creation dollars, 
from that practical good use for the economy over here to, well, let's 
say not a job-creating use--another problem of the overall legislation 
that the Senate is trying to pass as we speak.
  So at a time when Americans are pleading with the political leaders 
to stop government overreach in the economy and in their lives, well, 
this bill basically, again, doesn't listen to those Americans. The 
Senate bill basically greatly expands government authority for 
government bureaucrats to regulate now another huge segment of the 
economy, including, by the way, non-financial institutions, things like 
retail stores that offer layaway plans, companies that finance their 
own sales, and even manufacturers that ensure against their risk.
  All these areas had absolutely nothing to do with the economic 
problems that the country finds itself in today, okay, but all of a 
sudden, because there is an opportunity out there to grow government, 
grow government agencies, create new programs at the expense of the 
taxpayers, as the President's Chief of Staff said--and I paraphrase 
him--Don't let any good crisis go to waste, we're in a crisis 
situation, so instead of dealing with the crisis area over here, we're 
going to start creating all new agencies over here to regulate all 
different aspects of the economy that were not part of the problem. 
That's exactly what this legislation that we hear is about to be 
considered in the Senate, that Senator Reid would like to pass through 
without the debate, deliberation, and transparency that we would like.
  So at a time when Americans are pleading with political leaders to 
stop the government overreach, this bill greatly expands authority for 
government bureaucrats, as I say, to regulate huge segments of the 
economy, including those non-financial institutions, such as the stores 
and the layaway plans and so on and so forth.
  It also allows--and here's a point--it also allows government 
bureaucrats to take over and actually close a firm. The government, for 
the first time you're going to be able to say, besides picking winners 
and losers, as I pointed out before, which is a tremendous overreach of 
government authority to say for a bureaucrat someplace in Washington or 
New York or some other place designated by the Washington bureaucrats 
to say, well, we think that your business should win and your business 
should lose, besides just picking winners and losers, the Senate bill 
goes even further than that.
  It allows government bureaucrats to take over and close a firm. They 
can say for whatever reason--hopefully not political, but who knows--
for whatever reason these bureaucrats will say, well, I think that firm 
over there is one I think the government agency now should take over. 
Isn't that really too much power in the hands of the government? And 
doesn't it open up our economy to political bullying rather than the 
way it should be?
  And the way it should be is it should be that a firm's success or 
ultimate failure should be decided by the free markets, decided by the 
people of the country whether they think this company is providing the 
services they like and this company is not providing. That's the way it 
has been for 200-plus years--or longer than that, actually--in this 
country, and now we're going to change all that and allow bureaucrats 
to say, you win, you lose, we're going to take over you, we're going to 
not take over you; we're going to provide you with a bailout at 
taxpayers' expense; you're going to have to do it on your own. And you 
the citizens out there are going to have to all pay the price of this.
  Those of you who think you have nothing to do with financial 
services, well, you're going to see your interest rates go up. Those of 
you who are out there who think that this doesn't impact you, well, you 
may not be able to find a job next year because the net number of new 
jobs is not going to increase as it would have. It's going to impact 
upon all of us if we are to pass this failed bill over in the Senate.
  Now, several portions of the bill also are handouts to--who do you 
think? The trial bar. Why is that? Because it will increase lawsuits. 
It will benefit lawyers, but drive up costs for everybody else. Nothing 
against lawyers by any means, trial lawyers as well, but do we really 
need another piece of legislation that will just basically increase the 
number of lawsuits in this country? Don't we have enough lawsuits 
already going on? Do we need to set up a structure that fundamentally 
is done in such a way that most of the experts looking at it are 
saying, yes, the number of lawsuits is going to increase just because 
there is so much ambiguity that's out there?
  Also, at a time when you're seeing a growing consensus that the 
Federal Reserve should be less powerful, let's take a look at the 
Federal Reserve, and isn't there a consensus now. I think we saw 
bipartisan support that the amount of control and authority and power 
of the Federal Reserve, I thought there was growing consensus in this 
country and also in this Congress, in this House, that maybe the 
Federal Reserve should be reined in a little--or some were saying a 
whole lot. That's not what is happening over in the Senate.
  So at a time when you're seeing a growing consensus that the Federal 
Reserve should be given less power, not more, the Senate bill greatly 
expands the Federal regulatory powers. This is done despite the fact 
the board has a proven track record of failing to identify systemic 
risks before they actually occur in its overeagerness to pay taxpayers 
money at risk while conducting fiscal policy without accountability. It 
has an overeagerness to put taxpayers' money at risk while conducting 
fiscal policy without any accountability.
  And any time we try to get that accountability, I should add just as 
a side note, what do we get? We get pushback from the Federal Reserve. 
Pushback, whether it's a Republican idea; pushback, whether it's a 
Democrat idea to try to put in some additional levels of accountability 
and transparency. And so despite that, the Senate bill is going to say 
we're going to give them even more and greater power and control.
  Given the extraordinary government interventions into private firms 
we've already seen with the trampling of the rule of law in order to 
benefit political favorites in the auto industry, for instance, I'm 
very uncomfortable with any of these new sweeping powers. The auto 
industry, I guess, is a clear example of that. It goes back to what I 
was saying before: Federal Government, bureaucrats saying this company 
wins, this company loses, and we're going to use the taxpayers' money 
to prop them up and keep them going.
  Let me just go back for one little point I raised before--I didn't 
want to go into the weeds too much on it--and that was the derivatives 
portion of the bill. Derivatives, I've heard them described in a number 
of different ways, insurance policies or such, but without going into 
the details on how they actually operate, remember this about 
derivatives, I guess, to take away from my remarks on derivatives: none 
of the experts that came before the committee--those who use them, 
those who didn't use them, those who are involved with them, those who 
are not involved with them, academics and the like--there was no one 
who said that the problems that we find ourselves in today were because 
of the structure or the makeup of derivatives themselves. No. I think 
most of the experts who came to us said it was the fact that you had 
trading in derivatives without adequate transparency and capital there 
in certain circumstances, like in the AIG situation.

                              {time}  1900

  And then similarly, with the AIG situation you had a situation where 
the regulators who were charged with knowing what they are doing, 
having the authority to do so, failed to live up to their obligation to 
monitor the very entities that they are supposed to be giving oversight 
to. Isn't it a little bit ironic that we see now in the Senate that 
those very same failed regulators

[[Page 6432]]

are going to get even bigger and broader powers.
  In any event, on the derivative portion of the bill, what does the 
Senate bill do? Well, it sets up a really, I don't know what is a good 
word for it--I guess a technical word would be clumsy--it sets up a 
clumsy new two-tiered SEC-CFTC regulatory regime over all derivative 
users. And that is really a huge portion of the economy.
  You know, the average person says, ``I don't use derivatives.'' And 
the average small business might say, ``I don't use derivatives.'' But 
that small business begins to look one step behind its daily 
activities, it may find that the source of its credit does in fact use 
derivatives. That industry that has a particular product that they 
manufacture, what have you, maybe people in the company that work there 
don't recognize it, but you talk to the CFO, chief financial officer or 
otherwise, you will find out that they actually do use derivatives to 
protect themselves, just like other companies use risk management as 
mechanisms to protect other portions of their business. So they are 
used. They are a huge portion of the economy.
  And here we have a Senate bill now saying we are going to fool around 
with this and set up this new two-tiered SEC and CFTC regulatory regime 
over all the derivative users. And in a way it goes back to my earlier 
point that it will probably be ripe for litigation and also confusion 
to say the least.
  In all this, there will be some new truly heavy-handed government 
mandates that are likely to have major unintended consequences that 
could really make it more difficult for companies to hedge their risks. 
That's why I say a lot of businesses may not recognize how it impacts 
upon them. Maybe it is not the company themselves, it is other 
companies that they deal with, that they have to deal with. If they 
can't hedge their risks properly, they will find themselves at odds 
with being able to prosper and do as well next year as they have in the 
past.
  So when the Senate bill tries to do this, what it's really doing is 
adding huge new costs to risk management. What will that do? That will 
needlessly tie up companies' moneys that could otherwise be used to 
create jobs. It goes back to that little analogy I had before saying 
that if you have a company that says we have X number of dollars in the 
bank that we are intending to use for new expansion, production, or 
growth, now that money may be unfortunately tied up over here through 
all the new regulation and otherwise, and capital margin requirements 
and the like. And if they can't have it over here to grow the company, 
prosper the company, and create new jobs and the like, and new benefits 
for their employees because it's now tied up, who hurts? Who pays the 
price? It is the employees, it is the economy, it is the community that 
that business finds itself in.
  Now, to all that truly terrible legislation that we see sitting in 
the Senate that Senator Reid is trying to push through without a true 
committee process where we could really get into the weeds and find out 
what is in those 1,300-plus pages and try to understand all the 
consequences, intended and otherwise, the Republicans do have a 
comprehensive substitute. It has received unanimous support from the 
party and those here who have worked on it, and also significant 
support from those players, both involved with the discussion, 
academics and otherwise.
  And it is really also the only truly bipartisan plan that's out 
there. Because whether you are a Republican or Democrat, I think most 
in this country agree on one theme: No more bailouts. So it's 
bipartisan in the theme, it's bipartisan in the merits, it's bipartisan 
in the actual language. Its central theme, as I say, is no more 
bailouts. And our plan depends on an expedited bankruptcy rather than a 
government-run bailout fund.
  Let me give you one, two, three, four points that are in it. It 
provides comprehensive transparency and accountability among the major 
traders in the derivative markets without setting up that Byzantine new 
regulatory regime that I just mentioned a minute ago. It allows for 
real consumer protection, important, without a bureaucracy that 
separates consumer protection from what we call prudential regulation, 
safety and soundness like we saw with Fannie and Freddie.
  I will digress there for 30 seconds. That simply means that you are 
not going to say that there is somebody sitting over here looking over 
an institution saying, well, I think you should do this in order to be 
safe and sound and prudentially run, and you are going to have somebody 
over here in a totally different silo, a different agency, who is going 
to be saying, well, I think you should have a consumer product that 
works this way or works that way. And if they are working at cross-
purposes, which one prevails? Well, at the end of the day, the consumer 
is the one that hurts.
  Additionally, third point, the Republican plan reins in the Fed 
instead of giving it vast new powers. It goes to that point I raised 
before. The Democrat majority plan in the House and the Senate says, 
``Hey, Fed, you've been doing such a wonderful job with monetary 
policy, you've been doing such a wonderful job with regulation of the 
institutions under you, you've done such a wonderful job, Federal 
Reserve, with being able to see the calamities down the road.'' I say 
of course that all tongue in cheek. They say, ``Well, we're going to 
make you even larger and more expansive and grow in power.''
  Well, not for the Republicans, not for most Americans. Most Americans 
want us to rein in the Fed. And that is what the Republican bill will 
do, by giving it less powers than it has right now.
  Fourthly, the Republican plan responsibly deals with Fannie and 
Freddie, one of the biggest culprits in the entire process. Believe it 
or not, the Senate bill, the Dodd-Frank-Obama bill, does absolutely 
nothing with regard to Fannie and Freddie and the GSEs. Think about 
this little number right now. You hear about all the money that was 
spent over the last year or so out of taxpayer pockets, whether it goes 
to the Wall Street bailouts, whether it goes to the auto industry, 
whether it goes to AIG or Bear Stearns and you just name it, all those 
billions and billions of dollars went out the door. You know which 
bailout really trumps even all those combined? It would be the GSEs, 
Fannie Mae and Freddie Mac, where, as I mentioned I think earlier this 
evening, the number is close to $400 billion already projected to cost 
the taxpayer over the next 10 years. And the President's plan, the 
Dodd-Frank plan, is silent on trying to do anything about that.
  Not only are they silent about doing anything about that, it's silent 
as to putting any limits to it. Right now there is no limit to the 
amount of money that can come out of your pocket and my pocket to bail 
out these institutions. Something should have been included in there. 
They did not.
  Remember, finally, it was largely government that got us into this 
situation we find ourselves in in the first place. It was the implosion 
of Fannie and Freddie that created so many of the other problems that 
we see across the economic spectrum as we see it today. It was also the 
easy money policy of the Fed and the errors that were made over time 
there. It was the misplaced incentives and downright requirements in 
the housing finance sector that basically encouraged or forced firms to 
lend to borrowers that shouldn't have been buying a home in the first 
place. It was government regulators that didn't do their job whom the 
Democrats would like to further empower and provide a false sense of 
security and hamper the free markets.
  It was all those problems that brought us to the situation that we 
find ourselves in today. None of those problems are addressed either at 
all or in a correct manner in the legislation that we see in the Senate 
right now.
  Now is the time that we have an opportunity to do right for the 
American public. Now is the time we have an opportunity to do right for 
the economy. Now is the time we have an opportunity to create new jobs 
and new expansions in the economy, to make the economy of tomorrow 
better for businesses, for small community banks, for small communities 
across this country,

[[Page 6433]]

for families as well. But we can only do that if we work in a truly 
bipartisan manner to go through the process and begin the discussions 
on what the root causes of these problems were and to come up with a 
no-bailout philosophy and approach to this that addresses the GSEs--
Fannie Mae and Freddie Mac--that reins in the excessive powers of the 
Federal Reserve, and addresses the other concerns of job creation and 
the other concerns of regulation that I have addressed already this 
evening. If we do that, then we will be successful for this generation 
and generations to come.
  I look forward to actually being able to get to that point in time. I 
look forward to hearing from the other side of the aisle and hearing 
from the Senate that the bill they are pushing right now, the Dodd-
Frank-Obama bill, is being pulled and they are no longer going to force 
the votes, but instead they are willing to open up a true and honest 
dialogue to get the job done. When that time comes, I will be willing 
to work with them to accomplish that.
  With that, Mr. Speaker, I yield back the balance of my time.

                          ____________________