Treasury Secretary Paulson and the Subprime Market

Floor Speech

TREASURY SECRETARY PAULSON AND THE SUBPRIME MARKET -- (House of Representatives - October 30, 2007)

The SPEAKER pro tempore. Under a previous order of the House, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.

Ms. KAPTUR. Mr. Speaker, there was an article recently in Information Clearing House urging our country's leaders to exhibit leadership in these times of economic crisis. And it was such a compelling article, I wanted to read part of it into the Record tonight.

It talks about some of the recent bloodbaths that we have seen on Wall Street that prove the trouble in our credit markets have not been relieved by the Fed's rate cuts. The Dow Jones slipped 367 points on the 20th anniversary of Black Monday, the stock market's biggest 1-day loss in history. And in the past week or so, Asian markets have plunged. Stocks are down sharply in Japan, Australia, Hong Kong, Indonesia, the Philippines, Taiwan, and South Korea. And there are ongoing problems being caused by what is happening in our subprime housing lending market.

``The sudden downturn in our stock market has provided a fitting backdrop for Treasury Secretary Paulson's appearance at the G-7 meetings here in Washington. Paulson has largely shrugged off the decline in housing and the growing volatility in the equities markets.

``What everyone at the meetings really wanted to know was why the United States destabilized the global economic system by selling hundreds of billions of dollars of worthless mortgage-backed securities to banks and pension funds around the world.

``Aren't there any regulations in the United States,'' they asked? ``And how is Paulson going to make amends to the institutions and investors who lost their shirts in this massive mortgage scheme?'' Unfortunately, the Treasury Secretary didn't address any of these questions. He offered no recommendations for fixing the problem. Indeed, I can tell you the Treasury Department isn't even offering public television ads and commercial ads in communities like my own that are suffering under the weight of these rising foreclosures.

Last month's net foreign influx of capital shows how quickly capital can evaporate when other countries lose confidence in us. In fact, foreign investors pulled $163 billion out of U.S. securities and treasuries in August alone. Net capital inflows into our country have turned negative. And that's money that won't be returning to the United States until we get our act together.

This multitrillion-dollar subprime swindle was the greatest financial fraud in history. But Paulson and his colleagues at the Fed continue to blame everyone else. No one in China or Iran could have cooked up this structured finance rip-off which sent millions of homeowners into foreclosure, shattered 160 mortgage lenders, and undermined the global banking system. That was the work of Wall Street and their accomplices at the Fed.

Another article appeared in the New York Times by economics reporter Gretchen Morgenson. She calls her article, ``Get Ready for the Big Squeeze.'' And she says, ``Anyone who thinks we've hit bottom in the increasingly scary lending world is paying little mind to the remarkably low levels of reserves that the big banks have set aside for themselves for loan losses. And who let that happen? Part of the problem for banks is the result of an almost two-decade drop in loan loss reserves.'' That's the fault of this Congress, it's the fault of the Treasury, and the fault of the Federal Reserve.

The present gang of Wall Street warlords have transformed the world's most transparent and resilient market, our own, into an opaque galaxy of complex dead instruments and shady, off-balance sheet operations. It's no better than a carnival shell game.

As the banks continue to get rocked from explosions in the housing industry, the unwinding derivatives and carry trades will precipitate a mass exodus from the equities markets. And we know that with surging oil and food prices, it's bearing down heavily on the American people as their discretionary income vanishes from increasing inflation and shrinking home equity. Wages have remained stagnant while personal savings have fallen to negative levels.

The aftershock from Alan Greenspan's cheap credit policies will be felt for decades. Record trade imbalances give further evidence of our situation. And no country has ever devalued its way to prosperity. As our dollar falls globally, destroying the dollar will ultimately destroy our country. And it will destroy the value of savings, for those people in this country that do have savings. It will destroy the value of equity they've built up in their homes. It will destroy the value of equities of this country.

Global credit markets are now facing unprecedented disruptions due to the mortgage-derivatives fraud which originated here in this country before spreading across the world; $400 billion in asset-backed commercial paper has failed to roll over, and the story is not over yet.

Mr. Speaker, leadership is critical in times of economic crisis. Yet this Congress seems to be tiptoeing around the magnitude of what is facing the people of this country. This isn't time for prevarication, obfuscation, or public relations gimmicks by the Secretary of Treasury or the Fed. We need leaders who will tell the truth and forestall the growing probability of social disorder.

I commend this article to my colleagues and to the American people.

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