Hearing of the Senate Committee on Banking, Housing and Urban Affairs - The Semiannual Monetary Policy Report to the Congress

Press Release

Sen. Bennet Urges Fed Chairman Bernanke to Provide Support for State, County and Municipal Bond Markets

Today, Federal Reserve Board Chairman Ben Bernanke appeared before members of the Senate Committee on Banking, Housing and Urban Affairs to deliver the Semiannual Monetary Policy Report to Congress.

In the hearing, United States Senator Michael Bennet asked Chairman Bernanke to seriously consider the challenges facing state, county and local governments in the current economic climate, which has made it very expensive or nearly impossible for these entities to raise needed capital for "shovel-ready" infrastructure projects capable of spurring job creation and economic growth.

In his remarks, Senator Bennet urged Chairman Bernanke to use all the tools at the Federal Reserve's disposal to aggressively confront the serious financial challenge facing state, county and local governments, as well as public-oriented non-profit organizations such as schools and hospitals - a plea reiterated by other members of the Banking Committee, including Committee Chairman Christopher Dodd. Senator Bennet made a similar request of Treasury Secretary Timothy Geithner earlier this month.

Senator Bennet's remarks from today's Banking Committee hearing, as prepared for delivery, are included below:

"Chairman Bernanke, I know we all have the same goals in mind here - making good decisions on the federal level, so a restored system of markets can turn this economy around, saving and creating jobs, and preserving homeownership. But where possible, we need to avoid top-down solutions. This severe economic downturn hampers state, county and local governments and our public-oriented non-profits, such as schools and local hospitals.

"I urge the Fed to work to empower state, county and local governments, especially local schools and hospitals, so they can get busy fixing this economy themselves.

"The state, county and local bond segment of our economy - a $2 trillion engine of shovel-ready and life-improving projects - has the capacity to spur enormous economic recovery in Colorado and across the nation. It is the state, county and local bond markets that represent what's best about our free market system. I can tell you that in Colorado, the bond market allows the best run towns, schools and hospitals to accomplish the most. Good local government attracts investors, and the proceeds benefit all Americans by improving our infrastructure, one city block at a time. Restoring the quality of the credit tools that finance these projects can lead us right out of the red.

"That's not a top down solution. It's providing a boost to those little incubators of community progress - our cities, towns and schools. Yet the credit markets for state, county and local governments remain frozen or seriously impaired. The markets for short-term, auction rate and variable rate bonds have been particularly hard hit.

"Lack of liquidity -- a problem plaguing all segments of our markets - has stymied the state, county, and local bond market also. Banks receiving TARP money, nonetheless, remain on the sidelines, unwilling to venture back into this market. The variable rate market is frozen. To borrow from the statute that empowers the Fed, this lack of liquidity results from the ‘unusual and exigent circumstances' facing financial institutions.

"It is the Fed's statutory mandate not to sit on its hands and allow these bond markets to collapse, dragging down the credibility of local governments in its wake. Mr. Chairman, you acknowledged as much at the National Press Club last week when you said the Fed would do "everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible."

"I want to see the Fed take action in the state, county and local bond markets, in response to these unusual and exigent circumstances.

"The Fed must provide temporary support for the liquidity in these markets, just as it did in markets for instruments issued by private corporations. In this case those issuers happen to be the taxpayers of states and localities. And those corporations happen to be public, not private.

"What kind of ridiculous situation would we have if the Fed is willing to rescue private investors, but not local schools and hospitals in Colorado and across the nation? That sort of perverse result is exactly what Coloradans are afraid of, and it's what we must avoid.

"Chairman Bernanke, the Treasury and the Fed provide liquidity, guaranteed loans, support for commercial paper and other assistance to consumers and businesses. Can we expect this same level of support in the local bond market?

"This is not a matter of making loans to state, county and local governments. I am asking the Fed to commit to support regulated financial institutions in cases where their letters of credit and other obligations provide liquidity to our financial markets -- markets which in this case happen to involve state, county and local governments."

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