The Economy
Statement
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Ms. KAPTUR. Mr. Speaker, I join with the President in expressing hope that our economy will begin to recover soon. No one should underestimate the pain and worry that the American people are experiencing during this economic crisis.
Every weekend when I am back in Ohio's Ninth Congressional District, I hear more worried stories from people about the trouble they are having making ends meet and planning for their futures with confidence. For the sake of our country, we simply have to get the economy right.
Thus, I am troubled by several aspects of the most recent financial stability plan that Treasury Secretary Geithner unveiled this week. I am most concerned by the fact that the American taxpayers once again are shouldering far, far too much of the risk that was created by unscrupulous traders on Wall Street in the biggest mega banks and investment houses. And the plan does not place rigor and market discipline to correct what faces us.
By committing taxpayer dollars to leveraging minimal private investment in the private banking system, a private system that is now substantially owned by the public, the Geithner plan once again places taxpayers on a very large hook. Why should we use taxpayer dollars to eliminate discipline and most risk for private investors to purchase the bad loans in order to clean up the banks' books? Taxpayers didn't create this problem.
In this new deal, private investors may put up as little as 3 percent while government--which means our people--put up 97 percent of the rest as a loan, and a nonrecourse loan at that, which means if something goes sour, they pick it all up. And guess who gets the profits on the upside if there is any? That's not a good deal.
This is what should be the focus of our concern. According to an Associated Press investigation reported recently, these bailed-out banks sought to hire 21,800 foreign workers in the past 6 years. Major U.S. banks sought government permission to bring thousands of foreign workers into our country for high-paying jobs even as the system was melting down last year.
So, as Americans were getting laid off across our country, according to an Associated Press review of visa applications, these mega banks were hiring foreign workers.
Dr. Peter Morici, an economist at the University of Maryland, described the Geithner plan as "structured to create more risk for the Federal Government.'' Why? Because "it is going to be the fund manager who raised the private money and then borrowed with a government guarantee who is going to be paid on the number of loans he or she buys and he or she will have the temptation to bid whatever it takes. There is going to be real incentive here for people to overbid.''
Again, the proposal has no market discipline. Price setting will be taken out of the normal market process. That is never a good idea.
"As a result,'' says Dr. Morici, "the Geithner plan creates the potential for another bubble. You have created the potential for a synthetic bubble inside the government,'' inside the public coffers, "which could cost the government'' and, in turn, the American taxpayers, a whole lot more money down the road.
Doctor Morici describes the plan as low risk and high reward for the private investor and high-risk and high-reward for everybody else, the taxpayer.
I have said all along that the solution to this crisis lies in using the existing full authority of agencies such as the Federal Deposit Insurance Corporation and the Securities and Exchange Commission. I was outraged by the failure of the Bush administration to use these existing instruments of the Federal Government, and I am baffled by this administration's failure to do so as yet. I am concerned that the Geithner plan will actually place at risk the FDIC's insurance fund.
Dr. William Black, a law professor at the University of Missouri, Kansas City, who was a key player in resolving the savings and loan crisis in the 1980s and 1990s has pointed to one explanation: The Bush administration, in its zealous pursuit of deregulation, "gutted the FDIC and its sister agencies' staffs. The FDIC is trying to staff up, but it has put some absurd limits on hiring the best bank examiners. The FDIC shortages are critical in examination, not in the use of receivership.''
Mr. Black goes on to say: "We didn't resolve the S&L crisis by appointing 'political commisars' to govern failed S&Ls. We hired competent bankers with records of integrity to run the receiverships.
The academic literature concludes that they did an excellent job. It is bizarre that (President) Obama and (Secretary) Geithner are channeling President Reagan and claiming the government can't do anything and the market is all knowing.''
We have learned that the market is not all knowing, especially when it is distorted by greed and avarice and government complicity. We have learned the hard way the costs of "too big to fail.'' We have learned not to trust the right-wing ideologues who peddled a devil's brew of deregulated and free market fundamentalism.
We have learned a hard lesson about free market fundamentalism. Just as we have learned a hard lesson about free trade fundamentalism. This snake oil was peddled by the big banks and the big corporations. You can see the effects by walking down the main street of almost any city or town in any state surely in the State of Ohio.
We need to learn the lessons of history and apply them. We need to use the proper government instrumentalities. The proper use of the market to resolve this economic crisis. Otherwise we will make the same mistakes. And again the American people will again be left holding the bag of bad debts for generations to come, throttling economic growth and compromising our future.
In the end, we must do what is right, not what might be politically expedient.
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