The Economy

Floor Speech

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Mr. HIMES. I thank the gentleman from Ohio, Steve Driehaus, for yielding and for organizing this discussion on this important topic, which is how we restore prosperity to the U.S. economy, how we generate jobs to replace those that have been lost in this, the most challenging recession that we have seen in decades.

I am glad that the gentleman from Ohio talked about foreclosures. I represent Bridgeport, Connecticut, which is a wonderful city that also happens to have the highest density of foreclosures in the State of Connecticut. Bridgeport is a city full of people who were on the verge of becoming middle class homeowners, who were nurses and teachers and scraped together the money to buy their first home. And now we talk about these foreclosures.

These are families that find themselves having lost the money that they scraped together to become American homeowners, and worse, having lost their homes. If you don't have a stable home, you do not have the foundation that you need to access the American Dream.

Our home is that spot that determines where we work. It determines the community in which we are a member. It is just about everything in terms of building that foundation for economic prosperity. And as we saw, there were far, far too many shenanigans in the mortgage market. The gentleman from Ohio and I have been working very hard in the Financial Services Committee on something that is technical, it is esoteric, it is unglamorous, it is never going to appear on a campaign bumper sticker, but it is terribly, terribly important, and that is reforming this Nation's financial services regulatory regime which failed us miserably. It failed us absolutely miserably in the last 10 years.

This is technical work. We are talking about really toeing a very tough line here between making sure that our banks and our financial services institutions are here, employing Americans, paying taxes in cities like Stanford and New York City and Chicago and Los Angeles, innovating, being a world beating industry, but of course never again putting us in the position that we find ourselves in today, millions of jobs lost and billions of dollars of taxpayer money brought to the table in the last Congress to bail out these institutions because had they not been bailed out, we would have seen a global financial meltdown.

People forget what it felt like 9 months ago when we really worried that the major financial institutions of this country and of the world, frankly, could go under. Think about what that means. A major bank simply goes under. That bank is a lender to small businesses that make payroll. Except when the bank goes under, all of a sudden the payroll money is not there, and the workers of that small business go to the ATM and there is nothing there. That is global financial crisis, and that is what, obnoxiously, this government had to bail out.

So how do we prevent that from ever happening again? The gentleman from Ohio and I, we have spent hours and hours listening in Financial Services, listening to the minority party tell us what we are doing is going to cost jobs, that this is the end of capitalism, that this is not a market economy, and they are dead wrong about that. They are dead wrong about that because they forget about something critical to our entire financial services business. They forget that without the faith of the American consumer, the American investor, the American bank customer, without that faith, we do not have a banking sector.

I have been sitting in Financial Services now hours and hours and hours listening to this, this is the end of capitalism, this is going to kill jobs. We have seen this movie before. We have seen exactly this movie with exactly this script with exactly the same players. It happened in 1933 and 1934 when this government, the government of the United States, last set about to rise from the wreckage of an economic catastrophe caused by, amongst other things, financial irresponsibility, and this House was left to pick up the pieces.

This House put in place in 1933 and 1934 the fundamental legislation that came to be what governed our banks and our securities companies for the next 70 years. And if you look at what was said in 1933 and 1934, you could be here today. You would have heard about the death of capitalism and how this didn't make sense in a market economy and about how jobs would be lost; and they were wrong then, as they are wrong now.

In fact, in 1933 and 1934 when regulatory laws were passed, with which I am deeply familiar, having spent some time in the banking sector, when those laws were passed, we created that thing which is necessary for a robust capitalist system to survive. We created a level playing field in which your average American family, your average American business could have confidence.

And what happened after 1933 and 1934, after seeing decade after decade of financial crisis, every 7, 8, 9 years, starting in 1933 and 1934, we saw, and the regulations that this House put into place contributed mightily towards the single longest period of prosperity in American history and in human history. Why, because people had faith. Why, because until regulations were loosened, there were no mortgage brokers saying you have no income, you have no job, no problem, we have a mortgage for you. We didn't have securitized products whereby you took paper that you knew was questionable and you bundled it all up, you got yourself a AAA rating and you sold it down the road.

It's like musical chairs, right? You get paid, and it doesn't matter because the problems, the time bombs are in somebody else's portfolio. These were things that developed as our regulatory apparatus failed to keep pace with changes in the financial services industry.

What we are doing now, if we do it right--and I have confidence that we are doing it right--we will restore that faith, we will restore that confidence and once again set us up for the kind of prosperity that we saw for decades after 1933 and 1934.

What are we talking about here?

Mr. DRIEHAUS. Well, you know, I just want to echo your comments, Congressman, because what I see is fierce defense of the status quo by the Republicans, and I think it's important to remind people what the status quo has brought us.

I mentioned earlier I come from Cincinnati, Ohio. Just last year, this is what Hamilton County looked like in terms of the foreclosure map. You can see there were thousands of foreclosures in Hamilton County. There were thousands of foreclosures across the State of Ohio. And when there is a foreclosure next door or when there is a foreclosure across the street, it doesn't just affect the family and the financial institution that agreed to that mortgage. It affects the neighbor next door; it affects your property value; it affects the schools when kids have to be pulled out of the schools; it affects the small businesses down the street when doors are shuttered, when windows are shuttered in neighborhoods. It costs entire neighborhoods.

Mr. HIMES. That is such a critical point. I would just like to emphasize that is such a critical point. There has been so much discussion about the irresponsibility of some homeowners who bought houses they couldn't afford, who had mortgages they knew they couldn't repay sold by people who knew there wasn't a chance that they were going to get repaid.

Many of those criticisms are exactly right, and we have a whole other conversation to have about how we make the American household more responsible, save more, take on less debt, be more responsible like our grandparents were. That is a whole other conversation that we need to have.

But the point is so important that this isn't just about individual irresponsibility; this is a public community problem. As the gentleman says, when you see a foreclosure on a block, every other property value on that block goes down. This has been shown time and time again by the economists.

So irresponsibility, if it was that, affects the neighbors. And there is no way that this Congress, when faced with that kind of a problem to the community, should stand silent and watch people's property values go down and neighborhoods crumble, dark houses, lack of commerce. We have to stand up and say we have to put a stop to this.

Mr. DRIEHAUS. But, again, I go back to this time period when we saw thousands of foreclosures across our States and we were begging the Federal Government to do something about it. And what is the response we hear today from the Republicans who were in charge at that time? They blamed the Community Reinvestment Act, passed in 1977, a bill that incentivized financial institutions to make loans, to make good loans in the neighborhoods where loans weren't going. The Community Reinvestment Act didn't say make bad loans. It said make good loans, and we, the Federal Government, will give you credit for making loans in those communities. It has worked well, and it has served our communities well.

You have worked in community development just like I have, and we know how valuable the Community Reinvestment Act is to those communities. But the Republicans, in order to hide from the failure of inaction, want to point to an act passed in 1977 and say somehow that this Community Reinvestment Act was forcing banks to loan into these neighborhoods. Ben Bernanke, the Chairman of the Federal Reserve, said that's ridiculous, that just didn't happen. And the Community Reinvestment Act has served us well. But enough, enough of the blame. There is so much blame that is offered in this Chamber.

What do we know? The fact is we were elected to do something about the crisis. We were elected to clean up that pileup on the road. So when we came in with this administration, this administration acted very aggressively in terms of addressing foreclosures. We passed a very aggressive bill that cracks down on predatory lending.

The administration, working with the Department of Housing and Urban Development and working with the Department of the Treasury, has initiated a foreclosure prevention program that has already saved hundreds of thousands of homes in the United States. We passed a credit card bill that protects consumers and protects consumers against credit card companies who are increasing interest rates and increasing fees on consumers.

We just, last week, passed the Consumer Financial Protection Act, which again brings financial protections to consumers around financial products. You know, it was often stated in the State of Ohio that you had more protections purchasing a toaster than you did a house. In many cases that's true because we do have consumer protections when it comes to products, and we do have consumer protections when it comes to toys; but we didn't have much in the way of consumer protection when it comes to the most valuable purchase of your life in the case of many of us.

Mr. HIMES. So many of the ideas that are incorporated into the legislation that we have been working on are fundamentally commonsense ideas. This notion that you should be able to sell a mortgage to someone who doesn't have an income or who is unwilling to show you the documents that verify his or her income, what flavor of insanity is that? Why is it controversial that a consumer finance protection agency should take a hard look at that? This is common sense.

You know that derivatives, which so few people understand, but people know that derivatives, credit default swaps at AIG were a huge contributor to the meltdown. AIG was writing contracts, making bets that it didn't have a prayer of honoring when things went bad. So you look at that and you say, gosh, they didn't have a regulator, nobody was looking at it. And there are whole swaths of financial services that didn't have regulators. There were plenty of areas that did, but there's AIG writing credit default swaps without any oversight.

So in the derivatives bill--and for the life of me I don't understand why that one became a partisan issue. We didn't say you can't do derivatives; we didn't even put limits on the amount of derivatives that you could assume. We did say, however, that if you're going to buy yourself derivatives, you're going to clear those derivatives on a clearinghouse if the clearinghouse will take it. You're going to trade them on an exchange so that there is transparency, so that we know who's doing what to whom, what the price is, what the volume is, so we get to see and the regulators get to see and the markets get to see who's taking what kind of risk.

This is a fundamental notion of a market economy, transparency and good information, which is at the heart of that derivatives bill, and somehow that was opposed. Common sense, critical to the markets--going to be awfully important to making sure that an AIG never occurs

again--and yet it was controversial.

Mr. DRIEHAUS. Well, talking about the credit default swaps at AIG, not only did you have the people engaging in the sale of credit default swaps, which they knew they could never honor, but they were getting bonuses for doing it. There were perverse incentives at play at AIG and at other financial institutions that incentivized payment structures for the sale of these very instruments. So when we wanted to look at executive compensation, we were criticized by the other side. And we said, look, we're not trying to take away people's pay; we believe in fair pay for hard work. But what we don't believe in is these compensation packages that incentivize incredibly risky behavior when the individual engaging in the practice doesn't have any skin in the game.

Mr. HIMES. You're right about that. There was so much hysteria about the discussion around compensation, that somehow the U.S. Government is going to start determining what people should be paid. And the reality is, in all honesty, this House from time to time contributes to that kind of hysteria. But here's another example of just pure common sense.

All we're saying, and I think all the Federal Reserve and the Treasury and those who are concerned with compensation, all we're saying is this: we're saying exactly the same thing that shareholders and owners of every company believe to the core, which is, if you're an executive and you create good value in the long term, you're a long-term value creator, get paid well. That's the American way. But you don't get to be paid well for failure. You don't get to be paid huge for taking enormous risks that look good on day two, but which bring the system down on day 10. The interest of this institution has been exactly the interest that shareholders have: let's make sure that the system is set up to reward people for good, long-term value creation.

People get very concerned about the TARP and the compensation within the TARP. Very special case. And I know that everybody in this Chamber hopes that we never see another TARP again. The TARP of course made the government a major shareholder in many institutions which, of course, as I have been saying, gives you a pretty significant vote on compensation. But again, common sense going forward, let's make sure our executives are rewarded for that which benefits the shareholders, good long-term value creation.

Mr. DRIEHAUS. And as you know, we are now looking at the systemic risk that is involved in all of this, that is, what is the risk inherent with some of these products? What is the risk inherent with some of these institutions that have been deemed too big to fail? Shouldn't we regulate that? Shouldn't we regulate those institutions? Shouldn't we regulate those products so that they don't get too big that their failure could bring down the economy? Shouldn't we regulate those instruments, those financial instruments that if they fail would cause hundreds of thousands of foreclosures across the United States? Isn't that in the best interest of the people of the United States, to step in and actually regulate this behavior? That's what we're taking on right now.

But every step of the way, Congressman, every step of the way when we tried to protect consumers from the credit card companies, so many Republicans said no. When we tried to establish the Consumer Financial Protection Agency to protect consumers who were trying to buy homes, the Republicans said no. When we're looking at systemic risk, we're now hearing it on the other side: no, let the status quo rule. The status quo has brought us the worst recession in our lifetimes.

Mr. HIMES. And this is another good example of common sense.

At the core of what we are trying to do is to make sure that no institution ever gets bailed out again with taxpayer dollars, that we never again see an institution too big to fail. So what are we saying? Are we coming up with something new and radical? No. What we're saying is that if you are large and interconnected and create some systemic risk, you will be more closely scrutinized by the regulators than if you're just a small community bank. You will be required to hold more capital against your activities. Commonsensical stuff.

And maybe most important--and this is where we get to doing away with the concept of too big to fail--if you make bad decisions, if you as a systemically important institution are in danger of failing, we're not going to do something radical; we are going to do something that this country has been doing for 70 years, unwinding, in an orderly fashion, the operation of that bank.

The FDIC has had resolution authority and has been unwinding failed banks in a calm and orderly way for decades. And now we are saying, if you blow it, you fail, but you're going to do it in such a way that there is no risk that you bring down the financial system. That is hardly anything other than a nod of our hats to what has been so successful in this country for decades.

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Mr. HIMES. You know, there's a point that can't get lost here, and I'm conscious, as we're having this discussion, that we're all fathers.

You know, there is blame everywhere to be had for where we are today, and we, day to day, are focused on what we can do better as a government--to better regulate, to better create opportunity, to make these products more understandable to people so that they can make good decisions--but it does at some level come down to good decisions, and we shouldn't let that point, particularly as fathers, go away.

I reflect, as we sort of not just take up financial regulatory reform but as we talk about energy policy and as we talk about health care, if we as families had the same kind of values that our grandparents had--saving and shying away from debt. Of course, we can help on this stuff, right? We've made it awfully easy in this country for people to get into debt without ever knowing about it. Yet, if we were healthier, if we were more responsible about how we used energy and if we were more responsible about when and how we took on debt, like the other problems I've been talking about, we would take huge problems, and we would make them, Mr. Speaker, much more addressable problems.

I'm very interested in this question: How do we as legislators assist in that process?

I don't know that there is a good answer. I do know that, as fathers, there is a good answer. We as a country, I think, need to look back at our grandparents' generation and say, You know what? They got some things right. We need to work with our own families and with our own communities to just say basic things: If it looks too good to be true, it probably is. You'd much rather have some money in the bank than have to go into debt. That's a key point that we, I think, need to get right in this country as well.

I notice that we're joined by our colleague from Virginia, Congressman Perriello.

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Mr. HIMES. Thank you, my good friend from Ohio, my two good friends from Ohio and Virginia. It's a pleasure to be out here tonight with you.

We have talked about a lot of important issues, and one of the reasons I feel proud to be in this Chamber with you and with our colleagues is because we are in a moment of crisis, no doubt about it. We were called in a moment of crisis to lead.

When you lead in a moment of crisis, you lead constructively. You take some risks. You acknowledge, as I know that each and every one of us does, that we won't get this perfect. Very little of what has been produced in history in this room has been perfect; but it has been done constructively, it has been done with the spirit that we will get it right over time, and it has been done by people taking some risks.

In a moment of crisis, it is not leadership to say no. It is not leadership to simply snipe at those who are trying to solve the problems, the problems that affect every American family, the problems that mean that families don't have jobs. They worry about whether their kids will be educated. These are the things that we are trying to address, and it is just a fine moment that we have been called upon now to push these things to try to restore the opportunity that is so important to American families and to the sense of the American Dream.

Mr. DRIEHAUS. Gentlemen, I appreciate you coming down to the floor this evening. This is about solutions. This is about stepping up to responsibilities. This is why we were elected.

We hear so often on the other side the naysayers come down and talk about what won't work. They don't talk about the responsibility, the common responsibility we have. They run away from the years that they were in charge.

But this is about stepping up to responsibilities and making a difference. While it's not always perfect, we are doing what's right by the American people and doing what's right by the families that elected us to represent them.

Mr. Speaker, I yield back.

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