Financial Services Committee RSS Articles

Obama Treasury Secretary: ‘We are overachieving on deficit reduction’

Thu, 23 May 2013 04:00:00 GMT

During the first term of the Obama administration, our nation racked up four straight years of trillion dollar-plus deficits and as much debt as was accumulated in our first 200 years. Under President Obama, our national debt has increased by more than $6 trillion – the largest increase under any president in history.

But according to President Obama's Treasury Secretary, Jack Lew, it’s time to pop open the champagne and celebrate because “we are overachieving on deficit reduction right now".

That’s funny, because it wasn’t that long ago when a $642 billion budget deficit and a $17 trillion national debt was a bad thing.

Watch Secretary Lew's take on this year's deficit in an exchange with Congressman Marlin Stutzman during yesterday's hearing below:

So what does “overachieving” look like to the Obama administration? Just this month, the Congressional Budget Office updated its budget outlook (.pdf) with the following deficit and debt estimates:

This year’s budget deficit = $642 billion

In 2023, the budget deficit = $895 billion

Total deficits over the next decade = $6.34 trillion

Gross federal debt in 2023 = $25.2 trillion

In his testimony (.pdf) earlier this year to the House Budget Committee, CBO Director Doug Elmendorf said:

“Federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade…Such high and rising debt would have serious negative consequences…such a large debt would increase the risk of a fiscal crisis…”

As Secretary Lew himself pointed out in his exchange with Congressman Stutzman, “the path we are on is what is most significant.”

We agree, Mr. Secretary. But here's the path (.pdf) we are on.

If the Obama administration wants to give themselves high-fives and hand out gold stars for “overachieving” with a deficit that is $642 billion – the fifth biggest deficit in history – and headed higher because of their spending policies, then be our guest.

It just shows how out of touch they are with hardworking taxpayers who understand that unless we change course Washington’s reckless spending will leave their children and grandchildren with fewer opportunities, a lower standard of living and less freedom.

Hearing Examines Legislative Proposals to Help Relieve Regulatory Burden on Investors & Job Creators

Thu, 23 May 2013 04:00:00 GMT

Today the House Financial Services Capital Markets Subcommittee examined legislative proposals to help relieve the federal regulatory burden on investors and job creators.

The Dodd-Frank Act passed in 2010 adds more than 400 new regulations -- on top of existing regulations -- to our economy, investors and job creators. Before the financial crisis, regulatory mistakes and incompetence abounded—but almost no examples of a lack of regulatory authority can be found. Federal regulations were not the solution to the crisis but its principal cause.

Today the subcommittee reviewed four bills that focus on targeted and pragmatic fixes to some of the most burdensome and unnecessary provisions of Dodd-Frank. There is a growing bipartisan recognition that Dodd-Frank over-regulation damages our struggling economy. Earlier this month, the Committee overwhelmingly passed five bipartisan bills to repeal, amend or clarify several provisions of Dodd-Frank regarding the regulation of derivatives.

In addition to relieving some of the burden on job creators, Subcommittee Chairman Scott Garrett (R-NJ) also noted the legislative fixes would allow the Securities and Exchange Commission (SEC) more time to focus on its mission and on required rulemaking.

“By removing unnecessary and time-consuming requirements, the bills discussed in this hearing will ensure the SEC has the time and resources to focus on its core mission and meet other congressional mandates such as those outlined in the JOBS Act, which the SEC has failed to fully implement. Last week, there was a lot discussion about the SEC’s resources. These four bills fix many of the unnecessary provisions of the Dodd-Frank Act, freeing up SEC resources to be devoted to mission-critical rules,” said Chairman Garrett.

This Is Why We Hold Hearings

Wed, 22 May 2013 04:00:00 GMT

Yesterday's Monetary Policy & Trade Subcommittee hearing showed a heartbreaking example of the unintended consequences of uninformed legislative action.

Congressman Mick Muvaley explains in the video above how a provision buried deep within the 2,300-page Dodd-Frank Act is hurting the very people it was supposed to help in the war-torn central African nation of the Congo. The provision – added to Dodd-Frank as Section 1502 without any congressional hearings – requires public companies to certify their supply chains are free of any and all “conflict minerals” originating in the Democratic Republic of Congo.

As many as 12.5 million Congolese – 17% of the country’s population – depend on mineral trading to make a living. But today, as the conflict rages on, up to 2 million Congolese miners have lost their livelihoods and are now even more impoverished than before Dodd-Frank’s enactment.

One of our witnesses at yesterday's hearing and a native of the Congo himself, Mvemba Dizolele, noted: “Oversimplification of issues often produces inadequate, counterproductive policies.” He’s right. And that’s why legislative hearings are critical to understanding the potential consequences of public policy.

Hensarling: IRS is Most Feared Agency of Government

Wed, 22 May 2013 04:00:00 GMT

Chairman Jeb Hensarling joined Fox Business's Neil Cavuto last night in advance of today's hearing with Treasury Secretary Jacob "Jack" Lew. Today's hearing is Secretary Lew's first appearance before the House Financial Services Committee.

The scandal at the IRS is an issue that should rise above partisanship. It hits at the heart of who we are as a people, and why we fight for justice and fear such a large, powerful government that clearly has become “too big to manage.” What the IRS did was wrong because it tries to turn our citizens into subjects. It is wrong because it violates both our constitutional and civil rights. It is wrong because it treats citizens wishing to speak out against the government’s policies – exercising a God-given right – like an enemy under state investigation. In a word, it is tyranny.

Chairman Hensarling Opening Statement at Today's Hearing with Treasury Secretary Lew

Wed, 22 May 2013 04:00:00 GMT

Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today's full committee hearing with Treasury Secretary Jacob "Jack" Lew:

“This morning we welcome Treasury Secretary Jack Lew for his first appearance before the Financial Services Committee. Today the Secretary is here to present, according to statute, the third annual report of the Financial Stability Oversight Council, or FSOC.

“The FSOC is an amalgamation of regulators heading agencies that either helped cause the financial crisis or were largely negligent in preventing it the first place, notwithstanding they had the regulatory power to do so.

“Yet we know the root cause of the crisis was not deregulation, it was dumb regulation. Federal policy strong armed and incented institutions to loan money to people to buy homes that ultimately they could not afford. This dramatically eroded historically prudent underwriting standards. Of the subprime and Alt-A mortgages that led to the financial crisis, more than 70% were incented and backed by the federal government through Fannie Mae, Freddie Mac, the FHA and other programs. This speaks for itself.

“So in many respects as we examine FSOC, the regulators that helped precipitate the last crisis are now put in charge of preventing the next.

“And according to the Government Accountability Office, after three years they don’t have much to show for it. Just last month we received testimony from the GAO that FSOC has still ‘not developed a structure that supports having a systematic or comprehensive process for identifying potential, emerging threats.’ Yet, FSOC has been granted sweeping new powers within our economy, and this is disconcerting to many.

“Because as we know, on occasion, regulators may not just be dumb, they may not just be negligent, they may actually be criminal.

“Just down the hall, as we speak, the House Oversight and Government Reform Committee is holding a hearing where, according to her attorney of record, top IRS official Lois Lerner is pleading the Fifth for having led a IRS division which trampled upon the First.

“The American people are appalled that the most feared government agency has been permitted to attack their most sacred rights. The American people are appalled at the arrogance of the agency, they are appalled by this abuse of power.

“And for the last 2 ½ months, and for the foreseeable future, this agency, the IRS, just like the FSOC, reports to you, Mr. Secretary.

“And although the IRS is clearly accountable to you, the Consumer Financial Protection Bureau and the Office of Financial Research – two agencies that are part of FSOC – are not. Neither the bureau nor the financial research office answers to anyone. A single director who cannot be removed by the President at will heads both. Spending by both agencies is unaccountable to Congress or the administration. Neither is bound by the constraints of the government pay-scale and both agencies have subpoena power.

“Something else both these FSOC agencies have in common is that they are engaged in gathering massive amounts of information about private American citizens. At the same time the IRS – thanks to the enforcement powers that it gained with Obamacare -- is building the largest personal information database the government has ever seen, the CFPB is monitoring how millions of Americans interact with their lenders, and the OFR is working to gather enough information in its computers that would equal all the data held in all the U.S. academic research libraries combined.

“This is big data for big brother. As the IRS scandal reminds us, the freedom of every American is endangered when a government agency abuses its power and misuses sensitive information entrusted to it.

“In light of the recent scandals, this is an appropriate time to remind everyone that our Committee maintains on its website a confidential way for Americans to report evidence of abuse of power by the federal agencies under our jurisdiction. We encourage all concerned and informed citizens to use it.

“Secretary Lew, we look forward to discussing these issues and many others with you in detail at today’s hearing.”

Chairman Hensarling Questions Secretary Lew on IRS Scandal, FSOC Report

Wed, 22 May 2013 04:00:00 GMT

Chairman Hensarling (Hensarling): Mr. Secretary, I’m personally not going to spend a whole lot of time with you on discussing who knew what, when, with respect to the IRS scandal but I would like to say this: I don’t know the level of responsibility that you and the president bear for this scandal, but I know it’s not zero. I think the American people would like to hear a little bit more from you and the president that the buck stops here, as opposed to “hear no evil, see no evil, and I know nothing, nothing nothing.” And that may just be a little bit of unsolicited advice. So I’m not going to look retrospectively, I’m going to look prospectively. I know you’ve seen the forms that the IRS has sent American citizens. The IRS now reports to you, Mr. Secretary, and has for the last two and a half months. So I look through these forms and I find out where the IRS is asking American citizens for all of their activity on Facebook and Twitter, including hard copies of all advertising on social media. Under your watch, will it be appropriate for IRS agents to ask for this information?

Secretary Lew (Lew): Mr. Chairman, I take responsibility for the management of the Treasury Department and for the management oversight of the IRS. There is a difference between general management oversight and the very important line that exists between policy roles and and the administration of the tax system. For decades we’ve had appropriate lines….

Hensarling: Mr. Secretary, the administration just fired someone. That would seem to indicate there is some control over the policies of the IRS. So to the extent that you have the ability, and the administration has the ability, to hire and fire the head of the IRS, will it be appropriate for the IRS going forward to ask for this information from American citizens?

Lew: Mr. Chairman, if I could just finish the thought that I was on. There is a very important distinction between hiring a commissioner of the IRS and there is one other political appointee at the IRS – that is the General Counsel….

Hensarling: OK, are you positing an inability to impact the policies…

(crosstalk)

Lew: …and there is involvement on policy matters, but on administration of the tax……

Hensarling: So are you unable to impact the policy?

Lew: On policy, I will continue as secretaries of Treasury have, and should, to express views on tax policy…

(crosstalk)

Hensarling: Ok, in your view is it appropriate…

(crosstalk)

Hensarling: Mr Secretary, in your opinion, is it appropriate to ask American citizens about their prayer life, how often they attend prayer meetings, and what percentage of time organizations spend in prayer groups?

Lew: Mr. Chairman, I’m not familiar with the specific document that you are looking at. As a general matter, there is the highest regard for the personal privacy…

Hensarling: It’s been released by the IRS so I hope you do look at it.

Lew: …of individuals is a very high priority. Protecting individuals from the kind of questions that invade their privacy. This is a very high priority.

Hensarling: You have some ability to impact who heads the IRS, so in your personal opinion, is it appropriate for the IRS to be asking about the prayer life of American citizens?

Lew: Mr. Chairman, it’s a hypothetical question, since I’m not familiar with…..

Hensarling: It’s not hypothetical, Mr. Secretary, to the people who received this application on penalty of perjury if they didn’t disclose their prayer lives to the IRS.

Lew: Mr. Chairman, I cannot respond to a form that I haven’t had a chance to see. I’m happy to get back to you.

Hensarling: Okay, if you would, Mr. Secretary. And after being on the job for two and a half months, and it’s one of the biggest scandals that has rocked Washington in years, I would hope in the matter of priorities of the Secretary of Treasury that you would undertake to review this material going forward.

Lew: Mr. Chairman, I have made clear that it is an extraordinarily high priority, my highest priority to restore confidence in the IRS. That’s why we have a new acting commission who is taking over today. His first job is to find out who is accountable and make sure people are held accountable for any actions that were wrongful. Secondly…

Hensarling: Mr. Secretary, regrettably my time is running out. I assume you will have ample opportunity to to speak more about the IRS. I’m going to change subjects which may be more pleasant for you. In the FSOC report, on page 13, it states “the counsel recommends that the Treasury, HUD and the FHFA continue to work with Congress and other stakeholders to develop housing reform system.” Mr. Secretary, I have been either the Chairman or the Vice Chairman of this committee for the last two and a half years and I am unaware of any activities of either HUD or Treasury to work with Congress. I’m aware of the white paper that was released that has now gathered dust for over two years. So I’m not sure who Treasury and HUD have been working with but it hasn’t been this committee. And I see my time has expired. I would like to have the opportunity to speak to you about this later to find out if the administration intends on doing anything with their white paper besides allowing it to gather dust on housing reform.

Chairman Hensarling Announces New Subcommittee Assignments for Two Members

Wed, 22 May 2013 04:00:00 GMT

Financial Services Committee Chairman Jeb Hensarling (R-TX) today announced new subcommittee assignments for two members of the committee -- Rep. Dennis Ross (R-FL) and Rep. Keith Rothfus (R-PA).

Rep. Ross was appointed to fill the vacancy on the Housing and Insurance Subcommittee created when Rep. Jim Renacci left the committee in February for a seat on the House Ways and Means Committee. In addition to his duties on the Housing and Insurance Subcommittee, Rep. Ross will continue as a member of the Subcommittee on Capital Markets and Government Sponsored Enterprises.

Rep. Rothfus, who became a member of the Financial Services Committee in April, will serve on the Financial Institutions and Consumer Credit Subcommittee and also the Oversight and Investigations Subcommittee.

WSJ Opinion: The Debt Problem Hasn't Vanished

Wed, 22 May 2013 04:00:00 GMT

By Phil Gramm and Steve McMillin

President Obama has raised the national debt by nearly $6.2 trillion, the equivalent of $78,385 per family of four. It is true that projected deficits recently have been reduced. April tax filings increased 28% from 2012, but much of this was thanks to a one-time rush at the end of 2012 to report income before rates rose in January. The second largest reduction in the deficit came from Fannie Mae taking a one-time accounting adjustment.

But unless the economy soars, or a significant budget agreement is reached, the most lasting legacy of the Obama presidency will be a $10 trillion increase in the national debt—a burden that bodes ill for the nation's future.

Once the Federal Reserve's easy-money policy comes to an end and interest rates return to their post-World War II norms, the cost of servicing this debt will explode. The cost will increase further as the Fed sells down its $1.85 trillion holding of government bonds, and the Social Security system runs deeper and deeper into the red. The Treasury will then have to pay interest on an ever-growing percentage of the debt.

Since the World War II era, the average maturity of outstanding federal debt has been about five years, and the average interest cost on a five-year Treasury note has been 5.9%. At this interest rate, the expected cost of the Obama debt burden will eventually approach some $590 billion per year in perpetuity, exceeding the current annual cost of any federal program except Social Security.

An America forever burdened by massive government debt would have been unthinkable for much of the nation's history. Beginning with the Revolutionary War, the pattern has been that federal debt increased to help finance the nation's armed conflicts. But government spending after the wars dropped and debt was paid down, or even paid off, as under President Andrew Jackson in 1835.

Federal borrowing during the Civil War reached nearly $2.8 billion, about 30% of GDP. Thereafter the government ran surpluses and redeemed U.S. bonds that served as the reserve base of national banks and literally burned U.S. paper currency—greenbacks—in the furnace of the Treasury building. The money supply fell and federal spending plummeted to $352 million in 1896 from $1.3 billion in 1865.

These are policies that horrify modern Keynesian economists. Yet over that late 19th-century period real GDP and employment doubled, average annual real earnings rose by over 60%, and wholesale prices fell by 75%, thanks to marked improvements in productivity.

With the onset of the Great Depression, the national debt increased dramatically for the first time in the peacetime history of America, reaching 43% of GDP in 1938. World War II meant more borrowing. Since 1930, there has been no concerted effort to pay down the national debt. Any reductions in the national debt relative to the GDP have been almost solely the result of economic growth and inflation.

As the debt burden rises, so too does the cost of servicing the debt increase as a share of the growth the economy is capable of generating. When the debt on which interest is paid equals the GDP level of a nation, the economy must grow faster than the interest rate to avoid debt-servicing costs consuming all the benefit of economic growth. A nation then begins to lose its ability to grow its way out of a mounting debt crisis. Its options start to narrow down to forced austerity, inflation or default.

Today the total U.S. federal debt is 103% of GDP. Since interest paid to the Fed, the Social Security system and other government pension funds is effectively rebated to the Treasury, taxpayers currently bear only the burden of interest on 60% of this debt. But the size of the debt and the percentage of the debt on which interest will have to be paid are rising.

Some seek solace in the fact that at the end of World War II, the national debt exceeded GDP and still the economy prospered. But when the war ended, federal spending dropped to $29.8 billion in 1948 from $92.7 billion in 1945. Spending as a percentage of GDP fell to 12% from 44%. The U.S. emerged from the war as the world's dominant producer of goods and services. The demand for dollars around the world was insatiable, and a long period of record prosperity ensued. High GDP growth and inflation eventually brought down the debt-to-GDP ratio.

Americans today face a totally different situation. Spending and huge deficits continue unabated, and growth rates have declined since the recovery began four years ago. The reduction in government spending that occurred following World War II would be politically impossible today short of a cataclysmic crisis. Under Mr. Obama, the government has run trillion-dollar deficits for four consecutive years, and the top marginal tax rate today is already higher than it was when the budget was balanced in fiscal year 2001.

The president and many in Washington are complacent because, thanks to the Fed's unprecedented near-zero interest rate policy, the burden of servicing the debt today is just 0.9% of GDP, the lowest level in over five decades. But this cannot last, and the Fed is already looking for an exit plan.

Sadly, nations generally discover the truth of Albert Einstein's dictum that compound interest is the most powerful force in the universe—not through the happy accumulation of wealth but through the agonizing enslavement of debt.

Mr. Gramm, a former Republican senator from Texas, is senior partner of U.S. Policy Metrics, where Mr. McMillin, a former deputy director of the White House Office of Management and Budget, is a partner.

A version of this article appeared May 22, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: The Debt Problem Hasn't Vanished.

Oversight & Investigations Subcommittee Hearing Examines "Too Big to Jail"

Wed, 22 May 2013 04:00:00 GMT

Members of the House Financial Services Oversight and Investigations Subcommittee today questioned a witness from the Department of Justice about how the department decides which financial institutions are “too big to jail” and what information they rely upon to make such decisions.

When Attorney General Eric Holder testified before a Senate committee earlier this year that the Justice Department is having difficulty prosecuting large financial institutions because of “a negative impact on the national economy, perhaps even the world economy,” he implied that the Justice Department has determined such institutions need to be shielded from criminal accountability. The attorney general has also stated that “experts outside the Justice Department” are consulted about the possible impact of prosecuting large financial institutions.

This suggests that the Justice Department considers such institutions as “too big to fail” and that their “too big to fail” status is the deciding factor for non-prosecution.

The subcommittee questioned the Justice Department, the Treasury Department, the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Financial Research and the Financial Stability Oversight Council to determine what outside experts the department consults with when making prosecutorial decisions in cases involving large financial institutions.

“To date, the subcommittee’s investigation has indicated that the Justice Department has not received anymaterial information from outside experts,” said Subcommittee Chairman Patrick McHenry (R-NC). “DOJ has provided nothing material to explain the comments made by the attorney general."

Chairman McHenry added: “Last week, in testimony before the House Judiciary Committee, the attorney general appeared to contradict his earlier remarks to the Senate, stating that ‘there’s no bank, there’s no institution, there’s no individual that cannot be prosecuted by the U.S. Department of Justice.’ However, the attorney general’s contradicting comment does not explain whether the department’s view of the collateral harm of convicting a financial institution has changed, or if the department’s view has not changed, the circumstances in which a party’s criminal conduct is so egregious that prosecution is appropriate even in the face of significant harm to innocent parties.”

Three Things You Need to Know About The FSOC

Tue, 21 May 2013 04:00:00 GMT

Tomorrow, Treasury Secretary Lew will deliver his annual report on the Financial Stability Oversight Council (FSOC). Here’s three things you need to know about FSOC:

1. The FSOC is failing to effectively monitor and mitigate systemic risk

The Government Accountability Office (GAO) noted in an audit report to Congress in September 2012, the FSOC has “not developed a structure that supports having a systematic or comprehensive process for identifying potential emerging threats.” And just last month, witnesses testifying on behalf of the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) -- both FSOC member organizations -- similarly failed to provide any metrics to identify “grave threats” to the nation’s financial stability.

Given the FSOC’s issues with even identifying threats, it’s clear the FSOC is presently incapable of effectively responding to those threats. This failure to explicitly prioritize systemic risks leaves policymakers without the information they need to allocate scarce resources to the most serious threats to our economy.

2. The FSOC is failing to effectively coordinate member-agency rulemaking

In the last year, the FSOC’s member agencies have publicly disagreed about the implementation of Basel III, swaps regulation, cross-border resolution, and the Volcker Rule. These disagreements create significant uncertainty for market participants, and this uncertainty imposes unnecessary costs on the economy. Unfortunately, as Congresswoman Ann Wagner’s recent questioning shows, the FSOC is unable to even identify these costs.

3. Despite it’s statutory purpose, FSOC fails to end too-big-to-fail

The Dodd-Frank Act directs the FSOC to “promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the U.S. government will shield them from losses in the event of failure.” But in its 2013 annual report, the FSOC candidly admits that the “credit rating agencies continue to factor a systemic support uplift into the long-term credit ratings of the largest U.S. financial institutions,” which denotes “the perception that the actions of government authorities during the recent crisis imply a guarantee” to institutions perceived to be “too big to fail.”

To put it more bluntly, the FSOC itself admits its own failure to fulfill its duty established by Dodd-Frank.

Assessing the Madoff Ponzi and the Need for Regulatory Reform

Mon, 05 Jan 2009 19:00:00 GMT

FHA Oversight of Loan Originators

Fri, 09 Jan 2009 15:00:00 GMT

Priorities for the Next Administration: Use of TARP Funds under EESA

Tue, 13 Jan 2009 19:00:00 GMT

Financial Services Committee to Meet to Organize Committee Membership for the 111th Congress

Tue, 27 Jan 2009 15:00:00 GMT

Resolution Adopting the Rules of the Committee on Financial Services and Subcommittee Assignments

Tue, 27 Jan 2009 15:00:00 GMT

Promoting Bank Liquidity and Lending Through Deposit Insurance, Hope for Homeowners, and other Enhancements, 111-1

Tue, 03 Feb 2009 07:00:00 GMT

Assessing the Madoff Ponzi Scheme and Regulatory Failures, 111-2

Wed, 04 Feb 2009 14:00:00 GMT

H.R. 786, to make permanent the temporary increase in deposit insurance coverage, H.R. 787, to make improvements in the Hope for Homeowners Program, H.R. 788, to provide a safe harbor for mortgage servicers who engage in specified mortgage loan modifications, and for other purposes

Wed, 04 Feb 2009 19:00:00 GMT

An Examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis, 111-3

Tue, 10 Feb 2009 18:00:00 GMT

TARP Accountability: Use of Federal Assistance by the First TARP Recipients, 111-4

Wed, 11 Feb 2009 15:00:00 GMT