Hensarling: When It Comes to Identifying Threats to America’s Financial Stability, Washington Needs to Look in the Mirror
Washington,
June 17, 2015 -
WASHINGTON- Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following opening statement at today’s Full Committee hearing with Treasury Secretary Jacob Lew on the Financial Stability Oversight Council’s annual report:
When Democrats first passed the Dodd-Frank Act five years ago, they claimed the Financial Stability Oversight Council was one of its crown jewels. FSOC, whose agency heads largely failed in the last crisis, would now be able to clearly identify risks to financial stability and take action before these emerging threats metastasized into another crisis.
But a fatal flaw in this pipe dream was always the failure, perhaps the deliberate refusal, of Dodd-Frank’s supporters to recognize that among the greatest threats to financial stability are Washington policies themselves, including policies of the very agency heads that sit on the council.
FSOC simply refuses to look in the mirror. In its report, it conspicuously omits any references to specific government policies or agencies as helping cause the systemic risks it identifies.
“[G]reater risk-taking across the financial system” is encouraged by the “historically low-yield environment,” the Council reports. Yet the Council refuses to identify the obvious source of this apparent risk: one of its own members, the Federal Reserve, and the Fed’s unprecedented loose monetary policy.
The Council warns of reduced liquidity in the capital bond markets, yet never acknowledges that Dodd-Frank’s Volcker Rule and other regulations have drastically reduced liquidity.
The Council lists “risk-taking of large, complex, interconnected financial institutions” as a threat. Yet, again, it fails to mention that Dodd-Frank amplifies the threat by empowering the Council to designate certain firms as Too Big to Fail, thus enshrining Too Big to Fail into law.
These designations will make only worse the profound threat ignored by the Council but recently identified by the Federal Reserve Bank of Richmond and their “Bailout Barometer.” That threat being that hardworking taxpayers, implicitly or explicitly, are now on the hook for a staggering 60 percent of the liabilities of the entire U.S. financial system.
The Council turns a blind eye to other serious threats. Fannie Mae and Freddie Mac – at the epicenter of the last crisis – barely receive a mention.
It gets worse. Our unsustainable national debt, $18 trillion and counting as all can see, perhaps the greatest existential threat we face; more debt incurred under this Administration than in our nation’s first 200 years – totally ignored. This is beyond negligent, beyond egregious. It is dangerous and offensive.
Another glaring omission from the report is any meaningful reference to economic growth – or rather, the lack of it. Along with Obamacare, Dodd-Frank is at the center of the Administration’s economic policies.
And as we approach Dodd-Frank’s fifth anniversary, we see the slowest, weakest recovery of the post-war era. We see an economic recovery that has created 12.1 million fewer jobs and has provided $6,175 less income for every citizen compared to the average post-war recovery.
Again, compared to the average, we see an economic recovery that has left 1.6 million of our fellow citizens mired in poverty, and working middle-income families losing over $11,000 in annual income that rightfully should have been theirs.
I find it stunning that in its report FSOC can find a link between weak economic growth in Greece and stability in the Eurozone but apparently can find no link between economic growth and stability on this side of the Atlantic.
Also nowhere to be found in the Council’s report is the threat posed to our stability, growth and personal freedoms posed by the erosion of the rule of law under this Administration.
We know that President Obama seemingly never tires of admonishing us that he has a pen and a phone at the ready to enact whatever policies he alone sees fit. Regrettably, he never seems to have handy a copy of the Constitution.
As Americans become less governed by the rule of law and more governed by the whims of Washington fear, doubt, uncertainty and pessimism are sown.
It is not lost on the American people that Washington decides what credit cards can go in their wallets, what kind of home mortgages they can receive, and whether if they like their bank account, they can keep it.
Truly, never before in my lifetime has more unchecked, unbridled discretionary power been given to the unaccountable and unelected.
This includes the Financial Stability Oversight Council, which operates largely out of public view. Yet its decisions have the potential to profoundly alter the lives and livelihoods of every American.
FSOC typifies not only the shadow regulatory system but also the unfair Washington system that Americans have come to loathe: powerful government administrators, secretive government meetings, arbitrary rules, and unchecked power to punish or reward.
Mr. Secretary, your council and the rest of Washington needs to awaken to this obvious truth: when it comes to systemic risk, Washington is a large part of the problem.
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