Jun 10 2010

SHELBY STATEMENT AT FINANCIAL REFORM CONFERENCE

WASHINGTON, DC, Thursday, June 10, 2010 – U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today delivered a statement at the opening of the House-Senate conference committee on financial reform legislation.  Excerpts of Shelby’s statement are immediately below in bold, followed by the full text of his prepared remarks. 

 “Before we are done, I would like to see this conference produce a report that will protect consumers, end bailouts for good, promote economic growth and strengthen our financial system while preserving its competitive edge in the world.  If we accomplish these four things, it does not matter to me in the slightest  whether Wall Street likes it or not, and I will be happy to support it.  Before those goals can be realized, however, the Senate and the House bills each require significant changes…

 “Unfortunately Mr. Chairman, it appears that we are off to a rocky start because the base text before the conference was negotiated and compiled behind closed doors and without any Republican participation.  In fact, we only received it about 2 ½ hours ago.  Granted, our respective Chairmen have scheduled a number  of public meetings, but I suspect there have been a number of private meetings where legislative language has been coordinated and drafted without any public access or Republican input.  It appears, at this point, that the only facet of this conference that will be public is when the Republicans get our one and only  chance to amend what has already been decided by our Democrat colleagues behind closed doors. 

 “Mr. Chairman, we have both participated in many conferences over the years, and I fully appreciate the position any minority party is in when a bill reaches this stage.  If we continue to proceed in this manner, however, any further assertions of openness and transparency will be a fiction and meetings like this will only  serve as political theater.  While I have no illusions on how this process is going to unfold, we should, at the very least, be honest with the American people about what is happening, where it is happening, and who is making those decisions…

 “Throughout this process, I have encouraged you and my Democrat colleagues to focus on the root causes and resist the urge to exploit the crisis to enact a wish list of extraneous special interest provisions.  It appears, however, that the majority is going to impose their will and this bill will likely become law.  The  American economy will once again become the laboratory for another grand Democrat experiment in big government and central management.  I am afraid that our economy’s prognosis is not good unless significant changes are made to this bill.”

 

The full text of Shelby’s statement, as prepared, is as follows:

“Thank you, Mr. Chairman.   

“The legislation before us will have profound effects on our economy and on the living standards of Americans for generations to come.

“Therefore, much has been made of the ‘Wall Street’ versus ‘Main Street’ narrative by some of my Democrat colleagues.  It has been my experience over the years, however, that Wall Street tends to take care of itself whatever Congress decides to enact into law.

“In other words, Wall Street doesn’t need Democrats or Republicans to protect its financial interests.  They will do that all on their own.

“What Congress needs to do is make sure that Wall Street is functioning in support of Main Street’s ability to create jobs and grow the economy.  We should also ensure that Wall Street is never again the beneficiary of a taxpayer bailout.  Unfortunately, the Democrat drafted bill before the Conference Committee undermines the former, and virtually ensures the latter.

“Before we are done, I would like to see this conference produce a report that will protect consumers, end bailouts for good, promote economic growth and strengthen our financial system while preserving its competitive edge in the world.   

“If we accomplish these four things, it does not matter to me in the slightest whether Wall Street likes it or not, and I will be happy to support it.

“Before those goals can be realized, however, the Senate and the House bills each require significant changes.
 
“Before proceeding to some of my substantive concerns, I want to talk about the  process for a moment.  Our host today, Chairman Frank, has emphasized his desire to make our deliberations open and transparent. 

“In response, my Senate Republican colleagues and I wrote to Chairmen Frank and Dodd expressing our strong desire for a completely open and transparent conference.  I don’t believe we ever received a response.  Perhaps we will today. 

“I ask unanimous consent that our letter be made a part of the record.   

“Unfortunately Mr. Chairman, it appears that we are off to a rocky start because the base text before the conference was negotiated and compiled behind closed doors and without any Republican participation.  In fact, we only received it about 2 ½ hours ago. 

“Granted, our respective Chairmen have scheduled a number of public meetings, but I suspect there have been a number of private meetings where legislative language has been coordinated and drafted without any public access or Republican input.   

“It appears, at this point, that the only facet of this conference that will be public is when the Republicans get our one and only chance to amend what has already been decided by our Democrat colleagues behind closed doors. 
                                                                                                                       
“Mr. Chairman, we have both participated in many conferences over the years, and I fully appreciate the position any minority party is in when a bill reaches this stage.  If we continue to proceed in this manner, however, any further assertions of openness and transparency will be a fiction and meetings like this will only serve as political theater.   

“While I have no illusions on how this process is going to unfold, we should, at the very least, be honest with the American people about what is happening, where it is happening, and who is making those decisions.

“Mr. Chairman, I would also like to say a word about our time line as well. 

“The New York Times, on Monday, reported that Chairman Frank was urged by the administration to produce a Conference Report by June 24, around when the President is expected to leave for Toronto for a G20 meeting.   Such a target is ambitious.   

“While we may complete our work by then, I would hope we could all agree that our schedule should be dictated by the needs of our financial system, our economy, and the American families and businesses that will be touched by this legislation, not by arbitrary time lines or the President’s travel plans. 

“Mr. Chairman, before this bill can achieve the goals I have enunciated, it needs to be changed because the House and Senate versions of this legislation are incomplete and unnecessarily overreaching.

“Both the Senate and House bills effectively leave most of the heavy lifting for regulatory reform to future study and rule-writing by a host of new and existing regulatory bodies.  Most of those regulators are the ones who tragically failed us in the run up to the recent financial crisis.   

“Let me remind my colleagues that one of the main objectives of this legislation was to plug regulatory gaps and streamline our regulatory structure.  Yet, we still will have the Fed; the FDIC; the SEC; the CFTC; and the OCC, and most of them will expand in size, power and scope. 

“These bills also add some new letters to the alphabet soup, such as the CFPB and the OFR – so much for streamlining. 

“More often than not, this legislation reflects a series of deals made by the executive branch along with the existing financial regulators who failed to do their jobs during the last crisis.

“The bill we are considering is filled with undefined terms, leaving it up to the failed regulators to determine whether a company is a ‘threat to the financial stability of the United States’ or is ‘in danger of default’ and therefore eligible for special resolution proceedings.  These are just two of the vague and undefined terms within this bill.

“The most egregious example of why this legislation is incomplete has to do with the absolute neglect of any serious treatment of the government sponsored enterprises—or GSE’s—Fannie and Freddie.   

“The GSEs were integral players in the collapse of the housing market that precipitated fear, panic, lack of trust in AAA ratings, and ultimately the freezing up of financial markets and economic activity around the globe.

“The ensuing crisis led to the destruction of millions of jobs for Americans and the evaporation of trillions of dollars of household wealth and retirement savings. 

“To date, the GSE bailouts have cost the American taxpayer roughly $150 billion – among the largest bailouts in history with no end in sight.   

“It is simply a failure of will that nothing is being done to reform the GSEs or, at the very least, cap the allowable losses.  If the Chairman wants to achieve some openness, be open with the American people about why you are refusing to address this core issue.

“Another major component of the Senate bill deals with the creation of a massive new consumer bureaucracy, along with a separate Title 12 which is a liberal activist’s dream come true. 

“Provisions in this latter title will compel financial institutions to provide free services to selected community groups.  

“This follows the exact same model that led us to the crisis in the first place—private enterprise mixed with social engineering.  The two are not compatible and, as we have seen, can prove to be highly destructive.

“By the Democrats’ own admission, the most important facet of this legislation is the creation of this massive new consumer bureaucracy.  

“Because the Democrats’ new bureaucracy is an enormous reach across virtually every segment of our economy and a massive expansion of government influence in our daily financial lives, Republicans asked only that its budget and authority be subject to Congressional oversight and review by the prudential regulators charged with ensuring the safety and soundness of our banks and banking system.  The Democrats’ response was a unanimous no.

“Mr. Chairman, the American people have been clear.  They do not want a massively intrusive, continuously growing, and overly expansive government.  I favor consumer protection.   

“This new bureaucracy, however, promises to be more intrusive than protective and that will never be good for American consumers or our economy.

“Aside from onerous new consumer regulations, another means by which this legislation will slow economic activity is in the treatment of derivatives.  The legislation will chase risky financial trades overseas and further into the unregulated shadow banking system, thereby magnifying, not reducing, unmonitored systemic risks.
 
“Because risk management will now be significantly more expensive, we can expect lower business investment which, again, means fewer jobs. 

“I do not understand why are we would want to increase costs for ordinary end users of derivatives, such as your home heating provider or makers of candy bars. 

“Many end users will find themselves subject to clearing mandates, bank-like capital requirements, and extensive dealer-like business conduct requirements. As a result, Main Street businesses will face higher costs that will ultimately be borne by consumers.   

“The treatment of derivatives in this legislation will work as an anti-stimulus plan pulling resources out of the economy, hurting growth, and slowing job creation.  This result is unacceptable to me, and should be unacceptable to this conference.

“Both the Senate and House bills essentially defer on how to handle limitations on the risky proprietary trading activities of financial institutions.  Sometime in the future, regulators are to consider implementing a vague notion called the ‘Volker Rule,’ which I call the ‘Volker Concept.’  It is merely a concept since there is no rule yet established.   

“Despite assurances from high-ranking Treasury officials that clarity would be provided on what constitutes proprietary trading and what does not, no such clarity has been provided.  This is why I call it a concept. 

“This is an area that should be addressed with some specificity.  At best, this bill will grant discretion to the regulators who failed us the last time around and have yet to account for past lapses.  Once again, the legislation offers concepts, but no definitions, and punts on the hard decisions.

“Another example of punting involves the treatment of the ratings agencies.   

“As anyone who has been paying attention to the causes of the financial crisis is aware, the rating agencies ended up favoring their fees and market share over their franchise reputations and blessed, as highly creditworthy, what proved to be junk securities. 

“To avoid having to alter the entire underpinning of risk-based capital requirements, the legislation introduces concepts of increased oversight and speaks out against conflicts of interest.  What this will mean, however, is presently unclear in this bill.   

“Perhaps more hearings on these matters would have been helpful.  After all, the AAA ratings assigned to mortgage backed securities enabled many in the shadow banking system to effectively create money and fund the operations of financial institutions to the tune of trillions of dollars per day. 

“As integral as rating agencies and AAA rating assignments were to the recent financial crisis, it borders on malpractice not to address rating agencies more seriously in this legislation.
 
“Mr. Chairman, from the beginning of this process I have maintained the same position.  We need to determine what went wrong, whether it could have been avoided, whether anyone should be held accountable for their acts or omissions and finally, whether we need to change the law to prevent such a crisis in the future. 

“I have said many times throughout the past 18 months that I believe we have not done the necessary due diligence for such a significant legislative undertaking.  

“In fact, every member of this conference acknowledged that fact when we subcontracted our work to the Financial Crisis Inquiry Commission which we all know doesn’t complete its work until the end of this year. 

“Indeed, the legislation more often than not calls for long adjustment periods, delays in implementation, periods of study, and basically more time.  This is the time we should be using to determine the best way forward to ensure the future vitality of our economy, the competitiveness of our financial system, and the financial well-being of the American family. 

“Throughout this process, I have encouraged you and my Democrat colleagues to focus on the root causes and resist the urge to exploit the crisis to enact a wish list of extraneous special interest provisions. 

“It appears, however, that the majority is going to impose their will and this bill will likely become law.  The American economy will once again become the laboratory for another grand Democrat experiment in big government and central management.  I am afraid that our economy’s prognosis is not good unless significant changes are made to this bill.

“Thank you, Mr. Chairman.”

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