Dec 05 2002
TEXT OF SPEECH
Good morning and thank you for inviting me to join you. I am pleased to have the opportunity to discuss my thoughts on a couple issues of importance that the Congress and the Banking Committee are likely to address in the coming session and welcome any questions you may have at the end of my remarks.
For the past eight years, I have been fortunate to serve on the Senate Select Committee on Intelligence, four and a half of those years as Chairman and the last one and a half as Vice-Chairman.
It is impossible in my view to overstate the importance and seriousness of the work of that Committee. My obligations and responsibilities to that Committee have required a great deal of my focus. And until January of next year, will continue to be my top priority.
After January, however, my focus will turn back to Banking, where I have served as a member of that Committee for sixteen years. While, clearly, there are many important issues that will likely be taken up by the Committee in the coming year, some expected and some unexpected, I would like to highlight two priorities in particular today.
Without a doubt, the primary focus of my attention in the coming year will be doing whatever is necessary to further restore and ensure the integrity and credibility of our capital markets. I believe that the Committee and the Congress have an important and active role to play in achieving this goal and it will be my overarching concern.
When I first came to Congress many years ago, I was given a piece of advice about how I should approach my role as a legislator - "Do no harm first, but also ensure that others do no harm."
It was excellent advice. And, I believe that it still aptly characterizes the perspective that I have tried to follow over the years and will continue to guide me in the future - particularly when it comes to our economy and the efficiency of our markets.
Despite our flaws and weaknesses, I continue to believe that we have the most transparent and vibrant markets in the world. So when we do act, when we do legislate, I believe it is important that we act thoughtfully and prudently in order to do no harm to the market - where we seek to prevent harm in the market.
Many times, our markets are able to correct weaknesses in the system. In legislating solutions to market problems, we need to tailor our reforms in a way that respects the capabilities of market forces.
The recent serial scandals of corporate misconduct and accounting shenanigans sent a tidal wave through our markets, rocking investor confidence and dampening our economy. And while some of these scandals have exposed outright fraud on the part of some of these companies and their officers - and I do commend the Department of Justice and the SEC for vigorously pursuing these cases - these scandals were not isolated to a few bad actors. But, rather revealed systemic problems infecting the entire marketplace.
The losses associated with such a systemic disruption go beyond the tangible individual losses to many investors who saw their life savings dwindle to nothing and the dissipation of trillions of dollars in wealth to our economy.
We must also consider the lost opportunity costs associated with the mis-allocation of capital that comes with fraudulent behavior and misleading financial information as well as the costs associated with a crisis of market confidence.
When investors feel that the numbers behind financial statements are phony and the market is rigged to benefit the few, they simply will not invest in our markets and everyone loses. America loses in a global marketplace where capital seeks its best investor.
While I do not believe it is possible to legislate ethics, it is possible to punish wrongdoing and establish a proper framework of proper incentives and disincentives to achieve the kind of high standards of transparency and accountability that our markets demand.
I believe we took important steps to achieve such a framework with the passage of the Sarbanes-Oxley law. However, our work has only just begun.
As with any law that Congress passes, we must actively monitor its implementation and work to ensure that it is effective in achieving its purpose.
Indeed, so many times, Congress passes laws without considering existing laws on the books, and, never looking back, continues to layer laws and regulations on top of each other without looking back to determine if they even work, still meet their purpose, or whether they impose more costs than achieve good, actually causing harm.
It is, therefore, incumbent, in my view, for Committees to engage in active oversight of the laws that they pass and the activities that they regulate. I believe this is an important function of congressional Committees and I take this responsibility very seriously.
In addition to Congress' role, however, the new law's effectiveness will also depend heavily on the work of the SEC and the new Public Corporation Accounting Board. While the SEC's role has always been important, I believe that now it is more important than ever.
And, I believe that Mr. Pitt's and Mr. Webster's decisions to ultimately step aside testify to this.
While I consider Mr.Pitt probably one of the most able SEC Chairmen we have ever had, his judgment failed him when he did not disclose what was considered material information about Judge Webster's background to the rest of the Commission and the White House. He thus created a tainted process that ultimately questioned the credibility of the Board and the leadership of the SEC itself.
With their resignations, however, we have a unique opportunity to send a strong message to the market at a crucial time with the selection of the next SEC Chairman.
So I believe it matters very much what kind of individual is selected to lead the SEC.
In my view, the SEC requires an individual that is strong and capable, independent, above reproach, not viewed as an industry insider - a man or a woman of unquestioned integrity and of the highest quality -a Chairman that is both respected, and perhaps, feared a little.
For this reason, I believe that while it is important to select a new Chairman, it is just as important to find the right person for the job and not allow haste to drive the process.
With a strong Chairman in place, the SEC will have the credibility and leadership necessary to fulfill the tremendous mission that it is tasked with.
Another issue that I believe is just as important to our financial markets is the issue of privacy.
While the revolution in information technology has delivered tremendous gains to our economy in the form of new products and services that clearly benefit consumers, these benefits must also be balanced against the costs to privacy and the potential for misuse and harm associated with the collection and sharing of sensitive personal information.
While financial privacy is certainly not a new concern, many of the challenges to privacy we currently face are quite new.
In the past, privacy concerns have largely involved the fear of government intrusion and what was, at the time, the unparalleled ability of the government to collect, store and use personally identifiable information.
In fact, we still face these threats today and must constantly balance the interests of privacy against those of achieving greater security. In the long-term battle to enhance our national security and fight terrorism, we will have to make these choices.
I do believe, however, that while many Americans will sacrifice some privacy for greater security, they would not do so where it would ultimately erode the very civil liberties that we seek to defend and protect.
In addition to the fears associated with government intrusion, however, privacy concerns have now flowed to the private sector as technology has made it possible and cost effective to gather, store and use large amounts of information about individuals.
I have heard opponents of greater protection argue that all the American people really care about are annoying telemarketing calls at dinnertime or getting too many catalogues in the mail. But, I believe that they are wrong and do not fully understand the true nature of privacy concerns.
I believe most Americans may find these calls annoying, but what upsets them is not the rudeness of the interruption, but the feeling of insecurity. The fact that strangers- people that you do not know or have a business relationship with - are calling you because they know that you have been carrying high balances in your checking account for the past few months. It is the fact that they have access to this personal information about you that is unsettling People feel less secure.
So, I believe we should consider privacy in the same way we do security.
I have always found it somewhat interesting, that when we talk about individuals' desire to protect personal information about themselves we call it privacy and when we discuss safeguarding institutions and business information we call it security.
I believe that many of the same interests are sought to be protected. And it comes down to who has the power and control to access, share, and use information.
I said earlier that I felt that privacy was an important issue facing our financial markets.
If individuals do not feel that their information is secure, that they do not have the ability to control how their information is shared and that there are not sufficient safeguards to protect against harm - they will ultimately lose trust in the market and seek to minimize their exposure in it where possible.
I do not believe this is in business' best interest or in the best interest of our economy.
It seems to me that where the very foundation of financial institutions relationships are based on trust - privacy is good for business.
I continue to believe that the balance struck in Gramm Leach Bliley was insufficient and that individuals should have greater control and choice in how their financial information is shared and sold.
Last year, the Committee held a hearing on the effectiveness of the privacy provisions of Gramm Leach Bliley. I intend to continue, as part of the Committee's responsibility to ensure that our laws are achieving their purpose and doing no harm, to hold oversight hearings on Gramm Leach Bliley as well.
In addition, the Congress must act to reauthorize the Fair Credit Reporting Act's preemption provision which expires at the end of next year. I believe it is fair to anticipate that this law's reauthorization will likely elevate the debate over financial privacy beyond the terms of the law itself.
I look forward to a thoughtful and constructive process that ultimately results in a greater understanding of the costs and benefits associated with the use and sharing of personal financial information as well as a greater threshold of protection for individuals.
I want to thank you again for the opportunity to visit with you this morning and would be willing to entertain any questions you might have at this time.