Less than six months ago, our Committee held a hearing in this very room on what at the time seemed an inconceivable event – the government’s 30 billion dollar intervention in the sale of Bear Stearns to JP Morgan. Now – after spending hundreds of billions more to prop up, bail out, and wind down a multitude of institutions – the U.S. government effectively runs, supports, or outright owns vast swaths of the financial sector.
Barely 72 hours ago, Secretary Paulson presented a proposal that he believes is urgently needed to protect our economy. This proposal is stunning and unprecedented in its scope and lack of detail. It would allow him to intervene in the economy by purchasing at least $700 billion of toxic assets. It would allow him to hold onto those assets for years, and to pay millions of dollars to hand-picked firms to manage those assets. It would do nothing to help even a single family save a home. It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of taxpayers – and walking away with a bonus and a golden parachute. And it would allow him to act with utter and absolute impunity – without review by any agency or court of law. After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution, as well.
Nevertheless, in our efforts to restore financial security to American families and stability to our markets, this Committee has a responsibility to examine this proposal carefully and in a timely manner.
In my view, any plan to address this crisis must embody three principles. First, American taxpayers must have some assurance that their hard-earned money is being used correctly and responsibly. Second, we must put in place proper oversight so that the executors of this plan are accountable and their actions transparent. Finally, we must address the root cause of this crisis by putting an end to the rising number of foreclosures sweeping across the nation.
In the longer term, it is clear that our current economic circumstances demand that we rethink, reform, and modernize supervision of the financial services industry. Certain basic principles should form the foundation for reform.
We need a leader in the White House who will ensure that regulators are strong cops on the beat, and do not turn a blind eye to reckless lending practices.
We need to remove incentives for regulators to compete against each other for bank and thrift “clients” by weakening regulation.
We need to ensure that all institutions that pose a risk to our financial system and taxpayers are carefully and sensibly supervised.
And we need to accept the premise that consumer protection and economic growth are not in conflict, but inextricably linked. If we learn nothing else from this crisis, it is that the failure to protect consumers can cause the collapse of our largest financial institutions, the loss of hundreds of thousands of jobs, and the draining of hundreds of billions of dollars of wealth from hardworking Americans.