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PROMOTING ECONOMIC RECOVERY AND JOB CREATION: THE ROAD FORWARD HEARING BEFORETHE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION JANUARY 26, 2011 Printed for the use of the Committee on Financial Services Serial No. 112–1 ( U.S. GOVERNMENT PRINTING OFFICE 64–550 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\64550.TXT TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice Chairman BARNEY FRANK, Massachusetts, Ranking PETER T. KING, New York Member EDWARD R. ROYCE, California MAXINE WATERS, California FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York RON PAUL, Texas LUIS V. GUTIERREZ, Illinois DONALD A. MANZULLO, Illinois NYDIA M. VELA´ZQUEZ, New York WALTER B. JONES, North Carolina MELVIN L. WATT, North Carolina JUDY BIGGERT, Illinois GARY L. ACKERMAN, New York GARY G. MILLER, California BRAD SHERMAN, California SHELLEY MOORE CAPITO, West Virginia GREGORY W. MEEKS, New York SCOTT GARRETT, New Jersey MICHAEL E. CAPUANO, Massachusetts RANDY NEUGEBAUER, Texas RUBE´N HINOJOSA, Texas PATRICK T. MCHENRY, North Carolina WM. LACY CLAY, Missouri JOHN CAMPBELL, California CAROLYN MCCARTHY, New York MICHELE BACHMANN, Minnesota JOE BACA, California KENNY MARCHANT, Texas STEPHEN F. LYNCH, Massachusetts THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina KEVIN McCARTHY, California DAVID SCOTT, Georgia STEVAN PEARCE, New Mexico AL GREEN, Texas BILL POSEY, Florida EMANUEL CLEAVER, Missouri MICHAEL G. FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin LYNN A. WESTMORELAND, Georgia KEITH ELLISON, Minnesota BLAINE LUETKEMEYER, Missouri ED PERLMUTTER, Colorado BILL HUIZENGA, Michigan JOE DONNELLY, Indiana SEAN P. DUFFY, Wisconsin ANDRE´ CARSON, Indiana NAN A. S. HAYWORTH, New York JAMES A. HIMES, Connecticut JAMES B. RENACCI, Ohio GARY C. PETERS, Michigan ROBERT HURT, Virginia JOHN C. CARNEY, JR., Delaware ROBERT J. DOLD, Illinois DAVID SCHWEIKERT, Arizona MICHAEL G. GRIMM, New York FRANCISCO R. CANSECO, Texas STEVE STIVERS, Ohio LARRY C. LAVENDER, Chief of Staff (II) VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\64550.TXT TERRIE C O N T E N T S Page Hearing held on: January 26, 2011 .............................................................................................. 1 Appendix: January 26, 2011 .............................................................................................. 61 WITNESSES WEDNESDAY, JANUARY 26, 2011 Brody, Kenneth D., Partner, Taconic Capital ....................................................... 54 Bursky, Andrew M., Chairman, Atlas Holdings, LLC .......................................... 52 Hoffman, Eric, Executive Vice President and Chief Operations Officer, Hoff- man Media, LLC .................................................................................................. 48 Kohn, Dr. Donald, Senior Fellow, The Brookings Institution .............................. 12 Maddy, H. Charles III, President and Chief Executive Officer, Summit Finan- cial Group ............................................................................................................. 50 Poole, Dr. William, Senior Fellow, Cato Institute, and Distinguished Scholar in Residence, Alfred Lerner College of Business and Economics, University of Delaware ........................................................................................................... 9 Scott, Hal S., Nomura Professor of International Financial Systems, Harvard Law School ............................................................................................................ 14 Taylor, John B., Mary and Robert Raymond Professor of Economics, Stanford University ............................................................................................................. 11 APPENDIX Prepared statements: Huizenga, Hon. Bill .......................................................................................... 62 Brody, Kenneth D. ............................................................................................ 64 Bursky, Andrew M. .......................................................................................... 65 Hoffman, Eric .................................................................................................... 72 Kohn, Dr. Donald .............................................................................................. 76 Maddy, H. Charles III ...................................................................................... 88 Poole, Dr. William ............................................................................................ 95 Scott, Hal S. ...................................................................................................... 98 Taylor, John B. ................................................................................................. 117 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Bachus, Hon. Spencer: Written statement of Associated Builders and Contractors (ABC) .............. 123 Written statement of the Manufactured Housing Association for Regu- latory Reform (MHARR) ............................................................................... 125 Written statement of the National Association of Federal Credit Unions (NAFCU) ........................................................................................................ 146 Waters, Hon. Maxine: Written statement of the Credit Union National Association (CUNA) ........ 147 Written statement of the National Low Income Housing Coalition (NLIHC) ......................................................................................................... 148 (III) VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\64550.TXT TERRIE VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\64550.TXT TERRIE PROMOTING ECONOMIC RECOVERY AND JOB CREATION: THE ROAD FORWARD Wednesday, January 26, 2011 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the committee] presiding. Members present: Representatives Bachus, Hensarling, Royce, Lucas, Paul, Manzullo, Biggert, Miller of California, Capito, Gar- rett, Neugebauer, McHenry, Campbell, Bachmann, McCotter, Pearce, Posey, Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hayworth, Renacci, Hurt, Dold, Schweikert, Grimm, Canseco, Stiv- ers; Waters, Maloney, Velazquez, Watt, Clay, McCarthy of New York, Baca, Miller of North Carolina, Scott, Green, Cleaver, Perl- mutter, Donnelly, Carson, Himes, and Peters. Chairman BACHUS. This hearing of the Financial Services Com- mittee will come to order. Without objection, all members’ opening statements will be made a part of the record. The gentleman from California, Mr. Royce, is recognized for 1 minute. Mr. ROYCE. Thank you, Mr. Chairman. While the President tout- ed the strength of our economy last night, significant obstacles stand between where we are today and real economic growth. The housing market continues to sputter, small businesses are bur- dened with a massive new health care law, and there are real questions about addressing our national debt. Firms are bracing for hundreds of new regulations coming from Dodd-Frank. Despite what some may say, repairing a fundamentally flawed law does not add to the uncertainty in the market. Rather, healthy capital markets require sound regulations. Dodd-Frank failed in this endeavor. It is now up to us to correct the mistakes of the past, truly end ‘‘too-big-to-fail,’’ wind down the GSEs, and ensure safety and soundness regulation is the primary focus throughout our regulatory structure. I yield back, Mr. Chairman. Chairman BACHUS. Thank you. Ms. Waters is recognized for 4 minutes. Ms. WATERS. Thank you very much, Mr. Chairman. As you know, Barney Frank, our ranking member, is not here this morning. I want to thank you for holding this hearing on ‘‘Promoting Eco- nomic Recovery and Job Creation: The Road Forward.’’ While the economy has shown some signs of recovery, it is clear that more ag- (1) VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE 2 gressive action is needed from Congress in order to put our country back on the right track. In spite of a slight decrease, unemployment remains unacceptably high. At 9.4 percent, the economy shows no sign of regaining the 8.45 million jobs that have been lost since 2008, and foreclosures will be 20 percent higher in 2011. The Federal Reserve has acted because Congress failed to pro- vide an adequately large stimulus given the magnitude of this crisis. The Fed’s recently implemented qualitative easing policy is consistent with the Fed’s dual mandate of fostering maximum unemployment and stabilizing prices. It is clear to me that since in- terest rates can can’t get much lower, buying long-term securities is one of a handful of options left to the Fed to stimulate the economy. While reasonable people can have differing opinions about the manner in which the Fed has chosen to stimulate the economy, ending the Fed’s dual mandate to both reduce unemployment and keep inflation low, as some on the other side of the aisle have sug- gested, is not the answer. I think what we must remember and what has been lost on some of my colleagues on the other side of the aisle is that this unemployment is a result of the financial crisis of 2008. This crisis, which represents the biggest challenge to the Nation’s economy since the Great Depression, led to less credit for small businesses, prospective home buyers, and other groups who traditionally drive local economies. While they played no role in creating this crisis, they, like everyone else, are now suffering the consequences of the systemic risk caused by the risky behavior of a few reckless institu- tions, behavior which culminated in a bailout of Wall Street. The logical response to this systemic collapse of the financial market was for Congress to fill in the regulatory gaps so that this never happens again. The Dodd-Frank Act reforms the derivatives market, establishes a Financial Stability Oversight Council to monitor for systemic risk, bans proprietary trading, and makes other fundamental changes to a financial industry that we can’t afford to bail out again. Unfortunately, instead of focusing on solutions to create jobs, today’s hearing seems to be aimed at criticizing the Fed for acting in a manner consistent with this dual mandate and criticizing the legislation that will prevent another bailout. I am interested in working on solutions to create more jobs. However, I believe we must protect the reforms in Dodd-Frank because by preventing another bailout we are preventing another financial collapse that will result in the loss of millions more jobs. Thank you, Mr. Chairman, and I yield back the balance of my time. Chairman BACHUS. Thank you, Ms. Waters. Let me explain to the witnesses and the audience that we are having 10 minutes on each side; we have restricted the time for opening statements because we want to hear from our witnesses. Mrs. Capito and I have both surrendered our time to allow some of our other members to make statements. At this time, I recognize Mr. Hensarling for 1 minute. VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE 3 Mr. HENSARLING. Thank you, Mr. Chairman. Last night in the State of the Union Address, the President said, ‘‘To reduce barriers to growth in investment, I have ordered a review of government regulations. When we find rules that put an unnecessary burden on business, we will fix them.’’ Mr. Chairman, we found one. It is called Dodd-Frank. Unfortu- nately, in the President’s announcement he seems to exempt from the ambit of regulatory review both Dodd-Frank and ObamaCare, which if you talk to any job creators in our Nation is about 90 percent of the challenge that they face. Whether it be fiscal policy, monetary policy, or regulatory policy, too many job creators in America feel they are either facing uncertainty or they are facing hostility. It is one of the reasons that, unfortunately, under this President’s Administration, with the exception of 2 or 3 months, unemployment has hovered around 10 percent. I understand that Dodd-Frank is the law of the land. Not all as- pects of it are bad. But we were looking at no fewer than 243 new formal rulemakings—and, by the way, there is even uncertainty about how many rulemakings. It will be the job of this committee to ensure that although the rulemaking is approached delibera- tively, it is better to get it right than to do it quick. With that, Mr. Chairman, I yield back. Chairman BACHUS. Thank you, Mr. Hensarling. Mr. Baca is recognized for 2 minutes. Mr. BACA. Thank you very much, Mr. Chairman. We all heard the President last night state that the future is ours to win—and that means that we all need to work together and create jobs. That is why I am looking forward to this session, and I hope that my colleagues in this committee are committed to working in a bipar- tisan fashion over the next 2 years, and that is important for us if we are to progress and go forward. We have a lot of work to do. The American people are still not satisfied with the state of our economy. Unemployment is still at an unacceptable level, and in my district it is about 14 percent. We still are one of the highest in foreclosure. Middle-class families are still dealing with the harsh reality of not being able to make their mortgage payments. Over the last 2 years, I believe this body and the Administration has made some progress, but our work is far from being done. I hope that we will be able to analyze—and I state analyze—the positive actions we took over the last 2 years and see how we can build on it. I think that is important for us in this committee, to find out how we can build on it. With that, Mr. Chairman, I yield back the balance of my time and I look forward to this hearing. Chairman BACHUS. Thank you. Mr. Paul is recognized for 1 minute. Dr. PAUL. Thank you, Mr. Chairman. I appreciate you holding these hearings because the subject of unemployment certainly is one issue on which everybody in the Congress agrees. We are worried about it. We need more jobs. Democrats, Republicans, everybody wants to do something with it. But the big problem seems to be that everybody has a different answer. Some people want to increase the spending. Others want to decrease the spending. Some VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE 4 people want to increase taxes. Other people want to decrease taxes. Then it comes to some saying there are not enough regulations and some saying there is too much regulation. Some people think we can print our way out of it, and that is where the problem comes from. But I think the problem really is that we fail to ask the right questions. Why do we have unemployment? It might have to do with the fact that we have a recession. Why do we have a recession? We can’t have recessions unless we understand that there has been a boom period and there is a cycle. So it is really dealing with the business cycle, why we have boom times, and what we do about that. Rather than just dealing with the symptom, I think we have to look at the overall cause of why we have these boom peri- ods and then we have the inevitable corrections. And that brings us unemployment. So by tinkering around the edges and saying that we can change taxes or that regulations will solve our problem, I think we will be missing the boat. I yield back. Chairman BACHUS. Thank you. Mrs. Biggert. Mrs. BIGGERT. Thank you, Mr. Chairman. Thank you for holding today’s hearing. Nearly 1 year ago in his State of the Union Ad- dress, President Obama said jobs must be the number one focus in 2010. Sadly for businesses, for the last 2 years Washington leaders set aside the jobs agenda and instead chose the path of uncertainty. Last night we heard the President again offering a number of encouraging words about the need to focus on job creation, but I have to say I am skeptical of the rhetoric. The President also called for review and reform of Federal rules and regulations that stifle job growth. Meanwhile, according to the Wall Street Journal last week, ‘‘Business leaders say an explosion in new regulations stemming from the President’s health care and financial regulatory overhaul has, along with a sluggish economy, made them reluctant to spend on expanding and hiring. Companies are sitting on nearly $2 trillion in cash and liquid assets, the most since World War II.’’ Authorized by the Dodd-Frank Act, Federal agencies and bureau- crats are lining up to issue to businesses across the country new and costly rules, regulations, and data collecting requests. It is fueling uncertainty; it is stifling job growth; and where are the jobs? To create jobs, the Administration needs to get serious about finalizing trade agreements, reforming the Tax Code, and fostering regulatory certainty for business so they can invest, expand, and grow. I yield back. Chairman BACHUS. Thank you. Mr. Garrett, for 1 minute. Mr. GARRETT. Thank you, Mr. Chairman. The issue of potential systemic risk has been something that this committee has been looking at now for the last couple of years, and I have said throughout that entire time that if you think about it, the most critical and obvious systemic risk that faces our economy really is our massive national debt that hangs over all of us and our future generations as well. So addressing that risk, we can do so by reduc- VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE 5 ing the size and scope of the Federal Government is, of course, job one, as has been said. One of the primary benefits of doing so, of course, will be to help the economy start growing again. But beyond that, beyond addressing the budget and spending crisis facing our country, those of us here in this committee have the opportunity to remove and review regulations, just as the President said, those outdated regulations that stifle job creation and make our economy less effective. But as Jeb has pointed out, the President tends to exempt some new regulations called for under Dodd-Frank as well as those independent agencies. At least one of those agencies, however, is doing the right thing, and that is the SEC. Under the leadership of Mary Schapiro, she intends to proceed as if they are subject to the Presi- dent’s order. So I look forward to working with her and with the SEC and with other agencies that continue to do what the Presi- dent has asked for to eliminate those unnecessary regulations of all variety to help incent job creation and get our economy back on the move. Chairman BACHUS. Thank you, Mr. Garrett. Mr. Scott, for 2 minutes. Mr. SCOTT OF GEORGIA. Thank you, Mr. Chairman. Jobs is certainly the priority of our Nation. There are currently 14.5 million Americans out of work. Currently, the national unemployment rate stands at 9.4 percent. And in my home State of Georgia, the unemployment rate is a staggering 10.2 percent, with over 500,000 Geor- gians unemployed. Our country did see a modest gain in economic recovery in 2010, but unemployment remained high. An estimated 7 million Americans, referred to as ‘‘99ers,’’ exhausted all unemployment benefits, and 16.7 percent of workers either could not find a job or have simply given up looking for work. However, despite these discouraging numbers, our job market is showing some signs of improvements. The progress is, in part, due to the policies guided by this very Financial Services Committee in the last Congress. Economic experts are anticipating faster growth in 2011, with more firms expressing positive hiring plans than in over a decade. A recent survey from the National Association for Business Economics found that 82 percent of the economists ex- pected the Nation’s economy to grow by 2 to 4 percent in 2011. These are promising sentiments, and along with my colleagues on this committee, I look forward to taking advantage of every single opportunity to further increase economic growth in the 112th Con- gress. We must make sure that the United States has the most com- petitive and innovative workforce and economy in the world. This is the only way that the American people will be able to face the future with confidence and with boldness the way we need to. Thank you, Mr. Chairman. Chairman BACHUS. Thank you. Mr. Pearce. Mr. McHenry is not here. Mr. PEARCE. When we are talking about jobs, we ought to take just a second to ask, what does it take to create a job? Bill Sweatt over in Artesia, New Mexico, said it best: ‘‘It takes me $340,000to create a job. I run bulldozers.’’ He said that is what a new bulldozer costs. Any time we tax away his capital, then we take away VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE 6 his right to create a job; any time we create regulatory uncertainty where he is afraid to invest in that bulldozer, we kill a job. We have systematically killed jobs in the timber industry, we have killed jobs in the oil and gas industry, we have killed jobs in the mining industry, and we wonder why we are at 9.5 employment. It is a specious question that we are asking. We know what is wrong with the economy. We know where the jobs are. We are not willing to take the steps that are there. I do not think that we can cut spending enough to create the solutions to our economy. We must rebuild our jobs. Let’s put the capital to give them certainty and give them tax advantages and they will begin to invest again. That is what it will take to create jobs. Thank you, Mr. Chairman. Chairman BACHUS. Thank you, Mr. Pearce. Mr. Watt, for 2 minutes. Mr. WATT. Thank you, Mr. Chairman. If I thought this hearing was really about jobs and job creation, I wouldn’t be so worried. What I am really concerned about is the content of some of these witness statements, which really get us into exactly this issue of the independence of the Federal Reserve and the appropriateness of the Federal Reserve’s dual mandate. So I am kind of like President Reagan. Here we go. We have had this debate. If we are going to have a Fed, we need to allow it to be an independent Fed. If we want to go at whether the Fed should exist or not, then we can have that debate in Mr. Paul’s sub- committee. But to do it under the guise of talking about creation of jobs, I think, is just disingenuous. We are here politicizing the Fed. We are going at their independent status, and that is a debate that we ought to have in a clear-cut, unadulterated manner. If you don’t want the Fed, then come on and say you don’t want the Fed. But don’t come in and try to impact its independence circuitously by going at the mandate it has. We gave them that mandate and we gave them the independence to exercise that mandate. And if we want to take it back, we ought to do it directly rather than trying to do it by chipping away and talking as if we are talking about creating jobs or not creating jobs. Everybody wants to create jobs. I don’t think this hearing is about creating jobs. It is about the independence of the Fed and whether we are going to politicize the decisions that they are mak- ing. I yield back, Mr. Chairman. Chairman BACHUS. Thank you, Mr. Watt. Mr. Fitzpatrick for 30 seconds. All the other remaining opening statements will be for 30 seconds. Mr. FITZPATRICK. Thank you, Mr. Chairman. It is entirely fitting and appropriate that at our first hearing we discuss job creation and economic recovery, and I appreciate the chairman’s leadership on these issues. Americans are hurting, and certainly my constituents in the Eighth District of Pennsylvania are among them. This committee is in a unique position to assist in our country’s economic recovery. It can be said that the financial sector was one source of the great recession, but with responsible rules and safe- VerDate Nov 24 2008 17:28 Mar 22, 2011 Jkt 064550 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\64550.TXT TERRIE