Senator Gregg’s Floor Remarks on Dodd Derivatives Amendment
Unofficial Transcript
May 19, 2010
Thank you, Mr. President. I want to congratulate the Republican Leader for a superb statement on where we stand, relative to this bill, on regulatory reform. It is a bill that is truly misnamed. This bill should be named the “Expansion of Government for the Purposes of Making Us More Like Europe Act.”
As a very practical matter, this bill does almost nothing about the core issues which have created the financial instability in this country. It does nothing in the area of Fannie Mae and Freddie Mac, which is the real estate issue. It does virtually nothing in the area of making sure that we have a workable systemic risk structure so that we can properly address the issue of systemic risk. And, instead of addressing the derivatives market in a constructive way, which would actually put some vitality and usefulness into regulating derivatives, it actually steps back and creates derivatives regulation that all the major regulators whom we respect have said this simply won't work.
I want to talk about that a bit more, because I didn't think there was anything that you could do that would make this regulatory proposal on derivatives worse. But now we see an amendment coming from the Chairman of the Committee that, while I’m sure is well intentioned, actually makes it worse. The way the derivatives language of this bill has evolved, is that it just gets worse and worse in an almost incomprehensible and irrational way that is rather surreal. It’s almost as if we were at the Mad Hatter's tea party the way that this derivatives language is evolving.
We now have in the bill proposed language that the Chairman of the Federal Deposit Insurance Corporation, the Federal Reserve's staff and the Chairman of the Board, Chairman Volcker and the OCC have all said won't work. In fact, not only have they said it won't work, they have said that it will have a negative impact on the stability of the derivatives market. It will cause the market to move overseas and make America less competitive. It will cause a contraction of credit in this country, and it will hurt consumers and users of derivatives across this nation. Those are the words, paraphrased to some degree, but essentially accurate, of the major players who actually discipline and look at this market when evaluating the bill as it's presently before us.
Now, in some sort of bizarre attempt, as if the Mad Hatter had arrived to correct this issue, we see an amendment from the Chairman of the Committee suggesting that we should put in place an even more convoluted system tied to the uncertainty of no decision occurring for two years. The proposal says that we will have the stability council, that will be made up of nine different regulators to take a look at what's in the language of the bill now, relative to taking swap desks out of financial institutions, and determine whether or not that language makes sense. Well, it doesn't make sense. We already know that because a group of those regulators have already said it doesn't make sense. So, we're going to wait for two years for the council to determine that it doesn't make sense when we already know that it doesn't make sense?
Then, they are going to make that recommendation to the Congress so the Congress gets to legislate to correct what we already know is an error in the bill. Then, to make this an even more Byzantine exercise and a regulatory absurdity, the Secretary of the Treasury has the right to overrule the Congress, or maybe act independently of the Congress, and take action pursuant to whatever the stability council decided. And on top of this convoluted exercise in chaos, the proposal actually undermines the Lincoln proposal, which is in the bill, and makes the Lincoln proposal even less workable by saying that swap desks can't even be retained by affiliates and must be totally separated. This inevitably leads to swap desks which do not have capital adequacy, stability or the necessary strength to defend the derivatives actions in which they are making markets.
So you actually weaken and significantly reduce the stability of the market, making it more risky, and at the same time, it is estimated that you would contract credit in this country by close to three quarters of a trillion dollars. Three quarters of a trillion dollars less credit.
What does that mean? That means that John and Mary Jones who are working on Main Street America -- producing something that they are selling, maybe to a company that's a little bit larger, and then selling that product overseas -- are probably not going to be able to get the credit they need in order to produce the product. So, they will have to contract the size of their business and we will reduce the number of jobs in this country, or we will certainly reduce the rate of job creation in this country.
This country's great and unique advantage is that we are the best place in the world for an entrepreneur and a risk taker, somebody, who actually is willing to go out there and do something to create jobs to get capital and credit at a reasonable price and in a reasonably efficient way.
This bill fundamentally undermines that unique advantage that we have in America, and this language compounds that event of undermining our unique situation. It is, as I said, like participating in the Mad Hatter’s tea party to watch the way that this bill has evolved on the issue of derivatives regulation. And the product -- well, I guess the Queen of Hearts would be proud of it, but I can tell you the effect on the American people, on commerce and on Main Street is going to be extraordinarily negative should we pass it. Thank you, Mr. President. I yield the floor.
