[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
STATE OF THE INTERNATIONAL FINANCIAL SYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 25, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-75
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94-688 WASHINGTON : 2004
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
C O N T E N T S
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Page
Hearing held on:
March 25, 2004............................................... 1
Appendix:
March 25, 2004............................................... 35
WITNESS
Thursday, March 25, 2004
Snow, Hon. John W., Secretary, Department of the Treasury........ 7
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 36
Baca, Hon. Joe............................................... 38
Emanuel, Hon. Rahm........................................... 40
Gillmor, Hon. Paul E......................................... 42
King, Hon. Peter T........................................... 43
Snow, Hon. John W............................................ 45
Additional Material Submitted for the Record
Frank, Hon. Barney:
"White House Warms up to Worker Aid'' article, The Washington
Post March 13, 2004........................................ 56
Snow, Hon. John W.:
Written response to questions from Hon. Joe Baca............. 58
Written response to questions from Hon. Spencer Bachus....... 64
Written response to questions from Hon. Scott Garrett........ 65
Written response to questions from Hon. Peter T. King........ 68
Written response to questions from Hon. Barbara Lee.......... 69
Written response to questions from Hon. Carolyn B. Maloney... 73
STATE OF THE INTERNATIONAL FINANCIAL SYSTEM
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Thursday, March 25, 2004
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to call, at 10:10 a.m., in Room
2128, Rayburn House Office Building, Hon. Michael G. Oxley
[chairman of the committee] Presiding.
Present: Representatives Oxley, Bachus, Royce, Lucas of
Oklahoma, Kelly, Paul, Ryun, Ose, Green, Tiberi, Kennedy,
Hensarling, Garrett of New Jersey, Brown-Waite, Frank, Waters,
Sanders, Maloney, Watt, Carson, Sherman, Lee, Inslee, Moore,
Hinojosa, Lucas of Kentucky, Crowley, Israel, Baca, Emanuel,
Scott, and Bell.
The Chairman. The committee will come to order.
We are pleased today to have the distinguished Secretary of
the Treasury, Mr. John Snow, testify. Mr. Secretary, welcome
back to the committee. It is always good to have you here and
to hear from you. We look forward to your testimony on the
State of the International Financial System.
This hearing has its origins in the emerging market
financial crisis of the late 1990s and subsequent reform of the
international financial institutions. The goal was to make the
International Monetary Fund, the World Bank, and the regional
development banks, more effective at promoting and delivering
economic growth, particularly in the emerging markets. Congress
exercises its oversight regarding the reform efforts by
requiring the Secretary of the Treasury to report annually to
Congress. Since the G-7 is integral to reform, we also seek
perspective on the G-7 agenda to promote global growth and
development policy.
Mr. Secretary, the Treasury Department has engaged in a
number of successful international programs over the last year.
Let me focus on a few of the more important initiatives:
Fostering global growth. The Treasury Department, under
your leadership, has taken a broad view of how to link
development, trade, and macro-economic policy to create an
environment that can foster global growth. The Treasury's
leadership in working with our G-7 allies to craft an
international agenda for growth is to be commended. Last week,
the Council on Foreign Relations released a study that
identified transatlantic economic cooperation as one of the
five key ways to strengthen the relationship between the U.S.
and the EU. They noted in particular that transatlantic
commerce approaches $2.5 trillion per year and employs directly
or indirectly some 12 million workers in Europe and the United
States.
It is good to see that increased regulatory transparency
and coordination have been identified as areas for additional
work within the G-7. One area of particular interest in this
connection is the U.S./EU regulatory dialogue. Economic growth
cannot occur if financial institutions are overburdened with
conflicting regulatory standards. I will be particularly
interested to learn how the US/EU dialogue can be used to
promote growth across the Atlantic and reduce costly regulatory
barriers where appropriate.
I note also the importance that remittances can play to
degenerate real economic growth in emerging markets throughout
the world, not just Latin America. Remittances between
established and emerging economies foster growth in both types
of economies simultaneously. I will be interested in hearing
your views on how unnecessary costs can be eliminated in this
area. As you know, this is an issue of importance to this
committee. We held a hearing on the issue last fall, and
recently some members of this committee sent you and Ambassador
Zoellick a letter on the topic.
As for free trade, as you know, I believe firmly that free
trade and growth through exports is a fundamental building
block for economic prosperity and democracy both at home and
abroad. The Treasury Department, through the executive
directors at the multinational lending institutions, has
encouraged the establishment of programs aimed at creating
market-based economies that are open to trade.
At home, the Treasury Department is the lead negotiator for
the financial services chapters for all trade agreements. I
support your efforts to open markets for our financial services
firms and your efforts to create the trade-friendly
environments to help emerging market economies grow.
Through the G-7, you have provided leadership and support
for countries around the world to move towards flexible market-
driven exchange rates. As you know, I co-sponsored H.R. 414
last fall. That resolution promised that Congress would work
with the administration to help China move as quickly as
possible to a more flexible exchange rate. Since that time, the
Treasury Department has dispatched a team of technical experts
to advise the government of China, and China has announced that
it will move towards a more flexible exchange rate system in 6
years. These are promising developments.
As to performance-based standards for developing programs,
your Department has shown great leadership in fostering the
development of performance-based standards for development
programs both within the World Bank and at home with the
Millennium Challenge Account. You have also led the effort to
incorporate external audits of performance standards within
development institutions. This is particularly positive since
appropriations for the multinational institutions are now
expressly conditioned on such external audits occurring. We
look forward to seeing progress in this area.
As to rebuilding financial systems in Iraq and Afghanistan,
again, the Treasury Department and civilian employees have been
among the first and most successful teams on the ground in Iraq
and Afghanistan.
No economy can function without reliable banking and
payment systems, and your team has helped create new
currencies, banking systems, modern payment systems, and free
and open capital markets. I congratulate you and your people
who work under dangerous conditions to make these things
happen.
And, finally, on Argentina and the IMF. Challenges remain,
of course. The most critical of these challenges is, once
again, Argentina and its relationship to the IMF. Since being
cut off from international capital markets, Argentina's economy
has grown because it has not been paying its debts. It has been
servicing debts to one development institution with payments
from another. This sends troubling signals to other sovereign
borrowers around the world, especially those who continue to
service their debt in good faith. I will be very interested to
hear your views on how the Argentine situation can affect the
reform debate within the G-7 and the IMF.
And I now yield to the gentleman from Massachusetts for an
opening statement.
[The prepared statement of Hon. Michael G. Oxley can be
found on page 36 in the appendix.]
Mr. Frank. Mr. Secretary, this is a hearing on the
international financial setting. A number of members obviously
have concerns about domestic issues that are equally, if not
more, important. I want to mate the two. I support many of the
specific proposals that you are making. You are asking us to
provide more money for debt relief. The gentlewoman from
California, who sits next to me, was one of the leaders in
getting the Congress to address this. I was glad to work with
her.
I think we aren't doing enough to alleviate the crushing
burden of debt on poor people. There is more money for the
multilateral development banks which can be, if done well, used
very importantly. There is a Millennium Challenge Account.
There are a number of very important initiatives here. There is
a question of trade, where we would have some differences, but
I believe that properly structured trade is very important both
for our own economy and for poor people.
The problem is, I believe, that we are in a situation in
the United States today where there is enormous public
resistance to many of those things which you want. And it is--
that is the linkage.
President Kennedy said once talking about his efforts to
promote international cooperation, he talked about Franklin
Roosevelt, who had initiated the good neighbor policy, a
reversal of the policy of America sending the Marines to Latin
America, and instead trying to talk about relations of mutual
respect. And he said, and President Roosevelt called that the
``good neighbor policy.'' and President Kennedy said Franklin
Roosevelt could be a good neighbor abroad because he was a good
neighbor at home. That President Roosevelt was able to get the
support, he started the reciprocal trade acts and got Congress
to give him much more power in the trade area, and began to
move into the international area because the American people
believed that he was someone who was also looking out for their
welfare.
Unfortunately today there are an increasing number of
Americans who do not feel that the Federal Government is being
a good neighbor at home, and they are therefore resistant to
being a good neighbor abroad.
I do not think there are many Members of Congress who did
not hear frequently when the question of the $87 billion
appropriation came up last year, why are you sending that money
to Iraq? Why don't you keep it here? I don't agree entirely
with that formulation. I think we had obligations and have
obligations in Iraq. But that sentiment, I have to tell you, I
think if you were to come back with another 76 billion, it
would be a hard sell. My impression is you are going to have a
very hard time getting trade treaties through if you even bring
up most of them.
I would anticipate great difficulty if we went forward with
some of the requests for the multilateral development banks.
And, as I said, the problem is the perception of many Americans
that they are not being treated fairly.
Now, much of the argument for the policies you are putting
forward, the trade areas certainly, is that these are in the
interest of growth for America. Increasingly, there are
American workers who do not see growth as benefiting them. And
I was struck by your comment last October, and as you know, I
discussed this publicly, and it was a very fair comment. In
October of last year when you predicted that we would be
hitting 200,000 new jobs a month, which we said we have fallen
far short of hitting, you said--and I wanted to go back, and I
didn't think you just made a random guess. And you said quite
reasonably at the time: Everything I know about the American
economy says that with the growth we were then getting--and
that was at the end of a very good growth quarter. You said:
Given this level of growth, we can expect a certain number of
jobs.
Well, that was a fair expectation at the time, and it turns
out that it is not accurate. Not because you misguessed. You
accurately looked it where the economy had been. This economy
has changed. The number of jobs that we produce for a given
level of growth has, at least temporarily, stopped. We have now
got to contemplate the problems of not generating sufficient
employment to keep up with the growth of our workforce. We had
all assumed that those were largely cyclical. We now have to
think about to what extent there is a structural element in
that, and we don't--not enough evidence is in for a final
conclusion, but enough evidence is in to say this is a question
we have to deal with.
But if public policy ignores that question, what you get is
a degree of resistance among the American voters and the
American citizenry to the very international programs you want
to promote.
So I don't want us to stop being a good neighbor abroad. I
want us to be a better neighbor. I think we should be doing
more with regard to debt relief. I am in favor of the
Millennium Challenge Account and kind of want to increase--not
maybe with every detail, I want to increase even more what we
do there. But I believe we are at a point of great resistance.
And unless we can demonstrate to the average American worker
that we care more about him or her than they think, we are in
trouble.
And as I close, I will just give a couple specifics. Coming
here, as you do, and telling us that we should be voting money
for these various things which I heartily support while we
can't get an extension of unemployment compensation is very
counterintuitive. And when you have Americans who are out of
work because they are told we can't afford to extend
unemployment compensation at a time when unemployment is much
higher than we had hoped it would be, but we are going to send
these monies overseas, that is exactly what John Kennedy put
his finger on, and these two are therefore very closely linked.
The Chairman. The gentleman's time has expired. The
gentleman from California, Mr. Royce.
Mr. Royce. Thank you for the opportunity to make a few
opening remarks here.
And, Secretary Snow, welcome. For whatever it is worth, I
want to say that I think you and your team at the Treasury have
been doing an outstanding job on a number of issues. And in the
context of today's hearing, my own belief is that Treasury has
not received the credit it deserves for your role in
negotiating debt relief for the new Iraqi government. James
Baker was extremely successful, but that did not just occur
overnight. Treasury really tied everything up nicely.
And I was also very encouraged to see the creation of the
Office of Terrorism and Financial Intelligence in the Treasury
Department.
I believe that Treasury contains the tools and
institutional knowledge that are critical for our country's
successful war against terrorist financing. Many agencies
including CIA, Homeland Security, Justice, State, and Defense,
possess certain resources that also help us fight terrorist
financing, but Treasury should be the lead agency in the fight.
I think the President should frankly appoint a special
envoy or a czar for terror finance. We really, I think, have
got to the point where most of us understand we need one person
who reports directly to the President totally focused on this
issue. Foreign governments want to deal with one person, and
they want to deal with one person only, and that person needs
to have the President's ear.
In the meantime, resources and authority at the Treasury
need to be greatly bulked up. For one, the Treasury, not the
National Security Council, should chair the Policy Coordinating
Council on Terror Finance. The new Office of Terrorism and
Financial Intelligence should house the staff for the PCC,
which would further enhance Treasury's stature as the lead
agency.
Additionally, the Financial Crimes Enforcement Network
should be more active in compliance. Since Treasury is the
Department with Bank Secrecy Act and PATRIOT Act authority, it
needs to have audit and compliance officers in-house. Other
financial regulators like OCC and OTS are more concerned about
safety and soundness. FINCIN should have a complete set of
tools, and we here should ensure that you have those tools.
I would also like to see the administration relocate the
Foreign Terrorist Asset Tracking Center from CIA to Treasury.
CIA has enough on its plate and does not have the same
expertise in this area as Treasury has.
Mr. Secretary, I understand that you probably do not want
to comment publicly on what I have just outlined, and I am not
asking you to do so. At some point, though, I would like to see
someone from the administration come here and explain to us why
Treasury does not currently have a broader mission on the fight
against terrorist financing. From the perspective of a member
of the committee and of the International Relations Committee
as well, I am not pleased with the current structure. And I
want you and your team to have greater authority and
responsibility in this area.
Just yesterday, in the International Relations Committee,
we heard testimony on Saudi-related terrorist activity. Greg
Bair, who is a former CIA station chief in the Middle East,
agreed with me that terror finance needs more attention and
needs the attention along the lines that I have outlined here.
And, secondly, Mr. Chairman, I would like to submit for the
record an opening statement from Peter King, who is our
subcommittee chairman on domestic and international monetary
policy as well, if I could, without objection.
The Chairman. Without objection.
[The following information can be found on page 43 in the
appendix.]
The Chairman. The gentleman's has time expired. The
gentlelady from New York, Ms. Maloney.
Ms. Maloney. Thank you, Mr. Chairman.
And welcome, Secretary Snow. And congratulations on all
your hard work. I would like to add to the opening statement of
the distinguished ranking member, Mr. Frank, on being a good
neighbor at home and abroad. And the escalating numbers of
unemployment are tremendously troubling to my constituents. We
have lost 3 million private sector jobs, a 2.2 net job loss
when you include the public sector. And last month we only
created 21,000 jobs. We would have to create 200,000 jobs a
month for the next 10 months just to bring this country back to
the place where we were when President Bush took office. Yet,
at the same time the administration appears to be unsympathetic
to the needs of the unemployed. The jobs are not there, yet
they are not extending unemployment benefits.
I am also deeply concerned, as many of my colleagues on
both sides of the aisle, about the rise in the deficit over the
last 3 years, which is of historic proportions.
Since 2001, the administration's Office of Management and
Budget forecast for publicly held debt over the 7-year period
of 2001 to 2008 has increased 4.4 trillion to 5.6 trillion.
That is 4.4 trillion more debt under the Bush administration.
And currently, foreign investors hold 1.6 trillion of U.S.
debt, a 27 percent increase over a year ago. I find that
tremendously troubling to the future economy of our country.
Should foreign investors lose confidence in our economy and
reduce this investment, our constituents could face serious
consequences, including a dangerously weak dollar and increased
credit card and home mortgage interest rates.
And while the administration actually on the floor today
claims its new budget will address the situation by cutting the
deficit in half, the Bush record, over the past 3 years is of
rosy predictions, and but it is followed by a ballooning
deficit and more job loss.
The budget put forth by the administration for fiscal year
2005, which does not include funding for Iraq, would seem to be
more of the same.
And I am also interested in your comments on
administration's support for heavily indebted poor countries.
And I certainly applaud the efforts of Treasury and Secretary
Baker in engaging France and Russia in their efforts for debt
relief in Iraq. The work to resolve the Iraqi debt crisis has
only begun, and I have heard from NGOs in the region that the
pledges of partial debt cancellation are proving to rise and
raise the value of outstanding debt of Iraq, which means that
the country could be required to pay more after debt relief
than they would prior to such agreements. And this troubles me
in two fronts: Debt surface will come at the cost of health
care, education, and basic needs of the Iraqi people. At the
end of the day we do not want to see the U.S. contribution to
Iraq sent off to other countries for debt service.
And, finally, I look forward to an update on the
cooperation the Department is receiving on the international
effort to cut off terror financing.
Again, I thank you for your hard work, and we appreciate
your testimony today.
The Chairman. The gentlelady's time has expired. We now
turn to the distinguished Treasury Secretary for another
appearance before the committee. Mr. Secretary, we are honored
to have you here. And I know the hearing is titled the State of
the International Financial System, and obviously a lot on our
plate in a lot of different areas. So we appreciate your
participation today, and we are glad to have you back.
STATEMENT OF HON. JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE
TREASURY
Secretary Snow. Mr. Chairman, thank you very much. Ranking
Member Frank, distinguished members of the committee. It is
always a pleasure to appear before you and continue the
exchange of ideas that has been going on now for some
considerable period of time.
On the issue of the state of the global economy, I think it
is clear we are in a lot better condition today in the global
economy than we were a year ago at this time. The U.S., the
leading economy in the world, is in a much better position. It
is on a good growth path. GDP rose in the last half of the year
at 6.1 percent, the highest in 20 years. All the private
forecasts indicate that the economy will grow between 4 and 5
percent this year. The highly regarded blue chip forecast came
out earlier this week indicating a revised upward growth of 4.7
percent. And in Japan, we are seeing better results, for the
first time in a number of years, we are seeing considerable
growth there. In Europe, while the growth is less satisfactory,
there are a number of efforts underway across the Euro zone, to
take steps to improve the performance of those economies.
I appreciate, Mr. Chairman, your comment on our leadership
in the G-7 on the agenda for growth.
I think there is a recognition now that we have a growth
deficit in the world economy, and that growth deficit hurts the
United States. We grow more slowly when Europe and Japan grow
more slowly, and when the developing countries grow more slowly
it has hurt job creation in the United States, it has hurt
exports in the United States. As we grow, we help the rest of
the world; and as the rest of the world grows, they help us.
Growth is no accident. Growth occurs because of the adoption of
good policies. And what we are seeing around the world is
increased attention to adoption of good policies.
The IMF and the World Bank and the other multilateral
development banks have an important role to play. In my
submitted statement, I review in some detail progress which is
being made there. Let me just mention a couple of things,
because I know it is of great interest to you.
One, the IMF has narrowed its conditionality so that when
funds are extended there is the expectation of real reform
occurring, and sustainable growth the end product of the
extension of the financings. At the IMF as well, this past year
we have seen important movement forward on sovereign debt with
the widespread adoption of this concept of the CACs, the
ability to work out through collective action clauses the
sovereign debt issues that may arise. It has been a very
helpful note, and the United States has taken the lead in
moving the world in that direction.
At the World Bank, we have seen a movement from loans to
grants dealing with this issue of heavy indebtedness. It
doesn't make any sense to continue to extend loans to countries
that can never, never pay them back, and the World Bank has
responded, I think, in a very positive way. And both
institutions have focused more on real bottom-line results, on
metrics, and on milestones. And I appreciate the support we
have gotten from the committee in those efforts.
While progress has been made, we are not satisfied. Neither
is the leadership of the World Bank or the IMF. We have
extensive discussions with them. They recognize they need to
get even better at focusing on real results, measurable
results; that they need to use the private sector more
effectively, and they recognize the need for better
macroeconomic surveillance. They also recognize, and this is a
point we continue to make, that they are dealing with U.S.
taxpayer monies as well as taxpayer monies from other
countries. And the U.S. taxpayers properly--properly, should
demand and do demand real results.
I agree with Congressman Frank that we have a great stake
in the world economy. We have a stake in the developing world.
We have an obligation to try and advance better policies and
sustainable growth. But we also have to do it in a way that
respects U.S. taxpayers and assures that the U.S. taxpayers get
real results from our support for those institutions.
This is a time of real opportunity. The United States, for
the first time in 7 years, is chairing the G-7, G-8. The
President of course will host the other world leaders at Sea
Island. We also have the chairmanship of the G-7 finance
ministers, I intend to use that well to build even greater
support for these core ideas that we think make the world a
better place and make the IFFIs perform more effectively.
With that, Mr. Chairman, I thank you very much and look
forward to your questions.
[The prepared statement of Hon. John W. Snow can be found
on page 45 in the appendix.]
The Chairman. Thank you, Mr. Secretary. And, again, it is
good to have you back.
Before I start the questioning, first of all, all members'
opening statements will be made part of the record. Without
objection.
While it pains me, Mr. Secretary, I have to announce the
score of the basketball game last night, since we do have a
couple of players here. First of all, the final score was 27 to
26 in favor of the Democrats. One of the lowest scoring games
in the history of the Gallaudet Classic. The shooting
percentage on both sides was quite extraordinarily low, Mr.
Secretary. I know you are an old basketball player and would
appreciate the fact that it was--our excuse was that nobody was
really in shape. But at the end of the day, the winner was the
Gallaudet University, the only school in the country for the
deaf. And it was quite an exciting game. I want to congratulate
particularly the gentleman from New York, Mr. Crowley, the
gentleman from California, Mr. Baca, who were on the victorious
team. The gentleman from Illinois had nothing to do with it.
And Mr. Ose on our side was also a participant. But I thought
in the interest of full disclosure, Mr. Secretary, I would
announce that to the members.
Let me return now to the Group of Seven Agenda For Growth
issue. And certainly I think all of us are encouraged by the
innovations achieved within the G-7 just in this past year. And
I want to focus, if I might, on my first question on one
detail. Your written testimony this morning indicates that as
part of the G-7 Agenda For Growth, the UK is proposing a
collaborative initiative on regulatory reform across the EU.
How does this initiative coordinate with the existing US/EU
dialogue for financial regulators? And how could a mechanism
such as that US/EU dialogue be used to promote growth for
American financial services, markets, and firms?
Mr. Secretary, as an aside, I have had numerous discussions
with parliamentarians in Great Britain as well as from the
European parliament. Obviously, this is a huge potential growth
opportunity particularly for financial institutions firms, and
I wonder if you could elaborate on that?
Secretary Snow. Thank you very much, Mr. Chairman. I will
do my best.
This is an issue that the Treasury plays an important role
in. The SEC probably plays the lead role, but we are very much
party to the financial dialogue, the EU/US financial dialogue
and the UK dialogue. The Sarbanes-Oxley legislation of course
is a great impetus since it changed our securities laws in some
fundamental ways and corporate governance rules, at the same
time that it has affected the accounting industry and
represents the most sweeping changes in our Federal securities
laws since the new deal. And Europe recognizes the need for
some harmonization with us so that their companies can have
access to our markets and our companies can have access to
their markets.
The issue that is directly before us of course is the EU
requirement for an equivalent supervisor for financial
institutions, equivalent to what they have on the other side of
the Atlantic. I think we accept the validity of that point of
view. There needs to be an equivalency. It doesn't have to be
precisely the same, it has to be substantively comparable.
And in talking with the EU ministers, I am encouraged, and
an awful lot of progress is being made on that subject. The UK
of course is not a member of the EU, so they have their own
financial services administration, which is their financial
insurance and banking and regulator that oversees these
matters. And the FSA is making good progress with the EU as
well in harmonizing between themselves.
There is a rich dialogue on this subject. I think we
understand each other, and I think we are making good progress
in accommodating each other.
The Chairman. Thank you, Mr. Secretary. Let me ask you
about external performance audits. As you know, the
Appropriations Act of 2004 would call for performance, external
performance audits regarding international financial
institutions, and I note you mentioned the Sarbanes-Oxley Act.
And in that vein, why is that important? And are we making
progress in terms of the effectiveness of those performance
audits?
Secretary Snow. I think the legislation is tremendously
important. Everybody needs to be accountable. And what the
legislation does by requiring outside audits is to assure
accountability. And we have had extensive conversations with
the World Bank. They understand that we cannot support the
enhanced payments for performance, the performance payments
unless there is an audit that satisfies us that the progress on
the various metrics is being made. I think it is a simple issue
of accountability, and the legislation was right to insist on
it and we are going to insist on it as well.
The Chairman. Thank you. And, finally, on IMF reform, I
just want to talk--and I appreciate your testimony on Argentina
IMF issues. But on lending limits in particular, the IMF of
course used to restrict available resources to a multiple of
each country's IMF quota. Your testimony would indicate that
progress is being made on narrowing and specifying the
circumstances on which countries could access large-scale IMF
lending. This obviously could be a step in the right direction
if crafted and implemented properly. Could you provide more
details on the current thinking on this lending limits issue?
Secretary Snow. Well, it is an extremely important issue,
and it goes right to the center, I think, of making these
international financial institutions and really the
international financial system work appropriately and
accountably. There are conditions where clearly the IMF needs
to serve as a lender of last resort, but it can't be every time
a country finds itself in some difficulty. We have been working
with the IMF to limit the cases of exceptionality, that is, the
cases where their debt or credit will be extended to those that
really justify a lender of last resort access. And that is the
core issue.
The IMF has moved a long way in that direction to narrow
this exceptionality, and I think, Mr. Chairman, we have seen
good progress. We want to continue to see that concept though
honed even further so that the world financial system, the
sovereigns of the world, the developing countries who would
seek access would have a clear sense, would have clarity and
transparency on when access would be made available.
The Chairman. Thank you. My time has expired. The gentleman
from Massachusetts.
Mr. Frank. Mr. Secretary, I think we may be about to set
the record for quick compliance with a request from the cabinet
officer. The last part of your testimony you asked us to take
action on the Senate version of the NADbank bill. Thanks to the
gentleman from Texas, Mr. Hinojosa, we debated that yesterday,
and we are going to vote it through in about an hour.
Secretary Snow. Wonderful.
Mr. Frank. So you are doing pretty good.
On another issue where I am much less in agreement,
peripheral but international. The director of the Office of
Foreign Assets Control has just made it clear that editing with
the enemy will now be considered a serious threat to American
national security. That is, you have interpreted in your
department law involving trading with the enemy, et cetera, so
that scholarly journals or others who receive manuscripts from
Iran cannot edit them, must print them verbatim. Our colleague,
Mr. Berman, who offered an amendment that said let us not use
this as a way to do censorship intellectually, has called the
interpretation ludicrous and absurd.
I disagree with Mr. Berman. I think he is being much too
kind. I think it is just nuts. I mean, it just is unseemly for
the United States of America to be afraid of anybody's ideas.
And the notion that we would try to restrict people from
editing and publishing really troubles me. Yes, we should be
very tough about all kinds of contraband. We don't want them to
get economic benefit. But I really argue, I have written, along
with Mr. Berman--I really urge you to reconsider. Let us not
look like America is worried that if some Iranian sends some
article and it is edited or translated that that somehow is a
threat to the strongest Nation in the history of the world.
Secretary Snow. Congressman, it won't shock you to know
that this isn't the first time that something has come out of
Treasury that I was not aware of. And it probably won't be the
last. But I will look into that.
Mr. Frank. Thank you.
Now, back on the main theme, which is my main theme. How do
we build more support within the United States for the
international approaches in part by dealing with the problems
that these things happen? I think what we need to understand,
and you do, Mr. Greenspan does. Obviously things happen that
are in the long run, even the intermediate run, a benefit of
the economy, but those benefits and the burdens are not shared
equally. And I don't think we do a very good job at this point
of alleviating the burdens of those who have to bear them so
the rest of us can have the benefit. And this is a particularly
good example now with regard to trade adjustment assistance.
And I am going to ask, Mr. Chairman, to put in the record
an article from Paul Blustein of the Washington Post on March
13th.
The Chairman. Without objection.
[The following information can be found on page 56 in the
appendix.]
Mr. Frank. About trade adjustment assistance. Because as
the article points out: For months, the Bush administration has
been fighting a lawsuit brought by a group of computer
programmers whose jobs were outsourced abroad, arguing that
they don't qualify for government benefits aimed at people
coping with layoffs caused by imports. And apparently it is the
legal interpretation that, because they were providing this
service and not a good, they are not covered. I am not going to
argue the law here, but why was not the administration
instantly saying, good point, we didn't think about that,
look--you know, 10 years ago when we were telling people we
were going to retrain them, we are retraining for some of the
jobs now being outsourced.
Leave aside the question about whether outsourcing is good
or not. We could debate all that. One of the things that I hope
would not be debatable is that government clearly has the
responsibility for easing the pain of transitions. And we don't
do that very well.
At a hearing, Senator Baucus, who was very involved in this
asked, I guess, Mr. Zoellick what the administration's position
would be on changing the law, and he hinted, according to the
paper, that they might be willing to change the law. And the
White House spokeswoman Claire Buchan said that is something
that is being looked at. And Mr. Zoellick then said that is
something we should examine very closely.
Frankly, one needs to look at the cost aspects of this as
well. Worrying about how much it is going to cost to provide
this assistance to people who are losing their jobs to
outsourcing is a very good way to build more and more
opposition to outsourcing. And those who think that this is an
inevitable part of the transitional global economy, I mean,
what is the matter with these people? How do you go to them and
say, okay, this is very good? I mean, Mr. Greenspan talks about
creative destruction. Joseph Schumpeter was a wonderful
economist, but he is less persuasive to people who have lost
their jobs than Mr. Greenspan apparently realizes.
So let me ask you. Could you just tell us now that the
administration will support and help us move quickly
legislation to cover these people in trade adjustment
assistance?
Secretary Snow. Congressman, I am not an expert on that
trade adjustment assistance legislation, but the issue is being
reviewed. And, as I understand it, while service workers are
not included under the TAA, there are other programs which are
applicable that are under the jurisdiction of the Department of
Labor. And Secretary Chao is leading an effort to make sure
that those programs, that the availability of those programs is
widely known and communicated to people who might be able to
draw on them.
I agree with your premise. We live in a period of enormous
change, accelerated change, and we owe people opportunities to
retrain, to go through the transition, to work their way
through the transition, to minimize the cost personally.
Mr. Frank. The Labor Department--yes, there are some
things, there are differences in the programs. Why not make
these people eligible? Let me put it this way: If when we were
drafting this law originally people could foresee the
outsourcing, of course they would have been included. It is
counterproductive not to do it. And let me just elicit what I
think is a repeat of administration policy even more directly
relevant here. Am I correct that the administration does
support the 6-month extension of unemployment benefits?
Secretary Snow. The issue has come up I think three times
since the administration took office, and every time that the
proposals have come----
Mr. Frank. Well, currently. The problem, of course, is that
it comes up in the Senate, but it doesn't come up in the House
because the leadership won't let it. But does the
administration favor another extension of unemployment?
Secretary Snow. Well, I think the administration's view is
that if the Congress acts on it, that the President would sign
the legislation.
The Chairman. The gentleman's time has expired.
The gentleman from California, Mr. Royce.
Mr. Royce. Thank you, Mr. Chairman.
Mr. Secretary, I am concerned that many of our partners--
and I take Saudi Arabia as an example--our partners are not
doing enough to fight terror finance. And one of the specific
examples that I wanted to cite was the Al-Haramain Islamic
Foundation, one of the charities that is headquartered in Saudi
Arabia.
We have had two separate actions where we have named a
number of their affiliated branches across the world as
supporters of al Qaeda. And I would like to know if Saudi
Arabia has held anyone within their own borders accountable for
this charity's terrorist activities? I understand that the
branches that we have targeted are outside the country, but I
think many of us find it hard to believe that people at
headquarters in Saudi Arabia were completely oblivious to the
activities of their satellite offices outside of the country.
And I think, for us, the reflection here is that this is a
charity who is financing people who are actively trying to kill
us. And I am not aware of any arrests in Saudi Arabia related
to Al-Haramain.
So, I wanted to ask about your concern about lack of action
from the Saudi government and how you feel about that. And I
know the Saudis have put in place new laws, but what about
asking them to look at the past and look at this particular
institution and look at some accountability, having them take
action with respect to the core group that have set up that
charity?
Secretary Snow. Congressman Royce, the issue of the Saudi's
support in the financial war on terrorism is one which we and
Treasury have engaged at the very highest levels of the Saudi
government, and have done so on a continuous basis. I think
some real progress, some real progress has been made, and we
need to recognize that. Al-Haramain is the counterpart to the
United Way in the United States. And the Saudis have taken
extraordinary steps, given their culture, to go after the abuse
of their leading charity as a vehicle for transmission of
terrorist monies. You think back a year and a half ago, or a
year ago to today, and to think that they are removing
contributions baskets from the mosques to limit the use of cash
going into these institutions, and that they have designated
some large number. In fact, it was a joint designation with us
and them.
I think Saudi Arabia is a genuine ally in the financial war
on terror. They recognize they need to do more. There are some
things I probably shouldn't go into now but would be pleased to
go into with you in a closed setting.
Mr. Royce. Thank you. Another question I wanted to ask you,
Mr. Secretary. I think we are right to focus on how terrorists
get access to funding. But it seems to me that all the focus is
on the end user, on the terrorist himself, or the focus ends up
being on the wider terrorist cell. But also, I think if you put
the focus on the banker helping the terrorist, that that would
then bring into the equation someone who could be I think
deterred more easily. Because all of these organizations need
to get access to that financing. But maybe, maybe it is the
banker who isn't quite as committed, who isn't quite as anxious
to be a martyr, who has something to lose. And so if you could
deter that element in the equation, you could stop the flow of
funds. And I wanted your thoughts on that concept, if I could.
Secretary Snow. Well, I agree with your basic premise, that
we need to make the banking system an ally in the war on
financial terrorism. And, of course, through the PATRIOT Act in
the United States we have made enormous progress in that arena.
And through FDIF, which has agreed on some 48 or so special
recommendations on terrorist financing, we have engaged the
world community in this as well and have established recognized
international standards wherein, I think, it is well over 100
countries, 160, 170 countries now they are freezing orders, in
effect, to block terrorist assets, and a number of individuals
have been designated here and abroad.
The G-7, every meeting we, finance ministers with the
central bankers meet, we have a special session on the progress
in engaging the financial community and financial institutions
in the war on terror. Some slip out of the net, I will grant
you, but I do think we have made some pretty good progress.
Mr. Royce. Our difficulty in Europe is, with an attorney,
individuals can still open that account and never have their
name on the account, put millions in it, and transfer it to a
terrorist cell, and there is no way with that banking system to
have accountability. And we really need to keep pressing on
that front.
Secretary Snow. I agree with you.
The Chairman. The gentleman's time has expired.
The gentlelady from New York.
Ms. Maloney. Thank you.
Mr. Secretary, the Department is playing several roles in
Iraq in helping the economy get going. And I am particularly
interested in your views on debt relief. First of all, what are
the numbers you are working off of? Are they Treasury's
numbers, or what numbers are you working off of on debt?
Secretary Snow. We are working off some internal numbers
that we are finalizing and numbers that are coming through the
IMF. The IMF has been asked to take a lead role here in working
through those numbers.
Of course, for a number of countries, creditor countries,
the Paris club will also be working through their assessment of
what those numbers are. So it is a multi-part effort.
Ms. Maloney. To the best of your knowledge, how much debt
does Iraq owe the United States? It is my understanding it is
very low, only one half of one percent of the total debt. And
how much does it owe the world in total? Do you have that in a
general sense?
Secretary Snow. In a general sense, I do. For the United
States, the principle debt is, as you say, it is relatively
small, $2 billion, something in that range with about an equal
amount of interest arrearage, another $2 million roughly of
interest arrearage. So that our total debt is on the order of
$4 billion. The number that--and this is not reparations, this
is direct debt. The number for--in total, the aggregate number
is something like 100, 120 billion is my recollection of it.
Ms. Maloney. Could you give us a breakdown of that for the
committee?
Secretary Snow. I would be happy to supply it to you.
Ms. Maloney. Thank you. And of this number, how much relief
was former Secretary Baker able to secure?
Secretary Snow. Well, what Secretary Baker has done and I
commend----
Ms. Maloney. And Treasury?
Secretary Snow. And Treasury. But Secretary Baker now is
taking on a special role as the emissary of the President to
meet with heads of state to get a broad commitment from them.
And he has made a great deal of progress. And the heads of many
number of countries--I talked to him just last week, and he is
preparing a number of mission--have agreed, and these are the
leading countries of the world, to substantial debt relief. And
that is going to be necessary if Iraq is going to return to the
world community as a viable country, because the debt load is
simply too crushing and they couldn't have a sustainable
economy unless there is substantial debt relief.
Ms. Maloney. And as you know, along with our former Chair
of this committee, Congressman Leach and I have put in a bill
calling for debt relief, a Sense of Congress, and also using
the leverage of the United States in the IMF and World Bank,
even though that loan is very low to those two bodies. And that
loan was not odious from those two bodies to really move this
forward and get total debt relief for this country, primarily
because it was odious debt. We know that it was spent to build
74 different palaces and for weapons and for odious causes, and
certainly not for the people of Iraq who did not receive any of
it. And it seems to me wrong to saddle that country, and
particularly the American taxpayers that are our monies that we
are giving to Iraq could be redirected to other countries.
This is a conversation that we have been having. And I just
want to press that I think it is the way to go. It is something
that we could do and something that, in my opinion--Hitler
didn't--we didn't repay Hitler's debts. A lot of countries we
don't repay the debts when it is odious debt. When it is a
reasonable debt for a reasonable government, I can see that.
But for this reason, it is totally off the mark.
But on Iraq, I have been there twice on various missions
and I am very concerned about their future. It is going to take
a commitment from the world. It is very tenuous. I have read in
the paper various proposals that American banks and others have
put forward to help finance the reconstruction of Iraq. I
believe the American taxpayers with the crushing burden that we
are having economically would appreciate any help we could get
in that direction. And could you comment? I just read about
them in the papers where they have been willing to finance
reconstruction costs and put money into Iraq based on future
revenues from oil. Where does that stand? Are you supporting
any of those efforts? Would it help Iraq and the American
taxpayers?
Secretary Snow. We are supporting the efforts to bring
international banks into Iraq, absolutely, and was pleased that
the Central Bank governor, Governor Shabibi, has announced that
three international banks have now been licensed to come in as
depository and lending institutions in Iraq. This was a major
step forward.
Of course, J.P.Morgan/Chase is in there today playing an
important role, and the Central Bank law is very forward
looking in terms of making it possible for foreign banks to
come in and help finance the growth of the country. They really
need a financial sector. They do not today have a real
financial sector. The banks that were there were not really
functioning banks in the sense we think of banks. They were
more appendages of the Saddam government used to handle
financial affairs of the regime rather than lending
institutions to bring capital to users of capital for growth.
The Chairman. The gentlewoman's time has expired.
The gentlewoman from New York.
The Chair would announce there are four votes on the floor
of the House. The chairman will recognize the gentlewoman from
New York, and then we will take a break for those votes, Mr.
Secretary, and then return.
Gentlewoman from New York.
Mrs. Kelly. Mr. Secretary, I want to associate myself with
the comments of Mr. Royce. He asked you about Al-Haramain.
Quite frankly, in my mind, it is no different than Hamas. These
are charities that are in fact doing two things, promoting
terrorism, as well as doing some charitable work. It is very
hard to get your arms around something like that. But when you
appeared before my committee, you said you were the lead agency
for tracing the money on terrorism, and you said that you had
set up, through the PATRIOT Act, a desk that essentially is
working with not only Treasury but also Customs and CIA and
FBI.
I want to know how Customs, CIA and FBI are working with
you. Because over the course of the last 4 months, everything I
have read indicates we are not getting a whole lot of
cooperation from the FBI. Are they giving you cooperation or
just taking information and then you never know what happens to
it?
Secretary Snow. You are absolutely right, we have a joint
task force in Saudi Arabia, in Riyadh, working with the
counterpart agencies of the Saudi government, with the full
support of the Crown Prince and the finance minister and the
Central Bank governor. This is a subject I raised with them
when I was over there several months back. The Saudis, I will
say, are very cooperative in this.
Mrs. Kelly. Excuse me, sir, but that was not the basis of
my question. My base question is--I am glad the Saudis are
finally beginning to help out in trying to trace terrorism
money. We cannot stop terrorism until we stop the money. And my
concern is whether or not you are getting information on your
desk. Because you told me the buck stopped on your desk in
tracing terrorist money. If that is the case, I want to know if
you are getting cooperation from the FBI and the CIA even right
here in this country. Are they taking or are they giving?
Secretary Snow. We are getting good cooperation, let me
make that clear. At the same time, we think that more focus on
financial intelligence, intelligence about flows, is very much
needed, a higher priority for that. And that is why I was so
pleased when the Congress established the new Assistant
Secretary for Intelligence at the Treasury Department. That is
really a very important development in the war, and I know your
role. I think it is critically important that that has
happened. This will give priority to our efforts. It will make
sure that financial intelligence is getting the attention it
needs. We hope to announce that Assistant Secretary very soon,
in addition to an Under Secretary, which was contemplated in
the legislation, to oversee that whole initiative and become
the focal point, the focal point for the financial war on
terrorism. The one person in the United States Government,
full-time, directly responsible every day, waking up and going
to bed thinking about terrorist finance.
Mrs. Kelly. Well, thank you. I also want to ask you quickly
about TRIA. Right after 9-11, we put a Federal reinsurance
backstop for terrorist acts here in the United States. That is
going to expire. We put a sunset in there. I would like to know
whether or not you feel that TRIA has contributed to the
stability that has been in our economy with regard to a number
of different factors of our economy over the last 2 years?
And my second question is, since there is no cost involved
in TRIA, unless there is a terrorist event, wouldn't it be
sensible for us to extend TRIA out for a few more years until
we are sure that we have done something to stop this war on
terror?
Secretary Snow. Mrs. Kelly, I agree with you. I think TRIA
was very important. As a private sector citizen, member of the
business community, I spoke strongly in favor of it. I think it
has made a real contribution. We needed a backstop. The
legislation, as you know so well, has a time frame to it. One
idea behind the legislation was to see if the private sector
could come in and fill in with the backstop maybe playing a
smaller role over time.
We have a decision to make here, I think it is September of
this year, about whether the TRIA coverage will be extended for
another year. And at the end of that year, we have the whole
question of whether TRIA should be extended beyond that. That
is a matter that is now under active review in the Department.
We are getting comments from any number of private sector
people, insurance companies, the building industry,
construction industry, and so on.
While I cannot prejudge our decision, I can tell you, one,
that I strongly supported TRIA, it played an important role,
and this issue of its extension will be receiving my full
attention.
Mrs. Kelly. I hope it will, and I hope we are going to get
a positive result from that attention, sir. Thank you very
much. My time is up.
The Chairman. The gentlewoman's time has expired.
The committee will stand in recess until 11:40 a.m.
[recess.]
The Chairman. The committee will reconvene, and we are
pleased to recognize the gentlewoman from California, Ms.
Waters, for 5 minutes.
Ms. Waters. Thank you, very much. Mr. Secretary, I thank
you for coming, and I want to try to get in a number of
questions in a short period of time, and some of them just
require a yes or no answer, so I will know what to talk with
you about later, beyond this committee.
As I understand it, you defend basically the
administration's position on outsourcing and you do not think
that that is the cause of the loss of jobs in this country.
Secretary Snow. Well, no, I certainly would acknowledge
that outsourcing has had some effect on U.S. jobs.
Ms. Waters. Do you have any creative proposals to deal with
this outsourcing problem? Would you, in any way, penalize
corporations that we give contracts to, that we give loan
guaranties to who are basically using the taxpayers' money? Do
you think it is severe enough we should do something about
penalizing companies that are outsourcing jobs?
Secretary Snow. I think we have to be very careful there,
Ms. Waters, because by penalizing U.S. companies that engage in
trade in any way, I think we undermine our ability to keep
American enterprises dynamic and competitive.
Ms. Waters. Do you have any creative ideas, any thoughts
about what we can do about it other than what I may be
proposing, penalizing companies who get government contracts?
Do you have any new ideas that we could talk about later?
Secretary Snow. Yes, well, I'd be happy to talk about it.
As you think about your legislation, though, I'd ask you to
think about the fact that 70 percent of all the companies that
are engaged in exports in the United States have fewer than, I
think it is 20 employees. So an awful lot of small businesses
are engaged in exports. That is a surprising statistic. But we
don't want to do anything to hurt small business because they
are really the engine of job creation.
Ms. Waters. I do want to talk more about this with you, not
today.
As part of your statement, you talk about creating
industrial parks and encouraging business growth in
Afghanistan. Recent reports show that 50 percent of African
American males in New York are unemployed, and I understand
that a very devastating report is going to come out about the
same in California. Do you have any creative proposals to deal
with this kind of business development in America's urban or
rural areas; such as that which you are proposing in
Afghanistan?
Secretary Snow. Yes, Ms. Waters. There are a number of
governmental programs, not administered by Treasury, but
through other agencies of the Federal Government that address
those issues.
Ms. Waters. But there is nothing in Treasury, such as what
you are doing in Afghanistan; is that correct?
Secretary Snow. No, Treasury does not administer any
program directly like that, with the possible exception of
something called the New Market Tax Credit program.
Ms. Waters. Yeah, I know about those. Okay. You know, some
of us on this committee have been involved with trying to
recover stolen assets by dictators and leaders in other
countries. We have had several hearings. We talked about
Saddam.
I have been trying to get money back for Nigeria. The
Abacha regime, as you know, stole a lot of money. And we have
been able to talk about recapturing some of that in other
countries, in Switzerland, Britain, Luxembourg, and on and on,
but nothing from Citibank in the United States.
Have you been involved in this issue at all?
Secretary Snow. I regret to say that I haven't.
Ms. Waters. I want to talk with you about that at a later
date, but will you please take a look at that and see if we
still have some kind of efforts to do that?
I also want to talk about debt cancellation for the New
Millennium Act, where I am asking for 100 percent cancellation
of the debt of the world's most impoverished countries. Do you
support that?
Secretary Snow. We certainly support the HIPC initiative
very, very, very strongly, yes.
Ms. Waters. And, finally, let me ask you a very tough one.
Last night, I spent part of my evening reading the accounts of
the assistance that we gave to members of the Royal Family of
the Saudis and getting them out of this country after 9-11, and
it is amazing and absolutely extraordinary what we did.
Do you know of any involvement that we have had in also
protecting their assets? Did we, in addition to helping to
escort them out of the country after 9-11, arranging the
airplanes and getting Royal Family and their associates out,
are we doing the same thing or did we do the same thing for
protecting their financial assets in this country?
Secretary Snow. Congresswoman, I am not privy to any
information on that subject. I am not aware of what actions we
may have taken or may not have taken. I'm just not aware of it.
The Chairman. The gentlewoman's time has expired.
Ms. Waters. Thank you very much.
The Chairman. The gentleman from Texas, Mr. Paul.
Dr. Paul. Thank you, Mr. Chairman. Welcome, Mr. Secretary.
I have a question dealing with the free market economy, and
basically the question is where do you believe proponents of
free market capitalism go wrong? And let me develop that
question for a minute, because I do not think we follow free-
market economics.
I do not think we're very close to free markets and a sound
economy based on free and open trade. We have an artificial
system that you have to deal with on a daily basis, and from a
free market standpoint, it is mostly patch-up work trying to
correct problems. And, of course, the free market proponents,
especially Mises always said that when you intervene in the
marketplace, domestically or internationally, you usually
create more problems than you solve. You usually create two new
problems for each one. But the free market economists, from
Mises on down to Rothbart and Hayek, all of them I think were
absolutely accurate in their projections and predictions.
Because in the 1920s, they talked about the bubbles in the
1920s and what would happen in the 1930s. They were correct in
the 1960s and predicted that Brenton Woods would break down.
Even Henry Hazlitt wrote from this viewpoint. When the IMF was
established, he said Brenton Woods can't last, and he was
absolutely right in 1945, and in 1971 it collapsed. These same
group of economists said in the 1990s that the same thing would
happen, that we cannot sustain the bubble in the stock market,
and the crash inevitably comes for a very precise reason
dealing with monetary policy.
Now, I know when I ask the chairman of the Federal Reserve
about monetary and dollar policy, he defers to Treasury. Of
course, Treasury can, I think, legitimately defer to the Fed,
because they have so much to say and do with the dollar. They
are the ones that create the money out of thin air. So I
understand that.
But, still, where do they go wrong? And why is it that we
have gone so far away from accepting the notion that true
capital should come from savings rather than out of thin air?
Why shouldn't we encourage savings instead of manipulating the
economy with artificially low interest rates? Why do we do
economic planning through all this manipulation in the monetary
system and then we resort to this patchwork effort
internationally, which costs a lot of money? Not a little bit,
billions of dollars.
Now, these same economists would say today that the
international financial system is very, very shaky, probably
not much better off than Long-Term Capital Management. And I
have to pay attention to them when they talk about this. But
the system that we have literally encourages the Congress to be
extravagant spenders. They never have to worry about raising
taxes. Debt can always be taken care of. And that is why our
national debt is going up $700 billion a year.
So if we don't get back to the basics of why we get away
with what we do, I don't see how you can ever patch the system
together. And this idea that we can just give IMF money, World
Bank money, development bank money, come up with Millennium
Challenge Account money, I mean, this is not a couple of
dollars, and this all comes out of our domestic economy.
So I am a strong advocate of free markets where interest
rates are set by the marketplace, that budgets have to be
balanced, because we don't have the authority, moral authority
to print money out of thin air, and it really doesn't make good
economic sense in the long term.
So where, in your view, do we go wrong in thinking along
these lines?
Secretary Snow. Well, one place we go wrong, I think,
Congressman, is not to acknowledge explicitly the implicit
contingent liabilities that exist in a number of U.S. programs,
good programs, important programs, Social Security, Medicare,
Medicaid, veterans payments, and the Postal Service, a variety
of these very important programs that serve very important and
legitimate purposes where the potential liability to the United
States Government, the contingent liability, the taxpayer
obligation, or as you say the other side of that, a borrowing
obligation, is very, very large.
I testified yesterday before the Committee on Ways and
Means on the Social Security System and on the Medicare and
Medicaid systems and had to bear the very unhappy news that
Social Security is not sustainable and that the Medicare
system, unless put on a different course, is not sustainable
either. The reality is the contingent liabilities that are
implicit in those programs are a huge portion of the GDP in the
United States.
So I would say one thing--and I admire all those economists
you cited, by the way--but the one thing I would say is to try
to make explicit when Congress acts and when the administration
acts, the real cost of the things we are doing.
Dr. Paul. Thank you.
Secretary Snow. Thank you.
The Chairman. The gentleman's time has expired. The
gentleman from Vermont, Mr. Sanders.
Mr. Sanders. Thank you, Mr. Chairman, and thank you
Secretary Snow, for being with us today.
Three quick questions. You may recall that I passed an
amendment which would prohibit the government from working with
IBM to overturn a court decision regarding cash balance
pensions. That was incorporated into law. You may remember the
whole hoopla about that IBM lobbyist using the Treasury
Secretary's stationery.
Secretary Snow. Yes.
Mr. Sanders. I would very much appreciate, and I thank you
for initiating an inspector general's investigation on that, I
would very much appreciate your giving my office a nonredacted
copy of the IG report. We would like to see the full report. Is
that something we could get? Because I think you will agree
with me the allegations are very serious about that.
Secretary Snow. I'm prepared to be as cooperative as we can
be, Mr. Sanders, on that, and you're right I did ask the IG to
look into it once it was brought to my attention, and you
helped bring it to my attention. As I understand the IG
statutes, though, the IG, not the Treasury Secretary, is in
control of that process; that I cannot and should not dictate
to the IG with respect to the IG process.
Mr. Sanders. Well----
Secretary Snow. I am advised that is the law.
Mr. Sanders. All right.
Let me go to another issue, and that is the outsourcing
situation, and ask for your cooperation. As I am sure you know,
this country has a record-breaking $500 billion trade deficit.
We have lost 2.8 million good paying manufacturing jobs in the
last 3 years. We are on the verge of perhaps hemorrhaging
millions of very good paying white collar information
technology jobs. The new jobs being created are paying
substantially less, 29 percent less nationally, than the jobs
that we are losing. We have companies like General Electric
that basically boast when they tell us that they are moving to
China.
Ms. Waters raised this issue, legislation that I have
offered, which now has 60 cosponsors, which says that the
Federal Government should not be providing billions of dollars
in corporate welfare for those companies that are heading to
China.
Now, without getting into a great deal, I think one thing
we can do is would you work with some of us in putting together
a meeting with corporate America who are taking our jobs abroad
and having them come to Capitol Hill telling us how they are
going to create decent paying jobs in this country? Will you
work with us in arranging that meeting?
Secretary Snow. I would be happy to take part in that
dialogue and helpful in establishing it.
Mr. Sanders. The American people, I think, do not want to
give billions of federal dollars to companies who advertise the
fact that they are heading to China.
Last question. As you know, gas prices in this country are
soaring. Great concern to consumers, to businesses, to farmers,
and so forth. You and the administration are great exponents of
unfettered free trade. You are; I am not. What I want to know
is why the administration has not gone to the WTO to bring
charges against OPEC, which is limiting supplies of oil coming
into the United States?
OPEC, by definition, their reason for existence is they are
a cartel designed to limit production. Why aren't we going
before the WTO pressing the charge that OPEC is in violation of
free trade agreements?
Secretary Snow. Congressman, the current price outlook is
regrettable. It serves as a tax on America, on our consumers
and it slows our economic growth. But I do not think the
actions by OPEC, as I understand the WTO rules, are subject to
the WTO rules, because they do not involve a trade violation in
the sense of raising----
Mr. Sanders. I would respectfully disagree with you. And if
OPEC is not, by definition, restraining production and acting
in total violation of what free trade is supposed to be about,
I would be very surprised. And I would urge you and the
administration to tell our friends at OPEC not to strangle the
American economy and our consumers by forcing prices up
artificially. Are we going to hear some statements out of the
administration on that?
Secretary Snow. Well, I think you have heard the Energy
Secretary very forcefully talk about this whole subject. One
reason that we are experiencing the rise in prices is that we
don't have enough domestic capacity.
Mr. Sanders. Well, that is your interpretation. I think the
evidence would suggest that OPEC has limited the supply of oil
coming into this country. Do you deny that?
The Chairman. The gentleman's time has expired.
Secretary Snow. I would say only that if we had larger
supplies of domestic capacity, we would be less dependent on
uncertain foreign supplies.
The Chairman. The gentleman from Alabama.
Mr. Bachus. I thank the chairman.
Secretary Snow, we have heard a lot about outsourcing here
this morning, but every definitive study on this issue shows
that the balance of jobs that we are importing from abroad
greatly exceed the jobs that we are exporting abroad. One
recent study says that we probably get three times as much
benefit from insourcing as we do from outsourcing.
I am going to submit some of those for the record. I do not
know why people are blind to this. In fact, in my district,
three of our largest employers, if we didn't have a global
economy, they wouldn't exist today. They are the highest paying
new jobs in the district, and I think if you went around to
other districts, you would find that.
My question is similar to that. We hear all about
outsourcing but nothing about the benefit that we get, the
insourcing, and the high-paying jobs. Also, in your written
statements you talk about the fact we have got the strongest
economy since 1984. We have got low unemployment, which is
going lower.
In fact, this Congress curtailed, from 1992 to 1994, they
curtailed unemployment benefits because they said we had such
strong unemployment. It was higher than it is today. And the
same people today are saying that we have high unemployment. In
fact, it is lower today than it was in 7 out of 8 years under
President Clinton.
But I guess my question to you, home starts are at a record
high, inflation is at a record low, interest rates are low, we
have a strong economy, so why is it there is a disconnect
between perception and reality?
Secretary Snow. Congressman, you are absolutely right. The
American economy is performing very well right now, high growth
rates, low inflation, high productivity,the unemployment rate
lower than the average of the 1970s, the 1980s or the 1990s. I
think the issue is the apparent, and I say apparent for a
reason, the apparent slower than expected pickup in jobs, and
that is getting an awful lot of attention. And the talk of
outsourcing is also getting a lot of attention, and I think it
is creating a negative sort of miasma that colors people's view
of what is really a very strong and very, very well-performing
economy.
I am confident we will see those jobs come back. We will
see them come back in the months ahead at a very good clip.
What we didn't foresee, what we didn't foresee was the
extraordinary high productivity. We have had the highest 3-year
productivity, maybe of all times, but I have checked it back
like 30 years, so the highest in 30 years. Now, that high
productivity is good for the American economy overall. It makes
our firms more competitive, it means higher returns to the
businesses, more cash flow, and that is going to lead to good
things, higher wages, but it probably slows up a little bit the
job creation process.
We are still working off some of the excesses of the 1990s,
the excess capacity created in those heady days of the late
1990s.
I would also point out, Congressman, this puzzle as between
the two primary indices of the job market, both from the BLS,
one called the payroll survey, which shows less growth, and the
household, which shows lots of growth.
Mr. Bachus. In fact, the household shows that we have
created millions of jobs.
Secretary Snow. 2.4 million.
Mr. Bachus. How many?
Secretary Snow. 2.4.
Mr. Bachus. Nobody talks about that, but that is just as
valid a study, and a lot of people think it is a more accurate
indication of jobs. It is a mystery to me.
Let me ask, in closing, you have been to Afghanistan, I
know that you have worked with the new government in Iraq. Are
they making economic headways? I know they have established a
new currency, a new banking law in Afghanistan.
Secretary Snow. In both countries, and America ought to be
proud of its role in both countries, in both countries we are
seeing enormous progress. There can't be any doubt about the
fact that Afghanistan is on a much better path now than it was
under the Taliban, and Iraq is on a much better path than it
was under Saddam Hussein. Not just the economy. The economies
are clearly on a better path, but the rights and the dignity of
the citizens, the prospects for better lives in the years
ahead.
The Chairman. The gentleman's time has expired.
The gentleman North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman, and thank you, Secretary
Snow, for being here. I'm just going to try to deal with one
issue in the minutes that I have available, and that is to try
to get an articulation of the administration's position on what
trade and free trade is.
Reading on page 3 of the prepared statement that you gave
the committee, you say it is through free trade that all
nations can benefit from each other's prosperity. Free trade
means new markets for exporters. Further down you say, as I
have made clear before, it is our strong view that the
international trading system works best with free trade, free
flow of capital, and flexible market-based exchange rates.
Some of us who believe that it is a progressive position to
support globalized trade, because we know that in the long run
it will uplift the standards of living around the world, which
we think is a desirable objective, have not been able to vote
for any of the trade agreements, I personally have not, because
in the negotiation of those agreements we also recognized that
a number of these countries in other parts of the world have a
system in place where they allow child labor, don't have labor
standards, don't have environmental standards in place.
All of the things that our U.S. companies have to comply
with, these places do not comply with.
I guess the question that I am trying to get a handle on is
what is this administration's official definition of free
trade? Does it, for example, include negotiation in trade
agreements about labor standards? Does it include negotiations
about environmental standards; the kinds of things that we know
if they are not negotiated there may be free trade but not
necessarily fair trade?
There has been kind of a transition in people's
articulation of this. I was somewhat surprised at how
aggressively your statement talked only about free trade rather
than even finessing the fair trade issue. Can you give me this
administration's articulation of the things similar to the
kinds of things that I have expressed that are or are not
included in the definition of ``free trade ``as you see it?
Secretary Snow. The overall concept of free trade
essentially is removal of barriers, and they can be both tariff
barriers and nontariff barriers, to commerce, to international
commerce. It is opening of markets.
And as you say, we see that, and I think you said you see
broad agreement with the proposition, that that is the key to
uplifting the rest of the world as well as the United States.
Mr. Watt. Well, I do not think I necessarily agreed that
that is the key, unless the nations are also doing something to
affect the other standards of living that go with that.
Secretary Snow. But when we, through the WTO, the WTO
agreements, take China, for instance----
Mr. Watt. I'm trying to get an articulation of what is
included in free trade. I don't want to take China, for
instance. I guess what I'm trying to do is get an articulation
of this administration's position on whether the things that I
have talked about are or are not included as part of free
trade? Is it free trade and fair trade or is it just free
trade?
Secretary Snow. Well, certainly it is compliance with the
rules of trade. Every freetrade agreement, every time we open
up markets through agreements, there is a complex set of
underlying and detailed specifications, and we want the
countries to live up to their obligations.
I mentioned China because we are pressing China to live up
to its WTO obligations and to accelerate them. And if we could
get the agreements with Morocco and Australia and Kafga and the
African, Asian, Latin American countries that we are pursuing,
the world would be a better place because those agreements
would encompass a focus on a lot of things that we would then
have the ability to seek to enforce.
So I think we can make the world a better place through
trade in a lot of ways.
The Chairman. The gentleman's time has expired.
The gentleman from Alabama is recognized for 2 minutes.
Mr. Bachus. Thank you, Chairman Oxley.
Secretary Snow, I'm concerned with the direction that the
EU's financial services action plan has taken. Let me just be
brief in how I am concerned.
I am concerned that it is penalizing our London markets,
some of the current market practices in the city of London, the
way that U.S. companies and our affiliates in London operate;
that actually the EU seems to be tending towards more of what I
would call a less developing, less competitive over- regulated
approach. And I am going to submit to you in writing some
concerns I have and just urge you, and I hope you are already
doing this, and I think there is evidence you are, that you be
an active advocate on behalf of U.S. commercial interests and
that you urge the EU to adopt market practices that are more
comparable to what is found in London and New York, which are
more modern efficient markets.
Secretary Snow. Congressman Bachus, I can assure you that
that is exactly where we are, and that is precisely what we are
doing. I have a meeting in a couple of weeks with Chancellor
Brown, the U.K. counterpart with whom I have discussed the EU-
U.S. dialogue. He has expressed some of these same concerns to
me, I have expressed them to him.
We very much want to find ways to involve the private
sector more fully in the final rules that are adopted, and I
share your concern. We cannot let an overly bureaucratic regime
replace and substitute for the marketplace.
Mr. Bachus. Thank you.
The Chairman. The gentleman's time has expired.
The gentleman from California, Mr. Sherman.
Mr. Sherman. Mr. Secretary, I have simply so many
questions, I'm going to go through them all, ask you to respond
for the record.
Mr. Royce commends you for asking a few European countries
to forgive a small portion of the Iraqi debt. I am
flabbergasted that this country has not used its political
muscle to demand the disclaimer enunciation or permanent
deferral of the Saddam Hussein debt, just as the czar's debt
was disclaimed or permanently deferred. Instead, money is going
to be taken from the Iraqi people, and ultimately the American
people, to repay those who financed Saddam's war of aggression
against Iran, killing hundreds of thousands of people.
If you lent money to Hitler, I do not think you got repaid
even 50 cents on the dollar. The big money that was lent to
Saddam was not from Europe, although its great press efforts to
try to convince the American people of that, the big creditors
are Saudi Arabia, Kuwait, and the Emirates, and now we've got
Kuwait wanting another $50 billion or $100 billion in
reparations for what they suffered in the war. So we liberated
Kuwait and now, ultimately, it will be the American taxpayer
paying them an extra $50 billion or $100 billion, plus the
money they lent to Saddam in the 1980s, plus what he cost them
in the 1990s.
The Royal Families of Saudi Arabia and Kuwait are getting
absolutely great protection from this policy. The American
taxpayer is then told we can't loan the $18 billion, because
the Iraqis couldn't afford to pay us back, it will put a strain
on their economy, so we have to give it to them.
Now, the true brilliance of that is that that protects
Halliburton from European competition. Because now we are told
we cannot let non American companies participate for those
contracts because it is our money, it is taxpayer money. It is
not money being lent to the Iraqis, where they could go out and
get the best policy. The money has to go to Halliburton. The
hope is that that same brilliance that has been used so
effectively to protect Saudi Arabia, Kuwait, and Halliburton
will be used on our trade deficit.
Today, we found what it meant for America to surrender its
sovereignty to the WTO, or should I say to corporate interests.
We are going to open up this whole country to Internet
gambling. And I hope the social conservatives understand how
the economic conservatives have sold out their interests. You
now do not have to leave your house to lose your house. Not
because of any State in the country, not because of any Indian
tribe, but because we have decided that anything that makes
money from any corporation must be imposed on the American
people.
While we are talking about gambling, look at the
international monetary structure. It is all based on America
the consumer, the rest of the world producing. A half trillion
dollar trade deficit this year on top of last year on top of
last year on top of last year. You know, Mr. Secretary, that
can't possibly be continued. Every year we have to borrow
another half trillion and roll over all the money we borrowed
in all the previous years. The only question is, will the
dollar slide or will it crash?
Unfortunately, Mr. Secretary, your department is doing
everything possible to prevent the slide, and so next decade
we're going to get the crash. At some point, and it could
happen in one day, the dollar will decline in value. This is,
in part, because it is too high, in part because we have
tolerated what the Chinese are doing and pat ourselves on the
back that they may stop stealing from us 6 years from now.
The idea of pressure doesn't mean interrupting a ship
filled with imports into the United States, it means sending a
letter. This is the most powerful country in the world, which
cannot protect itself from unfair trade practices, but we can
send strong letters. We are very tough.
The other thing we, of course, do is we have this
Pollyannish view that if we cannot prove a violation of trade
rules, we assume it doesn't exist. A half trillion dollar trade
deficit may be good for American consumers today, a high dollar
may be good for American consumers today, it may be wonderful
living on our credit cards if we could continue it forever. We
will have to decide whether our consumers are more important
than our workers, and we could argue that forever. But the fact
is, it is going to crash unless we allow it to reverse slowly.
Does the administration have any plan, not to slightly
ameliorate the trade imbalance of payments deficits, but to
reverse them so that we are shipping more goods and services
out and we begin to repay the enormous debts built up under
several administrations; or are we going to sit here and fiddle
while Rome burns and believe, oh, it worked last year, it will
work this year, it won't crash next year.
I do not know if I have time for a response, and I will
leave that to the chairman.
The Chairman. The Secretary may respond in 8 seconds.
Secretary Snow. Two-part answer on the current account
deficit. We need to get the rest of the world growing faster.
We talked about that as part of the agenda for growth of the G-
7. Hopefully, we will see more growth in the rest of the world
so they will have more investment opportunities to use their
savings.
By the same token, we need to encourage greater savings in
the United States. One way to do that is with the
administration's proposals for the RSAs and the LSAs.
Thank you.
Mr. Sherman. You cannot save a burning city with one bucket
of water, Mr. Secretary.
The Chairman. The gentleman's time has expired.
Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman.
Mr. Secretary, there are some positive indicators in the
economy right now, and I want to acknowledge those, but I think
you would also acknowledge there are some concerns, such as a
$521 billion projected deficit this year by OMB, a $7 trillion
plus national debt, and my question to you, Mr. Secretary, is
how much of our national debt right now, and I don't want an
exact dollar figure, but ballpark if you can, is held by
foreign nations?
Secretary Snow. Oh, about one-seventh of the $7 billion you
are talking about.
Mr. Moore. In dollars, what would that be, sir,
approximately? One and a half trillion?
Secretary Snow. I think maybe that is a little high. I will
get you a precise number.
Mr. Moore. All right. Do you know approximately how much
Japan holds of our debt?
Secretary Snow. Yes, approximately--it is a sizable number.
Mr. Moore. $545 billion?
Secretary Snow. That's about right.
Mr. Moore. And China holds approximately $149 billion?
Secretary Snow. A number in that vicinity.
Mr. Moore. Should that be a concern, sir?
Secretary Snow. Not necessarily, Congressman.
Mr. Moore. Assuming the worst case scenario, and not just
not necessarily, what is the worst case scenario if Japan and/
or China decided they didn't like the way we were acting and
didn't want to hold our debt any more?
Secretary Snow. China and Japan hold our debt because it is
in their interest to do so. The United States remains the best
place to invest. On a risk-adjusted basis, we have the highest
returns, and we do so because of this extraordinary economy and
this extraordinary system of laws.
We protect capital. Capital is a coward. It only goes where
it is protected, where it sees stability, where it sees a set
of laws that respect property rights.
Mr. Moore. But my question is what if they decided they
didn't want to hold our debt any more? What could happen in the
worst case scenario for us?
Secretary Snow. Well, the great thing about the United
States is we are a good investment opportunity for capital of
all sorts, whether it is Asia or Europe or America. So I don't
see the dread that you see in their holding that substantial
debt.
Mr. Moore. Well, I'm asking a question and trying to get an
answer. I'm not hearing an answer.
Secretary Snow. Well, the answer is I am not alarmed by it.
You are asking me if I am alarmed, I'm saying no, I am not
alarmed.
Mr. Moore. Is there any worst case scenario if China and/or
Japan decided they didn't want to hold our debt any more?
Secretary Snow. That is a most unlikely case.
Mr. Moore. I am asking most unlikely. Is there anything
that could happened bad for us?
Secretary Snow. Well, it is like what is the likelihood of
this ceiling falling down on me? That would be a bad outcome,
but I think it is very unlikely.
Mr. Moore. Okay, I will go without an answer.
We have right now the lowest interest rates that we have
had in probably four decades; correct?
Secretary Snow. That is right. That is right.
Mr. Moore. I have been on the Financial Services and on the
Budget Committee for the short time I have been in Congress and
have had a chance several times to hear and ask questions of
Chairman Greenspan, and one thing he has consistently said is,
if our Nation is not in a fiscally responsible position when
our economy starts to take off, we could see an alarming rise
in interest rates. Have you heard him say something like that?
Secretary Snow. Well, not alarming.
Mr. Moore. Well, that is my word. That is not his. But use
your own word or use his.
Secretary Snow. I think what he has said is that we need to
control the deficit, make sure that financial markets do not
perceive the deficit as an embedded part of our financial
structure, as an entrenched part of the financial structure,
and to do that we need to control spending and control the
deficit. Yes, I have heard him say that, and I agree with him.
Mr. Moore. Deficits do matter, don't they?
Secretary Snow. Absolutely deficits matter.
Mr. Moore. We are not, in my opinion, doing a very good job
right now of controlling deficits, when we have the highest
deficit in our Nation's history and as far as the eye can see
right now. I know the administration's intention is to halve,
cut in half, the deficits in the next 5 years. Personally, I
don't see that happening. I don't see any plan on the table
that is going to make that happen.
Secretary Snow. Well, I agree with you that deficits count;
that the deficit is too large; that it has to be addressed. The
only point I disagree with you on is whether we will get there.
I think we will.
Mr. Moore. We pay interest of almost $1 billion a day right
now on our national debt; correct?
Secretary Snow. Yes.
Mr. Moore. Does that concern you?
Secretary Snow. With interest rates low, the interest
obligation on the debt has shrunk as a percentage, as you know,
of the deficit.
Mr. Moore. But if interest rates go up, that would change
dramatically too.
Secretary Snow. Well, depending on how much they go up, it
could, yes.
The Chairman. The gentleman's time has expired.
The gentleman from Illinois, Mr. Emanuel.
Mr. Emanuel. Thank you, Mr. Chairman. Thank you, Mr.
Secretary. I want to talk a little about a couple of issues
here.
I happen to be one of the few Democrats that is pro free
trade, having worked to see NAFTA through, and GATT, voted on
Chile and Singapore. But if everybody thinks free trade is just
an absolute good, they can come to my district. It is not
absolute good. There are winners and losers. And I'm sorry, but
I think some in this administration and some in the Congress do
not put in place some of the benefits and needs and safety nets
to make more people winners. If we do not do that, those of us
who vote for free trade are going to have to go into a witness
protection plan every time we vote for it. Because the economic
conditions that happen with free trade are detrimental to folks
out there.
I believe in free trade as an ultimate positive overall,
but there are losers in this, and we do not have the health
care, education, and retirement security that people need so
they think they can be winners too. And you cannot maintain a
part of your foreign policy with only 18 percent or 21 percent
of the American people supporting it. The biggest, most
important thing for foreign policy objective is the support of
the American people. Eighteen percent is pretty low, in my
view.
Secondly, I want to bring to your attention an issue which
early in the administration, you were not there, so it was your
predecessor, but we had an effort with the Europeans to crack
down on tax evasion and tax havens. In 2001, the
administration, specifically your predecessor, abandoned that
effort.
There are two immediate benefits, and I will point you to a
piece by Mr. Cutner Rose in Business Week, where abandoned that
effort and actually killed it. We lose around $200 billion to
$300 billion, I know that is a rough estimate, in tax revenue.
When you run a $550 billion deficit, even if it is $150
billion, that would go a long way to reduce the deficit,
reducing the cost of capital, and also to help us in our
crackdown on terrorists who are using these tax havens.
Now this happened with your predecessor, and here in
Washington we all like to kick our predecessor, so you don't
even have to own this, but I hope you will take a look at this
issue of tax havens as a way to, A, if you want to put it under
the banner of fighting terrorism, put it under the banner of
fighting terrorism, or put it as everybody has a responsibility
to pay their fair share of taxes. People, individuals, and
corporations are using these havens to hide legitimate sources
of income that should be taxed and are not today. It can be
part of an anti-terrorism effort or part of everybody paying
their fair share. I don't care what name you call it. I think
Treasury should reinstitute cooperation with the Europeans.
That is number one.
Secretary Snow. I thank you for those comments, Congressman
Emanuel, and I want to assure you that we recognize, I
recognize on your first point that trade creates dislocations;
that everybody is not a winner and we need to deal with the
transition. That is why initiatives like training programs,
assistance for those who are dislocated and so on, are
critically important. I agree with you. I regret very, very
much that we seem to have lost the broad-based support in the
country for trade.
Mr. Emanuel. Well, let me bring up this point, and
hopefully you will look at this other thing on tax havens. But
when the HOPE scholarship and the Lifetime Learning was
instituted at community colleges, which are the life blood of
the new economy worth $1,500 on average, today they are $2,000,
yet the HOPE scholarship is stuck at $1,500. Pell grants are
frozen 3 years in a row. The average Illinois graduate from the
University of Illinois graduates with $18,000 in debt. I don't
think when you get your diploma you should get your first Visa
bill.
Health care costs, the lion's share now are being shoved to
the employee. We have 401(k) problems in the mutual fund
industry. And that is why--you know, everybody wants to talk
about the greatest economic statistics. The reason you have
fear out there is not just employment; it is that the entire
infrastructure of the middle-class life, from retirement to
health care benefits----
The Chairman. If I could interject, the gentleman from
Illinois, we have got a vote coming up. I know the Secretary
has to leave. What I would like to do is accommodate the other
three members who have not had a chance----
Mr. Emanuel. I am done.
The Chairman. Let us try, if we could, limit it to 3
minutes apiece, and then I think we can all make that vote.
The gentleman from Georgia, Mr. Scott.
Mr. Scott. Thank you very much.
Two quick questions, Mr. Secretary. Earlier this week the
corporate tax overhaul bill failed over in the Senate. Do you
have any ideas or suggestions or the administration on how we
could move forward with a bipartisan bill to address the
European trade sanctions that have been in place in response to
the current export tax breaks?
Secretary Snow. Congressman, I don't have any specific
suggestions on how to do it, but I certainly would implore the
Congress to act on it. It is awfully important to get that
resolved so these sanctions don't adversely affect our economy
and our recovery.
Mr. Scott. Let me ask you one other quick question, too.
Going back to outsourcing for a moment. We have talked about
that. But there is one feature about outsourcings that we have
not touched upon, and that is the type of jobs that are being
outsourced into dealing with our American financial
institutions, credit bureaus, dealing with vital important
information that banks are processing overseas in foreign
countries that contain vital financial data about American
consumers and our financial institutions. Do you feel that we
have adequate safeguards to deal with what is obviously a
privacy and soundness issue and a security issue? And it is
particularly true given the current opinions and the level of
dislike or hatred that European countries especially and
countries in the Middle East have for Americans and American
institutions at a time when we do have these heightened
security concerns.
Secretary Snow. Congressman, I am not an authority on the
question you are raising. I will try and get you a more
complete answer. But the PATRIOT Act will apply to those
companies as will the Fair Credit Reporting Act. So you have
both the PATRIOT Act and the Fair Credit Reporting Act, as
amended, continuing to apply.
Mr. Scott. All right.
Secretary Snow. Those are the source of our ability to deal
with the issues you are raising.
Mr. Scott. But do you yourself, as the Secretary of the
Treasury, believe that we are vulnerable or that what we have
now is adequate?
Secretary Snow. Well, I think that the legal framework we
have in place certainly gives us the ability to deal with the
questions you are raising.
Mr. Scott. Thank you.
The Chairman. The gentleman's time has expired.
The gentleman from Texas, Mr. Bell.
Mr. Bell. Thank you, Mr. Chairman. I will be brief.
I wanted to ask you about something which appears in your
prepared statement on page 2 regarding the agenda for growth
and the United States' contribution to that. It seems to state
that, as for the United States, our contributions will be
basically the platitudes that we hear from this administration.
And I am curious as to what we are actually doing.
It says that our contributions will be through the
President's commitments to maximize growth and job creation.
This includes spurring savings through changes to the tax
system, making health care more affordable, working to prevent
frivolous lawsuits from diverting money from job creation, so
on and so forth.
My question has to do with our credibility and if that is
going to be our only contribution. How are we making health
care more affordable? Most people would argue that it is going
in the other direction, not becoming more affordable. I know
you are not going to suggest that we have succeeded in
preventing frivolous lawsuits. If you do, that would take away
a major campaign plank from the other side of the aisle where
we hear that frivolous lawsuits are incredibly abundant in this
day and age.
And as we are preparing American workers for demands of the
21st century job market, what we continue to hear, Mr.
Secretary, is the fact that there are not enough programs out
there preparing people for new jobs when their line of work has
gone away.
So I am curious, is this going to be our only contribution?
And what is your comment on that?
Secretary Snow. Well, I am disappointed you had those as
platitudes, Congressman, because they are a lot more than that.
They are really an action plan.
The action plan involves of course action by Congress, and
that is why the President among other things is urging Congress
to pass the reform of the energy plan, to adopt a new energy
plan which makes us less dependent on certain and expensive
foreign sources. The plan, the action plan of the President
calls for going after frivolous lawsuits. We haven't fully
succeeded, but I must say, as I have gotten into this issue of
frivolous lawsuits more and more, I regard the abuse of the
litigation system as a serious threat to jobs in the United
States. I have talked to any number of business leaders who
have--small business, medium sized, large business--expressed
enormous concern that the litigation system is changing the
basic, the basic sort of ethos of America, making us a ``can
sue'' society rather than a ``can do'' society, altering our
basic commitment to a whole set of ideas of enterprise and
entrepreneurship and things.
Mr. Bell. And when you refer to frivolous lawsuits, are you
referring to those that result in large verdicts that obviously
juries do not view as frivolous, or are you referring to those
that are just the cost of litigation in general?
Secretary Snow. Well, it is the cost of litigation in
general, but it is the lottery nature of the litigation system
which is producing verdicts that are, I think, excessive under
the circumstances, and that go 40 percent to the personal
injury lawyers rather than to the litigants. I think we need to
deal with this issue of the class-action system. A business
firm taking into account whether to invest in Ohio or Illinois
or offshore is going to factor in the risks of litigation. They
are going to factor in the risks that litigation presents to
their ability to get reasonable health care costs. And I think
the evidence is pretty clear that the litigation system is
driving lots of physicians and doctors and health care
providers and nurses out of that profession, raising the cost
of health care in the United States.
The Chairman. The gentleman's time has expired.
The gentleman from Washington State to wrap up.
Mr. Inslee. Thank you.
Unless we provide some relief to the difficulties of the
dynamics of trade, the trade base is going to be lost for those
who support trade. And to that end, many of us believe that we
should extend trade adjustment assistance to service employees
as we do now those in the manufacturing sector. Obviously, we
have a lot of folks who heretofore have not felt threatened by
international trade now in the software sector,
telecommunications, actuaries, radiologists, you name it. Adam
Smith and I have introduced a bill to do exactly that, and I
would hope the administration would support this. The
President's Council on Trade and Exports will make that
recommendation to you shortly, I believe.
Could you help us on that? Could you talk to your committee
chairs and help push this bill? What do you think of this idea?
Secretary Snow. Well, it is an area that really falls more
under the jurisdiction of Bob Zoellick, the Trade Rep, and
Secretary Evans and Secretary Chao. But I know the issue is
under active review.
The broader question is under active review as well; that
is, providing transition assistance to those adversely affected
by trade. I agree with you, we need to provide opportunities
for those so that there is an easier transition to the future.
Mr. Inslee. Do I take it that we have an ally who will be
arguing for the extension of trade adjustment assistance to the
service sector?
Secretary Snow. Congressman, you have an ally for the
broader proposition, that effective transition assistance needs
to be provided. Whether it is precisely that legislation or
something else, I am not close enough to it to give you a good
answer.
Mr. Inslee. Thank you.
The Chairman. I thank the gentleman.
Mr. Secretary, again, thank you for your appearance. It is
always good to have you before the Financial Services
Committee, and the committee stands adjourned.
[Whereupon, at 12:55 p.m., the committee was adjourned.]
A P P E N D I X
March 25, 2004
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