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tv   [untitled]    April 2, 2012 11:30am-12:00pm EDT

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and we're moving slowly in recovery, we cannot put the financial services sector at a disadvantage, and i believe the volcker rule will do exactly that. so i'm hoping the administration looks at that and says if impositions of requirements on financial services sectors in the united states are not being looked at in the same way as europe and our companies are at a disadvantage, then something wrong is occurring, and i hope you'll look at that in a proactive way and try to help american companies, and i see my time has expired. i yield back. >> the chair recognizes the tez ig knee of the ranking my noertd member of the subcommittee. mr. carney is recognized for three minutes. >> thank you, mr. chairman. i'm down here, mr. secretary. thanks for coming today. i'm eager to hear your perspective on the situation in europe and in particular the threats that that situation poses for the recovery here in the u.s. i have really two main questions. first is can greece be put on a
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sustainable path forward? greece has had austerity measures imposed on to it to address its current crisis, and currently its current fiscal path is unsustainable. at best, the benefits of these structural reforms are long term. can greece get over it in the short term i think is the question. they have very incredibly difficult decision, political decision to be made as to whether or not they can and should impose more austerity and what the costs might be to the political situation. we've heard the reports this week about political dissent in europe. as a member of the eu, greece doesn't have one of the main tools that most countries otherwise would have, which is to devalue its currency to sell outside of the country and respond that way. so they seem to be caught in a bind. they have the worst of all worlds. they have the austerity imposed on the people, and yet they don't have the ability to grow out of it with the devalued
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currency, and so i would be interested in your thoughts on that. the second concern is the implications of a prolonged crisis on the united states and in particular the exposure that u.s. banks have to credit default swaps, greek debt and that type of thing. we've had other discussions in this committee and other venues about that question, and i'd interested in your view of that and also be interested in knowing your thoughts to the extent thar the reforms of dodd/frank and how they have improved our ability to understand those risks and to mitigate against them. dodd/frank as you know was designed to promote transparency, monitor systemic risks and ensure that u.s. financial institutions can withstand shocks to the system. the question is simple. have these reforms enabled us to do that? have they given us more information? do we understand the exposure and systemic risks that exist for major u.s. financial institutions and markets? again, i want to thank you for
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being here today and look forward to hearing your views on these particular issues. >> i yield back. >> secretary geithner, welcome back to the financial services committee. without objection, your written statement will be made a part of the record. you'll be recognized for five minutes to summarize your testimony. the chair wishes to announce for the benefit of all members that the secretary has a hard stop time of 12:30. please observe the five-minute rule and plan accordingly. mr. secretary, welcome again. you are recognized. >> thank you, congressman. hensarling. members of the committee, thanks for giving me a chance to come before you today and talk about in particular developments in europe, but i'll be happy to answer any questions you have about the united states or the broader global economy. europe is of course a key strategic and economic partner of the united states, and we have a huge stake, huge economic stake, huge national security stake in the success of europe's
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efforts to contain its crisis. our economy, as you acknowledged, is gradually getting stronger, but we still face a lot of tough challenges ahead as a country. as you know, in early 2009, the u.s. and the global economy were facing the clear and present danger of a second great depression. and we acted with the federal reserve and with congress to pull the u.s. and the world economy back from the edge of the abyss. we successfully stabilized the financial system and restarted economic growth. over the past 2 1/2 years, despite the crisis in europe, despite the rise in oil prices early last year, despite the disaster in japan, despite the huge damage to confidence in the united states caused by the threat of default on the u.s. government's obligations for the first time in history, despite all those challenges, our economy has grown at an average annual rate of about 2.5% over
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the last 2 1/2 years. the private sector has added nearly 4 million new jobs. private investment and exports are expanding much more rapidly than gdp as a whole, and we're seeing quite broad-based strength across the american economy in agriculture and energy, manufacturing and in high tech. but, of course, looking forward we still have a lot of work to do to repair the damage caused by the crisis. unemployment is still very high as you all know, and the housing market is still very tough. we still face a challenging and very uncertain global economic environment with europe still facing a long and very difficult crisis and the risks surrounding iran, which ardiessure on oil p. in that context, the context of oil markets, i just want to welcome very much the statements made by the saudi authorities the last couple of days that they will take further action to increase the supply of oil to a constructive signal. china's exchange rate has now appreciated significantly in
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real terms against the dollar, not just over the past five years, but ovee and although they still have some way to go in achieving a more market-oriented exchange rate that better reflects economic fundamentals, we're seeing very substantial growth in u.s. exports to china. we have acted with the rest of the world to significantly strengthen and reform the past three years. imf, the world bank anhe i want to express particular appreciation for the support of this committee, the bipartisan support of this committee in those efforts. we're making a lot of progress, and i'd be happy to tabo strengthening global standards for financial reform, global standards and overancit systemt u.s. firms who compete in those markets face a more level playing field, even as we put in place tough reforms here in the united states. now, a few things on eur over the past few months with our encouragement and support and with the support of the imf, europe's leaders have been making some progress in putting
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in place a more effective, comprehensive strategy to deal this strategy has had four key elements. the first are economic reforms in the member states to restore fiscal sustainability, to restructure their banking systems and to improve their competitiveness, boosting their longer-term growth prospects. the second are institutional reforms, including what they call a fiscal compact that establish stronger disciplines on the fiscal policies, the budget policies of the member states to limit future deficits and the level of debt as a share of gdp. the fourth piece is financial support to governments undertaking reforms so that they can borrow money at sustainable interest rates. now, the european economies that are caught up at the center of this crisis have put in place
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some really very tough reforms over these last 18 months or so. and these reforms have been aided and assisted by very substantial actions by the european central bank. and together those efforts, reform with the fire wall and a more active ecb, have helped calm financial market tensions. but i think it's very important for us all to recognize that europe is still at the initial stages of what will be a very long and difficult path of reform, and that path of reform, of crisis resolution, presents significant risks to the american economy still. for these economic reforms in europe to work, the policymakers in the euro area have to carefully calibrate the maddux of financial support they're providing and the pace of fiscal consolidation they're embarking on. and that's important to recognize because the economic reforms will not work without financial support that allows the governments to borrow at
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affordable interest rates. and if every time economic growth disappoints, if every time economic growth is somewhat weaker than they anticipate, if government ls are forced to cut spending and raise taxes immediately to compensate for the impact of weaker growth on deficits, then that would risk creating a self-reinforcing and really defeating negative spiral of growth-killing austerity. the most important unfinished piece of this financial strategy is to build a stronger european financial fire wall, again, as a back stop for the governments undertaking reforms. they are now in the process of reviewing actions for expanding the combined financial capacity of their two funds so they can make it clear to financial markets that they have the resources available on a scale that is commensurate with the needs they might face were the crisis to intensify in the future. now, the imf, as you know, has played a very important role in europe. the imf's advice on the design of reforms, a framework for
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public monitoring of progress and financial support for the programs in greece and ireland and portugal in partnership with the europeans, which are assuming the majority of the financial burden as is appropriate. and those actions supported by the imf have significantly helped limit the damage from the crisis, and it is very much in the interests of the united states that the imf is able to continue its efforts in europe. imf's resources can not substitute for a strong and credible european financial response, but they can help supplement those resources, supplement the resources europe mobilizes on its own. the imf has played a major role in every postwar financial crisis while consistently returning to the united states and other imf members any resources they draw on with interest. we've never lost a penny in our engagement with the imf, and that's because our commitments to the imf are backed by a very substantial set of safeguards including a substantial amount of imf gold.
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now, over the past 18 mos, as you know, the european crisis has hurt the american recovery. it's been a drag on growth in the united states and around the world. but europe has pledged to do what is necessary to contain this crisis. they're making some progress on this path. but they're going to need continued support and reinforcement. then this process is going to take a lot of time. thank you, mr. chairman. i'd be happy to respond to your questions. >> thank you, mr. secretary. the chair will yield to himself. mr. secretary, i'm certainly heartened by the administration's statement that you do not intend to seek more resources for the imf. i remain somewhat confused, though, because two years ago there was an agreement on behalf of the administration to double our quota to imf. so the first question is, if you do not plan to seek additional funds now, do you have a
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timetable in which you will? >> excellent question. let me see if i can respond. it's true that in the -- first in the spring of 2009 we joined with countries around the world at that moment of crisis and reached a global agreement to substantially increase the resources available to the imf in that time of emergency. and then subsequent to that, we reached agreement internationally on a set of reforms that would change the governing structure of the imf, adapt it a bit to better suit the challenges facing the world, and to shift a lilt bit the balance of those resources between what's called the quota resources of the imf and wh's called the new arrangement to borrow, which is like a supplemental reserve fund. and we have negotiated internationally and we'll come to the congress at the appropriate moment to request authorization for those reforms to take place. but those proposals do not increase the resources available to the imf. now, in the present context, the imf still has about $400 billion of uncommitted loanable resources available to respond to the challenges of its
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members. and the imf has a long history, if necessary, in short periods of time of mobilizing temporary resources if they need it to respond to crisis. we don't see the case for asking the imf shareholders to agree to another increase of resources to lessen the burden on europe. europe is a very rich continent. they have the capacity to solve this problem. and we don't want to see the imf's role substitute for -- >> secretary, if i could, i think before that, as you know, we have limited time here. i'd like to get on to my next question. sometimes what i consider obvious around here is not obvious to others. we have disagreements with the administration. many of us believe that the appointment of richard corduroy was both unlawful and unconstitutional. obviously, the administration has a different viewpoint. we'll set that debate aside. it also appears obvious to many of us that if the administration changed its mind and wished to
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increase u.s. contributions to the imf, our belief is that you would have to come to congress to do that. so my question is does the administration have a differing view -- do you have legal authority outside of coming to congress to increase the imf contribution? >> no. under the laws of the land -- and i fully support this, i think it's good for this country -- we cannot loan money to the imf without coming to congress to authorize that increased contribution. >> the next question, then, mr. secretary, setting aside the federal reserve's liquidity swap arrangements, in your opinion, does the administration have any other legal authority outside of the imf quota to provide any type of grant, loan, loan
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guarantee, or any other financial assistance to the european countries? >> i do not believe so. you're right to refer to the fed's authority. the fed has authority congress provided to provide swap lines and other forms of assistance. outside that, it's like any matter of spending in the -- under the u.s. constitution. congress has the power of the purse. you get to decide and you control authority over what type of commitments we can make. there's i think one other exception which congress has given the president what's called the exchange stabilization fund, which is where we hold the foreign reserves of the united states, and there are authorities we have in that context to act to provide stability in those markets but not really relevant in this context. >> mr. secretary, notwithstanding the fact that the administration currently will not be requesting additional funds for the imf, obviously the imf has announced
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their intentions to engage in a number of bilateral agreements, which as i understand it does not require a -- well, would require only a 50% vote of the imf, meaning the u.s. could not essentially veto such an effort. but won't the increase in the imf's bilateral borrowing from other countries to the tune of $500 billion substantially increase taxpayer exposure to the european periphery? >> excellent question. and it would depend on how those resources are used, the terms in which they're provided and the safeguards attached to them. as you would expect, we would care a lot about making sure if the imf were to pursue those agreements that they were done in terms that would not disadvantage the u.s. financial position and the imf. >> thank you, mr. secretary. the chair recognizes the ranking member for five minutes. >> well, since the question of the nomination of the head came
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up, i would like to say there was a gross violation of the constitution. that was a refusal by the republican senators to allow a confirmation to take place. they did not have any objection to any individual nominee. they didn't like the outcome of the legislative process, so they were going to hijack the confirmation process to try and extort a change. clearly vie lative of the constitutional requirement that they treat a nomination on its merits. secondly, i do agree that we have excessive american taxpayer exposure to europe. it's called nato. and in 1949 when it was founded and since then there's been hundreds and hundreds of billions of dollars it made a lot of sense. it doesn't todwe equalize expenditures between america and our european allies, our debt situation would be much better. theirs might be a little worse. on the imf, mr. secretary, i must say that given the danger that exists for our economy if
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the european situation does not continue to be somewhat stable, the notion that we should try to discourage the imf from participating is hard for me to understand. but i also want -- because i think there is a misunderstanding about the extent to which we have a taxpayer exposure. i'm going to ask you in writing to give us a list of how much our contributions to the imf have cost us in budget terms over the years. but would you expound? the last time the u.s. increased our contributions to the imf, do you remember what that budgetary cost was according to the budgetary office? >> we've had 60-plus years of experience with imf through a whole rich variety of crises and we have never lost a penny of taxpayer money in that context because the imf is designed in a way, and we made sure this was the case, that any u.s. taxpayers' exposure would be fully protected. >> that included, of course,
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substantial intervention in the asian crisis in the '90s by the imf? >> the debt crises of the '80s, the '90s, and even this crisis of -- >> so the imf to date has not had any negative impact on the taxpayer? >> no. and i cannot envision a circumstance in which it would, because we are very careful in terms of what the imf does -- >> so if we were try to get the imf to not do anything, we would be increasing the risk to our economy and no savings to the american taxpayer. >> i agree, and it would be much worse. if the imf were unable to play its role in this context then we would face much weaker growth in the united states, much more risk to our broader financial system and u.s. exports would be weaker, u.s. -- >> i would be interested if you would give us the cbo and we increase our quota because it makes a great deal of sense. we buy a lot of stability for that. but i would be interested if you would send along the cbo. i do want to be honest. the swap between the federal reserve and the european central bank, as i recall, that did have
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an impact on the american taxpayer. would you explain what that impact was? >> well, on all the fed programs the fed exactly the return on the swap lines. >> but it was a profit. >> and a substantial profit. >> so as a result of the swap, mr. bernanke sent you a check. >> correct. >> hope you thanked him for it. let me ask you now, mr. secretary, i said before we had this comparison of the european economies to the americans from the chairman to our disadvantage. in terms of growth over the last couple years, what's the comparison between the american and european -- even the german, the best performing of the economies, what is the general comparative view? >> u.s. growth has averaged even this early recovery, early years of recovery, roughly 2.5%, significantly stronger than europe, probably twice the rate of goth. germany has done relatively well and significantly stronger than
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japan. so it is fair to say we're far ahead of europe in dealing with our challenge in the united states and our economy is looking better on really every measure than certainly the average of the manger european. >> there has been a lot of concern about american banks' exposure to european financial instance toogss with credit swap, et cetera. if the financial reform bill that we signed into law in 2010 had been signed two years earlier would that have had the effect of lessening the concerns we might have today? >> absolutely. i believe that if the reforms in 2010 had been in place three year, five years before then our crisis would have been much less severe and we would have been in better position to manage the effects in terms of the damage on the american economy. but today, because of those reforms and the actions we took to restructure the financial system and the crisis, u.s. banks are in a much stronger position hold much more capital
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against the risks they take around the world and that's a good thing for the united states. >> chair now recognizes the gentleman from california, mr. miller. >> thank you, secretary, the question has been asked on the 2010 treasury made a commitment to double the quota and we had responses but will the treasury seek congressional authorities to transfer funds from the nab to the u.s. quota? >> yes. >> in that fashion rather than additional funding. >> that's right. >> in your testimony you say that the reforms will take time and won't work without the ability of governments to borrow and i agree with that, but according to "wall street journal" the commission of the euro commission says that the rule could impair the ability of many countries to sell their bonds and how can european countries borrow at rates when they can't sell based on the volcker rule. >> you're right a lot of you' europeans expressed concerns about the risks, som e td the
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rule writers received about the draft proposed rule. the fed is in the process of examining those comments. we've, the treasuryug have no authority over the rule have a coordinating rule in the broader design of the rules and we're going to take a close look how best to mitigate those concerns. my view is we'll have the ability to do that. >> that's a glaring comment from them and i appreciate your honesty in it but the honesty alone sends a true message there is a real serious problem with the volcker rule if it has this impact when we're looking at trying to assist europe with the imf as far as technical expertise, knowing we do something like this, that could really set them back so i hope it's going to absignificant effort on your part to look at that. it appears that jurisdiction will adopt rules comparable to the volcker rule, we said there. has the federal reserve have regulatory task with implementing the rule performed the potential job losses that will occur in this country. if we're saying that the volcker
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vool going to have a huge impact on the monetary system or financial sector system of this country and globally that's got to cost us jobs in this country. >> i do not believe despite the concerns expressed by governments and central banks that the rule as drafted presents a meaningful risk to liquidity or credit in those countries. we are a careful people and we're going to look at all of the concerns pressed by these rules. it's very important we do that. more broadly you are right to point out that in all of these rules we've got to make sure we find a balance. we need to create more stable system that is good at providing capital to its best use but we also got to make sure we do it in a way that doesn't unduly damage the broader health of the american economy. i am very confident that we're getting that balance right. and we're going to be very careful to continue to make sure as we take in comments on draft rules that where there is a case for adjusting where we do that.
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>> but you used a good word in there, meaningful risk. you're in a tough position, i understand that. you're trying to balance many apples at the same time. but when you acknowledge a meaningful risk, and we go to say that eurozone is going to be impacted in their capability to borrow because of the volcker rule -- >> i don't think there is a meaningful risk but again, we're careful people so we'll look at any concerns both by u.s. financial institutions, u.s. businesses as well as foreign governments as we look at the comments. if there is risk we'll address it. >> how do you address "the wall street journal's" comment when they said the volcker rule could impair the ability of many countries to sell their bonds and you acknowledged that in some fashion. >> again i don't think there is that rilsing. it's something that we have the ability under the law to avoid. the way is law is structured there is a set of safeguards to
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protect the taxpayer in the system from firms taking risks with the safety neat finance but the slaw also designed to protect market making and hedging. so the exemptions the law requires us to design exemptions for the activities for good reasons, but you know, when you design exemptions you make sure they don't swallow the rule. >> let's go back to our financial service sector. if we're saying that they are going to be under the guidelines and requirements of the volcker rule yet all of these other countries are saying we're not going to do that because that would put us at a disadvantage, they are admitting disadvantage, so by the act in and of itself we have to acknowledge our financial service sector would be at a disadvantage so i don't -- that would be a meaningful risk to our financial service sector. >> i don't think so but it's a very good point. let me think about it this way. we've got the balance in the u.s. wrong, that's why we had a
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devastating financial crisis. if we move our reforms up here and the world stays here we have a problem. >> they are saying they are staying there. >> i'm comeing to that. so generally, we're trying to pull the world up to our standards. they have different systems than ours and that might be different in some case and you're right to say if they stay beneath us the risk shifts. we haven't helped the problem. if we respond lowering our standards to there we'll get ourselves 18 mess so it's a difficult balance for us to strike. but in general, it's not quite right to say that the europeans aren't adapting a similar basic fra framework. the british are doing a more radical separation of retail from whole sale. and of course -- >> i wish we had more time. thank you. >> the chair recognizes the gentle lady from new york, miss mccarthy. >> thank you, mr. chairman. i appreciate the opportunity and i'm sorry i apologize for not
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being here on your opening statement but i did read it. recently the european acted to restrict the service of secure financial messaging to the iranian banks that had been sanctioned by the eeu, as a result the society of worldwide interbank telecommunication or swift and to be honest with you, you need to explain that because a lot of people don'ts know what swift is. discontinue service to these banks. and i appreciate what you've been doing on the effort to encourage the eu and the swift to act in this manner. what do you believe that the impact of this recent sanction actually will be. and il will there be an effort to mesh the u.s. list of sanctioned iranian banks with the eu list? >> the combined effect of these latest sanctions, both to discourage countries from buying iranian oil, or cut back significantly and make it much, much harder for countries to pay for their oil from iran, and to
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pay for other financial activity with iran, the combined impact of those sanctions is the very, very substantial. europe has come a long way to matching the much tougher reforms we had for some time. and their support has been critical of course because we can't do this on our own. but we had much broader cooperation even beyond europe. you're seeing japan, south korea, china, countries around the world really moving with us to tighten up. now, we're going to keep looking at ways we can bring more pressure to bear and keep looking for what's the most effective balance of pressure we can bring to bear. but i think we're making substantial progress. and our hope is of course that will alter iran's calculations about their interests in pursuing a nuclear capabilities. >> thank you. europe is the biggest trading partner that we have in the united states, and the


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