Madam Speaker, information is necessary for the proper functioning of our economy, as well as our political system. Investors, consumers and voters need quality information to make informed choices. Capitalism and democracy require full…
Madam Speaker, information is necessary for the proper functioning of our economy, as well as our political system. Investors, consumers and voters need quality information to make informed choices. Capitalism and democracy require full information for the most ideal outcomes, namely, efficiency and representativeness.
But anyone looking at this past year in American business and government would have to conclude we are a long way from achieving the ideal. On the contrary, we are embroiled, in significant part, in the consequences of a profound lack of transparency. Our economic and political systems suffer an information deficit, and the lack of transparency is costing dollars as well as public trust.
As chairman of an investigative subcommittee in the House of Representatives, my own work has largely been devoted to identifying and remedying that fundamental flaw.
A couple relevant examples:
My subcommittee held a hearing this past March on the questions, What does Treasury know about what TARP recipient banks are doing with the funds they've received? My staff identified a couple billion dollar examples. One bank arranged financing worth $8 billion for governmental entities in Dubai; another made a $7 billion investment in a Chinese Construction Bank, and a third made a $1 billion investment in its operations in India. None
of these are illegal, of course. They may even represent sound business judgment. But at the time those decisions were announced, those banks had received many billions of taxpayer dollars to help cure a liquidity crisis in the United States. Is that what Congress really had in mind when it created TARP? I think the answer is obvious.
What we learned was that Treasury was making no significant effort to find out what federally-supported banks were doing. TARP program makes no demands on TARP recipients for detailed information about their spending. Even though the statute obligates Treasury to be able to prevent waste and abuse of TARP monies, Mr. Paulson's Treasury Department did not even bother to set standards for waste and abuse of TARP funds. ``We trust them'' was essentially what passed for oversight of the Capital Purchase Plan. Treasury has no concrete idea of how TARP monies are being used. They did not ask questions of TARP recipients about their use of funds, and did not gather sufficiently detailed information from TARP recipients to know what to ask about.
It was even the opinion of Treasury that an answer to the question is nearly meaningless, because money is fungible.
Of course money is fungible. So is gravel. But if you want to know where the gravel is, you look for roads. So to this end, one of our witnesses provided a detailed examination of lending practices by several top TARP recipients and found, as we have all since learned, that net new lending was nearly zero. By integrating not only new loans but also contraction in credit, in the form of foreclosures, shortened credit lines and so on, this witness was able to independently estimate actual new lending--one of the key purposes of the TARP capital infusions--something Treasury had been completely dependent on the TARP recipient companies for producing.
I understand that Treasury has made some improvement in other TARP programs created since our hearing.
Then more recently, my subcommittee has been engaged in an investigation of the circumstances around a merger that received considerable emergency assistance from Treasury and the Federal Reserve. Here too the transparency issue arose. One of the main problems the systemic regulators were trying to deal with was predictable investor surprise around the unexpectedly huge losses the merger was suffering. Our investigation found that unmistakable warning signs of those losses were known to the acquiring company before their shareholders were asked to ratify the merger, but the company did not share the information with its shareholders. Furthermore, our investigation showed that the Fed was completely aware of the possible securities fraud even as it was orchestrating a bailout to deal with the consequences of a misinformed investor community.
Now the Fed is an interesting example of an institution that is statutorily protected from transparency. First a bit of background: As you know, Congress depends upon the Government Accountability Office to perform directed and statutorily required audits and reviews, which Congress uses as one important source of information and analysis for government oversight. But a little known statute called the Federal Banking Agency Audit Act of 1978 barred GAO from reviewing the Fed's monetary functions. Along comes the financial crisis and the Fed engages in a number of extraordinary measures, spends over $1 trillion dollars so far, invokes emergency powers to purchase and lend against assets it has never before held, and yet the Fed's interventions enjoy complete protection from GAO scrutiny of these crisis interventions because it calls them monetary policy. This is certainly debatable, and the Oversight and Government Reform Committee adopted unanimously my amendment to authorize GAO to conduct reviews of the special facilities created by the Fed to deal with the financial crisis. But we have a long and difficult road ahead before we see the Kucinich amendment become law, in spite of the fact that we are in a crisis due in significant part to the lack of transparency.
So I will leave you with these thoughts: Our economy and our political system and its institutions are in severe need of greater transparency. We are living with the consequences of a lack of transparency. And yet, it will be difficult to administer the medicine we will all benefit from. I look forward to working with you to see that we get the transparency we desperately need.