From: Congressman Aaron Schock
Sent: Thursday, June 24, 2010 12:38 PM
To: sgtmac1@comcast.net
Subject: Reply from Congressman Aaron Schock
June 24, 2010
Mr. David H. McWilliams
910 Kevin Court
South Pekin, IL 61564-0471
Dear Mr. McWilliams,
Thank you for contacting me regarding financial regulatory reform legislation moving through the U.S. House and Senate. I greatly appreciated hearing your views, and I welcome the opportunity to respond.
At the outset of the debate, I believe it is imperative that our government implement carefully designed strict regulation to ensure that "too big to fail" never ever again causes our government to have to bail out large financial institutions because of reckless actions that defy sound banking practices. We cannot have a situation of private gain with public risk. That is the opposite of what I call a free market or capitalism. Credit default swaps, unregulated derivatives and securitized bundles of profoundly unsound mortgages need federal rules and vigilant oversight.
With that said, we cannot throw the baby out with the bathwater by going overboard with new regulations--particularly with regard to sound banks, that did nothing to cause the crisis of the last few years. If we do so, we could unwisely damage economic recovery by adopting radical measures that would definitely lead to cutting off credit for businesses large and small.
As a member of the minority party in the House of Representatives, I am frustrated that despite wanting to rein in abuses and reform the system to prevent more bailouts, the Democratic leadership in Congress has gone way overboard with the magnitude of new regulation and am convinced that adoption of their overreach will cause a significant drying up of credit, astronomical new costs for small and medium sized financial institutions that will be passed on to consumers, and quite possibly a double-dip recession.
As you probably know, on December 11, 2009, H.R. 4173, the Wall Street Reform and Consumer Protection Act passed the U.S. House of Representatives by a close margin of 223-202. Due to the significant exposure of taxpayer dollars, and burdens placed on small businesses, I opposed this legislation. I found it unacceptable to include in this legislation the diversion of $4 billion of TARP funds for more government spending. I oppose the actions of the Democrats in Congress turning TARP into a permanent bailout agency. I voted for a motion to recommit to end TARP and direct any unused funds to pay down the national debt. Unfortunately, the motion was defeated 190-232.
Under H.R. 4173, every bank will be forced to offer federally approved "standard financial products and services." Essentially, this means that all banks, big and small, must offer uniform products; any deviations from these federal mandates would open up banks, in particular community banks, to frivolous lawsuits. As you can imagine, these uniform products could put smaller banks at a serious disadvantage when it comes to competing with much larger financial institutions.
Additionally, the creation of a new multibillion dollar federal agency controlled by one politically appointed Czar, who can then make the ultimate decision on what services and products all financial institutions can offer, was not something that I could support. While the goal of the Consumer Financial Protection Agency (CFPA) is to lead to improvements in the marketplace for the American people, in reality, it does nothing more than create a billion dollar agency, add to our national debt, tax businesses, restrict lending, and result in small businesses shedding millions of jobs. At a time when the economy is still struggling to recover, the last thing Congress ought to consider is an additional layer of regulation that will discourage new job creation. In fact, according to a University of Chicago study, the CFPA would increase consumer interest rates by more than 1.6%, and consumer borrowing would be reduced by at least 2.1%. Additionally, net new job creation would fall 4.3%.
As an alternative, I offered a bi-partisan amendment on the House Floor to change CFPA to a powerful council of regulators called the Consumer Financial Protection Council (CFPC) charged with establishing tough, new consumer regulations for all financial firms.
A powerful "Council of Regulators" would standardize consumer regulations and ensure that all state and federal regulators give consumer protection the same priority as is given to maintaining the safety and stability of the institutions themselves. Consumers would be better protected if we had fewer agencies with broader responsibilities, and a strict mandate for reform. By empowering and demanding that the existing state and federal financial regulators take on the critical task of protecting consumers from abuse and fraud, this amendment would have improved the proposed bill by better protecting consumers. It would also have reduced the regulatory burden on small community banks and other financial businesses that are now struggling to lend to businesses and consumers in central Illinois. Consumers don't need a massive new agency to pick and choose the products and services available to them. Unfortunately, the amendment failed by a vote of 208-223 with 33 Democrats joining all Republicans to support this initiative.
The Senate passed their version of H.R. 4173, on May 20, 2010 by a vote of 59-39. The bill now goes to Conference committee with the similar legislation the House of Representatives passed last December. The Conference committee will negotiate the differences between the bills to produce one bill that the House and Senate will then vote on and presumably send to the President.
The recent economic downturn and collapse of the subprime mortgage lending system has led to a call for an expansion of federal regulations on the financial sector. In making bailout policies permanent through this legislation, more government sponsored entities like Fannie Mae and Freddie Mac will be created to implement these bailouts by designating firms as "too big to fail," and as a result, increase this hazard.
The legislation in both the Senate and House bills further institutionalize the notion of "too big to fail", by setting up special regulatory regimes for the largest firms. By authorizing the Federal Reserve to regulate all non-bank financial institutions that are "systemically important" or might cause instability in the U.S. financial system if they failed, means that the companies designated for Federal Reserve regulation are thus too big to fail. Since these firms would be "too big to fail," they will be seen in the market as ultimately backed by the government and thus safer firms to lend to than small firms. This will permanently distort the financial market, favoring large companies over small ones.
Also, the House bill includes a $150 billion "bailout fund" that places the federal government solidly in a position to determine which firms fail or succeed. Additionally, it would make permanent the policies used to bailout AIG, Citigroup, GM, Fannie Mae and others. This fee will be passed on to consumers in the form of higher interest rates and increased fees. These are increases for consumers at a time when they can least afford it.
President Obama has taken it upon himself to wield a great deal of power in the private sector, and I firmly believe the less government intervention in the markets and less irresponsible use of taxpayer dollars the better. Being a strong free-market supporter, I am very concerned with what is included in this legislation, such as the creation of the CFPA - an entity that would have sweeping authority to regulate financial products, money markets, hedge funds, and insurance funds, and issue guidelines on executive compensation at financial firms. Additionally, this bill would institute new government powers to take over failed companies and permanently distort the marketplace.
Congress should consider an overhaul of our financial regulatory system, but not at the risk of creating more hazards, crippling the free market, and hurting small businesses.
Please know that I oppose any effort to create duplicative and unnecessary bureaucracy that will do more to stall economic growth than it will to protect consumers.
Again, thank you for contacting me. Please do not hesitate to contact me in the future regarding this, or any other issue. Also, to stay informed on what is happening in Washington, please sign up for my electronic newsletter, The Schock Report, at www.schock.house.gov.
Sincerely,
Aaron Schock
Member of Congress
Please do not reply to this email address. Instead, please send all e-mail messages (including replies) through the web link: Email Aaron. I cannot guarantee the integrity of the text of this letter if it was not sent to you directly from my Congressional Email Account. If you have questions about the validity of this message, please email me through my website at www.schock.house.gov or call my Washington, DC office at: 202-225-6201.
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