Barney Frank

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Of the first substantive one. If the gentleman wants me to, I would yield to the gentlewoman from North Carolina.

Mr. FRANK of Massachusetts. First, as with regards to the tragedy, of course we all come together. But the fact that we can celebrate tragedy does not mean that we put aside, in a democratic body, our legitimate differences. This is not simply a small mistake, but it is a small mistake in a bill that is about as partisan as it gets. To make a plea for bipartisanship with this excessively partisan bill that is being put through in such a procedurally inappropriate fashion with major concerns about every aspect of the Federal Government, given 10 minutes of debate at 9 o'clock and 10 o'clock at night to be voted on, no, that's a mistake. Secondly, as the gentleman from New Jersey and I have pointed out, it is not simply that a mistake was made, but it's a mistake that would easily have been caught earlier if people had read the bill. And I stress this because when we did some of the other legislation-- financial reform, health care--there was constant repetition of the argument on the Republican side ``You haven't read the bill. Nobody's read the bill.'' Well, you haven't read this bill, apparently, Mr. Speaker. At least not very many people have read it. And blaming the staff, I never like to do that, because the staff prepares things, but Members sign off on it. So, yes, we will proceed to this debate, but we are talking here about an indication, an overly broad bill given too little time for consideration. People on the other side--Members, apparently, didn't read it. And that is not a small point. It is symptomatic of where we are. I will yield briefly to my friend from New Jersey.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Madam Chair, this is an example of the Republican majority's taste for legislative exotica. We have a very strange bill that no one expects to go anywhere. They do expect to make some people happy by pretending that they're going to be making oil here. This is in lieu of real legislation. This is the group that could not have this House pass a transportation bill. The House passed the transportation bill by a legislative maneuver of the kind they used to denounce. It was made part of an overall omnibus package. There was never any chance to amend it, and it came out of a conference committee. This is a group that can't pass an agriculture bill. We face problems in the agricultural area; and because they are so split over what to do, that committee's brought out a bill, and it's not coming forward. They are unable to do the regular legislative business, so we get this. Now, what this says is that no rules that have been promulgated of any significance are going to be going forward. I will not debate the gentleman from Oklahoma about haze. I am no expert about it. But that's the problem. This is not a bill that deals with rules in one area and one area of expertise. It does everything. So let me talk about one area I am familiar with. The gentleman from Oklahoma says we're saying that you need a Federal regulator looking over the shoulders of every American. No, not every American; but I'm close to thinking of every American who runs a large financial institution, yeah. Of the people who lied about Libor, of the people at Capitol One who cheated consumers. Now, I am glad we have a consumer bureau that stepped in to protect the Americans there. It's not every American who's corrupt; it is too many in the financial area. We passed financial reform. I know some of the Republicans don't like it. I read in the paper today, well, Mr. Romney says he's going to repeal it, but the House Republicans say, oh, no, we can't. So instead of repealing it in a head-on way or amending it in a head-on way, they want to stop the rules. What this bill would do, if it ever became law, would be to say ``no'' to the Volcker rule. No, let's not differentiate as to what kind of activities are legitimate for a bank to do or not. If an American bank that's got deposit insurance wants to speculate and lose billions of dollars in derivative trades, let them be. This bill will stop us in a number of other areas with regard to derivatives, speculation where we want to put limits on what the nonusers of oil can buy so we can drive up the price. The notion that the American people are crying out for an end to regulation is not congruent with anything I have read or heard about the financial area. And I am on the Financial Services Committee. I've worked on that. This bill would fully apply here. It would prevent us from going forward with any of the pending rules in the financial reform bill. Now, they've taken awhile. They're complicated. Many of them are done. Most of them will be done soon. This is an effort to re- deregulate derivatives, re-deregulate financial irresponsibility without standing up and saying so.

Mr. FRANK of Massachusetts. I thank the gentleman. This is an effort to do re-deregulation by stealth. If they don't want to regulate derivatives, if they think speculation's a good thing, then let's bring up a bill. After all, this isn't the agriculture bill. You don't have to be afraid of splitting your membership by trying to do it. This ought to be straightforward. Instead, they want to do it by stealth. They want to end our effort to bring regulation to the financial industry. And, yes, I would say to the gentleman from Oklahoma, when it comes to the people who have been running the large financial institutions, we do need more regulation, not less; and I believe the American people understand that and do not want to see the people who brought this terrible recession of 2008 from that financial irresponsibility set free of any restraint.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. I rise in opposition, Madam Chair.

Mr. FRANK of Massachusetts. Madam Chair, I yield myself 3 minutes. This is an effort to exempt companies under $250 million. Now the JOBS Act, which was recently passed with broad support, said that a start-up company for its first 5 years would be exempt from this. This now would do away with that 5-year restriction without having had the kind of committee consideration that it seems to me it ought to have. It does it in this way, and I differ with my colleague from Pennsylvania when he says that it doesn't change the law. If it didn't change the law, they wouldn't offer it. He's not up here at 9 p.m. just to get exercise. It changes the law in a very significant way and sets a very bad precedent. The underlying legislation to which this would be an amendment requires a cost-benefit analysis. This cooks the books. This is not content to let it be an unbiased cost-benefit analysis; but it says, it instructs the SEC to take into account the heavy burdens--and let me get the exact words--the large burden of such regulation. In other words, it's an effort to tip the scales of the very cost-benefit analysis. And we know that, by the way, as to intent because the original version of this amendment was just a straight exemption of 250. But for parliamentary reasons, because that's not this committee's jurisdiction, it had to be redone. So if the gentleman really wanted to just exempt everybody under 250 from Sarbanes Oxley forever, as opposed to a 5-year exemption for a start-up, he had to amend it. So he amended it in a way, as I said, that unfortunately impugns the integrity of the cost-benefit analysis because it puts a thumb on the scales. It says, oh, the cost-benefit analysis here should take into account the large burden. Well, it is already supposed to do it. Adding this is an instruction to the SEC essentially to find that they should be exempt. We have had a rash of Chinese companies buying small American companies and converting them and people investing in them and getting taken. And the problem is that Chinese accounting is very opaque. What this bill would do is to prevent the United States authorities from applying Sarbanes Oxley to protect those investors. I don't doubt that there is a very good company--I agree there is a very good company in his district, although he says it is above the limit. But you can't legislate for just one good company. This is part of this nostalgia for a time when we had no regulation. Sarbanes Oxley has improved the integrity of our capital markets. It has improved the confidence of investors. We did exempt small start- ups, so for the first 5 years as a start-up, up to $250 million, they didn't have to do this. This says, in effect, by instructing the SEC to find that the cost outweighs the benefit no matter what, this gives a permanent exemption de facto for companies up to 250, which would include people who might be scamming, in the case of the Chinese companies. And as I said, it sets a bad precedent. If we are going to have cost-benefit analysis, and I think that can be overdone, let's have it in an honest and open way. Let's not put the thumb in the scales, as this does, by instructing the SEC, in effect, to find that the cost always outweighs it. I reserve the balance of my time.

Mr. FRANK of Massachusetts. I guess I am in a position of being disagreeable to some of my friends on the committee. The gentleman from Tennessee cited the company that's about to go public, but they're already exempted. The jobs bill that we passed and was signed into law exempts start- ups for the first 5 years until they go public, so this has no relevance to the start-ups. It has relevance to companies that have been in existence for more than 5 years as public companies. Again, we have got an exemption already for the first 5 years. And it says, in effect, don't give us this unbiased cost-benefit analysis. We'll tell you what cost-benefit analysis does. And as to IPOs, I will insert into the Record an article by Mr. Davidoff in the The New York Times talking about the advantages we have in IPOs these days; how the soccer team from England came here to do an IPO because our corporate governance laws are more favorable to them in allowing different classes of stock. I'm sorry to see this continuing repudiation of the legacy of George W. Bush. I know he's not going to come to the convention. But, gee, everything's being torn down. George Bush signed Sarbanes Oxley. Oxley, by the way, is Mike Oxley, my predecessor as chairman of our committee. George Bush was very proud of Sarbanes Oxley. It's an accounting requirement, and what this does is to take another chunk out of that regulation. Now, maybe we hear different people. My friends say the American people are crying out for an end of regulation. Every indication I have of public opinion is that people are tired of irresponsibility by a few, not everybody, but they are tired of people being scammed. And, in fact, the notion that what we need in the financial area is less regulation is an odd one. It comes from people, I guess, who just slept through the last few years, didn't see the crisis we had because Sarbanes Oxley, of course, itself came about after Enron. So I would align myself with President Bush. I think he got this one right. I think Mike Oxley got this one right. Yes, for start-ups and for people about to go public, they have a $250 million exemption. But to give a permanent exemption to companies at $250 million and above is a mistake. And don't, please, start monkeying with cost-benefit analysis. I yield back the balance of my time. [From the New York Times, July 10, 2012] In Manchester United's I.P.O., a Preference for American Rules (By Steven M. Davidoff) Manchester United, the English soccer team with an adoring fan base in Europe and Asia, is filing to go public in the United States. But the initial public offering is not a reflection of Americans' increasing love of soccer. Instead, it is a reflection of American regulators' light touch. I'm not kidding. The United States, which has long been criticized for its harsh rules surrounding I.P.O.'s, is now the place where foreign companies go to avoid regulation. Manchester United may be the world's most popular soccer club, with 659 million fans according to the team's own estimates. In 2005, the American businessman Malcolm Glazer and his family bought control of the team, loading it up with hundreds of millions of dollars in debt. Now, the company is selling shares to raise money and reduce its debt, which stands at about $655 million. But the Glazers do not want to give up voting control since, among other reasons, Manchester United fans appear eager to buy back the team from the still-unpopular family. In 2010, a prominent group of Manchester United fans were said to have tried to form a consortium to repurchase the club. The Glazers have uniformly given the same response: the team is not for sale. Now, the Glazers are venue-shopping for their stock. They passed over the Hong Kong Stock Exchange because it would not give the team a waiver to allow two classes of shares, with different voting rights. The London Stock Exchange also does not allow such share structures, perhaps the reason this natural home was skipped over by the Glazers. Manchester United declined to comment for this article. The Singapore Exchange seemed more amenable to the Glazers' plan to list Manchester United and keep control through a dual-class structure. But after the exchange delayed final signoff on the dual-class shares and the Asian markets cooled, the Singapore plans were derailed, according to an article in Reuters. The soccer team has recently found a home for its stock in the United States. Manchester United filed the papers this month for its initial public offering on the New York Stock Exchange, and the Glazers are taking advantage of the country's willingness to be more flexible when it comes to shareholder rights. Manchester United is proposing a corporate structure that would give the Glazers shares with 10 votes apiece. Public investors would receive one vote for each share. While the Securities and Exchange Commission tried to ban this type of dual-class voting stock in the 1980s, a federal appeals court struck down the rules. Since then, the structure has become increasingly common. Facebook, LinkedIn and Google all have dual-class shares. The New York Times also has a dual-class voting structure. In 2011, 28 offerings featured dual-class structures that gave greater voting rights to certain shareholders, according to the research firm Dealogic. The Manchester United offering is a case study in how the American markets have evolved toward deregulation in the past decade. The company is a beneficiary of the newly enacted Jumpstart Our Business Start-Ups Act, known as the JOBS Act, designed to help private companies raise capital and go public. Although the team was founded in 1878, the JOBS Act classifies Manchester United as an emerging growth company since it has less than $1 billion in revenue. As such, the company, which is incorporated in the Cayman Islands, does not face the same hurdles as American businesses. The JOBS Act builds on earlier efforts by the S.E.C. to loosen the rules governing I.P.O.'s of foreign companies. Under pressure from stock exchanges and other market players, the agency has exempted foreign issuers like Manchester United from large parts of American securities laws. Manchester United will not need to file quarterly reports, report material events, file proxy statements or disclose extensive compensation information, all of which American companies must do. Under a different S.E.C. rule adopted in 2008, Manchester United also does not need to report financials under the generally accepted accounting principles used in the United States, but can instead rely on international financial reporting standards. Because Manchester United will be a controlled company, it does not need to follow the New York Stock Exchange rules adopted in 2003 that require a public company to have a board composed mainly of independent directors. The board of Manchester United will have four directors, two of Malcolm Glazer's sons and two executives of the company. The legal environment, which investment bankers and lawyers have long argued deterred I.P.O.'s, also appears to be more conducive. This may be because securities litigation reforms put in place by Congress and the Supreme Court have meant fewer cases in recent years. Even after the financial crisis, only 16 companies on the Standard & Poor's 500 were subject to this type of litigation in 2011, the lowest number since 2000, according to the Stanford Securities Class Action Clearinghouse. It's all a bit unsettling. After the enactment of the Sarbanes-Oxley Act in 2002, critics claimed that the new regulation was driving away foreign companies, although at least one academic study rebutted this claim. But as regulators have slowly loosened the rules, the American markets are attracting foreign issuers seeking watered-down rules. This does not mean that this deregulation is wrongheaded. The JOBS Act and other initiatives may not have been designed to attract the likes of Manchester United, but such I.P.O.'s do provide work for investment bankers, lawyers and the exchanges. They also build up American prestige by bringing well-known foreign companies to the United States. At the same time, the deregulation effort means lower compliance costs for businesses. Presumably, that extra money can be invested, bolstering the economy. The question is whether deregulation is worth the price. I have little sympathy for investors who buy Manchester United shares. The risks are mainly disclosed. The bigger question is whether lowering the bar for foreign issuers will come back to haunt the American markets. Even before the JOBS Act, Chinese companies took advantage of new S.E.C. rules and started going public en masse in the United States. While some of the I.P.O.'s have worked out, there are now more than 100 newly public Chinese companies facing accusations of fraud by either investors or regulators. The risk is that American exchanges will become more like London's Alternative Investment Market, a lightly regulated stock exchange that has fostered some spectacular flops. If so, investors may lose faith in American markets, and the United States may end up sacrificing long-term stature for short-term gain. Either way, the next time someone calls the American markets overregulated, you might want to point them to the Manchester United I.P.O.--and remind them that the English soccer club came to the United States to avoid more burdensome foreign rules. This post has been revised to reflect the following correction: Correction: July 12, 2012. The Deal Professor column on Wednesday, about the soccer team Manchester United's public offering in the United States, misstated the year that the Sarbanes-Oxley Act was enacted. It was 2002, not 2001.

Mr. FRANK of Massachusetts. Madam Chair, I demand a recorded vote.

Mr. FRANK of Massachusetts. I thank the gentleman for yielding. The gentleman says the SEC wasn't on the Madoff thing for many years. That's true. I have to say that, while I supported the Bush administration on Sarbanes Oxley, I am critical of their administration of the SEC. For almost all of that time, we had an SEC that was not inclined to enforce. And I do not think the current SEC, under a very good chairman, Mary Schapiro, with a much more vigorous approach ought to be taxed for the failures that were ideologically driven by the previous SEC. So I don't think it is valid to say, well, because they didn't catch Madoff--the SEC during the Bush administration reflected an unfortunate philosophy of non-regulation, of ceding to the company more autonomy than they should have, and it is not a good basis on which to legislate going forward. I thank the gentleman for yielding.

Mr. FRANK of Massachusetts. First of all, a large percentage of the people in this room would be too; but, secondly, the fact is that the gentleman from Florida is who started pointing fingers. When I talked about who was in charge of the SEC, all of a sudden he is above any criticism. But he's the one who impugned the SEC. He's the one who said that the SEC sat and did nothing under Madoff. So, if you're going to accuse the agency, then it becomes relevant as to who was running it. I didn't raise the issue of who was to blame and who was at fault. I was simply responding to my committee colleague from Florida. I thank the gentleman.

Mr. FRANK of Massachusetts. Madam Chair, I rise to oppose the amendment.

Mr. FRANK of Massachusetts. Madam Chair, I yield myself 2 minutes. I understand that the banks in America don't like this because they would like to continue to be a place where people can come from other countries or send their money from other countries and not have it reported back home. The problem is that in America, we suffer a much greater loss right now from Americans who evade their taxes. Most Americans don't. But taxes being parked in the Cayman Islands, which was just mentioned and elsewhere, are a problem. We passed in 2010 a bill to try and get money owed to the United States paid to the United States. That requires the cooperation of other governments. Members are aware of the negotiations with Switzerland and other tax havens. What this says is: we the United States want you to help us collect taxes owed to us, but we won't do the same. It is the tax evaders' bill of rights. The gentleman from Florida says they're law abiding citizens. Most of them probably are. How does he know they all are? Why do people in the Cayman Islands want to put money in American banks? Maybe they are perfectly good reasons. Maybe they want to come visit their money some day. The fact is that people who send money to other countries include people who evade taxes. What this says to the United States is we basically are going to have to abandon the effort to collect taxes owed to us in foreign countries because we are telling the foreign countries we will not cooperate with them. We have tax treaties that we're pursuing. This basically aborts that. Americans who want to send their money elsewhere and not pay taxes, they like this idea. With regard to the American banks, people have said they'll send their money elsewhere. The notion that we should compete in a race to the bottom, the notion that we should match other countries in an absence of rules is a philosophy that gets us in trouble. I believe that if we work hard, we will get a number of countries that will work with us on this. That's the essential point. If Members favor a vigorous effort by the United States Government to recover taxes owed to us from elsewhere, they should reject this amendment. I reserve the balance of my time.

Mr. FRANK of Massachusetts. I yield myself the balance of my time.

Mr. FRANK of Massachusetts. In fact, we suffer more from taxes evaded in the U.S., I believe, than the money we have here. The point, however, is--and I will submit the comments from the Department of the Treasury--we will not be sending this to countries with which we don't have a tax treaty. There are strong statutory and regulatory requirements that prevent this information from being sent to countries that abuse it. Maybe Members think that's not strong enough. If the gentleman from Florida would like to submit legislation to strengthen those statutory requirements to make it clear that some countries qualify and some don't--for example, I'm informed Venezuela today would not qualify for obvious reasons, because of the brutal, corrupt nature of that government. So the question is, because some governments would abuse it, should we protect every tax evader who wants to use the United States as a haven from having their money reported, at the price of not getting cooperation ourselves? That doesn't mean everybody puts their money here as a tax evader. If you're not a tax evader, then there's no problem with having this reported. As far as the Pentagon being hacked, yeah, people have been hacked. If the IRS was going to be hacked, a lot more would have happened. The fact is that the security of tax returns in America is one of the best things about our government. Administrations of both parties from time immemorial have protected the security of tax returns. We have a very good record as a government. We shouldn't just denigrate it with no basis in protecting the integrity of tax returns. People have filed tax returns and have had great privacy in them. This is the central point, because some of the banks would like to get this money and not care whether people are tax evaders or not. The gentleman says we can do it case by case. That's an impossible task, case by case to decide. Then the IRS becomes more intrusive. Do you want to do a frisk of each individual to decide whether he or she has his returns done? Case by case is the way you destroy privacy. Here's the fundamental point. We are making efforts to collect taxes owed to us by people who have hidden the money elsewhere, and we know that's been a problem. This would make it impossible to do that with any efficiency. As I said, there are very clear statements of policy against sending this information to Venezuela, against sending it to other places where it wouldn't be secure. This is the question: Are we going to allow American standards, in trying to impose taxes that are legitimately owed here, to be eroded by other countries? The gentleman mentioned the Cayman Islands. I don't want the Cayman Islands to set the standard for American tax collection. The gentleman mentioned that the Cayman Islanders are sending money here. I don't want the Cayman Islanders and their desire to get shelter to be setting the standard for American tax collection practices, for the need of America to do the right thing. Those people who are lawfully investing money will not be frightened by this, and America's ability to get taxes owed to us would be destroyed by this amendment.

Mr. FRANK of Massachusetts. Madam Chair, I demand a recorded vote.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, working with then Senator Chris Dodd on financial reform and other matters from 2007 through 2010, was very rewarding. Senator Dodd's leadership in the Senate in getting a tough, complex regulatory bill past the Senate filibuster, was an extraordinarily impressive achievement. While he has moved on from Congress, Chris Dodd continues to defend the important reforms Congress adopted 2 years ago, and in yesterday's Politico, he wrote an important article that refutes the criticism of the bill that comes from a number of sources, primarily those financial industry leaders who behaved irresponsibly and resent the fact that they have diminished opportunities to do so. Because this debate now goes on with people trying to roll back their efforts to provide some stability in our financial system, I ask that Chris Dodd's article be printed here. [From POLITICO, July 22, 2012] Why Dodd-Frank is Necessary (By Former Sen. Chris Dodd) Wall Street received a long overdue regulatory overhaul two years ago that fundamentally changed the way the financial sector operates and can finally provide the American people with a more secure financial sector. At the time, I knew that these reforms we devised in Congress would not be popular with those who either had a vested interest in seeing them overturned or believed that a repeal of Dodd-Frank is good politics. The Wall Street Reform and Consumer Protection Act passed two years ago last Saturday, overcoming many efforts to kill it. Opponents have since spent millions to stall implementation of new financial rules--while attempting to build support for repeal. Yet 73 percent of Americans support strong oversight of Wall Street and this law's provisions, according to recent polling by Lake Research Partners. And for good reason. Consider the recent revelations that one bank has admitted and others are being investigated for manipulating Libor, the interbank loan rate. Another bank suffered a $6 billion trading loss because of bad actors. These misdeeds and more are making the strongest case for implementing Dodd-Frank. Opponents of this law will likely continue their efforts to weaken our work. But supporters of these financial reforms must continue to explain why these changes are a vital part of long-term U.S. economic security. Critics largely forget that U.S. tax dollars rescued the economy from the brink of collapse in 2008. Putting basic rules in place to prevent a crisis of this magnitude from being repeated was not only responsible--it was essential. Rep. Barney Frank (D-Mass.) and I worked with both Democrats and Republicans for two years to craft a bill to do just that--using a transparent process to update our financial system for the first time since the 1930s. This was a fundamental transformation of our regulatory structure, allowing regulators to keep pace with the 21st century's global financial marketplace. The pace of implementation has been slow because the complexities of these problems required careful consideration. I've always believed that a thoughtful approach is needed to ensure these issues are adequately studied and new rules are implemented correctly. Though it's important that these new regulations be implemented soon, it's far more important that these regulations get it right. The law that Frank and I--and many other members of Congress--completed two years ago is having a significant effect, providing critical benefits to U.S. consumers. For decades, regulators focused exclusively on protecting the safety and soundness of the financial system--not consumers. We created a new watchdog--the Consumer Financial Protection Bureau--whose sole focus is to protect consumers from abusive and deceptive financial practices. Its work is under way with the creation of consumer- friendly mortgage forms and credit card agreements that force lenders to give borrowers a clear and accurate description of their loan terms. The bureau also has the power to crack down on deceptive practices--as revealed last week in the settlement with Capital One, which must send refunds to nearly two million customers. Solutions like this, unimaginable two years ago, are forcing financial institutions to rethink some products they offer and adopt new consumer-friendly practices. We also established requirements for banks to maintain higher capital levels to better absorb unexpected losses. Those running financial institutions are required to be far more knowledgeable about their firm's everyday dealings. Regulatory agencies must now communicate in real time with one another and watch for problems ahead. Dodd-Frank also prohibits the Federal Reserve from bailing out failing firms and brings more accountability to the $600 trillion derivatives market. The bill we passed is by no means perfect. But reversing course now can only weaken the economy and bring back the reckless days of lax regulations--or no regulations--and abusive practices that nearly destroyed the economy. Our time and energy would be better spent working together to strengthen this law and improve the work we started-- responsibly implementing an effective regulatory structure that puts the best interests of the American people above all else. Chris Dodd, a Democrat who represented Connecticut in the Senate for 30 years, is a co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act. He retired in 2011 and is now chairman and CEO of the Motion Picture Association of America.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. No. I reclaim my time and say we should do none of them. I was saying I have a consistent position. I don't think we should do any of them. What I'm saying is, people who get up there and beat their chest about how tough they are and they're not afraid of the Federal Reserve but exempt it from the great rulemaking bill, and subject the Consumer Bureau--that terrible threat to the well-being of Americans--to the appropriations process, but let the Federal Reserve, which spends about 150 times as much, go free--I am inclined to doubt their seriousness. Not their purity, that would be a violation of the rules, but their seriousness. This is a way to shake your fist at that big, bad Fed. And it's not a good way. We hear a lot about uncertainty. Remember, the Federal Reserve is now subject to a complete openness about all of its transactions with private companies. We did that last year. The gentleman from Texas had a major role in that. When the Federal Reserve deals with any other institution, we know what it does. We don't know it necessarily the same day. There were these predictions about what terrible things were going to happen when the Federal Reserve did this and that. They haven't come true. Maybe they will some day, but we will know it. This makes this exception: it says that we will audit the decisions about monetary policy. It says that members who vote on what the interest rate should be will now be audited. They will be subject to being quizzed about why they did that. Now, I will tell my Democratic friends, understand that one part of this problem is the objection on the part of the Republican Party to the fact that our Federal Reserve, unusual among central banks, has a dual mandate. They are charged under our statute to be concerned about inflation and about unemployment. Now, the Republicans have an agenda they're keeping on low key until next year. They have a bill, but they won't act on it yet. But they would like to strip that part of the mandate. They would like the Federal Reserve to be only involved in inflation. They don't like the notion that the Federal Reserve deals with unemployment, and this is a way that, if it were ever to become law, and no one thinks it will-- this is a, Look how tough we are. We are going to wave our fists at the Fed. But it would be a way to kind of put pressure on members of the Open Market Committee and see, were you worried about unemployment when you did this? That's the audit. This has nothing to do with how they spend their money. It has nothing to do with whom they contract. That is what people usually think about an audit. It doesn't have anything to do with whether they are efficient or not. It is an ideological agenda by a group of people who didn't like what the Federal Reserve was doing--under, by the way, George Bush, there was reference to the bailouts, which were, of course, under the Bush administration. One of the things that we did, by the way, in our bill 2 years ago--and all my Republican colleagues voted against the bill-- was to take away from the Federal Reserve the power they used--under President Bush--to give/lend $85 billion to AIG. We rescinded that. I don't think Mr. Bernanke, a Bush appointee, was doing the wrong thing necessarily, but we took back that power. So this is partly a show because on the two serious efforts to curtail the Fed's powers, my Republican colleagues aren't there. But secondly--and as I said, I'm consistent--I don't think that we should do any of these things. I think what we did with regard to openness makes sense. I'm not pretending to be tough when I'm not.

Mr. FRANK of Massachusetts. Mr. Speaker, I think this is a bad idea, and I am somewhat confused. By the way, we will be debating tomorrow a bill which restricts rulemaking, and it exempts the Federal Reserve, as I read it. So we're kind of on again/off again about the Federal Reserve. It seems to me what we're talking about is taking some fake punches at the Federal Reserve but not doing anything serious. My Republican colleagues brought up a reconciliation bill that was going to subject the Consumer Bureau to appropriations. So I offered an amendment to subject the Federal Reserve to appropriations. That was voted down. So we're not going to restrict their rulemaking. We're not going to subject them to appropriations, even though that's being done elsewhere. We're going to audit them, which is a way to look tough without really being tough.

Mr. FRANK of Massachusetts. I yield to the gentleman from California.

Mr. FRANK of Massachusetts. But what it will do is destabilize. We have worries about expectations. There is a fear that we will be too inflationary or that we won't grow enough. People on Wall Street are not as sophisticated as some people think. I don't mean they're not sophisticated about their own business, as we know, but they will read this and take it more seriously than the Members here do who think it might eventually become law, and it will destabilize some of the financial system. They will see it as political interference not with the contracting procedures, not with the budget, not with how many cars they have, but with how they decide on interest rates. And the perception that the Congress is going to politicize the way in which interest rates are set will in itself have a destabilizing effect. And as I said, nobody here thinks this will ever become law. But there is this fear on the part of others who don't know that that will translate into precisely the kind of uncertainty, precisely the kind of unsettling on investments that my Republican colleagues pretend to fear, and it will also send them the message, stop worrying about unemployment.

Mr. FRANK of Massachusetts. Mr. Speaker, to illustrate the misconceptions about this bill, let's refer to what the gentleman from Utah (Mr. Chaffetz) had to say. He said 76 percent of the purchasers of this and that. Well, if they were so nontransparent, I don't know how he would know that. He didn't have a subpoena. But the fact is, yes, he knows that because of the transparency we've already built in. But all the more important, the details, the specifics of every one of those transactions are already public. This isn't about those transactions or about with whom they were done and under what time period. It's about the motives of the people setting monetary policy. And let me address the Constitution. Yes, it is true that the Constitution gives us the power to do this. The Constitution gives us a lot of power. It gives us power to declare war on Canada. It gives us the power to do a lot of things. Wise people pick and choose which powers they use. But this is not about getting more information about their transactions. All of that is out there. This is an effort to give politicians, a wonderful group of people of which I am one, more direct involvement in the actual decisions on setting of interest rates than is good for the economy.

Mr. FRANK of Massachusetts. Mr. Speaker, I'm glad that the Committee on Government and Oversight isn't the official House historian. In fact, there was a motion to include language like this offered to the financial reform bill. I voted ``no,'' as did Mr. Watt. It was included in the bill. It's true, I voted for the bill. Of course, the gentleman from Texas voted against the bill. So if your vote on the whole bill is taken as an account of what you feel, he was against it. But when it went to conference, it was not in the Senate bill--which was the text of the conference--so it did not come up, and no Republican conferee offered it as an amendment. That is, in the conference, that language which I and the gentleman from North Carolina voted against was not offered by any Member of the conference, Democrat or Republican.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the last word.

Mr. FRANK of Massachusetts. Mr. Chairman, I am very pleased to join my colleague from South Carolina in an effort to make a small reduction in the Appropriations Committee's recommendation. Our colleague from New Jersey is right, the Constitution gives this power to the Congress, not to the Appropriations Committee, to the entire Congress. The cuts that are being talked about consist, in the numbers--that I have seen in light of the chairman of the Armed Services Committee--are entirely due to the fact that we have had a drawdown of the troops in Iraq. Now I shouldn't stop at the fact that we did reduce the money we're spending in Iraq, because that's the problem with this budget. Yes, we have threats. The problem with this budget is it is dealing with the current threats, and it's dealing with past threats. This budget fully funds a capacity to win a thermonuclear war with the Soviet Union. I do not think that's a significant threat today. This continues the commitment made courageously by Harry Truman in a bipartisan way to defend Western and Central Europe against Stalin and his hordes because we went into Europe 65 years ago when the Communists were menacing and the European nations were weak, and we said we will protect you. We are still doing that. They're not weak, and they're not threatened; but we are still protecting them. Look at the budgets as a percentage of gross domestic product from all of those wealthy nations in Western Europe. They are less than half of ours. On the other hand, the French are now contemplating reducing the retirement age for certain people who worked a certain amount of years, the official retirement age, from 62 to 60, while we're being told we may have to raise ours. How come the French can do that? Very simple: we've picked up their tab. Yes, there are problems with China, there are problems with Iran, there are problems with North Korea. Tens of thousands of troops in Western Europe have got nothing to do with that. Yes, we should have a nuclear capacity and the submarines and the airplanes are important, but we've got three ways to destroy the Soviet Union, which no longer exists, and it's replaced by a much weaker Russia. Couldn't we say to the Pentagon--and I know there is a great reluctance here to appear to be anything but totally deferential to them--couldn't we say to them, you've got three ways to win a thermonuclear war with the Soviet Union. Could you pick two and save much less than this $1 billion. There is also the question of the culture. The general response of this Agency when an agency is inefficient is to crack down. When the Pentagon is inefficient, the money keeps going. I am told there are cuts. It was my understanding this budget, the base budget, leaving aside the war in Iraq, which has wound down, is larger than it's ever been. No, these are cuts from what the Pentagon was supposed to have. Let's understand also this has now become a zero-sum game. Unless you are prepared to ignore the deficit problem, every dollar you put into the Pentagon over and above what I believe is needed is coming from somewhere. I don't know how Members can go to people who are on Medicare and explain to them that there are going to be these cutbacks, or to tell people on Social Security who have been doing physical labor all of their lives not to work another year or two, and then put money in the Defense budget that is not necessary. We are told that, well, we have to be able to protect ourselves. Against whom do we need it all? One of the things, we are told we need more ships because we have got to protect the shipping lanes between here and China. These are, of course, shipping lanes on which the Chinese make an enormous amount of money. The notion that the Chinese plan to shut down the shipping lanes, which are the basis for their enormous surplus of trade with America, seems to me somewhat skeptical; but we still have a greater defense than the Chinese. I noted that the Chinese recently launched an aircraft carrier, their first one. They bought it, I believe, from the Ukraine and outfitted it with model airplanes so they can learn how to do it. Now, I don't deny that there are some threats there. The question is not whether or not we should be the strongest Nation in the world. Of course we should be, and we are. The question is by how many multiples do we need to be stronger than any combination of enemies. My only reluctance on this amendment is I'm embarrassed by the fact that it's only a billion, but I think the gentleman from South Carolina made a correct decision. Members will have their choices. If there is any seriousness about deficit reduction across the board in this House, this amendment will pass. I yield back the balance of my time.

Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the requisite number of words.