Scott Garrett

Mr. GARRETT

Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 2779) to exempt inter-affiliate swaps from certain regulatory requirements put in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended.

Mr. GARRETT

Mr. GARRETT. I yield myself 3 minutes. Mr. Speaker, this bipartisan bill would do what? It would provide a clear exemption from margin requirements, margin requirements imposed by the Dodd-Frank Act on where? On swap transactions for so-called end- users who use derivatives to hedge their business risks and whose swap transactions really do not pose a systemic risk to the financial system. Following the really late night of the Dodd-Frank conference committee deliberations, numerous assurances were made that margin would not be required on end-users' transactions. Now, these assurances were subsequently followed up by formal letters and colloquies by the very same architects of the bill themselves. Everyone was told that Congress clearly intended for the language to exempt end-users from the bill's margin requirements. Unfortunately, the regulators have interpreted it a different way, and they have interpreted Dodd-Frank's somewhat rushed language as not providing a clear exemption for these end-users. Representative Grimm's bill here today finally provides American businesses with the certainty that they need to use derivatives to hedge against business risk. End-users, you know, were not the cause of the financial crisis; and by any measure whatsoever, end-users are not systemically significant. Who are these end-users that we're talking about here? Well, they are the Main Street businesses from all over the country that represent all types of industries that rely on the use of derivatives to responsibly hedge their own business risk, and so they should not be and were not ever considered under the same umbrella, if you will, of regulations as banks are that are subject to posting margins on their swap transactions. In requiring end-users to be subject to a mandatory margin requirement, what it basically does is force commercial entities to act like banks. So, without a margin exemption, the cost of hedging for these would rise dramatically, and that would needlessly tie up working capital that otherwise could and should be used to expand business investments, build factories, or create jobs. So I conclude on this. It is critical that we provide U.S. Main Street businesses across this country with this important certainty, with this clarity. I urge my colleagues on both sides of the aisle to support this bipartisan bill. I reserve the balance of my time.

Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 2682) to provide end user exemptions from certain provisions of the Commodity Exchange Act and the Securities Exchange Act of 1934, and for other purposes, as amended.

Mr. GARRETT

Mr. GARRETT. I thank the Chair and I thank the gentleman from Texas as well. I also rise to express support for the JOBS Act today. I strongly believe that the JOBS Act will ease the burden of capital formation on the entrepreneurial growth companies that have traditionally served as the U.S. economy's primary job creators and provide a larger pool of investors with access to information and investment options on these companies that currently doesn't exist. With venture capital fundraising basically stagnant and the IPO market largely closed off, innovative start-up companies who can't have access to the capital market they need have been forced literally to delay research on promising medical and scientific and technological breakthroughs, and that has hurt our economy and our global competitiveness because emerging companies need capital. Developing medical cures to help people live longer and healthier and more productive lives needs capital; developing technology to improve the speed of communication needs capital; and developing alternative energy technologies to reduce our dependence on foreign sources requires capital. With the passage of this bill, we will provide those companies with the innovation and creativity needed in the marketplace which is essential to keeping American companies competitive with a cost- effective means to access that capital and keep this country at the forefront of medical, scientific, and technological breakthroughs. Economic growth occurs when companies go public. Just recently I met with the New Jersey Technology Council, and they stressed the importance of removing the regulatory burdens of bringing companies they invest in to market. And the JOBS bill does that. It restores that innovation for early-stage investors to provide the capital that America's entrepreneurs need. So we do this by chipping away at the albatross of regulations that have strangled and held back the IPO market since the passage of the Sarbanes-Oxley law. This bill provides America's entrepreneurs with access to the capital that they need to basically go after and seek their dreams. It provides the venture capital investors with the exit strategy they need to help make their dreams a reality and create a welcoming environment. With that, I believe the JOBS Act is a commonsense bill, and I will support the legislation before us.

Mr. GARRETT. I thank the chairman. As we indicate, the President supports the underlying legislation and the gentleman indicated that he may be looking for some amendments to the bill, but I would assume quite candidly he would not be looking for this amendment. As the gentleman from Arizona aptly points out, what we're trying to do is to facilitate the expansion and growth by the small companies. How do we do that? As the gentleman from Arizona says rightfully so, by the expansion of information. This information can and should get out there; but at the end of the day, we want to make sure that the liability that is imposed on the dissemination of information is not so grave and dangerous to it that you would basically supplement with an overarching desire to destroy that overall purpose of the legislation. You do that unfortunately with this amendment. Why so? At the end of the day, you will get the same protections that you're looking for here, I think, in the sense that there will be strict liability imposed. Where? On the prospectus. So if you are the investor in this instance and you're trying to decide whether you're going to go and invest in this new company or not, the information that you'll be looking for will be where? In the prospectus. And the strict liability standard will be imposed at that period of time. You do not want to impose that liability as you lead up to the situation with the other information that is going out by outside research analysts. With that, I will respectfully oppose the amendment.

Mr. GARRETT. To deal with institutions that are accredited investors. Who is it that sets the standards for accredited investors? The SEC. So if your concern is that the level of accredited investors is not sophisticated enough to deal with the purchase of these investments, then your complaint is not with this underlying legislation. Your concern should be directed to who? The entity that sets the standards for that--the SEC. This legislation basically says that these people who should be involved here are accredited, set by the SEC. They, therefore, by definition are sophisticated investors. That is why we oppose the amendment.

Mr. GARRETT. So the premise of the legislation is what? As we said before, to try to encourage the smaller growth companies to be able to development their businesses and go on and to eventually to go public. In light of the last conversation we had on the last amendment, we said how do we facilitate doing that? We do that by exchanging information out to the public to be able to share information from research analysts and the like. Eventually, as was pointed out in the last amendment, we said that eventually at the end of the day you'd get to a prospectus where strict liability would incur and so that the investor would have the adequate information to do so, and they would also have the liability protection afforded to them that you would have with a prospective. All well and good. Now we come to this amendment, and I have to scratch my head to understand exactly what the proponent of the legislation is trying to do here. Her last comment was that we want to protect who? Well, the less sophisticated investor. Okay, well, let's take a look at that. What are we dealing with here? What we're dealing with here would strike the language that would allow an emerging growth company to underwrite and communicate----

Mr. GARRETT

Mr. GARRETT. Mr. Speaker, I rise today to recognize the 65th commemoration of Taiwan's ``2 28 Massacre.'' On February 28, 1947, the brutal arrest of a female civilian in Taipei led to large-scale protests by the native Taiwanese against the repression of Chiang Kai-shek's Chinese Nationalists, who occupied Taiwan on behalf of the Allied Forces after Japan's defeat in 1945. During the following days, Chiang's government sent troops from mainland China to the island. The Chinese soldiers began capturing and executing leading Taiwanese lawyers, doctors, students, and other citizens. It is estimated that at least 18,000 people lost their lives during the turmoil. During the following four decades, the Chinese Nationalists continued to rule Taiwan under a martial law system that lasted until 1987. The 2 28 Massacre has had far-reaching implications. Over the next half-century, the Taiwanese democracy movement that grew out of the incident helped pave the way for Taiwan's momentous transformation from a dictatorship under the Chinese Nationalists to a thriving and pluralistic democracy. I urge other Members to join me in commemorating this important historical event.

Mr. GARRETT

Mr. GARRETT. Mr. Speaker, today I recognize Hardyston Township, New Jersey, in beautiful Sussex County, upon the momentous occasion of the Township's 250th anniversary. In late October, 1761, a ship traveling from Europe ended its trans- Atlantic voyage in New York. On that ship was Josiah Hardy, eldest son of Sir Charles Hardy and his wife, Elizabeth Burchett, and brother to five siblings. Just a few months earlier, Josiah had been ``appointed Captain General and Governor in Chief of His Majesty's Province of New Jersey. . . .'' Hardy would hold this position for fewer than two years, yielding his title to William Franklin in February 1763 and setting sail for England in September of that same year. While Governor Hardy's tenure was brief, it saw the formation by Royal Charter of Hardyston Township in 1762. Today, little is known of Josiah Hardy, but his name and legacy live on in the Township of Hardyston. Throughout its history, Hardyston has played a central role not only in the story of Sussex County but also in the story of America. During the Revolutionary War, General George Washington and the Continental Army camped in Hardyston. And in the Township's earliest days, the work of farmers, millers, and blacksmiths signaled the building of the nascent nation. Today, Hardyston Township residents contribute in areas ranging from finance, education, and construction to health care, entertainment, and retail services, to name just a few. The Township offers diverse recreational opportunities and is home to scenes of pristine beauty that undoubtedly mirror the beauty of Hardyston's earliest days. Additionally, Hardyston holds the distinction of being the discovery place of Hardystonite, a fluorescent mineral discovered in 1899 in the Franklin Furnace Mine. Two hundred fifty years after its formation, Hardyston Township continues to be a vibrant community that invites residents and visitors alike to enjoy all that it offers and to become a part of its ongoing history. As Hardyston Township Celebrates its 250th Anniversary, I offer my congratulations and my heartfelt wish for a future for Hardyston Township that is as bright as--and even brighter than--its rich and notable past.

Mr. GARRETT

Mr. GARRETT. Madam Chair, I would first like to thank Chairman Ryan and the Budget Committee staff for their hard work on H.R. 3581, the Budget and Accounting Transparency Act. Unless you've been living on Mars the last year, it should not come as a surprise to hear that our country is broke. However, what should surprise you is that the true extent of our country's debt crisis is a lot worse than anyone in Washington is letting on. How much worse? That's the thing, nobody knows; and we won't ever know until we reform the broken budget process in Washington, DC. As many have talked about before, our budget process is broken. Simply put, we need to make the budget process more transparent. Fortunately, today we are taking a step in the right direction with H.R. 3581, the Budget and Accounting Transparency Act of 2011. I introduced this bill in December, along with Chairman Ryan, as part of a comprehensive set of reforms to overhaul Washington's broken budget process. The bill before the House today--the Budget and Accounting Transparency Act--is a common-sense attempt to introduce more ``sunshine'' and ``common sense'' into our budget process. What would this legislation do? Specifically, this bill recognizes the budgetary impact of government-sponsored enterprises Fannie Mae and Freddie Mac by bringing these black holes of debt out from the shadows into the sunshine and on-budget. This bill also requires that the federal government apply the same credit accounting standards as the private sector when making or guaranteeing loans. In September 2008, as the country was reeling from the fallout from the financial collapse, Fannie and Freddie were placed into conservatorship by the Federal Housing Finance Agency (FHFA). Under this agreement, FHFA took control of the two companies and the Treasury Department risked hundreds of billions of taxpayer dollars to bail out the government-backed mortgage twins. To date, the American taxpayers have sunk over $183 billion and counting into these failed institutions. As if this weren't enough, Fannie and Freddie have also issued more than $1.2 trillion in debt and hold or guarantee about $5.3 trillion in mortgage-backed securities (MBS). Because Fannie and Freddie have become the explicit financial responsibility of the federal government, it only makes sense that we treat them the same as we would any other obligation of the federal government by formally bringing them on-budget. The non-partisan Congressional Budget Office took this step several years ago, but the Office of Management and Budget has resisted the change preferring to obscure the total federal exposure to Fannie Mae and Freddie Mac. It's time the Obama administration did the same. Bringing Fannie and Freddie on-budget exposes some ugly and inconvenient truths. But I know the American people did not send us here to play a shell game with taxpayer dollars. The combined debt obligation of Fannie and Freddie isn't the only black cloud hanging over us; inaccuracies and a lack of transparency in budgeting for federal credit programs also loom large. Take the case of Solyndra, for example--the poster child of government loans gone bad. As we saw with the Obama administration's $527 million ``investment'' into the solar energy company, when Washington makes a bad bet, it's the American taxpayers left holding the bag. Federal loan loan guarantees are contractual obligations between the taxpayer, private creditors and a borrower such as Solyndra. Loan guarantees are a promise by the American taxpayer that they will cover the borrower's loan in the event that the borrower defaults. If the American taxpayer is on the hook for default, shouldn't we have a better idea of the cost of the loan in the first place? Unfortunately, under current law, when the government issues a loan or loan guarantee, the inherent riskiness of that loan is not reflected in the loan or loan guarantee's cost. In fact, the non-partisan Congressional Budget Office estimates that our current federal accounting rules understate the cost of credit programs by some $55 billion a year, because the rules do not account for market risk. Why shouldn't Washington play by the same rules that every American family and business must play by when taking out a loan? The Budget and Accounting Transparency Act fixes this shortcoming by requiring market risk to be explicitly included in estimates of federal credit programs, bringing federal budgeting practices in line with what's long been standard practice in the private sector. Specifically, it requires the executive branch and Congress to use ``fair value'' accounting in calculating the costs of federal credit programs that consider not only the borrowing costs of the federal government, but also the costs of the market risk the federal government is incurring by issuing a loan or loan guarantee. Accounting for market risk is the key--your local banker does it every time you apply for a home or auto loan. The federal government should be doing the same. In fact, during the House Budget Committee's consideration of this legislation, the director of the non-partisan Congressional Budget Office stated: ``We believe that the fair-value method of accounting for federal credit transactions provides a more comprehensive measure of a [program's] true cost.'' While the Budget and Accounting Transparency Act won't prevent future presidents from making similarly risky bets, at least it will force them to be honest with the American people about the true upfront cost of their boondoggles. Lastly, the legislation before us today increases the amount and timeliness of information on agency budget requests, requiring that these budget justifications be provided to the public when they are sent to Congress. It's the people's money and they ought to know what agencies are planning to do with it. These provisions would go a long way to fixing our broken budget process and bring much-needed transparency to the way Congress functions. For too many years, Washington has played by a ``special'' set of rules. With mounting debt and lackluster job growth, it's time to force government to play by the same economic rules as every American family and business. For too long, we have not been honest with the American people about the cost of government. If we truly are committed to reversing our country's race towards bankruptcy, as we say we are, we need to be honest with ourselves and the American people about the true cost of government. Today, I say we put our words to action by bringing sunlight and transparency back into our budgeting process.

Mr. GARRETT. Madam Chairman, I yield myself such time as I may consume. The gentleman from Maryland speaks of the report of Marvin Phaup from 2008, I guess that was, and also speaks in reference to the Center on Budget and Policy Priorities. In front of me, and I'll ask, under general leave to enter this into the Record as well. Just recently, just this week, I guess, he has now issued the final report, and this report says as follows: ``This comment responds to a recent release from the''--as the gentleman's referring to--``from the Center on Budget and Policy Priorities (CBPP).'' And what does he say? ``My view is that the CBPP misrepresents our work''--that you were referring to. They misrepresent his work--``and more fundamentally incorrectly characterizes the purposes and consequences of moving to a fair value approach to credit valuation in the budget.'' One of his main points is the legislation before us would do what? It ``would remove `phantom' gains to the government from the budgetary treatment of direct lending and loan guarantee programs. These illusory gains mislead public policymakers about the costs of their policy decisions.'' What does that mean? What that means is, in the numbers that the gentleman from Maryland was talking about that are actually making more and, over time, exceeds outlay, Marvin Phaup is here saying, no, just the opposite, that this bill would address that. It would remove those gains and show it for the reality of what it is. Fair Market Values and the Budgetary Treatment of Federal Credit: Comment on CBPP's Release on H.R. 3581 (By Marvin Phaup) This Comment responds to a recent release from the Center on Budget and Policy Priorities (CBPP). The release asserts that the federal budget currently measures the cost of direct loans and loan guarantees comprehensively and that as a result the costs of cash and credit programs are directly comparable. CBPP asserts further that enacting H.R. 3581, which would require the use of fair market values in calculating the budget cost of federal loans and guarantees, would add a cost of risk that the government does not incur. Consequently, it claims, this would overstate federal costs and the budget deficit and create a bias against the use of credit programs. CBPP also refers critically to my earlier work with Deborah Lucas, showing that government credit activities are subject to the same market risk as private credit and exploring the implications of this finding for budgeting. My view is that CBPP misrepresents our work and more fundamentally incorrectly characterizes the purposes and consequences of moving to a fair value approach to credit valuation in the budget. In this note, I make the following points: H.R. 3581 would remove ``phantom'' gains to the government from the budgetary treatment of direct lending and loan guarantee programs. Those illusory gains mislead policy makers about the costs of their policy decisions. Illusory gains on federal credit also encourage budget gimmickry. For example, FCRA would permit the government to balance its budget immediately on paper by issuing large amounts of Treasury debt and using the proceeds to invest in an equally large portfolio of risky loans. This result would be absurd because in issuing a dollar of debt and buying a dollar of risky loans at market prices, the government's net financial position is unchanged. If the current practice of using the prices of Treasury securities to value risky loans rather than the market value of the risky securities themselves were extended to other assets, then the government could--with the same logic-- direct the Treasury to buy a ton of lead, value it at the price of gold, and record the gain as deficit reduction. The cost of market risk should be a budget cost because it is a cost to government stakeholders and its absorption by some yields an unrecognized subsidy to others. CBPP would include this cost in cost-benefit analyses where the purpose is to decide if a federal activity produces a net gain but not in the budget. Budgeting without an evaluation function, however, is little more than a redundant projection of Treasury's borrowing requirements. The cost of market risk should not be excluded from the budget on grounds that the money isn't paid out by the government. Both the Universal Service Fund and the United Mine Workers of America Benefit Funds are included in the budget, even though the money is untouched by federal hands. Purposes of Budgeting, Fair Value, and Cost Comparisons Budgetary costs serve several purposes, but arguably the primary one is to measure the value of public resources devoted to an activity by the government. For many activities, such as the purchase of goods and services, this purpose is well-served by a cash measurement focus and basis of accounting. The cash costs that appear in the budget for these activities are fair value costs because they are based on the market prices of the goods and services purchased (directly, or indirectly through the use of grants and transfers) by the government. When the government buys a fleet of trucks, the budgetary cost is based on the market price of the trucks. Accounting for the cost of credit on a fair value basis would similarly identify the budgetary cost of credit with its market price, thereby putting credit and non-credit activities on a conceptually level playing field. Under the Federal Credit Reform Act of 1990 (FCRA), the budget records the cost of direct loans and loan guarantees on an accrual basis. FCRA mandates that the budget record the estimated lifetime cost of a direct loan or loan guarantee when the loan is disbursed as the government's loss on the transaction. FCRA requires that for a direct loan, the government's loss is the difference between the value of the cash disbursed and the loan asset acquired, where the latter is valued as the present value of expected repayments of principal, interest and fees discounted at low-risk (Treasury) rates rather than rates applied in the market to risky cash flows. The loss on loan guarantees is calculated similarly in that the government's expected net payments to honor its commitment are also discounted as though they were Treasury bonds. The use of Treasury interest rates to value risky future cash flows means that a risky loan is assigned an FCRA budget value greater than its market value. Thus the FCRA budget cost of a federal loan or guarantee is less than the cost incurred by private lenders or guarantors. This is because people are risk-averse and require compensation--in the form of higher expected investment returns--on investments that expose them to risks that cannot be avoided by holding a diversified portfolio or buying insurance. In particular, they are averse to ``market risk,'' which is the risk that low investment returns will coincide with periods during which the overall economy is weak, and resources are the most valuable. The government effectively transfers to the public the market risk associated with its activities through the tax and transfer system. The CBPP example involving a coin toss does not illustrate this line of reasoning because it involves a risk that is easily diversifiable by both individuals and the government. Market risk also affects the price of non-financial assets purchased by the government, and those costs are reflected in the budget. For example, the cash price of a navy ship includes a return to the capital used in its production. The expected return built into the ship's price depends on the risk premium associated with ship-building. From that perspective, the CBPP characterization that the proposal will ``add a further amount to reflect private-sector risk aversion'' is misleading. It is more accurate to say that incorporating a market risk premium into FCRA estimates would make them more comparable to cash estimates, which already reflect the full market price of the associated risk. Fair value estimates of the value of federal direct loans and guarantees include the cost of market risk. Effectively, they use the same estimates of uncertain future cash flows as FCRA estimates (assuming those projections are as accurate as possible), but they use market discount rates (or ``risk- adjusted'' discount rates) in place of Treasury rates for discounting. Risk-adjusted discount rates can be represented as the sum of a Treasury rate and a risk premium. One implication of the meaning of fair value is that, contrary to CBPP's view, discounting expected cash flows (net of expected default losses) does not double count those losses. If the expected net losses are certain, then the expected cash flows are certain and the fair market value is obtained by discounting at risk-free rates. This is rare. Otherwise, net expected cash flows must be discounted at rates appropriate to the market risk of the cash flows to obtain fair market values. ``Flaws'' of the Fair Value Approach CBPP gives a list of reasons why the fair value proposal is thought to be flawed. The first is that government may be less risk averse than individuals. The authors offer several reasons why that might be the case, and point to the government's ability to borrow at low Treasury rates. Those arguments have several shortcomings: The idea that low Treasury borrowing rates are a reason for the government to be less concerned about risk neglects that Treasury rates are only low because bondholders are protected from risk by taxpayers, who must absorb the market risk associated with the government's activities. For example, when a risky loan has insufficient returns to repay the Treasury debt that notionally is used to fund it, taxes must be raised or other spending cut. Under FCRA accounting, that risk to taxpayers is treated as being free to the government. In fact, the government could be more risk averse than individuals rather than less risk averse. For example, the government may be more concerned about the risks of global warming than is reflected in market prices because it puts more weight on the welfare of future generations. In practice, adjusting budgetary costs based on conjectures about the government's preferences would undermine the discipline and transparency of the budget process. The second alleged flaw is that risk aversion is not a budgetary cost. As discussed already, a consistent basis for measuring budgetary cost is to use market prices, which are affected by risk aversion and by the preferences of people generally. Further, as noted, that government does not write checks for the market risk of direct loans and guarantees is not dispositive of the appropriate treatment of an activity. A further criticism is that the proposal does not treat all programs the same. Specifically, it raises the concern that the change would make credit programs appear more expensive to Treasury than other programs. The opposite is generally true: cash basis estimates incorporate the price of the associated market risk because they are accounted for at market prices, whereas FCRA estimates are relatively downward biased. In any case, the examples given suggest a misunderstanding of the type of risks that would be incorporated into fair value estimates. For instance, the paper notes the uncertainty associated with the future costs of many programs, including Medicare, and points out that no adjustment is made for the cost of that uncertainty. However, the same type of uncertainty exists for credit programs, and the risk adjustment associated with a fair value approach does not address those sources of uncertainty: First, future Medicare costs do not affect the current year budget deficit because those programs are budgeted for on a cash basis, not on an accrual basis. The budget enables policymakers to compare the cost of current-year spending on Medicare with the estimated lifetime cost of new current-year credit assistance. Measuring the cost of new current-year credit assistance on a fair value basis makes it more comparable to current-year Medicare expenditures, which reflect the market prices of doctor salaries, hospitals, and medical equipment. Just as with future Medicare expenditures, the volume and cost of new future-year credit assistance from ongoing programs is uncertain. However, that dimension of uncertainty does not figure into fair value calculations (or into FCRA estimates). To the contrary, a problem with FCRA accounting is that it treats different credit programs as too much the same. That is, some credit programs expose taxpayers to much more market risk than others, but FCRA accounting does not recognize those differential costs between credit programs. CBPP both endorses FCRA accrual accounting and criticizes an accounting practice necessitated by the uses of accruals in a mostly cash-basis budget, described in the release as ``phantom offsets.'' Under FCRA, direct loans cause the government's cash shortfall (and hence its need to issue additional debt) to be higher initially than the reported deficit in the year the loan is made. That is because the loan principal paid out (not included in the deficit) is generally much larger than the recorded subsidy cost (included in the deficit). Similarly recognizing the time value of money in federal credit transactions requires adjustments to the cash deficit. Loan guarantees also necessitate ``phantom offsets'' to reconcile the cash deficit with the expected cost of loan defaults which are included in the deficit when guaranteed loans are disbursed. Furthermore, accruals involve uncertain future cash flows, and subsequent adjustments (FCRA refers to them as ``re-estimates'') are always needed to reconcile accrual projections with cash realizations. However, there are multiple account structures that would achieve the comprehensive up front recognition of the lifetime cost of new credit assistance and reconcile those costs with Treasury's cash borrowing requirements. In conclusion, there appears to be general agreement that the primary purposes of budgeting are better served if the budget is supported by an accounting process that measures the public resources devoted to an activity comprehensively, comparably across programs, and up-front at the time of decision. By that standard, the use of fair values for direct loans and loan guarantees in the budget would unambiguously improve federal budgetary accounting. With that, I yield 2 minutes to the gentleman from Kansas (Mr. Huelskamp).

Mr. GARRETT. Madam Chair, I yield myself such time as I may consume. I thank the lady for commending us for raising these issues. But actually, we're doing something more than just simply raising the issue. We're addressing it and solving this problem as well. I appreciate the fact that the gentlelady raises the fact about a list of experts who have questions about this. Well, I have experts too, but I actually have the name. A former CBO Director, Doug Holtz- Eakin, now with American Action Forum, writes us here to express support of H.R. 3581. The gentlelady may also know, since she serves on the committee, when it comes to this issue that we had this issue up in committee recently, and we asked the current CBO Director does he support with regard to moving towards fair value. And he said that is the more appropriate basis of evaluating the obligations of the Federal Government. So we have the experts. American Action Forum, January 30, 2012. Hon. Paul Ryan, Longworth House Office Building, Washington, DC. Dear Chairman Ryan: I am writing to express my support for H.R. 3581, ``The Budget and Accounting Transparency Act of 2011,'' in particular those provisions that would incorporate fair value accounting (FVA) into the federal budget process. As you are well aware, a core objective in federal budgeting is to accurately display the scale and timing of the expenditure of taxpayer resources. Since sovereign tax and borrowing powers should always be used judiciously, there is a premium on doing so as accurately as possible. In some cases this is straightforward. Consider, for example, a discretionary appropriation. The scale of the overall commitment is clear and in some cases it is straightforward to budget the timing of the ultimate outlays as well. Federal credit programs, however, present particular difficulties. The timing of budgetary cash flows differs dramatically between direct loans and federal loan guarantees--even in cases when the ultimate economic impact is identical. The Federal Credit Reform Act of 1990 (FCRA) took an important step forward by equalizing the timing of their budgetary treatment Direct loans and loan guarantees are both recorded in the budget during the year in which the commitment is incurred, regardless of the duration and timing of the federal assistance. This was an important step in the right direction. However, estimating the scale of required taxpayer resources remains problematic. In particular, the ability of loan recipients to make timely and complete repayments will be influenced by future individual, household, and economy-wide economic conditions. In the same way, the obligation of the federal government to undertake guarantee payments will be driven by similar forces. While such future individual and economic conditions are uncertain, reliable techniques exist to estimate the likely size of the taxpayer obligation. Unfortunately, FCRA needlessly restricts the analyses to credit risk--the probability of failure to fully repay--while ignoring the fact that the timing of those failures matters enormously. As the past few years have starkly reminded every American, the need to tax, borrow and otherwise deprive the private sector of another dollar has far greater implications during the depths of economic distress than during periods of robust economic growth. Adoption Of FVA would rectify this oversight I recognize that significant reform to budget procedures should not be undertaken lightly. However, my views are informed by the fact that during my tenure as director, the Congressional Budget Office undertook a number of studies of the implications of accounting fully for economic risks in the budgetary treatment of financial commitments like credit programs. In example after example (pension guarantees; deposit insurance; flood insurance; student loans; and assistance for Chrysler and America West Airlines), it becomes clear that an incomplete assessment of risks leads to misleading budget presentations and may engender poor policy decisions. FVA would be a significant step toward improving this informational deficit. My views are echoed by a wide array of budget experts. In March 2010, CBO issued a new report recommending the use of FVA for federal student loan programs on the grounds that budget rules do ``not include the costs to taxpayers that stem from certain risks involved in lending.'' In addition, the Pew-Peterson Commission on Budget Reform proposed ``fair- value accounting'' for credit programs and the President's National Commission on Fiscal Responsibility and Reform advocated for reform of budget concepts that would more accurately reflect costs. In addition to these research views, there is a track record of success. FVA has already been used successfully for the budgetary treatment of the Temporary Asset Relief Program of 2008 (TARP) and the federal assistance to Fannie Mae and Freddie Mac. Last but not least H.R. 3581 would also fix another shortcoming of FCRA; namely that the administrative costs associated with federal operations are not included in the budget cost and must be provided for elsewhere. H.R. 3581 would require that administrative costs (called ``essential preservation services'') to be accounted for up-front, thereby balancing the playing field. In sum, I believe that the Congress should adopt fair value accounting and, in particular, pass H.R. 3581 in a timely fashion. I would be happy to discuss any aspect of this issue in greater detail. Sincerely, Douglas Holtz-Eakin. With that, I yield 1 minute to the gentleman from California (Mr. McClintock).

Mr. GARRETT. Madam Chair, just as we recognize that the American taxpayer has already been squeezed by such expenditures as $527 million for the failed loans to Solyndra, we recognize that they must put these on the record so we understand what they truly cost. And the gentleman who has been a leader in this regard from the very beginning in his time in Congress, a leader in the area of budget transparency and in fixing the American budget and here in Congress, is the gentleman from Texas (Mr. Hensarling). I yield 2 minutes to the gentleman from Texas.

Mr. GARRETT. I yield 2 minutes to the gentleman from Oklahoma (Mr. Lankford).

Mr. GARRETT. I would advise my colleague from Maryland that we have no further speakers.

Mr. GARRETT. I rise in opposition to the amendment.

Mr. GARRETT. I yield myself such time as I may consume. And again, I'll say to the gentleman as well, as your colleague did as well, commended us for raising this important issue, and I do agree that it is an important issue. But I think the American public is tired of Washington simply raising important issues and discussing important issues and having committee hearings on important issues. I think the American public is looking for Washington, once and for all, to take some decisive action in the name of the American public, in the name of the hardworking taxpayers whose money it is that is on the line. It is the people's money that we are talking about in all of these bills. It is the people's money that has been put on the line when the Federal Government issues loans and loan guarantees. And I want to remind the gentleman from Maryland of how much money we've been talking about in all these things. When we talk about all the bailouts that the American public stood and railed against, rightfully so, as did I, whether it was the oil bailouts or the bank bailouts or the Wall Street bailouts, they all pale in comparison to the bailouts that we're talking about here with the GSEs, $186 billion and counting. The gentleman, Mr. Ryan, raised the issue before that, I believe, it was going to go up to $280, $290 billion and counting. That's not Washington's money or the government's money or the gentleman from Maryland's money. That's the hardworking American taxpayers' money that was initially put at risk without any idea what the real risk was going to be for all these other loan programs and now is going out as outlays. Now it is going out without any prospect whatsoever of being repaid. The gentleman says these exceed these estimates of fair value accounting, and they exceed outlays. Well, they exceed it until they don't. They exceed it until the loan fails. They exceed it until you're talking about a Solyndra situation where you guarantee over $500 million, and then the company goes bust. That's what we're trying to address here, to make sure that you're actually properly grading and accounting for this. We're not asking for something extraordinary. I know the gentleman from New Jersey came to the floor and he said this is extreme, what we are asking for here. Extreme? Why do we ask the private sector to use this same sort of accounting? Why do we ask the mom-and-pop shops, the big Wall Street firms, and everything in between to use this sort of accounting when they do so? When you ask for a student loan, a car loan, a house loan, whatever, we ask local banks to use this same form of accounting. If it is good enough for the rest of society, if it is good enough for all of my constituents and your constituents, if it is good enough for all of the businesses back at home, I think it's good enough for the Federal Government to play by the same rules. That's all we're asking for here. He says, how far should we go? I think we should go as far as to say that the Federal Government should have to do the exact same thing, play by the exact same rules that our businesses back at home have to do. That's all this bill does. It shines the light of day on what we're spending, and if we are spending too much, then we have to do what we are elected to do: set priorities, decide where we want to spend it on this program or that program, or maybe cut back on this program and expand someplace else. But we can't make those decisions until we actually have the information before us. We can't say this one is working and this one is not working, this one is worthwhile and this one is not worthwhile until we actually have that information before us. That's the long and short of it. That's all this bill does. It gives both sides of the aisle and the American public that information. With that, I would call for support of this legislation of sunshine and accountability and transparency in the way the Federal Government runs their business. I yield back the balance of my time.

Mr. GARRETT. First of all, let me just begin by saying I appreciate the gentleman's effort with regard to this legislation. I appreciate also the bipartisan nature and intentions behind the amendment as well. There are unquestionably circumstances where accrual accounting is the best way, the most appropriate way to display the Federal Government's budgetary costs and obligations. Now, as you know, the underlying bill does focus on one such area where accrual accounting has long been in use, and what it does then is to try to build upon those years of experience and try to study the application of that as applied to Federal credit programs. The underlying bill, I should say as an aside, also includes a study of another area--because I know there's a question of how far are we going in these things--where it might be appropriate to extend this, and this is with regard to the Federal insurance programs. Why is that? Well, it's because we don't have as many studies on that. I might just add to the point of the gentleman from Maryland before, there have been a number of references on an area that we're looking to. CBO has done some with regard to student loans, with regard to housing, with regard to SBA and energy. CBO has issued a number of reports with fair value accounting included, and that is why we included it in this bill. Again, I appreciate the gentleman's work on this amendment. I oppose it as it stands now, however.

Mr. GARRETT. Madam Chair, I yield myself such time as I may consume. At the start, I would like to thank Chairman Ryan and the Budget Committee staff for their hard work with regard to H.R. 3581, the Budget and Accounting Transparency Act. Unless you've been living someplace else other than here for the last several years, you will not be surprised to hear that this country is broke. And it should not surprise you that the true extent of our country's debt crisis is a lot worse than anyone in Washington is letting on to. How much worse? Well, that's something that people really don't know, and we'll never know unless we reform the broken budget process here in Washington, D.C. Many have talked before about the fact that our process is broken. Simply put, we need to make the budget process more transparent and accountable. Fortunately, today we are taking a step in the right direction with this bill. The bill before us today, the Budget and Accounting Transparency Act, is, as I say, a commonsense approach to introduce more sunshine and common sense into the budget-making process. So what would the bill do? First of all, specifically, the bill recognizes the budgetary impact of the GSEs, Fannie and Freddie, by bringing back onto budget and closes that black hole that's out there and brings them out of the shadow and into the light. This bill also requires that the Federal Government apply the very same credit accounting standards as the private sector is doing right now when guaranteeing loans. You know, back in September of 2008 as the country was reeling from the fallout of the financial collapse, the GSEs, Fannie and Freddie, were placed into conservatorship by the FHA. Under this agreement, FHA took control of the two companies and the Treasury Department risked literally hundreds of billions of dollars, taxpayer dollars, to bail them out. Today, the American taxpayer has sunk over $183 billion and counting into those failed institutions. As if this weren't enough, they've added $1.2 trillion in debt and $5.3 trillion in mortgage- backed securities. Because Fannie and Freddie have become the explicit financial responsibility of all of us via the Federal Government, it only makes sense, don't you think, that we treat them the same way that we'd treat any other obligation of the Federal Government, by formally bringing them onto the budget. The CBO even says this. They took a step several years ago by the Office of Management and Budget, but they resisted the change, preferring to obscure the total Federal exposure of Fannie and Freddie. It's time that the Obama administration does the same thing. So bringing Fannie and Freddie exposes some of the ugly--and maybe we'll call them inconvenient--truths; but I know that the American people did not send us here to play a shell game, but did send us here to bring out the facts. The combined debt obligation of Fannie and Freddie isn't the only black cloud hanging over us. There's inaccuracies and lack of transparency in budgeting for Federal credit programs across the field. We can talk about the Solyndra situation that makes the news. That fiasco was an example of a loan guarantee gone sour. Federal loan guarantees are contractual obligations between the taxpayer, the private creditor, and the borrower. In that case, it went south. But, unfortunately, under current law when the government issues a loan guarantee, the inherent risk is not reflected in the loan or loan guarantee cost. In fact, the CBO estimates that our current Federal obligations under these accounting rules today understate the cost of credit programs by some $55 billion a year. Because the rules do not account for market risk, that is why we need to change it. And with that, Madam Chair, I reserve the balance of my time only to say that this does three important things: provides the clarity, the transparency, and the accountability that we are looking for in these and other aspects of the Federal Government programs.

Mr. GARRETT. I rise in opposition to the motion.

Mr. GARRETT. Mr. Speaker, the prior amendment that this House just overwhelmingly voted down would have gutted the underlying bill entirely. This motion to recommit will now try to gut the bill by approximately one-third. I commend the other side of the aisle for at least going in the right direction. But, Mr. Speaker, I remind us all of the words of the President of the United States when he stood in that same position where he speaks of fairness and the agenda that he proposes, and he speaks of fairness to the American public. Well, Mr. Speaker, we know that the budget process in this country is broken. We know that there is no fairness in that. This amendment will undercut the legislation before us, and the underlying bill will try to restore it. We need fairness to the hardworking American taxpayer who, at the end of the day, will be the one who will have to foot the bill when the loans go sour like we saw in the situation with Solyndra. We need to bring fairness to the small business owner who is already compelled to comply with the exact same requirements that we have in this bill. Mr. Speaker, we need to bring fairness to the American public who simply wants to know where their hardworking tax dollar is going. Mr. Speaker, in conclusion, let me just say this: as we here in Washington travel through that great twilight which is that murky area of obscure accounting rules, let us commit ourselves to one thing--that we will bring clarity, that we will bring transparency, that we will bring sunshine, and, most importantly, that we will bring fairness to the American public as to the spending of their tax dollars. I recommend that we vote ``no'' on this motion to recommit. I yield back the balance of my time.

Mr. GARRETT of New Jersey

Mr. GARRETT of New Jersey. Not only will I work with you, I believe the chairman of the full committee will be intentioned to work with you on this as well. The goal is the same by all of us here, and I think by the other side as well, to try to get as much information that is able to get out to come out, and we will be glad to work with you on this.

Mr. GARRETT

Mr. GARRETT. Madam Chair, in essence, the amendment has the effect, as so many amendments often do that come to the floor, of basically gutting the entire bill. The core reform made by this bill is to--what?--adopt for all Federal credit programs fair value accounting. Now, this is not a precipitous or rash decision that we're going to make here. The Budget Committee, both with the Republican and Democrat leadership, has, over time, studied and worked on the implications of moving to a fair value accounting for Federal credit programs. The CBO, which we reference all the time, is an independent arbiter of what is right here and has studied these things, and other academics have conducted studies going back as far as the 1990s, if not earlier, on this question as well. In fact, there was a commission, a commission featuring 36 experts, including six former CBO Directors. What did they recommend? They recommended moving to a fair value accounting in 2010. Indeed, it was back in 2009 that this House, under Democrat leadership, voted to require the use of fair value accounting with respect to U.S. commitments made to the IMF, the International Monetary Fund. Additionally, the CBO has conducted analyses of dozens of Federal credit programs on a fair value basis. So this bill is not precipitous. This bill is not rash. This bill is not extreme. This bill takes a cautious approach and applies fair value budgeting in those areas where we have the most experience while calling for a further study of those areas in which it makes sense to do study--Federal insurance programs. So I urge my colleagues to oppose this amendment and to support the judicious and experience-based approach of the underlying bill. I yield back the balance of my time.

Mr. GARRETT

Mr. GARRETT. Mr. Speaker, I thank the words of the chaplain who says may we indeed know the Lord. Mr. Speaker, I rise today to recognize Chaplain Karen Hallett on her selection as the 2012 Reserve Officers Association Chaplain of the Year. She is a resident of Vernon, New Jersey, which is a part of the Fifth Congressional District. The chaplain enlisted in the Army in 1983 and completed basic combat training at Fort Dix, New Jersey. She went on from there to graduate from West Point and was commissioned as a second lieutenant in the United States Army Ordnance Corps in 1988. After that and after fulfilling her enlistment obligations, she spent 18 years in the civilian sector, successfully managing businesses while remaining engaged in full-time ministry. In 2009, after completing her master's of divinity degree at Bethel Seminary, she returned to military service as a captain in the United States Army Reserves. She currently serves as a brigade chaplain for the 411th Engineer Brigade. Throughout her more than 20 years of ministerial service and missionary work, and now through her military service to our country, she has dedicated herself to ministering to the spiritual needs of others. It is her selflessness and her service that exemplify the mandate to esteem others better than ourselves. I thank her for her service. I congratulate her on receiving this recognition as Chaplain of the Year.

Mr. GARRETT

Mr. GARRETT. Mr. Speaker, I rise today to honor a recently fallen warrior, Specialist Ronald Wildrick, Jr. Specialist Wildrick served with the Army's 2nd Battalion, 35th Infantry Regiment, 3rd Brigade Combat Team, out of Schofield Barracks in Hawaii. Ron was raised in Byram, New Jersey and graduated from Lenape Valley High School. Specialist Wildrick joined the Army in 2008 with the hope of making a better life for his wife and two daughters, Kaylee and Leah, through service to his nation. In September, he was deployed to Afghanistan's Kunar Province as a part of Operation Enduring Freedom. On December 11, 2011, his unit was attacked in the Kunar Province with an improvised explosive device. Sadly, Specialist Wildrick was killed in the line of duty while serving his nation. As a result of his sacrifice, Specialist Wildrick was posthumously awarded a Bronze Star Medal. His dedication to country and loyalty to his fellow soldiers was evident throughout his Army career. Prior to his deployment to Afghanistan he had the solemn duty of serving with the U.S. Army Old Guard at Arlington National Cemetery, where he regularly recognized the sacrifices made by his fallen comrades. Ronald Wildrick is a true American hero, and he will never be forgotten by his friends, his family, or the country he fought for. My thoughts and prayers, as well as the thoughts and prayers of a grateful nation, are with his family and friends during this difficult time.