Scott Garrett

Mr. GARRETT of New Jersey

Mr. GARRETT of New Jersey. I will yield myself 15 more seconds to make the final point. All of these points in the underlying bill will lead to one thing: a loss of credit and therefore a loss of jobs in America today and in the future as well. The American people have spoken loud and strong: Do not pass any legislation that is going to create hardships for the creation of jobs in this country, and this underlying legislation with its language on derivatives would do just that. With that, I yield such time as he may consume to the gentleman from Oklahoma (Mr. Lucas).

Mr. GARRETT of New Jersey. I yield myself 3 minutes. I appreciate the underlying amendment that we're discussing here right now. Let me just point out that the Republicans have submitted a substitute to address this overall issue. Republicans, however, have done so in a targeted approach addressing actual problems, and it's really the more sensible approach to the whole derivative reform issue. The centerpiece of the Republican alternative is something also found in the chairman's bill, which is a trade repository where all OTC trades would be required to be reported to. The repository then will provide valuable transparency, something we are all trying to achieve, to the entire OTC marketplace and will give the regulators the ability to analyze the appropriate data for their purposes as well as provide aggregated data to the broader marketplace. We don't set up a Byzantine regulatory regime over the many market participants. While we don't do that because we don't preassume, without any relevant supporting data, that these entities needed to be micromanaged in this manner, we do require that the regulators review the data and regularly report back to Congress if an entity who is not already regulated by a prudential regulator, whether they should be more heavily regulated due to its size or its scope or its activities in the OTC marketplace. So the Republican substitute does not have broad requirements for mandatory clearing, but it does codify the commitments that the private sector has already made. And they have done so working responsibly and cooperatively with the appropriate regulators, and they do so to engage in an ever more and greater amounts of central clearing now and into the future as well. But when you think about it, these changes all take time. And they need to be done in a responsible manner. If you were going to force central clearing through some sort of central counterparties and have adequate counterparties for risk they are unfamiliar with, it could exacerbate the systemic risk. So central clearing should be opened up over time to as many participants as possible, again, in a responsible manner so as not to do more harm than good, which is what we are all trying to achieve at the end of the day with the amendments and otherwise. We also require margin requirements between dealers and major market participants, and that would address a major issue with the AIG-related problems that I discussed earlier. In regards to the capital requirements, prudential regulators--look at them for a moment. Prudential regulators are really required by our substitute to take the swap activities of supervised entities into account when setting capital requirements for those entities. Let me step back for a minute and say that again. What you're basically saying here in the AIG situation is what we should have had occur there is prudential regulators should have been looking at those swap requirements when they set the capital requirements over at AIG or other like situations. But again, it is not appropriate to set these bank-like cap requirements on nonfinancial entities, so our Republican substitute would not do so. Finally, we generally agree with the overall chairman's regard to segregating----

Mr. GARRETT of New Jersey. Then I will yield to the gentleman from Texas (Mr. Sessions) my remaining time.

Mr. GARRETT of New Jersey. I thank the Chair. How much time do we have?

Mr. GARRETT of New Jersey. I'll yield myself 2 minutes. The American public has stated, and I said so on the floor the other night, that it's looking for Congress to do three things: first, make sure that we have no more bailouts; secondly, make sure that whatever legislation we do does not create anymore impediments to job creation; and thirdly, let's make sure that we don't lead to a bigger, more expensive, more expansive government. Well, we have seen over the past several days now that the legislation before us would do the wrong thing on each point. It'll create more bailouts. It will hurt job creation. And it will create larger government. Now, to the underlying portion of this bill here dealing with credit rating agencies, we all know that it was bipartisan action taken by this Congress back in 2006 when we passed the bipartisan Credit Rating Agency Reform Act. And what did that do? That formalized the registration process of credit rating agencies to become nationally recognized statistical rating organizations. What are we about to do here? Throw that out the window before it's fully implemented, before we fully have had the opportunity to see it roll out and be played out as Congress intended it to in a bipartisan manner. We're about to throw that out. To what end? Well, as the gentleman from Texas just pointed out, to the end that you will allow for less competition in the CRAs, credit rating agencies, with, furthermore, unintended consequences that will be detrimental to the market and investors. What does that mean to people back at home? That means that it will be harder for them to make the evaluations that are necessary for the industry. That means it will be harder for credit to be obtained in the marketplaces, and what that means for businesses, of course, harder for them to get the credit they need to expand and create jobs. This amendment here is necessary to counter all the aspects of this bill so that we can work hard to make sure that we create jobs in this country, make sure that businesses that need credit can get the credit they need, make sure that businesses that need to be able and want to expand are able to expand. This amendment is a positive amendment. I support this amendment. I reserve my time.

Mr. GARRETT of New Jersey. I still reserve.

Mr. GARRETT of New Jersey. I believe that it's our right to close. It's our amendment.

Mr. GARRETT of New Jersey. I yield myself 30 additional seconds. Finally, we agree with the chairman in regards to segregating margin for OTC swaps, although we exempt various margining for segregation requirements based on input from both the buy and the sell side. Margins should be treated as such, especially if a dealer's counterparty wishes it to be so, and should not be commingled with the dealer's funds. Many of the problems associated with the Lehman bankruptcy, I am told and I understand, are related to this very issue. And so requiring margin segregation, we believe, would be an appropriate response to that issue and that problem and would solve it for the future. I reserve the balance of my time.

Mr. GARRETT of New Jersey. Madam Chairman, I demand a recorded vote.

Mr. GARRETT of New Jersey. I thank the gentleman. What the gentleman from California is trying to do is trying to help investors and help the markets by providing this amendment. The SEC is currently examining this whole issue in studying this, and we should basically allow the SEC to continue with its evaluation and then come back to address the issue. Because what we're dealing with here is the fact that there's an exemption, and eliminating that exemption would be punishing not the CRAs, but punishing investors. What it will do is create an environment that will lead to more volatile and less accurate ratings. Something that none of us should be supporting. Right now there is an exemption for the NRSROs if they have the ratings included in the registration statements filed under the Act. This removes that. What would be the end consequence of that if this were to go through and this amendment were not to pass? Well, you would increase dramatically the time and cost involved with raising capital and thus make it more difficult for its issuers to do so. Moreover, some SROs may refuse to consent entirely, and what would that do? That would mean we would have even less information available to investors as they try to evaluate securities in the registration statement. At the end of the day without this amendment, this underlying bill will see to it that we have a higher cost of credit, a higher cost to do business and less jobs in the country.

Mr. GARRETT of New Jersey. And now, I shall yield my remaining 1\1/2\ minutes to my friend and colleague from the State of Texas.

Mr. GARRETT of New Jersey. We should be closing. Are there speakers on the other side? I will reserve the balance of my time.

Mr. GARRETT of New Jersey. Madam Chair, I now yield 1\1/2\ minutes to my friend and colleague from South Jersey, Congressman Adler.

Mr. GARRETT of New Jersey. Madam Chair, I would enter into the Record at this time just the letters of support of the Adler-Garrett amendment from the New York Stock Exchange Euronext, Property Casualty Insurers, ICBA, Biotechnology, and the Center for Investors and Entrepreneurs. NYSE Euronext, December 8, 2009. Hon. John Adler, House of Representatives, Washington, DC. Hon. Scott Garrett, House of Representatives, Washington, DC. Dear Representatives Adler and Garrett: NYSE Euronext supports your provision in the Investor Protection Act that would permanently exempt smaller public companies, with a market capitalization of less than $75 million, from Section 404(b) of the Sarbanes Oxley Act of 2002. We urge Congress to retain this provision in H.R. 4173, The Wall Street Reform and Consumer Protection Act of 2009. This provision will help promote the ability of smaller companies to compete and create jobs without sacrificing the important benefits of strong auditor oversight and robust financial reporting requirements. The SEC's current exemption for companies with less than $75 million in market value represents a measured approach to balancing investor protection and SME competitiveness, as these companies continue to be audited and subject to SEC rules regarding financial reporting and disclosure requirements. NYSE Euronext looks forward to continuing to work with the Congress to strengthen the growth, competitiveness and job- creation of U.S. public companies. Sincerely, Clarke D. Camper, Senior Vice President, Head of Government Affairs and Public Advocacy.

Mr. GARRETT of New Jersey. I am going to close, yes.

Mr. GARRETT of New Jersey. Madam Chair, I demand a recorded vote.

Mr. GARRETT of New Jersey. I now yield 2 minutes to the gentleman who also distrusts regulations as we have seen and the SEC and their handling of the SEC situation and the OTS and the regulation of the AIG situation, the gentleman from Alabama (Mr. Bachus).

Mr. GARRETT of New Jersey. I thank the Chair. The gentleman from Massachusetts says the government is not interposing or getting involved here. Of course they are, and that's what the whole fundamental purpose of the underlying bill is, is to set up this whole Byzantine arrangement of new regulations specifically in this area. Yes, I have read the amendment; and, yes, I recall it coming through committee and the problems that were raised there. When you centralize risk and clearing entities, as made mandatory by the underlying bill, it's important that we ensure that there is some independence in the clearinghouses from the dealers who play such a large role, like he says. But that's why in committee I offered an amendment that would have required that the majority of the directors of the derivatives of the clearing organization must not be associated with swap dealers. This goes much further than what's already on the books right now. The SEC has a current policy of limiting a position of 20 percent ownership of a single broker dealer in an existing exchange. This amendment goes way farther than that, saying that that 20 percent applies in the aggregate. Yes, I read the amendment. You have to remember that dealers are among the most likely sources of investment capital to establish these new clearinghouses. If you are going to come up tonight now with a really overly restrictive limit on ownership, as we have in this amendment, you are going to have potentially some negative consequences. Some of those will be in competition. At the end of the day, what will you have? The amendment could very well exacerbate risk by forcing more derivative transactions that are out there, and who knows how many will be out there after this legislation passes, to fewer and to fewer and to fewer clearinghouses, basically concentrating risk and doing the opposite of what the American public wants, to avoid risk burdens and additional bailouts.

Mr. GARRETT of New Jersey. I presume I am to close?

Mr. GARRETT of New Jersey. Madam Chair, I claim time in opposition.

Mr. GARRETT of New Jersey. I yield myself 1 minute. This probably is the most critical amendment that we will consider today that addresses the derivative portion of the legislation to the chairman's question of whether we should say ``yes'' or ``no'' to the claim for more power to these entities. I would say we should tell them ``no,'' and the reason is because neither the administration nor the majority nor the chairman has provided any substantial evidence whatsoever of any specific OTC derivatives, how they cause a financial crisis. Derivatives are something that the companies use to try to hedge the risk. Clearly, we must make sure there's transparency and accountability--and I have already spoken about that--and we can do so in a way, however, that will not hamper their ability to control costs, not to manage risks, compete in the global marketplace. This would all hurt that. And when you talk about the end users in this and what they're doing, remember it was the end users, large and small, the public and private American businesses, they, they were the victims, not the cause, of the financial crisis. Derivative dealers and their customers, the end users, they're in the best position to determine what are the appropriate margin requirements, not giving more authority to the SEC or the CFTC or any other financial regulators. I reserve my time.

Mr. GARRETT of New Jersey. I yield the balance of my time to the gentleman from Minnesota (Mr. Peterson).

Mr. GARRETT of New Jersey. Madam Chair, I rise to claim the time in opposition.

Mr. GARRETT of New Jersey. Madam Chair, I rise to claim time in opposition, although I am not opposed to the amendment.

Mr. GARRETT of New Jersey. I yield myself such time as I may consume. I appreciate the work of the chairman with regard to clarifying some of the definitions here. I think this goes to the overall issue of the complexity of the issues that are before the House tonight on this matter and on the broader matter of the derivative regulations that we are discussing with the previous amendment and this amendment as well. It goes to the point that I raised just a moment ago in my previous remarks, that if we are going to try to answer to the American public to the three most important questions that they are asking of Congress--no more bailouts, no more legislation that destroys jobs, and no more expansive, larger and spending government--we have to look to what we're doing in the derivative area as well. In the derivative area that we see in the underlying legislation, what we have done is create a Byzantine piece of regulation combining the two, working with two entities that have never worked together in the past before, setting in the underlying legislation margin requirements that potentially end users--although I recognize the previous amendment just addressed that point--margin requirements on them which basically, at the end of the day, if we think about it in basically simple terms, means it will be more costly in this country to do business. It will be more difficult for entities to hedge their risk. And if businesses can't hedge their risk, the other fundamental purpose of this legislation that we hear from the other side to end the idea of systemic risk will be thwarted as well. So think about that. We will be thwarting one of the basic functions that they say is the underlying legislation to end systemic risk because we cause hardship on companies to hedge their risk on the one end, and not addressing one of the major problems this country is faced with today, high unemployment. We must do a better job than that. As I stated before, Republicans have offered a better solution to all of those issues. We have offered a solution with regard to the bailouts, to end taxpayer-funded bailouts. We have offered a solution to end the prospects of less jobs in this country. And we offered a solution respectively to the whole derivative market, as I set forth before. The centerpiece of that solution is something that was actually found in the chairman's bill, and that was the repository idea. We can get all the transparency that we need right now through a trade repository where the OTC trades are reported. We can get the accountability and the transparency that the American public looks for as well through the initiatives that are in the Republican substitute. But we can do so in a manner, therefore, that will not impose additional risk or cumbersomeness or a Byzantine structure, and therefore not affect the hedging abilities or the cost of doing business of companies in this country. We can do so in a manner that will not hurt the creation of jobs. When you think about it, we will have probably discussed three different areas, three different titles of this bill that actually will be hurting jobs. What are they? We haven't talked about the first one too much, CFPA, the Consumer Financial Products Agency. It has already been documented that that will cost literally a million jobs. The wind- down authority, we have already talked about that previously, that will also cost jobs. And here, if you do not handle the derivative situation correctly, that potentially can cause job loss in this country as well. We suggest that the Republican substitute should be considered in this area as in other areas as well. With that, I reserve the balance of my time and commend the gentleman for his work on the underlying amendment that we have here before us today.