CNBC Interview With Rep. Brad Sherman (D-CA); Rep. Scott Garrett (R-NJ)
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MR. GRIFFETH: We want to move along here. We have with us two members of the House Financial Services Committee. We want to talk a number of issues today, but we welcome, once again, two of our favorite Congressmen, the Democrat Brad Sherman of California and the Republican Scott Garrett of New Jersey.
Good to see you both. Thank you for joining us today.
REP. GARRETT: Good to be with you.
REP. SHERMAN: Good to be with you.
MR. GRIFFETH: And let me start with the flu situation, especially you, Congressman Sherman, I mean, you know, Mexico has been identified as Ground Zero for this, but people who have traveled to California have also found themselves contracting flu.
Are you okay with the response in your state with the governor declaring the state of emergency and so forth?
REP. SHERMAN: I think I'm okay with the response. We have to be vigilant, and yet, it may turn out that this flu is no worse than the seasonal flu that we suffered last winter. Keep in mind, flu kills 36,000 Americans traditionally every flu season.
MR. GRIFFETH: And Congressman Garrett, Governor Corzine has voiced his cautious optimism on this as well -- the number of Tamiflu doses that are available to the people in the state as well.
REP. GARRETT: Yeah. I try to remain optimistic on this, on all the issues, from the administration -- we're getting a little bit of mixed messages on it. You know, the other day, the vice president was out there sort of stirring up more than calming down on the issue and we should not be traveling in planes, trains or, I guess, automobiles as well.
I think what we really need to do -- CDC come out and just come up with one coherent message to all of us so we all know how to deal with it and that would alleviate some of the calls that we all get to our offices.
MR. KNEALE: That was nice of him to advise me not to take the subway when I've got to take the subway every day and he rides in a private car.
Congressman Garrett, a follow up, I realize that the Obama administration has been very decisive in responding to the flu virus, but I wonder, would we have panicked less if President Obama had stayed out of the scene, Vice President Biden stay out of the scene and just let your health people handle it and let them hold the press conferences? When Obama gets involved, it raises the crisis level.
REP. GARRETT: I think you're absolutely right, I mean, when he gets involved with a number of issues, you see things happening. You see what happens on the financial markets when he speaks during that time -- what happens to the markets and when he speaks in this area, what happens here as well, you get mixed messages.
We have an authority. We have agencies that deal with these issues. Let them deal with it. They are the experts.
MS. HERERA: Congressman Sherman, can I turn you to the stress test for the banks, which has now been delayed until next Thursday, the release of it. There are those in the market who are saying that that is, once again, undermining the credibility of Treasury, that if, indeed, there are some issues with the stress test, that was what the purpose of the stress test was -- come up with the issues and that the delay is hurting Treasury's credibility.
What's your reaction to that?
REP. SHERMAN: I think that a few more days if well spent are well worth it. My concern is that they're not counting preferred stock equity as part of the equity of the bank and as a practical matter, preferred stock is equity.
So I hope that they would do that. I hope what we don't see is the stress test solution being that we now have to convert the federal government ownership from preferred stock to common stock. I don't think that strengthens the bank, but it does weaken the position of the taxpayer.
MS. HERERA: And Congressman Garrett, what is your opinion of the delay and some of the components that we'll learn about with the stress test?
REP. GARRETT: Well, you know, its been sort of the playbook of this administration that they start things without a real clear exit strategy from day one and I was always questioning, what is going to be the exit strategy on this plan? Because you're going to go in there, you've got to do a stress test and you're going to come out with information, maybe it's going to be good, maybe it's going to be bad, but you have to have a plan in rolling it out, and obviously, they didn't have that plan.
MR. KNEALE: Congressman Sherman, how does the legal aspect work to this? I know that Citi -- we hear at Citigroup and Bank of America are pushing back and saying, we don't need to raise more capital. Can government actually force a bank to raise more capital because of how government interprets these stress tests? Or is it an advisory situation, but the bank has very little choice because the government has money in the bank?
REP. SHERMAN: I think as a strict legal matter, he can't force them to raise more capital unless they fall below legal limits, but as a practical matter, who is going to want to have their money in a bank that the Department of the Treasury says is unsound and cannot deal with stress?
So I think as a practical matter, he can badmouth the bank to the point where it would absolutely need more capital and I hope that isn't what we're going to be talking about.
MR. LIESMAN: Congressman Sherman, that kind of points up, I guess, Achilles heels of this whole exercise, which is that they insist, the regulators do, that this is not a test for solvency, that this is a what-if scenario. What you're suggesting is that the markets are going to take it as just that, as a solvency test.
REP. SHERMAN: Well, certainly, depositors are getting almost no return on their bank deposits, so they're looking to avoid risk and if they're not federally insured or even if they are --
MR. LIESMAN: Their deposits are guaranteed.
REP. SHERMAN: Their deposits are guaranteed, but if you're making zero percent on your money you just as soon have it in a bank that is not going to require you to deal with the FDIC. The IndyMac depositors are not as happy as those at more solvent institutions.
So I do think that the depositors and the counter parties are going to want to deal with banks that are not only solvent today, but will be solvent even if the unemployment rate goes to ten and a half percent, which is roughly the test that's being imposed on the worst case or not worst, but bad case scenario.
MR. KNEALE: Decide for themselves -- they run their own stress test all the time, Rebecca?
MS. JARVIS: Speaking of that bank question, Representative Garrett, moving over to the lenders and the question of the credit card lenders and the House passing the credit card reforms, what's your take on that? Is there any leeway for unintended consequences in this?
REP. GARRETT: Well, it's not just us saying that there's unintended consequences, but the Fed came in and they testified on this and said that there's definitely going to be unintended consequences. We're in a terrible credit situation right now in this country; we all know that very well. The worst thing you could do is take any action that's going to make getting credit even more difficult.
We all agree there's a need for more transparency out there in the credit card marketplace and part of the bill had that in it. We would have been onboard to do it. The Fed has already spent months putting together regulations on this, there's 1,200 pages of regulations. Congress steps in for political reasons and otherwise and goes overboard with what we're trying to do now and we're going to tighten it up. We're going to make it even harder for that family who is having a tough time right now to get that credit card.
All we have to do is look at Europe and they did the same thing over there and the number of issuers shrank. The amount of credit out there shrank. The ability of people to get credit cards shrank.
MR. LIESMAN: Representative Sherman, yesterday, the Senate defeated the mortgage cram down bill. Is it dead now as far as the House is concerned?
REP. SHERMAN: I don't think it's dead, but I think it'll be substantially modified. Going back to the credit card holder bill of rights, there's no rate regulation in that bill. What there is fair treatment of the consumer and if the way to keep credit card companies happy is to allow them to engage in trickery and say, well, we've got full disclosure because it's on page 27 of that document you can't even read, that's not full disclosure.
MR. KNEALE: If you don't read the document, it's your own fault. Why are we working so hard to protect people from everything that could go wrong? What happened to personal responsibility, Congressman? Congressman Garrett, are you not afraid for the future of capitalism and personal responsibility in this country? This is craziness.
REP. GARRETT: It is craziness.
REP. SHERMAN: What's on page 27 of your credit card agreement? Can you tell us now?
MR. KNEALE: I'm sorry. What?
REP. SHERMAN: What's on page 27 of your credit card agreement?
MR. KNEALE: You know, if I didn't read it, it's my fault and I don't want Congress passing some law that's going to protect me. I have no credit card debt because it's a terrible form of debt and anyone who lets their credit card run up is doing the wrong thing and then if you say the poor have no choice, well, we ought to do other things for the poor so they don't have to take credit cards.
REP. GARRETT: Look, Barney Frank basically answered your question; can't we trust the American people? And he basically said no. He said, you know, there's people out there who just don't understand the stuff, they're not educated enough. The government has to step in.
MR. KNEALE: Yeah. This is what happens when you have a president who opens his press conference by saying make sure you wash your hands. I don't want a president who is going to be my dad.
MS. HERERA: All right. We have to go, gentlemen. Thank you very much. Congressmen, a pleasure to have you here.
REP. SHERMAN: Thank you.
REP. GARRETT: Thank you.