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Restoring American Finacial Stability Act of 2010

Floor Speech

By:
Date:
Location: Washington, DC

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Mr. GREGG. Mr. President, this amendment is pretty simple. It says American taxpayers should not be put on the hook for States which have been profligate. It says, specifically, that: Federal funds cannot be used to purchase obligations of States or local communities that are in default or are about to default, unless those States have gone through some sort of crisis such as the Katrina situation.

But if the default that the State or local community is about to experience is the function of their failure to discipline their fiscal house, then we are not going to ask the taxpayers across this country to support that error in judgment and that misguided fiscal policy of that State or that local government.

If we do not have this type of rule in play, basically we will be setting up a situation where the American people will become the guarantor of inappropriate actions across this country by legislators and city governments. You will have this untoward situation where you will basically create an atmosphere that there is an incentive for State governments and local communities to not be fiscally responsible.

It is this moral hazard issue. We debated it at considerable length when we discussed too big to fail in the banking system. This bill has a lot of issues, as far as I am concerned, but one of the things it actually handles reasonably well is the issue of too big to fail. It does need some adjustment. But it basically handles that issue pretty well.

We have designed language in this bill between Senator Dodd and Senator Shelby, which essentially says: No longer will the American taxpayer be presumed or in any way expected or have any obligation at all to support a financial institution which has gotten too large and has taken on too many risky decisions and is therefore in fiscal distress. That institution will fail. Its stockholders will be wiped out. Unsecured bondholders will be wiped out and the American taxpayer will not come in and defend that situation.

Too big to fail ends with this bill, hopefully. But it should apply also to States and local governments. We should not create the moral hazard of having taxpayers in New Hampshire or taxpayers in Nebraska or taxpayers in New Mexico responsible for profligate activity in other States.

In fact, many of our States, of course, have balanced budget requirements. In fact, in Nebraska, they do not even allow any debt, period. They have a constitutional amendment that says, there can be no debt. So they are extremely disciplined, these States, in the way they handle their budgets.

The taxpayers and the citizens of those States expect their leaders to be disciplined. So how can we ask those taxpayers and those citizens in those States that have been disciplined, who have elected people who are willing to live within their means as they govern, whether it is at the community level or at the State level, how can we ask those citizens across this country to go in and bail out other States and our communities that have been totally undisciplined in managing their fiscal house and have put themselves at huge distress and have defaulted on their debt or are about to default on their debt?

This is not acceptable. If we are going to have a bill which addresses the issue of too big to fail, it should apply to this type of a situation. So I have offered this amendment. It is very simple, as I said. It prohibits Federal funds from being used to purchase or guarantee obligations of States and local communities that are in default or about to go into default.

It is a pretty strict standard, pretty clear. If you have a State that for reasons of its own making has created a fiscal mess of inordinate proportions and cannot pay its debt, it cannot come to Washington and say: We want you to bail us out.

That is not right. That is not appropriate. So this bill bans that sort of an event from occurring. Why do we need to do this? It is pretty obvious. There are a couple States in this country that have been irresponsible in their spending, that have not disciplined themselves, and that, I think, are expecting everybody else in this country to bail them out.

I sure do not want to be part that. I do not want my taxpayers in New Hampshire to be part of that. It is not fair that they should be part of that. Those States are going to have to figure out how to straighten out their own fiscal house. They should have to do that within the terms of their own spending streams and their own revenue streams.

They should not expect the Federal Government to come in and take them out of their distress, which was self-imposed and self-created. There is an exception in this bill. There is this language so that if a State is put into severe distress because of an emergency situation, such as a Katrina-type situation, this would not apply. Obviously, it should not apply then.

If it is a self-imposed event, simply resulting from the human nature of legislators and city councils to sometimes spend a heck of a lot more money than they have and that they can take in under their structure, they should have to pay for it and figure out how to deal with it themselves. They should not pass that problem on to the American people by financing it through Washington. It is consistent with the theme of this bill that there should be nothing that is too big to fail in this country, including State governments and local governments or financial institutions. I hope my colleagues will support the amendment.

I reserve the remainder of my time and yield the floor.

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Mr. GREGG. Mr. President, first, let me thank the Senator from Missouri for his thoughtful and substantive discussion of this amendment. As a former Governor, I think he appreciates how tough it is to maintain balances in the State budget, and you have to make the very difficult decisions to make sure your State does not get its fiscal house into disarray and end up defaulting on debt. That would be the worst thing that could possibly happen if you were a Governor--or one of the worst things. In any event, he certainly did that when he was Governor. I tried to do that when I was Governor.

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Mr. GREGG. I think the Senator from Missouri has made a superb case that it is inappropriate to set up a structure where States can be profligate or communities can be profligate and then basically throw the problems they have created on the rest of the country and the taxpayers of the rest of the country--whether they are from New Mexico or Missouri or Connecticut or New Hampshire. There is no reason why our taxpayers should pay for inappropriate fiscal actions by some other State or some other community. Rather, those States and communities should have to straighten out their own financial house and not expect that they can come to the Federal Government for a bailout if their problems have been self-inflicted, created by their own failure to discipline their fiscal house.

As I said earlier in the discussion, a lot of States have a balanced budget amendment. I am not sure whether Missouri did--New Hampshire did not--but we understood if we did not run fiscally responsible budgets in New Hampshire, we would find our debt downgraded. That is what we were worried about--to get to the point where you might actually default, which would be, as I said, a totally terrible situation.

But in States that have balanced budget amendments, States which have worked very hard to keep their fiscal house in order, the taxpayers of those States should not have to suddenly step up and take care of the taxpayers of another State that has failed to do that. It is not fair. It is not equitable. You certainly do not want to create that atmosphere because if you have an atmosphere where one State can throw its problems on to every other State, then you create an incentive for States to be profligate and irresponsible.

AMENDMENT NO. 4051, AS MODIFIED

With those comments, Mr. President, I ask to modify my amendment. I believe the modification is at the desk.

Have we shared the modification with the Chairman?

Mr. DODD. I believe so.

I ask the Senator, this is the modification?

Mr. GREGG. Yes.

Mr. DODD. As I understand it, the modification is a new paragraph:

(d) Limitation.--Subsections (a) and (b) shall not apply to federal assistance provided in response to a natural disaster.

Is that right?

Mr. GREGG. That is correct.

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Mr. GREGG. Mr. President, I admire the Senator from Connecticut and I appreciate what he has done in his efforts to stabilize the financial industry in this country. At the core of what he has done, of course, is to say: No more bailouts. That is essentially what this bill is about: No more bailouts; the taxpayers of this country will not step up and bail out large financial institutions which have taken actions which have put them at risk financially, and the only people who should bear that burden are the stockholders and the unsecured bondholders of those institutions.

What this bill also says is no bailouts, no bailouts for States which are in default or about to default on their debt. They are doing it not as a result of some external event forcing them into dire straits but because they simply spent their way into a fiscal situation where they can't pay their own debts. Why should the people of Connecticut, the people of New Hampshire have to bail out the people of California--let's be honest about this; this is about California, the people of California--because their government has been totally irresponsible in spending for a large number of years, has created a massive obligation, especially in their public pension programs, which they can't afford to pay? Why did they run up those obligations? So that people who were running for office in California could get elected. Just promise this, promise that, promise this, promise that. Then, the people in New Hampshire are supposed to pay to help those people get elected on those promises which they could never fulfill and for which they created obligations to pay for? I don't think so. I don't think that is fair or right.

If the people of New Hampshire and the people of Connecticut and the people of New Mexico have been fiscally responsible in the managing of their towns and their cities and their States and their counties, why should they suddenly have to pay for California which hasn't been? Clearly, they shouldn't. If we are going to have a no bailout bill, it ought to apply to California as well as to large financial institutions that have acted inappropriately and unwisely.

That is all this says. It doesn't say you are not going to be able to get your usual Federal assistance that comes through the usual course of action. That is a bit of hyperbole. I appreciate the intensity and energy of the Senator from Connecticut, but that is hyperbole. This is about not having Federal funds be available to States that are in default or about to go into default on their debt as a result of the actions of the State leadership as elected by the people of that State and not asking the people in the rest of the country to have to pay the cost of those inappropriate actions and those actions which were fiscally irresponsible. It seems like a proposal which is totally consistent with the basic purpose of this bill, which is to end bailouts.

I reserve the remainder of my time.

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Mr. GREGG. Mr. President, I really think the Senator from Connecticut is sort of reaching in his arguments here. This is really about a State like California defaulting and the rest of us having to pay for it. That is what this is about. This is about a State that has been irresponsible, to be kind, with its spending and now finds itself in a situation where it cannot pay its debt. You know the legislators of that State are saying: Let's go to Washington and get the money so that we can get reelected on the basis of spending all this money. That is not fair. That is not how a federalist system is supposed to work. You cannot argue that the American system was set up so that when one State would be profligate, another State would have to pay for the cost of that profligateness.

The Senator's bill uses this same language. The Senator from Connecticut had phraseology that claimed my language as inappropriate on the issue of default and how he defined it, and it basically mirrors his language in title II. If it works in title II, it ought to work here.

The real issue is that we should not set up a situation where States and communities can expect to spend a lot more than they can take in, know they are spending more than they are taking in, run up a lot of debts they cannot pay, and then come to the rest of America and say: You pay our debts because we want to get reelected. That is what this is about. It is limiting the ability of States to act in a fiscally irresponsible manner and expect the country will stand behind them and bail them out.

I reserve the remainder of my time.

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