Garrett Chairs Hearing on Obama Administration's Attacks on Investor Rights

Statement

By:  Scott Garrett
Date: June 7, 2012
Location: Washington, DC

Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, delivered the following opening statement today at a hearing to examine actions taken by the Obama administration that have favored particular groups at the expense of U.S. investors:

"Today's hearing will come to order.

"We are holding this hearing to further examine a number of measures advocated for by the Obama administration that have negatively impacted a wide variety of U.S. investors, including public pension funds, 401(k) plans, university endowments, mutual funds, insurance companies, foundations and municipal entities.

"Specifically, the administration has taken a variety of actions where they have sided with big banks, deadbeat foreign governments and big labor at the expense of these U.S. investors.

"These actions include:

"First, the recent National Mortgage Settlement. In this instance, the administration worked out an agreement with the nation's four largest servicers in the wake of the robo-signing controversy where the banks agreed to pay a significant penalty with funds purportedly going to help harmed homeowners.

"As part of the agreement, the administration allowed the banks to get credit for what they owe by literally taking money out of securitization trusts owned by private investors, including pension funds, 401(k)'s, university endowments and the like.

"So, in this case, we actually have the administration advocating policies that directly take money from investors that committed no wrong doing in order to pay, at least partially, for the problems admitted by the banks.

"To ensure this terrible outcome doesn't occur again, I offered an amendment on the FY13 Depart of Justice appropriations bill to block the use of any funds by the Justice Department from entering into similar settlements in the future where money is forcibly removed from residential mortgage-backed securitization trusts. This amendment passed and it is my hope that it will remain in the final FY13 funding bill.

"Next, we have the Argentina debt default. In 2001, Argentina, the 3rd largest economy in South America, announced the largest sovereign debt default in history with hundreds of U.S. investors taking billions of dollars in losses, despite Argentina having the money to be able to pay.

"Since the 2001 announcement, U.S. and other foreign creditors have won more than 100 court judgments but the Argentine government has continued to ignore these judgments, despite the promise to respect U.S. law.

"In February, the U.S. District Court for the Southern District of New York handed U.S. investors that had still not settled a significant victory by agreeing that Argentina violated a key provision of the bond agreement, and that it should treat its payment obligations to all bondholders at least equally to its obligations to others. Argentina then appealed this decision to the U.S. Court of Appeals for the Second Circuit.

"This is where the Obama administration could not resist intervening against U.S. investors. On April 4th, at its own discretion and without being asked by the court, the administration submitted an amicus brief weighing in on the side of Argentina and against U.S. investors. I hope to learn more today from our panel why the administration felt they had to interfere as opposed to just allowing the matter to be adjudicated fairly and impartially by the appeals court.

"Finally, let's turn to the Chrysler secured bondholder write-down. In 2009, the Obama administration took the unprecedented action of forcing secured creditors to take a back seat to unsecured labor unions. Regardless of how someone feels about the appropriateness of the federal government bailing out auto companies, at least there should be some agreement that secured bondholder--who have legal priority--should not have their claims superseded by politically-connected, unsecured labor unions. This breaking of private contracts and harming of secured investors is a blow to the rule of law and has set a dangerous precedent of political intervention on behalf of politically-favored constituencies.

"Investor protection is tantamount to ensuring healthy and well-functioning capital markets. The administration should be working to protect investors, not harm them.

"It's unfortunate that I have yet to hear a peep of concern after any of these actions from any of the usual groups that claim to cherish the role and importance of protecting investors. I guess, from their perspective, it is only bad when investors get harmed by the private sector and not the government.

"I, however, fail to see the difference. In fact, because the government is usually perceived by many people to "be on their side,' I feel it is even more incumbent on the government to go that extra mile to ensure that none of its actions are negatively impacting investors.

"Also, it is important to recognize the severe negative impact these various actions will have on investors and these markets going forward. We are now introducing a new type of risk to U.S. investment decisions. Usually, investors have to examine a narrow set of risks such as credit and interest rate risk. Now we are adding an additional layer of "government" or "political' risk. This will be very hard for investors to price and this will wind up driving up rates for U.S. borrowers.

"Unfortunately, over the last several years during this administration, we have seen a dramatic increase in Crony-Capitalism -- where the government picks winners and losers based on political connections -- this must end.

"At a time when our economy continues to be sluggish and when retirees and seniors are worried about whether they'll have an appropriate amount of savings to last through their golden years, this administration should be taking actions to protect these investors and savers, not taking actions to harm them and make them worse off."