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Hearing of House Committee on the Budget: The President's Budget for Fiscal Year 2006

Location: Washington, DC


February 8, 2005


Mr. Cooper. Thank you.

Director Bolten, you have put a very pleasant face on some pretty draconian budget cuts. The President's budget really depends on one thing. This giant budget project you just completed really just depends on one thing; that is, whether Wall Street will buy it.

You mentioned a couple of times today, and I think you mentioned yesterday in your press conference, that you feel that Wall Street has given it a pretty positive reaction. In fact, I think today you even used the word ``applaud,'' applaud the idea that our government would continue to be borrowing billions and maybe trillions of more money, increasing the national debt beyond anything our forefathers could have imagined. What worries me about this is that you mentioned Wall Street approval.

It kind of sounds like it is a Good Housekeeping Seal of Approval. That worries me because even though Wall Street may be happy, I am worried that Main Street probably shouldn't be happy, because I am not sure a lot of folks on Main Street understand how Wall Street bankers work.

Now, I used to be an investment banker, you used to be one. When you borrow money on Wall Street, it is not like Wall Street bankers are loaning you their own money. They are loaning you other people's money, right? In this case, even as big and as rich as our Wall Street banks are, they wouldn't have enough of their own money to loan us all the money that we need. They have to go to other sources of capital, right? It worries me because Wall Street really doesn't care what interest we pay on our borrowings, as long as they find a buyer for the bonds, as long as they complete the transaction, right?

Wall Street isn't being so helpful because they are all patriotic. They are good folks and many of them are patriotic. I have got nothing against Wall Street, but this is the way business works. They would loan money to the worst dictatorship on the planet as long as they found a buyer for the debt, right?

So Wall Street really doesn't care who loans us the money as long as somebody does, as long as they earn their precious fee. So in many ways, the ideal transaction from a Wall Street standpoint is to get the Chinese or some other country to buy the whole thing, to buy all the bonds in one gigantic private placement, as long as they earn their fee.

Because, Director Bolten, you and I both know on Wall Street there is a famous phrase, ``There is no such thing as a bad deal, there are only bad fees,'' by which they mean low fees.

I think that should give the average American on Main Street a little bit of pause, because when you say that Wall Street applauds what you are thinking about doing here, it is like throwing red meat to sharks. Of course they are happy. If sharks had hands, they would be applauding, but that doesn't necessarily make it right.

This administration could decide to sell Wall Street the Lincoln Memorial and the George Washington Monument on our Mall to Wall Street, and as long as Wall Street found a buyer, even the Chinese, and we were able to put up advertising all over it, why then Wall Street would be happy.

So I would urge you, and also Secretary Snow in your statements, to be very careful when you mention Wall Street approval or acquiescence or applauding. It doesn't necessarily mean what a lot of folks back home might think it would mean, because these folks are not about to loan us their own money, and they don't really care whether the transaction is good for the Nation or not as long as they earn their fee, right?

Mr. Bolten. Mr. Cooper, you are raising an interesting caution, but I think you have misunderstood what I was trying to say. I was responding to a question about how Wall Street would react. Because, first of all, I can guarantee you that the President cares a whole lot more about Main Street than he does about Wall Street, just ask him, anytime.

Second, what is important about how Wall Street reacts to the Social Security plan and the additional financing that might be needed in the short run for transitional accounts is the point that whether Mr. Spratt or somebody was raising--which was, whether we would get a terrible reaction from the financial markets, Wall Street, from this additional borrowing, that is, would it cause interest rates to go up? So far we are not hearing that concern from the markets. Interest rates have not gone up in the course of the past few years.

Mr. Cooper. Because the Chinese are funding our debt. Never have more foreigners funded our debt than they do today.

Mr. Bolten. Yes, and to some degree it is important that we maintain the confidence of both the domestic and international markets in what we are doing. But one of the ways we maintain that confidence, and in fact the most important way I believe we can maintain that confidence--and this is the point I was making about Wall Street--the most important way we can maintain that confidence is by getting assurance that we are getting control of our long-term unfunded liabilities of our entitlement programs.

The reason I say you would get applause is that if adopted as part of a comprehensive plan, the personal accounts and the rest of the comprehensive plan to address Social Security, if we did that, we would be giving both domestic and international markets confidence that we can deal with the long-term unfunded liabilities in our system with the fiscal danger that we face, not the perceived danger from the additional borrowing that personal accounts might require. That is why I referred to Wall Street, and only for that reason.

Mr. Cooper. But Mr. Bolten, again you are giving Wall Street too much credit. As long as they earn the fee, as long as they sell their bonds, those folks will be happy and they will get big bonuses at the end of the year. You and I may care about substance, but the market doesn't work that way. They care about completing the transaction, closing the deal.


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