CNBC "The Kudlow Report" - Transcript

Interview

CNBC "The Kudlow Report" - Transcript

CNBC "THE KUDLOW REPORT" INTERVIEW WITH REP. ED PERLMUTTER (D-CO) INTERVIEWER: LARRY KUDLOW
SUBJECT: PROBLEMS WITH FAIR VALUE ACCOUNTING IN DIFFERENT ECONOMIC CYCLES

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MR. KUDLOW: Now, here's a leading Democratic Congressman Ed Perlmutter from Colorado.

Mr. Perlmutter, welcome to the program, sir.

REP. PERLMUTTER: Hi, Larry. Thanks for having me on.

MR. KUDLOW: Now, let me ask you. Robert Herz seems to have been the toughest, most stubborn, recalcitrant. You read his prepared remarks, and there's no movement at all. But from the clips that we just saw, you all gave him a pretty good grilling. Is he now going to begin to understand the need for some liberalization of this because you've got big-bank writedowns coming but there is no market to price them with?

REP. PERLMUTTER: Well, it was clear from the committee that everybody, Democrats and Republicans, had had enough. This thing has been studied to death. They've got to get moving at FASB because what they're doing is it's an artificial writedown that's causing credit to be pulled in all across the country, making it hard for small businesses, for farmers to get loans, to buy inventory, to make payroll. It's just crazy.

MR. KUDLOW: Some people, Mr. Perlmutter, say that, as you say, the artificial writedown or the artificial rule is the one that's killing bank capital and killing banks.

REP. PERLMUTTER: Yes.

MR. KUDLOW: Did this guy Herz acknowledge any of that during the hearing today?

REP. PERLMUTTER: He acknowledged it. The gentleman from the SEC, the comptroller, they all acknowledged it. And then in the second panel where we had Bill Isaac and I think it was Bob McTeer, I mean, they really explained it great. We're artificially causing the capital to collapse because we're not taking into consideration a discounted cash flow. You're just taking the last trade in an illiquid market, and it's really just skewed everything. So, for instance, I think you reported the other night the Seattle Federal Home Loan Bank had $12 million in anticipated losses but had to writedown $304 million. That just doesn't make sense.

MR. KUDLOW: Right. It's insane. And the irony -- the irony, sir -- is that banks are reporting pretty good cash flows right now. Their profits are actually picking up. You've got this upward-sloping normal-yield curve, net-interest margins are rising. So we've got to stop this artificial accounting rule from destroying the capital and the progress in the banks. What's your bill going to do, just in our last moments? You have a bill. What's the thrust of it? What's the key point?

REP. PERLMUTTER: The key point -- Frank Lucas, a Republican from Oklahoma and I and some others -- it has three pieces. One, it maintains disclosure so that investors can see what's going on in a snapshot on a day-to-day basis. It has oversight of a new committee that looks at a broader field than just the SEC which is only really looking at investors. But we have the FED and FDIC. And the third piece is it gives the regulators more discretion.

MR. KUDLOW: It sounds like Ben Bernanke might actually be on your side. You're not saying no disclosure, you're just saying, let's apply the disclosure differently.

REP. PERLMUTTER: That's exactly right.

MR. KUDLOW: And have you spoken to Bernanke? I mean, he's going on "60 Minutes," he's a big celebrity now. Do you think he's on your side? Is he sympathetic?

REP. PERLMUTTER: I think a lot of people are on our side. And you know, we heard from the panel that something has got to be done, and they better get it done within three weeks because this is taking long enough.

MR. KUDLOW: All right. And you're right because there are going to be a lot of bank reports coming out. Democratic Congressman Ed Perlmutter, Colorado, thank you, sir. Appreciate it very much.

REP. PERLMUTTER: Thanks, Larry.

END.

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