CNBC Interview with Rep. Charles Boustany and Rep. Joe Sestak - Transcript
Interview
CNBC INTERVIEW WITH REP. CHARLES BOUSTANY (R-LA) AND REP. JOE SESTAK (D-PA)
SUBJECT: THE ECONOMY INTERVIEWERS: TRISH REGAN, LARRY KUDLOW
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MS. REGAN: And in the meantime, joining us now, we want to discuss these stress tests. And we have Republic Congressman Charles Boustany from Louisiana and Democratic Congressman Joe Sestak from Pennsylvania.
Welcome to you both, gentlemen.
REP. SESTAK: Thank you.
MS. REGAN: Congressman Boustany, I'll start with you. The market's been really worried about these. Is this in some way inadvertently causing a bigger problem than intended?
REP. BOUSTANY: Well, that is my concern. And I think the American taxpayer wants to know what the exit strategy is to get the government out of our banking system. And so we need some certainty there. And I do have concerns about how the economic modeling is going to be used and whether this will create more problems than solutions.
MR. KUDLOW: Mr. Sestak, let me pick up on Trish's question to you. Basically, are you concerned that the stress test can lead to more government ownership, further burial of shareholders and private investors, and government picking new CEOs? Are those risks here?
REP. SESTAK: When I left the military a few years ago and came to government, I was always surprised that we seem to be saying, "What now?" in a reactive mode rather than "What if? -- what's the scenario we need to be planning for? So for the first time in this crisis that we have, I see the government rightfully saying, "What if the economy is the worse than the future portends?" And so I think that's very good. I actually think they're too optimistic in their adverse conditions.
Number two -- and --
MS. REGAN: But, Congressman Sestak, let me jump in there for a moment. To a certain extent, isn't the market supposed to be responsible for that? I mean, if we're looking at a stock that's trading two, three, four dollars a share, isn't the market then telling you there's a problem?
REP. SESTAK: There's two points here. If you remember back after the Great -- in the Great Depression, as President Roosevelt took over, he actually -- as unemployment had risen in the previous four years to 27 percent -- said, let's have a banking holiday. He actually did for two days a stress test and kept 10 banks closed, and restored confidence in the banking industry.
Number two, to the point that was made earlier, actually the government has been giving, as you know, under the CCP program preferred stock. That actually has made investors less wanting now to invest into our banks where we want them to come back. And if we had done nothing, they wouldn't be asking at all.
Now, what what we're going to do is have a higher capital adequacy test by having it be preferred convertible stock. So are actually going to help the liquidity and get the mother milk of our economy going again, which is credit.
MR. KUDLOW: Well, Mr. Boustany, suppose Citibank -- I don't think anybody's going to fail the stress test -- but suppose Citibank comes to the closest to failure. It's a hypothetical. We don't seem to want to close banks down. I mean, the depositors are guaranteed. Bondholders have certain safeguards. But we don't use Chapter 11. We don't use the bankruptcy provision. What we do use is greater government control, government ownership and choosing CEOs. Does that trouble you? Are we going down the right path here?
REP. BOUSTANY: Well, that troubles me greatly. And you know, in physics, you have the Heisenberg uncertainty principle where testing actually alters the results. And so I really have concerns about the fact that we're actually deepening our federal government's involvement in the day-to-day decision-making of our banks, and without real evidence of what is the exit strategy.
We've got a number of banks, for instance, that have tried to return TARP money. One in my district, in my hometown, was the very first bank, Iberia Bank, to return TARP money. But other banks are having trouble when they want to return the money, which I believe is responsible.
So you know, clearly we have to get the government out. We need to see what exactly is the exit strategy --
MR. KUDLOW: That's really a key point.
REP. BOUSTANY: -- and give some certainty.
MR. KUDLOW: The exit strategy. I wish more people -- Mr. Sestak, I wish more people would be looking at exit strategies instead of deeper involvement by the government.
REP. SESTAK: Well, to the point is, I believe rightfully that -- excuse me -- I believe that the U.S. government is the only global haven where people are putting their money, and we can borrow it at a relatively low rate to get us out of the calamity that we're in. I think it's a lesser of two evils of doing nothing.
Now, the proper exit strategy, I believe, is, how do they now let others know for, in this specific case, that we want to come out of this in the right way? I believe they shouldn't be letting everybody know the innards of every stress test here. They've got to let them know something because then they think the banking industry is failing as whole.
So, for example --
MS. REGAN: Yeah.
REP. SESTAK: -- to Charlie's point, which I think is very good, let those who come out very well return their TARP money.
MR. KUDLOW: Right! I love that. I love that! Right!
REP. SESTAK: And -- and -- and four banks have already done so --
MR. KUDLOW: Right!
REP. SESTAK: -- as you know just recently.
But, number two --
MR. KUDLOW: But they may not be able to. I mean, that's the big issue. I think you're dead on, right on the money, sir.
REP. SESTAK: And if they're not able to, you urge them to keep the TARP money. But those that must have more capital in it, then you would give them the six months as the exit strategy, see if they can get it from private --
MS. REGAN: Yeah.
REP. SESTAK: -- do private first, which the government is going to do. If not, they come to us.
MS. REGAN: Well, and then the market forces will come into play, of course, because anybody's who's not able to return the TARP money at that point, well, investors are not really going to want to have too much a part of.
REP. SESTAK: Exactly.
MS. REGAN: But you know, maybe that's fair in the end game.
REP. SESTAK: I just want to get through this financial storm. And in the Navy, I learned, boy, if you're in a financial -- if you're in a storm, hit the gas, get out, quickest possible way -- and we're the only one with any gas money right now -- then let the normal market forces get us going where we need to do.
MS. REGAN: Gentlemen, thank you so much. We look forward to seeing these guidelines this afternoon.
REP. BOUSTANY: Thank you.
REP. SESTAK: Thank you.
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