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The Future of the American Economy

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Date:
Location: Washington, DC

BREAK IN TRANSCRIPT

Mr. WELCH. Thank you very much. It's been a pleasure listening to you and Mr. Ryan.

We have to acknowledge something, those of us who supported the stimulus as something that was necessary because of the collapse in the economy, those of us who decided to assent to the request by President Bush to stabilize the financial system and to do something we didn't really want to do but felt it was necessary to do. And that is that despite the gross domestic product increasing, despite the positive signs that have been cited by you and Mr. Ryan, this is still a depression for any American who doesn't have his or her job. And when you have 10 percent unemployment, which I think is the real measure of the strength of this economy, you know we have an economy that continues to struggle. And we have to do a number of things. Yes, we did have to have a stimulus, and it was focused where it would do the most good. We did have to stabilize the financial system, but that's going to add a burden until that is repaid.

But one of the things we have to do is understand what is the proper role of the private sector and what's the proper role of government. This has been an ongoing debate. In the United States, people who have been frustrated that the government has gotten it wrong have come to a conclusion that it can never get it right. People who have had faith in the private sector have had a view that they can never get it wrong. And, in fact, some of both is the case. Unless we have a cop on the beat, a government that's willing to make rules that give everybody a shot who play by the rules and work hard, and whose goal in doing it, running a business, is to provide good service, to provide a good product at a fair price, then we won't have the economy that we need.

Now I want to just give a couple of examples. The financial crisis was brought on by the recklessness, largely, of Wall Street banks. Let me give an example. The famous one, of course, is Goldman Sachs. Goldman Sachs made a lot of money on subprime mortgages, a lot of money on buying and selling commodities. They went from an investment bank that made most of its money by lending money to businesses and to people who had ideas about how to create jobs and create companies and create wealth, they transformed from doing that to buying and selling derivatives, currencies, commodities, and banking money on trading. Nothing wrong with that, but it's not banking. It's not putting money into the financial sector.

When they had a client, a hedge fund billionaire, who called them up and said, Hey, I've got an idea. I think that this explosion in real estate values is going to collapse. I want you to put together a package of subprime mortgages that you believe will fail, that I believe will fail, so that I can then sell those and bet against them, Goldman Sachs said, fine. It's a client. They are paying money. They paid big fees, and they had a request. Nothing illegal about it. Nothing useful about it, but nothing illegal about it. Goldman Sachs helped put that package together, and then they turned around and sold this package that was guaranteed--it was designed to fail, literally designed to fail.

They then went to the rolodex and called up other clients, like pension funds. Those are people like firefighters, like police officers, like teachers, and they said, Hey, we have a deal for you: AAA-rated, high-yielding subprime asset pool--can't go wrong. So Goldman Sachs literally provided a service to one client. That service was developing a product to fail. Then they called up their other clients and sold it to them where it was guaranteed to succeed. Not guaranteed. But obviously Goldman traded on its reputation. And the people they called, these pension funds--if Goldman was for it, it must be vetted, it must be good, it must be secure.

And what happened? Mr. Paulson, the hedge fund billionaire, made $1 billion more. And those pension funds, those municipalities, those other people who relied on the good reputation of Goldman Sachs lost $1 billion. It destroyed wealth. And what does that do to the American people? Legitimately and understandably, it erodes their confidence.

So in my view, we have a lot of reason to be justifiably furious at Wall Street practices where they strayed from what would be done on Main Street. And I ask as I'm speaking, Any one of you, in your State of Ohio, in your State, Mr. Murphy, of Connecticut, or anyone out there from Montana to North Dakota, your local banker, can you imagine your local banker literally having one neighbor say, I want you to design something to fail, and then selling it to another neighbor where they knew they would lose? It wouldn't happen. But that was legal on Wall Street. It's wrong. It never should have happened.

Now there's a governmental role here where the government failed. The Securities and Exchange Commission, the Federal Reserve. This explosion in asset values and real estate values and subprime mortgages, where people were permitted who had no income, who had no job, who had no proof of assets, no proof of ability to pay were given loans for $400,000, $500,000 or $600,000. The regulators had a responsibility to apply the law of financial gravity and not permit that to occur. So this is a situation where people who point the finger of responsibility at government not standing up for right, but those same people can't say that all we should do is destroy regulation altogether and let the private sector do what it wants, because it has led, in this case, to excess, to explosion, or destruction, of value. And a lot of individual people have suffered as a result of the loss of their hard-earned income. So there's a role. There is a role and has to be a role for government to be the cop on the beat and to help folks who are working hard and playing by the rules and trying to reinvest in their own community to be successful.

I would be glad at this time to yield to my good friend from Ohio (Mr. Boccieri).

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Mr. WELCH. Thank you, Mr. Murphy.

You know, when you are talking about the Chinese yuan and currency manipulation, that's far removed from most people on Main Street, but it has a real impact, especially on our manufacturing economy. And I am among many in this Chamber who believe that, for America to have strong long-term economic growth, we have to revive, not abandon, manufacturing. And in the stimulus there were commitments made to do it in the energy sector. And we know, I think if we are a confident Nation, we are not going to pretend that the energy policy that we have now, relying on a 19th century fuel where we have to send almost $900 billion of our money abroad to bring oil in, that if we take on the challenge of the new energy economy, we can create jobs.

And on the stimulus, you know, nothing worked, including the stimulus, for anybody who is still out of work. But there are very solid, very simple, straightforward examples of how it did make a difference for many people, and I want to tell one about Barre, Vermont, a small, hardworking, very proud town with a tradition of work in the granite quarries. And we are losing jobs and have been losing them for years to Chinese imports.

But we have a company called Sprague Electric. It's a small company that's been there for years, and it was really having a hard time staying ahead with the collapse in the economy. Their product was something that was used in Tasers. But the engineers there developed a product called a capacitator that could be used in electric vehicles, and of course that's all part of what we want in our new energy economy.

They had an immense amount of interest in this. They were getting interest from car manufacturers. And they had to decide whether to build a plant or expand their plant in Barre, Vermont, or to do it in China to take advantage of the lower labor rates. And these folks wanted to stay in Barre if they could, but the law of economics means they've got to be able to sustain themselves.

They were within 2 days of going ahead and making a commitment to develop this plant in China when the stimulus bill was passed, and it had in there the opportunity for companies to apply to get energy grants. They applied, and they put their decision to move to China on hold. They got the grant, several million dollars. And only a few months ago, the Republican Governor of Vermont and the Democratic Congressman from Vermont joined the people of Sprague Electric at a groundbreaking, where they were opening up the construction of a brand new factory with great jobs for the people in Barre, Vermont. That's real, and it took some governmental involvement.

And that's an investment of taxpayer money that's going to come back with taxpayer revenues, but real strength in that community where they're going to have a great new factory with great new jobs developing a product that's going to have ripple effects across Vermont.

I yield to my good friend, Mr. Boccieri.

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