Originally published to NACD. Congressman Spencer Bachus is now chairman of the powerful House Financial Services Committee, which has jurisdiction over banks,…
What was your reaction to becoming the first Alabaman to hold the Financial Services chairmanship since the 1800s?
It is a great honor to have the support of my constituents, Speaker Boehner and my Republican colleagues, so I can serve as chairman of the Financial Services Committee. If I do my job well, hopefully Alabama won’t have to wait another 140 years for another committee chairman!
How did you interpret the 2010 election from a political perspective?
The American people did not like what was going on in Washington and they demanded a change in direction. That’s what the 2010 elections were about. The American people saw a record-breaking spending binge going on in Washington, which resulted in a record-breaking budget deficit and a national debt that has grown to once unthinkable levels. In fact, during the previous four years before the 2010 election, our national debt doubled. The American people want us to reduce government spending because they intrinsically understand the path we’re on right now is unsustainable. Real changes and hard decisions must be made. Republicans have gotten that message and our majority in the House is working to fulfill the people’s mandate. It’s certainly not going to be easy, but we have no choice. President Obama recently started using the slogan “Win the Future” to describe his spending programs. But America is not going to win the future if we force our children and grandchildren to inherit a mountain of debt.
Which economic issues will you and your colleagues be most focused on?
The main objective of House Republicans right now is to get the nation’s fiscal house in order so the private sector can grow and create jobs. Our economy will not be healthy until people who want to work can get a job. Making sure the climate is right for people to get jobs is our job.
How do you plan to make that happen?
Excessive government spending and borrowing play a key role in our economy’s uncertain outlook. It crowds out private sector investment, sows uncertainty for job creators and erodes the confidence that is necessary for job growth. Yet, under the President’s own budget projections, the federal government would spend $46 trillion over the next 10 years. That would double the national debt by the end of his term and triple it by the end of the decade.
What are the details of your proposal?
If we’re going to get serious about reducing the deficit and the debt, we must confront the need for entitlement reform. Non-defense discretionary spending is only 16 percent of our budget. You could eliminate all of it and still face an overwhelming problem. Every American who cares about the future of our country should be disappointed that the President chose to punt by not including entitlement reform in his budget proposal. The President has failed to lead on this issue, but House Republicans will. Our budget will specifically deal with entitlement reform. In Washington, it’s been called the “third rail” of politics. You touch it and you die. That means we’re going to have to make a case to the American people that delaying entitlement reform will only make matters worse. By acting now, we can fulfill the mission of health and retirement security for all Americans and can keep the promises we’ve made to our children. But Americans also need to realize that Republicans do not “run” Washington.
What are the political implications?
We have only the House. The Senate and the White House are still controlled by Democrats. So any chance there is of doing something fundamental to control the growth of entitlement spending will have to be done on a bipartisan basis. The Democrats will have to be convinced to join us in this effort for the good of our country.
What should we expect in terms of change in perspective from the past?
The view I bring as chairman, and it’s different than Barney Frank’s, is a belief that our free enterprise system, based on consumer choice, competition and individual initiative, is better for Americans than a “command- and-control” government system. Which sectors of the financial services industry will get the most of your attention and why? Every sector under our jurisdiction will receive the committee’s attention. When the Democrats were the majority, it was a rare event when a subcommittee held a hearing. The Democrats also neglected the committee’s important oversight responsibilities. They never called on the Administration to answer questions concerning programs and bailouts that they initiated.
But aren’t there structural hurdles in how the subcommittees traditionally operate?
We are going to change that. We restructured our subcommittees to allow for a more balanced workload. Under my chairmanship, the subcommittees are playing a vital role in convening hearings and debating key issues. We are fortunate to have a strong committee leadership team that works well together. We will benefit from the expertise of all of our members, including our freshmen. We have nearly a dozen freshmen Republicans on the committee whose backgrounds in banking, business and real estate add a great deal to the panel. The inclusive approach we’re taking allows all members of the committee to be heard. That’s a significant change from the past. To what extent are Fannie Mae and Freddie Mac a subject of focus and why were they excluded from Dodd-Frank reforms? For several years before the financial crisis, the Democrats stalled meaningful GSE reform. Then, even though these GSEs were a proximate cause of the crisis, the Dodd-Frank Act did nothing to reform Fannie Mae and Freddie Mac. Back in 2009, House Republicans were the first to introduce a comprehensive financial regulatory reform bill. We also introduced five additional bills that would unwind the operations of Fannie and Freddie and reform the housing finance system. One of those bills addressed the multimillion-dollar compensation packages for the executives at Fannie and Freddie that the Administration approved. On Christmas Eve 2009, the Administration rewarded the executives of Fannie Mae and Freddie Mac with $6 million pay packages at taxpayer expense. Our bill would have reduced the pay significantly by having the federal GS-level pay scale apply to these executives. During the Dodd-Frank debate, Republicans offered several amendments to the bill that would have added GSE reform. Democrats voted down each amendment. Despite Republican protests, Dodd-Frank left Fannie and Freddie untouched.
How will the approach to the GSE’s change under your oversight?
Reforming Fannie and Freddie is a priority for the Committee. When Treasury released its report on housing finance reform in February, Republicans were pleased that it included some ideas we had already proposed. In a recent hearing, I told [Treasury] Secretary [Timothy] Geithner that Republicans on the committee want to work with the Administration to find some common ground so we can move GSE reform forward. But I also said we cannot look at Fannie and Freddie in isolation. We need comprehensive reform of housing finance, which must include the Federal Housing Administration and have as its ultimate goal a system based on private capital, not taxpayer subsidies.
How do you feel about the Financial Stability Oversight Council—and the law naming systemically significant firms as “too big to fail”?
The government identifying so-called systemically significant firms is very troubling for several reasons. First, it sends a message to market participants that the government will step in and bail out these firms. It enshrines “too big to fail” into law. Next, by saying some firms are “systemically significant,” the taxpayer is viewed as the backstop of the financial markets. This implied guarantee creates new government-sponsored enterprises. We all saw how the implied government guarantee of Fannie Mae and Freddie Mac ended with the biggest taxpayer bailout ever. Third, the identification of being “systemically significant” is unfair because it confers significant competitive advantages while hurting our “too small to save” institutions.
Are you opposed to the Volcker Rule against proprietary trading on the part of banking houses?
During the Dodd-Frank conference committee deliberations, I expressed the view that the Volcker Rule appeared to be a solution in search of a problem, and that its implementation could result in costs to consumers and our economy that far outweighed its benefits. Proprietary trading had virtually nothing to do with the financial crisis. It is therefore doubtful that the Volcker Rule will make the U.S. financial system any more stable, but it will impose substantial costs on the American economy and market participants.
The use of derivatives to hedge business risk has also come under scrutiny. Do you think this area is overdue for some rational review?
The burdensome requirements imposed by the new rules governing derivatives contracts will seriously complicate efforts by U.S. companies to manage business risks. The result, I believe, will be higher prices for consumers and fewer jobs for American workers. Undoubtedly, foreign markets are closely examining how U.S. regulators are implementing Dodd-Frank and stand ready to create a competing non-punitive derivatives marketplace. The derivatives provisions will come at the cost of long-term damage to the ability of U.S. firms to compete in the global economy and create sustainable employment for American workers. The SEC’s budget issues are well known, and the outcry will most likely be they need the funds to do the job.
How do you respond?
The Committee will soon receive a report that was mandated by the Dodd-Frank Act concerning SEC organizational reform. This report will help the Committee identify wasteful, inefficient and outdated regulatory programs and operations to better allocate the SEC’s financial and human resources. Therefore, I believe any budgetary increases for the agency should wait until this study tells Congress about important changes that must occur within the Commission in order for it to be an effective supervisor of the U.S. capital markets.