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Senate Proceeding on Apr 26th, 2010 :: 2:29:00 to 2:53:55
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Judd Gregg

2:28:56 to 2:29:16( Edit History Discussion )

Judd Gregg: congressional session, but for . he floor. a senator: mr. president? the presiding officer: the senator from new hampshire. mr. gregg: mr. president, i wanted to rise to speak on this bill also. it's a complex piece of legislation that's difficult to debate in a sense that is understandable because there is

Judd Gregg

2:29:00 to 2:53:55( Edit History Discussion )
Speech By: Judd Gregg

Judd Gregg

2:29:17 to 2:29:38( Edit History Discussion )

Judd Gregg: so much technical -- so much of a thnical aspect to the bill, but let's start with the purpose, what i believe our purposes should be. our purpose would be, one, to do as much as we can to build a regulatory regime which will reduce the potential f event, the type of which we had in the end of 2008 where we had

Judd Gregg

2:29:39 to 2:29:59( Edit History Discussion )

Judd Gregg: a massive breakdown in the system, financial system of this country, and as a result of huge systemic risks being built into the system which wasn't properly regulated and certainly was not handled correctly by either the financial institutions or by the congress. congress maintains a fairly significant responsibility for

Judd Gregg

2:30:00 to 2:30:21( Edit History Discussion )

Judd Gregg: the meltdown that occurred at the end of 2008 for the policies that we had running up to that period in the area of housing. that should be our first goal. prospectively, trying to reduce systemic risk as much as possible in the system through putting in place policies which will do that and accomplish

Judd Gregg

2:30:22 to 2:30:42( Edit History Discussion )

Judd Gregg: that. the second goal should, however, be that we maintain what is a unique and really rare strength which america has, which is that we have the capacity as a country to create capital and credit in a very aggressive way so that entrepreneurs who are willing to go out and take risks have access to capital and

Judd Gregg

2:30:43 to 2:31:03( Edit History Discussion )

Judd Gregg: credit, and that creates jobs and that creates the dynamics of our economy. and we shouldn't put in place a regulatory regime that overly reacts and, as a result, significantly dampens our capacity to have the most vibrant capital and credit markets in the world while still

Judd Gregg

2:31:04 to 2:31:25( Edit History Discussion )

Judd Gregg: having a safe capital and credit -- safe and sound credit markets. now, the bill that the senator from connecticut is bringing forward, i presume, have a lot of different sections in it. i just want to focus on one, because it's become the point of significant attention and that's the derivatives section.

Judd Gregg

2:31:26 to 2:31:47( Edit History Discussion )

Judd Gregg: derivatives are extraordinarily complex instruments and there are a lot of different variations of derivatives. they're basically insurance policies on underlying product that is occurring somewhere in the economy. and their notional value is almost staggering. $600 trillion of notional value out there in derivatives, which is just a number that nobody can

Judd Gregg

2:31:48 to 2:32:09( Edit History Discussion )

Judd Gregg: comprehend, but you can understand it's a pretty big issue. notional value means, of course, that if everything were to go wrong at the same time, you'd have $600 trillion of insurance sitting out there that had to be paid off. that's not obviously ever going to happen, but the fact is it shows the size of this market and what its implications are. and all sorts of different

Judd Gregg

2:32:10 to 2:32:32( Edit History Discussion )

Judd Gregg: elemts in this market. and its not even a hundred, it's thousands, tens of thousands of different and various things that are being -- having derivatives run -- written against tm, although they divide into pretty understandable categories. within the bill that came thagriculture committee, there

Judd Gregg

2:32:33 to 2:32:54( Edit History Discussion )

Judd Gregg: was a, well, for lack of a better word, an antipathy expressed towards the entities which presently manage the derivatives markets in this country, which are essentially the large financial houses, and there was an equally antipathy expressed relati to the enties that use these derivatives amounts of manufacturing

Judd Gregg

2:32:55 to 2:33:16( Edit History Discussion )

Judd Gregg: companies in this country, people who are dealing with financial debt instruments in this country, pple who are dealing with the housing markets in this country. it was almost as if somebody sat back and said, we really dislike these folks and we're going to put in place a regime sort of gratuitously penalize

Judd Gregg

2:33:17 to 2:33:37( Edit History Discussion )

Judd Gregg: them for the business that they do because we just don't like it it. it's too big, it's too complicated and i think the people who wrote it fel it wasn't understandable and, therefore, they decided to -- to take -- put forward proposals which will fundamentally undermine the capacity to do derivatives in this country. is that bad?

Judd Gregg

2:33:38 to 2:33:58( Edit History Discussion )

Judd Gregg: yes, it's very bad, because derivatives basically are at the -- are used for the purposes of making commerc work in our nation. of making it possible for people to borrow money in our nation, of making it possible for companies to sell overseas in our nation, making it possible for people to put a product in a -- in the stream of commerce and presume that when they enter

Judd Gregg

2:33:59 to 2:34:20( Edit History Discussion )

Judd Gregg: into an agreement on that product, the price will be not effected by extraneous events such as fluctuations in the currency costs or fluctuations in material cost. so it's really critical that we get the derivatives language right. now, there needs to be a significant

Judd Gregg

2:34:21 to 2:34:41( Edit History Discussion )

Judd Gregg: regulatory regime of derivatives. and the essence of the exercise shou maintaing adequate capital for the counterparties and margins, liquidity. that should be where we focus our energy. trying to make sure that the

Judd Gregg

2:34:42 to 2:35:04( Edit History Discussion )

Judd Gregg: different derivatives that are brought to the market are as transparent as possible and also have behind them the support they need in the form of collatal, capital and margin to, if paid off, for lack of a better word. this proposal, however, as it came out of the agriculture

Judd Gregg

2:35:05 to 2:35:25( Edit History Discussion )

Judd Gregg: committee, doesn't try to accomplish that. rather, it tries to essentially eviscerate the u of derivatives as products amongst a large segment of our economy. it sets up something called section 106 essentially says that the people who are doing derivatives today, which are for the most part large financial houses, must

Judd Gregg

2:35:26 to 2:35:46( Edit History Discussion )

Judd Gregg: spin those products off from their financial houses. now, that sounds in concept like a reasonable idea, especially if you were in argentina and working for the peron government. but as a very practical matter, it's a concept which will do fundamental harm to the vitality of our economy. why? because you won't have a lot of derivative products in this

Judd Gregg

2:35:47 to 2:36:09( Edit History Discussion )

Judd Gregg: country that will be able to pass the test of being spun off. you don't have to listen to me to believe this. let me just quote from a message that was sent to us by the federal reserve, which is reasonably fair arbiter in this exercise. they -- they really don't have a dog in this fight other than financial stability of our

Judd Gregg

2:36:10 to 2:36:31( Edit History Discussion )

Judd Gregg: country. section 106 -- this is the fed talking, not me -- "would impair financial stability and strong prudential regulations of derivatives, would have serious consequences for the competitiveness of the united states financial institutions, and would be highly disruptive and costly, both for banks their customers."

Judd Gregg

2:36:32 to 2:36:52( Edit History Discussion )

Judd Gregg: that's about as accurate and succinct statement as to what the affect of this section would be as i could have said. i didn't say it. nobodyould probably believe me. the fed said it, the fair arbiter said it. now, why did they say that? well, it's pretty obvious, if you know anything abo the way these products work, but essentially if you spin off

Judd Gregg

2:36:53 to 2:37:14( Edit History Discussion )

Judd Gregg: these products, you're going to have to create entities out there to replicate the entities that they were spun off of. so if a large financial institution is now doing derivatives and you spin the derivatives desk off, the swap desk off from that financial entity, that spun-off event is

Judd Gregg

2:37:15 to 2:37:37( Edit History Discussion )

Judd Gregg: going to have to replicate the capital structure of the financial institution which was basically underpinning the derivatives desk. and so that capital structure is estimated to be somewhere in the vicinity of a quarter of a billion -- a quarter of a trillion dollars to half a trillion dollars.

Judd Gregg

2:37:38 to 2:37:58( Edit History Discussion )

Judd Gregg: of capital will have to be created. well, what's the affect of that? when you start putting capital like that into the system, that capital comes from somewhere, assuming it comes at all, it comes from somewhere. and where it comes from, quite honestly, is the credit worthiness of other activity.

Judd Gregg

2:37:59 to 2:38:19( Edit History Discussion )

Judd Gregg: it's not new capital. it's taking capital and recreating an event, a freestanding entity here, which capital isn't around. it also will mean that there will be a this is an estimate not of the fed but of the group of entities that actually do this business

Judd Gregg

2:38:20 to 2:38:43( Edit History Discussion )

Judd Gregg: and, therefore, it can be called suspect, but i think it's in the ballpark. it will take a couple hundred billion dollars. it will also cause a contraction of about $700 billion in credit in this country, to say nothing of the fact that if you're looking for a derivatives contract and you can't go to the financial houses that usually do

Judd Gregg

2:38:44 to 2:39:04( Edit History Discussion )

Judd Gregg: it in the united states and you're a commercial entity or a hedging group, you're going to go overseas and do it because they aren't going to have these types of restrictions. and you're going to be able to buy that contract in singapore. so a large amount of entiies, a large amount of business will move offshore almost immediately

Judd Gregg

2:39:05 to 2:39:26( Edit History Discussion )

Judd Gregg: upon the passage of this bill should this section be kept in. and is it necessary, is the question. is it necessary to make the derivatives market work right in this country? absolutely not. this is just punitive language put in out of spite because there is a movement in this

Judd Gregg

2:39:27 to 2:39:47( Edit History Discussion )

Judd Gregg: country and in this congress, unfortunately, which i call partnering populism -- pandering populism, which just simply dislikes anything that has to do with wall street -- sure, they did a lot of things wrong and they caused a lot of problems -- but if you're going to apply the problems that occurred here fairly, we should be looking in the mirrort ourselves for a

Judd Gregg

2:39:48 to 2:40:09( Edit History Discussion )

Judd Gregg: lot of things that happened in the on a housing market that couldn't sustain it. it's just penal. that's the purpose of this, punitive. and in the end i off our nose to spite our face because our -- it will be our credit that contracts and it will be our business -- and business can be done and could

Judd Gregg

2:40:10 to 2:40:31( Edit History Discussion )

Judd Gregg: be done in a very effective way here in the unitedtates overseas. what should be done here, what should be done rather than this exercise, as the fed has said, in caung a highly disruptive and costly effect on banks and their customers and having serious consequences on the competitiveness of the united states? remember, we are competing in the world. that may have escaped -- escaped

Judd Gregg

2:40:32 to 2:40:52( Edit History Discussion )

Judd Gregg: the attention of the agriculture committee when they wrote this language, but we are i competition on the -- derivatives are american product. they are a world product. so these are jobs that go overseas, this is credit that goes overseas, thi that goes overseas, this is main street that will be affected by this language.

Judd Gregg

2:40:53 to 2:41:13( Edit History Discussion )

Judd Gregg: how should it have been done? well, it should have been done in a rational way, not in a punitive way. we know that the derivatives market was not transparent enough. we know that there was not enough capital, liquidity, margin, whatever you want to call it, behind the products and the counterparties that were exchanging products in the derivatives markets in the

Judd Gregg

2:41:14 to 2:41:34( Edit History Discussion )

Judd Gregg: over-the-counter system. we know, because we got a.i.g. as example number one, that a tremendous amount of c.d.s.'s especial rember being written with nothing behind them except a name -- especially being written with nothing behind them except a name. we can fix all that and it can be fixed in a way that almost

Judd Gregg

2:41:35 to 2:41:56( Edit History Discussion )

Judd Gregg: everybody is comfortable with by, first, making sure that only the exempted products from going to a clearinghouse are products which have a specific commercial use and are customized and are narrow. and that the people doing those products are not large enough in

Judd Gregg

2:41:57 to 2:42:19( Edit History Discussion )

Judd Gregg: their business so that there are systemic issues. secondly, we put everybody else on a clearinghouse. what's a clearinghouse mean? well, it essentially means there will be a third party insurer or holder, of the basket of assets necessary to support the derivatives contracts.

Judd Gregg

2:42:20 to 2:42:40( Edit History Discussion )

Judd Gregg: so that we are fairly confident that when a trade is made on a clearinghouse, the counterparties have the liquidity and the margin behind their positions to support their trades. at the same time, the clearinghouse itself must be structured in a way that it has ad and where's that capital going to come from? it can only come from one place,

Judd Gregg

2:42:41 to 2:43:03( Edit History Discussion )

Judd Gregg: really, it comes from the people who trade in these instruments they're going to have to put up the capital. and the regulators -- cftc -- will have direct aess to controlling and making sure that that capital is adequate in the clearinghouses and making sure that the clearinghouses are adequately monitoring the

Judd Gregg

2:43:04 to 2:43:24( Edit History Discussion )

Judd Gregg: contracts. and then as the contracts become more standardized -- and they will and they can, we all accept that -- they move over to exchanges, where they're basically traded like stock and then you've taken -- then you have absolute transparency, price disclosure and you -- you don't have the issue --

Judd Gregg

2:43:25 to 2:43:45( Edit History Discussion )

Judd Gregg: of the over-the-counter market that caused so much problems for us. and that will happen. that will happen almost naturally, but you could have the regulator stand up and say, well, we tnk this group of derivatives is standardized enough and you've got to move it to an exchange. we could give that power to the regulators. that makes sense. but it would happen naturally

Judd Gregg

2:43:46 to 2:44:07( Edit History Discussion )

Judd Gregg: anyway as we moved on to -- as these effective and standardizing the products and people become mor comfortable with standardized products in these areas. and, of course, there would have to be realtime disclosure to the relators of what the were if they are o.t.c. prices

Judd Gregg

2:44:08 to 2:44:29( Edit History Discussion )

Judd Gregg: or clearinghouse prices so that they know what's going on. and then it would be up to the regulators to decide when that information should be disclosed to the markets, depending on how you make these markets. sometimes you information immediately, otherwise you wouldn't be able to make a market, otherwise you wouldn't be able to do the contracts and, therefore, you wouldn't be able to do the business which underlies the

Judd Gregg

2:44:30 to 2:44:50( Edit History Discussion )

Judd Gregg: need for the derivat so all of that could all of that could be done, and it does not require creating this entity or these series of federal reserve has described as impairing theinancial stability and strong prudential

Judd Gregg

2:44:51 to 2:45:13( Edit History Discussion )

Judd Gregg: regulation of derivatives. in other words, what reserve is saying is that when you go the direction of what is being proposed in the agriculture comm area of derivatives and set up this you're not making things stronger inur financial structure. you're making them weaker.

Judd Gregg

2:45:14 to 2:45:35( Edit History Discussion )

Judd Gregg: you're s the strength of the regulatory arms that guide the or oversee derivatives, and you're also, as imansed earlier, creating -- as i mentioned earlier, creating an almost guaranteed-to-fail situation with regard to the need for capital to support these transitions.

Judd Gregg

2:45:36 to 2:45:57( Edit History Discussion )

Judd Gregg: it's just -- it just makes no sense at all. you know, derivatives are, by definition, a bank product, sod idea that they have to be spun out of banks and financial institutions is on its face absurd. really absurd. and just counterproductive to

Judd Gregg

2:45:58 to 2:46:18( Edit History Discussion )

Judd Gregg: the whole purpose of doing derivatives, which are very important. you know, the congress recognizes that. in gramm-leech-bliley, we call derivatives a bank product. we understand that then. we seem to hav forgotton now. you know, i have real estate been trying behind this type of language,

Judd Gregg

2:46:19 to 2:46:40( Edit History Discussion )

Judd Gregg: because it's so destructive to our competiveness as a nation, really. i mean, this is the type of thing, as i said earlier, you would have seen in argentine tha--argentina in the 1950's, an tashing on entities simply because they're large because obviously the's a

Judd Gregg

2:46:41 to 2:47:01( Edit History Discussion )

Judd Gregg: populous feeling against them. winds up, by the sign?icantly -- which ends up, by the way, significantly affecting mainstream in a negative way. look aentina, in 1945 -- 1937, somewhere in that period, they were the seventh-best

Judd Gregg

2:47:02 to 2:47:22( Edit History Discussion )

Judd Gregg: economy in the world. now they're like 54th or something. it is because of this populous movement which has driven basically their ability to be competitive offshore. so now we havehis huge populous movement here. i'm trying to think, what really is the rationale here other than

Judd Gregg

2:47:23 to 2:47:43( Edit History Discussion )

Judd Gregg: just rampant aote occurred in the budget committee last week, which i happen for ranking member on, which crystallized the situation for me. senator sders from vermont, who i consider a friend and i enjoy immensely, a great guy, a great sense of humor -- but we disagree son a lost thifntle he

Judd Gregg

2:47:44 to 2:48:04( Edit History Discussion )

Judd Gregg: runs as a social i run as senator sanders offered an amendment which said that the government -- the government would be four or five people down ototreasury or three o four people down oto-- i don't know where they'd be, some new offi right to break up large

Judd Gregg

2:48:05 to 2:48:25( Edit History Discussion )

Judd Gregg: corporations. didn't say "break up large corporations which had problems." which had overextended themselves, which everybody agrees should happen. that's talking a he's done extraordinary work in this area, and i'm eelly supportive of his -- and rulely support of it of h efforts in resolution thomplet where if a big bank, a big

Judd Gregg

2:48:26 to 2:48:50( Edit History Discussion )

Judd Gregg: financial house or big entity gets into trouble, they've overextended themselves, they're essentially insolvent, they get broken up. there's no -- the tpayers do not come in, in any way, shape, or manner, and support that that's what t language does. i believe the senator from connecticut has tried to

Judd Gregg

2:48:51 to 2:49:12( Edit History Discussion )

Judd Gregg: incorporate a lot amount of that. that should be our policy. but what the sanders amendment said was that any bank, any financial house could be broken up simply because it was deemed to be "big." no matter how resilient or strong it is, no matter if it is a major player for our nation

Judd Gregg

2:49:13 to 2:49:34( Edit History Discussion )

Judd Gregg: and being more competively internationally -- rember when an american company goes overseas, they want to use an american bank. they don't want to have to use the credit suisse or the bank of singapore. they want to use it an american bank to follow them around the world.

Judd Gregg

2:49:35 to 2:49:55( Edit History Discussion )

Judd Gregg: the banks have to be pretty big to do that. this language would have said, no matter how strong and profitable you are and how much -- how robust you you contribute to the american financial system -- we need large financial instions that can support very complex, sophisticated international

Judd Gregg

2:49:56 to 2:50:16( Edit History Discussion )

Judd Gregg: activity and come to stuck economic activity -- that they would be broken up because a group of people here in washington didn't like them social policy, social justice reasons. they didn't lend enough men to some group that they wanted to lend to. or they lent too much money to some group they didn't want

Judd Gregg

2:50:17 to 2:50:38( Edit History Discussion )

Judd Gregg: money lent to. for social reasons we'll break up this company is strong and fiscally responsible. that was the policy proposed in the budget committee. ten people voted for that policy. ten. ten out 2692 people who voted

Judd Gregg

2:50:39 to 2:51:00( Edit History Discussion )

Judd Gregg: voted for that policy. where does that stop? where does that stop in where does this section 106 stop? do we break up wail they're not union? do we because they sell foods that some people think makes you too fat? do we break up coca-cola because

Judd Gregg

2:51:01 to 2:51:21( Edit History Discussion )

Judd Gregg: they hav their products? country that gets broken up because there is an attitude that big is bad, whether it contributes or happen to be big and

Judd Gregg

2:51:22 to 2:51:42( Edit History Discussion )

Judd Gregg: which case you get u.a.w. was able to work out for g.m. and chrysler. this language isn't about fixing the derivatives market at all. you can fix the derivatives market in a most comprehensive and substantive way that keeps americans the best way to create these types of product

Judd Gregg

2:51:43 to 2:52:03( Edit History Discussion )

Judd Gregg: the most sound and safe way. you can do that. as i've outlined pretty specifically how you would do it, without this section i will close by reading one more time how the fair arbiter has defined it, the federal reserve. this is such a damaging section that it cannot be underestimated the damage that would be done to our economy were it to be

Judd Gregg

2:52:04 to 2:52:24( Edit History Discussion )

Judd Gregg: approved. section 106 would impair the financial stability and the strong regulations of derivatives, would have serious consequences for the competitiveness of the united states financial institutions and would be highly disruptive and costly both to the banks and their customers.

Judd Gregg

2:52:25 to 2:52:46( Edit History Discussion )

Judd Gregg: and, rember, their customers are the people that work on main street for the dhaps use derivatives. and almost every company in this country of any size uses a derivative to hedge their risks. ironically, this is all done in the name of social

Judd Gregg

2:52:47 to 2:53:07( Edit History Discussion )

Judd Gregg: because wall street is bad. so we're just going to go out and cut off our nose despite our face. it is incomprehensible that a nation which has become as strong and as vibrant as we have by promoting a market economy would decide to go down this

Judd Gregg

2:53:08 to 2:53:29( Edit History Discussion )

Judd Gregg: route. which is the an tinge me of a market commitment of but that's where we're. that's what's happening. that's the direction we're going. unnecessary, by the way, as i said earlier. unnecessary. because a derivative can be made safer and sounder by simply

Judd Gregg

2:53:30 to 2:53:53( Edit History Discussion )

Judd Gregg: restructuring the transparency and the manner in which they are put on clearinghouses, the amount of those that are subject to exemption and pushing people towards exchanges to the fullest extent possible and the extent it will work. all of that can be done without

Judd Gregg

2:53:54 to 2:53:59( Edit History Discussion )

Judd Gregg: this diploma type of language, which is

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