Towns-Bachus-Frank Squabble Underscores Need for 9/11 Commission to Examine Financial Crisis

April 3, 2009

WASHINGTON. D.C. – House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-CA) released the following statement defending statements made by committee Chairman Edolphus Towns (D-NY) and Financial Services Ranking Member Spencer Bachus (R-Ala.) regarding the pace in which Congress works to address the financial meltdown:

“Four months ago, Chairman Frank promised me that the he was not going to steal the Oversight Committee’s jurisdiction to investigate the financial crisis.  Rep. Frank labeled Republican opposition to lowering mortgage underwriting standards as racist and he rushed flawed bailout legislation through his committee without proper scrutiny.  We have all seen what unintended consequences can result when Congress rushes to judgment and acts out of expediency rather than what is in the best interest of our country.

“Contrary to what Chairman Frank believes, Chairman Towns and Ranking Member Bachus are right to put the onus on substance rather than swiftness.  All too often, the rush to meet a political deadline results in a substantial void in transparency that only hinders our efforts to jumpstart our economy and has resulted in the wasteful and ineffective use of TARP and other taxpayer funds.

“At a time when unemployment has reached its highest level in a quarter-century, we need to put a spotlight on the root causes of this crisis.  Like we did with the 9/11 commission, a bipartisan and independent body can provide a credible blueprint that Congress can utilize to help determine what kinds of reforms we can implement that will have the most immediate impact on our economy.  One would think that every member of Congress would have a vested interest in pushing for a credible and substantial examination of what went wrong and why, but Chairman Frank may not want that kind of scrutiny on his role in the financial crisis.”

Rep. Issa has introduced the Financial Oversight Commission Act, H.R. 74, which would create an independent and bipartisan panel to study and issue a report on the causes, handling, and way forward from the current financial crisis.  This proposal comes as Congress considers releasing the remaining $350 billion of TARP funds.

Under the legislative proposal, the National Commission on the Financial Crisis shall:

  • Be comprised of 10 members – not more than five from any political party – and appointed in the same manner as the 9/11 Commission.
  • Have subpoena power and will conduct public hearings.
  • Give the American people an objective and credible assessment, of the causes and handling of the financial crisis of 2008.
  • In a report, make a full and complete accounting of the circumstances surrounding the crisis, the private sector and government role in causing the crisis, and the extent of the United States’ preparedness for, and immediate response to the crisis.  The report shall offer conclusions, and recommendations for corrective measures that can be taken to prevent further economic breakdown.
  • The commission shall build upon and examine the investigations of other entities, and avoid unnecessary duplication, by reviewing the findings, conclusions, and recommendations of such investigations.

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 Leading The News

Frank dismisses Towns’s plan to slow down reform

By Mike Soraghan

The chairmen of two key committees are at odds over the pace with which Congress should overhaul the nation’s financial regulatory system.

House Oversight and Government Reform Committee Chairman Edolphus Towns (D-N.Y.), whose committee has undertaken a series of hearings on the AIG bailout, offered a “word of caution” Thursday about the pace of the overhaul.

“I would urge my colleagues on this committee and elsewhere not to move too quickly to reform the financial sector without first fully understanding what caused this financial meltdown,” Towns said during Thursday’s hearing featuring testimony from AIG’s former chief.

But Financial Services Committee Chairman Barney Frank (D-Mass.), who is at the helm of the overhaul in the House, dismissed his colleague’s call for a slowdown.

“I think the danger is that we will go too slowly and there will be more failures,” Frank said.
He added that Towns hadn’t raised concerns with him.

“I’m surprised,” he said. “It’s not a subject I’ve known him to take an interest in. I know there are people in the financial industry in New York, and he represents them, who are worried about this.”

Frank is expected to take up legislation later this spring to revise financial regulations, including the creation of a systemic risk regulator that would oversee the entire financial-services industry. Frank has talked about housing the regulator in the Federal Reserve.

Later this year, Frank plans to turn to consumer protection regulations.

The legislation Frank is proposing this year would represent sweeping changes to the regulatory system, and even more changes could be pursued next year.

There is considerable trepidation in the financial field about the revisions Frank is considering. Frank is respected on Wall Street, but he is also considered very liberal and more supportive of regulation than the business community.

But Towns’s concerns are also shared by some Republicans and centrist Democrats.
Rep. Spencer Bachus (Ala.), the top Republican on the Financial Services Committee, has also recommended a cautious approach.

“Even more important is that we develop the right solution and not rush into poorly vetted legislation,” Bachus said at a hearing on regulatory reform last month. “The complex and interconnected nature of our financial markets requires us to engage in a thorough analysis with all the major stakeholders.”

New Democrats, the most business-minded of the Democratic caucuses, are on board with Frank’s call for a systemic risk regulator. But they also stress the need for regulators to work closely with business.

Some New Democrats are pushing for one large “comprehensive” package of regulatory changes, instead of piecemeal changes done one by one in several bills, according to a Democratic aide.

At Thursday’s Oversight and Government Reform hearing, members asked former AIG chief Maurice “Hank” Greenberg his suggestions on how regulations should be crafted to prevent another AIG meltdown.

“What is it we should be looking for in terms of systemic risk?” asked Rep. Steve Driehaus (D-Ohio).

Greenberg replied that credit default swaps — which were sold to transfer the risk on investments and are largely blamed for causing the current financial crisis — should be regulated, and that some insurance companies should be regulated by the federal government rather than states. But he stressed that AIG’s now-infamous Financial Products Division was regulated by the Office of Thrift Supervision, which once visited the unit’s London Office.

Greenberg, who left AIG in 2005, blasted the managers who came after him for the company’s near-failure, saying, “AIG’s business model did not fail. Its management did.”

But he also found himself defending his role at the company.

“When you say management failed,” demanded Rep. Elijah Cummings (D-Md.), “do you include yourself?”

“No. How could I?” replied the 83-year-old executive. “When I left the company, it was a healthy company.”

Greenberg — who was accompanied by attorney David Boies, who oversaw the Florida 2000 presidential recount for Al Gore — also was pressed on the lawsuits and investigations that have cropped up since his departure from the insurer.

Rep. Darrell Issa (Calif.), the top Republican on the panel, suggested it shouldn’t even be hosting Greenberg because of the many legal entanglements.

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