Bipartisan Majority Passes Cornyn Amendment to Protect Americans from Bailing Out Irresponsible Foreign Governments
by John Cornyn on May 18, 2010 at 9:33 AM
The Senate, yesterday, passed my amendment to the current financial regulatory reform bill that protects U.S. taxpayers from paying for bailouts of irresponsible foreign governments.
The logic of my amendment could not be more clear. Any country that owes more money than its entire economy produces is, by definition, a very bad credit risk. We should not be loaning money to such a nation unless we're absolutely confident that our taxpayers are not subsidizing failure and will ultimately get their money back.
The amendment requires the Obama Administration to evaluate any proposed bailout of a foreign nation where that nation’s public debt exceeds its annual Gross Domestic Product (GDP), and then to certify to Congress whether the bailout loan will be repaid. If the Administration cannot certify that the bailout loan will be repaid, it will be required to oppose the bailout and vote against it at the IMF. Despite its weak political system and dysfunctional economy, the International Monetary Fund (IMF) approved a $40 billion bailout for Greece to help cover its ballooning debt.
Although the U.S. currently has severe debt problems of its own, as the largest financial contributor to the IMF, U.S. funding will comprise a major share of that amount. In response to the pending IMF bailout of Greece, Sen. Cornyn offered an amendment (S. A. 3986) to The Restoring Financial Stability Act of 2010 (S.3217) to prevent U.S. taxpayer-funded bailouts of foreign governments.
Following the passage of my amendment by a bipartisan majority vote of 94-0, the following rough transcript of my speech on the Senate floor was released:
Mr. President, I continue to have very deep concerns about the legislation that we're debating.
I mentioned some of those concerns on the floor just last week, including the bailout provisions that still effectively remain in the bill, and the so-called orderly liquidation process that gives some firms or could give some firms special treatment outside of the bankruptcy code.
I want to repeat my appreciation to Senator Sessions, the senator from Alabama, for offering his amendment last week, which would have corrected that, but unfortunately it was defeated last Thursday as most of the amendments offered to this legislation have been.
At this time, though, I'd like to offer another amendment that's now been reported that would protect the American taxpayer from bailing out foreign governments.
We all know that this scene which we saw displayed across cable television and in the newspapers is being played out now in Greece where literally a Greek tragedy is unfolding. How did this happen?
Well, first of all, Greece's public debt was 115 percent of its gross domestic product—115 percent of its gross domestic product, according to the International Monetary Fund.
Now, putting that in context, according to the Congressional Budget Office report of March 2010, the public debt of the United States of America is currently 53 percent of our gross domestic product.
However, the Congressional Budget Office, the official scorekeeper of the United States government, says that all else being equal -- in other words, if nothing else happens—the base line estimate for that debt in ten years will be, 67.5 percent up from 53 percent last year.
But under the President's proposed budget, that number skyrockets to 90 percent of gross domestic product by 2020. So while some may say here in America we're in relatively good shape because our debt is only 53 percent of our gross domestic product, the Congressional Budget Office estimates that under the President's own budget, that will soar from 53 percent of the gross domestic product to 90 percent of the gross domestic product by the year 2020, which makes that 115 percent number for Greece look not so much higher than what the American number will be come 2020.
Now, deficits are high in Greece for the same reason that they are too high in the United States: Too much government and too much reckless spending.
Like the United States government, the Greek government has been financing its operations by borrowing money, but over the last few weeks, the capital markets made clear that the -- that investors, the people who supply that – who buy that debt – just don't trust the Greeks to be able to pay it back.
Hence, the need for these straightforward bailouts by the International Monetary Fund.
But again, the comparison is unavoidable.
What happens if the United States doesn't change its current trajectory of going to 90 percent of our gross domestic product when it comes to our debt by 2020, as projected by the Congressional Budget Office, what do we do if we continue to borrow and spend and what do we do if China, for example, which is the primary country that buys that debt either refuses to continue to finance our deficit spending and our debt or demands higher interest rates and, thus, helps threaten inflationary pressures and, which are indeed, spiraling out of control?
What's happening now in Greece with these kind of demonstrations—I don't think it takes a great imagination to say (the same thing) could happen in America if we aren't more responsible in dealing with our out-of-control spending, our out-of-control debt, and unless we say no to the President's proposed spending budget, which would grow that to 90 percent of our gross domestic product by 2020.
But back to my amendment.
Why is it that people are so upset with bailing out Greece, using the International Monetary Fund to do so?
Well, I'm referring to an article from the Associated Press here that – entitled “Europe Bristles at Paying for Greek Retirement.” Let me just read a couple of paragraphs:
“In Greece, trombone players and pastry chefs get to retire as early as 50 on the grounds that their work causes them late career breathing problems. Hairdressers enjoy this same perk thanks to the dyes and the chemicals”
Skip down a couple of paragraphs, “like many European countries, the general retirement age in Greece is 65, although the actual retirement age turns out to be 61. However, the deeply fragmented system also provides for early retirement, as early as 55 for men and 50 for women in many professions classified as…”
So we see why people are reluctant, to say the least, to bail out Greece because of these reckless pensions that facilitate these early retirements under the thinnest of pretenses.
But we know that the International Monetary Fund has recently approved a $145 billion bailout for the government.
$40 billion of that represents loan guarantees from the International Monetary Fund. And since the U.S. has funded about 17 percent of the IMF’s budget, our share of the bailout would be at least $7 billion.
Taxpayers are on the hook to help bailout Greece to the tune of at least $7 billion.
Now we know that a trillion-dollar bailout fund is being discussed for other European nations, and while the details are being discussed, taxpayer funds could make their way through the International Monetary Fund to bail out irresponsible foreign governments.
As CNBC reported on Tuesday, taxpayers could be on the hook for $50 billion or more as part of the European debt bailout, which is likely to be a close cousin to the strategy used to rescue the American financial system.
CNBC went on to say, the entire bailout package has been nicknamed, "le Tarp" for its similarity to the Troubled Asset Relief Program that bailed out companies with taxpayer-backed loans.
They're calling this fund "le Tarp" for a reason.
Once again, billions of dollars will be in the hands of government bureaucrats and the taxpayer will be asked simply to trust those so-called experts who have let us down before and who seem to be making much of this up as they go along.
Mr. President, according to Rasmussen, the pollster, 63 percent of respondents to a recent Rasmussen poll have said they oppose using U.S. taxpayer funds to bail out foreign governments.
I'm actually surprised it's only 63 percent.
American taxpayers should not be involved with bailing out foreign governments.
As George Will pointed out last week in The Washington Post, “Greece has a gross domestic product less than the Dallas-Fort Worth metropolitan area.”
Greece is simply not, under any stretch of the imagination, too big to fail.
If Greece defaults on its debt, then the European banks that bought the debt need to write it off.
And if the European governments want to bail out their banks or prop up their currency, let them do it without help from the American taxpayer.
American taxpayers simply should not be involved in this process.
Our first priority should be to unwind all of the bailouts that we've got thanks to this Administration, not to create new ones overseas.
Moreover, there's a good chance that this Greek bailout isn't even going to work, in other words that we won't even be able get our money back.
It won't be a loan, it will be more good money after bad.
The chief executive of the Deutsche Bank doubts the Greeks can even repay this debt.
We've all seen pictures of these protests that have continued under the “austerity measures that have been imposed that the government was forced to make in order to secure the country.
As one blogger recently put it, “it was the Greeks who gave us the word for democracy. They also gave us the words for demagoguery, tyranny, crisis and chaos,” and that's what this looks like: chaos, as a result of uncontrolled spending and out-of-control debt.
What we're seeing here is what Robert Samuelson calls the “Death Spiral of the Modern Welfare State.” He said, “The reckoning has arrived in Greece, but it awaits most wealthy countries.” Including, I might add, Mr. President, the United States of America unless we change our ways.
The President of the European Council put it this way, he said, “we can't finance our social model anymore—with 1 percent structural growth, we can’t play a role in the world,”
Mr. President, what my amendment, which will be among the four amendments voted on… What my amendment does is it says the American people are tired of bailouts and the Congress should protect the American taxpayer from bailing out foreign governments, particularly when we can't get our money back if it forms the basis of a loan.
My amendment would bring needed transparency and accountability to what the international monetary fund is doing with American taxpayer dollars, including roughly $60 billion that our country has already provided the IMF over the years.
Specifically, this amendment would require the Administration to look more closely at any loan to see if that country's debt exceeds its GDP.
And when it does, as Greece's does, to certify to Congress that the loan will be repaid.
If the executive director can't certify to Congress that the loan will be repaid, my amendment would require the President of the United States to direct the executive director to vote against the bailout by the International Monetary Fund.
The logic of this amendment could not be more clear.
Any country that owes more money than its entire economy produces is, by definition, a very bad credit risk.
We should not be loaning money to such a nation unless we're absolutely confident that our taxpayers are not subsidizing failure and will ultimately get their money back.
Mr. President, I urge my colleagues to support this amendment.
Mr. President, I yield the floor and I suggest the absence of a quorum.