Ron Paul Statement on Financial Modernization
Ron Paul Statement on Financial Modernization
February 10, 1999
(J. Bradley Jansen was Ron Paul’s legislative staffer for these issues at this time)
OPENING STATEMENT OF
RON PAUL
HEARING ON FINANCIAL MODERNIZATION
COMMITTEE ON BANKING AND FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
10 FEBRUARY 1999
Mr. Chairman and Mr. LaFalce, I applaud your leadership efforts and extensive hearings on this important subject. As we consider reforming the regulatory structure in the fast-changing world of financial services, there are a few principles we should bear in mind. By standing firm for free market principles, we can better ensure productivity, growth, prosperity and consumer choice.
First and foremost, we should bear in mind the possible changes to taxpayer liability from different approaches. Federal Reserve Board Chairman Alan Greenspan correctly reminded the committee last year of what he termed the potential spread of the “sovereign credit” subsidy and the pitfalls of that possibility. Our first obligation in this process is to the taxpayer. Our constituents come first–always ahead of narrower special interests.
Secondly, the process of voluntary exchange between individuals (either singly or through membership in groups and institutions), i.e. the market, is the best allocator of resources. We should not downplay the importance of the indicators of the market pricing of credit. Interest rates should reflect the ratio that exists between savers’ willingness to lend and investors’ willingness to borrow. This constantly fluctuating ratio provides market participants the best source of information with which to make important financial decisions. The economic turmoil wreaking havoc around the globe illustrates the perils of ignoring the importance of the market pricing of credit risk.
Thirdly, we must be mindful of the law of unintended consequences. Outdated laws and regulations should not deny consumers the option of choosing new “hybrid” financial products and services that do not fit neatly into dated financial boxes. Often, well-intended regulations have the opposite effect in practice of the stated goal: since the cost of compliance of most regulations falls disproportionately hardest on the smallest institutions (the ones closest to their communities and most likely to be meeting the goals of regulations such as the Community Reinvestment Act), the regulations may cause a further consolidation of assets in the marketplace and limit consumer availability of financial services (such as rural or inner-city lending).
Lastly, the ever-accumulating weight of governmental regulations places a heavy drag on the economy and the country’s financial competitiveness. As Mr. Greenspan explained to the Senate Banking, Housing and Urban Affairs Committee (February 22, 1995 and again on September 22, 1995), Congress should sunset all laws, institutions and regulations (“absolutely” including the Federal Reserve Act), “we have to find [a] means to at least counter that upward bias [of accumulating legislation].” Perhaps our best approach is to review and repeal existing laws, institutions and regulations rather than issuing new ones.