He's represented Texas' 5th Congressional District since 2003. A staunch advocate for tax and spending cuts, he led the opposition to the initial $700 billion bailout plan offered up to the House in September 2008. In November, he was selected by House Minority Leader John Boehner (R-Ohio) to serve on the TARP Congressional Oversight Panel. This is the edited transcript of an interview conducted on March 9, 2009.
- Feeling forced to choose between socialism & the Great Depression
- The dangers of nationalization
- The "political-theater" surrounding the TARP allocation
- How do we get the economy back on track?
What was your sense of events [in the fall of 2008] as you witnessed them as a congressman? ...
... Many of us felt like we were being asked to choose between the slippery slope to socialism and the next Great Depression -- not the kind of decision that you want to make at the snap of a finger. So clearly, it was alarming times. Even as a conservative, I thought that there was a role for the federal government to play in using the full faith and credit of the United States.
We've had 30 to 35 financial recessions and panics in our history. I thought this one would be serious. I didn't quite buy into "we're on the precipice of the next Great Depression," ... but it was a very alarming moment. People knew we needed to act. But again, we were being told, "Either do it my way, or we're going to have market collapse in a matter of days." That did not prove to be true.
A lot of people we've talked to say [then-Secretary of the Treasury Henry Paulson] walks in with [a three-page bailout bill], wants no oversight, wants no courts, wants no anything, and says, "You guys, we've got to do this, or we go down." ... Is that what was behind some of that anger and reaction that we saw?
You have to also appreciate the fact that as a member of Congress, every single day, somebody tells you there's an emergency, and you have to act. ...
And at the time, I was heading up the conservative caucus in the House of Representatives. What I wanted to do, frankly, is say: "OK, hold on. We need to be able to look at alternatives. This needs to be done, but it doesn't have to be done in a matter of hours to days. Days to weeks will work. And it's more important that we get it right," because these types of sums of money, this use of federal power [were] almost totally unprecedented in America's history. So yes, it was a very serious, sobering time.
So then it fails on a Monday, and it's going to pass by a Friday. What happens in those intervening three or four days that makes everybody sign on and make the TARP [Troubled Asset Relief Program] pass?
I suppose the White House starts to pick up the telephone, although I didn't receive a call. I was a lost cause for that particular piece of legislation, one of those who, frankly, tried to lead the fight against it and to come up with an alternative. ...
Did you know that those six sentences were inserted in the bill that passed on Friday that essentially authorized capital injections?
The quick answer is no. What started out as a five- or six-page piece of legislation ended up being a 400-to-500-page piece of legislation. And unfortunately, the way that the leadership works here, rarely do you have an opportunity to actually read the legislation before it comes to the floor.
But if you're alluding to the fact that most members thought they were buying into a toxic-asset purchase model, and the ink's not even dry on the bill before they end up with a capital-purchase program model, then you're absolutely correct. And there's only a handful of people who actually knew what was in the bill. Chief among them would be Chairman Barney Frank [D-Mass.], who I think substantially wrote the bill. ...
... And then there is this meeting on Oct. 13 at the Treasury where Paulson has called up nine bankers. In they go. They sit in alphabetical order, piece of paper slid across the [table] that says, "I'm in your business now." Tell me your sense of what that meeting was about and how you felt about it.
I wasn't privy to the meeting. I've certainly heard plenty of reports, actually spoken to some of the people who were there. And the Treasury secretary, as I understand it, either, one, appealed to their patriotism, or [two,] frankly, I think there was some cajoling. And there may have been, not necessarily by the secretary but by others, veiled threats: "If you don't participate in the program now, if you find yourself in economic peril, don't come knocking on our door."
And so somewhere between patriotism, cajoling and veiled threats, they all miraculously signed up for the program. And then almost overnight, again, snap of a finger, we go from this toxic-asset purchase model to a capital-purchase program that almost no member of Congress who voted for that program knew it was headed in that direction.
What did you think at the time when you heard about it?
Well, it caused me, again, concern, because of the signal it sent to the markets. We're projecting the image that we don't know what we're doing. And so if they did know what they were doing, they were being somewhat disingenuous by selling one program to Congress and instead implementing another program. Or if they weren't being disingenuous, then either, one, they didn't know what they were doing, or [two,] the ground was shifting so quickly under their feet that they couldn't put together a coherent plan.
Now, having said that, I never trusted the federal government to get the toxic-asset purchase program down the right way. It would be subject to a politicization of credit in America. And so the capital-purchase program, I didn't know if it would work, but frankly, it struck me as a little less offensive, maybe stood a little better chance of success. But I didn't support the program. I didn't support the program in either vote. Again, I think we needed something of a workout and not a bailout. I was willing to commit the full faith and credit of the United States, notwithstanding the fact that I am a fiscal conservative, but not to be applied in a fashion that I just thought was totally unworkable.
There's many people we've talked to who say [that meeting] ... was the first moment of nationalization of the banks. ... [Do you] agree with that?
... I'm very worried about it. ... And it also depends on what your view of nationalization is. I can assure you, you do not want Congress to be in the business of allocating credit in the United States of America. It's frankly what helped bring us to the economic turmoil in the first place. When you look at the actions of the government-sanctioned duopoly of Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Loan Mortgage Corp.], and when you look at the Community Reinvestment Act that essentially, no matter how noble its intention was, told banks to bring down their lending standards, ... we know that was a recipe for disaster.
And if we can believe press reports, we know that ultimately there's a provision in TARP that was written to benefit one bank in America. We know that on the second round of TARP, the Democrat leadership tried to, again, pick winners and losers by saying: "If you work for Detroit, you get bailed out. But if you work for an airline or a trucking agency or the hospitality industry, you don't get bailed out." Ultimately there's a lot of losses to be had. I believe that, first, those losses need to be borne by the voluntary capital of investors, not the involuntary capital of taxpayers.
But my point is, is that you don’t want the Federal government to be making these kind of decisions. And so to the extent that this starts taking us down the road of an ultimate nationalization and politicization of our credit in America, that is a very, very bad sign and will turn us into a third-rate economic power. We will see a loss of freedom and opportunity for generations to come.
Now, to the extent there are financial institutions that, for lack of a better term, are brain-dead, the federal government can serve a constructive role in essentially walking in and serving as a receiver, to sell off the good assets, make good for the depositors, essentially those who are conducting business. But the investors, they have to be ... taken out of the deal. Again, they were the ones who voluntarily took the risk.
So if it's a temporary move so that we're not throwing good money after bad, there's a constructive role that I do not believe is nationalization. ... Knowing the actors as I do, I have a high anxiety level.
... Talk to me a little bit about that transitional period, that moment in this crisis ... [and who the key players are].
... I'm not one here to demonize anybody in the process. I wasn't in Hank Paulson's shoes. My assumption is, he did what he thought was right at the time. As an observer, I think he made a number of mistakes. … Let's face it: There's a psychological component. That's why they call it a panic. We have a confidence problem; we have a capital problem. And comments that the secretary made and, frankly, comments that the president made I think exacerbated the matter and made matters worse. ...
[Current Secretary of the Treasury] Tim Geithner was in the thick of this as the head of the New York Fed. He was there every step of the way. This is not new subject matter to him, and for him to come out and roll out a non-plan plan for the second tranche of TARP I think really is inexcusable. And again, I don't read too much into one-day swings of the Dow, but since the president was elected, we've seen about a 25, 30 percent erosion. I want to say it was 4 or 5 percent on the day that Geithner announced his non-plan plan.
One of the things the market needs is certainty: Tell us what the policy is. ... And we have not received that from the [Obama] administration. ...
Tell me about [the Feb. 11, 2009 House Banking Committee hearing with the Gang of Eight bankers]. What was the idea?
... There was a lot of anger, and a lot of the anger was deserved. But frankly, a fair amount of the anger should have been pointed to the people over that shoulder over there, the members of Congress. ...
Members of Congress wanted to slap around the heads of the big financial firms that took that TARP money. And remember, some of them didn't want to take the TARP money. Most of them today would give it back if they could. ... But the main point I had to those people is, listen, what you do with your own money is your business; what you do with taxpayer money, that's my business. And a new day has dawned. A new standard is here. So I don't want Uncle Sam to be in the business of putting artificial limits on compensation. I don't want any artificial limits on the American dream. ...
I want professionals who make their living in deciding who's creditworthy and who's not to make these credit decisions. I serve with a bunch of honorable men and women in the United States Congress, but very few of them are capable of making those kind of decisions. And I don't want to make those kind of decisions.
So the whole thing, frankly, had a bit of political-theater element to it, that particular hearing. There seemed to be a little bit of a contest [as] to who could get these guys by the scruff of their neck and slap them around the most. ...
One of the people who was here was Ken Lewis, the chairman and CEO of Bank of America. ... What's your critique or analysis of Lewis and Bank of America and how they find themselves sitting at this table on that day getting spanked a little bit by Congress?
I wasn't in the middle of the conversations he had with ... Paulson. But ultimately, he was making a business decision based on the best interest of his investors and his shareholders. ... Now, granted, there was very little time. One can make the case that he's trying to help the taxpayer by ensuring that they take on a greater amount of risk than the taxpayer does. But ultimately, he made a business decision, and he has to live with that business decision, that he was going to leverage taxpayer funds to take over these firms. ... And if he's having buyer's remorse, I'm sorry, but he's a big fellow making big compensation and a very smart individual, and he's just going to have to live with those consequences.
So tell me what you think should happen right now ... with banks and corporations in America. ...
The president came here on a wave of hope. If there's anybody who can instill some hope in our economy, it's the president. And he's going to have to decide, is he going to be consistent with his message? He doesn't need to sugarcoat it, but he needs to remind the American people of the lessons of history, number one.
Number two, there is so much money sitting on the sidelines, voluntary money from investors as opposed to involuntary money of taxpayers. But it's not going to come in until they have confidence in the president's program. Here's what's missing in the president's program: ... There's no certainty. Secretary Geithner announced $350 billion in search of a program. There was no definitive quality to the so-called program that he announced, so that made investors say: "Well, we don't know what's going on here. We can't invest."
Third, I believe that, unfortunately, to quote the president's chief of staff, Rahm Emanuel, "Never let a serious crisis go to waste." ... Many people throughout our nation believe that the administration isn't so much solving the economic crisis but exploiting the economic crisis to put forth a liberal agenda that they've been sitting on for decades. Now, we can debate whether or not rationing health care and having federal control is a good thing, ... but is that really the road to economic prosperity? I don't believe so. ...
I would ensure that the job engine of America, small business, has more tax relief. Ultimately, the road to recovery does not lead through Washington. ... You cannot borrow and spend your way into prosperity. It does not work. ... Ultimately, we're going to have to let the forces of hard work, entrepreneurial capitalism help work our way out of this problem. ...
The wariness of Congress to provide more money to the banks, how much of a political problem is that going to be for the administration?
... There's definitely bailout fatigue in Washington, D.C. And frankly, that's a good thing. Either we're going to take the voluntary money of investors or the involuntary money of taxpayers. Even still, if used in a proper method, if we're using federal funds to stop the bleeding, to stop the hemorrhaging, ... even a conservative like me would be willing to do that, but not without a plan and not without a deep-seated notion that I believe right now that the administration, again, isn't so much trying to solve the economic crisis as exploit it.
And unless they're willing to work on a more bipartisan fashion and put that agenda aside, debate that agenda at another day, I know that House Republicans and House conservatives will be very, very leery, and I think [also] a number of Democrats. I've heard from their constituents who have bailout fatigue as well.
Is this the death of the superbank? …
I seriously doubt we will see the large, overarching financial institutions that we've seen in the past. And again, I tend to think that the market decides these things best. So I don't have a crystal ball to know exactly where we're headed [in] 10 years, 20 years or 30 years. But clearly, there was an unacceptable level of risk in these financial institutions. It was a risk that was unappreciated by the investors, the officers, directors. I mean, it's still somewhat a mystery to me. How did so many smart people and how did so many rich people make so many dumb decisions? ...
I think you'll probably see the rise of more regional financial institutions. ... Our traditional banking system I think will be strengthened in this. But we always have to make sure that there is an aspect of our economy that is always on the cutting edge of investment, that's innovating so that we are the envy of the world, so that we will have the greatest and highest per capita income and lifestyle in the world.
You're on the TARP [Congressional Oversight Panel]. [What's] your view of the report that came out that basically talked about the waste of the TARP fund?
I'm not sure that's completely in context. TARP, if you read the statute, Congress gave the program many different goals that, at least in the short term, are competing goals. Taxpayer protection is one of them. If you were approaching the TARP investments from a pure investment standpoint, then there's no doubt in my mind the taxpayer lost, and probably lost big.
On the other hand, if you believe that the federal government has some role in quelling financial panics, that it is in charge of the money supply, injecting capital in these firms that particular time, I haven't necessarily concluded that was the wrong decision, nor do I have enough information to necessarily conclude it was the right decision. ... But if the only aspect of that particular program at that time was taxpayer protection, then clearly it did not work. It failed. And in some respects, TARP, even today, is money in search of a program. And that's just inexcusable. ... We've yet to have one hearing, one public hearing with Treasury on the implementation of TARP. That's a sad fact for the American taxpayer.