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94–688 PDF 2004

STATE OF THE INTERNATIONAL FINANCIAL

SYSTEM

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 25, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–75

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

March 25, 2004 ................................................................................................. 1

Appendix: 

March 25, 2004 ................................................................................................. 35

WITNESS 

THURSDAY, MARCH 25, 2004

Snow, Hon. John W., Secretary, Department of the Treasury ............................ 7

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 36

Baca, Hon. Joe .................................................................................................. 38

Emanuel, Hon. Rahm ....................................................................................... 40

Gillmor, Hon. Paul E. ....................................................................................... 42

King, Hon. Peter T. .......................................................................................... 43

Snow, Hon. John W. ......................................................................................... 45

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

′′White House Warms up to Worker Aid’’ article, The Washington Post

March 13, 2004 .............................................................................................. 56

Snow, Hon. John W.: 

Written response to questions from Hon. Joe Baca ....................................... 58

Written response to questions from Hon. Spencer Bachus ........................... 64

Written response to questions from Hon. Scott Garrett ............................... 65

Written response to questions from Hon. Peter T. King ............................... 68

Written response to questions from Hon. Barbara Lee ................................. 69

Written response to questions from Hon. Carolyn B. Maloney .................... 73

(1)

STATE OF THE INTERNATIONAL FINANCIAL 

SYSTEM 

Thursday, March 25, 2004

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 10:10 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael G. Oxley 

[chairman of the committee] Presiding. 

Present: Representatives Oxley, Bachus, Royce, Lucas of Oklahoma, Kelly, Paul, Ryun, Ose, Green, Tiberi, Kennedy, Hensarling, 

Garrett of New Jersey, Brown-Waite, Frank, Waters, Sanders, 

Maloney, Watt, Carson, Sherman, Lee, Inslee, Moore, Hinojosa, 

Lucas of Kentucky, Crowley, Israel, Baca, Emanuel, Scott, and 

Bell. 

The CHAIRMAN. The committee will come to order. 

We are pleased today to have the distinguished Secretary of the 

Treasury, Mr. John Snow, testify. Mr. Secretary, welcome back to 

the committee. It is always good to have you here and to hear from 

you. We look forward to your testimony on the State of the International Financial System. 

This hearing has its origins in the emerging market financial crisis of the late 1990s and subsequent reform of the international financial institutions. The goal was to make the International Monetary Fund, the World Bank, and the regional development banks, 

more effective at promoting and delivering economic growth, particularly in the emerging markets. Congress exercises its oversight 

regarding the reform efforts by requiring the Secretary of the 

Treasury to report annually to Congress. Since the G-7 is integral 

to reform, we also seek perspective on the G-7 agenda to promote 

global growth and development policy. 

Mr. Secretary, the Treasury Department has engaged in a number of successful international programs over the last year. Let me 

focus on a few of the more important initiatives: 

Fostering global growth. The Treasury Department, under your 

leadership, has taken a broad view of how to link development, 

trade, and macro-economic policy to create an environment that 

can foster global growth. The Treasury’s leadership in working 

with our G-7 allies to craft an international agenda for growth is 

to be commended. Last week, the Council on Foreign Relations released a study that identified transatlantic economic cooperation as 

one of the five key ways to strengthen the relationship between the 

U.S. and the EU. They noted in particular that transatlantic comVerDate 0ct 09 2002 11:42 Aug 23, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\DOCS\94688.TXT FIN1 PsN: MICAH
2

merce approaches $2.5 trillion per year and employs directly or indirectly some 12 million workers in Europe and the United States. 

It is good to see that increased regulatory transparency and coordination have been identified as areas for additional work within 

the G-7. One area of particular interest in this connection is the 

U.S./EU regulatory dialogue. Economic growth cannot occur if financial institutions are overburdened with conflicting regulatory 

standards. I will be particularly interested to learn how the US/EU 

dialogue can be used to promote growth across the Atlantic and reduce costly regulatory barriers where appropriate. 

I note also the importance that remittances can play to degenerate real economic growth in emerging markets throughout the 

world, not just Latin America. Remittances between established 

and emerging economies foster growth in both types of economies 

simultaneously. I will be interested in hearing your views on how 

unnecessary costs can be eliminated in this area. As you know, this 

is an issue of importance to this committee. We held a hearing on 

the issue last fall, and recently some members of this committee 

sent you and Ambassador Zoellick a letter on the topic. 

As for free trade, as you know, I believe firmly that free trade 

and growth through exports is a fundamental building block for 

economic prosperity and democracy both at home and abroad. The 

Treasury Department, through the executive directors at the multinational lending institutions, has encouraged the establishment of 

programs aimed at creating market-based economies that are open 

to trade. 

At home, the Treasury Department is the lead negotiator for the 

financial services chapters for all trade agreements. I support your 

efforts to open markets for our financial services firms and your efforts to create the trade-friendly environments to help emerging 

market economies grow. 

Through the G-7, you have provided leadership and support for 

countries around the world to move towards flexible market-driven 

exchange rates. As you know, I co-sponsored H.R. 414 last fall. 

That resolution promised that Congress would work with the administration to help China move as quickly as possible to a more 

flexible exchange rate. Since that time, the Treasury Department 

has dispatched a team of technical experts to advise the government of China, and China has announced that it will move towards 

a more flexible exchange rate system in 6 years. These are promising developments. 

As to performance-based standards for developing programs, 

your Department has shown great leadership in fostering the development of performance-based standards for development programs both within the World Bank and at home with the Millennium Challenge Account. You have also led the effort to incorporate 

external audits of performance standards within development institutions. This is particularly positive since appropriations for the 

multinational institutions are now expressly conditioned on such 

external audits occurring. We look forward to seeing progress in 

this area. 

As to rebuilding financial systems in Iraq and Afghanistan, 

again, the Treasury Department and civilian employees have been 

3

among the first and most successful teams on the ground in Iraq 

and Afghanistan. 

No economy can function without reliable banking and payment 

systems, and your team has helped create new currencies, banking 

systems, modern payment systems, and free and open capital markets. I congratulate you and your people who work under dangerous conditions to make these things happen. 

And, finally, on Argentina and the IMF. Challenges remain, of 

course. The most critical of these challenges is, once again, Argentina and its relationship to the IMF. Since being cut off from international capital markets, Argentina’s economy has grown because 

it has not been paying its debts. It has been servicing debts to one 

development institution with payments from another. This sends 

troubling signals to other sovereign borrowers around the world, 

especially those who continue to service their debt in good faith. I 

will be very interested to hear your views on how the Argentine situation can affect the reform debate within the G-7 and the IMF. 

And I now yield to the gentleman from Massachusetts for an 

opening statement. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 36 in the appendix.] 

Mr. FRANK. Mr. Secretary, this is a hearing on the international 

financial setting. A number of members obviously have concerns 

about domestic issues that are equally, if not more, important. I 

want to mate the two. I support many of the specific proposals that 

you are making. You are asking us to provide more money for debt 

relief. The gentlewoman from California, who sits next to me, was 

one of the leaders in getting the Congress to address this. I was 

glad to work with her. 

I think we aren’t doing enough to alleviate the crushing burden 

of debt on poor people. There is more money for the multilateral 

development banks which can be, if done well, used very importantly. There is a Millennium Challenge Account. There are a number of very important initiatives here. There is a question of trade, 

where we would have some differences, but I believe that properly 

structured trade is very important both for our own economy and 

for poor people. 

The problem is, I believe, that we are in a situation in the United 

States today where there is enormous public resistance to many of 

those things which you want. And it is—that is the linkage. 

President Kennedy said once talking about his efforts to promote 

international cooperation, he talked about Franklin Roosevelt, who 

had initiated the good neighbor policy, a reversal of the policy of 

America sending the Marines to Latin America, and instead trying 

to talk about relations of mutual respect. And he said, and President Roosevelt called that the ‘‘good neighbor policy.’’ and President 

Kennedy said Franklin Roosevelt could be a good neighbor abroad 

because he was a good neighbor at home. That President Roosevelt 

was able to get the support, he started the reciprocal trade acts 

and got Congress to give him much more power in the trade area, 

and began to move into the international area because the American people believed that he was someone who was also looking out 

for their welfare. 

4

Unfortunately today there are an increasing number of Americans who do not feel that the Federal Government is being a good 

neighbor at home, and they are therefore resistant to being a good 

neighbor abroad. 

I do not think there are many Members of Congress who did not 

hear frequently when the question of the $87 billion appropriation 

came up last year, why are you sending that money to Iraq? Why 

don’t you keep it here? I don’t agree entirely with that formulation. 

I think we had obligations and have obligations in Iraq. But that 

sentiment, I have to tell you, I think if you were to come back with 

another 76 billion, it would be a hard sell. My impression is you 

are going to have a very hard time getting trade treaties through 

if you even bring up most of them. 

I would anticipate great difficulty if we went forward with some 

of the requests for the multilateral development banks. And, as I 

said, the problem is the perception of many Americans that they 

are not being treated fairly. 

Now, much of the argument for the policies you are putting forward, the trade areas certainly, is that these are in the interest of 

growth for America. Increasingly, there are American workers who 

do not see growth as benefiting them. And I was struck by your 

comment last October, and as you know, I discussed this publicly, 

and it was a very fair comment. In October of last year when you 

predicted that we would be hitting 200,000 new jobs a month, 

which we said we have fallen far short of hitting, you said—and 

I wanted to go back, and I didn’t think you just made a random 

guess. And you said quite reasonably at the time: Everything I 

know about the American economy says that with the growth we 

were then getting—and that was at the end of a very good growth 

quarter. You said: Given this level of growth, we can expect a certain number of jobs. 

Well, that was a fair expectation at the time, and it turns out 

that it is not accurate. Not because you misguessed. You accurately 

looked it where the economy had been. This economy has changed. 

The number of jobs that we produce for a given level of growth has, 

at least temporarily, stopped. We have now got to contemplate the 

problems of not generating sufficient employment to keep up with 

the growth of our workforce. We had all assumed that those were 

largely cyclical. We now have to think about to what extent there 

is a structural element in that, and we don’t—not enough evidence 

is in for a final conclusion, but enough evidence is in to say this 

is a question we have to deal with. 

But if public policy ignores that question, what you get is a degree of resistance among the American voters and the American 

citizenry to the very international programs you want to promote. 

So I don’t want us to stop being a good neighbor abroad. I want 

us to be a better neighbor. I think we should be doing more with 

regard to debt relief. I am in favor of the Millennium Challenge Account and kind of want to increase—not maybe with every detail, 

I want to increase even more what we do there. But I believe we 

are at a point of great resistance. And unless we can demonstrate 

to the average American worker that we care more about him or 

her than they think, we are in trouble. 

5

And as I close, I will just give a couple specifics. Coming here, 

as you do, and telling us that we should be voting money for these 

various things which I heartily support while we can’t get an extension of unemployment compensation is very counterintuitive. 

And when you have Americans who are out of work because they 

are told we can’t afford to extend unemployment compensation at 

a time when unemployment is much higher than we had hoped it 

would be, but we are going to send these monies overseas, that is 

exactly what John Kennedy put his finger on, and these two are 

therefore very closely linked. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman from California, Mr. Royce. 

Mr. ROYCE. Thank you for the opportunity to make a few opening 

remarks here. 

And, Secretary Snow, welcome. For whatever it is worth, I want 

to say that I think you and your team at the Treasury have been 

doing an outstanding job on a number of issues. And in the context 

of today’s hearing, my own belief is that Treasury has not received 

the credit it deserves for your role in negotiating debt relief for the 

new Iraqi government. James Baker was extremely successful, but 

that did not just occur overnight. Treasury really tied everything 

up nicely. 

And I was also very encouraged to see the creation of the Office 

of Terrorism and Financial Intelligence in the Treasury Department. 

I believe that Treasury contains the tools and institutional 

knowledge that are critical for our country’s successful war against 

terrorist financing. Many agencies including CIA, Homeland Security, Justice, State, and Defense, possess certain resources that also 

help us fight terrorist financing, but Treasury should be the lead 

agency in the fight. 

I think the President should frankly appoint a special envoy or 

a czar for terror finance. We really, I think, have got to the point 

where most of us understand we need one person who reports directly to the President totally focused on this issue. Foreign governments want to deal with one person, and they want to deal with 

one person only, and that person needs to have the President’s ear. 

In the meantime, resources and authority at the Treasury need 

to be greatly bulked up. For one, the Treasury, not the National 

Security Council, should chair the Policy Coordinating Council on 

Terror Finance. The new Office of Terrorism and Financial Intelligence should house the staff for the PCC, which would further enhance Treasury’s stature as the lead agency. 

Additionally, the Financial Crimes Enforcement Network should 

be more active in compliance. Since Treasury is the Department 

with Bank Secrecy Act and PATRIOT Act authority, it needs to 

have audit and compliance officers in-house. Other financial regulators like OCC and OTS are more concerned about safety and 

soundness. FINCIN should have a complete set of tools, and we 

here should ensure that you have those tools. 

I would also like to see the administration relocate the Foreign 

Terrorist Asset Tracking Center from CIA to Treasury. CIA has 

enough on its plate and does not have the same expertise in this 

area as Treasury has. 

6

Mr. Secretary, I understand that you probably do not want to 

comment publicly on what I have just outlined, and I am not asking you to do so. At some point, though, I would like to see someone from the administration come here and explain to us why 

Treasury does not currently have a broader mission on the fight 

against terrorist financing. From the perspective of a member of 

the committee and of the International Relations Committee as 

well, I am not pleased with the current structure. And I want you 

and your team to have greater authority and responsibility in this 

area. 

Just yesterday, in the International Relations Committee, we 

heard testimony on Saudi-related terrorist activity. Greg Bair, who 

is a former CIA station chief in the Middle East, agreed with me 

that terror finance needs more attention and needs the attention 

along the lines that I have outlined here. 

And, secondly, Mr. Chairman, I would like to submit for the 

record an opening statement from Peter King, who is our subcommittee chairman on domestic and international monetary policy 

as well, if I could, without objection. 

The CHAIRMAN. Without objection. 

[The following information can be found on page 43 in the appendix.] 

The CHAIRMAN. The gentleman’s has time expired. The 

gentlelady from New York, Ms. Maloney. 

Ms. MALONEY. Thank you, Mr. Chairman. 

And welcome, Secretary Snow. And congratulations on all your 

hard work. I would like to add to the opening statement of the distinguished ranking member, Mr. Frank, on being a good neighbor 

at home and abroad. And the escalating numbers of unemployment 

are tremendously troubling to my constituents. We have lost 3 million private sector jobs, a 2.2 net job loss when you include the 

public sector. And last month we only created 21,000 jobs. We 

would have to create 200,000 jobs a month for the next 10 months 

just to bring this country back to the place where we were when 

President Bush took office. Yet, at the same time the administration appears to be unsympathetic to the needs of the unemployed. 

The jobs are not there, yet they are not extending unemployment 

benefits. 

I am also deeply concerned, as many of my colleagues on both 

sides of the aisle, about the rise in the deficit over the last 3 years, 

which is of historic proportions. 

Since 2001, the administration’s Office of Management and 

Budget forecast for publicly held debt over the 7-year period of 

2001 to 2008 has increased 4.4 trillion to 5.6 trillion. That is 4.4 

trillion more debt under the Bush administration. And currently, 

foreign investors hold 1.6 trillion of U.S. debt, a 27 percent increase 

over a year ago. I find that tremendously troubling to the future 

economy of our country. Should foreign investors lose confidence in 

our economy and reduce this investment, our constituents could 

face serious consequences, including a dangerously weak dollar and 

increased credit card and home mortgage interest rates. 

And while the administration actually on the floor today claims 

its new budget will address the situation by cutting the deficit in 

7

half, the Bush record, over the past 3 years is of rosy predictions, 

and but it is followed by a ballooning deficit and more job loss. 

The budget put forth by the administration for fiscal year 2005, 

which does not include funding for Iraq, would seem to be more of 

the same. 

And I am also interested in your comments on administration’s 

support for heavily indebted poor countries. And I certainly applaud the efforts of Treasury and Secretary Baker in engaging 

France and Russia in their efforts for debt relief in Iraq. The work 

to resolve the Iraqi debt crisis has only begun, and I have heard 

from NGOs in the region that the pledges of partial debt cancellation are proving to rise and raise the value of outstanding debt of 

Iraq, which means that the country could be required to pay more 

after debt relief than they would prior to such agreements. And 

this troubles me in two fronts: Debt surface will come at the cost 

of health care, education, and basic needs of the Iraqi people. At 

the end of the day we do not want to see the U.S. contribution to 

Iraq sent off to other countries for debt service. 

And, finally, I look forward to an update on the cooperation the 

Department is receiving on the international effort to cut off terror 

financing. 

Again, I thank you for your hard work, and we appreciate your 

testimony today. 

The CHAIRMAN. The gentlelady’s time has expired. We now turn 

to the distinguished Treasury Secretary for another appearance before the committee. Mr. Secretary, we are honored to have you 

here. And I know the hearing is titled the State of the International Financial System, and obviously a lot on our plate in a lot 

of different areas. So we appreciate your participation today, and 

we are glad to have you back. 

STATEMENT OF HON. JOHN W. SNOW, SECRETARY, 

DEPARTMENT OF THE TREASURY 

Secretary SNOW. Mr. Chairman, thank you very much. Ranking 

Member Frank, distinguished members of the committee. It is always a pleasure to appear before you and continue the exchange 

of ideas that has been going on now for some considerable period 

of time. 

On the issue of the state of the global economy, I think it is clear 

we are in a lot better condition today in the global economy than 

we were a year ago at this time. The U.S., the leading economy in 

the world, is in a much better position. It is on a good growth path. 

GDP rose in the last half of the year at 6.1 percent, the highest 

in 20 years. All the private forecasts indicate that the economy will 

grow between 4 and 5 percent this year. The highly regarded blue 

chip forecast came out earlier this week indicating a revised upward growth of 4.7 percent. And in Japan, we are seeing better results, for the first time in a number of years, we are seeing considerable growth there. In Europe, while the growth is less satisfactory, there are a number of efforts underway across the Euro zone, 

to take steps to improve the performance of those economies. 

I appreciate, Mr. Chairman, your comment on our leadership in 

the G-7 on the agenda for growth. 

8

I think there is a recognition now that we have a growth deficit 

in the world economy, and that growth deficit hurts the United 

States. We grow more slowly when Europe and Japan grow more 

slowly, and when the developing countries grow more slowly it has 

hurt job creation in the United States, it has hurt exports in the 

United States. As we grow, we help the rest of the world; and as 

the rest of the world grows, they help us. Growth is no accident. 

Growth occurs because of the adoption of good policies. And what 

we are seeing around the world is increased attention to adoption 

of good policies. 

The IMF and the World Bank and the other multilateral development banks have an important role to play. In my submitted statement, I review in some detail progress which is being made there. 

Let me just mention a couple of things, because I know it is of 

great interest to you. 

One, the IMF has narrowed its conditionality so that when funds 

are extended there is the expectation of real reform occurring, and 

sustainable growth the end product of the extension of the 

financings. At the IMF as well, this past year we have seen important movement forward on sovereign debt with the widespread 

adoption of this concept of the CACs, the ability to work out 

through collective action clauses the sovereign debt issues that may 

arise. It has been a very helpful note, and the United States has 

taken the lead in moving the world in that direction. 

At the World Bank, we have seen a movement from loans to 

grants dealing with this issue of heavy indebtedness. It doesn’t 

make any sense to continue to extend loans to countries that can 

never, never pay them back, and the World Bank has responded, 

I think, in a very positive way. And both institutions have focused 

more on real bottom-line results, on metrics, and on milestones. 

And I appreciate the support we have gotten from the committee 

in those efforts. 

While progress has been made, we are not satisfied. Neither is 

the leadership of the World Bank or the IMF. We have extensive 

discussions with them. They recognize they need to get even better 

at focusing on real results, measurable results; that they need to 

use the private sector more effectively, and they recognize the need 

for better macroeconomic surveillance. They also recognize, and 

this is a point we continue to make, that they are dealing with U.S. 

taxpayer monies as well as taxpayer monies from other countries. 

And the U.S. taxpayers properly—properly, should demand and do 

demand real results. 

I agree with Congressman Frank that we have a great stake in 

the world economy. We have a stake in the developing world. We 

have an obligation to try and advance better policies and sustainable growth. But we also have to do it in a way that respects U.S. 

taxpayers and assures that the U.S. taxpayers get real results from 

our support for those institutions. 

This is a time of real opportunity. The United States, for the first 

time in 7 years, is chairing the G-7, G-8. The President of course 

will host the other world leaders at Sea Island. We also have the 

chairmanship of the G-7 finance ministers, I intend to use that well 

to build even greater support for these core ideas that we think 

9

make the world a better place and make the IFFIs perform more 

effectively. 

With that, Mr. Chairman, I thank you very much and look forward to your questions. 

[The prepared statement of Hon. John W. Snow can be found on 

page 45 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Secretary. And, again, it is good 

to have you back. 

Before I start the questioning, first of all, all members’ opening 

statements will be made part of the record. Without objection. 

While it pains me, Mr. Secretary, I have to announce the score 

of the basketball game last night, since we do have a couple of 

players here. First of all, the final score was 27 to 26 in favor of 

the Democrats. One of the lowest scoring games in the history of 

the Gallaudet Classic. The shooting percentage on both sides was 

quite extraordinarily low, Mr. Secretary. I know you are an old basketball player and would appreciate the fact that it was—our excuse was that nobody was really in shape. But at the end of the 

day, the winner was the Gallaudet University, the only school in 

the country for the deaf. And it was quite an exciting game. I want 

to congratulate particularly the gentleman from New York, Mr. 

Crowley, the gentleman from California, Mr. Baca, who were on 

the victorious team. The gentleman from Illinois had nothing to do 

with it. And Mr. Ose on our side was also a participant. But I 

thought in the interest of full disclosure, Mr. Secretary, I would announce that to the members. 

Let me return now to the Group of Seven Agenda For Growth 

issue. And certainly I think all of us are encouraged by the innovations achieved within the G-7 just in this past year. And I want 

to focus, if I might, on my first question on one detail. Your written 

testimony this morning indicates that as part of the G-7 Agenda 

For Growth, the UK is proposing a collaborative initiative on regulatory reform across the EU. How does this initiative coordinate 

with the existing US/EU dialogue for financial regulators? And how 

could a mechanism such as that US/EU dialogue be used to promote growth for American financial services, markets, and firms? 

Mr. Secretary, as an aside, I have had numerous discussions 

with parliamentarians in Great Britain as well as from the European parliament. Obviously, this is a huge potential growth opportunity particularly for financial institutions firms, and I wonder if 

you could elaborate on that? 

Secretary SNOW. Thank you very much, Mr. Chairman. I will do 

my best. 

This is an issue that the Treasury plays an important role in. 

The SEC probably plays the lead role, but we are very much party 

to the financial dialogue, the EU/US financial dialogue and the UK 

dialogue. The Sarbanes-Oxley legislation of course is a great impetus since it changed our securities laws in some fundamental ways 

and corporate governance rules, at the same time that it has affected the accounting industry and represents the most sweeping 

changes in our Federal securities laws since the new deal. And Europe recognizes the need for some harmonization with us so that 

their companies can have access to our markets and our companies 

can have access to their markets. 

10

The issue that is directly before us of course is the EU requirement for an equivalent supervisor for financial institutions, equivalent to what they have on the other side of the Atlantic. I think 

we accept the validity of that point of view. There needs to be an 

equivalency. It doesn’t have to be precisely the same, it has to be 

substantively comparable. 

And in talking with the EU ministers, I am encouraged, and an 

awful lot of progress is being made on that subject. The UK of 

course is not a member of the EU, so they have their own financial 

services administration, which is their financial insurance and 

banking and regulator that oversees these matters. And the FSA 

is making good progress with the EU as well in harmonizing between themselves. 

There is a rich dialogue on this subject. I think we understand 

each other, and I think we are making good progress in accommodating each other. 

The CHAIRMAN. Thank you, Mr. Secretary. Let me ask you about 

external performance audits. As you know, the Appropriations Act 

of 2004 would call for performance, external performance audits regarding international financial institutions, and I note you mentioned the Sarbanes-Oxley Act. And in that vein, why is that important? And are we making progress in terms of the effectiveness 

of those performance audits? 

Secretary SNOW. I think the legislation is tremendously important. Everybody needs to be accountable. And what the legislation 

does by requiring outside audits is to assure accountability. And we 

have had extensive conversations with the World Bank. They understand that we cannot support the enhanced payments for performance, the performance payments unless there is an audit that 

satisfies us that the progress on the various metrics is being made. 

I think it is a simple issue of accountability, and the legislation 

was right to insist on it and we are going to insist on it as well. 

The CHAIRMAN. Thank you. And, finally, on IMF reform, I just 

want to talk—and I appreciate your testimony on Argentina IMF 

issues. But on lending limits in particular, the IMF of course used 

to restrict available resources to a multiple of each country’s IMF 

quota. Your testimony would indicate that progress is being made 

on narrowing and specifying the circumstances on which countries 

could access large-scale IMF lending. This obviously could be a step 

in the right direction if crafted and implemented properly. Could 

you provide more details on the current thinking on this lending 

limits issue? 

Secretary SNOW. Well, it is an extremely important issue, and it 

goes right to the center, I think, of making these international financial institutions and really the international financial system 

work appropriately and accountably. There are conditions where 

clearly the IMF needs to serve as a lender of last resort, but it can’t 

be every time a country finds itself in some difficulty. We have 

been working with the IMF to limit the cases of exceptionality, that 

is, the cases where their debt or credit will be extended to those 

that really justify a lender of last resort access. And that is the 

core issue. 

The IMF has moved a long way in that direction to narrow this 

exceptionality, and I think, Mr. Chairman, we have seen good 

11

progress. We want to continue to see that concept though honed 

even further so that the world financial system, the sovereigns of 

the world, the developing countries who would seek access would 

have a clear sense, would have clarity and transparency on when 

access would be made available. 

The CHAIRMAN. Thank you. My time has expired. The gentleman 

from Massachusetts. 

Mr. FRANK. Mr. Secretary, I think we may be about to set the 

record for quick compliance with a request from the cabinet officer. 

The last part of your testimony you asked us to take action on the 

Senate version of the NADbank bill. Thanks to the gentleman from 

Texas, Mr. Hinojosa, we debated that yesterday, and we are going 

to vote it through in about an hour. 

Secretary SNOW. Wonderful. 

Mr. FRANK. So you are doing pretty good. 

On another issue where I am much less in agreement, peripheral 

but international. The director of the Office of Foreign Assets Control has just made it clear that editing with the enemy will now 

be considered a serious threat to American national security. That 

is, you have interpreted in your department law involving trading 

with the enemy, et cetera, so that scholarly journals or others who 

receive manuscripts from Iran cannot edit them, must print them 

verbatim. Our colleague, Mr. Berman, who offered an amendment 

that said let us not use this as a way to do censorship intellectually, has called the interpretation ludicrous and absurd. 

I disagree with Mr. Berman. I think he is being much too kind. 

I think it is just nuts. I mean, it just is unseemly for the United 

States of America to be afraid of anybody’s ideas. And the notion 

that we would try to restrict people from editing and publishing 

really troubles me. Yes, we should be very tough about all kinds 

of contraband. We don’t want them to get economic benefit. But I 

really argue, I have written, along with Mr. Berman—I really urge 

you to reconsider. Let us not look like America is worried that if 

some Iranian sends some article and it is edited or translated that 

that somehow is a threat to the strongest Nation in the history of 

the world. 

Secretary SNOW. Congressman, it won’t shock you to know that 

this isn’t the first time that something has come out of Treasury 

that I was not aware of. And it probably won’t be the last. But I 

will look into that. 

Mr. FRANK. Thank you. 

Now, back on the main theme, which is my main theme. How do 

we build more support within the United States for the international approaches in part by dealing with the problems that 

these things happen? I think what we need to understand, and you 

do, Mr. Greenspan does. Obviously things happen that are in the 

long run, even the intermediate run, a benefit of the economy, but 

those benefits and the burdens are not shared equally. And I don’t 

think we do a very good job at this point of alleviating the burdens 

of those who have to bear them so the rest of us can have the benefit. And this is a particularly good example now with regard to 

trade adjustment assistance. 

And I am going to ask, Mr. Chairman, to put in the record an 

article from Paul Blustein of the Washington Post on March 13th. 

12

The CHAIRMAN. Without objection. 

[The following information can be found on page 56 in the appendix.] 

Mr. FRANK. About trade adjustment assistance. Because as the 

article points out: For months, the Bush administration has been 

fighting a lawsuit brought by a group of computer programmers 

whose jobs were outsourced abroad, arguing that they don’t qualify 

for government benefits aimed at people coping with layoffs caused 

by imports. And apparently it is the legal interpretation that, because they were providing this service and not a good, they are not 

covered. I am not going to argue the law here, but why was not 

the administration instantly saying, good point, we didn’t think 

about that, look—you know, 10 years ago when we were telling 

people we were going to retrain them, we are retraining for some 

of the jobs now being outsourced. 

Leave aside the question about whether outsourcing is good or 

not. We could debate all that. One of the things that I hope would 

not be debatable is that government clearly has the responsibility 

for easing the pain of transitions. And we don’t do that very well. 

At a hearing, Senator Baucus, who was very involved in this 

asked, I guess, Mr. Zoellick what the administration’s position 

would be on changing the law, and he hinted, according to the 

paper, that they might be willing to change the law. And the White 

House spokeswoman Claire Buchan said that is something that is 

being looked at. And Mr. Zoellick then said that is something we 

should examine very closely. 

Frankly, one needs to look at the cost aspects of this as well. 

Worrying about how much it is going to cost to provide this assistance to people who are losing their jobs to outsourcing is a very 

good way to build more and more opposition to outsourcing. And 

those who think that this is an inevitable part of the transitional 

global economy, I mean, what is the matter with these people? How 

do you go to them and say, okay, this is very good? I mean, Mr. 

Greenspan talks about creative destruction. Joseph Schumpeter 

was a wonderful economist, but he is less persuasive to people who 

have lost their jobs than Mr. Greenspan apparently realizes. 

So let me ask you. Could you just tell us now that the administration will support and help us move quickly legislation to cover 

these people in trade adjustment assistance? 

Secretary SNOW. Congressman, I am not an expert on that trade 

adjustment assistance legislation, but the issue is being reviewed. 

And, as I understand it, while service workers are not included 

under the TAA, there are other programs which are applicable that 

are under the jurisdiction of the Department of Labor. And Secretary Chao is leading an effort to make sure that those programs, 

that the availability of those programs is widely known and communicated to people who might be able to draw on them. 

I agree with your premise. We live in a period of enormous 

change, accelerated change, and we owe people opportunities to retrain, to go through the transition, to work their way through the 

transition, to minimize the cost personally. 

Mr. FRANK. The Labor Department—yes, there are some things, 

there are differences in the programs. Why not make these people 

eligible? Let me put it this way: If when we were drafting this law 

13

originally people could foresee the outsourcing, of course they 

would have been included. It is counterproductive not to do it. And 

let me just elicit what I think is a repeat of administration policy 

even more directly relevant here. Am I correct that the administration does support the 6-month extension of unemployment benefits? 

Secretary SNOW. The issue has come up I think three times since 

the administration took office, and every time that the proposals 

have come——

Mr. FRANK. Well, currently. The problem, of course, is that it 

comes up in the Senate, but it doesn’t come up in the House because the leadership won’t let it. But does the administration favor 

another extension of unemployment? 

Secretary SNOW. Well, I think the administration’s view is that 

if the Congress acts on it, that the President would sign the legislation. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from California, Mr. Royce. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. Secretary, I am concerned that many of our partners—and 

I take Saudi Arabia as an example—our partners are not doing 

enough to fight terror finance. And one of the specific examples 

that I wanted to cite was the Al-Haramain Islamic Foundation, one 

of the charities that is headquartered in Saudi Arabia. 

We have had two separate actions where we have named a number of their affiliated branches across the world as supporters of al 

Qaeda. And I would like to know if Saudi Arabia has held anyone 

within their own borders accountable for this charity’s terrorist activities? I understand that the branches that we have targeted are 

outside the country, but I think many of us find it hard to believe 

that people at headquarters in Saudi Arabia were completely oblivious to the activities of their satellite offices outside of the country. 

And I think, for us, the reflection here is that this is a charity who 

is financing people who are actively trying to kill us. And I am not 

aware of any arrests in Saudi Arabia related to Al-Haramain. 

So, I wanted to ask about your concern about lack of action from 

the Saudi government and how you feel about that. And I know the 

Saudis have put in place new laws, but what about asking them 

to look at the past and look at this particular institution and look 

at some accountability, having them take action with respect to the 

core group that have set up that charity? 

Secretary SNOW. Congressman Royce, the issue of the Saudi’s 

support in the financial war on terrorism is one which we and 

Treasury have engaged at the very highest levels of the Saudi government, and have done so on a continuous basis. I think some real 

progress, some real progress has been made, and we need to recognize that. Al-Haramain is the counterpart to the United Way in the 

United States. And the Saudis have taken extraordinary steps, 

given their culture, to go after the abuse of their leading charity 

as a vehicle for transmission of terrorist monies. You think back a 

year and a half ago, or a year ago to today, and to think that they 

are removing contributions baskets from the mosques to limit the 

use of cash going into these institutions, and that they have designated some large number. In fact, it was a joint designation with 

us and them. 

14

I think Saudi Arabia is a genuine ally in the financial war on 

terror. They recognize they need to do more. There are some things 

I probably shouldn’t go into now but would be pleased to go into 

with you in a closed setting. 

Mr. ROYCE. Thank you. Another question I wanted to ask you, 

Mr. Secretary. I think we are right to focus on how terrorists get 

access to funding. But it seems to me that all the focus is on the 

end user, on the terrorist himself, or the focus ends up being on 

the wider terrorist cell. But also, I think if you put the focus on 

the banker helping the terrorist, that that would then bring into 

the equation someone who could be I think deterred more easily. 

Because all of these organizations need to get access to that financing. But maybe, maybe it is the banker who isn’t quite as committed, who isn’t quite as anxious to be a martyr, who has something to lose. And so if you could deter that element in the equation, you could stop the flow of funds. And I wanted your thoughts 

on that concept, if I could. 

Secretary SNOW. Well, I agree with your basic premise, that we 

need to make the banking system an ally in the war on financial 

terrorism. And, of course, through the PATRIOT Act in the United 

States we have made enormous progress in that arena. And 

through FDIF, which has agreed on some 48 or so special recommendations on terrorist financing, we have engaged the world 

community in this as well and have established recognized international standards wherein, I think, it is well over 100 countries, 

160, 170 countries now they are freezing orders, in effect, to block 

terrorist assets, and a number of individuals have been designated 

here and abroad. 

The G-7, every meeting we, finance ministers with the central 

bankers meet, we have a special session on the progress in engaging the financial community and financial institutions in the war 

on terror. Some slip out of the net, I will grant you, but I do think 

we have made some pretty good progress. 

Mr. ROYCE. Our difficulty in Europe is, with an attorney, individuals can still open that account and never have their name on the 

account, put millions in it, and transfer it to a terrorist cell, and 

there is no way with that banking system to have accountability. 

And we really need to keep pressing on that front. 

Secretary SNOW. I agree with you. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentlelady from New York. 

Ms. MALONEY. Thank you. 

Mr. Secretary, the Department is playing several roles in Iraq in 

helping the economy get going. And I am particularly interested in 

your views on debt relief. First of all, what are the numbers you 

are working off of? Are they Treasury’s numbers, or what numbers 

are you working off of on debt? 

Secretary SNOW. We are working off some internal numbers that 

we are finalizing and numbers that are coming through the IMF. 

The IMF has been asked to take a lead role here in working 

through those numbers. 

Of course, for a number of countries, creditor countries, the Paris 

club will also be working through their assessment of what those 

numbers are. So it is a multi-part effort. 

15

Ms. MALONEY. To the best of your knowledge, how much debt 

does Iraq owe the United States? It is my understanding it is very 

low, only one half of one percent of the total debt. And how much 

does it owe the world in total? Do you have that in a general sense? 

Secretary SNOW. In a general sense, I do. For the United States, the principle debt is, as you say, it is relatively small, $2 billion, 

something in that range with about an equal amount of interest arrearage, another $2 million roughly of interest arrearage. So that 

our total debt is on the order of $4 billion. The number that—and 

this is not reparations, this is direct debt. The number for—in 

total, the aggregate number is something like 100, 120 billion is my 

recollection of it. 

Ms. MALONEY. Could you give us a breakdown of that for the 

committee? 

Secretary SNOW. I would be happy to supply it to you. 

Ms. MALONEY. Thank you. And of this number, how much relief 

was former Secretary Baker able to secure? 

Secretary SNOW. Well, what Secretary Baker has done and I 

commend——

Ms. MALONEY. And Treasury? 

Secretary SNOW. And Treasury. But Secretary Baker now is taking on a special role as the emissary of the President to meet with 

heads of state to get a broad commitment from them. And he has 

made a great deal of progress. And the heads of many number of 

countries—I talked to him just last week, and he is preparing a 

number of mission—have agreed, and these are the leading countries of the world, to substantial debt relief. And that is going to 

be necessary if Iraq is going to return to the world community as 

a viable country, because the debt load is simply too crushing and 

they couldn’t have a sustainable economy unless there is substantial debt relief. 

Ms. MALONEY. And as you know, along with our former Chair of 

this committee, Congressman Leach and I have put in a bill calling 

for debt relief, a Sense of Congress, and also using the leverage of 

the United States in the IMF and World Bank, even though that 

loan is very low to those two bodies. And that loan was not odious 

from those two bodies to really move this forward and get total 

debt relief for this country, primarily because it was odious debt. 

We know that it was spent to build 74 different palaces and for 

weapons and for odious causes, and certainly not for the people of 

Iraq who did not receive any of it. And it seems to me wrong to 

saddle that country, and particularly the American taxpayers that 

are our monies that we are giving to Iraq could be redirected to 

other countries. 

This is a conversation that we have been having. And I just want 

to press that I think it is the way to go. It is something that we 

could do and something that, in my opinion—Hitler didn’t—we 

didn’t repay Hitler’s debts. A lot of countries we don’t repay the 

debts when it is odious debt. When it is a reasonable debt for a reasonable government, I can see that. But for this reason, it is totally 

off the mark. 

But on Iraq, I have been there twice on various missions and I 

am very concerned about their future. It is going to take a commitment from the world. It is very tenuous. I have read in the paper 

16

various proposals that American banks and others have put forward to help finance the reconstruction of Iraq. I believe the American taxpayers with the crushing burden that we are having economically would appreciate any help we could get in that direction. 

And could you comment? I just read about them in the papers 

where they have been willing to finance reconstruction costs and 

put money into Iraq based on future revenues from oil. Where does 

that stand? Are you supporting any of those efforts? Would it help 

Iraq and the American taxpayers? 

Secretary SNOW. We are supporting the efforts to bring international banks into Iraq, absolutely, and was pleased that the Central Bank governor, Governor Shabibi, has announced that three 

international banks have now been licensed to come in as depository and lending institutions in Iraq. This was a major step forward. 

Of course, J.P.Morgan/Chase is in there today playing an important role, and the Central Bank law is very forward looking in 

terms of making it possible for foreign banks to come in and help 

finance the growth of the country. They really need a financial sector. They do not today have a real financial sector. The banks that 

were there were not really functioning banks in the sense we think 

of banks. They were more appendages of the Saddam government 

used to handle financial affairs of the regime rather than lending 

institutions to bring capital to users of capital for growth. 

The CHAIRMAN. The gentlewoman’s time has expired. 

The gentlewoman from New York. 

The Chair would announce there are four votes on the floor of 

the House. The chairman will recognize the gentlewoman from 

New York, and then we will take a break for those votes, Mr. Secretary, and then return. 

Gentlewoman from New York. 

Mrs. KELLY. Mr. Secretary, I want to associate myself with the 

comments of Mr. Royce. He asked you about Al-Haramain. Quite 

frankly, in my mind, it is no different than Hamas. These are charities that are in fact doing two things, promoting terrorism, as well 

as doing some charitable work. It is very hard to get your arms 

around something like that. But when you appeared before my 

committee, you said you were the lead agency for tracing the 

money on terrorism, and you said that you had set up, through the 

PATRIOT Act, a desk that essentially is working with not only 

Treasury but also Customs and CIA and FBI. 

I want to know how Customs, CIA and FBI are working with 

you. Because over the course of the last 4 months, everything I 

have read indicates we are not getting a whole lot of cooperation 

from the FBI. Are they giving you cooperation or just taking information and then you never know what happens to it? 

Secretary SNOW. You are absolutely right, we have a joint task 

force in Saudi Arabia, in Riyadh, working with the counterpart 

agencies of the Saudi government, with the full support of the 

Crown Prince and the finance minister and the Central Bank governor. This is a subject I raised with them when I was over there 

several months back. The Saudis, I will say, are very cooperative 

in this. 

17

Mrs. KELLY. Excuse me, sir, but that was not the basis of my 

question. My base question is—I am glad the Saudis are finally beginning to help out in trying to trace terrorism money. We cannot 

stop terrorism until we stop the money. And my concern is whether 

or not you are getting information on your desk. Because you told 

me the buck stopped on your desk in tracing terrorist money. If 

that is the case, I want to know if you are getting cooperation from 

the FBI and the CIA even right here in this country. Are they taking or are they giving? 

Secretary SNOW. We are getting good cooperation, let me make 

that clear. At the same time, we think that more focus on financial 

intelligence, intelligence about flows, is very much needed, a higher 

priority for that. And that is why I was so pleased when the Congress established the new Assistant Secretary for Intelligence at 

the Treasury Department. That is really a very important development in the war, and I know your role. I think it is critically important that that has happened. This will give priority to our efforts. 

It will make sure that financial intelligence is getting the attention 

it needs. We hope to announce that Assistant Secretary very soon, 

in addition to an Under Secretary, which was contemplated in the 

legislation, to oversee that whole initiative and become the focal 

point, the focal point for the financial war on terrorism. The one 

person in the United States Government, full-time, directly responsible every day, waking up and going to bed thinking about terrorist finance. 

Mrs. KELLY. Well, thank you. I also want to ask you quickly 

about TRIA. Right after 9-11, we put a Federal reinsurance backstop for terrorist acts here in the United States. That is going to 

expire. We put a sunset in there. I would like to know whether or 

not you feel that TRIA has contributed to the stability that has 

been in our economy with regard to a number of different factors 

of our economy over the last 2 years? 

And my second question is, since there is no cost involved in 

TRIA, unless there is a terrorist event, wouldn’t it be sensible for 

us to extend TRIA out for a few more years until we are sure that 

we have done something to stop this war on terror? 

Secretary SNOW. Mrs. Kelly, I agree with you. I think TRIA was 

very important. As a private sector citizen, member of the business 

community, I spoke strongly in favor of it. I think it has made a 

real contribution. We needed a backstop. The legislation, as you 

know so well, has a time frame to it. One idea behind the legislation was to see if the private sector could come in and fill in with 

the backstop maybe playing a smaller role over time. 

We have a decision to make here, I think it is September of this 

year, about whether the TRIA coverage will be extended for another year. And at the end of that year, we have the whole question of whether TRIA should be extended beyond that. That is a 

matter that is now under active review in the Department. We are 

getting comments from any number of private sector people, insurance companies, the building industry, construction industry, and 

so on. 

While I cannot prejudge our decision, I can tell you, one, that I 

strongly supported TRIA, it played an important role, and this 

issue of its extension will be receiving my full attention. 

18

Mrs. KELLY. I hope it will, and I hope we are going to get a positive result from that attention, sir. Thank you very much. My time 

is up. 

The CHAIRMAN. The gentlewoman’s time has expired. 

The committee will stand in recess until 11:40 a.m. 

[recess.] 

The CHAIRMAN. The committee will reconvene, and we are 

pleased to recognize the gentlewoman from California, Ms. Waters, 

for 5 minutes. 

Ms. WATERS. Thank you, very much. Mr. Secretary, I thank you 

for coming, and I want to try to get in a number of questions in 

a short period of time, and some of them just require a yes or no 

answer, so I will know what to talk with you about later, beyond 

this committee. 

As I understand it, you defend basically the administration’s position on outsourcing and you do not think that that is the cause 

of the loss of jobs in this country. 

Secretary SNOW. Well, no, I certainly would acknowledge that 

outsourcing has had some effect on U.S. jobs. 

Ms. WATERS. Do you have any creative proposals to deal with 

this outsourcing problem? Would you, in any way, penalize corporations that we give contracts to, that we give loan guaranties to who 

are basically using the taxpayers’ money? Do you think it is severe 

enough we should do something about penalizing companies that 

are outsourcing jobs? 

Secretary SNOW. I think we have to be very careful there, Ms. 

Waters, because by penalizing U.S. companies that engage in trade 

in any way, I think we undermine our ability to keep American enterprises dynamic and competitive. 

Ms. WATERS. Do you have any creative ideas, any thoughts about 

what we can do about it other than what I may be proposing, penalizing companies who get government contracts? Do you have 

any new ideas that we could talk about later? 

Secretary SNOW. Yes, well, I’d be happy to talk about it. As you 

think about your legislation, though, I’d ask you to think about the 

fact that 70 percent of all the companies that are engaged in exports in the United States have fewer than, I think it is 20 employees. So an awful lot of small businesses are engaged in exports. 

That is a surprising statistic. But we don’t want to do anything to 

hurt small business because they are really the engine of job creation. 

Ms. WATERS. I do want to talk more about this with you, not 

today. 

As part of your statement, you talk about creating industrial 

parks and encouraging business growth in Afghanistan. Recent reports show that 50 percent of African American males in New York 

are unemployed, and I understand that a very devastating report 

is going to come out about the same in California. Do you have any 

creative proposals to deal with this kind of business development 

in America’s urban or rural areas; such as that which you are proposing in Afghanistan? 

Secretary SNOW. Yes, Ms. Waters. There are a number of governmental programs, not administered by Treasury, but through other 

agencies of the Federal Government that address those issues. 

19

Ms. WATERS. But there is nothing in Treasury, such as what you 

are doing in Afghanistan; is that correct? 

Secretary SNOW. No, Treasury does not administer any program 

directly like that, with the possible exception of something called 

the New Market Tax Credit program. 

Ms. WATERS. Yeah, I know about those. Okay. You know, some 

of us on this committee have been involved with trying to recover 

stolen assets by dictators and leaders in other countries. We have 

had several hearings. We talked about Saddam. 

I have been trying to get money back for Nigeria. The Abacha regime, as you know, stole a lot of money. And we have been able 

to talk about recapturing some of that in other countries, in Switzerland, Britain, Luxembourg, and on and on, but nothing from 

Citibank in the United States. 

Have you been involved in this issue at all? 

Secretary SNOW. I regret to say that I haven’t. 

Ms. WATERS. I want to talk with you about that at a later date, 

but will you please take a look at that and see if we still have some 

kind of efforts to do that? 

I also want to talk about debt cancellation for the New Millennium Act, where I am asking for 100 percent cancellation of the 

debt of the world’s most impoverished countries. Do you support 

that? 

Secretary SNOW. We certainly support the HIPC initiative very, 

very, very strongly, yes. 

Ms. WATERS. And, finally, let me ask you a very tough one. Last 

night, I spent part of my evening reading the accounts of the assistance that we gave to members of the Royal Family of the 

Saudis and getting them out of this country after 9-11, and it is 

amazing and absolutely extraordinary what we did. 

Do you know of any involvement that we have had in also protecting their assets? Did we, in addition to helping to escort them 

out of the country after 9-11, arranging the airplanes and getting 

Royal Family and their associates out, are we doing the same thing 

or did we do the same thing for protecting their financial assets in 

this country? 

Secretary SNOW. Congresswoman, I am not privy to any information on that subject. I am not aware of what actions we may have 

taken or may not have taken. I’m just not aware of it. 

The CHAIRMAN. The gentlewoman’s time has expired. 

Ms. WATERS. Thank you very much. 

The CHAIRMAN. The gentleman from Texas, Mr. Paul. 

Dr. PAUL. Thank you, Mr. Chairman. Welcome, Mr. Secretary. I 

have a question dealing with the free market economy, and basically the question is where do you believe proponents of free market capitalism go wrong? And let me develop that question for a 

minute, because I do not think we follow free-market economics. 

I do not think we’re very close to free markets and a sound economy based on free and open trade. We have an artificial system 

that you have to deal with on a daily basis, and from a free market 

standpoint, it is mostly patch-up work trying to correct problems. 

And, of course, the free market proponents, especially Mises always 

said that when you intervene in the marketplace, domestically or 

internationally, you usually create more problems than you solve. 

20

You usually create two new problems for each one. But the free 

market economists, from Mises on down to Rothbart and Hayek, all 

of them I think were absolutely accurate in their projections and 

predictions. Because in the 1920s, they talked about the bubbles in 

the 1920s and what would happen in the 1930s. They were correct 

in the 1960s and predicted that Brenton Woods would break down. 

Even Henry Hazlitt wrote from this viewpoint. When the IMF was 

established, he said Brenton Woods can’t last, and he was absolutely right in 1945, and in 1971 it collapsed. These same group of 

economists said in the 1990s that the same thing would happen, 

that we cannot sustain the bubble in the stock market, and the 

crash inevitably comes for a very precise reason dealing with monetary policy. 

Now, I know when I ask the chairman of the Federal Reserve 

about monetary and dollar policy, he defers to Treasury. Of course, 

Treasury can, I think, legitimately defer to the Fed, because they 

have so much to say and do with the dollar. They are the ones that 

create the money out of thin air. So I understand that. 

But, still, where do they go wrong? And why is it that we have 

gone so far away from accepting the notion that true capital should 

come from savings rather than out of thin air? Why shouldn’t we 

encourage savings instead of manipulating the economy with artificially low interest rates? Why do we do economic planning through 

all this manipulation in the monetary system and then we resort 

to this patchwork effort internationally, which costs a lot of money? 

Not a little bit, billions of dollars. 

Now, these same economists would say today that the international financial system is very, very shaky, probably not much 

better off than Long-Term Capital Management. And I have to pay 

attention to them when they talk about this. But the system that 

we have literally encourages the Congress to be extravagant spenders. They never have to worry about raising taxes. Debt can always 

be taken care of. And that is why our national debt is going up 

$700 billion a year. 

So if we don’t get back to the basics of why we get away with 

what we do, I don’t see how you can ever patch the system together. And this idea that we can just give IMF money, World 

Bank money, development bank money, come up with Millennium 

Challenge Account money, I mean, this is not a couple of dollars, 

and this all comes out of our domestic economy. 

So I am a strong advocate of free markets where interest rates 

are set by the marketplace, that budgets have to be balanced, because we don’t have the authority, moral authority to print money 

out of thin air, and it really doesn’t make good economic sense in 

the long term. 

So where, in your view, do we go wrong in thinking along these 

lines? 

Secretary SNOW. Well, one place we go wrong, I think, Congressman, is not to acknowledge explicitly the implicit contingent liabilities that exist in a number of U.S. programs, good programs, important programs, Social Security, Medicare, Medicaid, veterans 

payments, and the Postal Service, a variety of these very important 

programs that serve very important and legitimate purposes where 

the potential liability to the United States Government, the continVerDate 0ct 09 2002 11:42 Aug 23, 2004 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\DOCS\94688.TXT FIN1 PsN: MICAH
21

gent liability, the taxpayer obligation, or as you say the other side 

of that, a borrowing obligation, is very, very large. 

I testified yesterday before the Committee on Ways and Means 

on the Social Security System and on the Medicare and Medicaid 

systems and had to bear the very unhappy news that Social Security is not sustainable and that the Medicare system, unless put on 

a different course, is not sustainable either. The reality is the contingent liabilities that are implicit in those programs are a huge 

portion of the GDP in the United States. 

So I would say one thing—and I admire all those economists you 

cited, by the way—but the one thing I would say is to try to make 

explicit when Congress acts and when the administration acts, the 

real cost of the things we are doing. 

Dr. PAUL. Thank you. 

Secretary SNOW. Thank you. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman from Vermont, Mr. Sanders. 

Mr. SANDERS. Thank you, Mr. Chairman, and thank you Secretary Snow, for being with us today. 

Three quick questions. You may recall that I passed an amendment which would prohibit the government from working with IBM 

to overturn a court decision regarding cash balance pensions. That 

was incorporated into law. You may remember the whole hoopla 

about that IBM lobbyist using the Treasury Secretary’s stationery. 

Secretary SNOW. Yes. 

Mr. SANDERS. I would very much appreciate, and I thank you for 

initiating an inspector general’s investigation on that, I would very 

much appreciate your giving my office a nonredacted copy of the IG 

report. We would like to see the full report. Is that something we 

could get? Because I think you will agree with me the allegations 

are very serious about that. 

Secretary SNOW. I’m prepared to be as cooperative as we can be, 

Mr. Sanders, on that, and you’re right I did ask the IG to look into 

it once it was brought to my attention, and you helped bring it to 

my attention. As I understand the IG statutes, though, the IG, not 

the Treasury Secretary, is in control of that process; that I cannot 

and should not dictate to the IG with respect to the IG process. 

Mr. SANDERS. Well——

Secretary SNOW. I am advised that is the law. 

Mr. SANDERS. All right. 

Let me go to another issue, and that is the outsourcing situation, 

and ask for your cooperation. As I am sure you know, this country 

has a record-breaking $500 billion trade deficit. We have lost 2.8 

million good paying manufacturing jobs in the last 3 years. We are 

on the verge of perhaps hemorrhaging millions of very good paying 

white collar information technology jobs. The new jobs being created are paying substantially less, 29 percent less nationally, than 

the jobs that we are losing. We have companies like General Electric that basically boast when they tell us that they are moving to 

China. 

Ms. Waters raised this issue, legislation that I have offered, 

which now has 60 cosponsors, which says that the Federal Government should not be providing billions of dollars in corporate welfare for those companies that are heading to China. 

22

Now, without getting into a great deal, I think one thing we can 

do is would you work with some of us in putting together a meeting 

with corporate America who are taking our jobs abroad and having 

them come to Capitol Hill telling us how they are going to create 

decent paying jobs in this country? Will you work with us in arranging that meeting? 

Secretary SNOW. I would be happy to take part in that dialogue 

and helpful in establishing it. 

Mr. SANDERS. The American people, I think, do not want to give 

billions of federal dollars to companies who advertise the fact that 

they are heading to China. 

Last question. As you know, gas prices in this country are soaring. Great concern to consumers, to businesses, to farmers, and so 

forth. You and the administration are great exponents of unfettered 

free trade. You are; I am not. What I want to know is why the administration has not gone to the WTO to bring charges against 

OPEC, which is limiting supplies of oil coming into the United 

States? 

OPEC, by definition, their reason for existence is they are a cartel designed to limit production. Why aren’t we going before the 

WTO pressing the charge that OPEC is in violation of free trade 

agreements? 

Secretary SNOW. Congressman, the current price outlook is regrettable. It serves as a tax on America, on our consumers and it 

slows our economic growth. But I do not think the actions by 

OPEC, as I understand the WTO rules, are subject to the WTO 

rules, because they do not involve a trade violation in the sense of 

raising——

Mr. SANDERS. I would respectfully disagree with you. And if 

OPEC is not, by definition, restraining production and acting in 

total violation of what free trade is supposed to be about, I would 

be very surprised. And I would urge you and the administration to 

tell our friends at OPEC not to strangle the American economy and 

our consumers by forcing prices up artificially. Are we going to 

hear some statements out of the administration on that? 

Secretary SNOW. Well, I think you have heard the Energy Secretary very forcefully talk about this whole subject. One reason 

that we are experiencing the rise in prices is that we don’t have 

enough domestic capacity. 

Mr. SANDERS. Well, that is your interpretation. I think the evidence would suggest that OPEC has limited the supply of oil coming into this country. Do you deny that? 

The CHAIRMAN. The gentleman’s time has expired. 

Secretary SNOW. I would say only that if we had larger supplies 

of domestic capacity, we would be less dependent on uncertain foreign supplies. 

The CHAIRMAN. The gentleman from Alabama. 

Mr. BACHUS. I thank the chairman. 

Secretary Snow, we have heard a lot about outsourcing here this 

morning, but every definitive study on this issue shows that the 

balance of jobs that we are importing from abroad greatly exceed 

the jobs that we are exporting abroad. One recent study says that 

we probably get three times as much benefit from insourcing as we 

do from outsourcing. 

23

I am going to submit some of those for the record. I do not know 

why people are blind to this. In fact, in my district, three of our 

largest employers, if we didn’t have a global economy, they 

wouldn’t exist today. They are the highest paying new jobs in the 

district, and I think if you went around to other districts, you 

would find that. 

My question is similar to that. We hear all about outsourcing but 

nothing about the benefit that we get, the insourcing, and the highpaying jobs. Also, in your written statements you talk about the 

fact we have got the strongest economy since 1984. We have got 

low unemployment, which is going lower. 

In fact, this Congress curtailed, from 1992 to 1994, they curtailed 

unemployment benefits because they said we had such strong unemployment. It was higher than it is today. And the same people 

today are saying that we have high unemployment. In fact, it is 

lower today than it was in 7 out of 8 years under President Clinton. 

But I guess my question to you, home starts are at a record high, 

inflation is at a record low, interest rates are low, we have a strong 

economy, so why is it there is a disconnect between perception and 

reality? 

Secretary SNOW. Congressman, you are absolutely right. The 

American economy is performing very well right now, high growth 

rates, low inflation, high productivity,the unemployment rate lower 

than the average of the 1970s, the 1980s or the 1990s. I think the 

issue is the apparent, and I say apparent for a reason, the apparent slower than expected pickup in jobs, and that is getting an 

awful lot of attention. And the talk of outsourcing is also getting 

a lot of attention, and I think it is creating a negative sort of miasma that colors people’s view of what is really a very strong and 

very, very well-performing economy. 

I am confident we will see those jobs come back. We will see 

them come back in the months ahead at a very good clip. What we 

didn’t foresee, what we didn’t foresee was the extraordinary high 

productivity. We have had the highest 3-year productivity, maybe 

of all times, but I have checked it back like 30 years, so the highest 

in 30 years. Now, that high productivity is good for the American 

economy overall. It makes our firms more competitive, it means 

higher returns to the businesses, more cash flow, and that is going 

to lead to good things, higher wages, but it probably slows up a little bit the job creation process. 

We are still working off some of the excesses of the 1990s, the 

excess capacity created in those heady days of the late 1990s. 

I would also point out, Congressman, this puzzle as between the 

two primary indices of the job market, both from the BLS, one 

called the payroll survey, which shows less growth, and the household, which shows lots of growth. 

Mr. BACHUS. In fact, the household shows that we have created 

millions of jobs. 

Secretary SNOW. 2.4 million. 

Mr. BACHUS. How many? 

Secretary SNOW. 2.4. 

24

Mr. BACHUS. Nobody talks about that, but that is just as valid 

a study, and a lot of people think it is a more accurate indication 

of jobs. It is a mystery to me. 

Let me ask, in closing, you have been to Afghanistan, I know 

that you have worked with the new government in Iraq. Are they 

making economic headways? I know they have established a new 

currency, a new banking law in Afghanistan. 

Secretary SNOW. In both countries, and America ought to be 

proud of its role in both countries, in both countries we are seeing 

enormous progress. There can’t be any doubt about the fact that 

Afghanistan is on a much better path now than it was under the 

Taliban, and Iraq is on a much better path than it was under Saddam Hussein. Not just the economy. The economies are clearly on 

a better path, but the rights and the dignity of the citizens, the 

prospects for better lives in the years ahead. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman, and thank you, Secretary 

Snow, for being here. I’m just going to try to deal with one issue 

in the minutes that I have available, and that is to try to get an 

articulation of the administration’s position on what trade and free 

trade is. 

Reading on page 3 of the prepared statement that you gave the 

committee, you say it is through free trade that all nations can 

benefit from each other’s prosperity. Free trade means new markets for exporters. Further down you say, as I have made clear before, it is our strong view that the international trading system 

works best with free trade, free flow of capital, and flexible marketbased exchange rates. 

Some of us who believe that it is a progressive position to support globalized trade, because we know that in the long run it will 

uplift the standards of living around the world, which we think is 

a desirable objective, have not been able to vote for any of the trade 

agreements, I personally have not, because in the negotiation of 

those agreements we also recognized that a number of these countries in other parts of the world have a system in place where they 

allow child labor, don’t have labor standards, don’t have environmental standards in place. 

All of the things that our U.S. companies have to comply with, 

these places do not comply with. 

I guess the question that I am trying to get a handle on is what 

is this administration’s official definition of free trade? Does it, for 

example, include negotiation in trade agreements about labor 

standards? Does it include negotiations about environmental standards; the kinds of things that we know if they are not negotiated 

there may be free trade but not necessarily fair trade? 

There has been kind of a transition in people’s articulation of 

this. I was somewhat surprised at how aggressively your statement 

talked only about free trade rather than even finessing the fair 

trade issue. Can you give me this administration’s articulation of 

the things similar to the kinds of things that I have expressed that 

are or are not included in the definition of ‘‘free trade ‘‘as you see 

it? 

25

Secretary SNOW. The overall concept of free trade essentially is 

removal of barriers, and they can be both tariff barriers and nontariff barriers, to commerce, to international commerce. It is opening of markets. 

And as you say, we see that, and I think you said you see broad 

agreement with the proposition, that that is the key to uplifting the 

rest of the world as well as the United States. 

Mr. WATT. Well, I do not think I necessarily agreed that that is 

the key, unless the nations are also doing something to affect the 

other standards of living that go with that. 

Secretary SNOW. But when we, through the WTO, the WTO 

agreements, take China, for instance——

Mr. WATT. I’m trying to get an articulation of what is included 

in free trade. I don’t want to take China, for instance. I guess what 

I’m trying to do is get an articulation of this administration’s position on whether the things that I have talked about are or are not 

included as part of free trade? Is it free trade and fair trade or is 

it just free trade? 

Secretary SNOW. Well, certainly it is compliance with the rules 

of trade. Every freetrade agreement, every time we open up markets through agreements, there is a complex set of underlying and 

detailed specifications, and we want the countries to live up to 

their obligations. 

I mentioned China because we are pressing China to live up to 

its WTO obligations and to accelerate them. And if we could get the 

agreements with Morocco and Australia and Kafga and the African, 

Asian, Latin American countries that we are pursuing, the world 

would be a better place because those agreements would encompass 

a focus on a lot of things that we would then have the ability to 

seek to enforce. 

So I think we can make the world a better place through trade 

in a lot of ways. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Alabama is recognized for 2 minutes. 

Mr. BACHUS. Thank you, Chairman Oxley. 

Secretary Snow, I’m concerned with the direction that the EU’s 

financial services action plan has taken. Let me just be brief in 

how I am concerned. 

I am concerned that it is penalizing our London markets, some 

of the current market practices in the city of London, the way that 

U.S. companies and our affiliates in London operate; that actually 

the EU seems to be tending towards more of what I would call a 

less developing, less competitive over- regulated approach. And I 

am going to submit to you in writing some concerns I have and just 

urge you, and I hope you are already doing this, and I think there 

is evidence you are, that you be an active advocate on behalf of 

U.S. commercial interests and that you urge the EU to adopt market practices that are more comparable to what is found in London 

and New York, which are more modern efficient markets. 

Secretary SNOW. Congressman Bachus, I can assure you that 

that is exactly where we are, and that is precisely what we are 

doing. I have a meeting in a couple of weeks with Chancellor 

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26

U.S. dialogue. He has expressed some of these same concerns to 

me, I have expressed them to him. 

We very much want to find ways to involve the private sector 

more fully in the final rules that are adopted, and I share your concern. We cannot let an overly bureaucratic regime replace and substitute for the marketplace. 

Mr. BACHUS. Thank you. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Mr. Secretary, I have simply so many questions, 

I’m going to go through them all, ask you to respond for the record. 

Mr. Royce commends you for asking a few European countries to 

forgive a small portion of the Iraqi debt. I am flabbergasted that 

this country has not used its political muscle to demand the disclaimer enunciation or permanent deferral of the Saddam Hussein 

debt, just as the czar’s debt was disclaimed or permanently deferred. Instead, money is going to be taken from the Iraqi people, 

and ultimately the American people, to repay those who financed 

Saddam’s war of aggression against Iran, killing hundreds of thousands of people. 

If you lent money to Hitler, I do not think you got repaid even 

50 cents on the dollar. The big money that was lent to Saddam was 

not from Europe, although its great press efforts to try to convince 

the American people of that, the big creditors are Saudi Arabia, 

Kuwait, and the Emirates, and now we’ve got Kuwait wanting another $50 billion or $100 billion in reparations for what they suffered in the war. So we liberated Kuwait and now, ultimately, it 

will be the American taxpayer paying them an extra $50 billion or 

$100 billion, plus the money they lent to Saddam in the 1980s, plus 

what he cost them in the 1990s. 

The Royal Families of Saudi Arabia and Kuwait are getting absolutely great protection from this policy. The American taxpayer is 

then told we can’t loan the $18 billion, because the Iraqis couldn’t 

afford to pay us back, it will put a strain on their economy, so we 

have to give it to them. 

Now, the true brilliance of that is that that protects Halliburton 

from European competition. Because now we are told we cannot let 

non American companies participate for those contracts because it 

is our money, it is taxpayer money. It is not money being lent to 

the Iraqis, where they could go out and get the best policy. The 

money has to go to Halliburton. The hope is that that same brilliance that has been used so effectively to protect Saudi Arabia, 

Kuwait, and Halliburton will be used on our trade deficit. 

Today, we found what it meant for America to surrender its sovereignty to the WTO, or should I say to corporate interests. We are 

going to open up this whole country to Internet gambling. And I 

hope the social conservatives understand how the economic conservatives have sold out their interests. You now do not have to 

leave your house to lose your house. Not because of any State in 

the country, not because of any Indian tribe, but because we have 

decided that anything that makes money from any corporation 

must be imposed on the American people. 

While we are talking about gambling, look at the international 

monetary structure. It is all based on America the consumer, the 

27

rest of the world producing. A half trillion dollar trade deficit this 

year on top of last year on top of last year on top of last year. You 

know, Mr. Secretary, that can’t possibly be continued. Every year 

we have to borrow another half trillion and roll over all the money 

we borrowed in all the previous years. The only question is, will 

the dollar slide or will it crash? 

Unfortunately, Mr. Secretary, your department is doing everything possible to prevent the slide, and so next decade we’re going 

to get the crash. At some point, and it could happen in one day, 

the dollar will decline in value. This is, in part, because it is too 

high, in part because we have tolerated what the Chinese are doing 

and pat ourselves on the back that they may stop stealing from us 

6 years from now. 

The idea of pressure doesn’t mean interrupting a ship filled with 

imports into the United States, it means sending a letter. This is 

the most powerful country in the world, which cannot protect itself 

from unfair trade practices, but we can send strong letters. We are 

very tough. 

The other thing we, of course, do is we have this Pollyannish 

view that if we cannot prove a violation of trade rules, we assume 

it doesn’t exist. A half trillion dollar trade deficit may be good for 

American consumers today, a high dollar may be good for American 

consumers today, it may be wonderful living on our credit cards if 

we could continue it forever. We will have to decide whether our 

consumers are more important than our workers, and we could 

argue that forever. But the fact is, it is going to crash unless we 

allow it to reverse slowly. 

Does the administration have any plan, not to slightly ameliorate 

the trade imbalance of payments deficits, but to reverse them so 

that we are shipping more goods and services out and we begin to 

repay the enormous debts built up under several administrations; 

or are we going to sit here and fiddle while Rome burns and believe, oh, it worked last year, it will work this year, it won’t crash 

next year. 

I do not know if I have time for a response, and I will leave that 

to the chairman. 

The CHAIRMAN. The Secretary may respond in 8 seconds. 

Secretary SNOW. Two-part answer on the current account deficit. 

We need to get the rest of the world growing faster. We talked 

about that as part of the agenda for growth of the G-7. Hopefully, 

we will see more growth in the rest of the world so they will have 

more investment opportunities to use their savings. 

By the same token, we need to encourage greater savings in the 

United States. One way to do that is with the administration’s proposals for the RSAs and the LSAs. 

Thank you. 

Mr. SHERMAN. You cannot save a burning city with one bucket 

of water, Mr. Secretary. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. Moore. 

Mr. MOORE. Thank you, Mr. Chairman. 

Mr. Secretary, there are some positive indicators in the economy 

right now, and I want to acknowledge those, but I think you would 

also acknowledge there are some concerns, such as a $521 billion 

28

projected deficit this year by OMB, a $7 trillion plus national debt, 

and my question to you, Mr. Secretary, is how much of our national 

debt right now, and I don’t want an exact dollar figure, but ballpark if you can, is held by foreign nations? 

Secretary SNOW. Oh, about one-seventh of the $7 billion you are 

talking about. 

Mr. MOORE. In dollars, what would that be, sir, approximately? 

One and a half trillion? 

Secretary SNOW. I think maybe that is a little high. I will get you 

a precise number. 

Mr. MOORE. All right. Do you know approximately how much 

Japan holds of our debt? 

Secretary SNOW. Yes, approximately—it is a sizable number. 

Mr. MOORE. $545 billion? 

Secretary SNOW. That’s about right. 

Mr. MOORE. And China holds approximately $149 billion? 

Secretary SNOW. A number in that vicinity. 

Mr. MOORE. Should that be a concern, sir? 

Secretary SNOW. Not necessarily, Congressman. 

Mr. MOORE. Assuming the worst case scenario, and not just not 

necessarily, what is the worst case scenario if Japan and/or China 

decided they didn’t like the way we were acting and didn’t want 

to hold our debt any more? 

Secretary SNOW. China and Japan hold our debt because it is in 

their interest to do so. The United States remains the best place 

to invest. On a risk-adjusted basis, we have the highest returns, 

and we do so because of this extraordinary economy and this extraordinary system of laws. 

We protect capital. Capital is a coward. It only goes where it is 

protected, where it sees stability, where it sees a set of laws that 

respect property rights. 

Mr. MOORE. But my question is what if they decided they didn’t 

want to hold our debt any more? What could happen in the worst 

case scenario for us? 

Secretary SNOW. Well, the great thing about the United States 

is we are a good investment opportunity for capital of all sorts, 

whether it is Asia or Europe or America. So I don’t see the dread 

that you see in their holding that substantial debt. 

Mr. MOORE. Well, I’m asking a question and trying to get an answer. I’m not hearing an answer. 

Secretary SNOW. Well, the answer is I am not alarmed by it. You 

are asking me if I am alarmed, I’m saying no, I am not alarmed. 

Mr. MOORE. Is there any worst case scenario if China and/or 

Japan decided they didn’t want to hold our debt any more? 

Secretary SNOW. That is a most unlikely case. 

Mr. MOORE. I am asking most unlikely. Is there anything that 

could happened bad for us? 

Secretary SNOW. Well, it is like what is the likelihood of this ceiling falling down on me? That would be a bad outcome, but I think 

it is very unlikely. 

Mr. MOORE. Okay, I will go without an answer. 

We have right now the lowest interest rates that we have had 

in probably four decades; correct? 

Secretary SNOW. That is right. That is right. 

29

Mr. MOORE. I have been on the Financial Services and on the 

Budget Committee for the short time I have been in Congress and 

have had a chance several times to hear and ask questions of 

Chairman Greenspan, and one thing he has consistently said is, if 

our Nation is not in a fiscally responsible position when our economy starts to take off, we could see an alarming rise in interest 

rates. Have you heard him say something like that? 

Secretary SNOW. Well, not alarming. 

Mr. MOORE. Well, that is my word. That is not his. But use your 

own word or use his. 

Secretary SNOW. I think what he has said is that we need to control the deficit, make sure that financial markets do not perceive 

the deficit as an embedded part of our financial structure, as an 

entrenched part of the financial structure, and to do that we need 

to control spending and control the deficit. Yes, I have heard him 

say that, and I agree with him. 

Mr. MOORE. Deficits do matter, don’t they? 

Secretary SNOW. Absolutely deficits matter. 

Mr. MOORE. We are not, in my opinion, doing a very good job 

right now of controlling deficits, when we have the highest deficit 

in our Nation’s history and as far as the eye can see right now. I 

know the administration’s intention is to halve, cut in half, the 

deficits in the next 5 years. Personally, I don’t see that happening. 

I don’t see any plan on the table that is going to make that happen. 

Secretary SNOW. Well, I agree with you that deficits count; that 

the deficit is too large; that it has to be addressed. The only point 

I disagree with you on is whether we will get there. I think we will. 

Mr. MOORE. We pay interest of almost $1 billion a day right now 

on our national debt; correct? 

Secretary SNOW. Yes. 

Mr. MOORE. Does that concern you? 

Secretary SNOW. With interest rates low, the interest obligation 

on the debt has shrunk as a percentage, as you know, of the deficit. 

Mr. MOORE. But if interest rates go up, that would change dramatically too. 

Secretary SNOW. Well, depending on how much they go up, it 

could, yes. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Illinois, Mr. Emanuel. 

Mr. EMANUEL. Thank you, Mr. Chairman. Thank you, Mr. Secretary. I want to talk a little about a couple of issues here. 

I happen to be one of the few Democrats that is pro free trade, 

having worked to see NAFTA through, and GATT, voted on Chile 

and Singapore. But if everybody thinks free trade is just an absolute good, they can come to my district. It is not absolute good. 

There are winners and losers. And I’m sorry, but I think some in 

this administration and some in the Congress do not put in place 

some of the benefits and needs and safety nets to make more people winners. If we do not do that, those of us who vote for free 

trade are going to have to go into a witness protection plan every 

time we vote for it. Because the economic conditions that happen 

with free trade are detrimental to folks out there. 

I believe in free trade as an ultimate positive overall, but there 

are losers in this, and we do not have the health care, education, 

30

and retirement security that people need so they think they can be 

winners too. And you cannot maintain a part of your foreign policy 

with only 18 percent or 21 percent of the American people supporting it. The biggest, most important thing for foreign policy objective is the support of the American people. Eighteen percent is 

pretty low, in my view. 

Secondly, I want to bring to your attention an issue which early 

in the administration, you were not there, so it was your predecessor, but we had an effort with the Europeans to crack down on 

tax evasion and tax havens. In 2001, the administration, specifically your predecessor, abandoned that effort. 

There are two immediate benefits, and I will point you to a piece 

by Mr. Cutner Rose in Business Week, where abandoned that effort 

and actually killed it. We lose around $200 billion to $300 billion, 

I know that is a rough estimate, in tax revenue. When you run a 

$550 billion deficit, even if it is $150 billion, that would go a long 

way to reduce the deficit, reducing the cost of capital, and also to 

help us in our crackdown on terrorists who are using these tax havens. 

Now this happened with your predecessor, and here in Washington we all like to kick our predecessor, so you don’t even have 

to own this, but I hope you will take a look at this issue of tax havens as a way to, A, if you want to put it under the banner of fighting terrorism, put it under the banner of fighting terrorism, or put 

it as everybody has a responsibility to pay their fair share of taxes. 

People, individuals, and corporations are using these havens to 

hide legitimate sources of income that should be taxed and are not 

today. It can be part of an anti-terrorism effort or part of everybody 

paying their fair share. I don’t care what name you call it. I think 

Treasury should reinstitute cooperation with the Europeans. That 

is number one. 

Secretary SNOW. I thank you for those comments, Congressman 

Emanuel, and I want to assure you that we recognize, I recognize 

on your first point that trade creates dislocations; that everybody 

is not a winner and we need to deal with the transition. That is 

why initiatives like training programs, assistance for those who are 

dislocated and so on, are critically important. I agree with you. I 

regret very, very much that we seem to have lost the broad-based 

support in the country for trade. 

Mr. EMANUEL. Well, let me bring up this point, and hopefully you 

will look at this other thing on tax havens. But when the HOPE 

scholarship and the Lifetime Learning was instituted at community colleges, which are the life blood of the new economy worth 

$1,500 on average, today they are $2,000, yet the HOPE scholarship is stuck at $1,500. Pell grants are frozen 3 years in a row. The 

average Illinois graduate from the University of Illinois graduates 

with $18,000 in debt. I don’t think when you get your diploma you 

should get your first Visa bill. 

Health care costs, the lion’s share now are being shoved to the 

employee. We have 401(k) problems in the mutual fund industry. 

And that is why—you know, everybody wants to talk about the 

greatest economic statistics. The reason you have fear out there is 

not just employment; it is that the entire infrastructure of the middle-class life, from retirement to health care benefits——

31

The CHAIRMAN. If I could interject, the gentleman from Illinois, 

we have got a vote coming up. I know the Secretary has to leave. 

What I would like to do is accommodate the other three members 

who have not had a chance——

Mr. EMANUEL. I am done. 

The CHAIRMAN. Let us try, if we could, limit it to 3 minutes 

apiece, and then I think we can all make that vote. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much. 

Two quick questions, Mr. Secretary. Earlier this week the corporate tax overhaul bill failed over in the Senate. Do you have any 

ideas or suggestions or the administration on how we could move 

forward with a bipartisan bill to address the European trade sanctions that have been in place in response to the current export tax 

breaks? 

Secretary SNOW. Congressman, I don’t have any specific suggestions on how to do it, but I certainly would implore the Congress 

to act on it. It is awfully important to get that resolved so these 

sanctions don’t adversely affect our economy and our recovery. 

Mr. SCOTT. Let me ask you one other quick question, too. Going 

back to outsourcing for a moment. We have talked about that. But 

there is one feature about outsourcings that we have not touched 

upon, and that is the type of jobs that are being outsourced into 

dealing with our American financial institutions, credit bureaus, 

dealing with vital important information that banks are processing 

overseas in foreign countries that contain vital financial data about 

American consumers and our financial institutions. Do you feel 

that we have adequate safeguards to deal with what is obviously 

a privacy and soundness issue and a security issue? And it is particularly true given the current opinions and the level of dislike or 

hatred that European countries especially and countries in the 

Middle East have for Americans and American institutions at a 

time when we do have these heightened security concerns. 

Secretary SNOW. Congressman, I am not an authority on the 

question you are raising. I will try and get you a more complete 

answer. But the PATRIOT Act will apply to those companies as 

will the Fair Credit Reporting Act. So you have both the PATRIOT 

Act and the Fair Credit Reporting Act, as amended, continuing to 

apply. 

Mr. SCOTT. All right. 

Secretary SNOW. Those are the source of our ability to deal with 

the issues you are raising. 

Mr. SCOTT. But do you yourself, as the Secretary of the Treasury, 

believe that we are vulnerable or that what we have now is adequate? 

Secretary SNOW. Well, I think that the legal framework we have 

in place certainly gives us the ability to deal with the questions you 

are raising. 

Mr. SCOTT. Thank you. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Texas, Mr. Bell. 

Mr. BELL. Thank you, Mr. Chairman. I will be brief. 

I wanted to ask you about something which appears in your prepared statement on page 2 regarding the agenda for growth and 

32

the United States’ contribution to that. It seems to state that, as 

for the United States, our contributions will be basically the platitudes that we hear from this administration. And I am curious as 

to what we are actually doing. 

It says that our contributions will be through the President’s 

commitments to maximize growth and job creation. This includes 

spurring savings through changes to the tax system, making health 

care more affordable, working to prevent frivolous lawsuits from diverting money from job creation, so on and so forth. 

My question has to do with our credibility and if that is going 

to be our only contribution. How are we making health care more 

affordable? Most people would argue that it is going in the other 

direction, not becoming more affordable. I know you are not going 

to suggest that we have succeeded in preventing frivolous lawsuits. 

If you do, that would take away a major campaign plank from the 

other side of the aisle where we hear that frivolous lawsuits are incredibly abundant in this day and age. 

And as we are preparing American workers for demands of the 

21st century job market, what we continue to hear, Mr. Secretary, 

is the fact that there are not enough programs out there preparing 

people for new jobs when their line of work has gone away. 

So I am curious, is this going to be our only contribution? And 

what is your comment on that? 

Secretary SNOW. Well, I am disappointed you had those as platitudes, Congressman, because they are a lot more than that. They 

are really an action plan. 

The action plan involves of course action by Congress, and that 

is why the President among other things is urging Congress to pass 

the reform of the energy plan, to adopt a new energy plan which 

makes us less dependent on certain and expensive foreign sources. 

The plan, the action plan of the President calls for going after frivolous lawsuits. We haven’t fully succeeded, but I must say, as I have 

gotten into this issue of frivolous lawsuits more and more, I regard 

the abuse of the litigation system as a serious threat to jobs in the 

United States. I have talked to any number of business leaders 

who have—small business, medium sized, large business—expressed enormous concern that the litigation system is changing 

the basic, the basic sort of ethos of America, making us a ‘‘can sue’’ 

society rather than a ‘‘can do’’ society, altering our basic commitment to a whole set of ideas of enterprise and entrepreneurship 

and things. 

Mr. BELL. And when you refer to frivolous lawsuits, are you referring to those that result in large verdicts that obviously juries 

do not view as frivolous, or are you referring to those that are just 

the cost of litigation in general? 

Secretary SNOW. Well, it is the cost of litigation in general, but 

it is the lottery nature of the litigation system which is producing 

verdicts that are, I think, excessive under the circumstances, and 

that go 40 percent to the personal injury lawyers rather than to the 

litigants. I think we need to deal with this issue of the class-action 

system. A business firm taking into account whether to invest in 

Ohio or Illinois or offshore is going to factor in the risks of litigation. They are going to factor in the risks that litigation presents 

to their ability to get reasonable health care costs. And I think the 

33

evidence is pretty clear that the litigation system is driving lots of 

physicians and doctors and health care providers and nurses out of 

that profession, raising the cost of health care in the United States. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Washington State to wrap up. 

Mr. INSLEE. Thank you. 

Unless we provide some relief to the difficulties of the dynamics 

of trade, the trade base is going to be lost for those who support 

trade. And to that end, many of us believe that we should extend 

trade adjustment assistance to service employees as we do now 

those in the manufacturing sector. Obviously, we have a lot of folks 

who heretofore have not felt threatened by international trade now 

in the software sector, telecommunications, actuaries, radiologists, 

you name it. Adam Smith and I have introduced a bill to do exactly 

that, and I would hope the administration would support this. The 

President’s Council on Trade and Exports will make that recommendation to you shortly, I believe. 

Could you help us on that? Could you talk to your committee 

chairs and help push this bill? What do you think of this idea? 

Secretary SNOW. Well, it is an area that really falls more under 

the jurisdiction of Bob Zoellick, the Trade Rep, and Secretary 

Evans and Secretary Chao. But I know the issue is under active 

review. 

The broader question is under active review as well; that is, providing transition assistance to those adversely affected by trade. I 

agree with you, we need to provide opportunities for those so that 

there is an easier transition to the future. 

Mr. INSLEE. Do I take it that we have an ally who will be arguing for the extension of trade adjustment assistance to the service 

sector? 

Secretary SNOW. Congressman, you have an ally for the broader 

proposition, that effective transition assistance needs to be provided. Whether it is precisely that legislation or something else, I 

am not close enough to it to give you a good answer. 

Mr. INSLEE. Thank you. 

The CHAIRMAN. I thank the gentleman. 

Mr. Secretary, again, thank you for your appearance. It is always 

good to have you before the Financial Services Committee, and the 

committee stands adjourned. 

[Whereupon, at 12:55 p.m., the committee was adjourned.] 

(35)

A P P E N D I X

March 25, 2004

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