On last night’s Kudlow Report I spoke with Rep. Jeb Hensarling (R., Tex.) about his thoughts on Treasury Secretary Tim Geithner’s TARP testimony and Team Obama’s overall handling of the banking system and economy.
LARRY KUDLOW: Earlier I spoke with the chairman of the Republican Study Committee, that’s Congressman Jeb Hensarling of Texas. He also serves on the Congressional Oversight Panel on TARP. I asked him what did he take away from Tim Geithner’s testimony today. Here’s what he said.
REP. JEB HENSARLING: Well what’s more important Larry is what I didn’t take away. What I didn’t take away is any kind of measurement of success for the program. What I didn’t take away is any exit strategy. What I didn’t take away is any plan for these firms that have taken money to be able to pay it back when they want to pay it back. And what I didn’t take away was any commitment to ensure that we don’t have federal control of our financial institutions, that TARP is being used as kind of a backdoor for control. That’s what I didn’t take away.
KUDLOW: Let me ask you this, this is a very key point — the payback of TARP. Yesterday the market plunged 300 points on fears of a backdoor nationalization, no TARP payback. Now today Mr. Geithner said he would welcome some payback, but then he went on to say the final decision will depend on overall credit conditions in the economy. That sounded like a hedge to me. I don’t think that answered the question. What was your instinct and impression on this?
HENSARLING: My impression was that Secretary Geithner — and I respect the man — but in this case he gave a couple of different answers to the same question. On the one hand, he said, ‘well if the firm has met its regulator’s criteria for safety and soundness they can pay it back.’ Later he went on to say, ‘well, maybe there are macroeconomic considerations we have to take into consideration.’
What I took away is those who took the money, and let’s face it Larry, a lot of them didn’t want to take the money. They either had a proverbial gun put to their head, or somebody wrapped them in an Old Glory and said ‘you have to do this for the country.’ You know they ought to be able to give the money back, and the taxpayer wants his money back. And if Treasury won’t allow that to happen, it raises questions. Why not?
KUDLOW: Does Team Obama want to maintain control over the banking system? Is this some kind of newfangled, state-directed capitalism, state-directed economy? Something like Western Europe had for so many years, the so-called social market economy that gave them such slow growth? Is that where we’re going here?
HENSARLING: Well, I fear so. Now Secretary Geithner wouldn’t admit to that. And I suspect the administration wouldn’t either. But where was the exit strategy? And why won’t they take off the table this conservatorship option in perpetuity that will allow them to essentially tell Detroit what kinds of cars to manufacture; tell our financial services industry what kinds of loans they have to make, which by the way is what got us into this trouble in the first place with Fannie and Freddie and the affordable housing mission and all that. They won’t take it off the table Larry. And so a lot of people are rightfully concerned, including myself.
KUDLOW: Well look, absolutely, you’ve got control of the banks, control of General Motors and Detroit; control of the housing market; maybe control of the healthcare markets; maybe control of American industry through cap-and-trade coming down the road. But I mean, I think the big question here is some critics are saying this is socialism. Some critics are saying this is fascism. I want to get your take. I have a problem with [the suggestion] of fascism, because we are not a dictatorship, we are a democracy. We don’t own the means of production, which is socialism. But we are seeing a deeper government involvement in the economy than anything we’ve ever seen in the American tradition. What is you reaction to that?
HENSARLING: Well I don’t know what label to apply to it Larry. But if you like the way the federal government is running AIG, I’m sure that you’ll love the way that they run the rest of the financial services industry. And let’s remember something about TARP in the first place. Assuming the press reports can be believed, I mean, TARP was written in one case to help one bank, one specific bank in America. And it was also written in such a way to help for example Detroit.
You’ve got Washington picking winners and losers. And so all of a sudden, decisions are being made on what helps politicians, not what helps the economy. Some will call it socialism. Some will call it a command-and control economy. Whatever it is, it’s antithetical to the American experience. And it is the opposite of the dynamic of entrepreneurial capitalism which is the best housing program, nutrition program and healthcare program in the history of the world.
KUDLOW: I mean, looking at the management of this thing, I don’t know what your impression was of Mr. Geithner, whether you think he is a capable guy or not. But you’ve got the TARP inspector general Barofsky coming out today, he says they have opened twenty criminal probes. He says now, what was a $750 billion dollar TARP program has morphed into a $3 trillion dollar program of direct spending, loans and loans guaranteed. Do we believe that either the Treasury or the US government can actually manage this gargantuan program?
HENSARLING: Well absolutely not. I mean it’s not humanly possible. I mean that’s why we need the dynamic of entrepreneurial capitalism. Listen, I wish economic growth only went in one direction. It doesn’t. There are economic downturns. They’re painful, they’re harmful, and they hurt families. The question is how do we best get out of it? And history shows us that if we reduce the capital gains tax, put capital in the hands of the job engine of America — small business — if we’ll get tax relief to working families, historically that’s the recipe. That’s not theory, that’s history we have on my side. And that’s what we need to do.
KUDLOW: Well look, Mr. Geithner said today regarding TARP, and the housing assistance and all the rest of it, $3 trillion dollars worth according to [Inspector General] Barofsky, he said this is better than any of the other alternatives. What’s your response to that?
HENSARLING: Absolutely not. I would zero out the capital gains tax for any transaction done in the next year. We need the voluntary capital of investors, not the involuntary capital of taxpayers to help solve this problem. Second of all, I would bring down our corporate tax rate, the second highest in the industrial world, to at least the average of the EU. Next, I would create a greater tax deduction for the mortgage interest, to try to get some of the excess housing on the market. This is not the best plan. And again, I fear it is the slippery slope to European style socialism. Listen, if the people in my district wanted to live in France, they’d move to France.
KUDLOW: [laughter] All right, House member Jeb Hensarling, head of the Republican Study Committee, I can’t thank you enough sir.
HENSARLING: Thanks for having me Larry.