Tags: Lew | FSOC | Democrat | SIFI

Lew Quizzed on the Hill About FSOC and IRS — Part I

By    |   Monday, 30 June 2014 07:55 AM

After he was dissatisfied with the fruits of a hearing with Treasury Secretary Jack Lew about the Treasury's annual report on international economic policy, Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, reminded Lew that he had a date for another mandatory appearance to present the annual report of the Financial Stability Oversight Council (FSOC). The Treasury Secretary is statutorily obligated to testify before Congress on both international economic policy and on the activities of the FSOC.

The FSOC, chaired by Lew as Treasury Secretary, was created under the Dodd-Frank Act to coordinate the activities of all the regulators that failed to stop the 2008 financial crisis and to focus their efforts on trying to do better next time. Because a lot of this work required coordination not only among domestic financial regulators, but also with their foreign counterparts, this hearing gives legislators another chance to raise the same issues they did only two months ago, and they took full advantage of the opportunity.

As political theater, this writer would grudgingly award perhaps two gavels. A highlight occurred when Rep. Scott Garrett, R-N.J., chairman of the Subcommittee on Capital Markets and Government Sponsored Enterprises, complained that the committee has been trying for many months to get documents it has requested from the Treasury. He then held up a box he said contained the product of those requests. Of course, everyone strained to see what was in the box — nothing.

Another, much more subtle, example of drama was the questions put by three Democratic committee members when they asked questions about the process for designating companies as systemically important financial institutions (SIFIs) that more or less followed the Republican script. The normal role of Democrats in these kinds of hearings, and the one most of them played, is to support an administration witness who is under attack, by praising him and helping to rehabilitate him from the hostile questions put by Republicans. Instead, these two Democrats — Rep. Gwen Moore, D-Wis., and Terri Sewell, D-Ala. — directed friendly fire at Lew on behalf of beleaguered SIFIs. These were dramatic moments whose significance could have been missed. Both of these Democrats appear to have enlisted in the defense team for Prudential, which Moore mentioned by name, and for the largest mutual fund managers.

For good measure, Rep. Bill Foster, D-Ill., who represents a swing district and is a rocket scientist, asked Lew why the authorities haven't done more to monitor securities lending, which he pointed out caused 40 percent of the losses of bailed-out AIG. Lew admitted that this is both a technical challenge and a challenge to the stability of the financial system.

Finally, a number of Republicans took turns trying to embarrass Lew and the administration regarding the lame defense the Treasury has offered for its failure to produce documents Republicans have demanded in order to bolster their case that the IRS has discriminated against conservative groups seeking non-for-profit tax status. Everyone knows the Secretary doesn't really run the IRS, but Lew was left pleading, essentially, "The buck never got here; hard drives fail."

(Archived video, the staff memorandum, Lew's testimony and the FSOC annual report can be found here.)

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Treasury Secretary Jack Lew presented the annual report of the Financial Stability Oversight Council to the House Financial Services Committee on June 24.
Lew, FSOC, Democrat, SIFI
Monday, 30 June 2014 07:55 AM
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