Peterson: Stimulus package has too much in tax cuts
BEMIDJI - The $789 billion economic stimulus package President Barack Obama is slated to sign today contains too much in tax cuts, says U.S. Rep. Collin Peterson, DFL-7th District.
The House Agriculture Committee chairman explained why he voted against the stimulus package Monday night to Beltrami County DFLers at their annual Presidents Day fundraiser at the Bemidji Eagles Club.
A budget hawk, Peterson said he could support spending for infrastructure improvements such as roads and bridges, and locks and dams, but not for tax cuts that only add to the federal deficit.
"I just could not get there -- I could not borrow money to give people tax cuts," said Peterson. "We have a $2.2 trillion backlog in infrastructure. If they had put that $800 billion into infrastructure, into unemployment insurance, gave people health care who lost their jobs, and into food stamps, I would have borrowed the money and done that."
In an interview, Peterson said voting against the bill sided with his philosophy as a conservative Blue Dog, not raising the budget without offsetting cuts or revenues.
Things such as aid to fund the alternative minimum tax are neutral -- it doesn't create jobs and isn't a stimulus, he said. Also, much of the tax cuts will need continual funding, not that found in a one-time stimulus bill, and will force future action to cut spending or raise taxes.
He also lauded to the DFLers a bill he authored and was passed out of his committee Friday to rein in over-the-counter trading of futures, called derivatives. It would create a central clearing house with regulatory authority in the U.S. Department of Agriculture's Commodities Futures Trading Commission.
"We have a $600 trillion over-the-counter market that we know nothing about,' he said. "The bill requires mandatory clearing of these swaps that are not on the over-the-counter-market. If they can't be cleared, it requires the banks to put up adequate money so they cover the risk of whatever they're doing,"
The bill faces opposition from Wall Street, he said, which wants jurisdiction to remain with the Securities Exchange Commission and the Federal Reserve. But Peterson's bill would take such trading out of the hot seat and put with an agency with a good track record of regulating futures trading for agricultural commodities.
"The mortgages were the start of all this," he said. Securitization of mortgages allowed major banks to leverage themselves from a traditional 10 percent capital to 2 or 3 percent capital.
"You get down to 3 percent capital, it takes almost no losses to whip out your capital," he said. Mortgages were passed around, from Fannie Mae to Goldman Sachs, who bundled them up and sold them to investors, and finally to AIG as a derivative swap, or a hedge that guarantees payment if a loan failed.
"When you look at the whole situation, nobody was putting any money out," Peterson said. "Nobody was regulating it and nobody required it. And banking regulators weren't looking to see how much risk was out there."
Because of the bust in the securitization market, the crisis moved to other instruments, such as credit card debt and ability to get car loans.
"The banks can't raise the money, they don't have any capital," said Peterson, a former CPA.
The $350 billion bailout of the banks isn't enough, Peterson said, with reforms like his needed to ensure future stability. That, and the breakup of the big banks from nine to 300, so any one bank failure won't bring down the economy.
"This is part of the reason why we had this financial collapse," he said. "Even after the $350 billion we gave them (big banks) they are still technically insolvent. I don't think that there's enough money out there to fix this."
And it's worldwide, he said. "We are in one helluva mess. We've got this way overleveraged. And now people are scrambling, trying to save the system."
The economy will have to "unwind," he said, with a bottom that no one can yet predict.
He fears that the stimulus bill Obama signs today might not be enough -- more in the future may be needed until that bottom is reached.
"We have been able to keep cheap money in this country because the Chinese and the Japanese financed us for little or nothing," he said. "They are now buying Treasury bills at 0 percent interest because it's safer than any other place, they think."
Those nations will run out of money, he said, because a trade surplus will evaporate as American consumers stop buying products because of the recession.
Peterson says that "we're getting further into debt as a country" with more than $2 trillion potentially added this year and the Federal Reserve on the hook for another $6 trillion.
"If the Chinese run out of money or they decide not to borrow the money, we could be looking at 15-20 percent interest rates again like we did in the '70s," he said. "It's not just the government that's lived beyond it's means, we all are. We've all been borrowing too much, taken equity loans on our houses, trying to keep up because we haven't made enough wages.
"It's got to stop," he said, "and go back to the principles that built this country."
Peterson, first elected in 1990, thanked the Beltrami County Democrats for their years' long support "so I can be in the middle of this mess and hopefully do some good."
With five Democratic 2010 gubernatorial candidates on the program, Peterson spoke the longest, more than 15 minutes, and took several questions from the audience about the federal government bailout of the banking industry.