REMARKS OF
THE HONORABLE JOHN D. DINGELL

THE 43RD CORPORATE ACCOUNTING AND FINANCIAL
REPORTING INSTITUTE

November 14, 1995

Introduction

It is a pleasure to once again join you at this conference.

This time last year pundits were heralding the Republican revolution and its Contract with America. There is growing evidence, however, that the extremism of that contract is not sitting well with the American public. And the practical effects of these proposals may prove deeply harmful to our environment, to our health and safety, and to our economic well-being.

While all Contract items were rushed through the House in the first 100 days of this Congress, to date the Senate has watered down, outright rejected, or is still thinking about the radical proposals that House Republicans cobbled together. The GOP budget, in particular, will have a devastating impact on local economies and squeeze already tight state and local government budgets.

Senior citizens will be hardest hit: Medicare is slashed by $270 billion, Medicaid by $170 billion, and the Low-Income Home Energy Assistance Program is eliminated. The nation's commitment to our children is diminished by cuts in education, health and safety, and nutrition. Moreover, $10 billion is cut from student loans, raising the cost of college for American families and putting college out of reach for many Americans.

Given the makeup of this morning's audience, however, I would like to talk to you about the Republican proposals that impact our financial markets.

With only six weeks to go in 1995, we have already seen 55 new closing highs on the Dow Jones Industrial Average, 66 on the Standard & Poor's 500, and 66 on the NASDAQ. We have also seen a staggering number of mergers and acquisitions; an unprecedented level of initial public offerings; and record levels of investment by millions of individual investors, who continue to reflect their trust in the market by pouring their cash into mutual funds.

So what has been the GOP response to these events? Securities Litigation Reform

As I have said to your group and others repeatedly, our markets run not on cash but on confidence. That is, as Robert J. Samuelson noted in his November 8, 1995 Washington Post piece: "trust rests on faith that government regulators will supervise the complex payments system and police for fraud and financial failure. The idea is to prevent shady or insolvent operators from destroying confidence by making commitments they can't (or won't) keep."

The GOP Contract promised us legislation to stem meritless securities class-action lawsuits. If this had been what the Contract actually delivered, I would be out in front leading the parade toward enactment.

The House instead passed radical and extreme legislation that was denounced by the Senate, the SEC, state and local government, consumer groups, and investors as severely eroding our ability to deter and prevent securities fraud. Without the convening of a House-Senate conference committee (Senate conferees have not even been appointed yet), Republican staff have circulated two "draft conference report" versions that combine the worst elements of both the House and Senate bills.

Not once. Not twice. Not even three times. But in four consecutive issues, the highly respected Money Magazine has written unprecedented editorials opposing key aspects of this legislation to scale back federal laws against securities fraud.

In September, for example, under the headline "Congress aims at lawyers and ends up shooting small investors in the back," Money warned: "At a time when massive securities fraud has become one of this country's growth industries, this law would cheat victims out of whatever chance they may have of getting their money back. . . In the final analysis, this legislation . . . would actually be a grand slam for the sleaziest elements of the financial industry at the expense of ordinary investors."

This legislation will have a profound detrimental impact on the trust and confidence of investors in our securities markets.

Capital Markets Deregulation

Separately, in July of this year, Rep. Jack Fields introduced legislation to repeal or drastically reduce key investor and market-integrity protections under the federal securities laws. This legislation would, among other things, repeal the so-called Williams Act which gives companies and investors notice of takeover attempts. This would return the country to the days of the "Saturday night special" of sneak attacks by corporate raiders. It would also repeal key provisions of the Federal securities laws used to put Ivan Boesky and Michael Milken in prison.

The legislation would also repeal the Trust Indenture Act's important protections for debtholders. The purpose of this law is to protect investors in publicly offered debt securities by providing for an independent trustee to act on debtholders' behalf in the event of default. In 1990, Republican-initiated legislation modernized the Trust Indenture Act, making its repeal now very curious indeed.

The Fields bill also would drastically curtail state securities laws and limit state securities regulators to enforcing Federal laws and standards. It would eliminate the requirement that investors be sent a prospectus before they buy newly offered securities. It would limit inspections of brokerage firms' books and records for rule violations and release brokerage firms from liability for recommending unsuitably risky securities to institutional customers such as municipal governments and pension funds. And finally, it would reduce the number of SEC commissioners to three from five and fundamentally change the SEC's mission from "investor protection" and "the public interest" to requiring the SEC to take into account "promotion of efficiency, competition and capital formation."

The Shutdown

Now please permit me to address today's front-page news: the appropriations and debt ceiling issues.

From the beginning of the budget debate, Speaker Gingrich has recklessly threatened to shut down the Government and force the nation to default on its debts: As long ago as last April, Mr. Gingrich vowed to create a "titanic legislative standoff with President Clinton by adding vetoed bills to must-pass legislation increasing the national debt ceiling." (Washington Times, April 3, 1995) And as recently as September 22, he boasted: "I don't care what the price is. I don't care if we have no executive offices and no bonds for 60 days -- not this time." (Washington Post, September 22, 1995)

Last Friday, Standard & Poor's Corporation issued a strongly worded warning that the faith of investors "has to some degree, been diminished" by the threats of imminent default on the Government's debt. While S&P said it was not reducing the United States' triple-A credit rating, it clearly left that possibility open, if the country failed to meet any of its payments on U.S. Treasury obligations because of the budget impasse. If the nation's credit rating were reduced, higher interest rates on Treasury securities would result in order to attract investors to take on the added risk of not being paid back on time. This, in turn, would impact a number of other rates, including variable-rate mortgages held by millions of American homeowners. While Treasury has authority to avert a crisis by drawing on Federal trust funds that keep their money in Treasury securities, the Republican Congress is trying to strip away that authority. This strikes me as reckless and irresponsible and imminently dangerous behavior.

A similar crisis has been precipitated by Gingrich and the other extremists in the Republican Caucus over last night's lapse in appropriations authority. The Republicans spent their first 100 days passing bills that the pollsters told them would be popular, rather than properly tending to the business of governing the country.

Then, when they should have been worrying about passing appropriations bills, they got themselves all tangled up trying to advance their extreme agenda by attaching a series of unrelated legislative riders to those bills. Now, they seem to think that blackmailing the President and the American people into swallowing that agenda whole is a responsible way to govern.

I have read many interpretations of last November's election results. But nowhere have I read that the Republicans were given a mandate from the people to hold their breaths until the President turned blue! Yet they seem determined to do just that. Back home in my district, I have found my constituents to be offended by this approach to the issues on Mr. Gingrich's part. This is not the way the American people want their legislators to legislate.

The Republicans are trying to force-feed their extremist agenda down the President's throat -- and down the throats of the American public. I do not think it will work, in part because the President has already shown his resolve not to let it -- and in part, because the American people do not want major and complex policy decisions like these, affecting hundreds of billions of dollars, and tens of millions of children, working people, and senior citizens decided in this way. I can only hope that the Speaker and his Republican colleagues will come to their senses.

It has been a pleasure for me to be with you here this morning, and I wish you great success at this very fine conference.

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