House Financial Services Committee Chairman Jeb Hensarling criticized the Financial Stability Oversight Council during its testimony before the committee on Wednesday, saying the FSOC’s members helped cause or failed to prevent the financial crisis.
“Yet we know the root cause of the crisis was not deregulation, it was dumb regulation,” Hensarling said. “Federal policy strong armed and incented institutions to loan money to people to buy homes that ultimately they could not afford. This dramatically eroded historically prudent underwriting standards. Of the subprime and Alt-A mortgages that led to the financial crisis, more than 70% were incented and backed by the federal government… So in many respects as we examine FSOC, the regulators that helped precipitate the last crisis are now put in charge of preventing the next.”
Hensarling pointed to testimony from the Government Accountability Office, which said the FSOC, which is chaired by U.S. Treasury Secretary Jack Lew, has not yet developed a “structure that supports having a systemic or comprehensive process for identifying emerging threats,” adding that the FSOC was granted “sweeping new powers within our economy.”
“Because as we know, on occasion, regulators may not just be dumb, they may not just be negligent, they may actually be criminal,” Hensarling said. “Just down the hall, as we speak, the House Oversight and Government Reform Committee is holding a hearing where, according to her attorney of record, top IRS official Lois Lerner is pleading the Fifth [amendment] for having led a IRS division which trampled upon the First [amendment]. The American people are appalled that the most feared government agency has been permitted to attack their most sacred rights. The American people are appalled at the arrogance of the agency, they are appalled by this abuse of power.”
Hensarling said that while the IRS is accountable to Lew, the CFPB and Office of Financial Research are not, adding that both of the FSOC member agencies are engaged in “gathering massive amounts of information about private American citizens.”
“This is big data for big brother,” Hensarling said. “As the IRS scandal reminds us, the freedom of every American is endangered when a government agency abuses its power and misuses sensitive information entrusted to it.”