March 14, 2007
Prepared Remarks of Senator Dodd to the U.S. Chamber of Commerce “First Annual Capital Markets Summit: Securing America’s Competitiveness”March 14 - Thank you, Tom, for that kind introduction. And thank you all for this opportunity to speak with you this morning. It’s hard to believe that ten years have passed since Tom became President and CEO of the Chamber. He has done an outstanding job of leading this remarkable organization. I am proud to have had Tom’s and the Chamber’s support on some of the most important pieces of legislation with which I have been associated. Laws like the Private Securities Litigation Reform Act; the Y2K litigation reform act; the Class Action Fairness Act; the Gramm-Leach-Bliley Act, which has helped bring our financial services sector into the 21st century; and the Terrorism Risk Insurance Act, which in the aftermath of 9/11 has played a crucial role in keeping our economy strong. In fact, I’ve had such a productive working relationship with the Chamber, that some have even suggested that I open an office downtown just to be nearer to the Chamber’s location on the 1600 block of H Street. But I’m told there’s some real estate that will soon be on the market at 1600 Pennsylvania Ave. So I’m taking a hard look at that. In all seriousness, these pieces of legislation represent hard-fought changes that have benefited the American economy – and in so doing have also made our nation a more hopeful and prosperous place for all. They represent what can happen when people decide to reject partisanship and embrace partnership to create positive change for America. It is once again that sense of partnership that has brought us together today. America in these early years of the 21st century is by some measures doing well. But I defy anyone to say that we cannot do better. Wherever I go – from boardrooms to class rooms to living rooms – Americans are deeply concerned about our nation’s future. And I share that concern. We are at a critical moment in our nation’s history. Our leadership in the world has been achieved over a period of 2 and a quarter centuries by the vision and sacrifice of generations of patriots and statesmen. U.S. leadership is today being questioned and in some ways squandered as it has never been before. The stakes for all of us as Americans could not, in my view, be higher. The topic of today’s gathering is the future of America’s capital markets. But in reality, we are all here out of a shared concern about the future of America itself. The issue before us today presents an opportunity for us all—Democrats and Republicans, private entrepreneurs and public leaders—to come together to have a serious discussion about ways to move our country forward. The Capital Markets Commission report is a thoughtful document that makes an important contribution to the debate about the future of our nation’s capital markets. I commend the Chamber, the Commission and its co-chairs—my good friend Bill Daley and Arthur Culvahouse—for highlighting some of the key challenges facing our capital markets. I look forward to analyzing the report’s recommendations in greater depth and examining them in the Senate Banking Committee at a hearing I intend to hold in the coming weeks. I have served on the Banking Committee since my first day in the Senate. No one now in the Senate has served there any longer. As a member of that Committee, and now as its Chairman, I have had one overarching objective: to preserve and strengthen America’s preeminent position as the world’s leading financial center. That objective is so crucial because our nation’s ability to strengthen security, create opportunity, and expand prosperity for every citizen depends in large part on the success of our capital markets and of our financial services sector generally. My service on the Banking Committee has provided me with a tremendous opportunity to observe, study, and, I hope, strengthen our capital markets. Based on that experience, I would like to share what I believe are three important considerations that should guide us in any discussion of how to make America’s capital markets more competitive. First, we should keep in mind that, as we speak, America’s capital markets remain the most dominant in the world. That is not empty rhetoric. It is a demonstrable fact. For example, the total amount of financial stock in the U.S.—equities, bonds, loans, and deposits—is more than six times the amount of the U.K.’s, more than double Japan’s, and four times that of the other Asian capital markets. America’s dominance is also proven by the market capitalization of the major exchanges. Yes, IPO and trading activity on overseas exchanges has been growing. I am very aware of that, but the market capitalization of the major U.S. exchanges dwarfs that of their overseas competitors. The market cap of the New York Stock Exchange is fifteen trillion dollars. That is fifteen times the value of the Shanghai Stock Exchange, four times the value of the London Stock Exchange, and three times the value of the Tokyo Stock Exchange. Much of the growth in capital is coming from overseas investors — and according to some measures, in record amounts. The most recent Economic Report of the President found that foreign investment in U.S. financial stock such as U.S. Treasury securities, corporate stocks, and corporate and other private bonds totaled $5.7 trillion in 2005—the highest level in nearly thirty years. In addition, 34 foreign IPOs listed on U.S. exchanges last year — the highest percentage of foreign IPOs in the U.S in twenty years. It is worth pointing out that all of this growth has been achieved despite the 2001 recession, the 9/11 terrorist attacks, a string of corporate scandals, and the ongoing lengthy, bloody, and costly wars in Iraq and Afghanistan. So, despite the bearishness of some, the United States remains the pre-eminent destination for global capital. We’re hearing a lot these days about London, and Hong Kong, and Shanghai. But the fact is, the U.S. capital markets remain the largest, most liquid, most innovative, most resilient, and most lucrative in the world. And on my watch, as Chairman of the Senate Banking Committee, I intend to keep them that way. Which leads me to the second consideration that must guide us: our capital markets are strong precisely because of – not despite – the legal architecture within which those markets have been conceived and grown. That is probably not a particularly surprising observation from someone who has helped to build that architecture. But lawmakers are not the only ones who understand the value of our laws to our capital markets. Three years ago, Alan Greenspan was asked to explain the phenomenal size and strength of the American economy. He had this to say: “[A]rguably the most important factor is the type of rule of law under which economic activity takes place.” Glenn Hubbard, the former chairman of President Bush’s Council of Economic Advisors, echoed those thoughts in a 2004 report. He said: “Effective capital markets require . . . the enforcement of laws and property rights, transparency and accuracy in accounting and financial reporting, and laws and regulations that provide the proper incentives for good corporate governance.” More recently, last month, a Goldman Sachs study analyzed the condition of America’s capital markets. It found that the strength and continued appeal of those markets could be explained in no small part by what the report called: “a history of solid regulation.” That “history of solid regulation” means that investors know that they are reasonably certain to get a fair shake in our markets. Win or lose, they invest with a high degree of confidence that American balance sheets are accurate, that investment products like securities and derivatives are properly valued, and that the markets are well-policed against those who would commit negligent, deceptive, or fraudulent acts. So the value of the laws and regulations within which our markets operate can hardly be overstated. Now, let me quickly add that is not to say that all regulation is good—any more than it is accurate to say that any regulation is bad. Our laws and regulations are not to be entrenched – and attempts to revise them must not be resisted. On the contrary, we write our laws on paper. We don’t etch them in stone. We should never be unwilling to revisit and re-examine past assumptions, and we will do just that under my Chairmanship. That is why I also support the efforts of Chairman Cox and Chairman Olson with regard to improving regulations implementing the Sarbanes-Oxley Act. Sarbanes-Oxley was never intended to handcuff companies that seek to innovate. It was meant to improve accountability and transparency in our public companies and restore confidence in the integrity of the markets. The rule-making currently underway will help ensure that the core intent of Sarbanes-Oxley is upheld and advanced. That is also why I support the effort by the NASD and the NYSE to consolidate into a single SRO for all broker-dealers. This new self-regulatory organization holds the potential to not only improve the efficiency and consistency of securities industry oversight, but also to reduce costs to member firms. I have always been open to new ideas and new approaches to achieve important policy goals in new, more efficient, and more effective ways. That kind of approach is more critical today than ever. The stakes are simply too high for us to be afraid to think innovatively and to act decisively. I take a back seat to no one in my commitment to the preeminent power of America’s markets. But we must resist the temptation to engage our international competitors in a regulatory race to the bottom. Our laws and rules to protect individual investors are a crucial competitive advantage in the global marketplace. Our competitors know that. If we jettison some of those legal protections, we hand our competitors a victory greater than any they could achieve on their own. And we would almost certainly see the slow flow of capital out of our markets and into those of our competitors. The third and final thought I wish to make today is that America’s continued ability to attract financial capital hinges on our ability to cultivate and attract intellectual capital. There is no question that the growth of capital markets in Asia, Europe, and elsewhere merits our consideration – and in certain respects, our concern. Without a doubt, the number and size of IPO’s in places like Moscow, London, and Hong Kong is on the rise. I want you to know that I am not unmindful of that. But a closer examination of these foreign markets reveals an interesting fact: American firms are leaders there, just as they are leaders here. Consider America’s leadership in the European capital markets. According to the McKinsey report commissioned by Mayor Bloomberg and Senator Schumer, three of the top five firms in the European markets—be they engaged in IPOs, mergers and acquisitions, or debt issuance—are Americans. Visit virtually any emerging market in the world today, and you are almost certain to find American firms shaping, guiding, and leading that market into the 21st century global economy. American firms are providing the lawyers, accountants, analysts, investors, and entrepreneurs who are structuring deals, growing jobs, and creating new wealth. In that regard, the growth of markets overseas is something to embrace rather than fear. Because that growth is creating new opportunities for American firms to earn new business. However, our ability to tap and shape those markets depends in large measure on our ability to educate, recruit, and train the best talent in the world. Last week, I listened to Bill Gates. He came to Washington to sound an alarm bell about how the shortage of educated and skilled workers threatens our nation’s overall economic competitiveness. It was a sobering assessment. Yet, a decline in the number of educated and skilled American workers is by no means inevitable. On the contrary, many of us in the Senate – Republicans as well as Democrats – share a strong commitment to improving the educational achievement of our students. That is particularly true of math and science, where we continue to lag behind many other industrialized nations. In a global economy, we must realize that an American child no longer competes for a job against the child from the next town. Nor does he or she compete against a child from another state or region of the country. No. Now our kids are competing for jobs against kids from China and England and India. And the best jobs will go to the kids who can think creatively, can understand key mathematical and science concepts, and can solve problems – regardless of where they live. So we must work to increase the pool of home-grown entrepreneurs and highly skilled workers. At the same time, we must remain open to those from other nations who have the talent and drive to succeed in America. Our immigration laws necessarily should place a priority on homeland security needs. But that can be done without erecting needless barriers to those who can help America create new wealth and new jobs. In sum, then, when we discuss the competitiveness of America’s capital markets, I hope that we will keep these thoughts in mind: First, that our markets are still the largest, most liquid, and most transparent on the planet. Second, that the current and continued success of those markets depends on the presence of effective, efficient legal rules that protect investors. And third, that the success of our markets also depends on our nation’s ability to educate, train, and recruit the kind of talented and driven people who can compete and win in the global economy. Creating the change necessary to maintain the preeminence of our capital markets will not be easy. It will require leadership. But we dare not shrink from the challenge. At the outset of these remarks, I said that while today’s meeting is about the future of our capital markets, in a broader sense, it is about the future of our country. I had an experience not long ago that I want to share with you. My five year old daughter, Grace, was getting ready for school one morning, when she looked up at me and said, “I wonder what my day is going to be like.” It’s not every day that you get that question from a five year old. A moment later, she looked up again and said these exact words: “I wonder what my life is going to be like.” She had just turned 5. How do you answer that? It’s a question that I would guess many of you have heard before. Because it’s a question that all parents often ask about their children or grandchildren. None of us can know with certainty the answer to that question. But we do know that the lives all of our children lead will depend in no small measure on the work that you and I will accomplish in the next few years. We gather today not as Republicans or Democrats, but as Americans who are committed to the future success of the greatest wealth generator of all time: American capitalism. We all have a stake in creating hope and prosperity for those who will come after us. I will work with you to build on our legacy of the American dream and expand security and opportunity for all Americans. Because these urgent times demand nothing less than all of us working together to create that change. That is what I have been doing my entire life in public service – reaching out and turning rhetoric into results, ideals into initiatives, and principles into progress for our country. Many talk about change. This is not a time for talk. It’s a time for action. Our challenges are too serious and too urgent to merit anything less. So let us join together once again to turn people’s dreams into realities. And let later generations say that, at the beginning of the 21st Century, after an uncertain start, America’s leaders charted a new course that once again matched America’s progress to her promise. Thank you.
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