Senator Chris Van Hollen (D-Md.) discusses ongoing talks between President Biden and Congressional leaders to raise the national debt ceiling as well as the ongoing efforts to create new banking regulations in wake of recent bank failures.
Despite all of this, the market seems unconcerned a bit. But are investors right to feel so calm, is the question. The last major debt crisis in late summer of 2011 saw markets tumble as a deal was reached just days before the default date. Debt ceiling fights are nothing new. And Congress has raised the limit more than 70 times since 1960. But what if it went away? Enter the 14th Amendment, which contains a clause that the validity of the US debt shall not be questioned.
Legal scholars argue that the president could invoke the clause, claiming it's his constitutional duty to bypass Congress and raise the limit himself. In April, Maryland Senator Chris Van Hollen helped reintroduce legislation to eliminate the debt ceiling altogether, calling it an economic time bomb. He joins us now. Can you break down that comment further in calling the debt ceiling an economic time bomb?
So the question is, why do we continue to have this ticking bomb within our code? And my view is, we should diffuse it before one day it actually explodes and does a huge amount of damage to our economy.
CHRIS VAN HOLLEN: Well, I certainly think, number one, we cannot default. Number two, the best way to resolve this at this moment would be for Speaker McCarthy to be reasonable and come to an agreement on the budget and the appropriations levels. I really worry that as a weak speaker, he doesn't have the ability to deliver the votes in his caucus on any reasonable agreement. So I do believe that the president should be exploring all legal options to prevent a default. And that would include the 14th Amendment. So I certainly hope that the administration is looking at that very carefully not as plan A but as plan B.
JULIE HYMAN: So that sounds like you're not going to sign on to that letter with your colleagues, but at least you want-- you want the president to leave all of his options on the table?
CHRIS VAN HOLLEN: Absolutely. It would be catastrophic if we defaulted, which is why I support this legislation to defuse this economic weapon by passing a statute. But we don't have time to do that right now. So again, plan A, let's try to get a reasonable agreement on the budget, not just on the debt ceiling but on the budget so we can also avoid a government shutdown. But if that doesn't work, [CLEARS THROAT], excuse me, then I do think the president needs to look at the 14th Amendment.
BRAD SMITH: As it stands at this hour, where are some of the biggest cuts within the budget that are being considered? And where is that money being reallocated?
CHRIS VAN HOLLEN: Well, the cuts are very deep for this reason. The House Republican plan says we'll go back to 2022 levels. But there's a very important catch to that, which is they then say they're going to take defense spending off the table, which is about 50% of the total discretionary spending. So we're talking about cuts to areas of education, kids health, the elderly of around 35%.
These are huge cuts that would really hurt working families, hurt kids, and others. And of course, they also want at the same time to repeal the Inflation Reduction Act, which includes very important investments in clean energy to help make the transition to a greener economy. Part of their plan is to essentially get rid of that. So what the House Republicans have put forward is a nonstarter.
And the president is absolutely right to say two things-- we can't negotiate while you're-- if you're really going to threaten to default, but we also do need to come to some agreement on budget appropriations levels. So I support the ongoing conversations. I will say, I'm very much in the "I'll believe it when I see it" mode because everything I've heard from Speaker McCarthy suggests that he cannot deliver on a reasonable deal.
JULIE HYMAN: Senator, and as we mentioned, you had introduced a bill to get rid of this situation altogether going forward. Given the divided Congress, it doesn't seem like that has much chance of going anywhere. But this-- obviously, this happens, right? This keeps happening over and over again. When the Democrats are in power, you know, it can-- it tends-- it goes a different way depending on who's in power, right, where we see this as sort of this negotiating tactic. Do you see a point in the future where there can be enough bipartisan agreement to get rid of the debt ceiling altogether?
CHRIS VAN HOLLEN: Well, I hope so. And that's why I join Brian Schatz, Senator Schatz, on this bill to get rid of this ticking economic weapon, [CLEARS THROAT], excuse me, because I hope it does not come to the point, Julie, where in order to get rid of it, we have to experience the catastrophe. That's what I worry about. I worry that some people won't come to their senses until we've actually seen an economic meltdown. And of course, then it's too late.
So this is why many of us have been pressing for some time now to make the change during a period of relative calm. But unfortunately, we don't have the votes. That's partly because there's still a lot of confusion in the public mind that the debt ceiling is about increasing spending rather than what it really is, which is making sure that we pay the bills that are already due and owing.
It's just like you and I can't get up and say we're not going to make a mortgage payment or a car payment without any consequences. Well, if the United States and Uncle Sam wakes up one morning and says, you know, we're not going to pay any of our bills on time, that will crater the economy.
Not only that, it will be irreparable because people overseas will lose confidence in the dollar as the Reserve currency, which, of course, is something that President Xi of China and Putin have been trying to do for a very long time. So we would be doing to ourselves what they've been unable to do but what they want to do, which is to reduce-- take down the United States as a global economic leader.
BRAD SMITH: Senator, switching gears here and pivoting from the debt ceiling conversation to the issue that you have been monitoring and discussing on Capitol Hill with regard to the financial services industry. You actually serve on the Senate Banking Committee on housing, banking, and urban affairs. And a fortuitous time for us to have this conversation because you've been in the throes of some hearings that have been taking place.
Tuesday, you had the Silicon Valley Bank hearing. And then now today, you're also meeting and hearing with financial regulators. In the realm of these conversations where you're able to have not just the questions about what transpired and what went wrong but what changes need to be taking place in the future, what would you like to hear, what do you need to hear from regulators to get a sense that everybody has a firm grasp on what needs to be done from this point?
CHRIS VAN HOLLEN: Well, sure. And first, I should say, this is directly connected also just to the default debate because if we were to default, you'd see interest rates go up even further. You would see more bank failures like we saw with Silicon Valley Bank. So that's very much connected to the default debate as well. But on an ongoing basis, we need to make a number of changes.
Number one, in my view, you should not have a bank that has so many unsecured deposits. I mean, Silicon Valley Bank had about 90% of its deposits were unsecured by FDIC. And yet, it did play an important role in our economy. And so I think that we should not have the FDIC insuring banks going forward that have such huge unsecured deposits, meaning deposits above 250,000. How you get from where we are today to a less risky system is something we have to work out.
I also think we need to look at executive compensation. Look, we had the chief executive officer of Silicon Valley Bank before the Banking Committee the other day. I asked him whether he really thought he deserved a $1.5 million bonus just weeks before Silicon Valley collapsed and the FDIC had to come bail them out with respect to the depositors, and he said yes. And when you look at their record, what they did was they tried to-- they tried to artificially boost short-term profits in a way that put at risk the soundness of the bank and depositors.
They took a huge gamble. They lost. And the FDIC then has to come bail it out, and he gets a-- he gets a bonus. So number one, I think we need a better mechanism to claw back these wrongful bonuses, bonuses that were-- that were gained by executives who were making grossly negligent decisions. But I also think we need to look at how we structure executive bonuses going forward so there's not an incentive to take such risky bets simply to get a bonus at the expense of everybody else.
JULIE HYMAN: Senator, just to make sure I understood the first part of what you're thinking about correctly in terms of FDIC and deposit insurance limits, so you think that in order for a bank to be FDIC insured, it will have to have a certain percentage of its deposits that are below that $250,000 limit, if I'm understanding correctly? And ballpark of what that percentage would have to be?
CHRIS VAN HOLLEN: Well, yes. Put it this way-- I know what's too high. 90% of deposits is too high. Where the right number is I think is something we need to look closely at. If you look at the FDIC's postmortem report, they also raise this issue. And the question now is, what's the best path forward to making sure that we don't have a situation like we had with Silicon Valley Bank?
JULIE HYMAN: Maryland Senator Chris Van Hollen from the great state, my home state, of Maryland. Good to talk to you, as always, Senator. Appreciate it.
CHRIS VAN HOLLEN: Good to be with you. Thanks, Julie.