[Congressional Record Volume 153, Number 175 (Tuesday, November 13, 2007)]
[Senate]
[Pages S14246-S14248]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FISCAL POLICY
Mr. DORGAN. Mr. President, let me describe a couple of things that
represent front-page news these days. Regrettably, I believe, these
things threaten the potential future prosperity of our country and
require an urgent response on the part of the President and the
Congress.
The economy and fiscal policy of this administration--and the lack of
regulatory interest on the part of this administration--has led us to
an abyss that is very troublesome. We see the dollar dropping in value
to other currencies. We see a dramatic trade deficit of $2 billion a
day, that we are buying from other countries more than we are selling
to other countries. We see a fiscal policy budget deficit that the
President says is coming down. The only way he can say the deficit is
significantly coming down is that he is taking all of the surplus
Social Security revenues that are supposed to go into the Social
Security trust fund and using every dollar of that surplus as an offset
against other revenue and other spending in order to show a much lower
deficit. We are far off track in trade policy and fiscal policy, and
now we have in front of us a proposal for $196 billion in emergency
spending--none of it paid for. That will bring us very close to three-
quarters of a trillion dollars that the President has requested on an
emergency basis--none of it paid for. That is not conservatism. We have
a responsibility to begin paying for these costs. We send soldiers to
war and the President says to the American people: You go shopping and
do your part for the American economy.
That should not happen. What should happen is when we send soldiers
to go to war and ask them to wear the uniform of their country and go
in harm's way, we should, as a responsible Congress and President, pay
for the costs as we go.
I don't understand it. The President is down there at the White House
saying $22 billion additional for the kinds of things that invest in
our country--he says I am opposed to that. He said I will veto 10 of
your bills, if necessary. He said, I am opposed to that $22 billion of
your bills, half of which is invested in health care. Then he says, by
the way, I want $196 billion on the other side, none of it paid for,
for my priorities, and he says: But that is for the troops.
I am sorry, it is not just for the troops. A substantial portion of
that is for the contractors. There is dramatic
[[Page S14247]]
evidence of the greatest waste, fraud, and abuse in the history of this
country going to contractors who are profiteering, regrettably, during
a war. For a long while I have believed--we have had votes in the
Senate and all on the other side of the aisle have voted against it--
that we should have a Truman-type committee, such as the one Harry
Truman led many decades ago, that began to investigate the waste,
fraud, and abuse in contracting that is existing, that is fleecing the
American taxpayer, undermining the American troops, going on under the
nose of this administration, and nobody seems to care.
With respect to a fiscal policy that is out of control, let me
describe the second portion of that, and that is an administration that
doesn't want regulators to regulate. I understand some do not like
regulation, but this administration has gone way beyond the pale in
saying to regulators, look the other way.
Here is what is happening. This morning you read the newspaper and
see that subprime loans are beginning to have a big impact on all
Americans because it is beginning to have an impact on the economy.
What does all this mean, subprime lending?
Let me describe it to you. Again, the regulators were asleep, didn't
do anything, didn't care very much. Here is what has been going on. We
have had mortgage companies that used to be kind of the slow, little
companies that would lend you money for your home, down on the street
corner someplace, not much going on, somebody who was a thoughtful
person with a pencil above their ear, they were wearing a white shirt
and suspenders. You would sit down and say, I need a home loan. They
would be glad to help you and they would sit down and work out a home
loan for you. That was the way home loans worked.
All of a sudden, home loans have changed. All of a sudden it is a go-
go industry. This is what they started doing. It is unbelievable. This
is an advertisement from the biggest home lending company in this
country: Homeowners, do you want to refinance and get cash? Countrywide
has a great reason to do it now. A no cost finance. It has no points,
no applications fee, no credit reporting and no third party fees. No
title, no escrow, or appraisal fees. Absolutely no closing costs. So
you wind up with a lot more cash.
Here is another company that had a different thing to say, Zoom
Credit:
Credit approval is just seconds away. Get on the fast track
at Zoom Credit. At the speed of light, Zoom Credit will pre-
approve you for a car loan, a home loan or a credit card.
Even if your credit's in the tank. Zoom Credit's like money
in the bank. Zoom Credit specializes in credit repair and
debt consolidation, too. Bankruptcy, slow credit, no credit--
who cares?
This is an ad from a mortgage company.
Millenia Mortgage had to say in their advertisement:
Twelve months No Mortgage Payment. That's right. We will
give you the money to make your first 12 payments if you call
in the next 7 days. We pay it for you.
Let me describe what all this means and what they were doing. I will
do it with respect to the largest mortgage lending company. Angelo
Mozilo created Countrywide Finance, the biggest mortgage company in our
country. They are the ones, along with others, who helped create the
riskier loans and in many cases targeted those loans to those who could
not repay.
Do you have less than perfect credit? Late mortgage
payments? Denied by other lenders? Call us.
That was one of Countrywide's advertisements. Let me say again:
Do you have less than perfect credit? Do you have late
mortgage payments? Have you been denied by other lenders?
Call us--
Countrywide says.
So they began to attract borrowers through advertising, and then they
had brokers on the phone soliciting, calling somebody up, saying: Let's
talk about a new mortgage. We can get some cash for you and reduce your
interest rates. So they created ``affordability loans,'' a new
category; then adjustable rate mortgages; then interest-rate-only
loans; then reduced documentation or no-documentation loans. When I
heard that one, I thought, What does that mean? It means just what it
says: If you want to get a loan, a home mortgage, and you don't want to
document your income, they say that is fine, we will give you a no-doc
loan. You will pay a little higher interest rate, but we will certainly
give you a mortgage if you don't have documentation.
One of the new mortgages they began to offer is interest-only loans
so the borrower is required to pay interest charges only. They deferred
any principal payment to much later; and then they came up with a pay
option adjustable rate mortgage, which allowed the borrower to pay only
a portion of the interest, none of the principal, just a portion of the
interest, and defer all of it to the end of the loan. This means you
might end up paying much more for the house than the house is worth.
All these fancy things--what they were saying to potential borrowers
was, if you have bad credit, come to us because we have an instrument
for you.
This is about greed, by the way, because the brokers and the banks
made extraordinary amount of money. So what they did was they created a
circumstance where they would loan to people something called subprime
loans. There is evidence they put people into subprime loans, even
though they could have qualified for prime loans. Why? Because subprime
loans paid more. Then they rolled these subprime loans, in many cases
for people who couldn't repay, and they would set the interest rate
ridiculously low--pay 2 percent interest rate, for example, and then it
will reset in 24 months, 36 months, and when it resets, it will reset
way up here, but in the meantime here is your monthly payment.
They were quoting monthly payments without the escrow, so they were
recording ridiculously low payments. In some cases, they were quoting
interest only loans, some cases with only partial interest, in other
cases at ridiculously low rates that were going to reset at a high
rate, and then they would attach prepayment penalties to them so they
could lock people in. And then what they did is they rolled this up
like sausage.
There was a story about how there used to be sawdust in with meat
when they rolled sausage up so you didn't know what you were eating. It
was good filler, apparently. They rolled these up as securities with
the subprime loans, the prime loans, rolled them up as a security,
sliced them up to be sold.
Guess what. The big investors out there liked this stuff. It paid
pretty high rates at this point because you were able to have
prepayment penalties and a whole series of things. They are buying
these things without having the foggiest idea what is in them. The
rating agencies are rating them as OK. So you have the folks investing
in the securities that represent these subprimes. Then all of a sudden
it is discovered people are not able to pay. They can't make their
house payments. The interest rate gets reset. It is way up. They don't
have a ghost of a chance of making the house payment, and then they
stand around scratching their head wondering what happened. I will tell
you what happened, a carnival of greed on the part of the mortgage
brokers, bank security firms--all of them, a total carnival of greed.
Now they are all walking around scratching their head, trying to figure
out what do we do next.
Well, Merrill Lynch, for example, lost $8.4 billion, I guess it was,
2 weeks ago, so they fired their CEO. I believe he got $161 million in
securities and retirement benefits--as he went out the door.
Last week it was CitiGroup that fired their CEO. There was a pretty
substantial benefit.
That is going on all over the country. By the way, the head of the
company that is the largest company, Mr. Mozilo, in the midst of all
this, head of the largest company that is engaged in all this,
Countrywide, earned $142 million last year. He was celebrated as the
executive--Fortune Magazine's prestigious Company of the Year. The
Horatio Alger award. He made $142 million last year and the New York
Times reports that he was selling $138 million of his stock in the
company as he was talking about how well the company was doing.
This subprime scandal is all about greed. It is not new. It happened
in the savings and loan industry. It has happened in other areas. It is
now happening with respect to this mortgage industry scandal. The
administration, of course, doesn't want anybody looking over anybody's
shoulder, so there
[[Page S14248]]
has been no regulation. You have hedge funds buying into these things.
They are unregulated, by and large. There is no regulation, no
oversight, Katy-bar-the-door, do what you want to do, the private
sector will be fine.
It is not fine. This is having a significant and serious impact on
this country's economy. I am going to come back to this in a moment,
but let me describe the other issue that is happening.
We wake up this morning and oil is $90 to $100 a barrel. You ask why
is that the case? Why is oil $90 to $100 a barrel? Once again, it is
lack of oversight. Here we have a futures market on which oil is bought
and sold. This futures market has now become an unbelievable orgy of
speculation.
I was reading yesterday from an article, an analyst from the
Oppenheimer Company in New York, was talking about the price of oil. He
says:
I'm absolutely convinced that oil prices shouldn't be a
dime above $55 a barrel. Oil speculators include the largest
financial institutions of the world. I call it the world's
largest gambling hall. It is open 24-7. Unfortunately there
are segments of the market that are unregulated. This is like
a highway with no cops, no speed limit, and everybody is
going 120 miles an hour.
What is happening with oil? It is interesting, if you take a look at
this unbelievable speculation that is going on in the futures market.
You have industrial banks in this country, investment banks. They are
actually buying tanks to store oil. This takes the oil off the market.
They are doing this because they believe that the price of oil will be
higher in the future. So they take oil off the market now, store it,
and sell it later for a profit. This creates an upward pressure on
price. You now have hedge funds hip deep in the futures markets. They
didn't used to be. It used to be that the futures market for oil had a
relationship to the supply and demand with respect to oil. There were
other tensions in various parts of the world that might affect it some,
but not like we have seen recently. As is the case in most areas, this
has gotten way out of hand. There is no way that current supply-and-
demand relationships with oil justify $100 a barrel. It is a futures
market that is propelled by unbelievable speculation in search of
profits by a whole range of interests, especially now including hedge
funds and investment banks and others.
The question is, who are the victims of all of this? The victims are
people, the people who drive up to the gas pump. The victims on the
subprime market are the people who cannot repay a mortgage; and
somebody says maybe they should have known better. Maybe so, but when a
broker is going to make a $30,000 commission by writing a $1 million
mortgage and selling over the phone 2 percent interest rates, I am
telling you there are a whole lot of folks who get sucked into that.
The point here is we face a situation in several areas where there is
a total, complete lack of common sense. There is this little book
written by Robert Fulghum a long while ago that would, in my judgment,
provide some benefit to some people. The title of the book is, ``All I
Really Need To Know I Learned In Kindergarten.'' The lessons are not
unusual. The lessons are: Play fair, don't hit, don't take what is not
yours, wash your hands, flush--you know, the things I learned in
kindergarten; the things that are important.
We could write a primer on ``All The Things I Really Need To Know I
Learned In Kindergarten.'' We could write that primer and instantly
people would say you can't have an oil futures market that is rampant
in speculation with hedge funds and others now pushing up the price of
oil having little to do with supply and demand. You can't have a
mortgage industry in which the mortgage companies decide they are going
to provide loans to people who cannot afford to repay the loan and make
very big profits and lock them in with a prepayment penalty. They are
all fat and happy and making a massive amount of money. You can't have
that without a significant consequence to our economy.
What do I suggest? It is simple. Let's sober up a little bit on
fiscal policy in this administration and this Congress. Maybe we can
say to the President: You want $196 billion. OK. You tell us how you
want to pay for it. Send us the recommendation, and we will certainly
take a look at that. We want to do everything that needs to be done to
support our troops. But a substantial portion is not going to support
our troops. It is going to support big contractors that have been
bilking the taxpayer for a long time. We are going to take a hard look
at that and investigate it and get to the bottom of it.
We need to get back on track in trade and fiscal policy. Ignoring it
might feel good, but it is not the right thing for the future.
With respect to the issue of subprime lending and futures markets, if
that doesn't persuade Members of this body there needs to be some
thoughtful, sensible regulation, then I don't know what will. I chaired
the hearings on Enron. It was to my subcommittee that Ken Lay came on
behalf of Enron, raised his hand, and took the fifth amendment. Mr. Lay
is dead. Many of the folks who worked with him at Enron are in prison.
But I understand what happened in that scandal. The American public,
again, was a victim. They got fleeced. In Enron's case, they were
manipulating markets to drive up the cost of electricity on the west
coast and bilk people out of billions of dollars. What did it mean? It
meant we had to put in place some regulations to prevent that from
happening again. What does this mean, the subprime scandal that exists,
and its impact on the economy? It means we have to put in place some
regulations to prevent this sort of thing from happening. People have
profited in a very unholy way at the expense of a lot of victims across
the country.
What does it mean when people go up to the gas pump this afternoon
and pay a substantial amount for a tank of gasoline at a time when the
price of oil is running toward $100 a barrel and the futures market is
driving that price up, having very little to do with supply and demand
but more to do with an orgy of speculation? It means we ought to care
about that. It means there ought to be some regulatory oversight.
This administration has a lot to answer for, as does the Congress. I
am pleased to be a part of the majority, and we are working hard to try
to respond to and deal with these issues. But these issues are not
going to go away. The prosperity of this country's future is at stake.
We need to get it right.
I yield the floor.
The PRESIDING OFFICER. The Senator from Hawaii.
____________________