[Congressional Record Volume 154, Number 147 (Tuesday, September 16, 2008)]
[Senate]
[Pages S8813-S8814]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         OIL MARKET SPECULATION

  Ms. CANTWELL. Mr. President, as I rise to speak this morning, for the 
first time since April 1, the price of oil has fallen to below $100 a 
barrel, and that is certainly a welcome relief to many Americans across 
this country and to businesses who have been devastated by high energy 
markets.
  We shouldn't underestimate the damage that has been caused. Just this 
past Friday, in my home State of Washington, Alaska Air announced that 
more than 1,000 people will lose their jobs because of high fuel prices 
and a slowing economy. Compared to last year, Americans have paid $76 
billion more for gasoline in 2008, and I know many people went without 
vacations, and businesses have cut back on their operations.
  Now, we have had various independent reports that have shown that the 
fluctuation in price from 2007 to 2008 cannot be explained by simple 
supply-and-demand fundamentals. And we are having a hearing at 2:30 
this afternoon in the Energy Committee about excessive speculation and 
how prices were driven to record highs this summer. But what we need to 
also realize is the scrutiny Congress has placed on Wall Street along 
with the promise to have stricter oversight has had an impact; 
prompting a large volume of capital starting to leave these markets.
  It wasn't that long ago when President George Bush was picked up on 
the Internet at a reception saying ``Wall Street got drunk.'' Now, I 
don't know if the President really meant to have this publicly captured 
on the Internet, but it was, and I know afterwards his Press Secretary 
was quoted as saying:

       Well, you know, I actually haven't spoken to him about 
     this, but I imagine what he meant, as I have heard him 
     describe it before in both public and private, was that Wall 
     Street let themselves get carried away and that they did not 
     understand the risks these newfangled financial instruments 
     would pose to the markets.

  And while it is Wall Street that has gotten drunk, it is the American 
public paying for the hangover.
  Today, we are struggling to contain one of the most severe credit 
crises since the Great Depression, and American families are going to 
pay dearly for that lack of oversight and regulatory indifference to 
what have been critical markets for us to oversee. I give credit to 
Secretary Paulson for his swift action over the last couple of weeks to 
contain the economic fallout from a reeling Wall Street.
  During the past decade, the agencies charged with financial oversight 
have turned their eye from what has been one of the worst excesses our 
country has seen. My question for my colleagues today is, when are we 
going to learn the lessons of history and make sure Congress does its 
job in the oversight of the regulatory agencies so they do theirs?
  In many ways, today's super-bubbles are a repeat of the 1920s when 
too much borrowing to underwrite too many speculative bets using too 
much of other people's money set up the entire economy for a crash. In 
1999, Congress repealed key parts of the Glass-Steagall Act of 1933. 
The repeal allowed banks to operate any kind of financial businesses 
they desired, and it set up a situation where the banks had multiple 
conflicts of interest.
  Several economists and analysts have cited the repeal of this act as 
a major contributor to the 2007 subprime mortgage crisis.
  In fact, Robert Kuttner, cofounder and co-editor of the American 
Prospect magazine wrote in September 2007:

       Hedge funds, private equity companies, and the subprime 
     mortgage industries have two big things in common. First, 
     each represents financial middlemen unproductively extracting 
     wealth from the real economy. Second, each exploits loopholes 
     in what remains a financial regulation.

  But we didn't end our deregulation there.
  In 2000 we also deregulated a new and volatile financial derivative 
that is at the heart of today's housing credit crisis--credit default 
swaps.
  As White House press secretary Dana Perino described it earlier this 
year, these ``newfangled financial instruments'' that posed a risk to 
the market actually grew into a $62 trillion industry.
  Warren Buffett has called these credit-swaps ``financial weapons of 
mass destruction.''
  The proliferation of these newfangled financial instruments has 
resulted in huge profits and losses without any physical goods changing 
hands.
  I come to the floor asking my colleagues: when are we going to learn 
the lessons of the past?
  When are we going to realize that the 1929 stock market crash has the 
same root cause as the recent housing bubble?
  Both were financed by dangerously high leveraged borrowing. And after 
the crash many banks failed--causing a ripple effect that devastated 
our Nation's economy.
  After the 1929 crash, Congress stepped up and changed the banking 
laws to eliminate some of the abuses that had paved the way for 
economic disaster.
  My question is--we acted after the crisis and Congress did step up 
and do something. What I want to know is whether we have learned our 
lesson. Are we going to legislate consumer protections in advance, or 
only after a bubble bursts?
  The savings and loan crisis of the 1980s and 1990s when 747 savings 
and loan associations went under provides a similar lesson.
  Like before, much of this mess can be traced back to the deregulation 
of the savings and loans which gave these associations many of the 
capabilities of banks, but failed to bring them under the same 
regulations.
  Congress eliminated regulations designed to prevent lending excesses 
and minimize failures.
  Deregulation allowed lending in distant loan markets on the promise 
of higher returns, and it also allowed associations to participate in 
speculative construction activities with builders and developers who 
had little or no financial stake in the projects.
  The ultimate cost of this crisis is estimated to have totaled around 
$160 billion, with U.S. taxpayers bailing out the institutions to the 
tune of $125 billion. This, of course, added to our deficit of the 
early 1990s.
  I ask my colleagues: When are we going to learn this lesson?
  We have failed to see that oversight and transparency are always 
critical parts of any functioning market.
  We have failed to see that when Congress makes reforms, like the 
Commodities Futures Modernization Act in 2000, or like the repeal of 
key portions of the Glass-Steagall Act in 1999, or the deregulation of 
the energy markets in

[[Page S8814]]

the 1990s, they cannot disregard these important fundamentals of 
transparency and strong Federal oversight authority.
  I could go on and on for my colleagues on my own personal experience 
with the western energy crisis that happened in electricity markets in 
2000 and 2001.
  We saw that during the electricity deregulation experience which 
started in the mid 1990s, people argued that electricity was just 
another commodity. But it is really a very critical element to our 
economy.
  Many experts cautioned that electricity was too vital a part of our 
economy and way of life to let these markets go without the 
transparency and oversight that is essential.
  We all know the rest of the story. We saw that deregulation set the 
table for some of Enron's spectacular manipulation schemes of 2000 and 
2001 among other bad actors, that caused more than $35 billion in 
economic loss and cost our nation over 589,000 jobs.
  Again, only after the crisis was over, did Congress step in. Only 
after the crisis did Congress give the Federal Energy Regulatory 
Commission, and now the FTC, more regulatory authority on energy 
markets. And once more, Congress illustrated that it prefers to act 
after the fact.
  So I ask my colleagues: When are we going to learn?
  When are we going to quit deregulating these critical markets without 
much thought to the transparency and oversight that is critical for 
markets to operate and function correctly?
  When are we going to learn that when we take our eye off he ball, 
Wall Street raids the cabinet and, as the President say, Wall Street 
gets drunk?
  I mentioned that later today we will be holding a hearing in the 
Energy Committee to examine the oil futures market. We will examine why 
we need meaningful legislation to close the loopholes that exist in 
those dark markets.
  This deregulation has helped spark today's price super-bubble, as 
George Soros warned at a June 3 Commerce Committee hearing, that is 
driving our markets to no longer be based on supply-and-demand 
fundamentals.
  In one fell swoop, this deregulation did a number of things that 
enabled today's perfect storm to brew.
  No. 1, we let these newfangled financial instruments called credit 
default swaps go unregulated, and it made it easy to use bad debt to 
finance home mortgages.
  As George Soros wrote in his book documenting the credit crisis:

       At the end of World War II, the financial industry--banks, 
     brokers, other financial institutions--played a very 
     different role in the economy than they do today.

  He went on to explain, as I said, that banks and markets are not as 
strictly regulated today as they were in the past.
  In 2000 we deliberately chose not to learn this harsh lesson and 
allowed these new, volatile financial derivatives that are the heart of 
today's markets to go unregulated by the Commodity Futures Trading 
Commission.
  What we need to do is make sure we learned this lesson, to go back 
now and close the loopholes that exist and make sure the agencies that 
are in charge of oversight actually do their job. We do not want the 
American people to continue to have to pay for mismanagement and lack 
of oversight by not having transparency in these markets. We need to 
make sure these agencies are accountable.
  The bottom line is we have a CFTC that is more lax in allowing 
traders to run amok than protecting families who live on Main Street in 
America. That is why I continue to hold up CFTC nominations. We need a 
more sophisticated regulatory regime oversight, including regulators 
who will be aggressive policemen on the beat. We need to collect more 
data to make sure that markets are not being manipulated. We need to 
make sure the market is driven by basic market fundamentals and not 
greed.
  I yield the floor.
  I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. WARNER. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. WARNER. Would the Presiding Officer advise the Senate of the 
procedure at this time?
  The ACTING PRESIDENT pro tempore. The minority has 2 minutes 
remaining in morning business.
  Mr. WARNER. I yield back the time.

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