[Congressional Record Volume 154, Number 149 (Thursday, September 18, 2008)]
[Senate]
[Pages S8977-S8983]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              THE ECONOMY

  Mrs. CLINTON. Mr. President, we have seen the financial landscape in 
our country reshaped overnight. The titans of Wall Street have been 
rendered insolvent or even bankrupt. These are firms that survived the 
Great Depression, world wars, the attacks of September 11, but were no 
match for a mounting credit crisis that was allowed to escalate in the 
shadows of our financial system.
  The Federal Government has taken over Fannie Mae and Freddie Mac. 
Bear Stearns had to be rescued by JPMorgan Chase, after the Federal 
Government guaranteed J.P. Morgan's investment. While they are in talks 
to keep part of the company viable, Lehman Brothers has declared the 
largest bankruptcy in U.S. history. Merrill lynch has been purchased by 
Bank of America, and the Federal Government has agreed to rescue AIG.
  This past Monday, we saw the largest drop in the Dow Jones Industrial 
Average since 9/11. Now even money market funds are affected; for only 
the second time in our history, one has been valued at less than 100 
cents on the dollar. Alan Greenspan called this a ``once in a century 
event.''
  In my State of New York, tens of thousands of hard-working employees 
have lost their jobs. The livelihoods of tens of thousands more who 
depend on Wall Street's economy are threatened as well.
  New York City and New York State, already facing serious economic and 
fiscal challenges, will now be forced to contend with a battered Wall 
Street, the lifeblood of our State's economy. The sudden collapse of 
these firms and the Government takeover of some has shaken our markets 
and buffeted the economy as a whole. Many are now asking: What is next? 
I know that New Yorkers and other Americans are deeply concerned and 
more than a little bewildered. As our markets have grown more complex 
and interconnected globally, so, too, have the crises that have 
emerged. We are still sorting out the details.
  One of the consequences of the secrecy and lack of oversight under 
the Bush administration is that we do not know what we do not know. But 
it is important to recognize what we do know about what went wrong so 
we can assess what needs to be done right now to make it right.
  What we have seen over the course of the last 8 years is an 
administration that refused to recognize the threats that lurked in our 
economy--no matter what lurked just beneath the surface or what 
problems were facing middle-class families.
  We know that many CEOs are paying lower tax rates than their 
receptionists. We know that President Bush and those who carry his 
mantle seek to lower those taxes even further. Middle-class families 
have seen their wages decline, even as the cost of living has 
skyrocketed. This administration has the worst job creation record in 
70 years. Millions of families were locked into ballooning and 
unaffordable adjustable rate loans as this administration stood by 
denying there was a crisis. Regulations designed to keep pace with the 
markets have been steadily chipped away by Washington Republicans even 
as companies experimented to the tune of hundreds of billions of 
dollars in ever-more complex and risky financial instruments. Now, we 
were reassured that the risk was too diversified and investments too 
sophisticated to put our economy in jeopardy. Meanwhile, behind closed 
doors, the cracks were showing as the value of mortgage-based 
securities slipped day by day. And the President and his supporters in 
Congress repeatedly chanted--and still chant today--the mantra that the 
fundamentals of our economy are strong.
  The administration waxed philosophic when middle-class families 
started facing foreclosures at record levels. The administration and 
its allies derided my proposals over the last 2 years to offer 
assistance to troubled homeowners seeking refinancing as a ``bailout.'' 
They dismissed my concerns and the concerns of millions of Americans 
even as the storm clouds gathered. They said they didn't believe the 
Government should intervene and provide borrowers an affordable 
opportunity to avoid foreclosure.
  Even when I and others warned the Bush administration repeatedly from 
the start of this crisis, that decisive action was demanded immediately 
to help families stay in their homes, that that was the best way to 
stave off a deepening economic crisis, their only responses were 
predictions for a ``soft landing'' and that the crisis could be 
contained.
  As I traveled throughout our country, I could see that no soft 
landing was forthcoming. Many families, hundreds and even thousands of 
miles from Wall Street, were having their lives turned upside down by 
the home mortgage crisis and the ripple effect being

[[Page S8978]]

felt throughout the economy as a consequence of the broken economic 
policies of the last 8 years.
  Unfortunately, the Bush administration waited until this past summer 
to admit that massive housing relief was necessary. The administration 
finally supported, in concept, much of what I had proposed--mortgage 
modifications, freezes for unreasonable mortgage rate increases, and an 
expanded role for the Federal Housing Administration. But their 
response was halfhearted, without adequate resources or a commitment to 
enforcement. So the home mortgage crisis slowly but surely eroded the 
value of risky debt instruments upon which Wall Street firms were 
dependent. The house of houses of cards began to fall. My proposals, as 
well as those of others, were falsely greeted as too much, too soon. 
Now we are forced to reckon with too little, too late.
  When giant Wall Street firms revealed their dire straits and turned 
to this administration for the exact same help as we had sought for 
middle-class families--discounted loans, loan modifications, and 
Government-backed lending to weather the storm--Adam Smith was nowhere 
in sight.
  Taxpayers have loaned these banks upwards of half a trillion dollars. 
After years of laissez-faire policies for the middle class, the Bush 
administration has acted on behalf of Wall Street, with the largest and 
most significant Federal interventions in the history of our modern 
financial system. The largest banks in the world could have closed-door 
meetings with the White House and Federal Reserve and Treasury 
Department to discuss their bailout options, but millions of homeowners 
with mortgages worth more than their homes or who are facing default 
and foreclosure don't have the same opportunity.
  This administration seems to be, once again, paralyzed. I represent 
both the workers and the homeowners and the investment firms. I wish we 
had taken action long before this, for the sake of all of my 
constituents. But now we must have a concerted, focused effort. I don't 
believe we can wait until the next President. I am extremely hopeful 
and optimistic that we will have a President who will work with us to 
resolve our economic challenges, but I don't think we can wait.
  However, I do believe we can avoid a deepening crisis. We can take 
steps right now to address the root causes of what is taking place in 
our economy to stem the tide of foreclosures, mortgage defaults, and 
the aggregating consequences in the credit markets, on Wall Street, and 
throughout the global economy. But we must cast aside the haphazard, 
halfhearted approach of this administration and bring every stakeholder 
to the table to seek out and implement the right solutions.
  We must be as vigilant on behalf of homeowners and middle-class 
families as we are on behalf of Wall Street firms. We must chart a new 
course based on the facts at hand, not the ideology at work for 8 long 
years. We have tried being reactive. It is now time to be decisive.
  No option should be off the table--certainly not because they don't 
fit into a narrow ideological prism that this administration has 
abandoned for some at the first sign of trouble. Ideologues in 
Washington or in the market who thought that the only danger to the 
marketplace was the Federal Government are now going hat-in-hand to 
that same Government seeking help to stay afloat.
  So to those who suggest that the steps taken thus far are enough, let 
me be clear: We may need to take even more significant steps to avoid a 
self-sustaining cycle of depressed home prices and foreclosures, with 
the consequent effect on the entire marketplace. We have already pumped 
hundreds of billions of dollars of liquidity into the markets, but we 
still cannot see the end of this crisis.

  The biggest problem now is that our entire financial market is 
anchored by the mortgage securities that are untouchable. We have seen 
the banks and the financial institutions that had the largest exposure 
to these instruments among the first to fail. Now we have begun to see 
some of the mightiest institutions--even those making a profit--fall by 
the wayside and the market thrown into upheaval, and others the target 
of predatory short-sellers.
  The Federal Reserve has used virtually every arrow in its quiver, 
from rate cuts, opening its lending windows, and, in desperation, has 
even created some new arrows through its new lending facilities. By 
some estimates, the Fed has put out more than half a trillion dollars 
through discounted loans, bailouts, and takeovers to stabilize the 
market and the economy. While necessary to prevent even deeper 
disaster, we have seen that the benefits of these actions have had 
limited effect.
  This situation reminds me of that old fable where people are standing 
by the side of a river and they keep seeing babies being rushed down 
the river in the current. They desperately reach out and try to save as 
many babies as possible. Day after day, they are reaching out. They get 
new tools, they build a bridge, they get a ladder, and they are 
constantly trying to get to those babies, hoping they can save many of 
them. Finally, someone walks up and says: Who is throwing them in? Go 
upriver and find out the real problem and stop that.
  The real problem has always been the way our home mortgage system got 
totally out of whack, with new kinds of instruments that were sold many 
times over, with very little regard to the realities of life, human 
nature, and the inevitable ups and downs in the economy, with the 
result that until we reach in and fix the home mortgage crisis--and we 
can bail out everybody from here until kingdom come--we will not get a 
handle on this economic crisis.
  Here is what I believe we should do:
  First, in light of historic bank failures, even with the largest 
Federal intervention in the history of the mortgage market, we need a 
government entity, a modern-day homeowners loan corporation, referred 
to as HOLC, or we need to build on the Resolution Trust Corporation 
created to help deal with the savings and loan crisis. I personally 
believe and was among the very first to suggest that a HOLC, a 
homeowners loan corporation, could be a preferable way of unfreezing 
and beginning to fix our struggling mortgage market.
  Some of my colleagues and many other respected economists and 
Government officials have called for the creation of an entity like the 
Resolution Trust Corporation which was created after the savings and 
loan crisis to liquidate in an orderly way the virtually worthless 
assets that the failed S&Ls held.
  Yesterday in the Wall Street Journal, Paul Volcker, Eugene Ludwig, 
and Nicholas Brady made such a proposal. They said a HOLC, RTC--we have 
to come up with an entity that will assume these debts and burdens and 
begin to work our way out.
  Last spring, when I called for a modern version of the HOLC--that is 
the Depression-era entity that bought up old mortgages and issued more 
affordable ones in their stead--most people didn't pay much attention. 
But I think it is important to note that by the time the HOLC closed 
its books, that agency had turned a small profit and helped over a 
million people keep their homes. And this was 70 years ago.
  Our population has grown dramatically. Obviously, if we did it right, 
we would be able to save a lot of homes, and I think if it is 
administered correctly, it could be actually a net expenditure or even 
winner for the Federal Government.
  With the FHA reforms I long championed and adopted this past summer 
in our omnibus housing bill, the FHA could be a modern home ownership 
lending corporation. But we need to look to new ways to revive and, if 
necessary, create a new market for mortgage securities based on sound 
accounting, transparent recordkeeping, and responsible lending.
  The PRESIDING OFFICER (Mrs. McCaskill). The Senator has used 10 
minutes.
  Mrs. CLINTON. I ask unanimous consent for an additional 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mrs. CLINTON. Madam President, I did not know I had a time restraint.
  A new government entity such as the HOLC with focus on attacking the 
source of the problem can serve a purpose of clearing a lot of those 
toxic mortgage securities from the market. We know there will not be 
any semblance of a normal or orderly marketplace until we have found a 
way to resolve these mortgage securities that

[[Page S8979]]

are metastasizing in the bottom of our markets.
  By taking this paper out of the market and quarantining it in this 
new entity, we will give the market breathing room to recover. We also 
will be able to set the stage for an orderly sale of these securities 
and in return allow some of them to recover and regain some of their 
value. Perhaps as importantly, not only would our financial markets 
stabilize, but so would our housing markets.
  This is an extraordinary measure, but it is not without precedent. 
This is the greatest market upheaval since the Great Depression. We 
are, indeed, in crisis, and in times of crisis there are opportunities 
for leadership. Congress can show the American people that leadership 
by working with the President to embrace this bold proposal to take 
immediate action to address the abusive and manipulative short-selling 
practices that are rattling the markets, threatening firms and jobs, 
and sending shock waves across the broader economy.
  I commend the SEC for yesterday tightening rules against manipulative 
short selling. The SEC's rulings are a positive step in curbing the 
heightened volatility casting uncertainty on domestic markets and 
financial institutions. However, the Commission did not go far enough.
  As a Senator from New York, I have a special duty to represent the 
workers of the financial services industry and to try with all my might 
to retain New York City as the financial capital of the world. The 
abuses that have disrupted the markets today will impact the lives of 
so many far beyond New York. So I think it is necessary for the SEC to 
take steps similar to the emergency rule it imposed this past July when 
the Commission ``concluded that there now exists a substantial threat 
of sudden and excessive fluctuations of securities prices generally and 
disruption in the functioning of the securities markets that could 
threaten fair and orderly markets.''
  Conditions now pose a greater threat than they did in July. Several 
of the institutions that the Commission sought to insulate from abuse 
do not even exist or certainly not in the same form they did 2 months 
ago.
  The situation is evolving rapidly, so we need to stay a step ahead, 
not a step behind.
  I urge the Commission, as I expressed yesterday in a letter to 
Chairman Cox, to move toward a temporary moratorium on all the abusive 
and manipulative short-sale practices associated with ``substantial 
financial firms,'' such as those the Commission identified in July.
  A temporary moratorium would allow the marketplace to take a step 
back, take a deep breath, and it would allow the Commission and other 
regulators to identify and weed out the sources of these abusive 
transactions.
  Moreover, the Commission should give close consideration to the many 
calls for the immediate restoration of the uptick rule, whose repeal 
has been linked to the recent market volatility and proliferation of 
these short-sale transactions.
  I know there are technical problems in moving toward digitalized 
trading, but we ought to figure out how to handle that.
  Third, I am calling on President Bush to convene an economic summit 
that brings together leaders in the administration and Congress with 
lenders, consumer advocates, nonprofits, financial institutions, and 
all the stakeholders. Such a summit, I believe, would restore 
confidence and demonstrate that the entire country is focused on 
solving the problem we face.
  Fourth, I want to propose once again that we aggressively pursue and 
encourage mortgage modifications. I have introduced such legislation. I 
believe it is important. Madam President, 10 million homeowners are 
underwater today, carrying more than $2 trillion in mortgage debt. That 
is a huge anchor on our markets and our economy. Modification done 
right is a strategy that serves lenders and borrowers, as well as the 
broader markets.
  Fifth, it is clear that for too long, the rapid evolution of the 
securities and banking industry overwhelmed our regulatory framework, 
resulting in an entire shadow banking system that operated outside of 
oversight and without accountability.
  It is not enough to shift responsibility or move lines on a flow 
chart. We need a new regulatory framework. We have been living off the 
one from the Great Depression. Now is the time to create a new 
framework.
  Sixth, I proposed the Corporate Executive Compensation Accountability 
and Transparency Act to impose new transparency rules on executive pay 
and the accounting techniques that hide compensation and provide 
shareholders a say in executive compensation packages.
  Finally, and seventh, I am proposing that we require any financial 
institutions borrowing money from the Federal Reserve's new lending 
facilities to open their books and ensure accountability and 
transparency to identify unsound practices.
  These banks and other entities have tapped the Fed's new lending 
windows for over $300 billion in capital. They shifted a lot of that 
risk onto the backs of our taxpayers. These are unprecedented 
interventions, and we should make sure these companies are not using 
taxpayers' dollars to subsidize golden parachutes or risky investments, 
throwing your good money after bad. If we are bailing you out, we 
deserve to know exactly your liabilities, and you have to be part of 
this new regulatory framework.
  This crisis has not abated. It is time for us to start acting like 
Americans again. There isn't anything we can't solve once we put our 
minds to it. For that we need leadership. I know that our leader, 
Senator Reid, has said the Senate will remain in pro forma session. We 
are ready to work with the administration, to work with the other 
stakeholders to change course and end the failed economic policies and 
failure of regulatory oversight that brought us to this point.

  There is much more we need to do. Individuals have to take 
responsibility, we know that, but in this dynamic environment, we must 
work together to stabilize the market, tackle the root causes that have 
festered too long, and restore confidence in our economy.
  We will weather this storm, but let's do it sooner instead of later. 
Let's try to save as many boats in the water right now instead of 
cleaning up the wreckage on the banks. I believe we can do that.
  I thank you, Madam President, for your attention. I hope we will be 
able to start seeing action very soon.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. KYL. Madam President, I ask unanimous consent that I be allowed 
to speak for up to 20 minutes and the Senator from Vermont follow me, 
and that he be allowed to speak for up to 20 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. KYL. Madam President, I am astonished at the diatribe by some of 
our Democratic friends who are charging that our current economic woes 
are ``the Republicans' fault,'' as if somehow our system of housing 
finance and the complex mortgage-backed investments were created by 
President Bush. The American people know better and, frankly, they 
deserve better.
  Similarly off base are efforts by some Democrats to rewrite history 
by trying to cast Senator McCain and President Bush in the mold of 
President Hoover. It is, of course, a false and complete 
misunderstanding of history and I believe nothing more than attempted 
mudslinging.
  There is an excellent history of the Great Depression by Amity Shlaes 
called ``The Forgotten Man.'' In it she reminds us that Herbert Hoover 
was an interventionist, a protectionist, and a strong critic of 
markets. If anything, Herbert Hoover and then Franklin Roosevelt 
prolonged the Great Depression by their intervention in the free market 
with their support for more taxes and tariffs, all of which, of course, 
caused a spiral of deflation.
  No one can argue that my colleague Senator McCain is an 
interventionist or protectionist such as Herbert Hoover. He is a strong 
critic of the greed and the cronyism that are two things that have led 
to our current financial problems.
  What are the facts about the current situation? Where did it all 
begin?
  I think almost everyone agrees that this financial crisis was 
precipitated by the housing crisis, the bursting of the bubble of 
overinvestment and speculation in home mortgages. Housing

[[Page S8980]]

prices skyrocketed to unsustainable levels as mortgages were given to 
people who simply could not afford them, and speculators ran up prices 
even more. All of the experts I talked with agree that until housing 
prices level out naturally--in other words, not artificially through 
some kind of Government interference--our financial crisis will not 
reach a conclusion. That is what is necessary to begin the rebound so 
that we can recover from the current crisis.
  While it is true that both parties took pride in supporting more home 
ownership, a goal to which all Americans would certainly aspire, 
Democrats cannot deny that they promoted expanding loans to more and 
more people who had previously found it very hard to get a mortgage 
because they could not make a sufficient downpayment or failed to meet 
other normal loan criteria; in other words, people who were higher 
credit risks. So it isn't just lenders but also politicians who enticed 
and encouraged folks to buy homes they could not afford. And this, of 
course, fueled speculation as well.
  It is also true that members of both political parties were strong 
defenders of Fannie Mae and Freddie Mac, the so-called government-
sponsored enterprises, or GSEs. But I can't think of a single Democrat 
who fought for comprehensive, meaningful reforms of these entities over 
the last decade.
  Fannie and Freddie made huge campaign contributions, and those 
campaign contributions secured many friends who were willing to stymie 
even the most modest proposals for regulation, proposals put forth by 
Republicans both in Congress and in the administration.
  I cite, for example, a New York Times article of September 11, 2003. 
I will quote two brief paragraphs:

       The Bush administration today recommended the most 
     significant regulatory overhaul in the housing finance 
     industry since the savings and loan crisis a decade ago.

  It goes on to say:

       The plan is an acknowledgment by the administration that 
     oversight of Fannie Mae and Freddie Mac--which together have 
     issued more than $1.5 trillion in outstanding debt--is 
     broken. A report by outside investigators in July concluded 
     that Freddie Mac manipulated its accounting to mislead 
     investors, and critics have said Fannie Mae does not 
     adequately hedge against rising interest rates.

  The article concludes with a criticism, two paragraphs more:

       Significant details must still be worked out before 
     Congress can approve a bill. Among the groups denouncing the 
     proposal today were the National Association of Homebuilders 
     and Congressional Democrats who fear that tighter regulation 
     of the companies could sharply reduce their commitment to 
     financing low-income and affordable housing.
       ``These two entities--Fannie Mae and Freddie Mac--are not 
     facing any kind of financial crisis,'' said Representative 
     Barney Frank of Massachusetts, the ranking Democrat on the 
     Financial Services Committee.

  Again, ``These two entities--Fannie Mae and Freddie Mac--are not 
facing any kind of financial crisis.''
  Quoting again:

       The more people exaggerate these problems, the more 
     pressure there is on these companies, the less we will see in 
     terms of affordable housing.

  Our friends on the other side of the aisle claim the current 
financial crisis stems from a lack of regulatory oversight, but they 
don't mean a lack of oversight over Fannie and Freddie, which they 
resisted. They don't mean regulations that actually would have headed 
off the crisis of these GSEs.
  I think most of my colleagues would acknowledge that I am one of the 
most free market Members of the Senate. I am not one to usually call 
for more regulations. But in the case of Fannie and Freddie, I did. As 
chairman of the Republican policy committee in 2003 and 2004, I 
provided two detailed analyses of the potential for catastrophic 
failure of the GSEs unless they were precluded from taking on more and 
more questionable debt. I noted that while their executives and 
shareholders were making a lot of money in the short run, the taxpayers 
would be on the hook in the long run. And that is exactly what 
occurred.

  The first paper the Republican policy committee released under my 
watch suggested that the implicit Government guarantee of both Fannie 
and Freddie allowed the companies to borrow significantly more than 
they would have without the guarantee, and that they used those 
resources to invest and trade in risky mortgage securities, not to pass 
on the benefit to borrowers.
  In September 2003, 5 years ago, I recommended that Congress ``improve 
disclosure requirements and transparency, increase risk-based 
regulatory oversight; and begin to consider how to create a greater 
separation between the taxpayers and the business operation of these 
firms without causing financial dislocation or upsetting the mortgage 
markets.''
  I also warned that without reforms, either or both companies could 
fail. And I said:

       The potential cost to U.S. taxpayers could range into the 
     hundreds of billions of dollars.

  I am sorry to report that I was correct. The bailout will cost at 
least $200 billion. That is the amount that has been cumulatively 
committed to Fannie Mae and Freddie Mac.
  The second paper I released in April of 2004 reported that then-
Chairman of the Federal Reserve, Alan Greenspan, had endorsed 
fundamental reforms for Fannie and Freddie. Greenspan threw cold water 
on the most often repeated rationale for allowing Fannie and Freddie to 
continue growing, indeed, for their very existence: that they increase 
home ownership and reduce mortgage rates. My report, quoting once again 
``challenged the Senate to act quickly to reduce the risks to the 
taxpayer, either by fundamentally altering their relationship with the 
government, or by establishing a new regulatory regime.''
  But the Senate failed to act in 2004, when it could have headed off 
this crisis.
  I also want to highlight the efforts made by Senator Shelby, the 
ranking Republican on the Senate Banking Committee, to reform Fannie 
and Freddie. In 2004 and 2005, Senator Shelby tried to enact 
comprehensive GSE reforms of the kind I have referred to only to be 
stonewalled by then-Senator Sarbanes. First, in 2004, Senator Sarbanes 
refused to consider the legislation. He said the problem was the 
receivership provisions. At the time, Fannie and Freddie could only be 
taken into conservatorship if they failed but not receivership. Fannie 
and Freddie used their objections to this provision to label my 
colleague, Senator Shelby, as anti-home-ownership.
  When Shelby tried again, Senator Sarbanes told him the reforms 
couldn't move forward because he objected to the portfolio limits that 
Shelby's legislation would have imposed on Fannie and Freddie. Same 
kind of thing I had called for earlier in the report to which I 
referred. Remember, their portfolios were highly leveraged. Again, 
Shelby and those who supported him were castigated as anti-home-
ownership. Each time he pressed for these reforms, the supporters of 
Senator Sarbanes and Freddie and Fannie came up with reasons to oppose 
them.
  When Congress passed the Fannie and Freddie bailout legislation this 
last summer, we were finally able to secure fundamental reforms, thanks 
again to Senator Shelby and to Secretary Paulson, but no thanks to most 
of the Democrats who worked against the reforms. Unfortunately, by then 
the damage was already done. The legislation came too late to avoid 
their collapse. Instead, we had to end up managing their collapse, and 
their collapse had spread throughout the entire financial system to the 
point that we now have a whole series of companies that we are having 
to try to find a way to assist in order to prevent further collapse of 
our financial system.
  Even at this late date, the chairman of the Senate Banking Committee 
and the chairman of the House Financial Services Committee would only 
agree to the GSE reforms proposed by Secretary Paulson after 
Republicans gave in to their demands for billions of dollars to go to 
groups such as ACORN, the far-left advocacy group that has engaged in 
voter fraud.
  In a last-ditch attempt to save Fannie and Freddie from greater 
scrutiny, the chairman of the House Financial Services Committee even 
tried to delay the appointment of the new, more powerful regulator set 
up in the legislation until next year. Fortunately, on this, Senator 
Shelby prevailed. When the two entities were taken into conservatorship 
this month, the new regulator shut down all political activities of 
Fannie and Freddie

[[Page S8981]]

and fired their executives and barred them from getting lavish 
compensation packages.
  That is the kind of thing that should have been done a long time ago, 
and it is exactly the kind of thing Senator McCain is talking about 
trying to reform if he is elected President.
  One final point about the political entanglement of Fannie and 
Freddie in Washington. When Senator Obama began searching for his Vice 
Presidential running mate, he tapped former Fannie Mae CEO Jim Johnson 
to help conduct the search. This wasn't surprising. Johnson had the 
same role in Senator Kerry's 2004 campaign. But Senator Obama had to 
end his relationship with Jim Johnson after it came to light that 
Johnson had received at least three sweetheart loans from Countrywide. 
Remember, Countrywide was accused of pushing many people into home 
mortgages they could not afford. It ultimately failed, and it had to be 
acquired by a bank. I should also note that Johnson is credited by many 
as having built Fannie Mae into the financial giant it became. He built 
the failed business model that will cost taxpayers hundreds of billions 
of dollars. When he was CEO, he aggressively hired an army of lobbyists 
to protect Fannie Mae from any meaningful oversight.
  Well, Fannie and Freddie guarantee about $5 trillion now of the 
approximately $12 trillion in total outstanding home loans in the 
United States. That amounts to $5 trillion in mortgage-backed 
securities guaranteed by the pair. Fannie and Freddie sold these to 
countless different companies not just in the United States but around 
the world. They were sold as sound investments. But with real estate 
prices dropping, nobody knows how to value these investments, and that 
is part of the problem of this continuing crisis. Countless major 
investors here and abroad are now at risk. Witness the problems with 
Bear Stearns, Lehman, Merrill Lynch, AIG, to name only the most 
prominent.
  So the problems that several Republicans predicted and tried to 
prevent have now come to pass. The Treasury has placed Fannie and 
Freddie in conservatorship, risking up to $1 billion of taxpayer money 
for each of them. Add to that the $30 billion the United States had to 
guarantee in the Bear Stearns debt to get J.P. Morgan to acquire the 
bank, plus $85 billion to nationalize AIG, and you begin to see the 
degree of commitment the American taxpayers are now obligated to--all 
of this because several prominent Democrats, and sometimes even 
Republicans, refused to appropriately and seriously address the 
problems and dangers posed by Fannie Mae and Freddie Mac.
  That is how this all got started. And unless there is a willingness 
to prevent the GSEs from doing it all over again, with taxpayers 
guaranteeing against losses, we will not have learned the lesson we 
should learn from this catastrophic event. I am anxious to see if my 
Democratic colleagues will agree or whether, as before, they will try 
to perpetuate the same corrupt system that got us where we are today. I 
hope, Madam President, this will be an opportunity for us to begin 
working together, to stop pointing political fingers of blame at each 
other, to learn the lessons of the past, and to ensure that never again 
will we allow this kind of situation to develop at the cost of our 
constituents--the taxpayers of the United States.
  The PRESIDING OFFICER. The Senator from Vermont.
  Mr. SANDERS. Madam President, I would like to focus on three aspects 
of the current economic and financial crisis that is wreaking havoc on 
tens of millions of working families throughout our country and, in 
fact, people throughout the world. I think the questions we have to 
deal with are, No. 1, how did this crisis develop; No. 2, what can we 
do in the short term to address it and to protect middle-class 
families--people who are scared to death all over our country about 
losing their 401(k)s, people who are worried about losing their jobs, 
people who can't afford health insurance today--and, No. 3, what can we 
do long term to learn from the mistakes of today so that we create an 
economy where this crisis never erupts again.
  I think those are the areas we might want to be focusing on right 
now.
  Madam President, we are here today in the midst of the most serious 
financial and economic crisis that our country has faced since the 
Great Depression of the 1930s primarily--primarily--because of one 
reason; and that is, over the last many years, especially in the last 8 
years of President George W. Bush, government policy, government 
ideology has been dominated by an extreme rightwing position that tells 
us--and we have heard it over and over and over again on the floor of 
the Senate--that government is bad, government is evil, government has 
to get out of the way so we can allow large multinational corporations 
and the wealthiest people in this country to do all of the wonderful 
things they will do to create prosperity for all Americans.
  Now, among specific policies, what President Bush and others of that 
view have said is it is important for us to give huge tax breaks--
trillions of dollars in tax breaks--to the wealthiest people and 
largest corporations in our country so they will then invest in 
America, create good-paying jobs, and their wealth will trickle on 
down. That is the trickle-on-down theory of economics.
  In fact, my friend, Senator Kyl, who just spoke a moment ago, is the 
lead advocate, along with Senator McCain and many other Republicans, of 
the repeal of the estate tax that would provides $1 trillion in tax 
breaks over a 20-year period to the wealthiest three-tenths of 1 
percent. Three-tenths of 1 percent receive $1 trillion in tax breaks. 
That is part of that ideology.
  Further, what they have said is, we need to not worry about 
manufacturing in America because what we should establish is a policy 
of unfettered free trade. We don't need tariffs. What we need is to 
allow corporate America the freedom to throw American workers out on 
the street--people who are making 15, 20, 25 bucks an hour, health 
care, pensions--because somehow we are going to create wealth in 
America and good-paying jobs in America as we shut down plants, we move 
to China, and corporations there pay workers 20, 30 cents an hour, and 
we bring the products back into this country. Anyone who goes shopping 
in a mall knows how difficult it is today to find a product made in 
America, but that is a plus.
  I have to say, in that regard, the champion--and he is honest on this 
one. Senator McCain has been criticized recently for not being the most 
honest candidate we have seen in terms of his answers and so forth, but 
he has been honest on this one. He has been the lead advocate of 
unfettered free trade. This is an important part of this rightwing 
ideology: that it is good for America that corporations can go to China 
and bring products back into this country. But the third pillar of this 
rightwing ideology that I want to discuss this afternoon, and perhaps 
the most pertinent to the crisis we are now facing, is over and over 
again what we have heard from President Bush, what we have heard from 
Senator McCain, what we have heard from many of our Republican friends 
is, deregulate, deregulate, deregulate; that the government has to get 
out of the way so that ExxonMobil and the other large multinational 
corporations can do all of the wonderful things they will do to create 
wealth in America.
  I will just give one example. It is not a major example but a 
humorous example. All over this country, Madam President, parents who 
have little kids who play with toys have been worrying about the toys 
and the quality of the toys coming into this country. It was recently 
learned that at the Consumer Product Safety Commission, because of that 
ideology of deregulation, there was one guy, one person whose job it 
was to test all of the toys, thousands of different types of toys 
coming in from China and every other country in the world--many of them 
unhealthy, many of them having toxic ingredients in them. Because of 
deregulation, because we have great faith in these companies bringing 
toys in from China, we didn't even have to have a strong regulatory 
system. I am happy we have moved in that direction in the last few 
months, but that was the case.

  The deregulation mantra goes obviously a lot deeper than toys. Let me 
focus for a moment on this issue of deregulation because it is at the 
heart of the current financial crisis we are facing. I want to say a 
word about the

[[Page S8982]]

former Senator who, it turned out, was the chief economic adviser to 
Senator McCain and who actually was the leader on deregulation.
  I know in politics things change from yesterday to today. I have not 
heard Senator McCain's last pronouncement. I guess he wants to regulate 
everything today. But yesterday and in the rest of his career he was a 
champion of deregulation and his major economic adviser was a gentleman 
named Senator Phil Gramm, formally the Senator from Texas.
  To review a little bit of what Senator Gramm's role was in pushing us 
toward this deregulatory society, as chairman of the Senate Banking 
Committee in 1999, Senator Gramm spearheaded legislation that bears his 
name. It is not a great secret, it is his legislation, the so-called 
*Gramm-Leach-Bliley bill, and that broke down critical regulatory 
safeguards the Government had put in place after the Great Depression 
to prevent--what? To prevent exactly what we are seeing today. Senator 
Gramm spearheaded that effort and broke down those firewalls.
  Having laid the groundwork for our crisis in the financial sector, 
the very next year Senator Phil Gramm is credited--and I do not think 
there is a lot of debate about this--with slipping into a large 
unrelated bill legislation that deregulated the electronic energy 
markets, including, of course, oil. There are leading energy 
economists--who have testified over and over again just this week, 
among other committee hearings before Congress--who are telling us that 
as a result of the deregulation of the energy futures market, 50 
percent of the cost of oil, when it was at its peak of $147 a barrel--
50 percent of that was due to speculation and that speculation was 
allowed to take place because of the deregulation of the energy futures 
market spearheaded by Senator Gramm.
  We are seeing what deregulation did to the financial institutions, 
what it has done to energy prices, but that is not enough. Senator 
Gramm was a very aggressive and a very effective, if I might say so, 
Senator. As we all know, the Federal Government is in the process of 
nationalizing AIG and bailing them out to the tune of $85 billion. AIG, 
as we all know, is the world's largest insurance company.
  It also turns out that the AIG situation is closely tied to the same 
extremist ideology that has been pushing us toward economic disaster. A 
key part of the responsibility for AIG's collapse lies once again with 
this same key Member of the Senate, Senator Phil Gramm, and his 
rightwing ideology. It turns out that Senator Gramm slipped a 262-page 
amendment--I always find it amusing how you can ``slip'' a 262-page 
amendment--into a larger bill that was instrumental in creating, and I 
know this number is a little bit difficult for anybody in the world to 
digest, a $62 trillion market for very risky, unregulated financial 
investments called credit default swaps, that are central to AIG's 
meltdown.
  This is extremely complicated. Very few people understand anything 
about it. But we are talking about an unregulated $62 trillion market 
for credit default swaps, which played a major role in the collapse of 
AIG and the fact that the Federal Government is now in the process of 
bailing that company out.
  As an online article from Time Magazine explains, AIG's traditional 
insurance business was doing well. In other words, when they were in 
the business that they had historically been in, actually they did 
quite well. But what AIG got involved in was more than traditional 
insurance. They got involved in risky derivative schemes called credit 
default swaps, or CDSs, that allowed big companies to guarantee each 
other's risky lending practices. The point here in this whole 
complicated scheme of things is that all of this is deregulated 
primarily because of the efforts of Senator Gramm. The big, bad Federal 
Government no longer can protect consumers, can protect our economy 
because we are going to trust all of these guys who are playing in a 
$60-plus trillion business.
  In order to give the American people a full understanding of the 
risks posed by these unregulated credit default swaps, I wish to quote 
briefly from a September 15 article by Professor Peter Cohen, a 
graduate of the Wharton School, that details the full scope of the 
problem we face and the role Senator Gramm had in its creation. Let me 
quote from Professor Cohen.

       Lurking in the background of this collapse of two of Wall 
     Street's biggest names, is a $62 billion segment of the $450 
     trillion market for derivatives that grew huge thanks to John 
     McCain's chief economic advisor, Phil . . . Gramm. That's 
     because in December 2000, Gramm, while a U.S. Senator, snuck 
     in a 262-page amendment to a government reauthorization bill 
     that created what is now the $62 trillion market for credit 
     default swaps. I realize it is painful to read about yet 
     another Wall Street acronym, but this is important because it 
     will help us understand why the global financial markets are 
     collapsing. . . . CDSs are like insurance policies for 
     bondholders. In exchange for a premium, the bondholders get 
     insurance in case the bondholder can't pay. . . . In the case 
     of the $1.4 trillion worth of Fannie Mae and Freddie Mac 
     bonds, the Government's nationalization last Sunday triggered 
     the CDSs on those bonds. The people who received the CDS 
     premiums are now obligated to deliver those bonds to the ones 
     who paid the premiums.

  Professor Cohen continues:

       Gramm's 262-page amendment, dubbed the ``Commodity Futures 
     Modernization Act,'' according to the Texas Observer, freed 
     financial institutions from oversight of their CDS 
     transactions. Prior to its passage, they say, banks 
     underwrote mortgages and were responsible for the risks 
     involved. Now through the use of CDSs--which in theory insure 
     the banks against bad debts--those risks are passed along to 
     insurance companies and others . . .

  wrote the Texas Observer. I will not go on.
  The bottom line is Gramm, who is McCain's leading financial adviser, 
spearheaded the effort to deregulate financial services that opened up 
this huge unregulated market. The result of that has played a 
significant role in placing us where we are right now.
  We can go on and on. This is complicated stuff and I am sure there 
are people who can talk about this for many hours. In my view, the time 
for hand wringing is over. What we have to understand is the efforts of 
President Bush to ``deregulate, deregulate,'' and those of Senator 
Gramm, Senator McCain and many others, was wrong. It largely 
contributed to where we are today.
  It seems to me that Congress right now needs to put an end to this 
radical deregulation. We need to put the safety walls back up in the 
financial services market.
  I was a member of the Banking Committee in the House in 1999 when 
this whole issue was discussed. Many of us then--a minority, but some 
of us then--saw exactly what was in line to occur. Some of us at least 
voted against it.
  What we have to do now is understand that we need to reregulate the 
electronics energy markets, we need to end the unregulated credit 
default swaps. Unfortunately, the response we have been hearing from 
the administration and from Wall Street is not to do that but in fact 
to move us in another direction, which is to push for further 
consolidation in the financial services sector.
  I have a very simple question. Do I hope I am wrong on this one, but 
I fear I may not be. That question is: What happens when these now even 
bigger entities, these multi-multi-multibillion dollar corporations--
what happens when they run into trouble in the future? None of us hope 
that happens, but what happens if that does occur? Once again, clearly, 
it will be the American people who will be on the hook.

  This country can no longer afford companies that are too big to fail. 
If a company is so large that its failure would cause systemic harm to 
our economy, if it is too big to fail, then it is too big to exist. 
What we need to do right now is to assess which companies fall into 
this category.
  For a start, I don't think you need to be a Ph.D. in economics to 
understand this. I think Bank of America, if I may be allowed to say 
so, is certainly one of those companies. Let's take a look at Bank of 
America. It is the largest depository institution in our country. It 
has assets of $1.7 trillion; $711 billion of that money comes from bank 
deposits representing over 10 percent of all bank deposits in the 
entire country--one bank, 10 percent of all bank deposits.
  In August, the Bank of America bought Countrywide, the largest 
mortgage lender in the country. And then last week it bought Merrill 
Lynch, the largest brokerage firm in America. There is so much 
concentration of wealth in the Bank of America that clearly, if it were 
to fall in the future,

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what do you think the U.S. Government is going to say? You can 
absolutely expect that the President or the Congress will say: My God, 
we can't allow Bank of America to fall. Because if they fall, it will 
impact the entire national economy, the entire world economy. The 
taxpayers of this country are going to have to bail out Bank of 
America.
  My suggestion is before we allow ourselves to be in that position, 
maybe we make certain the Bank of America never is allowed to have that 
kind of power.
  In my view, we should not be making Bank of America bigger; we should 
be breaking it up. We should start that process today and we should be 
breaking up other large financial institutions that are ``too big to 
fail.''
  Finally, in terms of dealing with this unfolding disaster, we need to 
make certain that working Americans, the middle class of this country, 
are not asked to foot the bill for the current economic crisis that was 
brought to us by these large multinationals. If the economic calamity 
requires a Federal bailout, it should be paid for by those people who 
actually benefited from the reckless behavior of people empowered by 
the extreme economic views of Senator Gramm, President Bush, and 
Senator McCain.
  Right now, today, the wealthiest one-tenth of 1 percent earns more 
income than the bottom 50 percent. That gap between the very rich and 
everybody else is growing wider. We have the dubious distinction of 
having by far the most unequal distribution of income in the world, and 
on top of that the richest 1 percent owns more wealth than the bottom 
90 percent.
  The wealthiest 400 Americans--this is a startling figure that for 
obvious reasons people don't talk about too much, but this is amazing. 
The wealthiest 400 Americans in this country have not only seen their 
incomes double, but their net worth has increased by $670 billion since 
President Bush has been in office. Four hundred families have seen 
their net worth double and increase by $670 billion since President 
Bush has been in office.
  Amazingly, the wealthiest 400 families in our country are now worth 
over $1.5 trillion--400 families. On average they earn over $214 
million a year. As a result of President Bush's policies and the 
policies of our Republican colleague, the tax rate for these families 
has been cut almost in half, to 18 percent.
  Amazingly--and this is a clearly a national disgrace--the wealthiest 
400 families pay a much lower tax rate than most police officers do, 
than nurses do, than teachers do, than firefighters do.
  Now, what does this say about us as a nation or about our politics, 
or the power of the wealthy over Government, when the middle class is 
paying a greater percentage of their income, a middle class which is in 
decline, a middle class where millions of workers have seen a reduction 
in their wages, and yet they are paying a higher percentage of their 
income in taxes than the very richest people in America?
  It is this very small segment of our population which has made out 
like bandits, frankly, during the Bush administration. In my view, we 
need an emergency tax on those at the very top to pay for any losses 
the Federal Government suffers as a result of efforts to shore up the 
economy.
  In other words, before we ask the middle class to pay more in taxes, 
before we ask working families to pay more in taxes, it is obvious to 
me that it is simply fair and right to go to those groups, that group 
of people who have benefited most out of Bush's policies, who have seen 
their incomes and their wealth soar. Let's ask them to help us bail out 
the economy rather than the working families who had nothing, nothing 
to do with this crisis, and, in fact, who have suffered under the 8 
years of President Bush.
  Before I finish, I wish to step back for a moment and examine this 
current crisis in the context of who our Government represents. What 
does it say about an administration that is prepared to put $85 billion 
at risk to bail out AIG but which has fought tooth and nail against 
programs that benefit working families all over this country? In my 
State of Vermont, people are worried about going cold this winter. And 
yet President Bush wanted to make hundreds of millions of dollars in 
cutbacks for the LIHEAP program that keeps people warm because we did 
not have enough money to do it.
  We have enough money to provide hundreds of billions of tax breaks 
for the top 1 percent, we have enough money to spend $10 billion every 
month in Iraq, we have enough money to bail out AIG and Bear Stearns, 
but somehow we do not have enough money to keep people warm, to make 
sure that young people can go to college, to make sure that working 
people have affordable housing?
  Since George W. Bush has been in office, nearly 6 million Americans 
have slipped out of the middle class and into poverty; over 7 million 
Americans have lost their health insurance; more than 4 million 
Americans have lost their pensions; over 3 million good-paying 
manufacturing jobs have been lost; total consumer debt has more than 
doubled; the median income for working-age Americans has gone down by 
over $2,000, after adjusting for inflation.
  The interesting question to ask is, in the midst of that crisis 
facing tens of millions of working families, where has President Bush 
been? Where has his voice been in saying we have got to bail out 
working families who are seeing the decline in their standard of living 
and are falling into poverty? We have got to protect old people who are 
going to go cold this winter. We have to make sure that everyone in our 
country is able to get a decent education and can afford college. We 
have got to make sure that all Americans have health insurance. I have 
not heard the President say we need to bail out the middle class or 
working families, but he surely has been there to bail out large 
multinational corporations.
  The American people deserve better. We need to reject the failed 
economic policies and priorities of President Bush and John McCain. We 
need a government that is not going to allow the wealthiest people and 
the largest corporations to loot our economy. We need a government that 
will put regulatory firewalls back in the financial sector and end the 
use of unregulated credit swaps. We need a government that is going to 
prevent speculators from stealing from them at the gas pump. We need a 
government that breaks up corporations that are too big to fail. We 
need a government that is going to view the problems of ordinary 
Americans as almost as important as they view the needs of large 
multinational corporations.
  In other words, we need a government that represents the people of 
this country rather than just the wealthy and large multinationals.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Kansas is recognized.

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