[Congressional Record Volume 154, Number 151 (Tuesday, September 23, 2008)]
[Senate]
[Pages S9263-S9265]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              THE ECONOMY

  Mr. DURBIN. Mr. President, this is a hard week around here because we 
are being asked to consider something that is historic. This question 
of bailing out financial institutions because of a struggling economy 
has called into question a lot of very basics about the way we govern 
this Nation.
  I think most people understand the economy is in trouble. For working 
families, they have known it a long time. They have been falling behind 
for 8 years. Their incomes do not keep up with the cost of living. The 
expenses they face grow dramatically, whether we are talking about 
mortgage payments, utility bills, groceries or gasoline or health care 
costs. They know the economy is weak. No matter how hard they work, 
they cannot keep up with it. They are the ones who have been wondering 
when Congress was going to understand this and do something about it.
  It took a tragedy in another sector of the economy for Congress to 
act, and that tragedy is in the credit institutions. You see, what 
happened to the credit institutions in America was totally avoidable. 
What happened was we created a parallel credit operation, parallel to 
the banks and other regulated institutions--investment banks and other 
Wall Street entities--which had basically no rules. They played by 
their own rules. They were not regulated. There was no Government 
oversight, very little transparency. They loaned money in ways and with 
terms that were not publicly disclosed on a regular basis.
  The attitude for the longest time around Washington was: Keep your 
hands off of them. These are the dynamos of capitalism. Give them a 
chance.

[[Page S9264]]

They will just create wealth and opportunity in every direction. Well, 
that sounds too good to be true, and it turned out it was. They started 
making loans that were careless, negligent, and wrong.
  They started loaning money, for example, on mortgages to people under 
terms that were unreasonable, to people who could not afford them in 
some instances, and started collapsing. They just counted on the fact 
that the default rate would be low when it came to mortgages, even if 
the mortgage was full of tricks and traps. They counted on the fact 
that real estate would always appreciate in value. Eventually, the 
house of cards tumbled and they ended up holding the mortgage 
securities and other mortgages that were worthless. Nobody wants to buy 
them. They are called illiquid assets.
  As the portfolios of these investment banks got loaded up with 
worthless securities and paper, they started struggling to survive. 
Some of them didn't. Bear Stearns was about to go out of business, and 
the Federal Government stepped in. This administration said: We will 
keep you going. Lehman Brothers was about to go out of business, and 
they said: We won't step in. But for the portion rescued by Barclays, 
thousands of jobs were lost.
  I think the net result of this is very clear. First, what we are 
facing today was avoidable. If we had not bought into the economic 
philosophy of those who argued that regulation is inherently evil, we 
could have avoided some of these mistakes and tragedies. But we didn't. 
Voices in the Senate, like former Senator Phil Gramm of Texas, argued 
with vigor: Get out of the way. Capitalism will work just fine. All the 
Government can do is mess it up.
  Well, we saw what happened. In the last several weeks, some of the 
giants of Wall Street and some of the major institutions in Washington 
have either been compromised or perished. In some instances, the 
Federal Government stepped in. In stepping in, it has created new 
obligations for our Government and our taxpayers.
  I think this chart I put together is fairly close to what we are 
facing. The current national debt of the United States of America is 
$9.73 trillion. That represents the accumulated debt of every 
administration in the history of the United States, from George 
Washington through George W. Bush. That is $9.73 trillion.
  Look what happened in the last several weeks: First, we had the 
Treasury Secretary step in and say that we are going to keep Bear 
Stearns afloat. So they did that by allocating some $30 billion. Then 
they came in and said: We are going to stand behind--guarantee--the 
mortgages being held by Fannie Mae and Freddie Mac to the tune of $5.3 
trillion.
  Admittedly, there are security and collateral behind these, but we 
are on the hook now for $5.3 trillion.
  AIG, the biggest insurance company in America, was about to go out of 
business. It would have been catastrophic. We stepped in and, for $80 
billion, said we would stand behind them and purchase a share of AIG 
and expect to be paid back. I hope we are.
  Money market insurance, money market mutual funds are those cash 
options for people who don't want to invest in securities and, at some 
point last week they could not pay a dollar on a dollar given to them. 
So we stepped in to provide insurance for them, an exposure of $3.35 
trillion. Then comes President Bush's bailout plan that Secretary 
Paulson brought to us, to the tune of $700 billion.
  So in the last several weeks, we now have a new exposure to taxpayers 
of this country, a liability of $9.46 trillion. The accumulated debt of 
America, from its beginning to today is $9.73 trillion, and the new 
exposure is $9.46 trillion. This is a dramatic and, in many ways, 
troubling scenario that has unfolded.
  Lack of regulation, lack of accountability, lack of transparency led 
to terrible decisions based on greed and on the fact that no one was 
looking. Many people got rich in the process. Some of them went away 
with millions of dollars in income as executives, and others from the 
investments that did pay off, and some with golden parachutes did quite 
well.
  Most of the American taxpayers didn't realize any gains from that, 
but now they are on the hook for this proposal of $700 billion. What 
does that come out to for every man, woman, and child? It is $2,300 in 
new liability that every man, woman, and child in America will have as 
a result of the Bush bailout proposal.
  Many of us have serious problems with the President's bailout 
proposal. I don't question that we need to do something and do it in an 
expeditious way. But we should do as much as we need to do and not 
more. We should make certain we are not subsidizing the compensation of 
executives of these failed companies. These men and women who ran these 
companies into the ground, who bought these rotten portfolios we are 
now rescuing, don't deserve a gold watch or a million dollars as they 
leave the office. Certainly, the taxpayers should not have to pay it. 
That is No. 1.
  Executive compensation ought to be off the table. If they want to 
play with taxpayer money, let them be restrained and restricted in 
terms of their income to the highest salary paid in the Federal 
Government, which is a generous $400,000. That is enough, nothing 
more--not a million-dollar going-away gift for incompetent and failed 
corporate executives.
  Secondly, we have to make sure whatever we do is not torn apart by 
conflicts of interest. Whatever allocation of money is given to the 
Treasury Department is going to be spent on companies, and we have to 
make certain it doesn't go to buddies and friends but to the companies 
that can make a difference in the economy.
  When the Treasury Secretary gave us this three-page bill asking for 
$700 billion, he specifically said none of the decisions or actions 
taken under that bill would be subject to review by any court in 
America, any administrative agency, and the rules he would draw up for 
the conduct of this activity would not be subject to the ordinary 
course of business and laws of America. I am sorry. I will never vote 
for that. I cannot.
  How can the Secretary of the Treasury be above the law? Why wouldn't 
he be held accountable for conflicts of interest?
  I believe Henry Paulson is an honorable man. I don't think he is out 
to do anything wrong. But what of those who work for him? There can be 
a lot of people spending taxpayer dollars. I want them to know they are 
held to the same standards of ethical and legal conduct as anybody 
doing business or anybody involved in our Government. So that is 
something I insist on.
  The third point I want to make is this: If we are going to come to 
the rescue of some of these companies and buy their illiquid assets 
that nobody wants to buy--if the taxpayers are going to put that money 
on the line, I want them protected. If those companies survive and 
succeed, the American taxpayers should reap at least some of the 
profits. That is not unreasonable. Why should we be left holding the 
bag for $700 million for their mistakes, and when they get well, they 
will basically stand around and complain about Government getting in 
their way again. I would insist on that as well.
  The other element is one that I authored and is included in both the 
House and Senate versions of the Democratic alternatives to the Bush 
bailout. This really goes to the heart of it. This economic mess 
started because of subprime mortgages--mortgages that were basically 
predatory lending, where people were being taken advantage of. We see 
what has happened. People were drawn into mortgages they could not pay, 
and they are about to lose their homes. Foreclosures are at the highest 
level since the Great Depression.
  If we are going to get this economy moving forward again--and we 
should do it quickly--we have to go to the heart of the problem. The 
rot at the bottom of the pyramid is foreclosures. As long as mortgages 
are being foreclosed in record numbers, people will not only lose their 
homes, but every one of us suffers. I recently had an appraisal on my 
home in Springfield, and the value is down 20 percent. We made our 
payments. We didn't do anything wrong. That is the real estate market 
in Springfield, IL. That is what is affecting homes across America. 
Until we staunch the bleeding of this mortgage foreclosure crisis, I am 
afraid we are not going to get well.

  One of the provisions in this bill relates to bankruptcy. It says if 
someone owns a home and goes into bankruptcy

[[Page S9265]]

facing foreclosure, the Bankruptcy Court has the right to rewrite the 
terms of the mortgage so if it is possible, that person can stay in 
their home.
  This is not a radical idea. It applies now to all second homes, 
vacation homes, farms, and ranches--just not your primary residence, 
for no good reason. It should apply. If we put this provision in the 
law, trust me, those institutions that are issuing the mortgages are 
going to be much more open to renegotiating the terms and making them 
more reasonable. Unless we put it in, they will continue to say let 
that homeowner lose their home. That is an outcome that doesn't help 
anyone.
  I hope we can see a balanced package come through when this is all 
over. I hope we can see some equity and fairness for the taxpayers in 
this country. Lord knows, they have paid enough. To ask them to pay 
another $2,300 deeper into our national debt is unreasonable if we 
don't have safeguards to stop excessive executive compensation, to give 
the taxpayers the upside of these businesses, if they do get well; to 
make sure that we police against conflicts of interest and wasting of 
taxpayer dollars and, finally, make sure we do something about the 
homeowners who are at the root cause of the economic downturn we are 
now facing.
  We need to do it and do it quickly. I know banks will hate this 
provision on bankruptcy. They have made up so many stories about what 
this will do to them. They talk about interest rates going up on 
mortgages across the board. But there was an analysis done by Adam 
Levitin, a Georgetown law professor. He said:

       Taken as a whole, our analysis of the current and 
     historical data suggests that permitting bankruptcy 
     modification of mortgages would have no or little impact on 
     mortgage markets.

  I agree. It is just a smokescreen. The same banks that want to be 
bailed out don't want to be held accountable. They created this mess, 
and they want to continue to profit from it. They want the taxpayers to 
subsidize it, and they don't want to step up to the table and work with 
families and homeowners to keep them in their homes.
  That is not the way we do business in America. I hope we have learned 
a bitter lesson. Those who were champions of deregulation--John McCain 
used to talk about that being his mantra. He was opposed to regulation. 
He was all for Senator Phil Gramm's attitude toward keeping your hands 
off the economy. Look where it brought us today: the mess that we face.
  In just a matter of a couple weeks we will see an exposure of 
liability to our Federal Government almost equal to the combined 
national debt accumulated in the United States since its inception. 
That is poor management. It reflects poor thinking. It reflects an 
economic philosophy that needs to be tossed onto the dustbin of 
history.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. HATCH. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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