[Congressional Record Volume 154, Number 152 (Wednesday, September 24, 2008)]
[Senate]
[Pages S9352-S9353]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         AVOIDING A DEPRESSION

  Mr. NELSON of Florida. Mr. President, I wanted to speak to the Senate 
today about this enormous decision we must make about what to do about 
our current financial catastrophe.
  We are in a recession. By any measure, we are in a recession. The 
question is we must ask today is: What can we do to prevent this 
recession slipping into a full-blown depression? That is the matter 
that is in front of the Senate. One way or another we are going to have 
to come to grips with this by the weekend, or have an understanding 
that we are going to come back next week and try to finish this.
  What should be the underlying policy we pursue? Well, we ought to 
find ways to help stabilize the mortgage market that has caused this 
crisis. Let me quickly recapitulate what caused this financial mess. It 
was the fact that banks, and financial institutions acting as banks but 
not regulated as banks, started encouraging people to take loans on 
their homes which they could not afford.
  All the checks and balances that regulations would have required 
these financial institutions ignored. They did not conduct their due 
diligence, and ask the practical questions: Did the people have a 
sufficient income stream to be able to afford their mortgage? Did they 
put some skin in the game, by having to put some money down on the 
house they were purchasing? Could they afford the interest rates and 
the other terms of that mortgage? Lenders and brokers weren't paying 
any attention to that. A whole bunch of these loans were granted by 
financial institutions, and sometimes they very aggressively pushed 
these loans on people who could not afford them.
  Now, the banks don't keep these mortgages. They bundle them together 
and sell them to institutions as individual mortgages, or perhaps as 
bundles, or mortgage backed securities. And then different players in 
the financial institutions would buy these securities--made up of 
shaky, subprime mortgages and they would in turn sell them. A couple 
years later, when it became apparent that the homeowner couldn't afford 
to make the payments each month on their mortgage, and the income 
stream on those mortgages started dwindling, those financial 
institutions that had bought these bundles of mortgages found 
themselves with a shortage of cash. They had to start borrowing to make 
up for their cash shortage, and the whole system started to unravel.
  So as we try to straighten out this mess, are we to do what the 
Secretary of the Treasury has said? Are we to provide almost three-
quarters of a trillion dollars--specifically he is saying $700 
billion--in order to infuse capital into these financial institutions? 
These banks, investment banks, and insurance companies that all fed off 
this frenzy that saw this balloon get bigger and bigger until it 
started to burst?

[[Page S9353]]

And if we do that, aren't we rewarding the very people whose financial 
greed got us into trouble in the first place?
  I think the answer to that question is yes. So I want to tell the 
Senate that this Senator is not going to vote for a bailout of the 
financial institutions by taking nearly 5 percent of the national 
budget--much of which we will have to borrow from the governments and 
banks in China and--and give it to these financial institutions. I am 
not going to vote for that.
  At the same time, we are caught on the horns of a dilemma, because 
the economic recession is slipping into economic catastrophe. So we 
have to act. Well, instead of providing all the funds at once, I am 
certainly more inclined to provide an initial portion of funds--say 
$150 billion or $200 billion and seeing how successful the government 
intervention proves during a 3- or 4-month period, and then coming 
back. Of course, those on Wall Street will say: No, we have to have the 
whole amount of $700 billion in order to give confidence to the 
markets. But don't we have a responsibility to the taxpayer to make 
sure these funds are being wisely spent? Can't we provide a substantial 
downpayment on this problem, and in a few months require everybody to 
come back and to see whether it is working as we intended?
  I think there is some wisdom to that. And I think there is some 
wisdom to what everybody has been talking about here, that we want to 
make sure this money doesn't go towards executive compensation and 
golden parachutes. That is the least we can do.
  I was amused to see an article by a conservative columnist--Kristol--
which said, well, maybe what we ought to do is put a provision in that 
no compensation--for the executives of these financial institutions 
that participate in this bailout--no compensation can be greater than 
the compensation to the President of the United States. That would 
certainly get some people's attention. There ought to be some 
reasonable limits on executive compensation.

  The essential question for this Senator, and I think for a lot of my 
colleagues, is how are we going to get this money into the mortgage 
market so it will revive lending and restore the housing market? Is 
this not the purpose of what we are trying to do? Not only save the 
national economy but get in and resuscitate the housing market. How do 
we ensure that it does not go solely into the hands of the bankers and 
the investment bankers and the insurance companies?
  Therefore, I suggest to the Senate that we consider a couple of 
courses. In the process of this package, we should create a loan 
facility that would work with people who are facing foreclosure. This 
loan facility could well be run out of Freddie or Fannie. For people 
who have a problem with a mortgage, this facility would have the legal 
authority, indeed the mandate, to go in and work to modify that 
mortgage, the terms and interest rate, so that in fact those people can 
still stay in their homes.
  I see the chairman of the Banking Committee has come in. This Senator 
is laying out a suggestion--in addition to that of the esteemed 
chairman of the Banking Committee, who I think has come out with an 
excellent product--that in order to get the money, not into the 
bankers' hands but to get it to revive the mortgage market--in other 
words revive the housing market--to create a loan facility, within 
Fannie or Freddie, with the legal authority to get in there and help 
people change the terms of their loans so they can stay in their homes. 
Then, second, as the chairman has suggested in his committee package, 
change the bankruptcy laws so that if someone has gone into bankruptcy, 
the bankruptcy judge, under law, would have the discretion to change 
the terms of the mortgage in order to keep the person in his or her 
home. So, prevent foreclosures through a loan facility with legal 
authority to modify mortgages, and if the homeowners must declare 
bankruptcy, give the bankruptcy judge the authority to modify the 
mortgage. In that way, a lot of the money we are going to put towards 
this bailout would go to preventing foreclosures.
  This Senator speaks as one area of my State, Fort Myers, FL, has had 
one of the highest foreclosure rates in the country for the past year.
  My suggestions are just a start. I think as we look to this huge 
bailout we also ought to set up a regulatory system for all financial 
institutions, not just commercial banks. In other words, we should 
regulate all securities that are traded publicly or privately so we do 
not face this problem in the future.
  Why? Because what happened? They got us into the problem we are in. 
The financial managers were encouraged to leverage all their 
investments so much in order to increase their own personal 
compensation. We ought to avoid that at all costs. Unless we get 
something that is close to what this Senator is trying to share with 
the Senate and the esteemed chairman of the Banking Committee, who is 
going to have more influence on this than any other person in this 
Senate--he is here--unless we can get these checks and balances in the 
system, this Senator is not going to vote for it.
  It is my responsibility to try to be a careful steward of the money 
that has been entrusted to me. We are talking about such mega amounts 
of money that will almost defy description and tie the hands of the 
next President and the next Congress. We will have borrowed so much 
extra money that the new Congress and the next President will not be 
able to accomplish some goals because there will not be any money left 
for the Federal Government.
  I would love to hear from the chairman of the Banking Committee, who 
I see is ready to speak.
  Because he is here, this Senator will yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut is 
recognized.
  Mr. DODD. First, I thank my colleague from Florida. Let me say I am 
rising to speak on a matter other than the matter the Senator is 
addressing, but I wish to commend him for his thoughts and ideas on the 
situation. We have had extensive hearings, of course, yesterday, 5 
hours with the Secretary of the Treasury and the chairman of the 
Federal Reserve Bank and chairman of the Securities and Exchange 
Commission and the head of this new agency with our GSEs. The House is 
going to have a hearing today. What is quite clear is the plan, as 
submitted by the Secretary of the Treasury, I think, generally--I say 
this politely--but across the spectrum, has been sort of rejected, a 
three-page bill asking for $700 billion.
  I pointed out to someone yesterday a few years ago you could get a 
$100,000 no-doc subprime loan and the paperwork was four pages long. 
This is sort of a no-doc request here--not to try to be humorous about 
a situation such as this. But nonetheless we have a lot of work to do 
to try to put together a plan, but I hope we can do something because 
the situation is grave and it is serious and we have to respond.
  Mr. NELSON of Florida. If the Senator will yield for a question?
  Mr. DODD. I will but very quickly. I have about 4 minutes.
  Mr. NELSON of Florida. Is the Senator considering one of the things I 
talked about earlier, that we would not do the whole $700 million in 
one swat, but we take a part and say that is good for the next 3 or 4 
months and come back and evaluate it?
  Mr. DODD. I don't want to negotiate with you on the floor of the 
Senate. There are a lot of ideas kicking around. I know that is one 
that has received some consideration.

                          ____________________