[Congressional Record Volume 154, Number 153 (Thursday, September 25, 2008)]
[House]
[Pages H9951-H9952]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           AMERICA NEEDS REAL FINANCIAL REFORM, NOT A BAILOUT

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Madam Speaker, I would like to place in the Record the 
measuring sticks against which I will weigh any proposal brought before 
this Congress to bail out Wall Street investment houses.
  Number one, financial reform must come first. America needs reform, 
not a bailout. Over the last 20 years, legislation has been passed by 
this Congress, H.R. 1278 in 1989 called FIRREA, interstate banking in 
1994 which created those big mega banks, and H.R. 10/S. 900 in 1999, 
which overturned the Glass-Steagall Act that allowed banking, real 
estate and insurance all to be under the roof of the same firm.
  Well all those bills together have created a highly concentrated 
financial system, particularly in housing finance, rather than a 
decentralized one like that which we had for most of the 20th century. 
This bailout is the result of high-risk misbehavior by distant 
financial giants. They have sucked equity out of local communities and 
turned local markets into derivative, debt-ridden communities rather 
than independent, robust, credit markets with prudent savings and 
lending practices.
  Reform should restore those prudent and transparent banking practices 
defining the difference between banks and investment houses and 
protecting and restoring the protections that existed prior to 1999 
when that Glass-Steagall Act was eliminated. Conflicts of interest at 
bond rating agencies should be addressed by such agencies becoming 
public. Reform, as I say, and regulation should come first out the door 
before the money, not later.

                              {time}  2000

  Number two, Main Street housing market deflation must be stabilized 
as step one. A moratorium should be placed on all home foreclosures for 
120 days. That will take us into the new year. And deflation in the 
housing market really is what has triggered this credit crunch. The 
Federal Reserve could use its influence through its regionalized 
structure to bring parties together to work out affected loans in 
places like Ohio to stabilize local real estate and housing markets. 
That is where the real assets are and where the markets must clear and 
adjust.
  What a crime it would be if people are thrown out of their homes and 
an institution somewhere over in England like Barclays becomes the 
owner of those assets and gets them at fire-sale prices. We need to put 
those assets back in the hands of the American people.
  The traditional home loan backed by savings deposits was converted 
into a bond during the 1990s and then securitized into those 
international markets. The time-tested loan standards of character, 
collateral and collectibility were shelved, and therefore to reform 
this system it must be decentralized again, with the community savings 
and home loan bank system being reestablished with an emphasis on 
increasing savings deposits with enhanced local mortgage origination 
and oversight, as opposed to concentration of activity in Wall Street 
investment houses.
  Number three, a new Financial Assets Management Board should be 
formed to manage this mortgage refinancing and workouts at the local 
level, similar to FDR's Homeowner Loan Corporation.
  Fourth, the Department of Justice should be authorized to investigate 
the wrongdoers, to track down the fraud, misrepresentation of asset 
value, insider trading and related crimes in this scandal. There should 
be over 500 attorneys and accountants and support staff to conduct 
thorough investigations, forensic accounting and prosecution.
  Fifth, any Federal dollar that is expended must result in equity to 
our taxpayers. If our people are going to be forced to fund unlimited 
private sector bad debt, our people must receive an equity share in 
every Wall Street financial company proportional to the amount of bad 
debt held that is shifted to the taxpayer.
  Our people are being asked to take 100 percent of the risk. They 
should be afforded the benefit of any future profits. A 0.25 percent 
transaction fee should be charged on every Wall Street trade or Chicago 
Board of Trade transaction, and that $150 billion a year that will be 
yielded should pay the American people back over time.
  Sixth, a select congressional committee should be established to hold 
hearings, do proper oversight and advise the next President and 
Congress on mortgage and financial recovery operations and additional 
means to assure any necessary repayment of public investment.
  Seven, standards for executives and compensation structure in the 
financial services industry should be established. Those outlandish 
salaries that they get should be curbed, and all bonuses, stock options 
and exceptional compensation for those individuals and their boards of 
directors should be discouraged. We should help to pay the bill by 
going after some of their assets.
  Finally, Madam Speaker, I would like to place this in the Record, and 
also include bankruptcy reform as one of the major changes that we need 
to make in any measure. These are the steps that would actually result 
in market recovery, not just bailing out unknown assets and bad debts 
from Wall Street.

    Kaptur: Real Reform or Nothing--Financial Reform Must Come First

       America needs real financial reform first, not a bailout. 
     Over the last 20 years, legislation passed by Congress (HR 
     1278 in 1989, HR 3841 in 1994, and HR 10/S 900 in 1999) has 
     highly concentrated financial activities on Wall Street--
     particularly housing finance--rather than decentralized them. 
     This bailout is the result of high risk misbehavior by 
     distant financial giants. They have sucked equity out of 
     local communities and turned local markets into derivative, 
     debt-ridden communities rather than independent robust credit 
     markets with prudent savings and lending practices.
       Such reform should restore prudent and transparent banking 
     practices. Reform of the deregulated financial structure 
     should start with defining the difference between banks and 
     investment houses and restoring protection that existed prior 
     to 1999 when the Glass-Steagall Act was eliminated. Each 
     should have defined activities and be regulated separately.
       Conflicts of interest at bond rating agencies should be 
     addressed by such agencies becoming public.
       Reform and regulation should come first, not later. 
     Franklin Delano Roosevelt invented the basic framework that 
     served

[[Page H9952]]

     America well for the last century. Congress should adapt it 
     to current challenges on a Jeffersonian model, not the 
     proposed Hamiltonian approach.


  main street housing market deflation must be stabilized as step one

       Legislation should mandate a moratorium on all home 
     foreclosures for 120 days. Deflation in the housing market 
     has triggered this credit crunch. The Federal Reserve must 
     use its influence through its regionalized structure to bring 
     parties together to work out affected loans to stabilize 
     local real estate and housing markets. That is where the real 
     assets are and where the market must clear and adjust. Before 
     the Federal Reserve and Treasury, or its consultants, can 
     foreclose upon any home, it must first certify under criminal 
     penalty that a workout was attempted with the mortgage. A 
     workout certification on every home will be required. 
     Additionally, a 120-day moratorium will drastically reduce 
     the amount of capital needed. Otherwise, millions more of our 
     citizens will be foreclosed and financial giants like 
     Barclay's will pick up local real estate at fire sale prices.
       The cowboy banking that accelerated in the last 20 years 
     concentrated financial power on Wall Street and huge regional 
     mega-banks. The traditional home loan, backed by savings 
     deposits, was converted into a bond that was securitized into 
     international markets. The time tested loan standards of 
     character, collateral, and collectibility were shelved. They 
     must be restored. To reform the system, it must be 
     decentralized, with the community savings and home loan bank 
     system being reestablished, with an emphasis on increasing 
     savings deposits, enhanced local mortgage origination and 
     oversight, as opposed to concentration of activity in Wall 
     Street investment houses. These local institutions should be 
     empowered to do workouts and supported through any housing 
     finance provided. The federal incentives for savings and home 
     loan institutions, as existed pre-FIRREA, should be restored.
       In a letter to Congress the CEO of BB&T states, ``The 
     primary beneficiaries of the proposed rescue are Goldman 
     Sachs and Morgan Stanley.'' This is essentially unfair and 
     improperly focused. Attention must be placed on restoring 
     value to local housing real estate markets.


  a new financial assets management board should be formed to manage 
  mortgage refinancing and workouts (similar to fdr's home owner loan 
                              corporation)

       Board Members: Secretary of Treasury, Federal Reserve 
     Chairman, Comptroller General of the United States, 
     Appointees of House Speaker, House Minority Leader, Senate 
     Majority Leader, and Senate Minority Leader, Appointee from 
     the States Attorneys General, U.S. Attorney General.


       Department of Justice Should Be Authorized to Investigate

       Creation of a Special Prosecutor position at the U.S. 
     Department of Justice with authority and adequate funding to 
     track down the fraud, misrepresentation of asset value, 
     insider trading, and related crimes in this scandal.
       Funds should be allocated to hire 500 or more attorneys and 
     accountants and support staff to conduct thorough 
     investigation, forensic accounting, and prosecution.
       Recovery of assets fraudulently or illegally obtained by 
     individuals, Boards of Directors, and institutions involved 
     shall be required retroactive to the decade of the 1990s to 
     the present.


                  equity to taxpayers must be mandated

       If U.S. taxpayers are forced to fund unlimited private 
     sector bad debt, they must receive an equity share in every 
     Wall Street financial company proportional to the amount of 
     bad debt held that is shifted to the government.
       Since taxpayers are assuming 100 percent of the risk, they 
     should be afforded the benefit of any future profits. Those 
     profits should be placed in a special lock box account for 
     Social Security. The trustee should be restrained to 
     investments in AAA state and local bonds.
       Taxpayers who have been up-do-date on home mortgage 
     payments but who will be required to help fund the bailout 
     should be afforded lower interest rates on their existing 
     home mortgages to total the amount being borrowed from them.
       A .25 percent transaction fee should be charged on every 
     Wall Street or Chicago Board of Trade transaction and the 
     funds yielded should be used to pay back the loan for U.S. 
     taxpayers, this fee will yield about $150 billion annually.


         a select congressional committee should be established

       A cross-jurisdictional Select Committee of Congress should 
     be established in both chambers to hold hearings, do proper 
     oversight, and advise the next Congress and President on 
     mortgage and financial recovery operations and additional 
     means to assure any necessary repayment of the public 
     investment.


 standards for executives and compensation structure in the financial 
                     services industry established

       Compensation for financial executives at all levels should 
     be limited to five year rolling average, made public on a 
     quarterly basis, similar to Securities and Exchange 
     Commission filings.
       Alternatively, compensation for top executives at financial 
     houses should not exceed the salary of the President of the 
     United States until such time as the federal government 
     recovers or receives repayment for any financing that may be 
     provided.
       Anyone who had major responsibility for buying or selling 
     these junk bonds should be permanently banned from holding 
     any position in any company dealing with financing of any 
     sort.
       All bonuses, stock options, and exceptional compensation 
     (present and post for 10 years) for those individuals and 
     their Boards of Directors should be disgorged. This should be 
     a responsibility of the Department of Justice's 
     investigations. Since executives and Boards of Directors were 
     paid for fraudulent transactions and likely insider trading, 
     their earnings were assumed under false pretenses.
       New leverage ratios should be devised and incorporated with 
     this law, probably 10:1, not 30:1.
       Anyone or any company involved in leveraging or selling any 
     sub-par mortgages involved in the bailout should be banned 
     from employment by Treasury to help in these workouts.
       Secretary Paulson and all political appointees in the U.S. 
     Treasury and the Federal Reserve should be required to renew 
     their public disclosure statements as circumstances have 
     changed since their original filings.
       All financial institutions and executives that will benefit 
     from this bailout in any way should be banned from making any 
     political contributions this election cycle and during the 
     111th Congress.


  Additional Financial System Reporting and Transparency Requirements 
                            Must be Required

       The Financial industry, including hedge funds, shall comply 
     with new regulations involving disclosure, capital 
     requirements, conflicts of interest, and market manipulation.
       All hedge funds must immediately disclose holdings.
       Hedge fund profits must be taxed at the sane rate as other 
     financial corporations, their current rate is 15% on current 
     income with a capital gains rate of only 5%.
       Consumer credit debt must be reported quarterly to assure 
     Congress has complete information on market conditions that 
     may impact future solvency.
       The source of the bailout money must be explicitly 
     identified as well as the costs and nature of the financing 
     agreement. If foreign nations, banks, or sovereign wealth 
     funds provide monies, and trade or defense concessions are 
     inherent in the agreement, Congress shall require 
     certification from Treasury and the Federal Reserve that no 
     side deals were transacted as a part of the agreement.
       A provision should be included that if such side deals of 
     any kind that may be implied or thought to exist, the United 
     States is not bound by it.
       As part of the legislation, the Secretary of Treasury and 
     the Federal Reserve Chairman are required to provide a 
     statement as to how the arrangement will be executed in order 
     to avoid fueling inflation and rising interest rates.


                           Bankruptcy Reform

       Bankruptcy law should be changed to give bankruptcy judges 
     the authority to: Reset primary mortgages during personal 
     bankruptcies; and Release credit card holder from that debt 
     in personal bankruptcy.
       Our nation, our taxpayers, and our communities need real 
     reform or nothing.

                          ____________________