[Congressional Record Volume 155, Number 10 (Friday, January 16, 2009)]
[Senate]
[Pages S643-S646]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            ECONOMIC CRISIS

  Mr. DORGAN. Mr. President, yesterday's paper and today's paper 
describes some pretty ominous news. And yesterday's action in the 
Senate was prompted as a result of the financial crisis that exists in 
this country.
  Each day the paper brings us another chapter of this sad saga.
  ``Bank of America to Get Billions in U.S. Aid.'' That was the Wall 
Street Journal's headline.
  ``Bank of America to Get More Bailout Money,'' the New York Times.
  Yesterday, this Senate voted to proceed with $350 billion in 
additional

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funding for what is called TARP, Troubled Asset Relief Program. In 
fact, TARP is not being used to purchase trouble assets, but that is 
what the program is called.
  I did not support that proposal yesterday. I didn't support the 
proposal of releasing another $350 billion, but that is not surprising 
perhaps. I didn't support the proposal on the $700 billion last 
October.
  I didn't support that, not because I didn't think there was a 
crisis--I think there is a financial crisis in this country. But I 
didn't think there was the foggiest notion of how that was going to be 
used effectively to address this country's financial problems. It turns 
out, I believe, I was right.
  Since the $700 billion was authorized last October, we have seen the 
first $350 billion made available spread around in almost every 
direction. It is almost as if you turned a ceiling fan on to a stack of 
money. The Secretary of the Treasury said: We have a financial crisis. 
And he said: Here is a three-page piece of legislation, and I want you 
to pass a $700 billion bill in 3 days.
  The Congress didn't do that, but in relatively short order, the 
Congress authorized $700 billion for the Treasury Secretary to do as he 
wanted to do: buy troubled assets from the largest financial firms in 
the country.
  He got the money. But it turns out that he did not want to buy 
troubled assets after all. Instead, he wanted to invest in bank 
capital. So he began investing in bank capital. The investments in bank 
capital at one point was $125 billion to nine banks, some of which did 
not ask for it and did not need it, no strings attached.
  He said: We are doing it to expand lending because we want to 
incentivize expanding lending and we want to try to unfreeze these 
credit markets. Well, $125 billion with no strings. So was lending 
expanded? Probably not. Nobody knows. Ask the banks what they did with 
the money and they will say: None of your business; money is fungible; 
we are not going to tell you.
  Now the question is the other $350 billion. One of the reasons I was 
not even interested in starting on the $700 billion or the $350 billion 
is we don't have any regulations that will close the gate and stop the 
very kinds of practices that steered this country's economy into the 
ditch in the first place.
  I come from a ranching background raising some horses and cattle in a 
farm State. I understand the notion about closing the gate. You have to 
close the gate. There is nothing here that closes the gate to stop the 
kinds of practices that put us in the position we are now in.
  I talk about these headlines with Bank of America. Let me start out 
by saying Bank of America apparently has been a good bank. It is an 
FDIC-insured bank. I don't have particular problems with Bank of 
America. But I have serious problems with what has happened with 
respect to government-sponsored failure, and government-sponsored 
failure is not something of which we ought to be particularly proud. 
Government-sponsored failure is to stand behind failed financial 
institutions with taxpayers' money.
  Winston Churchill once said success is the ability to go from failure 
to failure without losing your enthusiasm. There sure ought to be a lot 
of enthusiastic people around because we are going failure to failure.
  Let me describe what I mean. You take an FDIC-insured bank--in this 
case, Bank of America--and the Federal Government watches while the 
FDIC-insured bank buys the biggest mortgage company in this country 
which was failing, Countrywide Mortgage.
  I have described that Countrywide was led by a man named Mozilo, 
largely celebrated as one of the great CEOs in America. He received the 
Horatio Alger Award. By the way, he got out of Countrywide with about 
$200 million, it appears, and Countrywide was failing. So Bank of 
America buys Countrywide, an FDIC-insured bank that the taxpayers are 
responsible for, is allowed to buy a failed mortgage company called 
Countrywide.
  By the way, I have shown this many times. Let me show you what 
Countrywide was doing and why it was a spectacular failure. This big 
mortgage company was advertising this to the American people all the 
time they were running up this unbelievable amount of speculation and 
debt:

       Do you have less than perfect credit? Do you have late 
     mortgage payments? Have you been denied by other lenders? 
     Call us . . .

  ``Call us.'' You wonder why a business such as this fails--
advertising if you have bad credit, trouble paying your bills, call us, 
let me give you a loan.
  So Bank of America bought Countrywide. I don't have the foggiest idea 
why they bought Countrywide. But 8 months later, the Federal Government 
encouraged Bank of America to buy Merrill Lynch, a failing investment 
bank, that was about to go bankrupt, we guess, on about the same 
weekend Lehman went bankrupt.
  The Federal Government helped an arranged marriage, apparently, 
without even any dating--at least you would think they would date a 
little bit. On a weekend, Bank of America, one of the biggest FDIC-
insured banks in America that had picked up, 8 months earlier, a bad 
mortgage company that helped steer this country into the ditch, was now 
told: We want you to pick up a failed investment bank, Merrill Lynch. 
So they did.
  What is the result? This arranged corporate marriage now gives us 
headlines and a deal overnight last week by which that parent company, 
Bank of America, needs billions more in order to keep going. What 
otherwise had been a healthy bank and what we are told this morning in 
news accounts that without Countrywide and without Merrill Lynch, Bank 
of America would be fine, now they need $20 billion. That is on top of 
another $25 billion last fall. This company now needs to be bailed out 
by the American taxpayers. Why? Because they put together FDIC-insured 
banks with more risks coming from, in this case, Merrill Lynch and 
Countrywide.
  You think that is success? I don't. The question is: When do we stop 
doing things that fail?
  So we wake up in the morning, and we discover that as a country, we 
have $20 billion less money in our hands, we have $20 billion less 
because somebody decided this company that bought Countrywide and 
Merrill Lynch now needs $20 billion to keep going.
  By the way, last month, the CEO for Merrill Lynch was trying to get 
Merrill Lynch to give him a big million bonus for 2008. It was reported 
there was a proposal somewhere in that system to give him a $30 million 
bonus. The CEO was apparently trying to get Merrill Lynch to give him a 
bonus after he sold Merrill Lynch to the Bank of America but before the 
bank actually took over Merrill Lynch.
  Not only that, that CEO of Merrill Lynch had just joined Merrill 
Lynch the year before and received a $15 million signing bonus and a 
pay package valued at between $50 million and $120 million. I didn't 
know failure paid so well in this country.

  The reason I am describing this specific case, and I have talked 
about this at length, and I am going to talk about it again, this all 
results from now almost 10 years ago on the Senate floor. Our friend 
from Texas, Senator Phil Gramm, authored a piece of legislation called 
Gramm-Leach-Bliley and, to be fair, supported by the Clinton 
administration, supported by the then-Treasury Secretary and some of 
the same people who are now being consulted on this crisis, they got 
something called financial modernization passed through this Congress.
  What was financial modernization? Financial modernization was 
legislation that said: You know what, we have all these old-fashioned 
rules around here, for God's sake; let's dump them so we can move into 
the future with some modernization. Why should we still, 70 years after 
the last Great Depression, have on the books the laws that were put in 
place after the Great Depression that prevent banks from being involved 
in real estate and securities and insurance? Let's get rid of those 
laws. Let's allow our banks to be modern. Why can't our banks be 
involved in real estate and securities and so on?
  That was the sermon that was being preached on the floor of the 
Senate and elsewhere.
  What was a stimulant for it, by the way, was Citicorp wanted to buy 
Travelers Insurance, one of the biggest merger acquisitions in history, 
but they couldn't do it because the law prevented it. Why did the law 
prevent it?

[[Page S645]]

Because after the Great Depression, where banks failed all across this 
country, because in the roaring twenties, everybody was making lots of 
money doing stupid things, a lot of speculation, everybody was getting 
rich, like hogs in a corncrib, they were all making all this money and 
loading up banks with risks. Banks were up to their necks in risky real 
estate. They were up to their necks in risky securities. And then the 
whole thing came tumbling down and banks failed in large numbers.
  So after the Great Depression, Franklin Delano Roosevelt came in and 
said: By the way, we are going to fix this. We are going to put in 
things that prevent that from ever happening again. We are going to 
separate banks from risky enterprises. Banks are not going to be 
engaged in real estate and securities. Banks are about FDIC-insured 
deposits of the American people, and you are not going to be engaged in 
those kinds of risks. We will prevent it. We will pass something called 
the Glass-Steagall Act, saying to banks you can't do it.
  In 1999, Senator Phil Gramm and a whole lot of others who joined a 
big chorus to sing the same song said: You know what, those things are 
hopelessly old-fashioned. We have to get rid of those restrictions. 
Those were put in place in the 1930s. They don't apply in this modern 
age.
  Eight of us on the floor of the Senate voted no. I wish to describe 
what I said on the floor of the Senate in 1999, when I opposed that 
legislation. I said:

       Fusing together the idea of banking, which requires not 
     just safety and soundness to be successful, but the 
     perception of safety and soundness, with other inherently 
     risky speculative activity is, in my judgment, unwise . . .

  That is what I said on the floor of the Senate almost 10 years ago.
  I also said this:

       I say to the people who own banks, if you want to gamble, 
     go to Las Vegas. If you want to trade in derivatives, God 
     bless you, do it with your own money. Don't do it through the 
     deposits that are guaranteed by the American people and by 
     deposit insurance.

  I said this 10 years ago:

       This bill will also, in my judgment, raise the likelihood 
     of future massive taxpayer bailouts.

  I sure wish I had not been right. This bill will raise the likelihood 
of massive taxpayer bailouts. It will fuel the consolidation and 
mergers in the banking and financial services industry at the expense 
of customers and others.
  And I said this during the debate; that we will look back in 10 
years' time and say: We shouldn't have done that because we forgot the 
lessons of the past.
  I take no pride in believing, 10 years ago, that what was preached on 
this floor--and, yes, in the administration and elsewhere--about 
modernization was something that I felt would undermine this country's 
interest. But it has, and it will continue to.
  The point I make today is none of these lessons has been learned. If 
when we went to bed last night someone was working to tell us this 
morning that $20 billion of American taxpayers' money has been taken in 
order to shore up a bank, one of the biggest banks in America because 
they are in trouble because they were allowed to buy an investment bank 
with toxic assets, if that is the lesson we learned from waking up this 
morning of what the people in charge of our money are doing with our 
money, I tell you, we haven't learned any lessons at all. Is there 
anything that will remind us of the absurdity of fusing together 
basically risky things with banking, which requires just the perception 
of safety and soundness? If people think a bank isn't safe and sound, 
it doesn't matter how much money that bank has, there will be a run on 
that bank and the bank will fail. Perception of safety and soundness is 
critical.

  How do you retain that perception--in fact, more importantly, how do 
you have the reality of safety and soundness--if you have the biggest 
banks in the country merging through corporate marriages with some 
unbelievably bad mergers--in this case a very good bank, Bank of 
America, buying Countrywide Mortgage, and then purchasing Merrill 
Lynch? How do we justify that?
  The reason I voted against the proposition of releasing the $350 
billion yesterday is I am not prepared to move forward with any of 
these things until and unless there is a commitment by the people 
running these operations that they have learned the lesson and they are 
going to close the gate and this sort of thing can't happen.
  Now, I have a chart to show you that we have now committed $8.5 
trillion of the taxpayers' money--$8.5 trillion--and here is how it has 
been committed. There is nothing in the U.S. Constitution that 
describes this kind of governing--nothing. The Federal Reserve has 
contributed about $5.5 trillion. They have opened their window for the 
first time to loan money directly to investment banks. Never been done 
before in the history of the country. And if you try to find out who 
got the money and how much, you can't--$5.5 trillion. FDIC programs, 
$1.5 trillion, Treasury Department programs, $1.1 trillion, and Federal 
Housing Administration, $300 billion. All this taxpayer money shoved 
out the door with no accountability, no transparency, and much of it 
without strings. I am not willing to be a part of that.
  If I felt that those who steered us into this ditch were going to 
show up with an ambulance, or if those who steered us in this ditch had 
learned their lesson that you can't continue to do this sort of thing, 
I would feel differently. But yesterday's and today's newspapers tell 
me they haven't learned a thing.
  So my notion is that we are still going down the same road. And to 
believe that while America sleeps we will keep throwing money at 
failure--because we merge banking with risk--and somehow people will 
believe that we don't have this risk attached to banking is not going 
to work.
  Let me talk for a second about Citigroup. One of the largest banking 
institutions in America--in the world, in fact--is coming apart. It 
lost $8.2 billion in the last 3 months, and it lost $18.7 billion in 
2008. Citigroup is a bank. It is an investment bank, it is a brokerage 
business, it is an insurance company. It is almost everything. How does 
all that happen? It happened because in 1999 the Financial 
Modernization Act said: You know what, to be modern you have to allow 
big holding companies and gather all this stuff together in one place. 
You put it in a big holding company and then you can build firewalls. 
It turns out they were tissue paper firewalls, but nonetheless we have 
all these mergers and holding companies, and now Citigroup is 
completely coming apart. In the meantime, these companies are judged by 
our country--by the Federal Reserve and others--to be too big to fail. 
It doesn't matter how incompetent they might be, they are too big to 
fail. Interestingly, they have not been big enough to regulate. I am 
talking about the investment banks. It seems to me if you are too big 
to fail, you surely are not too small to regulate.
  Why would we not have regulatory authority to prevent this sort of 
thing? Five banks that are deemed too big to fail, by the way, hold 
$171 trillion in what are called derivatives. Most people don't 
understand the lexicon of derivatives, CDOs, collateralized debt 
obligations, swaps, or credit default swaps. Most of that doesn't even 
sound like the English language. It is like some foreign language. In 
fact, some is so complicated that those engaged in it don't understand 
it. But again, these banks--too big to fail--hold a notional value of 
$171 trillion in derivatives.
  Going back to the mid 1990s, I have offered five pieces of 
legislation here in the Congress to regulate derivative trading and 
also to regulate hedge funds. Obviously, there is enormous resistance 
by Wall Street and others to anybody who wants to regulate anything 
they do, and so I have not been successful. It is not because I haven't 
tried, but there is a massive amount of dividends out there. And what 
prompted me to do that is that banks--FDIC-insured banks--were trading 
on derivatives on their own proprietary accounts. They might as well 
have put some craps tables or blackjack tables right in the lobby of 
the bank because that is what you are doing exposing that kind of risk 
to basic banking.
  But everybody was fat and happy around here. Regulators were 
willfully blind. They would come to town and say: Let me be a regulator 
so I can put blinders on. Or as one of them said at the SEC: There is a 
new sheriff in town. This is a business-friendly place now, which meant 
that those who were

[[Page S646]]

supposed to look out for the public interest didn't give a rip. In 
fact, Alan Greenspan was right in front of the parade. He believed in 
what is called self-regulation. Isn't that interesting. If we don't 
look, don't pay attention, don't worry, and be happy, self-regulation 
will be fine. Well, it is about $8.5 trillion short of being fine.
  And the question is, When--when--at last, at long, long last--will 
this Congress, this administration and the new administration, decide 
that we are going to regulate these activities in the future; that we 
are going to close the gate; that this cannot happen again. When will 
we decide if you want to trade in derivatives, then it will have to be 
not in the dark--no more dark money--it will have to be transparent and 
regulated. If you have an FDIC-insured bank, you are not going to be 
able to buy a Merrill Lynch because you can't fuse risky enterprises 
with FDIC insured banks.
  Now, let me say that is not unbelievable criticism of Bank of America 
because, as I said, that was a corporate sponsored marriage. 
Apparently, the folks down at Treasury went to Bank of America and 
said: You know what, we have this pretty little corporation called 
Merrill Lynch that is in some trouble and we would like you to marry 
it. So as I said, with apparently not too much thought, they decided to 
hitch up. Turns out to have been a pretty bad marriage. My point is it 
is not only this. I mention Citi and I have mentioned Bank of America. 
The fact is this river runs deep, the river of failure here. And the 
question is, When--when--will we get to the point where we are going to 
say yes, that we are willing to make investments to steer us out of 
this problem in exchange for regulation and in exchange for coming back 
to pass a piece of legislation similar to Glass-Steagall, similar to 
the protections that were put in place after the Great Depression.
  Unbelievably, there are a whole lot of folks who are not even willing 
to entertain that. They say: No, no, no, you don't understand what you 
are talking about. We still need to be modern, we still need to 
compete, and we still need these new financial, exotic instruments. 
What they are is a new wrapper; kind of like sheep intestines, a new 
casing for sausage. They wrapped around something called a securitized 
product that began securitizing everything. All of them did. They were 
giving bad mortgages to people who couldn't pay them, no documentation 
of income, teaser rates at maybe 2 or 3 percent that will triple or 
quadruple in 3 years and lock in prepayment penalties, and then wrap 
them in a security and sell them upstream with everybody making fat 
bonuses and lots of income.
  The problem is, the whole thing was a Ponzi scheme. The Ponzi scheme 
is not just Mr. Madoff having breakfast in his $7 million apartment 
jail in Manhattan. Yes, that was a Ponzi, apparently by $50 billion. 
But this whole approach was a Ponzi scheme--wallpaper the country with 
credit cards. Wallpaper everything with credit cards.
  The other day I talked about my son, when he was 12 years old, 
getting a credit card solicitation from a dozen different companies. 
They offered him a Diner's Club card to go to Europe. In fact, I 
brought a bunch of those solicitations to the floor of the Senate at 
that point. And I said, I am sure my son would love to go to Europe at 
some point, but he is only 12, and he ought not get a credit card. But 
these companies wallpapered America with credit cards and then they 
securitized credit card debt and sold securities upstream. Is there any 
reason these assets are toxic? Securitized credit card debt, much of 
which won't be repaid; securitized mortgages by Countrywide and 
others--Zoom Credit, which says in their advertisements: Is your credit 
in the tank? It is like money in the bank. Come to us.
  It seems to me you don't effectively repair a house unless you first 
begin to strengthen the foundation. And the foundation for all of this, 
to try to put this country back on track, in my judgment, is to go back 
and revisit what was done in the last dozen years or so under the 
rubric of financial modernization--modernization of the financial 
system, modernization of commodity trading. If we don't go back and 
revisit that, this country will not be able to steer itself out of this 
problem.
  This is a pretty significant financial wreck that has happened in 
this country. It is one thing for people to put on blue suits and come 
and talk about it; it is another thing for over a half million people 
last month to go home and tell the person they love or go home and tell 
their family they have lost their job--perhaps the same people who had 
to tell them a month or two ago they lost their home. These are tough 
times. A lot of people are hurting badly. We need to find a way to 
steer this country back to economic growth and prosperity again. But it 
will not happen unless we fix the foundation and reconnect those things 
that were taken apart over a decade ago.
  Let me finally say again, while I have talked about this at some 
length on a number of times, despite it all, if we keep pushing in the 
right direction, I have hope that this country will prevail. This 
country has done so many terrific things against the odds, and we will 
again. But it requires people to be smart and tough. You cannot have a 
wall of debt out there that you don't care about, an unbelievable wave 
of speculation that you say doesn't matter. You can't have regulators 
who refuse to regulate. You can't have an avalanche of dark money that 
no one can see. The fact is you have to fix all these things, and we 
can.
  This problem was created by public policy here and by corporate 
policy there, and we can fix it and put this country back on a better 
course, a course that will grow and provide jobs and opportunity and 
hope once again.
  But it won't happen by itself. It is going to happen when we as a 
country decide that we are going to work together to be part of 
something bigger than ourselves, and steer a legislative course and 
steer some more responsibility on the corporate side to work together 
and fix these fundamental problems. I believe that is possible, and it 
is why I come to the floor so often to talk about what has caused these 
problems and what we ought to do to fix them. It is not hopeless. I am 
hopeful. But it is going to take a lot of work.
  Mr. President, I yield the floor, and I suggest the absence of a 
quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mrs. HAGAN. 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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