[Congressional Record Volume 155, Number 46 (Tuesday, March 17, 2009)]
[House]
[Pages H3486-H3491]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE SUBPRIME HOUSING CRISIS
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 6, 2009, the gentlewoman from Ohio (Ms. Kaptur) is recognized
for 60 minutes as the designee of the majority leader.
Ms. KAPTUR. Mr. Speaker, I ask unanimous consent to include
extraneous material in the Record thereof as I proceed this evening.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from Ohio?
There was no objection.
Ms. KAPTUR. Mr. Speaker, as our economy continues to oscillate, and
the world markets with it, it is good to remind ourselves of some
economic fundamentals so we can fix what ails us. Let us return to the
opening fact: The proximate cause of America's downturn is the subprime
housing crisis. It is not abating. Until America addresses that, our
economy will continue to bleed.
Washington is obstinately refusing to address that head-on. Six
thousand six hundred homes enter foreclosure across this country every
day. That is one home, one family every 13 seconds. Instead, Washington
seems to still be just picking at the edges of the glaring headlights
facing us.
[[Page H3487]]
The President today, in the wake of AIG's giving AIG executives
hundreds and hundreds more millions of dollars, taxpayer dollars, in
bonuses, has stated the need for overall financial regulatory reform.
He is right. America needs more than executive bonus reform, however.
That only represents a wart on a very large elephant, of hundreds of
billions and, indeed, trillions of dollars irresponsibly managed and
the burden of resolution being put on our taxpayers, on their children,
on their grandchildren. The executive and legislative branches of our
government must dive in and reform this out-of-control financial
marketplace. The Republic and our citizens deserve no less. The
question for history is whether this Congress will meet its
constitutional obligations to protect and defend the Republic.
It is time that Wall Street and the megabanks saw the writing on the
wall. Yet they seem hell-bent at resistance. Wall Street's response of
putting its head in the sand and their hands in our pockets should be
over. AIG's bonuses are merely the latest sign, like a big canary in
the mine shaft sign, of Wall Street's high arrogance and its real
power, I repeat, its real power, over the American people and the
institutions that govern us. The voices of the people are not being
fully heard. Wall Street's latest racketeering and ransacking of our
Republic trumps anything they have done in the past.
Let us recall the savings and loan debacle back in the 1980s when
financial institutions dumped $150 billion of their bad debts onto the
American people, onto their children. It was a huge load. In fact,
we're still paying it. It became the third largest share of our
Nation's long-term debt. We're paying for it until today. It gets
hidden in the overall debt but it's in there. But Wall Street and the
megabanks had no remorse. They smelled blood. They got away with what
they did. And they learned something from that fiasco. They were able
to wash their hands of responsibility. They got away with it.
They then worked like eager beavers to change the laws of this
country so that they could do even more. So much more. The savings and
loan bailout marks the point in time when the largest financial
institutions in this country figured out that they could push this
Congress around and the President around, and they were emboldened by
what they did. And they not only have ever since, and royally, I might
add, but they have done so at a magnitude that is unprecedented. Who
knows how deep the hole is this time around? They've already dumped
$700 billion of their bills already directly on the American people,
six times more than the last time.
And on top of that, who knows really what debt the Federal Reserve is
racking up in its hidden transactions, furiously assembled at its own
counting house. Those secret transactions merely tell us how far out of
control our elected representatives have been distanced from the
government they are sworn to defend against all enemies.
After the big banks were rewarded 20 years ago by forcing the public
to pick up their dirty laundry, they enlarged their thievery during the
1990s with a vengeance. Once most of America's thrift and home loan
institutions were destroyed along with the savings ethic that had been
embedded into the law, the megabanks set in place a massive racket to
exploit and draw down the accumulated savings that were left, you can
call it equity, of the American people represented in their homes, in
the housing market. Wall Street and the megabanks accomplished their
goal. They drew down huge sums of equity from homeowners through scheme
after conceivable scheme. Yes, they sucked out the value of what
homeowners actually owned, not owed but owned, in their homes. Their
schemes were masterful and they were morally wrong.
Look in neighborhood after neighborhood in this country. I bet your
property values have come down. If you're not losing your home, you've
been impacted by it. Your equity has been lessened. They got to you
too. They got to almost every single household in this country.
{time} 1745
How did they do it? They had millions of schemes. Take widows' loans,
widow, w-i-d-o-w. This was the rotten racket by which Wall Street's
sharp-pencil boys preyed on grief-stricken women who had just lost
their husbands, unethical moneymen at white-shoe Wall Street
institutions like Citigroup, through its CitiFinancial, no less,
drilled into that segment of the market for every penny they could
exact.
They promised widows--and they followed the obituaries to find them--
they promised widows that now that their husbands were gone, they
needn't worry about their finances into the future. Just sign on the
dotted line and an equity bonanza would be yielded to that widow.
They failed to mention that in a few years the widow's mortgage
payments would more than double. But who was to worry? Tragic, yes, but
true. Did it happen, yes, over and over and over again.
And those who worked for CitiFinancial across this Nation, and I am
sure some are listening this evening, some refused to do that. They
left their firms or they were terminated, but others did it.
And every time they did it, they got a bonus on that widow's
refinancing. I can't imagine how those people can sleep at night.
That's how they made their money.
Congress needs to hear from those widows. I know they are out there.
What happened to them, in my opinion, was criminal.
So the subprime housing implosion is the proximate cause of our
downturn. But I have a question, why is our government not fully using
the normal institutions that could resolve the crisis on the books of
the financial institutions involved, the FDIC, the Federal Deposit
Insurance Corporation and the Securities and Exchange Commission. Why
aren't we?
Last week we heard from the former chair of the Federal Deposit
Insurance Corporation who served both Republican and Democratic
Presidents back in the 1980s, Mr. William Isaac, who is published in
Investment Dealers' Digest this week, an article I am going to quote
from. He essentially resolved and successfully resolved over 3,000
insolvent banks back in the 1980s.
Every bank in Texas went down but one. Continental Bank of Illinois
went down. He resolved those without a cost to the public. His answer
to what we face is follows, a four-point alternative to the bailout
bill. Implement a program that would ease the fears of depositors and
other general creditors of banks. You do that through the FDIC and the
Securities and Exchange Commission.
No. 2, you reinstitute restrictions on short sellers. You do that
through legislation or the SEC could do that. They haven't.
No. 3, you could suspend or alter substantially mark-to-market
accounting which has contributed to mightily to our current problems by
marking assets to unrealistic fire-sale prices. We could authorize a
net worth certificate program, that authority still exists. FDIC needs
to use it.
We could settle the financial markets, he says, without significant
expense to taxpayers. This would leave $700 billion of dry powder we
could put to work in targeted tax incentives, if needed, to get the
economy moving again.
But why hasn't Washington done what he suggests? Perhaps it's because
the megabanks and their Wall Street patrons relish the world of greed
in which they float. And, frankly, they have worked very hard and spent
billions in lobbying fees and campaign contributions to set up the
world just the way they like it, and they have been rewarded
handsomely. They are still being rewarded very handsomely.
They don't want to lose their grip. After all, they have figured it
all out. From every angle, they know even that congressional elections
are cheap. They are now the largest contributors, Wall Street, that is,
to congressional elections and Presidential races. They figure about $3
million a seat in here and a few hundred million for a President. You
add those all up, it doesn't even equal what we put in to the AIG
bailout for the entire Congress of the United States.
The castle that Wall Street built, and which it is defending now at
all costs, was built at the price of great harm to this republic. I
believe that the situation can right itself, but it will take
[[Page H3488]]
the American people taking back their power through us, those that they
elect.
The situation we face did not happen overnight. As I stated, it grew
out of the savings and loan crisis. And let's look back at the late
1980s and 1990s, in the 1990s, activities began and a plan was set in
place by Wall Street and the largest money-center banks, and I will
name them, JPMorgan Chase, Citigroup, Bank of America, HSBC, Wachovia
and Wells Fargo--Wells Fargo and Bank of America down in Charlotte--to
overleverage our U.S. housing market through such schemes as mortgage-
backed securities and home-equity loans to make extraordinary profits
and enrich executives, boards and their shareholders. We know some of
their names, but it's amazing how they can avoid the public limelight.
The net result of their combined actions has been to indebt our
Nation on the private side with our families and ultimately shift the
cost of what they have done, their excesses, to the public realm.
The Wall Street and Wall Street-related institutions lobbied to
change Federal laws, along with executive actions, that aided and
abetted their plan. In 1994, the Riegle-Neal Interstate Banking and
Branching Efficiency Act was passed into law with Congress hastening
bank mergers, resulting in the further concentration of financial power
in money center banks, most often leading to Wall Street.
And in local communities across this country, what happened was banks
that had been headquartered in towns and cities began to disappear, as
they were gobbled up by money center banks far from home. And
communities across this country became derivative money centers of a
headquartered bank a very long way home. Think about where you live.
Think about what happened in your community.
With the passage of the Riegle-Neal bill, what changed was this, the
traditional concept of community banking where residential lending took
the form of a loan which was made on the time-tested standards of
character, collateral and collectability, was transformed into a bond
and then security, which was broken into pieces and then sold into,
ultimately, the international market, where you can't even find it,
largely through Wall Street dealers. Essentially, collateral was
overvalued, the value of the house became overvalued.
Risk was masked and proper underwriting and oversight of the loans
was dispensed with. Thus began the silent eroding of our Nation's
community banks. They are not all gone, but they are fewer, and they
are burdened unfairly by the economy Wall Street-money centered banks
have delivered to them and us.
In addition, in the years of 1993 and 1994, there were changes made
at the Department of Housing and Urban Development that removed normal
underwriting standards. For example, HUD's mortgage letter, 93-2,
``Mandatory Direct Endorsement Processing,'' gave authority to home
builder-owned lenders bye like KB Mortgage and affiliate lenders like
Countrywide to independently approve their own loans.
Then in 1994, HUD mortgage letter 94-54 allowed lenders to select
their own appraisers. How do you like that?
Secretary of HUD Henry Cisneros, upon departure from the Department
of Housing and Urban Development, became a KB Home board member as well
as a Countrywide board member. So as a public servant of the highest
order, with the trust of the President and all those at HUD, Mr.
Cisneros appears to have leveraged his position to his own benefit. Of
course, appearances can be deceptive, and sometimes appearances are
spot on.
Continuing on, Mr. Speaker, in 1995 Congress passed, over my
objection, the Private Securities Litigation Reform Act. This bill was
the only bill ever passed by Congress over a Clinton veto, and it was
part of Newt Gingrich's Contract with America. This law made securities
class action lawsuits more difficult.
In fact, Representative Ed Markey of Massachusetts offered an
amendment to that bill that would have made those that sold derivatives
still subject to class actions. But his amendment was not accepted, and
it never passed.
Back in those days, I can remember when the Securities and Exchange
chair, Brooksley Born, made public statements talking about the
necessity to regulate the derivatives market, what she saw happening.
She was forced out of the SEC. I nominate her for a gold medal.
In 1999 Gramm-Leach-Bliley Act passed Congress, and for the first
time since the 1930s removed the regulatory barriers that existed
between banks and insurance and real estate and commerce. It was like
all the rules were thrown out.
Insurance companies got into derivatives, securities houses got into
housing and real estate, America's banking system was turned inside
out. Over the next several years, the fury of an inflating housing
market and mergers of financial institutions increased.
To illustrate the general pattern of behavior, an interesting case to
follow is that of investment bank Wasserstein Perella of New York and
Chicago. It wasn't the largest, but one can follow and track it.
In 2001, at the height of the mortgage bubble, it merged with
Dresdner Bank of Germany, taking with it volumes of U.S. subprime
paper. Today, Dresdner, which is the second largest bank in Germany,
has been victimized by the subprime crisis and has been put up for
sale. It is likely being acquired by Commerzbank in Germany, which is
owned by their largest insurance group, Allianz Insurance Group of
Germany. They have the same kinds of insurance problems as we do.
The question is, on behalf of which institutions did Wasserstein
Perella move the subprime paper? Equally interesting is, effective June
5, 2008, last year, Dresdner Kleinwort Wasserstein Securities was
listed on Federal Reserve Bank of New York's private government
securities dealers' list. They are right on the inside. They are more
on the inside than my neighbors are back in Ohio where 10 percent of
our homes have been foreclosed. This means a foreign institution with
severe financial problems is brought under the umbrella of the U.S.
Federal Reserve.
In fact, if you review the list of troubled money center banks, most
of them are now listed on the preferred primary dealers' list at the
Federal Reserve. The Fed is starting to look like the encampment of the
most culpable.
This brings me back to AIG. This weekend, AIG grudgingly released the
names of the banks that they had to pay related to the credit default
swaps on securities that failed. So AIG had to pay on those failures.
Who did they pay with taxpayer dollars that bailed them out and
continued to bail them out over and over to a level of $176 billion and
beyond?
You know the No. 1 company? As of Monday this week, Goldman Sachs.
Well, they got $12.9 billion, Goldman Sachs. That's where the last two
Secretaries of the Treasury have come from, both in Democratic and
Republican administrations. We have a new Secretary of Treasury now who
came from the New York Federal Reserve.
I will insert in the Record the The New York Times article by Mary
Williams Walsh.
[From the New York Times, Washington Edition]
Firms to Which It Paid Taxpayer Money
Tracking the bailout
Foreign and U.S. Banks Were Given Billions Against Bad Debt
(By Mary Williams Walsh)
Amid rising pressure from Congress and taxpayers, the
American International Group on Sunday released the names of
dozens of financial institutions that benefited from the
Federal Reserve's decision last fall to save the giant
insurer from collapse with a huge rescue loan.
Financial companies that received multibillion-dollar
payments owed by A.I.G. include Goldman Sachs ($12.9
billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2
billion), Citigroup ($2.3 billion) and Wachovia ($1.5
billion).
Big foreign banks also received large, sums from the
rescue, including Societe Generale of France and Deutsche
Bank of Germany, which each received nearly $12 billion;
Barclays of Britain ($8.5 billion); and UBS of Switzerland
($5 billion).
A.I.G. also named the 20 largest states, starting with
California, that stood to lose billions last fall because
A.I.G. was holding money they had raised with bond sales.
In total, A.I.G. named nearly 80 companies and
municipalities that benefited most from the Fed rescue,
though many more that received smaller payments were left
out.
The list, long sought by lawmakers, was released a day
after the disclosure that A.I.G. was paying out hundreds of
millions of dollars in bonuses to executives at the A.I.G.
[[Page H3489]]
division where the company's crisis originated. That drew
anger from Democratic and Republican lawmakers alike on
Sunday and left the Obama administration scrambling to
distance itself from A.I.G.
``There are a lot of terrible things that have happened in
the last 18 months, but what's happened at A.I.G. is the most
outrageous,'' Lawrence H. Summers, an economic adviser to
President Obama who was Treasury secretary in the Clinton
administration, said Sunday on ``This Week'' on ABC. He said
the administration had determined that it could not stop the
bonuses.
But some members of Congress expressed outrage over the
bonuses. Representative Elijah E. Cummings, a Democrat of
Maryland who had demanded more information about the bonuses
last December, accused the company's chief executive, Edward
M. Liddy, of rewarding reckless business practices.
``A.I.G. has been trying to play the American people for
fools by giving nearly $1 billion in bonuses by the name of
retention payments,'' Mr. Cummings said on Sunday. ``These
payments are nothing but a reward for obvious failure, and it
is an egregious offense to have the American taxpayers foot
the bill.''
An A.I.G. spokeswoman said Sunday that the company would
not identify the recipients of these bonuses, citing privacy
obligations.
Ever since the insurer's rescue began, with the Fed's $85
billion emergency loan last fall, there have been demands for
a full public accounting of how the money was used. The
taxpayer assistance has now grown to $170 billion, and the
government owns nearly 80 percent of the company.
But the insurance giant has refused until now to disclose
the names of its trading partners, or the amounts they
received, citing business confidentiality.
A.I.G. finally relented after consulting with the companies
that received the government support. The company's chief
executive, Edward M. Liddy, said in a statement on Sunday:
``Our decision to disclose these transactions was made
following conversations with the counterparties and the
recognition of the extraordinarily nature of these
transactions.''
Still, the disclosure is not likely to calm the ire aimed
at the company and its trading partners.
The Fed chairman, Ben S. Bernanke, appearing on ``60
Minutes'' on CBS on Sunday night, said: ``Of all the events
and all of the things we've done in the last 18 months, the
single one that makes me the angriest, that gives me the most
angst, is the intervention with A.I.G.''
He went on: ``Here was a company that made all kinds of
unconscionable bets. Then, when those bets went wrong, they
had a--we had a situation where the failure of that company
would have brought down the financial system.''
In deciding to. rescue A.I.G., The government worried that
if it did not bail out the company, its collapse could lead
to a cascading chain reaction of losses, jeopardizing the
stability of the worldwide financial system.
The list released by A.I.G. on Sunday, detailing payments
made between September and December of last year, could
bolster that justification by illustrating the breadth of
losses that might have occurred had A.I.G. been allowed to
fail. Some of the companies, like Goldman Sachs and Societe
Generale, had exposure mainly through A.I.G.'s derivatives
program. Others, though, like Barclays and Citigroup, stood
to lose mainly because they were customers of A.I.G.'s
securities-lending program, which does not
involve derivatives.
But taxpayers may have a hard time accepting that so many
marquee financial companies--including some American banks
that received separate government help and others based
overseas--benefiting from government money.
The outrage that has been aimed at A.I.G. could complicate
the Obama administration's ability to persuade Congress to
authorize future bailouts.
Patience with the company's silence began to run out this
month after it disclosed the largest loss in United States
history and had to get a new round of government support.
Members of Congress demanded in two hearings to know who was
benefiting from the bailout and threatened to vote against
future bailouts for anybody if they did not get the
information.
``A.I.G.'s trading partners were not innocent victims
here,'' said Senator Christopher J. Dodd, the Connecticut
Democrat who presided over one recent hearing. ``They were
sophisticated investors who took enormous, irresponsible
risks.''
The anger peaked over the weekend when correspondence
surfaced showing that A.I.G. was on the brink of paying rich
bonuses to executives who had dealt in the derivative
contracts at the center of A.I.G's troubles.
Representative Barney Frank, Democrat of Massachusetts and
chairman of the House Financial Services Committee,
implicitly questioned the Treasury Department's judgment
about the whether the bonuses were binding.
``We need to find out whether these bonuses are legally
recoverable,'' Mr. Frank said in an interview Sunday on Fox
News.
Many of the institutions that received the Fed payments
were owed money by A.I.G. because they had bought its credit
derivatives--in essence, a type of insurance intended to
protect buyers should their investments turn sour.
As it turned out, many of their investments did sour,
because they were linked to subprime mortgages and other
shaky loans. But A.I.G. was suddenly unable to honor its
promises last fall, leaving its trading partners exposed to
potentially big losses.
When A.I.G. received its first rescue loan of $85 billion
from the Fed, in September, it forwarded about $22 billion to
the companies holding its shakiest derivatives contracts.
Those contracts required large collateral payments if
A.I.G.'s credit was downgraded, as it was that month.
Among the beneficiaries of the government rescue were Wall
Street firms, like Goldman Sachs, JPMorgan and Merrill Lynch
that had argued in the past that derivatives were valuable
risk-management tools that skilled investors could use wisely
without any intervention from federal regulators. Initiatives
to regulate financial derivatives were beaten back during the
administrations of Presidents Bill Clinton and George W.
Bush.
Goldman Sachs had said in the past that its exposure to
A.I.G.'s financial trouble was ``immaterial.'' A Goldman
Sachs representative was not reachable on Sunday to address
whether that characterization still held. When asked about
its exposure to A.I.G. in the past, Goldman Sachs has said
that it used hedging strategies with other investments to
reduce its exposure.
Until last fall's liquidity squeeze; A.I.G. officials also
dismissed those who questioned its derivatives operation,
saying losses were out of the question.
Beneficiaries of a Rescue
The American International Group on Sunday released the
names of financial institutions that benefited last fall when
the Federal Reserve saved it from collapse with an $85
billion rescue loan. The Fed paid A.I.G.'s obligations to the
following companies, among others:
------------------------------------------------------------------------
Amount (in
Institution billions)
------------------------------------------------------------------------
Goldman Sachs......................................... $12.9
Societe Generale...................................... 11.9
Deutsche Bank......................................... 11.8
Barclays.............................................. 8.5
Merrill Lynch......................................... 6.8
Bank of America....................................... 5.2
UBS................................................... 5.0
BNP Paribas........................................... 4.9
HSBC.................................................. 3.5
Citigroup............................................. 2.3
Calyon................................................ 2.3
Dresdner Kleinwort.................................... 2.2
Wachovia.............................................. 1.5
ING................................................... 1.5
Morgan Stanley........................................ 1.2
Bank of Montreal...................................... 1.1
------------------------------------------------------------------------
But it's very interesting which firms get special treatment. Several
of the AIG infusions of money that came from the U.S. taxpayers are
foreign based. Societe Generale of France, $12 billion; Deutsche Bank
of Germany, $12 billion; Barclays of Britain, $8.5 billion; UBS of
Switzerland, $5 billion; Dresdner, $2.2 billion; foreign banks paid
with U.S. taxpayer dollars?
The American taxpayers are becoming the insurance company for Wall
Street and global banks. Think about that one.
There is simply no way for us to pay our way out of this, because
without mark-to-market accounting being engaged, that is destroying
more capital inside these banks than we can possibly make up for with
the debt we are assuming as the risk is passed on to the American
people.
{time} 1800
Besides Goldman Sachs in our country, Merrill Lynch got $6.8 billion
through AIG; Bank of America, $5.2 billion; Citigroup, $2.3 billion;
Wachovia, $12.5 billion. All banks are receiving TARP funds, too. So
it's almost like double dipping into taxpayer dollars. Oh, my, is it
time for major reform.
Mr. Speaker, this past week Congress took some steps forward toward
real reform, and I'd like to highlight a couple of them and thank those
who made them possible. I'd like to begin by thanking House Financial
Services Committee Chairman Barney Frank for not only permitting, but
attending the Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises hearing on mark-to-market accounting.
This is the bullseye at the center of the target.
In addition, I wish to extend my gratitude for his leadership to the
chairman of that Committee, Representative Paul Kanjorski, and the
ranking member, Representative Scott Garrett, whose opposition to the
Wall Street bailout is as strong as mine, for allowing me to
participate in that hearing although I am not on that subcommittee.
I'd also like to congratulate the staff on the subcommittee for a job
well done. This hearing was informative on many levels. It is clear
that reform of the mark-to-market system is a bipartisan issue.
Congress surely would prefer that the industry itself privately,
[[Page H3490]]
through the Federal Accounting Standards Board, make the necessary
changes to properly account for and subsequently protect institutions.
But that appears to be log jammed.
Though not an easy task, time and time again in the hearing the
Federal Accounting Standards Board, the Securities and Exchange
Commission, and the Office of the Comptroller of the Currency in the
Department of the Treasury were told to take action or Congress would
take action. I hope that they listen, too, because I know my colleagues
can take action, and they surely must.
Three weeks was given as the timeline for FASB and its collaborators
to take action. Chairman Kanjorski already has a hearing date blocked
out for the week we return from our April break to follow up as
necessary. I thank him for that.
Congress is, for now, expecting and hoping that those who are in
charge of regulation will do so, so we do not have to. They, together,
are the experts, and should see to the necessity for making these
improvements.
All in all, his hearing was a very good one. I commend it to those
who are listening to look at that Record. We heard excellent testimony
from not one, but two panels of experts and people in the field. Yet,
for me, and some other Members, the day's work was not complete yet,
even though the last votes of the week had been cast.
This takes me to my second round of thank-you's. After Representative
Kanjorski's hearing ended, multiple members attended an informational
briefing in the Capitol with the two former Chairmen of the Federal
Deposit Insurance Corporation who helped America dig out from that big
hole of the 1980s and that last banking crisis so we could learn from
their experience.
These crises were far larger than what we faced at the beginning of
this one, but this one has been mishandled, and every day it gets
worse. So we have much to learn from them. Yet, lack of appropriate
resolution to date in our current situation made their appearance even
more important.
I wish to thank Majority Leader Steny Hoyer for his interest in this
discussion, and I wish to thank Mr. William Seidman and Mr. William
Isaac for traveling here to the Capitol to share their experiences,
these two amazing Americans who have so much to say, and we thank them
for their records as senior statesmen and as successful regulators who
actually did something right to stabilize our ship of State when it was
so desperately needed. We need to hear their voices more.
Tonight, however, I am moderated in my optimism because of those
meetings last week and because of Treasury's actions toward AIG. And I
want to place on the record some of the following. AIG was the largest
insurance company in our country. It collapsed last September due to
its mega involvement in insuring mortgage-backed securities.
Prudent lending has been thrown out the window for a very long time,
and basically the system that has been set up has taken the individual
mortgage loan--let's say this is your mortgage that was arranged at
your local lending institution--and what happened across our country in
the past was that when you would go to a bank and you would get a
mortgage locally, you might have deposits in that bank, and the bank
could only loan 10 times more than the level of deposits in that
institution.
A system was set up in our country where, when you took the loan out,
that loan was purchased. Usually it went to the Federal Housing
Administration or the Federal National Mortgage Association here. But
it had never really been taken into the international market.
What they did under this new system was rather than having the 10 to
1 lending ratio to capital deposit, what Wall Street did is it had a
ratio of 1 to 100. It took $1 and it turned it into $100--10 times more
than ever had been done in history--terribly imprudent, terribly
irresponsible, terribly high risk--and they leveraged the whole
Republic.
Mortgage firms will tell you that often the value of your mortgage,
the underlying value of your home, was really too small for their
tastes. If your house was only worth $50,000 or $100,000, or even
$250,000 for them that is small potatoes. And what they wanted to do
was figure out a system where they could take lots of mortgage loans.
And what they did was they took them from all around the country,
hundreds and hundreds and hundreds of loans, and then they figured out
what they will do is they will take this mortgage loan, all these
mortgage loans, and what they did was they sold them together.
So what they did was they created these instruments where they
literally put these loans together and then they sent them up the line
of command, and what Wall Street did, they said, Well, let's see. What
is that worth? Let's take the risk out of this.
So what they did was they took all these loans and they cut them up
into pieces. What they did was they broke the mortgage up into little
pieces and then they took all of those pieces and they packaged them--
they mixed them all up and they packaged them into a security. Can you
find your loan?
All of a sudden, your loan lost its individual character. It's sort
of like the walnut shell game. Where is your mortgage in here?
Wall Street cannot unwind the securities that it has now even sold
into the international market. That's why what's happening is so hard
to unwind. They bundled some really bad loans where they had poor
underwriting and poor appraisal practices with very good loans. But
when they cut them all up, who knows where your loan really is, and the
prudent oversight at the local level, since your local bank no longer
really had that loan and you started sending your mortgage check to
places far away from home, most of which ended up on Wall Street or in
one of these money center banks. Well, you get the picture.
Just to make it more interesting, what AIG did was took all those
cut-up securities and they sold insurance that they called credit-
default swaps on those mortgage-backed securities, and they had to pay
out on that insurance that was sold as our housing market started to
deteriorate and mortgages began to fail. But, you know what? They did
it through an office in London. This just gets more interesting--where
the meltdown of AIG actually began.
You see, the insurance market is regulated, but what they did with
it, with credit-default swaps, that isn't regulated. Nobody was really
in charge of that. So they hid a lot of this. They hid a lot of what
was going on and they created almost like a Ponzi scheme. And I have
been saying to homeowners across the country, If you get a foreclosure
notice, don't leave your property. Get a lawyer. Because until you
actually get your own note back, until they piece it back together and
you get your original loan, how do you know that you have signed a
legal note?
What if you have a widow's loan and they cheated you? What if you had
a predatory loan? Make sure you can get your entire note back, and you
need legal representation through your Fair Housing offices in order to
do that.
The castle that Wall Street built--and which it is defending now at
all costs because it has made an enormous amount of money. Some people
have made an enormous amount of money. Some of those houses that
securitized these loans, half of their profit went to the executives in
those companies.
What they have done has been at great price to our Republic. The
situation we face can right itself if the new President and if the
leaders of this Congress listen to those Americans who have actually
resolved serious banking crises before.
To date, those voices have not been allowed to rise because, in my
opinion, Wall Street has too much power and they can block, just like
in football, there's somebody that is the quarterback. They can carry
that ball right down the field. But not without the blockers being
there. What is happening is some of these important voices are being
blocked by those who have enormous power.
Members of Congress must also remember that we represent our
constituents and our communities. Their votes got us here and their
votes can return us or not return us. Congress needs to get in and get
dirty in solving this problem, just like our predecessors did, and find
the truth, whatever it takes.
We saw this begin last week at Representative Kanjorski's hearing.
Congress needs to do what is right and not
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what is easy. Congress doesn't need to be cowardly. Our Nation and our
citizens expect no less than what Daniel Webster's quote says right up
on that wall, and that is ``to do something in our time and generation
worthy to be remembered.''
It is far overdue for real banking reform in this country and the
return of financial power back to the American people.
Mr. Speaker, I yield back my remaining time.
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