[Congressional Record Volume 155, Number 186 (Friday, December 11, 2009)]
[Extensions of Remarks]
[Page E2979]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2009

                                 ______
                                 

                               speech of

                        HON. DENNIS J. KUCINICH

                                of ohio

                    in the house of representatives

                      Wednesday, December 9, 2009

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 4173) to 
     provide for financial regulatory reform, to protect consumers 
     and investors, to enhance Federal understanding of insurance 
     issues, to regulate the over-the-counter derivatives markets, 
     and for other purposes:

  Mr. KUCINICH. Madam Chair, I rise today in opposition to H.R. 4173. 
Although I am supportive of the Consumer Financial Protection Agency as 
well as other provisions in the bill, ultimately I do not think H.R. 
4173 adequately addresses the causes of the financial crisis, and I do 
not believe the reforms are sufficient to prevent another financial 
crisis from occurring.
  In testimony before the Committee on Financial Services earlier in 
the year, Dr. Robert Johnson of the Roosevelt Institute stressed that 
reform of the derivatives markets is absolutely central to fixing the 
financial system. In fact, he went so far as to say that without strong 
and comprehensive derivatives reform, any effort to address the problem 
of systemic risk would be rendered impotent.
  H.R. 4173 makes some progress toward regulating derivatives by 
establishing regulations for clearing and regulating over-the-counter 
derivatives; however the bill--especially in light of the House's 
adoption of the Murphy amendment--contains a number of loopholes that 
sophisticated financial industry insiders will exploit with ease. For 
example, the Murphy amendment's expansion of the exemption of 
derivatives users, jeopardizes the integrity of the whole reform. As 
Dr. Johnson said in his testimony, the challenge is to ``[preserve] as 
much scope for deriving value from derivative instruments for end users 
without making the definition of end user so broad that it allows large 
scale financial institutions to effectively continue their unregulated 
OTC practices and at the same time assures that end users do not 
themselves, through loopholes, contribute to a weakening of the 
integrity of the financial system.'' H.R. 4173 does not accomplish 
this.
  Credit rating agencies were also at the heart of the financial 
crisis. It was their bogus ratings on opaque securitizations and other 
financial products that fueled the asset bubble, and it was the 
fundamental conflict of interest in their ``issuer pays'' business 
model that strengthened their position in the industry.
  Unfortunately H.R. 4173, rather than address the fundamental conflict 
of interest in the ``issuer pays'' model, instead sidesteps the issue 
and gives the Securities and Exchange Commission more authority to 
mitigate conflicts of interest. The years leading up to the financial 
crisis, however, taught us some very important lessons regarding the 
enforcement authority of the SEC: when officials at the Agency operate 
with a philosophical disagreement with its mission, it does not matter 
what tools they have; they simply will not use them. In the interest of 
long-term, systemic reform, H.R. 4173 should have directly addressed 
this problem.
  As everyone knows, another major cause of the crisis was gargantuan, 
systemically-interrelated institutions headed by shortsighted 
executives that scarcely had a notion of their complexity. H.R. 4173 
attempts to address ``too big to fail'' by creating a resolution 
authority for unwinding and dissolving large institutions that have 
failed. Simply put, too big to fail is too big to exist. Real financial 
reform would include prohibiting financial institutions from 
metastasizing to the point where they threaten the whole system. Real 
reform would also include limits on interconnectedness and risk. In the 
words of Nobel laureate Joseph Stiglitz, ``Such an approach won't 
prevent another crisis, but it would make one less likely--and less 
costly if it did occur.''
  Yet another cause of the financial crisis was the contagion that 
spread from the $8 trillion housing bubble that burst. The housing 
bubble was fueled by predatory and subprime mortgages that were 
securitized on a massive scale. The manager's amendment included 
language from H.R. 1728, the Mortgage Reform and Anti-Predatory Lending 
Act, and I applaud Chairman Frank for acknowledging the importance of 
including this legislation. The manager's amendment also included $1 
billion for the Neighborhood Stabilization Program to help communities 
address the problem of abandoned and foreclosed properties. My Domestic 
Policy Subcommittee did important work on how to target this federal 
assistance most effectively, I was glad to see its inclusion, and I 
supported the manager's amendment.
  Curiously absent from H.R. 4173, however, is real reform of the 
process of securitization or any acknowledgement whatsoever that the 
federal government, through interventions at the Federal Reserve and 
the Treasury, is the securitization market right now. H.R. 4173 would 
only require that securitizers retain 5 percent of their assets, called 
``skin in the game.'' However, regulators would have the power to raise 
that amount, but only to 10 percent, and could also eliminate it 
altogether. This would hardly act as a deterrent to what has become an 
abused practice. Securitization, done wisely and thoughtfully, is vital 
to our economy; however by failing to address this issue H.R. 4173 
simply allows the abuse of securitization to continue.
  There is no reform of the government-sponsored enterprises (GSEs) 
that subjugated the ``public good'' aspect of their missions to the 
demands of their investors for higher profits.
  Finally, H.R. 4173 does not fix the problem caused by the conflict of 
interest in the Federal Reserve's dual mandate. I applaud the efforts 
of my colleagues Ron Paul and Alan Grayson to include in the bill the 
authority of the Government Accountability Office to conduct audits of 
the Federal Reserve, but the financial crisis--and the government's 
extraordinary response--taught us monetary policy and regulatory policy 
must be exclusive. Relying on one entity to conduct both activities so 
vital to a healthy financial system will inevitably give rise to 
conflicts of interest. This bill, however, further conflates these 
policies at the Fed by giving the Fed more regulatory authority.
  H.R. 4173 cannot be the end of this process, but I fear passage of 
this bill will preclude further consideration of financial reform. If 
Congress rests on the laurels of H.R. 4173, we will be back here sooner 
rather than later to debate the same issues all over again. I look 
forward to continuing efforts to enact real, comprehensive reform of 
the financial services industry.

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