[Congressional Record Volume 156, Number 12 (Thursday, January 28, 2010)]
[Senate]
[Pages S319-S322]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BERNANKE NOMINATION
Ms. CANTWELL. Madam President, I rise to speak on the vote we had
earlier on the nomination of Ben Bernanke to be the Federal Reserve
Chairman. While I did not support Mr. Bernanke's reconfirmation to that
post, I would like to take the time now to talk about that vote and my
concerns and the challenges I think our country faces moving forward.
When I look at this issue, I know that not one administration or not
one Fed Chairman got us into the mess we are in. In fact, it is not
even to be blamed on one party. What this is about is how we move
forward with complete transparency and the proper regulation to give
certainty and predictability to our financial markets. I will do my
best to represent my constituents with the proper level of oversight on
these issues, but I heard loudly and clearly from my constituents in
December that they are, as small business owners, at the end of their
rope without access to capital and that community banks are not
lending. So that is where I am spending my time and focus now, in
urging both the Fed and Treasury to act, without passing legislation
but act now to get recovery programs specifically working for community
banks that need access to capital and for those small businesses that
are the engine of economic growth for our economy.
While I know many of my colleagues think programs that came out of
the TARP funding, such as the original TALF Program or even the
Treasury Secretary's announced program in December, are things that
have been in the works, I can tell my colleagues that my constituents
started this debate in earnest with credit default swaps and the
concern about large banks but are having a hard time, as I am,
understanding the logic and the strategy that one day closes one of the
largest banks in America and one of the largest banks in our State,
Washington Mutual, wiping out 30,000 creditors and basically putting in
jeopardy the retirement of many employees, and then 4 days later we
pass a TARP bill. I believe the government picking winners and losers
at that point in time was the wrong approach, and I advocated for an
equity program.
But today my constituents want to know why it is that it was easy to
figure out how, with loans and assets and the credit activity of the
Fed, over $1 trillion could be pumped into AIG at 100 cents on the
dollar and yet small business owners in the State of Washington--and my
guess is around the country--basically had capital cut from right under
them.
When I think about what happened, it breaks my heart. To think about
a company such as Vancouver's Columbia Gem, where the Bank of Clark
County was shut down and assets moved over to another bank across the
river, Umpqua Bank, that received TARP funds. But where was the help
for the small businesses that had performing lines of credit at that
bank? What happened to them? I will tell you what happened to them.
Even though they had performing lines of credit, their funds were cut
out right from under them. In fact, it forced the owner
[[Page S320]]
of that company to try to fund the operation of that business out of
his own pocket.
Another business in that area, Beaches Restaurant, immediately their
line of credit was frozen after the takeover.
Vancouver Iron and Steel was current on all its loans and even eked
out a small profit in 2008 and never missed a bank payment. But
Vancouver Iron immediately lost its $1.5 million line of credit after
the FDIC took over.
How is it we can act immediately to save the AIGs but we can't act
immediately to save companies such as Vancouver Iron and Steel? I
guarantee Vancouver Iron and Steel was not cooking up dark market
derivatives, creating credit default swaps that destabilized our
economy. Nor is Vancouver Iron and Steel continuing to operate
derivatives in dark markets. No, they have nothing to do with that.
They are manufacturing product for America and abroad and producing
jobs. The fact that we continue to make it hard for them to get access
to capital is one of the reasons why I voted against Mr. Bernanke. The
Fed Chairman has to realize the urgency with which the big banks have
been bailed out and saved. That urgency has to be applied to Main
Street. I know they are trying. I applaud the President for last night
saying he is going to put forth $30 billion to help with access to
capital for community banks. I urge him to do that within the
administration.
While I am sure my colleagues could give input, to basically spend
another 2 or 3 months waiting for small businesses to get access
through community banks, more and more business bankruptcies will
happen. While that is a program to get right, it is very clear to
Americans that when we want to act with urgency, this government can
act and the Fed can act and the Treasury can act to solve these
problems.
I urge the Fed now and the Treasury to give consideration to making
this their No. 1 priority, to get capital to these community banks as
urgently as possible through an equity program that gives them the
infusion it will take to get capital back to Main Street.
There are other reasons why I did not support Mr. Bernanke. As I
said, this is not one Fed Chairman's problem or one administration's
problem. This has been caused by policies over the last several
decades, prior to the repeal of Glass-Steagall, in which we continued
to say deregulation of these markets was unimportant. The policies at
the Commodity Futures Trading Commission and other policies that
allowed for this kind of dark market activity of derivatives to grow
into an international $56 trillion industry are the policies that have
brought us to this point. We now have to have the urgency and the
leadership of everyone involved to think creatively about the urgency
of getting capital to community banks and small businesses and the
reforms that must be put in place now, not to check a box, not to say
we did reform, not to say we are responding to something that has
happened recently but to move our economy forward with the transparency
and proper regulation that will provide for international stability.
When I see from some of the well-known economists and investors
across the globe that another bubble is forming, that this problem we
think somehow we have corrected by passing TARP and doing other things
is going to be alleviated, these individuals are signalling that
another bubble in the exact same situation could happen again, I want
to see the Fed and Treasury advocate on the Hill the policies that will
give us complete transparency and regulation to assure Americans and
those participating in financial markets around the world that they
will function with certainty and predictability, that they are not
going to be inflated with something that has no real value behind it
such as the credit default schemes or, should I say, naked credit
default schemes that we are trying to outlaw on the Senate floor.
I know what has happened with the regulatory reform legislation so
far that has come through Congress. There have been many attempts to
water it down. I am not blind to what I think the challenges will be to
pass this legislation when it comes to the Senate. That is why I want
to see a Fed Chairman and a Treasury Secretary who are leading the
charge for the principles of regulatory reform that will correct these
problems with the markets, not to be for a few policies that might
sound good, such as: Let's reduce systemic risk--I am for reducing
systemic risk--or not to say: We want a consumer group. I am for a
consumer group. But the heart of this issue is whether we are going to
properly regulate derivatives, whether we are going to pass a law that
says: Manipulative devices or contrivances of these markets are a
Federal crime. Not only will you pay a penalty, you will go to jail.
I get that many in the markets believe there is no way we can
possibly control all the new tools and all the new financial terms
people can come up with to deviate from the standards that are set. But
I know this: Setting a statute in place and going back to Glass-
Steagall can separate the risk to the taxpayer of having their money
and their capital used to continue to prop up dark market activities. I
certainly believe we have to have derivatives regulation. But the
tactic of now saying we can have that by definition, by saying no
proprietary trading on these companies, I guarantee you we will be
debating the meaning of the words ``proprietary trading.'' The
consequence will be there will be lots of money flowing into dark
markets.
I believe in the financial wherewithal to raise capital in America.
It is one of the greatest things about our country. It is one of the
greatest things that makes us competitive, the fact that we can create
capital in such an inspiring way and that we can have, in an
information age, the kind of public financing of ideas and creativity
that continues to have us lead the way. But I ask my colleagues to look
at how many IPOs have been created lately. I ask them to look at how
much money has gone into the small businesses and community banks
loaning to small business juxtaposed to the amount of money that has
gone into derivatives. The truth is, you make more money on
derivatives. So why would you put your money into investing in IPOs?
Why would you put your money into the small businesses?
What is happening is more and more concentration into the large banks
that then thwart the opportunities for small community banks to truly
be competitive with them. Then what happens? Less and less capital,
less and less opportunities for small business or, as I saw recently,
even the fact that some of the small business newspapers in this
country haven't been able to get access to capital. They are going to
end up in the hands of bankers. I don't know if those are big banks or
small banks, but I know this: Small businesses deserve to have a choice
of lenders, a diversity of market-size banks, and a Fed chairman who
will pay attention to that issue. We live in a unique time, created by
at least two decades of deregulation of markets that are now going to
create another bubble.
My vote against the Fed Chairman has to do not with the past but with
the future, the future prevention of another bubble, of more
bankruptcies of small businesses, of getting our regulatory policies
and our transparency of markets in place so the United States can get
back to both the innovation and job creation but financial markets that
the United States leads in around the world, that we are not 10 years
from now seeing the kind of dark market activity around the globe that
has transpired here. Instead, the United States, as the President says,
learns from a teachable moment and leads the rest of the world on the
types of markets and transparency we expect.
I hope the Fed Chairman will embrace this task of a more robust
leadership on the policies and regulation that need to be put into
place to prevent another bubble and to helping immediately small
businesses. I don't want to leave the American people with the thought
that somehow Wall Street is more important than Main Street. That is
not what sent me to Washington, and it is not what sent my colleagues.
I hope we will work in earnest, as Republicans and Democrats, to urge
the administration and the Fed to immediately adopt and implement a
program to give community banks and small businesses access to capital.
One of the people I met with is a small businessman whom I used to
see
[[Page S321]]
while eating in his restaurant many times, particularly working late at
night, when I worked for a software company. When I was home in
December, I found that after 55 years he was going out of business.
After 55 years in his family, they were going out of business. The
downturn definitely took its toll. He wasn't getting access to capital.
He held on for an entire year, not laying off one employee, keeping
everybody he could instead of cutting them. The end result, after that
year, without any more resources, without any more access to capital,
he had to close that business. Not only that, because he mortgaged his
house, he was probably going to lose his house. He put his restaurant
up for auction. He told me, if he was lucky, he would probably get
$10,000 for it. Fifty-five years in business, weathering several
downturns, not laying off any employees, he wanted to know where his
lifeline was during this crisis.
I am going to devote my time and energy, along with working with the
President on his commitment, to making sure this program for community
banks and small businesses gets implemented as soon as possible.
I yield the floor.
The PRESIDING OFFICER. The Senator from North Dakota.
Mr. DORGAN. Madam President, let me thank my colleague from the State
of Washington. She has been tireless in trying to address these issues,
both in legislation and on the floor of the Senate during debate, and
it is so important.
I, too, voted against Mr. Bernanke's nomination today, and I wish to
explain why. It is certainly not that I believe Mr. Bernanke is a bad
guy. He is not. He is a well-respected economist. But I wish to talk a
little about the issues that persuade me we need a change--a change in
culture, a change in personnel--in some respects.
If ever there now is a bright line in America between those who are
too big to fail and those who are too small to matter;--that is, the
too big to fail are the biggest financial institutions in the country
that have been making a lot of money, paying large bonuses, and living
high off the hog. The too small to matter are the folks on Main Street
who sink everything their family has into a business trying to run a
grocery store, maybe a drugstore, a gas station, a barbershop, a
restaurant, and then they discover they cannot make a go of it because
things turn against them, and they are told: Do you know what. That was
your risk. If you can't make a go of it, that is your problem. What you
do is you lock the door, somebody sells the inventory, and you are out
of business.
By contrast, the biggest financial institutions that were engaged in
wholesale gambling--everything but the Keno tables and the craps tables
and the blackjack tables in their lobby, everything but that; it was
the same thing--and ran their company and their country into the
ground, they were told: Well, do you know what. You are so big, we
can't possibly let you fail, so we are going to give you a bailout. So
that is the too big to fail versus the too small to matter. Is it any
wonder people are furious in this country about that kind of
assessment, that kind of value system?
Well, Mr. Bernanke is a nice guy. So is my Uncle Harold, by the way.
Mr. Bernanke is an economist. My Uncle Harold is not. Mr. Bernanke has
now been the Chair of the Fed for a while. Before that, he was part of
the economics team in the previous administration that turned, by the
way, a big budget surplus in the year 2000--the first budget surplus
for the Federal Government in a long, long time. The new administration
came in and turned that into the biggest deficits in history up until
now. So I am not impressed with the whole scheme of a fiscal policy
that turns the country from big budget surpluses to big budget
deficits.
But with respect to the Federal Reserve Board itself, the Federal
Reserve Board has had responsibilities. Those responsibilities, first
by Alan Greenspan at the Fed--and by the way, while Alan Greenspan was
at the Fed, Mr. Bernanke was at the Fed as well during part of that
time, and now it has been Mr. Bernanke's tenure at the Fed--the
responsibilities are to supervise the banks, to deal with predatory
lending, to address some of the scandalous behavior of some of the
brokers in the subprime market. Yet they did nothing. All of this went
on under their noses. The question for me in dealing with Mr. Bernanke
and others is, How many times do we have to learn the same lesson?
I have been here at a time when the savings and loans collapsed in
this country. The S&L collapse--it was not surprising why they
collapsed because we had a bunch of folks who used the savings and loan
like a big piggy bank. They were parking junk bonds at the savings and
loans organizations. The savings and loans were actually gathering
deposits from around the country, and they were like Roman candles,
just taking a small, little, sleepy savings and loan and turning it
into a big institution with lots of deposits overnight. Then guys like
Mr. Milken were parking junk bonds in the S&Ls, insured by the Federal
Government; that is, the American taxpayers, and things collapsed, and
it cost hundreds and hundreds of billions of dollars.
The most perverse result was the American taxpayer got stuck with
junk bonds in the Taj Mahal Casino in Atlantic City. Think of that. How
did that happen? Well, Donald Trump builds a casino, and whoever it is
decides to take the junk bonds from the casino and park them in a
savings and loan. The savings and loan is guaranteed by the American
taxpayer. The savings and loan goes bankrupt. So the junk bonds in the
savings and loan are now at the Resolution Trust Corporation, and the
American people end up with junk bonds in a casino. Isn't that
unbelievable? Do we have to learn that lesson again? Well, we did then.
We learned it a second time after the S&L collapse. We learned it
with the Enron Corporation, which in part was a criminal enterprise.
They were manipulating wholesale electric markets on the west coast--
schemes such as Get Shorty, Fat Boy, just to name a couple--and then
having people, in addition to these schemes, shut off and turn on
powerplants in order to manipulate supply so they could fleece
taxpayers and fleece ratepayers on the west coast out of billions of
dollars. It was one of the greatest robberies in the history of our
country. I led the hearings. I chaired the hearings over in the
Commerce Committee. Ken Lay came and raised his hand. We swore him in.
He took the fifth amendment. He is now dead. But he was on his way to
prison. Mr. Jeff Skilling from Enron Corporation came and just talked
and talked and talked. It turns out none of it was accurate. He is now
in prison.
So we had to learn a second time about the fleecing of America--the
big S&L scandal that cost the American taxpayers an unbelievable amount
of money; then the Enron scandal--a corporation that does not now exist
that became, in part, as I said, a criminal enterprise; and now this
financial house of cards that collapsed on this country. It is not
surprising why it collapsed. What happened was we had some of the
biggest financial entrepreneurs in this country--some of the biggest
operators, I should call them, not entrepreneurs--some of the biggest
financial operators in this country who were engaged in full-scale
gambling with their company money, the biggest financial companies in
this country.
My colleague talked about credit default swaps and CDOs and so on. We
had synthetic derivatives. Do you know what synthetic derivatives are?
At least a derivative is something you can reasonably explain because
it has some value. It is connected to some value on each side of the
trade. Synthetic derivatives are simply an artificial device that
allows you to place a wager on whether something will happen, unrelated
to value on either side of the trade. It is as if to say: Take the
biggest investment banks in America and put a craps table in their
lobbies and let them gamble from 8 a.m. until 5 p.m. and let the
American taxpayer pay their losses. That is exactly what has happened.
Now, what is happening today? Well, this is Bloomberg News:
Wall Street is marketing derivatives last seen before
credit markets froze in 2007. . . .
Actually, I have it on a bigger chart here.
Wall Street is [now back] marketing derivatives last seen
before credit markets froze in 2007, as the record bond rally
prompts investors to take more risks to boost returns.
Bank of America Corp. and Morgan Stanley are encouraging
clients to buy swaps
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that pay higher yields for speculating on the extent of
losses in corporate defaults.
And again:
Banks Reviving Synthetic Bets as [Paul] Volcker Blasts
Default Swaps.
Bloomberg. So here we are. The financial system collapsed, steered
this economy right into a ditch. Millions and millions of Americans
lost their jobs, lost their homes, lost hope, and are still struggling.
The biggest interests got bailed out and made whole and now are making
record profits again and are prepared to pay $140 billion, I am told,
in bonuses. And now we see they are back to trading synthetic
derivatives--the very same firms.
How often do we have to learn this lesson--once, twice, three times,
or ten times--before the Congress will decide: No more of it.
My point is, just like with kids, you say: Do you know what. You
better hope your kids are running around in a good crowd. That is the
success, isn't it, having them run around in a good crowd as opposed to
a bad crowd? As I take a look at all these nominations and
appointments, the question for me is, What kind of crowd do they run
around in? And do you know what. There is a kind of insular crowd that
all comes from the same locations, and they all believe the same thing,
and the fact is none of them have the stomach or the interest or the
courage to decide to shut down what is essentially gambling on Wall
Street and firms that are too big to fail, which means it is no-fault
capitalism and the American people will pay the consequences. None of
them have the courage to do that. In fact, they have now been given a
year to organize to try to stop anything that is done here in the U.S.
Congress.
I will say once again, it was 10 years ago when I stood on the floor
of the U.S. Senate and was one of eight Senators to vote against the
piece of legislation that created these big holding companies--the
Financial Services Modernization Act, it was called--to repeal the
protections that were put in place after the Great Depression.
I said, 10 years ago, I think that is going to set this country up
for massive taxpayer bailouts. No, I do not have a crystal ball, and I
do not necessarily prognosticate very well. But I knew that if we
allowed those who wanted to do one-stop financial shopping--putting
together securities with banking, investment banking with FDIC-insured
banking--we were headed directly toward a cliff. And 10 years later, it
is the biggest financial scandal in the history of this country, and
this economy barely survived it. The American people lost $15 trillion
in value as a result of this economic collapse--$15 trillion.
So who is accountable? Well, there have never been the kinds of
hearings I think there should have been developing a master narrative
of what happened and who was responsible and who was accountable and
where the buck ought to stop. But we know some of it. We know who had
some responsibility: the Federal Reserve Board.
Mr. Greenspan has since come to Congress and apologized because he
said he was mistaken. He thought self-regulation would be just fine.
Well, that is not why we have regulators. We have regulators because we
know self-regulation does not work. The free market system is
wonderful, but you need effective regulators who take a look at what is
going on and call the fouls and blow the whistle when they see the
fouls.
We went through a period where it was, ``Katy, bar the door,'' do
anything you like, and that is what happened. The big banks took
leverage from 10 times capital to 30 times capital. They began selling
derivatives and credit default swaps and, pretty soon, synthetic
derivatives, which were just instruments of gaming, and nobody seemed
to care.
At the same time, in another area of financial enterprise, we began
to see the development of this new, aggressive orgy in mortgage scams
to say to people: If you can't afford to buy a home, we have a mortgage
for you. If you have bad credit, we have a mortgage for you. If you
have been bankrupt--slow pay, no pay--come to us; we will help you buy
a home. By the way, everybody was getting big fees. They wrapped it
into a security, sold the security from the mortgage bank to a hedge
fund, to an investment bank, and everybody knew better. Pretty soon,
the whole thing collapsed, and the American people were told: Now you
pay the cost. You pay the cost to clean up this mess.
Well, at every step along the way, the Federal Reserve Board had a
responsibility. Bad behavior by brokers, bad behavior by mortgage
banks--they had a responsibility to oversee those things. And today we
read that synthetic derivatives are now being pushed by Bank of America
and Morgan Stanley. So what is the Federal Reserve Board doing about
that? What about that buildup of additional bubbles of risk? Does
anybody care? Is there anybody who is going to do anything about that?
Mr. Bernanke is a good guy, but the fact is, he is part of the crowd
that I think helped cause these problems. I think--and I have said
candidly--during the darkest period, where there was the question of
whether this economy would completely collapse, Mr. Bernanke made some
fine decisions. I do not think he is a bad person at all. But I do not
think he--by the way, this would apply to some others in areas of
responsibility--I do not think he comes from the culture to say that
this whole set of activities has to change and change now and change
aggressively.
Let me complete my thought by simply saying that I understand how
important banking is. I understand how important investment banking is.
I understand the financing system of our country is important and needs
to be strong. I am not suggesting that somehow you can finance all the
things we want to do in our country out of somebody's garage. That is
not my point. My point is, however, there is the right way and the
wrong way to construct a system of financing.
We have, over 200 years, seen this back-and-forth between those who
produce and those who finance production. Sometimes one has the edge in
terms of strength and power, and sometimes the other does. In the last
20 or 30 years, in my judgment, those who finance production have
really been pulling the strings in this country as opposed to those who
produce. That is why we have fewer good jobs in this country, and it is
why we see more and more of the profits and more and more of the gross
incomes that swell the paychecks of a lot of people at the top coming
from investment banking and some of the biggest financial firms in the
country. I do not think that is healthy for the country, as a matter of
fact.
So I voted against Mr. Bernanke. I voted for cloture because I am not
somebody who wanted to prevent a vote on it. But I did decide long ago
that I was not going to be supportive.
Let me make one final point. That is this: Mr. Bernanke, during the
height of the crisis, opened, for the first time in history, the
Federal Reserve Board to give direct loans to investment banks--
the first time ever they have given direct loans to commercial banks
but never before to investment banks. He opened the window to say we
are going to give direct loans to investment banks. My guess is
trillions of dollars went out in direct loans. In my judgment, the
American people and the Congress have a responsibility to know who got
those loans, how much, and what were the terms. We have written to the
Chairman of the Federal Reserve Board--myself, Senator Grassley, and
eight others--to say: You now have a responsibility to tell us who got
that money and what were the terms. His answer to us was: I have no
intention of telling you.
That is not acceptable to me and should not be acceptable to the
Congress or to the American people, and that is another reason that I
would not advance this nomination.
Madam President, I yield the floor, and I make a point of order that
a quorum is not present.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. CARDIN. Madam President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________