[Congressional Record Volume 156, Number 58 (Thursday, April 22, 2010)]
[Senate]
[Pages S2574-S2580]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      FINANCIAL REGULATORY REFORM

  Mr. SESSIONS. Madam President, we are talking about financial reform. 
There is a lot of attention and a lot of the Members of the Senate are 
trying to keep up with it and trying to make sure we create a reform 
package that effectively deals with corporations that have so 
mismanaged their business that they need to be dissolved or broken up 
or liquidated, as is normally the case when a company in America cannot 
pay its bills.
  This happens every day for smaller companies. It becomes a bit more 
complicated, sometimes a great deal more complicated, when the 
corporations get bigger and bigger and bigger. The way our corporations 
are normally dissolved, if they are financially insolvent and cannot 
operate, has always been bankruptcy court.
  There are bankruptcy judges all over America. It is a Federal court 
system. Bankruptcy is referred to in the U.S. Constitution. It has 
worked very well. I guess what I am concerned about is, some of the 
provisions that are in the proposed legislation that is floating about 
would alter that traditional idea in ways that may be unwise.
  Senator Leahy, the chairman of the Judiciary Committee, I am the 
ranking Republican on that committee, and I have talked about this a 
little bit. It is getting to a point where we need to figure out what 
is happening here. The matter is highlighted by a letter from the 
Judicial Conference of the United States--Mr. James Duff, the Presiding 
Secretary, of the Judicial Conference of the United States. Chairman 
Leahy asked them their opinions on some of the proposals for 
dissolution of companies, the orderly liquidation of companies.
  The Judicial Conference responded in a letter that was received by 
Senator Leahy, and I do believe it raises important questions. I truly 
do. I am a person who spent a lot of time practicing law, both as U.S. 
attorney and in private practice in Federal court, and have some 
appreciation for how bankruptcy courts operate. I would say, we ought 
to pay attention to what the Judicial Conference says to us. It is a 
kind of correspondence they take seriously. They do not lightly send 
off letters to the Senate. This was in response to a question. So this 
is what Mr. Duff replies on behalf of the Judicial Conference, in reply 
to Senator Leahy:

       As you noted, Title II would create an ``Orderly 
     Liquidation Authority Panel'' within the Bankruptcy Court for 
     the District of Delaware for the limited purpose of ruling on 
     petitions from the Secretary of the Treasury for 
     authorization to appoint the Federal Deposit Insurance 
     Corporation (FDIC) as the receiver for a failed financial 
     firm.

  Then it goes on to say:

       This is a substantial change to the bankruptcy law because 
     it would create a new structure within the bankruptcy courts 
     and remove a class of cases from the jurisdiction of the 
     Bankruptcy Code. The legislation, by assigning to the FDIC 
     the responsibility for resolving the affairs of an insolvent 
     firm, appears to provide a substitute for a bankruptcy 
     proceeding.

  You see, when people loan money to a corporation, people buy stock in 
a

[[Page S2575]]

corporation, they buy bonds of a corporation or otherwise loan them 
money, they have an expectation that if that company fails to prosper 
and pay what they owe, that company at least will be hauled into 
bankruptcy court and they will have an opportunity to present their 
claims and to receive whatever fair proportion of the money that is 
still left in the company as their payment.
  It may be 10 cents on a dollar, it may be 90 cents on a dollar or 
whatever you get. They understand that bankruptcy judges have the 
authority to try to allow the company to continue to operate, to stay 
or stop people from filing lawsuits against the company and collecting 
debts, to allow the company a while to see if they cannot pay off more 
debtors by continuing to operate than shutting them down.
  But if they see the company is so badly in financial crisis that it 
is going to collapse anyway, they come in and shut it down before they 
can rip off more people. So that is what bankruptcy courts do every 
day. So this letter indicates that by assigning the FDIC responsibility 
for resolving these affairs, it provides a substitute for bankruptcy, 
which is denying the lawful expectations of people who loan money to or 
bought stock in these corporations.
  They go on to say:

       We note, however, that the legislation will result in the 
     transition of at least some bankruptcy cases to FDIC 
     receivership in situations where a firm is already in 
     bankruptcy, either voluntarily or involuntarily.

  In other words, it appears that legislation would allow a case to be 
taken out of bankruptcy that was already in the bankruptcy court.
  It goes on to say:

       The legislation does not envision objection, participation, 
     or input from the bankruptcy creditors (whose rights will be 
     affected) in the course of appointing the FDIC as receiver. 
     Indeed, the legislation deals in a sealed manner; [secret 
     manner, apparently] only the Secretary and the affected 
     financial firm would be noticed and given the opportunity of 
     a hearing.

  That will have major impacts on a stockholder or bondholder or a 
creditor of a corporation. The FDIC is going to meet with this big 
company, this big bank, and work out a deal and not even tell the 
people who loaned the corporation money in good faith and have certain 
legal rights, at least they always had previously. These rights, 
somehow, will be extinguished or cut off.
  It goes on to say:

       The financial position of affected creditors may have been 
     changed within the context of the firm's bankruptcy case in 
     such a way that the creditors' rights might have changed 
     dramatically. Any resulting due process challenges would 
     impose significant burdens on the courts to resolve novel 
     issues for which the bill provides no guidance.

  They go on to say:

       In addition, we note that petitions under this title 
     involving financial firms would be filed in a single judicial 
     district. The Judicial Conference favors distribution of 
     cases to ensure that court facilities are readily accessible 
     to litigants and other participants in the judicial process.

  Under the current proposal all of these cases are going to be tried 
in Delaware. I do not know if we have enough judges in Delaware.
  They go on to say this:

       With respect to the limited review [that means appellate] 
     to be conducted by the panel created in section 202, [of the 
     proposed legislation] we note that the authority may exceed 
     what is constitutionally permitted to a non-Article III 
     entity.

  What does that mean? That means some of these powers are judicial 
powers given only to Federal district courts presided over by 
senatorially confirmed, presidentially-appointed, lifetime Federal 
judges. We can't just give them off to somebody else to decide. It is 
just not constitutional. We don't have the powers in the Congress, or 
the President doesn't have the powers to take over judicial roles.
  They continue:

       A previous statute was held unconstitutional because it 
     conferred on the bankruptcy courts the authority to decide 
     matters reserved for Article III courts.

  It goes on to talk about that.
  Let me tell my colleagues what CEOs don't like. Do we want to be 
tough on CEOs? I will give some suggestions.
  If they can't run their companies and they can't pay their 
bondholders, can't pay their debtors, their stock has become worthless. 
People invested in their companies believing they were legitimate, 
believing the representations of their financial condition, and it 
turned out to be false. They do not want to be in a court where they 
raise their hands and have to give testimony under oath. They don't 
want to be in that position.
  The way the law has been thought of and is worked out to handle these 
cases is to have a Federal bankruptcy judge preside over this process. 
There are bankruptcy rules about what the judge can and cannot do. Each 
entity that has an interest in the matter can have lawyers. The 
stockholders can have lawyers. The bondholders can have lawyers. The 
creditors can have lawyers. The workers can have lawyers. The employees 
can have lawyers. The guys have to come in under oath. They have to 
bring their financial statements. If they lie, they go to jail for 
perjury. This is a powerful thing. A lot of these big wheels don't want 
to subject themselves to it. I would say, if we want to be tough on 
these companies, don't create some FDIC buddy group that has been 
supervising them and sees their role as trying to work with them. Have 
a real judge.
  We can create a system where we select experienced judges, create 
some special procedures for larger bankruptcy cases. We should consider 
that.
  My one comment before I wrap up is, we should listen to the Judicial 
Conference and recognize there is a danger to the rule of law to 
legitimate expectations of creditors and stockholders by this new 
change, this unexpected change in the law. We should allow classical 
procedures to work. If we need to improve them and make some special 
provisions for dissolution of corporations to help bankruptcy judges do 
the job better, I would certainly favor that. That would allow us to 
function in a lawful way, a principled way, and not allow people to 
meet in private and secret, as we have seen happened recently, and 
dissolve their cases in a matter that is not open and free to the 
entire public, as would happen in bankruptcy court.
  I ask unanimous consent to have printed in the Record the letter from 
the Judicial Conference.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                               Judicial Conference


                                         of the United States,

                                   Washington, DC, April 12, 2010.
     Hon. Patrick J. Leahy,
     Chairman, Committee on the Judiciary, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: I am writing in response to your letter 
     of March 25, 2010, seeking the views of the Judiciary with 
     regard to provisions relating to bankruptcy that are 
     contained in the financial regulation bill recently approved 
     by the Senate Committee on Banking, Housing, and Urban 
     Affairs. We appreciate your soliciting the views of the 
     courts on this matter. You identified several of the issues 
     that are of concern to the courts, and I will address each of 
     those.
       As you noted, Title II would create an ``Orderly 
     Liquidation Authority Panel'' within the Bankruptcy Court for 
     the District of Delaware for the limited purpose of ruling on 
     petitions from the Secretary of the Treasury for 
     authorization to appoint the Federal Deposit Insurance 
     Corporation (FDIC) as the receiver for a failing financial 
     firm. This is a substantial change to bankruptcy law because 
     it would create a new structure within the bankruptcy courts 
     and remove a class of cases from the jurisdiction of the 
     Bankruptcy Code. The legislation, by assigning to the FDIC 
     the responsibility for resolving the affairs of an insolvent 
     firm, appears to provide a substitute for a bankruptcy 
     proceeding. The Judicial Conference has not adopted a 
     position with regard to the removal from bankruptcy court 
     jurisdiction of the class of financial firms identified in 
     this legislation.
       We note, however, that the legislation will result in the 
     transition of at least some bankruptcy cases to FDIC 
     receivership in situations where a firm is already in 
     bankruptcy, either voluntarily or involuntarily. Section 
     203(c)(4)(A) provides that a pending bankruptcy case would be 
     evidence of a firm's financial status for purposes of 
     triggering the Treasury Secretary's authority to seek to 
     appoint the FDIC as receiver. The bill does not specify how 
     the transition from a bankruptcy proceeding to an 
     administrative proceeding would be effected. Further, the 
     bill does not specify the effect of the transfer on prior 
     rulings of the court. For example, would any stays or other 
     rulings continue in effect or be dissolved upon the transfer 
     to the FDIC? This could be especially problematic if 
     creditors have changed position based upon rulings in 
     the course of the bankruptcy proceeding. The legislation 
     does not envision objection, participation, or input from 
     the bankruptcy creditors (whose rights will be affected) 
     in the course of appointing the FDIC as receiver. Indeed, 
     the legislation proposes to deal with this petition in a 
     sealed manner; only the Secretary

[[Page S2576]]

     and the affected financial firm would be noticed and given 
     the opportunity of a hearing. The financial position of 
     affected creditors may have been changed within the 
     context of the firm's bankruptcy case in such a way that 
     the creditors' rights might have changed dramatically. Any 
     resulting due process challenges would impose a 
     significant burden on the courts to resolve novel issues, 
     for which the bill provides no guidance.
       In addition, we note that petitions under this title 
     involving financial firms would be filed in a single judicial 
     district. The Judicial Conference favors distribution of 
     cases to ensure that court facilities are reasonably 
     accessible to litigants and other participants in the 
     judicial process. Although we are aware that a large number 
     of companies are incorporated in Delaware, it is not clear 
     that Delaware would necessarily be a convenient location for 
     many of the affected companies, nor indeed the proper venue 
     for that petition, absent changes to title 28, United States 
     Code.
       We also note that the legislation requires the designation 
     of more bankruptcy judges for the panel than are permanently 
     authorized for Delaware under existing law. The District of 
     Delaware is authorized one permanent bankruptcy judge and 
     five temporary judgeships. If Congress were to choose not to 
     extend these judgeships or convert them to permanent status, 
     it would be impossible to implement section 202's requirement 
     to appoint three judges to the Orderly Liquidation Authority 
     Panel from the District of Delaware.
       With respect to the limited review to be conducted by the 
     panel created in section 202, we note that the authority may 
     exceed what is constitutionally permitted to a non-Article 
     III entity. A previous statute was held unconstitutional 
     because it conferred on the bankruptcy courts the authority 
     to decide matters that are reserved for Article III courts. 
     Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 
     U.S. 50 (1982). The review of the Secretary's decision in 
     this instance appears to resemble more closely appeals of 
     agency decisions under the Administrative Procedure Act than 
     a bankruptcy petition and, therefore, appears more 
     appropriate for an Article III court. Moreover, the 
     affirmation of the Secretary's petition to designate the 
     Federal Deposit Insurance Corporation as a receiver 
     effectively removes a case from the application of bankruptcy 
     law. Accordingly, it seems anomalous to subject this petition 
     to review by a bankruptcy court.
       Your letter particularly questioned whether the time limit 
     of 24 hours for a decision by the panel would be sufficient 
     or realistic. The Judicial Conference has consistently 
     opposed the imposition of time limits for judicial decisions 
     beyond those already set forth in the Speedy Trial Act or 
     section 1657 of title 28. We appreciate that a matter 
     affecting the operation of the national economy warrants a 
     prompt resolution. We note that the courts, recognizing this 
     concern, have already demonstrated an ability to move swiftly 
     in resolving bankruptcy petitions involving large 
     corporations with broad impact on the national economy. In 
     each of these instances, the initial determinations were 
     made by a single judge. The resulting appeals in some 
     cases were also adjudicated on an expedited basis without 
     a statutory requirement to do so.
       Requiring a panel of three judges to assemble, conduct a 
     hearing, and craft a written opinion within 24 hours presents 
     practical difficulties that may be insurmountable. Although 
     Sec. 202(b)(1)(A)(iii) could be read to limit the court's 
     review to the question of whether the covered financial 
     company is in default or danger of default, the Secretary is 
     required to submit to the panel ``all relevant findings and 
     the recommendation made pursuant to section 203(a),'' which 
     specifies consideration of multiple factors (repeated in 
     subsection (b) of that section as the basis for the 
     Secretary's petition). Even with the full cooperation of the 
     financial firm affected by the proceeding, which is not a 
     predicate for the consideration of a petition, it would 
     appear difficult to hear and consider the evidence and 
     prepare a well-reasoned opinion addressing each reason 
     supporting the decision of the panel within 24 hours. Even 
     assuming that factors other than the solvency of the firm 
     would be excluded from this special panel's review, it may 
     well be that the subject financial firm or one of its 
     creditors would seek judicial review of one of the prior 
     administrative evaluations of the statutory factors, either 
     in the course of the hearing conducted by the Orderly 
     Liquidation Authority Panel or in another court. Such 
     challenges would also make it difficult to meet the proposed 
     timeline. It is possible that the facts of a particular case 
     may be so clear that a decision could be rendered within 24 
     hours, but the statutory requirement of such speed seems 
     inconsistent with the thoughtful deliberation that would be 
     appropriate for a decision of such great significance.
       Although it is to be hoped that only a small number of 
     large financial firms would ever become subject to this 
     legislation, each of the petitions would involve large 
     volumes of evidence regarding complex financial arrangements. 
     Thus, the legislation could result in a large proportion of 
     the judicial resources of a single bankruptcy court being 
     devoted exclusively to review of the Secretary's petitions. 
     Further, the bill provides that the Secretary may re-file a 
     petition to correct deficiencies in response to an initial 
     decision, thus extending the time in which the court's 
     resources would be diverted from other judicial business. The 
     District of Delaware is one of the busiest bankruptcy courts 
     in the nation; to draw the court's limited judicial resources 
     away from the fair and timely adjudication of those 
     bankruptcy cases to process petitions under this bill would 
     be inequitable and unjust to the debtors and creditors in 
     those pending cases. If, as seems possible given recent 
     economic developments, the failure of one firm weakens other 
     firms in the financial services sector, the demand could 
     exceed the court's resources. This consideration alone 
     counsels against the assignment of all such cases to a single 
     court.
       Finally, we note that both the Administrative Office of the 
     United States Courts (AO) and the Government Accountability 
     Office (GAO) are directed to conduct studies which will 
     evaluate: (i) the effectiveness of Chapter 7 or Chapter 11 of 
     the Bankruptcy Code in facilitating the orderly liquidation 
     or reorganization of financial companies; (ii) ways to 
     maximize the efficiency and effectiveness of the Panel; and 
     (iii) ways to make the orderly liquidation process under the 
     Bankruptcy Code for financial companies more effective.
       With respect to those firms that are to be treated under 
     Chapters 7 and 11 of the Bankruptcy Code, the vagueness of, 
     and/or lack of criteria for determining ``effectiveness'' 
     will hamper the ability of the AO and GAO to produce 
     meaningful reports. Some would regard rapid payment of even 
     small portions of claims as an effective resolution, while 
     others would prefer a delayed payment of a greater share of a 
     claim. There would also be significant disagreements between 
     creditors holding different types of secured or unsecured 
     claims as to the most effective resolution of an insolvent 
     firm. Some would argue that effectiveness should be measured 
     by the impact of the resolution on the larger economy, 
     regardless of the impact on the creditors of the particular 
     firm. Without clearer guidance for the studies, both agencies 
     will be required repeatedly to expend resources on the 
     development of reports that may not provide the information 
     Congress is seeking.
       Thank you for seeking the views of the Judiciary regarding 
     this legislation and for your consideration of them. If we 
     may be of assistance to you in this or any other matter, 
     please do not hesitate to contact our Office of Legislative 
     Affairs at (202) 502-1700.
           Sincerely,
                                                    James C. Duff,
                                                        Secretary.

  Mr. SESSIONS. I yield the floor.
  The PRESIDING OFFICER. The Senator from Washington.
  Mrs. MURRAY. As we prepare to consider legislation that includes some 
of the strongest reforms of Wall Street ever, it is important that we 
not lose sight of exactly what is on the line for the American people; 
that we will not allow complicated financial products and terminology 
to distract from the fact that this is a debate about fairness, about 
family finances, and protecting against another economic collapse; that 
we remember for Wall Street lobbyists, this may be complex, but for the 
American people it is pretty simple. For them this is a debate about 
whether they can walk into a bank and sign up for a mortgage or apply 
for a credit card or start a retirement plan.
  Are the rules on their side when they do that, or are they with the 
big banks on Wall Street? For far too long, the financial rules of the 
road have favored big banks and credit card companies and Wall Street. 
For far too long they have abused those rules. Whether it was gambling 
with the money in our pension funds or making bets they could not cover 
or peddling mortgages to people they knew could never pay, Wall Street 
made expensive choices that came at the expense of working families. 
Wall Street used its ``anything goes'' rules to create a situation 
where everybody else paid, and Wall Street created a system that put 
their own short-term profits before the long-term interests of this 
country.
  The simple truth is, it is time to end this system that puts Wall 
Street before Main Street. It is time to put families back in control 
of their own finances. It is time to focus on making sure the rules 
protect those sitting around the dinner table, not those sitting around 
the board room table. To do that, we have to pass strong Wall Street 
reform that cannot be ignored. Those reforms, I believe, have to 
include three core principles: a strong, independent consumer 
protection agency; an end to taxpayer bailouts; and tools to ensure 
that Americans have the financial know-how that empowers them to make 
smart choices about their own finances and helps them avoid making the 
same poor decisions that helped create this crisis.
  First and foremost, Wall Street needs a watchdog. Right now what we 
have is a patchwork of Federal agencies, none of which are tasked with 
focusing solely on consumer protection. What we

[[Page S2577]]

have is confusion and duplication and an abdication of responsibility. 
What we have, quite simply, is not working. What we need is a single, 
strong, independent agency, a cop on the beat whose sole function is to 
protect consumers, a cop on the street who will expose big bank ripoffs 
and end unfair fees and curb out-of-control credit card and mortgage 
rates. We need a cop on the street that ensures when one makes 
important financial decisions, the terms are clear. The risks are laid 
out on the table, and the banks and other financial companies offering 
them are being upfront. What we need is one agency with one mission 
looking out for one group of people, and that is American families.
  Secondly, Wall Street reform must spell an end to the taxpayer-
financed bailout. There is nothing that makes me or my constituents in 
Washington State angrier than the fact that Wall Street ran up this 
huge bill, and we had to pick up the tab. Wall Street reform has to end 
that once and for all. It has to be a death sentence for banks that 
engage in reckless practices, and it must make them pay for their 
funeral arrangements, if they do.
  Third, reform has to address the fact that Wall Street is not alone 
in deserving blame for this crisis. Therefore, it must not be the only 
target of reform. We cannot ignore the fact that millions of Americans 
walked into sometimes predatory home loan agencies all across the 
country, unprepared to make big, important financial decisions. We have 
to acknowledge that too many Americans put too little thought into 
signing on the dotted line. Those bad decisions had a huge impact. That 
is why I have been working so hard to pass a bill I introduced called 
the Financial and Economic Literacy Improvement Act.
  That legislation would change the way we approach educating Americans 
about managing their own finances and making good decisions about 
housing and employment and retirement. We add a fourth R to the basics 
of reading and writing and arithmetic. That is resource management. It 
gives Americans, young and old, the basic financial skills to heed 
warnings in the fine print they are signing and avoid mounting debt. I 
believe if we are going to avoid many of the mistakes that led to this 
crisis, we need a similar component in the bill we work on next week.
  We all know the old adage that sunlight is the best disinfectant. 
With all of the reforms I have been talking about today, we have the 
potential to bring a whole lot of sunlight to Wall Street. But as we 
have seen in the lead up to this crisis and with Wall Street's response 
now to our reform effort so far, they don't like to do their work in 
the sunlight. They like to do it in back rooms. I have heard they have 
had some company recently in those back rooms. I have heard that over 
the last several days, some of our colleagues on the other side have 
been huddling with Wall Street lobbyists to figure out how they can 
kill this bill that is coming to us. They want to figure out how they 
can preserve the status quo and what they have today. They want to talk 
their way out of change. They have been calling out to special 
interests in Washington and bankers back on Wall Street and big money 
donors. In fact, just about everyone has been invited to those meetings 
except, of course, the American people. That is because the vast 
majority of Americans, including the hard-working families in my State 
who were hurt by this crisis through no fault of their own, want to see 
the strong Wall Street reforms I have talked about today passed. They 
want to hold Wall Street accountable for years of irresponsibility and 
taxpayer-funded bailouts. And more than anything, they want to make 
sure we never go through this again.
  There is still a widely held view on Wall Street--and with too many 
still in DC--that the voices of the people can somehow be drowned out 
with big money and even bigger fabrications. Wall Street still thinks 
they can get away with highway robbery because, for all too long, they 
have. They think they can get away with telling the American people 
that more regulation is bad, when the absence of regulation is largely 
what got us into this mess.
  They think people will be satisfied with watered-down rules that Wall 
Street can then simply step aside or go around or ignore. They think 
they can pull a fast one on Main Street. They are flatout wrong. I know 
that because I grew up literally on Main Street in Bothell, WA, working 
for my dad's 5-and-10-cent store with my six brothers and sisters.
  I know they are wrong because Main Street is where I got my values, 
values such as the product of your work is what you can actually show 
in the till at the end of the day; that if that money was short, you 
dealt with the consequences. If it was more than you expected, you knew 
that more difficult days could lie ahead; values like a good 
transaction was one that was good for your business and for your 
customer; that personal responsibility meant owning up to your mistakes 
and making them right; that one business relied on all the others on 
the same street; and, importantly, that our customers were not prey and 
businesses were not predators, and an honest business was a successful 
one.
  Those are the values I learned on Main Street growing up. Believe me, 
those same values are still strong for our country today. They exist in 
small towns such as the one in which I grew up and in big cities in 
every one of our States.
  Next week, when we bring a strong Wall Street reform bill to the 
floor, everyone in the Senate is going to hear from people who still 
hold values like that very dear. I am sure they will tell us in no 
uncertain terms: It is time to end Wall Street's excesses. It is time 
to bring some sanity back into the system, to protect our consumers, to 
end bailouts and back-room deals, to restore personal responsibility 
and bring back accountability.
  I am hopeful we will all listen because there certainly is a lot on 
the line for the American people. They deserve all of our support.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Burris). The Senator from North Dakota is 
recognized.
  Mr. DORGAN. Mr. President, I ask unanimous consent to speak in 
morning business for 20 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DORGAN. Mr. President, my colleague from the State of Washington 
just talked about Wall Street reform. It is such an important subject. 
It is the case that all of us who have lived through these last several 
years will understand when the history books record these years that we 
have lived and existed and struggled through a period that is the 
deepest recession since the Great Depression.
  Mr. President, 15 million to 17 million people wake in the morning, 
now as I speak, jobless, get dressed, and go out to look for a job. 
Most do not find it. It has been a tough time. Yet those who read the 
newspaper and understand the difficulty of those who are losing homes, 
losing jobs, losing hope, also read the business pages and see that one 
of the heads of the largest investment banks last year was paid $25 
million in salary. One of the folks who was one of the largest income 
earners in this country earned $3 billion running a hedge fund. That is 
$3 billion, by the way. That is almost $10 million a day.
  So they see record profits from the biggest financial interests in 
this country--many of whom pursued policies that steered us right into 
the ditch. They wonder what is the deal here. The people at the top, 
the ones who caused most of the problem--the ones many of which would 
have gone broke had the Federal Government not come in with some 
funding to try to provide some stability--they are now at record 
profits, paying record bonuses. The folks at the bottom are out 
struggling to find a job because they have been laid off.
  So it always comes back to something I have described often and it 
seems to never change and it is even more aggressive now. Bob Wills and 
His Texas Playboys, in the 1930s, had a verse in one of their songs: 
``The little bee sucks the blossom, but the big bee gets the honey.'' 
The little guy picks the cotton, but the big guy gets the money.
  So it is and so has it always been but even more aggressive now. The 
same newspaper talks about the trouble given the workers of this 
country and the families of this country by the big financial 
institutions having steered this country into the deepest recession 
since the Great Depression; even as in

[[Page S2578]]

the same newspaper they read about the largess, the record profits and 
record bonuses.
  So the question is, What do we do about that? We are going to bring a 
financial reform bill, a Wall Street reform bill, to the floor of the 
Senate. I wish to talk a bit about that and say we need to review, just 
for a moment, the unbelievable cesspool of greed that existed--not 
everywhere but in some places--and at levels that steered this country 
into very dangerous territory.
  Yes, new things, new instruments we had never heard of before: credit 
default swaps, naked credit default swaps. Some might say: What is a 
credit default swap? And, for God's sake, what is a naked credit 
default swap? How do you get a credit default swap naked? Well, let me 
take you not just to default swaps, let me take you back about a year 
and a half ago to a time when the futures market in oil was like a 
Roman candle and went up to $147 a barrel--$147 for a barrel of oil in 
day trading--just like a Roman candle and then went back down.
  That market was broken. A bunch of speculators--they did not want to 
buy any oil. They have never hauled around a can or a case or a barrel 
of oil. They just wanted to speculate on the futures market. So they 
broke that market, ran it way up. Well, that is one symptom of 
financial systems that are broken and do not work.
  Credit default swaps. We have been hearing recently about the SEC 
decision to file a criminal complaint against a large investment bank, 
Goldman Sachs. What we have discovered with the interworkings of this 
scheme that was created is, I think, based on my knowledge of it, that 
the development of--excuse me, it was a civil case by the SEC, not a 
criminal case, and that is an important distinction, but, nonetheless, 
it is a civil complaint against Goldman Sachs. My understanding is, 
there was created some billions of dollars of naked credit default 
swaps that had no insurable interest in anything of value. These were 
people who were betting on what might happen to the price of bonds.
  Bonds selected by a person whom I have spoken about on the floor of 
the Senate previously over the last couple years, a man named John 
Paulson, who, in 2007, was the highest income earner on Wall Street--he 
earned $3.6 billion. That is $300 million a month or $10 million a day. 
How would you like to come home and your spouse says: How are you 
doing? How are we doing? And he says: Well, we are doing pretty good, 
$10 million every day.
  So my understanding of the SEC complaint is they set up a system 
where Mr. Paulson could short what I believe were naked credit default 
swaps and others took the long position and you had rating agencies 
rating these things apparently with high ratings, until they discovered 
what they truly were and then the ratings collapsed. Mr. Paulson made a 
bunch of money and everybody else got duped out of their money.
  Well, that is a short description and probably not even a very good 
description, but it is close enough to understand what has been going 
on in this country: betting--not investing--betting on credit default 
swaps, naked swaps that have no insurable interest in anything, no 
value on either side. You just put together a contract and say: I am 
going to bet you this issue happens, this stock goes up, this bond goes 
down. Let's have a wager. Well, you do not have to own anything. Let's 
just have a bet.
  That is not an investment; that is a flatout wager. We have places 
where you should do that. If you want to do that, you can go to Las 
Vegas, and they say what goes on there stays there. Who knows. You can 
go to Atlantic City. We have places where you can do that. But those 
places are not places where you do activities that are equivalent to 
what we now see having been done in the middle of some of the 
investment banks and financial institutions in this country.
  I have spoken many times on the floor about this, and I am going to 
repeat some things I have said just because, as I talk about what needs 
to be done in a couple cases on this reform bill, we need to understand 
what happened and how unbelievably ignorant it was.
  The subprime loan scandal--everybody was involved in that. When I say 
``everybody,'' I am talking about all the biggest financial 
institutions because they were securitizing mortgages and selling them 
upstream to hedge funds, investment banks, and you name it--all making 
huge bonus profits, all kinds of fees, and starting with the broker who 
could place big mortgages for people who could not afford it; and right 
on up the line, they were all making big money.
  So here is an advertisement we all listened to in the last decade 
during this unbelievable carnival of greed. This was the biggest 
mortgage company in our country, the biggest mortgage bank in America--
now bankrupt, of course, now gone--although the head of this company 
left with a couple hundred million dollars, I am told. So he got out 
pretty well-heeled, now under investigation. But here was their ad on 
television and radio.
  It says: Do you have less than perfect credit? Do you have late 
mortgage payments? Have you been denied by other lenders? Call us. We 
want to lend you money. Unbelievable. The biggest mortgage bank in the 
country says: Are you a bad credit risk? Hey, call us. We have money 
for you.
  Zoom Credit, another mortgage company. Here is their advertisement: 
Credit approval is just seconds away. Get on the fast track. With the 
speed of light, Zoom Credit will preapprove you for a car loan, a home 
loan, a credit card. Even if your credit is in the tank, Zoom Credit is 
like money in the bank. Zoom Credit specializes in credit repair and 
debt consolidation too. Bankruptcy, slow credit, no credit--who cares? 
Come to us. We want to give you a loan.
  Ignorant? Sounds like it to me. Greedy? It appears to me it is.
  Millennia Mortgage: 12 months with no mortgage payment. That is 
right. We will give you the money to make your first 12 payments if you 
call in the next 7 days. We pay it for you. Our loan program may reduce 
your current monthly payment by 50 percent, allow you no payments for 
the first 12 months. Let us give you a loan. You do not have to make 
any payments for a year.
  Sound strange? It does to me. How about the mortgages that say: Do 
you know what, you don't want to pay any principle? No problem. You 
don't want to pay any interest? No problem. You pay nothing--no 
interest, no principle. And, by the way, if you don't want us to check 
on your income--that is called a no-documentation loan--we will give 
you a no-doc loan with no interest payments and no principle payments. 
We will put it all on the back side. Do you know what you should do? Go 
ahead and do that because you can flip that house. If you can't make 
the payments a couple years later, when we are going to reset your 
interest rate at 12 percent--or whatever ridiculous amount they were 
going to do--you can sell that house and make the money because the 
price of that house is always going to go up.

  So it went all across this country, right at the bottom, with teaser 
rates. The result was, a whole lot of folks were talked into mortgages 
they could not afford. The loan folks, the brokers, who were putting 
out these mortgages, were making a lot of money. They were securitizing 
them, selling them up. There were fees being paid to everyone, and 
everybody was making a lot of money--very fat and happy.
  By the way, it has not changed. If you go to the Internet, you can 
find on the Internet, today, EasyLoanForYou: Get the loan you seek. 
Fast. Hassle-free. Our lenders will preapprove your loan regardless of 
your credit score or history.
  Go to the Internet. See if it has stopped.
  Here is an Internet solicitation: Bad Credit Personal Loans. How 
about that? Is that unbelievable? I wonder what college they teach this 
in. You start a company called Bad Credit Personal Loans. It says: 
Previous bankruptcy? No credit? Previous bad credit? Recent job loss? 
Recent divorce? Need a larger loan amount? Well, click here now. For 
gosh sake, take advantage of what we are offering. If you are a bad 
person, we want to give you money.
  Speedy Bad Credit Loans--same thing. Bad credit? No problem. No 
credit? No problem. Bankruptcy? No problem. Come to us.
  Well, is it a surprise that a lot of greedy people and a lot of the 
biggest

[[Page S2579]]

institutions in this country whose names you recognize instantly loaded 
up on this nonsense? They loaded up--loaded to the gills. Why? Because 
they were all making massive amounts of money by buying and selling and 
trading these securities. Yes, not just the securities, not just 
securitization of loans but credit default swaps and CDOs and you name 
it. It was a carnival and a field day.
  So that has all happened in the last 10 years--and even much worse. 
But let me end it there to say, we are now talking about: What do we do 
about all this? This kind of behavior steered the country right into 
the ditch. We lost $15 trillion when the economy hit rock bottom. 
Something like $12 trillion has been lent, spent or pledged by the 
Federal Government to prop up private companies--many of them that were 
doing exactly as I have just described. This has been a very difficult 
time. So the question now is, What do we do about this? Do we just 
decide, do you know what, it is OK? We are not going to do anything 
about this?
  I just mentioned naked credit default swaps. I do not know the number 
in this country, but in England they estimate, of their credit default 
swaps, 80 percent of them are so-called naked; that is, they have no 
insurable interest on any side of the transaction. It is simply making 
a wager. When you have banks that make wagers just as if they are using 
a roulette wheel or a blackjack table or a craps table, they just as 
well ought to put that in the lobby, except my feeling is, it is 
fundamentally antithetical to everything we know about sound, 
thoughtful finance in this country to have allowed this to have 
happened--we did allow it--and now to continue to allow it to happen.
  So I wish to take you back 11 years to the floor of the Senate 
because I have been through this before in something called financial 
modernization. It was 11 years ago now, actually: financial 
modernization. This is not the first time we have had substantial 
legislation on the floor of the Senate to address the issue of finances 
and the financial system. We had something called financial 
modernization on the floor of the Senate, and it was the piece of 
legislation--big piece of legislation--that pooled everything together. 
It said you can create one, big, huge holding company and bring 
everything in together--the investment banks, the commercial banks, 
FDIC-insured banks, the securities trading--bring them all together as 
one, big, happy family, one big pyramid. It will be just fine because 
it will make us more competitive with the European financial 
institutions, and it is going to be great. I said I think that is nuts. 
What are we doing?

  I have some quotes from 1999 of things I said on the floor of this 
Senate. On November 4, 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.

  I said:

       We will, in 10 years time, look back and say: We should not 
     have done that--repeal Glass-Steagall--because we forgot the 
     lessons of the past.

  I said during debate in 1999:

       This bill will in my judgment raise the likelihood of 
     future massive taxpayer bailouts. It will fuel the 
     consolidation and mergers in the banking and financial 
     services industry at the expense of customers, farm 
     businesses, and others.

  I said:

       We have another doctrine at the Federal Reserve Board. It 
     is called too big to fail. Remember that term, too big to 
     fail. They cannot be allowed to fail because the consequence 
     on the economy is catastrophic and therefore these banks are 
     too big to fail. That is no-fault capitalism; too big to 
     fail. Does anybody care about that? Does the Fed, the Federal 
     Reserve Board? Apparently not.

  That is what I said 11 years ago on the floor of the Senate.
  I said:

       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. Do not do it through 
     the deposits that are guaranteed by the American people with 
     deposit insurance.

  I said during that debate:

       I will bet one day somebody is going to look back and they 
     are going to say: How on Earth could we have thought it made 
     sense to allow the banking industry to concentrate, through 
     merger and acquisition, to become bigger and bigger and 
     bigger; far more firms in the category of too big to fail? 
     How did we think that was going to help our country?

  Those are quotes I made 11 years ago on the floor of this Senate. I 
didn't know then that within a decade, within 10 years, we would see 
huge taxpayer bailouts, but I thought this was fundamentally unsound 
public policy. I was one of only eight Senators to vote no. The whole 
town stampeded. In fact, as the Presiding Officer knows, this Financial 
Modernization Act was Gramm-Leach-Bliley, three Republicans, but this 
was firmly embraced by the Clinton administration and by the then-
Secretary of the Treasury and others. It was bipartisan: We have to do 
this, have to compete with the rest of the world, and it was, Katey, 
bar the door. We are going to allow these big companies to get bigger, 
and it is going to be just great for the country.
  It wasn't so great for the country. What I wish to show is what 
happened as a result of that piece of legislation. This graph shows 
from 1999 forward the growth of total assets in the largest financial 
institutions. Look at this graph: Bigger and bigger. Not just a bit 
bigger; way, way, way up, the growth in assets of those six largest 
financial institutions.
  This chart shows the four banks, total deposits in trillions of 
dollars, and we see what has happened there: liabilities in the six 
largest institutions, deposits in the four largest banking 
institutions.
  This chart shows the aggregate assets of the top six commercial and 
investment banks and what has happened in 10 years.
  It doesn't take a genius and it doesn't take somebody with higher 
mathematics or having taken an advanced course in statistics to 
understand what this picture shows. We have seen a dramatic amount of 
concentration--some of it, by the way, aided and abetted by the Federal 
Government because as we ran into this problem, this very deep 
recession--the deepest since the Great Depression--our government 
arranged the marriages of some of the biggest companies, and so the big 
became much bigger.
  I have said all of that simply to say: That is where we have been, 
and now the question is, Where are we going? What kind of legislation 
are we going to take up on the floor of the Senate? Already there has 
been a big dust-up. The minority leader came to the floor of the Senate 
and said what was done in the Banking Committee will be a big bailout 
of the banks. Of course, that isn't the case at all. This is a fact-
free zone with respect at least to some debates. I don't think there is 
anybody in this Chamber who believes we don't have a responsibility now 
to address these issues, and address them in the right way.
  Let me be quick to say a couple of things. No. 1, there are some 
awfully good financial institutions in this country run by some good 
people who have done a good job, and we need them. You can't have 
production without the ability to finance production. We need 
commercial banks. We need all of the other financial industries and 
institutions, but we need to make sure the excesses and the greed and 
the unbelievable things that were done by some in the last decade 
cannot be repeated, cannot happen again.
  The piece of legislation that is going to come to the floor of the 
Senate from the Senate Banking Committee is a good piece of 
legislation. I commend Senator Dodd. I think he has done an excellent 
job. By the way, those who have said in the Senate that somehow this is 
just partisan, they didn't reach out to others; that is not the case, 
and everybody knows it.
  Chris Dodd reached out to Republicans week after week and month after 
month to try to get some cooperation. Finally, they just walked away 
and they said: We are all going to vote no, no matter what. So it is 
not the case that this was designed to be some sort of partisan bill. I 
still hope there will be Republicans and Democrats who together 
understand what needs to be done to fix the problems that exist in our 
financial services industry.
  In addition to Senator Dodd bringing a bill from the Banking 
Committee, let me say Senator Blanche Lincoln, under her leadership in 
the Agriculture Committee, has brought a piece of legislation to the 
Senate floor on derivatives that I think is a good piece of legislation 
that needs to be a part of the banking reform bill.

[[Page S2580]]

  What I wish to talk about ever so briefly is two other things. There 
are a number of people who have bills that I am going to be supportive 
of that I think have great merit that are necessary. I think they are 
necessary to fix the real problems that exist. The issue of repairing 
what was done to Glass-Steagall, Senator Cantwell, Senator McCain have 
a bill on that. There are others who have a bill on proprietary 
trading, and there are others as well. But I wish to talk about two 
things very briefly.
  No. 1, I am preparing an amendment that deals with what are called 
naked credit default swaps. I don't think that is investing. That is 
simply betting. If there is no insurable interest on either side of 
credit default swaps, that is not investing. I think there ought to be 
a requirement that there be an insurable interest on at least one side 
in order for it to be a legitimate function because it seems to me if 
we don't ban naked credit default swaps, we will have missed the 
opportunity to do something that is necessary to fix part of what 
happened in the last decade, No. 1.
  No. 2 is the issue of too big to fail. It has not been described, it 
seems to me, by either the Banking Committee or by amendments that have 
been suggested--it has not been described that we should take seriously 
too big to fail by deciding if you are too big to fail, you are too 
big. This country has, on occasion--when we have a systemic risk that 
is unacceptable, when we have a moral imperative to do something about 
something such as this, this country has decided we will break Standard 
Oil into 23 parts; we will break up AT&T--and, by the way, the 23 parts 
turned out to be much more valuable in their sum than the value of the 
whole.
  But having said all that, I believe there needs to be an amendment--
and I am preparing an amendment--that deals with the issue of too big 
to fail. Very simply it says if the Financial Stability Oversight 
Council develops an approach that says, all right, this is an 
institution that is just too big to fail and the moral hazard for our 
country and the systemic risk for our country is too great and 
therefore we judge it too big to fail, I believe what ought to happen 
over a period of time--perhaps 5 years--is a symptomatic divestiture 
sufficient so that the institution remains an institution that is not 
then too big to fail. I believe that ought to be something that we 
consider as we develop our approach to these financial reform measures.

  I don't think big is always bad, and I don't think small is always 
beautiful. I want us to be big enough to compete. I want us to have the 
resources to be able to make big investments in big projects. I 
understand all of that, and I can point to some terrific financial 
companies in this country run by first-rate executives.
  So understand what I am talking about are the abuses and the 
unbelievable cesspool of greed we have seen in a decade from some 
institutions that were big enough and strong enough to run this country 
into very serious trouble. That is why I think we have a responsibility 
at this point to address all of those issues that are in front of us as 
we deal with banking reform.
  I know this is going to be a long and a difficult task, but one of my 
hopes would be that Republicans and Democrats can all agree on one 
thing: What we have experienced in the last decade cannot be allowed to 
continue. It cannot be allowed to continue. No one, I believe, would 
want our financial institutions to continue to bet rather than invest, 
to continue to invest in naked credit default swaps where there is no 
insurable interest. Nobody, I would hope, would believe that represents 
the kind of productive financing that we need to produce in this 
country again. I want the financing to be available from good, strong 
financial institutions to good, strong companies that need to expand to 
produce American goods that say ``Made in America'' again.
  That is what I want for our country. That kind of economic health can 
only come if you have a strong system of financial institutions that 
are engaged in the things that originally made this a great country, 
not trading naked credit default swaps but making good investments in 
the productive sector of this country.
  I believe we can do that again, and I believe we will. I don't 
approach this banking reform debate with trepidation. I think 
ultimately cooler heads will prevail and all of us will understand the 
need, and when we meet that need, this country will be much better off.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Pennsylvania.

                          ____________________