[Congressional Record Volume 156, Number 60 (Tuesday, April 27, 2010)]
[Senate]
[Pages S2675-S2678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      FINANCIAL REGULATORY REFORM

  Ms. STABENOW. Madam President, I rise today to urge my Republican 
colleagues--to urge the Republican leader--to drop their filibuster of 
the Wall Street reform bill.
  I wish I could say this is the first time we have seen efforts to 
block moving forward to even debate a critical issue before the Senate, 
but, as the Presiding Officer knows, the party of no has now 171 
different times either filibustered or threatened to filibuster 
critical legislation that is important for moving America forward. 
Historic--171 times; never heard of before.
  With all due respect, the idea that the bill has to be perfect before 
we begin to debate it makes absolutely no sense. There have been 
numerous times, because of the importance of a piece of legislation, 
that I have supported and everyone on this floor has supported moving 
forward to proceed to a bill knowing it would need to have changes 
before we would support the final outcome of the bill. We do that all 
the time.
  Personally, there are changes I want to see and will work hard for in 
the legislation that is before us. There are

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provisions, there are amendments I will support in order to make sure 
this does not have unintended consequences. I would guess the majority 
of us are in that situation. But to simply say: No, we will not proceed 
to the bill--and just to make that clear for everyone, this is not a 
vote on final passage; this is a vote on whether to proceed to the 
bill--says to the American people that changing the unregulated, 
unaccountable practices on Wall Street is not worth even bringing up, 
to get to the floor to debate. That is what this says. That is what is 
so shocking to me.
  I have to say, on behalf of the people of Michigan, who have been hit 
so hard by the gambling and unregulated processes, I am extremely 
concerned that we are seeing another filibuster. We will have an 
opportunity to change that today, tomorrow, the next day. I hope 
colleagues will decide that rather than just blocking the ability for 
us to fix this problem, they will join us and that many of us will join 
together in amendments that will make sure this bill is the right kind 
of bill moving forward.
  But we have seen what happened when Wall Street did not have 
accountability and oversight. I can tell you, the people of Michigan 
cannot afford to go through that again. Eight million Americans, many 
of them--too many of them--in my great State of Michigan, have lost 
their jobs, through no fault of their own, because of the secret, 
unregulated deals on Wall Street. We have seen small business owners, 
who had worked so hard to build their part of the American dream for 
their families, forced to close their doors because they did not have 
access to capital. This has to stop. Families around my State have 
watched as money in their pension funds and 401(k)s vanished before 
their eyes because other people were gambling with their money. The 
most heart-wrenching time for us in Michigan was GM and Chrysler being 
forced into bankruptcy because of the economic crisis caused by Wall 
Street's recklessness.
  So I am shocked and deeply concerned that my colleagues on the other 
side of the aisle would choose to filibuster this bill, which puts in 
place commonsense regulations and puts consumers back in control of 
their finances. I am deeply concerned for our community bankers, who 
have also been victims of the crisis, who need help so they can get 
credit flowing again back to our small businesses and our manufacturers 
to create jobs. But mostly I am deeply concerned for the hard-working 
men and women in my State who work hard every day, who play by the 
rules, and who were hurt by the reckless behavior on Wall Street and 
who want to know this will not happen again.
  The bill we have will hold the big banks accountable and put 
consumers back in control. It is time to stop the unregulated gambling 
on Wall Street of other people's money. I strongly urge colleagues to 
stand up to the special interests and the lobbyists, to drop the 
filibuster of this bill, to work with us to make sure it is done right 
but, most of all, to make sure we put in place rules and accountability 
for our families, our small businesses, and our manufacturers so they 
can have the capital they need and the accountability and the trust in 
the system they need to move forward and create jobs and create 
investment in this country.
  Again, 171 times--unprecedented--more than any other time in our 
history we have seen efforts to block and to filibuster. It has to 
stop. Too much is at stake, and certainly the people in my State have 
gone through too much to allow this to continue.
  Madam President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Washington.
  Ms. CANTWELL. Madam President, I appreciate my colleague from 
Michigan being out here, as she has been repeatedly, to talk about how 
our process oftentimes breaks down and what the consequences are 
because there is probably no bigger consequence than what has happened 
to the State of Michigan, and she fights every day to make sure we are 
aware of what will help our economy and help Main Street. So I thank 
her for that. I thank her for being out here to urge us to get off of a 
filibuster and on to important legislation that I think will help our 
country.

  I am here also to talk about something that I wish to make sure, as 
we enter this floor debate, people aren't confused about; that is, that 
we have made choices in the past that have helped accentuate the 
situation we are in, and if we are going to get out of this situation, 
we have to be honest with ourselves that this is a time when we need to 
do our job and make sure we understand the opportunity to make sure 
consumers are protected.
  I wish to start by talking about the Commodities Exchange Act. There 
has been a lot of debate about what various committees have oversight 
and what the important issues are. For me, there is no more important 
issue than making sure the Commodities Futures Trading Commission, 
which has oversight of financial indexes, has the authority to regulate 
what are called derivative markets. The reason I say this is so 
important is because of the fact that we allowed legislation to pass in 
2000--the Commodities Futures Modernization Act--that literally 
deregulated these derivatives. More specifically, it prevented us from 
regulating. We had a Commodities Futures Trading Commission Chair, a 
woman named Brooksley Born, who saw what damage was happening in 1998 
with these derivatives because they were unregulated. She tried to do 
something about it. She tried to do something about it because the 
Commodities Exchange Act provided oversight to deter and prevent price 
manipulation or any other disruptions to the market and to ensure 
financial integrity of all transactions and avoid systemic risk and to 
protect participants from fraudulent or abusive practices.
  That is what their charge was. When she saw in the marketplace that 
there were these products that were being used that basically thwarted 
this act, she proposed regulating derivatives. That is in the 1998 
timeframe. So this problem has been around for a long time.
  As we saw the demise of long-term capital management and incurred a 
financial crisis at that time, she said: Let's make sure we are 
regulating these products. What happened was, she was basically run out 
of town for her views. She was the Chair of the Commission at the time, 
and a bunch of people, basically influenced by Wall Street, came down 
to Washington, DC, and said: That is the wrong idea. We don't need to 
do this. This issue isn't going to be a problem for us. So not only was 
she prohibited as the Chair of the Commodities Futures Trading 
Commission to fulfill this act, to make sure we regulated this market--
not only that--legislation was passed by the Congress prohibiting us 
from regulating these derivatives. Imagine that. You actually had the 
Chair of the Commission doing her job; you actually had her calling out 
a problem in the market, fulfilling her responsibilities of oversight, 
and not only was she told she couldn't regulate those, Congress 
prohibited her from doing that in the Commodities Futures Modernization 
Act.
  How did we get to that situation? I get it because I had to live 
through the Enron crisis in our State and a lot of people cooked up 
off-book accounting and people said: Oh, it is a bunch of 
environmentalists not allowing us to have an energy supply. That is why 
we have an energy crisis--or people said: Oh, we are having an energy 
crisis because we don't have enough refineries. We found out it was 
people manipulating supply and demand with various schemes called Death 
Star and Get Shorty, a variety of things that all came down to this: 
off-book accounting. How could you fool the accountants into believing 
that your scheme was legitimate?
  So it should be no surprise that in 1994, in a little retreat 
effort--some of us go on retreats and talk about our policy issues. 
Here, some of the titans of Wall Street went down to Boca Raton, about 
80 J.P. Morgan bankers, and started to wonder if there was a way to 
create derivatives that could bet on whether bonds or loans would 
default. That is what they did. They were down in Boca Raton saying, 
basically: How can we do off-book accounting to figure out ways in 
which we can bet on these things?
  So that is what happened. That was the start of this. A few years 
later, Brooksley Born, after she saw them,

[[Page S2677]]

called them out on it, said: Let's stop it and basically was prohibited 
from doing it.
  So what happened when we prohibited the derivatives from being 
regulated? Well, one of the CFTC personnel, at that time, basically 
said all the fundamental templates we have learned from the Great 
Depression are needed to have markets function smoothly are gone. These 
are things we had put in place after the last fiscal crisis. We put 
them in place because we knew we had to protect things.
  The other side of the aisle led the charge on that deregulation, led 
the charge on the deregulation of derivatives and said: Let's keep our 
hands off. I would say at least four times we have had votes on various 
derivative measures and the majority of my colleagues on the other side 
of the aisle have said: No, let's don't reregulate them.
  I am all for hearing what they have to say today, but this is an 
important issue. Let me explain why.
  When we look at capital markets, we have to have transparency. If we 
don't have transparency, people don't know what is going on and 
products can be manipulated. So after the 2000 Commodities Futures 
Modernization Act, basically on derivatives we had no transparency, no 
capital requirements, no prohibition on fraud, no prohibition on 
manipulation, no regulation of intermediaries. Why are we surprised we 
ended up in this situation? Because if we basically took what had been 
the fundamentals of the last fiscal crisis and put them in place in a 
law and then basically were warned and we deregulated them, why are we 
surprised we ended up in this situation? Because after deregulation, 
what it meant if you were doing trading, at least on these 
derivatives--on other products you had certainty and you had 
predictability, but on these products--let me be more specific.
  We had what were called dark markets and that meant because you 
couldn't see into these dark markets, you didn't understand what was 
being done. I know our colleague, Senator Levin, is holding a hearing 
today, and he is going to get to the bottom of exactly what was going 
on in those dark markets and who was trying to manipulate them. But the 
fact that they were dark and not traded meant we couldn't see the price 
that somebody was paying and thereby couldn't understand what was going 
on in the market. So we had no transparency. We also had no requirement 
to keep records, no large trader reporting, which would have been 
things that the CFTC would have looked at and said: Oh, I can look at 
that and see whether manipulation is happening. We had no speculation 
limits. Another thing that happens on the stock market or on trades 
that happen now--we hear about it all the time--is that if somebody 
thinks somebody is messing around with the market, we can have limits. 
We can come in and on an exchange--or an agency can come in and say: We 
are going to stop that kind of trading because we have concerns about 
what is going on. We also know there was no capital behind these bets 
as well, which is very alarming to a lot of people. The synthetic CDOs 
were cooked up and had no capital behind them. I know my colleague, 
Senator Dorgan, has been on the floor talking about an amendment he is 
going to be offering on the Senate floor to make sure we close that. 
But what it created was just a high risk for fraud and manipulation and 
excessive speculation. That is what happened.
  So when we deregulated the derivative market, what happened? Well, it 
should be no surprise, again, to find out that when we deregulated it, 
the market exploded. Here is where we were in 1999. There were some 
derivative products, but now look at it. It peaked at $700 trillion. It 
has leveled off now somewhere around $600 trillion. A $600 trillion 
market in derivatives grew because we created a dark market opportunity 
in which most people couldn't--not everybody could understand what was 
going on, and certainly the regulators who used to have a day job of 
overseeing this were prohibited from doing their day job. I should add, 
not only were the regulators prohibited from doing their day job, in 
the Commodities Futures Modernization Act of 2000, we also had a 
provision in there that said States aren't able to use their authority 
to look into these markets and market activities as well. So we did two 
things. We prevented the Federal regulators from doing anything and we 
prevented the State regulators from doing something as well and now we 
have this unbelievable--unbelievable--unbelievable market of activity.

  My colleagues on the other side of the aisle like to talk about 
innovation. Well, I know a little bit about innovation. I worked for a 
company that was a startup company. When I look at that issue, I see we 
have to have financial markets on Wall Street that help those companies 
get financing through their very early stages. That is what is so 
important about our financial markets operating effectively. But one 
can see from this chart--or maybe not. Maybe you can't see from this 
chart because it is so hard to see, but at the very bottom there is a 
little yellow line, and that yellow line represents assets. It 
represents the loans these banks are making, the amount of money that 
is in loans in capital going to businesses that are the true ideas of 
innovation. There is a lot of innovation in derivatives. Now we know 
what it is: dark market derivatives that cooked up things like CDOs and 
synthetic instruments to basically bet against bonds because somebody 
had securitized loans to banks that were risky bank loans anyway and 
then tried to make somebody believe it was a great way to cover them 
financially. So all of it was just a risky game, and that is what we 
are doing. So we are not helping the American economy in investing in 
Detroit or investing in software or investing in other things, not the 
way we used to. We are basically investing--and people are making a ton 
of money--in dark market derivatives. So that is why it is so important 
we fix this in the legislation.
  Just to give an idea of where people are making the money--because I 
know some people like to say: Well, let's get out here and make sure we 
do something for small business. I think it is incredibly important to 
do that, but we are not going to get the big banks to make a bunch of 
loans to small businesses, as that last chart showed us, when they can 
make money in dark market derivatives. This chart shows the increased 
profit they have had since 2008. So we have actually had a decrease in 
lending. We have actually had a decrease in the amount of capital going 
out to the tune of something like $574 billion and an increase in 
trading profits. So we know where the money is going. Wall Street is 
not putting money into Main Street; Wall Street is putting money into 
Wall Street dark markets, and we have to get on this legislation to fix 
that.
  So what would we do in this legislation? Well, if my Agriculture 
Committee colleague's mark is put into this legislation, as I believe 
the leader is going to do, then we have a choice of having an 
unregulated market or, with this legislation, a truly regulated market 
with exchange trading. People say: What does that mean, exchange 
trading? I don't understand. What is that going to solve for us? Well, 
just as I said how dark the market was and no one knew what was going 
on, when we have a product that is traded on an exchange, we actually 
have transparent pricing so people can see what the pricing is, just as 
this situation is being described right now in the Senate Oversight 
Committee hearing about how people didn't know what was going on or who 
was paying what or who was behind what bets. We have to have 
transparent pricing, and we have to have real-time trade monitoring. 
Because someone is monitoring those trades, we know exactly what is 
happening in the market and who is moving what and how they are moving 
it and we have a transparent valuation.
  If my colleagues have time and they read this latest book out by 
Michael Lewis, ``The Big Short,'' he talks about how people didn't know 
exactly what was going on with the valuation of this because it was 
being hidden from them, so they had no way of understanding exactly 
what the value of these products were. That is why this scheme was able 
to be perpetrated on people, because they didn't know what the true 
valuation is. If we have exchange trading, we actually have speculation 
limits and we have public transparency.
  So when we are on the floor debating this--and I hope my colleagues 
on the other side of the aisle will support exchange trading. I heard 
one of our colleagues on the other side of the aisle

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say: Well, I don't think that is the solution. Well, in my book, it is 
absolutely the solution. It is absolutely the solution, just as it is 
for the stock market. Who would buy stock on the stock market if we 
didn't have oversight of the exchange?
  If you didn't have these kinds of things--transparency in pricing, 
real-time trade monitoring, transparent valuation, speculation limits, 
and public transparency--who would buy stocks? Why do you think 
derivatives can operate in the dark? They cannot.
  The other thing we will be talking about on the floor is that 
unregulated trading doesn't have any capital behind the trade. If we 
actually had a clearinghouse--exchange trading and a clearinghouse--
then you would have capital behind these trades, and people would know 
somebody has the ability to deal with this transaction they are betting 
on. These are the things we need to do. These are the things that are 
critical to the type of reform we need to get done.
  I am concerned that we are not going to get to this legislation, that 
the dark market is going to continue to operate that way or that people 
are going to propose loopholes to basically water down this 
legislation. We have had a lot of conversation about loopholes. One of 
them is the end-user loophole. Basically, any kind of loophole in the 
legislation is kind of like water; the money is going to flow where it 
can. If it is a dark market, that is where it will flow.
  We had a hearing of the Commerce Committee in 2008, 6 or 7 months 
before the big bubble burst, and George Soros came to testify. He said 
we are basically inside of a bubble and it is going to cause great 
concern. He knew then, because he knew what kind of activity was going 
on. He talked in his testimony about how important it was that you 
apply regulation and apply it to both the regulated and unregulated 
market. If you don't apply it to the unregulated market, then all the 
money moves over to the unregulated area.
  I appreciated this New York Times editorial that said:

       If [end users] are exempted, potentially trillions of 
     dollars worth of transactions could avoid the exposure--and 
     stability--that comes with exchange trading.

  That is what we are going to debate about, whether you are going to 
have that kind of oversight and make sure that we end up putting the 
kind of regulations we need in place.
  As another New York Times editorial said:

       Strong derivatives reform is a matter of putting taxpayers 
     first--ahead of the big banks and corporate America that are 
     fighting hard for a return to the risky business as usual.

  We don't need risky business as usual. We need to reform these 
markets. Let's get capital flowing again and get innovation in products 
and services in important areas of our economy and know that having 
fundamental rules in markets and capitalism is to have transparency, 
and the legislation we are considering will do just that. Hopefully, 
the Republicans will say what true reforms they are for and realize 
that, in the past, they have been against some of the derivatives 
reforms that would have stopped us from having this crisis.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BARRASSO. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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